<PAGE>
1999
Third Quarter
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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 219-273-7000
code):
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 _
The number of shares outstanding of the Registrant's Common Stock $.01 par
value, as of November 1, 1999, was 41,288,240 shares, consisting of 22,100,000
shares of Class A Common Stock and 19,188,240 shares of Class B Common Stock.
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
-----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Three Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Income -
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 6
Consolidated Statements of Changes in
Stockholders' Equity -
Nine Months Ended September 30, 1999 and
Year Ended December 31, 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
Signatures 21
Exhibit Index 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1999 1998
------- -------
<S> <C> <C>
Net Sales $ 724.5 $ 706.4
Cost of products sold 655.3 615.2
Selling, general and administrative expense 34.2 41.4
Depreciation 36.1 32.4
Equity income of affiliates (0.9) (0.8)
Unusual credit -- (26.6)
------- -------
Income (Loss) from Operations (0.2) 44.8
Other (income) expense:
Interest and other financial income (3.2) (3.0)
Interest and other financial expense 11.0 7.1
------- -------
7.8 4.1
------- -------
Income (Loss) before Income Taxes (8.0) 40.7
Income tax provision (credit) (0.4) 8.2
------- -------
Net Income (Loss) Applicable to Common Stock $ (7.6) $ 32.5
======= =======
Basic Earnings Per Share:
Net Income (Loss) Applicable to Common Stock $ (0.18) $ 0.75
======= =======
Weighted average shares outstanding (in thousands) 41,288 43,288
Diluted Earnings Per Share:
Net Income (Loss) Applicable to Common Stock $ (0.18) $ 0.75
======= =======
Weighted average shares outstanding (in thousands) 41,288 43,288
Dividends Paid Per Common Share $ 0.07 $ 0.07
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
Net Sales $2,089.7 $2,162.6
Cost of products sold 1,895.6 1,908.0
Selling, general and administrative expense 109.4 112.9
Depreciation 104.3 95.9
Equity income of affiliates (1.5) (1.0)
Unusual credit -- (26.6)
-------- --------
Income (Loss) from Operations (18.1) 73.4
Other (income) expense:
Interest and other financial income (9.6) (12.5)
Interest and other financial expense 30.3 20.3
Net gain on disposal of non-core assets and other
related activities (0.6) (2.7)
-------- --------
20.1 5.1
-------- --------
Income (Loss) before Income Taxes (38.2) 68.3
Income tax provision (credit) (1.9) 3.4
-------- --------
Net Income (Loss) Applicable to Common Stock $ (36.3) $ 64.9
======== ========
Basic Earnings Per Share:
Net Income (Loss) Applicable to Common Stock $ (0.88) $ 1.50
======== ========
Weighted average shares outstanding (in thousands) 41,453 43,288
Diluted Earnings Per Share:
Net Income (Loss) Applicable to Common Stock $ (0.88) $ 1.50
======== ========
Weighted average shares outstanding (in thousands) 41,453 43,340
Dividends Paid Per Common Share $ 0.21 $ 0.21
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions of Dollars, Except Share Amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 148.1 $ 137.9
Receivables - net 309.6 245.7
Inventories - net:
Finished and semi-finished products 376.5 322.2
Raw materials and supplies 153.9 150.6
-------- --------
530.4 472.8
Deferred tax assets 23.3 23.3
Other 28.2 19.9
-------- --------
Total current assets 1,039.6 899.6
Investments in affiliated companies 21.5 19.5
Property, plant and equipment 3,683.7 3,475.5
Less accumulated depreciation 2,304.7 2,205.0
-------- --------
1,379.0 1,270.5
Other assets 311.5 294.4
-------- --------
$2,751.6 $2,484.0
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 279.1 $ 241.7
Current portion of long-term debt 30.1 30.3
Short-term borrowings -- 6.9
Accrued liabilities 232.3 267.9
-------- --------
Total current liabilities 541.5 546.8
Long-term debt 561.3 285.8
Other long-term liabilities 851.3 801.1
Stockholders' equity
Common Stock - par value $.01:
Class A - authorized 30,000,000 shares, issued
and outstanding 22,100,000 0.2 0.2
Class B - authorized 65,000,000 shares; issued
21,188,240 0.2 0.2
Additional paid-in-capital 491.8 491.8
Retained earnings 372.6 417.5
Treasury stock, at cost: 2,000,000 shares in 1999;
1,109,700 shares in 1998 (16.3) (8.4)
Accumulated other comprehensive income:
Minimum pension liability (51.0) (51.0)
-------- --------
Total stockholders' equity 797.5 850.3
-------- --------
$2,751.6 $2,484.0
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (36.3) $ 64.9
