<PAGE> 1
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 June 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 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
--- ---
The number of shares outstanding of the Registrant's Common Stock $.01 par
value, as of July 31, 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> 2
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Consolidated Statements of Income -
Three Months Ended June 30, 1999 and 1998 3
Consolidated Statements of Income -
Six Months Ended June 30, 1999 and 1998 4
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 6
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 1999 and
Year Ended December 31, 1998 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Legal Proceedings 19
Submission of Matters to a Vote of Security Holders 21
Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
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 JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 707.3 $ 747.8
Cost of products sold 633.6 655.4
Selling, general and administrative expense 35.6 33.5
Depreciation 35.5 32.4
Equity income of affiliates (0.3) (0.3)
---------- ----------
INCOME FROM OPERATIONS 2.9 26.8
Other (income) expense:
Interest and other financial income (4.2) (4.1)
Interest and other financial expense 11.9 7.0
Net gain on disposal of non-core assets and other
related activities -- (2.7)
---------- ----------
7.7 0.2
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (4.8) 26.6
Income tax provision (credit) (0.2) 0.1
---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (4.6) $ 26.5
========== ==========
BASIC EARNINGS PER SHARE:
Net Income (Loss) Applicable to Common Stock $ (0.11) $ 0.61
========== ==========
Weighted average shares outstanding (in thousands) 41,288 43,288
DILUTED EARNINGS PER SHARE:
Net Income (Loss) Applicable to Common Stock $ (0.11) $ 0.61
========== ==========
Weighted average shares outstanding (in thousands) 41,288 43,354
DIVIDENDS PAID PER COMMON SHARE $ 0.07 $ 0.07
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $ 1,365.2 $ 1,456.3
Cost of products sold 1,240.4 1,292.8
Selling, general and administrative expense 75.3 71.6
Depreciation 68.1 63.5
Equity income of affiliates (0.7) (0.2)
---------- ----------
INCOME (LOSS) FROM OPERATIONS (17.9) 28.6
Other (income) expense:
Interest and other financial income (6.4) (9.5)
Interest and other financial expense 19.4 13.2
Net gain on disposal of non-core assets and other
related activities (0.6) (2.7)
---------- ----------
12.4 1.0
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (30.3) 27.6
Income tax credit (1.6) (4.8)
---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (28.7) $ 32.4
========== ==========
BASIC EARNINGS PER SHARE:
Net Income (Loss) Applicable to Common Stock $ (0.69) $ 0.75
========== ==========
Weighted average shares outstanding (in thousands) 41,537 43,288
DILUTED EARNINGS PER SHARE:
Net Income (Loss) Applicable to Common Stock $ (0.69) $ 0.75
========== ==========
Weighted average shares outstanding (in thousands) 41,537 43,340
DIVIDENDS PAID PER COMMON SHARE $ 0.14 $ 0.14
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions of Dollars, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 249.0 $ 137.9
Receivables - net 273.0 245.9
Inventories - net:
Finished and semi-finished products 315.0 322.2
Raw materials and supplies 148.2 150.6
-------- --------
463.2 472.8
Deferred tax assets 23.3 23.3
Other 25.1 21.7
-------- --------
Total current assets 1,033.6 901.6
Investments in affiliated companies 20.6 19.5
Property, plant and equipment 3,616.0 3,475.5
Less accumulated depreciation 2,273.0 2,205.0
-------- --------
1,343.0 1,270.5
Other assets 310.2 292.4
-------- --------
$2,707.4 $2,484.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 210.2 $ 242.1
Current portion of long-term debt 34.1 30.3
Short-term borrowings 3.9 6.9
Accrued liabilities 256.9 267.5
-------- --------
Total current liabilities 505.1 546.8
Long-term debt 573.3 285.8
Other long-term liabilities 821.1 801.1
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 383.0 417.5
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 807.9 850.3
-------- --------
$2,707.4 $2,484.0
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (28.7) $ 32.4
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 68.1 63.5
Net gain on disposal of non-core assets (0.6) (2.7)
Equity income of affiliates (0.7) (0.2)
Dividends from affiliates 1.5 1.8
Postretirement benefits 7.3 15.9
Deferred income taxes (8.2) (10.8)
Changes in working capital items:
Investments -- 15.0
Receivables (27.1) 13.9
Inventories 9.6 (59.4)
Other assets (2.6) 2.0
Accounts payable (31.9) 27.1
Accrued liabilities (10.6) (87.1)
Other non-current assets 1.1 (5.1)
Other long-term liabilities 17.9 (11.1)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (4.9) (4.8)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (143.6) (63.3)
