<PAGE>
1998
FIRST QUARTER
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-983
NATIONAL STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 25-0687210
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 219-273-7000
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
-
As of April 30, 1998, there were 22,100,000 shares of Registrant's Class A
Common Stock, $.01 par value, and 21,188,240 shares of Registrant's Class B
Common Stock, $.01 par value, outstanding.
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Changes in
Stockholders' Equity and Redeemable
Preferred Stock-Series B -
Three Months Ended March 31, 1998 and
Year Ended December 31, 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Legal Proceedings 14
Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
ITEM 1. FINANCIAL INFORMATION
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998 1997
--------- --------
<S> <C> <C>
NET SALES $708,429 $757,618
Cost of products sold 637,427 653,204
Selling, general and administrative expense 38,037 32,444
Depreciation 31,080 35,151
Equity (income) loss of affiliates 82 (94)
-------- --------
INCOME FROM OPERATIONS 1,803 36,913
Financing Costs:
Interest and other financial income (5,443) (1,715)
Interest and other financial expense 6,226 9,889
-------- --------
783 8,174
-------- --------
INCOME BEFORE INCOME TAXES 1,020 28,739
Income tax provision (credit) (4,928) 2,074
-------- --------
NET INCOME 5,948 26,665
Less preferred stock dividends --- 2,741
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 5,948 $ 23,924
======== ========
BASIC EARNINGS PER SHARE:
NET INCOME APPLICABLE TO COMMON STOCK $ .14 $.55
======== ========
Weighted average shares outstanding (in thousands) 43,288 43,288
DILUTED EARNINGS PER SHARE:
NET INCOME APPLICABLE TO COMMON STOCK $ .14 $.55
======== ========
Weighted average shares outstanding (in thousands) 43,325 43,306
Dividends paid per Common Share $ .07 $ --
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 291,930 $ 312,642
Investments ---- 25,000
Receivables - net 269,727 284,306
Inventories - net:
Finished and semi-finished products 277,158 261,648
Raw materials and supplies 109,882 112,554
---------- ----------
387,040 374,202
Deferred tax assets 8,597 8,597
---------- ----------
Total current assets 957,294 1,004,747
Investments in affiliated companies 14,523 15,709
Property, plant and equipment 3,408,133 3,378,131
Less accumulated depreciation 2,172,897 2,149,107
---------- ----------
1,235,236 1,229,024
Other assets 214,747 203,979
---------- ----------
TOTAL ASSETS $2,421,800 $2,453,459
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 265,169 $ 246,085
Accrued liabilities 311,849 359,749
Current portion of long-term debt 30,921 31,533
---------- ----------
Total current liabilities 607,939 637,367
Long-term debt 304,224 310,976
Other long-term liabilities 669,741 668,138
Stockholders' equity
Common Stock - par value $.01:
Class A - authorized 30,000,000 shares, is
and outstanding 22,100,000 221 221
Class B - authorized 65,000,000 shares; is
and outstanding 21,188,240 212 212
Additional paid-in-capital 491,835 491,835
Retained earnings 348,794 345,876
Accumulated other comprehensive income:
Minimum pension liability (1,166) (1,166)
---------- ----------
Total stockholders' equity 839,896 836,978
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,421,800 $2,453,459
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,948 $ 26,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 31,080 35,151
Carrying charges related to facility sales
and plant closings 1,343 5,179
Equity (income) loss of affiliates 82 (94)
Dividends from affiliates 1,800 6,808
Postretirement benefits 7,323 10,039
Deferred income taxes (5,400) (5,400)
Changes in working capital items:
Investments 25,000 --
Receivables 14,579 (10,878)
Inventories (12,838) 24,405
Accounts payable 19,084 (12,062)
Accrued liabilities (47,900) 11,419
Other (13,118) (833)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,983 90,399
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (net) (37,301) (42,975)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (37,301) (42,975)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayment (14,564) (15,613)
Borrowings 7,200 --
Dividend payments on common stock (3,030) --
Payment of released Weirton benefit liabilities -- (2,806)
Dividend payments on Preferred Stock-Series A -- (1,014)
Dividend payments on Preferred Stock-Series B -- (210)
Payment of unreleased Weirton liabilities and
