Second Quarter 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended June
30, 1995.
Commission File Number 1-10244
WEIRTON STEEL CORPORATION
- -------------------------
(Exact name of Registrant as specified in its charter)
Delaware 06-1075442
- -------- ----------
(State or other jurisdiction (IRS employer identification #)
of incorporation or organization)
400 Three Springs Drive, Weirton, West Virginia 26062
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(304)-797-2000
Indicate by checkmark 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[ ]
The number of shares of Common Stock ($.01 par value) of the
Registrant outstanding as of June 30, 1995 was 42,018,485.
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME-Unaudited
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
1995 1994
-------------------
<S> <C> <C>
NET SALES $319,048 $335,488
OPERATING COSTS:
Cost of sales 273,986 311,856
Selling, general, administrative 8,678 7,689
Depreciation 14,831 13,050
Provision for profit sharing 3,088 -
Insurance recoveries (7,502) -
-------- --------
Total operating costs 293,081 332,595
-------- --------
INCOME FROM OPERATIONS 25,967 2,893
Unusual Item -- - 32,543
Adjustment to carrying value
of damaged facility
OTHER INCOME(EXPENSE):
Interest expense (10,437) (12,964)
Interest income 1,139 1,189
Net other expense ( 9,298) (11,775)
-------- --------
Income before ESOP contr. 16,669 23,661
ESOP contribution 652 652
Income before income tax 16,017 23,009
Income tax provision(benefit) 3,123 4,372
-------- --------
Income before extraordinary items $ 12,894 $ 18,637
Loss on early extinguishment of debt 6,718 -
------- -------
Net Income $ 6,176 $ 18,637
Less: Preferred stock dividend - 781
requirement -------- --------
Net Income applicable to $ 6,176 $ 17,856
common shares ========= =======
PER SHARE DATA:
Weighted average number of 43,757 28,515
common shares and equivalents
Net income before extraordinary items $ 0.29 $ 0.63
Loss on early extinguishment of debt (0.15) -
----- -----
Net income per common share $ 0.14 $ 0.63
===== =====
<CAPTION>
Six Months Ended
June 30,
1995 1994
-------------------
<S> <C> <C>
NET SALES $673,734 $660,652
OPERATING COSTS:
Cost of sales 573,171 600,301
Selling, general, administrative 16,884 15,595
Depreciation 29,966 25,334
Provision for profit sharing 19,160 -
Insurance recoveries (41,502) -
-------- -------
Total operating costs 597,679 641,230
-------- --------
Income from operations 76,055 19,422
Unusual Item-- - 32,543
Adjustment to carrying value
of damaged facility
OTHER INCOME(EXPENSE):
Interest expense (20,939) (26,047)
Interest income 2,050 1,926
Net other expense (18,889) (24,121)
-------- --------
Income before ESOP contrib. 57,166 27,844
ESOP contribution 1,305 1,305
Income before income taxes 55,861 26,539
Income tax provision 10,824 5,043
-------- --------
Income before extraordinary items 45,037 21,496
Loss on early extinguishment of debt 6,718 -
------- -------
Net Income $ 38,319 $ 21,496
Less: Preferred stock dividend - 1,562
requirement -------- --------
Net income applicable to $ 38,319 $ 19,934
common shares ======= =========
PER SHARE DATA:
Weighted average number of 43,761 28,469
common shares and equivalents
Income per share before extraordinary items $ 1.03 $ 0.70
Loss on early extinguishment of debt (0.15) -
------- ------
Net income per common share $ 0.88 $ 0.70
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS -
(Dollars in thousands, except per share amount)
<CAPTION>
June 30, 1995 December 31, 1994
-----------------------------------
(Unaudited)
ASSETS:
Current assets:
<S> <C> <C>
Cash and equivalents, $ 102,999 $ 62,905
includes restricted cash of
$1452 and $1329, respectively
Notes and accounts receivable, 126,141 131,902
less allowances of $6,647
and $6,405, respectively
Inventories 280,349 270,518
Deferred income tax 45,762 42,570
Other current assets 11,972 5,603
--------- ---------
Total current assets 567,223 513,498
Property, plant, and 576,147 588,903
equipment, net
Intangible asset 17,213 17,213
Deferred income taxes 86,743 98,493
Other assets and deferred 14,340 12,813
charges ---------- ---------
TOTAL ASSETS $1,261,666 $1,230,920
========= =========
<CAPTION>
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
LIABILITIES:
Current liabilities 217,444 257,039
Long term debt 407,792 394,505
Long term pension obligations 59,658 68,093
Postretirement benefits other 320,693 316,185
than pensions
Other long term liabilities 52,891 31,429
------------ ----------
TOTAL LIABILITIES 1,058,478 1,067,251
REDEEMABLE STOCK: 15,710 14,485
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 423 420
50,000,000 shares authorized;
42,375,445 and 42,027,405
shares issued, respectively
Additional paid-in capital 454,099 452,746
Retained earnings (265,391) (303,710)
Other stockholders' equity (1,653) (272)
---------- --------
TOTAL STOCKHOLDERS' EQUITY 187,478 149,184
---------- --------
TOTAL LIABILITIES, REDEEMABLE $1,261,666 $1,230,920
STOCK AND STOCKHOLDERS' EQUITY =========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Unaudited
(Dollars in thousands)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1994
-----------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 41,693 $ 95,406
- -----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- -----------------------------------------
Expenditures for property, plant and (19,211) (7,257)