Acquisition of ProCoil (7.7) --
Net proceeds from disposal of non-core assets 0.6 3.3
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (150.7) (60.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of First Mortgage Bonds 300.0 --
Costs associated with issuance of First Mortgage Bonds (8.0) --
Prepayment of ProCoil long-term debt (10.8) --
Long-term debt repayments (14.5) (19.8)
Long-term borrowings 16.7 7.2
Repayment of short-term borrowings - net (3.0) --
Repurchase of Class B common stock (7.9) --
Dividend payments on common stock (5.8) (6.0)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 266.7 (18.6)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 111.1 (83.4)
Cash and cash equivalents at the beginning of the period 137.9 312.6
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 249.0 $ 229.2
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
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 (28.7) (28.7)
Dividends on common stock (5.8) (5.8)
Purchase of 890,300 shares of Class B
common stock (7.9) (7.9)
------ ------ ------- ------- -------- ------- --------
BALANCE AT JUNE 30, 1999 $ 0.2 $ 0.2 $ 491.8 $ 383.0 $ (16.3) $ (51.0) $ 807.9
====== ====== ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six month period ended June 30, 1999 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, 1998 (the "1998 Form 10-K")
contains additional information and should be read in conjunction with this
report.
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.
Certain amounts in the 1998 financial statements have been reclassified to
conform to 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.) 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.
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 Company believes that the lawsuit is without merit
and intends to defend against it vigorously.
8
<PAGE> 9
NOTE 3 -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
JUNE 30, 1999 June 30, 1998
- ------------------------------------------------------------- ----------------------------------
Dollars in millions ALL All
STEEL OTHER TOTAL Steel Other Total
- ------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED:
Revenues from
external customers $1,356.1 $ 9.1 $1,365.2 $1,445.8 $ 10.5 $1,456.3
Intersegment revenues 322.8 1,503.9 1,826.7 294.4 1,581.0 1,875.4
Segment income (loss) from
operations (12.3) (5.6) (17.9) 50.2 (21.6) 28.6
Segment assets 1,547.0 1,160.4 2,707.4 1,439.5 1,044.5 2,484.0
THREE MONTHS ENDED:
Revenues from
external customers $ 703.0 $ 4.3 $ 707.3 $ 748.8 $ 5.6 $ 754.4
Intersegment revenues 163.8 780.2 944.0 158.1 813.4 971.5
Segment income (loss) from
operations 6.5 (3.6) 2.9 30.2 (3.4) 26.8
- ---------------------------------------------------------------------------------------------------
</TABLE>
Included in the "All Other" intersegment revenues for the six month period is
$1,393.3 million in 1999 and $1,475.5 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.
In addition, $10.8 million of ProCoil debt was prepaid. The acquisition will be
accounted for using the purchase method of accounting. Excess purchase price
over the book value of the underlying assets was preliminarily recorded as a
non-current asset and will be allocated when fair values are determined. The
Company has been a majority owner of ProCoil since May 1997 and has included
ProCoil's financial position and results of operations in the Company's
consolidated financial statements since that date. Therefore, the unaudited pro
forma results for the first six months of 1999 and 1998 would not have differed
materially from those reported had the Company owned all of the stock of ProCoil
at those times.
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.
In conjunction with the March 31, 1999 acquisition of the remaining 44% minority
interest equity of ProCoil Corporation, the Company prepaid certain debt
amounting to approximately $10.8 million. (See Note 4 - Acquisition of Procoil).
9
<PAGE> 10
In the second quarter of 1999, National Steel Pellet Corporation secured a $10.5
million five year lease obligation for mobile equipment.
Long-term obligations were as follows:
<TABLE>
<CAPTION>
JUNE 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 8.5 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 71.0 73.7
ProCoil, various rates and due dates 11.4 17.3
Capitalized lease obligation 24.7 16.6
Other 19.2 19.9
-------- ---------
Total long-term obligations 607.4 316.1
Less long-term obligations due within one year 34.1 30.3
-------- ---------
Long-term obligations $ 573.3 $ 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 six
months of 1999, $45.9 million was paid to NKK SE relating to this contract and
$8.1 million is included in accounts payable, net of $4.9 million retention, at
June 30, 1999.
