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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 1-4368
THE LTV CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 75-1070950
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation)
200 Public Square 44114-2308
Cleveland, Ohio (Zip Code)
(Address of principal executive office)
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 [ ] No [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Approximately $337.0 Million
(As of February 15, 2000)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
99,983,389 shares of Common Stock
(As of February 15, 2000)
Documents Incorporated by Reference: Annual Proxy Statement for 2000 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]
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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 is 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 steel production capacity; changes in raw material costs;
increased environmental and other operating costs; loss of business from major
customers, especially for high value-added products; unanticipated expenses;
substantial changes in financial markets; labor unrest; increased foreign
competition; major equipment failure; unanticipated results in pending legal
proceedings 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 (i) a leading domestic integrated steel producer; (ii) the
largest producer of mechanical and structural steel tubing products in North
America; (iii) the world's largest producer of bimetallic wire products; and
(iv) the second largest manufacturer of pre-engineered metal buildings systems
in North America. LTV also owns interests in steel-related technology joint
ventures.
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
steel-related technology joint ventures. The notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations 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.
1999 1998 1997
---- ---- ----
Integrated Steel 80% 84% 88%
Metal Fabrication 20% 16% 12%
Corporate and Other -- -- --
Integrated Steel. LTV's Integrated Steel segment manufactures and sells
a diversified line of carbon flat rolled steel products including hot rolled,
cold rolled and galvanized sheet and tin mill products. LTV is the third largest
domestic integrated steel producer, the second largest domestic producer of flat
rolled steel based on 1999 shipments (as compiled by LTV based primarily on
publicly filed data), and a leading domestic supplier of quality-critical, flat
rolled steel to the transportation, appliance and electrical equipment and
service center 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. Also included in LTV's integrated steel operation are iron ore and
limestone operations, which provide raw materials to support the manufacturing
operations. LTV is engaged in these operations primarily through its subsidiary
LTV Steel Company, Inc. ("LTV Steel"). See "Item 2. Properties" for a
description of these assets and operations.
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Metal Fabrication. LTV's Metal Fabrication segment manufactures (i)
structural and mechanical tubing, conduit and other tubular products and line
and standard pipe for use in transportation, agriculture, construction and oil
and gas industries; (ii) bimetallic copper-clad steel and aluminum wire, rod and
strand for use in the telecommunications and utility industries; (iii)
value-added automotive tubular parts for use in transportation industries; and
(iv) pre-engineered metal buildings for low-rise commercial and industrial
applications. Certain investments in steel processing joint ventures are also
reported as part of the Metal Fabrication segment.
Corporate and Other. LTV's Corporate and Other segment includes (i) a
50% interest in a steel mini-mill operation, Trico Steel Company, L.L.C. ("Trico
Steel"), (ii) a 46.5% interest in Cliffs and Associates Limited, a reduced iron
plant in the Republic of Trinidad and Tobago, and (iii) corporate investments
and related income and other expense.
SIGNIFICANT DEVELOPMENTS
Acquisitions. As part of LTV's strategy of pursuing growth in metal
fabrication businesses, the Company acquired Welded Tube Co. of America on
October 1, 1999 and Copperweld Corporation and Copperweld Canada Inc. on
November 10, 1999. The aggregate purchase price paid in 1999 was $764 million.
These tubular product companies were combined with LTV's existing tubular
products business to create LTV Copperweld, which is now the largest and most
diverse manufacturer of tubular products in North America. In order to finance a
portion of the purchase price for these acquisitions, the Company (i) issued $80
million aggregate liquidation amount of Series A Cumulative Convertible
Preferred Stock, (ii) borrowed $225 million under a new term financing and (iii)
issued $275 million of 11.75% senior notes due 2009. The combined gross proceeds
of these financings amounted to $580 million. The balance of the amount required
to finance the acquisitions was drawn from LTV's existing credit facilities.
Steel Imports and Trade Cases. Due primarily to the 1998 economic
difficulties faced by countries in Asia and Latin America, imports into the U.
S. of carbon flat rolled steel products increased to record levels during the
fall of 1998. A significant percentage of these imports were unfairly traded
under U. S. trade laws. This resulted in a sharp decline in domestic steel
prices. In 1999, following the issuance of final dumping determinations by the
Department of Commerce in the hot rolled trade cases and the filing of cold
rolled trade cases, the level of imports of flat rolled steel receded. 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 "Item 3. Legal Proceedings - Trade Cases."
Trico Steel. LTV's joint venture steel mini-mill operation, Trico
Steel, has experienced equipment problems that have prevented it from achieving
its rated capacity of 2.2 million tons and its product mix. Two transformers
that failed in late 1998 and early 1999 were replaced in September and have
allowed Trico Steel access to full power capability for the first time since
December 1998. Results have improved in each quarter of 1999; and in the fourth
quarter of 1999, Trico Steel's results were approximately breakeven. Shipments
for the year were 1.2 million tons.
Labor Relations. On September 2, 1999, LTV's Integrated Steel and
certain tubular employees represented by the United Steel Workers of America
("USWA") ratified a five-year labor agreement with LTV covering approximately
9,500 active employees. LTV believes this agreement is competitive with other
USWA integrated steel labor agreements. This five-year labor agreement includes
a "no strike" clause and provides for, among other things, an aggregate of $2.00
in hourly wage increases, substantial pension improvements and increased
sickness and accident benefits. The new labor agreement also requires LTV to
take a neutral stance with respect to, as well as take certain steps to
facilitate, the USWA's efforts to organize employees at any U.S. or Canadian raw
materials or steel-related venture in which LTV has a material interest. LTV has
also agreed with the USWA to cause Trico to enter into a neutrality agreement
with respect to the USWA's efforts to organize Trico's employees or, if LTV has
not done so by August 1, 2000, to expeditiously exit from LTV's Trico Steel
investment. Because LTV owns only a 50% interest in Trico Steel, LTV is unable
to unilaterally ensure that Trico Steel undertakes these steps.
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INTEGRATED STEEL
STEEL MILL PRODUCTS
During the years 1999, 1998 and 1997, LTV's integrated steel operation
accounted for 6.8%, 7.1%, and 7.2%, respectively, of total domestic industry
shipments of steel mill products, based on American Iron and Steel Institute
("AISI") reports. The net tons of steel mill products shipped by LTV's
integrated steel operations during these periods were: 1999--7,183,000;
1998--7,238,000; and 1997--7,655,000.
LTV's integrated steel mill product mix is reflected in the following
table, which shows the revenue dollars for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
(Dollars In Millions)
1999 1998 1997
------- ------- -------
Hot and cold flat rolled products $1,748 $1,955 $2,137
Galvanized products 1,204 1,213 1,230
Tin mill products 338 395 502
Other 100 121 137
------ ------ ------
Total $3,390 $3,684 $4,006
====== ====== ======
Hot and cold flat rolled and galvanized products are used in the
manufacture of automobile bodies, appliances and other consumer durable goods,
farm equipment, industrial machinery, office equipment, machine parts and
tubular products. Tin mill products are used by the container industry in the
manufacture of cans and closures.
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:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
Capability (net tons in thousands)
LTV-Integrated Steel 8,700 8,600 8,400
Industry(b) 128,200 125,300 121,400
Percent of industry 6.8% 6.9% 6.9%
Production (net tons in thousands)
LTV-Integrated Steel 8,400 8,100 8,900
Industry(b) 107,200 107,600 107,500
Percent of industry 7.8% 7.6% 8.3%
Production as a percentage of capability
LTV-Integrated Steel(a) 97.1% 95.0% 106.0%
Industry(b) 83.7% 85.9% 88.5%
(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 and 1999, which resulted in a 2.3% and a 1.1%
increase in AISI rated capacity, respectively.
(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
1999. A net ton is 2,000 pounds.
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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 during periods of blast furnace outages. In
1999, 1998 and 1997, LTV purchased approximately 112,000 tons, 36,000 tons and
322,000 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:
YEAR ENDED DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
Steel service centers 24% 25% 26%
Transportation 30 27 25
Converters and processors 19 18 19
Electrical, agricultural and other machinery 8 8 8
Household appliances and office equipment 6 7 6
Containers and packaging 5 7 8
Construction 5 6 6
Exports 3 2 2
--- --- ---
Total 100% 100% 100%
Direct sales to General Motors, the Company's largest customer,
accounted for approximately 10%, 9% and 11% of the Company's consolidated
revenues in 1999, 1998 and 1997, respectively.
SALES, MARKETING AND DISTRIBUTION
LTV's integrated steel products are sold under annual sales
arrangements and on the spot market. The Company's integrated steel sales
organization is headquartered in Cleveland, Ohio. Employees performing
commercial, marketing and customer service functions are organized along market
lines. LTV also maintains regional offices for integrated steel sales functions.
GALVANIZING JOINT VENTURES
LTV owns joint venture interests in two electrogalvanizing lines and
recently entered into a new joint venture to build a hot-dip galvanizing line.
The electrogalvanizing line at LTV's Cleveland Works ("LSE") is a joint venture
owned 60% by LTV and 40% by a subsidiary of Sumitomo Metal Industries, Ltd.
("Sumitomo"). The line's coating process creates one-sided and two-sided
zinc-coated flat rolled steel products and has an annual coating capacity of
approximately 420,000 tons of electrogalvanized product. LTV is the only partner
to have processed its material at LSE.
The electrogalvanizing line located in Walbridge, Ohio is a joint
venture that is owned 16.5% by LTV, 33.5% by a subsidiary of Bethlehem Steel
Corporation ("Bethlehem") and 50% by a subsidiary of Material Sciences
Corporation. This line's coating process currently creates zinc, nickel/zinc and
nickel /zinc/organic coated products and has an annual coating capacity of
approximately 450,000 tons of electrogalvanized product. One third of this
line's capacity is dedicated to LTV.
Another electrogalvanizing line, L-S II, located in Columbus, Ohio and
previously owned 50% by Sumitomo, is currently being converted into a hot-dip
galvanizing line to be known as Columbus Coatings Company, owned 50% by LTV and
50% by Bethlehem. Each partner will be entitled to 50% of the new line's
capacity. Columbus Coatings will produce high-quality, hot-dip galvanized and
galvannealed flat rolled steel. The converted facility will have annual capacity
of approximately 500,000 tons of
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premium corrosion-resistant steel for exposed automotive applications.
Production is scheduled to begin in the fourth quarter of 2000.
Related to the new hot-dip galvanizing line, LTV and Bethlehem entered
into another joint venture, the Columbus Processing Company, which is a steel
slitting, inspecting and warehousing services facility for the automotive
industry.
METALSITE
LTV owns a 4% interest in MetalSite L.P. ("MetalSite"), a Delaware
limited partnership formed in 1998 to establish an Internet-based electronic
exchange on which steel and other metals can be purchased and sold. LTV also
holds a warrant, exercisable before March 31, 2001, which entitles the Company
to increase its partnership interest in MetalSite to 10%. In addition to its
business-to-business e-commerce services, MetalSite also provides industry,
national, and business news and industry statistics. Other partners in MetalSite
include several domestic steel companies, Ryerson Tull, Inc., Internet Capital
Group, Inc., and certain key employees of MetalSite.
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 fluctuations in the
value of the U.S. dollar against foreign currencies. Based on AISI reports,
imports of flat rolled products surged to record levels during 1998. In 1999,
following the issuance of final dumping determinations by the U.S. Department of
Commerce (the "DOC") in the hot rolled trade cases, the level of imports of flat
rolled steel receded. Based on AISI reports, imports of flat rolled products
(excluding semi finished steel) totaled approximately 18% of total domestic
steel consumption in 1999, approximately 25% in 1998 and 19% in 1997. 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 in 1999 as well as
final dumping and subsidy decisions issued in 1992 and 1999, some of which are
still the subject of pending appeals, see "Item 3. Legal Proceedings - Trade
Cases."
Domestic. LTV also competes with other domestic integrated producers,
some of which have greater resources than the Company, and with mini-mills which
in many cases have lower costs of production than integrated steel mills.
Mini-mills generally produce steel from scrap in electric furnaces, have lower
employment and environmental costs and generally target regional markets. Thin
slab casting technologies have allowed some mini-mill producers to enter certain
sectors of the flat rolled market, which have traditionally been supplied by
integrated producers. Because of their technology, the profitability of
mini-mills depends heavily upon the availability and price of scrap steel, their
principal raw material. In weak markets, mini-mills benefit from falling scrap
prices. See "- Corporate and Other" for information regarding LTV's 50%
participation in Trico Steel, a mini-mill joint venture.
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's Integrated Steel segment 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
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container markets. The employees of LTV's research and development facilities
include chemists, metallurgists and engineers.
LTV's Integrated Steel segment 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 $13 million in 1999
and $14 million in both 1998 and 1997. These expenditures do not include the
efforts of sales and manufacturing employees in working to meet customer
technical demands.
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METAL FABRICATION
The table below sets forth the revenues of the Metal Fabrication
segment by product line for the years indicated and includes 1999 revenues on a
pro forma basis as if the acquisitions of Welded Tube Co. of America and
Copperweld Corporation and Copperweld Canada Inc. had occurred on January 1,
1999:
Year ended December 31,
-----------------------
(Dollars in Millions)
1999
Pro forma 1999 1998 1997
--------- ------- ------- -------
Mechanical tubing $ 374 $ 83 $ 53 $ 63
Structural tubing 261 40 -- --
Pipe 76 73 95 129
Other tubing 310 210 172 172
Bimetallic products 111 16 -- --
Metal buildings systems 396 396 363 177
------ ---- ---- ----
Total $1,528 $818 $683 $541
====== ==== ==== ====
TUBULAR PRODUCTS
LTV Copperweld, formed through the combination in late 1999 of LTV's
existing tubular products operations with Copperweld Corporation, Copperweld
Canada Inc. and Welded Tube Co. of America, is the largest and most diverse
manufacturer of tubular products in North America. The new entity is managed by
an integrated management team drawn from all of the tubular products operations.
Products. The Company's steel tubing products include (i) a full range
of mechanical tubing product lines, including welded, seamless and
drawn-over-mandrel ("DOM") product types, used in transportation, agricultural
and industrial equipment, fluid power, construction, recreation and office
furniture markets, (ii) structural tubing, used in a wide variety of
applications including construction, industrial and transport equipment,
agricultural structures, structural support and safety as well as ornamental
tubing for buildings, highways and bridges, (iii) electrical conduit, used in
construction, (iv) stainless steel tubing, used for sanitary, corrosive and
decorative applications and (v) standard, line and oil country pipe used
primarily in the oil and gas and construction industries. LTV Copperweld is the
largest producer of mechanical and structural tubing in North America.
LTV Copperweld also produces value-added tubular automotive parts that
are fabricated from mechanical tubing at its Canadian operations. These products
include instrument panel beams, axles and various suspension parts. In addition,
LTV Copperweld is the world's largest manufacturer of bimetallic copper-clad
steel and aluminum wire, rod and strand, used in the telecommunications
(primarily cable television and telephone) and utility industries.
Facilities. LTV Copperweld operates 23 plants and employs approximately
3,500 people in the United States, the United Kingdom and Canada. Among LTV
Copperweld's operations are several facilities that have recently been built or
substantially expanded. These facilities include:
o a new technologically advanced mechanical tubing manufacturing
facility in Marion, Ohio, with a rated annual processing capacity of 146,000
tons. The facility, which commenced operations in April 1999, was built at a
capital cost of approximately $52 million. The facility manufactures
high-quality tubing for the transportation and other mechanical tubing markets,
including for the manufacture of hydroformed parts, and is expected to reach
full capacity in 2001. Automobile manufacturers are expected to increase their
use of mechanical tubing products in order to reduce the weight of vehicles and
the cost of vehicle construction.
o a recently completed structural tubing plant in Portland, Oregon with
130,000 tons of annual production capacity. The facility, which commenced
operations in July 1999, was built at a cost of approximately $53 million. The
plant will strengthen the presence of LTV Copperweld in the Pacific Northwest
and western Canada, offering regional customers lower transportation costs and
access to improved product quality. In addition to structural tube
manufacturing, the plant has in-line coating capacity, a slitting line and a
warehousing facility.
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o a state-of-the-art stainless steel tube manufacturing facility in
Elizabethtown, Kentucky. The $15 million facility, which commenced operations in
June 1999, has an initial annual production capacity of 7,000 tons. A doubling
of capacity at this facility is planned once it is fully operational.
o a 40,000 ton, $44 million expansion of the DOM capacity at the LTV
Copperweld mechanical tubing plant in Shelby, Ohio was completed in 1998.
Customers. The table below sets forth on a pro forma basis the
percentage of tubular and bimetallic product shipments of LTV Copperweld by
tonnage distributed among their various markets for the periods indicated:
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Steel service centers 54% 53% 56%
Agricultural and industrial 19 19 18
Transportation 17 15 13
Telecommunications 1 2 2
Construction 2 2 2
Other 7 9 9
---- ---- ----
Total 100% 100% 100%
Sales, Marketing and Distribution. LTV Copperweld's tubular products
are sold through a sales organization that is divided into 19 regions in the
United States administered by regional managers and through independent sales
representatives. Customer service representatives are located at certain of LTV
Copperweld's plant locations. Separate sales organizations are responsible for
sales of tubular products and value-added automotive tubing products produced at
LTV Copperweld's Canadian operations. Bimetallic products are sold to
telecommunications markets through a company sales organization and to utility
markets primarily through independent agents.
Competition. The mechanical tubing business is highly fragmented with
over 100 participants geographically diversified across North America. Welded
mechanical tube competition is stratified with quality ranging from
non-commodity products to more commodity-like products which compete primarily
on price.
The structural tubing business is characterized by intense competition,
limited product differentiation, a fragmented supplier base, and the emergence
of new low-cost capacity in certain regions. The primary factors that affect
competition are service and price. LTV Copperweld is the largest supplier to
this market in North America and is differentiated by its proprietary
Kleenkote(TM) process, large diameter product offerings, and broad geographic
network of production facilities.
The standard and line pipe markets are highly fragmented and heavily
affected by foreign competition; foreign products accounted for 44% of the
market in 1999, 49% in 1998 and 37% in 1997.
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METAL BUILDINGS
VP Buildings was acquired on July 2, 1997. VP Buildings' metal
buildings systems 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 within the non-residential construction market.
LTV believes, based on Metal Building Manufacturers Association ("MBMA") data,
that VP Buildings has the second largest market share in the domestic industry.
Products. VP Buildings produces approximately 7,000 buildings systems
annually. Principal components in a metal buildings system are welded primary
structural members, secondary structural components, and a variety of wall and
roof components. These components are fabricated at VP Buildings facilities
according to specifications and shipped to building sites for assembly by
independent builders. VP Buildings also produces architectural building
components, including metal roofing and siding products, fiberglass-reinforced
polymer wall panels and retro-fit metal roofing systems.
Customers. VP Buildings' products are marketed through a network of
approximately 1,000 builders and distributors in the United States and Canada,
the majority of which deal exclusively with VP Buildings for their buildings
systems requirements. VP Buildings has developed a proprietary software system
intended to significantly improve the ability of these builders to develop
engineering designs, obtain immediate pricing and order various building design
configurations. VP Buildings also markets directly to national and international
corporate accounts, typically working closely with qualified builders to develop
project bids. Architectural and other metal building components are marketed
through independent sales agents and the VP Buildings' builder network. End use
customers for VP Buildings' products are highly diverse.
Facilities. VP Buildings designs and manufactures metal buildings
systems at eight domestic locations and manufactures architectural components
for nonresidential facilities at two domestic locations. In addition to its
metal buildings systems production joint venture near Porte Alegre, Brazil, VP
Buildings has new metal buildings systems production joint ventures in Santiago,
Chile and Monterrey, Mexico. VP Buildings also has technology licensing
arrangements in Argentina, China, Egypt, Japan, South Korea and Spain.
Sales, Marketing and Distribution. VP Buildings' domestic sales
organization is divided into five regions that cover the United States and
Canada and promote and serve its network of authorized builders. In addition,
VP Buildings has a national account sales staff dedicated to handling large
builders and corporate customers whose operations are national in scope. VP
Buildings also distributes various other building products produced by third
parties (including insulation, vents, windows and doors) to its builder network
in order to provide a complete building package.
Competition. Metal buildings are an alternative to conventional forms
of non-residential building construction, with competition primarily based on
cost, construction time, appearance, thermal efficiency and other customer
requirements. VP Buildings competes with numerous other metal buildings systems
manufacturers as well as conventional general contractors. The largest five such
manufacturers (including VP Buildings) account for approximately 70% of industry
sales, according to MBMA. Competition among metal buildings systems companies is
based primarily on price, service, product design and performance, and marketing
capabilities.
RAW MATERIALS
LTV Copperweld and VP Buildings purchase approximately two million tons
of flat rolled steel a year, primarily in the form of hot rolled steel strip,
but including galvanized sheet, cold rolled strip, steel bars and rod. VP
Buildings is not currently a significant customer of LTV's Integrated Steel
segment. LTV Copperweld purchased 378,000 tons of flat rolled steel from LTV's
integrated steel operations during 1999.
METAL FABRICATION JOINT VENTURES
LTV's Metal Fabrication segment 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. Partners in the joint venture are Worthington Industries, Inc.,
Thyssen Krupp A.G., and two domestic steel producers. TWB uses new technology to
weld together two or more steel blanks which may be of different grade or
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thickness for automotive stamping operations. Automotive parts, currently being
made with laser tailor welded blanks, have recently experienced growing
commercial acceptance for their ability to reduce cost and weight through this
process. Applications for these products include body side frames, wheel house
panels, center pillars, pillar reinforcements, motor compartment rails, floor
panels and front and rear door panels.
LTV owns an 18% interest in Lagermex (acquired in 1997), a joint
venture which operates automotive steel processing and blanking operations in
Puebla and Silao, Mexico. The venture in Puebla supplies inventory management,
slitting and blanking products and services required to produce a Volkswagon
plant's steel stampings to Volkswagen de Mexico and its parts suppliers in
Puebla. The operation in Silao, which recently began operations, will supply
blanks and offer warehouse services to a local supplier of a General Motors
plant. Partners in the joint venture are Krupp Hoesch Stahlexport GmbH and local
plant management.
The Company owns a 40% interest in Galvtech, a hot dip galvanizing
joint venture located in Pittsburgh, Pennsylvania with annual processing
capacity of 420,000 tons. LTV provides certain materials processed in this
facility under a long-term supply agreement.
CORPORATE AND OTHER
LTV's Corporate and Other segment includes steel-related technology
joint ventures. These joint ventures consist of interests in a steel mini-mill
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 Mini-mill. LTV's joint venture steel mini-mill 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 and Corus Group plc ("Corus"), produces
commercial and high-quality hot rolled steel. When at full capacity, the plant
is expected to produce up to 2.2 million tons of hot rolled steel products in
widths up to 65 inches and gages as thin as one millimeter. The new ultralight
gage hot rolled steel will compete with certain grades of cold rolled steel. The
steel produced by Trico Steel is sold by a sales force of a wholly owned
subsidiary of LTV that is dedicated solely to the sale of Trico Steel product.
The Trico Steel investment is expected to provide improved market access to the
southeastern portion of the United States.
Trico Steel has experienced equipment problems that have prevented it
from achieving its rated capacity of 2.2 million tons and its targeted product
mix. Two transformers that failed in late 1998 and early 1999 were replaced in
September 1999 and have allowed Trico Steel access to full power capability for
the first time since December 1998. Results have improved in each quarter of
1999; and in the fourth quarter of 1999, Trico Steel's results were
approximately breakeven. Shipments for the year were 1.2 million tons.
Reduced Iron Facility. LTV's reduced iron joint venture with
Cleveland-Cliffs Inc. and Lurgi AG, Cliffs and Associates ("CAL"), completed
construction of 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, which began commissioning
procedures in the second quarter of 1999, is 46.5% owned by LTV with the
remainder owned by subsidiaries of Cleveland-Cliffs Inc. (46.5%) and Lurgi AG
(7%). The project utilizes the prototype 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. Mechanical start-up modifications have extended the
planned start-up curve and will likely reduce year 2000 production below an
earlier estimate of 400,000 metric tons.
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<PAGE> 12
OTHER ASPECTS OF LTV
EMPLOYEES AND LABOR MATTERS
As of December 31, 1999, LTV and its consolidated subsidiaries had
approximately 17,900 active employees. Of these employees, approximately 12,100
are employed in the Integrated Steel segment and approximately 5,800 are
employed in the Metal Fabrication segment. Approximately 12,300 active
employees, primarily hourly workers, are represented by unions. Of the union
represented employees, approximately 10,500 are represented by the USWA
(primarily in the Integrated Steel segment and in the tubular operations
included in the Metal Fabrication segment) and approximately 1,900 are
represented by the Teamsters Union, the Carpenters Union, the Canadian
Autoworkers or by the Sheet Metal Workers Union (primarily in the Metal
Fabrication segment).
ENVIRONMENTAL LIABILITIES
LTV is subject to changing and increasingly stringent environmental
laws and regulations concerning air emissions, water discharges and waste
disposal, and the remediation of soil and groundwater contamination caused by
releases of hazardous materials.
The Company spent approximately $18 million in 1999, $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 $24 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 $18 million in 1999, $24 million
in 1998 and $16 million in 1997 for environmental clean-up and related matters
at operating and idled facilities and had a recorded liability of $121 million
at December 31, 1999 (including costs related to the demolition, closure and
clean-up of closed facilities) and $136 million at December 31, 1998 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 on pages F-9 to F-10 of this Annual Report on Form 10-K.
YEAR 2000 READINESS DISCLOSURE
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its on-going business as a result of the "Year 2000
issue." However, it is possible that the full impact of the date change, which
was of concern due to computer programs that use two digits instead of four
digits to define years, has not been fully recognized. For example, it is
possible that Year 2000 or similar issues such as leap year-related problems may
occur with billing, payroll, or financial closings at month, quarter or year
end. The Company believes that any such problems are likely to be minor and
correctible. In addition, the Company could still be negatively impacted if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any significant Year 2000 or
similar problems that have arisen for its customers and suppliers.
The Company expensed $58 million on Year 2000 readiness efforts from
1997 through 1999. These efforts included replacing some manufacturing and
business systems, noncompliant hardware and noncompliant software as well as
identifying and remediating Year 2000 problems.
NOTE: THE DISCLOSURE ABOVE IS DESIGNATED AS YEAR 2000 READINESS
DISCLOSURE UNDER THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
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<PAGE> 13
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................................. 58 Chairman of the Board, President and
Chief Executive Officer
James F. Haeck.............................. 53 Executive Vice President
Richard J. Hipple........................... 47 Executive Vice President
John D. Turner.............................. 53 Executive Vice President
Glenn J. Moran.............................. 52 Senior Vice President, General Counsel and Secretary
George T. Henning........................... 58 Vice President and Chief Financial Officer
John C. Skurek.............................. 55 Vice President and Treasurer
Eric W. Evans............................... 43 Vice President and Controller
* As of December 31, 1999.
</TABLE>
OFFICERS
The only employee of LTV 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 Mr. Henning and Mr. Turner, have been employed by
LTV 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, he was a Group Vice President of LTV
from February 1991 to July 1997. He has also been President and a director of
LTV Steel since February 1991.
Mr. Haeck was elected 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 Executive Vice President of LTV in February 1998
and President of LTV Steel in January 2000. Prior thereto, he served as Senior
Vice President of LTV Steel. 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. Turner was elected Executive Vice President of LTV and President of
LTV Copperweld in November 1999. Prior thereto, since February 1988, he served
as President and Chief Executive Officer of Copperweld Corporation.
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 six years as Vice President and General Counsel of LTV Steel.
Mr. Henning was elected Chief Financial Officer of LTV in May 1999.
Prior thereto, since September 1995, he was Vice President and Controller of
LTV. Prior to September 1995, Mr. Henning was Vice President and Chief Financial
Officer of Pioneer Companies, Inc.
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.
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<PAGE> 14
Mr. Evans was elected Vice President and Controller in June 1999. Prior
thereto, Mr. Evans served as General Manager-Strategic Planning and
Business/Corporate Development of LTV from November 1995 to June 1999. Prior
thereto, he was Senior Director-Investor Relations of LTV.
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<PAGE> 15
ITEM 2. PROPERTIES.
CORPORATE HEADQUARTERS
LTV's corporate headquarters is in Cleveland, Ohio under a lease that
expires in 2011. The lease provides LTV three consecutive five-year renewal
options to extend the lease term through 2026.
INTEGRATED STEEL PRODUCING FACILITIES
The Company operates two integrated steel mills, Cleveland Works and
Indiana Harbor Works, and various steel 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.
The Cleveland Works at Cleveland, Ohio produces a variety of flat
rolled products. This facility includes three blast furnaces, two basic oxygen
furnaces, two continuous slab casters, one vacuum degassing and two ladle
metallurgy systems, two hot strip mills, two cold reducing mills, a continuous
anneal line, sheet finishing facilities and an electroplate line.
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.
In addition to a tin mill at Indiana Harbor, LTV also operates a tin
mill in Aliquippa, Pennsylvania. The Company's two tin mills receive
semi-finished products from steel producing facilities and have a combined
operating capacity aggregating 840,000 tons and operated at a combined rate of
83% of capacity during 1999. In January 2000, a tin line at the Aliquippa
facility experienced fire damage. The Company has been able to shift the
majority of production handled by this line to another line at the Aliquippa
facility and to the tin line at the Indiana Harbor Works. LTV does not expect
the loss of the line to have a material effect on the operational capacity of
the Company's two tin mills. The repair and future utilization of the damaged
line are currently under study.
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.
Railroads. LTV Steel 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
Steel.
SUITABILITY
LTV's steel-related facilities are well maintained, considered adequate
for their intended purposes and are 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 the agreement,
LTV has granted liens on certain plant, property and equipment at its Cleveland
Works and a royalty fee license or sublicense with respect to intellectual
properties used in connection with the manufacture of products at such
facilities.
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<PAGE> 16
RAW MATERIALS-LTV'S INTEGRATED STEEL OPERATIONS
IRON ORE
As shown in the table below, LTV owns interests in two mining
operations which produce iron ore that is used in LTV's flat rolled steel
operations. LTV's share of production at these mines during 1999 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 for the
forseeable future.
LTV estimates that as of January 1, 2000, the total of its
proportionate share of proven crude ore reserves of the two iron ore mining
operations in which it has an ownership interest was such that, when mined and
processed, could produce for LTV's use approximately 439 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 1999, and 1999 activity, were
as follows:
<TABLE>
<CAPTION>
PROVEN 1999
% NET ANNUAL SHARE OF DELIVERIES
OWNERSHIP INTEREST ON IRON ORE 1999 TO STEEL
BY LTV RESERVES(A) CONTENT ENTITLEMENT PRODUCTION PLANTS(B)
------------- ----------- ------- ----------- ---------- ---------
(Gross Tons In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Properties
LTV Steel Mining
Company(c) 100% 400,000 64% 7,500 6,984 6,632
Empire Iron Mining
Partnership(d) 25% 39,300 64% 2,000(c) 1,510 1,551
------- ----- ----- -----
Total Properties 439,300 9,500 8,494 8,183
</TABLE>
(a) Represents LTV's ownership interest in drilled and verified reserves
and is stated in gross tons of concentrates or pellets.
(b) There were no sales of ore products to third parties in 1999.
(c) LTV Steel Mining Company is in Minnesota. The annual ore entitlement is
based on normal annual plant capacity. The production level can be
reduced at LTV's discretion.
(d) The Empire Iron Mining Partnership operates an iron ore mine and pellet
facility in Michigan. The annual ore entitlement is based on LTV's
ownership percentage and on annual plant capacity. LTV can reduce its
annual ore purchase requirements. Minimum ore purchase requirements in
1999 totaled 1,333,333 gross tons.
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.
In addition to these mining operations, LTV may purchase iron ore from
third parties. LTV believes it has adequate sources of iron ore. It is expected
that all reserves could be processed with existing facilities.
During 1999, the average blast furnace charge consisted of
approximately 90% pellets and 10% sinter, which is iron ore that is removed from
various integrated steel operations and reprocessed. During 1999, 94% of LTV's
pellet and sinter requirements came from affiliated sources.
METALLURGICAL COAL AND COKE
Metallurgical coal is used to make coke which is used in blast furnaces
to make raw steel. All LTV's metallurgical coal requirements are purchased from
a number of unaffiliated third parties, including in the spot market. LTV
believes these sources are adequate to fulfill its needs.
LTV owns and operates coke batteries in Warren, Ohio and Chicago,
Illinois, which produced 40% of LTV's coke requirements for its integrated steel
operations during 1999. LTV expects to produce 39% of its anticipated
requirements for 2000. The operational life of LTV's batteries 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 61%), will meet substantially all of its near-term coke
requirements.
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<PAGE> 17
See "Item 3. Legal Proceedings" for information relating to existing and
threatened environmental proceedings involving the Company's coke batteries.
OTHER RAW MATERIALS
LTV owns a 53.5% interest in Presque Isle Corporation, which operates a
limestone quarry in Michigan. LTV's ownership share in Presque Isle's proven
limestone reserves is approximately 219,000,000 gross tons as of December 31,
1999. In 1999, LTV purchased all of its limestone, approximately 800,000 gross
tons, from Presque Isle. Approximately 60% of Presque Isle's 1999 revenues of
$30 million were sales to third parties. Also, LTV owns a burnt lime processing
plant at Grand River, Ohio, which processes limestone from Presque Isle and
other sources into burnt lime. In 1999, approximately 72% of the burnt lime
consumed by LTV's flat rolled steel operations came from the Grand River lime
plant.
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, 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 semi-finished
slabs from other steel producers to supplement its own production during periods
of a blast furnace reline and as market circumstances have warranted to meet
customer demand. Over the past three years, these slab purchases were less than
2% of LTV's production. The availability of such slabs, and the prices at which
they can be purchased, may vary, especially during periods when the steel
industry is operating at or near full production capacity. See "Item 1. Business
- - Integrated Steel."
ENERGY
The Company uses electricity, natural gas and fuel oil, particularly in
its flat rolled steel operations, all of which are purchased at competitive or
prevailing market prices. For brief peak usage periods during the summers of
1998 and 1999, LTV experienced interruptions in the supply of electricity to its
steel plants which caused operations to be curtailed. LTV believes adequate
sources of supply exist for all its requirements. However, during peak usage
periods LTV may not be able to purchase energy at historical market rates.
METAL FABRICATION FACILITIES
LTV Copperweld is headquartered in Pittsburgh, Pennsylvania and has
tubular products facilities located in Alabama, Georgia, Illinois, Kentucky,
Michigan, Ohio, Oregon and Tennessee, and Ontario and Manitoba, Canada. These
facilities manufacture electric weld pipe and seamless and electric weld tubing
(pressure tubing, structural tubing, mechanical tubing, cold drawn tubing and
electrical conduit and pipe, and value added automotive parts). LTV Copperweld's
bimetallic business consists of plants in Tennessee and Rhode Island and a small
plant in England. See "Item 1. Business - Metal Fabrication."
VP Buildings is headquartered in Memphis, Tennessee. Metal buildings
systems components are manufactured by VP Buildings at plants located in
Alabama, Arkansas, California, Missouri, North Carolina, Ohio and Wisconsin.
Architectural components are manufactured at plants located in Texas and
Pennsylvania. VP Buildings also has pre-engineered metal buildings joint venture
facilities in or near Porto Alegre, Brazil, Santiago, Chile and Monterrey,
Mexico. See "Item 1. Business - Metal Fabrication."
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<PAGE> 18
PROPERTY ADDITIONS AND CAPITAL EXPENDITURES
Capital expenditures and depreciation and amortization for the periods
indicated are as follows:
1999 1998 1997
(In Millions)
Capital Expenditures
Integrated Steel $269 $310 $310
Metal Fabrication 21 52 16
Corporate and Other -- -- --
---- ---- ----
Total $290 $362 $326
==== ==== ====
Depreciation and Amortization
Integrated Steel $252 $247 $255
Metal Fabrication 22 12 8
Corporate and Other -- -- --
---- ---- ----
Total $274 $259 $263
==== ==== ====
The expenditures for integrated steel operations during 1999, 1998 and
1997 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. 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 1999, 1998 and 1997 was $18 million, $14 million and $32
million, respectively.
Capital expenditures in 2000 are expected to aggregate approximately
$300 million.
Additionally, LTV's investments in and advances to steel-related
technology joint ventures totaled $98 million in 1999 and $80 million in 1998
primarily for galvanizing joint ventures, Trico Steel and CAL.
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<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS.
LTV is involved in various legal proceedings occurring in the normal
course of its business, including the following:
TRADE CASES
UNITED STATES TRADE CASES
1999 CASES
Flat Rolled Steel Cases
On June 21, 1999, LTV Steel, along with other domestic integrated
producers, filed cold rolled trade cases against dumped and subsidized imports
from Argentina, Brazil, China, Indonesia, Japan, Russia, Slovakia, South Africa,
Taiwan, Thailand, Turkey and Venezuela. In July 1999, the U.S. International
Trade Commission ("ITC") made a preliminary determination that dumped cold
rolled steel imports from these countries caused or threatened to cause material
injury to domestic producers. The ITC also made a preliminary determination that
subsidies on imports from Brazil only caused or threatened to cause material
injury to domestic producers, allowing the countervailing duty cases against
Brazil to proceed. Subsequently, the DOC set preliminary countervailing duties
of 7 to 12% against Brazil and made preliminary determination of appropriate
antidumping margins ranging from 4.75% to 177%. On January 19, 2000, the DOC
made its final countervailing duty determination ranging from 7.41% to 10.6%
with respect to Brazil and its final determination of appropriate antidumping
margins ranging from 16.65% to 80.67% for Argentina, Brazil, Japan, Russia,
South Africa and Thailand. The Company is awaiting the ITC's final injury
determination.
In January 2000, the DOC signed a Suspension Agreement suspending the
trade cases against Russian cold rolled steel. The Suspension Agreement
regulates imports of cold rolled steel products from Russia, limiting cold
rolled imports to 340,000 metric tons in 2000. The export limit will also be
adjusted up to 3% annually based on U.S. apparent consumption. Under the
Suspension Agreement, the reference prices per metric ton range from $340 to
$352, based upon the product. All prices are subject to quarterly adjustments
based on the change in import values of the subject merchandise from countries
not subject to order or investigation.
Tubular Cases
In September 1999, LTV joined several other petitioners before the ITC
seeking relief on line pipe product imports pursuant to Section 201 of the Trade
Act of 1974, as amended. In November 1999, the ITC found that serious injury has
occurred to the domestic industry because of unfairly traded imports. On
February 11, 2000, the President announced his decision to grant relief under
the Trade Act in the form of additional tariffs of 19% in the first year, 15% in
the second year and 11% in the third year. In each year, the first 9,000 tons
from any country are exempted. Canada and Mexico are excluded from the relief.
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. In early 1999, the DOC
issued final dumping determinations against imports from (i) Japan, setting
margins ranging from 20% to 67%, (ii) Brazil, setting margins ranging from 42%
to 43% and countervailing duty margins ranging from 6% to 10%, and (iii) Russia,
setting margins ranging from 74% to 185%. Three large Japanese steelmakers filed
an appeal in the Court of International Trade in August 1999, seeking to reverse
the hot rolled steel antidumping margins imposed upon them by the DOC.
Despite the DOC's issuance of substantial final dumping determinations
against imports from the three countries and additional countervailing duty
determinations against Brazil, the DOC entered into suspension agreements with
Brazil and Russia. Additionally, the DOC entered into a Comprehensive Agreement
with Russia covering substantially all imports of Russian steel mill products
into the United States. LTV Steel, along with other
18
<PAGE> 20
domestic integrated producers, has recently filed suit in the U.S. Court of
International Trade to nullify suspension agreements negotiated with Russia and
Brazil. The complaints allege that the Brazilian and Russian suspension
agreements fail to satisfy statutory requirements.
Under the terms of the Brazilian Suspension Agreement, Brazilian
producers were prohibited from exporting any hot rolled steel products into the
United States until October 1, 1999. Thereafter such imports are limited to
295,000 metric tons per twelve-month period. The agreement establishes a
reference price of $327 per metric ton, below which Brazilian producers are
prohibited from selling. In addition, because the reference price is set in U.S.
dollars, at the U.S. market rate, it will not be affected by exchange rate
fluctuations.
The Russian hot rolled Suspension Agreement includes a moratorium on
shipments for the first year, a quota for four subsequent years and a price
provision. Russian producers were prohibited from exporting any steel to the
United States covered by the agreement until January 1, 2000. Thereafter such
hot rolled imports would be limited by the following quotas: 325,000 metric tons
in 2000; 500,000 metric tons in 2001; 675,000 metric tons in 2002; and 725,000
metric tons in 2003. The agreement establishes minimum prices ranging from $255
to $290 per metric ton FOB Russia, above which Russian steel must be sold in the
United States. The Russian Comprehensive Agreement restricts exports of Russian
steel to the United States in major product areas not already covered by other
agreements or antidumping orders. The Comprehensive Agreement, combined with the
Hot Rolled Suspension Agreement, the Cold Rolled Suspension Agreement signed in
2000 and the Suspension Agreement on carbon steel plate signed in 1997, covers
substantially all imports of Russian steel mill products into the United States.
1992 CASES - As a result of the 1992 filing of numerous anti-dumping
and countervailing duty cases by U.S. steel producers, including LTV Steel,
there are orders imposing dumping and countervailing duties on imports of cold
rolled steel coils from three countries and on coated steel coils from six
countries. For the most part, these additional duties have reduced the volume of
imports of the dutiable products from these countries. The orders under which
these additional duties have been imposed will remain in effect until changed as
a result of a periodic "Administrative Review," which considers the
appropriateness of the existing duty margin, or by an order following a "Sunset
Review." Sunset Reviews of the orders began in September 1999. Under the Sunset
Review provisions, dumping and countervailing duties are reviewed every five
years and will be eliminated unless it is determined that revocation of the
order is likely to lead to a continuation or recurrence of dumping or
countervailable subsidies and a continuation or recurrence of injury to United
States steel producers.
CANADA AND MEXICO TRADE CASES
In Canada, dumping duties have been imposed on LTV Steel exports of
corrosion resistant steel products (i.e., hot dipped and electrogalvanized), for
non-automotive end use pursuant to a recent Canadian International Trade
Tribunal ("CITT") decision. In the past, Canadian administrative reviews have
established "normal values" for the dutiable LTV Steel products exported to
Canada. "Normal value" is the price at which goods can be sold without incurring
dumping penalties. In 1998, dumping duties formerly imposed on LTV Steel exports
of cold rolled steel coils were rescinded by CITT. The rescission has been
appealed to a bi-national review panel pursuant to the North American Free Trade
Agreement. If the decision is reversed, the former dumping duties would be
assessed on a retroactive basis to the date of the rescission. Because the total
LTV Steel shipments of these products to Canada are relatively small, these
duties should have an insignificant effect on LTV's results of operations.
In Mexico, dumping duties were established for LTV Steel on hot rolled
steel and plate-in-coil exports, but the Mexican courts subsequently found that
these dumping duties had been imposed illegally. The decisions voiding the
dumping duties were appealed by the Mexican government, and LTV Steel and other
importers of record were required to post a bond to cover possible dumping
duties in the event these decisions are reversed by an appellate court. In July
1999, Mexico's Secretariat of Commerce and Industrial Development concluded the
antidumping administrative review of LTV Steel's plate-in-coil exports to
Mexico, thereby revoking the 39.92% antidumping duty rate previously applied to
LTV Steel's plate-in-coil exports to Mexico, leaving LTV Steel with a 0%
antidumping duty rate on plate-in-coil exports to Mexico.
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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 United
States Environmental Protection Agency ("EPA"), the States of Indiana and Ohio,
and the City of Buffalo, or their environmental agencies for alleged violations
of various federal and state environmental laws and regulations.
In December 1998, the U.S. Department of Justice, representing the 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 June 1999, LTV reached a partial tentative settlement with the
EPA concerning the Warren coke plant issues. As a result, LTV has paid a civil
penalty of $85,000 and in return, all the counts in the complaint relating to
the Warren coke plant have been dismissed.
In March 1998, the U.S. Department of Justice filed a civil action on
behalf of the 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 Health Department's
motion to intervene was granted and, in addition, the Group Against Smog and
Pollution has been granted intervenor status in the action. Operations at the
coke plant, which has been permanently closed, ceased February 28, 1998.
