1999
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
x
OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year
ended December 31, 1999
OR
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
¨
SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No.
1-983
National Steel
Corporation
(Exact name of
registrant as specified in its charter)
| Incorporated
under the
Laws of the
State of Delaware
(State or other
jurisdiction of
incorporation or
organization)
|
|
25-0687210
(I.R.S. Employer
Identification No.)
|
|
| 4100 Edison
Lakes Parkway,
Mishawaka,
IN
(Address of
principal executive offices)
|
|
46545-3440
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: 219-273-7000
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each
Class
|
|
Name of each
exchange on which registered
|
| Class B Common
Stock |
|
New York Stock
Exchange |
First Mortgage
Bonds, 8 3
/8% Series due 2006
|
|
New York Stock
Exchange |
Securities
registered pursuant to Section 12(g) of the Act:
None
(Title of
class)
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X
No .
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ¨
At March 15, 2000,
there were 41,288,240 shares of the registrant’s common stock
outstanding consisting of 22,100,000 shares of Class A Common Stock and
19,188,240 shares of Class B Common Stock.
Aggregate market
value of voting stock held by non-affiliates: $129,591,210.
The amount shown is
based on the closing price of National Steel Corporation’s Common Stock
on the New York Stock Exchange on March 15, 2000. Voting stock held by
officers and directors is not included in the computation. However, National
Steel Corporation has made no determination that such individuals are
“affiliates” within the meaning of Rule 405 under the Securities
Act of 1933.
Documents
Incorporated By Reference:
Selected portions of
the 2000 Proxy Statement of National Steel Corporation are incorporated by
reference into Part III of this Report on Form 10-K.
NATIONAL
STEEL
CORPORATION
TABLE OF
CONTENTS
PART
I
Introduction
National Steel Corporation, a
Delaware corporation, (together with its consolidated subsidiaries, the
“Company”) is one of the largest integrated steel producers in
the United States and is engaged in the manufacture and sale of a wide
variety of flat rolled carbon steel products, including hot-rolled,
cold-rolled, galvanized, tin and chrome plated steels. We target high
value-added applications of flat rolled carbon steel for sale primarily
to the automotive, construction and container markets. Our principal
executive offices are located at 4100 Edison Lakes Parkway, Mishawaka,
Indiana 46545-3440; telephone (219) 273-7000.
National Steel Corporation was
formed through the merger of Great Lakes Steel Corporation, Weirton Steel
Corporation and Hanna Iron Ore Company and was incorporated in Delaware
on November 7, 1929. Following are the major events impacting our
ownership since incorporation:
|
Ÿ
|
We built a
finishing facility, now the Midwest operations, in Portage, Indiana, in
1961.
|
|
Ÿ
|
In 1971, we
purchased Granite City Steel Corporation, now the Granite City
Division.
|
|
Ÿ
|
On September 13,
1983, we became a wholly-owned subsidiary of National Intergroup, Inc.
(which subsequently changed its name to FoxMeyer Health Corporation and
then to Avatex Corporation and is hereinafter referred to as
“Avatex”).
|
|
Ÿ
|
On January 11,
1984, we sold the principal assets of our Weirton Steel Division and
retained certain liabilities related thereto.
|
|
Ÿ
|
On August 31,
1984, NKK Corporation (collectively with its subsidiaries, “NKK
”) purchased a 50% equity interest in us from Avatex. In
connection with this purchase, Avatex agreed to indemnify us for (1)
certain environmental liabilities related to our former Weirton Steel
Division and our subsidiary, Hanna Furnace Corporation and (2) certain
pension and employee benefit liabilities related to the Weirton Steel
Division (together, the “Indemnification Obligations
”).
|
|
Ÿ
|
On June 26,
1990, NKK purchased an additional 20% equity interest in us from
Avatex. In connection with this purchase, Avatex was issued shares of
our Series B Redeemable Preferred Stock and NKK was issued shares of
our Series A Preferred Stock.
|
|
Ÿ
|
In April 1993,
we completed an initial public offering of our Class B Common
Stock.
|
|
Ÿ
|
In October 1993,
Avatex converted all of its shares of Class A Common Stock to an equal
number of shares of Class B Common Stock and subsequently sold
substantially all of its shares of Class B Common Stock in the market
in January 1994, resulting in NKK owning a 75.6% voting interest at
December 31, 1994.
|
|
Ÿ
|
On February 1,
1995, we completed a primary offering of 6.9 million shares of Class B
Common Stock. Subsequent to that transaction, NKK’s voting
interest decreased to 67.6%.
|
|
Ÿ
|
In November
1997, we entered into an agreement with Avatex to redeem all of the
Series B Redeemable Preferred Stock held by Avatex and to release
Avatex from the Indemnification Obligations.
|
|
Ÿ
|
In December
1997, we completed the redemption of the Series A Preferred Stock held
by NKK for a redemption price of $36.7 million, plus accrued dividends
of approximately $0.6 million. Following this transaction, and the
settlement with Avatex described above, we no longer have any preferred
stock outstanding.
|
Strategy
National Steel Corporation
’s strategy is to improve and sustain overall profitability, thereby
enhancing stockholder value. We will accomplish this by increasing our
overall market share through the optimization of
our assets, improving productivity and product quality, continuing to
increase shipments of higher value-added products, reducing the cost of
production and strengthening our overall capital structure. We have
developed a number of strategic initiatives designed to achieve this
goal.
Optimizing Asset
Utilization. We are focused on improving the utilization of all
available assets to produce more tonnage in order to improve the overall
efficiency of our mills and to increase our overall market share. Our
first goal is increasing hot strip mill production to full capacity of
approximately 7 million tons. This strategy requires the purchase of
slabs as our hot-rolled capacity exceeds our steelmaking capabilities. We
are increasing shipments of hot-rolled product in an effort to increase
total annual shipment levels to approximately 7 million tons by
2001.
Increased Focus on the
Growing Construction Market. We are continuing to increase our focus
on the construction market. We believe that increasing our share of this
market will positively impact operating margins, reduce competitive
threats and maintain high capacity utilization rates while decreasing our
dependence on any one market. Of our coating capacity constructed since
1995, approximately 675,000 tons are targeted towards the construction
industry. Since 1995, we have increased shipments to the construction
industry by approximately 20% from 1.0 million tons to 1.2 million tons
in the year ended December 31, 1999. We believe that we are the largest
U.S. supplier of flat rolled steel to the construction industry, with a
market share of approximately 23%. The construction market has
historically been an important customer base for us, accounting for
approximately 24% of net sales in 1999.
Increased Penetration in
Higher Value-Added Sectors of the Automotive Market. In order to
better serve the Automotive Market and enhance margins, we have
identified opportunities to sell higher value-added products, including
galvanized products and steel used in exposed automotive applications.
Our initiatives have included:
|
(1)
|
upgrading the
72-inch galvanizing line at Midwest to service demand for critical
exposed material;
|
|
(2)
|
the 1999
acquisition of the remaining 44% interest in ProCoil Corporation (
“ProCoil”), previously a 56% owned joint venture formed to
provide blanking, slitting, cutting-to-length and laser welding for the
automotive markets, to which we ship approximately 200,000 tons of
steel coils per year;
|
|
(3)
|
establishing the
Product Application Center and Technical Research Center near Great
Lakes, centrally located near the major automotive manufacturers;
and
|
|
(4)
|
constructing a
new hot dip galvanizing line at Great Lakes.
|
We believe we are one of the
largest U.S. suppliers of flat rolled steel to the automotive industry
with a market share of approximately 11%. The automotive industry has
historically been an important customer base for us, accounting for
approximately 33% of net sales in 1999.
Capital Investments in
Higher Value-Added Processing Capacity. In order to improve
productivity, operating costs and product quality, we have invested in
capital improvements at our steelmaking and finishing operations.
Specific capital projects to enhance value-added processing capacity have
included:
|
(1)
|
the construction
of the 270,000 ton #3 galvanizing line at Midwest completed in
1998;
|
|
(2)
|
a substantial
upgrade of the existing 72-inch galvanizing facility at Midwest,
including a capacity increase to 450,000 tons completed in
1997;
|
|
(3)
|
the construction
of a 270,000 ton galvanizing facility (“Triple G”) at Granite
City completed in 1996;
|
|
(4)
|
the construction
of a 300,000 ton joint venture galvanizing facility near Jackson,
Mississippi, which commenced operations in 1994 (“Double G”);
and
|
|
(5)
|
the construction
of a 400,000 ton joint venture hot dip galvanizing facility in Windsor,
Ontario, which commenced operations in 1993 (“DNN
”).
|
We are committed to utilize 50%
of each of Double G’s and DNN’s line time. We are nearing
completion of a new 450,000 ton hot dip galvanizing line at Great Lakes
to serve the automotive industry. Total expenditures
for this facility are expected to be approximately $170 million, and
start-up is scheduled for the second quarter of 2000. Including the new
facility, our total annual coated products capacity is expected to exceed
3.5 million tons in 2001, an increase of over 60% since 1992. With the
completion of this facility, we believe that total annual coated
shipments could account for approximately 50% of total shipments in 2001
as compared to approximately 38% in 1995.
Investments in Downstream
Processing Businesses. To further increase our shipments of higher
value-added products, enhance profitability and reduce competitive
threats, we have invested in several downstream businesses,
including:
|
(1)
|
ProCoil to
provide blanking, slitting, cutting-to-length and laser welding
services;
|
|
(2)
|
a 50% interest
in National Robinson LLC, formed in 1998 to construct and operate a
temper mill and provide other value-added processing for 200,000 tons
of our hot-rolled bands annually; and
|
|
(3)
|
a 25% interest
in Tinplate Holdings, Inc. (“Tinplate”), a tin mill service
center for which we are the largest supplier.
|
Our primary markets for higher
value-added products, the automotive and construction markets, demand
high-quality products, on-time delivery and effective, efficient
technical support and customer service.
Continued Reduction of
Production Costs. Reducing all costs associated with the production
process is essential to our overall cost reduction program. It is our
ongoing focus to reduce the total cost of producing finished steel, of
which the single largest component remains the production of hot-rolled
bands. Specific initiatives include:
|
(1)
|
improving labor
productivity and production yields;
|
|
(2)
|
installing a
predictive maintenance program designed to maximize production time and
equipment life while minimizing unscheduled outages;
|
|
(3)
|
reducing
shipments of secondary and limited warranty steel;
|
|
(4)
|
enhancing
production capacity; and
|
|
(5)
|
reducing overall
headcount thereby decreasing man hours per net ton shipped.
|
Strengthened Capital
Structure. We intend to continue to strengthen our financial position
with cash from operations, negotiating more favorable credit arrangements
and evaluating alternatives for the monetization of certain assets.
During 1999, we sold a total of $300 million aggregate principal amount
of ten-year 9.875% First Mortgage Bonds due 2009 and closed on a new $200
million five-year inventory credit facility. The proceeds from the sale
of the First Mortgage Bonds were used to finance the construction of the
new hot dip galvanizing line at Great Lakes and for general corporate
purposes. The inventory credit facility replaced two facilities totaling
$150 million that were due to expire in 2000. We also continue to
aggressively manage pension and other postretirement employee benefit
liabilities in order to minimize expense and required cash contributions.
Our total liquidity from cash and available short-term borrowing
facilities remains a strong $410 million at December 31,
1999.
Overall Quality Improvement.
An important element of our strategy is to reduce the cost of poor
quality production, which currently results in the sale of nonprime
products at lower prices and requires substantial additional processing
costs. We have made significant improvements in this area by changing
certain work practices, increasing process control and utilizing
employee-based problem solving, thus eliminating dependence on final
inspection and reducing internal rejections and additional processing.
Since 1995, we have reduced shipments of secondary and limited warranty
steel from approximately 13% of total shipments to approximately 8% of
total shipments for the year ended December 31, 1999. We are currently
ISO 9002/QS 9000 registered.
Alliance with
NKK
We have a strong alliance with
our principal stockholder, NKK, the second largest steel company in Japan
and the ninth largest in the world as measured by production. Since 1984,
we have had access to a wide range of
NKK’s steelmaking, processing and applications technology. We have 39
engineers and other technical support personnel who transferred from NKK
that serve primarily at our Divisions. These engineers, as well as
engineers and technical support personnel at NKK’s facilities in
Japan, assist in improving operating practices and developing new
manufacturing processes. This support also includes providing input on
ways to improve raw steel production and finished product yields and
enhance overall productivity. In addition, NKK has provided financial
assistance to us in the form of investments, loans and introductions to
Japanese financial institutions and trading companies. However, there can
be no assurance given as to the extent of NKK’s future financial
support beyond existing contractual commitments.
This alliance with NKK was
further strengthened by the Agreement for the Transfer of Employees with
NKK Corporation which was entered into by National Steel and NKK
effective as of May 1, 1995 (superseding a prior arrangement). The
agreement was unanimously approved by all of our directors who were not
then, and never have been, employees of NKK. Pursuant to the terms of
this agreement, technical and business advice is provided through NKK
employees who are transferred to National Steel. The agreement further
provides that the initial term can be extended from year to year after
expiration of the initial term, if approved by NKK and a majority of our
directors who were not then, and never have been, employees of NKK. The
agreement has been extended through the calendar year 2000 in accordance
with this provision. Pursuant to the terms of the agreement, we will
reimburse NKK for the costs and expenses incurred by NKK in connection
with the transfer of these employees, subject to an agreed upon cap. The
cap was $7 million during each of 1999, 1998, and 1997 and will remain at
that amount during 2000. We have incurred approximately $6.3 million,
$6.0 million and $6.6 million under this agreement, during 1999, 1998 and
1997, respectively. In addition, we utilized various other engineering
services provided by NKK outside of the agreement and incurred expenses
of approximately $0.3 million, $0.9 million and $1.3 million for these
services during 1999, 1998 and 1997, respectively.
Effective as of February 16,
2000, we entered into a Steel Slab Products Supply Agreement with NKK,
the initial term of which extends through December 31, 2000 and will
continue on a year-to-year basis thereafter until terminated by either
party on six months notice. Pursuant to the terms of this Agreement, we
will purchase steel slabs produced by NKK at a price determined in
accordance with a formula set forth in the Agreement. The quantity of
slabs to be purchased is negotiated on a quarterly basis. This Agreement
was unanimously approved by all directors who were not then, and never
have been, employees of NKK.
Customers
Automotive. We are a
major supplier of hot and cold-rolled steel and higher value-added
galvanized coils to the automotive industry, one of the most demanding
groups of steel consumers. Our steel has been used in a variety of
automotive applications including exposed and unexposed panels, wheels
and bumpers. Automotive manufacturers require wide sheets of steel,
rolled to exact dimensions. In addition, formability and defect-free
surfaces are critical. We have been able to successfully meet these
demands.
Construction. We are
also a leading supplier of steel to the construction market. Roof and
building panels are the principal applications for galvanized and
Galvalume® steel in this market. Steel framing is growing in
popularity with contractors. Management believes that demand for Galvalume
® steel will exhibit strong growth for the next several years,
partially as a result of a trend away from traditional building products,
and that we are well positioned to profit from this growth as a result of
both our position in this market and our additional capacity referred to
above.
Container. We produce
chrome and tin plated steels to exacting tolerances of gauge, shape,
surface flatness and cleanliness for the container industry. Tin and
chrome plated steels are used to produce a wide variety of food and
non-food containers. In recent years, the market for tin and chrome
plated steels has been relatively stable and profitable.
Pipe and Tube. We supply
the pipe and tube market with hot-rolled, cold-rolled and coated sheet.
We are a key supplier to transmission pipeline, downhole casing and
structural pipe producers.
Service Centers. We
also supply the service center market with hot-rolled, cold-rolled and
coated sheet. Service centers generally purchase steel coils and may
process them further or sell them directly to third parties without
further processing.
The following table sets forth
the percentage of our revenues from various markets for the past three
years.
|
|
|
1999
|
|
1998
|
|
1997
|
| Automotive |
|
32.6 |
% |
|
29.5 |
% |
|
27.0 |
% |
| Construction |
|
23.5 |
|
|
26.6 |
|
|
24.8 |
|
| Containers |
|
11.6 |
|
|
11.3 |
|
|
11.0 |
|
| Pipe and
Tube |
|
6.3 |
|
|
5.6 |
|
|
7.3 |
|
| Service
Centers |
|
20.0 |
|
|
19.5 |
|
|
21.3 |
|
| All
Other |
|
6.0 |
|
|
7.5 |
|
|
8.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
No customer accounted for more
than 10% of net sales in 1999, 1998 or 1997. Export sales accounted for
approximately 2.0% of revenues in 1999, 2.1% in 1998 and 2.0% in
1997.
Our products are sold through
sales offices and resident sales employees located in Chicago, Detroit,
Houston, Indianapolis, St. Louis, Temecula, CA, Atlanta, Baltimore,
Dallas, Grand Rapids, MI, Kansas City and at our Midwest operations.
Substantially all of our orders are for short-term delivery. Accordingly,
backlog is not meaningful when assessing future results of
operations.
Approximately two-thirds of our
products are sold under long-term sales arrangements, most of which are
negotiated on an annual basis. Any sales arrangements with a term of six
months or more are considered to be “long-term”. A significant
amount of our flat rolled steel sales to larger customers in the
automotive and container markets are made pursuant to such sales
arrangements. Our sales arrangements generally provide for set prices for
the products ordered during the period that they are in effect. As a
result, we may experience a delay in realizing price changes related to
our long-term business. Much of the remainder of our products are sold
under contracts covering shorter periods at the then prevailing market
prices for such product.
Customer Partnership.
Our customer partnership program provides superior quality and
service through technical assistance, local customer service and sales
support. Management believes it is able to further differentiate our
products and to promote customer loyalty by establishing close
relationships through early customer involvement, providing technical
services and support and utilizing its Product Application Center and
Technical Research Center facilities while exposing a customer to a
number of our personnel.
Our Technical Research Center,
near Great Lakes, develops new products, improves existing products and
develops more efficient operating procedures to meet the increasing
demands of the automotive, construction and container markets. We employ
approximately 55 chemists, physicists, metallurgists and engineers
in connection with our research activities. The research center is
responsible for, among other things, the development of five new high
strength steels for automotive weight reduction and a new galvanized
steel for the construction market. In addition, we operate a Product
Application Center near Detroit dedicated to providing product and
technical support to customers. The Product Application Center assists
customers with application engineering (selecting optimum metal and
manufacturing methods), application technology (evaluating product
performance) and technical developments (performing problem solving at
plants). We spent $10.7 million, $11.0 million and $10.9 million for
research and development in 1999, 1998 and 1997, respectively. In
addition, we participate in various research efforts through the American
Iron and Steel Institute (the “AISI”).
Operations
We operate three principal
facilities: two integrated steel plants, Great Lakes in Ecorse and River
Rouge, Michigan, near Detroit, and the Granite City Division in Granite
City, Illinois, near St. Louis and a finishing
facility, Midwest in Portage, Indiana, near Chicago. Great Lakes and
Midwest operate as the Regional Division, a single business enterprise,
in order to improve the planning and coordination of production at both
plants and enhance our ability to monitor costs and utilize our
resources, thereby allowing us to more effectively meet our customers
’ needs.
Our centralized corporate
structure, the close proximity of our principal steel facilities and the
complementary balance of processing equipment shared by them, enables us
to closely coordinate the operations of these facilities in order to
maintain high operating rates throughout our processing facilities and to
maximize the return on our capital investments.
The following table details our
effective steelmaking capacity, actual production, effective capacity
utilization and percentage of steel continuously cast and that of the
domestic steel industry for the years indicated.
|
|
|
Raw Steel
Production Data
|
|
|
|
Effective
Capacity
|
|
Actual
Production
|
|
Effective
Capacity
Utilization
|
|
Percentage
Continuously
Cast
|
|
|
|
(Thousands
of net tons) |
| The
Company |
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
6,450 |
|
6,250 |
|
96.9 |
% |
|
100.0 |
% |
|
1998 |
|
6,600 |
|
6,087 |
|
92.2 |
|
|
100.0 |
|
|
1997 |
|
6,800 |
|
6,527 |
|
96.0 |
|
|
100.0 |
|
|
1996 |
|
7,000 |
|
6,557 |
|
93.7 |
|
|
100.0 |
|
|
1995 |
|
6,300 |
|
6,081 |
|
96.5 |
|
|
100.0 |
|
|
| Domestic Steel
Industry* |
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
128,100 |
|
107,237 |
|
83.7 |
% |
|
95.6 |
% |
|
1998 |
|
125,300 |
|
108,752 |
|
86.8 |
|
|
95.5 |
|
|
1997 |
|
121,400 |
|
108,561 |
|
89.4 |
|
|
94.7 |
|
|
1996 |
|
116,100 |
|
105,309 |
|
90.7 |
|
|
93.2 |
|
|
1995 |
|
112,500 |
|
104,930 |
|
93.3 |
|
|
91.1 |
|
|
*Information as
reported by the AISI. The 1999 industry information is
preliminary.
|
In 1999, effective capacity was
6,450,000 net tons as a result of a planned blast furnace reline at the
Granite City Division and the idling of the Great Lakes “D”
furnace in the early part of the year as a result of decreased business
primarily due to the high levels of imported steel experienced in the
second half of 1998. In 1998, effective capacity was 6,600,000 net tons
primarily as a result of the scheduled “A” blast furnace reline
at Great Lakes. Effective capacity in 1997 was lowered from 1996 to
reflect more realistic operating levels based on our operating practices
in 1996. In 1996, effective capacity increased to 7,000,000 net tons
primarily due to successfully negotiated environmental relief at the
Granite City Division.
Raw
Materials
Iron Ore. Our metallic
iron requirements are supplied primarily from iron ore pellets that are
produced from a concentration of low grade ore. We have reserves of iron
ore adequate to produce approximately 347 million gross tons of iron ore
pellets through our wholly owned subsidiary, National Steel Pellet
Company (“NSPC”). These iron ore reserves are located in
Minnesota and Michigan. A significant portion of our average annual
consumption of iron ore pellets was obtained from the deposits at NSPC
during the last five years. The remaining consumption of iron ore pellets
were purchased from third parties. Iron ore pellets available to us from
our own deposits and outside suppliers are expected to be sufficient to
meet our total iron ore requirements at competitive market prices for the
foreseeable future.
Coal. In 1992, we
decided to exit the coal mining business and sell or dispose of our coal
reserves and related assets. The remaining coal assets constitute less
than 0.3% of our total assets. We believe that supplies of coal, adequate
to meet our needs, are readily available from third parties at
competitive market prices.