During the first six months of 1999, the Company purchased from a trading
company in arms' length transactions at competitively bid prices approximately
$14.6 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 $13.0 million of finished coated steel
produced by NKK will be purchased during 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.
The Company also purchased from a trading company in arms' length transactions
at competitively bid prices approximately $7.5 million of slabs produced by NKK
during the second quarter of 1999. The Company has committed to purchase an
additional $19.0 million of slabs produced by NKK during 1999.
NKK is the parent company of NKK U.S.A. Corporation, which is the Company's
principal stockholder.
10
<PAGE> 11
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 $16.1 million and $17.0
million at June 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> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This commentary should be read in conjunction with the second quarter of 1999
consolidated financial statements and selected notes, the first quarter of 1999
Form 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 JUNE 30, 1999 AND 1998
Net Sales
Net sales for the second quarter of 1999 decreased $40.5 million, or 5.4%,
compared to the second quarter of 1998. Shipments increased by approximately
21,000 tons to 1,471,000 tons and product mix improved slightly in the second
quarter of 1999 as compared to the second quarter of 1998. However, a 7.3%
decrease in average selling price more than offset those positive trends. The
lingering effects of high levels of low-priced imported steel and service center
inventories negatively impacted selling prices in comparison to the year earlier
period.
Income from Operations
The Company reported operating income of $2.9 million for the second quarter of
1999, a decrease of $23.9 million from operating income of $26.8 million
reported in the corresponding 1998 period. The lower average selling prices
discussed above significantly decreased operating income. Also impacting
operating results were increased selling, general and administrative expenses
relating to Year 2000 remediation costs and increased depreciation expense. Cost
of products sold decreased compared to the prior year despite the increase in
shipment volume and improved mix. Improvements in raw material prices,
particularly scrap, more than offset the impact of these changes in volume and
mix. Additionally, significant improvements in operating yields and other
operational spending resulting from the Company's continuing cost reduction
efforts had a positive effect on operating income.
Net Financing Costs
Net financing costs increased $4.8 million in the second quarter of 1999 as
compared to the same 1998 period. The increase is due to an increase in interest
and other financial expense of $4.9 million due primarily to 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.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Sales
Net sales for the first six months of 1999 decreased $91.1 million, or 6.3%,
compared to the first six months of 1998. Shipments dipped slightly to 2,861,000
tons during the first half of 1999, compared to 2,869,000 tons in the
year-earlier period, resulting in a small decrease in sales. Improved product,
market and customer mix resulting from the Company's continued focus to increase
shipments of higher value-added products had a positive impact on sales of
approximately $11.2 million. However, this was more than offset by a $97.4
million decrease resulting from lower average selling prices during the first
half of 1999 as compared to the year-earlier period due to the impact of high
levels of low-priced imported steel and service center inventories that began to
affect sales in the third quarter of 1998.
12
<PAGE> 13
Income from Operations
The Company reported an operating loss of $17.9 million for the first six months
of 1999, a decrease of $46.5 million compared to the corresponding 1998 period.
This decrease results primarily from a 6.8% decrease in average selling prices
as discussed above. Increased selling, general and administrative expenses
mainly relating to Year 2000 remediation costs and increased depreciation
expense also impacted operating results. Offsetting these decreases were several
positive factors, including (1) improvements in raw material prices,
particularly scrap, (2) lower costs relating to blast furnace relines and (3)
lower operating costs resulting from the Company's continued cost reduction
efforts.
Net Financing Costs
Net financing costs increased $9.3 million in the first six months of 1999 as
compared to the same 1998 period. The increase is due to an increase in interest
and other financial expense of $6.2 million relating to the First Mortgage Bonds
issued in the first quarter of 1999 and a decrease in interest income of $3.1
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 continues to focus on its long-term strategies to increase shipments
of higher value-added products and to emphasize cost reduction initiatives and
customer-focused strategies intended to enhance operating performance.
Improvements from these efforts have been seen as shipments of coated products
as a percentage of total shipments continue to increase, cost reduction efforts
continue to positively impact income from operations, and the Company is
recognized by its customers for quality, delivery and service. The Company
anticipates that shipments will rise in the third quarter, as there is strong
demand for automotive products and hot-rolled products. However, it is also
anticipated that average selling prices will remain below 1998 levels. The
Company is actively involved in trade cases filed with the Department of
Commerce and the International Trade Commission relative to hot-rolled and
cold-rolled carbon steel product imports and is hopeful that the resolution of
these cases will have a positive impact on the Company's results of operations,
although there can be no assurances as to such favorable outcome.