In December 1998, the EPA issued a Notice of Violation ("NOV") 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 during the years 1996, 1997 and
1998. In October 1999, the EPA issued a second NOV alleging similar violations
during 1995. Although LTV has conferred with the EPA, it cannot predict whether
any enforcement action will follow.
In December 1999, the EPA and the U.S. Department of Justice orally
notified LTV that the agencies were considering the filing of an enforcement
action under the Resource Conservation and Recovery Act with respect to LTV's
Indiana Harbor Works. Subsequently, a meeting was held with the agencies, but
they declined to be more specific about their intentions, and they were not
willing to enter into discussions concerning a resolution of the matter before
an enforcement action is taken. LTV is evaluating what course of action it will
take in response to these developments.
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 investigation and
remediation of approximately 80 on-site locations where there may be soil and
groundwater contamination. The NOV is broad-based and, depending upon the 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.
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<PAGE> 22
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. In July 1999, LTV settled the complaint pursuant to an Agreed
Order, which assesses a civil penalty of $84,500 and requires the installation
of additional pollution control equipment at the H-3 blast furnace cast house.
In November 1996, IDEM and the United States Department of Interior
informed the Company and 17 other companies of their intent to perform a
National Resource Damage Assessment ("NRDA") of the Grand Calumet River System.
Each of the 18 entities was asked to contribute an unspecified amount of funding
for the study, which will cover a significant area that has been used for
industrial purposes for over a century. IDEM also indicated that the Company has
been identified as a potentially responsible party in connection with natural
resource damages resulting from the release of hazardous substances and oil. In
June 1999, the Natural Resources Trustees performing the NRDA of the Grand
Calumet River System proposed a settlement to LTV and the 17 other entities that
contemplates the dredging and disposal of all contaminated sediment in the river
and canal upstream of the federal channel and the management of additional
contaminated sediment adjacent to the federal channel but not covered by the
U.S. Army Corps of Engineers (the "Corps") project referred to below. The
settlement also would require habitat restoration and public use access
projects. LTV is presently unable to predict whether it would be held liable for
any portion of these dredging and disposal projects, and, while the costs of
such projects could be significant, it is unable to predict the actual cost of
such projects or LTV's share of such costs, if any.
In a related matter, the Corps has issued a feasibility report
concerning dredging of the federal channel within the Indiana Harbor and Indiana
Harbor Ship Canal to assist navigation through those waterways. The Corps
estimates the dredging will cost in excess of $135 million. According to the
Corps' report, if dredging occurs, it will be funded primarily by the federal
government. Based on estimates by the Corps, removal and disposal of sediments
adjacent to LTV which would not be federally funded, would cost approximately
$2.1 million. The East Chicago Waterway Management District, an entity created
by the State of Indiana, will ultimately have the responsibility to secure the
non-federally funded portion, including the $2.1 million allocated to LTV. The
East Chicago Management District has recently contacted LTV regarding this
allocation and LTV has agreed to provide up to $2.1 million for dredging and
disposal of material from navigation areas adjacent to LTV's Indiana Harbor
Works, the timing and method of payment to be determined later.
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 the 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.
City of Buffalo. LTV has filed an action in the U.S. Bankruptcy Court
for the Southern District of New York seeking a declaratory judgment that the
claims that the City of Buffalo has asserted against LTV in connection with the
proposed clean up of certain property sold to the Buffalo Renewal Authority, an
agency of the City of Buffalo, by LTV and Hanna Furnace Corporation, a joint
venture partner, in 1992 have been discharged or otherwise dealt with by LTV's
Chapter 11 reorganization. Also, LTV and Hanna Furnace Corporation have filed an
action in the U.S. District Court for the Western District of New York claiming
unspecified damages and seeking injunctive relief in connection with the City of
Buffalo's placement of more than 100,000 cubic yards of contaminated soil on
LTV's property.
Welded Tube and Copperweld. In July 1999, the EPA issued two violations
to Copperweld concerning air emissions at its Shelby, Ohio facility. Copperweld
received a "Finding of Violation" alleging that (i) it failed to conduct a
timely initial performance test with respect to air emissions from its chrome
plating operation and (ii) it failed to notify the EPA of such test. Copperweld
also received a NOV from the EPA alleging that emissions from the Shelby
facility's rotary hearth furnace exceeded permit limits. The purchase agreement
governing LTV's acquisition of Copperweld provides that LTV is fully indemnified
by the seller for these NOVs. LTV is not aware of any material
environmentally-related lawsuits or violations pending against Welded Tube.
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<PAGE> 23
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. Thereafter, LTV
and the other domestic steel producer applied to have the Patent Office
reexamine the Inland patents and, as a result, the District Court proceeding on
the validity of the patents was dismissed without prejudice. In July 1993, the
U.S. Patent Office rejected the claims of the two Inland patents upon a
reexamination 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. In September 1999, the Patent Office Board of Appeals affirmed the
decision of the U.S. Patent Office and Inland has appealed that decision to the
Court of Appeals for the Federal Circuit.
OTHER
In 1996, LTV Steel filed an action in the U.S. Court of Federal Claims
seeking recovery of approximately $25 million in Federal Insurance Contribution
Act ("FICA") and Federal Unemployment Tax Act ("FUTA") taxes which were paid by
LTV Steel to the U.S. government during the period 1987 through 1993 in
connection with certain pension make-up payments made to certain hourly and
salaried retirees. 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. On April 14, 1999, the government
filed a notice of appeal of the summary judgment to the U.S. Court of Appeals
for the Federal Circuit. On January 6, 2000, the Court of Appeals heard oral
argument on the appeal. A decision is not expected before the second half of
2000. The parties have stipulated the amount of the judgment, which is still
subject to appeal, to be approximately $24.6 million, plus statutory interest
which the Company estimates to be approximately $25 million as of 1999. The
judgment will cover taxes collected by the U.S. Internal Revenue Service on
certain pension payments for the tax years 1987 through 1993. Approximately
one-third of the total amount recovered by LTV will be refunded to eligible
retirees.
Since August 1, 1999, approximately 1200 asbestosis Ohio workers'
compensation claims have been filed with LTV Steel, the majority of which were
filed on behalf of retired employees who worked at facilities that were closed
in the early 1980s. All of the asbestosis workers' compensation claims were
filed by the same Cleveland law firm. LTV Steel anticipates that additional
claims may be filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET FOR COMMON STOCK
LTV's common stock is listed on the New York Stock Exchange under the
stock symbol LTV. The number of holders of record of LTV's common stock as of
February 28, 2000 was 22,175.
See "Liquidity and Financial Resources" on page F-6 of this Annual
Report on Form 10-K, "Five-Year Financial Summary" on page F-46 of this Annual
Report on Form 10-K and "Quarterly Financial Information" on page F-47 of this
Annual Report on Form 10-K.
RECENT SALES OF UNREGISTERED SECURITIES
LTV sold securities that were not registered under the Securities Act
of 1933 in the following transactions during the fourth quarter of 1999:
Notes Offering. On November 10, 1999, LTV completed the issuance and
sale in a private placement of $275 million in principal amount at maturity of
its 11.75% Senior Notes due 2009. These notes are senior unsecured obligations
of LTV and rank equally in right of payment with all existing and future
unsecured indebtedness of LTV, including all other outstanding public notes
issued by LTV. Morgan Stanely & Co. Incorporated and Credit Suisse First Boston
Corporation acted as placement agents and Morgan Stanley & Co. Incorporated
received approximately $15.2 million in fees in connection with the sale of
these notes.
Preferred Stock Offering. On November 10, 1999, LTV completed the sale
in a private placement of $80 million aggregate liquidation amount of 8.25%
Series A Cumulative Convertible Preferred Stock, $1.00 par value per share (the
"Preferred Stock"). The Preferred Stock is convertible into shares of common
stock of LTV at any time at the option of the holders, initially at the
conversion price of $3.675 per share. Morgan Stanley & Co. Incorporated and
Credit Suisse First Boston Corporation acted as placement agents and Morgan
Stanley & Co. Incorporated received approximately $2.4 million in fees in
connection with the sale of the Preferred Stock.
Each of these transactions was effected pursuant to the exemption of
Section 4(2) of the Securities Act of 1933 and Rule 144A and Regulation S
thereunder, in reliance upon the representations of the initial purchasers of
each of the offerings described above.
ADVANCE STOCKHOLDER NOTICE REQUIREMENTS AND OTHER PROVISIONS
LTV has provisions in its By-Laws intended to promote the efficient
functioning of its annual meetings. The provisions describe LTV's right to
determine the time, place and conduct of stockholder meetings, require advance
notice by mail or delivery to LTV of stockholder proposals or director
nominations for annual meetings and require persons wishing to conduct a
solicitation of written consents of stockholders or to call a special meeting of
stockholders to apply to the Board of Directors to set a record date for the
consent solicitation or to determine whether the requisite number of
stockholders desire to call a special meeting.
Under the By-Laws, stockholders must provide LTV with at least 60 days,
but no more than 90 days, notice prior to the announced Tentative Meeting Date
of (i) business the stockholder is proposing for consideration at that meeting
and (ii) persons the stockholder intends to nominate for election as directors
at that meeting.
The LTV Board of Directors has selected April 27, 2001 as the Tentative
Meeting Date for the Annual Meeting of Stockholders in 2001. Accordingly,
stockholders who intend to propose business for consideration, or to nominate
persons for election as directors at the 2001 Annual Meeting, will be required
to provide notice and the required information to the Company no earlier than
January 27, 2001 and no later than February 26, 2001.
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 1999 whether to waive
the transfer restrictions in Article Ninth with respect to all future transfers
of securities. At its December 1999 meeting, the Board of Directors, after
considering all relevant factors, determined not to waive Article Ninth at that
time.
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA.
See "Five-Year Financial Summary" on page F-46 of this Annual Report on
Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See "Management's Discussion and Analysis" on pages F-3 through F-12 of
this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, tin and
natural gas, to manage the volatility related to certain of these exposures.
Gains and losses related to qualifying hedges are included in the basis of the
underlying transactions. Sensitivity analysis of the incremental effect on
annual pretax results of a hypothetical 10% decrease in commodity prices for
open futures at December 31, 1999 would be $6 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. The estimated fair
value of debt would be $15 million and $28 million less than the recorded value
at year end 1999 and 1998, respectively, based on current borrowing rates
available for financings with similar terms and maturities.
See also the Financial Instruments note in the Notes to Consolidated
Financial Statements.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of LTV are filed under this item,
beginning on page F-1 of this Annual Report on Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
25
<PAGE> 27
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 2000 Annual Meeting of Stockholders, which LTV
plans to file with the Commission in final form in early 2000, 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 2000 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
2000, 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 2000 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
2000, 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 2000 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
2000, is incorporated herein by reference.
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<PAGE> 28
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
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
combined financial statements of Copperweld Corporation and Copperweld Canada
Inc. and Welded Tube Co. of America filed as part of this annual report pursuant
to Rule 3.10 of Regulation S-X and 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.
Current Report on Form 8-K, filed with the Commission (File No. 1-4368)
on November 22, 1999 as amended by Current Report on Form 8-K/A, filed with the
Commission (File No. 1-4368) on January 25, 2000.
(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(c) is submitted as a separate
section of this Annual Report on Form 10-K on page F-1.
(3)-(1) - Restated Certificate of Incorporation of LTV dated April 29,
1994 (filed herewith)
(3)-(2) - Certificate of Designations for Series A Cumulative
Convertible Preferred Stock (incorporated herein by reference
to Exhibit 10.53 to LTV's Report on Form 10-Q for the quarter
ended September 30, 1999)
(3)-(3) - Certificate of Designations for Series B Preferred Stock
(incorporated herein by reference to Exhibit 4 to SMI America,
Inc.'s Schedule 13D, dated July 8, 1993 (the "SMI 13D"))
(3)-(4) - Amended and Restated By-Laws of LTV adopted on February 1,
1999 (filed herewith)
(4)-(1) - Indenture dated as of September 22, 1997 between LTV and The
Chase Manhattan Bank, as Trustee, (incorporated herein by
reference to Exhibit 4.1 to LTV's Registration Statement on
Form S-4 [Registration No. 333-40425])
(4)-(2) - Indenture dated as of November 5, 1999 among LTV, certain
guarantors named therein and U.S. Bank Trust, N.A., as trustee
(incorporated herein by reference to Exhibit 10.52 to LTV's
Report on Form 10-Q for the quarter ended September 30, 1999)
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<PAGE> 29
(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 No. 1 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 the SMI 13D)
(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 the SMI 13D)
(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 the SMI
13D)
(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 Ehibit 7 to the SMI 13D)
(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)
(10)-(10) - Receivables Purchase and Sale Agreement dated as of October
12, 1994 among LTV, LTV Steel Company, Inc., as the servicor,
the sellers named therein, and LTV Sales Finance Company, as
the purchaser (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) - 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)
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<PAGE> 30
(10)-(12) - 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)-(13) - 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)-(14) - 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)-(18) below
(incorporated herein by reference to Exhibit 10.38 to LTV's
Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(15) - Second Settlement Agreement and Stipulated Order supplementing
(10)-(17) above and approved by the Court on May 19, 1993
(incorporated herein by reference to Exhibit 10.39 to LTV's
Registration Statement on Form S-1 [Registration No.
33-50217])
(10)-(16) - 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)-(17) - 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)-(18) - 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)-(19) - 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)-(20) - 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)-(21) - 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)
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<PAGE> 31
(10)-(22) - 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)-(23) - Closing Agreement between LTV, its subsidiaries and the
Commissioner of Internal Revenue as filed with the United
States Bankruptcy Court for the Southern District of New York
on May 14, 1993 (incorporated herein by reference to Exhibit
10.47 to LTV's Report on Form 10-Q for the quarter ended June
30, 1993)
(10)-(24)* - 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)-(25)* - Amendment No. 2 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)-(26)* - 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)-(27)* - Amendment No. 1 to The LTV Corporation Supplemental Management
Retirement Plan adopted on January 28, 1994 (incorporated
herein by reference to Exhibit (10)-(54) to LTV's Report on
Form 10-K for the year ended December 31, 1993)
(10)-(28)* - Amendment No. 3 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)-(29)* - 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)-(30) - Amendment No. 1 to the Receivables Purchase and Sale Agreement
dated as of October 12, 1994 among LTV, LTV Steel Company,
Inc., as the servicor, the sellers named therein, and LTV
Sales Finance Company, as the purchaser (incorporated herein
by reference to Exhibit (10)-(57) to LTV's Report on Form 10-Q
for the quarter ended September 30, 1995)
(10)-(31)* - 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)-(32)* - 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)
30
<PAGE> 32
(10)-(33)* - 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)-(34)* - The LTV Corporation Management Incentive Program (Amended and
Restated Effective April 24, 1997) (incorporated herein by
reference to Exhibit A to LTV's Proxy Statement on Schedule
14A filed on March 10, 1997)
(10)-(35)* - The LTV Change in Control and Severance Pay Plan I
(incorporated herein by reference to Exhibit 10.1 to Amendment
No. 1 to LTV's Registration Statement on Form S-4
[Registration No. 33-40425])
(10)-(36) - 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 herein by reference to Exhibit
(10)-(52) to LTV's Report on Form 10-Q for the quarter ended
June 30, 1998)
(10)-(37) - 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 herein by
reference to Exhibit (10)-(53) to LTV's Report on Form 10-Q
for the quarter ended June 30, 1998)
(10)-(38) - Contribution and Sale Agreement dated as of February 26, 1998
among LTV Steel Products, LLC, as purchaser, LTV Steel
Company, Inc., as servicor, and LTV Steel Company, Inc. and
Georgia Tubing Corporation, as initial sellers (incorporated
herein by reference to Exhibit (10)-(54) to LTV's Report on
Form 10-Q for the quarter ended June 30, 1998)
(10)-(39) - 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 servicor, and The Chase
Manhattan Bank, as collateral agent (incorporated herein by
reference to Exhibit (10)-(55) to LTV's Report on Form 10-Q
for the quarter ended June 30, 1998)
(10)-(40) - Trust Agreement dated as of February 26, 1998 among LTV Steel
Products, LLC, as issuer, and The Chase Manhattan Bank as
collateral agent (incorporated herein by reference to Exhibit
(10)-(56) to LTV's Report on Form 10-Q for the quarter ended
June 30, 1998)
(10)-(41) - 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., as the servicor, the sellers
named therein, and LTV Sales Finance Company, as purchaser,
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 herein by reference to Exhibit
(10)-(57) to LTV's Report on Form 10-Q for the quarter ended
June 30, 1998)
31
<PAGE> 33
(10)-(42) - 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 (incorporated herein by
reference to Exhibit (10)-(51) to LTV's Report on Form 10-K
for the year ended December 31, 1998)
(10)-(43)* - Employment, Retirement and Non-Competition Agreement dated as
of December 28, 1998 between LTV and David H. Hoag
(incorporated herein by reference to Exhibit (10)-(50) to
LTV's Report on Form 10-K for the year ended December 31,
1998)
(10)-(44) - Credit Agreement dated as of November 10, 1999 among LTV, the
lenders named therein, Morgan Stanley Senior Funding, Inc., as
syndication agent, and Credit Suisse First Boston, as
Administrative Agent, together with certain exhibits thereto
(incorporated herein by reference to Exhibit 10.54 to LTV's
Report on Form 10-Q for the quarter ended September 30, 1999)
(10)-(45) - Trust Agreement dated as of December 16, 1994 between LTV and
Mellon Bank, N.A., as trustee (filed herewith)
(10)-(46)* - Third Amendment to Employment Agreement dated as of February
22, 2000 among John D. Turner, Copperweld Corporation and the
LTV Corporation (filed herewith)
(10)-(47)* - Amendment No. 1 to The LTV Corporation Change in Control
Severance Pay Plan I dated as of January 31, 2000 (filed
herewith)
(10)-(48)* - Amendment No. 1 to The LTV Corporation Change in Control
Severance Pay Plan II dated as of January 31, 2000 (filed
herewith)
(11) - Statement re Computation of Per Share Earnings (filed
herewith)
(21) - List of subsidiaries (filed herewith)
(23) - Consent of Ernst & Young LLP (filed herewith)
(27) - Financial Data Schedule (filed herewith)
- --------------------
* Management contract or compensatory plan or arrangement.
32
<PAGE> 34
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
1st day of March 2000.
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>
Chairman of the Board, President, February 25, 2000
/S/J. PETER KELLY Chief Executive Officer and Director
- ---------------------------
(J. Peter Kelly)
Vice President and Chief Financial Officer February 25, 2000
/S/GEORGE T. HENNING (Principal Financial Officer and Principal
- --------------------------- Accounting Officer)
(George T. Henning)
/S/ERIC W. EVANS Vice President and Controller February 25, 2000
- ---------------------------
(Eric W. Evans)
/S/COLIN C. BLAYDON Director February 25, 2000
- ---------------------------
(Colin C. Blaydon)
/S/WILLIAM H. BRICKER Director February 25, 2000
- ---------------------------
(William H. Bricker)
/S/JOHN E. JACOB Director February 25, 2000
- ---------------------------
(John E. Jacob)
/S/EDWARD C. JOULLIAN III Director February 25, 2000
- ---------------------------
(Edward C. Joullian III)
/S/M. THOMAS MOORE Director February 25, 2000
- ---------------------------
(M. Thomas Moore)
/S/VINCENT A. SARNI Director February 25, 2000
- ---------------------------
(Vincent A. Sarni)
</TABLE>
33
<PAGE> 35
<TABLE>
<S> <C> <C>
/S/SAMUEL K. SKINNER Director February 25, 2000
- ---------------------------
(Samuel K. Skinner)
/S/STEPHEN B. TIMBERS Director February 25, 2000
- ---------------------------
(Stephen B. Timbers)
/S/FARAH M. WALTERS Director February 25, 2000
- ---------------------------
(Farah M. Walters)
</TABLE>
34
<PAGE> 36
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 of LTV and
its subsidiaries and Ernst & Young LLP's report therein, which are included in
this Annual Report on Form 10-K.
Page
-------
The LTV Corporation
Report of Ernst & Young LLP Independent Auditors F-45
At December 31, 1999 and 1998:
Consolidated balance sheet F-14 - F-15
For the years ended December 31, 1999, 1998 and 1997:
Consolidated statement of operations F-13
Consolidated statement of cash flows F-16
Consolidated statement of changes in equity F-17
Notes to consolidated financial statements F-18 - F-43
Copperweld Corporation and Copperweld Canada Inc.
Interim Financial Information (unaudited)
Combined Statements of Income for the nine months ended
September 30, 1999 and 1998 C-1
Combined Balance Sheets at September 30, 1999 C-2 - C-3
Combined Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 C-4
Notes to Combined Financial Statements C-5 - C-7
Year-End Financial Information (audited)
Report of Ernst & Young LLP, Independent Auditors C-8
Combined Statements of Income for the years ended
December 31, 1998, 1997 and 1996 C-9
Combined Balance Sheets at December 31, 1998 and 1997 C-10 - C-11
Combined Statement of Changes in Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996 C-12
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 C-13
Notes to Combined Financial Statements C-14 - C-28
F-1
<PAGE> 37
Welded Tube Co. of America
Interim Financial Information (unaudited)
Balance Sheet at September 30, 1999 W-1
Statement of Operations and Retained Earnings for the three
months ended September 30, 1999 and 1998 W-2
Statement of Cash Flows for the three months ended September 30,
1999 and 1998 W-3
Notes to Financial Statements W-4 - W-5
Year-End Financial Information (audited)
Report of Ernst & Young LLP, Independent Auditors W-6
Balance Sheet at June 30, 1999 W-7
Statement of Operations and Retained Earnings for the
periods from January 1, 1999 to June 30, 1999
and from July 1, 1998 to December 31, 1998 W-8
Statements of Cash Flows for the periods from
January 1, 1999 to June 30, 1999 and from
July 1, 1998 to December 31, 1998 W-9
Notes to Financial Statements W-10 - W-15
The following is a list of financial statements of Trico Steel Company,
L.L.C. which are included as part of this Report.
Report of Ernst & Young LLP, Independent Auditors T-1
At December 31, 1999 and 1998:
Balance Sheet T-2
For the years ended December 31, 1999, 1998 and 1997:
Statement of Operations T-3
Statements of cash flows T-4
Statements of Changes in Members' Equity T-5
Notes to financial statements T-6 - T-11
All schedules for which provision is made in Regulation S-X have been
omitted as the schedules are not required under the related instructions, are
inapplicable, or the information required is set forth in the financial
statements or the notes thereto.
F-2
<PAGE> 38
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 flat rolled
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
includes the fourth quarter acquisitions of Copperweld Corporation and
Copperweld Canada Inc. ("Copperweld") and The Welded Tube Co. of America
("Welded Tube") together the ("Acquisitions"). The product line of this segment
includes mechanical and structural tubular products, pipe and conduit for use in
transportation, agriculture, oil and gas, and construction industries. The
segment also produces bimetallic wire for the telecommunications and utilities
industries and 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
Summary results for each segment are listed below ($ in millions):
<TABLE>
<CAPTION>
INTEGRATED STEEL METAL FABRICATION CORPORATE AND OTHER
------------------------- ---------------------- -----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $3,390 $3,684 $4,006 $818 $683 $541 $ -- $ -- $ --
Cost of products sold 3,184 3,308 3,445 684 560 456 -- -- --
Selling, general and administrative 116 120 120 63 52 32 10 12 12
Results of affiliates' operations -- -- -- 3 5 4 (33) (54) (45)
Net interest and other income (expense) -- 1 3 -- -- -- (18) 22 39
Income (loss) before income taxes
and special charges (161) 11 186 52 63 51 (61) (43) (18)
Special charges 39 52 150 -- 3 -- -- -- --
Tons in thousands
Shipments
Trade 7,183 7,238 7,655 859 676 627
Intersegment 286 287 285
Raw steel production 8,404 8,136 8,904
Operating rate 97% 95% 106%
</TABLE>
INTEGRATED STEEL The decrease in 1999 sales is primarily due to a 6% decrease
in average selling prices compared to 1998 and lower steel product shipments.
The lower steel selling prices were a result of a significant increase in
unfairly traded imports that began in the latter half of 1998. Similarly, in
1998, sales decreased from the prior year primarily due to the significant
increase in imports leading to 3% lower average steel selling prices compared to
1997 and lower steel product shipments.
Cost of products sold as a percentage of sales increased in 1999 primarily
as a result of lower average selling prices. Cost of products sold as a
percentage of sales increased in 1998 from 1997 as a result of the blast furnace
reline at the Indiana Harbor Works in 1998 and lower average selling prices.
F-3
<PAGE> 39
Lower purchased material costs during 1999 were primarily offset by the new
labor agreement effective August 1, 1999.
Raw steel production at the Company's steelmaking facilities increased in
1999, primarily due to the lesser impact of the 1999 blast furnace reline
compared to the reline completed in the prior year. Reduced operating levels in
the fourth quarter of 1998 due to the impact of imports also contributed to the
lower production level in 1998. The average operating rate was 97% in 1999
compared to 95% 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
which resulted in increases of 1.1% and 2.3% in rated capacity in 1999 and 1998,
respectively.
Selling, general and administrative expenses in 1999 decreased from 1998
expenses primarily due to lower Year 2000 computer and software expenditures.
Selling, general and administrative expenses in 1998 were equal to the 1997
expenses.
In the second quarter of 1999, Integrated Steel recorded special charges of
$39 million that included the suspension of the Hennepin pilot business systems
project and a salaried force reduction. 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 The increase in 1999 sales is due to the inclusion of $135
million of sales from the Welded Tube acquisition completed on October 1 and the
Copperweld acquisition completed on November 10. Increased metal buildings sales
were offset by lower tubular product sales that reflect lower steel prices and
lower pipe prices. The Metal Fabrication segment, together with the
Acquisitions, would have generated on a pro forma basis revenues of $1.5 billion
in 1999. Sales in 1998 increased primarily due to the first full year of metal
buildings revenues since VP Buildings was acquired on July 2, 1997.
Cost of products sold as a percentage of sales increased in 1999 primarily
due to lower average tubular product selling prices and the incurrence of
start-up costs of the new tubing facility in Marion, Ohio. Cost of products sold
as a percentage of sales decreased in 1998 from 1997 as a result of improved
margins from metal buildings sales partially offset by lower average tubular
product selling prices.
Selling, general and administrative expenses in 1999 and 1998 increased
over the prior year due to the inclusion of the Acquisitions in 1999 and VP
Buildings in 1997.
In the fourth quarter of 1998, a special charge of $3 million was recorded
for the closure of a production line for electric-weld tubing.
F-4
<PAGE> 40
CORPORATE AND OTHER Results of affiliates' operations includes two
steel-related joint ventures, Trico Steel and CAL. Trico Steel is a flat rolled
steel minimill, in which LTV has a 50% interest, that commenced commercial
operations in April 1997. Trico Steel has experienced equipment problems that
have hampered achievement of its rated capacity of 2.2 million tons. Two
transformers that failed in late 1998 and early 1999 were replaced in September
and have allowed Trico Steel access to full power capability for the first time
since December 1998. Results have improved in each quarter of 1999, and in the
fourth quarter of 1999 Trico Steel's results were approximately breakeven.
Shipments for the year were 1.2 million tons. The 1998 surge in steel imports
also negatively affected Trico Steel production levels during that year. LTV's
share of Trico Steel losses was $26 million, $50 million and $44 million in
1999, 1998 and 1997, respectively.
Also included in this segment are the losses due to the start-up costs of
CAL, a direct reduced iron joint venture in which LTV has a 46.5% interest.
Construction was completed in 1998 and commissioning activities began in 1999.
CAL has produced sufficient quantities of reduced iron to demonstrate the
process technology. However, the required mechanical start-up modifications have
extended the planned start-up curve and will likely prevent the plant from
achieving full production capacity in 2000.
Lower interest and other income resulted from decreased interest income on
lower levels of investments, lower capitalized interest and new or additional
interest expense related to the issuance in 1999 of $275 million of 11.75%
Senior Notes due 2009, a new $225 million secured term loan and borrowings under
LTV's existing credit facilities. In 1998, lower interest and other income
resulted from decreased interest income on lower levels of investments and
higher interest expense resulting from the issuance of 8.2% Senior Notes due
2007 that were partially offset by higher capitalized interest.
INCOME TAXES In 1999 and 1998 the Company recorded full valuation allowances to
offset the tax benefits generated in those years. 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 concluded that the realization of deferred tax assets
is not deemed to be "more likely than not" and, consequently, established a
valuation reserve for all of its net deferred tax assets.
In 1997, the Company recorded a tax provision of $28 million of which $18
million did not result in cash payments because of pre-reorganization net
deductible temporary differences. The Company's 1997 effective tax rate for
financial reporting purposes was 40%.
Taxes payable consist primarily of state, foreign 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,
1999. 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 "Taxes not payable in cash" in the
Statement of Operations.
F-5
<PAGE> 41
See also the Taxes note in the Notes to Consolidated Financial Statements.
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 (without
LTV Board of Directors approval), 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.
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
existing credit facilities and other external sources of funds.
In 1999, total cash, cash equivalents and marketable securities decreased
by $239 million to $72 million as of December 31, 1999. Cash provided by
operating activities amounted to $18 million. Major uses of cash during 1999
included $764 million for the Acquisitions, $290 million in capital expenditures
and $98 million for investments in steel-related businesses primarily for
galvanizing joint ventures, Trico Steel and CAL.
To fund the Acquisitions, LTV issued $275 million of 11.75% Senior Notes, a
$225 million secured term loan and $80 million of cumulative convertible
preferred stock. The balance was financed through increased borrowings under
LTV's existing credit facilities.
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
post employment benefits.
See also the Debt and Credit Facilities and the Copperweld and Welded Tube
Acquisitions notes in the Notes to Consolidated Financial Statements.
The Company's 8.2% Notes, the 11.75% Notes and the secured term loan
contain various covenants. These agreements require maintenance of certain
financial ratios, place restrictions on payments of dividends, share
repurchases, capital expenditures, investments in subsidiaries and borrowings.
At December 31, 1999, amounts available for future dividends and stock
repurchases totaled $65 million and is not limited by earnings. 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. LTV
does not anticipate any significant pension funding requirements until 2002.
Since the second quarter of 1996, the Company has paid quarterly common
stock dividends of $0.03 per share.
The Company anticipates that total capital expenditures will approximate
$300 million during 2000.
F-6
<PAGE> 42
INVESTING ACTIVITIES
The Company's strategy is to invest in growing 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 new steelmaking technologies as well as a new
hot dip galvanizing venture. In 1999, after giving effect to the recent
Acquisitions, pro forma revenues would have been approximately $5 billion.
During 1999, LTV invested $98 million in investments and advances to
steel-related joint ventures. In 1999, the Integrated Steel segment purchased a
16.5% interest in an electrogalvanizing line joint venture located in Walbridge,
Ohio. This line currently produces zinc, nickel/zinc and nickel/zinc/organic
coated products and has an annual capacity of approximately 450,000 tons of
coated product. One third of the line's capacity is dedicated to LTV.
Another electrogalvanizing line, L-S II, located in Columbus, Ohio and
previously owned 50% by Sumitomo Metal Industries, Ltd., is currently being
converted into a hot-dip galvanizing line to be known as Columbus Coatings
Company, owned 50% by LTV and 50% by Bethlehem Steel Corporation ("Bethlehem").
It will produce high-quality, hot-dip galvanized and galvannealed flat rolled
steel. The converted facility will have an annual capacity of approximately
500,000 tons of premium corrosion-resistant steel for exposed automotive
applications. Production is scheduled to begin in the fourth quarter of 2000.
Related to the new hot-dip galvanizing line, LTV and Bethlehem entered
into another joint venture, the Columbus Processing Company, which is a steel
slitting, inspecting and warehousing services facility for the automotive
industry.
The Metal Fabrication segment was expanded in 1999 with the acquisitions of
Copperweld and Welded Tube. Construction of a new tubing manufacturing facility
in Marion, Ohio, which was completed in 1999 at a total capital cost of $52
million, began start-up operations in 1999. The plant continues to progress
toward achieving its rated annual processing capacity of 146,000 tons. The
facility manufactures high-quality tubing for the automotive industry and other
mechanical tubing markets. The Portland, Oregon structural tubing plant
completed in 1999, and acquired as part of the Welded Tube acquisition, began
operations in the third quarter of 1999. Additionally, a greenfield stainless
steel tubing plant in Elizabethtown, Kentucky has started operations; and also a
recent expansion at the Shelby, Ohio plant should provide additional market
opportunities in the coming year.
The segment also has investments in joint ventures which include a
tailor-welded blanking operation in Michigan, an automotive steel processing and
blanking operations in Puebla and Silao, Mexico and international joint ventures
in metal buildings operations that are located in Brazil, Chile and Mexico. This
segment also has a 40% interest in GalvTech, a joint venture located in
Pennsylvania that processes hot-dip galvanized products.
The Corporate and Other segment over the past three years has invested
approximately $125 million in Trico Steel, a joint venture steel minimill
located in Alabama. In 1996, LTV entered into the CAL
F-7
<PAGE> 43
joint venture to produce and market high purity reduced iron briquettes as a
scrap steel substitute for use in electric furnace steelmaking operations. LTV
has invested $89 million in the CAL facility.
To participate in the increasing use of internet-based business-to-business
transactions, LTV has acquired approximately a 4% ownership position in
Metalsite L.P. and holds an option to acquire up to a 10% interest. Metalsite is
a web-based business that primarily sells steel products through an on-line
auction process. LTV is currently using Metalsite to market certain of its steel
products.
In addition to the acquisitions discussed above, LTV has also made
capital expenditures that are directed toward market-driven requirements,
customer service, productivity improvements, cost-reduction programs, new
information technology, replacement projects and environmental requirements.
The Integrated Steel segment has primarily invested in equipment upgrades,
including the major relines of blast furnaces in 1999 and 1998, and new
technologies to keep its facilities cost competitive, improve productivity and
enhance customer service. The Metal Fabrication segment's three new start-up
operations will not require substantial new investments in the near term.
Joint ventures have been one of the Company's primary means for
expanding its operations, and the Company will continue to consider further
investments in joint ventures. Many of the joint venture opportunities that the
Company evaluates are start-up operations and require significant investments
before becoming operational. The development, construction and start-up of such
operations are themselves subject to numerous risks. After start-up, further
investments may be required and significant losses could be incurred before any
profits are realized.
COMPETITION AND PRICES
Domestic steel producers face significant competition from foreign
producers affecting both prices and volume. Due primarily to the 1998 economic
difficulties faced by countries in Asia and Latin America, carbon flat rolled
steel products imports into the U. S. increased to record levels during the fall
of 1998. The downward pressure on pricing continued in the first half of 1999 as
customers reduced their high inventory levels accumulated during the period of
high imports. For the full year 1998, imports of flat rolled product from all
foreign countries totaled approximately 20 million tons or 25% of domestic steel
consumption, higher than 1999 and 1997 levels by 44%. A significant amount of
the 1998 increase occurred after July 1998 as imports totaled 30% of domestic
steel consumption in the last half of 1998. A significant percentage of these
imports was unfairly traded under U. S. trade laws and this resulted in a sharp
decline in domestic steel prices. Trade action brought by U. S. steel producers
resulted in a reduction in import levels during early 1999, although carbon flat
rolled steel imports continued throughout 1999 at levels that were in excess of
recent years. 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.
F-8
<PAGE> 44
LTV also competes with other domestic integrated producers, some of
which have greater resources than the Company, and with minimills, which in many
cases have lower costs than integrated steel mills. Minimills 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 2% by the end of 2000 as newly constructed
minimills engage in start-up operations or expand operations.
Many steel products face substantial competition from manufacturers of
other products, including plastics, aluminum, ceramics, glass, wood and
concrete.
SPECIAL CHARGES
In the second quarter of 1999, a special charge of $37 million was
recorded upon the suspension of a pilot business systems project being installed
at the Hennepin, Illinois plant. The decision to suspend the implementation did
not affect the implementation of LTV's other new business systems that are
providing higher levels of performance in materials management, plant
maintenance, purchasing, human resources and financial management. LTV also
recognized a special charge of $2 million related to a salaried workforce
reduction already implemented. There was $2 million charged against this reserve
in 1999 and there is no balance remaining at December 31, 1999. In April 1999,
the Company completed the closure of the cold rolled finishing operation in the
No. 2 finishing department at the Cleveland Works. The expense of this closure
was included as part of the special charges recorded in the fourth quarter of
1998. There has been $6 million of spending against this reserve in 1999. On
February 28, 1998, the Company ceased operations at the Pittsburgh coke plant
and began the closure process. LTV established reserves for the cost of the
closure and clean-up in the third quarter of 1997. Spending charged against this
reserve in 1999 totaled $16 million.
See also the Special Charges note in the Notes to Consolidated
Financial Statements.
ENVIRONMENTAL LIABILITIES AND OTHER CONTINGENCIES
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. 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 investigate and remediate any
contamination at plant sites where hazardous wastes have been used pursuant to
the Resource Conservation Recovery Act, the Company could be required to record
additional liabilities. The Company is unable to make meaningful estimates of
the cost of these potential liabilities at this time, but they could have a
material adverse effect on our interim or annual operating results and
liquidity. Management does not believe that there would be a material adverse
effect on LTV's financial position. In addition, certain environmental laws such
as Superfund can impose liability for the entire cost of clean-up of
contaminated sites upon any of the current and former site owners or operators
or parties who sent waste to these sites, regardless of fault or the lawfulness
of the original disposal activity. Permits and environmental controls are also
required at LTV's facilities to reduce air and water pollution from certain
operations; and these permits are subject to modification, renewal and
revocation by issuing authorities. Additional permits may be required, or more
onerous conditions may be imposed in our existing permits as a result of
increases in production or modifications to certain of our facilities.
F-9
<PAGE> 45
The Company is the subject of various other 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 statements of the Company.
The Company is unable to make a meaningful estimate of the amount or
range of possible losses that could result from an unfavorable outcome in the
following environmental and litigation matters: approximately 1,200 asbestosis
Ohio worker compensation claims filed since August 1, 1999; a notice of
violation issued in 1995 by the Indiana Department of Environmental Management
alleging releases of contaminants onto and beneath the ground at the Indiana
Harbor Works; and dredging and disposal projects proposed in 1999 as part of a
proposed settlement involving a National Resource Damage Assessment of the
Grand Calumet River System.
The Company's results of operations in one or more interim or annual
periods could be materially affected by unfavorable results in one or more of
these matters. Based on information known to the Company, management believes
the outcome of these matters should not have a material adverse effect upon the
cash flows or consolidated financial position of the Company.
The Company spent approximately $18 million, $24 million and
$16 million for environmental clean-up and related demolition costs at operating
and idled facilities for the years 1999, 1998 and 1997, respectively. At
December 31, 1999, the Company has a recorded liability of $121 million for
known and identifiable environmental and related demolition costs. As the
Company becomes aware of additional matters or obtains more information, it may
be required to record additional liabilities for environmental remediation,
investigation and clean-up of contamination. The environmental expenses recorded
by the Company in 1999, 1998 and 1997 were $2 million, $5 million and
$34 million respectively, excluding amounts recorded in special charges. These
expenses were to recognize additional remediation costs at the Company's
Integrated Steel facilities. The Company also spent approximately $18 million,
$14 million and $32 million in 1999, 1998 and 1997, respectively, for
environmental compliance-related capital expenditures for environmental projects
and expects it will be required to spend an average of approximately $24 million
annually in capital expenditures during the next five years to meet
environmental standards.
See also the Commitments and Contingencies and the Summary of
Significant Accounting Policies notes in the Notes to Consolidated Financial
Statements.
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, tin and
natural gas, to manage the volatility related to certain of these exposures.
Gains and losses related to qualifying hedges are included in the basis of the
underlying transactions. Sensitivity analysis of the incremental effect on
annual pretax results of a hypothetical 10% decrease in commodity prices for
open futures at December 31, 1999 would be $6 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. The estimated fair value
of debt would be $15 million and $28 million less than the recorded value at
year end 1999 and 1998, respectively, based on current borrowing rates available
for financings with similar terms and maturities.
See also the Financial Instruments note in the Notes to Consolidated
Financial Statements.
YEAR 2000 READINESS
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its on-going business as a result of the "Year 2000 issue." However,
it is possible that the full impact of the date change, which was of concern due
to computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll, or financial closings at month, quarter or year end. The Company
believes that any such problems are likely to be minor and correctable. In
addition, the Company could still be negatively impacted if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers and suppliers.
The Company expensed $15 million, $35 million and $8 million in the years
1999, 1998 and 1997, respectively, on Year 2000 readiness efforts. These efforts
included replacing some manufacturing and business systems, noncompliant
hardware and noncompliant software as well as identifying and remediating Year
2000 problems. The funds expensed for Year 2000 remediation were outside of the
normal information technology budget.
F-10
<PAGE> 46
OTHER MATTERS
On September 2, 1999, LTV Integrated Steel and certain tubular facility
employees represented by the United Steelworkers of America ("USWA") ratified a
five-year labor agreement with LTV covering approximately 9,500 active
employees. LTV believes this agreement is competitive with other USWA integrated
steel labor agreements. It provides for, among other things, an aggregate of
$2.00 in hourly wage increases, substantial pension improvements and increased
sickness and accident benefits. This five-year labor agreement includes a "no
strike" clause.
The new labor agreement with the USWA requires LTV to take a neutral stance with
respect to, as well as take certain steps to facilitate, the USWA's efforts to
organize employees at any U.S. or Canadian raw materials or steel-related
venture in which LTV has a material interest, including the Trico Steel
minimill joint venture. Although LTV owns only a 50% interest in Trico Steel
and is unable unilaterally to ensure that Trico Steel observes a similar
position of neutrality, LTV has agreed with the USWA to cause Trico Steel to
execute a similar neutrality agreement with the USWA by August 1, 2000 or to
take all necessary steps to expeditiously exit from its partnership interest in
Trico Steel. LTV and the USWA have further agreed that money damages are
inadequate and that the USWA may seek court-ordered specific performance of the
agreement. Accordingly, if LTV is unable to obtain Trico Steel's agreement
regarding neutrality, LTV may be forced to sell its investment in Trico Steel.
OUTLOOK
Demand for the Integrated Steel segment's products remains strong and
efforts to increase prices to appropriate levels continue; however, the recent
price increases will not be sufficient to increase average selling prices to
1998 levels. Future results will be impacted by the rate of achievement of
higher average selling prices.
The Metal Fabrication segment shows continued strong sales of metal
buildings systems in a robust construction market and strong tubular product
demand, particularly in the construction and transportation markets. The Metal
Fabrication segment will report significantly higher sales during 2000 due to
the inclusion of Welded Tube and Copperweld for the full year.
The Corporate and Other segment expects improved Trico Steel results,
continued start-up costs at CAL and lower interest income. Trico Steel has shown
improved results in every quarter of 1999 as its equipment problems have been
progressively resolved. CAL will continue to incur start-up costs until an
efficient operating level is achieved and continuous production is maintained.
Interest income will be reduced as compared to prior periods due to lower cash
balances, and interest expense will increase due to the increased debt from the
acquisitions.
This report includes forward-looking statements. Our use of the words
"outlook," "anticipate," "believes," "estimate," "expect" and similar words is
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
F-11
<PAGE> 47
failure; unanticipated results in pending legal proceedings; or difficulties in
integrating recent acquisitions or implementing information technology,
including Year 2000 compliant computer systems. In this regard, we also direct
your attention to factors discussed above in the Management's Discussion and
Analysis.