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 104.3 95.9
Net gain on disposal of non-core assets (0.6) (2.7)
Equity income of affiliates (1.5) (1.0)
Dividends from affiliates 1.5 1.8
Long-term pension liability 29.4 (31.2)
Postretirement benefits 25.1 22.6
Deferred income taxes (11.2) (6.6)
Changes in working capital items:
Investments -- 8.7
Receivables (63.9) (17.9)
Inventories (57.5) (111.1)
Other assets (7.7) (1.1)
Accounts payable 37.4 (6.6)
Accrued pension (14.8) (52.3)
Accrued postretirement benefits (10.0) --
Accrued income taxes (0.4) (6.8)
Other liabilities (10.4) (37.3)
Other non-current assets 5.4 (5.7)
Other long-term liabilities 0.9 (7.5)
------- -------
Net Cash Used in Operating Activities (10.3) (93.9)
Cash Flows from Investing Activities
Purchases of property, plant and equipment (216.3) (83.9)
Acquisition of ProCoil (7.7) --
Net proceeds from disposal of non-core assets 0.6 3.3
------- -------
Net Cash Used in Investing Activities (223.4) (80.6)
Cash Flows from Financing Activities
Borrowings - net 311.2 8.0
Debt repayment (50.8) (30.4)
Repurchase of Class B common stock (7.9) --
Dividend payments on common stock (8.6) (9.1)
------- -------
Net Cash Provided by (Used in) Financing Activities 243.9 (31.5)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 10.2 (206.0)
Cash and cash equivalents at the beginning of the period 137.9 312.6
------- -------
Cash and Cash Equivalents at the End of the Period $ 148.1 $ 106.6
======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Common Additional Other Total
Stock- Stock- Paid-In Retained Treasury Comprehensive Stockholders'
Class A Class B Capital Earnings Stock Income Equity
------- ------- ------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $0.2 $0.2 $491.8 $345.8 $ -- $ (1.1) $836.9
Comprehensive Income:
Net income 83.8 83.8
Other comprehensive loss:
Minimum pension liability (49.9) (49.9)
-----
Comprehensive income 33.9
-----
Dividends on common stock (12.1) (12.1)
Purchase of 1,109,700 shares of
Class B common stock (8.4) (8.4)
---- ---- ------ ------ ------- ------ ------
BALANCE AT DECEMBER 31, 1998 0.2 0.2 491.8 417.5 (8.4) (51.0) 850.3
Net loss and comprehensive loss (36.3) (36.3)
Dividends on common stock (8.6) (8.6)
Purchase of 890,300 shares of
Class B common stock (7.9) (7.9)
---- ---- ------ ------ ------ ------ ------
BALANCE AT SEPTEMBER 30, 1999 $0.2 $0.2 $491.8 $372.6 $(16.3) $(51.0) $797.5
==== ==== ====== ====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (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 nine month period ended September 30, 1999 are not necessarily
indicative of results of operations for the full year.
The Company has engaged Ernst & Young LLP to conduct a review of the
consolidated financial statements presented herein, in accordance with standards
established by the American Institute of Certified Public Accountants. Their
review report is included as an exhibit to this Form 10-Q.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all footnotes required by
generally accepted accounting principles for complete financial statements.
Certain amounts in the 1998 financial statements have been reclassified to
conform to current year presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998 (the "1998 Form 10-K").
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.) In accordance with the recommendations, the Company in
early 1998 undertook an assessment of its internal control over financial
reporting, made improvements and engaged a major independent accounting firm.
The accounting firm's report was concluded in March 1999 and indicated that in
its opinion, management's assertion that the Company maintained effective
internal control over financial reporting, including safeguarding of assets, as
of March 1, 1999 is fairly stated, in all material respects, based upon the
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Because of inherent limitations in internal control, misstatements due to error
or fraud may occur and not be detected. Also, projections of any evaluation of
internal control over financial reporting, including safeguarding of assets, to
future periods are subject to the risk that internal control may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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.
8
<PAGE>
Additionally, a complaint has been filed seeking shareholder class action status
and alleging violations of the federal securities laws, generally relating to
the matters described above. The lawsuit was dismissed with prejudice, but the
plaintiffs have filed an appeal of the dismissal.