13
<PAGE> 14
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 June 30, 1999 increased to
42.9% as compared to 27.1% at December 31, 1998. Cash and cash equivalents
totaled $249.0 million at June 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 June 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 $74.3
million. During the first six months of 1999, the maximum availability under the
Receivables Purchase Agreement, after reduction for letters of credit
outstanding, varied from $71.8 million to $125.7 million and was $111.0 million
as of June 30, 1999.
Cash Flows from Operating Activities
For the six months ended June 30, 1999, cash used in operating activities
amounted to $4.9 million, which is primarily attributable to a net loss of $28.7
million and changes in working capital items offset by the impact of the noncash
charge for depreciation.
Cash Flows from Investing Activities
Capital investments for the six month periods ended June 30, 1999 and 1998
amounted to $143.6 million and $63.3 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 $160 million during the remainder of 1999 for capital
expenditures, which include the construction of the new galvanizing facility at
Great Lakes and new business systems.
Cash Flows from Financing Activities
During the first six months of 1999, net cash provided by financing activities
amounted to $266.7 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 $10.8 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> 15
OTHER
Labor Negotiations
On July 21, 1999, the Company and the United Steelworkers of America ("USWA")
reached tentative five-year labor agreements covering members at the Company's
Granite City and Regional Divisions, Corporate Headquarters and National Steel
Pellet Company. The agreements are subject to ratification by the USWA
membership in late August and, if approved, will become effective as of August
1, 1999.
The labor contracts between the Company and the International Chemical Workers
Council of the United Food and Commercial Workers, Bricklayers and Laborers'
Unions at the Granite City Division expire on various dates between September
30, 1999 and December 16, 1999. Negotiations are scheduled to commence in
August; management anticipates reaching successor agreements before contract
expiration.
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 August 9, 1999 the Company's board of directors declared a regular quarterly
common stock dividend of $0.07 per share, payable on September 9, 1999, to
shareholders of record on August 25, 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.
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. As planned, the Company has completed the majority
of its assessment, remediation and testing of its various systems, electronic
commerce and business associates, and has made whatever modifications were
necessary to prevent business interruption.
15
<PAGE> 16
Following is a table which shows the current status and expected substantial
completion dates for 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*
* with the exception of the Great Lakes hot strip mill expected to be
complete 3rd quarter 1999
VENDORS, CUSTOMERS AND OTHERS:
Vendor readiness evaluations prepared and mailed Complete
Review of responses and assessment of risk Ongoing
CONTINGENCY PLAN:
Development and review of contingency plan 3rd quarter 1999
</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, a $2.3 million reduction from our previous estimates, 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 $6.3 million in the first six 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.
16
<PAGE> 17
Thus far, the Company's Year 2000 efforts have focused on (1) the assessment and
remediation of information technology and non-information technology items and
(2) the evaluation of the Year 2000 compliance status of key suppliers,
customers and other parties with whom the Company does business. The information
obtained by the Company from these activities is being used by the Company to
determine 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 intends to make these
determinations and create any necessary contingency plans by the end of the
third quarter of 1999.
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> 18
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 Form 10-K for the year ended
December 31, 1998.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
TRADE LITIGATION
This matter was reported in the Company's 1998 Form 10-K and in the Form 10-Q
for the first quarter of 1999, and involves certain unfair trade petitions filed
by the Company and a number of other U.S. steel producers before the Department
of Commerce and the International Trade Commission ("ITC") on September 30, 1998
against foreign steel companies in Brazil, Japan and Russia, alleging dumping of
hot-rolled carbon steel flat products ("Hot-Rolled Steel"). With respect to
Japan, the Department of Commerce made an affirmative final dumping
determination on April 28, 1999, and the ITC made an affirmative final injury
determination on June 11, 1999. Consequently, on June 29, 1999 the Department of
Commerce entered an antidumping duty order. Under the order, imports of
Hot-Rolled Steel from Japan are subject to antidumping duties ranging from
17.86% to 67.14%. On July 6, 1999, the Department of Commerce made final dumping
and subsidization determinations regarding Brazil. The Department of Commerce
found dumping margins ranging from 41.27% to 43.40% and subsidy rates ranging
from 6.35% to 9.67%. On the same day, the Department of Commerce entered into
suspension agreements with the government of Brazil and three Brazilian steel
producers. These agreements impose volume and quantity restrictions on imports
of Hot-Rolled Steel from Brazil. While the agreements remain in place, the
Department of Commerce will not issue antidumping and countervailing duty orders
on imports of Hot-Rolled Steel from Brazil. On July 12, 1999, the Department of
Commerce made a final dumping determination regarding the Russian Federation.