their release in lieu of cash dividends on
Preferred Stock-Series B -- (1,819)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (10,394) (21,462)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,712) 25,962
Cash and cash equivalents at the beginning of the period 312,642 109,041
----------- -----------
Cash and cash equivalents at the end of the period $291,930 $135,003
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND REDEEMABLE PREFERRED STOCK - SERIES B
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON COMMON PREFERRED ADDITIONAL OTHER
STOCK - STOCK - STOCK - PAID-IN COMPREHENSIVE RETAINED
CLASS A CLASS B SERIES A CAPITAL INCOME EARNINGS
------- ------- ---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $221 $212 $ 36,650 $465,359 $ (505) $142,625
Comprehensive Income:
Net income 213,503
Other comprehensive income:
Minimum pension liability (661)
Comprehensive income
Amortization of excess of book value
over redemption value of Redeemable
Preferred Stock - Series B 1,354
Cumulative dividends on Preferred
Stock - Series A and B (11,606)
Redemption of Preferred Stock - Series A (36,650)
Redemption of Redeemable Preferred
Stock - Series B and related settlement
with Avatex 26,476
------- ------- ---------- ---------- ----------------- ----------
BALANCE AT DECEMBER 31, 1997 221 212 --- 491,835 (1,166) 345,876
Net income and comprehensive income 5,948
Dividends paid (3,030)
------- ------- ---------- ---------- ----------------- ----------
BALANCE AT MARCH 31, 1998 $221 $212 $ --- $491,835 $(1,166) $348,794
======= ======= ========== ========== ================= ==========
<CAPTION>
TOTAL REDEEMABLE
STOCKHOLDERS' PREFERRED STOCK -
Equity Series B
------------- -----------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1997 $644,562 $ 63,530
Comprehensive Income:
Net income 213,503
Other comprehensive income:
Minimum pension liability (661)
------------- -----------------
Comprehensive income 212,842
------------- -----------------
Amortization of excess of book value
over redemption value of Redeemable
Preferred Stock - Series B 1,354 (1,354)
Cumulative dividends on Preferred
Stock - Series A and B (11,606)
Redemption of Preferred Stock - Series A (36,650)
Redemption of Redeemable Preferred
Stock - Series B and related settlement
with Avatex 26,476 (62,176)
-------- -----------------
BALANCE AT DECEMBER 31, 1997 836,978 ---
Net income and comprehensive income 5,948
Dividends paid (3,030)
------------- -----------------
BALANCE AT MARCH 31, 1998 $839,896 $ ---
============= =================
</TABLE>
See notes to consolidated financial statements.
6
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NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of National Steel Corporation and its
majority owned subsidiaries (the "Company") presented herein are unaudited.
However, in the opinion of management, such statements include all adjustments
necessary for a fair presentation of the results for the periods indicated. All
such adjustments made were of a normal recurring nature. The financial results
presented for the three month period ended March 31, 1998 are not necessarily
indicative of results of operations for the full year. The Annual Report of the
Company on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")
contains additional information and should be read in conjunction with this
report.
Certain items in prior years have been reclassified to conform with the current
year presentation.
NOTE 2 - AUDIT COMMITTEE INQUIRY AND SECURITIES AND EXCHANGE COMMISSION INQUIRY
In the third quarter of 1997, the Audit Committee of the Company's Board of
Directors was informed of allegations about managed earnings, including excess
reserves and the accretion of such reserves to income over multiple periods, as
well as allegations about deficiencies in the system of internal controls. The
Audit Committee engaged legal counsel who, with the assistance of an accounting
firm, inquired into these matters. The Company, based upon the inquiry,
restated its financial statements for certain prior periods. On January 29,
1998, the Company filed a Form 10-K/A for 1996 and Forms 10-Q/A for the first,
second and third quarters of 1997 reflecting the restatements. See these Forms
for information about the restatement, the report of legal counsel to the Audit
Committee and the recommendations, approved by the Board of Directors, to
improve the Company's system of internal controls contained in the
aforementioned report.