NOTE 3 -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
- ------------------------------------------------------------------- --------------------------------------
Dollars in millions All All
Steel Other Total Steel Other Total
- ------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended:
Revenues from external
customers $2,075.9 $ 13.8 $2,089.7 $2,148.0 $ 14.6 $2,162.6
Intersegment revenues 499.1 2,331.4 2,830.5 456.3 2,374.0 2,830.3
Segment income (loss) from
operations (9.9) (8.2) (18.1) 101.7 (28.3) 73.4
Segment assets 1,653.4 1,098.2 2,751.6 1,486.4 997.6 2,484.0
Three months ended:
Revenues from external
customers $ 719.8 $ 4.7 $ 724.5 $ 702.2 $ 4.2 $ 706.4
Intersegment revenues 176.3 827.5 1,003.8 161.9 793.0 954.9
Segment income (loss) from
operations 2.4 (2.6) (0.2) 51.5 (6.7) 44.8
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Included in the "All Other" intersegment revenues for the nine month period is
$2,141.1 million in 1999 and $2,199.4 million in 1998 of qualified trade
receivables sold to National Steel Funding Corporation, a wholly-owned
subsidiary.
NOTE 4 -- ACQUISITION OF PROCOIL
On March 31, 1999, the Company completed the acquisition of the remaining 44%
minority interest of ProCoil Corporation ("ProCoil") for $7.7 million in cash.
The acquisition was accounted for using the purchase method of accounting.
During the third quarter of 1999, the excess purchase price over the book value
of the underlying assets was allocated to property, plant and equipment to
reflect their fair value and will be depreciated over ten years, the average
remaining useful life of these assets.
NOTE 5 -- LONG-TERM OBLIGATIONS
In March 1999, the Company sold a total of $300.0 million aggregate principal
amount of ten-year First Mortgage Bonds due 2009. The bonds represent senior
secured obligations of the Company and bear interest at an annual rate of
9.875%. The proceeds are being used to finance the new 450,000 ton hot dip
galvanizing facility currently under construction at Great Lakes and for general
corporate purposes.
9
<PAGE>
In conjunction with the March 31, 1999 acquisition of the remaining 44% minority
equity interest of ProCoil Corporation, the Company prepaid certain debt
amounting to approximately $10.8 million. (See Note 4 - Acquisition of
ProCoil). Additionally, in the third quarter of 1999, the Company prepaid a
$6.0 million equipment loan.
During the first nine months of 1999, National Steel Pellet Corporation ("NSPC")
obtained $13.0 million aggregate capital lease obligations for mobile equipment.
Long-term obligations were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- --------------
(In Millions of Dollars)
<S> <C> <C>
First Mortgage Bonds, 9.875% Series due March 1, 2009, with general
first liens on principal plants, properties and certain subsidiaries $300.0 $ --
First Mortgage Bonds, 8.375% Series due August 1, 2006, with general
first liens on principal plants, properties and certain subsidiaries 75.0 75.0
Vacuum Degassing Facility Loan, 10.336% fixed rate due in semi-annual
Installments through 2000, with a first mortgage in favor of the lenders 4.3 12.4
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 97.6 101.2
Pickle Line Loan, 7.726% fixed rate due in equal semi-annual installments
through 2007, with a first mortgage in favor of the lender 68.2 73.7
ProCoil, various rates and due dates 5.0 17.3
Capitalized lease obligations 24.1 16.6
Other 17.2 19.9
------ ------
Total long-term obligations 591.4 316.1
Less long-term obligations due within one year 30.1 30.3
------ ------
Long-term obligations $561.3 $285.8
====== ======
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
During 1998, the Company entered into a competitively bid Turnkey Engineering
and Construction Contract with NKK Steel Engineering, Inc. ("NKK SE"), a
subsidiary of NKK Corporation ("NKK"), to design, engineer, construct and
install a continuous galvanizing facility at Great Lakes. During the first nine
months of 1999, $71.9 million was paid to NKK SE relating to this contract and
$8.2 million is included in accounts payable, net of $7.1 million retention, at
September 30, 1999.
During the first nine months of 1999, the Company purchased from a trading
company in arms' length transactions at competitively bid prices approximately
$21.2 million of finished-coated steel produced by NKK. The Company entered
into the agreement with NKK in order to fulfill the delivery requirements of a
contract with a major automotive customer at a fixed price. Additionally, the
Company anticipates that approximately $6.3 million of finished coated steel
produced by NKK will be purchased during the remainder of 1999 so that the
Company can fulfill its obligation to the customer. In the first quarter of
1999, the Company recorded a total loss of $5.7 million relating to these
agreements.
During the first nine months of 1999, the Company also purchased from a trading
company in arms' length transactions at competitively bid prices approximately
$22.3 million of slabs produced by NKK. The Company has committed to purchase
an additional $3.8 million of slabs produced by NKK during the first quarter of
2000.