F-12
<PAGE> 48
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Sales $4,120 $4,273 $4,446
Costs and expenses
Cost of products sold 3,779 3,773 3,801
Depreciation and amortization 274 259 263
Selling, general and administrative 189 184 164
Results of affiliates' operations 30 49 41
Net interest and other (income) expense 18 (23) (42)
Special charges 39 55 150
------ ------ ------
Total 4,329 4,297 4,377
------ ------ ------
Income (loss) before income taxes (209) (24) 69
Income tax provision
Taxes payable 3 3 10
Taxes not payable in cash -- -- 18
------ ------ ------
Total 3 3 28
Income (loss) before items below (212) (27) 41
Extraordinary loss on early extinguishment of debt -- -- (4)
Cumulative effect of change in accounting for start-up costs -- -- (7)
------ ------ ------
Net income (loss) $ (212) $ (27) $ 30
====== ====== ======
Dividends on preferred stock (3) (2) (2)
------ ------ ------
Net income (loss) available to common shareholders $ (215) $ (29) $ 28
====== ====== ======
Earnings (loss) per share
Basic and diluted
Operations $(2.15) $(0.29) $ 0.37
Extraordinary loss -- -- (0.04)
Cumulative effect of change in accounting -- -- (0.06)
------ ------ ------
Net income (loss) $(2.15) $(0.29) $ 0.27
====== ====== ======
Average shares outstanding
Basic 100 100 103
====== ====== ======
Diluted 100 100 104
====== ====== ======
Dividends paid per common share $ 0.12 $ 0.12 $ 0.12
====== ====== ======
</TABLE>
- -----------
See notes to consolidated financial statements.
F-13
<PAGE> 49
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
------- -------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 72 $ 101
Marketable securities -- 210
------- -------
72 311
Receivables, less allowances of
$19 in 1999 and $17 in 1998 538 375
Inventories
Products 728 573
Materials, purchased parts and supplies 293 281
------- -------
Total inventories 1,021 854
Prepaid expenses, deposits and other 20 15
------- -------
Total current assets 1,651 1,555
------- -------
Investments in and advances to affiliates 358 314
Goodwill and other intangibles, net of accumulated amortization
of $14 million in 1999 and $6 million in 1998 313 108
Other noncurrent assets 147 82
Property, plant and equipment
Land and land improvements 82 70
Buildings 294 187
Machinery and equipment 4,319 3,707
Construction in progress 175 361
------- -------
4,870 4,325
Less allowance for depreciation (1,238) (1,060)
------- -------
Property, plant and equipment - net 3,632 3,265
------- -------
$ 6,101 $ 5,324
======= =======
</TABLE>
- -------------
See notes to consolidated financial statements.
F-14
<PAGE> 50
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
------ ------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 416 $ 321
Accrued employee compensation and benefits 305 328
Other accrued liabilities 225 190
Current maturities of debt 29 --
------ ------
Total current liabilities 975 839
------ ------
Noncurrent liabilities
Long-term debt 1,093 302
Postemployment health care and other insurance benefits 1,546 1,552
Pension benefits 563 565
Other 435 438
------ ------
Total noncurrent liabilities 3,637 2,857
------ ------
Shareholders' equity
Preferred shares - authorized 20 million shares, $1.00 par value Series A
Cumulative convertible - 1.6 million shares,
aggregate liquidation value $80 million 2 --
Series B Convertible preferred stock -- 0.5 million shares
aggregate liquidation value $50 million 1 1
Common stock -- par value $0.50 per share; authorized 150 million shares;
issued 105 million shares; 100 million shares outstanding 53 53
Additional paid-in capital 1,107 1,032
Retained earnings 393 621
Treasury stock at cost (5.4 million shares in 1999 and 5.5 million shares in 1998) (66) (68)
Other comprehensive income (loss) and other (1) (11)
------ ------
Total shareholders' equity 1,489 1,628
------ ------
$6,101 $5,324
====== ======
</TABLE>
- -------------
See notes to consolidated financial statements.
F-15
<PAGE> 51
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities
Income (loss) before extraordinary loss and cumulative
change in accounting $(212) $ (27) $ 41
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Noncash losses of affiliates 30 49 41
Special charges 39 55 150
Depreciation and amortization 274 259 263
Income tax provision not payable in cash -- -- 18
Pension funding (more) less than expense 6 (6) (39)
Postemployment benefit payments more than related expense (26) (19) (27)
VEBA Trust contributions (10) (10) (10)
Changes in assets, liabilities and other (83) 9 (101)
----- ----- -----
Net cash provided by operating activities 18 310 336
----- ----- -----
Investing activities
Capital expenditures (290) (362) (326)
Acquisitions of metal fabrication businesses, net of cash acquired (764) -- (188)
Investments in and advances to steel-related businesses (98) (80) (101)
Net sales of marketable securities 210 150 207
Proceeds from sale / leaseback and dispositions 38 -- --
Other (25) (5) 24
----- ----- -----
Net cash used in investing activities (929) (297) (384)
----- ----- -----
Financing activities
Net proceeds from debt offering 498 4 290
Net proceeds from preferred stock offering 78 -- --
Borrowings under credit facilities 920 -- --
Payments on borrowings under credit facilities (600) -- --
Payments on long-term debt -- (62) (106)
Repurchases of common stock -- -- (68)
Dividends paid and other (14) (14) (15)
----- ----- -----
Net cash provided by (used in) financing activities 882 (72) 101
----- ----- -----
Net (decrease) increase in cash and cash equivalents (29) (59) 53
Cash and cash equivalents at beginning of year 101 160 107
----- ----- -----
Cash and cash equivalents at end of year $ 72 $ 101 $ 160
===== ===== =====
</TABLE>
- ---------
See notes to consolidated financial statements.
F-16
<PAGE> 52
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SERIES A
CUMULATIVE SERIES B COMMON STOCK
CONVERTIBLE CONVERTIBLE --------------------- ADDITIONAL
PREFERRED PREFERRED NUMBER PAID-IN RETAINED
(IN MILLIONS) STOCK STOCK OF SHARES AMOUNT CAPITAL EARNINGS
----- ----- --------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997 $ -- $1 105 $53 $ 1,021 $ 646
Comprehensive income
Net income -- - -- -- -- 30
Minimum pension liability, net of tax -- - -- -- -- --
Total comprehensive income
Dividends paid -- - -- -- -- (15)
Treasury stock purchases -- - -- -- -- --
Other -- - -- -- -- --
Taxes not payable in cash -- - -- -- 11 --
----- -- --- --- ------- -----
December 31, 1997 -- 1 105 53 1,032 661
Comprehensive loss
Net loss -- - -- -- -- (27)
Minimum pension liability, net of tax -- - -- -- -- --
Total comprehensive loss
Dividends paid -- - -- -- -- (14)
Other -- - -- -- -- 1
----- -- --- --- ------- -----
December 31, 1998 -- 1 105 53 1,032 621
Issuance of preferred stock 2 - -- -- 76 --
Comprehensive loss
Net loss -- - -- -- -- (212)
Minimum pension liability, net of tax -- - -- -- -- --
Total comprehensive loss
Dividends paid -- - -- -- -- (14)
Other -- - -- -- (1) (2)
----- -- --- --- ------- -----
December 31, 1999 $ 2 $1 105 $53 $ 1,107 $ 393
===== == === === ======= =====
</TABLE>
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
TREASURY INCOME (LOSS)
(IN MILLIONS) STOCK AND OTHER TOTAL
----- --------- -----
<S> <C> <C> <C>
January 1, 1997 $ -- $(11) $ 1,710
Comprehensive income
Net income -- -- 30
Minimum pension liability, net of tax -- 6 6
-------
Total comprehensive income 36
Dividends paid -- -- (15)
Treasury stock purchases (68) -- (68)
Other -- 2 2
Taxes not payable in cash -- -- 11
---- ---- -------
December 31, 1997 (68) (3) 1,676
Comprehensive loss
Net loss -- -- (27)
Minimum pension liability, net of tax -- (8) (8)
-------
Total comprehensive loss (35)
Dividends paid -- -- (14)
Other -- -- 1
---- ---- -------
December 31, 1998 (68) (11) 1,628
Issuance of preferred stock -- -- 78
Comprehensive loss
Net loss -- -- (212)
Minimum pension liability, net of tax -- 10 10
-------
Total comprehensive loss (202)
Dividends paid -- -- (14)
Other 2 -- (1)
---- ---- -------
December 31, 1999 $(66) $ (1) $ 1,489
==== ==== =======
</TABLE>
See notes to consolidated financial statements
F-17
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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
$11 million at December 31, 1999, all of which was available for dividend or
other distribution to the Company.
Equity in earnings of joint ventures is recorded in the Statement of
Operations as results of affiliates' operations, except for certain affiliates
whose equity income is recorded as a reduction of cost of products sold. The
amount recorded as a reduction of cost of products sold was $12 million, $12
million and $17 million for 1999, 1998 and 1997, respectively.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
REVENUE RECOGNITION Revenue from product sales is recognized primarily upon
shipment to customers.
MARKETABLE SECURITIES The Company determines the appropriate classification of
marketable securities at the time of purchase and re-evaluates 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 88% and 94% of the inventories at December 31, 1999 and 1998,
respectively. The amount by which inventory is reduced to state inventory at
LIFO value is $10 million at December 31, 1999 and $17 million at December 31,
1998. Liquidation of LIFO inventory quantities was not material. The current
replacement value of inventories is $1,006 million and $845 million at December
31, 1999 and 1998, respectively.
F-18
<PAGE> 54
PROPERTY COSTS, DEPRECIATION AND AMORTIZATION The Company's fixed assets are
accounted for on the group basis and are recorded at cost. Property includes
land, buildings, machinery and equipment, and software and associated costs.
Integrated Steel 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. In
addition, a units-of-production method is used for blast furnaces. In 1999,
1998 and 1997, the modified straight-line depreciation method was 96%, 96% and
99% of the straight-line amount, respectively. The cost of buildings is
depreciated over 45 years, and machinery and equipment is depreciated over
periods ranging from 3 to 25 years.
Metal Fabrication segment depreciation is computed principally on the
straight-line method. The cost of buildings is depreciated over periods ranging
from 3 to 45 years, and machinery and equipment is depreciated over periods
ranging from 3 to 30 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,
proceeds are reflected in the 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 its operations and goodwill
and other intangibles when indicators of impairment are present. Impairment
losses are determined based on the fair value of assets impaired and 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 environmental expenses
recorded in 1999, 1998 and 1997 were $2 million, $5 million and $34 million,
respectively, excluding amounts recorded in special charges. The Company's
liability for environmental remediation, including costs related to the
demolition, closure and clean-up of idled facilities, totaled $121 million and
$136 million at December 31, 1999 and 1998, 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 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
F-19
<PAGE> 55
measured at fair value. Changes in the fair value of derivatives will be
recognized in net income unless specific hedge accounting criteria are met.
Subsequently, in June 1999 FASB issued Statement No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which defers the effective date of FASB Statement
No. 133 to fiscal years beginning after June 15, 2000. LTV intends to adopt this
statement in 2001, 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.
COPPERWELD AND WELDED TUBE ACQUISITIONS
On November 10, 1999, LTV acquired Copperweld Corporation and Copperweld
Canada Inc. ("Copperweld") for an aggregate cash purchase price of approximately
$650 million, subject to final determination of shareholder equity adjustments.
Based on 1998 shipments, Copperweld is believed to be the largest North American
manufacturer of mechanical and structural steel tubing and the world's largest
producer of bimetallic wire products.
On October 1, 1999, LTV acquired Welded Tube Co. of America ("Welded Tube")
for $114 million, subject to final determination of working capital. Welded Tube
is believed to be the second largest structural tube manufacturer in North
America and produces the broadest range of structural tubing used primarily for
construction and for the industrial, transportation and agricultural equipment
markets.
Both transactions (the "Acquisitions") are accounted for under the purchase
method of accounting; and, accordingly, the results of operations of the
acquired companies are included in the consolidated financial statements from
the respective dates of acquisition. Assets acquired and liabilities assumed
have been recorded at their estimated fair values and are subject to adjustment
as asset and liability valuations are completed and analyzed. Adjustments are
not expected to be significant.
The following unaudited pro forma financial information for the Company gives
effect to the Acquisitions as if they had occurred at the beginning of 1999 or
1998, respectively. These pro forma results have been prepared for comparative
purposes only and are not necessarily representative of the results of
operations that would have resulted if the Acquisitions occurred either at the
beginning of the year or that may result in the future.
F-20
<PAGE> 56
<TABLE>
<CAPTION>
Year Ended
---------------------------
IN MILLIONS 1999 1998
---- ----
<S> <C> <C>
Sales $4,828 $5,092
Income (loss) before income taxes $ (234) $ (39)
Net income (loss) $ (243) $ (48)
Earnings (loss) per share
Basic and diluted $(2.52) $(0.58)
</TABLE>
UNCONSOLIDATED JOINT VENTURE
The Company has a 50% interest in an unconsolidated joint venture, Trico Steel
Company L.L.C. ("Trico Steel"), which is accounted for under the equity method.
Commercial operations of this flat rolled minimill located in Decatur, Alabama
began in April 1997. The following is a summary of the financial information
related to Trico Steel (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Results of operations
Net sales $ 320 $ 258 $ 98
Costs and expenses 343 330 167
Depreciation and amortization 29 28 18
Cumulative effect of change in
accounting for start-up costs -- -- 15
----- ----- -----
Pretax loss $ (52) $(100) $(102)
===== ===== =====
Financial position at December 31
Current assets $ 97 $ 54 $ 76
Noncurrent assets 520 531 526
Current liabilities (60) (27) (38)
Noncurrent liabilities (347) (296) (273)
----- ----- -----
Net assets $ 210 $ 262 $ 291
===== ===== =====
Capital expenditures $ 22 $ 26 $ 93
===== ===== =====
</TABLE>
F-21
<PAGE> 57
OTHER LIABILITIES
Current accrued employee compensation and benefits included the following at
December 31 (in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Pension benefits $ 9 $ 20
Postemployment health care and other insurance benefits 129 124
Accrued wages and compensated absences 78 80
Other 89 104
---- ----
$305 $328
==== ====
</TABLE>
Current other accrued liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accrued taxes other than income $101 $ 92
Accrued income taxes 22 11
Environmental and plant rationalization 30 36
Other 72 51
---- ----
$225 $190
==== ====
</TABLE>
Noncurrent other liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Benefits under the Coal Industry Retiree Health Benefit Act of 1992 $126 $128
Other employee benefits 108 108
Environmental and plant rationalization 125 149
Other 76 53
---- ----
$435 $438
==== ====
</TABLE>
F-22
<PAGE> 58
DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following at December 31 (in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
8.2% Senior Notes due 2007 (face value $300) $ 299 $298
11.75% Senior Notes due 2009 (face value $275) 273 --
Secured facility 225 --
Receivables and Inventory facilities 320 --
7.25% Mortgage payable and other 5 4
------ ----
Total debt 1,122 302
Less current portion (29) --
------ ----
Total long-term debt $1,093 $302
====== ====
</TABLE>
In September 1997, LTV issued $300 million of 8.2% Senior Notes due
September 2007 ("8.2% Notes") with interest payable semiannually and guaranteed
by all existing and future domestic wholly owned subsidiaries of LTV (other than
certain unrestricted subsidiaries and special purpose subsidiaries established
for working capital facilities). The unamortized original issue discount results
in an effective interest rate of 8.25%. The 8.2% 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 begin to redeem, at a premium,
the original principal 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.
In November 1999, LTV issued $275 million of 11.75% Senior Notes ("11.75%
Notes") maturing on November 15, 2009 with interest payable semi-annually and
guaranteed on the same basis as the 8.2% Notes, and on a subordinated basis by
the Acquisitions. The unamortized original issue discount results in an
effective interest rate of 11.875%. Prior to November 2002, the Company may
begin to redeem, at a premium, the original principal amount with proceeds from
any public equity offerings. Upon any change of control, the 11.75% Notes
holders have the right to require the Company to repurchase all or any part of
the 11.75% Notes at a purchase price equal to 101% of the principal amount plus
accrued and unpaid interest. The proceeds were used to finance the Acquisitions.
In November 1999, LTV also entered into a five-year secured term loan of
$225 million ("Secured Facility") that is fully and unconditionally guaranteed
on a senior basis by the same guarantors as the 8.2% Notes. Substantially all of
the assets of the Acquisitions (other than their accounts receivable and the
Portland, Oregon tubing plant) including a $75 million secured intercompany note
between Copperweld Corporation and Copperweld Canada Inc. are pledged under this
facility. Interest will be reset periodically and is based on LIBOR plus a
margin of 3.375% to 4.125%; or, at LTV's option, it may borrow at an alternate
base rate plus a margin ranging from 2.375% to 3.125%. The base rate is the
higher of the prime rate or the Federal Funds effective rate plus 0.5%.
Principal payments in the first four years after issuance will be de minimus,
with equal scheduled payments of $54 million at the end of February, May, August
and October 2004. Prepayments are required for proceeds from certain asset
sales, insurance awards, excess cash flow and net cash proceeds of certain debt
or equity issuances if
F-23
<PAGE> 59
certain financial ratios are not met. The proceeds of the Secured Facility were
used to finance the Acquisitions.
The 8.2% Notes, 11.75% Notes and Secured Facility 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, $65 million of retained earnings is available for
stock dividend payments and stock repurchases at December 31, 1999.
The Company has two credit facilities with banks (the "Receivables
Facility" and the "Inventory Facility" both expiring in 2004) that provide the
Company with a maximum of $570 million of financing for working capital
requirements and general corporate purposes at prevailing market rates. The
borrowers under these facilities are special purpose entities. The Receivables
Facility special purpose entity is owned by LTV Steel Company, Inc. ("LTV
Steel"), and the Inventory Facility is owned by LTV. Creditors of these special
purpose entities have a claim on the assets of each entity prior to those assets
becoming available to other creditors of LTV or its affiliates. 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, $100
million of which may be used to issue letters of credit. At December 31, 1999,
$251 million was permitted to be borrowed; $205 million of borrowings at 6.7%
and $10 million of letters of credit were outstanding. The borrower is LTV Sales
Finance Company, which on a daily basis purchases and pledges essentially all of
the receivables generated by LTV Steel.
The Inventory Facility permits borrowings of up to $250 million, $150
million of which may be used to issue letters of credit. At December 31, 1999,
$250 million was permitted to be borrowed; $115 million of borrowings at 7.7%
and $81 million of letters of credit were outstanding. The borrower under the
Inventory Facility is LTV Steel Products, LLC, which purchases and pledges
essentially all of the inventory produced by LTV Steel.
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 $70 million, $79 million
and $71 million in 1999, 1998 and 1997, respectively. Minimum future operating
lease obligations in effect at December 31, 1999 are as follows (in millions):
<TABLE>
<S> <C>
2000 $ 44
2001 38
2002 30
2003 28
2004 26
Later years 138
----
Total obligations $304
====
</TABLE>
F-24
<PAGE> 60
PENSIONS AND POSTEMPLOYMENT HEALTH CARE AND OTHER INSURANCE BENEFITS
The Company provides pension benefits for most employees through defined benefit
and defined contribution pension plans. The Company also 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.
Under the labor agreement with the United Steelworkers of America ("USWA"),
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
under these provisions for 1999 to be made in 2000 is $10 million.
F-25
<PAGE> 61
The components of pensions and other postemployment benefit obligations and
related assets are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OPEB
----------------------- -------------------------
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $3,354 $3,327 $ 1,526 $ 1,520
Service cost 20 2 13 13
Interest cost 227 228 101 102
Actuarial (gains) losses (365) 108 (109) (1)
Shutdowns / acquisitions 138 18 36 7
Benefits paid (334) (329) (130) (115)
Plan amendments 414 -- 63 --
Exchange rate change 1 -- -- --
------ ------ ------- -------
Benefit obligation at end of year $3,455 $3,354 $ 1,500 $ 1,526
====== ====== ======= =======
Change in plan assets
Fair value of plan assets at beginning of year $3,109 $3,080 $ 103 $ 62
Actual return on plan assets 378 349 79 36
Shutdowns / acquisitions 165 -- -- --
Company contributions 13 9 10 10
Benefits paid (334) (329) (1) (5)
Other 1 -- -- --
------ ------ ------- -------
Fair value of plan assets at end of year $3,332 $3,109 $ 191 $ 103
====== ====== ======= =======
Funded status of the plan (underfunded) $ (123) $ (245) $(1,309) $(1,423)
Unrecognized net actuarial gains (882) (394) (426) (254)
Unrecognized prior service cost 479 98 60 1
------ ------ ------- -------
Accrued benefit cost $ (526) $ (541) $(1,675) $(1,676)
====== ====== ======= =======
</TABLE>
Pension plan assets consist substantially of equity securities listed on
national exchanges, fixed income securities and cash equivalents. VEBA Trust
assets are invested primarily in equity securities listed on national exchanges.
F-26
<PAGE> 62
<TABLE>
<CAPTION>
AMOUNTS RECOGNIZED IN THE BALANCE PENSION BENEFITS OPEB
SHEET CONSIST OF (IN MILLIONS): --------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 41 $ 22 $ -- $ --
Accrued benefit liability (568) (585) (1,675) (1,676)
Intangible asset -- 1 -- --
Accumulated other comprehensive income 1 11 -- --
----- ----- ------- -------
Net amount recognized (526) (551) $(1,675) $(1,676)
======= =======
Defined contribution plan liability (4) 10
----- -----
Total $(530) $(541)
===== =====
</TABLE>
Amounts applicable to the Company's underfunded pension plans at December 31 are
as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Projected benefit obligation $ 3,074 $ 3,066
Accumulated benefit obligation 3,032 3,049
Fair value of plan assets 2,847 2,773
Amounts recognized as accrued benefit liabilities 561 575
Amounts recognized as intangible asset -- 1
Amounts recognized as accumulated
comprehensive income 1 11
</TABLE>
F-27
<PAGE> 63
<TABLE>
<CAPTION>
PENSION BENEFITS OPEB
--------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of December 31
Discount rate 8.00% 6.75% 7.25% 8.00% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% -- -- -- -- --
Projected health care cost trend rate 5.40% 6.20% 6.70%
Ultimate trend rate 4.75% 4.25% 4.50%
Year ultimate trend rate is achieved 2005 2003 2003
Components of net periodic benefit cost
Service cost $ 20 $ 2 $ 1 $ 13 $ 13 $ 14
Interest cost 227 228 237 101 101 105
Expected return on plan assets (253) (240) (223) (8) (5) (4)
Amortization of prior service cost -- 17 18 4 -- --
Recognized net actuarial loss (gain) 30 (4) (5) (7) (14) (13)
----- ----- ----- ----- ----- -----
Benefit cost 24 3 28 103 95 102
Defined contribution plans 36 48 49
----- ----- -----
Total included in operations 60 51 77
Curtailment charges included in special charges -- 19 16 -- 7 5
----- ----- ----- ----- ----- -----
$ 60 $ 70 $ 93 $ 103 $ 102 $ 107
===== ===== ===== ===== ===== =====
</TABLE>
As a result of the 1999 labor agreement with the USWA, projected pension benefit
obligations increased by approximately $375 million. Pension expenses, on an
annualized basis, would increase by approximately $75 million. No significant
pension funding requirements are anticipated before the year 2002.
The following shows the 1999 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 $ 10 $ (8)
Effect on postretirement benefit obligation $ 113 $ (99)
</TABLE>
F-28
<PAGE> 64
TAXES
The provision for income taxes is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 1 $ (1) $ 7
State 2 4 3
Amount not payable in cash - -- 18
---- ---- ----
Tax provision $ 3 $ 3 $ 28
==== ==== ====
</TABLE>
In 1999 and 1998 the Company recorded full valuation allowances to offset the
tax benefits generated in those years.
In 1997, the Company recorded a tax provision of $28 million of which $18
million did not result in cash payments because of pre-reorganization net
deductible temporary differences. The Company's 1997 effective tax rate for
financial reporting purposes was 40%.
Taxes payable consist primarily of state, foreign 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,
1999. The Company's actual income tax cash payments in 1997 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. Since the federal income tax expense does not consider
pre-reorganization deferred tax assets, the Company recognizes the benefit of
foreign income tax credits in computing taxes not payable in cash. These credits
will not be claimed on the federal income tax return.
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rates $(73) $ (8) $ 24
Increases (decreases) resulting from:
Valuation allowance 84 14 --
Percentage depletion deduction (4) (4) (7)
Federal alternative minimum tax 1 (1) 7
State taxes (8) 2 5
Other 3 -- (1)
---- ---- ----
Tax provision $ 3 $ 3 $ 28
==== ==== ====
</TABLE>
F-29
<PAGE> 65
Significant components of the Company's deferred tax assets and liabilities are
as follows at December 31 (in millions):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Postemployment health care liability $ 672 $ 669
Net operating loss carryforwards 1,080 945
Pension liability 207 228
Other employee benefits liability 153 142
Plant rationalization and environmental liabilities 83 91
Safe harbor tax leases 82 96
Other 123 129
------- -------
Subtotal 2,400 2,300
Deferred tax liabilities:
Tax over book depreciation (919) (827)
Inventory and other (131) (123)
------- -------
Subtotal (1,050) (950)
Valuation allowance (1,350) (1,350)
------- -------
Total deferred taxes - net $ -- $ --
======= =======
</TABLE>
The evaluation of the realizability of the Company's net deferred tax assets in
future periods is made based upon historical and projected operating performance
and other factors for generating future taxable income, such as intent and
ability to sell assets. At this time, the Company has concluded that the
realization of deferred tax assets is not deemed to be "more likely than not"
and consequently, 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 $3.0 billion and a federal alternative minimum tax net operating
loss carryforward of $1.8 billion that are not restricted as to use and will
expire in the years 2000 through 2019. 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 1999 of approximately $46 million
are available as a credit carryforward, and the period is not limited.
Investment tax credit carryforwards of approximately $6 million at December 31,
1999 are recognized using the "flow through" method and expire in 2000 through
2004.
SHAREHOLDERS' EQUITY
In 1999, LTV issued 8.25% Series A non-voting Cumulative Convertible
Preferred Stock ("Series A"). Holders of the Series A will be entitled to
receive cumulative cash dividends at an annual rate of 8.25% of the liquidation
preference, payable quarterly commencing on February 15, 2000. LTV may redeem
all shares of the Series A, in whole or in part, at any time after November 18,
2004, at a price
F-30
<PAGE> 66
equal to 104.13% of the aggregate liquidation preference of the Series A
declining to 100% in 2009 plus accrued and unpaid dividends to the date of
redemption. Each Series A share may be converted at any time by holders in whole
or in part into 13.605 shares of LTV common stock (potentially 21.8 million
shares). Upon accumulation of accrued and unpaid dividends in an amount equal to
six quarterly dividends (whether or not consecutive), holders of a majority of
the outstanding shares of Series A will be entitled to appoint at least one but
not more than two members to the Board of Directors. The proceeds from the stock
offering were used to finance the Acquisitions.
The Company's 4.5% Series B Convertible Preferred Stock ("Series B") 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. 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 $50 million after June 28, 2000.
The Company has a nonleveraged Employee Stock Ownership Plan ("ESOP") for
employees covered by the USWA labor agreement that effectively holds 2.9 million
shares of the Company's common stock at December 31, 1999.
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
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:
F-31
<PAGE> 67
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -------------------------
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 4,362 $5.25 - $19.33 3,354 $11.19 - $19.33 1,691 $12.21 - $19.33
Granted 1,199 3.50 - 6.81 1,182 5.25 - 13.38 1,828 11.19 - 14.38
Exercised -- -- - -- -- -- - -- -- -- - --
Canceled (374) 5.25 - 19.33 (174) 11.94 - 19.33 (165) 12.21 - 19.33
----- ----- ------ ----- ------ ------ ----- ------ ------
Options outstanding at
end of year 5,187 $3.50 - $19.33 4,362 $ 5.25 - $19.33 3,354 $11.19 - $19.33
===== ===== ====== ===== ====== ====== ===== ====== ======
Options exercisable at
end of year 2,371 $5.63 - $19.33 1,725 $12.21 - $19.33 1,295 $12.21 - $19.33
===== ===== ====== ===== ====== ====== ===== ====== ======
Restricted stock (shares
in thousands):
Shares outstanding at
beginning of year 218 $5.25 - $18.88 185 $ 9.88 - $18.88 184 $14.00 - $18.88
Granted 180 3.50 - 6.25 41 5.25 - 13.13 6 9.88 - 14.25
Unrestricted (30) 5.25 - 18.88 (5) 12.68 - 18.88 (1) -- - 18.88
Canceled (33) 5.63 - 18.88 (3) 9.88 - 18.88 (4) -- - 18.88
----- ----- ------ ----- ------ ------ ----- ------ ------
Shares outstanding at
end of year 335 $3.50 - $18.88 218 $ 5.25 - $18.88 185 $14.00 - $18.88
===== ===== ====== ===== ====== ====== ===== ====== ======
</TABLE>
FASB Statement No. 123, "Accounting for Stock-Based Compensation," permits
companies to recognize expense for stock-based awards based on their fair value
on the date of grant or to continue to follow Accounting Principles Board
("APB") Opinion No. 25 with pro forma disclosures. The Company continues
recognition of stock option programs in accordance with APB Opinion No. 25. As
required by Statement No. 123, the Company has determined the pro forma
information under the fair value method using the Black-Scholes option pricing
module with the following weighted-average assumptions for the years 1999, 1998
and 1997: risk-free rate of return of 5.7%; dividend yield of 1%; volatility of
29%; and 7 years as the expected life for all years presented. The pro forma
effect of these options would increase the loss by $3 million ($0.03 per share)
in 1999 and 1998 and decrease net income by $3 million ($0.02 per share) in
1997.
F-32
<PAGE> 68
COMPREHENSIVE INCOME (LOSS)
The following table reflects the accumulated balances of other comprehensive
income (loss) (in millions):
<TABLE>
<CAPTION>
OTHER
MINIMUM COMPREHENSIVE
PENSION INCOME (LOSS)
LIABILITY AND OTHER
<S> <C> <C>
Balance at January 1, 1997 $ (9) $ (9)
1997 change 6 6
---- ----
Balance at December 31, 1997 (3) (3)
1998 change (8) (8)
---- ----
Balance at December 31, 1998 (11) (11)
1999 change 10 10
---- ----
Balance at December 31, 1999 $ (1) $ (1)
==== ====
</TABLE>
COMMITMENTS AND CONTINGENCIES
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. 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 investigate and remediate any
contamination at plant sites where hazardous wastes have been used pursuant to
the Resource Conservation Recovery Act, the Company could be required to record
additional liabilities. The Company is unable to make meaningful estimates of
the cost of these potential liabilities at this time, but they could have a
material adverse effect on our interim or annual operating results and
liquidity. Management does not believe that there would be a material adverse
effect on LTV's financial position. In addition, certain environmental laws
such as Superfund can impose liability for the entire cost of clean-up of
contaminated sites upon any of the current and former site owners or operators
or parties who sent waste to these sites, regardless of fault or the lawfulness
of the original disposal activity. Permits and environmental controls are also
required at LTV's facilities to reduce air and water pollution from certain
operations; and these permits are subject to modification, renewal and
revocation
F-33
<PAGE> 69
by issuing authorities. Additional permits may be required, or more onerous
conditions may be imposed in our existing permits as a result of increases in
production or modifications to certain of our facilities.
The Company is the subject of various other 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 statements of the Company.
The Company is unable to make a meaningful estimate of the amount or
range of possible losses that could result from an unfavorable outcome in the
following environmental and litigation matters: approximately 1,200 asbestosis
Ohio worker compensation claims filed since August 1, 1999; a notice of
violation issued in 1995 by the Indiana Department of Environmental Management
alleging releases of contaminants onto and beneath the ground at the Indiana
Harbor Works; dredging and disposal projects proposed in 1999 as part of a
proposed settlement involving a National Resource Damage Assessment of the
Grand Calumet River System.
The Company's results of operations in one or more interim or annual
periods could be materially affected by unfavorable results in one or more of
these matters. Based on information known to the Company, management believes
the outcome of these matters should not have a material adverse effect upon the
cash flows or consolidated financial position of the Company.
The Company spent approximately $18 million, $24 million and $16
million for environmental clean-up and related demolition costs at operating and
idled facilities, including the Pittsburgh coke plant, for the years 1999, 1998
and 1997, respectively. At December 31, 1999, the Company has a recorded
liability of $121 million for known and identifiable environmental and related
demolition costs. As the Company becomes aware of additional matters or obtains
more information, it may be required to record additional liabilities for
environmental remediation, investigation and clean-up of contamination. The
Company also spent approximately $18 million, $14 million and $32 million in
1999, 1998 and 1997, respectively, for environmental compliance-related capital
expenditures for environmental projects and expects it will be required to spend
an average of approximately $24 million annually in capital expenditures during
the next five years to meet environmental standards.
A 1993 agreement with the USWA provided that a portion of the requirements
with respect to certain postemployment benefits would be secured by a junior
lien of $250 million on collateral with an unencumbered fair market value of at
least $500 million. The initial security was provided by the grant of a mortgage
on facilities having a carrying value of approximately $500 million.
The Company has commitments to purchase approximately $249 million and $175
million of its coke and coal requirements for 2000 and 2001, respectively.
In 1999, as part of the partnership agreement entered into regarding the
conversion of the electrogalvanizing joint venture facility in Columbus, Ohio
into a hot-dip galvanizing line to be known as Columbus Coatings Company, owned
50% by LTV and 50% by Bethlehem Steel Corporation, the Company has jointly and
severally guaranteed the construction funding and the anticipated lease payments
of approximately $20 million on an annual basis under a proposed sale/leaseback
transaction upon anticipated completion by the end of 2000. The proceeds from
the sale/leaseback will be used to reimburse the partners for the construction
funding. LTV has a commitment to provide on a junior subordinated basis up to an
additional $5 million to Trico Steel.
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, 1999 and 1998 would
be $15 million and $28 million less, respectively, 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, 1999 and 1998, the notional
value of these contracts totaled $186 million and $233 million, respectively.
The contracts extend for periods of up to
F-34
<PAGE> 70
four years. At December 31, 1999, the fair value of the contracts, which is
based on quoted market prices, exceeded the carrying value by approximately $15
million and at December 31, 1998 approximated the carrying value of zero.
Outstanding letters of credit totaled $91 million and $86 million at
December 31, 1999 and 1998, 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.
SPECIAL CHARGES
In the second quarter of 1999, a special charge of $37 million was recorded
related to the write down of capitalized software development costs upon the
suspension of a pilot business systems project being installed at the Hennepin,
Illinois plant. LTV also recognized a special charge of $2 million related to a
salaried workforce reduction of approximately 100 employees. All amounts were
paid in 1999 and there is no remaining balance for this reserve at December 31,
1999.
In the fourth quarter of 1998, the Company recorded $55 million of special
charges for the shutdown of cold roll finishing operations in the No. 2
finishing department at the Cleveland Works, recognition of an asset impairment
at an electrogalvanizing joint venture, the shutdown of an electric-weld pipe
line and a salaried force reduction. Both shutdowns occurred during the first
half of 1999. The charges include $38 million of employee costs covering
approximately 460 hourly and salaried employees, $15 million for the impairment
of assets at a joint venture and $2 million for other costs. The impairment at a
joint venture resulted from a change in the utilization of equipment from an
electrogalvanizing to a hot-dipped galvanizing operation. The $15 million charge
reflects the Company's portion of the impairment charge recorded by the joint
venture which was based on a third party valuation. Of the $55 million special
charge, $6 million has been spent, $15 million of asset impairment write-offs
have been charged, and $26 million of retirement related costs have been
recorded as plan curtailments through December 31, 1999. Approximately one-half
of the facilities' employees have been terminated or are receiving severance
pay. The balance of this reserve at December 31, 1999 was $8 million and is
expected to be used in 2000 for remaining costs.
In the third quarter of 1997, LTV recorded a special charge of $150 million
for the Pittsburgh coke plant shutdown. The special charge included $51 million
for facilities write-down, $34 million for employee costs covering approximately
770 hourly and salaried employees and $65 million for demolition, environmental
matters and other costs. The plant ceased operations in February 1998. The
balance of this reserve was $49 million at December 31, 1998. Through December
31, 1999, spending of $45 million ($29 million in 1998 and $16 million in 1999)
and facility write-offs of $51 million have been charged against this reserve
and $21 million of retirement related costs have been recorded as plan
curtailments. As of December 31, 1999, substantially all employees have been
terminated. The balance of this reserve at December 31, 1999 was $33 million and
primarily represents estimated costs for environmental remediation and
demolition expected to be completed in early 2002.
F-35
<PAGE> 71
OTHER FINANCIAL DATA
Net interest and other income included the following (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest and other income $ 12 $ 26 $ 45
Interest expense (30) (3) (3)
---- ---- ----
Total $(18) $ 23 $ 42
==== ==== ====
</TABLE>
The Company has incurred research and development expense of $13 million in 1999
and $14 million in both 1998 and 1997.
Supplemental cash flow information is presented as follows (in millions):
<TABLE>
<CAPTION>
Changes in assets and liabilities which
provided (used) net cash: 1999 1998 1997
----- ------- --------
<S> <C> <C> <C>
Receivables $ (47) $ 96 $ (26)
Inventories (10) 47 (89)
Other assets (13) (6) 34
Accounts payable (6) (33) (19)
Other liabilities (5) (103) (6)
Other (2) 8 5
----- ------- --------
Total $ (83) $ 9 $ (101)
===== ======= ========
Interest payments $ 29 $ 27 $ 11
Income tax payments 4 7 8
Capitalized interest 15 31 19
Purchases of marketable securities 142 2,258 10,443
Sales of marketable securities 352 2,408 10,650
</TABLE>
F-36
<PAGE> 72
SEGMENT REPORTING
LTV operates in three reportable segments: Integrated Steel, Metal Fabrication
and Corporate and Other. Integrated Steel manufactures and sells a diversified
line of carbon flat rolled 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 includes the fourth quarter acquisitions of Copperweld and
Welded Tube. The product line of this segment includes pipe, conduit, mechanical
and structural tubular products for use in transportation, agriculture, oil and
gas, and construction industries. The segment also produces bimetallic wire for
the telecommunications and utilities industries and 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 and CAL, which are accounted for using the
equity method, and corporate investments and related income and expenses.
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
profit or loss before special items, income taxes and interest. 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, 1999. Sales for the years 1999, 1998 and 1997 to the Company's
largest customer, General Motors Corporation, represented approximately 10%, 9%
and 11%, respectively, of total sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
Integrated Metal Corporate
IN MILLIONS Steel Fabrication & Other Total
----- ----------- ------- -----
<S> <C> <C> <C> <C>
Trade sales $ 3,302 $818 $ -- $ 4,120
Intersegment sales 88 -- -- 88
Interest and other income 3 -- 9 12
Results of affiliates' operations -- 3 (33) (30)
Segment income (loss) before income taxes,
interest and special charges (161) 52 (61) (170)
Segment assets 4,198 837 2,767 7,802
Capital expenditures 269 21 -- 290
Depreciation and amortization 252 22 -- 274
Investments in equity affiliates 94 28 236 358
Assets
Total assets for reportable segments $ 7,802
Intersegment eliminations (1,701)
-------
Consolidated total $ 6,101
=======
</TABLE>
<TABLE>
<CAPTION>
Canada &
United
Geographic information: U. S. Kingdom Total
------ ---- ------
<S> <C> <C> <C>
Revenues $4,073 $ 47 $4,120
Long-lived assets 4,279 171 4,450
</TABLE>
F-37
<PAGE> 73
<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
Results of affiliates' operations -- 5 (54) (49)
Segment income (loss) before income taxes,
interest and special charges 11 63 (43) 31
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>
<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
Results of affiliates' operations -- 4 (45) (41)
Segment income (loss) before income taxes,
interest and special charge 186 51 (18) 219
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>
F-38
<PAGE> 74
SUPPLEMENTAL GUARANTOR INFORMATION
All of LTV's existing subsidiaries, including Copperweld and Welded Tube, and
future domestic wholly owned subsidiaries of LTV (other than certain
unrestricted subsidiaries and special purpose subsidiaries established for
working capital facilities) fully and unconditionally, jointly and severally
guarantee LTV's obligation to pay principal, premium, if any, and interest with
respect to the 11.75% Senior Notes due October 2009 and the Secured Facility.
Management in 1999 amended the existing 8.2% Senior Notes due September 2007,
which were guaranteed solely by LTV Steel Company, Inc., to also receive the
same guarantees as described above.
The following supplemental condensed consolidating financial statements of
The LTV Corporation present (in millions): balance sheets as of December 31,
1999 and 1998; statements of operations and cash flows for the years ended
December 31, 1999, 1998 and 1997. The LTV Corporation (Parent), the Guarantors
and Non-Guarantor Subsidiaries' investments in subsidiaries are accounted for
using the equity method. Necessary elimination entries have been made to
consolidate the Parent and all of its subsidiaries. Management does not believe
that separate financial statements of the Guarantors are material to investors.
Therefore, separate financial statements and other disclosures concerning the
Guarantors are not presented.