The Department of Commerce found dumping margins ranging from 73.59% to 184.56%.
Also on July 12, 1999, the Department of Commerce entered into a suspension
agreement with the Russian Federation. The suspension agreement imposes volume
and quantity restrictions on imports of Hot-Rolled Steel from the Russian
Federation. While this suspension agreement remains in place, the Department of
Commerce will not issue an antidumping order on imports of Hot-Rolled Steel from
the Russian Federation. U.S. steel producers may challenge the Brazilian and
Russian suspension agreements in the Court of International Trade. Such
challenges must be commenced by August 18, 1999. Notwithstanding the suspension
agreements, the petitioning U.S. steel producers requested that the ITC complete
the investigations. The ITC is scheduled to make final injury determinations in
the cases against Brazil and the Russian Federation on September 2, 1999.
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 Department of Commerce 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 imported from each of those countries, as well as
substantial subsidization of Cold-Rolled Steel from Brazil, Indonesia, Thailand
and Venezuela. The Company joined as a petitioner in these cases, except the one
involving Japan. On July 19, 1999, the ITC made affirmative preliminary injury
determinations in all of the dumping cases and the subsidy case against Brazil.
At the same time, the ITC made a negative injury determination in the subsidy
cases against Indonesia, Thailand and Venezuela. The petitioning U.S. steel
producers have filed a request for the ITC to reconsider this determination.
However, it is unclear when or if the ITC will consider that request.
Preliminary determinations by the Department of Commerce in the subsidy case
against Brazil and the dumping cases are currently scheduled for September and
November of 1999, respectively. Final determinations by the Department of
Commerce and the ITC will be made in 2000. Antidumping duties and, in the case
of Brazil, countervailing duties, will be imposed against those imports for
which the Department of Commerce makes an affirmative final dumping or
countervailing duty determination and for which the ITC makes an affirmative
final injury determination. Such duties are designed to offset dumping and the
advantages of subsidies and create a level playing field for domestic producers.
19
<PAGE> 20
ENVIRONMENTAL MATTERS
Ilada Energy Company Site
This matter was reported in the Company's 1998 Form 10-K and involves cleanup of
a Superfund Site located in East Cape Girardeau, Illinois. The Illinois
Environmental Protection Agency and the U.S. Environmental Protection Agency
have announced that no further remedial action will be required at this site.
This decision is subject to a public comment period which is scheduled to expire
on August 31, 1999.
Weirton Steel - EPA Order
This matter was reported in the Company's 1998 Form 10-K and involves the
cleanup of environmental contamination on property formerly owned by the
Company's Weirton Steel Division and now owned by Weirton Steel Corporation
("Weirton Steel"). Weirton Steel claims that the Company is obligated to
indemnify it for the costs of this cleanup as a result of certain
indemnification provisions contained in the agreements between Weirton Steel and
the Company which were entered into at the time that the Company sold the assets
of its former Weirton Steel Division to Weirton Steel (the "Weirton
Indemnification"). On July 29, 1999, the Company agreed to pay Weirton Steel
pursuant to the Weirton Indemnification (i) $1.9 million ($0.8 million of which
is expected to be reimbursed to the Company by an insurance carrier) in
settlement of a claim for reimbursement of certain costs incurred by Weirton
Steel in connection with the cleanup of the Mainland Coke Plant, and (ii) $0.2
million in settlement of a claim for reimbursement of certain costs incurred by
Weirton Steel in connection with the cleanup of Brown's Island. Additional
claims by Weirton Steel under the Weirton Indemnification are likely.