NKK is the parent company of NKK U.S.A. Corporation, which is the Company's
principal stockholder.
10
<PAGE>
NOTE 7 -- 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 current revenue generation are expensed. Costs for
environmental assessments or remediation activities, or penalties or fines that
may be imposed for noncompliance with environmental laws and regulations, 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 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 and other
environmental cleanup 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. Although the outcome of any of the matters described, to the extent
they exceed any applicable reserves or insurance coverages, could have a
material adverse effect on the Company's results of operations and liquidity for
the applicable period, the Company has no reason to believe that such outcomes,
whether considered individually or in the aggregate, will have a material
adverse effect on the Company's financial position. The Company has recorded an
aggregate environmental liability of approximately $20.7 million and $17.0
million at September 30, 1999 and December 31, 1998, 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 8 -- EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income applicable
to common stockholders by the weighted average number of common stock shares
outstanding during the period. Diluted EPS is computed by dividing net income
applicable 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. If a net loss
is incurred, dilutive stock options are considered antidilutive and are excluded
from the dilutive EPS calculation.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the third quarter of 1999
consolidated financial statements and selected notes, the first quarter and
second quarter of 1999 Forms 10-Q and the 1998 Form 10-K for a full
understanding of the Company's financial condition and results of operations.
Results of Operations - Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------
Net Sales
- ---------
Net sales for the third quarter of 1999 increased $18.1 million, or 2.6%,
compared to the third quarter of 1998. Shipments increased by approximately
198,000 tons to 1,563,000 tons in the third quarter of 1999 as compared to the
third quarter of 1998. This quarterly shipment level was the highest ever for
the Company's third quarter and the second highest quarterly total in the
Company's history. However, a 10.5% decrease in average selling price resulting
from lower selling prices and a weaker product mix from increased shipments of
hot-rolled products, partially offset the impact of the record shipment level as
compared to the prior year third quarter.
Income (Loss) from Operations
- -----------------------------
The Company reported an operating loss of $0.2 million for the third quarter of
1999, a decrease of $45.0 million from operating income of $44.8 million
reported in the corresponding 1998 period. The net impact of lower prices and
lower value-added mix, as discussed above, resulted in a significant reduction
in income from operations in the third quarter of 1999 as compared to the same
quarter of 1998. The third quarter of 1998 benefited, as compared to the
current year quarter, from the impact of a $26.6 million unusual credit relating
to property tax refunds for the 1991 through 1997 tax years. Offsetting these
factors were significant improvements in costs relating to operating yields and
other operational spending resulting from the Company's continuing cost
reduction efforts as well as reduced selling, general and administrative costs.
These improvements would have more positively impacted third quarter 1999 income
from operations had certain non-recurring expenses relating to environmental
matters and the new labor contract not have occurred.
Net Financing Costs
- -------------------
Net financing costs increased $3.7 million in the third quarter of 1999 as
compared to the same 1998 period. The increase is due to an increase in
interest and other financial expense of $3.9 million primarily as a result of
the First Mortgage Bonds issued in the first quarter of 1999.
Income Taxes
- ------------
The Company's effective tax rate is lower than the combined federal and state
statutory rates, primarily because of the recognition of deferred tax assets.
12
<PAGE>
Results of Operations - Nine Months Ended September 30, 1999 and 1998
- ---------------------------------------------------------------------
Net Sales
- ---------
Net sales for the first nine months of 1999 decreased $72.9 million, or 3.4%,
compared to the first nine months of 1998. Record third quarter shipment levels
helped to increase shipments during the first nine months of 1999 to 4,424,000
tons, compared to 4,235,000 tons in the year-earlier period. However, the
positive impact of increased shipments on net sales was more than offset by the
impact of a 7.5% decrease in average selling prices during the first nine months
of 1999 as compared to the year-earlier period. This decrease in average
selling price resulted from high levels of low-priced imported steel and service
center inventories that began to affect sales in the third quarter of 1998 as
well as a change in product mix.
Income (Loss) from Operations
- -----------------------------
The Company reported an operating loss of $18.1 million for the first nine
months of 1999, a decrease of $91.5 million compared to the corresponding 1998
period. This decrease results primarily from lower average selling prices as
discussed above and the $26.6 million unusual credit recorded in the third
quarter of 1998. Positively offsetting these factors were (1) improvements in
raw material prices, particularly scrap, (2) lower costs relating to blast
furnace relines, (3) lower operating costs resulting from the Company's
continued cost reduction efforts, and (4) lower selling, general and
administrative expenses.