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $ 9 $ 40 $ 23 $ -- $ 72
Receivables -- 122 416 -- 538
Notes receivable/(payable) -- (4) 4 -- --
Inventories -- 162 859 -- 1,021
Other current assets 1 19 -- -- 20
------ ------ ------- ------- ------
Total current assets 10 339 1,302 -- 1,651
Intercompany, net 205 654 (859) -- --
Goodwill and other intangibles -- 310 3 -- 313
Investments and other noncurrent assets 1,251 488 20 (1,254) 505
Property, plant and equipment, net -- 3,522 110 -- 3,632
------ ------ ------- ------- ------
Total assets $1,466 $5,313 $ 576 $(1,254) $6,101
====== ====== ======= ======= ======
Total current liabilities $ 41 $ 852 $ 82 $ -- $ 975
Long-term debt -- 798 295 -- 1,093
Postemployment health care and other insurance benefits -- 1,524 22 -- 1,546
Pension benefits -- 560 3 -- 563
Other (64) 466 33 -- 435
Shareholders' equity 1,489 1,113 141 (1,254) 1,489
------ ------ ------- ------- ------
Total liabilities and shareholders' equity $1,466 $5,313 $ 576 $(1,254) $6,101
====== ====== ======= ======= ======
</TABLE>
F-39
<PAGE> 75
<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 $ 4 $ 31 $ -- $ 311
Receivables 3 60 312 -- 375
Notes receivable/(payable) -- (40) 40 -- --
Inventories -- 36 818 -- 854
Other current assets 3 12 -- -- 15
------ ------ ------- ------- ------
Total current assets 282 72 1,201 -- 1,555
Intercompany, net (16) 1,109 (1,093) -- --
Investments and other noncurrent assets 1,405 507 13 (1,421) 504
Property, plant and equipment, net -- 3,256 9 -- 3,265
------ ------ ------- ------- ------
Total assets $1,671 $4,944 $ 130 $(1,421) $5,324
====== ====== ======= ======= ======
Total current liabilities $ 25 $ 795 $ 19 $ -- $ 839
Long-term debt -- 302 -- -- 302
Postemployment health care and other insurance benefits -- 1,541 11 -- 1,552
Pension benefits -- 564 1 -- 565
Other 18 403 17 -- 438
Shareholders' equity 1,628 1,339 82 (1,421) 1,628
------ ------ ------- ------- ------
Total liabilities and shareholders' equity $1,671 $4,944 $ 130 $(1,421) $5,324
====== ====== ======= ======= ======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $4,048 $3,697 $(3,625) $4,120
Costs and expenses:
Cost of products sold -- 3,654 3,750 (3,625) 3,779
Depreciation and amortization -- 271 3 -- 274
Selling, general and administrative 10 176 3 -- 189
Results of affiliates' operations 206 137 -- (313) 30
Net interest and other (income) expense (7) (26) 51 -- 18
Special charges -- 39 -- -- 39
----- ------ ------ ------- ------
Total 209 4,251 3,807 (3,938) 4,329
----- ------ ------ ------- ------
Income (loss) before income taxes (209) (203) (110) 313 (209)
Income tax provision 3 -- -- -- 3
----- ------ ------ ------- ------
Net loss $(212) $ (203) $ (110) $ 313 $ (212)
===== ====== ====== ======= ======
</TABLE>
F-40
<PAGE> 76
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $4,242 $3,231 $(3,200) $ 4,273
Costs and expenses:
Cost of products sold -- 3,791 3,182 (3,200) 3,773
Depreciation and amortization -- 257 2 -- 259
Selling, general and administrative 12 171 1 -- 184
Results of affiliates' operations 34 43 -- (28) 49
Net interest and other (income) expense (22) (43) 42 -- (23)
Special charges -- 55 -- -- 55
---- ------ ------ ------- -------
Total 24 4,274 3,227 (3,228) 4,297
---- ------ ------ ------- -------
Income (loss) before income taxes (24) (32) 4 28 (24)
Income tax provision 3 -- -- -- 3
---- ------ ------ ------- -------
Net income (loss) $(27) $ (32) $ 4 $ 28 $ (27)
==== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $4,420 $ 52 $(26) $4,446
Costs and expenses:
Cost of products sold -- 3,781 46 (26) 3,801
Depreciation and amortization -- 261 2 -- 263
Selling, general and administrative 11 153 -- -- 164
Results of affiliates' operations (43) 36 -- 48 41
Net interest and other (income) expense (37) (3) (2) -- (42)
Special charge -- 150 -- -- 150
---- ------ ---- ---- ------
Total (69) 4,378 46 22 4,377
---- ------ ---- ---- ------
Income before income taxes 69 42 6 (48) 69
Income tax provision 28 14 4 (18) 28
---- ------ ---- ---- ------
Income before items below 41 28 2 (30) 41
Extraordinary loss (4) -- -- -- (4)
Cumulative effect of accounting change (7) -- -- -- (7)
---- ------ ---- ---- ------
Net income $ 30 $ 28 $ 2 $(30) $ 30
==== ====== ==== ==== ======
</TABLE>
F-41
<PAGE> 77
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 454 $(146) $(290) $ -- $ 18
Investing activities:
Capital expenditures -- (287) (3) -- (290)
Investments in and advances to steel-related businesses -- (98) -- -- (98)
Net sales of marketable securities 210 -- -- -- 210
Other (785) 69 (35) -- (751)
----- ----- ----- ---- -------
Net cash provided by (used in) investing activities (575) (316) (38) -- (929)
----- ----- ----- ---- -------
Financing activities:
Borrowings -- 498 920 -- 1,418
Payments on long-term debt -- -- (600) -- (600)
Dividends paid and other 64 -- -- -- 64
----- ----- ----- ---- -------
Net cash provided by (used in) financing activities 64 498 320 -- 882
----- ----- ----- ---- -------
Net increase (decrease) in cash and cash equivalents (57) 36 (8) -- (29)
Cash and cash equivalents at beginning of year 66 4 31 -- 101
----- ----- ----- ---- -------
Cash and cash equivalents at end of year $ 9 $ 40 $ 23 $ -- $ 72
===== ===== ===== ==== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $(178) $ 489 $ (1) $ -- $ 310
Investing activities:
Capital expenditures -- (361) (1) -- (362)
Investments in and advances to steel-related businesses -- (80) -- -- (80)
Net sales of marketable securities 150 -- -- -- 150
Other -- (2) (3) -- (5)
----- ----- ---- ---- -----
Net cash provided by (used in) investing activities 150 (443) (4) -- (297)
----- ----- ---- ---- -----
Financing activities:
Borrowings -- 4 -- -- 4
Payments on long-term debt -- (62) -- -- (62)
Dividends paid and other (14) -- -- -- (14)
----- ----- ---- ---- -----
Net cash provided by (used in) financing activities (14) (58) -- -- (72)
----- ----- ---- ---- -----
Net increase (decrease) in cash and cash equivalents (42) (12) (5) -- (59)
Cash and cash equivalents at beginning of year 108 16 36 -- 160
----- ----- ---- ---- -----
Cash and cash equivalents at end of year $ 66 $ 4 $ 31 $ -- $ 101
===== ===== ==== ==== =====
</TABLE>
F-42
<PAGE> 78
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
NON-GUARANTOR
IN MILLIONS PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ 110 $ 222 $ 4 $ -- $ 336
Investing activities:
Capital expenditures -- (325) (1) -- (326)
VP Buildings acquisition (188) -- -- -- (188)
Investments in and advances to steel-related businesses -- (101) -- -- (101)
Net sales of marketable securities 207 -- -- -- 207
Other -- 25 (1) -- 24
----- ----- ---- ---- -----
Net cash provided by (used in) investing activities 19 (401) (2) -- (384)
----- ----- ---- ---- -----
Financing activities:
Borrowings -- 290 -- -- 290
Payments on long-term debt -- (106) -- -- (106)
Repurchases of common stock (68) -- -- -- (68)
Dividends paid and other (15) -- -- -- (15)
----- ----- ---- ---- -----
Net cash provided by (used in) financing activities (83) 184 -- -- 101
----- ----- ---- ---- -----
Net increase (decrease) in cash and cash equivalents 46 5 2 -- 53
Cash and cash equivalents at beginning of year 62 11 34 -- 107
----- ----- ---- ---- -----
Cash and cash equivalents at end of year $ 108 $ 16 $ 36 $ -- $ 160
===== ===== ==== ==== =====
</TABLE>
F-43
<PAGE> 79
REPORT OF MANAGEMENT
The management of The LTV Corporation is responsible for the preparation of the
accompanying consolidated financial statements in conformity with accounting
principles generally accepted in the United States and 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.
J. Peter Kelly George T. Henning
Chairman of the Board, President Vice President and
and Chief Executive Officer Chief Financial Officer
February 25, 2000
F-44
<PAGE> 80
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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
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 Ernst & Young LLP
January 27, 2000
F-45
<PAGE> 81
FIVE-YEAR FINANCIAL SUMMARY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations for the Year
Sales $ 4,120 $ 4,273 $ 4,446 $ 4,135 $ 4,283
Income (loss) before income taxes (209) (24) 69 173 311
Income tax provision:
Taxes payable 3 3 10 -- 2
Taxes not payable in cash -- -- 18 64 115
------- ------- ------- ------- -------
Total 3 3 28 64 117
------- ------- ------- ------- -------
Income (loss) from continuing operations (212) (27) 41 109 194
Discontinued operations -- -- -- -- (9)
Extraordinary charge -- -- (4) -- --
Cumulative effect of a change in
accounting for start-up costs -- -- (7) -- --
------- ------- ------- ------- -------
Net income (loss) $ (212) $ (27) $ 30 $ 109 $ 185
======= ======= ======= ======= =======
Earnings (loss) per share (diluted)
Continuing operations $ (2.15) $ (0.29) $ 0.37 $ 1.01 $ 1.76
Net income (loss) (2.15) (0.29) 0.27 1.01 1.68
Dividends paid per common share $ 0.12 $ 0.12 $ 0.12 $ 0.09 $ --
Special charges included in income (loss)
from continuing operations $ 39 $ 55 $ 150 $ -- $ --
Financial Position at Year End
Working capital $ 676 $ 716 $ 966 $ 989 $ 1,024
Total assets 6,101 5,324 5,546 5,410 5,380
Property, net 3,632 3,265 3,161 3,117 3,140
Long-term debt 1,093 302 355 153 150
Other noncurrent obligations 2,544 2,555 2,577 2,648 3,008
Shareholders' equity 1,489 1,628 1,676 1,710 1,375
Other Financial Information
Property additions $ 290 $ 362 $ 326 $ 243 $ 205
Depreciation and amortization 274 259 263 266 252
Other Operating Data
Raw steel production
(millions of tons) 8.4 8.2 8.9 8.8 8.5
Steel product shipments
(millions of tons) 7.8 7.7 8.2 8.1 8.0
Operating rate 97% 95% 106% 105% 102%
Employees 17,900 14,800 15,500 14,000 14,400
</TABLE>
F-46
<PAGE> 82
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> <C>
Net sales
1999 $ 988 $1,014 $ 983 $1,135
1998 1,127 1,093 1,064 989
Gross margin
1999 93 105 65 78
1998 142 116 137 105
Income (loss) from operations
1999 (27) (56) (56) (70)
1998 32 6 15 (77)
Net income (loss)
1999 (29) (58) (58) (67)
1998 19 4 11 (61)
Market price per share
1999 - High $ 8.00 $ 8.00 $ 7.44 $ 5.50
Low 5.00 5.31 5.13 3.06
1998 - High $14.56 $13.50 $10.44 $ 6.94
Low 9.50 9.38 5.25 5.00
Market price per Series A Warrant (1)
1999 - High $ -- $ -- $ -- $ --
Low -- -- -- --
1998 - High $ 0.28 $ 0.14 $ -- $ --
Low 0.03 0.02 -- --
Basic and diluted earnings (loss) per share
1999 $(0.30) $(0.58) $(0.58) $(0.69)
1998 0.19 0.03 0.11 (0.62)
Dividends paid per common share
1999 $ 0.03 $ 0.03 $ 0.03 $ 0.03
1998 0.03 0.03 0.03 0.03
</TABLE>
(1) Series A Warrants expired at June 28, 1998.
F-47
<PAGE> 83
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
SALES.................................................... $ 554.7 $ 552.6
COSTS AND EXPENSES:
Costs of sales......................................... 490.1 479.1
Selling and administrative............................. 30.2 28.6
Interest expense....................................... 7.5 7.2
Other income........................................... (0.9) (0.7)
------- -------
Total costs and expenses....................... 526.9 514.2
INCOME BEFORE PROVISION FOR INCOME TAXES................. 27.8 38.4
Provision for income taxes............................. 10.4 14.7
------- -------
NET INCOME............................................... $ 17.4 $ 23.7
======= =======
</TABLE>
See notes to combined financial statements.
C-1
<PAGE> 84
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8.0
Accounts receivable, less allowance for doubtful accounts
of $2.0................................................ 94.0
Inventories:
Raw materials.......................................... 51.5
Work-in-process and finished goods..................... 43.3
Supplies............................................... 19.7
LIFO reserve........................................... (10.3)
-------
Net inventories...................................... 104.2
Other current assets...................................... 0.9
-------
Total current assets................................... 207.1
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements................................ 13.0
Buildings and building equipment.......................... 85.0
Machinery and equipment................................... 350.8
Construction in progress.................................. 54.4
-------
503.2
Accumulated depreciation.................................. (207.4)
-------
Net property, plant and equipment...................... 295.8
OTHER ASSETS, net of amortization of $4.9................... 36.5
-------
$ 539.4
=======
</TABLE>
See notes to combined financial statements.
C-2
<PAGE> 85
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable.......................................... $ 71.3
Line of credit and current maturities of long-term debt... 4.0
Salaries, wages and vacation pay.......................... 6.6
Income and other taxes.................................... 7.9
Other..................................................... 7.1
-------
Total current liabilities.............................. 96.9
-------
LONG-TERM DEBT.............................................. 150.2
OTHER LIABILITIES:
Postemployment benefit obligations........................ 40.9
Deferred income taxes..................................... 26.6
Other..................................................... 11.6
-------
Total other liabilities................................ 79.1
STOCKHOLDER'S EQUITY:
Common Stock, $.83-1/3 par value, 6,000,000 shares
authorized; 5,757,216 issued and outstanding........... 4.8
Copperweld Canada Inc., no par value, unlimited shares
authorized; 44,000 issued and outstanding.............. --
Additional paid-in capital................................ 94.8
Retained earnings......................................... 116.3
Accumulated other comprehensive loss........................ (2.7)
-------
Total stockholder's equity............................. 213.2
-------
$ 539.4
=======
</TABLE>
See notes to combined financial statements.
C-3
<PAGE> 86
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 17.4 $ 23.7
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 22.8 18.1
Changes in assets and liabilities:
Accounts receivable......................... (15.2) (5.0)
Inventory................................... 21.8 1.4
Accounts payable............................ 5.6 8.4
Other....................................... (8.1) 36.4
-------- --------
Cash provided by operating activities..... 44.3 82.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions.......................... (0.4) (4.5)
Additions to property, plant and equipment..... (30.7) (52.2)
Other.......................................... 0.1 0.1
-------- --------
Cash used by investing activities........... (31.0) (56.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends...................... (5.4) (7.7)
Payment of indebtedness........................ (207.0) (97.0)
Proceeds from borrowings....................... 193.8 73.9
Other.......................................... 0.5 (0.3)
-------- --------
Cash provided (used) by financing
activities................................ (18.1) (31.1)
-------- --------
Decrease in cash and cash equivalents....... (4.8) (4.8)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 12.8 7.1
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 8.0 $ 2.3
======== ========
</TABLE>
See notes to combined financial statements.
C-4
<PAGE> 87
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1.
The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. All adjustments that are, in the opinion of management,
necessary for a fair presentation have been made and are of a recurring nature
unless otherwise disclosed herein. The results of operations for the interim
periods are not necessarily indicative of results of operations for a full year.
For further information, refer to the combined financial statements and the
notes thereto for the year ended December 31, 1998 herein.
NOTE 2.
On November 10, 1999, Imetal, SA sold all of the stock of Copperweld
Corporation and Copperweld Canada, (the Companies) for $650 million in cash
subject to final adjustments based upon the closing of the acquisition. The
potential purchase adjustment is based on the amount of the stockholder's equity
at November 9, 1999. The Companies' accompanying financial statements have not
been adjusted for this proposed transaction with LTV.
NOTE 3. SEGMENT REPORTING
The Companies operate in two reportable segments consisting of Tubing and
Bimetallics. Tubing manufactures and sells a diversified line of steel tubing
products used in the automotive, agricultural and industrial equipment, fluid
power, construction, recreation and office furniture markets. Bimetallics
manufactures and sells copper-clad aluminum and copper-clad steel wire, rod and
strand used in the telecommunications (primarily cable television and telephone)
and utility industries.
Copperweld's reportable segments are strategic business units grouped by
similar products, technologies and manufacturing processes. Segments are managed
separately because each serves a different market and group of customers.
Segment performance is measured on pretax profit of loss from operations
(dollars in millions).
<TABLE>
<CAPTION>
1999
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
For the nine months ended September 30:
Trade sales..................................... $ 473.6 $ 81.1 $ 554.7
Segment income before taxes..................... 16.3 11.5 27.8
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade sales....................................... $ 484.9 $ 67.7 $ 552.6
Segment income before taxes..................... 29.3 9.1 38.4
</TABLE>
C-5
<PAGE> 88
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1999 1998
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
REVENUE REVENUE
------------------ ------------------
<S> <C> <C>
United States................................... $ 306.7 $ 348.7
Canada.......................................... 248.0 203.9
-------- --------
$ 554.7 $ 552.6
======== ========
</TABLE>
NOTE 4. CONTINGENCY
There has been no significant change in status of the Companies'
contingencies described in the footnotes to the 1998 annual Financial Statement
as of September 30, 1999.
NOTE 5. COMPREHENSIVE INCOME/LOSS
At September 30, 1999, accumulated other comprehensive loss included in the
balance sheet amounted to $2.7 million with no material changes since December
31, 1998. The accumulated other comprehensive loss at September 30, 1998 was
$4.5 million, with no material changes since December 31, 1997. Comprehensive
income was $19.2 million and $21.1 million for the nine months ended September
30, 1999 and 1998, respectively.
NOTE 6. EARNINGS PER SHARE
Basic and diluted earnings per share for the nine months ended September
30, 1999 and 1998, were not presented because the information would not be
meaningful to the users of the Combined Financial Statements due to the nature
of the capital structure of the Companies.
NOTE 7. LINE OF CREDIT
During 1996, and amended in 1999, the Corporation entered into an
uncommitted, unsecured revolving credit agreement with a bank that provides for
demand loans, term loans or letters of credit of up to $10,000,000. Demand loans
bear interest at the bank's prime rate and may be repaid at the option of the
Corporation or upon demand of the bank. Term loans bear interest at the bank's
cost of funds rate plus a margin, and can have maturities ranging from overnight
to 90 days. As of September 30, 1999, there was $4,000,000 of term loans
outstanding, at an average interest rate of 6.5%.
NOTE 8. LONG-TERM DEBT.
INTERCOMPANY CREDIT AND INVESTMENT AGREEMENT
During 1999, the Corporation entered into a credit agreement with IMETAL
that provided for loans in the U.S. of up to the equivalent of 100 million
Euros, in U.S. dollars, and for loans in Canada of up to the equivalent of 75
million Euros, in Canadian dollars. Loans under the agreement may be repaid and
re-borrowed subject to the commitment
C-6
<PAGE> 89
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
available. The maturity of the loans is limited to periods which are multiples
of one month, and carry interest rates that equal the base rate of loans made by
IMETAL under its Facility Agreement plus 1.30%. As of September 30, 1999 there
were $150.2 million in loans outstanding under this agreement. The average
interest rate on the loans outstanding as of September 30, 1999 was 6.68% for
loans in the U.S., and 6.075% for loans in Canada.
NOTE 9. TRANSACTIONS WITH AFFILIATES
The Companies were charged insignificant amounts of management fees from
their parent, representing legal, accounting and other administrative services
performed on behalf of the Companies.
C-7
<PAGE> 90
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Directors and Shareholder
of Copperweld Corporation and Copperweld Canada Inc.
We have audited the accompanying balance sheets as of December 31, 1998 and
1997, of the companies listed in Note 1 and the related statements of income,
shareholders equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the companies' managements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position at December 31, 1998 and 1997,
of the companies listed in Note 1, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 30, 1999, except for
Note 5 as to which the date is
May 31, 1999
C-8
<PAGE> 91
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES............................................ $ 711.0 $ 662.7 $ 427.8
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales.................................. 617.7 566.9 365.9
Selling and administrative..................... 36.7 38.1 28.7
Interest expense............................... 8.0 8.0 4.5
Other income................................... (1.3) (0.8) (0.5)
-------- -------- --------
Total costs and expenses............... 661.1 612.2 398.6
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES......... 49.9 50.5 29.2
Provision for income taxes..................... 19.1 18.6 9.4
-------- -------- --------
NET INCOME....................................... $ 30.8 $ 31.9 $ 19.8
======== ======== ========
</TABLE>
See notes to combined financial statements
C-9
<PAGE> 92
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................. $ 12.8 $ 7.1
-------- --------
Accounts receivable, less allowance for doubtful accounts
of $2.5 in 1998, and $2.0 in 1997...................... 78.1 91.1
Inventories:
Raw materials.......................................... 70.8 55.8
Work-in-process and finished goods..................... 47.8 58.8
Supplies............................................... 19.2 17.6
LIFO reserve........................................... (13.7) (18.5)
-------- --------
Net inventories...................................... 124.1 113.7
Other current assets...................................... 2.6 4.5
-------- --------
Total current assets................................... 217.6 216.4
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements................................ 12.9 9.2
Buildings and building equipment.......................... 84.1 63.0
Machinery and equipment................................... 344.0 302.2
Construction in progress.................................. 29.0 22.3
-------- --------
470.0 396.7
Accumulated depreciation.................................. (187.7) (168.1)
-------- --------
Net property, plant and equipment...................... 282.3 228.6
OTHER ASSETS, net of accumulated amortization of $4.0 in
1998 and $3.4 in 1997..................................... 31.2 27.2
-------- --------
$ 531.1 $ 472.2
======== ========
</TABLE>
See notes to combined financial statements
C-10
<PAGE> 93
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable.......................................... $ 65.5 $ 62.5
Line of credit and current maturities of long-term debt... 9.2 4.0
Salaries, wages and vacation pay.......................... 7.6 12.9
Income and other taxes.................................... 5.7 7.0
Other..................................................... 12.4 10.8
-------- --------
Total current liabilities.............................. 100.4 97.2
LONG-TERM DEBT.............................................. 154.5 160.6
OTHER LIABILITIES:
Pension benefits.......................................... -- 1.4
Postemployment benefit obligations........................ 39.9 41.7
Deferred income taxes..................................... 25.1 22.9
Other..................................................... 11.8 12.5
-------- --------
Total other liabilities................................ 76.8 78.5
STOCKHOLDER'S EQUITY:
Common stock:
Copperweld Corporation, $.83 1/3 par value, 6,000,000
shares authorized; 5,757,216 issued and
outstanding.......................................... 4.8 4.8
Copperweld Canada Inc., no par value, unlimited shares
authorized; 44,000 issued and outstanding............ -- --
Additional paid-in capital................................ 94.8 51.8
Retained earnings......................................... 104.3 81.2
Accumulated other comprehensive loss:..................... (4.5) (1.9)
-------- --------
Total stockholders equity.............................. 199.4 135.9
-------- --------
$ 531.1 $ 472.2
======== ========
</TABLE>
See notes to combined financial statements
C-11
<PAGE> 94
COPPERWELD CORPORATION AND COPPERWELD CANADA INC
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME/(LOSS) TOTALS
------ ---------- -------- ------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.... $ 4.8 $ 26.8 $ 54.3 $ (3.7) $ 82.2
Net income.................... -- -- 19.8 -- 19.8
Minimum pension liability net
of tax (liability of
$.3)....................... -- -- -- 0.3 0.3
------
Comprehensive Income....... 20.1
------
Dividends declared............ -- -- (11.2) -- (11.2)
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1996.... $ 4.8 $ 26.8 $ 62.9 $ (3.4) $ 91.1
Net income.................... -- -- 31.9 -- 31.9
Cumulative translation
adjustment................. -- -- -- (0.9) (0.9)
Minimum pension liability net
of tax liability of $1.6... -- -- -- 2.4 2.4
------
Comprehensive Income....... 33.4
------
Dividends declared............ -- -- (13.6) -- (13.6)
Capital contribution by
parent..................... -- 25.0 -- -- 25.0
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1997.... $ 4.8 $ 51.8 $ 81.2 $ (1.9) $135.9
Net income.................... -- -- 30.8 -- 30.8
Cumulative translation
adjustment................. -- -- -- (2.6) (2.6)
------
Comprehensive Income....... 28.2
------
Dividends declared............ -- -- (7.7) -- (7.7)
Sale of subsidiary stock to
parent net of tax liability
of $1.0.................... -- 43.0 -- -- 43.0
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1998.... $ 4.8 $ 94.8 $104.3 $ (4.5) $199.4
====== ====== ====== ====== ======
</TABLE>
See notes to combined financial statements
C-12
<PAGE> 95
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 30.8 $ 31.9 $ 19.8
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............... 22.9 19.8 12.8
Provisions for contingent liabilities and
asset write-downs......................... -- -- 4.9
Deferred income taxes....................... 0.6 1.4 (1.0)
Changes in assets and liabilities:
Accounts receivable......................... 11.3 2.0 (2.6)
Inventory................................... (12.9) (6.8) (12.8)
Accounts payable............................ (1.8) (4.8) 8.9
Other....................................... 3.1 (9.1) (1.2)
-------- -------- --------
Cash provided by operating activities..... 54.0 34.4 28.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..... (83.2) (30.8) (10.2)
Business acquisitions.......................... (4.6) (98.3) --
Proceeds from sale of energy business and
other....................................... 0.1 0.5 2.6
-------- -------- --------
Cash used by investing activities......... (87.7) (128.6) (7.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends...................... (7.7) (13.6) (11.2)
Payment of indebtedness........................ (117.4) (95.1) (30.4)
Proceeds from borrowings....................... 122.2 155.7 17.0
Sale of subsidiary stock to parent, net of
tax......................................... 43.0 -- --
Additional investment -- parent................ -- 25.0 --
Subordinated loan -- parent.................... -- 28.0 --
Other.......................................... (0.7) 0.5
-------- -------- --------
Cash provided (used) by financing
activities............................. 39.4 100.5 (24.6)
-------- -------- --------
Increase in cash and cash equivalents..... 5.7 6.3 (3.4)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 7.1 0.8 4.2
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 12.8 $ 7.1 $ 0.8
======== ======== ========
</TABLE>
See notes to combined financial statements
C-13
<PAGE> 96
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION
The financial statements of Copperweld Corporation (the "Corporation") and
Copperweld Canada Inc. ("Copperweld Canada"), (the "Companies") include the
accounts of the Companies and subsidiaries after elimination of intercompany
transactions. Sales are predominantly derived from the manufacture of mechanical
and structural steel tubing in the United States and Canada, with additional
sales coming from the manufacture of bimetallic wire in the United States and
United Kingdom. The principal markets for tubing products are the service
center, automotive, agricultural, construction and industrial equipment markets,
primarily in the United States and Canada. The bimetallic wire products are sold
to domestic wire fabricators serving the cable television and telephone markets,
and to a lesser degree European and other foreign-based wire fabricators. The
Companies perform credit evaluations of their customers' financial condition and
generally do not require collateral.
The Companies are wholly-owned subsidiaries of Imetal, SA (Imetal), a
French holding company.
The combined financial position and combined results of operation are
presented in U.S. dollars in accordance with generally accepted accounting
principles governed by U.S. accounting rules.
Effective August 31, 1998, the Corporation sold 100% of the capital stock
of Copperweld Canada, which was acquired on April 25, 1997, to Imetal (Note 2),
the Corporation's parent company. The financial statements for 1998 are
presented as "combined" financial statements, since both entities are under
common control of Imetal. The effect of this combined presentation on the 1997
financial statements was not significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Companies' policy is to treat investments with maturities at
acquisition of three months or less as cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market (net realizable
value). Tubing products and copper inventories of U.S. operations are valued on
the last-in, first-out (LIFO) cost method. Tubing products and bimetallic wire
inventories of Canadian and
C-14
<PAGE> 97
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
United Kingdom operations (Note 2) are valued on a first-in, first-out (FIFO)
basis. Other inventories are valued at average cost, or standard cost which
approximates average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is calculated
on the straight-line method based upon estimated useful lives of five to forty
years for land improvements, three to forty years for buildings and building
equipment and three to thirty years for machinery and equipment.
INTANGIBLES AND OTHER ASSETS
The long-term other asset balance amounted to $31.2 million in 1998, and
$27.2 million in 1997. Of these balances, Goodwill represents $19.2 million and
$16.2 million net of accumulated amortization of $1.5 million and $.6 million
for fiscal years 1998 and 1997 respectively. Goodwill, representing the excess
of cost over the fair value of net tangible and identifiable intangible assets
of acquired businesses, is stated at cost and amortized to expense on a straight
line basis over a period of 20 years. On an ongoing basis, when there are
indicators of impairment such as recurring losses, the Companies evaluate the
carrying value of intangibles resulting from business acquisitions. There has
been no impairment for the years ended December 31, 1998, 1997 and 1996.
REVENUE RECOGNITION
Product sales are recorded at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of Copperweld Canada and the Corporation's
United Kingdom operation, Sayton Fine Wire Division are translated into U.S.
dollars at current exchange rates (the functional currencies are the Canadian
dollar and the pound sterling, respectively). Revenue and expense accounts of
these operations are translated at average exchange rates prevailing during the
year. These translation adjustments are accumulated in a separate component of
stockholder's equity and included in other comprehensive loss.
Foreign currency transaction gains and losses are included in determining
net income for the year in which the exchange rate changes.
CHANGE IN ACCOUNTING
During 1998, SOP 98-1, Capitalization of Internal Use Software, was early
adopted. The effect of this accounting change was to increase pretax income by
approximately $1.1 million.
C-15
<PAGE> 98
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative instruments and Hedging Activities" which
requires all derivatives to be recognized as either assets or liabilities in the
balance sheet and be measured at fair value. Changes in the fair value of
derivatives will be recognized in net income unless specific hedge accounting
criteria are met. The Companies intend to adopt this statement in 2000 and it is
not expected to have a material impact on the Companies' financial statements.
COMPREHENSIVE INCOME
During 1998, the Corporation adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income. This standard changes the
manner in which the elements of comprehensive income (minimum pension liability
and foreign currency translations) are displayed in the financial statements.
The 1997 and 1996 amounts have been restated to comply with this standard.
NOTE 2. ACQUISITIONS AND DIVESTITURE
On April 25, 1997, the Corporation acquired Ferrum Inc., subsequently
renamed Copperweld Canada Inc., a tubing manufacturing operation located in
Canada, and The Tube and Steel Company of America (TASCOA), a related United
States distribution company. This acquisition was accounted for under the
purchase method of accounting; and accordingly, the results of operations of the
acquired company are included in the combined financial statements from the date
of the acquisition. Total consideration amounted to $98.4 million in cash and
liabilities assumed. Assets and liabilities acquired were adjusted to estimated
fair market value. The excess of the purchase price of $16.3 million is
primarily classified as goodwill and is being amortized over 20 years.
A portion of the acquisition cost was financed through a $25.0 million
capital contribution and a $27.8 million convertible unsecured note from Imetal.
The following unaudited pro forma financial information reflects the
acquisitions as if they had occurred on January 1, 1996 (dollars in millions).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Sales and revenues......... $ 764.8 $ 719.1
Net income................. 34.7 22.7
</TABLE>
The above amounts are based upon certain assumptions and estimates which
the Companies believe are reasonable. The pro forma results do not necessarily
represent results which would have occurred if the acquisitions had taken place
at the date and on the basis assumed above.
Effective August 31, 1998, Imetal acquired 100% of the capital stock of
Copperweld Canada for $44.0 million from the Corporation. Since both entities
are under common control, no gain was recognized for financial statement
purposes. Instead, the proceeds
C-16
<PAGE> 99
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
received of ($44 million), net of income taxes $1.0 million were treated as a
contribution of capital. Cash proceeds from the sale were utilized to pay down
debt incurred during the original acquisition of Copperweld Canada by the
Corporation. Although no longer the legal owner, the Corporation retains
management responsibility for Copperweld Canada.
On March 31, 1998, the Corporation purchased the assets of PVH Copperply,
in the United Kingdom, for $1.2 million. This acquisition was accounted for
under the purchase method of accounting; and accordingly, the results of
operations of the acquired company are included in the combined financial
statements from the date of the acquisition. Substantially all of the purchase
was allocated to goodwill ($1.0 million) and is being amortized over 20 years.
On July 1, 1998, the Corporation purchased 90% of the capital stock of
Sayton Fine Wires Limited, located in Telford, England, for $3.3 million. The
90% net assets interest, at the time of purchase was valued at $.7 million. This
acquisition was accounted for under the purchase method of accounting; and
accordingly, the results of operations of the acquired company are included in
the combined financial statements from the date of the acquisition. Goodwill in
the amount of $2.9 million, resulting from the acquisition, is being amortized
over 20 years.
NOTE 3. INVENTORIES
Inventories at December 31, 1998 and 1997, valued on the basis set forth in
Note 1, were as follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
LIFO method.................................... $ 52.2 $ 59.3
FIFO and average cost method................... 71.9 54.4
-------- --------
Net inventories.............................. $ 124.1 $ 113.7
======== ========
</TABLE>
NOTE 4. LINE OF CREDIT
During 1996, the Corporation entered into an uncommitted, unsecured
revolving credit agreement with a bank that provides for demand loans, term
loans or letters of credit of up to $10 million. Demand loans bear interest at
the bank's prime rate and may be repaid at the option of the Corporation or upon
demand of the bank. Term loans bear interest at the bank's cost of funds rate
plus .25%, and can have maturities ranging from overnight to 90 days. As of
December 31, 1998 and 1997, there were $6.0 million and $4.0 million,
respectively, of term loans outstanding.
C-17
<PAGE> 100
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997, excluding the line of credit
and current maturities, is summarized by type of borrowing as follows (dollars
in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Bank Debt Agreement, variable interest rates,
payable 1999 through 2002...................... $ 128.4 $ 132.5
Convertible unsecured subordinated
note-parent.................................. 26.1 28.1
-------- --------
Long-term debt................................. $ 154.5 $ 160.6
======== ========
</TABLE>
PAYMENTS
The annual maturities through the year 2007 on long-term debt outstanding,
including debt classified as current maturities, at December 31, 1998, are as
follows: 1999 -- $9.2 million; 2002 -- $128.4 million; 2007 -- $26.1 million.
BANK DEBT AGREEMENT
On April 25, 1997, in connection with the acquisition of Copperweld Canada
and the related U.S. distribution company, the Companies entered into the
Agreement with a group of banks which provides for loans up to a maximum of
$180.0 million through May 27, 2002. The Agreement provides for a Tranche A
facility and a Tranche B facility.
The Tranche A facility provides for loans of up to $100.0 million, with a
$5.0 million reduction on May 27, 1999, a $5.0 million reduction on May 27,
2000, a $10.0 million reduction on May 27, 2001, and a withdrawal of the
commitment on May 27, 2002. Loans under this facility may be repaid and
re-borrowed subject to the commitment available. As of December 31, 1998, there
were $49.2 million of Tranche A loans outstanding. Under the Tranche A facility,
the Companies may select from various published interest rate indices as defined
by the Agreement, to which a premium of between .45% and .70% is added based
upon the attainment of certain financial ratios. At December 31, 1998, the
average interest rate on outstanding borrowings, including the premium and
reduced by the effect of certain interest exchange agreements, was 5.98%.
The Tranche B facility provides for loans of up to $80.0 million which are
subject to renewal by the banks no later than sixteen months prior to the
Tranche B maturity date then in effect, and a final maturity on May 27, 2002.
Loans under this facility may be repaid and re-borrowed subject to the
commitment available. As of December 31, 1998, there were $79.2 million of
Tranche B loans outstanding. Under the Tranche B facility, the Companies may
select from various published interest rate indices as defined by the Agreement,
to which a premium of between .30% and .55% is added based upon the attainment
of certain financial ratios. At December 31, 1998, the average interest rate on
outstanding borrowings, including the premium and reduced by the effect of
certain interest exchange agreements, was 6.04%.
C-18
<PAGE> 101
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Companies are required to pay commitment fees of .20% per annum on the
unused portion of the Tranche A facility, and .15% per annum on the unused
portion of the Tranche B facility.
The Agreement is not secured by any of the assets of the Companies, but
does prohibit the Companies from pledging their assets to any third party. The
Agreement contains restrictive financial covenants including the maintenance of
fixed charge coverage, minimum net worth and debt-to-net worth ratios.
On January 10, 1999, the Corporation became an Additional Borrower in a
Facility Agreement between Imetal, S.A., Scentcount Limited, Societe Generale
(Paris) and Societe Generale, London Branch. This Facility was used to refinance
existing debt of Tranche A and B. The Facility provides for four separate
Tranches, and the Company is authorized to borrow under the Tranche 2 Facility,
which has a total commitment of 595 million Euros, and which has a final
maturity of January 10, 2004.
Loans under this Facility may be repaid and re-borrowed subject to the
commitment available. Under the Tranche 2 Facility, the Corporation may borrow
at the LIBOR rate plus a margin of between .40% and 1.25%, based on the
attainment by Imetal of certain financial ratios.
The Corporation has irrevocably, unconditionally, jointly and severally
guaranteed the obligations of each other Obligor of the Facility.
During May 1999, Copperweld Canada began to borrow directly from Imetal and
repaid all amounts outstanding, as of May 31, 1999, on Tranche A and B loans.
Copperweld Canada borrows at the LIBOR rate plus a margin of between .45% and
1.30%.
CONVERTIBLE UNSECURED SUBORDINATED NOTE -- PARENT
In connection with the acquisition of the Canadian tube manufacturing
operations (April 25, 1997) by the Corporation, Copperweld Canada entered into a
Convertible Unsecured Subordinated Note Agreement with Imetal for $26.1 million.
The note is due in its entirety on June 30, 2007, bears interest at the rate of
7.80%, is convertible to common stock of Copperweld Canada at any time upon
notice by Imetal, and is subordinated to the Companies' bank debt.
NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST EXCHANGE AGREEMENTS
As of December 31, 1998, the Companies had three interest exchange (swap)
agreements in effect, which fixed the interest rate on certain loans, made under
the Agreement. A fixed rate of 5.19%, before premium, was set on $5.0 million of
loans effective December 15, 1995, and continuing until December 15, 2000. A
fixed rate of 5.135%, before premium, was set on $15.0 million of loans
effective February 2, 1998, and continuing until February 2, 1999. A fixed rate
of 4.98%, before premium, was set on $65 million of loans effective February 11,
1998, and continuing until February 11, 1999.
C-19
<PAGE> 102
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FORWARD CURRENCY SALES CONTRACTS
To protect against the reduction in value of foreign currency cash flows,
Copperweld Canada entered into forward currency sales contracts to hedge a
portion of its anticipated export sales in U.S. dollars over the ensuing twelve
months. At December 31, 1998, there were no forward currency sales contracts
outstanding. At December 31, 1997, the contract value of forward currency sales
contracts was $60.5 million, and a loss of $2.1 million was recorded during 1997
to reflect the change in current market rates. Under the Corporation's current
accounting policies, the forward contracts do not qualify as hedges for
financial reporting purposes and accordingly the net difference between the
contract value and the current market value was recorded in the combined balance
sheets, with gains or losses caused by changes in current market rates reflected
directly in income.
NOTE 7. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Companies adopted Statement of Financial Accounting Standards No. 132,
Employees' Disclosures about Pensions and Other Postretirement Benefits, as of
January 1, 1998. Disclosures for 1997 and 1996 have been restated to conform to
current year presentations.
The Companies have several trusteed defined benefit pension plans covering
substantially all employees. Plan assets primarily include marketable debt and
equity securities. Plans covering union represented and non-represented
personnel generally provide benefits using a formula that is based upon employee
compensation. In addition to providing pension benefits, the Companies provide
certain health care and life insurance benefits for eligible retired employees
and their dependents. The cost of these postretirement benefits is recognized by
the Companies during the employees' years of service.
C-20
<PAGE> 103
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the change in benefit obligation, the change
in plan assets, funded status and amounts recognized in the combined balance
sheets of the pension and other postretirement benefits as of December 31, 1998
and 1997 (dollars in millions):
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of
year............................ $ 144.9 $ 133.4 $ 38.8 $ 41.6
Service cost.................... 4.2 3.5 .8 .9
Interest cost................... 9.7 8.8 2.6 2.5
Participant contributions....... .1 -- -- --
Plan amendments................. .3 -- -- (1.8)
Exchange rate changes........... (2.6) (.8) (.7) (.4)
Curtailment (gain) or loss...... -- -- -- (3.3)
Benefits paid................... (7.5) (6.8) (1.9) (1.8)
Actuarial (gain) or loss........ 5.5 6.8 1.0 1.1
-------- -------- -------- --------
Benefit obligation at end of
year............................ $ 154.6 $ 144.9 $ 40.6 $ 38.8
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year............... $ 138.5 $ 119.9 $ -- $ --
Actual return on plan assets.... 24.1 21.4 -- --
Employer contributions.......... 7.1 5.5 1.9 1.8
Participant contributions....... .1 .1 -- --
Benefits paid................... (7.5) (6.8) (1.9) (1.8)
Administrative expenses......... (1.2) (.6) -- --
Exchange rate changes........... (2.7) (1.0) -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year............................ $ 158.4 $ 138.5 $ -- $ --
RECONCILIATION OF FUNDED STATUS:
Funded status...................... $ 3.8 $ (6.4) $ (40.6) $ (38.8)
Unrecognized actuarial (gain) or
loss............................ (2.0) 3.3 3.3 2.3
Unrecognized transition (asset) or
obligation...................... (1.5) (1.9) -- --
Unrecognized prior service cost.... 5.4 5.7 (2.6) (3.1)
Other.............................. -- .1 -- (2.1)
-------- -------- -------- --------
Net amount recognized at
year-end................. $ 5.7 $ .8 $ (39.9) $ (41.7)
======== ======== ======== ========
</TABLE>
C-21
<PAGE> 104
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN THE COMBINED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost............ $ 8.5 $ 2.0 $ -- $ --
Accrued benefit liability....... (5.0) (7.8) (39.9) (41.7)
Intangible asset................ 0.2 4.7 -- --
Accumulated other comprehensive
income........................ 2.0 1.9 -- --
-------- -------- -------- --------
Net amount recognized at
year-end................. $ 5.7 $ .8 $ (39.9) $ (41.7)
======== ======== ======== ========
Other comprehensive income
attributable to change in
additional minimum liability
recognition........................ $ .1 $ 4.0
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS
--------------------
1998 1997
-------- --------
<S> <C> <C>
ADDITIONAL YEAR-END INFORMATION FOR
PENSION PLANS WITH ACCUMULATED BENEFIT
OBLIGATIONS IN EXCESS OF PLAN ASSETS:
Projected benefit obligation......... $ 36.6 $ 49.0
Accumulated benefit obligation....... 34.0 47.5
Fair value of plan assets............ 30.4 42.3
</TABLE>
The following table summarizes the benefit costs and the assumptions used
in calculating these costs (dollars in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST:
Service cost..................... $ 4.2 $ 3.5 $ 2.9 $ 0.8 $ 0.9 $ 0.7
Interest cost.................. 9.7 8.8 6.8 2.6 2.5 2.1
Expected return on plan
assets....................... (12.1) (9.5) (7.2) -- -- --
Amortization of prior service
cost....................... 0.6 0.6 0.6 (0.4) (0.4) (0.3)
Amortization of transitional
(asset) or obligation........ (0.4) (0.4) (0.4) -- -- --
Recognized actuarial (gain) or
loss......................... 0.1 0.2 0.4 (0.1) (0.1) --
------- ------- ------- ------- ------- -------
Net periodic benefit
cost.................. $ 2.1 $ 3.2 $ 3.1 $ 2.9 $ 2.9 $ 2.5
WEIGHTED-AVERAGE ASSUMPTIONS AS
OF DECEMBER 31:
Discount rate.................... 6.25%- 7.00% 7.25% 6.25%- 6.25%- 7.25%
6.75% 6.75% 7.00%
Expected long-term rate of return
on plan assets................. 8.00%- 8.00%- 9.50% N/A N/A 7.25%
9.50% 9.50%
Rate of compensation increase.... 4.00%- 4.50%- 6.00% 6.00% 6.00% 6.00%
5.50% 5.50%
</TABLE>
C-22
<PAGE> 105
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For measurement purposes, an 8.5% - 9.0% annual rate of increase for
non-medicare eligible employees, and a 6.5% annual rate of increase for Medicare
eligible employees on the per capita cost of covered health care benefits was
assumed for 1998. The rate is assumed to decrease gradually to 4.0% - 5.5% for
2004 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total service and interest cost components
for 1998............................................... $ 0.3 $ (0.2)
Effect on year end 1998 postretirement benefit
obligation........................................... 2.7 (2.3)
</TABLE>
NOTE 8. INCOME TAXES
The income tax provisions of the Companies are prepared on a stand-alone
company basis. The composition of the Companies' income tax expense and the
reconciliation of the U.S. federal statutory tax rate are presented below
(dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Income tax expense (benefit):
Current: Federal........................................ $15.6 $13.3 $8.5
State and provincial.......................... 2.9 3.9 1.8
----- ----- ----
18.5 17.2 10.3
Deferred: Federal, state and provincial................. .6 1.4 (0.9)
----- ----- ----
Provision for income taxes........................... $19.1 $18.6 $9.4
===== ===== ====
U.S. Federal statutory rate............................... 35.0% 35.0% 35.0%
State and Provincial tax, net of federal tax benefit...... 3.1 5.0 4.1
Reduction of excess federal tax accrual................... 0.0 (1.4) (6.8)
Other..................................................... .1 (1.8) (.2)
----- ----- ----
Effective tax rate...................................... 38.2% 36.8% 32.1%
===== ===== ====
</TABLE>
C-23
<PAGE> 106
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Companies' deferred tax liabilities and
assets as of December 31, 1998 and 1997 are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Deferred tax liabilities:
Excess of book basis over tax basis for fixed assets...... $43.5 $44.6
Excess of pension fund contributions over financial
statement expense...................................... 5.4 3.9
----- -----
48.9 48.5
Deferred tax assets:
Financial statement accruals relating to:
Retirement benefits.................................... 14.4 14.6
Deferred compensation.................................. 2.1 2.0
Contingent liabilities and asset write-downs........... 3.8 4.2
Other.................................................. 3.5 4.8
----- -----
23.8 25.6
----- -----
Deferred income taxes....................................... $25.1 $22.9
===== =====
</TABLE>
C-24
<PAGE> 107
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. OPERATING LEASES
The Companies are obligated under terms on noncancelable operating leases
for future minimum rentals on certain operating equipment and buildings. Total
expense recognized under these operating leases was $4.1 million; $3.5 million,
and $4.5 million during the years ended December 31, 1998, 1997 and 1996 and
future commitments were as follows for the years ending on December 31 (dollars
in millions):
<TABLE>
<CAPTION>
1998
-----
<S> <C>
1999.................................................... $ 4.0
2000.................................................... 3.3
2001.................................................... 2.8
2002.................................................... 2.6
2003.................................................... 2.4
Thereafter.............................................. 10.0
</TABLE>
NOTE 10. CONTINGENT LIABILITIES
CSC BANKRUPTCY
On November 22, 1993, CSC Industries, Inc. (CSC) (a former affiliate of the
Corporation) and its wholly-owned subsidiary, Copperweld Steel Company,
announced that they had filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code. CSC emerged from bankruptcy on
September 28, 1995, however, certain claims against the Corporation regarding
workers' compensation continue to be pursued by a third party, as noted below.