Coke. On June 12,
1997, we sold the machinery, equipment, improvements and other personal
property and fixtures constituting the Great Lakes No. 5 coke battery,
together with the related coal inventories, to a subsidiary of DTE Energy
Company, and received proceeds (net of taxes and expenses) of
approximately $234 million. We will continue to operate and maintain the
coke battery on a contract basis and will purchase the majority of the
coke produced from the battery under a requirements contract, with the
price being adjusted during the term of the contract, primarily to
reflect changes in production costs.
We also operate two efficient
coke batteries servicing the Granite City Division. Approximately 60%
of our annual coke requirements can be supplied by the Great Lakes
and Granite City coke batteries. Our remaining coke requirements are met
through competitive market purchases. In addition, our coal injection
process at Great Lakes continues to reduce our dependency on outside coke
supplies.
Limestone. An affiliated
company in which we hold a minority equity interest has limestone
reserves of approximately 123 million gross tons located in Michigan.
During the last five years, the majority of our average annual
consumption of limestone was acquired from these reserves at competitive
market prices. Our remaining limestone requirements were purchased at
competitive market prices from unaffiliated third parties.
Scrap and Other
Materials. Supplies of steel scrap, tin, zinc and other alloying and
coating materials are readily available at competitive market
prices.
Patents and
Trademarks
We have the patents and
licenses necessary for the operation of our business as now conducted. We
do not consider our patents and trademarks to be material to our
business.
Employees
As of December 31, 1999, we
employed 9,395 people. We have labor agreements with the United
Steelworkers of America (“USWA”), the International Chemical
Workers Council of the United Food and Commercial Workers and other labor
organizations which collectively represent approximately 82% of
our employees. In 1999, we entered into labor agreements, which expire on
or after July 31, 2004, with these various labor
organizations.
Competition
We are in direct competition
with domestic and foreign flat rolled carbon steel producers and
producers of plastics, aluminum and other materials which can be used in
place of flat rolled carbon steel in manufactured products. Steel
industry participants compete primarily on price, service and quality. We
believe we are able to differentiate our products from those of our
competitors by, among other things, providing technical services and
support, utilizing our Product Application Center and Technical Research
Center facilities and by focusing on improving product quality through,
among other things, capital investment and research and development, as
previously described. We compete with domestic integrated and mini-mill
steel producers, some of which have greater resources than
us.
Imports. Domestic steel
producers face significant competition from foreign producers and, from
time to time, have been adversely affected by what we believe to be
unfairly traded imports. The intensity of foreign competition is
substantially affected by the relative strength of foreign economies and
fluctuations in the value of the United States dollar against foreign
currencies. Steel imports increase when the value of the dollar is strong
in relation to foreign currencies. The recent economic slowdown in
certain foreign markets resulted in an increase in imports at depressed
prices. Imports of finished steel products accounted for approximately
19% of the domestic market during 1993 to 1997, approximately 27% in 1998
and 22% in 1999. Some foreign steel producers are owned, controlled or
subsidized by their governments. Decisions by these foreign producers
with respect to production and sales may be influenced to a greater
degree by political and economic policy considerations than by prevailing
market conditions. See the discussion under the caption “Trade
Litigation” in Item 3, “Legal Proceedings”.
Reorganized/Reconstituted
Mills. The intensely competitive conditions within the domestic steel
industry have been exacerbated by the continued operation, modernization
and upgrading of marginal steel production facilities through bankruptcy
reorganization procedures, thereby perpetuating overcapacity in certain
industry product lines. Overcapacity is also caused by the continued
operation of marginal steel production facilities that have been sold by
integrated steel producers to new owners, who operate such facilities
with a lower cost structure.
Mini-mills. Mini-mills
provide significant competition in certain product lines, including
hot-rolled and cold-rolled sheets, which represented, in the aggregate,
approximately 56% of our shipments in 1999. Mini-mills are relatively
efficient, low-cost producers which make steel from scrap in electric
furnaces, with lower employment and environmental costs. Thin slab
casting technologies have allowed mini-mills to enter certain sheet
markets which have traditionally been supplied by integrated producers.
Certain companies have announced plans for, or have indicated that they
are currently considering, additional mini-mill plants for sheet products
in the United States.
Steel Substitutes. In
the case of many steel products, there is substantial competition from
manufacturers of other products, including plastics, aluminum, ceramics,
glass, wood and concrete. Conversely, along with other manufacturers of
steel products, we have begun to compete in recent years in markets not
traditionally served by steel producers.
Environmental
Matters
Our operations are subject to
numerous laws and regulations relating to the protection of human health
and the environment. We have made capital expenditures of approximately
$4.3 million in connection with matters relating to environmental control
during 1999. Our current estimates indicate that we will incur capital
expenditures in connection with matters relating to environmental control
of approximately $18 million and $14 million for 2000 and 2001,
respectively. In addition, we have recorded expenses for environmental
compliance, including depreciation, of approximately $64.7 million in
1999 and expect to record expenses of approximately $63 million in each
of 2000 and 2001. Since environmental laws and regulations are becoming
increasingly stringent, our environmental capital expenditures and costs
for environmental compliance may increase in the future. In addition, due
to the possibility of future changes in circumstances or regulatory
requirements, the amount and timing of future environmental expenditures
could vary substantially from those currently anticipated. The costs for
environmental compliance may also place us at a competitive disadvantage
with respect to foreign steel producers, as well as manufacturers of
steel substitutes, that are subject to less stringent environmental
requirements.
In 1990, Congress passed
amendments to the Clean Air Act, which impose stringent standards on air
emissions. The Clean Air Act amendments will directly affect the
operations of many of our facilities, including the coke ovens. Under
such amendments, coke ovens generally will be required to comply with
progressively more stringent standards over the thirty-year period
beginning on the date of enactment of the amendments. We believe that the
costs for complying with the Clean Air Act amendments will not have a
material adverse effect on our financial position, results of operations
or liquidity.
The Resource Conservation
Recovery Act of 1976, as amended (“RCRA”), imposes certain
investigation and corrective action obligations on facilities that are
operating under a permit, or are seeking a permit, to treat, store or
dispose of hazardous waste. As of December 31, 1999, we have recorded
approximately $6.9 million as a liability for certain corrective actions
which are expected to be necessary at our Midwest facility. At the
present time, our other facilities are not subject to corrective
action.
We have recorded an aggregate
liability of approximately $2.0 million at December 31, 1999 for the
reclamation costs to restore our coal and iron ore mines at our shut down
locations to their original and natural state, as required by various
federal and state mining statutes.
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, operators,
transporters and generators for remediation of contaminated properties,
regardless of fault. We have been conducting steel manufacturing and
related operations at numerous locations, including our present
facilities, for over sixty years. Although we believe that we have
utilized operating practices that were standard in the industry at the
time, hazardous materials may have been released on or under these
currently or previously owned sites. Consequently, we potentially may be
required to remediate contamination at some of these sites. However,
based on our past experience and the nature of environmental remediation
proceedings, we believe that if any such remediation is required at a
site, it will likely occur over an extended period of time.
Pursuant to an indemnity
provision contained in the agreements with Weirton Steel Corporation (
“Weirton Steel”) which were entered into at the time that we
sold the assets of our former Weirton Steel Division to Weirton Steel, we
have reimbursed Weirton Steel for the costs of certain remediation
activities undertaken by Weirton Steel at our former manufacturing site
in Weirton, West Virginia. Additional claims for indemnification by
Weirton Steel are possible. In addition, our subsidiary, the Hanna
Furnace Corporation is currently involved in remediation activities at
the site of the former Donner Hanna coke plant in Buffalo, New York
(which was operated as a joint venture with LTV Steel Company,
Inc.).
In addition to the remediation
of current and former manufacturing sites, we are also involved as
potentially responsible parties (“PRPs”) in a number of
off-site CERCLA and other environmental cleanup proceedings.
We have accrued an aggregate
liability of $13.7 million as of December 31, 1999 for the superfund and
other environmental cleanup liabilities at our current and former
manufacturing sites and off site disposal facilities. The outcome of
these remediation activities and cleanup proceedings is not expected to
have a material adverse effect on our financial position, results of
operations or liquidity.
As a result of the settlement
of a lawsuit we had previously filed against certain of our comprehensive
general liability insurance carriers, we have partial insurance coverage
for certain existing and future major environmental
liabilities.
Forward Looking
Statements
Statements made by us in this
Form 10-K 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 our actual results and experiences to differ materially
from those expected or expressed in our forward looking statements. These
factors include, but are not limited to, the following:
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(1)
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changes in
market prices and market demand for our products;
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(2)
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changes in the
costs or availability of raw materials and other supplies used by us in
the manufacture of our products;
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(3)
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equipment
failures or outages at our steelmaking, mining and processing
facilities;
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(5)
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changes in the
levels of our operating costs and expenses;
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(6)
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collective
bargaining agreement negotiations, strikes, labor stoppages or other
labor difficulties;
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(7)
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actions by our
competitors, including domestic integrated steel producers, foreign
competitors, mini-mills and manufacturers of steel substitutes such as
plastics, aluminum, ceramics, glass, wood and concrete;
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(8)
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changes in
industry capacity;
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(9)
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changes in
economic conditions in the United States and other major international
economies, including rates of economic growth and
inflation;
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(10)
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worldwide
changes in trade, monetary or fiscal policies, including changes in
interest rates;
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(11)
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changes in the
legal and regulatory requirements applicable to us; and
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(12)
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the effects of
extreme weather conditions.
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The Granite
City Division.
The Granite City Division,
located in Granite City, Illinois, has an annual hot-rolled band
production capacity of approximately 3.2 million tons. All steel at
Granite City is continuous cast. Granite City also uses ladle metallurgy
to refine the steel chemistry to enable it to meet the exacting
specifications of its customers. The facility’s ironmaking
facilities consist of two coke batteries and two blast furnaces.
Finishing facilities include an 80-inch hot strip mill, a hot-rolled coil
processing line, a continuous pickler, a tandem mill, three hot dip
galvanizing lines and two roll formers. Granite City ships approximately
10% of its total production to Midwest for finishing. Principal products
of the Granite City Division include hot-rolled, hot dipped galvanized
and Galvalume® steel, grain bin and high strength, low alloy
steels.
The Granite City Division is
located on 1,540 acres and employs approximately 3,000 people. The
Division’s proximity to the Mississippi River and other interstate
transit systems, both rail and highway, provides easy accessibility for
receiving raw materials and supplying finished steel products to
customers.
The Regional
Division.
Great Lakes, located in Ecorse
and River Rouge, Michigan, is an integrated facility engaged in
steelmaking primarily for use in the automotive market with an annual
hot-rolled band production capacity of approximately 4.2 million tons.
All steel at this location is continuous cast. Great Lakes ironmaking
facilities consist of three blast furnaces and a rebuilt 85-oven coke
battery which was sold in 1997 to a subsidiary of DTE Energy Company.
Great Lakes also operates two basic oxygen process vessels, a vacuum
degasser and a ladle metallurgy station. Finishing facilities include a
hot strip mill, a skinpass mill, a shear line, a high speed pickle line,
a tandem mill, a batch annealing station, two temper mills, one customer
service line and an electrolytic galvanizing line. Additionally, start-up
of a new automotive hot dip galvanizing line is scheduled for the second
quarter of 2000. During 1999, approximately 20% of the batch annealing
capacity was replaced with higher quality hydrogen annealing stations.
Great Lakes ships approximately 60% of its production to Midwest
and to joint venture coating operations for value-added processing.
Principal products include hot-rolled, cold-rolled, electrolytic
galvanized, and high strength, low alloy steels.
Great Lakes is located on 1,100
acres and employs approximately 3,600 people. The facility is
strategically located with easy access to water, rail and highway transit
systems for receiving raw materials and supplying finished steel products
to customers.
Midwest, located in Portage,
Indiana, finishes hot-rolled bands produced at Great Lakes and Granite
City primarily for use in the automotive, construction and container
markets. All of the processes performed at Midwest help enhance our
profitability by turning commodity grades of hot-rolled steel into higher
value-added products. Midwest facilities include a continuous pickling
line, two cold reduction mills and three continuous galvanizing lines (a
48 inch wide line which can produce galvanized or Galvalume® steel
products and which services the construction market, a 72 inch wide line
which services the automotive market and a Galvalume® line which
services the construction market). Additionally, Midwest includes
finishing facilities for cold-rolled products consisting of a batch
annealing station, a sheet temper mill and a continuous stretcher
leveling line, an electrolytic cleaning line, a continuous annealing
line, two tin temper mills, two tin recoil lines, an electrolytic tinning
line and a chrome line which services the container markets. During 1999,
acrylic coating capability was added to the Galvalume® line to serve
the needs of the construction market. Principal products include tin mill
products, hot dipped galvanized and Galvalume® steel, cold-rolled and
electrical lamination steels.
Midwest is located on 1,100
acres and employs approximately 1,500 people. Its location provides
excellent access to rail, water and highway transit systems for receiving
raw materials and supplying finished steel products to
customers.
National Steel
Pellet Company
National Steel Pellet Company (
“NSPC”), located on the western end of the Mesabi Iron Ore
Range in Keewatin, Minnesota, mines, crushes, concentrates and pelletizes
low grade taconite ore into iron ore pellets. NSPC operations include two
primary crushers, ten primary mills, five secondary mills, a concentrator
and a pelletizer. The facility has a current annual effective iron ore
pellet capacity of over five million gross tons and has a combination of
rail and vessel access to our integrated steel mills.
ProCoil
Corporation
ProCoil Corporation (
“ProCoil”) is located in Canton, Michigan. ProCoil operates a
steel processing facility which began operations in 1988 and a
warehousing facility which began operations in 1993. On March 31, 1999,
we acquired 100% ownership of ProCoil. Prior to this date, we owned a 56%
equity interest in ProCoil, and Marubeni Corporation owned the remaining
44%. ProCoil blanks, slits and cuts steel coils to desired specifications
to service automotive market customers and provides laser welding
services. In addition, ProCoil warehouses material to assist us in
providing just-in-time delivery to our customers. Effective as of May 31,
1997, our consolidated financial statements include the accounts of
ProCoil.
Joint Ventures
and Equity Investments
DNN Galvanizing Limited
Partnership. As part of our strategy to focus our marketing
efforts on high quality steels for the automotive industry, we entered
into an agreement with NKK and Dofasco Inc., a large Canadian steel
producer (“Dofasco”), to build and operate DNN, a 400,000 ton
per year hot dip galvanizing facility in Windsor, Ontario, Canada. This
facility incorporates state-of-the-art technology to galvanize steel for
critically exposed automotive applications. National Steel owns a 10%
equity interest in DNN, NKK owns a 40% equity interest and Dofasco owns
the remaining 50%. The facility is modeled after NKK’s Fukuyama
Works Galvanizing Line that has provided high quality galvanized steel to
the Japanese automotive industry for several years. We are committed to
utilize 50% of the available line time of the facility and pay a tolling
fee designed to cover fixed and variable costs with respect to 50% of the
available line time, whether or not such line time is utilized. The plant
began production in January 1993 and is currently operating at capacity.
Our steel substrate requirements are provided to DNN by Great
Lakes.
Double G Coatings,
L.P. To continue to meet the needs of the growing construction
market, National Steel Corporation and Bethlehem Steel Corporation formed
a joint venture to build and operate Double G Coatings, L.P. (
“Double G”). We own a 50% equity interest in Double G. Double G
is a 300,000 ton per year hot dip galvanizing and Galvalume® steel
facility near Jackson, Mississippi. The facility is capable of coating 48
inch wide steel coils with zinc to produce a product known as galvanized
steel and with a zinc and aluminum coating to produce a product known as
Galvalume® steel. Double G primarily serves the metal buildings
segment of the construction market in the south central United States. We
are committed to utilize 50% of the available line time of the facility
and pay a tolling fee designed to cover fixed and variable costs with
respect to 50% of the available line time, whether or not such line time
is utilized. The joint venture commenced production in the second quarter
of 1994 and reached full operating capacity in 1995. Our steel substrate
requirements are currently provided to Double G by Great
Lakes.
Tinplate Holdings, Inc.
In April 1997, one of our wholly owned subsidiaries purchased 25% of the
outstanding common stock of Tinplate Holdings, Inc. (“Tinplate
”). Tinplate operates a tin mill service center in Gary, Indiana
that purchases tin mill products from us.
National Robinson
LLC. In February 1998, National Steel Corporation entered into
an agreement with Robinson Steel Co., Inc. to form a joint venture
company, named National Robinson LLC. We own a 50% equity
interest in National Robinson LLC. This company operates a temper mill,
leveler and cut to length facility in Granite City, Illinois to produce
high value added cut-to-length steel plates and sheets with superior
quality, flatness and dimensional tolerances. National Robinson LLC
processes approximately 200,000 tons of hot-rolled steel which we
supply.
Other
Information With Respect to Our Properties
In addition to the properties
described above, we own a corporate headquarters facility in Mishawaka,
Indiana. Our properties are well maintained, considered adequate and are
being utilized for their intended purposes. Our steel production
facilities are owned in fee by us except for:
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(1)
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a continuous
caster and related ladle metallurgy facility which service Great
Lakes,
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(2)
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an electrolytic
galvanizing line, which services Great Lakes, and
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(3)
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a portion of the
coke battery, which services the Granite City Division.
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Each of these
facilities are owned by third parties and leased to us pursuant to the
terms of operating leases. The electrolytic galvanizing line lease, the
coke battery lease and the continuous caster and related metallurgy
facility lease are scheduled to expire in 2001, 2004, and 2008,
respectively. Upon expiration, we have the option to extend the
respective lease or purchase the facility at fair market
value.
Substantially all of the land
(excluding certain unimproved land), buildings and equipment (excluding,
generally, mobile equipment) that are owned in fee by us at the Granite
City Division and the Regional Division are subject to a lien securing
the First Mortgage Bonds, 8 3
/8% Series due 2006
and 9 7
/8% Series due 2009 (
“First Mortgage Bonds”). Included among the items which are not
subject to this lien are a vacuum degassing facility and a pickle line
which service Great Lakes and a continuous caster facility which services
the Granite City Division; however, each of these items is subject to a
mortgage granted to the respective lender who financed the construction
of the facility. We have also agreed to grant to the Voluntary Employees
’ Benefit Association Trust (“VEBA Trust”) a second
mortgage on that portion of the property which is covered by the lien
securing the First Mortgage Bonds and which is located at Great Lakes.
The VEBA Trust was established in connection with the 1993 Settlement
Agreement with the USWA for the purpose of prefunding certain
postretirement employee benefit obligations for USWA represented
employees.
For a description of certain
properties related to our production of raw materials, see the discussion
under the caption “Raw Materials” in Item 1, “Business
”.
Item 3. Legal Proceedings
In addition to the matters
discussed below, the Company is involved in various legal proceedings
occurring in the normal course of its business. In the opinion of the
Company’s management, adequate provision has been made for losses
that are likely to result from these actions.
Securities and
Exchange Commission Investigation
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 Company’s system of internal
controls. The Audit Committee engaged legal counsel who, with the
assistance of an accounting firm, inquired into these matters. Based upon
this inquiry, the Company determined the need to restate its financial
statements for certain prior periods. On January 29, 1998, the Company
filed an amended Form 10-K for 1996 and amended Forms 10-Q for the first,
second and third quarters of 1997 reflecting the restatements. On
December 15, 1997, the Board of Directors approved the termination of the
Company’s Vice President—Finance in connection with the Audit
Committee inquiry. During January 1998, legal counsel to the Audit
Committee issued its report to the Audit Committee, and the Audit
Committee approved the report and concluded its inquiry. On January 21,
1998,
the Board of Directors accepted the report and approved the
recommendations, except for the recommendation to revise the Audit
Committee Charter, which was approved on February 9, 1998. The report
found certain misapplications of generally accepted accounting principles
and accounting errors, including excess reserves, which have been
corrected by the restatements referred to above. The report found that
the accretion of excess reserves to income during the first, second and
third quarters of 1997, as described in the amended Forms 10-Q for those
quarters, may have had the effect of management of earnings as the result
of errors in judgment and misapplication of generally accepted accounting
principles. However, the report concluded that these errors do not appear
to have involved the intentional misstatement of the Company’s
accounts. The report also found weaknesses in internal controls and
recommended various improvements in the Company’s system of internal
controls, a comprehensive review of such controls, a restructuring of the
Company’s finance and accounting department, and expansion of the
role of the internal audit function, as well as corrective measures to be
taken related to the specific causes of the accounting errors. The
Company believes that it has taken all steps reasonably necessary to
implement these recommendations with the involvement of the Audit
Committee.
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 to examine and report on management
’s assertion about the effectiveness of the Company’s internal
control over financial reporting. The accounting firm’s report was
issued in March 1999 and indicated that in that firm’s 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 (“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.
Steinmetz v.
National Steel Corporation, et. al.
A complaint was filed on May
13, 1998 in the United States District Court for the Northern District of
Indiana by Hyman Steinmetz seeking shareholder class action status and
alleging violations of the federal securities laws against the Company,
its majority shareholder, NKK U.S.A. Corporation, Osamu Sawaragi, the
Company’s former chairman and chief executive officer, and another
former officer of the Company. The complaint generally relates to the
Company’s restatement of its financial statements for certain prior
periods which was announced in October 1997. The complaint seeks
unspecified money damages, interest, costs and fees. On March 29, 1999,
the court granted the Company’s Motion to Dismiss, but gave the
plaintiff until April 19, 1999 to file an amended complaint. The
plaintiff filed an amended complaint on April 19, 1999. 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
The Company is a party to
on-going trade proceedings concerning imports of hot-rolled carbon steel
flat products (“Hot-Rolled Steel”) and cold-rolled carbon steel
flat products (“Cold-Rolled Steel”). These trade proceedings
relate to the imposition and amount of antidumping and countervailing
duties, which are designed to offset dumping and the advantages of
subsidies and create a level playing field for domestic producers. In
these proceedings, the Department of Commerce (the “DOC”) and
the International Trade Commission (the “ITC”) initially
conduct an investigation to determine whether to issue an antidumping or
countervailing duty
order. If an order is issued, the duty rate is then subject to change in
subsequent annual administrative reviews. In addition, in five-year
reviews, the DOC and the ITC may revoke an order if they determine that
injury, dumping or subsidization, as the case may be, is not likely to
continue or recur if the order is revoked.