Net Financing Costs
- -------------------
Net financing costs increased $12.9 million in the first nine months of 1999 as
compared to the same 1998 period. The increase is due to an increase in
interest and other financial expense of $10.0 million relating to the First
Mortgage Bonds issued in the first quarter of 1999 and a decrease in interest
income of $2.9 million as a result of lower average cash and cash equivalent
balances available for investment, mainly during the first quarter of 1999.
Income Taxes
- ------------
The Company's effective tax rate is lower than the combined federal and state
statutory rates, primarily because of the recognition of deferred tax assets.
Results of Operations - Forward Looking Information
- ---------------------------------------------------
The Company anticipates that shipment levels will continue to be strong through
the fourth quarter of 1999 with cold-rolled and coated shipments remaining
fairly stable and hot-rolled shipments on the rise. Average selling prices are
anticipated to remain below 1998 levels. The Company has announced its intent
to increase prices for its hot-rolled, cold-rolled, coated and tin mill products
effective in January 2000. The Company continues to emphasize cost reduction
initiatives that have had an extremely positive effect on results through the
first nine months of 1999. However, the fourth quarter will be challenging as
several planned annual maintenance outages are scheduled to occur during that
period.
13
<PAGE>
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 the
Receivables Purchase Agreement with commitments of up to $200.0 million and an
expiration date of September 2002, and a $100.0 million and a $50.0 million
credit facility, which are secured by the Company's inventories (the "Inventory
Facilities") and expire in May 2000.
In March 1999, the Company sold a total of $300.0 million aggregate principal
amount of ten-year First Mortgage Bonds due 2009. The bonds represent senior
secured obligations of the Company and bear interest at an annual rate of
9.875%. The proceeds are being used to finance the new 450,000 ton hot dip
galvanizing facility currently under construction at Great Lakes and for general
corporate purposes. As a result of the bond issue, and taking into account a
prepayment of debt in connection with the acquisition of ProCoil in March 1999,
total debt as a percentage of total capitalization at September 30, 1999
increased to 42.6% as compared to 27.1% at December 31, 1998. Cash and cash
equivalents totaled $148.1 million at September 30, 1999 as compared to $137.9
million at December 31, 1998.
The Company is currently in compliance with all material covenants of, and
obligations under, the Receivables Purchase Agreement, the Inventory Facilities,
the indenture relating to the above-referenced bonds and other debt instruments.
On September 30, 1999, 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 $65.4
million. During the first nine months of 1999, the maximum availability under
the Receivables Purchase Agreement, after reduction for letters of credit
outstanding, varied from $71.8 million to $134.6 million and was $134.6 million
as of September 30, 1999.
Cash Flows from Operating Activities
- ------------------------------------
For the nine months ended September 30, 1999, cash used in operating activities
amounted to $10.3 million, which is primarily attributable to a net loss of
$36.3 million and changes in working capital items, principally receivables and
inventories, offset by the impact of the noncash charge for depreciation and
changes in long-term pension and postretirement liabilities.
Cash Flows from Investing Activities
- ------------------------------------
Capital investments for the nine month periods ended September 30, 1999 and 1998
amounted to $216.3 million and $83.9 million, respectively. The 1999 spending
is mainly attributable to the on-going construction of the new galvanizing
facility at Great Lakes and the "A" Furnace reline at the Granite City Division.
In addition, the purchase of the remaining 44% of ProCoil stock, formerly a 56%
owned joint venture, totaled $7.7 million. The Company plans to invest
approximately $90 million during the remainder of 1999 for capital expenditures,
which include the continuing construction of the new galvanizing facility at
Great Lakes and new business systems.
Cash Flows from Financing Activities
- ------------------------------------
During the first nine months of 1999, net cash provided by financing activities
amounted to $243.9 million. Financing activities included the issuance of $300.0
million in First Mortgage Bonds, offset by costs associated with the bond
issuance and the prepayment of $16.8 million of ProCoil long-term debt. Other
uses of cash included scheduled payments of debt, dividend payments on the
Company's common stock and the repurchase of 890,300 shares of the Company's
Class B common stock.
14
<PAGE>
Other
- -----
Labor Negotiations
- ------------------
During the third quarter of 1999, the United Steelworkers of America ("USWA")
and the International Chemical Workers Council of United Food and Commercial
Workers ratified five-year agreements with the Company effective August 1, 1999
and October 1, 1999, respectively. The principal features of the contracts
include the following:
. A two-dollar increase in the hourly base wage rate over the five-year
period.
. Improvements in pension benefits including increasing the minimum
pension formula, increasing the surviving spouse payment, and extending
the lump-sum payment provisions to existing pensioners.
. Modification of the Gainsharing program to reflect resetting the base
and paying only for continuous improvement which will result in reduced
payments over the five-year period.