The outcome of this matter is not certain at this time, however, management does
not expect that any potential loss would be significant to the Corporation's
financial statements.
CSC WORKERS' COMPENSATION
During the period 1973 to 1987, under the Corporation's ownership of CSC,
CSC workers' compensation claims were covered under a self-insurance program,
for which the Corporation had provided certain financial guarantees. During
1995, CSC ceased making payments for workers' compensation claims incurred
during the period preceding its bankruptcy in 1993. As a result, during 1996,
the Corporation's insurance carriers were requested by the Ohio Bureau of
Workers' Compensation (OBWC) to honor their surety bonds for the continuing
self-insured claims liability. During 1996, the Corporation recorded a liability
of approximately $3.7 million (included in selling and administrative expenses)
to reflect management's estimate of the amount necessary to settle these claims.
During 1997, one insurance carrier filed a Proof of Claim against the bankrupt
estate of CSC in U.S. Bankruptcy Court. This case was disallowed by the Court
upon the finding that the OBWC had settled and released all of its claims
against the Liquidation Trustee as successor to CSC, although the ruling does
not preclude the OBWC from pursuing its claim outside of the Bankruptcy Court's
jurisdiction. At this time no direct claim or threat has been made by OBWC
against the Corporation. Management believes that no additional material
liabilities will be incurred by the Corporation related to this matter, beyond
the amount recorded in 1996.
C-25
<PAGE> 108
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
In 1987, the Corporation permanently ceased operations at one of its
divisions and sold its assets. In connection with the sale, the Corporation
guaranteed $5.7 million of the acquirer's debt (due in 2012). The principal
portion of this obligation has been defeased through the purchase of a municipal
bond that was placed in an escrow fund. In addition, the Corporation retained a
security interest in the fixed assets of the acquirer in connection with the
guarantee. The amount of loss, if any, in the event that the Corporation's
guarantee is called upon, would be limited to the after-tax amount by which the
loan balance exceeds the related collateral value. In 1993, the Corporation
recorded a reserve in its financial statements of $1.5 million on a pretax basis
as an estimate of its net exposure in the event the Corporation's guarantee is
called upon. The reserve amount continues to be carried in the Corporation's
consolidated balance sheet at December 31, 1998.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments reported in the combined
balance sheets approximate fair values.
NOTE 12. SEGMENT REPORTING
The Companies operate in two reportable segments consisting of Tubing and
Bimetallics. Tubing manufactures and sells a diversified line of steel tubing
products used in the automotive, agricultural and industrial equipment, fluid
power, construction, recreation and office furniture markets. Bimetallics
manufactures and sells copper-clad aluminum and copper-clad steel wire, rod and
strand used in the telecommunications (primarily cable television and telephone)
and utility industries.
Copperweld's reportable segments are strategic business units grouped by
similar products, technologies and manufacturing processes. Segments are managed
separately because each serves a different market and group of customers. The
accounting policies of the segments are the same as those described in the
summary of significant accounting
C-26
<PAGE> 109
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
policies. Segment performance is measured on pretax profit or loss from
operations (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade sales....................................... $ 619.4 $ 91.6 $ 711.0
Interest and other income......................... 1.1 0.2 1.3
Interest expense.................................. (7.3) (0.7) (8.0)
Segment income before taxes....................... 37.1 12.8 49.9
Segment assets.................................... 489.9 59.0 548.9
Capital expenditures.............................. 71.0 12.2 83.2
Depreciation and amortization..................... 20.6 2.3 22.9
Assets
Total assets for reportable segments............ 548.9
Intersegment eliminations......................... (17.8)
--------
Consolidated Total.............................. $ 531.1
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade Sales...................................... $ 559.0 $ 103.7 $ 662.7
Interest and other income........................ 0.5 0.3 0.8
Interest expense................................. (7.2) (0.8) (8.0)
Segment income before taxes...................... 33.5 17.0 50.5
Segment assets................................... 431.1 41.2 472.3
Capital expenditures............................. 27.2 3.6 30.8
Depreciation and amortization.................... 18.0 1.8 19.8
Assets
Total assets for reportable segments........... 472.3
Intersegment eliminations........................ (0.1)
--------
Consolidated Total............................. $ 472.2
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
TUBING BIMETALLICS TOTAL
------ ----------- ------
<S> <C> <C> <C>
Trade sales......................................... $328.4 $99.4 $427.8
Interest and other income........................... 0.2 0.3 0.5
Interest expense.................................... (4.0) (0.5) (4.5)
Segment income before taxes......................... 13.6 15.6 29.2
Segment assets...................................... 228.0 37.1 265.1
Capital expenditures................................ 9.1 1.1 10.2
Depreciation and amortization....................... 11.1 1.7 12.8
Assets
Total assets for reportable segments and
consolidated total............................. $265.1
======
</TABLE>
C-27
<PAGE> 110
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........ $ 441.4 $ 226.0 $ 498.4 $ 168.2 $ 427.8 $ 144.6
Canada............... 269.6 87.5 164.3 87.6 0 0
-------- -------- -------- -------- -------- --------
$ 711.0 $ 313.5 $ 662.7 $ 255.8 $ 427.8 $ 144.6
======== ======== ======== ======== ======== ========
</TABLE>
NOTE 13. OTHER INFORMATION
SUPPLEMENTAL INCOME
Supplemental income and cash flow information relating to operations for
the years ended December 31, 1998 and 1997 is as follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Capitalized interest....................................... $ 1.7 $ 0.2 $ 0.1
Interest paid.............................................. $ 11.2 $ 7.1 $ 4.3
Income taxes paid.......................................... $ 18.1 $ 15.7 $ 11.4
</TABLE>
OTHER RELATED PARTY TRANSACTIONS
The Companies were charged $300,000, annually, of management fees from
their parent, representing legal, accounting and other administrative services
performed on behalf of the Companies.
NOTE 14. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 1998,
1997 and 1996, were not presented because the information would not be
meaningful to the users of the combined financial statements due to the nature
of the capital structure of the Companies.
C-28
<PAGE> 111
WELDED TUBE CO. OF AMERICA
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
1999
---------------------
(In Thousands, Except
Share Information)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 40
Trade accounts receivable, less allowance for doubtful
accounts of $344....................................... 12,945
Inventories............................................... 31,363
Refundable income taxes from affiliate.................... 1,026
Prepaid expenses.......................................... 3,036
--------
Total current assets.............................. 48,410
Property, plant and equipment............................... 127,788
Less allowance for depreciation and amortization............ (22,432)
--------
Total property, plant and equipment............... 105,356
Note receivable from employee............................... 300
Patent, net of accumulated amortization of $600............. 4,866
--------
$158,932
========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 16,363
Line of credit............................................ 5,000
Accrued expenses.......................................... 4,010
Deferred income taxes..................................... 3,134
Capital leases............................................ 2,774
--------
Total current liabilities......................... 31,281
Due to affiliates -- net.................................... 50,336
Deferred income taxes....................................... 7,835
Other....................................................... 706
--------
58,877
SHAREHOLDER'S EQUITY:
Common stock; $1 par value; 1,000 shares authorized,
issued, and outstanding................................ 1
Additional paid-in capital................................ 33,429
Retained earnings......................................... 35,344
--------
Total shareholder's equity........................ 68,774
--------
Total liabilities and shareholder's equity........ $158,932
========
</TABLE>
See accompanying notes.
W-1
<PAGE> 112
WELDED TUBE CO. OF AMERICA
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Net sales................................................... $33,228 $36,350
Cost of products sold....................................... 30,122 30,177
------- -------
Gross margin................................................ 3,106 6,173
Selling, general, and administrative expenses............... 4,295 4,027
Start-up expenses for Portland facility..................... 746
Goodwill amortization....................................... 209
------- -------
Income (loss) from operations............................. (1,189) 1,191
Other income (expense):
Interest and other income................................. 8 8
Interest expense.......................................... (780) (123)
Interest income -- Affiliates............................. 139 50
------- -------
Total other expense............................... (633) (65)
------- -------
Income (loss) before income taxes........................... (1,822) 1,126
Income tax (benefit) provision.............................. (712) 614
------- -------
Net income (loss)........................................... (1,110) 512
Retained earnings at beginning of period.................... 36,454 35,501
------- -------
Retained earnings at end of period.......................... $35,344 $36,013
======= =======
</TABLE>
See accompanying notes.
W-2
<PAGE> 113
WELDED TUBE CO. OF AMERICA
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... 1,827 (44)
INVESTING ACTIVITIES
Purchases of plant and equipment............................ (2,728) (2,820)
------ ------
Net cash used in investing activities....................... (2,728) (2,820)
FINANCING ACTIVITIES
Increase in amounts due to affiliates....................... (1,113) 2,893
Borrowings on line of credit................................ 2,000 250
Payments on capital lease obligations....................... (238) (304)
------ ------
Net cash provided by financing activities................... 649 2,839
------ ------
Net decrease in cash........................................ (252) (25)
Cash at beginning of period................................. 292 409
------ ------
Cash at end of period....................................... $ 40 $ 384
====== ======
</TABLE>
See accompanying notes.
W-3
<PAGE> 114
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
On October 1, 1999, The LTV Corporation acquired all of the capital stock
of Welded Tube Holdings, Inc. (formerly ANI America Holdings, Inc.) for a cash
purchase price of $113.5 million subject to certain working capital adjustments.
The assets of Welded Tube Holdings, Inc. consisted of its investment in its
wholly owned subsidiary, Welded Tube Co. of America, (the "Company"), and a
patent used by the Company.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do no include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. All adjustments that are, in the opinion of management, necessary
for a fair presentation have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for the interim periods
are not necessarily indicative of results of operations for a full year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials......................................... $16,661
Work-in-process and finished goods.................... 12,331
Supplies.............................................. 2,371
-------
$31,363
=======
</TABLE>
The September 30, 1999 LIFO value of inventories approximates the FIFO cost
of inventories.
3. LINE OF CREDIT
The Company had $5,000 borrowed under a $5,000 unsecured line-of-credit
facility from a bank that expired on September 30, 1999. Borrowings were due on
demand, were guaranteed by Smorgon Steel Group Limited, and bore interest, at
the Company's option, at the bank's base rate (8.25% at September 30, 1999) or a
fixed rate equal to the Eurodollar rate (5.41% at September 30, 1999) plus
0.35%. The average borrowing rate during the three months ended September 30,
1999 was 8.2%. All borrowings under the line of credit were repaid concurrent
with The LTV Corporation transaction on October 1, 1999.
W-4
<PAGE> 115
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. TRANSACTIONS WITH AFFILIATES
At September 30, 1999 the Company had interest bearing and
non-interest-bearing advances of $45,033 and $13,402, respectively, from
affiliates. The Company capitalized $353 of such interest during the three
months ended September 30, 1998. No interest was capitalized in the three months
ended September 30, 1999. The Company also has a receivable from an affiliate of
$8,099 at September 30, 1999 bearing interest at 7%. All advances to/from
affiliates were repaid concurrent with The LTV Corporation transaction on
October 1, 1999.
The Company was charged management fees from two of its affiliates
representing legal, accounting and other administrative services performed on
behalf of the Company. The total amount of management fees charges to the
Company during the three months ended September 30, 1999 and 1998 were $242
and $408, respectively.
Approximately $184 and $207 of the Company's net sales during the three
months ended September 30, 1999, and 1998, respectively, were made to an
affiliated entity.
W-5
<PAGE> 116
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Welded Tube Co. of America
We have audited the accompanying balance sheet of Welded Tube Co. of America as
of June 30, 1999, and the related statements of operations and retained earnings
and of cash flows for the period from July 1, 1998 to December 31, 1998 and the
period from January 1, 1999 to June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Welded Tube Co. of America at
June 30, 1999, and the results of its operations and its cash flows for the
period from July 1, 1998 to December 31, 1998 and the period from January 1,
1999 to June 30, 1999 in conformity with accounting principles generally
accepted in the United States.
Cleveland, Ohio
December 10, 1999 Ernst & Young LLP
W-6
<PAGE> 117
WELDED TUBE CO. OF AMERICA
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE INFORMATION)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 292
Trade accounts receivable, less allowance for doubtful
accounts of $254....................................... 13,606
Inventories............................................... 26,400
Refundable income taxes from affiliate.................... 1,082
Prepaid expenses.......................................... 1,072
---------
Total current assets.............................. 42,452
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 3,323
Buildings and improvements................................ 24,560
Machinery and equipment................................... 51,584
Office equipment.......................................... 3,316
Construction in progress.................................. 41,633
---------
124,416
Less allowances for depreciation and amortization......... 21,428
---------
Property, plant and equipment -- net...................... 102,988
OTHER ASSETS:
Patent, net of accumulated amortization of $388........... 5,077
Notes receivable from employee............................ 300
---------
$ 150,817
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 10,910
Line of credit............................................ 3,000
Accrued expenses.......................................... 3,490
Deferred income taxes..................................... 3,134
Capital leases............................................ 3,012
---------
Total current liabilities......................... 23,546
Due to affiliates -- net.................................... 48,847
Deferred income taxes....................................... 7,835
Other....................................................... 705
---------
57,387
SHAREHOLDER'S EQUITY:
Common stock -- $1 par value; 1,000 shares authorized,
issued, and outstanding................................ 1
Additional paid-in capital................................ 33,429
Retained earnings......................................... 36,454
---------
Total shareholder's equity........................ 69,884
---------
Total liabilities and shareholder's equity........ $ 150,817
=========
</TABLE>
See accompanying notes to financial statements.
W-7
<PAGE> 118
WELDED TUBE CO. OF AMERICA
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1999 TO JULY 1, 1998 TO
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Net sales................................................... $62,817 || $68.815
Cost of products sold....................................... 53,483 || 57,414
------- || -------
Gross margin................................................ 9.334 || 11,401
Selling, general, and administrative expenses............... 7.078 || 8,415
Start-up expenses for Portland facility..................... 2.406 || 839
Goodwill amortization....................................... - || 417
------- || -------
Income from operations...................................... (150) || 1,730
Other income (expense): ||
Interest income -- Affiliates............................. 368 || 158
Interest expense on line of credit........................ (315) || (238)
Interest and other income................................. 346 || 57
------- || -------
Total other income (expense)...................... 399 || (23)
------- || -------
Income before income taxes.................................. 249 || 1,707
Provision for income taxes.................................. 136 || 867
------- || -------
Net income.................................................. 113 || 840
Retained earnings at beginning of period.................... 36,341 || 35,501
------- || -------
Retained earnings at end of period.......................... $36,454 || $36,341
======= || =======
</TABLE>
See accompanying notes to financial statements.
W-8
<PAGE> 119
WELDED TUBE CO. OF AMERICA
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1999 T0 JULY 1, 1998 TO
JUNE 30, 1999 DECEMBER 31, 1998
------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 113 || $ 840
Adjustments to reconcile net income to net cash provided by ||
operating activities: ||
Depreciation.............................................. 1,667 || 1,484
Amortization.............................................. 423 || 840
Deferred income taxes..................................... 209 || 276
Changes in operating assets and liabilities: ||
Trade accounts receivable.............................. (2,279) || 2,940
Inventories............................................ (1,847) || 4,362
Prepaid expenses....................................... (1,094) || 366
Accounts payable and accrued expenses.................. 5,556 || (7,496)
------- || -------
Net cash provided by operating activities................... 2,748 || 3,612
INVESTING ACTIVITIES ||
Purchases of plant and equipment, primarily Portland ||
facility.................................................. (13,746) || (10,315)
Proceeds from sale of land.................................. 1,937 || -
------- || -------
Net cash used in investing activities....................... (11,809) || (10,315)
FINANCING ACTIVITIES ||
Increase in amount due to affiliates........................ 9,499 || 6,916
Borrowings on line of credit................................ 300 || 200
Payments on capital lease obligations....................... (673) || (596)
------- || -------
Net cash provided by financing activities................... 9,126 || 6,520
------- || -------
Net decrease in cash........................................ 65 || (183)
Cash at beginning of period................................. 227 || 410
------- || -------
Cash at end of period....................................... $ 292 || $ 227
======= || =======
</TABLE>
See accompanying notes to financial statements.
W-9
<PAGE> 120
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(All dollar amounts are in thousands)
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The Company manufactures structural steel tubing at its primary facility
located in Chicago, Illinois. The Company's customers, including distributors
and contractors, are located primarily within the United States. In 1998, the
Company began construction of another manufacturing facility in Portland,
Oregon. On July 15, 1999, the new Portland facility commenced operations.
Non-capitalizable supplies, overhead, indirect labor and other expenses incurred
during the Portland facility construction period have been expensed in the 1999
statement of operations.
During the period from July 1, 1998 to January 13, 1999, the Company was a
wholly owned subsidiary of ANI America Holdings, Inc., which is a subsidiary of
Australian National Industries Limited, which is incorporated in Australia. On
January 14, 1999, Smorgon Steel Group Limited (Smorgon), also incorporated in
Australia, acquired for cash all of the capital stock of Australian National
Industries Limited. December 31, 1998 was used as the date for recording
purchase price adjustments. Accordingly, the Company's financial statements for
the period prior to December 31, 1998 are not necessarily comparable to the
financial statements presented subsequent to that date. Black lines on the
statements of operations and retained earnings and cash flows distinguish
between predecessor and successor activity.
Smorgon allocated the purchase price to the fair value of the Company's
tangible assets, a proprietary patent relating to the Company's production
process and the Company's liabilities. No goodwill was recorded related to the
transaction. Management believes the January 1, 1999 recorded values of the
Company's tangible assets, patent and liabilities approximated the respective
fair values, except for inventories, which were written-up by $2,619.
Accordingly, the recorded historical values of the Company, except inventories,
have not been adjusted.
During the period from July 1, 1998 through December 31, 1998, the Company
recorded $417 of amortization of goodwill (40 year useful life) pertaining to
the 1995 acquisition of the Company's capital stock by ANI America Holdings,
Inc.
On October 1, 1999, The LTV Corporation acquired all of the capital stock
of Welded Tube Holdings, Inc., formerly ANI America Holdings, Inc., for a cash
purchase price of $113.5 million, subject to certain working capital
adjustments, which consisted of its investment in its wholly owned subsidiary,
Welded Tube Co. of America (the "Company"), and a patent used by the Company.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
W-10
<PAGE> 121
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company sells to a large number of customers within the steel industry.
Credit evaluations are ongoing and collateral or other security is generally not
required on trade accounts receivable. An allowance for doubtful accounts is
maintained at a level management believes is sufficient to cover potential
credit losses.
RISKS AND UNCERTAINTIES
The Company relies on several key vendors to supply its primary raw
material needs. There are several manufacturers who are capable of supplying
these needs, and management of the Company believes that raw material suppliers
are easily interchangeable on comparable terms. However, abrupt changes in the
supply flow could cause delays in manufacturing, which could result in the
Company's inability to meet scheduled sales commitments or could result in the
loss of sales, which would adversely affect the Company's operating results.
Approximately two-thirds of the Company's workforce (which represents
substantially all of the Company's direct labor) is subject to a collective
bargaining agreement with the International Brotherhood of Teamsters Local No.
714 that expires in February 2002.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
primarily by the "last-in, first-out" ("LIFO") method. Other inventories are
valued on a "first-in, first-out" ("FIFO") basis.
LONG-LIVED ASSETS
Property, plant and equipment additions are recorded at cost and are
depreciated using the straight-line method over their estimated useful lives
(ranging from 3 to 5 years for light equipment, 10 to 20 years for heavy
equipment and 10 to 40 years for buildings). All leasehold improvements, which
are included in the "buildings and improvements" caption of the balance sheet,
are amortized using the straight-line method over the shorter of their useful
lives or the remaining terms of the relevant leases. Amortization of assets held
under capital leases is included in depreciation expense.
The ongoing value and remaining useful life of long-lived assets, including
the property, plant, and equipment and patent, are subject to periodic
evaluation for impairment, and the Company currently expects the carrying
amounts to be fully recoverable. If events and circumstances indicate that
assets might be impaired, an undiscounted cash flows methodology would be used
to determine whether an impairment loss should be recognized.
W-11
<PAGE> 122
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The patent used by the Company is being amortized over its remaining life
through 2005.
INCOME TAXES
The Company's operations were included in the consolidated income tax
returns filed by its parent, ANI America Holdings, Inc. The provision for income
taxes is based on earnings reported in these financial statements and assumes
that the Company filed a separate income tax return. Amounts for income taxes
were paid to the parent company.
Deferred income tax assets and liabilities are determined by applying
currently enacted tax laws and rates to the cumulative temporary differences
between the carrying value of assets and liabilities for financial statement and
income tax purposes. Deferred income tax provision or benefit is measured by the
net change in deferred income tax asset and liability accounts during the year.
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
ADVERTISING COSTS
The Company charges the cost of advertising ($32 during the six months
ended June 30, 1999 and $77 during the six months ended December 31, 1998) to
expense in the year it is incurred.
NOTE 3. INVENTORIES
Inventories consist of the following at June 30, 1999:
<TABLE>
<S> <C>
Raw materials.............................. $10,763
Work-in-process and finished goods......... 13,472
Supplies................................... 2,165
-------
$26,400
=======
</TABLE>
The June 30, 1999 LIFO value of inventories approximates the FIFO cost of
inventories.
In conjunction with the January 14, 1999 acquisition of the Company by
Smorgon, the values assigned to work-in-process and finished goods inventories
included $2,619 of profits earned in the production of inventories prior to the
date of acquisition. As a result of quantity liquidations during the period from
January 14, 1999 to June 30, 1999, $462 of the profits earned in the production
of inventories has been included in the "cost of products sold" caption of the
statement of operations.
W-12
<PAGE> 123
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
NOTE 4. LINE OF CREDIT
The Company had a $5,000 unsecured line-of-credit facility from a bank
which expired on September 30, 1999. Borrowings were due on demand, were
guaranteed by Smorgon, and bore interest, at the Company's option, at the bank's
base rate (7.75% at June 30, 1999) or a fixed rate equal to the Eurodollar rate
(5.10% at June 30, 1999) plus 0.35%. The Company had $3,000 of outstanding
borrowings under this line of credit facility at June 30, 1999. The average
borrowing rate during 1999 was 6.6%. The Company paid $195 and $238 in interest
on its borrowings during the six months ended June 30, 1999 and December 31,
1998, respectively. All borrowings were repaid concurrent with The LTV
Corporation transaction on October 1, 1999.
NOTE 5. TRANSACTIONS WITH AFFILIATES
At June 30, 1999, the "due to affiliates -- net" caption of the balance
sheet includes the interest bearing (5.43%) advances from an affiliate of
$43,179, which were used principally to fund construction of the Portland
facility. The Company capitalized $1,264 and $265 of such interest during
the six months ended June 30, 1999 and December 31, 1998, respectively, and the
interest was added to the principal balance of affiliate advances. Other amounts
included in the "due to affiliates -- net" caption are a non-interest bearing
advance from an affiliate of $13,203 and a receivable from an affiliate of
$7,535 bearing interest at 7%. All advances to/from affiliates were repaid
concurrent with The LTV Corporation transaction on October 1, 1999.
The Company was charged management fees from two of its affiliates
representing legal, accounting and other administrative services performed on
behalf of the Company. The total amount of management fees charged to the
Company during the six months ended June 30, 1999 and December 31, 1998 was $953
and $874, respectively.
Approximately $297 and $289 of the Company's net sales were made to an
affiliated entity during the six months ended June 30, 1999 and December 31,
1998, respectively.
NOTE 6. INCOME TAXES
The provision for income taxes consists of the following for the year ended
June 30, 1999:
<TABLE>
<S> <C> <C>
Six Months Ended
----------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
Current:
Federal................................... $ (64) $ 517
State..................................... (9) 74
Deferred:
Federal................................... 182 242
State..................................... 27 34
------ ------
$ 136 $ 867
====== ======
</TABLE>
W-13
<PAGE> 124
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The income tax effects of the factors accounting for the differences
between federal income tax computed at the statutory rate and the recorded
provisions are follows:
<TABLE>
<S> <C> <C>
Six Months Ended
----------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
Tax provision at statutory rate............. $ 85 $ 580
Increases resulting from:
Goodwill amortization....................... - 162
State taxes, net of federal benefit......... 13 85
Non-deductible expenses..................... 38 40
----- -----
$ 136 $ 867
===== =====
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows at June 30, 1999:
<TABLE>
<S> <C>
Deferred income tax assets:
Employee benefits liabilities................. $ 683
Allowance for doubtful accounts............... 99
-------
Total deferred income tax assets................ 782
Deferred income tax liabilities:
Excess tax depreciation over book............. 7,835
Capital leases................................ 1,445
Inventories................................... 2,471
-------
Total deferred income tax liabilities........... 11,751
-------
Net deferred income tax liabilities............. $10,969
=======
</TABLE>
The Company made income tax payments to its parent of $897 and $656 during the
six months ended June 30, 1999 and December 31, 1998, respectively. In addition,
$1,082 will be refunded to The LTV Corporation upon final determination of the
working capital adjustments described in Note 1.
NOTE 7. COMMITMENTS AND LEASE OBLIGATIONS
The Company leases certain buildings, machinery and equipment, and office
equipment under operating leases. Future minimum rental payments under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year at June 30, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................ $ 100
2001........................................ 84
2002........................................ 75
2003........................................ 69
2004........................................ 69
2005 and thereafter......................... 1,518
------
$1,915
======
</TABLE>
Total rent expense for all leases (including $489 of month-to-month
warehouse rentals) amounted to approximately $543 during each of the six-month
periods ended June 30, 1999 and December 31, 1998.
W-14
<PAGE> 125
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The Company leased certain machinery and equipment under a capital lease.
Future minimum lease payments of $3,085 (including $73 of interest payments) are
payable in fiscal year 2000. The net book value of assets under capital leases
was $6,717 at June 30, 1999.
During 1999, the Company received an advance of $760 from its electric
power supplier in Portland, Oregon, in exchange for the Company's commitment to
purchase its electric power requirements (subject to defined minimum amounts
which increase over the contract period). The Company has committed to purchase
such electricity from January 1999 through June 2005, provided the Portland
public utilities are de-regulated. The Company must purchase electrical power at
the rate of thirty-three dollars per megawatt hour or at an alternative rate
equivalent to the then market price of electric power plus two dollars per
megawatt hour, at the election of the power supply company. The Company
recognizes the advance of $760 as income based on the defined minimum amounts
over the term of the agreement. As of June 30, 1999, the Company has recognized
$18 of income as a result of this agreement.
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined-contribution plan for the benefit of
substantially all of its nonunion employees. Under the plan, the Company matches
employee contributions, up to a maximum of 4% of each employee's salary.
The Company also maintains a defined-contribution plan that provides
retirement benefits to eligible employees who are members of the International
Brotherhood of Teamsters Local No. 714. The Company makes contributions to a
trust on behalf of each eligible employee at the rate of approximately one
hundred dollars per month, in accordance with the terms of the Company's union
contract. In addition, the Company matches one-half of employee contributions,
up to a maximum of 4% of each employee's salary.
Total contributions to these plans were $316 and $267 during six months
ended June 30, 1999 and December 31, 1998, respectively.
W-15
<PAGE> 126
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, 1999 and 1998, and the related statements of operations,
changes in Members' equity, and cash flows for each of the three years in the
period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
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
Cleveland, Ohio
January 19, 2000
T-1
<PAGE> 127
Trico Steel Company, L.L.C.
Balance Sheets
(In Thousands)
DECEMBER 31
ASSETS 1999 1998
--------- ---------
Current assets:
Cash and cash equivalents $ 11,684 $ 9,936
Cash in escrow 602 -
Related party receivables, less allowances of
$2,688 in 1999 and $1,483 in 1998 47,512 18,195
Other receivables 3,594 925
Inventories (Notes 1 and 3) 33,245 24,774
Prepaid expenses and other 576 520
--------- ---------
Total current assets 97,213 54,350
Property, plant and equipment (Note 1):
Land and land improvements 30,178 29,769
Buildings 139,298 135,812
Machinery and equipment 413,235 400,323
Construction in progress 3,557 1,919
--------- ---------
586,268 567,823
Less accumulated depreciation 74,227 45,875
--------- ---------
Net property, plant and equipment 512,041 521,948
Debt issuance costs (Note 1) 7,455 8,342
Other assets (Note 6) 186 -
--------- ---------
TOTAL ASSETS $ 616,895 $ 584,640
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 40,576 $ 23,745
Related party payables 2,788 442
Accrued liabilities 989 1,376
Current portion of long-term debt 10,611 -
Accrued interest payable 5,522 1,675
--------- ---------
Total current liabilities 60,486 27,238
Long-term debt (Note 4) 335,564 284,175
Other liabilities:
Deferred income (Note 1) 10,510 11,133
Deferred compensation liability (Note 6) 186 -
--------- ---------
Total other liabilities 10,696 11,133
Members' equity:
Paid-in capital 464,876 464,876
Retained deficit (254,727) (202,782)
--------- ---------
Total Members' equity 210,149 262,094
--------- ---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 616,895 $ 584,640
========= =========
The accompanying notes are an integral part of these financial statements.
T-2
<PAGE> 128
Trico Steel Company, L.L.C.
Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales to Trico Steel Company, Inc. $ 319,735 $ 258,264 $ 98,396
Costs and expenses:
Cost of products sold 312,910 298,971 139,777
Depreciation and amortization (Note 1) 29,187 28,020 18,355
Selling, general and administrative 12,649 14,864 17,620
Net interest expense 20,922 17,949 17,096
Other income (Note 8) (3,988) (1,137) (6,973)
--------- --------- ---------
Total 371,680 358,667 185,875
--------- --------- ---------
Net loss before cumulative effect of accounting change (51,945) (100,403) (87,479)
Cumulative effect of accounting change for
start-up costs (Note 2) - - (14,900)
--------- --------- ---------
NET LOSS ALLOCABLE TO MEMBERS $ (51,945) $(100,403) $(102,379)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-3
<PAGE> 129
Trico Steel Company, L.L.C.
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss allocable to Members $ (51,945) $(100,403) $(102,379)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 29,187 28,020 18,355
Cumulative effect of accounting change - - 14,900
Loss on transformer disposal 3,165 - -
Allowance for doubtful accounts and sales returns 1,205 (143) 1,626
Changes in operating assets and liabilities:
Related party receivables (30,522) 7,200 (26,878)
Other receivables (2,669) (21) (904)
Inventories (8,471) 1,697 (22,862)
Prepaid expenses and other assets (844) 996 -
Accounts payable and other liabilities 22,823 (8,391) 22,124
--------- --------- ---------
Net cash used in operating activities (38,071) (71,045) (96,018)
INVESTING ACTIVITIES
Additions to property, plant and equipment (22,044) (25,894) (93,207)
--------- --------- ---------
Net cash used in investing activities (22,044) (25,894) (93,207)
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
Proceeds from Members' borrowing 62,000 24,000 -
Proceeds from Members' contributions - 71,466 92,200
Debt issuance costs (137) (1,135) (517)
Proceeds from grants - 366 75
--------- --------- ---------
Net cash provided by financing activities 61,863 91,112 192,518
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,748 (5,827) 3,293
Cash and cash equivalents at beginning of year 9,936 15,763 12,470
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,684 $ 9,936 $ 15,763
========= ========= =========
CASH PAID FOR INTEREST $ 18,382 $ 18,080 $ 16,590
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-4
<PAGE> 130
Trico Steel Company, L.L.C.
Statements of Changes in Members' Equity
(In Thousands)
Total
Paid-in Retained Members'
Capital Deficit Equity
--------- --------- ---------
Balance at January 1, 1997 $ 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
Net loss allocable to Members - (51,945) (51,945)
--------- --------- ---------
BALANCE AT DECEMBER 31, 1999 $ 464,876 $(254,727) $ 210,149
========= ========= =========
The accompanying notes are an integral part of these financial statements.
T-5
<PAGE> 131
Trico Steel Company, L.L.C.
Notes to Financial Statements
December 31, 1999
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 Corus Group 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, 1999.
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. Credit is extended 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
principally include cash and amounts invested in money market certificates and
certificates of deposit. At December 31, 1999, the Company also had an escrow
account for workers compensation reserves, in lieu of a letter of credit,
bearing interest at 5.26%. The amount outstanding under this arrangement as of
December 31, 1999 is $.6 million.
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> 132
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 $.5 million, $.6 million and $5.9 million, in 1999, 1998 and 1997,
respectively.
DEBT ISSUANCE COSTS
Costs related to debt issuance are deferred and amortized over the term of the
related debt. Accumulated amortization was approximately $2.6 million at
December 31, 1999, and $1.6 million at December 31, 1998.
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
$1.7 million at December 31, 1999 and $1.1 million at December 31, 1998.
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.
T-7
<PAGE> 133
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>
1999 1998
------- --------
<S> <C> <C>
Raw materials and mill supplies $ 22,789 $ 19,228
Products 10,456 5,546
-------- --------
$ 33,245 $ 24,774
======== ========
</TABLE>
4. FINANCING ARRANGEMENTS AND LONG-TERM DEBT
The Company's debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Tax-Exempt Bonds, variable interest rate, approximately
6.49% at December 31, 1999, due 2026 and 2027 $ 86,000 $ 75,000
Taxable Bonds, variable interest rates, approximate
effective interest rate of 8.04% at December 31, 1999,
due from 2000 through 2008 174,175 185,175
Members' debt, variable interest rates, approximate
effective interest rate of 7.54% at December 31, 1999,
unsecured, due 2008 30,000 24,000
Members' junior subordinated debt, variable interest
rates, approximate effective interest rate of 7.55% at
December 31, 1999, unsecured, due 2008 56,000 -
-------- --------
346,175 284,175
Less current maturities 10,611 -
-------- --------
$335,564 $284,175
======== ========
</TABLE>
T-8
<PAGE> 134
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
4. FINANCING ARRANGEMENTS AND LONG-TERM DEBT--CONTINUED
Substantially all assets of the Company collateralize the tax-exempt and taxable
bonds.
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, 1999,
$260.2 million was outstanding of which $86 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. The facility contains covenants that
include requirements to meet certain financial ratios, maintain restricted
working capital and certain other restrictions and limitations, including
defined production capability criteria as of December 31, 2000. Until these
production capability criteria are met, 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.
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. An
aggregate of $30 million was outstanding at December 31, 1999 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 this debt arrangement. On November 24, 1999 the
Junior Subordinated Loan Agreement dated December 18, 1998 among Trico Steel
Company LLC, LTV-Trico Inc., SMI-Trico, Inc., and British Steel Trico Holdings
Inc., was increased from $50 million to $60 million. The termination date for
this facility is April 11, 2008 and $56 million was outstanding under this
agreement at December 31, 1999.
As of January 10, 2000, the Company had amended the Junior Subordinated Loan
Agreement dated as of December 18, 1998 with the Members to increase the Members
commitments to $66 million from $60 million.
T-9
<PAGE> 135
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, 1999 are as follows (in
thousands):
Year Ending:
2000 $ 10,611
2001 11,491
2002 12,434
2003 13,475
2004 14,593
Thereafter 283,571
---------
$ 346,175
=========
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, 1999 are as follows (in thousands):
Year Ending:
2000 $ 1,532
2001 1,529
2002 1,118
2003 343
2004 43
---------
$ 4,565
=========
Rental expense on operating leases was $2.4 million, $3.2 million and $1.7
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Management of the Company is currently negotiating final payments and
chargebacks related to construction of the steel mini-mill. 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
financial position of the Company.
T-10
<PAGE> 136
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, 1999, 1998
and 1997 was $.4 million, $.3 million and $.1 million, respectively.
The Company has a nonqualified deferred compensation plan to provide benefits
for certain management and highly compensated employees of the Company.
7. RELATED PARTY TRANSACTIONS
The Company paid $22.7 million in 1999, $15.3 million in 1998 and $3.7 million
in 1997 to related parties for goods and services.
8. TRANSFORMER FAILURE
The Company experienced a failure of two of three transformers for incoming
power to the facility in November, 1998 and January, 1999. The Company's
engineers and operators installed alternative sources of power supply during the
quarter ended June, 1999. The installation of replacement transformers occurred
during the month of September, 1999. The Company has disposed of the net book
value of the transformers and recognized advances received from the insurance
providers in "other income" in the 1999 Statement of Operations. Management
believes the property damage and business interruption caused by the failures
should be substantially covered by insurance.
9. YEAR 2000 (UNAUDITED)
The Company is now Year 2000 compliant and there were no adverse events that
occurred and no contingency plans were required to be implemented relating to
the Year 2000 issue. Costs associated with identifying and remediating known
Year 2000 problems were not material to the Company's operations.
T-11
<PAGE> 1
Exhibit (3)-(1)
RESTATED CERTIFICATE OF INCORPORATION
OF
THE LTV CORPORATION
The LTV Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is The LTV Corporation and the name
under which the corporation was originally incorporated is Spring Valley
Corporation.
The date of filing its original Certificate of Incorporation with the Secretary
of State was November 20, 1958.
2. This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of this
corporation as hereby and heretofore amended or supplemented.
3. The text of the Certificate of Incorporation as hereby and
heretofore amended or supplemented is hereby restated to read as herein set
forth in full:
FIRST. The name of the Corporation is
THE LTV CORPORATION.
SECOND. The name and address of its registered agent and office is The
Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The Corporation is authorized to issue one hundred seventy
million (170,000,000) shares of capital stock. One hundred fifty million
(150,000,000) of the authorized shares shall be common stock, fifty cents
($0.50) par value each ("Common Stock"), and twenty million (20,000,000) of the
authorized shares shall be preferred stock, one dollar ($1.00) par value each.
Shares of preferred stock may be issued from time to time in one or more series,
each such series to have such distinctive designation or title as may be fixed
by the Board of Directors prior to the issuance of any shares thereof. Each such
series shall have such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, or restrictions thereof, as shall be stated
in the resolution or resolutions providing for the issue of such series of
preferred stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof, in accordance with the laws of the
State of Delaware. Each share of any series of
<PAGE> 2
preferred stock shall be identical with all other shares of such series, except
as to the date from which accumulated preferred or preference dividends, if any,
shall be cumulative.
No stockholder of this Corporation shall by reason of his holding
shares of any class have any preemptive or preferential right to purchase or
subscribe to any shares of any class of the Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying warrants or options to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares or
such notes, debentures, bonds or other securities would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors, in its discretion may fix; and the Board of Directors
may issue shares of any class of this Corporation, or any notes, debentures,
bonds, or other securities convertible into or carrying options or warrants to
purchase shares of any class, without offering any such shares of any class,
either in whole or in part, to the existing stockholders of any class.
FIFTH. Cumulative voting for the election of directors shall not be
permitted.
SIXTH. The following provisions are adopted for the management of the
business and for the conduct of the affairs of the corporation, and for
creating, defining, limiting and regulating the powers of the corporation, its
directors and stockholders:
(a) The business of the corporation shall be managed by its Board of
Directors and the Board of Directors shall have power to exercise all the powers
of the corporation, including (but without limiting the generality hereof) the
power to create mortgages upon the whole or any part of the property of the
corporation, real or personal, without any action of or by the stockholders
except as otherwise provided by statute or by the By-Laws.
(b) The number of directors which shall constitute the whole Board of
Directors shall be such as is from time to time fixed solely by resolution
adopted by the affirmative vote of a majority of the entire Board of Directors,
but in no case shall the number be less than three (3) or more than fifteen
(15).
(c) The directors (other than any directors which may be elected by the
class vote of any series of the preferred stock of the Corporation pursuant to
the terms thereof, which directors shall be elected at the time and serve for
the term specified in the resolutions providing for the issue of such series of
preferred stock) shall be divided into three classes each consisting of
one-third of such directors as nearly as may be.
At the annual meeting of stockholders in 1994, one class of such
directors shall be elected for a one-year term, one class for a two-year term
and one class for a three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires in that
year shall be elected for a three-year term. If the number of such directors is
changed, any increase or decrease in such directors shall be apportioned among
the classes so as to maintain the class as nearly equal in number as possible,
and any additional director to any class shall hold office for a term which
shall coincide with the term of such class. In no event shall a decrease in the
number of directors shorten the term of any incumbent director. No
<PAGE> 3
person shall be eligible to be elected as a director if such person is 70 years
old or older at the time of election.
If and so long as the collective bargaining agreement between LTV Steel
Company, Inc. and the United Steelworkers of America so provides, it shall be a
qualification for one seat on the Board of Directors of the Corporation that the
person elected to such seat shall have been nominated by the United Steelworkers
of America, provided that any such nominee shall be reasonably satisfactory to
the Corporation.
A director shall hold office until the annual meeting for the year in
which his term expires and his successor is elected and qualifies; subject,
however, to the provisions of the following paragraph and to prior resignation,
death or removal as provided in such paragraph or otherwise by law. Upon the
resignation, death or removal of any director, the term of his successor shall
be the same term as that of the director who has so resigned, died or been
removed. At each election, the persons receiving the greatest number of votes
shall be the directors. Vacancies on the Board of Directors resulting from
death, resignation, removal or otherwise and newly created directorships
resulting from any increase in the number of directors may be filled solely by a
majority of the directors then in office (although less than a quorum) or by the
sole remaining director, and each director so elected shall hold office for a
term that shall coincide with the term of the class to which such director shall
have been elected; provided, however, that whenever the holders of any class or
classes of stock or series thereof are entitled to elect one or more directors,
vacancies and newly created directorships of such class or classes or series
shall be filled in the manner provided in the constituent instrument
establishing such class, classes or series.
Unless otherwise agreed by a majority of the other directors, a
director's term shall expire:
(1) in the case of any director, (A) if, in the opinion of a majority
of the other directors, such director has suffered from a serious disability or
illness that has or will significantly interfere with his ability to perform his
duties as director or (B) such director has attended fewer than 60% of the
meetings of the Board of Directors over the previous twelve calendar month
period;
(2) in the case of any director who is an officer or employee of the
Corporation or any of its subsidiaries, at the end of the second month following
(A) such director's retirement or resignation from his position as an officer or
employee of the corporation and its subsidiaries or (B) such director being
terminated from his position or otherwise demoted by the Corporation and its
subsidiaries; and
(3) in the case of any director other than those referred to in (2)
above, at the end of the second month following a change in such director's
occupation or position of employment if, in the opinion of a majority of the
other directors, such change has significantly diminished his ability to
contribute as a director.
<PAGE> 4
(d) The Board of Directors shall have power to make, alter and repeal
By-Laws subject to such restrictions upon the exercise of such power as may be
imposed by the stockholders in any By-Laws adopted by them from time to time.
(e) The Board of Directors shall have power in its discretion to fix,
determine, and vary from time to time the amount to be retained as surplus, and
the amount or amounts to be set apart out of any of the funds of the corporation
available for dividends, as working capital, or a reserve or reserves for any
proper purpose, and to abolish any such reserve to the manner in which it was
created.
(f) The Board of Directors shall, except as otherwise provided by law,
have power in its discretion from time to time to determine whether and to what
extent and at what times and places and under what conditions and regulations
the books and accounts of the corporation, or any of them, other than the stock
ledger shall be open to the inspection of the stockholders, and no stockholder
shall have any right to inspect any account or book or document of the
corporation, except as conferred by law or authorized by resolution of the
directors or of the stockholders.
(g) The Board of Directors shall have the power, by resolution adopted
by the affirmative vote of a majority of the whole Board of Directors, to
appoint one or more committees, including, but not limited to, an executive
committee, each committee to consist of two or more of the directors of the
Corporation. Any such committee or committees, to the extent provided in the
resolution or in the By-Laws of the Corporation or in the laws of the State of
Delaware and subject thereto, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation.
(h) A special meeting of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Chairman of the
Board of Directors or by the President and shall be called by the President or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of stockholders holding not less than 25% of the
outstanding Common Stock.
(i) (1) When a quorum is present at any meeting the vote of the holders
of a majority of the votes attributed to the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting unless the question is one upon which by express provision of the
statutes or of this Certificate of Incorporation a different vote is required in
which case such express provision shall govern and control the decision of such
question.
(2) In all elections of directors, each stockholder shall have the
right to vote the number of votes attributed to the shares of the capital stock
having voting power held by such stockholder, in person or by proxy, for as many
persons as there are directors to be elected; in deciding all other questions at
the meetings of stockholders, each stockholder shall be entitled to one vote per
share, unless the constituent instrument establishing the class of capital stock
held provides a different vote or votes for each share of such class in which
event each stockholder holding shares of such class shall be entitled to such
vote or votes, in person or by proxy, for
<PAGE> 5
each share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
SEVENTH. Meetings of stockholders may be held outside the State of
Delaware if the By-Laws so provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Election of directors
need not be by ballot unless the By-Laws of the Corporation shall so provide.