The Securities and Exchange Commission (the "Commission") has authorized an
investigation pursuant to a formal order of investigation relating to the
matters described above. The Company has been cooperating with the staff of the
Commission and intends to continue to do so.
NOTE 3 - ACCOUNTING CHANGES
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income".
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Consequently, the Company has reported its changes in minimum pension
liabilities, as required by SFAS 130, as comprehensive income in the appropriate
financial statements presented herein.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred.
Effective January 1, 1998, the Company has adopted SOP 98-1, however, there were
no costs that were capitalized in the first quarter of 1998.
NOTE 4 - ENVIRONMENTAL AND LEGAL PROCEEDINGS
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. Due to the possibility of future changes in circumstances or
regulatory requirements, the amount and timing of future environmental
expenditures could vary from those currently anticipated.
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
7
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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 potentially responsible parties ("PRPs") at a number of off-site CERCLA or
state superfund site proceedings. 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.
The Company has also recorded the reclamation and other costs to restore its
coal mines at its shutdown locations to their original and natural state, as
required by various federal and state mining statutes.
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. 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 and liquidity for the applicable period. The Company has
recorded an aggregate environmental liability of approximately $18.4 million and
$18.7 million at March 31, 1998 and December 31, 1997, respectively.
The Company is involved in various non-environmental legal proceedings, most of
which occur in the normal course of its business. The Company does not believe
that these proceedings will have a material adverse effect, either individually
or in the aggregate, on the Company's financial condition. However, with
respect to certain of the proceedings, if reserves prove to be inadequate and
the Company incurs a charge to earnings, such charge could have a material
adverse effect on the Company's results of operations and liquidity for the
applicable period.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income available to
common stockholders by the weighted average number of common stock shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted average number of common stock
shares outstanding during the period plus dilutive stock options which are
determined through the application of the treasury stock method.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
Net Sales
- ---------
Net sales for the first quarter of 1998 totaled $708.4 million, a 6.5% decrease
compared to net sales of $757.6 million during the corresponding 1997 period.
Tons shipped in the first quarter of 1998 were 1,419,000 compared to 1,521,000
in the first quarter of 1997. The 102,000 ton decrease in shipments, which was
primarily caused by the "A" blast furnace reline at the Company's Great Lakes
Division, resulted in approximately $50.0 million of the decrease in sales in
1998 compared to 1997. Also contributing to the sales decrease was a $7 per ton
decrease in selling price, which reduced sales by approximately $11.0 million
and a $5.0 million decrease due to market and customer mix, when compared to the
first quarter of 1997. Product mix improvements amounting to $15.0 million
offset the decreases described above along with increases in non-steel sales of
approximately $2.0 million.
Gross Margin (net sales less cost of products sold and depreciation)
- -------------
Gross margin in the first quarter of 1998 was $39.9 million, or 5.6% of net
sales, compared to gross margin of $69.3 million, or 9.1% of net sales, during
the corresponding 1997 period. The decrease in gross margin in the first quarter
of 1998 is primarily the result of lower net sales due to lower shipments, lower
selling prices and mix as described in the net sales discussion above. Costs
were higher in the first quarter of 1998 as compared to a year earlier due to a
planned reline of the Company's "A" blast furnace at its Great Lakes Division.
Consequently, raw steel production was 1,573,000 tons during the first quarter
of 1998, which represents a 3.7% decrease compared to the 1,634,000 tons
produced during the same 1997 period.
In addition to the impact of lost production volume and higher maintenance costs
associated with the reline, the effects of a late winter storm that affected the
Company's Midwest Division and an unplanned outage at the National Steel Pellet
Company also impacted production costs. The effect of all these above mentioned
items reduced gross margins by approximately $16.0 million, and were primarily
confined to the first quarter, except for the blast furnace reline which will
also impact the second quarter as it resumed production at the end of April.