. Modification of the Profit Sharing program to gradually change over the
term of the agreement to conform to the industry pattern.
. Eliminating the requirement for mandatory contributions to the VEBA
Trust over the five-year term.
The Company estimates that the total additional cost resulting from the new
labor agreement will be approximately $200 million over the five-year term of
which approximately $30 million will be incurred during 2000. The Company
recorded liabilities totaling $3.8 million in the third quarter of 1999 relating
to a lump-sum payment, profit sharing and other contract related costs.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was required to be adopted in years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, which delays the required adoption
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair value of derivatives will
either be offset against the change in fair value of hedged assets, liabilities
or firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of this Statement will be on
earnings and the financial position of the Company.
Dividend on Common Stock
- ------------------------
On November 8, 1999 the Company's board of directors declared a regular
quarterly common stock dividend of $0.07 per share, payable on December 9, 1999,
to shareholders of record on November 24, 1999.
Year 2000 Issues
- ----------------
The "Year 2000" computer software problem is caused by programming practices
that were originally intended to conserve computer memory, thus providing date
fields with only two digits with the computer software logic applying the date
prefix "19". If not corrected, this error could cause computers to fail or give
erroneous results as the computer processes data before or during the year 2000.
This programming practice continued through the mid-1990's and affects
mainframe, business and personal computers, and also any device that has an
embedded microprocessor, such as an elevator or fire alarm system. All of the
Company's locations and operating facilities are impacted.
15
<PAGE>
In 1997, the Company established a Year 2000 Project team to coordinate and
oversee the Year 2000 remediation project. The team is supervised by an
executive steering committee, which meets regularly to monitor progress. In
addition, progress is monitored by the Board of Directors and the Audit
Committee through periodic reports from management. The project's scope includes
mainframe, business and personal computers, business software and other
information technology items, as well as non-information technology items, such
as process control software and embedded software in hardware devices. The
Company is also reviewing with its major vendors and suppliers their efforts in
becoming Year 2000 compliant. Most suppliers and vendors who have replied thus
far to the Company's inquiries have indicated that they expect to be Year 2000
compliant on a timely basis.
Following is a table which shows the current status of the major components of
the Company's Year 2000 project:
<TABLE>
<CAPTION>
Estimated
Substantial
Description Completion
----------------------------------------------------------------------------- -----------
<S> <C>
General:
Development of a Year 2000 Project plan Complete
Review and report on Year 2000 Project plan by a major
independent accounting and consulting firm Complete
Mainframe:
Transition of data service center to Year 2000 compliant provider Complete
Business critical applications - remediated, tested and implemented Complete
Non-business critical applications - remediated, tested and implemented Complete
Non mainframe computer equipment:
Inventory and assessment of all non mainframe computer equipment Complete
Business computers at divisions - remediated, tested and implemented Complete
Process control computers and embedded devices - assessed and remediated Complete
Vendors, customers and others:
Vendor readiness evaluations prepared and mailed Complete
Review of responses and assessment of risk Complete
Contingency plan:
Development and review of contingency plan Complete
</TABLE>
Overall, the Company's Year 2000 compliance effort has progressed according to
schedule. The remediation of the coding for the mission critical mainframe based
applications was completed in early 1999. These programs have been tested to
confirm that the remediation adequately corrected the problems, and they have
been returned to production. More recently, non-critical mainframe based
applications have been remediated and tested, and returned to production. The
inventory, assessment and remediation of all non-mainframe hardware, business
computers, process control computers and embedded devices has also proceeded
according to schedule. The Company has discovered some computer equipment that
is not Year 2000 compliant and has made arrangements to replace such equipment.
An inventory of all desktop computer equipment, such as personal computers and
printers, has been completed and efforts to remediate or replace the defective
components are substantially complete.
The Company currently expects to incur total costs of approximately $21.2
million to address all of its Year 2000 issues. The total estimated costs
consist of: (1) approximately $10.2 million to remediate mainframe business
systems; (2) approximately $4.7 million to remediate business computers at the
divisions and other non-mainframe desk-top equipment; (3) approximately $2.9
million to remediate process control computers and embedded devices; (4)
approximately $1.5 million for accelerated replacement of software which is not
Year 2000 compliant; (5) approximately $1.4 million for internal employment cost
of information system employees; and (6) approximately $0.5 million for other
related administrative costs. Of this total, the Company spent approximately
$8.3 million in
16
<PAGE>
the first nine months of 1999, $9.0 million during 1998 and $1.8 million during
1997. These cost estimates do not include any costs that may be incurred by the
Company as a result of the failure of any supplier or customer of the Company,
or any other party with whom the Company does business, to become Year 2000
compliant. Year 2000 costs have been incurred as operating expenses from the
Company's information technology budget. The Company has not deferred any other
information technology projects as a result of its Year 2000 efforts.
