<PAGE>
1993
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-983
NATIONAL STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE 25-0687210
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4100 EDISON LAKES PARKWAY, MISHAWAKA, 46545-3440
IN
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 219-273-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Class B Common Stock New York Stock Exchange
First Mortgage Bonds, 8 3/8% Series due 2006 New York Stock Exchange
4 5/8% Convertible Subordinated Debentures due 1994 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 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. [_]
AT MARCH 3, 1994, THERE WERE 36,361,100 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES: $208,568,588.
THE AMOUNT SHOWN IS BASED ON THE CLOSING PRICE OF NATIONAL STEEL
CORPORATION'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON MARCH 3, 1994.
VOTING STOCK HELD BY OFFICERS AND DIRECTORS IS NOT INCLUDED IN THE COMPUTATION.
HOWEVER, NATIONAL STEEL CORPORATION HAS MADE NO DETERMINATION THAT SUCH
INDIVIDUALS ARE "AFFILIATES" WITHIN THE MEANING OF RULE 405 UNDER THE
SECURITIES ACT OF 1933.
DOCUMENTS INCORPORATED BY REFERENCE:
SELECTED PORTIONS OF THE 1994 PROXY STATEMENT OF NATIONAL STEEL CORPORATION
ARE INCORPORATED BY REFERENCE INTO PART III OF THE REPORT ON FORM 10-K.
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<PAGE>
PART I
ITEM 1. BUSINESS
National Steel Corporation, a Delaware corporation, and its consolidated
subsidiaries (the "Company") is the fourth largest integrated steel producer in
the United States as measured by production and shipments and is engaged in the
production and sale of a wide variety of flat rolled carbon steel products,
including hot rolled, cold rolled, galvanized, tin and chrome plated steels.
Flat rolled carbon steel products account for approximately 50% of domestic
steel industry shipments.
The Company was formed through the merger of Weirton Steel, Great Lakes Steel
and Hanna Iron Ore Company and was incorporated in Delaware on November 7,
1929. The Company built a finishing facility, now the Midwest Division, in 1961
and in 1971 purchased Granite City Steel Corporation, now the Granite City
Division. On September 13, 1983, the Company became a wholly-owned subsidiary
of National Intergroup, Inc. (collectively, with its subsidiaries, "NII")
through a restructuring. On January 11, 1984, the Company sold the principal
assets of its Weirton Steel Division and retained certain liabilities related
thereto. On August 31, 1984, NKK Corporation (collectively, with its
subsidiaries, "NKK") purchased a 50% equity interest in the Company from NII.
On June 26, 1990, NKK purchased an additional 20% equity interest in the
Company from NII. In April 1993, the Company completed an initial public
offering of its Class B Common Stock. In October 1993, NII converted all of its
shares of Class A Common Stock to an equal number of shares of Class B Common
Stock, resulting in NKK having a 75.6% voting interest in the Company. NII sold
substantially all of its shares of Class B Common Stock in the market in
January 1994.
STRATEGY
The Company's mission is to be the most competitive steel company in the
United States. The Company's strategy to achieve this goal is based on
cooperative partnerships with its customers and employees and a strong alliance
with its principal stockholder, NKK. Such cooperative efforts are intended to
reduce costs and improve productivity and product quality.
Customer Partnership
A cooperative partnership with customers requires the Company to
differentiate its products through superior quality and service. Management
believes it is able to differentiate the Company's products and promote
customer loyalty by establishing close relationships through early customer
involvement, providing technical services and support and utilizing its Product
Application Center and Technical Research Center facilities. To fulfill its
customers' needs, the Company has developed and implemented a series of
coordinated strategies in marketing, capital investment and research and
development.
Marketing Strategy. The Company's marketing strategy has concentrated on
increasing the level of sales of higher value added products to the automotive,
metal buildings and container markets. These segments demand high quality
products, on-time delivery and effective and efficient customer service. This
strategy is designed to increase margins, reduce competitive threats and
maintain high capacity utilization rates by shifting the Company's product mix
to higher quality products and providing superior customer service.
Capital Investment Program. Since 1984, the Company has invested
approximately $2 billion in capital improvements aimed at upgrading the
Company's steelmaking and finishing operations to meet its customers' demanding
requirements for higher quality products and to reduce production costs. Major
projects include an electrolytic galvanizing line, a continuous caster, a ladle
metallurgy station, a vacuum degasser, a complete coke oven battery rebuild and
a high speed pickle line, each of which services the Great Lakes Division
(located near Detroit, Michigan) and a continuous caster and a ladle metallurgy
station each of which services the Granite City Division (located near St.
Louis, Missouri). Major improvements at the Midwest Division (located near
Chicago, Illinois) include the installation of process control equipment to
upgrade its finishing capabilities. Capital investments for each of 1993, 1992
and 1991 were $160.7 million, $283.9 million and $178.2 million, respectively.
In early 1991, the Company became the first major integrated U.S. steel
producer to continuously cast 100% of its raw steel production.
2
<PAGE>
To enable the Company to more efficiently meet the needs of its target
markets and focus on higher value added products, the Company has entered into
two separate joint ventures to build hot dip galvanizing facilities. One joint
venture is with NKK and an unrelated third party and has been built to service
the automotive industry. The second joint venture is being built to service the
construction industry.
Research and Development. The Company's research and development efforts
focus on creating new steel products, developing new production processes to
improve the quality and reduce the cost of the Company's existing product lines
and providing product and technical support to customers.
The Company operates a research and development facility near its Great Lakes
Division to develop new products, improve existing products and develop more
efficient operating procedures to meet the constantly increasing demands of the
automotive, container and metal buildings markets. The research center employs
approximately 55 chemists, physicists, metallurgists and engineers. In
addition, the Company operates a Product Application Center near Detroit
dedicated to providing product and technical support to customers. The Product
Application Center assists customers with application engineering (selecting
optimum metal and manufacturing methods), application technology (evaluating
product performance) and technical developments (performing problem solving at
plants). The Company spent $9.4 million, $9.5 million and $8.8 million for
research and development in 1993, 1992 and 1991, respectively. In addition, the
Company participates in various research efforts through the American Iron and
Steel Institute ("AISI").
Since 1984, NKK has provided engineering and technical support to the Company
principally by providing the full-time services of approximately 40 engineers,
at the Company's expense, to the Company's Divisions. These engineers, as well
as engineers and technical support personnel at NKK's facilities in Japan,
assist in improving operating practices and developing new manufacturing
processes. This support also includes providing input on ways to improve raw
steel to finished product yields and preventative maintenance practices on
equipment.
Employee Partnership
Since 1986, the Company has provided substantially all of its employees with
employment security and economic incentives, such as profit sharing and
productivity gainsharing (an incentive system that provides employees with
bonuses tied to improvements in labor productivity), in exchange for more
flexible work rules that, among other things, have permitted the Company to
significantly reduce the number of job classifications for its represented
employees and consequently increased the variety of tasks each employee may be
requested to accomplish. These more flexible work rules have contributed to the
Company's improved productivity as evidenced by its reduced manhours per net
ton shipped, while permitting the Company to reduce employment levels through
retirement and attrition.
Despite the late settlement with the United Steelworkers of America (the
"USWA") in the summer of 1993 and the strike by the USWA local which represents
former employees of National Steel Pellet Company, a wholly-owned subsidiary of
the Company ("NSPC"), management believes that the cooperative labor
arrangements described above will continue to contribute to improved
productivity at its principal facilities. (See "Employees" below).
Alliance with NKK
The Company has a strong alliance with its principal stockholder, NKK, the
second largest steel company in Japan and the fifth largest in the world as
measured by production. Since 1984, the Company has had access to a wide range
of NKK's steelmaking, processing and applications technology. In addition, NKK
has provided financial assistance to the Company in the form of investments,
loans and introductions to Japanese financial institutions and trading
companies. While no assurances can be given with respect to the extent of NKK's
future financial support beyond existing contractual commitments, NKK has
indicated that it presently plans to continue to provide technical support and
research and development services of the nature and to the extent currently
provided to the Company.
3
<PAGE>
Product Quality
The Company has focused its efforts on improving product quality through
capital investments, research and development, NKK's technical support and
employee training. Despite delivery and customer service problems in 1993, the
Company has continued to receive numerous quality awards. In 1993, the Company
received the prestigious General Motors Mark of Excellence award. Additionally,
the Company received a 1993 Best-of-the-Best award from Midway Products,
representing an eighteen month period of no rejections for hot rolled, cold
rolled and coated products shipped from all three of the Company's principal
facilities. The Company also achieved its quality objectives at Toyota and was
recognized by Toyota as the only supplier to attain its demanding target levels
four times in the last five years. During 1993, the Company's Great Lakes
Division developed a bumper coil pickling process which improved surface
quality on bumper products. The Granite City Division received supplier
excellence awards from Trane Corporation and Accuride Corporation, the largest
manufacturer of medium to heavy duty truck wheels in North America. At the
Midwest Division, quality recognition included certified supplier awards from
Steelcase Corporation, a major manufacturer of office furniture, and John Deere
Corporation.
Cost Reduction Programs
The Company aggressively seeks to continually reduce costs in all facets of
its business. Performance based compensation provides an incentive to all
employees to focus on key cost and quality measures, such as manhours per ton
and prime tons shipped. Facility engineers, who have access to a wide range of
NKK process technologies, analyze and implement innovative steelmaking,
processing and preventative maintenance methods on an ongoing basis. In
addition, the Company works closely with its customers to develop products
specifically suited to the needs of such customers through the use of its
Product Application Center, thereby reducing engineering costs and minimizing
start-up costs for each of the Company and its customers. The Company's
customer service system integrates orders, inventory and delivery deadlines at
all of the Company's divisions. Finally, the Company aggressively seeks and
utilizes employee input with respect to cost cutting measures at all employee
levels.
Results of Strategic Initiative
The Company's strategies of developing customer and employee partnerships,
its alliance with NKK, and emphasis on quality improvement and implementing
continuous cost reduction programs have resulted in increased productivity and
yields, decreased employment levels and higher percentages of steel formed
through continuous casting. The table set forth below illustrates these trends
for the years 1989 to 1993.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Manhours per net ton shipped(1)......... 3.96 4.03 4.27 4.63 4.61
Number of employees (year-end)(2)....... 9,490 10,299 11,176 11,717 12,106
Liquid steel to finished prime product
yield.................................. 79.6% 80.0% 79.6% 76.4% 78.5%
Continuously cast percentage............ 100.0% 100.0% 99.8% 85.4% 88.7%
</TABLE>
- --------
(1) Manhours per net ton shipped is calculated as hours worked by all steel
employees, which includes employees at the steel divisions, corporate
headquarters, the research and development centers and the Product
Application Center, divided by net tons shipped, and excludes iron ore and
certain other non-steel employee hours worked.
(2) The number of employees was reduced by 579 in 1993 as a result of the
temporary idling of NSPC. (See "Employees" below).
CUSTOMERS
The Company's marketing strategy concentrates on increasing the Company's
sales of higher value added products targeted to customers in the automotive,
metal buildings and container markets. The Company also markets its products to
the pipe and tube and service center industries.
The Company is a major supplier of hot and cold rolled steel and galvanized
coils to the automotive industry, one of the most demanding steel consumers.
Car and truck manufacturers require wide sheets of
4
<PAGE>
steel, rolled to exact dimensions. In addition, formability and defect-free
surfaces are critical. The Company has been able to successfully meet these
demands. Its steels have been used in a variety of automotive applications
including exposed and unexposed panels, wheels and bumpers.
The Company believes it is a leading supplier of steel to the domestic metal
buildings market. Roof and building panels are the principal applications for
galvanized and Galvalume(R) steel in this market. Management believes that
demand for Galvalume(R) steel will exhibit strong growth for the next several
years partially as a result of a trend away from traditional building products
and that the Company is well positioned to profit from this growth as a result
of both its position in this market and additional capacity currently under
construction.
The Company produces chrome and tin plated steels to exact tolerances of
gauge, shape, surface flatness and cleanliness for the container industry. Tin
and chrome plated steels are used to produce a wide variety of food and non-
food containers. In recent years, the market for tin and chrome plated steels
has been both stable and profitable for the Company.
The Company also supplies the pipe and tube and service center markets with
hot rolled, cold rolled and coated sheet. The Company is a key supplier to
transmission pipeline, downhole casing and structural pipe producers. Service
centers generally purchase steel coils from the Company and may process them
further or sell them directly to third parties without further processing.
The following table sets forth the percentage of the Company's revenues from
various markets for the past five years.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Automotive................................... 28.9% 27.2% 25.8% 26.4% 26.8%
Metal buildings.............................. 14.3 12.8 11.2 11.2 11.4
Container.................................... 13.3 14.9 15.6 14.8 13.7
Pipe and Tube................................ 8.2 9.4 8.0 8.6 8.2
Service Centers.............................. 15.5 13.6 10.7 11.5 10.4
All Other.................................... 19.8 22.1 28.7 27.5 29.5
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Shipments to General Motors, the Company's largest customer, accounted for
approximately 11%, 12% and 12% of net sales in each of 1993, 1992 and 1991,
respectively. There can be no assurance that future net sales to General Motors
will equal historical levels. Export sales accounted for approximately .1% of
revenue in 1993, .5% in 1992 and 4.5% in 1991. The Company's products are sold
through the Company's six sales offices located in Chicago, Detroit, Houston,
Kansas City, Pittsburgh and St. Louis. Substantially all of the Company's net
revenues are based on orders for short-term delivery. Accordingly, backlog is
not meaningful when assessing future results of operations.
OPERATIONS
The Company operates three principal facilities: two integrated steel plants,
the Great Lakes Division in Ecorse and River Rouge, Michigan, near Detroit and
the Granite City Division in Granite City, Illinois, near St. Louis and a
finishing facility, the Midwest Division in Portage, Indiana, near Chicago. The
Company's centralized corporate structure, the close proximity of the Company's
principal facilities and the complementary balance of processing equipment
shared by them, enable the Company to closely coordinate the operations of
these facilities in order to maintain high operating rates throughout its
processing facilities and to maximize the return on its capital investments.
Generally, the Company's facilities are well maintained, considered adequate
and being utilized for their intended purposes.
5
<PAGE>
The following table details effective steelmaking capacity, actual
production, effective capacity utilization and percentage of steel continuously
cast for the Company and the domestic steel industry for the years indicated.
RAW STEEL PRODUCTION DATA
<TABLE>
<CAPTION>
EFFECTIVE PERCENT
EFFECTIVE ACTUAL CAPACITY CONTINUOUSLY
CAPACITY PRODUCTION UTILIZATION CAST
--------- ---------- ----------- ------------
(000'S OF NET TONS) (%) (%)
THE COMPANY
- -----------
<S> <C> <C> <C> <C>
1993............................. 5,550 5,551 100.0 100.0
1992............................. 5,355 5,380 100.5 100.0
1991............................. 5,670 5,247 92.5 99.8
1990............................. 5,876 5,735 97.6 85.4
1989............................. 5,576 5,394 96.7 88.7
<CAPTION>
DOMESTIC STEEL INDUSTRY*
- ------------------------
<S> <C> <C> <C> <C>
1993............................. 109,900 96,077 87.4 85.5
1992............................. 113,100 92,949 82.2 79.3
1991............................. 117,700 87,896 74.7 75.8
1990............................. 116,800 98,906 84.7 66.6
1989............................. 115,900 97,943 84.5 64.8
</TABLE>
- --------
*Information as reported by the AISI. The 1993 industry information is
estimated by the AISI.
The Company's effective capacity varies annually due to planned blast furnace
outages for maintenance purposes. Effective capacity utilization fell to 92.5%
in 1991 due, in part, to an unusually high level of inventory carried forward
from 1990, along with scheduled maintenance outages at major finishing units
and a low demand for steel products during the first half of the year.
RAW MATERIALS
Iron ore. The metallic iron requirements of the Company are supplied
primarily from iron ore pellets that are produced from a concentration of low-
grade ores. The Company formerly purchased a significant portion of its iron
ore pellet requirements from NSPC. However, as a result of the temporary idling
of NSPC, the Company has secured its pellet requirements from outside sources.
The Company currently has entered into agreements that will satisfy its iron
ore pellet requirements through 1994. It is management's intention to secure
long-term contracts for the purchase of iron ore pellets for a period of one to
three years. (See "Employees" below).
Coal. In 1992, the Company decided to exit the coal business. At that time,
the Company owned underground coal properties in Pennsylvania, Kentucky and
West Virginia as well as undeveloped coal reserves in Pennsylvania and West
Virginia. During 1993, the Pennsylvania and Kentucky properties were sold
except for the coal reserves which were leased on a long term basis.
Negotiations are in process for the sale of the West Virginia properties. While
the undeveloped coal reserves are for sale there are no interested parties at
the present time. The remaining coal assets totaling $42.7 million are included
in the assets of the Company and constitute less than 2% of the Company's total
assets. Adequate supplies of coal are readily available at competitive market
prices.
Coke. The Company operates two efficient coke oven batteries servicing the
Granite City Division and the newly rebuilt No. 5 coke oven battery at the
Great Lakes Division. The No. 5 coke battery enhances the quality and stability
of the Company's coke supply, and incorporates state-of-the-art technology
while meeting the requirements of the Clean Air Act. With the No. 5 coke
battery rebuild, the Company has significantly improved its self-sufficiency
and can supply approximately 60% of its annual coke requirements. The remaining
coke requirements are met through competitive market purchases.
6
<PAGE>
Limestone. The Company, through an affiliated company, has limestone reserves
of approximately 80 million gross tons located in Michigan. During the last
five years, approximately 59% of the Company's average annual consumption of
limestone was derived from these reserves. The Company's remaining limestone
requirements were purchased.
Scrap and Other Materials. Supplies of steel scrap, tin, zinc, and other
alloying and coating materials are readily available at competitive market
prices.
COMPETITION
The Company is in direct competition with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured
products. Price, service and quality are the primary types of competition
experienced by the Company. The Company believes it is able to differentiate
its products from those of its competitors by, among other things, providing
technical services and support and utilizing its Product Application Center and
Technical Research Center facilities and by its focus on improving product
quality through, among other things, capital investment and research and
development, as described above.
Imports. Domestic steel producers face significant competition from foreign
producers and have been adversely affected by unfairly traded imports. Imports
of finished steel products accounted for approximately 14% of the domestic
market in 1993 and approximately 16% of the domestic market in 1992 and 1991.
Many foreign steel producers are owned, controlled or subsidized by their
governments. Decisions by these foreign producers with respect to production
and sales may be influenced to a greater degree by political and economic
policy considerations than by prevailing market conditions.
In 1992, the Company and eleven other domestic steel producers filed unfair
trade cases with the Commerce Department and the International Trade Commission
(the "ITC") against foreign steel producers covering imports of flat rolled
carbon steel products. In June 1993, the Commerce Department imposed final
antidumping and subsidy margins averaging 37% for all products under review. In
July 1993, the ITC made final determinations that material injury had occurred
in cases representing an estimated 51% of the dollar value and 42% of the
volume of all flat rolled carbon steel imports under investigation. In the four
product categories, injury was found in cases relating to 97% of the volume of
plate steel, 92% of the volume of higher value-added corrosion resistant steel
and 36% of the volume of cold rolled steel. No injury was found with respect to
hot rolled steel products. Approximately 30% of the Company's 1993 shipments
consisted of corrosion resistant steel, 14% consisted of cold rolled steel and
less than 1% consisted of plate steel. Approximately 45% of the Company's 1993
shipments consisted of hot rolled steel. Imports of products not covered by
affirmative ITC injury determinations may increase as a result of the ITC
determinations, which may have an adverse effect on the Company's shipments of
these products and the prices it realizes for such products. The Company and
the other domestic producers who filed these cases have appealed the negative
decisions of the ITC and are defending appeals brought by foreign producers
involving decisions favorable to domestic producers. These appeals are
proceeding before the Court of International Trade in New York and, in the case
of Canada, before Binational Dispute Panels under the U.S.-Canada Free Trade
Agreement and decisions are not expected before the second half of 1994. Future
increases in other steel imports are also possible, particularly if the value
of the dollar should rise in relation to foreign currencies or if legislation
implementing the recently concluded GATT Uruguay Round agreements is enacted in
a form which substantially weakens United States trade laws.
Reorganized/Reconstituted Mills. The intensely competitive conditions within
the domestic steel industry have been exacerbated by the continued operation,
modernization and upgrading of marginal steel production facilities through
bankruptcy reorganization procedures, thereby perpetuating overcapacity in
certain industry product lines. Overcapacity is also caused by the continued
operation of marginal steel production facilities that have been sold by
integrated steel producers to new owners, who operate such facilities with a
lower cost structure.
7
<PAGE>
Mini-mills. Domestic integrated producers, such as the Company, have lost
market share in recent years to domestic mini-mills. Mini-mills provide
significant competition in certain product lines, including hot rolled and cold
rolled sheets, which represented, in the aggregate, approximately 60% of the
Company's shipments in 1993. Mini-mills are relatively efficient, low-cost
producers which produce steel from scrap in electric furnaces, have lower
employment and environmental costs and target regional markets. Thin slab
casting technologies have allowed mini-mills to enter certain sheet markets
which have traditionally been supplied by integrated producers. One mini-mill
has constructed two such plants and announced its intention to start a third in
a joint venture with another steel producer. Certain companies have announced
plans for, or have indicated that they are currently considering, additional
mini-mill plants for sheet products in the United States.
Steel Substitutes. In the case of many steel products, there is substantial
competition from manufacturers of other products, including plastics, aluminum,
ceramics, glass, wood and concrete. Conversely, the Company and certain other
manufacturers of steel products have begun to compete in recent years in
markets not traditionally served by steel producers.
PATENTS AND TRADEMARKS
The Company has the patents and licenses necessary for the operation of its
business as now conducted. The Company does not consider its patents and
trademarks to be material to the business of the Company.
EMPLOYEES
As of December 31, 1993, the Company employed 9,490 people. Approximately
7,300 (77%) of the Company's employees are represented by the USWA. Except as
described below, the Company believes that its relationships with its
collective bargaining units are good.
On August 27, 1993, a new six year cooperative labor agreement (the "1993
Settlement Agreement") between the Company and the USWA was ratified by USWA
members at the Company's three steel divisions and corporate headquarters. The
new agreement, effective August 1, 1993 through July 31, 1999, protects the
Company and the USWA from a strike or lockout for the duration of the
agreement. Either the Company or the USWA may reopen negotiations after three
years, except with respect to pensions and certain other matters, with any
unresolved issues subject to binding arbitration. Under the 1993 Settlement
Agreement, represented employees will receive improved pension benefits,
bonuses to be paid over the term of the agreement, a $.50 per hour wage
increase effective in August 1995, and an additional paid holiday for the years
1994, 1995 and 1996. The 1993 Settlement Agreement provides for the
establishment of a Voluntary Employee Benefits Association trust (the "VEBA
Trust") to which the Company has agreed to contribute a minimum of $10 million
annually and, under certain circumstances, additional amounts calculated as set
forth in the 1993 Settlement Agreement. The Company has granted to the VEBA a
second mortgage on the No. 5 coke oven battery at the Great Lakes Division. The
1993 Settlement Agreement also provides for opportunities to reduce health care
costs and for flexible work practices and opportunities to reduce manning
levels through attrition. In addition, the 1993 Settlement Agreement grants the
USWA the right to nominate a candidate, subject to the approval of the
Company's Board of Directors and stockholders, for a seat on the Company's
Board of Directors.
NSPC has been idled since August 1, 1993, initially as a result of a labor
dispute with the USWA upon expiration of the former labor contract on July 31,
1993. However, NSPC remains temporarily idled because the Company has obtained
contracts to purchase pellets at a lower cost than NSPC's production costs. The
USWA has filed 19 unfair labor practice charges with the National Labor
Relations Board (the "NLRB") regarding the NSPC dispute. The USWA's charges
include allegations that NSPC failed to bargain in good faith. NSPC has
responded to these charges and has denied any unfair labor practices. If the
NLRB finds against NSPC, it could issue an order requiring NSPC to pay back pay
and front pay until the labor practices are corrected or to cease and desist
unfair labor practices and bargain in good faith.
8
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous laws and regulations
relating to the protection of human health and the environment. The Company
believes that it is in substantial compliance with such laws and regulations.
The Company currently estimates that it will incur capital expenditures in
connection with matters relating to environmental control of approximately $9.1
million and $8.0 million for 1994 and 1995, respectively. In addition, the
Company expects to record expenses for environmental compliance, including
depreciation, of approximately $70 million and $73 million for 1994 and 1995,
respectively. Since environmental laws and regulations are becoming
increasingly stringent, the Company's environmental capital expenditures and
costs for environmental compliance may increase in the future. In addition, due
to the possibility of unanticipated factual or regulatory developments, the
amount and timing of future environmental expenditures could vary substantially
from those currently anticipated. The costs for environmental compliance may
also place the Company at a competitive disadvantage with respect to foreign
steel producers, as well as manufacturers of steel substitutes, that are
subject to less stringent environmental requirements.
In 1990, Congress passed amendments to the Clean Air Act which impose more
stringent standards on air emissions. The Clean Air Act amendments will
directly affect the operations of many of the Company's facilities, including
its coke ovens. Under such amendments, coke ovens generally will be required to
comply with progressively more stringent standards over the next thirty years.
The Company believes that the costs for complying with the Clean Air Act
amendments will not have a material adverse effect on the Company's financial
condition.
In 1990, the United States Environmental Protection Agency (the "EPA")
released a proposed rule which establishes standards for the implementation of
a corrective action program under the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"). The corrective action program requires facilities
that are operating under a permit, or are seeking a permit, to treat, store or
dispose of hazardous wastes to investigate and remediate environmental
contamination. Currently, the Company is conducting an investigation at its
Midwest Division facility. The Company estimates that the potential capital
costs for implementing corrective actions at such facility will be
approximately $8 million payable over the next several years. At the present
time, the Company's other facilities are not subject to corrective action.
Since 1989, the EPA and the eight Great Lakes states have been developing the
Great Lakes Initiative, which will impose standards that are even more
stringent than the best available technology standards currently being
enforced. As required under section 118 of the Clean Water Act, as amended,
which is intended to codify the efforts of the EPA and such states under the
Great Lakes Initiative, on April 16, 1993, the EPA published the proposed
"Water Quality Guidance for the Great Lakes System" (the "Guidance Document").
Once finalized, the Guidance Document will establish minimum water quality
standards and other pollution control policies and procedures for waters within
the Great Lakes System. The EPA intends to publish the final Guidance Document
by October 1995. Preliminary studies conducted by the AISI prior to publication
of the proposed Guidance Document estimate that the potential capital cost for
a fully integrated steel mill to comply with draft standards under the Great
Lakes Initiative can range from approximately $50 million to $175 million and
the potential annual operating and maintenance cost will be approximately 15%
of the estimated capital cost. Until the Guidance Document is finalized, the
Company is unable to determine whether such estimates are accurate and whether
the Company's actual costs for compliance will be comparable. Although the
Company believes only the Great Lakes Division would be required to incur
significant costs for compliance, there can be no assurances that such
compliance will not have a material adverse effect on the Company's financial
condition.
The Company has recorded the reclamation and other costs to restore its coal
and iron ore mines at its shutdown locations to their original and natural
state, as required by various federal and state mining statutes. Additionally,
in October 1993, NSPC announced its intention to temporarily idle the iron ore
mining and pelletizing operations conducted at the facility. A final decision
to permanently shut down these operations would result in additional charges.
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ITEM 2. PROPERTIES
The Granite City Division
The Granite City Division, located in Granite City, Illinois, has an annual
effective steelmaking capacity of 2.3 million tons. With the start-up of a
second continuous caster in early 1991, all steel at this Division is now
produced by continuous casting. The Granite City Division also uses ladle
metallurgy to refine the steel chemistry to enable it to meet the exacting
specifications of its customers. The Division's ironmaking facilities consist
of two coke batteries and two blast furnaces. Finishing facilities include an
80 inch hot strip mill, a continuous pickler and two hot dip galvanizing lines.
The Granite City Division ships approximately 20% of its total production to
the Midwest Division for finishing. Principal products of the Granite City
Division include hot rolled, cold rolled, hot dipped galvanized, grain bin and
high strength, low alloy steels.
The Granite City Division is located on 1,540 acres and employs approximately
3,150 people. The Division's proximity to the Mississippi River and other
interstate transit systems, both rail and highway, provides easy accessibility
for receiving raw materials and supplying finished steel products to customers.
The Great Lakes Division
The Great Lakes Division, located in Ecorse and River Rouge, Michigan, is an
integrated facility engaged in steelmaking primarily for use in the automotive
market with an annual effective steelmaking capacity of 3.2 million tons. With
the start-up of a second continuous caster in late 1987, all steel at this
Division is now produced by continuous casting. The Division's ironmaking
facilities consist of a recent 85-oven coke battery rebuild and three blast
furnaces. The Division also operates steelmaking facilities consisting of a
vacuum degasser and a ladle metallurgy station. Finishing facilities include a
hot strip mill, a skinpass mill, a shear line, two existing pickling lines, a
new high speed pickle line, a tandem mill, a batch annealing station, two
temper mills and two customer service lines, and an electrolytic galvanizing
line. The Great Lakes Division ships approximately 40% of its production to the
Midwest Division for finishing. Principal products of the Great Lakes Division
include hot rolled, cold rolled, electrolytic galvanized, and high strength,
low alloy steels.
The Great Lakes Division is located on 1,100 acres and employs approximately
4,150 people. The Division is strategically located with easy access to lake,
rail and highway transit systems for receiving raw materials and supplying
finished steel products to customers.
The Midwest Division
The Midwest Division, located in Portage, Indiana, finishes hot rolled bands
produced at the Granite City and Great Lakes Divisions primarily for use in the
automotive, metal buildings and container markets. The Division's facilities
include a continuous pickling line, two cold reduction mills and two continuous
galvanizing lines, a 48 inch wide line which can produce galvanized or
Galvalume(R) steel products and which services the metal buildings markets, and
a 72 inch wide line which services the automotive market; finishing facilities
for cold rolled products consisting of a batch annealing station, a sheet
temper mill and a continuous stretcher leveling line; and an electrolytic
cleaning line, a continuous annealing line, two tin temper mills, two tin
recoil lines, an electrolytic tinning line and a chrome line which services the
container markets. Principal products of the Midwest Division include tin mill
products, hot dipped galvanized and Galvalume(R) steel, cold rolled, and
electrical lamination steels.
The Midwest Division is located on 1,100 acres in Portage, Indiana and
employs approximately 1,400 people. Its location provides excellent access to
rail, water and highway transit systems for receiving raw materials and
supplying finished steel products to customers.
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DNN Galvanizing Limited Partnership
As part of its strategy to focus its marketing efforts on high quality steels
for the automotive industry, the Company has entered into an agreement with NKK
and an unrelated third party to build and operate the DNN Galvanizing Limited
Partnership ("DNN"), a 400,000 ton per year, hot dip galvanizing facility in
Windsor, Ontario, Canada. This facility incorporates state-of-the-art
technology to galvanize steel for critically exposed automotive applications.
The facility is modeled after NKK's Fukuyama Works Galvanizing Line that has
provided high quality galvanized steel to the Japanese automotive industry for
several years. The Company is committed to utilize 50% of the available line
time of the facility and pay a tolling fee designed to cover fixed and variable
costs with respect to 50% of the available line time, whether or not such line
time is utilized. The plant began production in January 1993 and is currently
operating at full capacity. The Company's steel substrate requirements are
provided to DNN by the Great Lakes Division.
In 1993, the ITC issued a final affirmative injury determination that certain
galvanized steel products from Canada are being sold in the United States at
less than fair value. Accordingly, certain types of galvanized steel,
approximating 15% of the steel galvanized for the Company by DNN and shipped to
the United States, are subject to an anti-dumping duty order and to cash
deposits of 10.89%. The anti-dumping duty currently applies to the entire
entered value of the affected types of products. The Company is currently
appealing the ITC determination. If successful, such appeal would result in the
duty deposit requirement applying only to the added value of the Canadian
processing with respect to such product types, which the Company estimates to
account for approximately 30% of the total value of such product types of the
finished product. The other 70% of the value with respect to such product types
results from U.S. production. The Company also intends to seek a refund of the
entire anti-dumping duty upon administrative review, which will occur more than
one year in the future. The Company does not believe that the costs that may be
imposed on the Company as a result of this ITC determination will have a
material adverse effect on the Company's financial condition.
Double G Coatings, L.P.