On September 30, 1998, a number
of U.S. steel producers filed unfair trade petitions alleging widespread
dumping of imported Hot-Rolled Steel from Brazil, Japan and Russia. The
U.S. steel producers also alleged substantial subsidization of Hot-Rolled
Steel from Brazil. The Company joined in the Russian and Brazilian
petitions. The resulting investigations led to the imposition of an
antidumping order on Japanese imports on June 29, 1999. On February 11,
2000, the Japanese government requested the establishment of a dispute
settlement panel to review this order pursuant to the dispute settlement
mechanism of the World Trade Organization. Furthermore, in July 1999 the
DOC entered into suspension agreements with Russia, Brazil and three
Brazilian steel producers. These agreements impose volume and price
restrictions on imports of Hot-Rolled Steel from Russia and Brazil. In
August 1999, challenges to the suspension agreements were commenced in
the Court of International Trade by several U.S. steel producers. In
addition, the DOC’s final subsidization determination regarding
Brazil and the DOC’s final dumping determination regarding Russia
are being challenged in the Court of International Trade by affected
foreign steel producers.
On June 2, 1999, a number of
U.S. steel producers filed unfair trade petitions alleging widespread
dumping of Cold-Rolled Steel from Argentina, Brazil, China, Indonesia,
Japan, Russia, South Africa, Slovakia, Taiwan, Thailand, Turkey and
Venezuela and 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 resulting subsidy
investigations of Indonesia, Thailand and Venezuela were terminated on
July 19, 1999, when the ITC found that imports from those countries were
negligible. On January 18, 2000, the DOC made affirmative final dumping
determinations in the investigations of Argentina, Brazil, Japan, Russia,
South Africa and Thailand. On the same date the DOC entered into a
suspension agreement with Russia that imposes volume and price
restrictions on imports of Cold-Rolled Steel from Russia. The DOC also
made an affirmative subsidization determination in the investigation of
Brazil. A final dumping determination with respect to Turkey is scheduled
for March 12, 2000. Final dumping determinations with respect to
Indonesia, China, Slovakia and Taiwan are scheduled for May 22,
2000.
On March 3, 2000, the ITC made
negative injury determinations with respect to Cold-Rolled Steel from
Brazil, Argentina, Japan, South Africa, Russia and Thailand. This
decision means that no antidumping or countervailing duties will be
assessed against Cold-Rolled Steel imported from these countries;
however, the Company and other domestic producers have the right to
appeal the decision to the U.S. Court of International Trade. Final
injury determinations in the remaining Cold-Rolled Steel cases will be
made over the next four months.
Environmental
Regulatory Enforcement Proceedings
From time to time, the Company
is involved in proceedings with various regulatory authorities relating
to violations of environmental laws and regulations which may require the
Company to pay various fines and penalties, comply with applicable
standards or other requirements or incur capital expenditures to add or
change certain pollution control equipment or processes. The more
significant of these proceedings which are currently pending are
described below:
Granite City Division
—IEPA Violation Notice. On October 18, 1996, the IEPA
issued a Violation Notice alleging (1) releases to the environment
between 1990 and 1996; (2) violations of solid waste requirements; and
(3) violations of the NPDES water permit limitations, at the Company
’s Granite City Division. No demand or proposal for penalties or
other sanctions was contained in the Notice; however, the Notice does
contain a recommendation by IEPA that the Company conduct an
investigation of these releases and, if necessary, remediate any
contamination discovered during that investigation. The Company submitted
a written response to the Notice on December 4, 1996 and met with IEPA on
December 18, 1996. The Company submitted certain additional information
requested by IEPA in 1997. IEPA has not responded to the Company since
receiving this additional information.
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. The NOV alleges that the Company
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 the Company 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. The Company has implemented actions to minimize the potential
for the release of process wastewater to the Granite City POTW and
submitted a response to the NOV on November 11, 1999.
Detroit Water and
Sewerage Department NOVs. The Detroit Water and
Sewerage Department (“DWSD”) has issued seven NOVs to the
Company’s Great Lakes Division alleging that the Company’s
discharge to the DWSD contained levels of zinc, cyanide and mercury in
excess of the permitted limits. No demand or proposal for penalties or
other sanctions was contained in the NOVs.
For a discussion of the Company
’s Superfund and other cleanup liabilities see “Environmental
Matters” under Item 1, “Business”.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted
to a vote of security holders during the fourth quarter of
1999.
Executive
Officers of the Registrant
The following sets forth
certain information with respect to our executive officers. Executive
officers are elected by our Board of Directors, generally at their first
meeting after each annual meeting of stockholders. Our officers serve at
the discretion of the Board of Directors and are subject to removal at
any time.
Yutaka Tanaka, Chairman and
Chief Executive Officer. Mr. Tanaka, age 63, has been a
director of National Steel since April 1, 1998. Mr. Tanaka was elected
Vice Chairman in April 1998 and Chairman of the Board and Chief Executive
Officer in September 1998. Mr. Tanaka served as President of Adchemco
Corporation, a manufacturer of chemical products and a wholly owned
subsidiary of NKK, from June 1996 to April 1998. Prior thereto, he was
employed in various capacities by NKK, where he most recently served as
Managing Director from June 1992 to June 1996.
John A. Maczuzak, President
and Chief Operating Officer. Mr. Maczuzak, age 58, joined National
Steel as Vice President and General Manager—Granite City Division in
May 1996. He was elected Executive Vice President and Acting Chief
Operating Officer in August 1996 and assumed his present position in
December 1996. Mr. Maczuzak was formerly employed by ProTec Coating
Company as General Manager and USS/Kobe Steel Company as Vice President
of Operations and has more than 31 years of broad-based experience in the
steel industry.
Glenn H. Gage, Senior Vice
President and Chief Financial Officer. Mr. Gage, age 57, joined
National Steel in August 1998 as Senior Vice President and Chief
Financial Officer. Mr. Gage was formerly Senior Vice President
—Finance at Uarco Incorporated from 1995 until August 1998, and was
a partner with Ernst & Young LLP from 1981 to 1995.
John F. Kaloski, Senior Vice
President—Regional Division. Mr. Kaloski, age 50, joined
National Steel in August 1998 as Senior Vice President—Regional
Operations and was elected to his present position in October 1998. Prior
to joining the Company, Mr. Kaloski served in various capacities at U.S.
Steel, including General Manager—U.S. Steel—Gary Works from
1996 to 1998, General Manager—U.S. Steel Mon Valley Works from 1994
to 1996 and General Manager—U.S. Steel Minnesota Ore Operations,
from 1992 to 1994.
James H. Squires, Senior
Vice President and General Manager—Granite City Division. Mr.
Squires, age 61, began his career with National Steel in 1956 as a
laborer in the blast furnace area and went on to hold numerous positions
as an hourly worker. In 1964, he accepted a salaried position and
advanced through the operating organization. In October 1996, he was
appointed Vice President and General Manager—Granite City Division
and assumed his current position in October 1998.
LeRoy A. Bordeaux, Vice
President, Marketing and Sales. Mr. Bordeaux, age 55,
began his career with National Steel in 1968. He has held numerous
positions in our marketing and sales organization, including Vice
President, Construction and Sheet Sales from October 1998 to November
1999, General Manager, Sheet Sales from August 1997 to October 1998,
Manager, Sheet Sales from May 1994 to August 1997, and Manager, Customer
Service from March 1992 to May 1994. He was elected to his present
position in November 1999.
Joseph R. Dudak, Vice
President, Strategic Sourcing. Mr. Dudak, age 52, began his career
with National Steel as an engineer at Midwest in 1970. In 1973, he moved
to Granite City Division and served as Superintendent of Energy
Management & Utilities from 1977 until moving to corporate
headquarters in 1981. He served as Director of Energy & Environmental
Affairs from 1981 to 1994, when he was appointed General Manager,
Strategic Sourcing. He was elected to his present position in
1995.
Ronald J. Werhnyak, Vice
President, General Counsel and Corporate Secretary. Mr.
Werhnyak, age 54, joined National Steel in January 1996 as Senior
Counsel. He had previously served as our Assistant General Counsel
commencing in 1989 through an independent contractual arrangement with
the Company. Mr. Werhnyak was elected Acting General Counsel and
Secretary in August 1998, and to his current position in December
1998.
Lawrence F. Zizzo, Jr., Vice
President Human Resources. Mr. Zizzo, age 51, began his career with
National Steel in 1978. He has held various positions in the Human
Resources organization, including Regional Director of Human Resources
from December 1998 to January 2000, and Director of Human Resources at
the Great Lakes Division from March 1991 to November 1998. Mr. Zizzo was
appointed to his present position in February 2000.
William E. McDonough,
Treasurer. Mr. McDonough, age 41, began his career with National
Steel in 1985 in the Financial Department. He has held various positions
of increasing responsibility including Assistant Treasurer and Manager,
Treasury Operations and was elected to his present position in December
1995.
Kirk A. Sobecki, Corporate
Controller. Mr. Sobecki, age 38, joined National Steel in January
1999 as Corporate Controller. From September 1997 to December 1998, he
served as Chief Financial Officer of Luitpold Pharmaceuticals, Inc. From
June 1986 to August 1997 Mr. Sobecki held various positions with Zimmer,
Inc., a Division of Bristol-Myers Squibb, including Director of
Finance/Controller from 1995 to 1997.
PART
II
Item 5. Market for Registrant’s Common Equity and Related Stockholder
Matters
National Steel Corporation
’s Class B Common Stock is traded under the symbol “NS” on
the New York Stock Exchange. The following table sets forth, for the
periods indicated, the high and low sales prices of the Class B Common
Stock on a quarterly basis as reported on the New York Stock Exchange
Composite Tape.
Period
|
|
High
|
|
Low
|
| 1999 |
|
|
|
|
|
First
Quarter |
|
$10
1
/4
|
|
$
6
3
/4
|
|
Second
Quarter |
|
10
5
/8
|
|
7
1
/4
|
|
Third
Quarter |
|
8
3
/4
|
|
6
5
/16
|
|
Fourth
Quarter |
|
7
5
/8
|
|
5
5
/8
|
| 1998 |
|
First
Quarter |
|
$21
3
/4
|
|
$10
9
/16
|
|
Second
Quarter |
|
19
3
/4
|
|
11 |
|
Third
Quarter |
|
13 |
|
6
1
/8
|
|
Fourth
Quarter |
|
8
5
/8
|
|
5
1
/16
|
As of December 31, 1999,
there were approximately 230 registered holders of Class B Common Stock.
(See Note 3. “Capital Structure” for further discussion).
During 1999 and 1998 we paid quarterly dividends of $ 0.07 per common
share (or an annual total of $0.28 per common share). On February 15,
2000, the Board of Directors declared a regular quarterly Common Stock
dividend of $0.07 per share, payable on March 15, 2000, to shareholders
of record on March 1, 2000. The decision whether to continue to pay
dividends on the Common Stock will be determined by the Board of
Directors in light of our earnings, cash flows, financial condition,
business prospects and other relevant factors. Holders of Class A Common
Stock and Class B Common Stock are entitled to share ratably, as a single
class, in any dividends paid on the Common Stock.
Prior to August 1, 1999, any
dividend payments were required to be matched by a like contribution into
the VEBA Trust, the amount of which was calculated under the terms of the
1993 Settlement Agreement between the Company and the USWA, until the
asset value of the VEBA Trust exceeded $100.0 million. On August 1, 1999,
a new five year Basic Labor Agreement became effective between the
Company and the USWA. This new agreement provides that if the assets in
the VEBA equal or exceed $100 million that (1) we will not be required to
make contributions to the VEBA and (2) we may withdraw up to $5.5 million
from the VEBA in each calendar year for current retiree medical and life
insurance benefits.
The asset value of the VEBA
Trust at December 31, 1999 was $120.1 million and $112.6 million at
December 31, 1998. No matching dividend contribution to the VEBA Trust
was required for the years ended December 31, 1999 and 1998.
Various debt and certain lease
agreements include restrictions on the amount of stockholders’
equity available for the payment of dividends. Under the most restrictive
of these covenants, stockholders’ equity in the amount of $392.0
million was free of such limitations at December 31, 1999.
Item 6. Selected Financial Data
|
|
|
Year Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
|
|
|
(Dollars in
millions, except per share data) |
| Statement of
Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$2,850 |
|
|
$2,848 |
|
|
$3,140 |
|
|
$2,954 |
|
|
$2,954 |
|
|
Cost of products sold |
|
2,582 |
|
|
2,497 |
|
|
2,674 |
|
|
2,618 |
|
|
2,529 |
|
|
Depreciation |
|
140 |
|
|
129 |
|
|
135 |
|
|
144 |
|
|
146 |
|
|
Gross margin |
|
128 |
|
|
222 |
|
|
331 |
|
|
192 |
|
|
279 |
|
|
Selling, general and administrative expense |
|
148 |
|
|
154 |
|
|
141 |
|
|
137 |
|
|
154 |
|
|
Unusual charges (credits) |
|
—
|
|
|
(27 |
) |
|
—
|
|
|
—
|
|
|
5 |
|
|
Income (loss) from operations |
|
(18 |
) |
|
96 |
|
|
191 |
|
|
65 |
|
|
129 |
|
|
Financing costs, net |
|
28 |
|
|
11 |
|
|
15 |
|
|
36 |
|
|
39 |
|
Income (loss) before income taxes, extraordinary items and
cumulative
effect of accounting change |
|
(45 |
) |
|
88 |
|
|
235 |
|
|
32 |
|
|
90 |
|
|
Extraordinary items |
|
—
|
|
|
—
|
|
|
(5 |
) |
|
—
|
|
|
5 |
|
|
Cumulative effect of accounting changes |
|
—
|
|
|
—
|
|
|
—
|
|
|
11 |
|
|
—
|
|
|
Net income (loss) |
|
(43 |
) |
|
84 |
|
|
214 |
|
|
54 |
|
|
108 |
|
|
Net income (loss) applicable to common stock |
|
(43 |
) |
|
84 |
|
|
203 |
|
|
43 |
|
|
97 |
|
|
Basic per share data: |
Income (loss) before
extraordinary items and cumulative ef-
fect of accounting change |
|
(1.04 |
) |
|
1.94 |
|
|
4.82 |
|
|
.74 |
|
|
2.13 |
|
|
Net income
(loss) |
|
(1.04 |
) |
|
1.94 |
|
|
4.70 |
|
|
.99 |
|
|
2.26 |
|
|
Diluted earnings per share applicable to common
stock |
|
(1.04 |
) |
|
1.94 |
|
|
4.64 |
|
|
.99 |
|
|
2.22 |
|
|
Cash dividends paid per common share |
|
0.28 |
|
|
0.28 |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
| Balance
Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$
58 |
|
|
$
138 |
|
|
$
313 |
|
|
$
109 |
|
|
$
128 |
|
|
Working capital |
|
361 |
|
|
333 |
|
|
367 |
|
|
279 |
|
|
250 |
|
|
Net property, plant and equipment |
|
1,446 |
|
|
1,271 |
|
|
1,229 |
|
|
1,456 |
|
|
1,469 |
|
|
Total assets |
|
2,701 |
|
|
2,484 |
|
|
2,453 |
|
|
2,558 |
|
|
2,669 |
|
|
Current maturities of long term obligations |
|
31 |
|
|
37 |
|
|
32 |
|
|
38 |
|
|
36 |
|
|
Long-term obligations |
|
556 |
|
|
286 |
|
|
311 |
|
|
470 |
|
|
502 |
|
|
Redeemable Preferred Stock—Series B |
|
—
|
|
|
—
|
|
|
—
|
|
|
64 |
|
|
65 |
|
|
Stockholders’ equity |
|
833 |
|
|
850 |
|
|
837 |
|
|
645 |
|
|
600 |
|
|
|
|
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
| Other
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments (net tons, in thousands) |
|
6,110 |
|
|
5,587 |
|
|
6,144 |
|
|
5,895 |
|
|
5,564 |
|
|
Raw steel production (net tons, in thousands) |
|
6,250 |
|
|
6,087 |
|
|
6,527 |
|
|
6,557 |
|
|
6,081 |
|
|
Effective capacity utilization |
|
96.9 |
% |
|
92.2 |
% |
|
96.0 |
% |
|
93.7 |
% |
|
96.5 |
% |
|
Number of employees (year end) |
|
9,395 |
|
|
9,230 |
|
|
9,417 |
|
|
9,579 |
|
|
9,474 |
|
|
Capital investments |
|
$
318 |
|
|
$
171 |
|
|
$
152 |
|
|
$
129 |
|
|
$
215 |
|
Total debt and redeemable preferred stock as a percent of
total
capitalization |
|
41.3 |
% |
|
27.1 |
% |
|
29.0 |
% |
|
47.0 |
% |
|
50.1 |
% |
|
Common shares outstanding at year end (in
thousands) |
|
41,288 |
|
|
42,178 |
|
|
43,288 |
|
|
43,288 |
|
|
43,288 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
National Steel
Corporation is a domestic manufacturer engaged in a single line of
business, the production and processing of steel. We target high
value-added applications of flat rolled carbon steel for sale primarily
to the automotive, construction and container markets. We have two
principal divisions: The Granite City Division which is a fully
integrated steelmaking facility located near St. Louis; and The
Regional Division comprised of Great Lakes, a fully integrated
steelmaking facility located near Detroit and Midwest, a steel
finishing facility located near Chicago. These two divisions have been
aggregated for financial reporting purposes and represent our only
reportable segment—Steel (see Note 4. “Segment Information
” for further discussion). The discussion and analysis which
follows is on a consolidated basis, but due to its significance,
focuses primarily on factors relating to the Steel segment.
General
Overview and Outlook
Comparative operating
results for the three years ended December 31, are as
follows:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars and
tons in millions |
| Net
sales |
|
$2,849.6 |
|
|
$2,848.0 |
|
$3,139.7 |
| Income (loss)
from operations |
|
(17.9 |
) |
|
96.3 |
|
191.0 |
| Net income
(loss) |
|
(43.1 |
) |
|
83.8 |
|
213.5 |
| Tons
shipped |
|
6.110 |
|
|
5.587 |
|
6.144 |
We are disappointed
that our 1999 financial results were not indicative of the hard work
and dedication of our employees evidenced by increased shipments,
record breaking production performances and impressive cost reduction
efforts. The loss from operations and net loss in 1999 result primarily
from the lowest average selling price we have experienced in years. Our
average selling price was impacted by two factors:
|
Ÿ
|
Approximately
64% of the decrease in average selling price resulted from the
continuing impact of competition from low-priced imported steel,
and
|
|
Ÿ
|
A change in
product mix as the increase in our volume came primarily from the
hot-rolled market.
|
We expect that as
shipments increase to 7 million tons, we will continue to see an impact
in our average selling price as a result of a change in our mix as
hot-rolled shipments are expected to increase at a faster pace than our
higher value-added products. However, we believe that there is a
positive trend in the market towards more normal pricing levels and we
anticipate a slight overall increase in pricing in the first quarter of
2000.
Our new strategy to
optimize the utilization of our production assets was evidenced by many
record breaking production performances. Production in 1999 exceeded
1998 levels by 163,000 tons and our effective capacity utilization of
96.9% was the best we have seen in the past five years. Shipments
followed this lead and increased by 9.4% in 1999 versus 1998.
Hot-rolled shipments are increasing in order to more optimally utilize
our production facilities. Although this increase in hot-rolled
shipments has resulted in lower average selling prices, we anticipate
additional profits from the increase in volume, net of mix, and
improved cost performance. In addition, we were pleased that
cold-rolled and coated shipments represented approximately 40% of the
total increase in shipments. We anticipate that we will continue to see
an increase in shipments during 2000 as demand is on the rise and our
resources are working to capture that increasing demand.
Cost reduction efforts
were evident again in 1999 as we benefited from a savings of
approximately $72 million directly related to these efforts.
Additionally, man-hours per net ton shipped decreased to 2.99 in 1999,
approximately a 10% improvement over the prior year. We are pleased
with these efforts and will continue to focus on further reductions in
2000.
Results of
Operations
Net sales increased by
$1.6 million in 1999 as compared to 1998. An increase in net tons
shipped of 523,000 tons more than offset a $43 per ton decrease in
average selling price, resulting in this slight increase in net sales.
The increase in net tons shipped is attributable to a commitment to our
strategy to increase shipments to 7 million tons by 2001. This
partially contributed to the reduced average selling price as the
additional tons shipped were primarily lower cost hot-rolled products
that demand a lower market price than our higher value-added products.
However, the most significant impact resulted from pricing for all of
our products being down in 1999 due to the continuing impact of
competition from low-priced imports.
Net sales for 1998
decreased $291.7 million, or 9.3%, compared to record net sales in
1997. A decrease in tons shipped of 557,000 tons combined with a net $1
per ton decrease in average selling price as compared to 1997 are the
primary reasons for the decrease in sales. Increased competition from
low-priced imports is the primary cause of the decrease in tons shipped
and the decrease in average selling price. The Great Lakes “A
” blast furnace outage also contributed to the reduction in tons
shipped.
Cost of
Products Sold
Cost of products sold
comparative data for the last three years is as follows:
|
|
|
Years Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
| Cost of
products sold (dollars in millions) |
|
$2,581.7 |
|
|
$2,496.8 |
|
|
$2,674.4 |
|
| Cost of
products sold as a percentage of net sales |
|
90.6 |
% |
|
87.7 |
% |
|
85.2 |
% |
The increase of $84.9
million in cost of products sold in 1999 as compared to 1998 is
primarily the result of improved shipment levels that had an impact of
approximately $200 million. This increase was partially offset by
continuing cost reductions, a lower cost product mix, decreases in
scrap and other raw material prices and improved operating unit yield
performances which positively impacted cost of products sold. The
deterioration in the margin of cost of products sold as a percentage of
net sales was primarily the result of the decrease in average selling
price, as previously discussed.
Cost of products sold
in 1998 decreased $177.6 million as compared to 1997. This resulted
from lower shipment levels, cost reductions, improved operating unit
yield performances and lower costs as a result of the 1997 settlement
with Avatex Corporation which, in the aggregate, positively impacted
cost of products sold by approximately $297 million. This was partially
offset by the combined effects of an increase in the mix of higher
value-added products, lower production volumes and the Great Lakes
“A” blast furnace outage of approximately $119
million.