As a part of its Year 2000 efforts, the Company has also identified the most
reasonably likely worst case scenarios which could result from a failure by the
Company or third parties to become Year 2000 compliant. The Company has also
established teams that will produce contingency plans for handling these worst
case scenarios. The Company has developed contingency plans for its divisional
operations. During the fourth quarter of 1999, the Company will concentrate on
refining these plans and defining its Zero Day Roll-over Support Strategy.
Based upon the information currently available to it, the Company believes that
the implementation of its Year 2000 Project Plan will adequately resolve the
Company's Year 2000 issues. However, since it is not possible to anticipate all
possible future outcomes, there could be circumstances under which the Company's
business operations are disrupted as a result of Year 2000 problems. These
disruptions could be caused by (1) the failure of the Company's systems or
equipment to operate as a result of Year 2000 problems, (2) the failure of the
Company's suppliers to provide the Company with raw materials, utilities,
supplies or other products or services which are necessary to sustain the
Company's manufacturing processes or other business operations or (3) the
failure of the Company's customers to accept delivery of the Company's products
as a result of their Year 2000 problems. Any such disruption to the Company's
business operations could have a material adverse effect on the financial
condition and results of operations of the Company.
Statements contained herein regarding the estimated costs and time to complete
the Company's Year 2000 projects, and the potential effects of Year 2000
problems, are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. A variety of factors could cause the
actual costs, time for completion and effects to differ from those which are
currently expected. These factors include, but are not limited to, the
following: (1) the failure of the Company to accurately identify all software
and hardware devices which are not Year 2000 compliant; (2) the failure of the
remediation actions identified by the Company to adequately correct the Year
2000 problems; (3) the failure of the Company's customers or suppliers and other
third parties with whom the Company does business to achieve Year 2000
compliance; (4) the inability of the Company to find sufficient outside
resources to assist the Company in its Year 2000 remediation activities; and (5)
increases in costs and fees charged by third parties retained by the Company to
assist in the Company's Year 2000 remediation activities.
17
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to
continuing fluctuations in commodity prices, foreign currency values and
interest rates that can affect the cost of operating, investing and financing.
Accordingly, the Company addresses a portion of these risks, primarily commodity
price risk, through a controlled program of risk management that includes the
use of derivative financial instruments. The Company's objective is to reduce
earnings volatility associated with these fluctuations to allow management to
focus on core business issues. The Company's derivative activities, all of which
are for purposes other than trading, are initiated within the guidelines of a
documented corporate risk-management policy. The Company does not enter into any
derivative transactions for speculative purposes. The Company's market risk has
not changed materially from that reported in the 1998 Form 10-K.
18
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
Steinmetz v. National Steel Corporation, et. al.
This lawsuit, which was reported in the Company's 1998 Form 10-K, seeks
shareholder class action status and alleges violations of the federal securities
laws relating to the restatement of the Company's financial statements which was
announced in October 1997. On August 16, 1999, the court granted the Company's
Motion to Dismiss the plaintiff's amended complaint without leave to amend. The
plaintiff filed a notice of appeal on September 15, 1999.
Trade Litigation
This matter was reported in the Company's 1998 Form 10-K and in the Forms 10-Q
for the first and second quarters of 1999, and involves certain unfair trade
petitions filed by the Company and a number of other U.S. steel producers with
the Department of Commerce ("DOC") and the International Trade Commission
("ITC").
Hot-Rolled Steel. On September 30, 1998, petitions alleging dumping of hot-
rolled carbon steel flat products ("Hot-Rolled Steel") were filed against
foreign steel companies in Brazil, Japan and Russia. At the same time, a
countervailing duty petition was filed alleging substantial subsidization of the
Brazilian steel industry. The Company joined as a petitioner in these cases,
except the one involving Japan. The following events have occurred in these
cases since the Company's Form 10-Q for the second quarter:
(i) On September 2, 1999 the ITC made affirmative final injury
determinations with respect to Brazil and Russia.
(ii) On August 16, 1999 summonses and complaints were filed with the Court
of International Trade commencing challenges to the suspension agreements
on Hot-Rolled Steel concluded with Brazil and Russia.
(iii) Certain Brazilian and Russian steel companies also commenced actions
in the Court of International Trade, challenging the DOC's affirmative
final determinations of dumping and subsidization.