EIGHTH. (a) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(b) (1) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (and whether or not by
or in the right of the Corporation), by reason of the fact that such person is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer or in any other capacity of
or in another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by Delaware Law. The right to indemnification conferred
in this Article Eighth shall also include the right to be paid by the
Corporation the expenses incurred in connection with any such proceeding in
advance of its final disposition to the fullest extent authorized by Delaware
Law. The right to indemnification conferred in this Article Eighth shall be a
contract right.
(2) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by Delaware Law.
(c) The Corporation shat have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent or in any other capacity of or in another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss incurred by such person in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under Delaware Law.
(d) The rights and authority conferred in this Article Eighth shall not
be exclusive of any other right which any person may otherwise have or hereafter
acquire.
(e) Neither the amendment nor repeal of this Article Eighth, nor the
adoption of any provision of this Certificate of Incorporation or the By-Laws of
the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this Article Eighth
in respect of any acts or omissions occurring prior to such
<PAGE> 6
amendment, repeal, adoption or modification. The rights and authority conferred
in this Article Eighth shall continue as to a person who shall have ceased to be
a director, officer, employee or agent of the Corporation or engaged in any
other enterprise at the request of the corporation, shall inure to the benefit
of the heirs, executors and administrators of such person and shall be available
wish respect to claims which antedate the adoption of Article Eighth.
NINTH. (a) Solely for the purpose of permitting the utilization of the
net operating loss carryovers, capital loss carryovers and future deductions
(the "Tax Benefits") to which the Corporation (or any other member of the
consolidated group of which the corporation is common parent for federal income
tax purposes) is or may be entitled pursuant to the Internal Revenue Code of
1986, as amended, or any successor statute (collectively the "Code") and the
regulations thereunder, the following restrictions shall apply until the
Expiration Date, unless the Board of Directors has waived such restrictions in
respect of all transfers in accordance with subparagraph (a)(v) or paragraph (g)
below.
(i) From and after June 28, 1993 no person other than the Corporation
shall, except as provided in subparagraph (ii) below, transfer to any person any
direct or indirect interest in any Stock, SARs or Warrants to the extent that
such transfer, if effective, would cause the Ownership Interest Percentage of
the transferee or any other person to increase to 4.5 percent or above, or from
4.5 percent or above to a greater Ownership Interest Percentage; provided,
however, that if such Stock, SARs or Warrants would be beneficially owned by an
Investment Company following such transfer, such transfer shall not be
prohibited unless the person whose Ownership Interest Percentage would so
increase is a beneficial owner of such Stock, SARs or Warrants following such
transfer. Nothing in this Article Ninth shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock Exchange,
Inc. or any other national securities exchange in the Stock, Warrants or SARs.
Any securities involved in any such transaction, and the Purported Acquiror (as
defined below) thereof, shall remain subject to the provisions of this Article
Ninth in respect of such transaction. Unless a transferor has actual knowledge
that a transfer by it is prohibited by this subparagraph (a)(i), (A) such
transferor shall have no liability whatsoever to the Corporation in respect of
any losses or damages suffered by the Corporation as a result of such transfer
and the Corporation shall have no cause of action or rights against the
transferor in respect of such losses or damages, (B) such transferor shall have
no liability whatsoever to any transferee in respect of any losses or damages
suffered by such transferee by virtue of the operation of this Article Ninth and
(C) such transferee shall have no cause of action or rights against the
transferor in respect of such losses or damages, including, without limitation,
for breach of warranty of the transferor implied by applicable law as to the
effectiveness and rightfulness of the transfer.
(ii) Any transfer of Stock, Warrants or SARs that would otherwise be
prohibited pursuant to the preceding subparagraph shall nonetheless be permitted
if (A) prior to such transfer being consummated (or, in the case of an
involuntary transfer, as soon as practicable after the transaction is
consummated), the Board of Directors approves the transfer (such approval may
relate to a transfer or series of identified transfers), (B) such transfer is
pursuant to any transaction, including, but not limited to, a merger or
consolidation, in which all holders of Common Stock receive, or are offered the
same opportunity to receive, cash or other consideration for all such Common
Stock, and upon the consummation of which the acquiror
<PAGE> 7
will own at least a majority of the outstanding shares of Common Stock or (C)
such transfer is to an underwriter for distribution in a public offering;
provided, however, that transfers by such underwriter to purchasers in such
offering remain subject to this Article Ninth.
(iii) The Board of Directors shall approve a transfer (such approval
may relate to a transfer or series of identified transfers) pursuant to
subparagraph (ii)(A) above unless the Board of Directors concludes (x) that
there is a reasonable likelihood that such transfer will create or increase a
material risk that limitations pursuant to Section 382 of the Code will be
imposed on the utilization of the Tax Benefits, either at the time of the
transfer or a reasonable time thereafter, and (y) that the benefits of such
transaction to the shareholders of the Corporation as a whole are not sufficient
to permit the transfer in the light of the risk or increase in risk caused
thereby. In determining whether to approve a proposed transfer, the Board of
Directors may take into account: the opinion of legal counsel selected by the
Board of Directors ("Corporate Legal Counsel") addressing the relevant legal
considerations (such opinion shall take into account any private rulings
obtained by the Corporation from the Internal Revenue Service and shall take a
reasonable position with respect to the application and interpretation of
Section 382 of the Code and the regulations, including final, temporary and
proposed, thereunder (the "Regulations")); any information and opinions of legal
counsel provided by the person or persons requesting that the transfer be
permitted (the "proponent"); the ownership shifts that have previously taken
place; the size of the ownership shift that would result from the proposed
transaction; the effect of any reasonably foreseeable transactions by the
Corporation or any other person (including any transfer of Stock, SARs or
Warrants that the Corporation has no power to prevent, without regard to any
knowledge on the part of the Corporation as to the likelihood of such transfer);
the potential effect of any reasonably foreseeable value shifts among the
various classes or series of Stock (such value shifts to be calculated using
reasonable valuation methods and assumptions); the possible effects of an
ownership change within the meaning of Section 382 of the Code; and any other
factor deemed relevant by the Board of Directors to the preservation of the Tax
Benefits. The Corporation shall provide to the Proponent all material publicly
available information provided by the Corporation to Corporate Legal Counsel for
purposes of such counsel rendering the opinion referred to in the preceding
sentence; such information to be provided to the Proponent promptly after it is
provided to Corporate Legal Counsel. Notwithstanding anything in this
subparagraph (iii) to the contrary, the Board of Directors shall approve a
proposed transfer of Stock, SARs or Warrants presented for its review pursuant
to subparagraph (ii)(A) above if it determines that, prior to giving effect to
the proposed transfer, either (A) each of the proposed transferor and the
proposed transferee is a "5-percent shareholder" or "first tier entity" with
respect to the Corporation within the meaning of Section 382 of the Code and the
Regulations, (B) the proposed transferor is a "5-percent shareholder" or "first
tier entity" with respect to the Corporation within the meaning of Section 382
of the Code and the Regulations and each of (x) the proposed transferee and (y)
any other person or public group (as defined in Section 382 of the Code and the
Regulations to whom ownership of any Stock held by the proposed transferee
(including shares received upon a subsequent exercise of any Warrants or SARs)
would be attributable for purposes of Section 382 of the Code, has an Ownership
Interest Percentage of zero (disregarding for this purpose any Ownership
Interest Percentage resulting from the attribution to such person or public
group, prior to such transfer, of ownership of any portion of the Stock, SARs or
Warrants proposed to be transferred) or would not have an increase in Ownership
Interest Percentage as a result of the proposed transfer or (C)
<PAGE> 8
the proposed transfer is to a wholly owned subsidiary of the transferor or to a
trust all of the beneficial interests in which are owned by the transferor. If
requested by the Board of Directors, the Proponent shall deliver to the Board of
Directors all information relating to the proposed transfer and the parties
thereto and their respective affiliates that is reasonably available to such
parties and their respective affiliates and that the Board of Directors deems
reasonably necessary to make the determinations described in the first sentence
of this subparagraph (a)(iii) with respect to the proposed transfer (the
"Required Information"). The Board of Directors shall determine whether or not
to approve a proposed transfer within 60 days of the date it receives a request
for approval, provide, however, that the foregoing time limit shall not apply if
the Board of Directors requests the Proponent to provide the Required
Information and the Proponent does not provide such information to the Board of
Directors within 15 days of receipt of the Board of Directors' request. If the
Proponent does not provide the Required Information within 15 days of receipt of
the Board of Directors' request, the Board of Directors shall determine whether
or not to approve the proposed transfer within 45 days of the date it receives
the Required Information. Upon determining whether or not to approve a proposed
transfer, the Board of Directors shall cause the Corporation promptly to notify
the Proponent. If the Board of Directors determines not to approve a proposed
transfer, the Corporation will provide to the Proponent all material publicly
available information, or summaries thereof, considered by the Board of
Directors in making its determination to the extent such information has not
previously been provided to the Proponent. The Board of Directors may establish
a committee to determine whether to approve a proposed transfer or for any other
purpose relating to this Article Ninth except for purposes of making any
determination required or permitted by paragraph (a)(v) or (g). The Proponent
shall, as a condition to the Corporation's consideration of a request to approve
a proposed transfer, reimburse or agree to reimburse the Corporation, on demand,
for all costs and expenses incurred by the Corporation with respect to such
proposed transfer ("Transfer Costs"), including, without limitation, the
Corporation's costs and expenses incurred in determining whether to authorize
such proposed transfer, provided that the Proponent shall not be required to so
reimburse or agree to reimburse the Corporation if (x) during the one-year
period prior to the date the request is submitted to the Corporation, no Related
Party Request was submitted to the Corporation or (y) the Proponent of each
Related Party Request so submitted during that period reimbursed or agreed to
reimburse the Corporation for the Transfer Costs associated with such Related
Party Request.
(iv) For purposes of this Article Ninth:
(A) "Stock" shall mean any class or series of stock of the Corporation
(other than stock described in Section 1504(a)(4) of the Code or any successor
statute, or stock that is not so described solely because it is entitled to vote
as a result of dividend arrearages) and any other instrument that is treated as
stock of the Corporation for purposes of Section 382 of the Code;
(B) "SARs" shall mean any Stock Appreciation Rights issued pursuant to
a certain agreement between the Corporation and the Pension Benefit Guaranty
Corporation dated as of June 28, 1993;
<PAGE> 9
(C) "Warrants" shall mean any options, warrants, rights, convertible
debt securities or other securities issued by the Corporation and exercisable
for or convertible into Stock (including without limitation the Series A
Warrants to purchase Common Stock);
(D) "Investment Company" shall mean an investment company registered
under the investment Company Act of 1940;
(E) "beneficial ownership" shall have the meaning set forth in Rule
13d-3 under the United States Securities Exchange Act of 1934, as amended (the
"1934 Act");
(F) "person" refers to any governmental entity or agency, and any
individual, corporation, estate, trust, association, company, partnership, joint
venture, or similar organization, and shall include any group comprised of any
such person and any other person or persons with whom such person or any
affiliate or associate of such person has any formal or informal agreement,
arrangement or understanding for the purpose of directly or indirectly acquiring
Stock or rights, options, warrants or convertible securities with respect
thereto (including but not limited to Warrants and SARs); provided, however,
that a public group (as defined in the Temporary Treasury Regulations in effect
on June 28, 1993 under Section 382 of the Code) shall not be treated as a person
solely by reason of its status as a public group;
(G) a person's "Ownership Interest Percentage" shall be the ownership
interest percentage with respect to the Corporation that would be ascribed to
such person for purposes of Section 382 of the Code, assuming for this purpose
that any SARs owned by such person or any affiliate or associate of such person
(but not those owned by any other person) are "stock" for purposes of Section
382 and that any other warrant, option or right to acquire, or security
convertible into, Stock (including but not limited to Warrants) owned by such
person or any affiliate or associate of such person (but not those owned by any
other person) were exercised and not applying for this purpose any rule that
would treat an entity as no longer owning Stock that is attributed to its
owners;
(H) "transfer" refers to any means of conveying record, beneficial or
tax ownership (applying, in the case of tax ownership, applicable attribution
rules for purposes of Section 382 of the Code) of Stock, Warrants or SARs,
whether such means is direct or indirect, voluntary or involuntary, and
"transferee" means any person to whom any such security is transferred;
(I) "affiliate" and "associate" shall have the meanings set forth in
Rule 12b-2, under the 1934 Act;
(J) "Expiration Date" shall mean December 31, 2008; and
(K) "Related Party Request" shall mean, with respect to any other
request, a request to approve a proposed transfer in which the proposed
transferor or the proposed transferee is, with respect to such other request, a
proposed transferor, a proposed transferee or an affiliate of either.
(v) The restriction on the transfer of securities set forth herein
shall expire on the Expiration Date; provided, however, that the Board of
Directors shall determine during the year
<PAGE> 10
1996 whether to waive such restriction with respect to all future transfers of
securities, such waiver to become effective December 31, 1996. The Board of
Directors shall determine whether to so waive the provisions of this Article
Ninth, and shall waive such provisions unless it determines (A) that there is a
reasonable likelihood that such waiver will create or increase a material risk
that limitations pursuant to Section 382 of the Code will be imposed on the
utilization of the Tax Benefits, either at the time of waiver or a reasonable
time thereafter, and (B) that the benefits to the shareholders of the
Corporation as a whole of so waiving the provisions hereof are not sufficient to
permit such waiver in the light of the likely detriment to the shareholders as a
whole of the limitations referred to in (A). In making the determination
referred to in the preceding sentence, the Board of Directors may take into
account: an opinion of counsel selected by the Board of Directors addressing the
relevant legal considerations, the current ownership pattern with respect to the
Corporation's securities, the ownership shifts that have previously taken place,
the effect of any reasonably foreseeable transactions by the Corporation or any
other person, the potential effect of any reasonably foreseeable value shifts
among the various classes or series of Stock, the possible effects of any
ownership change within the meaning of Section 382 of the Code and any other
factor deemed relevant by the Board of Directors. If the Board of Directors does
not effect such a waiver in 1996, it shall, during the year 1999, determine
whether to effect such a waiver (which waiver, if approved by the Board of
Directors, shall be effective as of December 31, 1999) in accordance with the
foregoing provisions, and if the Board or Directors does not effect a waiver in
1999, it shall consider a waiver in 2002 and again, if necessary, in 2005, such
waiver to become effective, if approved, on December 31, 2002 or December 31,
2005, as the case may be. Upon determining whether or not to waive the
provisions hereof, the Board of Directors shall promptly notify the Secretary of
the Corporation. If in any given year the Board of Directors determines (x) to
effect such a waiver, the Secretary shall mail notice of the Board of Directors'
determination to all stockholders of the Corporation within ten days after the
date of such determination or (y) not to effect such a waiver, the Corporation
shall report such determination as soon as practicable in a periodic report on
Form 10-K or 10-Q filed pursuant to the 1934 Act.
(b) Unless the transfer is permitted as provided in subparagraph
(a)(ii) of this Article Ninth, any attempted transfer of Stock, Warrants or SARs
in excess of the Stock, Warrants or SARs that could be transferred to the
transferee without restriction under subparagraph (a)(i) of this Article Ninth
shall not be effective to transfer ownership of such excess Stock, Warrants or
SARs (the "Prohibited Shares" or "Prohibited Warrants" or "Prohibited SARs," as
the case may be, and each, a "Prohibited Security") to the purported acquiror
thereof (the "Purported Acquiror"), who shall not be entitled to any rights as a
shareholder of the Corporation with respect to such Prohibited Shares
(including, without limitation, the right to vote or to receive dividends with
respect thereto) or to any rights with respect to such Prohibited Warrants or
Prohibited SARs, as the case may be.
(i) Upon demand by the Corporation, the Purported Acquiror shall
transfer any certificate or other evidence of purported ownership of Prohibited
Securities within the Purported Acquiror's possession or control, along with any
dividends or other distributions paid by the Corporation with respect to any
Prohibited Shares that were received by the Purported Acquiror (the "Prohibited
Distributions"), to such person as the Corporation shall designate to act as
transfer agent for such Prohibited Securities (the "Agent"). If the Purported
Acquiror has sold
<PAGE> 11
any Prohibited Securities to an unrelated party in an arm's-length transaction
after purportedly acquiring them, the Purported Acquiror shall be deemed to have
sold such Prohibited Securities for the Agent, and in lieu of transferring such
Prohibited Shares (and Prohibited Distributions with respect thereto) or
Prohibited Warrants or Prohibited SARs to the Agent shall transfer to the Agent
any such Prohibited Distributions and the proceeds of such sale (the "Resale
Proceeds") except to the extent that the Agent grants written permission to the
Purported Acquiror to retain a portion of such Resale Proceeds not exceeding the
amount that would have been payable by the Agent to the Purported Acquiror
pursuant to subparagraph (b)(ii) below if such Prohibited Securities had been
sold by the Agent rather than by the Purported Acquiror. If shares of Stock are
issued upon the purported exercise of Prohibited Warrants or upon the maturity
of any Prohibited SARs, such shares shall be Prohibited Shares. Any purported
transfer of Prohibited Securities by the Purported Acquiror other than a
transfer described in one of the first two sentences of this subparagraph (b)(i)
shall not be effective to transfer any ownership of such Prohibited Securities.
(ii) The Agent shall sell in one or more arm's-length transactions
(through the New York Stock Exchange, if possible) any Prohibited Securities
transferred to the Agent by the Purported Acquiror, and the proceeds of such
sale (the "Sales Proceeds"), or the Resale Proceeds, if applicable, shall be
used to pay the expenses of the Agent in connection with its duties under this
paragraph (b) with respect to such Prohibited Securities, and any excess shall
be allocated to the Purported Acquiror up to the following amount: (x) where
applicable, the purported purchase price paid or value of consideration
surrendered by the Purported Acquiror for such Prohibited Securities, and (y)
where the purported transfer of Prohibited Securities to the Purported Acquiror
was by gift, inheritance, or any similar purported transfer, the fair market
value (as determined in good faith by the Board or Directors) of such Prohibited
Securities at the time of such purported transfer. Subject to the succeeding
provisions of this subparagraph, any Resale Proceeds or Sales Proceeds in excess
of the amount allocable to the Purported Acquiror pursuant to the preceding
sentence, together with any Prohibited Distributions, shall be transferred to an
entity described in Section 501(c)(3) of the Code and selected by the Board of
Directors or its designee. In no event shall any such amounts described in the
preceding sentence inure to the benefit of the Corporation or the Agent, but
such amounts may be used to cover expenses incurred by the Agent in connection
with its duties under this paragraph (b) with respect to the related Prohibited
Securities. Notwithstanding anything in this Article Ninth to the contrary, the
Corporation shall at all times be entitled to make application to any court of
equitable jurisdiction within the State of Delaware for an adjudication of the
respective rights and interests of any person in and to any Sale Proceeds,
Resale Proceeds and Prohibited Distributions pursuant to this Article Ninth and
applicable law and for leave to pay such amounts into such court.
(c) Within thirty (30) business days of learning of a purported
transfer of Prohibited Securities to a Purported Acquiror, the Corporation
through its Secretary shall demand that the Purported Acquiror surrender to the
Agent the certificates representing the Prohibited Securities, or any Resale
Proceeds, and any Prohibited Distributions, and if such surrender is not made by
the Purported Acquiror the Corporation may institute legal proceedings to compel
such transfer; provided, however, that nothing in this paragraph (c) shall
preclude the Corporation in its discretion from immediately bringing legal
proceedings without a prior demand, and provided
<PAGE> 12
further that failure of the Corporation to act within the time periods set out
in this paragraph (c) shall not constitute a waiver of any right of the
Corporation to compel any transfer required by subparagraph (b)(i) of this
Article Ninth.
(d) Upon a determination by the Corporation that there has been or is
threatened a purported transfer of Prohibited Securities to a Purported
Acquiror, the Corporation may take such action in addition to any action
permitted by the preceding paragraph as it deems advisable to give effect to the
provisions of this Article Ninth, including, without limitation, refusing to
give effect on the books of this Corporation to such purported transfer or
instituting proceedings to enjoin such purported transfer.
(e) The Corporation may require as a condition to the registration of
the transfer of any shares of its Stock, Warrants or SARs that the proposed
transferee furnish to the Corporation all information reasonably requested by
the Corporation and reasonably available to the proposed transferee and its
affiliates with respect to the direct or indirect ownership interests of the
proposed transferee (and of persons to whom ownership interests of the proposed
transferee would be attributed for purposes of Section 382 of the Code) in
Stock, Warrants or SARs or other options or rights to acquire Stock.
(f) All certificates evidencing ownership of shares of Stock, Warrants
or SARs that are subject to the restrictions on transfer contained in this
Article Ninth shall bear a conspicuous legend referencing the restrictions set
forth in this Article Ninth.
(g) The Board of Directors may, at any time, waive this Article Ninth
in respect of one or more classes of transfers or in respect of all transfers,
provided that the Board of Directors may so waive this Article Ninth pursuant to
this paragraph (g) only if it determines, in writing (A) based upon an opinion
of counsel selected by the Board of Directors addressing the relevant legal
considerations, that there is no reasonable likelihood that such waiver will
create or increase a material risk that limitations pursuant to Section 382 of
the Code will be imposed on the utilization of the Tax Benefits, either at the
time of waiver or a reasonable time thereafter, or (B) that the benefits to the
shareholders of the Corporation as a whole of so waiving the provisions hereof
are sufficient to permit such waiver notwithstanding the likely detriment to the
shareholders as a whole of the limitations referred to in (A). Any such
determination to waive this Article Ninth in respect of all transfers shall be
filed with the Secretary of the Corporation and mailed by the Secretary to all
stockholders of this Corporation within ten days after the date of such
determination.
(h) The Corporation and the Board of Directors shall be fully protected
in relying in good faith upon the information, opinions, reports or statements
of the chief executive officer, the chief financial officer, or the chief
accounting officer of the Corporation or of the Corporation's legal counsel,
independent auditors, transfer agent, investment bankers, and other employees
and agents in making the determinations and findings contemplated by this
Article Ninth to the fullest extent permitted by law. Any determination by the
Board of Directors pursuant to this Article Ninth shall be conclusive.
<PAGE> 13
(i) if any provision of this Article Ninth or any application of such
provision is determined to be invalid by any federal or state court having
jurisdiction over the issue, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Article Ninth and this Article Tenth may
not be repealed or amended in any respect, and no other provision may be
adopted, amended or repealed which would have the effect of modifying or
permitting the circumvention of the provisions set forth in Article Ninth or
this Article Tenth, unless such action is approved by the affirmative vote of
the holders or not less than 66-2/3% of the total voting power of all
outstanding securities of the Corporation then entitled to vote generally in the
election of directors, voting together as a single class, provided that such
66-2/3% approval requirement shall not apply to any amendment to Article Ninth
that extends the Expiration Date or reduces the Ownership Interest Percentage
figures specified in the first sentence of subparagraph (a)(i) of such Article.
4. This Restated Certificate of Incorporation shall be effective as of
April 29, 1994.
The LTV Corporation hereby further certifies that this Restated Certificate of
Incorporation is made and filed by The LTV Corporation pursuant to the Second
Modified Joint Plan of Reorganization filed by The LTV Corporation and certain
affiliated debtors in proceedings under Chapter 11 of the Federal Bankruptcy
Code 11 U.S.C. Section 101 et seq., confirmed by the United States Bankruptcy
Court for the Southern District of New York, in accordance with the provisions
of Section 303 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, The LTV Corporation has caused this certificate to be signed
by David H. Hoag, its Chairman of the Board of Directors, and attested by Hal C.
Hedrick, Jr., its Assistant Secretary, and has caused its corporate seal to be
hereunto affixed, this 29th day of April 1994.
THE LTV CORPORATION
By: /s/ David H. Hoag
--------------------------------------
David H. Hoag
Chairman of the Board of Directors
Attest:
/s/ Hal C. Hedrick, Jr.
- -----------------------
Hal C. Hedrick, Jr.
Assistant Secretary
<PAGE> 14
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
THE LTV CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of THE LTV
CORPORATION a resolution was duly adopted proposing as advisable an amendment to
the Restated Certificate of Incorporation of said corporation which would
eliminate Article Eleventh thereof in its entirety and calling a meeting of the
stockholders of said corporation for consideration thereof.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the following
resolution:
RESOLVED, that the elimination of Article Eleventh of the Company's
Restated Certificate of Incorporation be, and hereby is approved.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said THE LTV CORPORATION has caused this
certificate to be signed by D.H. Hoag, its Chairman of the Board and Chief
Executive Officer, and attested by Hal C. Hedrick, Jr., its Assistant Secretary,
as of this 29th day of April 1994.
THE LTV CORPORATION
By: /s/ David H. Hoag
--------------------------------------
David H. Hoag
Chairman of the Board of Directors
Attest:
/s/ Hal C. Hedrick, Jr.
- -----------------------
Hal C. Hedrick, Jr.
Assistant Secretary
<PAGE> 1
Exhibit (3)-(4)
As Amended and Restated February 1, 1999
THE LTV CORPORATION
BY-LAWS
ARTICLE I
OFFICES
SECTION 1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
SECTION 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of stockholders shall be held at such place,
either within or without the State of Delaware, on such date and at such time as
may be determined from time to time by the Board of Directors (or the Chairman
in the absence of a determination by the Board of Directors). The Chairman and
the chairman of the meeting shall have the power and authority to determine and
maintain the rules, regulations and procedures for the proper conduct of all
meetings of stockholders, including, but not limited to, maintaining order,
restricting entry to meetings after they have commenced, the length of such
meetings, the order of business, the order and duration of statements from the
floor, opening and closing the polls and dismissing business not properly
brought before the meeting.
SECTION 2. Annual meetings of stockholders shall be held on such day
and at such time as may be fixed by the Board of Directors, at which they shall
elect by a plurality vote a class of directors and transact such other business
as may properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat not less than ten nor more than sixty days
before the date of the meeting. For the purposes of Sections 11 and 12 of this
Article, the Board of Directors, the chairman of the Board of Directors or the
Secretary of the corporation may choose a tentative date (the "Tentative Meeting
Date") for any stockholder meeting which date may be set forth in the
corporation's proxy materials for the annual meeting next preceding such
Tentative Meeting Date or a filing with the Securities and Exchange Commission
on Form 10-K, 10-Q or 8-K or may be published by any other means. Notice of a
Tentative Meeting Date does not serve as notice of a stockholder meeting.
SECTION 4. A complete list of the stockholders entitled to vote at any
election of directors, arranged in alphabetical order and showing the address of
each stockholder and the number of voting shares held by each, shall be prepared
by the office in charge of the stock ledger and shall be filled at a place
within the city where the election is to be held (which place, if other than the
meeting place, shall be specified in the notice of the meeting) at least ten
days before such election, and shall at all times prior to the election during
the usual
<PAGE> 2
hours for business, and during the whole time of said election, be open to
examination and inspection of any stockholder.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board or by the President
and shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of stockholders
holding not less than 25 percent of the outstanding Common Stock. Such request
shall state the purpose or purposes of the proposed meeting.
SECTION 6. Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given which shall
state the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by law as the same exists or may hereafter be amended, such
notice shall be given not less than ten nor more than sixty days before the date
of the meeting to each stockholder of record entitled to vote at such meeting.
Unless these By-Laws otherwise require, when a meeting is adjourned to another
time or place (whether or not a quorum is present), notice need not be given of
the adjourned meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance for a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
SECTION 7. The holders of a majority of the votes attributed to the
stock issued and outstanding and entitled to be voted thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in accordance
with Section 6 hereof, until a quorum shall be present or represented.
SECTION 8. When a quorum is present at any meeting the vote of the
holders of a majority of the votes attributed to the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting unless the question is one upon which by express provision
of the statutes or of the Certificate of Incorporation a different vote is
required in which case such express provision shall govern and control the
decision of such question.
SECTION 9. In all elections of directors, each stockholder shall have
the right to vote the number of votes attributed to the shares of the capital
stock having voting power held by such stockholder, in person or by proxy, for
as many persons as there are directors to be elected; in deciding all other
questions at the meetings of stockholders, each stockholder shall be entitled to
one vote per share, unless the constituent instrument establishing the class of
capital stock held provides a different vote or votes for each share of such
class in which event each stockholder holding shares of such class shall be
entitled to such vote or votes, in person or by
<PAGE> 3
proxy, for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
SECTION 10. Any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of stockholders, may be taken without a meeting, without prior
notice and without a vote, by consent or consents in accordance with Delaware
law. In the event of the delivery, in the manner provided by Section 5 of
Article VI, to the corporation of the requisite written consent or consents to
take corporate action and/or any related revocation or revocations, the
corporation shall engage independent inspectors of elections for the purpose of
promptly performing a ministerial review of the validity of the consents and
revocations. For the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall be effective until
such date as the independent inspectors certify to the corporation that the
consents delivered to the corporation, in the manner provided by Section 5 of
Article VI, represent at least the minimum number of votes that would be
necessary to take the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the Board of Directors or
any stockholder shall not be entitled to contest the validity of any consent or
revocation thereof, whether before or after such certification by the
independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated written consent received in accordance with Section 5 of
Article VI, a written consent or consents signed by a sufficient number of
holders to take such action are delivered to the corporation in the manner
prescribed in Section 5 of Article VI.
SECTION 11. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in these By-Laws shall be eligible to
serve as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 11, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 11. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation.
If a Tentative Meeting Date has been announced and the meeting date
(disregarding any adjournments thereof) is not more than thirty days prior to
and not more than thirty days after the Tentative Meeting Date, to be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty days nor more
than ninety days prior to the Tentative Meeting Date; provided, however, that if
less than seventy days' prior public disclosure of the Tentative Meeting Date is
given or made, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
public disclosure of the Tentative Meeting Date was made. Otherwise, to be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than sixty days nor
more than ninety days prior to the meeting date; provided, however, that if less
than seventy days' notice or prior public disclosure of the meeting date is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the meeting date or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be
<PAGE> 4
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to the Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the corporation's books, of
such stockholder, (ii) the class and number of shares of the corporation which
are beneficially owned (as defined by Rule 13d-3 under the Exchange Act) by such
stockholder and, if such shares are beneficially owned by any person(s) other
than the stockholder of record, the name(s) and address(es) of each such
beneficial owner of such shares and (iii) a description of all arrangements or
understandings between the stockholder or any such beneficial owner and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the corporation.
No person shall be eligible to serve as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-Laws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded. Notwithstanding
the foregoing provisions of this Section 11, a stockholder shall also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this Section 11.
Nothing contained herein shall be deemed to create any obligation on
the part of the corporation to include any stockholder nomination in the
corporation's proxy statement.
SECTION 12. Notice of Business. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of Directors or (b)
by any stockholder of the corporation who is a stockholder of record at the time
of giving of the notice provided for in this Section 12, who shall be entitled
to vote at such meeting and who complies with the notice procedures set forth in
this Section 12. For business to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation.
If a Tentative Meeting Date has been announced and the meeting date
(disregarding any adjournments thereof) is not more than thirty days prior to
and not more than thirty days after the Tentative Meeting Date, to be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty days nor more
than ninety days prior to the Tentative Meeting Date; provided, however, that if
less than seventy days' prior public disclosure of the Tentative Meeting Date is
given or made, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
public disclosure of the Tentative Meeting Date was made. Otherwise, to be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than sixty days nor
more than ninety days prior to the meeting date; provided, however, that if less
than seventy days' notice or prior public disclosure of the meeting date is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the meeting date or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
<PAGE> 5
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned (as defined by Rule 13d-3 under the Exchange Act) by such
stockholder and, if such shares are beneficially owned by any person(s) other
than the stockholder of record, the names) and address(es) of each such
beneficial owner of such shares and (d) any material interest of the stockholder
or any such beneficial owner in such business. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the corporation.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an annual meeting except business submitted by or at the
direction of the Board of Directors or by any stockholder of the corporation in
accordance with the procedures set forth in this Section 12. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of the By-Laws, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions of this Section 12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act, and the rules and regulations thereunder with respect to the matters set
forth in this Section 12.
Nothing contained herein shall be deemed to create any obligation on
the part of the corporation to include any stockholder proposal in the
corporation's proxy statement.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors shall be the number fixed from time
to time by resolution of the Board of Directors, provided that the number shall
be not less than three nor more than fifteen and, provided further that, there
shall be added to such number of directors as so determined any number of
directors elected director by the holders of any class of voting stock of the
corporation pursuant to the terms of the constituent instrument establishing
such class. The directors (other than any directors which may be elected by the
class vote of any series of stock of the corporation pursuant to the terms
thereof, which directors shall be elected at the time and serve for the term
specified in the resolutions providing for the issue of such series of stock)
shall be divided into three classes, each consisting of one-third of such
directors as nearly as may be. One class of such directors having been elected
initially for a one-year term, one class initially for a two-year term and one
class initially three-year term, at each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires in that
year shall be elected for a three-year term. If the number of such directors is
changed, any increase or decrease in such directors shall be apportioned among
the classes so as to maintain the classes as nearly equal in number as possible,
and any additional director to any class shall hold office for a term which
shall coincide with the term of such class. A director shall hold office until
the annual meeting for the year in which his term expires and his successor is
elected and qualifies; subject, however, to prior resignation, death or removal
as provided by law and to prior expiration of such director's term in accordance
with the Certificate of Incorporation. Upon the resignation, death or removal of
any director or the expiration of his term, the term of his successor shall be
the same term as that of the director who has so resigned, died or been removed.
Director need not be stockholders. The Board of Directors shall consist of a
majority of directors who are not current or former officers or employees of the
corporation or its subsidiaries ("Outside Directors").
SECTION 2. Any director may resign at any time by giving written notice
to the Board of Directors or to the Secretary of the corporation. The
resignation of any director shall take effect upon receipt of notice
<PAGE> 6
thereof or at such later time as shall be specified in such notice; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3. Vacancies, and newly created directorships resulting from
any increase in the authorized number of directors shall be filled by a majority
of the directors then in office, though less than a quorum provided, however,
that whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors, vacancies and newly created
directorships of such class or classes or series shall be filled in the manner
provided in the constituent instrument establishing such class, classes or
series.
SECTION 4. The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 5. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
SECTION 6. Members of the Board of Directors or of any of its
committees may participate in a meeting of such board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting pursuant to this Section 6 shall constitute presence in person at such
meeting.
SECTION 7. The first meeting of directors following the election of a
class of directors by the stockholders shall be a special meeting and shall be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as shall
be specified in a written waiver signed by all of the directors.
SECTION 8. Regular meetings of the Board of Directors shall be held
without special notice at such time and at such place as shall from time to time
be determined by the board.
SECTION 9. Special meetings of the Board of Directors may be called by
the Chairman of the Board or by the president, or on the written request of two
directors, by the Secretary. Written notice of special meetings of the Board of
Directors shall be given to each director at least three days before the date of
the meeting if by mail, or at least twenty-four hours if by telegram, telex or
telecopy.
SECTION 10. At any stated or special meeting of the Board of Directors
a majority of the directors at the time in office (but not less than one-third
of the whole board as determined in accordance with the provisions of Section 1
of this Article III) shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. In the absence of a quorum a majority of the directors present
may adjourn any meeting from time to time until a quorum is present. No notice
of any adjourned meeting need be given unless otherwise required by law.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution adopted by
affirmative vote of a majority of the whole board, appoint one or more
committees of directors, including, but not limited to, an executive
<PAGE> 7
committee, each committee to consist of not less than three nor more than seven
members (as determined from time to time by resolution of the Board of
Directors). Any such committee or committees, other than the executive
committee, appointed by the Board of Directors shall have and may exercise the
powers and authority and carry out the responsibilities which the Board of
Directors shall specify or delegate. Unless otherwise provided by the Board of
Directors, the executive committee shall, during the intervals between meetings
of the Board of Directors, have and may exercise all of the powers of the board
of director in the management of the business and affairs of the corporation,
including the election or appointment of officers of the corporation (other than
Chairman of the Board, President, Secretary and Treasurer), the declaration of
dividends and the authorization of the issuance of stock and may authorize the
seal of the corporation to be affixed to all papers which may require it;
provided, however, that the executive committee may not rescind any action
previously taken by the Board of Directors. A majority of the members of the
executive committee, and of any audit, finance or nominating committees that may
be established, shall be directors who were not directors of the corporation
prior to June 28, 1993 (the effective date of reorganization). In no event shall
any committee have any power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
the election or appointment of officers (except as set forth in the next
preceding sentence), recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the corporation.
Meetings of the executive committee may be called and notices given in the same
manner as calling and giving notice of special meetings of the Board of
Directors. All members of any compensation committee of the Board of Directors
shall be Outside Directors.
If and for so long as required by the settlement agreement among the
corporation, the Pension Benefit Guaranty Corporation (the "PBGC") and certain
other parties (the "Settlement Agreement"), the corporation shall maintain a
committee of the Board of Directors which shall be designated as the pension
committee and which shall consist of at least three directors, all of whom shall
be Outside Directors. The pension committee shall have the following powers and
duties: to appoint, direct, monitor and terminate trustees pursuant to ERISA
Section 403(a); to appoint, monitor and terminate, pursuant to ERISA Section
402(c)(3), investment managers within the meaning of ERISA Section 3(38); and to
oversee and enforce the rights of any pension plan pursuant to the Settlement
Agreement. The pension committee will meet with the PBGC or its designated
representatives as required by the Settlement Agreement.
SECTION 12. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors, when required.
COMPENSATION OF DIRECTORS
SECTION 13. The directors may be paid their expenses of attendance at
each meeting of the Board of Directors and may be paid a fee for attendance at
each meeting of the Board of Directors and a stated fee as a director; such fees
may be paid in securities of the corporation or rights, options or warrants to
purchase such securities. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed expenses and
fees.
ACTION BY CONSENT
SECTION 14. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if prior to such action a written consent thereto is
<PAGE> 8
signed by all members of the board or of such committee as the case may be, and
such written consent is filed with the minutes of the proceedings of the board
or committees.
ARTICLE IV
NOTICES
SECTION 1. Notices to directors and stockholders shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram or telecopier. Notice by telegram or
telecopier shall be deemed to be given at the time sent.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The elected officers of the corporation shall be a Chairman
of the Board, a President, one or more Executive Vice Presidents, one or more
Senior Vice Presidents, one or more Group Vice Presidents, a General Counsel,
one or more Vice Presidents, with or without such descriptive titles as the
Board of Directors shall deem appropriate, a Chief Financial Officer, a
Treasurer, a Controller, and a Secretary. The Board of Directors by resolution
may also appoint one or more Assistant Treasurers, Assistant Controllers,
Assistant Secretaries, and such other officers and agents as from time to time
may appear to be necessary or advisable in the conduct of the affairs of the
corporation. Any two or more offices may be held by the same person except the
offices of President and Secretary and the offices of Treasurer and Controller.
SECTION 2. The Board of Directors shall elect or appoint the officers
to fill the positions designated in Section 1 of this Article V at a meeting of
the board held during the same calendar month as the annual meeting of
stockholders.
SECTION 3. The salaries of all elected officers of the corporation
shall be fixed by the compensation committee of the Board of Directors, or if no
compensation committee exists, then by the board.
SECTION 4. The officers of the corporation shall hold office until
their successors are chosen and qualify subject, however, to prior resignation,
death or removal. Amy officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the whole Board
of Directors. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
SECTION 5. Any officer may resign at any time by giving written notice
to the Board of Directors (or to a principal officer if the Board of Directors
has delegated to such principal officer the power to appoint and to remove such
officer). The resignation of any officer shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
<PAGE> 9
CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall be in general charge of the business, operations, policies and
affairs of the corporation. He shall have the power to call special meetings of
the stockholders and directors for any purpose or purposes, in accordance with
the provisions of the certificate of incorporation and by-laws of the
corporation, and he shall preside at all meetings of the stockholders and board
of directors, unless he shall be absent, or unless he shall, at his option,
designate the President to preside in his stead at some particular meeting. The
Chairman of the Board shall, in the absence or incapacity of the President, have
all of the powers granted by the By-Laws to the President.
PRESIDENT
SECTION 7. The President shall preside at meetings of the board or
directors and of the stockholders in the absence of the Chairman of the Board,
and he shall have power to call special meetings of the stockholders and the
board of directors for any purpose or purposes. The President shall be the chief
operating officer of the corporation. He shall have the power to sign stock
certificates, contracts and instruments or conveyances, bonds, checks, drafts,
notes, orders for the payment of money and similar obligations. The President
shall perform all the duties and have all the powers of the Chairman of the
Board in the absence or disability of the Chairman of the Board.
SENIOR VICE PRESIDENT
SECTION 8. The Senior Vice Presidents shall perform such duties and
responsibilities and have such authority as shall be assigned or granted to them
by the Board of Directors or by the President. They shall generally assist the
President in the management of the corporation. Unless the Board of Directors
determines otherwise, in the absence or disability of the President, the Senior
Vice President, Executive Vice President or Group Vice President selected by the
President shall perform the duties and exercise the powers of the President.
EXECUTIVE OR GROUP VICE PRESIDENT
SECTION 9. The Executive Vice Presidents and Group Vice Presidents
shall be responsible for the operation of divisions or subsidiaries of the
corporation which are assigned to them respectively by the Board of Directors or
the President and they shall perform such other duties and responsibilities and
have such authority as may be assigned or granted to them by the Board of
Directors or the President. With respect to the subsidiaries or divisions of the
corporation which are assigned to them respectively, they shall report to the
President of the corporation. Unless the Board of Directors determines
otherwise, in the absence or disability of the President, the Senior Vice
President, Executive Vice President or Group Vice President selected by the
President shall perform the duties and exercise the powers of the President.
CHIEF FINANCIAL OFFICER
SECTION 10. The Chief Financial Officer shall be the chief accounting
and financial officer of the corporation and shall have active control of and
shall be responsible for all matters pertaining to the accounts and finances of
the corporation. He shall have responsibility for the preparation and
interpretation of cash and working capital budgets, forecasts and related
analyses, for the development of capital expenditure budgets and for the
planning of cash requirements for the consummation of required financing
arrangements. He shall be
<PAGE> 10
responsible for all financial planning on both a long-term and short-term basis
and the disposition of investments held by the corporation as authorized by its
Board of Directors or the executive committee of the Board of Directors. He
shall direct the Treasurer and the Controller in the performance of their
respective duties. He shall have such other duties and responsibilities and
powers as may be delegated to him by the Board of Directors or its executive
committee or by the President.
GENERAL COUNSEL
SECTION 11. The General Counsel shall advise the Board of Directors
with respect to the legal liabilities of the directors and of the corporation
with respect to all matters presented to the Board of Directors for
consideration and approval or presented to the directors for their written
approval, which matters would include all SEC, corporate reorganization,
acquisition, sale or other disposition and similar matters. He shall be
responsible for the handling of all legal matters including compliance with, and
interpretation of, law and governmental and other regulations and for retaining
and supervising all outside legal counsel retained by the corporation. The
General Counsel shall perform such other duties as may be assigned to him from
time to time by the President, or the Board of Directors or its executive
committee.
VICE PRESIDENT
SECTION 12. The Vice Presidents shall have such duties and
responsibilities and shall exercise such authority as shall be delegated or
granted to them by the Board of Directors or by the President. They shall
generally assist the President and the Senior Vice Presidents in the performance
of the duties and responsibilities, respectively, of such officers.
TREASURER AND ASSISTANT TREASURERS
SECTION 13. Under the general direction of the Chief Financial Officer
of the corporation, the Treasurer shall be responsible for all matters
pertaining to the finances of the corporation. He shall have the care and
custody of all monies, funds and securities of the corporation and shall deposit
all monies and other valuable effects in the name of and to the credit of the
corporation in depositories as authorized by the Board of Directors. He shall
have the power to sign stock certificates, to endorse for deposit or collection,
or otherwise, all checks, drafts, notes, bills of exchange, or other commercial
paper payable to the corporation, and to give proper receipts or discharges for
all payments to the corporation. He shall be responsible for all terms of credit
granted by the corporation and for the collection of all its accounts. He shall
be responsible for all insurance matters and programs of the corporation. If
required by the Board of Directors, the Treasurer shall give the corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation. The Treasurer shall perform such other duties as may be
assigned to him from time to time by the President or the Chief Financial
Officer.