To continue to meet the needs of the growing metal buildings market, the
Company and an unrelated third party formed a joint venture to build and
operate Double G Coatings, L.P. ("Double G"), a 270,000 ton per year hot dip
galvanizing and Galvalume(R) steel plant near Jackson, Mississippi. The plant
will be capable of coating 48 inch wide steel coils with zinc to produce a
product known as galvanized steel and a zinc/aluminum coating to produce a
product known as Galvalume(R) steel. Double G will primarily serve the metal
buildings segment of the construction market in the south central United
States. The Company is committed to utilize and pay a tolling fee in connection
with 50% of the available line time at the facility. The joint venture plant is
scheduled to begin production in the second quarter of 1994 and is expected to
operate at full capacity in 1995. The Company's steel substrate requirements
will be provided to Double G by the Great Lakes and Midwest Divisions.
ProCoil Corporation
ProCoil Corporation ("ProCoil"), a joint venture among the Company, Marubeni
Corporation, Mitsubishi Corporation and NKK, located in Canton, Michigan,
operates a steel processing facility which began operations in 1988 and a
warehousing facility which began operations in 1992. Each of the Company and
Marubeni Corporation owns a 44% equity interest in ProCoil. ProCoil blanks,
slits and cuts steel coils to desired lengths to service automotive market
customers. In addition, ProCoil warehouses material to assist the Company in
providing just-in-time delivery to customers.
OTHER PROPERTIES
Generally, the Company's properties are well maintained, considered adequate
and being utilized for their intended purposes. The Company's corporate
headquarters is located in Mishawaka, Indiana.
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Except as stated below, the steel production facilities are owned in fee by
the Company. A continuous caster and related ladle metallurgy facility and an
electrolytic galvanizing line, which each service the Great Lakes Division, and
a coke battery, which services the Granite City Division, are operated pursuant
to the terms of operating leases with third parties and are not subject to a
lien under the Company's First Mortgage Bonds. The electrolytic galvanizing
lease, the coke battery lease and the continuous caster and related metallurgy
facility lease are scheduled to expire in 2001, 2004 and 2008, respectively.
Upon expiration, the Company has the option to extend the respective lease or
purchase the facility at fair market value.
All land (excluding certain unimproved land), buildings and equipment
(excluding, generally, mobile equipment) that are owned in fee by the Company
at the Great Lakes Division, Granite City Division and Midwest Division are
subject to a lien under the First Mortgage Bonds, with certain exceptions,
including a vacuum degasser and a pickle line which service the Great Lakes
Division, a continuous caster which services the Granite City Division and the
corporate headquarters in Mishawaka, Indiana. Additionally, the Company has
granted to the VEBA a second mortgage on the No. 5 coke oven battery at the
Great Lakes Division.
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ITEM 3. LEGAL PROCEEDINGS
In addition to the matters specifically discussed below, the Company is
involved in various legal proceedings occurring in the normal course of its
business. In the opinion of the Company's management, adequate provision has
been made for losses which are likely to result from these actions. To the
extent that such reserves prove to be inadequate, the Company would incur a
charge to earnings, which could have a material adverse effect on the Company's
results of operations for the applicable period. The outcome of these
proceedings, however, is not expected to have a material adverse effect on the
financial condition of the Company. For a description of certain environmental
matters involving the Company, see "Environmental Matters" below.
Baker's Port, Inc. v. National Steel Corporation
On July 1, 1988, Baker's Port, Inc. ("BPI") and Baker Marine Corporation
("BMC") filed a lawsuit in the District Court for San Patricio County, Texas
against the Company, two of its subsidiaries, NS Land Company ("NS Land") and
Natland Corporation ("Natland"), and several other defendants, alleging breach
of their general warranty of title, violation of the Texas Deceptive Trade
Practice Act (the "DTPA") and fraud, in connection with the sale by Natland to
BPI in 1981 of approximately 3,000 acres of land near Corpus Christi, Texas.
Approximately $24.7 million of the purchase price was in the form of a note
(the "Note") secured by a Deed of Trust (mortgage) and BMC's guarantee. BPI and
BMC sought actual damages in excess of $55 million, or, alternatively,
rescission of the sale, and exemplary damages in excess of $155 million, as
well as treble damages under the DTPA. Natland counterclaimed for the amount
defaulted on by BPI under the Note, approximately $13.3 million in principal
and $10.8 million in interest at December 31, 1993, all of which has been
reserved by the Company. The State of Texas also claimed the rights to certain
riparian lands. On September 7, 1990, after trial, a judgment was entered,
holding, among other things, (i) that the affirmative claims of BPI and BMC
were barred, except as set forth in (iii) below, (ii) that recovery by Natland
on the Note was barred, (iii) that BPI was entitled to approximately $.4
million plus pre-judgment interest thereon in the sum of approximately $.5
million, plus post-judgment interest thereon and (iv) that Natland's Deed of
Trust lien on the property was fully released and discharged. On June 30, 1993,
the Court of Appeals issued an opinion generally in favor of the Company and
its subsidiaries. The Court of Appeals affirmed in part and reversed and
remanded in part the judgment of the trial court. Specifically, the Court of
Appeals (i) affirmed the dismissal by the trial court of the title claims
brought by the State of Texas, (ii) reversed the finding by the trial court of
$22 million of damages for fraud, which was applied to offset the amount then
owing of approximately $19 million on the Note from BPI to Natland, (iii)
reversed the trial court's award of approximately $.4 million plus pre-judgment
interest thereon in the amount of approximately $.5 million plus post-judgment
interest and (iv) remanded the case for a new trial on one remaining title
claim. All parties have filed appeals and are awaiting a decision by the Texas
Supreme Court as to whether or not it will hear the appeals. Until all
appellate rights available to the parties have been exhausted, counsel is
unable to predict the likelihood of a successful outcome. However, should the
Court of Appeals' ruling be upheld, the case will be remanded for a new trial
on limited issues which may favor the possibility of a successful outcome by
Natland, NS Land and the Company. The Company has reserved $.9 million in its
financial statements in connection with the matter and as a result of the trial
court's decision, and the Note has been fully reserved on the Company's books.
Detroit Coke Corporation v. NKK Chemical USA, Inc.
On October 4, 1991, Detroit Coke Corporation ("Detroit Coke") filed a lawsuit
against NKK Chemical USA, Inc. ("NKK Chemical") and the Company in the United
States District Court for the Eastern District of Michigan, Southern Division,
alleging damages in excess of $160 million arising under coal and coke purchase
and sale agreements among the parties and a subsidiary of the Company. Detroit
Coke alleges that the defendants supplied it with defective coal and coal
blends, which caused damage to its coke making facility and environmental
problems, thereby forcing the shutdown of its facility. On July 2, 1992, the
action was transferred to the United States District Court for the Western
District of Pennsylvania. In October 1992,
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Detroit Coke added a new defendant, Trans-Tech Corporation, and claimed an
additional $1.4 million allegedly due for coke and coke oven gas sales. While
the Company has denied all the allegations of Detroit Coke and is defending
this action, because the allegations have not yet been fully investigated, it
is not possible at this stage of the litigation to make an assessment of the
outcome of this case.
Donner-Hanna Coke Joint Venture
Hanna Furnace Corporation ("Hanna"), a wholly-owned subsidiary of the
Company, was a 50% participant, along with LTV Steel Company, Inc. ("LTV"), in
the Donner-Hanna Coke Joint Venture ("Donner-Hanna") which ceased its coke
making operations in 1982. LTV filed a petition in July 1986 with the United
States Bankruptcy Court for the Southern District of New York for relief under
Chapter 11 of the Bankruptcy Code, and, with the approval of the Bankruptcy
Court, rejected the Donner-Hanna-Coke Joint Venture Agreement. As a result of
LTV's actions, Donner-Hanna has failed to make its annual minimum pension
contributions to the trustee of its salaried and hourly pension plans (the
"Plans") for each of the plan years 1985 through 1992 in the aggregate amount
of approximately $7.2 million. The Company estimates the 1993 minimum
contribution to be $.7 million, which also has not been made. The Company has
fully reserved for these amounts at December 31, 1993. The total unfunded
liability of the Plans was determined to be $15.5 million on May 20, 1993, for
purposes of settling Hanna's bankruptcy claim against LTV. Since July 1991, the
Pension Benefit Guaranty Corporation (the "PBGC") has funded the monthly
pension benefits under the hourly pension plan. On August 13, 1993, the
Internal Revenue Service assessed Hanna, as a general partner of Donner-Hanna,
approximately $2.7 million for excise taxes (including interest through August
31, 1993) and penalties for plan years 1985 through 1991 arising from the
failure to meet minimum funding standards for the Plans. In November 1993,
Hanna contributed approximately $1.2 million to the salaried plan, representing
proceeds from the sale of LTV stock received for Hanna's claim in the LTV
bankruptcy proceeding. On December 30, 1993, the Pension Benefit Guarantee
Corporation ("PBGC") notified Hanna and the Pension Committee for the Plans
that the PBGC was terminating the hourly plan retroactive to July 1, 1991, and
was terminating the salaried plan as of December 31, 1993. The PBGC has
submitted a proposed Termination Agreement which is currently under review. The
PBGC has indicated that it may seek to hold the Company liable for the unfunded
liability of the Plans. Although the Company believes that under applicable law
Hanna is solely liable and the Company has valid defenses to any such action by
the PBGC, the Company is unable to predict with certainty the final outcome of
any such action by the PBGC.
Management believes that the final disposition of the Baker's Port, Detroit
Coke and Donner-Hanna Coke matters will not have a material adverse effect on
the Company's financial condition.
ENVIRONMENTAL MATTERS
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar state superfund statutes generally
impose joint and several liability on present and former owners and operators,
transporters and generators for remediation of contaminated properties
regardless of fault. Currently, an inactive site located at the Great Lakes
Division facility is listed on the Michigan Environmental Response Act Site
List, but remediation activity has not been required by the Michigan Department
of Natural Resources ("MDNR"). In addition, the Company and certain of its
subsidiaries are involved as a potentially responsible party ("PRP") at a
number of off-site CERCLA or state superfund site proceedings. At several of
these sites, any remediation costs incurred by the Company would constitute
Weirton liabilities for which NII is required to indemnify the Company or other
environmental liabilities for which NII has agreed to indemnify the Company.
The more significant of these matters are described below.
Ilada Energy Company Site. The Company and certain other PRPs have performed
a removal action pursuant to an order issued by the EPA under Section 106 of
CERCLA at this waste oil/solvent reclamation site located in East Cape
Girardeau, Illinois. The Company received a special notice of liability with
respect
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to this site on December 21, 1988. The Company believes that there are
approximately sixty-three PRPs identified at such site. Pursuant to an
Administrative Order of Consent ("AOC"), the Company and other PRPs are
currently performing a remedial investigation and feasibility study at such
site to determine whether the residual levels of contamination of soil and
groundwater remaining after the removal action pose any threat to either human
health or the environment and therefore whether or not the site will require
further remediation. During the remedial investigation and feasibility study, a
floating layer of material, which the Company believes to be aviation fuel, was
discovered above the groundwater. The Company does not know the extent of this
contamination. Furthermore, the Company believes that this material is not
considered to be a hazardous substance as defined under CERCLA. As a result,
the Company is unable to estimate its potential liability. To date, the Company
has paid approximately $2 million for work and oversight costs.
Buck Mine Complex. This is a proceeding involving a large site, called the
Buck Mine Complex, two discrete portions of which were formerly owned or
operated by a subsidiary of the Company. This subsidiary was subsequently
merged into the Company. The Company received a notice of potential liability
from the MDNR with respect to this site on June 24, 1992. The Company's
subsidiary had conducted mining operations at only one of these two parcels and
had leased the other parcel to a mining company for numerous years. The MDNR
alleges that this site discharged and continues to discharge heavy metals into
the environment, including the Iron River. Because the Company and
approximately eight other PRPs have declined to undertake a remedial
investigation and feasibility study, the MDNR has advised the Company that it
will undertake the investigation at this site and charge the costs thereof to
those parties ultimately held responsible for the cleanup. The MDNR has orally
advised the Company that the cost of the remedial investigation and feasibility
study and the remediation at this site will be approximately $250,000, which
cost will be allocated among the parties ultimately held responsible. The
Company does not have complete information regarding the relationship of the
other PRPs to the site and consequently, the Company is unable to estimate its
potential liability, if any, in connection with this site.
Port of Monroe Site. In February 1992, the Company received a notice of
potential liability from the MDNR as a generator of waste materials at this
landfill. The Company believes that there are approximately eighty other PRPs
identified at this site. The Company's records indicate that it sent some
material to the landfill. It is the Company's understanding that the remedial
investigation and feasibility study for this site is presently being conducted.
The Company does not yet have sufficient information regarding the nature and
extent of contamination at such site and the nature and extent of the wastes
that the other PRPs have sent to the site to estimate its potential liability,
if any, in connection with the site.
Hamtramck Site. In January 1993, the City of Hamtramck filed a complaint
against the Sherwin-Williams Company and six other defendants seeking
contribution of costs incurred in connection with the remediation of certain
property located in Hamtramck, Michigan. In February 1993, the Sherwin-Williams
Company filed a third party complaint against the Company and seven other third
party defendants seeking contribution in connection with the site. The
complaint alleges that the Company's Great Lakes Division engaged a third party
waste oil hauler and processor that operated a tank farm at the site, to haul
and/or treat some of the Division's waste oil. The Company entered into an
agreement with the City of Hamtramck in 1983 pursuant to which the Company,
without admitting liability, contributed to the funding of the cleanup of the
tank farm, in return for which the City agreed to indemnify the Company for any
releases. The Company has notified the City of this proceeding, and the City
has agreed to defend and indemnify the Company in this matter. The Company is
not aware of how many other parties are involved in this proceeding, and what,
if any, potential liability the Company may have. However, the Company believes
that whatever liability it may ultimately be assessed will be paid for by the
City of Hamtramck.
Martha C. Rose Chemicals Superfund Site. This proceeding involves a former
PCB storage, processing and treatment facility located in Holden, Missouri. The
Company received an initial request for information with respect to this site
on December 2, 1986. The Company believes that there are over 700 PRPs
identified at this site. The Company believes that it sent only one empty PCB
transformer there. In July 1988, the Company entered into a Consent Party
Agreement with the other PRPs and paid $48,134 in connection with
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the remediation of such site. A record of decision selecting the final remedial
action and an order pursuant to Section 106 of CERCLA requiring certain PRPs,
not including the Company, to implement the final remedy have been issued by
the EPA. To date, the PRP steering committee has raised approximately $35
million to pay for past removal actions, the remedial investigation and
feasibility study and the final remedial action. While there can be no
assurances, the Company believes that this amount is sufficient to cover such
costs. However, if such costs were to exceed $35 million, the Company does not
expect that additional payments required by it would be significant.
Springfield Township Site. This is a proceeding involving a disposal site
located in Springfield Township, Davisburg, Michigan in which approximately
twenty-two PRPs have been identified. The Company received a general notice of
liability with respect to this site on January 23, 1990. The Company and eleven
other PRPs have entered into AOCs with the EPA for the performance of partial
removal actions at such site and reimbursement of past response costs to the
EPA. The Company's share of costs under the AOCs was $48,000. The PRPs are
currently negotiating with the EPA regarding the final remedial action at such
site. The EPA and the PRP steering committee have estimated that the cost to
implement the final remedy is approximately $33 million and $20 million,
respectively, depending upon the final remedy. The Company is currently
negotiating with the other PRPs with respect to its share of such cost and has
offered to pay $175,000 in connection with the final remedy. On November 10,
1993, the EPA issued a unilateral order pursuant to Section 106 of CERCLA
requiring the PRP steering committee to implement the groundwater portion of
the final remedy. The members of the PRP steering committee have entered into
an agreement among themselves for the implementation of the groundwater portion
of the final remedy. Subject to a final determination by the EPA as to what
must be included in the groundwater portion of the final remedy, a preliminary
estimate by the PRP steering committee of the cost of such work is
approximately $300,000. Additionally, in response to a demand letter from the
MDNR, the PRP steering committee and the MDNR have negotiated a preliminary
agreement pursuant to which MDNR will be reimbursed approximately $700,000 for
its past response costs. The Company has recorded its estimated liability for
this matter.
Rasmussen Site. The Company and nine other PRPs have entered into a Consent
Decree with the EPA in connection with this disposal site located in
Livingston, Michigan. The Company received a general notice of liability with
respect to this site on September 27, 1988. The Company believes that there are
approximately twenty-three PRPs at this site. A record of decision selecting
the final remedial action for this site was issued by the EPA in March 1991.
The PRP steering committee has estimated that remediation costs are
approximately $18.5 million. Pursuant to a participation agreement among the
PRPs, the Company's share of such costs is approximately $420,000, of which
approximately $327,000 has been accrued by the Company and remains to be paid.
Berlin and Farro Liquid Incineration Site. The Company has been identified as
a generator of small amounts of hazardous materials allegedly deposited at this
industrial waste facility located in Swartz Creek, Michigan. The Company
received an initial request for information with respect to this site on
September 19, 1983. The Company believes that there are approximately 125 PRPs
at this site. A record of decision selecting the final remedial action for this
site was issued by the EPA in September 1991. The EPA and the PRP steering
committee have estimated that the cost of the selected remedy is approximately
$8 million and $10.5 million, respectively. A third-party complaint has been
filed against the Company by three PRPs for recovery of the EPA's past and
future response costs. The Company has entered into a consent decree with the
EPA which was lodged with the court on February 25, 1994. Pursuant to such
consent decree the Company's share of liability will be approximately $105,000.
In addition, the terms of the proposed consent decree provide that settling
defendants who are plaintiffs in the above-referenced cost recovery action will
execute and file a dismissal with prejudice as to their claims against the de
minimis settling defendants, including the Company. In addition, the MDNR has
demanded that the Company reimburse the state for its past response costs
incurred at this site. In July 1993, the MDNR offered and the Company accepted
a "de minimis" buyout settlement of the state's claims for approximately
$1,500. The Company has recorded its estimated liability for this matter.
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NII Sites.
Remediation costs incurred by the Company at the following sites constitute
Weirton Liabilities or other environmental liabilities for which NII has agreed
to indemnify the Company: the Swissvale Site, Swissvale, Pennsylvania; Buckeye
Site, Bridgeport, Ohio; Lowry Landfill, Aurora, Colorado; and Weirton Steel
Corporation Site, Weirton, West Virginia. The Company was notified of potential
liability with respect to each of these sites as follows: the Swissvale Site--
February 1985; Buckeye Site--September 1991; Lowry Landfill--December 1990; and
Weirton Steel Corporation Site--January 1993. In accordance with the terms of
an agreement between the Company and NII, in January 1994, NII paid the Company
$10 million as an unrestricted prepayment for environmental obligations which
may arise after such prepayment and for which NII has previously agreed to
indemnify the Company. Since NII retains responsibility to indemnify the
Company for any remaining environmental liabilities arising before such
prepayment or arising after such prepayment and in excess of $10 million, these
environmental liabilities are not expected to have a material adverse effect on
the Company's liquidity. However, the failure of NII to satisfy any such
indemnity obligations could have a material adverse effect on the Company's
liquidity.
The Company, Earth Sciences, Inc. and Southwire Company are general partners
in the Alumet Partnership ("Alumet"), which has been identified by the EPA as
one of approximately 260 PRPs at the Lowry Landfill Superfund Site. In the
August 1993 proposed plan, the EPA has estimated the overall discounted costs
for implementing the selected remedial action to be approximately $98 million.
Based on information received by the Company, it appears that Alumet may have
contributed approximately 3.8% of the overall volume of industrial materials
sent to this site. Alumet has presented information to the EPA in support of
its position that the material it sent to this site is not a hazardous
substance. To date, however, the EPA has rejected this position, and on
November 15, 1993, Alumet received a demand letter from the EPA requesting
approximately $15.3 million for its past response costs incurred as of the date
of the letter. The Company believes that the same demand letter was sent to all
PRPs that sent over 300,000 gallons of waste to the site. The Company does not
have sufficient information to estimate its portion of any liability resulting
from the $15.3 million demand. The owners and operators of the Lowry Landfill--
the City and County of Denver, Waste Management of Colorado, Inc. and Chemical
Waste Management, Inc.--are performing the remediation activities at the site.
The City and County of Denver (the "Plaintiffs") in December 1991 filed a
complaint against 40 of the PRPs seeking reimbursement for past and future
response costs incurred by the Plaintiffs at the Lowry Landfill site.
Subsequently, the Plaintiffs reached a confidential settlement agreement with
Earth Sciences, Inc. and unsuccessfully attempted to add Alumet as a third-
party defendant. In June 1993, Alumet received a settlement demand from the
owners and operators of the Lowry Landfill for response costs associated with
Alumet's wastes that were not covered by the earlier confidential settlement
agreement. The Company believes that whatever liability it may be ultimately
assessed will be covered by NII's indemnity obligations. Because this is a
complex site with numerous operable units, PRPs and different types of wastes,
and because remediation activities at this site are occurring in various
stages, the Company is unable to estimate its potential liability at this site.
In connection with the Buckeye Site, the Company and thirteen other PRPs have
entered into an AOC with the EPA to perform a remedial design. The Company's
allocated share for the remedial design, as established by a participation
agreement for the remedial design executed by the PRPs, is 4.63%. The EPA and
the PRP steering committee have estimated the cost for the remedial design to
be approximately $3 million. The EPA has estimated that the total cost for
remediation activities at this site is approximately $50 million. The PRPs are
currently negotiating with the EPA to reduce the scope of the remediation
activities at the site. Additionally, the Company and the other thirteen PRPs
are discussing an additional participation agreement and allocation governing
the costs of the final remedial action and are continuing to identify other
PRPs. The Company believes that its share of the final remedial action costs
will not exceed 4.63 percent.
In January 1993, the Company was notified that the West Virginia Division of
Environmental Protection (the "WVDEP") had conducted an investigation at a site
in Weirton, West Virginia which was formerly owned by the Company's Weirton
Steel Division and is currently owned by Weirton Steel Corporation. The
17
<PAGE>
WVDEP alleged that samples taken from four groundwater monitoring wells located
at this site contained elevated levels of contamination. Weirton Steel
Corporation has agreed to cooperate with the WVDEP with respect to conducting a
ground water monitoring program at the site. The Company does not have
sufficient information to estimate its potential liability, if any, at this
site.
The Company has been named as a third-party defendant in a governmental
action for reimbursement of EPA's response costs in connection with the
Swissvale Site. The Company understands that on December 2, 1993, the EPA and
the original defendants reached a tentative settlement agreement regarding
EPA's cost recovery claim for $4.5 million. Pursuant to that tentative
settlement agreement, the original defendants will pay a total of $1.5 million.
The original defendants have requested that the eighteen third-party
defendants, including the Company, pay a total of $375,000. The Company
believes that its share should be less than $25,000.
Other.
The Company and its subsidiaries have been conducting steel manufacturing and
related operations at numerous locations, including their present facilities,
for over sixty years. Although the Company believes that it has utilized
operating practices that were standard in the industry at the time, hazardous
materials may have been released on or under these currently- or previously-
owned sites. Consequently, the Company potentially may also be required to
remediate contamination at some of these sites. The Company does not have
sufficient information to estimate its potential liability in connection with
any potential future remediation. However, the Company believes that if any
such remediation is required, it will occur over an extended period of time. In
addition, the Company believes that many of these sites may also be subject to
indemnities by NII to the Company.
In addition to the aforementioned proceedings, the Company is or may be
involved in proceedings with various regulatory authorities which may require
the Company to pay various fines and penalties relating to violations of
environmental laws and regulations, comply with applicable standards or other
requirements or incur capital expenditures to add or change certain pollution
control equipment or processes.
During 1992, the Wayne County Air Pollution Control Department (the "WCAPCD")
issued 37 notices of violation to the Company in connection with particulate
emissions at the basic oxygen furnace shop and the ladle metallurgy facility
servicing the Great Lakes Division. In 1993, approximately 42 additional
notices of violations have been issued to the Company in connection with
alleged exceedances of particulate emissions standards covering various process
and fugitive emissions sources. The Company is currently negotiating with the
WCAPCD with respect to any potential liability that may result from the notices
of violations. The Company is not yet able to estimate its liability with
respect to these alleged violations.
National Mines Corporation ("NMC"), a wholly-owned subsidiary of the Company,
owns certain properties in West Virginia and Kentucky where mining operations
were conducted by third-party contract miners. In connection with such
operations, such contract miners were required to comply with applicable
Federal and state mining laws (including conducting reclamation activities at
such properties). However, since many of these contract miners allegedly failed
to comply with such laws or to reclaim these properties, NMC has been faced
with various claims as owner of such properties. NMC has entered into a
settlement agreement with the State of Kentucky which will require NMC to pay
$525,000 of the $1.6 million in civil penalties assessed against NMC's contract
miners and require NMC to perform reclamation of various mining sites operated
by its contract miners. The agreed upon reclamation was completed at a cost of
approximately $100,000. The payment of $525,000, which has been accrued by the
Company, will be made over 24 months, consisting of an initial payment of
$125,000 and two annual payments of $200,000 each.
In September 1993, the Indiana Department of Environmental Management
("IDEM") issued a Notice of Violation to the Company's Midwest Division
alleging, among other things, that (1) the Division had failed to comply with
enumerated provisions of its Hazardous Waste Management Permit (the "Permit")
for its
18
<PAGE>
Greenbelt Landfill; (2) the Division was conducting operations at its plant in
violation of specified IDEM regulations; and (3) certain areas of the plant had
experienced releases of solid or hazardous waste that should be prevented as
part of a plan for preventative maintenance. IDEM demanded $351,875 in civil
penalties. After extensive negotiations, without admission of any liability,
the Company entered into an Agreed Order with IDEM in October 1993 which
requires the Division to put certain compliance procedures in place and perform
certain activities pursuant to the Permit, submit and implement a preventative
maintenance program at certain areas of the plant and pay a civil penalty of
$150,000. All such actions have been completed and a civil penalty of $150,000
has been paid.
In connection with certain outfalls located at the Great Lakes Division
facility, including the outfall at the 80-inch hot strip mill, the U.S. Coast
Guard issued certain penalty assessments in 1992, three of which totalling
$8,000 have been accrued by the Company and are under appeal. Depending upon
the results of the pending challenges, there may be further assessments. The
MDNR, in April 1992, also notified the Company of a potential enforcement
action alleging approximately 63 exceedances of limitations at the outfall at
the 80-inch hot strip mill. The Company requested the MDNR to provide more
information concerning these exceedances. In April 1993, the MDNR identified
the dates of the alleged exceedances, but no further action has taken place.
In connection with certain of these proceedings, the Company has only
commenced investigation or otherwise does not have sufficient information to
estimate its potential liability, if any. Although the outcomes of the
proceedings described above or any fines or penalties that may be assessed in
any such proceedings, to the extent that they exceed any applicable reserves,
could have a material adverse effect on the Company's results of operations for
the applicable period, the Company has no reason to believe that any such
outcomes, fines or penalties, whether considered individually or in the
aggregate, will have a material adverse effect on the Company's financial
condition.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Class B Common Stock is listed on the New York Stock Exchange (the
"NYSE") and traded under the symbol "NS." The following table sets forth for
the periods indicated the high and low sales prices of the Class B Common Stock
on a quarterly basis as reported on the NYSE Composite Tape. Prior to March 30,
1993, the Company did not have any publicly traded shares.
<TABLE>
<CAPTION>
SALE PRICE
---------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1993
First Quarter................................................. $15 3/8 $14
Second Quarter................................................ 20 3/8 14
Third Quarter................................................. 20 5/8 10 7/8
Fourth Quarter................................................ 13 3/8 10 3/8
</TABLE>
As of December 31, 1993, there were approximately 45 registered holders of
the Company's Class B Common Stock.
The Company has not paid dividends on its Common Stock since 1984, with the
exception of an aggregate dividend payment of $6.7 million in 1989. The Company
is currently prohibited from paying cash dividends on its Common Stock,
including the Class B Common Stock, by covenants contained in certain of the
Company's financing arrangements. In the event the payment of dividends is not
prohibited in the future by such covenants, the decision whether to pay
dividends on the Common Stock will be determined by the Board of Directors in
light of the Company's earnings, cash flows, financial condition, business
prospects and other relevant factors. Holders of Class A Common Stock and Class
B Common Stock will be entitled to share ratably, as a single class, in any
dividends paid on the Common Stock. In addition, dividends with respect to the
Common Stock are subject to the prior payment of cumulative dividends on any
outstanding series of Preferred Stock, including the Series A Preferred Stock
and Series B Preferred Stock.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER TON DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $2,419 $2,373 $2,330 $2,508 $2,576
Cost of products sold.................. 2,254 2,107 2,103 2,203 2,233
Depreciation, depletion and amortiza-
tion.................................. 137 114 117 117 103
------ ------ ------ ------ ------
Gross profit........................... 28 152 110 188 240
Selling, general and administrative.... 137 133 139 145 146
Unusual items.......................... 111 37 111 -- --
Income (loss) from operations.......... (218) (12) (131) 57 108
Financing costs (net).................. 62 62 59 31 21
Income (loss) before income taxes, ex-
traordinary items and cumulative
effect of accounting changes.......... (280) (75) (189) 26 87
Extraordinary credit (charge).......... -- (50) -- 3 23
Cumulative effect of accounting
changes............................... (16) 76 -- -- --
Net income (loss) applicable to Common
Stock................................. (272) (66) (207) 13 83
Per share data applicable to Common
Stock:
Income (loss) before extraordinary
items and cumulative effect of
accounting changes.................. (7.55) (3.61) (8.11) .32 1.77
Net income (loss).................... (8.04) (2.58) (8.11) .43 2.45
Cash dividends paid.................. -- -- -- -- .20
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............. $ 5 $ 55 $ 64 $ 165 $ 83
Working capital ....................... 27 74 120 256 144
Net property, plant and equipment...... 1,399 1,395 1,249 1,225 1,064
Total assets........................... 2,304 2,189 1,986 2,105 1,807
Long-term obligations and related party
indebtedness due within one year...... 28 33 32 39 26
Long-term obligations and related party
indebtedness.......................... 674 662 486 434 281
Redeemable Preferred Stock--Series B... 68 138 141 145 --
Stockholders' equity................... 190 327 393 599 733
Total debt and redeemable preferred
stock as a percent of total capital-
ization............................... 80.2% 71.8% 62.6% 50.8% 29.5%
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Shipments (net tons, in thousands) .... 5,005 4,974 4,906 4,876 4,957
Raw steel production (net tons, in
thousands) ............................ 5,551 5,380 5,247 5,735 5,394
Effective capacity utilization......... 100.0% 100.5% 92.5% 97.6% 96.7%
Continuously cast percentage........... 100.0% 100.0% 99.8% 85.4% 88.7%
Liquid steel to finished prime product
yield................................. 79.6% 80.0% 79.6% 76.4% 78.5%
Manhours per net ton shipped........... 3.96 4.03 4.27 4.63 4.61
Number of employees (year-end)......... 9,490* 10,299 11,176 11,717 12,106
Capital investments.................... $ 161 $ 284 $ 178 $ 286 $ 153
Operating profit (loss) per net ton
shipped
excluding unusual items .............. $ (21) $ 5 $ (4) $ 12 $ 22
Common shares outstanding at year end
(in thousands)........................ 36,361 25,500 25,500 29,750 34,000
</TABLE>
- --------
*The number of employees was reduced by 579 in 1993 as a result of the
temporary idling of NSPC.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During 1993, the Company experienced operating problems which were the result
of a combination of unusual factors. Early in the year, the Company suffered an
explosion and fire at its electrolytic galvanizing line. At the same time,
demand from the automotive market for ultra-low carbon steel used in the
production of coated products was rapidly rising. As a result, the Company
began to experience difficulties in attaining on time deliveries for such
steel. In an attempt to meet its commitment to customer service, the Company
rapidly expanded production of ultra-low carbon steels, causing operating
inefficiencies and leading to the generation of non-prime products.
Additionally, the Company purchased steel and services from outside providers
to meet this increased demand, resulting in higher production costs.
Concurrently, the Company completed the construction and start-up of several
new facilities such as the DNN joint venture, the rebuild of the No. 5 coke
oven battery and the No. 5 pickle line, which caused some disruption of
existing operations. These operational problems, along with measures taken in
preparation for a potential work stoppage at the Company's steel divisions and
corporate headquarters, were among the more significant events contributing to
higher costs in 1993.
In the fourth quarter of 1993, management initiated a number of steps to
improve quality and delivery performance. As a first step, the Company made key
management changes at two of its three Divisions along with a number of other
personnel changes. Secondly, management intentionally reduced its 1993 fourth
quarter order book to improve delivery performance. The Company activated a
number of multi-disciplined teams to focus on solving production problems.
Also, at the Company's request, NKK dispatched several technical improvement
teams to aid in the investigation and to propose corrective action for the
operating problems.