Selling,
General and Administrative Expense
Selling, general and
administrative expense comparative data for the last three years is as
follows:
|
|
|
Years Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
Selling,
general and administrative expense (dollars in
millions) |
|
$147.8 |
|
|
$153.6 |
|
|
$141.3 |
|
Selling,
general and administrative expense, as a percentage
of net sales |
|
5.2 |
% |
|
5.4 |
% |
|
4.5 |
% |
The decrease in
selling, general and administrative expense of $5.8 million in 1999 as
compared to 1998 is the result of lower costs for outsourced
information system support, lower employee costs and other
miscellaneous cost reduction offset by higher Year 2000 remediation
costs.
Selling, general and
administrative expense increased by $12.3 million in 1998 as compared
to 1997. Approximately $5.7 million of the increase was attributable to
Year 2000 remediation costs. The remainder of the increase was
primarily due to higher mainframe related costs, costs associated with
the implementation of Audit Committee recommendations relative to
internal controls (see “Impact of Recommendations from Audit
Committee Inquiry” below) and other costs associated with the
Securities and Exchange Commission inquiry (see Note 2. “Audit
Committee Inquiry and Securities and Exchange Commission Inquiry
”).
Depreciation expense
was $140.1 million in 1999 as compared to $129.1 million in 1998 and
$134.5 million in 1997. The 1999 increase results primarily from higher
levels of capital spending. The lower levels of depreciation in 1998
and 1997 principally resulted from the sale of the Great Lakes No. 5
coke battery in the second quarter of 1997.
|
Equity
Income from Affiliates
|
Equity income from
affiliates was $2.1 million in 1999 compared to $1.2 million in 1998
and $1.5 million in 1997. The 1999 income increased as a result of
operating improvements at our Double G and DNN joint ventures offset by
costs relating to the 1999 start-up of National Robinson. The lower
income levels in 1998 and 1997 were primarily the result of the sale of
our minority equity investment in Iron Ore Company of Canada (“IOC
”) early in the second quarter of 1997.
The unusual credit in
1998 results from the settlement of a lawsuit which sought a reduction
in the assessed value of the real and personal property at Great Lakes
relating to the 1991 through 1997 tax years. We received tax refunds
and were granted a lower assessment base that has resulted in
additional real and personal property tax savings.
Net Financing
Costs
Net financing costs for
the last three years were as follows:
|
|
|
Years Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars in
millions |
| Interest and
other financial income |
|
$(11.5 |
) |
|
$(15.8 |
) |
|
$(19.2 |
) |
| Interest and
other financial expense |
|
39.6 |
|
|
26.7 |
|
|
33.8 |
|
| |
|
|
|
|
|
|
|
|
|
| Net Financing
Costs |
|
$
28.1 |
|
|
$
10.9 |
|
|
$
14.6 |
|
| |
|
|
|
|
|
|
|
|
|
Net financing costs
increased in 1999 as compared to 1998 primarily as a result of
increased interest expense relating to the issuance of the $300 million
First Mortgage Bonds in the first quarter of 1999.
Net financing costs
decreased in 1998 as compared to 1997. Interest expense decreased by
$7.1 million primarily due to lower average debt balances during 1998
associated with the 1997 repayment of debt associated with the Great
Lakes No. 5 coke battery. A decrease in interest income of $3.4 million
in 1998, a result of lower cash and cash equivalent balances available
for investment, partially offset the impact of lower interest
costs.
|
Net Gain on
Disposal of Non-Core Assets and Other Related
Activities
|
In 1999, 1998 and 1997,
we disposed of, or made provisions for disposing of, certain non-core
assets. The effects of these transactions and other activities relating
to non-core assets are presented as a separate component
in the consolidated statements of income entitled “net gain on
disposal of non-core assets and other related activities”. A
discussion of these items follows.
We sold certain
properties located in Michigan during 1999 and recorded a net gain of
$0.8 million equal to the proceeds (net of taxes and expenses) received
from the sales.
During 1998, we sold
two properties located at Midwest. We received proceeds (net of taxes
and expenses) of $3.3 million and recorded a net gain of $2.7 million
related to the sales.
On April 1, 1997, we
completed the sale of our 21.7% minority equity interest in IOC to
North Limited, an Australian mining and metal company. We received
proceeds (net of taxes and expenses) of $75.3 million in exchange for
our interest in IOC and recorded a $37.0 million gain. We continue to
purchase iron ore at fair market value from IOC pursuant to the terms
of long-term supply agreements.
On June 12, 1997, we
completed the sale of the Great Lakes No. 5 coke battery and other
related assets, including coal inventories, to a subsidiary of DTE
Energy Company (“DTE”). We received proceeds (net of taxes
and expenses) of $234.0 million in connection with the sale and
recorded a $14.3 million loss. We utilized a portion of the proceeds to
prepay the remaining $154.3 million of the related party coke battery
debt, which resulted in a net of tax extraordinary loss of $5.4 million
in 1997. As part of the arrangement, we have agreed to operate the
battery, under an operation and maintenance agreement executed with
DTE, and will purchase the majority of the coke produced from the
battery under a requirements contract, with the price being adjusted
during the term of the contract, primarily to reflect changes in
production costs.
In 1997, we also
recorded a charge of $3.6 million related to the decision to cease
operations of American Steel Corporation, a wholly-owned subsidiary
which pickled and slit steel.
Also during 1997, we
sold four coal properties and recorded a net gain of $11.8 million. In
conjunction with one of the property sales, the purchaser agreed to
assume the potential environmental liabilities and, as a result, we
eliminated the related accrual of approximately $8 million.
Additionally, during 1997, we received new information related to
closed coal properties’ employee benefit liabilities and other
expenses, and reduced the related accrual by $19.8 million. In
aggregate, the above coal properties’ transactions resulted in a
gain of $39.6 million in 1997.
During 1999, we
recorded current taxes payable of $0.8 million. We recorded current
taxes payable of $23.9 million in 1998 and $37.8 million in 1997. The
current portion of the income tax represents taxes which were expected
to be due as a result of the filing of the current period’s
federal and state income tax returns. For federal purposes, such
amounts have generally been determined based on alternative minimum tax
payments due.
The current taxes
payable is minimal in 1999 due to the net loss incurred. Current taxes
payable in 1998 and 1997 represented 27.2% and 16.1% of pre-tax income,
respectively. The effective tax rates were less than the U.S. Statutory
Rate primarily because of changes in the valuation allowance related to
the recognition of deferred tax benefits.
We recorded a deferred
tax benefit of $2.9 million in the year ended December 31, 1999, $19.6
million in the year ended December 31, 1998 and $21.6 million in the
year ended December 31, 1997 due to the expectation of additional
future taxable income. An additional deferred tax benefit is expected
to be recognized in 2000 as continued realization of taxable income
increases the likelihood of realizing these deferred tax
assets.
An extraordinary loss
of $5.4 million (net of a tax benefit of $1.4 million) was reflected in
1997 income. This loss relates to early debt repayment costs related to
debt associated with our Great Lakes No. 5 coke battery, which was sold
in the second quarter of 1997.
Other
Operational and Financial Disclosure Matters
|
Impact of
Recommendations From Audit Committee Inquiry
|
On January 21, 1998,
the Board of Directors accepted the report and approved the
recommendation of the legal counsel to the Audit Committee for
improvements in the our system of internal controls, a restructuring of
our finance and accounting department and the expansion of the role of
the internal audit function, as well as corrective measures to be taken
related to the specific causes of accounting errors (see Note 2.
“Audit Committee Inquiry and Securities and Exchange Commission
Inquiry” for further discussion). We have implemented these
recommendations with the involvement of the Audit Committee. In
accordance with the recommendations, a major independent accounting and
consulting firm was engaged to examine and report on our written
assertion about the effectiveness of the internal control over
financial reporting. The firm’s report was issued in March 1999
and indicated that in the firm’s opinion, management’s
assertion that we 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.
|
Common
Stock Repurchase Program
|
In the third quarter of
1998, the Board of Directors authorized the repurchase of up to two
million shares of our Class B Common Stock. During 1998, we repurchased
1,109,700 shares at a total cost of $8.4 million. We purchased the
additional 890,300 shares approved for repurchase during 1999 at a cost
of $7.9 million.
|
Environmental Liabilities
|
Our operations are
subject to numerous laws and regulations relating to the protection of
human health and the environment. We have expended, and can be expected
to expend in the future, substantial amounts for ongoing compliance
with these laws and regulations, including the Clean Air Act and the
Resource Conservation and Recovery Act of 1976. Additionally, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 and similar state superfund statutes have imposed joint and
several liability on us as one of many potentially responsible parties
at a number of sites requiring remediation. During 1997, in connection
with a settlement with Avatex, we released Avatex from its obligation
to indemnify us for certain environmental liabilities of its former
Weirton Steel Division.
With respect to those
claims for which we have sufficient information to reasonably estimate
our future expenditures, we have accrued $22.6 million at December 31,
1999. Since environmental laws are becoming increasingly more
stringent, our expenditures and costs for environmental compliance may
increase in the future. As these matters progress or we become aware of
additional matters, we may be required to accrue charges in excess of
those previously accrued.
|
Impact of
Recently Issued Accounting Standards
|
In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 2000. The Statement will require us 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:
|
Ÿ
|
offset against
the change in fair value of hedged assets, liabilities, or firm
commitments through earnings, or
|
|
Ÿ
|
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. We have not yet determined what the effect of
this Statement will be on earnings and our financial
position.
During 1999, the United
Steelworkers of America and the International Chemical Workers Council
of United Food and Commercial Workers ratified five-year agreements
with us effective August 1, 1999 and October 1, 1999, respectively. The
principal features of the contracts include the following:
|
Ÿ
|
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.
|
|
Ÿ
|
Modification
of the Profit Sharing program to gradually change over the term of
the agreement to conform to the industry pattern.
|
|
Ÿ
|
Eliminating
the requirement for mandatory contributions to the VEBA Trust over
the five-year term.
|
|
Ÿ
|
A two-dollar
increase in the hourly base wage rate over the five-year
period.
|
|
Ÿ
|
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.
|
We estimate 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. We 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.
The “Year 2000
” computer software problem was 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 was expected to 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 affected
mainframe, business and personal computers, and also any device that
had an embedded microprocessor, such as an elevator or fire alarm
system. All of our locations and operating facilities were
impacted.
In 1997, we established
a Year 2000 Project team to coordinate and oversee the Year 2000
remediation project. The team was supervised by an executive steering
committee, which met regularly to monitor progress. In addition,
progress was monitored by the Board of Directors and the Audit
Committee through periodic reports from management. The project’s
scope included 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. We also reviewed our major
vendors and suppliers efforts in becoming Year 2000 compliant. Most
suppliers and vendors who replied to our inquiries indicated that they
expected to be Year 2000 compliant on a timely basis.
We were pleased that
our Year 2000 efforts have been successful to date. All of our critical
business and plant operating computer systems functioned normally as
the new year began. Some of our primary operations were intentionally
paused for a brief period around midnight on December 31, 1999 and
these facilities successfully resumed operations shortly thereafter. We
have not experienced any business interruptions with our suppliers or
vendors as a result of Year 2000 problems.
We incurred total costs
of approximately $21.0 million to address all of our Year 2000 issues.
Of this total, we spent approximately $10.2 million in 1999, $9.0
million during 1998 and $1.8 million during 1997. Year 2000 costs have
been incurred as operating expenses from our information technology
budget. We did not defer any other information technology projects as a
result of our Year 2000 efforts.
Discussion
of Liquidity and Sources of Capital
Our liquidity needs
arise primarily from capital investments, working capital requirements,
pension funding requirements, principal and interest payments on our
indebtedness and common stock dividend payments. We have satisfied
these liquidity needs with funds provided by long-term borrowings and
cash provided by operations. Additional sources of liquidity consist of
a Receivables Purchase Agreement (the “Receivables Facility”)
with commitments of up to $200.0 million which has an expiration date
of September 2002, and a new $200.0 million credit facility secured by
our inventories (the “Inventory Facility”) which expires in
November 2004. The new inventory credit facility replaces the previous
$150 million inventory credit facilities which were due to expire in
2000. At December 31, 1999, we had total liquidity, which includes cash
balances plus available borrowing capacity under these facilities, of
$410 million.
We are currently in
compliance with all covenants of, and obligations under, the
Receivables Purchase Agreement, the Inventory Facility and other debt
instruments. On December 31, 1999, there were no cash borrowings
outstanding under the Receivables Purchase Agreement or the Inventory
Facilities, and outstanding letters of credit under the Receivables
Facility totaled $48.4 million. For 1999, the maximum availability
under the Receivables Facility, after reduction for letters of credit
outstanding, varied from $71.8 million to $151.6 million and was $151.6
million as of December 31, 1999.
In March 1999, we
issued a total of $300 million aggregate principal amount of ten-year
First Mortgage Bonds due 2009. The bonds are senior secured obligations
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
December 31, 1999 increased to 41.3% as compared to 27.1% at December
31, 1998.
Cash and cash
equivalents totaled $58.4 million and $137.9 million as of December 31,
1999 and 1998, respectively. At December 31, 1999, we guaranteed
obligations of $16.2 million, a reduction of $2.9 million from the
amount guaranteed at December 31, 1998.
|
Cash Flows
from Operating Activities
|
For 1999, cash provided
from operating activities totaled $8.2 million, a decrease of $23.5
million compared to 1998. The decrease is primarily as result of the
$126.9 million decrease in net income and higher cash usage to fund
working capital needs, primarily inventories, offset by significantly
lower pension contributions.
For 1998, cash provided
from operating activities totaled $31.7 million, a decrease of $300.5
million compared to 1997. This decrease was primarily attributable to
the $129.7 million decrease in net income as well as a higher cash
usage to fund working capital needs, primarily relating to inventories
and the timing of pension contributions.
Capital investments for
the years ended December 31, 1999 and 1998 amounted to $318.3 million
and $171.1 million, respectively. A large part of the 1999 and 1998
spending was attributable to the new hot dip galvanizing line at Great
Lakes, installation of the new business systems, the blast furnace
relines at Great Lakes and at the Granite City Division and
construction of the new coating line at Midwest.
Capital investments are
expected to approximate $270 million in 2000, of which approximately
$40 million was committed at December 31, 1999. Included among the
budgeted and committed capital expenditures is the new hot dip
galvanizing line located at Great Lakes, which is scheduled to be
completed in the second quarter of 2000. Other capital expenditures
include new business systems and a blast furnace reline at Great
Lakes.
|
Cash
Proceeds from the Sale of Non-Core Assets
|
During the first and
fourth quarters of 1999, we sold properties located in Michigan. We
received proceeds of $0.8 million (net of taxes and expenses) and
recorded a net gain in the same amount from the sales of these
properties.
During the second
quarter of 1998, we sold certain non-core land and property at Midwest.
We received proceeds (net of taxes and expenses) of $3.3 million and
recorded a net gain of $2.7 million related to the sale.
During the second
quarter of 1997, we sold our Great Lakes No. 5 coke battery, as well as
its minority equity investment in the IOC. The sale of these two assets
generated net proceeds of $309.3 million. Additionally, in 1997,
certain coal properties were sold generating net proceeds of $11.3
million.
A portion of the
proceeds from these sales was used in the fourth quarter of 1997 when
we redeemed all of the outstanding Redeemable Preferred Stock
—Series B owned by Avatex. Concurrent with the stock repurchase,
we settled Avatex’s obligation relating to certain Weirton
liabilities as to which Avatex had agreed to indemnify us in prior
recapitalization programs. Avatex had pre-funded certain of these
indemnification obligations and, at the time of the pre-funding, we
agreed that a settlement of the liabilities would occur no later than
in the year 2000. The redemption of the preferred stock and the related
settlement resulted in us paying Avatex $59.0 million in the fourth
quarter of 1997 and an additional $10.0 million in 1998. Additionally
in the fourth quarter of 1997, we recognized insurance proceeds (net of
taxes and expenses) aggregating approximately $13.6 million relating to
certain environmental sites, some of which had been indemnified by
Avatex and for which we are now solely responsible.
On December 29, 1997,
we also redeemed the Preferred Stock—Series A, which was owned by
NKK U.S.A. Corporation. We paid NKK U.S.A. Corporation the face value
of the stock ($36.7 million) plus accrued dividends as of the
redemption date of approximately $0.6 million.
|
Cash Flows
from Financing Activities
|
During 1999, net cash
provided by financing activities amounted to $237.0 million. Financing
activities included the issuance of $300.0 million in First Mortgage
Bonds, offset by costs associated with the bond issuance. Other uses of
cash included the prepayment of $16.8 million of ProCoil long-term
debt, other scheduled debt payments, dividend payments on our common
stock and the repurchase of 890,300 shares of our Class B common
stock.
During 1998, we
utilized $40.0 million for financing activities, which included
scheduled repayments of debt, as well as dividend payments on our
common stock. We repurchased 1,109,700 shares of our Class B Common
Stock in 1998 at a cost of $8.4 million. In addition, the Company
recorded borrowings of approximately $14.7 million related to
ProCoil.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
In the normal course of
business, our operations 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, we
address a portion of these risks, primarily commodity price risk,
through a controlled program of risk management that includes the use
of derivative financial instruments. Our objective is to reduce
earnings volatility associated with these fluctuations to allow
management to focus on core business issues. Our derivative activities,
all of which are for purposes other than trading, are initiated within
the guidelines of a documented corporate risk-management policy. We do
not enter into any derivative transactions for speculative
purposes.
Interest Rate
Risk
Our primary interest
rate risk exposure results from changes in long-term U.S. dollar
interest rates. In an effort to manage interest rate exposures, we
predominantly enter into fixed rate debt positions. As such, the fair
value of our debt positions is moderately sensitive to changes in
interest rates. A sensitivity analysis has been prepared to estimate
the exposure to market risk of our fixed rate debt positions. The fair
value is calculated by valuing those positions at quoted market
interest rates. Market risk is then estimated at the potential loss in
fair value resulting from a hypothetical 10% adverse change in such
rates. The results of this analysis, which may differ from actual
results, are as follows:
|
|
Fair
Value
|
|
Market
Risk
|
|
|
|
(Dollars
in millions)
|
| 1999: |
|
|
|
|
| Long-term debt
position, excluding capitalized lease obligations |
|
$562.0 |
|
$9.6 |
|
(Average interest rate of 9.3%) |
|
|
|
|
| 1998: |
Long-term debt
position, excluding capitalized lease obligations
(Average interest rate of
8.6%) |
|
$302.1 |
|
$6.6 |
The increases in fair
value and market risk in 1999 are attributable to the $300 million
9.875% First Mortgage Bonds issued during the first quarter of
1999.
Commodity
Price Risk
In order to reduce the
uncertainty of price movements with respect to the purchase of zinc, we
enter into derivative financial instruments in the form of swap
contracts and zero cost collars with a major global financial
institution. These contracts typically mature within one year. At
expiration, the derivative contracts are settled at a net amount equal
to the difference between the then current price of zinc and the fixed
contract price. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by
changes in the value of the underlying exposures being
hedged.
Based on our overall
commodity hedge exposure at December 31, 1999 and 1998, a hypothetical
10 percent change in market rates applied to the fair value of the
instruments would have had no material impact on our earnings, cash
flows, financial position or fair values of commodity price risk
sensitive instruments over a one-year period.
Item 8. Financial Statements
The following
consolidated financial statements of National Steel Corporation and
subsidiaries are submitted pursuant to the requirements of Item
8:
National
Steel Corporation and Subsidiaries
Index to
Financial Statements
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is
responsible for the preparation, integrity and fair presentation of the
consolidated financial statements and related notes. The financial
statements, presented on pages 31 to 52, have been prepared in
conformity with generally accepted accounting principles and include
amounts based upon our estimates and judgments, as required. Management
also prepared the other information included in the Form 10-K and is
responsible for its accuracy and consistency with the financial
statements. The financial statements have been audited in accordance
with generally accepted auditing standards and reported upon by our
independent auditors, Ernst & Young LLP, who were given free access
to all financial records and related data, including minutes of the
meetings of the Board of Directors and committees of the board. We
believe the representations made to the independent auditors during the
audit were valid and appropriate. Ernst & Young LLP’s audit
report is presented on page 30.
National Steel
Corporation maintains a system of internal accounting control designed
to provide reasonable assurance for the safeguarding of assets and
reliability of financial records. The system is subject to review
through its internal audit function, which monitors and reports on the
adequacy of and compliance with the internal control system and
appropriate action is taken to address control deficiencies and other
opportunities for improving the system as they are identified. Although
no cost effective internal control system will preclude all errors and
irregularities, management believes that through the careful selection,
training and development of employees, the division of responsibilities
and the application of formal policies and procedures, National Steel
Corporation has an effective and responsive system of internal
accounting controls.
The Audit Committee of
the Board of Directors, which is composed solely of non-employee
directors, provides oversight to the financial reporting process
through periodic meetings. The Audit Committee is responsible for
recommending to the Board of Directors, subject to approval by the
Board and ratification by stockholders, the independent auditors to
perform audit and related work for the Company, for reviewing with the
independent auditors the scope of their audit of the Company’s
financial statements, for reviewing with the Company’s internal
auditors the scope of the plan of audit, for meeting with the
independent auditors and the Company’s internal auditors to review
the results of their audits and the Company’s internal accounting
controls and for reviewing other professional services being performed
for the Company by the independent auditors. Both the independent
auditors and the Company’s internal auditors have free access to
the Audit Committee.
Management believes the
system of internal accounting controls provides reasonable assurance
that business activities are conducted in a manner consistent with the
Company’s high standards of business conduct, and the Company
’s financial accounting system contains the integrity and
objectivity necessary to maintain accountability for assets and to
prepare National Steel Corporation’s financial statements in
accordance with generally accepted accounting principles.
/s/ Yutaka
Tanaka
Yutaka
Tanaka
Chairman
& Chief Executive Officer
|
/s/ John A.
Maczuzak
John A.
Maczuzak
President
& Chief Operating Officer
|
|
/s/ Glenn H.
Gage
Glenn H.