Assistant Treasurers in the order of their seniority, unless otherwise
determined by the Board of Directors, shall assist the Treasurer and in the
absence or disability of the Treasurer, perform the duties and exercise the
power of the Treasurer.
<PAGE> 11
CONTROLLER AND ASSISTANT CONTROLLERS
SECTION 14. Under the general direction of the chief accounting officer
of the corporation, the Controller shall be responsible for all matters
pertaining to the accounts of the corporation and the supervision of the books
of account, their installation, arrangement and classification. He shall
maintain adequate records of all assets, liabilities and transactions; shall
audit all payrolls and vouchers for payment by the corporation and all documents
pertaining to such vouchers; see that an adequate system of internal audit of
the transactions of the corporation is currently and regularly maintained;
coordinate the efforts of the company's independent public accountants in its
external audit program; receive, review, and consolidate all operating and
financial statements of the corporation and its various divisions and
subsidiaries; and prepare financial statements, reports and analyses. He shall
have supervision of the accounting practices of the corporation and of each
division of the corporation. He shall cause to be maintained an adequate system
of financial control through a program of budgets, financial planning and
interpretive reports. He shall be responsible for the timely preparation and
filing of all federal, state and local tax returns of the corporation and the
supervision of all matters relating to tax matters of the corporation. The
Controller shall perform such other duties as may be assigned to him from time
to time by the President or the chief accounting officer.
Assistant Controllers in the order of their seniority, unless otherwise
determined by the Board of Directors, shall assist the Controller, and in the
absence or disability of the Controller, perform the duties and exercise the
powers of the Controller.
SECRETARY AND ASSISTANT SECRETARIES
SECTION 15. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all proceedings of the
meetings of the stockholders of the corporation and of the Board of Directors in
a book to be kept for that purpose, and shall perform like duties for the
committees of the Board of Directors when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and meetings of the Board
of Directors and of its committees. He shall have charge of the seal of the
corporation and have authority to affix the same to any instrument requiring it,
and when so affixed, it shall be attested by his signature or by the signature
of the Treasurer or an Assistant Secretary, which may be in facsimile. He shall
keep and account for all books, documents, papers and records of the corporation
except those for which some other officer or agent is properly accountable. He
shall have authority to sign stock certificates, and shall generally perform all
the duties usually appertaining to the office of the Secretary of a corporation.
The Secretary shall perform such other duties as may be assigned to him from
time to time by the President or the General Counsel.
Assistant Secretaries in the order of their seniority, unless otherwise
determined by the Board of Directors, shall assist the Secretary, and in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
Chairman of the Board, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in the
corporation. If the corporation shall be authorized to issue more than one class
of stock, the designations, preferences and relative, participating, option or
other special rights of each
<PAGE> 12
class and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such class of
stock; provided, however, except as otherwise provided by law, in lieu of the
foregoing requirements, there may be set forth on the face or the back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or shares
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
SECTION 2. In case any officer or officers who have signed or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
SECTION 3. The corporation may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificates alleged to have been lost or
destroyed.
TRANSFERS OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING OF RECORD DATE
SECTION 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting or stockholders shall
apply to any adjournment of the meeting; provided, however, the Board of
Directors may fix a new record date for the adjourned meeting.
<PAGE> 13
In order that the corporation may determine the stockholders entitled
to consent to take corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record is adopted by the Board of Directors
and shall not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors.
Any person seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the Secretary, request the
Board of Directors to fix a record date. The Board of Directors shall promptly,
but in all events within ten days after the date on which such a request is
received, adopt a resolution fixing the record date (unless a record date has
previously been fixed by the Board of Directors pursuant to the previous
paragraph).
If no record date has been fixed by the Board of Directors pursuant to
the second preceding paragraph or within ten days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing, without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or any officer or agent
of the corporation having custody of the book in which proceedings of the
meetings of stockholders are recorded. Delivery shall be by hand or by certified
or registered mail, return receipt requested. If no record date has been fixed
by the Board of Directors and prior action by the Board of Directors is required
by applicable law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
In order that the corporation may determine whether stockholders
holding the requisite number of shares desire to require the calling of a
special meeting of the stockholders pursuant to Section 5 of Article II of these
By-Laws, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board or Directors and shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors.
Any person seeking to call a special meeting shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The Board
of Directors shall promptly, but in all events within ten days after the date on
which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within ten
days of the date on which such a request is received, the record date for
determining stockholders entitled to call a special meeting, when no prior
action by the Board of Directors is required by applicable law, shall be the
first date on which a request in writing of a stockholder requesting the calling
of a special meeting and stating the purpose or purposes of the proposed meeting
is delivered to the corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or any officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall
<PAGE> 14
be by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date for
determining stockholders entitled to call a special meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments, a person registered on its books as the owner of shares, and shall
not be bound to recognize an equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
STOCK OPTIONS AND AGREEMENTS
SECTION 7. Any stockholder of this corporation may enter into
agreements giving to any other stockholder or stockholders or any third party an
option to purchase any of his stock in the corporation; and such shares of stock
shall thereupon be subject to such agreement and transferable only upon proof of
compliance therewith, provided, however, that a copy of such agreement be filed
with the corporation and reference thereto placed upon the certificates
representing said shares of stock.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves for meeting contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the corporation
shall be signed by such officer of officers or such other person or persons as
the Board of Directors may, from time to time, designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
<PAGE> 15
SEAL
SECTION 5. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE VIII
AMENDMENTS
SECTION 1. These By-Laws may be altered or repealed at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
<PAGE> 1
Exhibit (10)-(45)
TRUST AGREEMENT
THIS AGREEMENT made this 16th day of December 1994, by and between LTV
CORPORATION ("Company") and Mellon Bank, N.A. ("Trustee").
WHEREAS, Company has adopted various nonqualified deferred compensation
plan(s), as listed in Appendix A (the "Plans"):
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan(s) with respect to the individuals participating in such
Plans (individually a "Participant" and collectively the "Participants");
WHEREAS, Company wishes to establish a trust (the "Trust") and to
contribute to the Trust the assets that shall be held therein, subject to the
claims of Company's creditors in the event of Company's insolvency, as herein
defined, until paid to participants and their beneficiaries in such manner and
at such times as specified in the Plan(s);
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
plan(s) as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan(s).
NOW THEREFORE, the parties do hereby establish the trust and agree that
the Trust shall be comprised, held and disposed of as follows.
Section 1. Establishment of Trust.
(a) Company hereby establishes the Trust with the Trustee, consisting
of such sums of money and other property acceptable to the Trustee as from time
to time shall be paid and delivered to and accepted by the Trustee from the
company. All such money and other property paid or delivered to and accepted by
the Trustee shall become the principal or the Trust to be held, administered and
disposed of by Trustee as provided in this Trust agreement.
(b) The Trust hereby established is revocable by Company; it shall
become irrevocable upon a Change of Control, as defined herein.
(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning or subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of
<PAGE> 2
the participants and general creditors as herein set forth. The Participants and
their beneficiaries shall have no preferred claim on or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan(s) and
this Trust Agreement shall be mere unsecured contractual rights of the
Participants and their beneficiaries against Company. Any assets held by the
Trust will be subject to the claims of Company's general creditors under federal
and state law in the event of insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Participant or
beneficiary shall have any right to compel such additional deposits.
(f) The Trustee may commingle the assets attributable to the plans for
which contributions are made under this Agreement if this Agreement is
applicable to more than one plan. By agreement, the Trustee may maintain such
records as the Trustee deems necessary in order to separate the assets
attributable to each or the plans for which contributions are made under this
Agreement. The Company shall be responsible for causing sufficient records to be
maintained to insure that benefits and liabilities payable with respect to each
Plan shall be paid only from the assets held by the Trustee which are allocable
to each such Plan. Should separation be required, either of the Fund from either
trusts maintained by the Company or of any plan for which contributions are made
under this Agreement from the Fund, the Trustee shall make such separation in
accordance with generally accepted accounting principles and where applicable,
upon the certification of an enrolled actuary.
Section 2. Payments to the Participants and Their Beneficiaries.
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Participant
(and his or her beneficiaries), that provides a formula or other instructions
acceptable to Trustee for determining the amounts so payable, the form in which
such amount is to be paid (as provided for or available under the plan(s)), and
the time of commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments to the participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the payment of benefits
pursuant to the terms of this Agreement and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.
(b) Tile entitlement of a Participant or his or her beneficiaries to
benefits under the Plan(s) shall be determined by Company or such party as it
shall designate under the Plan(s), and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan(s).
(c) Company may make payment or benefits directly to the Participants
or their beneficiaries as they become due under the terms of the Plan(s).
Company shall notify Trustee
<PAGE> 3
of its decision to make payment of benefits directly prior to the time amounts
are payable to Participants or their beneficiaries. In addition, if the
principal of the Trust, and any earnings thereon, are not sufficient to make
payments of benefits in accordance with the terms of the Plan(s), Company shall
immediately make up the balance of each such payment as it falls due. Trustee
shall notify Company when principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company is Insolvent.
(a) Trustee shall cease payment of benefits to the Participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims or general creditors of Company under federal and state law as set forth
below.
(1) The Board or Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to the Participants or
their beneficiaries. In all cases, Trustee shall be entitled to
conclusively rely upon the written certification of the Board of
Directors or the Chief Executive Officer of the Company when
determining whether Company is insolvent.
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to
be a creditor alleging that Company is Insolvent, Trustee shall have no
duty to inquire whether Company is Insolvent. Trustee may in all events
rely on such evidence concerning Company's solvency as may be furnished
to Trustee and that provides Trustee with a reasonable basis for making
a determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to the Participants or
their beneficiaries and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the participants or their
beneficiaries to pursue their rights as general creditors of Company
with respect to benefits due under the Plan(s) or otherwise.
(4) Trustee shall resume the payment of benefits to the
Participants or their beneficiaries in accordance with Section 2 or
this Trust Agreement only after Trustee has determined that Company is
not Insolvent (or is no longer Insolvent).
<PAGE> 4
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
participants or their beneficiaries under the terms or the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to the
Participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period or discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has became
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all payment of
benefits have been made to the Participants and their beneficiaries pursuant to
the terms of the Plan(s).
Section 5. Investment and Administrative Authority.
(a) The Trustee shall have the power:
(1) To invest and reinvest the principal and income of the
Trust and keep it invested, without distinction between principal and
income, in any security or Property as it in, its sole discretion,
deems advisable; provided, however, in no event may Trustee invest in
securities (including stock or rights to acquire stock) or obligations
issued by Company, other than a de minimis amount held in common
investment vehicles in which Trustee invests. All rights associated
with assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercisable by or rest
with the Participants. "Property," as used herein, shall not include
any direct or indirect interest in real estate. For this purpose, "real
estate" includes, but is not limited to, real property, mortgages,
leaseholds, mineral interests, and any form of asset which is secured
by any of the foregoing.
(2) To collect and receive any and all money and other
property due to the Trust and to give full discharge therefore;
(3) To invest and reinvest the principal income of the Trust
in any collective, common or pooled trust fund operated or maintained
exclusively for the commingling and collective investment of monies or
other assets including any such fund operated or maintained by the
Trustee. Notwithstanding the provisions of this Trust Agreement which
place restrictions upon the actions of the Trustee or an investment
manager, to the extent monies or other assets are utilized to acquire
units or any collective trust, the terms of the collective trust
indenture shall solely govern the investment duties, responsibilities
and powers of the trustee of such collective trust and, to the extent
required by law, such terms, responsibilities and powers shall be
incorporated herein by reference and shall be part of this Trust
Agreement. For purposes of valuation, the value of the interest
maintained by the Trust in such collective trust shall be the fair
market value of the collective fund units held, determined in
accordance with generally recognized valuation
<PAGE> 5
procedures. The Company expressly understands and agrees that any such
collective fund may provide for the lending of its securities by the
collective fund trustee and that such collective fund's trustee will
receive compensation from such collective fund for the lending of
securities that is separate from any compensation of the Trustee
hereunder, or any compensation of the collective fund trustee for the
management of such collective fund.
(4) To purchase, enter, sell, hold, and generally deal in any manner in
and with contracts for the immediate or future delivery of financial instruments
of any issuer or of any other property; to grant, purchase, sell, exercise,
permit to expire, permit to be held in escrow, and otherwise to acquire, dispose
or, hold and generally deal in any manner with and in all forms of options in
any combination.
(5) To settle, compromise or submit to arbitration any claims, debt or
damages due or owing to or from the Trust; to commence or defend suits or legal
proceedings to protect any interest of the Trust; and to represent the Trust in
all suits or legal proceedings in any court or before any other body or
tribunal; and
(6) Generally to do all acts, whether or not expressly authorized,
which the Trustee may deem necessary or desirable for the protection of the
Trust.
(b) The Company may from time to time appoint one or more
investment managers to manage a specified portion of the Trust. The Company
shall notify the Trustee of the appointment of each investment manager and
instruct the Trustee to place in a separate account those assets over which the
investment manager has discretion. The investment manager shall designate in
writing the persons who are to represent it in dealings with the Trustee. Upon
the separation of the assets in accordance with the instructions of the Company,
the Trustee shall be relieved and released of all investment duties,
responsibilities and liabilities normally and statutorily incident to a trustee
as to such separate account. The Trustee shall only act on written instructions
from a party designated to represent the investment manager. The Company shall
cause any investment manager to produce reports and statements necessary for the
Trustee to carry out its duties.
Section 6. Disposition of Income.
During the term or this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 90 days following the close of each calendar year
and within 90 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or
<PAGE> 6
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with the terms of the Plan(s) (as certified to the Trustee by
Company) or this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a Court of competent
jurisdiction to resolve the dispute. Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) arising out of or relating to any action or
inaction taken by Trustee in reliance upon direction, request or approval given
by the Company.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations thereunder.
(e) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(f) However, notwithstanding the provisions of Section 8(e)
above, Trustee may loan to Company the proceeds of any borrowing against an
insurance policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the
<PAGE> 7
objective of carrying on a business and dividing the gains therefrom, within the
meaning of Section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust. Trustee
shall be entitled to the fees listed on Schedule A attached hereto as reasonable
compensation for the services rendered under this Trust Agreement.
Section 10. Registration and Removal of Trustee.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 60 days after receipt of such notice unless
Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on 60 days notice or
upon shorter notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may
not be removed by Company for one year.
(d) If Trustee resigns within one year of a Change of Control,
as defined herein, Trustee shall select a successor Trustee in accordance with
the provisions of Section 11(b) hereof prior to the effective date of Trustee
resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 180 days after receipt
of notice of resignation, removal or transfer, unless Company extends the time
limit.
(f) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership
<PAGE> 8
rights in the Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by Company or the successor Trustee to
evidence the transfer.
(b) If Trustee resigns or is removed pursuant to the provisions of
Section 10(d) hereof and selects a successor Trustee, Trustee may appoint any
third party such as a bank trust department or other party that may be granted
corporate trustee powers under state law. The appointment of a successor Trustee
shall be effective when accepted in writing by the new Trustee. The new Trustee
shall have all the rights and powers of the former Trustee, including ownership
rights in Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the successor Trustee to evidence the
transfer.
(c) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction or any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan (as certified to the Trustee
by Company) or shall make the Trust revocable after it has become irrevocable in
accordance with Section 1(b).
(b) The Trust shall not terminate until the date on which the
Participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s) unless sooner revoked in accordance with Section
1(b) hereof. Upon termination of the Trust any assets remaining in the Trust
shall be returned to Company.
(c) Upon written approval of the Participants or beneficiaries entitled
to payment of benefits pursuant to the terms of the Plan(s), Company may
terminate this Trust prior to the time all benefit payments under the Plan(s)
have been made. All assets in the Trust at termination shall be returned to
Company.
(d) Notwithstanding any other provision in this Trust Agreement, this
Trust Agreement may not be amended within one year of the occurrence of a Change
of Control.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof .
(b) Notwithstanding anything to the contrary contained elsewhere in
this Trust Agreement, any reference to the Plan or Plan provisions which require
knowledge or interpretation of the Plan shall impose a duty upon the Company to
communicate such
<PAGE> 9
knowledge or interpretation to the Trustee. The Trustee shall have no obligation
to know or interpret any portion of the Plan and shall in no way be liable for
any proper action taken contrary to the Plan.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Pennsylvania.
(d) For purposes of this Trust, Change of Control shall mean: the
purchase or other acquisition by any person, entity or group of persons, within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of
either the outstanding shares of common stock or the combined voting power of
Company's then outstanding voting securities entitled to vote generally, or the
approval by the stockholders of Company of a reorganization, merger, or
consolidation. In each case, with respect to which persons who were stockholders
of Company immediately prior to such reorganization, merge or consolidation do
not, immediately thereafter, own more than 50 percent of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities, or
liquidation of dissolution of Company or of the sale of all or substantially all
of Company's assets.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be
December 16, 1994.
MELLON BANK, N.A. THE LTV CORPORATION
By: /s/ Robert Borza By: /s/ A.W. Huge
-------------------------------- --------------------------------
Title: Vice President Title: Senior Vice President & CFO
----------------------------- -----------------------------
Date: December 22, 1994 Date: December 16, 1994
------------------------------ ------------------------------
<PAGE> 1
Exhibit (10)-(46)
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT made this 22nd day of FEBRUARY, 2000, among
JOHN D. TURNER, resident of Pittsburgh, Pennsylvania (hereinafter called the
"Executive"), COPPERWELD CORPORATION, a Delaware corporation (hereinafter called
"the Corporation"), and THE LTV CORPORATION, a Delaware corporation (hereinafter
called "LTV").
WITNESSETH:
WHEREAS, the Corporation and the Executive entered into an
Employment Agreement on August 30, 1988, for the employment of the Executive
with the Corporation as President and Chief Executive Officer (the "Original
Agreement"); and
WHEREAS, Executive and the Corporation entered into an
amendment to the Agreement on May 7, 1993 (the "Amendment");
WHEREAS, Executive and the Corporation entered into a second
amendment to the Agreement on November 10, 1999 (the "Second Amendment") (the
Original Agreement, Amendment and Second Amendment are collectively referred to
as the "Agreement");
WHEREAS, the Agreement has been restated, as set forth in
Exhibit A, which is attached to this Amendment, to incorporate into one document
solely for ease of reference the Original Agreement, the Amendment and Second
Amendment, and the terms of the Agreement are incorporated herein by reference
as though restated in full;
WHEREAS, LTV acquired all of the outstanding common stock of
the Corporation on November 10, 1999, and, as a result of such business
transaction, the Corporation is now a wholly owned subsidiary of LTV;
WHEREAS, the Corporation has been combined with the welded
tube and steel tube businesses of LTV and its Affiliates into one business unit
(hereinafter called "LTV Copperweld");
WHEREAS, the Corporation and LTV desire to employ the
Executive as an Executive Vice President of LTV and the President of LTV
Copperweld; and
WHEREAS, the Corporation, LTV and the Executive desire to make
further changes to the Agreement.
NOW, THEREFORE, in consideration of the mutual obligations
herein contained, the parties hereto, intending to be legally bound hereby,
covenant and agree that the Agreement shall be further amended, effective as of
November 10, 1999, as follows:
1. Section 1(a) of the Agreement is hereby deleted and the following
Section 1(a) is substituted in lieu thereof:
<PAGE> 2
1. EMPLOYMENT
(a) The LTV Corporation ("LTV") hereby employs the
Executive to render services to LTV as an Executive Vice
President of LTV and the Corporation hereby employs the
Executive to render services to the Corporation as the
President of LTV Copperweld. The Executive shall devote his
full time and attention to rendering his services in the
general management of the business of the Corporation and
shall report to the Chief Executive Officer or Chief Operating
Officer of LTV and perform such other duties commensurate with
his position as may be specified from time to time by the
Chief Executive Officer or Chief Operating Officer of LTV.
2. Section 2 of the Agreement is hereby deleted and the following
Section 2 is substituted in lieu thereof:
TERM: This Agreement shall commence and shall be effective and
immediately binding as of November 10, 1999 (hereinafter
called "Effective Date") and continue until December 31, 2002,
unless earlier terminated as set forth in Sections 7, 10(a),
11 and 5 (which provides that the Executive may quit or retire
and receive a supplemental pension benefit as provided in
Section 5(b)(1)(i) before he reaches age 65, but after he
reaches age 55, if the Executive is continuously employed by
the Corporation until the date he attains age fifty-four and
provided the Executive gives the Corporation's Board of
Directors one year's written notice of his intent to do so,
unless the Corporation and the Executive mutually consent in
writing to a shorter notice period) (the "Term"). By way of
example, under Section 5 of the Agreement, the Executive may,
on his fifty-fourth birthday, give notice of his intention to
retire on his fifty-fifth birthday and, in that event, the
Executive is entitled to receive the supplemental pension
benefits as described in Section 5(b)(1)(i). Unless
specifically set forth herein to the contrary, the Executive's
rights and the Corporation's corresponding obligations under
Sections 4A, 5, 7, 8, 10 and 18 of this Agreement shall not
terminate on the termination of this Agreement, but shall
continue until all amounts due Executive thereunder are paid
in full. Thereafter, this Agreement shall remain in effect
from year to year in accordance with the terms hereof;
provided that the Corporation shall have the right to
terminate it at any time, in which case the Executive shall be
entitled to the benefits, if any, hereinafter set forth
(except in the case of a termination for cause), and the
Executive shall have the right to terminate the Agreement
provided he gives the Corporation written notice of his intent
to terminate at least twelve months before his anticipated
termination date, in which case the Executive shall be
entitled to the benefits, if any, hereinafter set forth.
3. Sections 4(a) and 4(b) of the Agreement are hereby deleted and the
following Sections 4(a) and 4(b) are substituted in lieu thereof:
<PAGE> 3
(a) During the term of this Agreement, the
Corporation shall pay Executive, in equal monthly
installments, a salary at an annual rate of $500,000 or
greater (the "Annual Salary"). Such rate shall be reviewed
annually in accordance with the Corporation's policies to
determine whether Executive's Annual Salary should be
increased.
(b) As long as the Executive is an employee of
Corporation, if the Corporation, LTV or LTV Copperweld awards
its executive class of officers bonuses and/or additional
incentive compensation, the Executive shall be entitled to
equitably participate in such bonuses and/or additional
incentive compensation.
4. The following Section 4A is hereby made a part of the Agreement:
4A. DEFERRED COMPENSATION CREDIT. As soon as reasonably
practicable following the Effective Date, one million five
hundred thousand dollars ($1,500,000) of deferred compensation
(the "Deferral Amount") shall be credited to an account for
the Executive in the LTV Corporation Executive Deferred
Compensation Plan (the "EDC Plan") and shall be "funded" in a
"rabbi trust" previously created by LTV which provides funding
for the EDC Plan and other plans. Executive acknowledges that
he is an unsecured creditor of LTV with respect to his account
in the EDC Plan and that assets in the rabbi trust are not set
aside from general creditors of LTV.
(a) Two-thirds of the Deferral Amount and any
earnings and appreciation thereon shall become nonforfeitable
on the second anniversary of the Effective Date if the
Executive remains employed by the Corporation on such date,
and the remaining one-third of the Deferral Amount and any
earnings and appreciation thereon shall become nonforfeitable
on the third anniversary of the Effective Date if the
Executive remains employed by the Corporation on such date.
Notwithstanding the foregoing, and notwithstanding any
provisions of the EDC Plan, the Executive will forfeit any
rights to the Deferral Amount and any earnings or appreciation
thereon if, prior to the third anniversary of the Effective
Date, his employment with the Corporation is terminated for
cause as set forth in Section 10(a).
Notwithstanding any provisions of the EDC Plan to the
contrary, the Executive shall have the right to irrevocably
elect to receive an in-service lump sum distribution of the
non-forfeitable portion of his Deferral Amount on the two
dates such Deferral Amount becomes nonforfeitable as set forth
in Section 4A of this Agreement (the "Vesting Date"). An
election to receive such an in-service distribution shall be
made not later than 30 days following the signing of this
Third Amendment. Such distribution, if elected, shall be made
without penalty not later than 30 days following the Vesting
Date under one of the forms provided in Section 6.4 of the EDC
Plan which forms will include a lump sum distribution option.
The EDC Plan shall be amended as necessary to carry out the
foregoing provisions.
<PAGE> 4
(b) Executive's right sin the Deferral Amount will
become nonforfeitable immediately on his death or permanent
disability (within the meaning of the Corporation's long term
disability plan applicable to the Executive at the time of
such disability) or termination by the Corporation for any
reason or no reason other than for cause as set forth in
Section 10(a). The Executive may elect payment of the
nonforfeitable portion of the Deferral Amount and any earnings
or appreciation thereon in accordance with the terms of the
EDC Plan. The Deferral Amount and any earnings and
appreciation thereon shall not be taken into account for
purposes of any pension or other benefit calculations under
any plan, policy, program or arrangement of the Corporation,
including, but not limited to the supplemental pension
benefits provided for in Section 5.
5. Section 5(b)(2)(i) of the Agreement is hereby deleted and the
following Section 5(b)(2)(i) is substituted in lieu thereof:
(b)(2)(i) If the Executive's employment is terminated
by the Corporation other than for cause, as set forth in
Section 10(a), or the Executive's employment is terminated as
a result of his permanent incapacity, as set forth in Section
7(d), the Executive shall be eligible to begin receiving the
supplemental pension benefit provided for in accordance with
Section 5(a) upon his reaching age 55, (or such later age as
he elects pursuant to the election procedure set forth in
Section (b)(1)(i) hereof, which procedure is incorporated
herein by reference) and upon completion of any time period
during which the Executive continues to receive the equivalent
of his Annual Salary as set forth in Section 7(d) or 10(b),
whichever is later, except that for purposes of calculating
the amount of the supplemental pension benefit, the percentage
set forth in Exhibit 1 shall be substituted for sixty percent
(60%) in paragraph 5(a)(1). For purposes of determining the
Executive's number of years of service, the period during
which he receives the equivalent of his Annual Salary after
being terminated on account of his permanent incapacity
pursuant to Section 7(d) or as a result of a change in control
as set forth in Section 10(d) shall be included in the number
of years that he was otherwise employed by the Corporation and
the equivalent of his Annual Salary paid during such period
shall be included in his annual compensation for the purpose
of calculating his Average Annual Compensation. The time
period during which he receives the equivalent of his Annual
Salary after being terminated pursuant to Section 10(b) shall
not be included in determining the number of years of service.
By way of illustration, if the Executive at age 60 is
terminated pursuant to Section 10(b) at which time he would
have more than 21 years of service, and he elects to receive
the supplemental pension benefit after reaching age 63, he
would receive 60% (the applicable percentage set forth in
Exhibit 1), of his Average Annual Compensation for purposes of
calculating his supplemental pension benefit in accordance
with Section 5(a).
<PAGE> 5
By way of further illustration, if the Executive is
terminated pursuant to Section 10(b) at age 56, at which time
he would have more than seventeen years of service, and he
elects at age 59 to immediately receive a supplemental pension
benefit, he would receive 48% of his Average Annual
Compensation in making the calculation in Section 5(a) (the
applicable percentage set forth in Exhibit 1 at age 59). If,
assuming the same termination date, the Executive elects to
receive his pension after reaching age 62, he would receive
60% of his Average Annual Compensation in making the
calculation.
As a final example, if the Executive is terminated as
a result of his permanent incapacity in accordance with
Section 7(d) on his sixteenth employment anniversary date, and
he then receives the equivalent of his Annual Salary for three
years, his number of years of service would be nineteen
(sixteen years of employment and the receipt of the equivalent
of his Annual Salary for three years after being terminated on
account of his permanent incapacity) and, if he elects to
begin receiving his supplemental pension benefit at age 57, he
would receive 44% (the applicable percentage in Exhibit 1) of
his Average Annual Compensation for purposes of calculating
his supplemental pension in accordance with 5(a).
In addition, in calculating the amount of the offset
for Primary Social Security and the other offsets and
reductions listed in Section 5(a), it shall be conclusively
presumed that the Executive started to receive those benefits
as soon as he was eligible for them, without regard to whether
he was actually receiving them. To illustrate the foregoing,
in the preceding example, when the Executive was terminated at
age 56 pursuant to Section 10(b), and elected to receive an
immediate supplemental pension benefit after full payment of
his three year salary benefit, at which time he would be 59,
his supplemental pension would be equal to 48% of his Average
Annual Compensation. It would then be reduced for any pension
benefit under the Pension Plan as it currently exists because
under that Plan, there is a provision for an early retirement
benefit at age 55 or thereafter (with 5 years of continuous
service). Accordingly the Executive's benefit hereunder would
be reduced dollar-for-dollar by the amount which he could
receive at age 56 in the normal form of annuity payment from
the Pension Plan, whether or not he elects to receive benefits
at that time from the Pension Plan. Furthermore, when the
Executive attains age 62, he would then have become eligible
(under the law in force at the date of this Agreement), to
receive a primary social security benefit, and his
supplemental pension hereunder would be further reduced
dollar-for-dollar by the amount of such social security
benefit as he would have been entitled to receive whether or
not he elected to receive that social security benefit.
6. Section 5(c)(2) of the Agreement is hereby deleted and the following
Section 5(c)(2) is substituted in lieu thereof:
<PAGE> 6
(c)(2) With respect to the supplemental pension
benefit payable under Section 5(a) or (b), the following
provisions shall apply: (1) after the payment of the
supplemental pension benefit commences, there shall be no
adjustments thereto for any subsequent increases in the
Executive's employer-provided retirement income benefits
payable under the qualified defined benefit plans, qualified
defined contribution plans, and/or qualified money purchase
plans of other employers or under Social Security or under the
Pension Plan; (2) any time period during which the Executive
or his surviving spouse is receiving the equivalent of the
Executive's Annual Salary after his termination or death shall
not be included in his years of service for purposes of
determining the percentage of his Average Annual Compensation
to be used in calculating the supplemental pension except, as
set forth in Section 5(b)(2)(i), for that time period during
which the Executive is receiving the equivalent of his Annual
Salary after being terminated on account of his permanent
incapacity in accordance with Section 7(d) or as a result of a
change in control as set forth in Section 10(d); and (3) the
phrase "years of service" shall include all that time since
the Executive's date of hire by the Corporation on June 16,
1984. In calculating years of service, if the Executive is
terminated without cause pursuant to Section 10(b) the number
of full calendar months that the date of his termination
exceeds his employment anniversary date shall be included, on
a pro-rata basis, in determining the applicable percentage set
forth in the schedule attached hereto as Exhibit 1. For
example, the Executive's employment anniversary is June 16;
therefore, if he is terminated on December 16, 2000, sixteen
years and six full calendar months after his date of hire, and
he elects to receive his supplemental pension benefit at age
65, the percentage of his Average Annual Compensation that
would be used in calculating his benefit would be 58.35
(one-half of the percentage between sixteen years of service
and seventeen years of service assuming receipt of the benefit
at age 65, as set forth in Exhibit 1). If the Executive
retires or is terminated as a result of his permanent
incapacity in accordance with 7(d), the number of months he
has been employed after his separation date will not be
included on a pro-rata basis in determining his years of
service (in the case of a termination pursuant to section
7(d), the Executive is already receiving credit for additional
years of service pursuant to Section 5(b)(2)).
7. Section 6 of the Agreement is hereby deleted and the following
Section 6 is substituted in lieu thereof:
6. COVENANT AGAINST COMPETITION.
(a) The Executive agrees that (i) at all times during
the term of this Agreement, (ii) for two years after the
Executive retires or is terminated for any reason, and (iii)
any time in which the Executive is receiving an Annual Salary
from the Corporation, or the equivalent of his Annual Salary
from the Corporation, after this Agreement has been terminated
(but for purposes of this Section 6(a), the payment of any
form of pension or retirement benefits to the Executive in
connection with his retirement from the Corporation in
accordance
<PAGE> 7
with this Agreement (including Section 5 hereof), or under any
other qualified or nonqualified plans which provide retirement
benefit in accordance with the Corporation's policies
regarding the retirement of senior executives shall not be
considered to be Annual Salary or its equivalent), the
Executive will not directly or indirectly engage in any
business which is substantially competitive with any business
then actively conducted by LTV Copperweld and any other
business of LTV that the Executive at the time has a major
responsibility in the control and direction thereof, either as
owner, partner or officer, or employee of such a business, and
the Executive will not consult with any such competitive
business; provided, however, that ownership by the Executive
of not more than five percent (5%) of the outstanding shares
of stock of any such business listed on any national stock
exchange or of not more than twenty-five percent (25%) of the
stock of any such business not so listed shall not be deemed
to amount to a violation of this covenant.
If the Executive is first elected to be a director of any
business enterprise after the Effective Date, neither such
election nor the Executive's service as a director of such
business enterprise shall be deemed to amount to a violation
of this covenant if, prior to accepting any such directorship,
the Executive seeks and secures the prior approval of the
Board of Directors of the Corporation. Notwithstanding the
foregoing, the Executive is expressly permitted to continue to
serve as a director of any business enterprise of which he was
serving as a director as of the Effective Date, and he shall
not be deemed to be in violation of the foregoing covenant by
continuing such service from and after the Effective Date.
(b) In the event of a change in control, as the
result of which the Executive is entitled to benefits under
the LTV Corporation Change in Control Severance Pay Plan I
("LTV Change in Control Plan"), and elects to receive such
benefits, the covenant not to compete contained in Section
6(a) above shall become void and of no effect and the non
compete provisions of the LTV Change in Control Plan shall
control.
8. Section 10 of the Agreement is hereby deleted and the following
Section 10 is substituted in lieu thereof:
10. INVOLUNTARY TERMINATION OF EMPLOYMENT.
(a) The Corporation may terminate the employment of
the Executive for cause at any time, in which event this
Agreement shall automatically terminate in its entirety
(except for the obligations of the Executive set forth in
Section 6), and no further payments whatsoever shall be due to
the Executive or to any beneficiary or his estate hereunder.
Termination shall be deemed to be "for cause" only if such
termination is by reason of conviction of a felony or by
reason of any act, or failure to act, by the Executive, in bad
faith and to the material detriment of the Corporation, as
determined by the Board of Directors of the Corporation acting
reasonably upon the substantial evidence before it.
<PAGE> 8
Notwithstanding the foregoing, the Board of Directors of the
Corporation may, in its discretion, if it feels warranted
under the circumstances, award some termination payment to the
Executive.
(b) If on or prior to December 31, 2002, the
Executive's employment is terminated other than for the
reasons set forth in Sections 7(d) or 10(a) of this Agreement
or under circumstances which would entitle Executive to
receive the benefits provided under the LTV Change in Control
Plan, the Corporation shall pay to the Executive from its
general funds, an amount equal to three (3) times the amount
of the Executive's Annual Salary in equal monthly installments
for thirty-six (36) months. In the event of the Executive's
death before payment in full, the remaining payments shall be
made to the beneficiary or beneficiaries designated by the
Executive to the Corporation in writing or, absent such a
designation, to his estate. If the Corporation terminates the
Executive's employment under this Section 10(b), it shall also
provide the following benefits to the Executive: (i)
continuation for a period of three years, or until the
Executive's death, whichever event occurs first, of that group
medical, dental and life insurance coverage which is generally
applicable to the Corporation's salaried employees; (ii)
continuation of the split dollar life insurance program
described in Section 4(c) of this Agreement; (iii) transfer to
the Executive of title to the vehicle which the Executive is
then using, free and clear of any liens (but the Executive
shall pay all taxes associated with the transfer); (iv)
executive outplacement services consistent with the level of
such services provided to other senior executives; and (v) the
payment of the portion of any award under the Management Bonus
Program to which the Executive would have been entitled for
the year in which the termination occurs, prorated based upon
the date of termination.
(c) If the Executive's employment is terminated on or
after January 1, 2003, the provisions of the LTV Corporation
Executive Severance Plan ("LTV Severance Plan") shall control;
provided, however that the definition for "for cause" set
forth in Section 10(a) shall be applied in determining a
Qualifying Termination under such Plan.
(d) The Compensation and Organization Committee of
the Board of Directors of LTV shall designate in a Committee
Action that Executive be an "Executive" covered by the LTV
Change in Control Plan as of the Effective Date, benefiting
from the provisions of Section 4 of such Plan, and Executive
shall remain covered by such Plan or any successor plan
applicable to comparably situated executives during the Term
of the Agreement.
9. Section 11 of the Agreement is deleted and the following Section 11
is substituted in lieu thereof:
11. CIRCUMSTANCES WHICH EXECUTIVE MAY CONCLUSIVELY DEEM
TO BE A TERMINATION WITHOUT CAUSE.
<PAGE> 9
Notwithstanding any provision of this Agreement to
the contrary, the Executive shall be entitled to resign
voluntarily upon written notice to the Chief Executive Officer
of LTV within sixty (60) days of any of the following events,
but only if any such event shall have occurred on or prior to
December 31, 2002, and to have such resignation treated as a
termination by the Corporation without cause, thereby
entitling the Executive to all benefits under this Agreement
arising from such termination:
(1) a material change or announcement of a material
change in the Executive's position and offices with the
Corporation or LTV set forth in Section 1;
(2) a material change in the authority, duties or
responsibilities of the Executive; or
(3) a reduction in the Executive's Annual Salary or
annual incentive opportunity from its then current level.
For purposes of this section only, a material change in the
Executive's authority, duties and responsibilities shall not
be deemed to have occurred in the event such change is the
result of a closure or sale of a portion of the Corporation's
business for which the Executive has authority or
responsibility.
10. Section 12 of the Agreement is deleted and the following Section 12
is substituted in lieu thereof:
12. This Section has been intentionally omitted.
11. The following Section 18 is hereby made a part of the
Agreement:
18. CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION. Anything
in this Agreement to the contrary notwithstanding, if it shall
be determined (as hereafter provided) that any payment (other
than the Gross-Up payments provided for in this Section 18) or
distribution by the Corporation or any of its affiliates to or
for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including
without limitation any stock option, performance share,
performance unit, stock appreciation right or similar right,
or the lapse or termination of any restriction on or the
vesting of exercisability or any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code by reason of being considered
"contingent on a change in ownership or control" of LTV,
within the meaning of Section 280G of the Code or to any
similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the
Executive shall be
<PAGE> 10
entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment") from the Corporation. The
Gross-Up Payment shall be in an amount such that, after
payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including
any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to
the Payment.
12. As of the Effective Date, the Executive hereby forever waives any
and all rights he may have had pursuant to the provision of Section 11 of the
Original Agreement and the amendment to Section 11 as set forth in the May 7,
1993 Amendment, as a result of the acquisition of all the outstanding common
stock of the Corporation by LTV on November 10, 1999 and as a result of
Executive's change in responsibilities due to the combination of Copperweld with
the welded tube and steel tube businesses of LTV forming LTV Copperweld.
13. All other terms, provisions, sections and subsections of the
Agreement, are hereby restated, approved and ratified in all other respects.
IN WITNESS WHEREOF, the Executive has signed and sealed this Amendment
and the Corporation and LTV have caused this Amendment to be executed by a duly
authorized person and its Corporate seals to be hereunto affixed the day and
year first above written.
WITNESS: JOHN D. TURNER
/s/ Karl W. Heckman /s/ John D. Turner (SEAL)
- ------------------------------------ -----------------------------------
ATTEST: COPPERWELD CORPORATION
/s/ N. David Bleisch By: /s/ J. Peter Kelly
- ------------------------------------ -------------------------------
Secretary/Assistant Secretary (SEAL)
ATTEST: THE LTV CORPORATION
/s/ N. David Bleisch By: /s/ J. Peter Kelly
- ------------------------------------ ------------------------------
Secretary/Assistant Secretary (SEAL)
<PAGE> 11
SCHEDULE A
TO THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
------------------------------------------
EMPLOYMENT AGREEMENT
AGREEMENT made this _____ day of _________, between JOHN D.
TURNER, a resident of Pittsburgh, Pennsylvania (hereinafter called the
"Executive"), and COPPERWELD CORPORATION, a Delaware corporation, with offices
at Four Gateway Center, Pennsylvania (hereinafter called the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the Executive as
President and Chief Executive Officer; and
WHEREAS, the Executive desires to accept employment with the
Corporation as its President and Chief Executive Officer.
NOW, THEREFORE, in consideration of the mutual obligations
herein contained, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. EMPLOYMENT.
----------
(a) The Corporation hereby employs the Executive to render
services to the Corporation as President and Chief Executive Officer. The
Executive shall devote his full-time and attention to rendering his services in
the general management of the business of the Corporation and shall report to
the Board of Directors and perform such other duties commensurate with his
position as may be specified from time to time by the Board of Directors or by a
committee or subcommittee thereof, as may be specified from time to time by the
Board of Directors.
(b) The Executive hereby accepts such employment and agrees
that he will during the continuance hereof devote his full-time and attention
and best talents and abilities to the duties of employment hereby accepted by
him.
(c) The Executive agrees to serve without additional
compensation as a Director or member of any committee of the Board of Directors
of the Corporation.
2. TERM. This Agreement shall commence on August 30, 1988 and continue
until December 31, 1995, unless earlier terminated as set forth in Sections 7,
10 and 11. Thereafter, this Agreement shall remain in effect on the same terms
as set forth herein, except that the Corporation shall have the right to
terminate it at any time, in which case the Executive shall be entitled to the
benefits, if any, hereinafter set forth (except in the case of a termination for
cause), and the Executive shall have the right to terminate the Agreement
provided he gives the Corporation written notice of his intent to terminate at
least twelve months before his anticipated
<PAGE> 12
termination date, in which case the Executive shall be entitled to the benefits,
if any, hereinafter set forth.
3. PLACE OF EMPLOYMENT. The Corporation agrees that the Executive will
have his principal office at and will perform his principal duties at the
Corporation's headquarters office, Four Gateway Center, Pittsburgh,
Pennsylvania, or such other address to which the Corporation's headquarters may
be removed during the term of this Agreement. Notwithstanding the foregoing, the
Executive acknowledges that it may be necessary from time to time for him, in
the performance of his duties, to travel on behalf of the Corporation and to
perform such duties while temporarily away (for unpredictable periods of time)
from his principal office.
4. COMPENSATION. As compensation to the Executive for his performance
of the services to be rendered herein and for his performance of all the
additional obligations of employment imposed by common law or statutory law with
respect to his positions and offices with the Corporation, the Corporation
agrees to pay to the Executive and the Executive agrees to accept the following
salary, other compensation and benefits, in addition to the other compensation
and benefits provided under this Agreement:
(a) During the term of this Agreement, the Corporation shall
pay the Executive, in equal monthly installments, a salary at an annual rate of
$250,000, or such greater rate as the Board of Directors may from time to time
determine (the most recent rate, annualized, being herein referred to as the
"Annual Salary").
(b) As long as the Executive is an employee of the
Corporation, if the corporation awards its executive class of officers bonuses
and/or additional incentive compensation, the Executive shall be entitled to
equitably participate in such bonuses and/or additional incentive compensation
as determined and awarded in the discretion of the Compensation Committee of the
Board of Directors.
(c) The Executive shall be entitled to participate, so long as
he is an employee of the Corporation, in any and all of the Corporation's
present or future employee benefit plans, including without limitation pension
plans, profit-sharing plans, insurance plans, and other benefits, which are
generally applicable to the Corporation's executives; provided, however, that
the accrual and/or receipt by the Executive of benefits under and pursuant to
any such present or future employee benefit plan shall be determined and
controlled by the provisions of such plan. Without limiting the foregoing, the
Corporation agrees to provide $400,000 of split-dollar whole life insurance on
the Executive's life is subject to and covered by separate agreement, and the
latter is controlling.