Management anticipates that its results for 1994 will be favorably impacted
by the $15 per ton price increase effective January 3, 1994 on all new spot
market orders for hot rolled, cold rolled and coated products. The Company's
ability to successfully implement such price increase is subject to, among
other things, the strength of the Company's principal customer markets and
general economic conditions. In 1993, approximately 40% of the Company's
shipments, and a slightly higher percentage of net sales, were covered by sales
contracts with a duration of 12 months or longer. To the extent that the
Company is successful in implementing the announced price increase, such
increase will not be reflected in sales made pursuant to such contracts prior
to their expiration.
On January 24, 1994, the United States Supreme Court denied the Bessemer &
Lake Erie Railroad's ("B&LE") petition for certiorari in the Iron Ore Antitrust
Litigation, thus sustaining the Company's judgment against the B&LE. On
February 11, 1994, the Company received approximately $111 million, including
interest, in satisfaction of this judgment. Pursuant to the terms of the 1993
Settlement Agreement, approximately $11 million of the proceeds will be
deposited into the VEBA Trust established to prefund the Company's OPEB
(defined below) obligation with respect to USWA represented employees. Of the
remaining proceeds, the Company plans to use approximately $40 million to repay
outstanding indebtedness and the remaining proceeds will be used for working
capital and general corporate purposes. The Company will recognize this gain in
the first quarter of 1994.
Anticipated First Quarter 1994 Results
Excluding the effect of the gain from the B&LE judgment, the Company
currently expects to report a net loss for the first quarter of 1994 due to a
slight seasonal shift in the Company's product mix and the negative impact of
particularly severe winter weather on the Company's operations. The ability of
the Company to return to profitability is dependent upon several managerial and
operational changes implemented to reduce costs, improve productivity and
achieve an improved product mix. Performance will also be affected by factors
outside the Company's control, including the level of steel prices, domestic
steel demand and the level of the U.S. dollar.
22
<PAGE>
RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Net Sales
Net sales for 1993 increased by 1.9% to $2,418.8 million, due primarily to
increases in volume and realized selling prices, coupled with a favorable shift
in product mix. Steel shipments in 1993 were 5,005,000 tons, up 0.6% from
4,974,000 tons in 1992. Raw steel production increased to 5,551,000 tons, a
3.2% increase from the 5,380,000 tons produced in 1992.
Cost of Products Sold
Cost of products sold of $2,254.0 million reflects an increase of $147.2
million compared to the same period in 1992. This increase was largely the
result of the Company's implementation of Statement of Financial Accounting
Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions"
("SFAS 106" or "OPEB"), effective January 1, 1993. The excess of the
postretirement benefit expense under SFAS 106 over the former pay-as-you-go
basis was approximately $59.5 million in 1993. Additionally, $25.3 million of
present value interest relating to postretirement benefit liabilities and
certain Weirton benefit liabilities, previously recorded for facility sales and
restructurings and charged to interest expense, was charged to cost of products
sold. The remaining portion of the increase can be attributed primarily to
operational and economic factors, as discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 2.9% from $132.8
million in 1992, to $136.7 million in 1993, primarily due to legal costs
incurred in pursuing unfair trade litigation.
Depreciation, Depletion and Amortization
Depreciation expense for 1993 increased by $22.6 million, or 19.7% as
compared to 1992, primarily as a result of the completion of the rebuild of the
No. 5 coke oven battery at the Great Lakes Division in November 1992.
Unusual Items Related to the Temporary Idling of NSPC
The Company formerly purchased a significant portion of its iron ore pellet
requirements from NSPC. On August 1, 1993, the USWA went on strike against NSPC
over demands for a new labor contract at NSPC. In October 1993, NSPC announced
its intention to temporarily idle the facility. During the period from August
1, 1993 to date, the Company has secured its pellet requirements from outside
sources. The Company has entered into agreements that will satisfy its iron ore
pellet requirements through 1994 at a lower cost than could be obtained by
operating NSPC. It is management's intention to secure long term contracts for
the purchase of iron ore pellets for a period of one to three years.
The Company recorded an unusual charge of $108.6 million during the fourth
quarter of 1993 which is comprised of employee benefits related charges of
$90.9 million (principally pensions and OPEB), taxes of $7.9 million and
miscellaneous other costs of $9.8 million relating to the three year idle
period. Management has not made a final decision regarding the permanent
shutdown of NSPC; however, such a decision would result in additional charges
which management currently estimates to be approximately $160 million.
Financing Costs
Net financing costs decreased by $0.3 million from 1992 to 1993. Interest
expense associated with the financing of the No. 5 coke oven battery rebuild
was $25.1 million in 1993. However, this was largely offset by a $20.5 million
reduction in financing costs for present value interest expense attributable to
postretirement benefits which are now being charged to cost of products sold.
23
<PAGE>
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), at December 31, 1992. At that time,
available tax planning strategies served as the only basis for determining the
amount of the net deferred tax asset to be recognized. As a result, a full
valuation allowance was recorded, except for the $43 million recognized
pursuant to those tax planning strategies. In 1993, the Company determined it
was more likely than not that sufficient future taxable income would be
generated to justify increasing the net deferred tax asset after valuation
allowance to $80.6 million. Accordingly, the Company recognized an additional
deferred tax asset of $37.6 million in 1993, which had the effect of decreasing
the Company's net loss by a like amount.
Cumulative Effect of Accounting Change
During the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Postemployment
Benefits" ("SFAS 112"), which requires accrual accounting for benefits payable
to inactive employees who are not retired. The cumulative effect as of January
1, 1993 of this change was to decrease net income by $16.5 million or $.49 per
share. The results of operations for the first quarter of 1993 have been
restated to reflect the effect of adopting SFAS 112 at January 1, 1993. The
effect of the change on 1993 income before the cumulative effect of the change
was not material; therefore, the remaining quarters of 1993 have not been
restated.
Adoption of SFAS 106
During the first quarter of 1993, the Company adopted SFAS 106, which
requires the accrual of retiree medical and life insurance costs as these
benefits are earned, rather than recognition of these costs as claims are paid.
At January 1, 1993, the Company calculated its transition obligation to be
$622.1 million with $66.1 million recorded prior to implementation of SFAS 106
in connection with facility sales and restructurings. The Company has elected
to amortize its transition obligation over a period of 20 years. Total
postretirement benefit cost in 1993 was $123.7 million, or $85.6 million
excluding the $38.1 million of curtailment charges related primarily to the
idling of NSPC. Excluding these curtailment charges, the excess of
postretirement benefit expense recorded under SFAS 106 over the Company's
former method of accounting for these benefits was $59.5 million, or $1.08 per
share net of tax.
Discount Rate Assumptions
As a result of a decline in long term interest rates in the United States, at
December 31, 1993, the Company reduced the discount rate used to calculate the
actuarial present value of its accumulated benefit obligation for OPEB by 100
basis points to 7.75% and for pensions by 125 basis points to 7.50%, from the
rate used at January 1, 1993. The effect of these changes did not impact 1993
expense. However, this decline in the discount rate used to calculate the
pension obligation increased the minimum pension liability recorded on the
Company's balance sheet to $134.7 million and increased the related intangible
asset to $128.8 million, with the remaining $5.9 million charged to
stockholders' equity. While the same reduction in the discount rate as of
December 31, 1993 also applies to the actuarial present value of the Company's
OPEB obligation, such reductions do not result in any increase in the recorded
liability or potential charge to equity because of different required
accounting principles.
The Company expects its 1994 pension and OPEB expense to increase by
approximately $27 million and $6 million, respectively, as a result of this
decrease in the discount rate, among other things. Additionally, the Company
anticipates that its pension contributions for the 1994 plan year will increase
by approximately $30 million, primarily attributable to increases in benefits
resulting from the 1993 Settlement Agreement, together with the decrease in the
discount rate.
24
<PAGE>
Comparability of Earnings Per Share
While the Company has chosen to amortize its SFAS 106 transition obligation
over twenty years, certain of the Company's competitors have chosen to
immediately recognize their respective SFAS 106 transition obligations. As a
result, any earnings per share ("EPS") comparison between the Company and these
competitors must be adjusted for the per share adverse impact of this
amortization. Based upon weighted average shares outstanding for the year ended
December 31, 1993, the Company's after tax EPS was negatively impacted by
$0.51.
USWA Agreement
On August 27, 1993, the 1993 Settlement Agreement between the Company and the
USWA was ratified by union members of the Company's three steel divisions and
corporate headquarters. The 1993 Settlement Agreement, effective August 1, 1993
through July 31, 1999, protects the Company and the USWA from a strike or
lockout for the duration of the agreement. Either the Company or the USWA may
reopen negotiations, except with respect to pensions and certain other matters,
after three years, with any unresolved issues subject to binding arbitration.
The Company estimates the additional annual cost resulting from the 1993
Settlement Agreement to be approximately $25 million per year through 1996.
However, there is the potential that these higher costs may be reduced by
productivity gains which are difficult to quantify. The Company is unable to
estimate the impact of the 1993 Settlement Agreement beyond 1996 since it then
may be reopened as discussed above.
RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1992 AND 1991
Net Sales
Net sales for 1992 increased by 1.9% to $2,373.3 million, due primarily to a
shift in product mix from lower priced export, secondary and slab sales to
higher priced coated products, coupled with an increase in steel shipments. A
general decline in selling prices was partially offset by an improvement in
product mix. Steel shipments in 1992 were 4,974,000 tons, up 1.4% from
4,906,000 tons in 1991. The increase in shipments reflected modest improvements
in the domestic steel market in 1992. Raw steel production increased to
5,380,000 tons, a 2.5% increase from the 5,247,000 tons produced in 1991.
Cost of Products Sold
The Company's cost of products sold as a percentage of net sales decreased
from 90.2% in 1991 to 88.8% in 1992. This decrease was primarily the result of
a Company-wide emphasis on cost-reduction programs which began in the second
quarter of 1991 and continued throughout 1992 and was achieved despite an
average $.50 per hour wage increase which became effective January 1, 1992
under the Company's prior labor agreement with the USWA and the continuing
escalation in health care costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by 4.7% from $139.3
million in 1991 to $132.8 million in 1992 primarily as a result of the
Company's cost reduction programs.
Unusual Items
In 1992, the Company recorded unusual charges aggregating $37.0 million
relating principally to a pension window and the Company's decision to exit the
coal mining business. A charge of $13.3 million was recognized relating to a
1992 pension window as part of the consolidation of certain staff functions and
the relocation of the Company's corporate offices to Mishawaka, Indiana from
Pittsburgh, Pennsylvania. The decision to relocate was made in order to be
closer to the Company's customer base, to consolidate certain staff functions
and to be closer to the Company's steel plants. As a result of management's
decision to exit the coal mining business, an unusual charge of $24.9 million
was recognized in the fourth quarter to reduce certain coal properties to net
realizable value and record postretirement, environmental and other
liabilities.
25
<PAGE>
During 1991, the Company recorded unusual charges which totalled $110.7
million. A charge of $41.5 million was recognized for the estimated costs to be
incurred in conjunction with the consolidation of certain staff functions and
relocation in 1992 of the Company headquarters as described above. A charge of
$25.5 million was recognized relating to the Company's decision to permanently
idle its Mathies coal mine after efforts to obtain third party financing to
reopen the mine after a fire were unsuccessful. Concurrently, the Company
undertook an evaluation of its other coal properties and operations. While no
decision was made during 1991 as to the disposition of these properties, the
net book value of certain of the assets exceeded their net realizable value.
Therefore, a charge of $43.7 million was recognized to reduce certain coal
properties to net realizable value and to recognize postemployment,
environmental and other liabilities.
Financing Costs
Interest and other financial income decreased to $2.0 million, a decrease of
$4.1 million. This decrease was attributable to lower interest rates coupled
with lower average balances of cash and cash equivalents. Interest and other
financial expense was $64.0 million in 1992 compared to $64.8 million in 1991.
Extraordinary Item
During 1992, the Company recorded a charge of $50 million, representing
management's best estimate of the Company's liability for United Mine Workers
of America ("UMWA") beneficiaries under the Rockefeller Amendment. Since the
Company notified the UMWA that it did not intend to renew its labor contract
which expired February 1, 1993, thereby ending the Company's active involvement
in the coal industry, the $50 million charge was recorded as an extraordinary
item in accordance with accounting guidance provided by the Emerging Issues
Task Force. No deferred tax benefits were recognized relating to the $50
million charge generated by the Rockefeller Amendment. Based upon preliminary
assignments from the Secretary of Health and Human Services received during
1993, the Company believes this reserve is adequate.
Cumulative Effect of Accounting Change
During the fourth quarter of 1992, the Company adopted SFAS 109. The Company
formerly accounted for income taxes under the provisions of Accounting
Principles Board Opinion No. 11, "Accounting for Income Taxes." As permitted
under SFAS 109, the Company elected not to restate the financial statements of
prior years. The effect of adopting SFAS 109 as of January 1, 1992 was recorded
as a cumulative effect of a change in accounting method and reduced the
Company's net loss by $76.3 million, or $2.99 per share. The previously
reported net loss for the first quarter of 1992 has been restated and reduced
by $76.3 million. The change did not have an impact on the remaining quarters
of 1992.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity needs arise primarily from capital investments,
principal and interest payments on its indebtedness and working capital
requirements. The Company has satisfied these liquidity needs over the last
three years primarily with funds provided by long-term borrowings, cash
provided by operations and proceeds of the Company's initial public offering
(the "IPO") of Class B Common Stock in 1993. The Company's available sources of
liquidity include a $100 million revolving secured credit arrangement (the
"Revolver"), a $150 million subordinated loan agreement (the "Subordinated Loan
Agreement") and $25 million in uncommitted, unsecured lines of credit (the
"Uncommitted Lines of Credit"). The Company is currently in compliance with all
material covenants of, and obligations under, its Revolver, Subordinated Loan
Agreement, Uncommitted Lines of Credit and other debt instruments. The Company
has satisfied its liquidity needs without extensive use of its credit
facilities.
Cash and cash equivalents totaled $5.3 million and $55.2 million as of
December 31, 1993 and 1992, respectively. Excluding the effect of the IPO, this
represents a decrease of $191.3 million, primarily due to costs incurred in
expanding the Company's properties and equipment. Also, on May 4, 1993 the
Company used $67.8 million of the IPO proceeds to fund the early redemption of
10,000 shares of the Series B Preferred Stock held by NII.
26
<PAGE>
Cash Flows from Operating Activities
For the year ended December 31, 1993, cash provided from operating activities
decreased by $73.2 million compared to 1992, due to the effect of working
capital items, along with a reduction in net income after adjusting for the
effect of non cash items on operations. Changes in working capital items
reduced cash flows by $27.2 million during 1993, as a substantial decrease in
accounts payable was combined with the smaller negative effects of accounts
receivable and accrued liabilities changes. In 1992, working capital items had
a $36.0 million favorable impact on cash flows from operations, due primarily
to the timing of cash disbursement clearings.
Cash Flows from Investing Activities
Capital investments for the years ended December 31, 1993 and 1992 amounted
to $160.7 million and $283.9 million, respectively, which included $31.9
million and $198.4 million related to the complete rebuild of the No. 5 coke
oven battery at the Great Lakes Division. Additionally, in 1993, the Company
spent $58.9 million on the relining of a blast furnace servicing the same
division.
Budgeted capital investments approximating $346.1 million, of which $92.5
million are committed at December 31, 1993, are expected to be made during 1994
and 1995, including the completion of a pickle line servicing the Great Lakes
Division and the relining of a blast furnace servicing the Granite City
Division.
Cash Flows from Financing Activities
In April 1993, the Company completed its IPO of 10,861,100 shares of its
Class B Common Stock, at an offering price of $14 per share, which generated
net proceeds to the Company of approximately $141.4 million. On May 4, 1993,
the Company utilized $67.8 million of the IPO proceeds to fund the early
redemption of 10,000 shares of the Series B Redeemable Preferred Stock (the
"Series B Preferred Stock") held by NII.
Total borrowings for the years ended December 31, 1993 and 1992 amounted to
$40.6 million and $209.7 million, respectively, primarily representing the
remaining financing from a subsidiary of NKK related to the rebuild of the No.
5 coke oven battery at the Great Lakes Division. Correspondingly, cash basis
interest expense increased by $19.7 million from 1992 to 1993 as a result of
the completion of, and commencement of permanent financing for, the No. 5 coke
oven battery.
Sources of Financing
During 1993, the Company utilized $20 million of the proceeds from the IPO to
reduce the amount of construction financing outstanding and the total financing
commitment for a pickle line servicing the Great Lakes Division to $90 million.
As of December 31, 1993, the construction financing was being provided by the
contractor and was not a liability of the Company. In January 1994, upon
completion and acceptance of the pickle line pursuant to the construction
contract, the permanent financing commenced with repayment scheduled to occur
over a fourteen-year period. The pickle line is not subject to the lien under
the Company's First Mortgage Bonds, but is subject to a first mortgage in favor
of the lender.
The Revolver was amended and restated on December 31, 1992 to extend the
expiration date to December 31, 1994. The Revolver permits the Company to
borrow up to $100 million on a short-term basis and provides the Company with
the ability to issue up to $150 million in letters of credit. The Revolver is
secured by the accounts receivable and inventories of the Company. No
borrowings have been outstanding on the Revolver since 1987. At December 31,
1993 and 1992, letters of credit outstanding totaled $113.7 million and $113.6
million, respectively.
The Subordinated Loan Agreement, which was entered into in May 1991 with a
United States subsidiary of NKK, was also extended in December 1992 to an
expiration date of April 1, 1995. The Subordinated Loan Agreement permits the
Company to borrow up to $150 million on an unsecured, short-term basis. The
27
<PAGE>
Revolver requires that the first $50 million in borrowings by the Company in
excess of thirty days must come from the Subordinated Loan Agreement.
Additional amounts borrowed would alternate between the Revolver and the
Subordinated Loan Agreement up to $25 million in each increment. On February 7,
1994, the Company borrowed $20 million under the Subordinated Loan Agreement,
all of which was repaid on February 17, 1994. Prior to this, the last borrowing
on the Subordinated Loan Agreement occurred in 1991, when the Company borrowed
$50 million, all of which was repaid later in that year.
The Uncommitted Lines of Credit permit the Company to borrow up to $25
million on an unsecured, short-term basis for periods of up to thirty days. One
of these arrangements expires on March 31, 1994, while the other has no fixed
expiration date but may be withdrawn at any time without notice. During 1993,
the Company borrowed a maximum of $7.7 million under its Uncommitted Lines of
Credit, which was repaid the following day. No borrowings were outstanding at
December 31, 1993 and 1992. However, in February 1994, the Company borrowed a
maximum of $5.0 million under the Uncommitted Lines of Credit which was repaid
later in the month.
Weirton Liabilities and Preferred Stock
In connection with the Company's June 1990 recapitalization, the Company
received $146.6 million from NII in cash and recorded a net present value
equivalent liability with respect to certain released Weirton benefit
liabilities, primarily healthcare and life insurance. As a result of this
transaction, the Company's future cash flow will decrease as the released
Weirton benefit liabilities are paid. During 1993, such cash payments were
$20.0 million compared to $15.3 million during 1992.
On October 28, 1993, NII converted all of its 3,400,000 shares of Class A
Common Stock to an equal number of shares of Class B Common Stock. During
January 1994, NII sold substantially all of such shares of Class B Common
Stock. As previously agreed, the Company received $10 million of proceeds from
the sale of such shares from NII as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
NII has previously agreed to indemnify the Company. The Company is required to
repay to NII portions of the $10 million to the extent the Company's
expenditures for such environmental liabilities do not reach specified levels
by certain dates over a twenty year period. Since NII retains responsibility to
indemnify the Company for remaining environmental liabilities (i) arising
before such prepayment or (ii) arising after such prepayment and in excess of
$10 million, these environmental liabilities are not expected to have a
material adverse effect on the Company's liquidity. However, the failure of NII
to satisfy any such indemnity obligations could have a material adverse effect
on the Company's liquidity.
In connection with the June 1990 recapitalization, the Series B Preferred
Stock was issued to NII. On May 4, 1993, the Company redeemed 10,000 shares of
Series B Preferred Stock held by NII. These shares were subject to mandatory
redemption on August 5, 1995. Pursuant to the terms of the Series B Preferred
Stock and certain other agreements between the Company and NII, the Company
paid the redemption amount directly to a pension trustee and released NII from
a corresponding amount of NII's indemnification obligations with respect to
certain employee benefit liabilities of the Company retained in connection with
the sale of its Weirton Steel Division.
At December 31, 1993, there were 10,000 remaining shares of Series B
Preferred Stock issued and outstanding, all of which were held by NII. The
Series B Preferred Stock carries annual cumulative dividend rights of $806.30
per share, which equates to approximately an 11% yield. At December 31, 1993
and 1992, $68.0 million and $137.8 million, respectively, of the Series B
Preferred Stock was outstanding.
Dividends on the Series B Preferred Stock are cumulative and payable
quarterly in the form of a release of NII from its obligation to indemnify the
Company for a corresponding amount of the remaining unreleased portion of the
Weirton benefit liabilities to the extent such liabilities are due and owing,
with the balance, if any, payable in cash. The Series B Preferred Stock
dividend permitted release and payment of $10.6 million and $15.4 million of
previously unreleased Weirton benefit liabilities during 1993 and 1992,
respectively, and cash dividends of $1.4 million and $.8 million during 1993
and 1992, respectively, to reimburse NII for an obligation previously incurred
in connection with the Weirton benefit liabilities.
28
<PAGE>
The remaining Series B Preferred Stock is presently subject to mandatory
redemption by the Company on August 5, 2000 at a redemption price of $58.3
million and may be redeemed beginning January 1, 1998 without the consent of
NII at a redemption price of $62.2 million. Based upon the Company's actuarial
analysis, the unreleased Weirton benefit liabilities approximate the aggregate
remaining dividend and redemption payments with respect to the Series B
Preferred Stock and accordingly, such payments are expected to be made in the
form of releases of NII from its obligations to indemnify the Company for
corresponding amounts of the remaining unreleased Weirton benefit liabilities.
Dividend and redemption payments with respect to the Series B Preferred Stock
reduce the Company's cash flow, even though they are paid in the form of a
release of NII from such obligations, because the Company is obligated, subject
to certain limited exceptions, to pay such amounts to the trustee of the
pension plan included in the Weirton benefit liabilities.
If any dividend or redemption payment otherwise required pursuant to the
terms of the Series B Preferred Stock is less than the amount required to
satisfy NII's then current indemnification obligation, NII would be required to
pay such shortfall in cash to the Company. The Company's ability to fully
realize the benefits of NII's indemnification obligations is necessarily
dependent upon NII's financial condition at the time of any claim with respect
to such obligations.
The June 1990 recapitalization agreement also created the Series A Preferred
Stock which carries annual cumulative dividend rights of $806.30 per share,
which equates to an 11% yield. The Series A Preferred Stock is held by NKK and
$36.7 million was outstanding at December 31, 1993 and 1992. Dividends on the
Series A Preferred Stock are paid quarterly in cash and totalled $4 million in
each of the years ended December 31, 1993, 1992 and 1991.
Miscellaneous
At December 31, 1993, obligations guaranteed by the Company approximated
$41.0 million, compared to $16.7 million at December 31, 1992. This increase in
1993 is primarily due to additional borrowings of the Double G Coatings, L.P.
joint venture, 50% of which are separately guaranteed by the Company.
Total debt and redeemable preferred stock as a percentage of total
capitalization increased to 80.2% at December 31, 1993 as compared to 71.8% at
December 31, 1992 as the Company's net loss of $258.9 million more than offset
the effect of the Company's IPO, which increased stockholders' equity by $141.4
million, as well as the early redemption of 10,000 shares of Series B Preferred
Stock.
On January 24, 1994, the United States Supreme Court denied the B&LE's
petition for certiorari, thus sustaining the Company's judgment against the
B&LE. On February 11, 1994, the Company received approximately $111 million,
including interest, in satisfaction of this judgment. Pursuant to the terms of
the 1993 Settlement Agreement, approximately $11 million of the proceeds will
be deposited into the VEBA Trust. Of the remaining proceeds, the Company plans
to use approximately $40 million to repay outstanding indebtedness and the
remaining proceeds will be used for working capital and general corporate
purposes.
ENVIRONMENTAL
The Company's operations are subject to numerous laws and regulations
relating to the protection of human health and the environment. The Company
will incur significant capital expenditures in connection with matters relating
to environmental control and will also be required to expend additional amounts
in connection with ongoing compliance with such laws and regulations,
including, without limitation, the Clean Air Act amendments of 1990. Proposed
regulations establishing standards for corrective action under RCRA and the
Guidance Document may also require further significant expenditures by the
Company in the future. Additionally, the Company is currently one of many
potentially responsible parties at a number of sites requiring remediation. The
Company has estimated that it will incur capital expenditures for matters
relating to environmental control of approximately $9.1 million and $8.0
million for 1994 and 1995, respectively. In addition, the Company expects to
record expenses for environmental compliance, including depreciation, in the
amount of approximately $70 million and $73 million for 1994 and 1995,
respectively. Since environmental laws are becoming increasingly stringent, the
Company's environmental capital expenditures and costs for environmental
compliance may increase in the future.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and financial statement
schedules of the Company are submitted pursuant to the requirements of Item 8:
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young Independent Auditors............................. 31
Statements of Consolidated Income--Years Ended December 31, 1993, 1992
and 1991................................................................ 32
Consolidated Balance Sheets--December 31, 1993 and 1992.................. 33
Statements of Consolidated Cash Flows--Years Ended December 31, 1993,
1992 and 1991........................................................... 34
Statements of Changes in Consolidated Stockholders' Equity and Redeemable
Preferred Stock--Series B--Years Ended December 31, 1993, 1992 and 1991. 35
Notes to Consolidated Financial Statements............................... 36
Schedule V--Property, Plant and Equipment................................ 53
Schedule VI--Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment........................................... 54
Schedule VII--Guarantees of Securities of Other Issuers.................. 55
Schedule VIII--Valuation and Qualifying Accounts......................... 56
Schedule IX--Short-Term Borrowings....................................... 57
Schedule X--Supplementary Income Statement Information................... 58
</TABLE>
30
<PAGE>
REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS
Board of Directors
National Steel Corporation
We have audited the accompanying consolidated balance sheets of National
Steel Corporation and subsidiaries (the "Company") as of December 31, 1993 and
1992, and the related statements of consolidated income, cash flows, and
changes in stockholders' equity and redeemable preferred stock--Series B for
each of the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index at Item 8. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of National Steel Corporation and subsidiaries at December 31, 1993 and 1992,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Note A to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for postretirement and postemployment
benefits, and in 1992 the Company changed its method of accounting for income
taxes.
Ernst & Young
Fort Wayne, Indiana
January 26, 1994, except for the last paragraph of Note S as to which the date
is February 11, 1994
31
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES.............................. $2,418,800 $2,373,317 $2,329,815
Cost of products sold.................. 2,253,972 2,106,743 2,102,520
Selling, general and administrative.... 136,656 132,801 139,345
Depreciation, depletion and amortiza-
tion.................................. 137,500 114,880 117,008
Equity income of affiliates............ (2,160) (5,600) (9,063)
Unusual items.......................... 110,966 36,984 110,700
---------- ---------- ----------
LOSS FROM OPERATIONS................... (218,134) (12,491) (130,695)
Financing costs
Interest and other financial income.. (1,862) (1,995) (6,128)
Interest and other financial expense. 63,647 64,031 64,830
---------- ---------- ----------
61,785 62,036 58,702
---------- ---------- ----------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES.................... (279,919) (74,527) (189,397)
Income tax provision (credit).......... (37,511) 156 118
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES............................... (242,408) (74,683) (189,515)
Extraordinary item..................... -- (50,000) --
Cumulative effect of accounting
changes............................... (16,453) 76,251 --
---------- ---------- ----------
NET LOSS............................... (258,861) (48,432) (189,515)
Less: preferred stock dividends........ (13,364) (17,449) (17,257)
---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON
STOCK........................... $ (272,225) $ (65,881) $ (206,772)
========== ========== ==========
PER SHARE DATA APPLICABLE TO COMMON STOCK:
- ---------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM AND CU-
MULATIVE EFFECT OF
ACCOUNTING CHANGES.................... $ (7.55) $ (3.61) $ (8.11)
Extraordinary item..................... -- (1.96) --
Cumulative effect of accounting
changes............................... (.49) 2.99 --
---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK.... $ (8.04) $ (2.58) $ (8.11)
========== ========== ==========
Weighted average shares outstanding (in
thousands)............................ 33,879 25,500 25,500
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
------
DECEMBER 31,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents............................. $ 5,322 $ 55,220
Receivables, less allowances
(1993--$21,380; 1992--$26,385)....................... 224,709 218,082
Inventories:
Finished and semi-finished products................. 246,285 239,459
Raw materials and supplies.......................... 124,812 132,367
---------- ----------
371,097 371,826
---------- ----------
Total current assets.............................. 601,128 645,128
Investments in affiliated companies..................... 58,278 56,409
Property, plant and equipment
Land and land improvements............................ 221,224 219,593
Buildings............................................. 259,037 291,460
Machinery and equipment............................... 2,816,531 2,775,090
---------- ----------
3,296,792 3,286,143
Less: Allowance for depreciation,
depletion and amortization........................... 1,898,055 1,890,676
---------- ----------
Net property, plant and equipment................. 1,398,737 1,395,467
Deferred income taxes................................... 80,600 43,000
Intangible pension asset................................ 128,765 12,100
Other assets............................................ 36,692 36,412
---------- ----------
TOTAL ASSETS...................................... $2,304,200 $2,188,516
========== ==========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
---------------------------------
<S> <C> <C>
Current liabilities
Accounts payable...................................... $ 242,294 $ 257,217
Salaries and wages.................................... 49,602 47,950
Withheld and accrued taxes............................ 74,444 72,672
Pension and other employee benefits................... 69,679 70,643
Other accrued liabilities............................. 107,556 86,403
Income taxes.......................................... 2,700 2,972
Long-term obligations and related party indebtedness
due within one year.................................. 28,257 33,468
---------- ----------
Total current liabilities......................... 574,532 571,325
Long-term obligations................................... 344,096 352,265
Long-term indebtedness to related parties............... 329,995 309,500
Long-term pension liability ............................ 288,793 120,219
Postretirement benefits other than pensions............. 157,435 66,116
Other long-term liabilities............................. 351,357 304,598
Commitments and contingencies
Redeemable Preferred Stock--Series B.................... 68,030 137,802
Stockholders' equity
Common Stock, par value $.01:
Class A--authorized 30,000,000 shares; issued and
outstanding 22,100,000 shares in 1993 and
25,500,000 shares in 1992.......................... 221 255
Class B--authorized 65,000,000 shares; issued and
outstanding 14,261,100 shares...................... 143 --
Preferred Stock--Series A............................. 36,650 36,650
Additional paid-in capital............................ 360,314 218,991
Retained earnings (deficit)........................... (207,366) 70,795
---------- ----------
Total stockholders' equity.......................... 189,962 326,691
---------- ----------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY................... $2,304,200 $2,188,516
========== ==========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(258,861) $ (48,432) $(189,515)
Adjustments to reconcile net loss to net
cash provided by
operating activities:
Depreciation, depletion and amortization.. 137,500 114,880 117,008
Carrying charges related to facility sales
and plant closings....................... 35,597 30,832 21,511
Unusual items (excluding pensions and
OPEB).................................... 37,900 23,739 107,127
Equity income of affiliates............... (2,160) (5,600) (9,063)
Dividends from affiliates................. 5,765 6,738 10,144
Long-term pension liability............... 51,909 17,443 14,624
Postretirement benefits................... 97,562 -- --
Extraordinary item........................ -- 50,000 --
Deferred income taxes..................... (37,600) -- --
Cumulative effect of accounting changes... 16,453 (76,251) --
Cash provided (used) by working capital
items:
Receivables............................... (6,627) (4,239) (17,220)
Inventories............................... 729 (8,120) 49,947
Accounts payable.......................... (14,923) 72,726 (28,071)
Accrued liabilities....................... (6,336) (24,365) (1,967)
Other....................................... 2,063 (17,193) (4,367)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVI-
TIES................................... 58,971 132,158 70,158
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.. (160,708) (283,941) (178,225)
Proceeds from sale of assets................ 7,182 860 486
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES... (153,526) (283,081) (177,739)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class B Common Stock............ 141,432 -- --
Redemption of Preferred Stock--Series B..... (67,804) -- --
Debt repayments............................. (33,469) (32,450) (121,410)
Borrowings.................................. 84 12,150 4,513
Borrowings from related parties............. 40,500 197,500 162,000
Payment of released Weirton benefit liabili-
ties....................................... (20,001) (15,340) (17,689)
Payment of unreleased Weirton liabilities
and their release in lieu of cash dividends
on Preferred Stock--Series B............... (10,594) (15,356) (16,125)
Dividend payments on Preferred Stock--Series
A.......................................... (4,030) (4,033) (4,031)
Dividend payments on Preferred Stock--Series
B.......................................... (1,461) (777) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVI-
TIES................................... 44,657 141,694 7,258
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS..... (49,898) (9,229) (100,323)
Cash and Cash Equivalents, Beginning of the
Year......................................... 55,220 64,449 164,772
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF THE YEAR.... $ 5,322 $ 55,220 $ 64,449
========= ========= =========
SUPPLEMENTAL CASH PAYMENT INFORMATION:
Interest and other financing costs paid (net
of amounts capitalized).................... $ 51,886 $ 32,224 $ 43,493
Income taxes paid........................... 72 130 1,257
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY AND REDEEMABLE
PREFERRED STOCK--SERIES B
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK REDEEMABLE
-- -- PREFERRED ADDITIONAL RETAINED TOTAL PREFERRED
CLASS CLASS STOCK-- PAID-IN EARNINGS STOCKHOLDERS' STOCK--
A B SERIES A CAPITAL (DEFICIT) EQUITY SERIES B
------ ------ --------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1991................... $ 75 $-- $36,650 $219,171 $ 343,448 $599,344 $144,802
Restatement for 340 for
1 stock split effected
in the form of a stock
dividend............... 180 (180)
Net loss................ (189,515) (189,515)
Amortization of excess
of book value over re-
demption value of Re-
deemable Preferred
Stock--Series B ....... 3,500 3,500 (3,500)
Cumulative dividends on
Preferred Stocks--Se-
ries A
and B.................. (20,757) (20,757)
---- ---- ------- -------- --------- -------- --------
BALANCE AT DECEMBER 31,
1991 .................. $255 $-- $36,650 $218,991 $ 136,676 $392,572 $141,302
Net loss................ (48,432) (48,432)
Amortization of excess
of book value over re-
demption value of Re-
deemable Preferred
Stock--Series B........ 3,500 3,500 (3,500)
Cumulative dividends on
Preferred Stocks--Se-
ries A
and B.................. (20,949) (20,949)
---- ---- ------- -------- --------- -------- --------
BALANCE AT DECEMBER 31,
1992................... $255 $-- $36,650 $218,991 $ 70,795 $326,691 $137,802
Net loss................ (258,861) (258,861)
Redemption of Redeemable
Preferred Stock--Series
B ..................... (67,804)
Amortization of excess
of book value over re-
demption value of Re-
deemable Preferred
Stock--Series B ....... 1,968 1,968 (1,968)
Cumulative dividends on
Preferred Stocks--Se-
ries A
and B ................. (15,332) (15,332)
Issuance of Common
Stock--Class B ........ 109 141,323 141,432
Conversion of 3,400,000
shares of NII Common
Stock--Class A to Com-
mon Stock--
Class B ............... (34) 34
Minimum pension liabili-
ty..................... (5,936) (5,936)
---- ---- ------- -------- --------- -------- --------
BALANCE AT DECEMBER 31,
1993................... $221 $143 $36,650 $360,314 $(207,366) $189,962 $ 68,030
==== ==== ======= ======== ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of National Steel Corporation and its majority owned subsidiaries
(the "Company").