Gage
Senior Vice
President & Chief Financial Officer
|
|
REPORT OF ERNST & YOUNG LLP
INDEPENDENT
AUDITORS
Board of
Directors
National
Steel Corporation
We have audited the
accompanying consolidated balance sheets of National Steel Corporation
and subsidiaries (the “Company”) as of December 31, 1999 and
1998, and the related consolidated statements of income, cash flows,
and changes in stockholders’ equity and redeemable preferred stock
—Series B for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits
in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at
December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
|
[Ernst &
Young Signature Logo]
|
Indianapolis,
Indiana
January 25,
2000
NATIONAL
STEEL
CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF
INCOME
(Dollars in
Millions, Except Per Share Amounts)
|
|
|
Years Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
| Net
Sales |
|
$2,849.6 |
|
|
$2,848.0 |
|
|
$3,139.7 |
|
|
Cost of products
sold |
|
2,581.7 |
|
|
2,496.8 |
|
|
2,674.4 |
|
|
Selling, general and
administrative expense |
|
147.8 |
|
|
153.6 |
|
|
141.3 |
|
|
Depreciation |
|
140.1 |
|
|
129.1 |
|
|
134.5 |
|
|
Equity income of
affiliates |
|
(2.1 |
) |
|
(1.2 |
) |
|
(1.5 |
) |
|
Unusual
credit |
|
—
|
|
|
(26.6 |
) |
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
| Income
(Loss) from Operations |
|
(17.9 |
) |
|
96.3 |
|
|
191.0 |
|
| Other (income)
expense |
|
|
|
|
|
|
|
|
|
|
Interest and other
financial income |
|
(11.5 |
) |
|
(15.8 |
) |
|
(19.2 |
) |
|
Interest and other
financial expense |
|
39.6 |
|
|
26.7 |
|
|
33.8 |
|
|
Net gain on disposal
of non-core assets and other related activities |
|
(0.8) |
|
|
(2.7 |
) |
|
(58.7 |
) |
| |
|
|
|
|
|
|
|
|
|
| Income
(Loss) before Income Taxes and Extraordinary Item |
|
(45.2 |
) |
|
88.1 |
|
|
235.1 |
|
|
Income taxes
(credit) |
|
(2.1 |
) |
|
4.3 |
|
|
16.2 |
|
| |
|
|
|
|
|
|
|
|
|
| Income
(Loss) before Extraordinary Item |
|
(43.1 |
) |
|
83.8 |
|
|
218.9 |
|
|
Extraordinary
item |
|
—
|
|
|
—
|
|
|
(5.4 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net Income
(Loss) |
|
(43.1 |
) |
|
83.8 |
|
|
213.5 |
|
|
Less preferred stock
dividends |
|
—
|
|
|
—
|
|
|
10.2 |
|
| |
|
|
|
|
|
|
|
|
|
| Net Income
(Loss) Applicable to Common Stock |
|
$
(43.1 |
) |
|
$
83.8 |
|
|
$
203.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Basic
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
Income (loss) before
extraordinary item |
|
$
(1.04 |
) |
|
$
1.94 |
|
|
$
4.82 |
|
|
Extraordinary
items |
|
—
|
|
|
—
|
|
|
(.12 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net Income
(Loss) Applicable to Common Stock |
|
$
(1.04 |
) |
|
$
1.94 |
|
|
$
4.70 |
|
| |
|
|
|
|
|
|
|
|
|
| Diluted
Earnings Per Share: |
|
Income (loss) before
extraordinary item |
|
$
(1.04 |
) |
|
$
1.94 |
|
|
$
4.76 |
|
|
Extraordinary
item |
|
—
|
|
|
—
|
|
|
(.12 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net Income
(Loss) Applicable to Common Stock |
|
$
(1.04 |
) |
|
$
1.94 |
|
|
$
4.64 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding (in thousands) |
|
41,411 |
|
|
43,202 |
|
|
43,288 |
|
|
|
| Dividends
paid per common share |
|
$
0.28 |
|
|
$
0.28 |
|
|
$
— |
|
See notes to
consolidated financial statements.
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in
Millions, Except Per Share Amounts)
|
|
|
December
31,
|
|
|
|
1999
|
|
1998
|
| ASSETS |
|
|
|
|
|
|
| Current
assets |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$
58.4 |
|
|
$
137.9 |
|
|
Receivables,
net |
|
322.8 |
|
|
245.7 |
|
|
Inventories |
|
519.7 |
|
|
472.8 |
|
|
Deferred tax
assets |
|
28.2 |
|
|
23.3 |
|
|
Other |
|
29.5 |
|
|
19.9 |
|
| |
|
|
|
|
|
|
|
Total current
assets |
|
958.6 |
|
|
899.6 |
|
|
Investments in
affiliated companies |
|
21.8 |
|
|
19.5 |
|
|
Property, plant and
equipment, net |
|
1,446.4 |
|
|
1,270.5 |
|
|
Deferred tax
assets |
|
178.0 |
|
|
179.3 |
|
|
Intangible pension
asset |
|
63.0 |
|
|
89.5 |
|
|
Other
assets |
|
32.7 |
|
|
25.6 |
|
| |
|
|
|
|
|
|
|
|
|
$2,700.5 |
|
|
$2,484.0 |
|
| |
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
| Current
liabilities |
|
|
|
|
|
|
|
Accounts
payable |
|
$
246.1 |
|
|
$
241.7 |
|
|
Current portion of
long-term obligations |
|
31.2 |
|
|
30.3 |
|
|
Short-term
borrowings |
|
—
|
|
|
6.9 |
|
|
Salaries, wages,
benefits and related taxes |
|
109.5 |
|
|
95.7 |
|
|
Pension |
|
78.6 |
|
|
14.9 |
|
|
Income
taxes |
|
11.9 |
|
|
22.6 |
|
|
Other accrued
liabilities |
|
120.6 |
|
|
134.7 |
|
| |
|
|
|
|
|
|
|
Total current
liabilites |
|
597.9 |
|
|
546.8 |
|
|
Long-term
obligations |
|
555.6 |
|
|
285.8 |
|
|
Long-term pension
liabilities |
|
91.6 |
|
|
128.5 |
|
|
Minimum pension
liabilities |
|
68.5 |
|
|
140.5 |
|
|
Postretirement
benefits other than pensions |
|
433.0 |
|
|
398.1 |
|
|
Other long-term
liabilities |
|
120.7 |
|
|
134.0 |
|
| Commitments
And Contingencies |
|
|
|
|
|
|
| Stockholders’ equity |
|
|
|
|
|
|
|
Common Stock par
value $.01: |
|
|
|
|
|
|
Class A—authorized
30,000,000 shares; issued and outstanding 22,100,000
shares in 1999 and 1998 |
|
0.2 |
|
|
0.2 |
|
Class B—authorized
65,000,000 shares; issued 21,188,240 shares in 1999 and
1998 |
|
0.2 |
|
|
0.2 |
|
|
Additional paid-in
capital |
|
491.8 |
|
|
491.8 |
|
|
Retained
earnings |
|
362.6 |
|
|
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 (loss): |
|
|
|
|
|
|
|
Minimum pension
liability |
|
(5.5 |
) |
|
(51.0 |
) |
| |
|
|
|
|
|
|
|
Total stockholders
’ equity |
|
833.2 |
|
|
850.3 |
|
| |
|
|
|
|
|
|
|
|
|
$2,700.5 |
|
|
$2,484.0 |
|
| |
|
|
|
|
|
|
See notes to
consolidated financial statements.
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in
Millions)
|
|
|
Years
Ended December 31,
|
|
|
|
1999
|
|
1998
|
|
1997
|
| Cash
Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$
(43.1 |
) |
|
$
83.8 |
|
|
$
213.5 |
|
Adjustments to
reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
140.1 |
|
|
129.2 |
|
|
134.5 |
|
|
Net gain on disposal of
non-core assets |
|
(0.8 |
) |
|
(2.7 |
) |
|
(58.8 |
) |
|
Extraordinary item
(net) |
|
—
|
|
|
—
|
|
|
5.4 |
|
|
Deferred income
taxes |
|
(2.9 |
) |
|
(19.6 |
) |
|
(21.8 |
) |
|
Changes in assets
and liabilities: |
|
|
|
|
|
|
|
|
|
|
Receivables |
|
(77.1 |
) |
|
38.4 |
|
|
4.8 |
|
|
Inventories |
|
(46.9 |
) |
|
(98.6 |
) |
|
56.4 |
|
|
Accounts
payable |
|
4.4 |
|
|
4.4 |
|
|
0.9 |
|
|
Pension liability (net of
change in intangible pension asset) |
|
26.9 |
|
|
(86.5 |
) |
|
(24.0 |
) |
|
Postretirement
benefits |
|
24.9 |
|
|
26.5 |
|
|
34.9 |
|
|
Accrued
liabilities |
|
(1.2 |
) |
|
(46.9 |
) |
|
1.5 |
|
|
Other |
|
(16.1 |
) |
|
12.5 |
|
|
(15.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities |
|
8.2 |
|
|
31.7 |
|
|
332.2 |
|
| Cash
Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
Purchases of property,
plant and equipment |
|
(318.3 |
) |
|
(171.1 |
) |
|
(151.8 |
) |
|
Net proceeds from sale of
assets |
|
0.5 |
|
|
1.4 |
|
|
—
|
|
|
Net proceeds from
disposal of non-core assets |
|
0.6 |
|
|
3.3 |
|
|
320.6 |
|
|
Acquisition of
ProCoil |
|
(7.7 |
) |
|
—
|
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used
in) Investing Activities |
|
(324.7 |
) |
|
(168.4 |
) |
|
168.5 |
|
| Cash
Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
Redemption of Preferred
Stock—Series A and B |
|
—
|
|
|
—
|
|
|
(83.8 |
) |
|
Repurchase of Class B
common stock |
|
(7.9 |
) |
|
(8.4 |
) |
|
—
|
|
|
Prepayment of related
party debt and associated costs |
|
—
|
|
|
—
|
|
|
(158.8 |
) |
|
Debt repayment |
|
(55.4 |
) |
|
(34.2 |
) |
|
(35.0 |
) |
|
Borrowings
—net |
|
311.9 |
|
|
14.7 |
|
|
3.9 |
|
Payment of released
Weirton benefit liabilities and unreleased Weirton
liabilities and their release in lieu of cash
dividends on Preferred
Stock—Series B |
|
—
|
|
|
—
|
|
|
(19.2 |
) |
|
Dividend payments on
common stock |
|
(11.6 |
) |
|
(12.1 |
) |
|
—
|
|
|
Dividend payments on
Preferred Stock—Series A and B |
|
—
|
|
|
—
|
|
|
(4.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used
in) Financing Activities |
|
237.0 |
|
|
(40.0 |
) |
|
(297.1 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net
Increase (Decrease) In Cash and Cash Equivalents |
|
(79.5 |
) |
|
(174.7 |
) |
|
203.6 |
|
| Cash and
cash equivalents, at beginning of the year |
|
137.9 |
|
|
312.6 |
|
|
109.0 |
|
| |
|
|
|
|
|
|
|
|
|
| Cash and
cash equivalents, at end of the year |
|
$
58.4 |
|
|
$
137.9 |
|
|
$
312.6 |
|
| |
|
|
|
|
|
|
|
|
|
| Supplemental Cash Payment Information |
|
|
|
|
|
|
|
|
|
|
Interest and other
financing costs paid |
|
$
30.6 |
|
|
$
27.7 |
|
|
$
38.9 |
|
|
Income taxes
paid |
|
19.2 |
|
|
17.2 |
|
|
45.2 |
|
See notes to
consolidated financial statements.
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
AND
REDEEMABLE PREFERRED STOCK—SERIES B
(Dollars in
Millions)
|
|
|
Common
Stock—
Class A
|
|
Common
Stock—
Class B
|
|
Preferred
Stock—
Series A
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders’
Equity
|
|
Redeemable
Preferred
Stock—
Series B
|
| Balance
at January 1, 1997 |
|
$0.2 |
|
$0.2 |
|
$
36.7 |
|
|
$465.3 |
|
$142.6 |
|
|
$
— |
|
|
$
(0.5 |
) |
|
$644.5 |
|
|
$
63.5 |
|
| Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
213.5 |
|
|
|
|
|
|
|
|
213.5 |
|
|
|
|
Other comprehensive
income: Minimum
pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
|
(0.6 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212.9 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of excess of book
value over redemption value
of Redeemable Preferred
Stock—Series B |
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
1.3 |
|
|
(1.3 |
) |
Cumulative
dividends on
Preferred Stock—Series A
and B |
|
|
|
|
|
|
|
|
|
|
(11.6 |
) |
|
|
|
|
|
|
|
(11.6 |
) |
|
|
|
Redemption
of Preferred Stock
—Series A |
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(36.7 |
) |
|
|
|
Redemption
of Redeemable
Preferred Stock—Series B
and related settlement with
Avatex |
|
|
|
|
|
|
|
|
26.5 |
|
|
|
|
|
|
|
|
|
|
26.5 |
|
|
(62.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance
at December 31, 1997 |
|
0.2 |
|
0.2 |
|
— |
|
|
491.8 |
|
345.8 |
|
|
— |
|
|
(1.1 |
) |
|
836.9 |
|
|
— |
|
| Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
83.8 |
|
|
|
|
|
|
|
|
83.8 |
|
|
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
| Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(43.1 |
) |
|
|
|
|
|
|
|
(43.1 |
) |
|
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension
liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.5 |
|
|
45.5 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends on
common stock |
|
|
|
|
|
|
|
|
|
|
(11.6 |
) |
|
|
|
|
|
|
|
(11.6 |
) |
|
|
|
Purchase of
890,300 shares of
Class B common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.9 |
) |
|
|
|
|
(7.9 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance
at December 31, 1999 |
|
$0.2 |
|
$0.2 |
|
$
— |
|
|
$491.8 |
|
$362.8 |
|
|
$(16.3 |
) |
|
$
(5.5 |
) |
|
$833.2 |
|
|
$
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to
consolidated financial statements.
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 1999
Note 1.
Description of the Business and Significant Accounting
Policies
National Steel
Corporation (together with its majority owned subsidiaries, the
“Company”) is a domestic manufacturer engaged in a single
line of business, the production and processing of steel. The Company
targets high value-added applications of flat rolled carbon steel for
sale primarily to the automotive, construction and container markets.
The Company also sells hot and cold-rolled steel to a wide variety of
other users including the pipe and tube industry and independent
steel service centers. The Company’s principal markets are
located throughout the United States.
Since 1986, the
Company has had cooperative labor agreements with the United
Steelworkers of America (the “USWA”), the International
Chemical Workers Union Council of the United Food and Commercial
Workers and other labor organizations, which collectively represent
82% of the Company’s employees. The Company entered into
five-year agreements with these labor organizations in 1999.
Additionally, these 1999 agreements contain a no-strike clause also
effective through the term of the agreements.
|
Principles of Consolidation
|
The consolidated
financial statements include the accounts of National Steel
Corporation and its majority-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in
consolidation.
Substantially all
revenue is recognized when products are shipped to
customers.
Cash equivalents are
short-term liquid investments consisting principally of time deposits
and commercial paper at cost which approximates market. Generally,
these investments have maturities of three months or less at the time
of purchase.
Receivables consist
of trade and notes receivable and other miscellaneous receivables
including refundable income taxes. Concentration of credit risk
related to trade receivables is limited due to the large numbers of
customers in differing industries and geographic areas and management
’s credit practices. Receivables are shown net of allowances,
and estimated claims of $19.6 million and $16.9 million at December
31, 1999 and 1998, respectively. Activity relating to the allowance
was as follows:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars
in millions |
| Balance,
January 1 |
|
$16.9 |
|
|
$17.6 |
|
|
$19.3 |
|
| Provision
for doubtful accounts |
|
2.8 |
|
|
1.3 |
|
|
1.0 |
|
| Doubtful
accounts written off, net of recoveries |
|
(0.6 |
) |
|
(0.4 |
) |
|
0.1 |
|
| Other,
net |
|
0.5 |
|
|
(1.6 |
) |
|
(2.8 |
) |
| |
|
|
|
|
|
|
|
|
|
| Balance,
December 31 |
|
$19.6 |
|
|
$16.9 |
|
|
$17.6 |
|
| |
|
|
|
|
|
|
|
|
|
Risk
Management Contracts
In the normal course
of business, the Company enters into certain derivative financial
instruments, primarily commodity purchase swap contracts and zero
cost collars, to manage its exposure to fluctuations in commodity
prices. The Company designates the financial instruments as hedges for
specific anticipated transactions. Gains and losses from hedges are
classified in the consolidated statement of income in cost of goods
sold when the contracts are closed. Cash flows from hedges are
classified in the consolidated statement of cash flows under the same
category as the cash flows from the related anticipated transaction.
The Company does not enter into any derivative transactions for
speculative purposes. (See Note 14. Risk Management
Contracts.)
Inventories are
stated at the lower of last-in, first-out (“LIFO”) cost or
market.
Based on replacement
cost, inventories would have been approximately $145.6 million and
$178.2 million higher than reported at December 31, 1999 and 1998,
respectively. In 1999 and 1998 there were no liquidations of LIFO
inventory values. During 1997 certain inventory quantity reductions
caused liquidations of LIFO inventory values that did not have a
material effect on net income.
Inventories as of
December 31, are as follows:
|
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Inventories |
|
|
|
|
| Finished and
semi-finished |
|
$461.4 |
|
$421.6 |
| Raw
materials and supplies |
|
196.3 |
|
197.2 |
| |
|
|
|
|
|
|
|
657.7 |
|
618.8 |
| Less LIFO
reserve |
|
138.0 |
|
146.0 |
| |
|
|
|
|
|
|
|
$519.7 |
|
$472.8 |
| |
|
|
|
|
|
Investments in Affiliated Companies
|
Investments in
affiliated companies (corporate joint ventures and 20.0% to 50.0%
owned companies) are stated at cost plus equity in undistributed
earnings since acquisition. Undistributed deficit of affiliated
companies included in retained earnings at December 31, 1999 and 1998
amounted to $1.5 million and $1.9 million, respectively. (See Note
10. Non-Operational Income Statement Activities.)
In May 1997, the
Company acquired an additional 12% of the equity in ProCoil
Corporation (“ProCoil”) for approximately $0.4 million,
bringing the Company’s total ownership to 56% as of December 31,
1997. On March 31, 1999, the Company completed the acquisition of the
remaining 44% minority interest of 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 the remaining useful life of these
assets.
|
Property,
Plant and Equipment
|
Property, plant and
equipment are stated at cost and include certain expenditures for
leased facilities. Interest costs applicable to facilities under
construction are capitalized. Capitalized interest amounted to $13.0
million in 1999, $3.8 million in 1998 and $5.3 million in 1997.
Depreciation of capitalized interest amounted to $3.6 million in both
1999 and 1998 and $4.5 million in 1997.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Property, plant and
equipment as of December 31, are as follows:
|
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Land and
land improvements |
|
$
180.1 |
|
$
187.1 |
| Buildings |
|
313.5 |
|
310.1 |
| Machinery
and equipment |
|
3,235.6 |
|
2,978.3 |
| |
|
|
|
|
| Total
property, plant and equipment |
|
3,729.2 |
|
3,475.5 |
| Less
accumulated depreciation |
|
2,282.8 |
|
2,205.0 |
| |
|
|
|
|
| Net
property, plant and equipment |
|
$1,446.4 |
|
$1,270.5 |
| |
|
|
|
|
Depreciation of
production facilities, equipment and capitalized lease obligations
are generally computed by the straight-line method over their
estimated useful life or, if applicable, remaining lease term, if
shorter. The following useful lives are used for financial statement
purposes:
| Land
improvements |
|
10–20
years |
| Buildings |
|
15–40
years |
| Machinery
and equipment |
|
3–15
years |
Depreciation of
furnace relinings are computed on the basis of tonnage produced in
relation to estimated total production to be obtained from such
facilities.
Research and
development costs are expensed when incurred as a component of cost
of products sold. Expenses for 1999, 1998 and 1997 were $10.7
million, $11.0 million and $10.9 million, respectively.
Financial instruments
consist of cash and cash equivalents and long-term obligations
(excluding capitalized lease obligations). The fair value of cash and
cash equivalents approximates their carrying amounts at December 31,
1999. The carrying value of long-term obligations (excluding
capitalized lease obligations) exceeded the fair value by
approximately $1.2 million at December 31, 1999. The fair value is
estimated using discounted cash flows based on current interest rates
for similar issues.
|
Earnings
per Share (Basic and Diluted)
|
Basic Earnings per
Share (“EPS”) is computed by dividing net income available
to common stockholders by the weighted average number of common stock
shares outstanding during the year. Diluted EPS is computed by
dividing net income available to common stockholders by the
weighted-average number of common stock shares outstanding during the
year plus potential dilutive instruments such as stock options. The
effect of stock options on diluted EPS is determined through the
application of the treasury stock method, whereby proceeds received
by the Company based on assumed exercises are hypothetically used to
repurchase the Company’s common stock at the average market
price during the period. If a net loss is incurred, dilutive stock
options are considered antidilutive and are excluded from the
dilutive EPS calculation.
The calculation of
the dilutive effect of stock options on the weighted average shares
is as follows:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Shares in
thousands |
Denominator
for basic earnings per share—weighted-average
shares |
|
41,411 |
|
43,202 |
|
43,288 |
| Effect of
stock options |
|
—
|
|
69 |
|
485 |
| |
|
|
|
|
|
|
| Denominator
for diluted earnings per share |
|
41,411 |
|
43,271 |
|
43,773 |
| |
|
|
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Options to purchase
common stock of 1,069,993 shares in 1999, 429,967 shares in 1998 and
194,000 shares in 1997 were outstanding, but were excluded from the
computation of diluted earnings per share because a net loss was
incurred or the exercise prices were greater than the average market
price of the common shares during those years.
The Company has
elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB 25”)
and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of employee stock
options equals or exceeds the market price of the underlying stock on
the date of grant, no compensation expense is recorded. The Company
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123, Accounting for
Stock-Based Compensation (SFAS 123). (See Note 15. Long-Term
Incentive Plan)
Preparation of the
consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent liabilities at the date
of the consolidated financial statements, and the reported amounts of
revenue and expense during the year. Actual results could differ from
those estimates.
Certain amounts in
prior years consolidated financial statements have been reclassified
to conform with the current year presentation.
|
Impact of
Recently Issued Accounting Standards
|
In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), 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. SFAS 133 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 the 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 SFAS 133 will be on
earnings and the financial position of the Company.
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 to examine and report on
management’s assertion about the effectiveness of the Company
’s internal control over financial reporting. The accounting firm
’s report was issued in March 1999 and indicated that in that
firm’s 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 lawsuit was
dismissed with prejudice, but the plaintiffs have filed an appeal of
the dismissal.
Note 3.