Cold-Rolled Steel. On June 2, 1999, the Company joined a number of other U.S.
steel producers in filing certain unfair trade petitions relating to cold-rolled
carbon steel flat products ("Cold-Rolled Steel") before the DOC and the ITC.
These unfair trade petitions were filed against foreign steel companies in
Argentina, Brazil, China, Indonesia, Japan, Russia, South Africa, Slovakia,
Taiwan, Thailand, Turkey and Venezuela. The petitions alleged widespread dumping
of Cold-Rolled Steel from each of those countries, as well as substantial
subsidization of Cold-Rolled Steel from Brazil, Indonesia, Thailand and
Venezuela. The Company joined in all of these petitions, except the one against
Japan. The subsidy cases against Indonesia, Thailand and Venezuela were
terminated on July 19, 1999, when the ITC made negative injury determinations in
those cases. The ITC did not grant petitioners' request for reconsideration of
those determinations. On September 27, 1999 the DOC preliminarily determined
that Cold-Rolled Steel from Brazil has been subsidized. The affected imports are
now subject to bonding requirements, with the amount of security calculated
based on preliminary duty rates. Preliminary determinations in the dumping cases
are currently scheduled to be made by the DOC in the first two weeks of
November. Final determinations by the DOC and the ITC will be made in early
2000. Antidumping duties, and, in the case of Brazil, countervailing duties,
will be imposed against those imports for which the DOC makes an affirmative
final antidumping or countervailing duty determination and for which the ITC
makes an affirmative final injury determination.
19
<PAGE>
Environmental Matters
Granite City Regional Wastewater Treatment Plant NOV. On October 14, 1999 the
Granite City Regional Wastewater Treatment Plant (the "Granite City POTW")
issued a Notice of Violation ("NOV") to the Company's Granite City Division
("GCD"). The NOV alleges that GCD discharged significant quantities of
concentrated acid into the Granite City POTW without a permit and in violation
of the Granite City POTW's Sewer Use Ordinance. No penalty demand was included
in the NOV, although it alleges that GCD is responsible for (i) all costs
incurred by the Granite City POTW in investigating and monitoring these alleged
violations and (ii) all costs to inspect, repair or replace any portion of the
Granite City POTW facility that was damaged by these discharges. GCD is in the
process of preparing its response to the NOV.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached Exhibit Index
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated July 1, 1999 reporting on Item
5, Other Events.
The Company filed a report on Form 8-K dated July 26, 1999 reporting on
Item 5, Other Events.
The Company filed two reports on Form 8-K dated August 2, 1999 reporting on
Item 5, Other Events.
The Company filed a report on Form 8-K dated August 12, 1999 reporting on
Item 5, Other Events.
The Company filed a report on Form 8-K dated August 20, 1999 reporting on
Item 5, Other Events.
20
<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/ Glenn H. Gage
-----------------------------------
Glenn H. Gage
Senior Vice President and Chief Financial Officer
Date: November 15, 1999
21
<PAGE>
NATIONAL STEEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
For the quarterly period ended September 30, 1999
15-A Independent Accountants' Review Report
15-B Acknowledgment Letter on Unaudited Interim Financial Information
27 Financial Data Schedule
22
<PAGE>
Exhibit 15-A
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 September 30, 1999, and the
related consolidated statements of income for the three-month and nine-month
periods ended September 30, 1999 and 1998, of cash flows for the nine-month
period ended September 30, 1999 and 1998, and of changes in stockholders' equity
for the nine-month period ended September 30, 1999. 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 an 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, 1998, 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, 1999, 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, 1998, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Ernst & Young LLP
Indianapolis, Indiana
November 15, 1999
<PAGE>
Exhibit 15-B
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. 33-51087, pertaining to the National Steel Retirement Savings
Plan and National Steel Represented Employee Retirement Savings Plan,
of our report dated November 15, 1999 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 September 30, 1999.
Ernst & Young LLP
Indianapolis, Indiana
November 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 148
<SECURITIES> 0
<RECEIVABLES> 328
<ALLOWANCES> 18
<INVENTORY> 530
<CURRENT-ASSETS> 1,040
<PP&E> 3,684
<DEPRECIATION> 2,305
<TOTAL-ASSETS> 2,752
<CURRENT-LIABILITIES> 542
<BONDS> 561
0
0
<COMMON> 0
<OTHER-SE> 797
<TOTAL-LIABILITY-AND-EQUITY> 2,752
<SALES> 2,090
<TOTAL-REVENUES> 2,090
<CGS> 1,896
<TOTAL-COSTS> 1,896
<OTHER-EXPENSES> 212
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> (38)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (36)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36)
<EPS-BASIC> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