Cash Equivalents: Cash equivalents are short-term investments which consist
principally of time deposits at cost which approximates market. These
investments have maturities of three months or less at the time of purchase.
Inventories: Inventories are stated at the lower of last-in, first-out
("LIFO") cost or market. If the first-in, first-out ("FIFO") cost method of
inventory accounting had been used, inventories would have been approximately
$169.5 million and $141.3 million higher than reported at December 31, 1993 and
1992, respectively. During each of the last three years certain inventory
quantity reductions caused liquidations of LIFO inventory values. These
liquidations decreased net income for the quarters and years ended December 31,
1993 and 1992, by $3.0 million and $3.4 million, respectively, and increased
net income for the quarter and year ended December 31, 1991 by approximately
$10.9 million.
Investments: Investments in affiliated companies (corporate joint ventures
and 20% to 50% owned companies) are stated at cost plus equity in undistributed
earnings since acquisition. Undistributed earnings of affiliated companies
included in retained earnings at December 31, 1993 and 1992 amounted to $7.2
million and $11.3 million, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost and include certain expenditures for leased facilities. Interest costs
applicable to facilities under construction are capitalized. Capitalized
interest amounted to $5.8 million in 1993, $14.4 million in 1992 and $4.5
million in 1991. Amortization of capitalized interest amounted to $5.7 million
in 1993, $4.6 million in 1992 and $4.5 million in 1991.
Depreciation, Depletion and Amortization: Depreciation of production
facilities and amortization related to capitalized lease obligations are
generally provided by charges to income computed by the straight-line method.
Provisions for depreciation and depletion of certain raw material facilities
and furnace relinings are computed on the basis of tonnage produced in relation
to estimated total production to be obtained from such facilities.
Environmental: Estimated losses from environmental contingencies are accrued
and charged to income when it is probable that a liability has been incurred
and the amount of loss can be reasonably estimated. (See Note M--Environmental
Liabilities.)
Research and Development: Research and development costs are expensed when
incurred and are charged to cost of products sold. Expenses for 1993, 1992 and
1991 amounted to approximately $9.4 million, $9.5 million and $8.8 million,
respectively.
Income Taxes: Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"), whereby deferred items are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to 1992, the Company accounted for
income taxes under Accounting Principles Board Opinion No. 11 ("APB 11").
36
<PAGE>
Financial Instruments: The Company's financial instruments, as defined by
Statement of Financial Accounting Standards No. 107, consist of cash and cash
equivalents, long-term obligations (excluding capitalized lease obligations),
and the Series B Preferred Stock (defined below). The Company's estimate of the
fair value of these financial instruments approximates their carrying amounts
at December 31, 1993.
Accounting Changes: During 1993, the Company adopted two new Financial
Accounting Standards Board Statements, "Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106" or "OPEB") and "Employer's Accounting for
Postemployment Benefits" ("SFAS 112"). (See Note F--Postretirement Benefits
Other Than Pensions and Note G--Postemployment Benefits.)
Earnings per Share: Earnings (loss) per share of Common Stock ("EPS") is
computed by dividing net income or loss applicable to common stockholders by
the sum of the weighted average of the shares of common stock outstanding
during the period plus common stock equivalents, if dilutive.
Business Segment: The Company is engaged in a single line of business, the
production and processing of steel. The Company targets high value added
applications of flat rolled carbon steel for sale to the automotive, metal
buildings and container markets. The Company also sells hot and cold rolled
steel to a wide variety of other users including the pipe and tube industry and
independent steel service centers. In 1993, a single customer accounted for
approximately 11% of net sales and approximately 12% of net sales in 1992 and
1991. Sales of the Company's products to the automotive market accounted for
approximately 29%, 27% and 26% of the Company's total net sales in 1993, 1992
and 1991, respectively. Concentration of credit risk related to the Company's
trade receivables is limited due to the large numbers of customers in differing
industries and geographic areas.
Reclassifications: Certain items in prior years have been reclassified to
conform with the current year presentation.
NOTE B--CAPITAL STRUCTURE AND INITIAL PUBLIC OFFERING OF COMMON STOCK
Ownership. At December 31, 1993, 75.6% of the voting control of the Company
was owned by NKK Corporation (collectively with its subsidiaries "NKK"). The
majority of this control has been acquired since 1984 from National Intergroup,
Inc. (collectively with its subsidiaries "NII") which owned 5.8% of the voting
control of the Company at December 31, 1993. (See Note S--Subsequent Events.)
In April 1993, the Company completed an initial public offering (the "IPO")
of 10,861,100 shares of its Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), at an offering price of $14 per share, which generated
net proceeds to the Company of approximately $141.4 million.
In connection with the IPO, 30,000,000 shares of Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), were authorized and the then
outstanding 75,000 shares of existing Common Stock received a 340 for 1 stock
split effectuated in the form of a stock dividend and the common stock was
automatically converted to Class A Common Stock. Stockholders' equity at
December 31, 1991 has been retroactively adjusted to reflect this stock
dividend. As a result of the IPO, all preferred stock outstanding became non-
voting.
On October 28, 1993, NII converted each of its 3,400,000 shares of Class A
Common Stock to 3,400,000 shares of Class B Common Stock, bringing the total
number of outstanding shares of Class A and Class B Common Stock to 22,100,000
and 14,261,100, respectively, at December 31, 1993. (See Note S--Subsequent
Events.)
At December 31, 1993 the Company's capital structure was as follows:
Series A Preferred Stock
At December 31, 1993, there were 5,000 shares of Series A Preferred Stock,
par value $1.00 per share (the "Series A Preferred Stock"), issued and
outstanding. Annual dividends of $806.30 per share on the Series A Preferred
Stock are cumulative and payable quarterly. The Series A Preferred Stock is not
subject to mandatory redemption by the Company and is non-voting.
37
<PAGE>
Series B Redeemable Preferred Stock
On May 4, 1993, the Company redeemed 10,000 shares of the Series B Redeemable
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"),
held by NII. These shares were subject to mandatory redemption on August 5,
1995. The cost of the redemption totaled $67.8 million and was funded from
proceeds received in connection with the IPO. If the redemption of these shares
had occurred at the beginning of the year, EPS for 1993 would have increased by
$.06. Pursuant to the terms of the Series B Preferred Stock and certain other
agreements between the Company and NII, the Company paid the redemption amount
directly to a pension trustee and released NII from a corresponding amount of
NII's indemnification obligations with respect to certain employee benefit
liabilities of the Company retained in connection with the sale of its Weirton
Steel Division. (See Note J--Weirton Liabilities.)
At December 31, 1993 there were 10,000 remaining shares of Series B Preferred
Stock issued and outstanding and held by NII. Annual dividends of $806.30 per
share on the Series B Preferred Stock are cumulative and payable quarterly.
Dividends and redemption proceeds, to the extent required by the Stock Purchase
and Recapitalization Agreement (the "Recapitalization Agreement"), are used to
release NII from its indemnification obligations with respect to the remaining
unreleased liabilities for certain employee benefits for the employees of its
former Weirton Steel Division ("Weirton") employees (the "Weirton Benefit
Liabilities"). (See Note J--Weirton Liabilities.) The Series B Preferred Stock
dividend permitted release and payment of $10.6 million and $15.3 million of
previously unreleased Weirton Benefit Liabilities during 1993 and 1992,
respectively, and a cash dividend of $1.4 million and $.8 million during 1993
and 1992, respectively, to reimburse NII for an obligation previously incurred
in connection with the Weirton Benefit Liabilities. Upon the occurrence of
certain events detailed in the Recapitalization Agreement, prior to or
coincident with the Series B Preferred Stock final redemption, the released
Weirton Benefit Liabilities will be recalculated by an independent actuary. Any
adjustment to bring the balances of the released Weirton Benefit Liabilities to
such recalculated amount will be dealt with in the Series B Preferred Stock
redemption proceeds or otherwise settled. If the Company does not meet its
preferred stock dividend and redemption obligations when due, NII has the right
to cause NKK to purchase the Company's preferred stock dividend and redemption
obligations. The Series B Preferred Stock is nontransferable and nonvoting.
The remaining Series B Preferred Stock is subject to mandatory redemption on
August 5, 2000 at a redemption price of $58.3 million and may not be redeemed
prior to January 1, 1998 without the consent of NII.
Periodic adjustments are made to consolidated retained earnings for the
excess of the book value of the Series B Preferred Stock at the date of
issuance over the redemption value. Based upon the Company's actuarial
analysis, the unreleased Weirton Benefit Liabilities approximate the aggregate
remaining dividend and redemption payments with respect to the Series B
Preferred Stock and accordingly, such payments are expected to be made in the
form of releases of NII from its obligations to indemnify the Company for
corresponding amounts of the remaining unreleased Weirton Benefit Liabilities.
At that time, the Company will be required to deposit cash equal to the
redemption amount in the Weirton Retirement Trust, thus leaving the Company's
net liability position unchanged. The Series B Preferred Stock, with respect to
dividend rights and rights on liquidation, ranks senior to the Company's common
stock and equal to the Series A Preferred Stock.
Class A Common Stock
At December 31, 1993, the Company had 30,000,000 shares of $.01 par value
Class A Common Stock authorized, of which 22,100,000 shares were issued and
outstanding and owned by NKK. Each share of Class A Common Stock is entitled to
two votes. No cash dividends were paid in 1993, 1992 or 1991.
Class B Common Stock
At December 31, 1993, the Company had 65,000,000 shares of $.01 par value
Class B Common Stock authorized. Of the 14,261,100 shares issued and
outstanding, 3,400,000 were owned by NII and the remaining 10,861,100 shares
were publicly traded. (See Note S--Subsequent Events.) No cash dividends were
paid in 1993.
38
<PAGE>
The Company is restricted from paying cash dividends on Common Stock by
various debt covenants. (See Note D--Long-Term Obligations and Related Party
Indebtedness.)
As of December 31, 1993, NKK held 75.6% of the combined voting power of the
Company's 36,361,100 outstanding shares of Common Stock, while NII held 5.8% of
the combined voting power of the Company. (See Note S--Subsequent Events.) The
remaining 10,861,100 shares of Class B Common Stock held by the public
represented 18.6% of the combined voting power of the outstanding Common Stock.
NOTE C--INVESTMENT IN IRON ORE COMPANY OF CANADA
Summarized financial information for Iron Ore Company of Canada, a 19.96%
owned affiliated company accounted for by the equity method is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
(U.S. DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Current assets............................... $132,663 $137,495 $130,843
Property, plant and equipment and other as-
sets........................................ 372,467 376,286 361,289
Current liabilities.......................... 95,336 98,725 81,048
Long-term obligations and other liabilities.. 157,273 149,280 138,099
Sales and operating revenues................. 382,465 399,582 476,518
Gross profit................................. 53,892 72,274 107,721
Income before cumulative effect of accounting
changes..................................... 26,215 16,203 38,121
Cumulative effect of accounting changes...... (15,097) 5,836 --
Net income................................... 11,118 22,039 38,121
Company's equity in:
Net assets............................... 50,403 53,049 54,488
Net income............................... 2,219 4,399 7,609
</TABLE>
NOTE D--LONG-TERM OBLIGATIONS AND RELATED PARTY INDEBTEDNESS
Long-term obligations and related party indebtedness at December 31, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
First Mortgage Bonds, 8.375% Series due August 1,
2006, with general first liens on principal plants,
properties, certain subsidiaries, and an affiliated
company............................................. $115,587 $115,587
Convertible Subordinated Debentures, 4.625% payable
annually through 1994, convertible into NII common
stock at $59.37 per share........................... 2,311 3,977
Vacuum Degassing Facility Loan, 10.336% fixed rate
due in semi-annual installments through 2000, with a
first mortgage in favor of the lenders.............. 42,661 47,090
Continuous Caster Facility Loan, 10.057% fixed rate
to 2000 when the rate will be reset to a current
rate. Equal
semi-annual payments due through 2007, with a first
mortgage in favor of the lenders.................... 128,859 132,946
Coke Battery Loan, 7.615% fixed rate with semi-annual
payments due through 2008. Lenders are wholly-owned
subsidiaries of NKK and are unsecured............... 343,332 309,500
Headquarters Building Loan, current interest rate
4.275%, reset semi-annually through 1999, with a
first mortgage in favor of the lender............... 8,923 10,000
Unsecured project financing.......................... -- 13,540
Capitalized lease obligation......................... 32,806 34,371
Other................................................ 27,869 28,222
-------- --------
Total long-term obligations and related party indebt-
edness.............................................. 702,348 695,233
Less long-term obligations due within one year....... 28,257 33,468
-------- --------
Long-term obligations and related party indebtedness. $674,091 $661,765
======== ========
</TABLE>
39
<PAGE>
Future minimum payments for all long-term obligations and leases as of
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
OTHER LONG-
CAPITALIZED OPERATING TERM
LEASE LEASES OBLIGATIONS
----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1994................................... $ 5,491 $ 58,577 $ 26,506
1995................................... 6,101 58,087 40,143
1996................................... 6,712 54,922 59,891
1997................................... 6,712 52,090 47,093
1998................................... 6,712 48,719 48,425
After 1998............................. 20,136 263,548 447,484
------- -------- --------
Total payments......................... 51,864 $535,943 $669,542
======== ========
Less amount representing interest.... 19,058
Less current portion of obligation
under capitalized lease............. 1,751
-------
Long-term obligation under capital-
ized
lease............................... $31,055
=======
</TABLE>
Operating leases include a coke battery facility which services the Granite
City Division and expires in 2004, a continuous caster and the related ladle
metallurgy facility which services the Great Lakes Division and expires in
2008, and an electrolytic galvanizing facility which services the Great Lakes
Division (the "EGL") and expires in 2001. Upon expiration, the Company has the
option to extend the leases or purchase the equipment at fair market value.
The Company's remaining operating leases cover various types of properties,
primarily machinery and equipment, which have lease terms generally for periods
of 2 to 20 years, and which are expected to be renewed or replaced by other
leases in the normal course of business. Rental expense under operating leases
totaled $70.7 million, in 1993, $79.8 million in 1992 and $81.2 million in
1991.
During 1993, the Company borrowed $40.5 million from a United States
subsidiary of NKK, thereby completing the $350.0 million construction period
financing for the No. 5 coke oven battery rebuild at the Great Lakes Division.
Later in 1993, the Company paid $6.7 million in principal, and recorded $25.1
million in interest expense on the coke battery loan. Accrued interest on the
loan as of December 31, 1993 was $10.5 million. Additionally, deferred
financing costs related to the loan were $4.5 million and $4.2 million,
respectively, as of December 31, 1993 and 1992.
Credit Arrangements
The Company's credit arrangements include a $100 million revolving secured
credit arrangement (the "Revolver"), a $150 million subordinated loan agreement
(the "Subordinated Loan Agreement") and $25 million in uncommitted, unsecured
lines of credit (the "Uncommitted Lines of Credit").
The Revolver was amended and restated in December 1992 to extend the
expiration date to December 31, 1994. The Revolver permits the Company to
borrow up to $100 million on a short term basis, and provides the Company with
the ability to issue up to $150 million in letters of credit. The Revolver is
secured by the accounts receivable and inventories of the Company. This
arrangement has interest rates which approximate current market rates for
periods of one, two, three or six months. At December 31, 1993 and 1992, no
borrowings were outstanding and letters of credit outstanding amounted to
$113.7 million and $113.6 million, respectively, under the Revolver.
The Subordinated Loan Agreement, which was entered into in May 1991 with a
United States subsidiary of NKK, was also extended in December 1992 to an
expiration date of April 1, 1995. This arrangement has
40
<PAGE>
interest rates which approximate current market rates for periods from one
month to six months and permits the Company to borrow up to $150 million on an
unsecured, short-term basis. The Revolver requires that the first $50 million
in borrowings by the Company in excess of thirty days must come from the
Subordinated Loan Agreement. Additional amounts borrowed would alternate
between the Revolver and the Subordinated Loan Agreement up to $25 million in
each increment. There were no borrowings under the Subordinated Loan Agreement
during 1993 or 1992.
The Uncommitted Lines of Credit permit the Company to borrow up to $25
million on an unsecured, short-term basis for periods of up to thirty days. One
of these arrangements expires on March 31, 1994, while the other has no fixed
expiration date and may be withdrawn at any time without notice. During 1993,
the Company borrowed a maximum of $7.7 million under its Uncommitted Lines of
Credit, which was repaid the next day. No borrowings were outstanding at
December 31, 1993 and 1992.
At December 31, 1993 the Company was prohibited from paying cash dividends on
Common Stock by various common stock dividend covenants. The most restrictive
dividend covenant is contained in the EGL lease agreement. The Company is not
restricted from paying its annual Series A and B Preferred Stock dividend
obligations.
NOTE E--PENSIONS
The Company has various non-contributory defined benefit pension plans
covering substantially all employees. Benefit payments for salaried employees
are based upon a formula which utilizes employee age, years of credited service
and the highest five consecutive years of pensionable earnings during the last
ten years preceding normal retirement. Benefit payments to most hourly
employees are the greater of a benefit calculation utilizing fixed rates per
year of service or the highest five consecutive years of pensionable earnings
during the last ten years preceding retirement, with a premium paid for years
of service in excess of thirty years. The Company's funding policy is to
contribute, at a minimum, the amount necessary to meet minimum funding
standards as prescribed by applicable law. The Company utilizes a long-term
rate of return of 9.0% for funding purposes. The Company's pension
contributions for the 1993 and 1992 plan years were $30.8 million and $28.0
million, respectively. The Company anticipates that its 1994 pension
contributions will increase by approximately $30 million attributable to both
increases in benefits resulting from the July 31, 1993 settlement agreement
(the "1993 Settlement Agreement") between the Company and the United
Steelworkers of America ("USWA") and the decrease in the discount rate used to
measure the pension obligation.
Pension cost and related actuarial assumptions utilized are summarized below:
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assumptions:
Discount rate.......................... 8.75% 8.75% 8.75%
Return on assets....................... 9.50% 9.50% 9.50%
Average rate of compensation increase.. 5.50% 5.50% 5.50%
Pension Cost:
Service cost........................... $ 21,537 $ 18,924 $ 19,302
Interest cost.......................... 100,783 96,004 92,719
Actual return on plan assets........... (160,561) (58,772) (170,534)
Net amortization and deferral.......... 89,567 (13,860) 108,196
--------- -------- ---------
Net pension expense.................... 51,326 42,296 49,683
Curtailment and special termination
charges............................... 35,005 12,656 1,627
Other.................................. 169 577 191
--------- -------- ---------
Total pension costs.................. $ 86,500 $ 55,529 $ 51,501
========= ======== =========
</TABLE>
41
<PAGE>
In connection with the temporary idling of National Steel Pellet Company
("NSPC"), a wholly-owned subsidiary of the Company, special termination
benefits of $31.9 million related to hourly NSPC plan participants were
recorded at December 31, 1993 and included in total pension cost above. (See
Note P--Temporary Idling of National Steel Pellet Company.)
The funded status of the Company's plans at year end along with the actuarial
assumptions utilized are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assumptions:
Discount rate................................. 7.50% 8.75%
Average rate of compensation increase......... 4.40% 5.50%
Funded status:
Accumulated benefit obligations ("ABO") in-
cluding vested benefits of $1,280,360 and
$944,913 for 1993 and 1992, respectively..... $1,345,592 $1,006,769
Effect of future pensionable earnings increas-
es........................................... 90,589 152,640
---------- ----------
Projected benefit obligations ("PBO")......... 1,436,181 1,159,409
Plans' assets at fair market value............ 1,089,273 990,217
---------- ----------
PBO in excess of plan assets at fair market
value........................................ 346,908 169,192
Unrecognized transition obligation............ (80,197) (85,415)
Unrecognized net gain......................... 24,107 59,332
Unrecognized prior service cost............... (125,788) (28,479)
Adjustment required to recognize minimum pen-
sion liability............................... 134,691 12,100
---------- ----------
Total pension liability......................... 299,721 126,730
Less pension obligation due within one year..... 10,928 6,511
---------- ----------
Long-term pension liability................. $ 288,793 $ 120,219
========== ==========
</TABLE>
The adjustment required to recognize the minimum pension liability of $134.7
million in 1993 represents the excess of the ABO over the fair value of plan
assets in underfunded plans, and is primarily the result of the 1.25% decrease
in the discount rate, as well as increased pension benefits resulting from the
1993 Settlement Agreement. The unfunded liability in excess of the unrecognized
prior service cost of $5.9 million was recorded as a reduction in stockholders'
equity at December 31, 1993. The remaining portion of the unfunded liability of
$128.8 million was offset by an intangible pension asset.
At December 31, 1993, the Company's pension plans' assets were comprised of
approximately 50.0% equity investments, 39.9% fixed income investments, 4.1%
cash and 6.0% in other investments including real estate and venture capital.
NOTE F--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company implemented SFAS 106 which requires
accrual of retiree medical and life insurance benefits as these benefits are
earned rather than recognition of these costs as claims are paid. In 1993, the
excess of total postretirement benefit expense recorded under SFAS 106 over the
Company's former method of accounting for these benefits was $97.6 million, or
$59.5 million excluding curtailment charges, or $1.77 and $1.08 per share net
of tax, respectively. In 1993 the Company's cash OPEB payments were
approximately $32 million.
The Company provides health care and life insurance benefits for certain
retirees and their dependents. Generally, employees are eligible to participate
in the medical benefit plans if they retired under one of the
42
<PAGE>
Company's pension plans on other than a deferred vested basis, and at the time
of retirement had at least 15 years of continuous service. However, salaried
employees hired after January 1, 1993 are not eligible to participate in the
plans. The Company's medical benefit plans are contributory. Health care
benefits are funded as claims are paid; thus adoption of SFAS 106 has no impact
on the cash flows of the Company. However, as discussed below, the Company will
begin prefunding the OPEB obligation for USWA represented employees in 1994.
The Company elected to amortize the unrecognized transition obligation, which
was calculated to be $556.0 million at January 1, 1993, over a period of 20
years, in part, to continually focus the attention of its employees on the
magnitude of its rising health care costs. Amortization of the transition
obligation will adversely impact EPS on an after tax basis by approximately
$.45 per year for the next 19 years based upon shares of common stock
outstanding at December 31, 1993.
The components of postretirement benefit cost and related actuarial
assumptions are as follows:
<TABLE>
<CAPTION>
1993
----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
Assumptions:
Discount rate................................................ 8.75%
Health care trend rate....................................... 11.20%
Postretirement benefit cost:
Service cost................................................. $ 12,912
Interest cost................................................ 52,811
Amortization of transition obligation........................ 28,071
Gains........................................................ (8,176)
--------
Net periodic benefit cost.................................... 85,618
Curtailment charges.......................................... 38,061
--------
Total postretirement benefit cost.......................... $123,679
========
</TABLE>
In connection with the temporary idling of NSPC, curtailment charges of $36.7
million related to hourly NSPC plan participants were recorded at December 31,
1993 and included in total postretirement benefit cost at December 31, 1993.
(See Note P--Temporary Idling of National Steel Pellet Company.)
The following represents the plans' funded status reconciled with amounts
recognized in the Company's balance sheet and related actuarial assumptions:
<TABLE>
<CAPTION>
1993
---------------------------
DECEMBER 31 JANUARY 1
----------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Assumptions:
Discount rate............................. 7.75% 8.75%
Health care trend rate.................... 10.30% 11.20%
Accumulated postretirement benefit obliga-
tion ("APBO"):
Retirees.................................. $ 457,295 $ 431,683
Fully eligible active participants........ 99,773 95,384
Other active participants................. 117,765 95,054
---------- ---------
Total................................... 674,833 622,121
Plan assets at fair value:.................. -- --
---------- ---------
APBO in excess of plan assets............. 674,833 622,121
Unrecognized transition obligation........ (503,683) (556,005)
Unrecognized net loss..................... (13,715) --
---------- ---------
Postretirement benefit liability........ $ 157,435 $ 66,116
========== =========
</TABLE>
43
<PAGE>
The assumed health care cost trend rate of 10.3% in 1994 decreases gradually
to the ultimate trend rate of 5.0% in 2002 and thereafter. A 1.0% increase in
the assumed health care cost trend rate would have increased the APBO at
December 31, 1993 and postretirement benefit cost for 1993 by $26.7 million and
$3.3 million, respectively.
Differences between January 1, 1993 SFAS 106 disclosures at December 31, 1993
and in the Company's March 31, 1993 Form 10-Q reflect the fact that the
adoption amounts disclosed in interim reports were based upon preliminary
claims data through December 31, 1992, whereas the year end disclosure was
based upon final data. In addition, the Company utilized a flat 8.75% discount
rate at January 1, 1993 versus an initial rate of 6.0% which was to gradually
increase to a 9.0% rate in 1996, as discussed in the March 31, 1993 Form 10-Q.
In connection with the 1993 Settlement Agreement between the Company and the
USWA, the Company will begin prefunding the OPEB obligation with respect to
USWA represented employees in 1994. Under the terms of the 1993 Settlement
Agreement, a Voluntary Employee Benefit Association trust (the "VEBA Trust")
will be established to which the Company has agreed to contribute a minimum of
$10 million annually and, under certain circumstances, additional amounts
calculated as set forth in the 1993 Settlement Agreement. The Company has
granted to the VEBA a second mortgage on the No. 5 coke oven battery at the
Great Lakes Division.
NOTE G--POSTEMPLOYMENT BENEFITS
During the fourth quarter of 1993, the Company adopted SFAS 112 which
requires accrual accounting for benefits payable to inactive employees who are
not retired. Among the more significant benefits included are worker's
compensation, long-term disability and continued medical coverage for disabled
employees and surviving spouses. The Company previously followed the practice
of accruing for many of these benefits, but did not base these accruals on
actuarial analyses.
Prior year financial statements have not been restated to reflect the change
in accounting method. The cumulative effect as of January 1, 1993 of this
change was to increase the net loss by $16.5 million or $.49 per share. The
results of operations for the first quarter have been restated to reflect the
effect of adopting SFAS 112 at January 1, 1993. The effect of the change on
1993 income before the cumulative effect of the change was not material,
therefore the remaining quarters of 1993 have not been restated.
NOTE H--OTHER LONG-TERM LIABILITIES
Other long-term liabilities at December 31, 1993 and 1992 consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred gain on sale leasebacks....................... $ 29,032 $ 31,281
Insurance and employee benefits (excluding pensions and
OPEB)................................................. 97,442 88,925
Plant closings......................................... 74,127 45,780
Released Weirton Benefit Liabilities................... 122,137 125,981
Other.................................................. 28,619 12,631
-------- --------
Total other long term liabilities...................... $351,357 $304,598
======== ========
</TABLE>
NOTE I--INCOME TAXES
Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
SFAS 109. As permitted under the new
44
<PAGE>
pronouncement, prior years' financial statements were not restated. The
cumulative effect of adopting SFAS 109, as of January 1, 1992, was to decrease
the net loss for 1992 by $76.3 million.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves......................................... $ 180,600 $ 204,900
Employee benefits................................ 120,600 44,200
Net operating loss carryforwards................. 189,600 138,100
Leases........................................... 24,200 23,500
Deferred gain.................................... 8,500 9,100
Federal tax credits.............................. 5,200 5,200
Other............................................ 18,400 4,700
--------- ---------
Total deferred tax assets...................... 547,100 429,700
Valuation allowance................................ (263,200) (189,100)
--------- ---------
Deferred tax assets net of valuation allowance... 283,900 240,600
--------- ---------
Deferred tax liabilities:
Book basis of property in excess of tax basis.... (151,900) (148,100)
Excess tax LIFO over book........................ (31,000) (29,400)
Other............................................ (20,400) (20,100)
--------- ---------
Total deferred tax liabilities................. (203,300) (197,600)
--------- ---------
Net deferred tax asset after valuation allowance. $ 80,600 $ 43,000
========= =========
</TABLE>
In 1992, available tax planning strategies served as the only basis for
determining the amount of the net deferred tax asset to be recognized. As a
result, a full valuation allowance was recorded, except for the $43.0 million
recognized pursuant to those tax planning strategies. In 1993, the Company
determined that it was more likely than not that sufficient future taxable
income would be generated to justify increasing the net deferred tax asset
after valuation allowance as presented above. Accordingly, the Company
recognized an additional deferred tax asset of $37.6 million in 1993, which had
the effect of decreasing the Company's net loss by a like amount, bringing the
net deferred tax asset to $80.6 million at December 31, 1993.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
-------------- --------
1993 1992 1991
-------- ---- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current: state and foreign........................ $ 89 $156 $118
Deferred.......................................... (37,600) -- --
-------- ---- ----
Total tax provision (credit).................. $(37,511) $156 $118
======== ==== ====
</TABLE>
45
<PAGE>
The reconciliation of the income tax computed at the U.S. federal statutory
tax rates to income tax expense is:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
------------------- --------
1993 1992 1991
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates............... $(103,700) $(25,300) $(64,400)
Extraordinary item........................ -- (17,000) --
Net operating loss carryforward for which
no benefit was recognized................ 51,500 35,856 35,020
Temporary deductible differences for which
no benefit was recognized (net).......... 22,600 10,400 33,798
State and foreign income taxes, net of
federal benefit.......................... 100 100 100
Depletion................................. -- (2,300) (2,000)
Dividend exclusion........................ (1,600) (1,600) (2,400)
Other..................................... (6,411) -- --
--------- -------- --------
Total tax provision................... $ (37,511) $ 156 $ 118
========= ======== ========
</TABLE>
At December 31, 1993, the Company has unused net operating loss carryforwards
of approximately $525.3 million which expire as follows: $30.7 million in 1998,
$78.1 million in 2000, $71.3 million in 2001, $108.0 million in 2006, $99.4
million in 2007 and $137.8 million in 2008. Tax benefits relating to operating
loss carryforwards were not recorded in 1991 in accordance with APB 11. To
date, the Company believes that it has not undergone an ownership change for
federal income tax purposes, however there can be no assurance that the Company
will not undergo such a change in the future. Future events, some of which may
be beyond the Company's control, could cause an ownership change. An ownership
change may substantially limit the Company's ability to offset future taxable
income with its net operating loss carryforwards.