These impacts were partially offset by improved operating unit yield
performances and lower raw material costs, as well as lower depreciation
expense, as a result of the sale of the Great Lakes Division No. 5 coke battery,
and lower costs due to the result of the settlement with Avatex Corporation,
both of which occurred after the first quarter of 1997 and amounted to
approximately $9.0 million. In addition, outside steel purchases were lower by
$5.0 million compared to 1997 and an insurance settlement of $1.7 million was
realized in the first quarter of 1998.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative expense in the first quarter of 1998 was
$38.0 million, or 5.4% of net sales, compared to $32.4 million, or 5.0% of net
sales in the corresponding 1997 period. This $5.6 million increase is a result
of the recognition of expense associated with stock appreciation rights and
increases in professional services costs offset slightly by lower information
systems costs.
Net Financing Costs
- -------------------
Net financing costs of $0.8 million for the three months ended March 31, 1998
represent a $ 7.4 million decrease compared to the same 1997 period. This
improvement is partially attributable to a $3.7 million increase in interest
income on short term investments. Additionally, lower interest expense of $3.7
million resulted from lower average debt levels.
9
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Income Taxes
- ------------
The Company recorded current taxes payable of $0.5 million and $7.4 million in
the first quarter of 1998 and 1997, respectively. The Company also recorded a
deferred tax benefit of $5.4 million in the first quarters of both 1998 and
1997. The Company's effective tax rate is lower than the combined federal and
state statutory rates primarily because of continued utilization of available
federal and state net operating loss carryforwards and the recognition of
additional deferred tax benefits.
10
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LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
The Company's liquidity needs arise primarily from capital investments, working
capital requirements, pension funding requirements, principal and interest
payments on its indebtedness and common stock dividend payments. The Company has
satisfied these liquidity needs with funds provided by long term borrowings and
cash provided by operations. Additional sources of liquidity consist of a
Receivables Purchase Agreement (the "Receivables Purchase Agreement") with
commitments of up to $200.0 million and an expiration date of September 2002 and
both a $100.0 million and a $50.0 million credit facility, both of which are
secured by the Company's inventories (the "Inventory Facilities") and expire in
May 2000 and July 1999, respectively.
The Company is currently in compliance with all material covenants of, and
obligations under, the Receivables Purchase Agreement, the Inventory Facilities
and other debt instruments. On March 31, 1998, there were no cash borrowings
outstanding under the Receivables Purchase Agreement or the Inventory
Facilities, and outstanding letters of credit under the Receivables Purchase
Agreement totaled $91.0 million. During the first quarter of 1998, the maximum
availability under the Receivables Purchase Agreement, after reduction of
letters of credit outstanding, varied from $76.3 million to $109.0 million and
was $106.4 million as of March 31, 1998.
At March 31, 1998, total debt as a percentage of total capitalization decreased
to 28.5% as compared to 29.0% at December 31, 1997. Cash and cash equivalents
totaled $291.9 million at March 31, 1998 as compared to $312.6 million at
December 31, 1997.
The Company is continuing to evaluate other possible uses of the proceeds of the
sale of non-core assets, including additional pension and Voluntary Employees'
Beneficiary Association ("VEBA Trust") funding, additional debt retirements and
additional strategic investment opportunities.
Cash Flows from Operating Activities
- ------------------------------------
For the quarter ended March 31, 1998, cash provided from operating activities
amounted to $27.0 million, which is primarily attributable to the impact of
noncash charges for depreciation and postretirement benefits along with net
income of $5.9 million.