equipment
CASH FLOWS FROM FINANCING ACTIVITIES
- -----------------------------------------
Increase in term debt 125,000 -
Reduction in term debt (112,000) -
Dividends paid - (1,562)
Other, principally net book overdrafts 4,612 (3,405)
- ----------------
NET CASH USED BY FINANCING ACTIVITIES 17,612 (4,967)
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS 40,094 83,182
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 62,905 89,002
- ----------------
CASH AND EQUIVALENTS AT END OF PERIOD 102,999 172,184
- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized $22,971 $25,824
Income taxes paid 5,193 -
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars, or in millions
of dollars where indicated)
Note 1
BASIS OF PRESENTATION
The Consolidated Condensed Financial Statements presented herein are
unaudited. Weirton Steel Corporation and its wholly-owned subsidiary, Weirton
Receivables, Inc. are hereafter referred to as the "Registrant." Certain
information and footnote disclosures normally prepared in accordance with
generally accepted accounting principles have been either condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Although the Registrant believes that all adjustments necessary for
a fair presentation have been made, interim periods are not necessarily
indicative of the results of operations for a full year. As such, these
financial statements should be read in conjunction with the financial statements
and notes thereto included or incorporated by reference in the Registrant's 1994
Annual Report on Form 10-K.
Certain portions of the prior period's financial statements have been
reclassified where necessary to conform to the presentation used in the current
period.
Note 2
INVENTORIES
Inventories consisted of the following at June 30, 1995 and December 31,
1994:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Raw materials $ 78,249 $100,319
Work-in-process 90,129 89,106
Finished goods 111,971 81,093
$280,349 $270,518
</TABLE>
Note 3
EARNINGS PER SHARE
The weighted average number of common and equivalent shares used in the
computations of earnings per share were 43,757,259 and 28,515,033 for the three
month periods ended June 30, 1995 and 1994, and 43,760,799 and 28,468,635 for
the six month periods ended June 30, 1995 and 1994, respectively.
Note 4
INSURANCE CLAIMS
In March of 1991, the Registrant experienced an outage at its hot strip
mill as a result of an explosion of a reversing rougher roller. The Registrant
subsequently filed a claim seeking recovery pursuant to its business
interruption insurance coverage. Such claim was settled in the second
quarter of 1995 when the registrant received an insurance recovery in the net
amount of $7.5 million.
On April 6, 1994, the Registrant's No. 9 Tandem Mill (the 'No. 9 Tandem')
sustained major damage from a fire which occurred while the unit was undergoing
maintenance. This cold rolling facility typically supplied approximately 70%
to 80% of the steel coils further processed by the Registrant's tin plating
operations. The Registrant has since rebuilt the No. 9 Tandem. Start-up
operations began in October 1994 and the No. 9 Tandem was returned to full
production in the first quarter of 1995. The Registrant maintains insurance
coverage for both property damage and business interruption applicable to the
No.9 Tandem and had filed claims with its carrier for recoveries under both
types of coverage. During the first six months of 1995, the Registrant's
results of operations were favorably affected by the recognition of $34
million related to recoveries under its business interruption coverage
regarding the damage to the No. 9 Tandem Mill, bringing the total amount
recovered by the Registrant to date for this claim to $54 million. The
Registrant is required to recognize a new cost basis for property damage
insurance recoveries with respect to the No. 9 Tandem which resulted in the
recognition of a pretax gain in the first half of 1994 in the amount of $32.5
million. The Registrant has received $44.7 million in recoveries to date and
is continuing to pursue the final settlement of its claim for property damage
to the No. 9 Tandem.
Note 5
FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Debt obligations:
10-3/4% Senior notes due 2005 $125,000 $ -
11-1/2% Senior notes due 1998 77,150 107,150
10-7/8% Senior notes due 1999 149,749 231,749
8-5/8% Pollution Control Bonds
due 2014 56,300 56,300
Unamortized debt discount (407) (694)
-------- --------
Total debt obligations 407,792 394,505
========= =========
</TABLE>
On June 12, 1995, the Registrant issued and sold $125 million of its
Senior Notes through an underwritten private placement. These unsecured senior
notes bear interest at 10-3/4% per annum, mature June 1, 2005, are senior to the
Registrant's Pollution Control Bonds and rank pari passu with the 10-7/8% and
11-1/2% Senior Notes due 1999 and 1998, respectively. The net proceeds to the
Registrant were approximately $121 million. The Registrant used $118.8 million
of the proceeds to retire approximately $30 million aggregate principal amount
of its 11-1/2% Senior Notes and approximately $82 million aggregate principal
amount of its 10-7/8% Senior Notes. The Registrant's second quarter results
reflect an after tax extraordinary charge of $6.7 million for costs of
repurchasing the 10-7/8% and 11-1/2% Senior Notes.