At December 31, 1993, the Company has unused alternative minimum tax credit
carryforwards of approximately $3.2 million which may be applied to offset its
future regular federal income tax liabilities. These tax credits may be carried
forward indefinitely.
NOTE J--WEIRTON LIABILITIES
On January 11, 1984, the Company completed the sale of substantially all of
the assets of its Weirton Steel Division to Weirton Steel Corporation, a
corporation owned by its employees, through an employee stock ownership trust.
In connection with the sale of Weirton, the Company retained certain existing
and contingent liabilities (the "Weirton Liabilities") including the Weirton
Benefit Liabilities, which consist of, among other things, pension benefits for
the then active employees based on service prior to the sale, and pension, life
and health insurance benefits for the then retired employees and certain
environmental liabilities.
As part of the 1984 sale of a 50% interest in the Company to NKK, NII agreed,
as between NII and the Company, to provide in advance sufficient funds for
payment and discharge of, and to indemnify the Company against, all obligations
and liabilities of the Company, whether direct, indirect, absolute or
contingent, incurred or retained by the Company in connection with the sale of
Weirton. As part of the 1990 ownership transaction whereby NKK purchased an
additional 20% ownership in the Company, the Company released NII from
indemnification of $146.6 million of certain defined Weirton Benefit
Liabilities. NII also reaffirmed its agreement to indemnify the Company for
Weirton environmental liabilities as to which the Company is obligated to
Weirton Steel Corporation. (See Note S--Subsequent Events.) On May 4, 1993, the
Company released NII from an additional $67.8 million of previously unreleased
Weirton Benefit Liabilities in connection with the early redemption of 10,000
shares of Series B Preferred Stock.
At December 31, 1993, the net present value of the released Weirton Benefit
Liabilities, based upon a discount factor of 12.0% per annum, is $140.1
million. NII continues to indemnify the Company for the
46
<PAGE>
remaining unreleased Weirton Benefit Liabilities and other liabilities. Since
the Company is indemnified by NII for such remaining liabilities, they are not
recorded in the Company's consolidated balance sheet. Such Weirton Liabilities
are comprised of (i) the unreleased Weirton Benefit Liabilities, the amount of
which, based on the Company's actuarial analysis, approximates the aggregate
remaining dividend and redemption payments of $112.7 million with respect to
the Series B Preferred Stock and (ii) other contingent liabilities, such as
environmental liabilities, that are not currently estimable.
NOTE K--UNUSUAL ITEMS
During 1993, the Company recorded unusual charges which totaled $111.0
million, primarily relating to the temporary idling of NSPC. (See Note P--
Temporary Idling of National Steel Pellet Company.) A fourth quarter charge of
$108.6 million was recorded to recognize various liabilities incurred in
connection with the idling, most notably pensions and postemployment benefits.
Additionally, the Company recorded a charge of $4.5 million relating to the
acceptance by represented office and technical employees of a voluntary pension
window offered by the Company as a part of its functional consolidation and
reorganization plan.
In 1992, the Company recorded unusual charges aggregating $37.0 million
relating principally to a pension window and the Company's decision to exit the
coal mining business. A charge of $13.3 million was recognized relating to a
1992 pension window as part of the consolidation of certain staff functions and
the relocation of its corporate office to Mishawaka, Indiana from Pittsburgh,
Pennsylvania. As a result of management's decision to exit the coal mining
business, an unusual charge of $24.9 million was recognized during the fourth
quarter to reduce certain coal properties to net realizable value and record
postemployment, environmental and other liabilities.
During 1991, the Company recorded unusual charges which totaled $110.7
million. A charge of $41.5 million was recorded for the estimated costs
anticipated to be incurred in conjunction with the consolidation of certain
staff functions and relocation in 1992 of the corporate headquarters to
Mishawaka, Indiana from Pittsburgh, Pennsylvania. An unusual charge of $25.5
million related to the Company's decision to permanently idle its Mathies coal
mine after efforts to obtain third party financing to reopen the mine after a
fire were unsuccessful. Concurrently, the Company undertook an evaluation of
its other coal properties and operations and recorded an unusual charge of
$43.7 million to reduce certain coal properties to net realizable value and to
recognize postemployment, environmental and other liabilities.
NOTE L--RELATED PARTY TRANSACTIONS
Summarized below are transactions between the Company and NKK, NII and the
Company's affiliated companies accounted for under the equity method.
The Company had borrowings outstanding with an NKK affiliate totaling $343.3
million and $309.5 million as of December 31, 1993 and 1992, respectively. (See
Note D--Long-Term Obligations and Related Party Indebtedness.) Subsidiaries of
the Company sold coal to and purchased coke from a subsidiary of NKK in 1991
totaling $7.5 million and $22.5 million, respectively. There were no such coal
sales or coke purchases of this type in 1993 or 1992. Accounts receivable and
accounts payable relating to these transactions totalled $3.2 million and $2.5
million, respectively, at each of the two years ended December 31, 1993.
The Company's selling, general and administrative expenses for 1992 and 1991
included charges of $2.2 million and $3.9 million, respectively, for facilities
provided and direct services performed by NII for the benefit of the Company,
all of which arrangements have expired or have been terminated. During January
1994, NII completed the sale of substantially all of its 3,400,000 shares of
Class B Common Stock.
In both 1993 and 1992, cash dividends of $4.0 million were paid on the Series
A Preferred Stock. Accrued dividends of $0.6 million were recorded as of
December 31, 1993 and 1992 related to the Series A Preferred Stock. For 1993
and 1992, Series B Preferred Stock dividend payments totaling $12.0 million and
$16.1 million were made through the release and payment of $10.6 million and
$15.3 million of previously unreleased Weirton Benefit Liabilities and $1.4
million and $.8 million of cash to reimburse NII for an
47
<PAGE>
obligation previously incurred in connection with certain Weirton Liabilities,
respectively. At December 31, 1993 and 1992, accrued dividends related to the
Series B Preferred Stock totalled $1.2 million and $2.4 million, respectively.
The Company is contractually required to purchase its proportionate share of
raw material production from certain affiliated companies. Such purchases of
raw materials and services aggregated $65.9 million in 1993, $63.3 million in
1992 and $65.3 million in 1991. Additional expenses were incurred in connection
with the operation of a joint venture agreement. (See Note N--Other Commitments
and Contingencies.) Accounts payable at December 31, 1993 and 1992 included
amounts with affiliated companies accounted for by the equity method of $29.1
million and $24.3 million, respectively.
NOTE M--ENVIRONMENTAL LIABILITIES
The Company's operations are subject to numerous laws and regulations
relating to the protection of human health and the environment. Because these
environmental laws and regulations are quite stringent and are generally
becoming more stringent, the Company has expended, and can be expected to
expend in the future, substantial amounts for compliance with these laws and
regulations.
It is the Company's policy to expense or capitalize, as appropriate,
environmental expenditures that relate to current operating sites.
Environmental expenditures that relate to past operations and which do not
contribute to future or current revenue generation are expensed. With respect
to costs for environmental assessments or remediation activities, or penalties
or fines that may be imposed for noncompliance with such laws and regulations,
such costs are accrued when it is probable that liability for such costs will
be incurred and the amount of such costs can be reasonably estimated.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar state superfund statutes generally
impose joint and several liability on present and former owners and operators,
transporters and generators for remediation of contaminated properties
regardless of fault. The Company and certain of its subsidiaries are involved
as a potentially responsible party ("PRP") at a number of off-site CERCLA or
state superfund site proceedings. At some of these sites, any remediation costs
incurred by the Company would constitute liabilities for which NII is required
to indemnify the Company ("NII Environmental Liabilities"). In addition, at
some of these sites, the Company does not have sufficient information regarding
the nature and extent of the contamination, the wastes contributed by other
PRPs, or the required remediation activity to estimate its potential liability.
With respect to those sites which the Company has sufficient information to
estimate its potential liability, excluding any site involving NII
Environmental Liabilities, the Company has recorded an aggregate liability of
approximately $2 million, which it anticipates paying over the next several
years.
In connection with those sites involving NII Environmental Liabilities, in
January, 1994, the Company received $10 million from NII as an unrestricted
prepayment for such liabilities for which the Company recorded $10 million as a
liability in its consolidated balance sheet. The Company is required to repay
NII portions of the $10 million to the extent the Company's expenditures for
such NII Environmental Liabilities do not meet specified levels by certain
dates over a twenty year period. NII will continue to be obligated to indemnify
the Company for all other NII Environmental Liabilities (i) arising before such
prepayment or (ii) arising after such prepayment and exceeding the $10 million
prepayment. (See Note J--Weirton Liabilities and Note S--Subsequent Events.)
The Company has also recorded the reclamation and other costs to restore its
coal and iron ore mines at its shutdown locations to their original and natural
state, as required by various federal and state mining statutes. (See Note K--
Unusual Items). Additionally, in October 1993, NSPC announced its intention to
temporarily idle the iron ore mining and pelletizing operations conducted at
the facility. A final decision to permanently shut down these operations would
result in additional charges. (See Note P--Temporary Idling of National Steel
Pellet Company.)
48
<PAGE>
Since the Company has been conducting steel manufacturing and related
operations at numerous locations for over sixty years, the Company potentially
may be required to remediate or reclaim any contamination that may be present
at these sites. The Company does not have sufficient information to estimate
its potential liability in connection with any potential future remediation at
such sites. Accordingly, the Company has not accrued for such potential
liabilities.
As these matters progress or the Company becomes aware of additional matters,
the Company may be required to accrue charges in excess of those previously
accrued. However, although the outcome of any of the matters described, to the
extent they exceed any applicable reserves, could have a material adverse
effect on the Company's results of operations for the applicable period, the
Company has no reason to believe that such outcome will have a material adverse
effect on the Company's financial condition.
In April 1993, the United States Environmental Protection Agency published a
proposed guidance document establishing minimum water quality standards and
other pollution control policies and procedures for the Great Lakes System.
Until such guidance document is finalized, the Company cannot estimate its
potential costs for compliance, and there can be no assurances that such
compliance will not have a material adverse effect on the Company's financial
condition.
NOTE N--OTHER COMMITMENTS AND CONTINGENCIES
The Company has an agreement providing for the availability of raw material
loading and docking facilities through 2002. Under this agreement, the Company
must make advance freight payments if shipments fall below specified minimum
tonnages. At December 31, 1993, the maximum amount of such payments, before
giving effect to certain credits provided in the agreement, totals
approximately $18 million or $2 million per year. During the three years ended
December 31, 1993, no advance freight payments were made as the Company's
shipments exceeded the minimum tonnage requirements. The Company anticipates
its shipments will exceed the minimum tonnage requirements in 1994.
In September 1990, the Company entered into a joint venture agreement to
build a $240 million continuous galvanizing line to serve North American
automakers. This joint venture coats steel products for the Company and an
unrelated third party. The Company is a 10% equity owner of the facility, an
unrelated third party is a 50% owner, and a subsidiary of NKK owns the
remaining 40%. The Company has contributed $5.6 million in equity capital,
which represents its total equity requirement. In addition, the Company is
committed to utilize and pay a tolling fee in connection with 50% of the
available line-time of the facility. The agreement extends for 20 years after
the start of production, which commenced in January 1993.
In March 1992, a wholly-owned subsidiary of the Company finalized a turnkey
contract for the construction and permanent financing of a pickle line (the
"Pickle Line") servicing the Great Lakes Division. The total financing
commitment amounts to $110 million. During 1993 the Company utilized $20
million of the proceeds from the IPO to reduce the amount of construction
borrowings outstanding and the total commitment to $90 million. As of December
31, 1993 the construction period financing was being provided by the contractor
and was not a liability of the Company. In January 1994, upon completion and
acceptance of the Pickle Line, the permanent financing commenced with repayment
occurring over a fourteen-year period. The Pickle Line will not be subject to
the lien under the Company's First Mortgage Bonds, but will be subject to a
first mortgage in favor of the lender.
In May 1992, the Company signed an agreement to enter into a joint venture
with an unrelated third party. The joint venture, Double G Coating Company,
L.P. ("Double G"), of which the Company owns 50%, is constructing a $90 million
steel coating facility near Jackson, Mississippi to produce galvanized and
Galvalume(R) steel sheet for the metal buildings market. Approximately 20% of
the total cost will be financed equally through partners' capital contributions
with the remaining 80% financed by a group of third party lenders. The Company
has committed to invest capital contributions of approximately $9 million of
which $7.6 million has been contributed to date. The balance of approximately
$1.4 million will be paid during the
49
<PAGE>
first half of 1994. In addition, the Company is committed to utilize and pay a
tolling fee in connection with 50% of the available line time at the facility.
Management anticipates that production will begin in mid-1994.
In August 1992, Double G entered into a loan agreement with a consortium of
lenders that provides up to $75 million in construction-period financing which
converts to a 10 year loan upon completion and acceptance of the facility by
Double G. Repayment of the permanent loan is scheduled to commence 18 months
after completion and acceptance of the facility and will be amortized over 10
years. Double G will provide a first mortgage on its property, plant and
equipment and the Company has separately guaranteed 50% of the debt. At
December 31, 1993, outstanding borrowings on the construction loan were $60.4
million, of which $30.2 million is separately guaranteed by the Company.
The Company has agreements to purchase approximately 1.4 million gross tons
of iron ore pellets per year through 1999 from an affiliated company, and 5.4
million gross tons in 1994 from various non-affiliated companies. In 1994,
purchases under such agreements will approximate $50 million and $145 million,
respectively. Additionally, the Company has agreed to purchase its
proportionate share of the limestone production of an affiliated company, which
will approximate $2 million per year.
The Company is guarantor of specific obligations of ProCoil Corporation, an
affiliated company, approximating $10.8 million and $9.5 million at December
31, 1993 and 1992, respectively.
NOTE O--EXTRAORDINARY ITEM
The Rockefeller Amendment, which became effective February 1, 1993, is
designed to provide funding for the United Mine Workers of America ("UMWA")
retiree medical and life insurance benefits programs by transferring funds from
other sources and imposing a liability on all signatories to certain UMWA
collective bargaining agreements for current fund deficits and present and
future benefit costs for qualifying UMWA retirees. The Company has subsidiaries
that are signatories of the 1988 UMWA Wage Agreement and thus falls within the
Rockefeller Amendment's provisions. The Rockefeller Amendment also extends,
jointly and severally, the liability for the cost of retiree medical and life
insurance benefits to any members of the signatory operator's control group,
which would include the Company.
During 1992, the Company recorded a charge of $50 million, representing
management's best estimate of its liability for UMWA beneficiaries. Based upon
preliminary assignments from the Secretary of Health and Human Services
received during 1993, the Company believes this reserve is adequate. However,
the amount is subject to future adjustment when additional information relating
to beneficiaries becomes available.
NOTE P--TEMPORARY IDLING OF NATIONAL STEEL PELLET COMPANY
On August 1, 1993, the USWA went on strike against NSPC over demands for a
new labor contract at NSPC. In October 1993, NSPC announced its intention to
temporarily idle the facility. During the period from August 1, 1993 to date,
the Company has secured its pellet requirements from other sources. The Company
currently has entered into agreements that will satisfy its iron ore pellet
requirements through 1994 at a lower cost than could be obtained by operating
NSPC. It is management's intention to secure long term contracts for the
purchase of iron ore pellets for a period of one to three years.
The Company recorded an unusual charge of $108.6 million during the fourth
quarter of 1993 which is comprised of employee benefit related charges of $90.9
million (principally pensions and OPEB), taxes of $7.9 million and
miscellaneous other costs of $9.8 million relating to the three year idle
period. Management has not made a final decision regarding the permanent
shutdown of NSPC; however, a decision to permanently shut down the facility
would result in additional charges which management currently estimates to be
approximately $160 million.
The USWA has filed 19 unfair labor practice charges with the National Labor
Relations Board (the "NLRB") regarding the NSPC dispute. The USWA's charges
include allegations that NSPC failed to bargain in good faith. NSPC has
responded to the charges and has denied any unfair labor practices. If the NLRB
finds against NSPC, it could issue an order requiring NSPC to pay back pay and
front pay until the labor practices are corrected or to cease and desist unfair
labor practices and bargain in good faith.
50
<PAGE>
NOTE Q--LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan was established in 1993 in connection with the
IPO and has authorized the grant of options for up to 750,000 shares of Class B
Common Stock to certain executive officers, non-employee directors and other
employees of the Company. The exercise price of the options equals the fair
market value of the Common Stock on the date of grant. All options granted have
10 year terms and generally vest and become fully exercisable at the end of the
three years of continued employment. However, in the event that termination is
by reason of retirement, permanent disability or death, the option must be
exercised in whole or in part within 24 months of such occurrences.
The Company currently follows the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", which requires
compensation expense for the Company's options to be recognized only if the
market price of the underlying stock exceeds the exercise price on the date of
grant. Accordingly, the Company has not recognized compensation expense for its
options granted in 1993.
A reconciliation of the Company's stock option activity, and related
information, for 1993 follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER PRICE
OF (WEIGHTED
OPTIONS AVERAGE)
-------- ---------
<S> <C> <C>
Balance outstanding at January 1, 1993................ -- --
Granted............................................... 755,000 $13.99
Exercised............................................. --
Forfeited............................................. (170,832)
--------
Balance outstanding at December 31, 1993.............. 584,168 $13.99
========
Exercisable at December 31, 1993...................... 5,418
========
</TABLE>
On January 1, 1994, an additional 43,750 options became exercisable.
Outstanding stock options did not enter into the determination of EPS in 1993
as their effect was antidilutive.
NOTE R--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following are the unaudited quarterly results of operations for the years
1993 and 1992. The quarters ended March 31, 1993 and 1992 have each been
restated to reflect adoption of SFAS 112 and SFAS 109, respectively,
retroactive to the beginning of each of those years. The remaining quarters of
1993 and 1992 were not impacted by the changes. Reference should be made to
Note K--Unusual Items concerning adjustments affecting the fourth quarters of
1993 and 1992.
<TABLE>
<CAPTION>
1993
---------------------------------------------
THREE MONTHS ENDED,
(RESTATED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $587,398 $622,684 $623,272 $ 585,446
Gross profit (loss).............. (3,737) 19,389 15,055 (3,379)
Unusual charges.................. -- -- (3,294) (107,672)
Loss before cumulative effect of
accounting change............... (53,665) (17,463) (32,479) (138,801)
Cumulative effect of accounting
change.......................... (16,453) -- -- --
Net loss......................... (70,118) (17,463) (32,479) (138,801)
Per share earnings applicable to
Common Stock:
Loss before cumulative effect of
accounting change............... $ (2.19) $ (.58) $ (.97) $ (3.89)
Net loss......................... $ (2.81) $ (.58) $ (.97) $ (3.89)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
1992
---------------------------------------------
THREE MONTHS ENDED,
(RESTATED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $564,076 $621,287 $615,205 $572,749
Gross profit..................... 29,849 52,342 44,103 25,400
Unusual charges.................. -- (2,800) (9,000) (25,184)
Income (loss) before extraordi-
nary item and cumulative effect
of accounting change............ (19,070) 4,493 (11,121) (48,985)
Extraordinary item............... -- -- -- (50,000)
Cumulative effect of accounting
change.......................... 76,251 -- -- --
Net income (loss)................ 57,181 4,493 (11,121) (98,985)
Per share earnings applicable to
Common Stock:
Net income (loss) before
extraordinary item and
cumulative effect of accounting
change.......................... $ (.92) $ .01 $ (.61) $ (2.09)
Net income (loss)................ $ 2.07 $ .01 $ (.61) $ (4.05)
</TABLE>
NOTE S--SUBSEQUENT EVENTS
During January 1994, NII sold substantially all of its 3,400,000 shares of
Class B Common Stock. In connection with the IPO, the Company entered into a
definitive agreement (the "Agreement") with NII and NKK which amends certain
terms and conditions of the Recapitalization Agreement. Pursuant to the
Agreement, NII paid the Company $10 million as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
NII has previously agreed to indemnify the Company. The Company is required to
repay to NII portions of the $10 million to the extent the Company's
expenditures for such environmental liabilities do not reach specified levels
by certain dates over a twenty year period. NII retains responsibility to
indemnify the Company for remaining environmental liabilities arising before
such prepayment or arising after such prepayment and in excess of $10 million.
On January 24, 1994, the United States Supreme Court denied Bessemer & Lake
Erie's ("B&LE") petition for certiorari in the Iron Ore Antitrust Litigation,
thus sustaining the Company's judgement against the B&LE. On February 11, 1994,
the Company received approximately $111 million, including interest, in
satisfaction of this judgment. Pursuant to the terms of the 1993 Settlement
Agreement, approximately $11 million of the proceeds will be deposited into a
VEBA Trust established to prefund the Company's OPEB obligation with respect to
USWA represented employees. (See Note F--Postretirement Benefits Other Than
Pensions.) Of the remaining proceeds, the Company plans to use approximately
$60 million for working capital and general corporate purposes and nearly $40
million to repay outstanding indebtedness. The Company had not recorded a gain
for this contingency as of December 31, 1993, pending the outcome of the B&LE
petition. However, the Company will recognize this gain in the first quarter of
1994.
52
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- --------- ----------- ------------- -------------
BALANCE AT OTHER CHANGES
BEGINNING ADDITIONS ADD (DEDUCT) BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- ---------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Land and land improve-
ments................ $ 219,593 $ 5,396 $ 3,765 $-- $ 221,224
Buildings............. 291,460 4,034 36,457(2) -- 259,037
Machinery and equip-
ment................. 2,775,090 151,278(1) 109,837(3) -- 2,816,531
---------- -------- -------- ---- ----------
TOTAL............... $3,286,143 $160,708 $150,059 $-- $3,296,792
========== ======== ======== ==== ==========
YEAR ENDED DECEMBER 31,
1992
Land and land improve-
ments................ $ 205,342 $ 14,901 $ 650 $-- $ 219,593
Buildings............. 275,412 16,087 39 -- 291,460
Machinery and equip-
ment................. 2,563,330 252,953(1) 41,193 -- 2,775,090
---------- -------- -------- ---- ----------
TOTAL............... $3,044,084 $283,941 $ 41,882 $-- $3,286,143
========== ======== ======== ==== ==========
YEAR ENDED DECEMBER 31,
1991
Land and land improve-
ments................ $ 212,881 $ 1,884 $ 9,423 $-- $ 205,342
Buildings............. 274,093 1,368 49 -- 275,412
Machinery and equip-
ment................. 2,432,067 174,973(1) 43,710 -- 2,563,330
---------- -------- -------- ---- ----------
TOTAL............... $2,919,041 $178,225 $ 53,182 $-- $3,044,084
========== ======== ======== ==== ==========
</TABLE>
NOTE 1--Includes approximately $31.9 million, $198.4 million and $101.6 million
at December 31, 1993, 1992 and 1991, respectively, related to the No. 5
coke battery rebuild.
NOTE 2--Includes $31.3 million related to the sale of coal properties.
NOTE 3--Includes $47.6 million related to the sale of coal properties.
53
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C (1) COLUMN D COLUMN E COLUMN F
-------- ---------- ----------------- ----------- -------- -------------
OTHER
CHANGES
BALANCE AT ADDITIONS CHARGED ADD
BEGINNING TO (DEDUCT) BALANCE AT
CLASSIFICATION OF PERIOD COSTS AND EXPENSE RETIREMENTS DESCRIBE END OF PERIOD
-------------- ---------- ----------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Land and land improve-
ments................ $ 90,771 $ 3,987 $ 581 $-- $ 94,177
Buildings............. 167,978 4,341 27,875(2) -- 144,444
Machinery and equip-
ment................. 1,631,927 129,172 101,665(3) -- 1,659,434
---------- -------- -------- ---- ----------
TOTAL............... $1,890,676 $137,500 $130,121 $-- $1,898,055
========== ======== ======== ==== ==========
YEAR ENDED DECEMBER 31,
1992
Land and land improve-
ments................ $ 77,455 $ 13,350 $ 34 $-- $ 90,771
Buildings............. 163,441 4,578 41 -- 167,978
Machinery and equip-
ment................. 1,554,218 115,201(4) 37,492 -- 1,631,927
---------- -------- -------- ---- ----------
TOTAL............... $1,795,114 $133,129 $ 37,567 $-- $1,890,676
========== ======== ======== ==== ==========
YEAR ENDED DECEMBER 31,
1991
Land and land improve-
ments................ $ 74,782 $ 2,746 $ 73 $-- $ 77,455
Buildings............. 158,081 5,360 -- -- 163,441
Machinery and equip-
ment................. 1,461,264 139,765(5) 46,811 -- 1,554,218
---------- -------- -------- ---- ----------
TOTAL............... $1,694,127 $147,871 $ 46,884 $-- $1,795,114
========== ======== ======== ==== ==========
</TABLE>
NOTE 1--The annual provision for depreciation has been computed principally in
accordance with the following ranges of lives:
<TABLE>
<S> <C>
Land and land improve-
ments.................... 10 to 20 years
Buildings................. 10 to 45 years
Machinery and equipment... 3 to 15 years
</TABLE>
NOTE 2--Includes $25.0 million related to the sale of coal properties.
NOTE 3--Includes $44.4 million related to the sale of coal properties.
NOTE 4--Includes $18.2 million related to writedowns of certain coal mining
assets.
NOTE 5--Includes $30.9 million related to asset writedowns of Mathies coal mine
as well as certain coal mining assets.
54
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
-------- -------- -------- -------- -------- -------- --------
NATURE OF ANY DEFAULT
BY ISSUER OF
AMOUNT AMOUNT IN SECURITIES GUARANTEED
TOTAL OWNED BY TREASURY IN PRINCIPAL,
NAME OF ISSUER OF AMOUNT PERSON(S) OF ISSUER INTEREST, SINKING
SECURITIES GUARANTEED BY TITLE OF ISSUE OF GUARANTEED FOR WHICH OF FUND OR REDEMPTION
PERSON FOR EACH CLASS OF AND STATEMENT SECURITIES NATURE OF PROVISIONS, OR
WHICH STATEMENT IS FILED SECURITIES GUARANTEED OUTSTANDING IS FILED GUARANTEED GUARANTEE PAYMENT OF DIVIDENDS
- ------------------------ --------------------- ----------- --------- ---------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
ProCoil Corporation..... Notes Payable & Principal
Equipment Leases $10,786 None None and Interest None
Double G Coating Principal
Company, L.P........... Construction Loan 30,199(1) None None and Interest None
-------
Total................. $40,985
=======
</TABLE>
NOTE 1--The Company has separately guaranteed 50% of the debt relating to
financing the construction of the Double G facility. The Loan Agreement
provides for borrowing up to $75.0 million.
55
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ----------------------- ------------ -------------
ADDITIONS
-----------------------
BALANCE CHARGED TO
AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
----------- --------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
RESERVES DEDUCTED
FROM ASSETS
Allowances and
discounts on trade
notes and accounts
receivable........ $ 26,385 $10,565(4) $ -- $15,570(1) $ 21,380
Valuation allowance
on deferred tax
assets............ 189,100 -- 74,100(3) -- 263,200
YEAR ENDED DECEMBER 31,
1992
RESERVES DEDUCTED
FROM ASSETS
Allowances and
discounts on trade
notes and accounts
receivable........ $ 28,058 $18,871(4) $ -- $20,544(1) $ 26,385
Valuation allowance
on deferred tax
assets............ 139,900(2) -- 49,200(3) -- 189,100
YEAR ENDED DECEMBER 31,
1991
RESERVES DEDUCTED
FROM ASSETS
Allowances and
discounts on trade
notes and accounts
receivable........ $ 26,758 $18,513(4) $ -- $17,213(1) $ 28,058
</TABLE>
NOTE 1--Doubtful accounts charged off, net of recoveries, claims and discounts
allowed and reclassifications to other assets.
NOTE 2--Represents the amount of the valuation allowance at January 1, 1992,
the adoption date of SFAS 109.
NOTE 3--Represents the increase in the net deferred tax asset for which no
benefit was recognized.
NOTE 4--Included in these amounts are reserves for doubtful accounts of
$(2,693), $2,434 and $2,716 for 1993, 1992 and 1991, respectively.
Other charges consist primarily of claims for pricing adjustments and
discounts allowed.
56
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- --------- -------- ----------- ----------- ---------
WEIGHTED
AVERAGE
MAXIMUM AVERAGE INTEREST
WEIGHTED AMOUNT AMOUNT RATE
BALANCE AVERAGE OUTSTANDING OUTSTANDING DURING
CATEGORY OF AGGREGATE AT END OF INTEREST DURING THE DURING THE THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(1) PERIOD(2)
--------------------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Revolver................ -- -- -- -- --
Subordinated Loan Agree-
ment................... -- -- -- -- --
Uncommitted Lines of
Credit................. -- -- $ 7,700 $ 21 3.94%
YEAR ENDED DECEMBER 31,
1992
Revolver................ -- -- -- -- --
Subordinated Loan Agree-
ment................... -- -- -- -- --
Uncommitted Lines of
Credit................. -- -- $12,500 $ 107 4.70%
YEAR ENDED DECEMBER 31,
1991
Revolver................ -- -- -- -- --
Subordinated Loan Agree-
ment................... -- -- $50,000 $24,389 6.70%
Uncommitted Lines of
Credit................. -- -- 5,000 22 6.41
</TABLE>
NOTE 1--The average amount outstanding during the period was computed by
dividing the total of daily balances outstanding by total days in the
year.
NOTE 2--The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average short-term debt
outstanding.
57
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------------------------
CHARGED TO COSTS AND
EXPENSES
--------------------------
YEAR ENDED DECEMBER 31,
ITEM 1993 1992 1991
---- -------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs............................. $346,482 $333,399 $332,788
======== ======== ========
Taxes other than payroll and income taxes:
Real and personal property........................ $ 47,331 $ 43,030 $ 43,084
Other............................................. 14,476 16,254 15,874
-------- -------- --------
$ 61,807 $ 59,284 $ 58,958
======== ======== ========
</TABLE>
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
59
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS
The following table sets forth, as of December 31, 1993, certain information
with respect to the executive officers of the Company. Executive officers are
chosen by the Board of Directors of the Company at the first meeting of the
Board after each annual meeting of stockholders. Officers of the Company serve
at the discretion of the Board of Directors and are subject to removal at any
time.
<TABLE>
<CAPTION>
EXECUTIVE
NAME (AGE) OFFICER SINCE POSITION
---------- ------------- --------
<S> <C> <C>
(1) Kokichi Hagiwara (69)...... 1986 Chairman of the Board
(2) Osamu Sawaragi (65)........ 1990 Vice Chairman of the Board
Ronald H. Doerr (53).......... 1984 President and Chief Executive
Officer
(3) James N. Howell (52)....... 1984 Senior Vice President and Chief
Operating Officer
Yoshito Tokumitsu (57)........ 1987 Senior Vice President and
Assistant to the Chief Executive
Officer
Keisuke Murakami (55)......... 1991 Vice President--Administration
Richard E. Newsted (36)....... 1987 Vice President, Chief Financial
Officer and Secretary
Richard P. Coffee, Sr. (48)... 1986 Vice President, Human Resources
William E. Goebel (54)........ 1993 Vice President, Marketing and
Sales
David A. Chatfield (54)....... 1987 Vice President and General
Manager, Great Lakes Division,
and Diversified Businesses
Kenneth J. Leonard (45)....... 1993 Vice President and General
Manager,
Granite City Division
Robert E. Westergren (56)..... 1984 Vice President and General
Manager, Midwest Division
Richard S. Brzenk (51)........ 1987 Vice President, Information
Systems
William D. Thompson (67)...... 1990 Vice President, Government
Affairs
James L. Wainscott (36)....... 1991 Treasurer and Assistant Secretary
Carl M. Apel (38)............. 1992 Corporate Controller, Accounting
and Assistant Secretary
Milan J. Chestovich (51)...... 1985 Assistant Secretary
</TABLE>
- --------
(1) Retired as CEO effective October 14, 1993 and as Chairman of the Board
effective December 31, 1993.