11
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Cash Flows from Investing Activities
- ------------------------------------
Capital investments for the quarters ended March 31, 1998 and 1997 amounted to
$37.3 million and $43.0 million, respectively. The 1998 spending is mainly
attributable to the on-going construction of the new coating line at the Midwest
Division and repairs to the Great Lakes Division "A" blast furnace. The 1997
spending was primarily for the 72 inch continuous galvanizing line upgrade and
the construction of the new coating line, both at the Midwest Division. The
Company plans to invest approximately $185 million during the remainder of 1998
for capital expenditures, including a new hot dip galvanizing line, new business
systems and mobile equipment purchases as well as improvements at its other
facilities.
Cash Flows from Financing Activities
- ------------------------------------
During the first quarter of 1998, the Company utilized $10.4 million of cash for
financing activities which included scheduled payments of debt, as well as
dividend payments on the Company's common stock.
OTHER
- -----
Year 2000 Issues
- ----------------
The "Year 2000" problem is caused by software which processes years using only
two digits in the date field. In computer programming, programmers routinely
create date fields with only two digit years in an effort to conserve computer
memory. If not corrected, this programming technique would cause computer
applications to fail or give erroneous results by or at the year 2000. The
Company is in the process of correcting this problem and has formed a committee
consisting of executive management to oversee all Year 2000 activities.
The Company has already begun work on projects related to Year 2000 and spent
approximately $0.6 million in the first quarter of 1998 and $1.8 million in
1997. The Company expects to spend up to $10.0 million on Year 2000 projects
during 1998 and 1999, and anticipates final completion of these projects to
occur sometime in the second quarter of 1999.
The cost and completion of the Year 2000 projects are based on management's best
estimates and were derived utilizing certain industry standard estimation
techniques and analysis of actual programs. Assumptions are relative to the
timing of future events and availability of resources. Various factors could
cause expected cost and completion times to differ from those anticipated.
However, the Company does not believe that Year 2000 issues will have a material
adverse impact on the Company's financial condition or results of operations.
Great Lakes Division Property Tax Appeal
- ----------------------------------------
In 1991, the Corporation filed a lawsuit in the Michigan Tax Tribunal against
the cities of River Rouge and Ecorse seeking a reduction in the assessed value
of the real estate and personal property at the Corporation's Great Lakes
Division. The lawsuit was amended year by year to cover the tax years 1991
through 1994. Following a decision by the Michigan Tax Tribunal in August 1996
reducing the assessed values, all parties appealed this decision. In January
1998, the Court of Appeals issued a written opinion in which it affirmed in
part, vacated in part and remanded the case to the Michigan Tax Tribunal. A
second case involving tax years 1995 through 1997 is also pending in the
Michigan Tax Tribunal. The parties are currently engaged in settlement
negotiations to resolve these matters. Any settlement is not expected to have a
material impact on the financial position of the Company.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
Statement changes the way public companies are required to report operating
segment information in annual financial statements and in interim financial
reports to stockholders. Operating segments are determined consistent with the
way management organizes and evaluates financial information internally for
making decisions and assessing performance. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Statement is effective for financial statements for fiscal years
beginning December 15, 1997, and the Company will adopt the Statement, as
required, effective December 31, 1998. Although the Company continues to
evaluate the impact that this Statement will have on its financial reporting,
the Company does not expect significant additional reporting requirements.
12
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In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", which is effective for fiscal years
beginning after December 15, 1997, and will be adopted by the Company, as
required, effective December 31, 1998. The statement will standardize
disclosures about pensions and other postretirement benefits in an effort to
make the information more understandable. Implementation of this disclosure
standard will not affect the financial position or results of operations of the
Company.
Dividend on Common Stock
- ------------------------
On April 27, 1998, the Company's board of directors declared a regular quarterly
common stock dividend of $0.07 per share, payable on June 10, 1998, to
shareholders of record on May 22, 1998.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Statements made by the Company in reports, such as this Form 10-Q, in press
releases and in statements made by employees in oral discussions, that are not
historical facts constitute "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995.