Capital Structure
At December 31, 1999,
the Company’s capital structure was as follows.
|
Class A
Common Stock: The Company had 30,000,000 shares of $.01 par value
Class A Common Stock authorized, of which 22,100,000 shares were
issued and outstanding and owned by NKK U.S.A. Corporation. Each
share is entitled to two votes. Dividends of $0.28 per share were
paid in 1999 and 1998. No cash dividends were paid on the Class A
Common Stock in 1997 or 1996. As a result of its ownership of the
Class A Common Stock, NKK U.S.A. Corporation controls approximately
69.7% of the voting power of the Company.
|
|
Class B
Common Stock: The Company had 65,000,000 shares of $.01 par value
Class B Common Stock authorized, 21,188,240 shares issued, and
19,188,240 outstanding net of 2,000,000 shares of Treasury Stock.
Dividends of $0.28 per share were paid in 1999 and 1998. No cash
dividends were paid on the Class B Common Stock in 1997. All of the
issued and outstanding shares of Class B Common Stock are publicly
traded and are entitled to one vote.
|
On August 26, 1998,
the Board of Directors authorized the repurchase of up to two million
shares of the Class B Common Stock. In March 1999, the Company
completed the repurchase of these shares at a total cost during 1998
and 1999 of $16.3 million.
In years prior to
1997, the Company had two series of preferred stock outstanding. Both
of these series of stock were redeemed in the fourth quarter of
1997.
Prior to redemption,
which occurred on December 29, 1997, there were 5,000 shares of $1.00
par value Series A Preferred Stock issued and outstanding. All of
this stock was owned by NKK U.S.A Corporation. Annual dividends of
$806.30 per share were cumulative and payable quarterly. Dividend
payments of
approximately $4 million were paid in 1997. This stock was redeemed at
its book value of approximately $36.7 million plus accrued dividends
through the redemption date. This stock had not been subject to
mandatory redemption provisions.
The Company also had
10,000 shares of Redeemable Preferred Stock—Series B issued and
outstanding prior to the redemption of these shares on November 24,
1997. This stock had been owned by Avatex Corporation (“Avatex
”—formerly known as FoxMeyer Health Corporation). Annual
dividends of $806.30 per share were cumulative and payable quarterly.
This stock was subject to mandatory redemption on August 5, 2000 at a
price of $58.3 million. The difference between this price and the
book value of the stock was being amortized to retained earnings.
Concurrent with the stock repurchase in 1997, the Company and Avatex
settled Avatex’s obligations relating to certain Weirton
liabilities for which Avatex agreed to indemnify the Company in prior
recapitalization programs. In 1997, dividends were accrued and paid
on this stock through November 4, 1997.
Note 4.
Segment Information
The Company has one
reportable segment: Steel. The Steel segment consists of two
operating segments, the Regional Division and the Granite City
Division, that produce and sell hot and cold-rolled steel to
automotive, construction, container, and pipe and tube customers as
well as independent steel service centers. The Company’s
operating segments are primarily organized and managed by geographic
location. A third operating segment, National Steel Pellet Company,
has been combined with “All Other” as it does not meet the
quantitative thresholds for determining reportable segments.
“All Other” includes the Company’s pellet operations,
transportation divisions, administrative office and certain steel
processing and warehousing operations. “All Other” revenues
from external customers are attributable primarily to steel
processing, warehousing and transportation services.
The Company evaluates
performance and allocates resources based on operating profit or loss
before income taxes. The accounting policies of the Steel segment are
the same as described in Note 1 to the financial statements.
Intersegment sales and transfers are accounted for at market prices
and are eliminated in consolidation.
|
|
|
1999
|
|
1998
|
|
|
|
Steel
|
|
All
Other
|
|
Total
|
|
Steel
|
|
All
Other
|
|
Total
|
|
|
|
Dollars
in millions |
| Revenues
from external customers |
|
$2,831.9 |
|
|
$
17.7 |
|
$2,849.6 |
|
|
$2,829.1 |
|
$
18.9 |
|
|
$2,848.0 |
| Intersegment
revenues |
|
654.4 |
|
|
3,171.4 |
|
3,825.8 |
|
|
612.4 |
|
3,131.0 |
|
|
3,743.4 |
| Depreciation
expense |
|
110.8 |
|
|
29.3 |
|
140.1 |
|
|
99.4 |
|
29.7 |
|
|
129.1 |
| Segment
income (loss) from operations |
|
(29.1 |
) |
|
11.2 |
|
(17.9 |
) |
|
128.9 |
|
(32.6 |
) |
|
96.3 |
| Segment
assets |
|
1,708.6 |
|
|
991.9 |
|
2,700.5 |
|
|
1,524.3 |
|
959.7 |
|
|
2,484.0 |
| Expenditures
for long-lived assets |
|
237.4 |
|
|
80.9 |
|
318.3 |
|
|
128.6 |
|
42.5 |
|
|
171.1 |
Included in “All
Other” intersegment revenues in 1999 and 1998, respectively, is
$2,907.6 million and $2,886.9 million of qualified trade receivables
sold to National Steel Funding Corporation, a wholly-owned
subsidiary.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
The following table
sets forth the percentage of the Company’s revenues from various
markets for 1999, 1998 and 1997:
|
|
|
1999
|
|
1998
|
|
1997
|
| Automotive |
|
32.6 |
% |
|
29.5 |
% |
|
27.0 |
% |
| Construction |
|
23.5 |
|
|
26.6 |
|
|
24.8 |
|
| Containers |
|
11.6 |
|
|
11.3 |
|
|
11.0 |
|
| Pipe and
Tube |
|
6.3 |
|
|
5.6 |
|
|
7.3 |
|
| Service
Centers |
|
20.0 |
|
|
19.5 |
|
|
21.3 |
|
| All
Other |
|
6.0 |
|
|
7.5 |
|
|
8.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
No single customer
accounted for more than 10.0% of net sales in 1999, 1998 or 1997.
Export sales accounted for approximately 2.0% of revenues in 1999,
2.1% in 1998 and 2.0% in 1997. The Company has no long-lived assets
that are maintained outside of the United States.
Note 5.
Long-Term Obligations
Long-term obligations
were as follows:
|
|
|
December
31,
|
|
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
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, 6.375% Series due August 1, 2005, 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 |
|
83.9 |
|
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 |
|
4.7 |
|
17.3 |
| Capitalized
lease obligations |
|
23.5 |
|
16.6 |
| Other |
|
17.2 |
|
19.9 |
| |
|
|
|
|
| Total
long-term obligations |
|
586.8 |
|
316.1 |
| Less
long-term obligations due within one year |
|
31.2 |
|
30.3 |
| |
|
|
|
|
| Long-term
obligations |
|
$555.6 |
|
$285.8 |
| |
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Future minimum
payments for all long-term obligations and leases as of December 31,
1999 are as follows:
|
|
|
Capitalized
Leases
|
|
Operating
Leases
|
|
Other
Long-Term
Obligations
|
|
|
|
Dollars
in millions |
| 2000 |
|
$
9.9 |
|
|
$
58.1 |
|
$
23.2 |
| 2001 |
|
10.0 |
|
|
46.9 |
|
23.8 |
| 2002 |
|
3.3 |
|
|
42.2 |
|
26.4 |
| 2003 |
|
3.0 |
|
|
45.8 |
|
25.7 |
| 2004 |
|
0.9 |
|
|
43.4 |
|
27.3 |
| Thereafter |
|
—
|
|
|
30.3 |
|
436.9 |
| |
|
|
|
|
|
|
|
| Total
payments |
|
27.1 |
|
|
$267.7 |
|
$563.3 |
| |
|
|
|
|
|
|
|
| Less amount
representing interest |
|
3.6 |
|
|
|
|
|
| Less current
portion of obligations under capitalized leases |
|
8.0 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Long-term
obligations under capitalized leases |
|
$
15.5 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Assets under
capitalized leases: |
|
|
|
|
|
|
|
|
Machinery and
equipment |
|
$
50.3 |
|
|
|
|
|
|
Less accumulated
depreciation |
|
(33.6 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
$
16.7 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Operating leases
include a coke battery facility which services Granite City and
expires in 2004, a continuous caster and the related ladle metallurgy
facility which services Great Lakes and expires in 2008, and an
electrolytic galvanizing facility which services Great Lakes and
expires in 2001. Upon expiration, the Company has the option to
extend the leases or purchase the equipment at fair market value. The
Company’s remaining operating leases cover various types of
properties, primarily machinery and equipment, which have lease terms
generally for periods of 2 to 20 years, and which are expected to be
renewed or replaced by other leases in the normal course of business.
Rental expense totaled $71.8 million in 1999, $73.1 million in 1998,
and $75.3 million in 1997.
The Company’s
credit arrangements consist of a Receivables Purchase Agreement with
commitments of up to $200.0 million that expires in September 2002
and a new $200.0 million credit facility secured by the Company
’s inventories (the “Inventory Facility”) that expires
in November 2004. The new inventory credit facility replaces the
previous $150 million inventory credit facilities which were due to
expire in 2000.
The Company is
currently in compliance with all covenants of, and obligations under,
the Receivables Purchase Agreement, the Inventory Facility and other
debt instruments. On December 31, 1999, there were no cash borrowings
outstanding under the Receivables Purchase Agreement or the Inventory
Facility, and outstanding letters of credit under the Receivables
Purchase Agreement totaled $48.4 million. During 1999, the maximum
availability under the Receivables Purchase Agreement, after
reduction for letters of credit outstanding, varied from $71.8
million to $151.6 million and was $151.6 million as of December 31,
1999.
Various debt and
certain lease agreements include restrictions on the amount of
stockholders’ equity available for the payment of dividends.
Under the most restrictive of these covenants, stockholders’
equity in the amount of $392.0 million was free of such limitations
at December 31, 1999.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Note 6.
Pension and Other Postretirement Employee Benefits
The Company has
various qualified and nonqualified pension plans and other
postretirement employee benefit (“OPEB”) plans for its
employees. The following tables provide a reconciliation of the
changes in the plans’ benefit obligations and fair value of
assets over the periods ended September 30, 1999 and 1998, and the
plans funded status at September 30 reconciled to the amounts
recognized on the balance sheet on December 31, 1999 and
1998:
|
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
|
|
1999
|
|
1998
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Reconciliation of benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation,
October 1 Prior Year |
|
$2,213.2 |
|
|
$2,077.2 |
|
|
$
794.9 |
|
|
$
710.8 |
|
|
Service
cost |
|
31.1 |
|
|
27.3 |
|
|
13.1 |
|
|
11.2 |
|
|
Interest
cost |
|
142.1 |
|
|
151.9 |
|
|
51.9 |
|
|
52.3 |
|
|
Participant
contributions |
|
—
|
|
|
—
|
|
|
4.9 |
|
|
4.9 |
|
|
Other
contributions |
|
5.1 |
|
|
7.2 |
|
|
—
|
|
|
—
|
|
|
Plan
amendments |
|
92.3 |
|
|
—
|
|
|
4.2 |
|
|
—
|
|
|
Actuarial loss
(gain) |
|
(126.4 |
) |
|
113.1 |
|
|
(60.0 |
) |
|
67.6 |
|
|
Benefits
paid |
|
(157.7 |
) |
|
(163.5 |
) |
|
(57.8 |
) |
|
(51.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation,
September 30 |
|
$2,199.7 |
|
|
$2,213.2 |
|
|
$
751.2 |
|
|
$
794.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciliation of fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, October 1 Prior Year |
|
$1,830.1 |
|
|
$1,846.5 |
|
|
$
97.3 |
|
|
$
82.7 |
|
|
Actual return on
plan assets |
|
237.9 |
|
|
17.1 |
|
|
17.0 |
|
|
9.6 |
|
|
Company
contributions |
|
29.4 |
|
|
122.8 |
|
|
57.9 |
|
|
52.0 |
|
|
Participant
contributions |
|
—
|
|
|
—
|
|
|
4.9 |
|
|
4.9 |
|
|
Other
contributions |
|
5.1 |
|
|
7.2 |
|
|
—
|
|
|
—
|
|
|
Benefits
paid |
|
(157.7 |
) |
|
(163.5 |
) |
|
(57.8 |
) |
|
(51.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets, September 30 |
|
$1,944.8 |
|
|
$1,830.1 |
|
|
$
119.3 |
|
|
$
97.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Funded
Status |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status,
September 30 |
|
$
(254.9 |
) |
|
$
(383.1 |
) |
|
$(631.9 |
) |
|
$(697.6 |
) |
|
Unrecognized
actuarial (gain) loss |
|
(90.0 |
) |
|
124.7 |
|
|
(159.3 |
) |
|
(95.1 |
) |
|
Unamortized prior
service cost |
|
156.9 |
|
|
75.4 |
|
|
4.2 |
|
|
—
|
|
|
Unrecognized net
transition obligation |
|
17.8 |
|
|
26.6 |
|
|
345.9 |
|
|
373.2 |
|
|
Fourth quarter
reimbursement from trust |
|
—
|
|
|
—
|
|
|
(5.5 |
) |
|
—
|
|
|
Fourth quarter
contributions |
|
—
|
|
|
13.0 |
|
|
13.6 |
|
|
11.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount
recognized, December 31 |
|
$
(170.2 |
) |
|
$
(143.4 |
) |
|
$(433.0 |
) |
|
$(408.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the terms
of the 1993 Settlement Agreement between the Company and the United
Steelworkers of America (“USWA”), a VEBA Trust was
established. Under the terms of the agreement, the Company agreed to
contribute a minimum of $10.0 million annually. Effective August 1,
1999, a new five-year agreement was ratified between the Company and
the USWA and the requirement for mandatory contributions to the VEBA
Trust was eliminated over the term of the agreement. Prior to the new
agreement, a $5.0 million contribution was made to the Trust in 1999.
In 1998, there was no contribution made to the VEBA Trust due to a
special agreement with the USWA. The Company was reimbursed $5.5
million during the fourth quarter of 1999 by the Trust in recognition
of benefits paid during the year to participants of the Funded Hourly
Postretirement Welfare Plan.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Other contributions
reflect reimbursements from the Weirton Steel Corporation (
“Weirton”), the Company’s former Weirton Steel
Division, for retired Weirton employees whose pension benefits are
paid by the Company but are partially the responsibility of Weirton.
An offsetting amount is reflected in benefits paid.
Due to a November 30,
1997 acquisition, assets and liabilities disclosed at 1998 year-end
for the Weirton benefit plans were determined as of November 30,
1998. Except for a discount rate of 7.00%, the November 30, 1998
assumptions were the same as the September 30, 1998 assumptions
disclosed below. Effective in 1999, the Weirton benefit plans results
are determined as of September 30. The impact of this change in
measurement date was not material.
The following table
provides the amounts recognized in the consolidated balance sheet as
of December 31 of both years:
|
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
|
|
1999
|
|
1998
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Prepaid
benefit cost |
|
$
30.8 |
|
|
$
20.5 |
|
|
$
N/A |
|
|
$
N/A |
|
| Accrued
benefit liability |
|
(201.0 |
) |
|
(163.9 |
) |
|
(433.0 |
) |
|
(408.1 |
) |
| Additional
minimum liability |
|
(68.5 |
) |
|
(140.5 |
) |
|
N/A |
|
|
N/A |
|
| Intangible
asset |
|
63.0 |
|
|
89.5 |
|
|
N/A |
|
|
N/A |
|
| Accumulated
other comprehensive income |
|
5.5 |
|
|
51.0 |
|
|
N/A |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Recognized
amount |
|
$(170.2 |
) |
|
$(143.4 |
) |
|
$(433.0 |
) |
|
$(408.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The projected benefit
obligation, accumulated benefit obligation (“ABO”) and fair
value of plan assets for pension plans with an ABO in excess of plan
assets were $1,741.8 million, $1,627.5 million and $1,451.8 million,
respectively, as of December 31, 1999 and $1,747.0 million, $1,613.8
million and $1,331.6 million, respectively, as of December 31,
1998.
The following table
provides the components of net periodic benefit cost for the plans
for fiscal years 1999, 1998 and 1997.
|
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
|
|
1999
|
|
1998
|
|
1997
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars
in millions |
| Net periodic
cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service
cost |
|
$
31.1 |
|
|
$
27.3 |
|
|
$
24.1 |
|
|
$13.1 |
|
|
$11.2 |
|
|
$11.3 |
|
| Interest
cost |
|
146.8 |
|
|
151.9 |
|
|
115.0 |
|
|
53.0 |
|
|
52.3 |
|
|
48.6 |
|
| Expected
return on assets |
|
(162.2 |
) |
|
(159.3 |
) |
|
(101.2 |
) |
|
(9.7 |
) |
|
(8.3 |
) |
|
(5.1 |
) |
| Prior
service cost amortization |
|
10.8 |
|
|
10.8 |
|
|
11.2 |
|
|
—
|
|
|
—
|
|
|
—
|
|
| Actuarial
(gain)/loss amortization |
|
6.1 |
|
|
0.2 |
|
|
—
|
|
|
(3.0 |
) |
|
(8.5 |
) |
|
(6.7 |
) |
| Transition
amount amortization |
|
8.8 |
|
|
8.8 |
|
|
8.8 |
|
|
27.3 |
|
|
27.3 |
|
|
27.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net periodic
benefit cost |
|
$
41.4 |
|
|
$
39.7 |
|
|
$
57.9 |
|
|
$80.7 |
|
|
$74.0 |
|
|
$75.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
The Company
generally uses a September 30 measurement date. The assumptions used
in the measuring of the Company’s benefit obligations and costs
are shown in the following table:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Weighted-average assumptions,
September 30 |
| Discount
rate |
|
7.50% |
|
6.75% |
|
7.50% |
| Expected
return on plan assets—Pension |
|
9.75% |
|
9.75% |
|
9.75% |
| Expected
return on plan assets—Retiree Welfare |
|
9.75% |
|
9.75% |
|
9.25% |
| Rate of
compensation increase |
|
4.18% |
|
4.20% |
|
4.70% |
Assumed health care
cost trend rates have a significant effect on the amounts reported
for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects on 1999
service and interest cost and the accumulated postretirement benefit
obligation at September 30, 1999:
|
|
|
1%
Increase
|
|
1%
Decrease
|
|
|
|
Dollars
in millions |
Effect on
total of service and interest cost components of net
periodic postretirement health care
benefit cost |
|
$
7.6 |
|
$
(7.8 |
) |
Effect on
the health care component of the accumulated
postretirement benefit
obligation |
|
73.4 |
|
(75.9 |
) |
The Company has
assumed a 6.3% health-care cost trend rate at September 30, 1999,
reducing 0.65% for two years, reaching an ultimate trend rate of 5.0%
in 2003.
Note 7.
Other Long-Term Liabilities
Other long-term
liabilities at December 31, consisted of the following:
|
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Deferred
gain on sale leasebacks |
|
$
10.0 |
|
$
14.3 |
| Insurance
and employee benefits (excluding pensions and OPEBs) |
|
79.5 |
|
84.5 |
| Plant
closings |
|
10.7 |
|
15.3 |
| Other |
|
20.5 |
|
19.9 |
| |
|
|
|
|
| Total Other
Long-Term Liabilities |
|
$120.7 |
|
$134.0 |
| |
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Note 8.
Income Taxes
Deferred income taxes
reflect the net effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities at December 31 are as
follows:
|
|
|
1999
|
|
1998
|
|
|
|
Dollars
in millions |
| Deferred tax
assets |
|
|
|
|
|
|
|
Accrued
liabilities |
|
$
96.6 |
|
|
$
82.6 |
|
|
Employee
benefits |
|
211.6 |
|
|
222.1 |
|
|
Net operating loss (
“NOL”) carryforwards |
|
25.8 |
|
|
0.6 |
|
|
Leases |
|
4.5 |
|
|
7.1 |
|
|
Federal tax
credits |
|
86.6 |
|
|
85.1 |
|
|
Other |
|
21.5 |
|
|
21.6 |
|
| |
|
|
|
|
|
|
| Total
deferred tax assets |
|
446.5 |
|
|
419.1 |
|
|
Valuation
allowance |
|
(49.9 |
) |
|
(32.9 |
) |
| |
|
|
|
|
|
|
|
Deferred tax assets
net of valuation allowance |
|
396.7 |
|
|
366.2 |
|
| Deferred tax
liabilities |
|
|
|
|
|
|
|
Book basis of
property in excess of tax basis |
|
(170.3 |
) |
|
(156.9 |
) |
|
Excess tax LIFO
over book |
|
(12.5 |
) |
|
(14.8 |
) |
|
Other |
|
(7.7 |
) |
|
(11.9 |
) |
| |
|
|
|
|
|
|
| Total
deferred tax liabilities |
|
(190.5 |
) |
|
(183.6 |
) |
| |
|
|
|
|
|
|
| Net deferred
tax assets after valuation allowance |
|
$
206.2 |
|
|
$
202.8 |
|
| |
|
|
|
|
|
|
In 1999 and 1998, the
Company determined that it was more likely than not that
approximately $534 million and $525 million, respectively, of future
taxable income would be generated to justify the net deferred tax
assets after the valuation allowance. Accordingly, the Company
recognized additional deferred tax assets of $3.6 million in 1999 and
$29.5 million in 1998.
Significant
components of income taxes (credit) are as follows:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars
in millions |
| Current
taxes payable: |
|
|
|
|
|
|
|
Federal
tax |
|
$—
|
|
|
$
21.7 |
|
|
$
35.6 |
|
|
State and
foreign |
|
0.8 |
|
|
2.2 |
|
|
2.2 |
|
| Deferred tax
credit |
|
(2.9 |
) |
|
(19.6 |
) |
|
(21.6 |
) |
| |
|
|
|
|
|
|
|
|
|
| Income taxes
(credit) |
|
$(2.1 |
) |
|
$
4.3 |
|
|
$
16.2 |
|
| |
|
|
|
|
|
|
|
|
|
The reconciliation of
income tax computed at the federal statutory tax rates to the
recorded income taxes (credit) is as follows:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars
in millions |
| Tax at
federal statutory rates |
|
$(15.6 |
) |
|
$
30.8 |
|
|
$
82.3 |
|
| State income
taxes, net |
|
—
|
|
|
0.7 |
|
|
(1.3 |
) |
| Change in
valuation allowance |
|
16.3 |
|
|
(29.4 |
) |
|
(68.1 |
) |
| Depletion |
|
(3.2 |
) |
|
(2.2 |
) |
|
(5.2 |
) |
| Other,
net |
|
0.4 |
|
|
4.4 |
|
|
8.5 |
|
| |
|
|
|
|
|
|
|
|
|
| Income taxes
(credit) |
|
$
(2.1 |
) |
|
$
4.3 |
|
|
$
16.2 |
|
| |
|
|
|
|
|
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
At December 31,
1999, the Company had unused NOL carryforwards of approximately $69.3
million, which expire in 2019, and had unused alternative minimum tax
credit and other tax credit carryforwards of approximately $86.6
million which may be applied to offset its future regular federal
income tax liabilities. These tax credits may be carried forward
indefinitely.