(2) Elected Chairman of the Board effective January 1, 1994.
(3) Resigned effective February 3, 1994.
All of the above-named executive officers, with the exception of Mr.
Thompson, who previously served with NII, have served in various management
capacities with the Company, NKK or one of its subsidiaries for more than the
last five years.
Certain information with respect to Directors as required by this Item is
incorporated by reference from the Company's Proxy Statement for the 1994
Annual Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, the Company's Proxy Statement is not to
be deemed filed as part of this report for purposes of this Item.
60
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
61
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The list of financial statements filed as part of this report is
submitted as a separate section, the index to which is located on page
30.
(2)The list of financial statement schedules required to be filed by Item 8
is located on page 30.
All other schedules of National Steel Corporation and subsidiaries for which
provision is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2-A Asset Purchase Agreement between Weirton Steel Corporation and the
Company, dated as of April 29, 1983, together with collateral
agreements incident to such Assets Purchase Agreement, filed as
Exhibit 2 to the report of National Intergroup, Inc. on Form 8-K dated
January 10, 1984, is incorporated herein by reference.
2-B Stock Purchase Agreement by and among NKK Corporation, National
Intergroup, Inc. and the Company, dated August 22, 1984, together with
certain collateral agreements incident to such Stock Purchase
Agreement and certain schedules to such agreements are incorporated by
reference to Exhibit (2) (sequential pages 5 to and including 248 to
National Intergroup, Inc.'s Form 8-K dated August 31, 1984, Commission
File No. 1-8549). Other schedules to such agreements identified
therein have been omitted, but any of such schedules will be furnished
supplementally to the Commission upon request.
2-C Stock Purchase and Recapitalization Agreement by and among National
Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A.
Corporation and the Company dated as of June 26, 1990, filed as
Exhibit 2 to the current report of the Company on Form 8-K dated July
10, 1990, is incorporated herein by reference.
2-D Amendment to Stock Purchase and Recapitalization Agreement by and
among, National Intergroup, Inc., NII Capital Corporation, NKK
Corporation, NKK U.S.A. Corporation and the Company, dated July 31,
1991, filed as Exhibit 2-F to the annual report of the Company on Form
10-K, for the year ended December 31, 1991, is incorporated herein by
reference.
3-A The Sixth Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
3-B Form of Amended and Restated By-laws of the Company, a copy of which
is attached hereto.
4-A NSC Stock Transfer Agreement between National Intergroup, Inc., the
Company, NKK Corporation and NII Capital Corporation, filed as Exhibit
4-M to the quarterly report of the Company on Form 10-Q for the
quarter ended June 30, 1986, is incorporated herein by reference.
4-B Certificate of Designation of Series A Preferred Stock dated June 26,
1990, filed as Exhibit 4-M to the annual report of the Company on Form
10-K, for the year ended December 31, 1990, is incorporated herein by
reference.
4-C Certificate of Designation of Series B Preferred Stock dated June 26,
1990, filed as Exhibit 4-N to the annual report of the Company on Form
10-K, for the year ended December 31, 1990,
is incorporated herein by reference.
</TABLE>
63
<PAGE>
<TABLE>
<C> <S>
10-A Amended and Restated Lease Agreement between the Company and
Wilmington Trust Company, dated as of December 20, 1985, relating to
the EGL, filed as Exhibit 10-A to the annual report of the Company on
Form 10-K, for the year ended December 31, 1985, is incorporated
herein by reference.
10-B Lease Agreement between The Connecticut National Bank as Owner Trustee
and Lessor and National Acquisition Corporation as Lessee dated as of
September 1, 1987 for the Ladle Metallurgy and Caster Facility located
at Ecorse, Michigan, filed as Exhibit 10-F to the annual report of the
Company on Form 10-K, for the year ended December 31, 1987, is
incorporated herein by reference.
10-C Lease Supplement No. 1 dated as of September 1, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as the Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-G to the annual
report of the Company on Form 10-K, for the year ended December 31,
1987, is incorporated herein by reference.
10-D Lease Supplement No. 2 dated as of November 18, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-H to the annual
report of the Company on Form 10-K, for the year ended December 31,
1987, is incorporated herein by reference.
10-E Purchase Agreement dated as of March 25, 1988 relating to the Stinson
Motor Vessel among Skar-Ore Steamship Corporation, Wilmington Trust
Company, General Foods Credit Investors No. 1 Corporation, Stinson,
Inc. and the Company, and Time Charter between Stinson, Inc. and the
Company, filed as Exhibit 10-E to the annual report of the Company on
Form 10-K, for the year ended December 31, 1988, are
herein by reference.
10-F Amended and Restated Weirton Agreement dated June 26, 1990, between
National Intergroup, Inc., NII Capital Corporation and the Company,
filed as Exhibit 10-F to the annual report of the Company on Form 10-K
for the year ended December 31, 1991, is incorporated herein by
reference.
10-G Amendment to Amended and Restated Weirton Liabilities Agreement dated
July 31, 1991 between National Intergroup, Inc., NII Capital
Corporation and the Company, filed as Exhibit 10-H to the annual
report of the Company on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference.
10-H Indenture of Mortgage and Deed of Trust, dated May 1, 1952, between
the Company and Great Lakes Steel Corporation and City Bank Farmers
Trust Company and Ralph E. Morton, as Trustees, filed as Exhibit 4.1
to the Company's Registration Statement on Form S-1 (Registration No.
2-9639), is incorporated herein by reference.
10-I Second Supplemental Indenture, dated as of January 1, 1957, between
the Company and City Bank Farmers Trust Company and Francis M. Pitt,
as Trustees, filed as Exhibit 2-C to the Company's Registration
Statement on Form S-9 (Registration No. 2-15070), is incorporated
herein by reference.
10-J Fourth Supplemental Indenture, dated as of December 1, 1960, between
the Company and First National City Trust Company and Francis M. Pitt,
as Trustees, filed as Exhibit 4(b)(5) to the Registration Statement of
the M. A. Hanna Company on Form S-1 (Registration No.
2-19169), is incorporated herein by reference.
10-K Fifth Supplemental Indenture dated as of May 1, 1962 between the
Company, First National City Trust Company, as Trustee, and First
National City Bank, as Successor Trustee, filed as Exhibit 19-A to the
annual report of the Company on Form 10-K, for the year ended December
31, 1988, is incorporated herein by reference.
</TABLE>
64
<PAGE>
<TABLE>
<C> <S>
10-L Eighth Supplemental Indenture, dated as of September 19, 1973, between
the Company and First National City Bank and E. J. Jaworski, as
Trustees, filed as Exhibit 2-I to the Company's Registration Statement
on Form S-7 (Registration No. 2-56823), is incorporated herein by
reference.
10-M Ninth Supplemental Indenture, dated as of August 1, 1976, between the
Company and Citibank, N.A., and E. J. Jaworski, as Trustees, filed as
Exhibit 2-J to the Company's Registration Statement on Form S-7
(Registration No. 2-56823), is incorporated herein by reference.
10-N Indenture, dated as of December 1, 1964, between Granite City Steel
Company and Chemical Bank New York Trust Company, Trustee, filed as
Exhibit 4(a) to the Registration Statement of Granite City Steel
Company on Form S-1 (Registration No. 2-22916), is incorporated herein
by reference.
10-O Supplemental Indenture dated as of August 8, 1984 between National
Intergroup, Inc., the Company and Chemical Bank as Trustee, filed as
Exhibit 19-A to the annual report of the Company on Form 10-K, for the
year ended December 31, 1987, is incorporated herein by reference.
10-P Put Agreement by and among NII Capital Corporation, NKK U.S.A.
Corporation and the Company, dated June 26, 1990, filed as Exhibit 4-O
to the annual report of the Company on Form 10-K, for the year ended
December 31, 1990, is incorporated herein by reference.
10-Q Subordinated Loan Agreement dated May 8, 1991, between NUF Corporation
and the Company, filed as Exhibit 4-P to the annual report of the
Company on Form 10-K, for the year ended December 31, 1991, is
incorporated herein by reference.
10-R First Amendment to Subordinated Loan Agreement, dated December 9,
1991, between NUF Corporation and the Company, filed as Exhibit 4-Q to
the annual report of the Company on Form 10-K, for the year ended
December 31, 1991, is incorporated herein by reference.
10-S Second Amendment to Subordinated Loan Agreement, dated December 29,
1992, between NUF Corporation and the Company, filed as Exhibit 10-S
to the annual report of the Company on Form 10-K, dated February 5,
1993, is incorporated herein by reference.
10-T Amended and Restated Loan Agreement, dated October 30, 1992, between
NUF Corporation and the Company filed as Exhibit 10-T to the annual
report of the Company on Form 10-K, dated February 5, 1993, is
incorporated herein by reference.
10-U First Amendment to Amended and Restated Loan Agreement dated February
1, 1993, between NUF Corporation and the Company filed as Exhibit 10-U
to the annual report of the Company on Form 10-K, dated February 5,
1993, is incorporated herein by reference.
10-V 1993 National Steel Corporation Long-Term Incentive Plan, filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-W 1993 National Steel Corporation Non-Employee Directors' Stock Option
Plan, filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-57952, is incorporated herein by
reference.
10-X National Steel Corporation Management Incentive Compensation Plan
dated January 30, 1989, filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-Y Employment Agreement, dated January 29, 1992, as supplemented March 4,
1992, between the Company and Robert E. Westergren, filed as Exhibit
10.4 to the Company's Registration Statement on Form S-1, Registration
No. 33-57952, is incorporated herein by reference.
</TABLE>
65
<PAGE>
<TABLE>
<C> <S>
10-Z Form of Indemnification Agreement, filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1, Registration No. 33-
57952, is incorporated herein by reference.
10-AA Shareholders' Agreement, dated as of September 18, 1990, among DNN
Galvanizing Corporation, 904153 Ontario Inc., National Ontario
Corporation and Galvatek America Corporation, filed as Exhibit 10.27
to the Company's Registration Statement on Form
S-1, Registration No. 33-57952, is incorporated herein by reference.
10-BB Partnership Agreement, dated as of September 18, 1990, among Dofasco,
Inc., National Ontario II, Limited, Galvatek Ontario Corporation and
DNN Galvanizing Corporation, filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-CC Amendment No. 1 to the Partnership Agreement, dated as of September
18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek
Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit
10.29 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-DD Agreement, dated as of February 3, 1993, among the Company, NKK, NKK
U.S.A. Corporation, NII and NII Capital Corporation, filed as Exhibit
10.30 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-EE Second Amendment to Amended and Restated Loan Agreement dated May 19,
1993, between NUF Corporation and the Company, a copy of which is
attached hereto.
10-FF Agreement, dated as of May 19, 1993, among the Company and NKK
Capital of America, Inc., a copy of which is attached hereto.
10-GG Employment Agreement, dated October 14, 1993, between the Company and
Ronald H. Doerr, President and Chief Executive Officer of the
Company, a copy of which is attached hereto.
21 List of Subsidiaries of the Company, a copy of which is attached
hereto.
23 Consent of Independent Auditors, a copy of which is attached hereto.
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of 1993.
(c) Exhibits 3-B, 10-EE, 10-FF, 10-GG, 21 and 23, which are required by Item
601 of Regulation S-K, are filed as part of this report.
66
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF
MISHAWAKA, STATE OF INDIANA, ON THIS 4TH DAY OF MARCH, 1994.
National Steel Corporation
/s/ Richard E. Newsted
By: _________________________________
Richard E. Newsted Vice President,
Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
IN THE CAPACITIES AND ON THE DATE INDICATED ON MARCH 4, 1994.
/s/ Osamu Sawaragi
----------------------------------------
Osamu Sawaragi
Director and Chairman
/s/ Ronald H. Doerr
----------------------------------------
Ronald H. Doerr
Director, President and Chief Executive
Officer
/s/ Yoshito Tokumitsu
----------------------------------------
Yoshito Tokumitsu
Director, Senior Vice President and
Assistant
to the Chief Executive Officer
/s/ Keisuke Murakami
----------------------------------------
Keisuke Murakami
Director and Vice President--Administration
/s/ Edwin V. Clarke, Jr.
----------------------------------------
Edwin V. Clarke, Jr.
Director
/s/ Masayuki Hanmyo
- -----------------------------------------
Masayuki Hanmyo
Director
/s/ Kenichiro Sekino
- -----------------------------------------
Kenichiro Sekino
Director
/s/ Robert J. Slater
- -----------------------------------------
Robert J. Slater
Director
/s/ Richard E. Newsted
- -----------------------------------------
Richard E. Newsted
Vice President, Chief Financial Officer
and Secretary
/s/ Carl M. Apel
- -----------------------------------------
Carl M. Apel
Corporate Controller, Accounting
and Assistant Secretary
67
<PAGE>
NATIONAL STEEL CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
YEAR ENDED DECEMBER 31, 1993
<TABLE>
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PAGE
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<S> <C> <C>
3-B Form of Amended and Restated By-laws of the Company, a copy of which is
attached hereto.
10-EE Second Amendment to Amended and Restated Loan Agreement dated May 19, 1993,
between NUF Corporation and the Company, a copy of which is attached hereto.
10-FF Agreement, dated as of May 19, 1993, among the Company and NKK Capital of
America, Inc., a copy of which is attached hereto.
10-GG Employment Agreement, dated October 14, 1993, between the Company and Ronald
H. Doerr, President and Chief Executive Officer of the Company, a copy of
which is attached hereto.
21 List of Subsidiaries of the Company, a copy of which is attached hereto.
23 Consent of Independent Auditors, a copy of which is attached hereto.
</TABLE>
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EXHIBIT 3B
AMENDED AND RESTATED
BY-LAWS
OF
NATIONAL STEEL CORPORATION
[Approved by the Board of Directors on October 14, 1993]
OFFICES
-------
1. Registered Office. The registered office of National Steel Corporation
(the "Corporation") shall be in the City of Wilmington, County of New Castle,
State of Delaware, and the name of the resident agent in charge thereof shall be
The Corporation Trust Company.
2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may determine from time to time, or as the business of the Corporation may
require.
MEETINGS OF STOCKHOLDERS
------------------------
3. Place of Meetings. Meetings of the stockholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
4. Annual Meetings. The Annual Meeting of Stockholders shall be held on
such date and at such time as shall be determined by the Board of Directors and
stated in the notice of the meeting, at which meeting the stockholders shall
elect by a plurality vote a Board of Directors, and transact such other business
as may properly be brought before the meeting. If the Board of Directors fails
to set a time and date for the Annual Meeting, it shall be held on the second
Wednesday of May at 10:00 a.m., and if a legal holiday, then on the next
following business day. Written notice of the Annual Meeting of Stockholders
shall be given in the same manner set forth in Section 39 hereof, at least ten
(10) days prior to the meeting to each stockholder entitled to vote thereat.
<PAGE>
5. Special Meetings. A Special Meeting of Stockholders, for any purpose
or purposes, may be called at any time by the Board of Directors and shall be
called by the Chairman of the Board of Directors, the President or the Secretary
at the request in writing of stockholders owning at least fifty percent (50%) of
the voting power of the capital stock of the Corporation issued and outstanding
and entitled to vote thereat. Such request shall state the purpose or purposes
of the proposed meeting. Business transacted at all Special Meetings of
stockholders shall be confined to the matters specified in the notice of
meeting. The place, date and hour of the Special Meeting and the purpose or
purposes for which the meeting is called shall be given in the manner set forth
in Section 39 hereof at least ten (10) days before such meeting to each
stockholder entitled to vote thereat.
6. Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, as amended and restated, the holders of a majority of the voting
power of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, but in no event less than one-third
of the shares entitled to vote at the meeting, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. 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, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if 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
entitled to vote at the meeting.
7. Voting. Unless otherwise required by law, the Certificate of
Incorporation, as amended and restated, or these By-Laws, any question brought
before any meeting of stockholders shall be decided by the vote of the holders
of a majority of the voting power of the capital stock represented and entitled
to vote thereat. Each stockholder represented at a meeting of stockholders
shall be entitled to cast such number of votes as set forth in the Certificate
of Incorporation, as amended and restated, with respect to such capital stock,
for each share entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy, but no proxy shall be voted on or after three
years from its date unless such proxy provides for a longer period. All proxies
shall be filed with the Secretary of the Corporation. The vote for directors,
and, upon the demand of any stockholder, the vote upon any question before the
meeting shall be cast by written ballot.
Each election of directors shall be conducted by one or more inspectors or
judges, who may or may not be stockholders, appointed by the chairman of the
meeting. The inspectors or judges shall be sworn to the faithful performance of
their duties and shall, in writing, certify to the returns. No person who is a
candidate for the office of director shall be an inspector or judge.
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8. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided
in the Certificate of Incorporation, as amended and restated, any action
required or permitted to be taken at any Annual or Special Meeting of
Stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
9. List of Stockholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares by class
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
10. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 9 or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
DIRECTORS
---------
11. Number and Election of Directors. The property and business of the
Corporation shall be managed by a Board of Directors, which shall consist of
nine (9) directors. Directors need not be stockholders. Except as provided in
Section 12, directors shall be elected by a plurality of the votes cast at the
Annual Meeting of Stockholders and each director shall be elected to serve until
the next Annual Meeting of Stockholders following said director's election and
until said director's successor shall be duly elected and qualified, or until
said director's earlier resignation or removal.
12. Vacancies. Vacancies in newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the entire Board of Directors, and any other vacancy occurring on the Board
of Directors may be filled by a majority of the directors then in office though
less than a quorum is present, or by a sole remaining director. The directors
so chosen to fill a vacancy shall hold office until the next
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annual election and until their successors are duly elected and qualified, or
until their earlier resignation or removal.
13. Duties and Powers. The Board of Directors 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, as amended and restated, or by
these By-Laws, directed or required to be exercised or done by the stockholders.
14. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors. Notice of regular meetings shall be given in the manner set forth in
Sections 39 and 40 hereof to each director at least five (5) days prior thereto.
Special meetings of the Board of Directors may be called by the Chairman or the
Secretary and shall be called by the Secretary upon the written request of any
three directors. Oral or written notice thereof stating the place, date and
hour of the meeting shall be given to each director at least five (5) days
before the date of the meeting.
15. Quorum. At all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present and voting at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
16. Actions of the Board. 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 all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
17. Meetings by Means of Conference Telephone. Members of the Board of
Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
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 17 shall constitute
presence in person at such meeting.
18. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member
of a committee, and in the absence of a designation by the Board of Directors of
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an alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not the member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have any and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
19. Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be compensated for
their services in such manner as the Board of Directors may determine. 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 also be compensated in such manner as the Board of Directors may
determine for attending committee meetings.
OFFICERS
--------
20. General. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a Chairman (who must be a director), a President, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may also
designate any Vice Chairman of the Board of Directors (who must be a director)
to be an officer and may choose one or more Senior Vice Presidents, Vice
Presidents, Assistant Secretaries, Assistant Treasurers and a Controller. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation, as amended and restated, or these By-
Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman and Vice Chairman of the
Board of Directors, need such officers be directors of the Corporation.
21. Election. The Board of Directors shall annually elect the officers of
the Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors; and all officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors, with or without cause. Any vacancy occurring in any of the offices of
the Chairman, the President, Secretary or Treasurer shall be filled by the Board
of Directors. Any vacancy occurring in any other office may be filled by, or
pursuant to authority delegated by, the Board of Directors or may be left
unfilled. Officers of the Corporation shall be entitled to receive such
compensation for their services as officers as may be fixed by, or pursuant to
authority delegated by, the Board of Directors. Each of the compensated officers
of the Corporation shall be full-time employees of the Corporation unless the
Board of Directors expressly authorizes otherwise. The positions of Chairman
and/or Vice Chairman of the Board of Directors may be held by persons who are
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not full-time employees of the Corporation, in which event such persons will not
be compensated by reason of holding such positions; provided that such persons
shall be permitted to receive reimbursement for their expenses of attendance at
Board and Board committee meetings under Section 19 hereof.
22. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President, and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
23. Chairman of the Board of Directors. The Chairman of the Board shall
preside at all meetings of the Board of Directors. The Chairman shall also
perform all such other duties and exercise all such other powers as these By-
Laws or the Board of Directors may from time to time prescribe.
24. Vice Chairman. The Vice Chairman of the Board, if there is one, in
the absence or disability of the Chairman of the Board, shall perform the duties
of the Chairman of the Board and shall perform such other duties as the Board of
Directors may from time to time prescribe.
25. President. The President shall be the chief executive officer of the
Corporation. The President shall preside at all meetings of the stockholders.
If the President is a member of the Board, then at the request, or in the
absence or disability, of the Chairman or Vice Chairman of the Board of
Directors, the President shall preside at meetings of the Board of Directors.
Under the direction of the Board of Directors, the President shall have the
general management of the business of the Corporation, shall see that all orders
and resolutions of the Board of Directors are carried into effect, and, in
general, shall perform all duties as are usually incident to the office of the
chief executive officer of a corporation. The President shall also perform all
such other duties and exercise all such other powers as from time to time may be
assigned to the President by these By-Laws or by the Board of Directors.
26. Senior Vice President(s); Vice President(s). The Senior Vice
Presidents, if any, and the Vice Presidents shall perform such duties and have
such powers as shall be assigned to said officers by the Board of Directors or
the President. At the request of the President, or in the event of the
President's absence or inability or refusal to act, the Senior Vice President or
Vice President designated by the Board of Directors shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
6
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27. Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors, the Chairman or the President. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation, and the Secretary or any other
officer of the Corporation shall have authority to affix the same to any
instrument requiring it; and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any other such officer. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by the Secretary's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
28. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep, or cause to be kept, full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
kept for that purpose. The Treasurer shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors or the President, taking proper vouchers for such disbursements, and
shall render to the President an account of all transactions as Treasurer and
of the financial condition of the Corporation. In addition, the Treasurer shall
perform all the usual duties incident to the office of Treasurer. 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 such office and for
the restoration to the Corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the possession or under the control
of the Treasurer belonging to the Corporation.
29. Assistant Secretaries. The Assistant Secretary or Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to such Assistant Secretary or Assistant Secretaries by the
Board of Directors or the President, and, in the absence of the Secretary or in
the event of the Secretary's disability or refusal to act, shall perform the
duties of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
30. Assistant Treasurers. The Assistant Treasurer or Assistant
Treasurers, if there be any, shall perform such duties and have such powers as
from time to time may be assigned to such Assistant Treasurer or Assistant
Treasurers by the Board of Directors or the President, and, in the absence of
the Treasurer or in the event of the Treasurer's disability or refusal to act,
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shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant 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 such office and for the restoration to the Corporation, in case of the
Assistant Treasurer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in the
possession or under the control of the Assistant Treasurer belonging to the
Corporation.
31. Controller. The Controller, if any, shall perform such duties as
shall be assigned to the Controller by the Board of Directors or the President.
32. Other Officers. Such other officers as the Board of Directors may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
In case of the absence of any officer of the Corporation, or for any other
reason the Board of Directors may deem sufficient, the Board may delegate, for
the time being, the powers or duties, or any of them, of such officer to any
other officer, or to any director, provided a majority of the entire Board of
Directors concurs therein.
STOCK
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33. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed, either manually or by facsimile, in
the name of the Corporation (i) by the Chairman of the Board of Directors, the
President or the Vice President, Chief Financial Officer, and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by a stockholder in
the Corporation.
Each certificate issued by the Corporation representing shares of Class A
Common Stock shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THESE SECURITIES ARE SUBJECT TO CERTAIN LIMITATIONS
ON TRANSFER SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OF NATIONAL
STEEL CORPORATION. A COPY OF SUCH CERTIFICATE OF
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INCORPORATION IS ON FILE WITH THE SECRETARY OF NATIONAL STEEL CORPORATION.
34. Signatures. Where a certificate is countersigned by (i) a transfer
agent other than the Corporation or its employee, or (ii) a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if said
person were such officer, transfer agent or registrar at the date of issue.
35. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or said owner's legal representative, to advertise the same in such
manner as the Board of Directors 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 certificate alleged to have
been lost, stolen or destroyed.
36. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these By-Laws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by said person's attorney lawfully constituted in writing and upon the surrender
of the certificate therefor, which shall be cancelled before a new certificate
shall be issued.
37. Record Date. 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, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or 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, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
38. Beneficial Owners. 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 any equitable or other claim to or
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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
law.
NOTICES
-------
39. Notices. Except as otherwise provided in these By-Laws, whenever
written notice is required by law, the Certificate of Incorporation, as amended
and restated, or these By-Laws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at such address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telecopy, telex or cable.
40. Waiver of Notice. Whenever any notice is required by law, the
Certificate of Incorporation, as amended or restated, or these By-Laws, to be
given to any director, member of a committee or stockholder, 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.
GENERAL PROVISIONS
------------------
41. Fiscal Year. The fiscal year shall begin the first day of January in
each year.
42. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, as amended and
restated, if any, may be declared by the Board of Directors at any regular or
special meeting, out of funds legally available for the payment thereof, in such
amounts as the Board of Directors, in its sole discretion may determine.
Dividends may be paid in cash, in property (including, but not limited to, in
the form of a release of liabilities whether or not then due and owing to the
Corporation or otherwise), or in shares of the capital stock of the Corporation.
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 Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
43. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
44. Corporate Seal. 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
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may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
INDEMNIFICATION
---------------
45. Power to Indemnify in Actions, Suits or Proceedings other Than Those
by or in the Right of the Corporation. Subject to Section 47, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including internal
investigations) (other than an action by or in the right of the Corporation) by
reason of the fact that said person is or was or has agreed to become a
director, officer, employee, fiduciary, trustee or agent of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director, officer, employee, fiduciary, trustee or agent of another corporation,
partnership, joint venture, trust, pension plan, employee benefit plan or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by said person
or on said person's behalf in connection with such action, suit, investigation
or proceeding, and any appeal therefrom, if said person acted in good faith and
in a manner said person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which said person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such conduct
was unlawful.
46. Power to Indemnify in Actions, Suits or Proceedings by or in the Right
of the Corporation. Subject to Section 47, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or investigation (including
internal investigations) or proceedings by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that said person is or was
or has agreed to become a director, officer, employee, fiduciary, trustee or
agent of the Corporation, or is or was or has agreed to serve at the request of
the Corporation as a director, officer, employee, fiduciary, trustee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan,
pension plan or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against expenses (including attorneys'
fees) actually and reasonably incurred by said person in connection with the
defense or settlement of such action, suit, investigation or proceeding or any
appeal therefrom, if said person acted in good faith and in a manner said person
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
11
<PAGE>
claim, issue or matter as to which said person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, said person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
47. Authorization of Indemnification. Any indemnification under Sections
45 and 46 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, fiduciary, trustee or agent is proper in the
circumstances because said person has met the applicable standard of conduct set
forth in Sections 45 or 46, as the case may be. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however, that a director,
officer, employee, fiduciary, trustee or agent of the Corporation has been
successful on the merits or otherwise, including without limitation, the
dismissal of an action without prejudice, in defense of any action, suit,
investigation or proceeding referred to in Sections 45 and 46, or in defense of
any claim, issue or matter therein, said person shall be indemnified against all
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by said person or on said person's behalf in connection therewith,
without the necessity of authorization in the specific case.
48. Good Faith Defined. For purposes of any determination under Section
47, a person shall be deemed to have acted in good faith and in a manner said
person reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe such conduct was unlawful, if said person's
action is based on the records or books of account of the Corporation or another
enterprise, or on information supplied by the officers of the Corporation or
another enterprise in the course of such officers' duties, or on the advice of
legal counsel for the Corporation or another enterprise or on information or
records given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 48 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which said person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 48 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 45 or 46, as the case may be.
49. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 47, and notwithstanding the
absence of any determination thereunder, any director or officer may apply to
any court of competent jurisdiction in the State of Delaware
12
<PAGE>
for indemnification to the extent otherwise permissible under Sections 45 and
46. The basis of such indemnification by a court shall be a determination by
such court that indemnification of the director or officer is proper in the
circumstances because such officer or director has met the applicable standards
of conduct set forth in Sections 45 or 46, as the case may be. Neither a
contrary determination in the specific case under Section 47 nor the absence of
any determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 49 shall be given to the Corporation promptly upon the
filing of such application. If successful, in whole or in part, the director or
officer seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
50. Expenses Payable in Advance. Costs, charges and expenses incurred by
a person referred to in Sections 45 and 46 in defending or investigating a
threatened or pending action, suit, investigation or proceeding shall be paid to
the extent provided herein by the Corporation in advance of the final
disposition of such action, suit, investigation or proceeding; provided,
however, that (i) the payment of such costs, charges and expenses incurred by a
director or officer of the Corporation in the capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
person while a director or officer) in advance of the final disposition of such
action, suit, investigation or proceeding shall be made only upon receipt of a
written undertaking (in the form of an unsecured promissory note) by or on
behalf of the director or officer to repay all amounts so advanced in the event
that it shall ultimately be determined that such director or officer is not
entitled to be indemnified by the Corporation as authorized in these By-Laws,
and (ii) the payment of such costs, charges and expenses incurred by other
employees, fiduciaries, trustees and agents may be so paid in advance upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may, in the manner set forth above, and upon approval of such
director, officer, employee, fiduciary, trustee or agent of the Corporation,
authorize the Corporation's counsel to represent such person, in any action,
suit, investigation or proceeding, whether or not the Corporation is a party to
such action, suit, investigation or proceeding.
51. Payment of Indemnification Amounts. Any indemnification under
Sections 45, 46, and 47, or advance of costs, charges and expenses provided for
or authorized under Section 50 of these By-Laws, shall be made promptly, and in
any event within sixty (60) days, upon the written request of the director,
officer, employee, fiduciary, trustee or agent. The right to indemnification or
advances to the extent provided by these By-Laws shall be enforceable by the
director, officer, employee, fiduciary, trustee or agent in any court of
competent jurisdiction, if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within sixty (60) days. Said
person's costs and expenses incurred in connection with successfully
establishing said person's right to indemnification or advances, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a claim
for the advance of costs, charges and expenses under Section 50 where the
required undertaking, if any, has been received by the Corporation) that the
claimant has not met the standard of conduct set forth in Sections 45 or
13
<PAGE>
46, but the burden of proving such defense shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the claimant has met the applicable standard
of conduct set forth in Sections 45 and 46 of these By-Laws, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
52. Nonexclusivity of Indemnification and Advancement of Expenses. The
rights to indemnification by these By-Laws shall be construed so as to mandate
indemnification to the fullest extent permitted by applicable law (including,
without limitation, Section 145 of the Delaware General Corporation Law, as
amended) and shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under the Certificate of Incorporation,
as amended or restated, any law (common or statutory), agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding office or
while employed by or acting as an agent for the Corporation, and shall continue
as to a person who has ceased to be a director, officer, employee, fiduciary,
trustee or agent, and shall inure to the benefit of the estate, heirs, executors
and administrators of such person. All rights to indemnification and advances
under these By-Laws shall be deemed to be a contract between the Corporation and
each director, officer, employee, fiduciary, trustee or agent of the Corporation
who serves or served in such capacity at any time while these indemnification
provisions of the By-Laws are in effect. Any repeal or modification of these
indemnification provisions of the By-Laws or any repeal or modification of
relevant provisions of the Delaware General Corporation Law or any other
applicable laws shall not, to the extent permitted by applicable law, in any way
diminish any rights to indemnification and/or advances of such director,
officer, employee, fiduciary, trustee or agent or the obligations of the
Corporation arising hereunder for said person's conduct prior to such appeal or
modification.
53. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee, fiduciary, trustee or agent of the Corporation, or is or was serving
at the request of the Corporation, as a director, officer, employee, fiduciary,
trustee or agent of another corporation, partnership, joint venture, trust,
pension plan, employee benefit or other similar plan or other enterprise against
any liability asserted against said person and incurred by said person or on
said person's behalf in any such capacity, or arising out of said person's
status as such, whether or not the Corporation would have the power or the
obligation to indemnify said person against such liability under the provisions
of these By-Laws.
54. Validity. If these indemnification provisions of the By-Laws or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and provide
advances to each director, officer, employee, fiduciary,
14
<PAGE>
trustee and agent of the Corporation as to costs, charges and expenses
(including attorneys' fees), judgments, fines, penalties, excise taxes and
amounts paid in settlement with respect to any action, suit, investigation or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Corporation, to the full extent permitted by
any applicable portion of these By-Laws that shall not have been invalidated and
to the full extent permitted by applicable law.