Forward looking statements, by their nature, involve risk and uncertainty. A
variety of factors could cause business conditions and the Company's actual
results and experience to differ materially from those expected by the Company
or expressed in the Company's forward looking statements. These factors
include, but are not limited to, the following: (1) changes in market prices and
market demand for the Company's products; (2) changes in the costs or
availability of the raw materials and other supplies used by the Company in the
manufacture of its products; (3) equipment failures or outages at the Company's
steelmaking and processing facilities; (4) losses of customers; (5) changes in
the levels of the Company's operating costs and expenses; (6) collective
bargaining agreement negotiations, strikes, labor stoppages or other labor
difficulties; (7) actions by the Company's competitors, including domestic
integrated steel producers, foreign competitors, mini-mills and manufacturers of
steel substitutes, such as plastics, aluminum, ceramics, glass, wood and
concrete; (8) changes in industry capacity; (9) changes in economic conditions
in the United States and other major international economies, including rates of
economic growth and inflation; (10) worldwide changes in trade, monetary or
fiscal policies including changes in interest rates; (11) changes in the legal
and regulatory requirements applicable to the Company; and (12) the effects of
extreme weather conditions.
13
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Granite City Division - Alleged Air Violations. With respect to the matter
- ----------------------------------------------
involving alleged violations of various air emission requirements at the
Company's Granite City Division's basic oxygen furnace shop, coke oven batteries
and by-products plant, previously reported in the Company's 1997 Form 10-K, a
Consent Decree embodying the agreed upon settlement has been executed by the
Company and returned to the Justice Department for execution and entry.
Great Lakes Division - Multimedia Inspection. With respect to the matter
- --------------------------------------------
involving a multimedia inspection of the Company's Great Lakes Division facility
by the United States Environmental Protection Agency ("EPA"), previously
reported in the Company's 1997 Form 10-K, a Consent Order embodying the agreed
upon settlement has been executed by the Company and the EPA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached Exhibit Index
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K dated February 18, 1998 reporting
on Item 5, Other Events.
The Company filed a report on Form 8-K dated March 4, 1998 reporting on
Item 5, Other Events.
The Company filed a report on Form 8-K dated March 26, 1998 reporting on
Item 5, Other Events.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL STEEL CORPORATION
BY /s/ John A. Maczuzak
--------------------
John A. Maczuzak
President and Chief Operating Officer
BY /s/ Michael D. Gibbons
---------------------
Michael D. Gibbons
Acting Chief Financial Officer
Date: May 14, 1998
15
<PAGE>
NATIONAL STEEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A
EXHIBIT INDEX
For the quarterly period ended March 31, 1998
15.1 Independent Accountants' Review Report
15.2 Acknowledgment Letter on Unaudited Interm Financial Information
27-A Financial Data Schedule
16
<PAGE>
Exhibit 15.1
Independent Accountants' Review Report
Board of Directors
National Steel Corporation
We have reviewed the accompanying consolidated balance sheet of National Steel
Corporation and subsidiaries (the Company) as of March 31, 1998, and the related
consolidated statements of income for the three-month period ended March 31,
1998 and 1997, of cash flows for the three-month period ended March 31, 1998 and
1997, and of changes in stockholders' equity and redeemable preferred stock--
Series B for the three-month period ended March 31, 1998. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of National Steel Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements of
income, cash flows, and stockholders' equity and redeemable preferred stock--
Series B for the year then ended (not presented here), and in our report dated
January 28, 1998 (except for Notes C, I, and K, as to which the date is February
26, 1998), we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Ernst & Young LLP
Fort Wayne, Indiana
May 15, 1998
<PAGE>
EXHIBIT 15.2
Board of Directors
National Steel Corporation
We are aware of 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. 33-61087, pertaining to the National Steel Retirement Savings
Plan and National Steel Represented Employee Retirement Savings Plan,
of our report dated May 15, 1998 relating to the unaudited interim consolidated
financial statements of National Steel Corporation and subsidiaries that are
included in its Form 10-Q for the quarter ended March 31, 1998.
Ernst & Young LLP
Fort Wayne, Indiana
May 15, 1998
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