Note 9.
Weirton Liabilities
In 1984, NKK
purchased a 50% equity interest in the Company from Avatex. As a part
of these transactions, Avatex agreed to indemnify the Company, based
on agreed-upon assumptions, for certain ongoing employee benefit
liabilities related to the Company’s former Weirton Steel
Division (“Weirton”), which had been divested through an
Employee Stock Ownership Plan arrangement in 1984. In 1990, NKK
purchased an additional 20% equity interest in the Company from
Avatex. As a part of the 1990 transaction, Avatex contributed $146.6
million to the Company for employee benefit related liabilities and
agreed that dividends from the Redeemable Preferred Stock—Series
B would be primarily used to fund pension obligations of Weirton.
Under this arrangement, it was agreed that the Company would release
Avatex from its indemnification obligation at the time of the
scheduled redemption of the Redeemable Preferred Stock—Series B
or at an earlier date if agreed to by the parties. The Redeemable
Preferred Stock—Series B was scheduled to be redeemed in the
year 2000. Avatex also agreed in 1984 to indemnify the Company
against certain environmental liabilities related to Weirton and the
Company’s subsidiary, The Hanna Furnace Corporation (
“Environmental Liabilities”). In 1994, Avatex prepaid $10.0
million to the Company with respect to these Environmental
Liabilities. In 1995, the Company redeemed one half of the
outstanding Redeemable Preferred Stock—Series B for
approximately $67 million, with the proceeds going to partially fund
the Weirton pension obligations.
During the fourth
quarter of 1997, the Company redeemed all remaining Redeemable
Preferred Stock—Series B held by Avatex, which had a book value
including accrued dividends of $62.6 million. In addition, the
Company finalized a settlement with Avatex regarding certain employee
benefit liabilities associated with Weirton, as well as the
Environmental Liabilities. As a result of the redemption and
settlement, in 1997, the Company made a payment of $59.0 million to
Avatex and paid an additional $10.0 million, without interest, in
1998. In connection with the settlement, Avatex released any claims
to amounts received, or to be received, with respect to settlements
reached in a lawsuit brought by the Company and Avatex against
certain former insurers of the Company, wherein recovery was sought
for past and future environmental claims, which included the
Environmental Liabilities. During the fourth quarter of 1997, the
Company recognized insurance proceeds (net of taxes and expenses)
aggregating approximately $13.6 million related to the settlement of
such lawsuit. The Company also retained the $9.2 million remaining
balance of the Environmental Liabilities prepayment made by Avatex in
1994.
Under its settlement
with Avatex, the Company has recorded liabilities for the Weirton
pension obligation, certain other Weirton employee benefit
liabilities and the Environmental Liabilities and has relieved Avatex
from any future indemnity obligation with regard to all such
liabilities.
The redemption of
Redeemable Preferred Stock—Series B and the related transactions
described above, which are the resolution of the 1990
recapitalization plan, were reflected as a capital transaction
resulting in an increase in additional paid-in capital of
approximately $26.5 million in 1997.
Note 10.
Non-Operational Income Statement Activities
A number of
non-operational activities are reflected in the consolidated
statement of income in each of the three years ended December 31,
1999. A discussion of these items follows.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
During the third
quarter of 1998, the Company recorded an unusual credit of $26.6
million resulting from the settlement of a lawsuit seeking a
reduction in the assessed value of the Company’s real and
personal property at Great Lakes relating to the 1991 through 1997
tax years. The Company received tax refunds and was granted a lower
assessment base that has resulted in additional tax
savings.
|
Net Gain
on the Disposal of Non-Core Assets and Other Related
Activities
|
In 1999, 1998 and
1997, the Company disposed, or made provisions for disposing of,
certain non-core assets. The effects of these transactions and other
activities relating to non-core assets are presented as a separate
component in the consolidated statements of income. A discussion of
these items follows.
During the first and
fourth quarters of 1999, the Company sold properties located in
Michigan. The Company received proceeds of $0.8 million (net of taxes
and expenses) and recorded a net gain in the same amount from the
sales of these properties.
During the second
quarter of 1998, the Company sold two properties located at Midwest.
The Company received proceeds (net of taxes and expenses) of $3.3
million and recorded a net gain of $2.7 million related to the
sales.
On April 1, 1997, the
Company completed the sale of its 21.7% minority equity interest in
the Iron Ore Company of Canada (“IOC”) to North Limited, an
Australian mining and metal company. The Company received proceeds
(net of taxes and expenses) of $75.3 million in exchange for its
interest in IOC and recorded a $37.0 million gain. The Company will
continue to purchase iron ore at fair market value from IOC pursuant
to the terms of long-term supply agreements.
On June 12, 1997, the
Company completed the sale of the Great Lakes No. 5 coke battery and
other related assets, including coal inventories, to a subsidiary of
DTE Energy Company (“DTE”). The Company received proceeds
(net of taxes and expenses) of $234.0 million in connection with the
sale and recorded a total loss on the transaction of $14.3 million.
The Company utilized a portion of the proceeds to prepay the
remaining $154.3 million of the related party coke battery debt,
resulting in an extraordinary loss of $5.4 million (net of a tax
benefit of $1.4 million). As part of the arrangement, the Company has
agreed to operate the battery under an operation and maintenance
agreement executed with DTE, and will purchase the majority of the
coke produced from the battery under a requirements contract, with
the price being adjusted during the term of the contract, primarily
to reflect changes in production costs.
In the second quarter
of 1997, the Company also recorded a charge of $3.6 million for exit
costs related to the decision to cease operations of American Steel
Corporation, a wholly-owned subsidiary which pickled and slit
steel.
In 1997, the Company
sold four non-core coal properties and recorded a net gain of $11.8
million. In conjunction with one of the property sales, the purchaser
agreed to assume the potential environmental liabilities and as a
result, the Company eliminated the related accrual of approximately
$8.0 million. Additionally, during 1997, the Company received new
information related to closed coal properties employee benefit
liabilities and other expenses and reduced the related accrual by
$19.8 million. In aggregate the above coal properties’
transactions resulted in a gain of $39.6 million in 1997.
An extraordinary loss
of $5.4 million (net of a tax benefit of $1.4 million) was reflected
in 1997 income. This loss relates to early debt repayment costs
related to debt associated with the Great Lakes No. 5 coke battery,
which was sold in the second quarter of 1997.
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
Note 11.
Related Party Transactions
Summarized below are
transactions between the Company and NKK (the Company’s
principal stockholder) and other affiliates accounted for using the
equity method.
During 1998, the
Company entered into a Turnkey Engineering and Construction Contract
with NKK Steel Engineering, Inc. (“NKK SE”), a subsidiary
of NKK, to design, engineer, construct and install a continuous
galvanizing facility at Great Lakes. The Agreement was unanimously
approved by all directors of the Company who were not then, and never
have been, employees of NKK. The purchase price payable by the
Company to NKK SE for the facility is approximately $139.7 million.
During 1999 and 1998, $98.4 million and $15.2 million, respectfully,
was paid to NKK SE relating to the above mentioned contract and $6.5
million is included in accounts payable, net of a $9.3 million
retention, at December 31, 1999.
During 1999, the
Company purchased from a trading company in arms’ length
transactions at competitively bid prices, approximately $24.8 million
of finished-coated steel produced by NKK of which $0.6 million is
included in accounts payable at December 31, 1999. The Company
entered into agreements with NKK in order to fulfill the delivery
requirements of a contract with a major automotive customer at a
fixed price. During 1999, the Company recorded a loss of $5.4 million
relating to these agreements. The Company anticipates that
approximately $5.8 million of finished coated steel produced by NKK
will be purchased during 2000 so that the Company can fulfill its
obligation to the customer. Of this amount, approximately $3.2
million of product has been received during the first two months of
2000.
During 1999, the
Company also purchased from trading companies in arms’ length
transactions at competitively bid prices, approximately $22.6 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. Effective as of February 16, 2000, the Company
entered into a Steel Slab Products Supply Agreement with NKK, the
initial term of which extends through December 31, 2000 and will
continue on a year-to-year basis thereafter until terminated by
either party on six months notice. Pursuant to the terms of this
Agreement, the Company will purchase steel slabs produced by NKK at a
price determined in accordance with a formula set forth in the
Agreement. The quantity of slabs to be purchased is negotiated on a
quarterly basis. This Agreement was unanimously approved by all
directors of the Company who were not then, and never have been,
employees of NKK.
During 1997, the
Company purchased from trading companies in arms length transactions
approximately $4.3 million of finished coated steel produced by
NKK.
Effective May 1,
1995, the Company entered into an Agreement for the Transfer of
Employees (“Agreement”) which supercedes a prior
arrangement with NKK. The Agreement was unanimously approved by all
directors of the Company who were not then, and never have been,
employees of NKK. Pursuant to the terms of this Agreement, technical
and business advice is provided through NKK employees who are
transferred to the employ of the Company. The Agreement further
provides that the term can be extended from year to year after
expiration of the initial term, if approved by NKK and a majority of
the directors of the Company who were not then, and never have been,
employees of NKK. The Agreement has been extended through calendar
year 2000 in accordance with this provision. Pursuant to the terms of
the Agreement, the Company is obligated to reimburse NKK for the
costs and expenses incurred by NKK in connection with the transfer of
these employees, subject to an agreed upon cap. The cap was $7.0
million during each of 1999, 1998 and 1997 and will remain at that
amount during 2000. The Company incurred expenditures of
approximately $6.3 million, $6.0 million and $6.6 million under this
Agreement during 1999, and 1998 and 1997, respectively. In addition,
the
Company utilized various other engineering services provided by NKK and
incurred expenditures of approximately $0.3 million, $0.9 million and
$1.3 million for these services during 1999, and 1998 and 1997,
respectively.
In 1999 and 1998,
cash dividends of $0.28 per share, or approximately $6.2 million,
were paid on 22,100,000 shares of Class A Common Stock owned by NKK.
In 1997 cash dividends of approximately $4.0 million were paid on the
Preferred Stock-Series A. On December 29, 1997, all shares of
Preferred Stock—Series A were redeemed. (See Note 3. Capital
Structure.)
The Company prepaid
related party debt of $154.3 million in June of 1997. (See Note 10.
Non-Operational Income Statement Activity.)
The Company is
contractually required to purchase its proportionate share of raw
material production or services from certain affiliated companies.
Such purchases of raw materials and services aggregated $35.8 million
in 1999, $34.3 million in 1998 and $38.3 million in 1997. Additional
expenses were incurred in connection with the operation of a joint
venture agreement. (See Note 13. Other Commitments and
Contingencies.) Accounts payable at December 31, 1999 and 1998
included amounts with affiliated companies accounted for by the
equity method of $4.1 million and $3.8 million, respectively.
Accounts receivable at December 31, 1999 and 1998 included amounts
with affiliated companies of $5.8 million and $5.5 million,
respectively.
The Company has
agreed to purchase its proportionate share of the limestone
production from an affiliated company, which will approximate $2
million per year. These agreements contain pricing provisions that
are expected to approximate market price at the time of
purchase.
The Company sold
various prime and non-prime steel products to an affiliated company
at prices that approximate market price. Sales totaled approximately
$16.2 million in 1999, $12.6 million in 1998 and $13.1 million in
1997.
Note 12.
Environmental Liabilities
The Company’s
operations are subject to numerous laws and regulations relating to
the protection of human health and the environment. Because these
environmental laws and regulations are quite stringent and are
generally becoming more stringent, the Company has expended, and can
be expected to expend in the future, substantial amounts for
compliance with these laws and regulations. Due to the possibility of
future changes in circumstances or regulatory requirements, the
amount and timing of future environmental expenditures could vary
substantially 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. With respect to costs for environmental assessments or
remediation activities, or penalties or fines that may be imposed for
noncompliance with such laws and regulations, such costs are accrued
when it is probable that liability for such costs will be incurred
and the amount of such costs can be reasonably estimated. The Company
has accrued an aggregate liability for such costs of approximately
$6.9 million and $3.8 million as of December 31, 1999 and 1998,
respectively.
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 a potentially
responsible party (“PRP”) at a number of 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. With respect to those sites for which the Company has
sufficient information to estimate its potential liability, the
Company has accrued an aggregate liability of approximately $13.7
million and $11.2 million as of December 31, 1999 and 1998,
respectively.
The Company has also
recorded reclamation and other costs to restore its shutdown coal
locations to their original and natural state, as required by various
federal and state mining statutes. The Company has recorded an
aggregate liability of approximately $2.0 million at both December
31, 1999 and 1998 relating to these properties.
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 accruals 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
condition.
Note 13.
Other Commitments and Contingencies
The Company has an
interest in DNN Galvanizing Limited Partnership, a joint venture
which constructed a 400,000 ton per year continuous galvanizing line
to serve North American automakers. The joint venture coats steel
products for the Company and an unrelated third party. The Company is
a 10% equity owner of the facility, an unrelated third party is a 50%
owner and a subsidiary of NKK owns the remaining 40%. The Company is
committed to utilize and pay a tolling fee in connection with 50% of
the available line-time of the facility. The agreement extends for 20
years after the start of production, which commenced in January
1993.
The Company has a 50%
interest in a joint venture with an unrelated third party, which
commenced production in May 1994. The joint venture, Double G
Coatings Company, L.P. (“Double G”), constructed a 300,000
ton per year coating facility near Jackson, Mississippi which
produces galvanized and Galvalume® steel sheet for the
construction market. The Company is committed to utilize and pay a
tolling fee in connection with 50% of the available line-time at the
facility through May 10, 2004. Double G provided a first mortgage on
its property, plant and equipment and the Company has separately
guaranteed $16.2 million of Double G’s debt as of December 31,
1999.
The Company has
entered into certain commitments with suppliers which are of a
customary nature within the steel industry. Commitments have been
entered into relating to future expected requirements for such
commodities as coal, coke, iron ore pellets, natural and industrial
gas, electricity and certain transportation and other services.
Commitments have also been made relating to the supply of pulverized
coal and coke briquettes. Certain commitments contain provisions
which require that the Company “take or pay” for specified
quantities without regard to actual usage for periods of up to 12
years. In 2000 and 2001 the Company has commitments with “take
or pay” or other similar commitment provisions for approximately
$291.9 million and $247.6 million, respectively. The Company fully
utilized all such “take or pay” requirements during the
past three years and
purchased $350.5 million, $315.0 million and $305.5 million in 1999,
1998 and 1997, respectively, under these contracts. The Company
believes that production requirements will be such that consumption
of the products or services purchased under these commitments will
occur in the normal production process. The Company also believes
that pricing mechanisms in the contracts are such that the products
or services will approximate the market price at the time of
purchase.
The Company is
involved in various routine legal proceedings which are incidental to
the conduct of its business. Management believes that the Company is
not party to any pending legal proceeding which, if decided adversely
to the Company, would individually or in the aggregate, have a
material adverse effect on the Company.
Note 14.
Risk Management Contracts
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
executed within the guidelines of a documented corporate risk
management policy. The Company does not enter into any derivative
transactions for speculative purposes.
The amounts of
derivatives summarized in the following paragraphs indicate the
extent of the Company’s involvement in such agreements but do
not represent its exposure to market risk through the use of
derivatives.
|
Commodity
Risk Management
|
In order to reduce
the uncertainty of price movements with respect to the purchase of
zinc, the Company enters into derivative financial instruments in the
form of swap contracts and zero cost collars with a major global
financial institution. These contracts typically mature within one
year. While these hedging instruments are subject to fluctuations in
value, such fluctuations are generally offset by changes in the value
of the underlying exposures being hedged. The Company had contracts
to hedge future zinc requirements (up to 50% of annual requirements)
in the amounts of $13.1 million and $18.5 million at December 31,
1999 and 1998, respectively. The fair value of the zinc to be
purchased under these contracts approximated the contract value at
December 31, 1999 and 1998.
The estimated fair
value of derivative financial instruments used to hedge the Company
’s risks will fluctuate over time. The fair value of commodity
purchase swap contracts and zero cost collars are calculated using
pricing models used widely in financial markets.
Note 15.
Long-Term Incentive Plan
The Long-Term
Incentive Plan, established in 1993, has authorized the granting of
options for up to 3,400,000 shares of Class B Common Stock to certain
executive officers and other key employees of the Company. The
Non-Employee Directors Stock Option Plan, also established in 1993,
has authorized the grant of options for up to 100,000 shares of Class
B Common Stock to certain non-employee directors. The exercise price
of the options equals the fair market value of the Common Stock on
the date of the grant. All options granted have ten year terms.
Options generally vest and become fully exercisable ratably over
three years of continued employment. However, in the event that
termination of employment is by reason of retirement, permanent
disability or death, the option must be exercised in whole or in part
within 24 months of such occurrences. There were 2,122,701 and
2,390,394 options available for granting under the stock option plans
as of December 31, 1999 and 1998, respectively.
The Company cancelled
563,167 options during 1998, and replaced them with Stock
Appreciation Rights (“SARs”). In accordance with APB 25,
the Company recorded $1.9 million of compensation expense in 1998. No
compensation expense was recorded in 1999. In addition, the Company
cancelled 66,666 and 241,968 SARs and converted them back to options
during 1999 and 1998, respectively.
As permitted by SFAS
123, the Company has chosen to continue accounting for stock options
at their intrinsic value at the date of grant consistent with the
provisions of APB 25. Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation cost for the
option plans been determined based on the fair value at the grant
date for awards in 1999, 1998, and 1997 consistent with the
provisions of SFAS 123, the Company’s net income and earnings
per share would have been reduced to the pro forma amounts indicated
below:
|
|
|
1999
|
|
1998
|
|
1997
|
|
|
|
Dollars
in millions, except EPS |
| Net income
—pro forma |
|
$(43.7) |
|
$83.6 |
|
$213.5 |
| Basic
earnings per share—pro forma |
|
(1.06) |
|
1.93 |
|
4.70 |
| Diluted
earnings per share—pro forma |
|
(1.06) |
|
1.93 |
|
4.64 |
As a result of the
aforementioned replacement of stock options with SARs, a recovery of
prior years’ pro forma expense for those options was required in
1998 and 1997. The recovery offset compensation costs to be
recorded.
The fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:
|
|
|
1999
|
|
1998
|
|
1997
|
| Dividend
yield |
|
3.1 |
% |
|
2.7 |
% |
|
2.9 |
% |
| Expected
volatility |
|
57.2 |
% |
|
48.9 |
% |
|
41.4 |
% |
| Risk-free
interest rate |
|
5.4 |
% |
|
4.7 |
% |
|
6.5 |
% |
| Expected
term (in years) |
|
7.0 |
|
|
6.8 |
|
|
7.0 |
|
A reconciliation of
the Company’s stock option activity and related information
follows:
|
|
|
Number of
Options
|
|
Exercise
Price
(Weighted
Average)
|
| Balance
outstanding at January 1, 1997 |
|
1,159,735 |
|
|
$14.03 |
| Granted |
|
304,500 |
|
|
9.37 |
| Forfeited |
|
(132,470 |
) |
|
12.99 |
| Cancelled
and replaced with SARs |
|
(653,265 |
) |
|
14.14 |
| |
|
|
|
|
|
| Balance
outstanding at December 31, 1997 |
|
678,500 |
|
|
12.10 |
| Granted |
|
429,500 |
|
|
12.88 |
| Forfeited |
|
(51,167 |
) |
|
11.83 |
| Cancelled
and replaced with SARs |
|
(563,167 |
) |
|
12.61 |
| SARs
cancelled and converted to options |
|
241,968 |
|
|
12.51 |
| |
|
|
|
|
|
| Balance
outstanding at December 31, 1998 |
|
735,634 |
|
|
12.31 |
| Granted |
|
304,000 |
|
|
8.27 |
| Forfeited |
|
(36,307 |
) |
|
13.12 |
| SARs
cancelled and converted to options |
|
66,666 |
|
|
12.48 |
| |
|
|
|
|
|
| Balance
outstanding at December 31, 1999 |
|
1,069,993 |
|
|
$11.15 |
| |
|
|
|
|
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
The following table
summarizes information about stock options outstanding at December
31, 1999:
Range of
Exercise Prices
|
|
Number
Outstanding
at
12/31/99
|
|
Weighted
Average
Remaining
Life
(in years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
at
12/31/99
|
|
Weighted
Average
Exercise
Price
|
$5
7
/8 to $9
|
|
340,334 |
|
8.9 |
|
$
8.06 |
|
14,999 |
|
$
6.76 |
| $9 to
$13 |
|
377,994 |
|
4.1 |
|
10.38 |
|
230,328 |
|
10.91 |
| $13 to
$19 |
|
351,665 |
|
4.2 |
|
14.96 |
|
207,331 |
|
14.84 |
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
1,069,993 |
|
5.7 |
|
$11.15 |
|
452,658 |
|
$12.57 |
| |
|
|
|
|
|
|
|
|
|
|
There were 170,634
exercisable stock options with a weighted average exercise price of
$13.27 as of December 31, 1998.
Note 16.
Quarterly Results of Operations (Unaudited)
Following are the
unaudited quarterly results of operations for the years 1999 and
1998.
|
|
|
1999
|
| Three
Months Ended |
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
| Dollars in
millions, except per share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
sales |
|
$657.9 |
|
|
$707.3 |
|
|
$724.5 |
|
|
$759.9 |
|
| Gross
margin |
|
18.5 |
|
|
38.2 |
|
|
33.1 |
|
|
38.1 |
|
| Net
loss |
|
(24.1 |
) |
|
(4.6 |
) |
|
(7.6 |
) |
|
(6.8 |
) |
| Basic and
diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$(0.58 |
) |
|
$(0.11 |
) |
|
$(0.18 |
) |
|
$(0.17 |
) |
|
|
|
|
|
1998
|
| Three
Months Ended |
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
| Dollars in
millions, except per share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
sales |
|
$708.4 |
|
|
$747.8 |
|
|
$706.4 |
|
|
$685.4 |
|
| Gross
margin |
|
39.9 |
|
|
60.0 |
|
|
58.8 |
|
|
63.4 |
|
| Unusual
credit |
|
—
|
|
|
—
|
|
|
(26.6 |
) |
|
—
|
|
| Net
income |
|
5.9 |
|
|
26.5 |
|
|
32.5 |
|
|
18.8 |
|
| Basic and
diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$
0.14 |
|
|
$
0.61 |
|
|
$
0.75 |
|
|
$
0.44 |
|
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART
III
Item 10. Directors and Executive Officers of the
Registrant
The information
required by this Item is incorporated by reference from the section
captioned “Executive Officers” in Part I of this report
and from the sections captioned “Information Concerning
Nominees for Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s Proxy
Statement for the 2000 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference,
the Company’s Proxy Statement is not to be deemed filed as part
of this report for purposes of this Item.