55. Limitations on Indemnification. Notwithstanding any other provision
of these By-Laws, the Corporation shall not be required to indemnify any person
for any costs, charges, expenses (including attorneys' fees), judgments, fines,
penalties, excise taxes and amounts paid in settlement incurred in any action,
suit, investigation or proceeding (which shall not be deemed to include
counterclaims or affirmative defenses) initiated by or participated in as an
intervenor or amicus curiae by the person seeking indemnification unless the
initiation of or participation in such action, suit, investigation or proceeding
is authorized, either before or after its commencement, by the Board of
Directors. This Section 55 does not apply to reimbursement of expenses incurred
in successfully prosecuting or defending the right to indemnification granted by
or pursuant to these By-Laws.
56. Certain Definitions. For purposes of these Sections 46 through 56,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of these Sections 46 through 56 with
respect to the resulting or surviving corporation as said person would have with
respect to such constituent corporation if its separate existence had continued.
For purposes of these Sections 46 through 56, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner said person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the Corporation" as referred to in these
Sections 46 through 56.
AMENDMENTS
----------
57. Amendment. These By-Laws may be altered, amended or repealed, in
whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of
15
<PAGE>
new By-Laws be contained in the notice of such meeting of stockholders or Board
of Directors as the case may be. All such amendments must be approved by either
the holders of a majority of the voting power of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors. The
stockholders may adopt a By-Law or By-Laws by the vote of the holders of a
majority of the voting power of the outstanding capital stock entitled to vote
thereon at any such annual or special meeting, and any By-Law so adopted may
contain the provision that it is not subject to amendment or repeal by the Board
of Directors.
58. Entire Board of Directors. As used in these By-Laws generally, the
term "entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
16
<PAGE>
================================================================================
EXHIBIT 10EE
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
between
NUF CORPORATION,
as Lender
and
NATIONAL STEEL CORPORATION,
as Borrower
Dated as of May 19, 1993
================================================================================
<PAGE>
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of
May 19, 1993, is made by and between NUF CORPORATION, a corporation organized
and existing under the laws of the State of Delaware, as lender (the "Lender"),
and NATIONAL STEEL CORPORATION, a corporation existing under the laws of the
State of Delaware, as borrower (the "Borrower").
WHEREAS, pursuant to the Amended and Restated Loan Agreement, dated as of
October 30, 1992, between the Lender and the Borrower (the "Loan Agreement"),
the Lender agreed to make construction loans to the Borrower in the amount of up
to Three Hundred Million Dollars ($300,000,000) to enable the Borrower to
finance a portion of the costs, including interest and fees, associated with the
construction and installation of the Facility and a permanent loan upon the
completion of construction of the Facility;
WHEREAS, the Borrower has requested the Lender, and the Lender has agreed,
to make an additional loan to the Borrower in the amount of up to Thirty-Seven
Million Five Hundred Thousand Dollars ($37,500,000) on February 5, 2000; and
WHEREAS, the parties hereto wish to amend the Loan Agreement to provide for
such additional loan;
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms used herein and not otherwise defined herein shall
have the meanings specified in Appendix A to the Loan Agreement.
2. From and after the date hereof, the Loan Agreement shall be amended as
follows:
A. the last sentence of Section 2A of the Loan Agreement shall be amended
to read as follows:
The loans made under this Section 2.A, together with the Exim Bank
Funded Loans made under Section 3.A hereof, the Permanent Loan made
under Section 4.A hereof, the Additional Loan made under Section 4-I.A
hereof and the Mini Additional Loan made under Section 4-II.A hereof
are herein referred to individually as a "Loan" and collectively as
the "Loans," and the Loans made under this Section 2.A hereof are
herein referred to individually as a "Construction Loan" and
collectively as the "Construction Loans."
B. A new Section 4-II shall be added to the Loan Agreement as follows:
SECTION 4.II MINI ADDITIONAL PERMANENT FINANCING.
A. Mini Additional Loan. The Lender agrees, on and subject to
the terms and conditions of this Agreement to make an additional loan
(the "Mini Additional Loan") to the Borrower on February 5, 2000 (the
-2-
<PAGE>
"Mini Additional Loan Date") in the principal amount of up to but not
exceeding U.S. $37,500,000.
B. Interest on Mini Additional Loan. The Borrower agrees to pay
interest and fees, if any, on the unpaid principal amount of the Mini
Additional Loan at a rate equal to the Mini Additional Loan Interest
Rate as of the Mini Additional Loan Date for the period from and
including the Mini Additional Loan Date until the maturity date of the
Mini Additional Loan. In the event the outstanding principal of the
Mini Additional Loan or any accrued interest thereon or fee incurred
in connection therewith is not paid in full when due (whether at
stated maturity by acceleration or otherwise), such outstanding
principal and (to the extent permitted by law) such interest and fees
shall continue to bear, as the case may be, interest from the due date
thereof until paid in full at the Mini Additional Loan Interest Rate
plus two percent (2%) per annum. Accrued interest and fees on the
Mini Additional Loan shall be paid on each Permanent Loan Interest
Payment Date and on the date such Loan is paid in full.
C. Voluntary Mini Additional Loan Prepayment. The Borrower
shall have the right, on any Permanent Loan Interest Payment Date, to
prepay the Mini Additional Loan in whole or in part, provided that (i)
the Borrower shall give the Lender not less than twenty (20) Business
Days' prior written notice of such prepayment (which notice shall be
irrevocable and effective upon receipt); (ii) each partial prepayment
shall be in a minimum amount of U.S. $1,000,000 or an integral
multiple thereof; (iii) the Borrower shall pay interest on the amount
prepaid accrued to the date of prepayment; and (iv) the Borrower shall
pay all costs reasonably incurred by the Lender in connection with the
termination of (a) any borrowing or other funding arrangements that
the Lender may enter into in connection with funding the Mini
Additional Loan or (b) any rate swap, or portion thereof, that the
Lender may enter into in connection with funding the Mini
-3-
<PAGE>
Additional Loan (together, the "Mini Additional Loan Termination
Costs"). At any reasonable time and from time to time, the Borrower
may request that the Lender provide to the Borrower a written estimate
of the Mini Additional Loan Termination Costs, if any, which the
Borrower would pay if a prepayment were made as provided herein on a
date set forth in such request. The Lender shall provide such
estimate within three (3) Business Days after its receipt of the
Borrower's request. Neither the failure of the Lender to provide such
estimate as aforesaid nor any variance between such estimate and the
actual Mini Additional Loan Termination Costs shall constitute a
waiver by the Lender of its right to receive payment of any actual
Mini Additional Loan Termination Costs from the Borrower.
C. Section 5.A. of the Loan Agreement shall be amended by adding the
following at the end of such section:
(iv) The Borrower shall repay the principal of the Mini
Additional Loan in six (6) equal payments of Six Million Two Hundred
Fifty Thousand Dollars ($6,250,000) on each Permanent Loan Interest
Payment Date. The Mini Additional Loan shall terminate and the
Borrower shall pay all outstanding principal of the Additional Loan
and all accrued interest thereon, if any, on February 5, 2003, or if
such day is not a Business Day, then the next succeeding Business
Date.
D. Section 5.C of the Loan Agreement shall be amended by adding the
following at the end of such section:
The interest on the Mini Additional Loan shall be computed on the
basis of a year of 360 days and the actual number of days elapsed,
from and including the Mini Additional Loan Date to, but not
including, the date the Mini Additional Loan is paid in full.
-4-
<PAGE>
E. Section 5.D of the Loan Agreement shall be amended to read as
follows:
D. Notes. The Construction Loans, taken together, shall be
evidenced by a single promissory note in substantially the form of
Exhibit B hereto, the Permanent Loan shall be evidenced by a single
promissory note in substantially the form of Exhibit C hereto, the
Exim Bank Funded Loans, taken together, shall be evidenced by a single
promissory note in substantially the form of Exhibit C-1 hereto, the
Additional Loan shall be evidenced by a single promissory note
substantially in the form of Exhibit C-2 and the Mini Additional Loan
shall be evidenced by a single promissory note substantially in the
form of Exhibit C-3 (or any promissory note or notes exchanged or
substituted therefor pursuant hereto; such promissory notes being
referred to herein individually as a "Note" and collectively as the
"Notes").
F. A new Section 6.F. shall be added at the end of Section 6 of the
Loan Agreement as follows:
F. Further Conditions to the Mini Additional Loan. It shall be
a condition precedent to the making of the Mini Additional Loan on the
Mini Additional Loan Date, that:
(i) the Company shall have prepaid the principal amount of the
Permanent Loan by an amount equal to no less than $100,000,000 on or
before December 27, 1993;
(ii) the representations and warranties made by the Borrower in this
Agreement shall be true and correct on and as of the date of the
making of the Mini Additional Loan with the same force and effect as
if made on and as of such date, except to the extent any such
representation or warranty expressly related solely to an earlier
date;
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<PAGE>
(iii) no Default shall have occurred and be continuing;
(vi) the Lender shall have received the Note evidencing the Mini
Additional Loan, duly executed by the Borrower;
(v) each of the Operative Documents executed prior to the making of
the Mini Additional Loan remains in full force and effect; and
(vi) the Lender shall have received such other documents and evidence
in connection with the matters contemplated by the Operative Documents
executed prior to the making of the Mini Additional Loan as the Lender
may reasonably require.
3. The following new definitions shall be added to Appendix A of the
Loan Agreement as follows:
"Mini Additional Loan" means a Loan made pursuant to, and bearing
the interest rate set forth in, Section 4.II of the Loan Agreement.
"Mini Additional Loan Commitment" means the commitment of the
Lender to provide a Mini Additional Loan to the Borrower pursuant to
Section 4-II of the Loan Agreement.
"Mini Additional Loan Interest Rate" means the rate per annum
equal to the sum of (i) the actual funding rate received by the Lender
related to the principal amount of the Mini Additional Loan plus (ii)
the Borrowing Cost plus (iii) the Permanent Loan Margin.
4. The following definitions contained in Appendix A shall be
amended to read as follows:
"Borrowing Cost" means any cost (including, without limitation,
any
-6-
<PAGE>
prepayment penalty, charge and penalty and any breakage or early
termination cost or any initial swap costs or attorneys fees) charged
to the Lender in connection with the funding of any Bank Funded
Construction Loan, the Permanent Loan, the Additional Loan or the Mini
Additional Loan, as the case may be.
"Business Day" means (i) in the case of a Construction Loan, the
Permanent Loan, the Additional Loan or the Mini Additional Loan, any
day other than a Saturday, Sunday or other day on which commercial
banking institutions in either New York City or London are required by
law to be closed or (ii) in the case of an Exim Bank Funded Loan, any
day other than Saturday, Sunday or other day on which commercial
banking institutions in Tokyo are required by law to be closed.
"Commitments" means the Construction Loan Commitment, the Exim
Bank Funded Loan Commitment, the Permanent Loan Commitment, the
Additional Loan Commitment and the Mini Additional Loan Commitment,
and "Commitment" means any of them.
5. A new Exhibit C-3 in the form of Annex I hereto shall be added to
the Loan Agreement.
6. All references to the Loan Agreement contained in and in any
other document delivered in connection with the Loan Agreement shall be deemed
to refer to the Loan Agreement as amended by this Amendment.
7. This Amendment may be executed in one or more counterparts, all
of which taken together shall constitute one and the same instrument, and either
of the parties hereto may execute this Amendment by signing any such
counterpart.
-7-
<PAGE>
8. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York.
9. This Amendment and the Loan Agreement as amended hereby
constitute the entire agreement and understanding between the parties hereto and
supersede any and all prior agreements and understanding relating to subject
matter hereof. Except as amended hereby, all terms of the Loan Agreement shall
remain in full force and effect and are hereby confirmed in all respect.
IN WITNESS WHEREOF, the parties hereto have caused the Amendment to be
duly executed as of the date first above written.
NUF CORPORATION
By:___________________________
Name:
Title:
NATIONAL STEEL CORPORATION
By:___________________________
Name:
Title:
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<PAGE>
Annex I
EXHIBIT C-3
MINI ADDITIONAL LOAN NOTE
$37,500,000 Mishawaka, Indiana
February 5, 2000
FOR VALUE RECEIVED, NATIONAL STEEL CORPORATION, a Delaware corporation
(the "Maker"), hereby promises to pay to the order of NUF CORPORATION, a
Delaware corporation (the "Lender"), the principal sum of THIRTY-SEVEN MILLION
FIVE HUNDRED THOUSAND DOLLARS ($37,500,000), together with interest on the
unpaid principal amount hereof from time to time outstanding from and including
the date hereof until such principal amount is paid in full at a rate per annum
equal to the applicable Mini Additional Loan Interest Rate, payable in the
manner stated in, and calculated in accordance with the terms of the Amended and
Restated Loan Agreement, dated October 30, 1992, as amended by the First
Amendment to Amended and Restated Loan Agreement, dated as of February 1, 1993
and the Second Amendment to Amended and Restated Loan Agreement dated as of May
19, 1993 each by and among the Lender and the Maker (collectively, and as
further amended, the "Loan Agreement"), to which reference is hereby made and
which is incorporated herein by reference.
This Note is issued pursuant to the Loan Agreement, and any holder of
this Loan Note is entitled to the benefits thereof. All capitalized terms used
herein and not defined herein shall have the meaning ascribed to them in the
Loan Agreement and Appendix A thereto.
Payments of principal, interest and other amounts due hereunder shall
be payable in the manner stated in the Loan Agreement.
The Maker shall pay, on demand, interest on any overdue principal at a
rate equal to the Mini Additional Loan Interest Rate plus two percent (2%) per
annum, calculated in accordance with the terms of the Loan Agreement.
Prepayments of principal, in whole or in part, are authorized at the
times, in the circumstances and in the manner stated in the Loan Agreement.
<PAGE>
All payments of principal and interest shall be payable in such coin
and currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, and shall be made
without deduction or set-off or counterclaim of the Maker against the Lender.
If an Event of Default shall occur and be continuing, the entire
balance of this Note, and the Interest that shall have accrued thereon, shall
become, or may be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Loan Agreement.
This Note shall be governed and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed
entirely within such State.
NATIONAL STEEL CORPORATION
By:___________________________
Name:
Title:
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<PAGE>
================================================================================
EXHIBIT 10FF
LOAN AGREEMENT
between
NKK CAPITAL OF AMERICA, INC.,
as Lender
and
NATIONAL STEEL CORPORATION,
as Borrower
Dated as of May 19, 1993
================================================================================
<PAGE>
LOAN AGREEMENT
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS................................................... 1
SECTION 2. THE LOANS..................................................... 2
A. The Loans........................................................ 2
B. Interest on the Loans............................................ 3
C. Use of Proceeds.................................................. 3
SECTION 3. PRINCIPAL REPAYMENT; CURRENCY AND PLACE OF
PAYMENT; COMPUTATIONS; NOTE................................ 4
A. Principal Repayment.............................................. 4
B. Currency and Place of Payment.................................... 4
C. Computations..................................................... 4
D. Notes............................................................ 5
SECTION 4. CONDITIONS PRECEDENT.......................................... 5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER................ 9
A. Representations and Warranties................................... 9
B. Survival of Representations and Warranties....................... 12
SECTION 6. COVENANTS..................................................... 12
SECTION 7. EVENTS OF DEFAULT............................................. 15
SECTION 8. TAXES......................................................... 20
A. Taxes............................................................ 20
B. Continuing Obligations........................................... 22
SECTION 9. CHANGE OF LAW................................................. 22
SECTION 10. INDEMNIFICATION.............................................. 23
A. Agreement to Indemnify........................................... 23
B. Notice of Indemnifiable Claim.................................... 24
C. Failure to Defend................................................ 25
SECTION 11. REPORTING REQUIREMENTS....................................... 25
SECTION 12. MISCELLANEOUS PROVISIONS..................................... 25
A. Waiver........................................................... 25
B. Notices.......................................................... 26
C. Expenses......................................................... 27
D. GOVERNING LAW.................................................... 27
E. Severability..................................................... 28
F. Assignment....................................................... 29
G. Counterparts..................................................... 29
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<PAGE>
APPENDIX A -- Definitions
EXHIBIT A -- Notice
EXHIBIT B -- Interest Rate and Principal Repayment Schedule
for the Tranche A Loan and the Tranche C Loan
EXHIBIT C -- Note
EXHIBIT D -- Opinion of Yukevich, Blume & Zangrilli
-ii-
<PAGE>
THIS LOAN AGREEMENT, dated as of May 19, 1993, is made by and between NKK
CAPITAL OF AMERICA, INC., a corporation organized and existing under the laws of
the State of Delaware, as lender (the "Lender") and NATIONAL STEEL CORPORATION,
a corporation existing under the laws of the State of Delaware, as borrower (the
"Borrower").
WHEREAS, the Borrower has requested the Lender to make a loan to the
Borrower to make partial repayments of loans made by NUF Corporation to the
Company in connection with the financing of a portion of the costs associated
with the construction and installation of the Facility, and the Lender has
agreed to make such loan on and subject to the terms and conditions hereof;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings specified in Appendix A attached hereto
and made a part hereof.
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SECTION 2. THE LOANS.
A. THE LOANS. The Lender agrees, on and subject to the terms and
conditions of this Agreement, during the period from the Closing Date to no
later than, but not including, the Termination Date, to make Loans to the
Borrower in an aggregate principal amount up to but not exceeding One Hundred
Million United States Dollars (U.S. $100,000,000) (each loan made hereunder
shall be referred to individually as a "Loan" and collectively as the "Loans").
The Lender shall make advances hereunder to the Borrower between the date hereof
and December 27, 1993 on any Business Day with five days' prior notice (except
in the case of the initial advances which can be made on the date hereof without
such notice) (each a "Notice" which shall be in the form of Exhibit A hereto) by
the Lender to the Borrower; provided, however, that no further Loans shall be
made to the Borrower after December 27, 1993. Each Notice shall provide the
amount of the Loan to be made, the maturity date thereof, the interest rate
thereon and the schedule of repayment of the principal thereof. It is agreed by
the parties hereto that the initial Loan made hereunder (referred to as "Tranche
A Loan") and the second Loan made hereunder (referred to as "Tranche C Loan")
shall each be in the approximate amount of U.S. $37,500,000 and shall be made on
or about May 19, 1993.
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B. INTEREST ON THE LOANS. The Borrower agrees that, for the period from
and including the Closing Date until all outstanding principal of each Loan is
repaid, interest shall be payable in arrears, on each Interest Payment Date on
the unpaid principal amount of each Loan at a rate equal to the Interest Rate
(it is understood that the Interest Rate for the Tranche A Loan and the Tranche
C Loan should be equal to the interest rate set forth in Exhibit B hereto). In
the event the outstanding principal of any Loan or any accrued interest thereon
or fee incurred in connection therewith is not paid in full when due (whether at
stated maturity by acceleration or otherwise), such outstanding principal and
(to the extent permitted by law) such interest and fees shall continue to bear,
as the case may be, interest from the due date thereof until paid in full at the
Interest Rate plus two percent (2%) per annum. Accrued interest and fees on
each Loan shall be paid on each Interest Payment Date and on the date such Loan
is paid in full.
C. USE OF PROCEEDS.
The proceeds of the Loans shall be used by the Company for the sole purpose
of making repayments of principal under the NUF Loan Agreement.
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SECTION 3. PRINCIPAL REPAYMENT; CURRENCY AND PLACE OF PAYMENT;
COMPUTATIONS; NOTE.
A. PRINCIPAL REPAYMENT. The Borrower shall repay the aggregate
outstanding principal amount of each Loan pursuant to the schedule of principal
repayment included in the relevant Note and/or Notice and in any event, no later
than the Termination Date; provided, however, that the aggregate outstanding
principal amount of the Tranche A Loan and the Tranche C Loan shall be repaid in
accordance with the repayment schedule at Exhibit B hereto.
B. CURRENCY AND PLACE OF PAYMENT. All payments on account of the
principal of and interest on each Loan and on each Note or any other amounts
payable by the Borrower hereunder shall be made without set-off or counterclaim
to the account of the Lender (Account Number 002-007657) at Fuji Bank and Trust
Company, New York, New York, not later than 11:00 a.m., local time on the due
date thereof, or if such day is not a Business Day, on the next succeeding
Business Day, in Dollars and in immediately available funds.
C. COMPUTATIONS. The interest on the outstanding principal amount of each
Loan shall be computed on the basis of a
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year of 360 days and the actual number of days elapsed, from and including the
date of the making of such Loan to, but not including, the date such Loan is
paid in full.
D. NOTES. Each Loan shall be evidenced by a promissory note in
substantially the form of Exhibit C hereto (each such promissory note being
referred to herein individually as a "Note" and collectively as the "Notes").
Each Note shall include the schedule of repayment of the principal amount of the
Loan to which such Note relates as described in the relevant Notice.
SECTION 4. CONDITIONS PRECEDENT.
A. The obligation of the Lender to make the initial Loan hereunder
is subject to the receipt by the Lender of the following, each of which shall be
satisfactory in form and substance to the Lender:
(i) Certified copies of the charter documents and by-laws of the
Borrower and certified resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Agreement and the Notes and certified copies of all documents
evidencing other necessary action with respect thereto.
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(ii) Certificates signed by duly authorized officers of the Borrower
and certifying the names and offices of the individuals authorized to
sign this Agreement and the Notes and the other documents or
certificates to be delivered pursuant thereto, and providing signature
specimens for each such individual, on which certificates the Lender
may conclusively rely unless and until revised certificates are
similarly so delivered with respect to documents or instruments to be
delivered by such party after delivery of such revised certificates.
(iii) Evidence that this Agreement and the initial Note have been
duly completed, executed and delivered by each Person intended to be a
party thereto and are in full force and effect (including, without
limitation, an execution copy of this Agreement).
(iv) A signed copy of an opinion of Yukevich, Blume & Zangrilli,
counsel to the Borrower, dated the Closing Date, in substantially the
form of Exhibit D hereto.
(v) The initial Note duly executed by the Borrower.
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(vi) A certificate signed by a duly authorized officer of the Borrower
certifying that (a) the representations and warranties made by the
Borrower in this Agreement shall be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of
such date, except to the extent any such representation or warranty
expressly related solely to an earlier date and (b) no Default shall
have occurred and be continuing.
(vii) Evidence, satisfactory to the Lender, that NSC has arranged for
prepayment of the principal of the Permanent Loan under the NUF Loan
Agreement in an amount at least equal to the initial Loan.
(viii) The Lender shall have received such other documents and
evidence in connection with the matters contemplated by the Operative
Documents executed prior to the making of the initial Loan as the
Lender may reasonably require.
B. The obligations of the Lender to make each subsequent Loan is
subject to the receipt by the Lender of the
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following, each of which shall be satisfactory in form and substance to the
Lender:
(i) The Note relating to each such subsequent Loan duly executed by
the Borrower.
(ii) A certificate signed by a duly authorized officer of the
Borrower, dated the date of the making of such subsequent Loan,
certifying that (a) the representa-tions and warranties made by the
Borrower in this Agreement shall be true and correct on and as of the
date of the making of such subsequent Loan with the same force and
effect as if made on and as of such date, except to the extent any
such representation or warranty expressly related solely to an earlier
date and (b) no Default shall have occurred and be continuing.
(iii) Evidence, satisfactory to the Lender, that NSC has arranged for
prepayment of the principal of the Permanent Loan under the NUF Loan
Agreement in an amount at least equal to each Loan.
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(iv) The Lender shall have received such other documents and evidence
as the Lender may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
A. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Lender as follows:
(i) The Borrower is a corporation duly organized and validly existing
under the laws of the State of Delaware with all requisite power to
execute and deliver the Operative Documents to which it is or will be
a party and to perform its obligations hereunder and thereunder, and
is duly qualified and in good standing to do business as a foreign
corporation in each state or other jurisdiction where such
qualification is required.
(ii) The Operative Documents to which it is or will be a party have
been duly authorized, and such Operative Documents will be duly
executed and delivered by the Borrower and, assuming due
authorization, execution and delivery by the other parties hereto and
thereto,
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constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms.
(iii) Neither the execution, delivery and performance by the Borrower
of any Operative Documents to which it is or will be a party nor the
consummation of the transaction contemplated hereby or thereby,
including, without limitation, the construction, installation or
operation of the Facility, will conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any encumbrance upon the
Borrower or any of the property or assets of the Borrower pursuant to
the terms of, any applicable law or regulation, its charter documents
or by-laws or any indenture, mortgage, deed of trust, loan agreement,
guaranty, lease financing agreement or other similar agreement or
instrument under which the Borrower is a debtor or a guarantor, nor
will such action result in any violation of the provisions of the
charter documents or the by-laws of the Borrower.
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(iv) There are no legal, governmental or other proceedings pending to
which the Borrower is subject, and no such proceedings are known by
the Borrower to be threatened or contemplated by governmental
authorities or threatened by others, that would materially impair the
Borrower's ability to perform its obligations under any Operative
Documents to which it is or will be a party.
(v) No approval of, notice to or registration with, or the taking of
any other action in respect of, any federal, state, municipal or other
governmental authority, or any other Person, and no filing, recording,
publication or registration in any public office or any other place,
is now, or in the future will be, required or necessary to authorize
the execution, delivery and performance by the Borrower of any
Operative Documents to which it is or will be a party, or for the
legality, validity, binding effect or enforceability thereof.
(vi) The obligations of the Borrower represented by the Loans and the
Notes shall constitute direct, unconditional and general obligations
of the Borrower
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and will rank at least pari passu with the highest ranking unsecured
indebtedness of the Borrower to any other Person as of the date
hereof, except for any indebtedness which ranks higher than the
Borrower's obligations under the Loans by operation of law.
B. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Borrower shall survive the execution and delivery of
this Agreement, and the making of each Loan evidenced hereby.
SECTION 6. COVENANTS. The Borrower agrees that, so long as the
Commitment is in effect and until payment in full of the principal of and
interest on each Loan and all other amounts payable by the Borrower hereunder:
(a) The proceeds of each Loan shall be used by the Borrower solely to
make payments of principal under the NUF Loan Agreement.
(b) The Borrower shall not change the location of its principal place
of business and the place where its records concerning the Operative Documents
are kept without prior written notice to the Lender.
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(c) The Borrower shall (i) duly perform all of its obligations under
each of the Operative Documents to which it is a party; (ii) permit the Lender
and its representatives at all reasonable times to inspect the Facility and its
books and records relating to the Operative Documents; and (iii) take such other
actions and execute such documents as the Lender may deem necessary or
appropriate to effectuate the purposes of the Operative Documents.
(d) The Borrower agrees that it shall not enter into any written
amendment of or supplement to any Operative Documents to which it is a party or
execute or deliver any written waiver of or modification of, or consent under,
the terms of the Operative Documents, unless such supplement, amendment, waiver,
modification or consent is consented to in writing by the Lender.
(e) The Borrower shall pay and discharge all taxes and governmental
charges upon it, or against its properties or assets, prior to the date after
which penalties attach for failure to pay, except to the extent the Borrower is
contesting in good faith its obligation to pay such taxes or charges by
appropriate proceedings and has established adequate reserves therefor.
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(f) The Borrower shall not (i) merge or consolidate with or into any
corporation, or (ii) sell, lease or otherwise transfer all or any substantial
part of its assets to any other Person (except in the ordinary course of
business), whether now owned or hereafter acquired; provided that a wholly-owned
subsidiary of the Borrower may merge into the Borrower.
(g) The Borrower shall take all action necessary to ensure that the
obligations of the Borrower under or in connection with this Agreement, the
Loans or the Notes ("Borrower's Obligations") will constitute direct,
unconditional and general obligations of the Borrower ranking at least pari
----
passu with the highest ranking unsecured indebtedness of the Borrower to any
other Person, except for any indebtedness which ranks higher than Borrower's
Obligations by operation of law.
(h) The Borrower shall immediately inform the Lender of (i) the
imposition of any law, decree or regulation materially affecting the Borrower or
the Facility; (ii) any material amendment to the Operative Documents; and (iii)
any substantial change in the business activities of the Borrower or related to
the Facility.
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(i) The Borrower shall promptly inform the Lender of the occurrence
of (i) any event or circumstance which interferes or threatens to interfere with
the implementation, completion or operation of the Facility, or (ii) any other
matter which materially affects the corporate or business activities or
existence of the Borrower.
(j) The Borrower shall give the Lender immediate written notice of
the occurrence of any Default or any event which interferes, or threatens to
interfere with the performance by the Borrower of its obligations under this
Agreement.
SECTION 7. EVENTS OF DEFAULT. If any of the following events
("Events of Default") shall have occurred and be continuing:
(a) The Borrower defaults in any payment of principal or interest or
any other payment on the due date thereof under this Agreement or under any Note
and such non-payment continues for 10 days after notice.
(b) The Borrower fails duly to observe or perform any of its other
covenants or agreements in any Operative Document
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for a period of twenty (20) calendar days after the date on which notice of such
failure shall have been given to the Borrower.
(c) Any material representation or warranty by the Borrower in any
Operative Document to which it is a party or any certificate delivered in
connection therewith shall have proven not to have been true and correct when
made, or any obligation of the Borrower under any Operative Document shall at
any time and for any reason cease to constitute a valid and binding obligation
of the Borrower.
(d) The Borrower shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as such debts become
due, (iii) make a general assignment for the benefit of its creditors, (iv) file
a petition seeking to take advantage of any law relating to bankruptcy,
insolvency, reorganization, winding up, or composition or readjustment of debts,
(v) fail to controvert in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under any
bankruptcy law, or (vi) take any corporate action for the purpose of effecting
any of the foregoing.
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(e) A proceeding or case shall be commenced, without the application
or consent of the Borrower in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, winding-up or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower or of all or any substantial
part of its assets, or (iii) similar relief in respect of the Borrower under any
law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or a warrant of attachment, execution or
similar process shall be issued against any property of the Borrower having a
value in excess of U.S. $500,000 and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a period of
twenty (20) days; or an order for relief against the Borrower shall be entered
in an involuntary case under such bankruptcy law.
(f) Except as permitted by any Operative Document, the Facility or
any part thereof shall be sold, transferred or otherwise disposed of prior to
payment in full of the principal of and interest on each Loan and all other
amounts payable by the Borrower hereunder.
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(g) Any event or condition shall occur which results in the
acceleration of the maturity of any indebtedness for borrowed moneys (including
indebtedness under any guarantees) of the Borrower exceeding $5,000,000 in
aggregate principal amount at the time outstanding or enables the holder of such
indebtedness or any Person acting on such holder's behalf to accelerate the
maturity thereof.
(h) NKK Corporation, a corporation organized under the laws of Japan,
shall cease to hold directly or indirectly shares constituting a majority of the
combined voting power of all classes of voting stock of the Borrower and have
voting power to elect a majority of the directors thereof.
(i) The occurrence of an Event of Default (as defined in the NUF Loan
Agreement) under the NUF Loan Agreement which relates to the Borrower.
(j) The occurrence of an Event of Default (as defined in the NCA Loan
Agreement) under the NCA Loan Agreement which relates to the Borrower.
THEREUPON, (i) in the case of an Event of Default other than one
referred to in clause (d), (e), (f), (g) or (h) above,
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the Lender may, by notice to the Borrower, forthwith terminate the Commitment
and may declare the then unpaid principal of and accrued interest on each Loan
due and payable to the Lender and (ii) in the case of the occurrence of an Event
of Default referred to in clause (d), (e), (f), (g) or (h) above, unless the
Lender shall otherwise elect, the Commitment shall be automatically terminated
and the then unpaid principal of and accrued interest on each Loan shall
automatically become due and payable to the Lender. In the event the principal
of, premium, if any, and accrued interest on any Loan is declared due and
payable or is automatically accelerated as hereinabove provided, all other
amounts payable by the Borrower under this Agreement and under each Note shall,
concurrently with such declaration or acceleration, as the case may be,
automatically and without further act, forthwith become due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower. The Borrower shall indemnify the
Lender on demand for all reasonable costs, losses and expenses (including,
without limitation, legal fees and funding and foreign exchange losses) incurred
as a consequence of any Default or Event of Default.
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SECTION 8. TAXES.