Great Lakes- Wayne County Air Pollution Control Department Proceeding
This matter was reported in the Company's 1998 Form 10-K and involves certain
Notices of Violation issued to the Company's Great Lakes facility by the Wayne
County Air Quality Management Division. The Company entered into a Consent
Decree effective as of June 22, 1999, resolving this matter. Pursuant to the
terms of the Consent Decree, the Company will pay a cash penalty of $0.3 million
and will perform certain supplemental environmental projects.
Midwest - NPDES Permit Violations
This matter was reported in the Company's 1998 Form 10-K and involves a Notice
of Violation issued by the Indiana Department of Environmental Management
("IDEM") which alleged exceedances of the National Pollutant Discharge
Elimination System ("NPDES") permit limitations at the Company's Midwest
facility. On May 7, 1999, IDEM and the Company entered into an Agreed Order
which settled this matter. Under the Agreed Order, the Company (1) is obligated
to implement a compliance plan to improve the performance of its wastewater
treatment plant, (2) agreed to pay a cash penalty of approximately $50,000, and
(3) agreed to perform a supplemental environmental project to mitigate the soil
erosion problem along a portion of the Lake Michigan shoreline. The cash penalty
has subsequently been paid by the Company.
20
<PAGE> 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Set forth below are the results of the vote on the matters which were submitted
to a vote of the Company's stockholders at the Annual Meeting of Stockholders
which was held on May 10, 1999:
(1) ELECTION OF DIRECTORS. The following individuals were elected to
serve as directors of the Company, for a term expiring on the date of the 2000
Annual Meeting of Stockholders, by the following vote:
<TABLE>
<CAPTION>
NAME NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
---- ------------------- ------------------------
<S> <C> <C>
Charles A. Bowsher 62,537,001 243,324
Edsel D. Dunford 62,538,702 241,623
Mitsuoki Hino 61,768,873 1,011,452
Frank J. Lucchino 62,539,300 241,025
Bruce K. MacLaury 62,538,033 242,292
Mineo Shimura 61,769,624 1,010,701
Hisashi Tanaka 61,770,274 1,010,051
Yutaka Tanaka 62,537,725 242,600
Sotaro Wakabayashi 61,769,634 1,010,691
</TABLE>
(2) RATIFICATION OF INDEPENDENT AUDITORS. The appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 1999 was ratified by the following vote:
<TABLE>
<CAPTION>
NUMBER OF VOTES FOR NUMBER OF VOTES AGAINST NUMBER OF ABSTENTIONS
------------------- ----------------------- ---------------------
<S> <C> <C>
62,723,541 21,924 34,860
</TABLE>
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 April 6, 1999 reporting on
Item 5, Other Events.
The Company filed two reports on Form 8-K dated April 15, 1999
reporting on Item 5, Other Events.
The Company filed a report on Form 8-K dated April 30, 1999 reporting
on Item 5, Other Events.
The Company filed a report on Form 8-K dated May 12, 1999 reporting on
Item 5, Other Events.
The Company filed a report on Form 8-K dated June 18, 1999 reporting on
Item 5, Other Events.
21
<PAGE> 22
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: August 13, 1999
22
<PAGE> 23
NATIONAL STEEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
15-A Independent Accountants' Review Report
15-B Acknowledgment Letter on Unaudited Interim Financial Information
27 Financial Data Schedule
23
<PAGE> 1
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 June 30, 1999, and the related
consolidated statements of income for the three-month and six-month periods
ended June 30, 1999 and 1998, of cash flows for the six-month period ended June
30, 1999 and 1998, and of changes in stockholders' equity and redeemable
preferred stock--Series B for the six-month period ended June 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
August 13, 1999
<PAGE> 1
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 August 13, 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 June 30, 1999.
Ernst & Young LLP
Indianapolis, Indiana
August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 249
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> 19
<INVENTORY> 463
<CURRENT-ASSETS> 1,034
<PP&E> 3,616
<DEPRECIATION> 2,273
<TOTAL-ASSETS> 2,707
<CURRENT-LIABILITIES> 505
<BONDS> 573
0
0
<COMMON> 0
<OTHER-SE> 808
<TOTAL-LIABILITY-AND-EQUITY> 2,707
<SALES> 1,365
<TOTAL-REVENUES> 1,365
<CGS> 1,240
<TOTAL-COSTS> 1,240
<OTHER-EXPENSES> 140
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (30)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (29)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29)
<EPS-BASIC> (.69)
<EPS-DILUTED> (.69)
</TABLE>