Item 11. Executive Compensation
The information
required by this Item is incorporated by reference from the sections
captioned “Executive Compensation”, “Summary
Compensation Table”, “Stock Option/SAR Tables”,
“Option/SAR Grants in 1999”, “Aggregated Option/SAR
Exercises in 1999 and December 31, 1999 Option/SAR Values”,
“Pension Plans”, “Pension Plan Table”,
“Employment Contracts” and “Compensation of Directors
” in the Company’s Proxy Statement for the 2000 Annual
Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, the Company’s Proxy
Statement is not to be deemed filed as part of this report for
purposes of this Item.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information
required by this Item is incorporated by reference from the sections
captioned “Security Ownership of Directors and Management”
and “Additional Information Relating to Voting Securities”
in the Company’s Proxy Statement for the 2000 Annual Meeting of
Stockholders. With the exception of the information specifically
incorporated by reference, the Company’s Proxy Statement is not
to be deemed filed as part of this report for purposes of this
Item.
Item 13. Certain Relationships and Related
Transactions
The information
required by this Item is incorporated by reference from the section
captioned “Certain Relationships and Related Transactions”
in the Company’s Proxy Statement for the 2000 Annual Meeting of
Stockholders. With the exception of the information specifically
incorporated by reference, the Company’s Proxy Statement is not
to be deemed filed as part of this report for purposes of this
Item.
PART
IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) Documents
filed as part of this Report:
The following is a
list of the financial statements, schedules and exhibits included in
this Report or incorporated herein by reference.
|
NATIONAL
STEEL CORPORATION AND SUBSIDIARIES
|
|
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997
|
|
Consolidated Balance Sheets as of December 31, 1999 and
1998
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
|
|
Consolidated Statements of Shareholders’ Equity and
Redeemable Preferred Stock—Series B for the years ended
December 31, 1999, 1998 and 1997
|
|
Notes to
Consolidated Financial Statements (Including Quarterly Financial
Data)
|
(2)
|
Consolidated Financial Statement
Schedules
|
|
Schedules
have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
notes thereto.
|
|
Separate
financial statements of subsidiaries not consolidated and 50
percent or less owned persons accounted for by the equity method
have been omitted because considered in the aggregate as a single
subsidiary they do not constitute a significant
subsidiary.
|
|
See the
attached Exhibit Index. Items 10-U through 10-HH are management
contracts or compensatory plans or arrangements.
|
(b) Reports on
Form 8-K:
During the quarter
ended December 31, 1998, the Company filed the following reports on
Form 8-K:
(i)
|
The Company
filed a Form 8-K dated October 14, 1999, reporting on Item 5,
Other Events and Item 7, Financial Statements and
Exhibits.
|
(ii)
|
The Company
filed a Form 8-K dated October 18, 1999, reporting on Item 5,
Other Events and Item 7, Financial Statements and
Exhibits.
|
(iii)
|
The Company
filed a Form 8-K dated October 29, 1999, reporting on Item 5,
Other Events and Item 7, Financial Statements and
Exhibits.
|
(iv)
|
The Company
filed a Form 8-K dated November 9, 1999, reporting on Item 5,
Other Events and Item 7, Financial Statements and
Exhibits.
|
(v)
|
The Company
filed a Form 8-K dated December 3, 1999, reporting on Item 5,
Other Events and Item 7, Financial Statements and
Exhibits.
|
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Mishawaka, State of Indiana, on March 21, 2000.
|
NATIONAL
STEEL
CORPORATION
|
|
President and Chief Operating Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company
in the capacities indicated on March 21, 2000.
Signature
|
|
Title
|
|
|
|
/S
/ YUTAKA
TANAKA
Yutaka Tanaka
|
|
Director;
Chairman of the Board and Chief
Executive Officer |
|
|
|
/S
/ CHARLES
A. BOWSHER
Charles A. Bowsher
|
|
Director |
|
|
|
/S
/ EDSEL
D. DUNFORD
Edsel D. Dunford
|
|
Director |
|
|
|
/S
/ MITSUOKI
HINO
Mitsuoki Hino
|
|
Director |
|
|
|
/S
/ FRANK
J. LUCCHINO
Frank J. Lucchino
|
|
Director |
|
|
|
/S
/ BRUCE
K. MAC
LAURY
Bruce K. MacLaury
|
|
Director |
|
|
|
/S
/ MINEO
SHIMURA
Mineo Shimura
|
|
Director |
|
|
|
/S
/ HISASHI
TANAKA
Hisashi Tanaka
|
|
Director |
|
|
|
/S
/ SOTARO
WAKABAYASHI
Sotaro Wakabayashi
|
|
Director |
|
|
|
/S
/ GLENN
H. GAGE
Glenn H. Gage
|
|
Senior
Vice President and Chief Financial Officer |
|
|
|
/S
/ KIRK
A. SOBECKI
Kirk A. Sobecki
|
|
Corporate
Controller |
EXHIBIT
INDEX
Except for those
exhibits which are incorporated by reference, as indicated below,
all exhibits are being filed along with this Form 10-K.
Exhibit
Number
|
|
Exhibit
Description
|
|
|
| 2-A |
|
Assets
Purchase Agreement between Weirton Steel Corporation and the
Company, dated as of April
29, 1983, together with collateral agreements incident to such
Assets Purchase Agreement, filed as
Exhibit 2-A to the annual report of the Company on Form 10-K for
the year ended December 31,
1995, is incorporated herein by reference. |
|
|
|
|
| 2-B |
|
Stock
Purchase Agreement by and among NKK Corporation, National
Intergroup, Inc. and the
Company, dated August 22, 1984, together with certain collateral
agreements incident to such Stock
Purchase Agreement and certain schedules to such agreements, filed
as Exhibit 2-B to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein
by reference. |
|
|
|
|
| 2-C |
|
Stock
Purchase and Recapitalization Agreement by and among National
Intergroup, Inc., NII Capital
Corporation, NKK Corporation, NKK U.S.A. Corporation and the
Company, dated as of June 26,
1990, filed as Exhibit 2-C to the annual report of the Company on
Form 10-K for the year ended
December 31, 1995, is incorporated herein by
reference. |
|
|
|
|
| 2-D |
|
Amendment to Stock Purchase and Recapitalization
Agreement by and among National Intergroup,
Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A.
Corporation and the Company, dated
July 31, 1991 filed as Exhibit 2-D to the annual report of the
Company on Form 10-K for the year
ended December 31, 1997 is incorporated herein by
reference. |
|
|
|
|
| 2-E |
|
Stock
Purchase Agreement dated as of January 31, 1997 among the
Company, North Limited, NS
Holdings Corporation, Bethlehem Steel Corporation and Bethlehem
Steel International Corporation
filed as Exhibit 2-A to the quarterly report of the Company on
Form 10-Q for the quarter ended June
30, 1997, is incorporated herein by reference. |
|
|
|
|
| 2-F |
|
Asset
Purchase Agreement dated as of June 6, 1997 between EES Coke
Battery Company, Inc. and
the Company, filed as Exhibit 2.1 to the Report on Form 8-K of
the Company dated June 12, 1997, is
incorporated herein by reference. |
|
|
|
|
| 2-G |
|
Coal
Inventory Purchase Agreement dated as of June 6, 1997 between
DTE Coal Services, Inc. and
the Company, filed as Exhibit 2.2 to the Report on Form 8-K of
the Company dated June 12, 1997, is
incorporated herein by reference. |
|
|
|
|
| 3-A |
|
The
Sixth Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.1 to the Company’s
Registration Statement on Form S-1 (Registration No. 33-57952)
is incorporated herein by reference. |
|
|
|
|
| 3-B |
|
Form of
Amended and Restated By-laws of the Company filed as Exhibit
3-B to the annual report of
the Company on Form 10-K for the year ended December 31, 1996,
is incorporated herein by
reference. |
|
|
|
|
| 4-A |
|
Indenture of Mortgage and Deed of Trust dated May 1,
1952 between the Company and Great Lakes
Steel Corporation and City Bank Farmers Trust Company and Ralph
E. Morton, as Trustee, filed as
Exhibit 4.1 to the Company’s Registration Statement on Form
S-1 (Registration No. 2-9639) is
incorporated herein by reference. |
|
|
|
|
| 4-B |
|
Second
Supplemental Indenture dated as of January 1, 1957 between the
Company and City Bank
Farmers Trust Company and Francis M. Pitt, as Trustees, filed as
Exhibit 2-C to the Company’s
Registration Statement on Form S-9 (Registration No. 2-15070) is
incorporated herein by reference. |
|
|
|
|
| 4-C |
|
Fourth
Supplemental Indenture dated as of December 1, 1960 between
the Company and First
National City Trust Company and Francis M. Pitt, as Trustees,
filed as Exhibit 4(b)(5) to the
Registration Statement of M.A. Hanna Company on Form S-1
(Registration No. 2-19169) is
incorporated herein by reference. |
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
| 4-D |
|
Fifth
Supplemental Indenture dated as of May 1, 1962 between the
Company, First National City Trust
Company, as Trustee, and First National City Bank, as Successor
Trustee, filed as Exhibit 4-D to the
Company’s Registration Statement on Form S-4 (Registration
No. 333-76541) is incorporated herein
by reference. |
|
|
|
|
| 4-E |
|
Eighth
Supplemental Indenture dated as of September 19, 1973 between
the Company and First
National City Bank and E. J. Jaworski, as Trustees, filed as
Exhibit 2-I to the Company’s Registration
Statement on Form S-7 (Registration No. 2-56823) is incorporated
herein by reference. |
|
|
|
|
| 4-F |
|
Ninth
Supplemental Indenture dated as of August 1, 1976 between the
Company and Citibank, N.A.
and E J. Jaworski, as Trustees, filed as Exhibit 2-J to the
Company’s Registration Statement on Form
S-7 (Registration No. 2-5622916) is incorporated herein by
reference. |
|
|
|
|
| 4-G |
|
Tenth
Supplemental Indenture dated as of March 8, 1999 between the
Company and The Chase
Manhattan Bank and Frank J. Grippo, as Trustees, filed as
Exhibit 4-G to the Company’s Registration
Statement on Form S-4 (Registration No. 333-76541) is
incorporated herein by reference. |
|
|
|
|
| 4-H |
|
Eleventh Supplemental Indenture dated as of March 31,
1999 between the Company and The Chase
Manhattan Bank and Frank J. Grippo, as Trustees, filed as
Exhibit 4-H to the Company’s Registration
Statement on Form S-4 (Registration No. 333-76541) is
incorporated herein by reference. |
|
|
|
|
| 4-I |
|
NSC
Stock Transfer Agreement between National Intergroup, Inc.,
the Company, NKK Corporation
and NII Capital Corporation dated December 24, 1985, filed as
Exhibit 4-A to the annual report of
the Company on Form 10-K for the year ended December 31, 1995,
is incorporated herein by
reference. |
|
|
|
|
| 4-J |
|
The
Company is a party to certain long-term debt agreements where
the amount involved does not
exceed 10% of the Company’s total assets. The Company
agrees to furnish a copy of any such
agreement to the Commission upon request. |
|
|
|
|
| 10-A |
|
Amended
and Restated Lease Agreement between the Company and
Wilmington Trust Company,
dated as of December 20, 1985, relating to the Electrolytic
Galvanizing Line, filed as Exhibit 10-A to
the annual report of the Company on Form 10-K for the year ended
December 31, 1995, is
incorporated herein by reference. |
|
|
|
|
| 10-B |
|
Lease
Agreement between The Connecticut National Bank as Owner
Trustee and Lessor and National
Acquisition Corporation as Lessee dated as of September 1, 1987
for the Ladle Metallurgy and Caster
Facility located at Ecorse, Michigan, filed as Exhibit 10-B to
the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference. |
|
|
|
|
| 10-C |
|
Lease
Supplement No. 1 dated as of September 1, 1987 between The
Connecticut National Bank as
Owner Trustee and National Acquisition Corporation as the Lessee
for the Ladle Metallurgy and
Caster Facility located at Ecorse, Michigan, filed as Exhibit
10-C to the annual report of the Company
on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference. |
|
|
|
|
| 10-D |
|
Lease
Supplement No. 2 dated as of November 18, 1987 between The
Connecticut National Bank as
Owner Trustee and National Acquisition Corporation as Lessee for
the Ladle Metallurgy and Caster
Facility located at Ecorse, Michigan, filed as Exhibit 10-D to
the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference. |
|
|
|
|
| 10-E |
|
Purchase Agreement dated as of March 25, 1988 relating
to the Stinson Motor Vessel among Skar-Ore
Steamship Corporation, Wilmington Trust Company, General Foods
Credit Investors No. 1
Corporation, Stinson, Inc. and the Company, and Time Charter
between Stinson, Inc. and the
Company, filed as Exhibit 10-E to the annual report of the
Company on Form 10-K for the year ended
December 31, 1995, is incorporated herein by
reference. |
|
|
|
|
| 10-F |
|
Purchase and Sale Agreement, dated as of May 16, 1994
between the Company and National Steel
Funding Corporation. |
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
| 10-G |
|
Form of
Indemnification Agreement filed as Exhibit 10-R to the Annual
Report of the Company on
Form 10-K for the year ended December 31, 1996 is incorporated
herein by reference. |
|
|
|
|
| 10-H |
|
Shareholders’ Agreement, dated as of September 18,
1990, among DNN Galvanizing Corporation,
904153 Ontario Inc., National Ontario Corporation and Galvatek
America Corporation, filed as
Exhibit 10.27 to the Company’s Registration Statement on
Form S-1 (Registration No. 33-57952) is
incorporated herein by reference. |
|
|
|
|
| 10-I |
|
Partnership Agreement, dated as of September 18, 1990,
among Dofasco, Inc., National Ontario II,
Limited, Galvatek Ontario Corporation and DNN Galvanizing
Corporation, filed as Exhibit 10.28 to
the Company’s Registration Statement on Form S-1
(Registration No. 33-57952) is incorporated
herein by reference. |
|
|
|
|
| 10-J |
|
Amendment No. 1 to the Partnership Agreement, dated as
of September 18, 1990, among Dofasco,
Inc., National Ontario II, Limited, Galvatek Ontario Corporation
and DNN Galvanizing Corporation,
filed as Exhibit 10.29 to the Company’s Registration
Statement on Form S-1 (Registration No. 33-
57952) is incorporated herein by reference. |
|
|
|
|
| 10-K |
|
Receivables Purchase Agreement, dated as of May 16,
1994, among the Company, National Steel
Funding Corporation and certain financial institutions named
therein. |
|
|
|
|
| 10-L |
|
Amendment Number One to the Receivables Purchase
Agreement, dated as of May 31, 1995, among
the Company, National Steel Funding Corporation and certain
financial institutions named therein,
filed as exhibit 10-A to the quarterly report of the Company on
Form 10-Q for the quarter ended June
30, 1995, is incorporated herein by reference. |
|
|
|
|
| 10-M |
|
Amendment No. 2 and Consent to the Receivables Purchase
Agreement, dated as of July 18, 1996,
among the Company, National Steel Funding Corporation and
certain financial institutions named
therein, filed as Exhibit 10-A to the quarterly report of the
Company on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by
reference. |
|
|
|
|
| 10-N |
|
Amended
and Restated Receivables Purchase Agreement dated as of
September 30, 1997 among the
Company, National Steel Funding Corporation and certain
financial institutions named therein, filed
as Exhibit 10-N to the Company’s Registration Statement on
Form S-4 (Registration No. 333-76541)
is incorporated herein by reference. |
|
|
|
|
| 10-O |
|
Agreement for the Transfer of Employees by and between
NKK Corporation and the Company, dated
as of May 1, 1995, filed as Exhibit 10-CC to the annual report
of the Company on Form 10-K for the
year ended December 31, 1995, is incorporated herein by
reference. |
|
|
|
|
| 10-P |
|
Amendment No. 1 to Agreement for the Transfer of
Employees by and between the Company and
NKK Corporation filed as Exhibit 10-NN to the annual report of
the Company on Form 10-K for the
year ended December 31, 1996, is incorporated herein by
reference. |
|
|
|
|
| 10-Q |
|
Amendment No. 2 to Agreement for the Transfer of
Employees by and between the Company and
NKK Corporation filed as Exhibit 10-Q to the annual report on
Form 10-K for the year ended
December 31, 1997 is incorporated herein by
reference. |
|
|
|
|
| 10-R |
|
Amendment No. 3 to Agreement for the Transfer of
Employees by and between the Company and
NKK Corporation filed as Exhibit 10-R to the annual report on
Form 10-K for the year ended
December 31, 1998 is incorporated herein by
reference. |
|
|
|
|
| 10-S |
|
Amendment No. 4 to Agreement for the Transfer of
Employees by and between the Company and
NKK Corporation. |
|
|
|
|
| 10-T |
|
Agreement dated as of November 25, 1997 among the
Company, Avatex Corporation, NKK
Corporation and NKK U.S.A. Corporation filed as Exhibit 10-R to
the Annual Report of the Company
on Form 10-K for the year ended December 31, 1997 is
incorporated herein by reference. |
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
| 10-U |
|
1993
National Steel Corporation Long-Term Incentive Plan, filed as
Exhibit 10.1 to the Company’s
Registration Statement on Form S-1 (Registration No. 33-57952)
is incorporated herein by reference. |
|
|
|
|
| 10-V |
|
1993
National Steel Corporation Non-Employee Directors’ Stock
Option Plan, filed as Exhibit 10.2 to
the Company’s Registration Statement on Form S-1
(Registration No. 33-57952) is incorporated
herein by reference. |
|
|
|
|
| 10-W |
|
Amendment Number One to the 1993 National Steel
Corporation Non-Employee Directors’ Stock
Option Plan, filed as Exhibit 10-A to the quarterly report of
the Company on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by
reference. |
|
|
|
|
| 10-X |
|
Amendment Number Two to the 1993 National Steel
Corporation Non-Employee Directors’ Stock
Option Plan filed as Exhibit 10-V to the Annual Report of the
Company on Form 10-K for the year
ended December 31, 1997 is incorporated herein by
reference. |
|
|
|
|
| 10-Y |
|
Amendment Number Three to the 1993 National Steel
Corporation Non-Employee Directors’ Stock
Option Plan. |
|
|
|
|
| 10-Z |
|
National Steel Corporation Management Incentive
Compensation Plan dated January 30, 1989, filed
as Exhibit 10.3 to the Company’s Registration Statement on
Form S-1 (Registration No. 33-57952) is
incorporated herein by reference. |
|
|
|
|
| 10-AA |
|
Employment contract dated April 30, 1996 between the
Company and David L. Peterson, filed as
Exhibit 10-D to the quarterly report of the Company on Form 10-Q
for the quarter ended June 30,
1996, is incorporated herein by reference. |
|
|
|
|
| 10-BB |
|
Supplement to Employment contract dated July 30, 1996
between the Company and David L.
Peterson, filed as Exhibit 10-C to the quarterly report of the
Company on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by
reference. |
|
|
|
|
| 10-CC |
|
Amendment dated August 1, 1998 to Employment Contract
between the Company and David L.
Peterson, filed as Exhibit 10-D to the quarterly report of the
Company for the quarter ended September
30, 1998 is incorporated herein by reference. |
|
|
|
|
| 10-DD |
|
Employment contract dated May 1, 1996 between the
Company and John A. Maczuzak, filed as
Exhibit 10-G to the quarterly report of the Company on Form 10-Q
for the quarter ended June 30,
1996, is incorporated herein by reference. |
|
|
|
|
| 10-EE |
|
Employment Contract dated as of August 1, 1998 between
the Company and Glenn H. Gage, filed as
Exhibit 10-A to the quarterly report of the Company on Form 10-Q
for the quarter ended September
30, 1998 is incorporated herein by reference. |
|
|
|
|
| 10-FF |
|
Employment Contract dated as of August 1, 1998 between
the Company and John F. Kaloski, filed as
Exhibit 10-B to the quarterly report of the Company on Form 10-Q
for the quarter ended September
30, 1998 is incorporated herein by reference. |
|
|
|
|
| 10-GG |
|
Agreement dated January 28, 1999 between the Company
and John F. Kaloski filed as Exhibit 10-FF
to the annual report of the Company on Form 10-K for the year
ended December 31, 1998, is
incorporated herein by reference. |
|
|
|
|
| 10-HH |
|
Employment Contract dated as of September 1, 1998
between the Company and Yutaka Tanaka, filed
as Exhibit 10-C to the quarterly report of the Company on Form
10-Q for the quarter ended September
30, 1998 is incorporated herein by reference. |
|
|
|
|
| 10-II |
|
No. 1
Continuous Galvanizing Line Turnkey Engineering and
Construction Contract dated October
23, 1998 between the Company and NKK Steel Engineering, Inc.
filed as Exhibit 10-II to the annual
report of the Company on Form 10-K for the year ended December
31, 1998, is incorporated herein
by reference. |
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
| 10-JJ |
|
Amendment No. 1 dated March 19, 1999 to No. 1
Continuous Galvanizing Line Turnkey Engineering
and Construction Contract dated October 23, 1998 between the
Company and NKK Steel Engineering,
Inc. filed as Exhibit 10-JJ to the Company’s Registration
Statement on Form S-4 (Registration No.
333-76541) is incorporated herein by reference. |
|
|
|
|
| 10-KK |
|
Amendment No. 2 dated June 22, 1999 to No. 1 Continuous
Galvanizing Line Turnkey Engineering
and Construction Contract dated October 23, 1998 between the
Company and NKK Steel Engineering. |
|
|
|
|
| 10-LL |
|
Steel
Slab Products Supply Agreement dated as of February 16, 2000
between the Company and NKK
Corporation. |
|
|
|
|
| 21 |
|
List of
Subsidiaries of the Company. |
|
|
|
|
| 23 |
|
Consent
of Independent Auditors. |
|
|
|
|
| 27 |
|
Financial Data Schedule. |
|
|