A. TAXES. The Borrower will pay to the Lender all principal of and
interest on each Loan and all other amounts payable by the Borrower hereunder or
under any other Operative Document free and clear of, and without liability or
reduction for or on account of, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges or withholdings of whatsoever nature
now or hereafter imposed on the Lender or its affiliates in connection with any
Loan or any Operative Document, whether imposed by a U.S. federal, state or
local government or by a foreign government, except to the extent imposed as a
consequence of the Lender or its affiliates engaging in any activity unrelated
to the transactions contemplated by the Operative Documents whether taken in
conjunction with the transactions contemplated hereby or otherwise (all such
non-excluded taxes, levies, imposts, duties, fees, assessments and other charges
or withholdings being herein called "Taxes"). If any Taxes are so levied or
imposed, the Borrower will pay to the Lender the full amount of such Taxes, and
such additional amounts in respect of such Taxes as may be necessary so that
every payment of principal of and interest on each Loan and all other amounts
payable by the Borrower hereunder or under any other Operative Document after
withholding or deduction for or on account of any such Taxes and after taking
into account any
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additional Taxes wherever imposed with respect to the receipt of such additional
amounts, will not be less than any amount provided for herein or therein. The
Borrower will indemnify and hold harmless the Lender against and reimburse to
the Lender upon demand for the amount of any Taxes paid by the Lender. If the
Lender shall determine that any credit or deduction for income tax purposes with
respect to any withholding Taxes on payments of interest on any Loan expressly
specified as such hereunder is available to the Lender in its domicile, the
Lender shall use its best efforts in good faith to allocate to such credit or
deduction such Taxes in connection with payments under this Agreement with all
other like taxes that may be claimed by the Lender as a credit or deduction with
a view towards achieving equality of treatment in apportioning such available
credit or deduction on the basis of all applicable facts and circumstances, and,
in the event the Lender shall make a demand for indemnification under this
Section 8.A for or on account of any such Taxes, the obligation of the Borrower
to indemnify the Lender for such Taxes shall be reduced pro tanto (a certificate
--- -----
of the Lender as to the amount of such reduction to be conclusive in the absence
of manifest error).
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B. CONTINUING OBLIGATIONS. The agreements of the Borrower under this
Section 8 shall survive repayment of the Loans.
SECTION 9. CHANGE OF LAW.
Notwithstanding any other provision herein, in the event that any
change in any applicable law or regulation or in the interpretation or
administration thereof shall make it unlawful (a) for the Lender to honor its
Commitment, then its Commitment shall terminate or (b) for the Lender to
maintain the Loans, then the principal amount of the Loans then outstanding,
together with interest accrued thereon and any other amounts payable by the
Borrower under this Agreement and each other Operative Document, shall be
prepaid in full by the Borrower on the next succeeding Interest Payment Date or
such earlier date as may be required by applicable law or regulation. The
Lender shall use good faith efforts to change its lending office for the purpose
of honoring its Commitment or maintaining the Loans, as the case may be, in
compliance with applicable law (provided that nothing herein shall obligate the
Lender to take any steps which the Lender considers to be adverse to its
interests).
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SECTION 10. INDEMNIFICATION.
A. AGREEMENT TO INDEMNIFY. The Borrower agrees to indemnify, pay and
hold the Lender, its officers, directors, employees and agents (collectively
called the "Indemnified Parties") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnified Parties in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnified Parties
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against that Indemnified Party, in any manner relating to or arising
out of the use or intended use of the proceeds of the Loans hereunder or any of
the Operative Documents to which the Borrower is a party, including without
limitation, any liabilities arising in connection with any state or federal
environmental laws, rules or regulations, (collectively, the "Indemnifiable
Claims"); provided that the Borrower shall have no obligation to an Indemnified
Party hereunder with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of that Indemnified Party. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is
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violative of any law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all indemnified liabilities incurred by the
Indemnified Parties or any of them. The agreements of the Borrower under this
Section 10 shall survive the repayment of the Loans.
B. NOTICE OF INDEMNIFIABLE CLAIM. Any Indemnified Party seeking
indemnification under this Section 10 with respect to Indemnifiable Claims
resulting from the assertion of liability by third parties shall give notice to
the Borrower within twenty (20) days of becoming aware of any such Indemnifiable
Claim. In case any such liability is asserted against any Indemnified Party,
and it notifies the Borrower thereof, the Borrower will promptly assume the
defense thereof with counsel satisfactory to Borrower. Notwithstanding the
foregoing, (i) no Indemnified Party shall have any obligation to give any notice
of any assertion of liability by a third party unless such assertion is in
writing, and (ii) the rights of any Indemnified Party to be indemnified
hereunder in respect of Indemnifiable Claims resulting from the assertion of
liability by third parties shall not be adversely affected by the Indemnified
Party's failure to give notice pursuant to the foregoing, unless and only to the
extent that the Borrower is materially prejudiced thereby.
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C. FAILURE TO DEFEND. In the event that the Borrower, within twenty
(20) days after receipt of a notice pursuant to Section 10.B of an Indemnifiable
Claim, fails to assume the defense of such Indemnified Party against such
Indemnified Claim, such Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such Indemnifiable Claim on behalf of and
for the account and risk of the Borrower.
SECTION 11. REPORTING REQUIREMENTS.
The Borrower shall furnish to the Lender:
(a) Promptly upon availability and in any event within one hundred
and ten (110) days after the end of each fiscal year of the Borrower, the annual
audited consolidated financial statements of the Borrower.
(b) Promptly, such other information concerning the Borrower as the
Lender may from time to time reasonably request.
SECTION 12. MISCELLANEOUS PROVISIONS.
A. WAIVER. No failure on the part of the Lender to exercise and no
delay in exercising and no course of dealing with respect to any right, power or
privilege under this Agreement or any other Operative Document shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or
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privilege under this Agreement or any other Operative Document preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
B. NOTICES. Except as otherwise specified herein, all notices and
other communications hereunder or under any other Operative Document shall be in
writing (which may be by telecopy transmission) and shall be deemed to have been
duly given (i) when given by mail, on the date seven (7) calendar days after
being deposited in the mails, registered or certified and airmail postage
prepaid, or (ii) when given by telecopy, on the date transmitted by telecopy
(with confirmed answerback and with prompt telephone confirmation of receipt of
such telecopy by the intended recipient), addressed or directed to either party
hereto at its address or telecopy number, respectively, given below or, as to
any such party, at such other address or telecopy number as such party shall
have notified in writing the party giving such notice:
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If to the Borrower:
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: Treasurer
Telecopier: (219) 273-7478
If to the Lender:
NKK Capital of America, Inc.
c/o NUF Corporation
450 Park Avenue
25th Floor
New York, NY 10022
Attention: Treasurer
Telecopier: (212) 826-6345
In addition, for purposes of computing any grace period hereunder, reference to
any given number of Business Days or calendar days shall be computed by
reference to the specified period of time in the Lender's domicile.
C. EXPENSES. The Borrower shall pay all legal fees and expenses
incurred by the Borrower and all reasonable legal fees and expenses and
Borrowing Costs incurred by the Lender in connection with the making of the
Loans.
D. GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ALL
JUDICIAL ACTIONS, SUITS OR PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT
TO ITS OBLIGATIONS,
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LIABILITIES OR OTHER MATTERS UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR FOR RECOGNITION
OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH PROCEEDINGS MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW
YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER ACCEPTS,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY, FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. THE BORROWER
HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTIONS, INCLUDING WITHOUT
LIMITATION ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
LIMIT THE RIGHT OF THE LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING AGAINST
THE BORROWER IN THE COURT OF ANY JURISDICTION.
E. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of
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<PAGE>
such prohibition or unenforceability without invalidating the remaining
provisions hereof and without affecting the validity or enforceability of such
provisions in any other jurisdiction.
F. ASSIGNMENT. This Agreement shall be binding on and inure to the
benefit of the Lender and the Borrower and their respective successors and
assigns; provided, that neither the Lender nor the Borrower may, except as
expressly permitted herein, assign, transfer, grant participations in or
otherwise dispose of any or all of its rights or obligations hereunder (any such
assignment, transfer, participations or other dispositions being herein called a
"Transfer"). The Borrower agrees that the Lender may Transfer any of its rights
and obligations hereunder and under the other Operative Documents with the prior
consent of the Borrower (such consent not to be unreasonably withheld). The
Borrower shall not be responsible for any additional amounts payable under
Section 8 hereof incurred at the time of any such Transfer by the Lender solely
as a consequence of such Transfer.
G. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
NKK CAPITAL OF AMERICA, INC.
By:_______________________________
Name:__________________________
Title:_________________________
NATIONAL STEEL CORPORATION
By:_______________________________
Name:__________________________
Title:_________________________
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<PAGE>
APPENDIX A
to the
LOAN AGREEMENT
As used in the Loan Agreement, the following terms shall have the
definitions set forth below and such definitions shall be equally applicable to
both the singular and plural forms:
"Applicable Loan Margin" means 0.5% per annum.
"Borrowing Cost" means any commercially reasonable cost (including, without
limitation, any issuance costs, attorneys fees, prepayment penalty, charge or
penalty and any breakage or early termination cost) charged to the Lender in
connection with the funding of any Loan.
"Business Day" means any day other than a Saturday, Sunday or other day on which
commercial banking institutions in either New York City or London are required
by law to be closed.
"Closing Date" means the date on which all of the conditions precedent included
in Section 4.A hereof have been satisfied.
"Commitment" means the commitment of the Lender to provide the Loans to the
Borrower pursuant to Section 2 of the Loan Agreement.
"Default" means an Event of Default or an event which with notice or lapse of
time or both would become an Event of Default.
"Dollars" and "U.S.$" refer to dollars in lawful money of the United States of
America.
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<PAGE>
"Events of Default" has the meaning attributed to it in Section 7 of the Loan
Agreement.
"Facility" means that certain coke oven battery to be constructed by the
Borrower at its Great Lakes Division.
"Governmental Approval" means any authorization, consent, approval, license,
ruling, permit, certificate, exemption, filing or registration by or with the
United States or any state or local government authority or legal or
administrative body.
"Indebtedness" means with respect to any Person, the following (whether
outstanding on the date of this Agreement or at any time thereafter without
duplication): (a) all indebtedness of such Person for borrowed money: (b) all
indebtedness for the deferred purchase price of property or services; (c) all
reimbursement obligations of such Person under or in respect of letters of
credit or banker's acceptances; (d) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (e) all obligations of
such Person under capital leases; and (f) all direct or indirect guarantees,
endorsements, ovals and similar obligations of such Person in respect of, and
all obligations (contingent or otherwise) of such Person to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of any other Person specified in any of the
preceding clauses.
"Interest Payment Date" means each February 5 and August 5; provided that, if
any such date is not a Business Day, the relevant Interest Payment Date shall be
the next succeeding Business Day (unless such succeeding Business Day falls in
another calendar month, in which event the relevant Interest Payment Date shall
be the next preceding Business Day).
"Interest Rate" with respect to each Loan means the rate per annum equal to the
actual funding rate received by the Lender related to the principal amount of
such Loan plus the Applicable Loan Margin.
"Loan" and "Loans" have the meanings attributed to such terms in Section 2.A of
the Loan Agreement.
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<PAGE>
"Loan Agreement," unless the context otherwise requires, means the Loan
Agreement between the Lender and the Borrower dated as of May 19, 1993.
"NCA Loan Agreement" means that certain Loan Agreement, dated October 30, 1992
between NKK Capital of America, Inc. and National Steel Corporation, as amended
from time to time.
"Note" and "Notes" have the meanings attributed to such terms in Section 3.D of
the Loan Agreement.
"NUF Loan Agreement" means that certain Amended and Restated Loan Agreement,
dated October 30, 1992, between NUF Corporation and National Steel Corporation,
as amended from time to time.
"Operative Documents" means the Loan Agreement and each Note, and "Operative
Document" means any of them.
"Person" means an individual, corporation, partnership, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Taxes" has the meaning attributed to it in Section 8 of the Loan Agreement.
"Termination Date" means February 5, 2000.
"Transfer" has the meaning assigned in Section 12.F of the Loan Agreement.
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<PAGE>
EXHIBIT A
[Letterhead of NKK Capital of America, Inc.]
NOTICE
__________, 19__
VIA TELECOPY OR CERTIFIED OR REGISTERED
- ---------------------------------------
AIR MAIL - RETURN RECEIPT REQUESTED
- -----------------------------------
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: Vice President - Finance and Treasurer
Re: Loan Agreement between NKK Capital of America, Inc. and National
Steel Corporation, dated as of May __, 1993 (the "Loan Agreement")
------------------------------------------------------------------
Gentlemen:
Pursuant to Section 2.A of the Loan Agreement, NKK Capital of America,
Inc. is hereby providing you with the Notice five (5) days prior to the Lending
Date set forth below, as follows:
1. Lending Date: ____________________
2. Amount: U.S.$_____________________
3. Maturity Date: ___________________
4. Interest Rate: The actual funding rate received by NKK Capital of
America, Inc. plus 0.50% subject to any adjustments for any Borrowing
Cost (as defined in the Loan Agreement) is ________ percent.
<PAGE>
5. The schedule of the repayment of the principal of the Loan shall be
as follows:
Date Amount
---- ------
________________ ________________
________________ ________________
________________ ________________
________________ ________________
Very truly yours,
NKK CAPITAL OF AMERICA, INC.
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT C
NOTE
$_______________ Mishawaka, Indiana
Date:_______________
FOR VALUE RECEIVED, NATIONAL STEEL CORPORATION, a Delaware corporation
(the "Maker"), hereby promises to pay to the order of NKK CAPITAL OF AMERICA,
INC., a Delaware corporation (the "Lender"), __________________________ Dollars
($__________), together with interest on the unpaid principal amount hereof from
time to time outstanding from and including the date hereof until such principal
amount is paid in full at a rate per annum equal to the Interest Rate, payable
in the manner stated in, and calculated in accordance with the terms of the Loan
Agreement, dated as of May __, 1993, by and among the Lender and the Maker (the
"Loan Agreement"), to which reference is hereby made and which is incorporated
herein by reference.
This Note is issued pursuant to the Loan Agreement, and any holder of
this Note is entitled to the benefits thereof. All capitalized terms used
herein and not defined herein shall have the meaning ascribed to them in the
Loan Agreement and Appendix A thereto.
Payments of interest and other amounts due hereunder shall be payable
in the manner stated in the Loan Agreement. The Maker shall pay, on demand,
interest on any overdue principal at a rate equal to the Interest Rate plus two
----
percent (2%) per annum, calculated in accordance with the terms of the Loan
Agreement.
The Maker shall pay the principal amount of the amounts due hereunder
on the dates and in the amounts described below:
Date Amount
---- ------
____________ ___________________
____________ ___________________
____________ ___________________
____________ ___________________
<PAGE>
Except as provided above, the prepayments of principal, in whole or in
part, are authorized at the times, in the circumstances and in the manner stated
in the Loan Agreement.
All payments of principal and interest shall be payable in such coin
and currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, and shall be made
without deduction or set-off or counterclaim of the Maker against the Lender.
If an Event of Default shall occur and be continuing, the entire
balance of this Note, and the interest that shall have accrued thereon, shall
become, or may be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Loan Agreement.
This Note shall be governed and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed
entirely within such State.
NATIONAL STEEL CORPORATION
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT 10GG
AGREEMENT
THIS AGREEMENT, made effective as of the 14th day of October, 1993
("Effective Date"), by and between National Steel Corporation ("NSC") and Ronald
H. Doerr ("Doerr")
WITNESSETH
WHEREAS, Doerr has served as President and Chief Operating Officer of NSC
since 1990; and
WHEREAS, NSC desires Doerr to be the President and Chief Executive Officer
("CEO") of NSC on the Effective Date, and, as President and CEO, to exercise
strong leadership and guidance, and to undertake certain specific
responsibilities, to enable NSC to achieve favorable business and financial
results; and
WHEREAS, NSC is willing to grant Doerr certain specific authority and
assurances to enable him and to induce him to so perform; and
WHEREAS, Doerr is willing to undertake such leadership role and
responsibilities and to accept such authority and assurances under the terms and
conditions of this Agreement; and
WHEREAS, the benefits described in Section 5 of this Agreement are in
addition to and not in substitution for any benefits to which Doerr may be
entitled under any existing or future plans or programs maintained by NSC for
its senior executives or employees.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
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<PAGE>
1. Term. The term of this Agreement shall commence on the Effective Date
and shall continue until October 1, 1996 and thereafter from year to year,
unless and until this Agreement is terminated at the end of any month after the
Effective Date by either party giving to the other party at least thirty (30)
days advance written notice of termination.
2. Responsibilities. During the term of this Agreement, Doerr shall be
employed as President and CEO of NSC and, as such, shall exercise leadership to
enable the management and employees of NSC to:
(i) stabilize and improve operations with substantial
reduction or elimination of unscheduled down time and
significant yield improvement;
(ii) improve NSC's mix of products, markets and customers;
(iii) meet NSC customer requirements for the on-time delivery
of proper quantities of quality products;
(iv) stop losses and achieve sustained profitability for
NSC;
(v) continue a sound capital improvement program for NSC;
and
(vi) increase shareholder value in NSC.
Doerr's performance as President and CEO shall be judged by the NSC
Board of Directors (the "Board") and its Compensation Committee in substantial
measure by the degree of NSC's success in achieving the above-described goals.
-2-
<PAGE>
3. Authority. To enable Doerr, as President and CEO, to exercise the
leadership necessary to achieve the goals described in Section 2 above, he shall
have the following authority and powers, subject always to the overall direction
of the Board:
(i) the authority to develop and implement the
organizational structure and authorities and
responsibilities of the management of NSC; and
(ii) the authority to determine which employees shall hold
key management positions, including the power to
appoint, remove and fire and hire such employees; and
(iii) the authority granted to him in his office of President
and CEO under NSC's charter, by-laws and applicable
law, including the general management of the business
of NSC.
4. Compensation. (a) For the period from the Effective Date
through December 31, 1993, Doerr's initial Base Pay shall be $351,000 per year.
Commencing January 1, 1994 and continuing thereafter for the term of this
Agreement or until increased by the Board, Doerr's Base Pay shall be $450,000
per year. Doerr's Base Pay during the term of this Agreement may be changed by
the Board to recognize Doerr's performance of his responsibilities as President
and CEO of NSC and such other factors as the Board deems appropriate, but at no
time after January 1, 1994 and during the term of this Agreement shall Doerr's
Base Pay be less than his Base Pay on January 1, 1994.
(b) During the term of this Agreement, Doerr shall also be (i)
entitled to participate in such retirement, profit sharing, gainsharing, stock
bonus, incentive compensation (cash or equity), equity compensation, group
insurance, health care, salary continuance and other fringe benefit plans and
perquisites, if any, as may be provided from time to time for senior executives
of NSC, (ii) provided with reimbursement of expenses related to his
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<PAGE>
employment by NSC on a basis no less favorable than that which may be authorized
from time to time by the Board, in its sole discretion, for senior executives
generally, and (iii) entitled to vacation and holidays in accordance with NSC's
normal personnel policies for senior executives.
(c) During the term of this Agreement and for a period of one year
after the termination of this Agreement, NSC will pay the cost of financial and
tax planning services for Doerr. Such services will be furnished by a provider
chosen by Doerr with the approval of NSC.
5. Termination of Agreement
------------------------
(a) Termination Without Cause. If this Agreement is terminated,
other than pursuant to subsections (c) or (d), below, without
cause by NSC before October 1, 1996, Doerr shall be entitled to
the following from NSC:
(i) a monthly payment beginning in the month next following the
date as of which this Agreement is terminated and ending in
the month in which Doerr's death occurs, in an amount equal
to:
(A) the regular pension that would have been payable under
the National Steel Corporation Retirement Program
("Retirement Program") if Doerr had been credited with
the greater of his actual Benefit Service (as such term
is defined in the Retirement Program) or 30 years of
Benefit Service, calculated (1) on the basis of
earnings (as defined in the Retirement Program)
determined without regard to the limit on annual
compensation under section 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code"), or the
exclusion under the Retirement Program for compensation
deferred under the National Steel Corporation Executive
Deferred
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<PAGE>
Compensation Plan ("EDC Plan"), (2) without regard to
any applicable maximum benefit limitation under section
415 of the Code, and (3) without regard to any
reduction for early retirement applicable under the
Retirement Program; reduced by
(B) the actuarial equivalent of the amount, if any, payable
under the EDC Plan as a Supplemental Pension (as such
term is defined in the EDC Plan), calculated on the
basis of the actuarial factors set forth in EDC Plan
and payments in the form of a single life annuity
beginning and ending on the dates payments begin and
end under this paragraph (i); further reduced by
(C) the sum of the regular pension payable to Doerr under
the Retirement Program and monthly amounts payable to
Doerr in the form of a single life annuity under the
National Steel Corporation ERISA Parity Plan, such
reduction to begin as of the earliest date Doerr is
eligible to begin to receive a pension under the
Retirement Program and calculated as of such date,
whether or not Doerr has applied for or begun to
receive a pension under the Retirement Program;
provided that the reductions described in subparagraphs (B)
and (C), above, for amounts payable under the EDC Plan and
the ERISA Parity Plan shall not be imposed if any such
amount is not, in fact, paid, for reasons beyond the control
or fault of Doerr (including forfeiture under the terms of
the EDC Plan), at the time scheduled for payment under terms
of the respective plan(s); and
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<PAGE>
(ii) a lump sum payment which shall be paid within ninety (90)
days after termination of this Agreement and shall equal (A)
the amount that would have been payable under the National
Steel Corporation Supplemental Retirement Program ("SRP") if
Doerr had been credited with the greater of his actual
Benefit Service (as such term is defined in the Retirement
Program) or 30 years of Benefit Service, reduced by (B) the
amount payable to Doerr under the SRP; provided that the
amounts described in (A) and (B) of this paragraph (ii)
shall be calculated as if benefits under the SRP were paid
as of the date this Agreement is terminated; and provided
further that the reduction for the amount payable under the
SRP shall not be imposed if such amount is not, in fact,
paid, for reasons beyond the control or fault of Doerr, at
the time scheduled for payment under the terms of the SRP;
and
(iii) a lump sum payment equal to the amount of any matching
contributions and earnings thereon under the EDC Plan that
may have been forfeited, which amount shall be paid as soon
as possible but not later than ninety (90) days after
termination of this Agreement; and
(iv) a lump sum payment equal to two (2) years of Doerr's Base
Pay in effect immediately prior to the termination of this
Agreement, which in no event shall be less than the Base Pay
effective as of January 1, 1994, which amount shall be paid
within ten (10) days after termination of this Agreement;
and
(v) a bonus under the Management Incentive Compensation Program
("MICP") for the year in which this Agreement is terminated,
whether or not this Agreement is
-6-
<PAGE>
terminated by reason of Doerr's retirement, disability or
death, if a bonus is payable to other senior executives of
NSC under the MICP for such year, calculated under the terms
of the MICP on a pro rata basis at Doerr's target rate; and
(vi) full exercisability, as of the date next preceding the date
as of which this Agreement is terminated, of any Options
granted to but not otherwise exercisable by Doerr under the
National Steel Corporation 1993 Long-Term Incentive Plan;
and
(vii) transfer of ownership of the NSC-provided automobile that
Doerr was using immediately before the termination of this
Agreement at no cost to him; and
(viii) participation in such group insurance, health care and other
fringe benefit plans and perquisites, if any, as may be
provided from time to time for senior executives of NSC who
retire with eligibility for immediate pension from the
Retirement Program and not less than fifteen years of
service; provided that participation in any retiree health
care plans shall be at Doerr's cost if benefits under such
plans would otherwise be taxable to Doerr, and NSC shall pay
Doerr additional amounts equal to the cost of such
participation.
For purposes of this Section 5, termination of this Agreement
without cause shall mean:
(i) termination by NSC of this Agreement (which shall be
deemed to include termination of Doerr's employment or
status as President and CEO of NSC), or
-7-
<PAGE>
(ii) the failure of NSC to fulfill its obligations to Doerr
in any material respect, under this Agreement or
otherwise, including any action or refusal to act by
officers or directors NSC which prevents or interferes
with his ability to perform under this Agreement or to
carry out his other duties as President and CEO, or any
material change in his functions, duties or
responsibilities which reduce the dignity,
responsibility, importance or scope of his position,
unless the sole reason for said termination or failure by NSC is
the willful misconduct, gross negligence or act(s) of moral
turpitude of Doerr.
(b) Termination On or After October 1, 1996. If this Agreement is
terminated, other than pursuant to subsections (c) or (d), below,
by NSC without cause or by Doerr in accordance with Section 1
hereof, on or after October 1, 1996, Doerr shall be entitled to
the benefits described in paragraphs (i) and (iii), if any, (vii)
and (viii) of subsection (a), above; provided that if this
Agreement is so terminated by NSC without cause Doerr shall also
be entitled to the benefits described in paragraphs (iv), (v),
and (vi) of subsection (a), above.
(c) Disability. If Doerr incurs a disability and becomes eligible
for benefits under the Long Term Disability Program of National
Steel Corporation (the "LTD Plan"), and this Agreement has not
been terminated, Doerr shall be entitled to receive from NSC 50%
of his Base Pay in effect immediately prior to the onset of his
disability, reduced by the amount of any benefits received under
the LTD Plan, until this Agreement is terminated by NSC or Doerr.
Upon
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<PAGE>
termination of this Agreement following Doerr's eligibility for
benefits under the LTD Plan, Doerr shall be entitled to the
benefits described in paragraphs (i), (ii) and (iii), if any,
(iv), (v), (vi), (vii) and (viii) of subsection (a), above.
(d) Death. If Doerr dies during the term of this Agreement, this
Agreement shall be deemed terminated upon his death, the benefits
described in paragraphs (iv), (v) and (vi) of subsection (a),
above, shall be provided to his estate; the benefits described in
paragraph (vii) and 50% of the benefits described in paragraph
(ii) of subsection (a), above, shall be provided to his surviving
spouse, if any; and monthly payments shall be made to his
surviving spouse, if any, beginning in the month following
Doerr's death and ending in the month of her death, in an amount
equal to 50% of the monthly amount that would otherwise have been
payable to Doerr during his life under paragraph (i) of
subsection (a), above, if such amount were payable in the form of
a joint and 50% survivor annuity, calculated on the basis of the
applicable actuarial factors set forth in the Retirement Program.
6. Confidentiality
---------------
(a) Doerr agrees to keep secret and retain in the strictest
confidence all material confidential information pertaining to NSC, its
subsidiaries and its affiliated companies, including without limitation
inventions, trade secrets, know-how, customer lists, prices and pricing
policies, financial information, operations, methods and proprietary information
of any nature, and not disclose such material confidential information to anyone
outside NSC, its subsidiaries and its affiliated companies (except to attorneys
retained on behalf of NSC), either during the term of this Agreement or after
its termination, except in the course of performing duties hereunder or with
NSC's express written consent.
-9-
<PAGE>
(b) All documents, written information, records, data, computer
information and material, tapes, film, and other material of any kind
incorporating confidential information of the type described in subsection (a),
above, including but not limited to memoranda, notes, sketches, records,
reports, manuals, business plans and notebooks in Doerr's possession or under
his control during the term of his employment by NSC shall be the exclusive
property of NSC and shall be delivered by him to NSC upon termination of his
employment by NSC.
7. Waiver and Release of Claims. Doerr hereby waives, and releases NSC,
its affiliates, directors, officers and employees, from, any and all past,
present or future claims, damages, liabilities, demands and causes of action of
every nature, kind and character whatsoever, known and unknown (herein
collectively called "Claims"), including, but not limited to, any age
discrimination or other discrimination Claims or breach of contract Claims,
which he has or may have against NSC and/or its parent corporations,
shareholders, subsidiaries and affiliates and all and each of their officers,
directors, employees, agents and representatives, based on or arising out of, or
in any way in connection with, any facts, events, circumstances or occurrences
which have occurred or exist up to and including the date of the signing of this
Agreement or which will occur in the course of the lawful and proper performance
of this Agreement, including the present or future effects of such facts,
events, circumstances or occurrences. Doerr agrees that in the event NSC
commits a breach or breaches of this Agreement, Doerr's sole and exclusive
remedy shall be, and NSC's liability shall be limited to, damages equal to the
payments and benefits to be provided by NSC hereunder and to Doerr's cost of
litigation, if any, to enforce his rights hereunder, including reasonable
attorneys' fees, if Doerr is successful.
8. Successor Company. NSC shall require any successor or successors
(whether direct or indirect, by purchase, merger, consolidation, exchange or
otherwise) to all or substantially all of the business or assets of NSC as of
the Effective Date, by agreement in form and substance reasonably satisfactory
to Doerr, to acknowledge expressly that this Agreement is binding upon and
enforceable against NSC in accordance with the terms hereof, and to become
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<PAGE>
jointly and severally obligated with NSC to perform this Agreement in the same
manner and to the same extent that NSC would be required to perform if no such
succession or successions had taken place. Failure of NSC to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and, at Doerr's election, shall be deemed a termination of this
Agreement without cause which shall entitle Doerr to the benefits described in
subsection 5(a) hereof.
9. No Mitigation. Doerr shall not be required to mitigate the amount of
any payment or benefit provided for in Section 5 hereof by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation he may earn by other
employment or otherwise.
10. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
(a) This Agreement constitutes the entire agreement of the parties
regarding the subject matter hereof, and any and all prior or contemporaneous
statements, representations, negotiations, commitments or agreements, oral or
written, relating to the subject matter of this Agreement are merged herein and
superseded hereby and are of no legal force and effect whatsoever. This
Agreement cannot be amended or modified except by means of a written amendment
approved by the Board and executed both by Doerr and by a duly authorized
officer of NSC on behalf of the Board, which amendment states that it is
intended to modify this Agreement.
(b) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of Doerr
hereunder are of a personal nature and shall not be assignable or delegable in
whole or in part by Doerr without the prior written consent of NSC.
11. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
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<PAGE>
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
12. Effectiveness. This Agreement shall become effective as of the
Effective Date after approval by resolution of the Board and execution and
delivery by the parties.
13. Headings. All headings contained in this Agreement are only for
purposes of reference and are of no legal force and effect.
14. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Indiana without giving effect to any conflict of
laws provisions.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of its Effective Date.
NATIONAL STEEL CORPORATION
/s/ Ronald H. Doerr By: xxxxxxxxxxxxxxxxxxxxxxxx
- -------------------------- ------------------------------
Ronald H. Doerr Chairman of the Board
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<PAGE>
EXHIBIT 21
NATIONAL STEEL CORPORATION SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
OF OUTSTANDING
NAME INCORPORATION STOCK OWNED
---- ------------- -----------
<S> <C> <C>
American Steel Corporation............................ Michigan 100%
Delray Connecting Railroad............................ Michigan 100%
D. W. Pipeline Company................................ Michigan 100%
Fayette Land Company.................................. Delaware 100%
Granite City Steel Company............................ Illinois 100%
Granite Intake Corporation............................ Delaware 100%
Granite Office Building Corporation................... Illinois 100%
Great Lakes Steel Corporation......................... Delaware 100%
The Hanna Furnace Corporation......................... New York 100%
Hanna Ore Mining Company.............................. Minnesota 100%
Liberty Pipe and Tube, Inc............................ Texas 100%
Mathies Coal Company.................................. Pennsylvania 86.67%
Mid-Coast Minerals Corporation........................ Delaware 100%
Midwest Steel Corporation............................. Pennsylvania 100%
Natcoal, Inc.......................................... Delaware 100%
National Acquisition Corporation...................... Delaware 100%
National Caster Acquisition Corporation............... Delaware 100%
National Caster Operating Corporation................. Delaware 100%
National Casting Corporation.......................... Delaware 100%
National Coal Mining Company.......................... Delaware 100%
National Coating Limited.............................. Delaware 100%
National Coating Line Corporation..................... Delaware 100%
National Materials Procurement Corporation............ Illinois 100%
National Mines Corporation............................ Pennsylvania 100%
National Ontario Corporation.......................... Delaware 100%
National Ontario II, Limited.......................... Delaware 100%
National Pickle Line Corporation...................... Delaware 100%
National Steel Pellet Company......................... Delaware 100%
Natland Corporation................................... Delaware 100%
NS Land Company....................................... New Jersey 100%
NSC Realty Corporation................................ Delaware 100%
NSL, Inc.............................................. Delaware 100%
Peter White Coal Mining Company....................... West Virginia 100%
Puritan Mining Company................................ Michigan 100%
Rostraver Corporation................................. Delaware 100%
Skar-Ore Steamship Corporation........................ Delaware 100%
The Teal Lake Iron Mining Company..................... Michigan 100%
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements:
. Form S-8 No. 33-51991 pertaining to the 1994 and 1995 Stock Grants to
Union Employees,
. Form S-8 No. 33-51081 pertaining to the 1993 National Steel Corporation
Long-Term Incentive Plan,
. Form S-8 No. 33-51083 pertaining to the 1993 National Steel Corporation
Non-Employee Director's Stock Option Plan, and
. Form S-8 No. 33-51087 pertaining to the National Steel Retirement Savings
Plan and National Steel Represented Employee Retirement Savings Plan;
of our report dated January 26, 1994, except for the last paragraph of Note S
as to which the date is February 11, 1994, with respect to the consolidated
financial statements and schedules of National Steel Corporation included in
this Annual Report (Form 10-K) for the year ended December 31, 1993.
Ernst & Young
Fort Wayne, Indiana
March 7, 1994