5. SUPPLEMENTAL PENSION BENEFITS.
(a)(1) Should the Executive continue in the employ of the
Corporation until his retirement at age 62 (or later, if requested in writing to
do so by the Corporation), the Corporation shall pay, beginning with the month
following such retirement to the Executive in monthly installments for his
lifetime, from the general funds of the Corporation, a supplemental pension
benefit equal to the difference between (i) all amounts which the Executive
receives as
<PAGE> 13
Primary Social Security benefits, plus the employer-provided retirement income
benefits payable under the then existing qualified defined benefit plan of the
Corporation, or any successor corporation (the "Pension Plan") and (unless
waived by the Compensation Committee of the Board of Directors of the
Corporation as more fully set forth at the end of this paragraph 5(a)(1)) under
the qualified defined benefit plans, qualified defined contribution plans and/or
qualified money purchase plans or other employers and (ii) sixty percent (60%)
of the average of the highest annual compensation paid by the Corporation to him
in any three consecutive calendar years of the ten most recently completed
calendar years ending on or prior to the date of his retirement (the "Average
Annual Compensation"). In determining the Executive's annual compensation, the
amounts to be included in this calculation shall be limited to his Annual Salary
and his yearly bonus and/or additional yearly incentive compensation (and for
this purpose, the Executive's yearly bonus and/or additional yearly incentive
compensation, if any, shall be deemed to have been paid, and shall be included
in his annual compensation, in the year that they are earned, even if they are
paid in a subsequent year) and shall include all other compensation and other
benefits received by the executive including, but not limited to, long-term
incentive bonuses such as stock option rights, and restricted stock. In
addition, and for the purpose of this calculation, the amount of the Executive's
annual compensation shall not be reduced by the amount of salary, bonus or
yearly incentive compensation the receipt of which the Executive elects to defer
pursuant to a plan or arrangement approved by and participated in by the
Corporation.
For purposes of the offsets referred to above, the phrase
"employer-provided retirement income benefits payable under the then existing
qualified defined benefit plans of the Corporation and under the qualified
defined benefit plans, qualified defined contribution plans, and/or qualified
money purchase plans of other employers," shall mean those benefits that are in
fact paid to the Executive under all such plans, provided that, (1) in the event
that the Executive is married on the date that he first becomes eligible for
employer-provided retirement income benefits under any qualified defined benefit
plan, the amount of the offset with respect to any such plan shall not be less
than the amount he would have received had there been a qualified joint and
survivor benefit in effect, and (2) in the case of a qualified defined
contribution plan or a qualified money purchase plan, the amount of the offset
shall be the benefit payable thereunder (i) in the form of a qualified joint and
survivor annuity if the Executive is married on the date the offset is
determined or (ii) in the form of a single life annuity if the Executive is not
married on the date the offset is determined, with the amount of the benefit
payable under each said annuity determined by the applicable purchase rates used
under the plan, or in the absence of such purchase rates, by the 1983 Group
Annuity Mortality Tables for Males and interest at the rate the Pension Benefit
Guaranty Corporation would use as of the date of determination to calculate the
present value of a lump sum distribution on plan termination. Also for purposes
of the offsets referred to above, the phrase "employer-provided retirement
income benefits payable under the then existing qualified defined benefit plans
of the Corporation and under the qualified defined benefit plans, qualified
defined contribution plans, and/or qualified money purchase plans of other
employers" shall not include any retirement income benefits attributable to
employer contributions made as a result of the Executive's election to reduce or
defer the receipt of his salary pursuant to a qualified cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986 or
pursuant to any comparable arrangement permitted under current or subsequent
law.
<PAGE> 14
The Executive shall have the right to request that the offsets
hereinabove set forth for amounts attributable to the qualified defined benefit
plans, qualified defined contribution plans, and/or the qualified money purchase
plans of other employers be waived, so that such amounts would not be taken into
account in calculating the amount of the supplemental pension benefit hereunder.
Such request for waiver shall be in writing and shall be addressed to all
members of the Compensation Committee of the Board of Directors of the
Corporation (or whatever committee then is performing the functions being
performed, as of the date of this agreement, by the Executive Compensation
Committee). The Committee shall render its decision on the Executive's request
as soon as practicable following receipt thereof. The Committee's decision will
be final and not subject to appeal.
5(a)(2) Upon the Executive's death following his retirement
pursuant to paragraph 5(a)(1), his surviving spouse shall be entitled to receive
in monthly installments during her lifetime, one-half of the supplemental
pension benefit that the executive was receiving or eligible to receive on the
date of his death. For all purposes of this Agreement, to qualify as a
"surviving spouse," the woman to whom the executive was married, and not
separated from (without respect to the cause of separation), on the date of the
Executive's death must be the same woman to whom the Executive was married, and
not separated from (without respect to the cause of separation) on the date he
retired or his employment was otherwise terminated.
5(b)(1)(i) If the Executive is continuously employed by the
Corporation until the date he attains age fifty-four, then, provided the
executive gives the Board of Directors one year's written notice of his intent
to do so (unless the parties mutually consent in writing to a shorter notice
period, which consent may be unreasonably withheld by the Corporation), he shall
be entitled to quit or to retire and receive a supplemental pension benefit, as
hereinafter described, before he reaches age 62 but before he reaches age 55,
but in no event sooner than one year from the date that the Board of Directors
receives his written notice (unless, as set forth above, the parties have
mutually consented in writing to a shorter notice period). As long as the
Executive satisfies the two foregoing conditions (i.e., continuous employment
until he attains fifty-four years of age, and the proper written notice of his
intent to quit or to retire), the actual date he retires, and the date he elects
to receive his supplemental pension benefits (which he has the option to defer
in order to increase the percentage of the Average Annual Compensation that
would be used in calculating his benefits pursuant to Section 5(a)) shall be
left to him, and the pension benefit will be paid on a monthly basis as on as
practicable after the date he elects in writing to receive it. Under such
circumstances, the Executive shall receive the supplemental pension benefit
described in Section 5(a), except that, for purposes of determining the amount
of the supplemental pension benefit, the applicable percentage set forth on the
schedule attached hereto as Exhibit I shall be substituted for sixty percent
(60%) in paragraph 5(a)(1). If the Executive quits or retires without having
given the proper written one-year's notice (or such shorter notice as the
parties may have consented to in writing, which consent may be unreasonably
withheld by the Corporation), neither he nor his spouse shall be entitled to any
supplemental pension benefits hereunder. By way of illustration, if the
Executive gives his one year written notice to the Board of Directors during his
fifty-sixth (56th) year, in which case he would be entitled to retire one year
later, at which time his latest attained age will be 57, he will be eligible to
receive at age 57 the difference between 44% of his Average Annual
<PAGE> 15
Compensation (the applicable percentage set forth in Exhibit 1) and the
deductions or offsets described in Section 5(a). For a retiree age 57, there
are, as of the date of this agreement, no such deductions or offsets applicable.
However, when the Executive attains age 60, he may become entitled to a benefit
under the Pension Plan. At that time, therefore, his supplemental pension
benefit hereunder would be reduced to reflect the benefit which would be payable
in the normal form of annuity payment to the Executive under the Pension Plan,
even if he does not elect to receive it. Similarly, when the Executive reaches
age 62, thereby becoming entitled to a social security benefit, his supplemental
pension hereunder will be further reduced to reflect that social security
benefit whether or not the retired Executive elects to receive it. In all
respects other than the calculation of the Executive's Average Annual
Compensation, the supplemental pension benefits of the Executive will be
determined by reference to Section 5(a).
By way of further example, using the same notice and
retirement date as set forth in the preceding example, if the Executive retires
during his 57th year, he could defer receipt of his supplemental pension benefit
until he reaches age 62, at which time he could begin receiving a supplemental
pension equal to the difference between 60% of his Average Annual Compensation
(the applicable percent set forth in Exhibit 1) less any offsets or deductions
as described above.
As a final example, if the Executive quits his employment with
the Corporation without having given the requisite notice, then regardless of
his age or years of service with the Corporation, neither the Executive nor his
spouse will be entitled to any supplemental pension benefits under this
paragraph 5(b)(l)(i).
5(b)(1)(ii) If the Executive dies after having begun to
receive his supplemental pension, his surviving spouse, if any, shall receive
one-half of the supplemental pension benefit that he had been receiving pursuant
to paragraph (b)(1)(I) at the time of his death. If the Executive dies after
retiring pursuant to this Section, but before having begun to receive his
supplemental pension benefit (as would occur for example, if he defers receipt
of said benefit), the surviving spouse shall have the right to elect to begin
receiving a supplemental pension benefit equal to one-half of the supplemental
pension benefit that he executive would have been receiving at the time of his
death had he elected to have his supplemental pension begin on the first day of
the month following the date on which he died, to be payable as soon thereafter
as is practicable. The surviving spouse's election shall be made by providing
written notice to the Corporation's Director of Compensation and Benefits of the
Chairman of the Compensation Committee of the Board of Directors of the
Corporation of her desire to receive her supplemental pension benefit, which
written notice shall state the date she desires to begin receiving hr
supplemental pension benefit, and which election shall be binding and
irrevocable once payment s to have her commenced. If the surviving spouse elects
to receive her supplemental pension benefit after the first day of the month
following the date of the Executive's death, the amount of said benefit will be
equal to one-half of the amount the Executive would have received on the date
the surviving spouse begins receiving said benefit had the Executive lived to
that date. For example, if the Executive retired in his 57th year, and died one
year later, but before beginning to receive his supplemental pension benefit
until the Executive would have reached age 60, at which time she would receive
one-half of what he would have received had he lived until the date payment of
the supplemental pension benefit to the surviving spouse begins.
<PAGE> 16
5(b)(2)(i) If the Executive is continuously employed by the
Corporation for at least five years, i.e., until June 16, 1989, and, thereafter,
the Executive's employment is terminated by the Corporation other than for
cause, as set forth in Section 10(a), or thereafter the Executive's employment
is terminated as a result of his permanent incapacity, as set forth in Section
7(d), the Executive shall be eligible to begin receiving the supplemental
pension benefit provided for in accordance with Section 5(a) upon his reaching
age 55, (or such later age as he elects pursuant to the election procedure set
forth in Section (b)(1)(i) hereof, which procedure is incorporated herein by
reference) and upon completion of any time period during which the Executive
continues to receive the equivalent of his Annual Salary as set forth in
sections 7(d) and 10(b), whichever is later, except that for purposes of
calculating the amount of the supplemental pension benefit, the percentage set
forth in Exhibit 1 shall be substituted for sixty percent (60%) in paragraph
5(a)(1). For purposes of determining the Executive's number of years of service,
the period during which he receives the equivalent of his Annual Salary after
being terminated on account of his permanent incapacity pursuant to Section 7(d)
shall be included in the number of years that he was otherwise employed by the
Corporation and the equivalent of his Annual Salary paid during that period
shall be included in his annual compensation for the purpose of calculating his
Average Annual Compensation. The time period during which he receives the
equivalent of his Annual Salary after being terminated pursuant to Section 10(b)
shall not be included in determining the number of years of service.
By way of illustration, if the Executive is terminated other
than for cause pursuant to Section 10(b) on his sixth employment anniversary
date, and he elects to receive the supplemental pension benefit after reaching
age 57, he would receive 7.3% (the applicable percentage set forth in Exhibit
1), of his Average Annual Compensation for purposes of calculating his
supplemental pension benefit in accordance with Section 5(a). If, assuming the
same termination date, he elects to receive the supplemental pension after
reaching 65 years of age, he would receive 23.3% of his Average Annual
Compensation in making the calculation set forth in 5(a).
By way of further illustration, if the Executive is terminated
pursuant to Section 10(b) at age 56, at which time he would have more than
seventeen years of service, and, after he has received full payment of the three
years' salary benefits as set forth in Section 10(b), he elects immediately to
receive a supplemental pension benefit, he would receive 48% of his Average
Annual Compensation in making the calculation in Section 5(a) (the applicable
percentage set forth in Exhibit 1 at age 59). If, assuming the same termination
date, the Executive elects to receive his pension after reaching age 65, he
would receive 60% of his Average Annual Compensation in making the calculation.
As a final example, if the Executive is terminated as a result
of his permanent incapacity in accordance with Section 7(d) on his sixth
employment anniversary date, and he then receives the equivalent of his Annual
Salary for three years, his number of years of service would be nine (six years
of employment and the receipt of the equivalent of his Annual Salary for three
years after being terminated on account of his permanent incapacity) and, if he
elects to begin receiving his supplemental pension benefit at age 57, he would
receive 17.3% (the
<PAGE> 17
applicable percentage in Exhibit 1) of this Average Annual Compensation for
purposes of calculating his supplemental pension in accordance with 5(a).
In addition, in calculating the amount of the offset for
Primary Social Security and the other offsets and reductions listed in Section
5(a), it shall be conclusively presumed that the Executive started to receive
those benefits as soon as he was eligible for them, without regard to whether he
was actually receiving them. To illustrate the foregoing, in the preceding
example, when the Executive was terminated at age 56 pursuant to Section 10(b)
and elected to receive an immediate supplemental pension benefit after full
payment of his three year salary benefit, at which time he would be 59, his
supplemental pension would be equal to 48% of his Average Annual Compensation.
It would not be reduced for any pension benefit under the Pension Plan as it
currently exists because under that Plan, there is no provision for an early
retirement benefit prior to age 60. However, when the Executive attains age 60,
his supplemental pension benefit hereunder would be reduced dollar-for-dollar by
the amount which he could receive at age 60 in the normal form of annuity
payment from the Pension Plan, whether or not he elects to receive benefits at
that time from the Pension Plan. Similarly, if the Pension Plan is hereafter
amended to provide an earlier retirement benefit prior to a participant
attaining age 60 and the Executive becomes eligible for such a benefit, his
supplemental pension will be reduced by the amount which he could receive as an
early retirement benefit in the normal form of annuity payment from the Pension
Plan whether or not he elects to receive such benefit. Furthermore, when the
Executive attains age 62, he would then have become eligible (under the law in
force at the date of this Agreement), to receive a primary social security
benefit, and his supplemental pension hereunder would be further reduced
dollar-for-dollar by the amount of such social security benefit as he would have
been entitled to receive whether or not he elected to receive that social
security benefit.
5(b)(2)(ii) If the Executive dies after he begins receiving
his supplemental pension benefit as set forth in 5(b)(2)(i), his surviving
spouse, if any, shall be entitled to one-half of the supplemental pension
benefit that he was receiving at the time of his death. If the Executive dies
before age 55 whether before or after the termination of his employment with the
Corporation (but not after a termination of his employment by the Corporation
for cause pursuant to Section 10(a)) thereby never having received a
supplemental pension benefit as set forth in 5(b)(2)(i), the surviving spouse
shall be eligible to receive, beginning on the date the Executive would have
attained age 55 or on any later date selected by the surviving spouse, one-half
of the supplemental pension benefit the Executive would have been entitled to
receive had he lived and begun to receive his supplemental pension benefit as
set forth in 5(b)(2)(i) on the date payment of the supplemental pension benefit
to the spouse begins. If the Executive dies after age 55 whether before or after
the termination of his employment with the Corporation (but not after a
termination of his employment by the Corporation for cause pursuant to Section
10(a)) but before beginning to receive a supplemental pension benefit as set
forth in 5(b)(2)(i), the surviving spouse shall be eligible to receive,
beginning on the first day of the calendar month following the date of the
Executive's death or any later date selected by the surviving spouse, one-half
of the supplemental pension benefits the Executive would have been entitled to
receive had he lived and begun to receive his supplemental pension benefit as
set forth in 5(b)(2)(i) on the date payment of the supplemental pension benefit
to the spouse begins. Whether the executive dies before or after age 55, the
surviving spouse shall have the right to elect the receipt
<PAGE> 18
of her supplemental pension benefit in accordance with the provisions and
procedures relating thereto as set forth in 5(b)(1)(i) and 5(b)(2)(i). For
example, if the Executive dies before age 55, the surviving spouse cannot elect
to begin to receive her supplemental pension until the Executive would have
reached age 55, and, as set forth in Section 5(b)(1)(ii), the surviving spouse
also has the right to elect receipt of her supplemental pension benefit on a
date he would have reached a later age. Similarly, if the Executive dies after
age 55 but before beginning to receive his supplemental pension benefit, the
surviving spouse can either elect to begin receiving her supplemental pension
benefit as soon as practicable thereafter, or she can elect to receive it at a
later date.
By way of further illustration, if the Executive dies on July
1, 1992, at which time he would have been continuously employed by the
Corporation for eight years, and the surviving spouse gives her written notice
of her desire to receive a supplemental pension commencing on February 19, 2001,
the date the Executive would have turned age 55, her supplemental pension would
be paid on the basis of 5% of the Executive's Average Annual Compensation (that
is, one-half (1/2) of 10%, the applicable percentage shown on Exhibit 1 after
eight years of service and receiving the pension at age 55). By way of further
example, if the Executive dies in his fifty-sixth year, at which time he would
have been continuously employed for at least 17 years, his surviving spouse will
be entitled to the three-year Annual Salary benefit as set forth in Section 8
and after that benefit has been completely paid to her, if she elects to
immediately thereafter receive the supplemental pension by giving the Board of
Directors written notice thereof, she will be entitled to a supplemental pension
paid on the basis of twenty-four percent (24%) of the deceased Executive's
Average Annual Compensation (that is, one-half (1/2) of forty-eight percent
(48%), the applicable percentage shown on Exhibit 1 at age 59).
(c)(1) If, at any age, the Executive's employment is
terminated by the Corporation for cause, as set forth in Section 10(a), no
supplemental pension benefits shall be payable under this Agreement.
(c)(2) With respect to the supplemental pension benefit
payable under Section 5(a) or (b), the following provisions shall apply: (1)
after the payment of the supplemental pension benefit commences, there shall be
no adjustments thereto for any subsequent increases in the Executive's
employer-provided retirement income benefits payable under the qualified defined
benefit plans, qualified defined contribution plans, and/or qualified money
purchase plans of other employers or under Social Security or under the Pension
Plan; (2) any time period during which the Executive or his surviving spouse is
receiving the equivalent of the Executive's Annual Salary after his termination
or death shall not be included in his years of service for purposes of
determining the percentage of his Average Annual Compensation to be used in
calculating the supplemental pension except, as set forth in Section 5(b)(2)(i),
for that time period during which the Executive is receiving the equivalent of
his Annual Salary after being terminated on account of his permanent incapacity
in accordance with Section 7(d), and, except as set forth in Section 10(d), for
that period beginning on the date of the Executive's deemed or actual
involuntary termination of employment without cause following a change in
control described in Section 11 of this Agreement and ending on the later of
December 31, 1998 or the third anniversary of said termination of employment;
and (3) the phrase "years of service" shall include all that time since the
Executive's date of hire by the Corporation on June 16, 1984. In
<PAGE> 19
calculating years of service, if the Executive is terminated without cause
pursuant to Section 10(b), the number of full calendar months that the date of
his termination exceeds his employment anniversary date shall be included, on a
pro-rata basis, in determining the applicable percentage set forth in the
schedule attached hereto as Exhibit 1. For example, the Executive's employment
anniversary is June 16; theretofore, if he is terminated on January 16, 1993,
eight years and six full calendar months after his date of hire, and he elects
to receive his supplemental pension benefit at age 58, the percentage of his
Average Annual Compensation that would be used in calculating his benefit would
be 17.65% (one-half of the percentage between eight years of service and nine
years of service assuming receipt of the benefit at age 58, as set forth in
Exhibit 1). If the Executive retires or is terminated as a result of his
permanent incapacity in accordance with 7(d), the number of months he has been
employed after his separation date will not be included on a pro-rata basis in
determining his years of service (in the case of a termination pursuant to
Section 7(d), the Executive is already receiving credit for additional years of
service pursuant to Section 5(b)(2)).
(c)(3) In addition to the form of payment set forth under
Section 5(a) or (b), at the election of the Executive or his surviving spouse,
whichever is applicable, supplemental pension benefits may also be paid in the
form of sixty (60) equal monthly installment payments. The first such
installment payment shall be paid on the date that the Executive or surviving
spouse, whichever is applicable, would have commenced payments of supplemental
pension benefits under Section 5(a) or (b). Actuarial Equivalent amounts will be
used. A single lump sum, payable at early or normal retirement age, will be
determined based upon the Copperweld Corporation Pension Plan definition of
Actuarial Equivalent benefit. This single lump sum will be converted into sixty
(60) equal monthly installments using an interest rate for investment grade
corporate bonds with a five (5) year maturity determined within the 30 (thirty)
day period in which the Participant's benefit is to commence. Such determination
will be made by Copperweld's actuarial consultant and approved by Copperweld's
pension committee.
6. COVENANT AGAINST COMPETITION. The Executive agrees that (i) at all
times during the term of this Agreement, and (ii) for two years after the
Executive retires or is terminated for any reason, and (iii) any time in which
the Executive is receiving an Annual Salary from the Corporation, or the
equivalent of his Annual Salary from the Corporation, after this Agreement has
been terminated, the Executive will not directly or indirectly engage in any
business which is substantially competitive with any business then actively
conducted by the Corporation, either as owner, partner or officer, or employee
of such a business then actively conducted by the Corporation, either as owner,
partner or officer, or employee of such a business, and the Executive will not
consult with any such competitive business; provided, however, that ownership by
the Executive of not more than five percent (5%) of the outstanding shares of
stock of any such business listed on any national stock exchange or of not more
than twenty-five percent (25%) of the stock of any such business not so listed
shall not be deemed to amount to a violation of this covenant. With respect to
any directorship of business enterprises to which the Executive was first
elected after February 29, 1988, the maintenance or retention of such
directorship shall not be deemed to amount to a violation of this covenant if,
prior to accepting any such directorship, or prior to the acceptance of a
reelection of such directorship, the Executive seeks and secures the prior
approval of the Board of Directors of the Corporation. The
<PAGE> 20
maintenance or retention of a directorship to which the Executive was first
elected prior to March 1, 1988 shall not be deemed to amount to a violation of
this covenant.
7. DISABILITY.
(a) If, because of illness or otherwise, the Executive should become disabled
from performing his duties hereunder, the Executive shall be entitled to a leave
of absence from the Corporation for the duration of any such disability for a
period or periods of up to, but not exceeding, one (1) year in the aggregate in
any four (4) consecutive years. During any such leave of absence, the
Executive's compensation and status as an employee hereunder shall continue as
provided herein; provided, however, that amounts, if any, payable to the
Executive under any Disability Income Plan of the Corporation will be offset
against the Executive's compensation which is payable under this Agreement.
(b) The Executive shall be deemed to be permanently incapacitated only if and
when either (i) such leaves of absence for disability shall have been continued
for more than one (1) year in the aggregate in any four (4) consecutive years,
or (ii) a single leave of absence for disability shall have continued for a
period of six (6) consecutive months and thereafter, upon impartial medical
advice which shall have been certified to the Corporation that the disability
under (i) or (ii) above is such that it will substantially impair the
Executive's ability to perform his duties hereunder.
(c) In calculating the four consecutive year period set forth in subsection (b)
hereof, that period shall be deemed to begin on the first day of the calendar
month during which the Executive is first absent on account of the state or
condition which leads to his permanent incapacity hereunder. In calculating the
period of six consecutive months referred to in subsection (b) hereof, that
period shall be deemed to begin on the first day of the calendar month in which
the Executive is first absent on account of the state or condition which leads
to his permanent incapacity hereunder.
(d) If the Executive becomes permanently incapacitated, as specified in Section
7(b) above, the Corporation may terminate the employment of the Executive
hereunder by giving the Executive (or his personal representative) written
notice of such termination during the continuance of such disability and, in
lieu of any further salary, the Corporation shall pay to the Executive as soon
as practicable, as a disability allowance, a sum equivalent to three (3) years'
salary at the Annual Salary rate in effect at the date of the permanent
incapacity, which sum shall be payable to the Executive or to his estate
(incompetent's or decedent's) in thirty-six (36) equal monthly installments. The
monthly installments described in the preceding sentence shall be reduced by the
monthly amounts (if any) payable to the Executive under any Disability Income
Plan of the Corporation after the date of the permanent incapacity therein
described. Such termination shall not effect the Corporation's obligations
hereunder apart from salary including, without limitation, the Corporation's
obligations, if any, under Section 5 hereof.
8. BENEFIT IN EVENT OF DEATH DURING EMPLOYMENT. If the Executive should
die during his employment with the Corporation, then an amount equal to three
times the Annual Salary in effect at the date of the Executive's death shall be
paid in thirty-six (36) equal monthly
<PAGE> 21
installments to the beneficiary or beneficiaries designated by the Executive to
the Corporation in writing or absent such a designation, to his estate, which
payments will begin as soon as practicable after his death. Further, if the
Executive dies while in employment after attaining age 62 and prior to attaining
age 65, the amount payable under this Section 8 to his beneficiary or
beneficiaries, or to his estate, shall be reduced by 1/36th for each full month
after the Executive's sixty-second (62nd) birthday and the date he died. Amounts
payable hereunder shall be paid in equal monthly installments for thirty-six
(36) months or for that number of months between the date of the Executive's
death (after age 62) and the date he would have attained age 65 had he lived,
whichever is less.
9. WITHHOLDING OF APPROPRIATE TAXES. It is understood and agreed by the
parties hereto that the Corporation shall with-hold appropriate taxes from
compensation and with respect to any economic benefits herein provided when such
withholding is, in the reasonable judgment of the Corporation, required by law
or regulation.
10. INVOLUNTARY TERMINATION OF EMPLOYMENT.
(a) The Corporation may terminate the employment of the
Executive for cause at any time, in which event this Agreement shall
automatically terminate in its entirety (except for the obligations of the
Executive set forth in Section 6), and no further payments whatsoever shall be
due to the Executive or to any beneficiary or his estate hereunder. Termination
shall be deemed to be "for cause" only if such termination is by reason of
conviction of a felony or by reason of any act, or failure to act, by the
Executive, in bad faith and to the material detriment of the Corporation, as
determined by the Board of Directors of the Corporation acting reasonably upon
the substantial evidence before it. Notwithstanding the foregoing, the Board of
Directors of the Corporation may, in its discretion, if it feels warranted under
the circumstances, award some termination payment to the Executive.
(b) If, prior to reaching age 65, the Board of Directors
terminates the Executive's employment other than for the reasons set forth in
Sections 7(d) and 10(a) of this Agreement, the Corporation shall pay to the
Executive from its general funds, an amount equal to three (3) times the amount
of the Executive's Annual Salary; provided, however, the amount payable
hereunder shall be reduced by 1/36 for each full month after the Executive's
sixty-second (62nd) birthday to the date of termination. Amounts payable
hereunder shall be paid in equal monthly installments for thirty-six (36)
months, or for that number of months between the date of termination and the
Executive's sixty-fifth (65th) birthday, whichever is less. In the event of the
Executive's death before the expiration of such period, the remaining payments
hereunder shall be made to the beneficiary or beneficiaries designated by the
Executive to the Corporation in writing or, absent such a designation, to his
estate. If the Corporation terminates the Executive's employment under this
Section 10(b), it shall also continue to provide for a period of three years, or
until the Executive's death, whichever event occurs first, that group medical,
dental and life insurance coverage which is generally applicable to the
Corporation's salaried employees.
(c) If the Corporation terminates the Executive's employment
without cause prior to December 31, 1995, then, in addition to the equivalent of
the three years Annual Salary and benefit coverage set forth above, he shall be
provided with the benefit coverage set forth above
<PAGE> 22
and receive, in equal monthly installments, the amount of his Annual Salary from
the date he is terminated until December 31, 1995. In addition, if the
Corporation terminates his employment without cause prior to June 30, 1989,
then, for purposes of determining his eligibility for a supplemental pension
benefit under 5(b)(2) and his years of service for purposes of Section 5(b)(2)
hereof it will be conclusively presumed that he was employed through June 30,
1989.
(d) If, within six months of a change of control described in
Section 11, (i) the Executive's positions and offices with the Corporation are
changed, or there is an official, formal announcement of an intention to do so,
and the Executive thereupon voluntarily resigns his employment with the
Corporation (which resignation is treated as a termination by the Corporation
without cause under Section 11), or (ii) the Executive's Annual Salary is
reduced from its current level, or there is an official, formal announcement of
an intention to do so, and the Executive thereupon voluntarily resigns his
employment with the Corporation (which resignation is treated as a termination
by the Corporation without cause under Section 11), or (iii) the Executive's
employment with the Corporation is terminated by the Corporation without cause,
then notwithstanding anything to the contrary, his and his surviving spouse's
eligibility for a supplemental pension benefit under Section 5 and the amount of
said supplemental pension benefit shall be determined as if, during the period
beginning on the date of said resignation or termination of employment and
ending on the later of December 31, 1998 or the third anniversary of said
resignation or termination of employment, he were employed by the Corporaiton
and in receipt of Annual Salary from the Corporation at the highest rate in
effect under Section 4(a) of this Agreement.
By way of illustration, if, as the result of a change in
control described in Section 11, the Executive's employment with the Corporation
terminates on his twelfth employment anniversary date under the circumstances
described in this Section 10(d), and if he elects to receive the supplemental
pension benefit under Section 5 after attaining age 55, he would receive 33.3%
(the applicable percentage set forth on Exhibit 1) of his Average Annual
Compensation for purposes of making the calculation under Section 5, based on
his fifteen years of service (twelve years of employment and three years of
presumed employment pursuant to this Section 10(d)). If, assuming the
termination of the Executive's employment with the Corporation under the same
circumstances, he elects to receive the supplemental pension benefit under
Section 5 after attaining age 65, he would receive 53.3% of his Average Annual
Compensation in making the calculation under Section 5.
By way of further illustration if, following the termination
of the Executive's employment with the Corporation under the same circumstances,
the Executive dies on July 1, 1997 and his surviving spouse elects to receive a
supplemental pension benefit under Section 5 commencing on February 19, 2001,
the date the Executive would have attained age 55, her supplemental pension
benefit would be paid on the basis of 16.65% of the Executives' Average Annual
Compensation (that is, one-half (1/2) of 33.3% the applicable percentage shown
on Exhibit 1 for fifteen years of service and a supplemental pension benefit
commencing at age 55).
11. CIRCUMSTANCES WHICH EXECUTIVE MAY CONCLUSIVELY DEEM TO BE A
TERMINATION WITHOUT CAUSE. In the event of any change in control of the
Corporation, defined to mean (a) the sale of substantially all of the
Corporation's assets to an unrelated party, or (b) a
<PAGE> 23
merger of the Corporation with an unrelated party, or (c) Imetal's beneficial
ownership of less than 50% of the Corporation's issued and outstanding voting
shares together with an unrelated party's beneficial ownership of a quantity of
the Corporation's issued and outstanding voting shares equal to or greater than
the number of shares owned by Imetal, with the term "unrelated party" understood
to mean for purposes of this Article 11 any entity or group of related entities
(including individuals, partnerships, corporations or trusts) not directly or
indirectly controlled by the Corporation; or (2) if the Executive's positions
and offices with the Corporation set forth in Section 1 are changed or there is
an annoucement of an intention to so change them, or (3) if the Executive's
Annual Salary is reduced from its then current level; the Executive shall be
entitled to resign voluntarily within six (6) months of any of the foregoing
events, and to have such resignation treated as a termination by the Corporation
without cause, thereby entitling the Executive to all benefits under this
Agreement arising from such a termination.
Notwithstanding the foregoing, the following limitations and
restrictions shall apply with respect to the payment of amounts equal to the
Executive's Annual Salary and provision for benefits coverage: In the event any
change in control as set forth in (a), (b), and (c) of this paragraph 11 occurs
prior to December 31, 1995 and the Executive elects in accordance with the above
provisions to treat it as a termination without cause, the Executive shall be
entitled to the benefits set forth in section 10(b), 10(c) and 10(d) except that
in no event shall he be entitled to receive more than sixty (60) months of
salary continuation and benefits coverage, nothwithstanding anything contained
in this Agreement to the contrary.
12. FAILURE TO ELECT EXECUTIVE TO THE OFFICES PROVIDED HEREIN. If the
Board of Directors of the Corporation shall fail to elect or reelect the
Executive to the positions and offices described in Section 1 hereof for the
periods provided in this Agreement (for reasons other than that the Executive
shall have become permanently incapacitated or by reason of the operation of
Section 10 hereof), the Executive shall be entitled to treat such failure as a
termination by the Corporation without cause thereby entitling the Executive to
all benefits under this Agreement arising from such a termination.
13. SUPERSEDING EFFECT - ENTIRE AGREEMENT. This Agreement supersedes
any prior agreements or understanding, oral or written, with respect to
employment of the Executive and constitutes the entire agreement with respect
thereto. It cannot be changed or terminated orally and may be modified only by a
sub-sequent written agreement executed by both the parties hereto.
14. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
15. NON-ASSIGNABILITY BY EXECUTIVE. This is a personal services
agreement which may not be assigned by Executive. Any assignment in violation of
this covenant shall be null and void.
16. SUCCESSORS AND ASSIGNS. Except as otherwise provided in Section 15
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns.
<PAGE> 24
17. PAYMENT OF LEGAL FEES AND COSTS. The Company hereby agrees to
reimburse Executive or his surviving spouse to the fullest extent permitted by
law, for any legal and other fees and expenses that Executive or his surviving
spouse may reasonably incur in connection with any action taken or contest
threatened or implemented relating to the enforcement, validity or
interpretation of any provision of the Plan, including actions brought to
establish entitlement to payments or benefits hereunder, regardless of the
outcome thereof, plus in the case of any money judgment obtained under this Plan
against the Company, interest at the rate of ten per cent (10%) per annum.
Executive or his surviving spouse shall present to the Company an itemized
statement, together with reasonable proofs of payment required by the Company
required by the Company, of all legal fees and expenses for which Executive or
his surviving spouse requests reimbursement. The Company shall reimburse
Executive or his surviving spouse within ten (10) days of receipt of such
itemized statement and documentation.
IN WITNESS WHEREOF, the Executive has signed and sealed this
Agreement and the Corporation has caused this Agreement to be executed by a duly
authorized person and its Corporate seal to be hereunto affixed the day and year
first above written.
WITNESS: JOHN D. TURNER
(SEAL)
- ---------------------------------- -------------------------------------
ATTEST: COPPERWELD CORPORATION
By: (SEAL)
- ---------------------------------- ----------------------------------
WILLIAM T. MARX, CHAIRMAN
EXECUTIVE COMPENSATION
COMMITTEE
<PAGE> 1
Exhibit (10)-(47)
AMENDMENT NO. 1 TO THE LTV CORPORATION CHANGE IN CONTROL
SEVERANCE PAY PLAN I
The LTV Corporation Change in Control Severance Pay Plan I is amended
to include the provisions attached hereto. The amendment shall include, where
applicable, the renumbering of sections to reflect the addition to, the revision
of or the deletion from the prior text required by this provision.
The effective date of the amendment, as herein adopted, is set forth
below:
Section Amended
Added or Deleted Section Effective Date
- ---------------- ------- --------------
Amended 3(f)(iii) January 28, 2000
<PAGE> 2
Section 3(f)(iii) is amended by deleting the first four lines and the
portion of the fifth line prior to the word "unless," and inserting in place
thereof the following:
(iii) consummation of (A) a reorganization, merger or
consolidation of the Corporation, (B) a sale or other disposition of all or
substantially all of the assets of the Corporation, (C) a reorganization, merger
or consolidation of LTV Steel, (D) a sale or other disposition of all or
substantially all of the assets of LTV Steel or (E) the acquisition by any
Person (as defined in Paragraph (i) of this Subsection) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more
than 50% of the combined voting power of the then outstanding Voting Stock of
LTV Steel; provided, however, that for purposes of this subparagraph (E), any
acquisition by the Corporation or any Subsidiary shall not constitute a Change
in Control, (each, a "Business Combination").
<PAGE> 3
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, THE LTV CORPORATION, a Delaware corporation, has caused its corporate
seal to be affixed hereto and has caused this Amendment No. 1 to the LTV
Corporation Change in Control Severance Pay Plan I to be duly executed in its
name and on its behalf this 31st day of January, 2000.
ATTEST: THE LTV CORPORATION
/s/ N. David Bleisch /s/ Frank E. Filipovitz
- --------------------------- --------------------------------
Assistant Secretary Frank E. Filipovitz
General Manager-Human Resources
<PAGE> 1
Exhibit (10)-(48)
AMENDMENT NO. 1 TO THE LTV CORPORATION CHANGE IN CONTROL
SEVERANCE PAY PLAN II
The LTV Corporation Change in Control Severance Pay Plan II is amended
to include the provisions attached hereto. The amendment shall include, where
applicable, the renumbering of sections to reflect the addition to, the revision
of or the deletion from the prior text required by this provision.
The effective date of the amendment, as herein adopted, is set forth
below:
Section Amended
Added or Deleted Section Effective Date
- ---------------- ------- --------------
Amended 3(f)(iii) January 28, 2000
<PAGE> 2
Section 3(f)(iii) is amended by deleting the first four lines and the
portion of the fifth line prior to the word "unless," and inserting in place
thereof the following:
(iii) consummation of (A) a reorganization, merger or
consolidation of the Corporation, (B) a sale or other disposition of all or
substantially all of the assets of the Corporation, (C) a reorganization, merger
or consolidation of LTV Steel, (D) a sale or other disposition of all or
substantially all of the assets of LTV Steel or (E) the acquisition by any
Person (as defined in Paragraph (i) of this Subsection) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more
than 50% of the combined voting power of the then outstanding Voting Stock of
LTV Steel; provided, however, that for purposes of this subparagraph (E), any
acquisition by the Corporation or any Subsidiary shall not constitute a Change
in Control, (each, a "Business Combination").
<PAGE> 3
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing, THE LTV CORPORATION, a Delaware corporation, has caused its corporate
seal to be affixed hereto and has caused this Amendment No. 1 to the LTV
Corporation Change in Control Severance Pay Plan II to be duly executed in its
name and on its behalf this 31st day of January, 2000.
ATTEST: THE LTV CORPORATION
/s/ N. David Bleisch /s/ Frank E. Filipovitz
- --------------------------- --------------------------------
Assistant Secretary Frank E. Filipovitz
General Manager-Human Resources
<PAGE> 1
<TABLE>
<CAPTION>
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)
Year Ended Year Ended Year Ended
--------------------------------------------------------- ----------------------------
1999 1998 1997
--------------------------- --------------------------- ----------------------------
Shares Amount EPS Shares Amount EPS Shares Amount EPS
-------- ------- --------- -------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $(212) $ (27) $ 30
Preferred stock dividend
requirements (3) (2) (2)
----- ------ -----
$(215) $ (29) $ 28
===== ====== =====
------- ------ -------
Weighted average shares outstanding: 100,020 99,849 103,438
======= ====== =======
BASIC EARNINGS (LOSS) PER SHARE $ (2.15) $(0.29) $ 0.27
======= ====== =======
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
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)
Year Ended Year Ended Year Ended
-------------------------------------------------------- ------------------------
1999 1998 1997
-------------------------- --------------------------- ------------------------
Shares Amount EPS Shares Amount EPS Shares Amount EPS
-------- -------- ------- -------- ------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (212) $ (27) $ 30
Preferred stock dividend
requirements (3) (2) (2)
------- ------ -----
$ (215) $ (29) $ 28
======= ====== =====
--------- --------- -------
Weighted average shares outstanding: 100,020 99,849 103,438
========= ========= =======
Common Stock equivalent shares
resulting from outstanding
Series A Warrants, Stock
Options and Restricted Stock (A) (A) 141
Common Stock issuable upon
conversion of Series A and B
Preferred Stock (A) (A) (A)
-------- ------- --------- ------ ------- -----
100,020 $ (215) 99,849 $ (29) 103,579 $ 28
======== ======= ========= ====== ======= ====
DILUTED EARNINGS (LOSS) PER SHARE $ (2.15) $ (0.29) $0.27
======== ======== =====
</TABLE>
(A) Addition of these shares would result in antidilution.
<PAGE> 1
Exhibit 21
List of Subsidiaries
--------------------
(As of December 31, 1999)
Name of Company Percentage Owned
- --------------- ----------------
THE LTV CORPORATION Parent
Copperweld Corporation 100%
Copperweld Bimetalic Product Company UK, Ltd. 100%
Copperweld Bimetallics UK, Ltd. 100%
Metallon Materials Acquisition Corporation 100%
Sayton Fine Wires Limited 100%
Copperweld Foreign Sales Company Ltd. 100%
Copperweld Marketing & Sales Company 100%
Copperweld Tubing Products Company 100%
Copperweld Equipment Company 100%
Miami Acquisition Corporation 100%
Southern Cross Investment Company 100%
TAC Acquisition Corporation 100%
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-Escrow, Inc. 100%
LTVGT, Inc. (f/k/a Varco-Pruden, Inc.) 100%
GalvTech 40%
LTV International, Inc. (f/k/a LTV Holdings, Inc.) 100%
Copperweld Canada, Inc. 100%
Reomar, Inc. 100%
Chateaugay Corporation 100%
LTV International N.V. 100%
LTV Properties, Inc. 100%
LTV Sales Finance Company 100%
LTV Steel Company, Inc. 100%
Aliquippa and Southern Railroad Company 100%
Cayman Mineracao do Brasil Ltda 97.5%
Chicago Short Line Railway Company 100%
Crystalane, Inc. 100%
Cuyahoga Valley Railway Company, The 100%
Mahoning Valley Railway Company, The 100%
Dearborn Leasing Company 100%
Columbus Coatings Company (f/k/a 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%
- ------------
* As of February 29, 2000, LTV owns 18% of Lagermex S.A. de C.V.
<PAGE> 2
Name of Company Percentage Owned
- --------------- ----------------
THE LTV CORPORATION (continued) Parent
LTV Steel Company, Inc. (continued) 100%
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-Columbus Processing, Inc. 100%
Columbus Processing Company LLC 50%
LTV Pickle, Inc. 100%
LTV Steel Products, LLC 100%
LTV Steel Tubular Products Company (a division of
LTV Steel Company, Inc.)
MetalSite, L.P. 3.94%
MetalSite General Partner, LLC 4.19%
Monongahela Connecting Railroad Company, The 100%
Nemacolin Mines Corporation 100%
Northern Land Company 50%
O'Hare Group, Inc. 10%
Presque Isle Corporation 53.5%
Processing Tecnology, Inc. 47.6%
Republic Technology Corporation 100%
Reserve Mining Company 50%
River Terminal Railway Company, The 100%
Youngstown Erie Corporation 100%
LTV Steel Mining Company 45%
YST Erie Corporation 100%
LTV Steel de Mexico, Ltd. 100%
Lagermex S.A. de C.V. 25%*
LTV-Trico Holdings, Inc. 100%
LTV-Trico, Inc. 100%
Trico Steel Company, LLC 50%
LTV-Walbridge, Inc. 100%
Walbridge Coatings, an Illinois partnership 16.5%
RepSteel Overseas Finance N.V. 100%
Trico Steel Company 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%
United Panel, Inc. 100%
Welded Tube Holdings, Inc. 100%
Welded Tube Co. Of America 100%
- ------------
* As of February 29, 2000, LTV owns 18% of Lagermex S.A. de C.V.
<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, Form S-8 No. 333-25865, Form S-3 No. 333-93901 and Form S-4 No.
333-93903) 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, Prospectus of
1,600,000 shares of 8-1/4% Series A Cumulative Convertible Preferred Stock and
Prospectus of 11-3/4% Senior Exchange Notes Due 2009, respectively, of The LTV
Corporation of our reports included in its Annual Report (Form 10-K) for the
year ended December 31, 1999, as listed below:
- - Our report dated January 27, 2000, with respect to the consolidated
financial statements of The LTV Corporation
- - Our report dated January 30, 1999 (except for note 5, as to which the date
is May 31, 1999), with respect to the combined financial statements of
Copperweld Corporation and Copperweld Canada, Inc.
- - Our report dated December 10, 1999, with respect to the financial
statements of Welded Tube Co. of America
- - Our report dated January 19, 2000, with respect to the financial statements
of Trico Steel Company, L.L.C.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 557
<ALLOWANCES> 19
<INVENTORY> 1,021
<CURRENT-ASSETS> 1,651
<PP&E> 4,870
<DEPRECIATION> 1,238
<TOTAL-ASSETS> 6,101
<CURRENT-LIABILITIES> 975
<BONDS> 1,122
0
3
<COMMON> 53
<OTHER-SE> 1,433
<TOTAL-LIABILITY-AND-EQUITY> 6,101
<SALES> 4,120
<TOTAL-REVENUES> 4,120
<CGS> 3,779
<TOTAL-COSTS> 4,311
<OTHER-EXPENSES> (12)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> (209)
<INCOME-TAX> 3
<INCOME-CONTINUING> (212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212)
<EPS-BASIC> (2.15)
<EPS-DILUTED> (2.15)
</TABLE>