In conjunction with the sale of the 10-3/4% Senior Notes, the Registrant
entered into a Registration Rights Agreement under which the Registrant agreed
(i) to file with the SEC within 45 days from the issue date, and to use its
reasonable best efforts to cause to become effective within 135 days of the
issue date of the 10-3/4% Senior Notes, a registration statement relating to
an offer to exchange the previously issued 10-3/4% Senior Notes for notes
which will be identical in all material respects except the exchange notes
will not contain terms with respect to transfer restrictions, and (ii) upon
the registration statement being declared effective by the SEC, to offer the
exchange notes in exchange for the 10-3/4% Senior Notes. In the event that
the Registrant does not comply with its registration obligations in a timely
manner, then the per annum interest rate on the 10-3/4% Senior Notes will
increase by 0.5% for the period from the occurrence of such default until
such time as a Registration Statement applicable to the 10-3/4% Senior Notes
is in effect. The Registrant anticipates it will meet its registration
obligations with respect to the exchange offer.
The indenture governing the 10-3/4% Senior Notes contains certain covenants
that limit, among other things, the incurrence of additional indebtedness, the
declaration and payment of dividends and distributions on the Registrant's
capital stock, as well as mergers, consolidations, restrictions on disposition
of assets of the Registrant, limitations on transactions with affiliates and
limitations on sale and leaseback transactions. Under covenants affecting the
Registrant's ability to pay dividends on its common stock, the Registrant is
limited as to the payment of aggregate dividends after March 31, 1993, to the
greater of (i) $5.0 million or (ii) $5.0 million plus one-half of the
Registrant's cumulative consolidated net income since March 31, 1993, plus the
net proceeds from issuances of certain capital stock less $25.0 million related
to the Registrant's redemption of its Series B Preferred Stock in the third
quarter of 1994. As of June 30, 1995, pursuant to this covenant, the
Registrant's ability to pay dividends on its common stock was limited to $137.6
million. Upon the occurrence of a change in control, as defined under the
indenture, holders of the 10-3/4% senior notes will have the right to require
the Registrant to repurchase all or any part of such holder's outstanding
notes at 101% of the principal amount thereof, together with accrued interest
thereon to the repurchase date.
Additionally, the Registrant solicited the consent from the remaining
holders of its 11-1/2% Senior Notes to modify certain covenants in the indenture
governing such notes with the objective of providing uniformity in the covenants
contained in the indentures governing the Registrant's 10-3/4% and 11-1/2%
Senior Notes. The required majority of the holders of the 11-1/2% Senior
Notes have approved the amendment of the indenture.
RECEIVABLES PARTICIPATION AGREEMENT:
Early in the third quarter of 1995, the Registrant's $85 million accounts
receivable sales facility was extended to April 30, 2000.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis of the Registrant's financial condition and
results of operations should be read together with the consolidated condensed
financial statements and notes thereto. For the periods ended June 30, 1995 and
December 31, 1994, the consolidated financial statements of Weirton Steel
Corporation include the accounts of its wholly-owned subsidiary Weirton
Receivables, Inc. Weirton Steel Corporation and/or Weirton Steel Corporation
together with its subsidiary are hereafter referred to as the "Registrant."
RESULTS OF OPERATIONS
On April 6, 1994, the Registrant's No. 9 Tandem Mill (the "No. 9 Tandem")
sustained major damage from a fire which occurred while the unit was undergoing
maintenance. This cold rolling facility typically supplied approximately 70%
to 80% of the steel coils further processed by the Registrant's tin and chrome
plating operations. The Registrant began rebuilding and repair operations
immediately to restore the No. 9 Tandem. Startup operations began in October
1994 and it was returned to full production in the first quarter of 1995. While
the No. 9 Tandem was out of service during 1994, the Registrant increased the
cold rolling output of its remaining facilities. The Registrant also
compensated for the reduction in cold rolling capacity by increasing its
sales of hot rolled products.
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1994
In the second quarter of 1995, the Registrant had net income of $6.2
million, or $0.14 per share, compared to net income of $17.9 million, or $0.63
per share, for the same period in 1994. The net results for the second quarter
of 1995 were favorably affected by a $7.5 million pretax adjustment to recognize
the settlement of a business interruption insurance claim related to an outage
at the Registrant's hot strip mill in March 1991, caused by an explosion of a
reversing rougher roller. The net results for the 1995 second quarter were
adversely affected by an extraordinary charge of $6.7 million for costs of
refinancing a portion of the Registrant's Senior Note obligations. The net
results for the second quarter of 1994 includes a pretax favorable adjustment of
$32.5 million related to the recognition of a new cost basis for the amount of
property insurance recovery with respect to a claim for the damage to the No. 9
Tandem. The Registrant is continuing to pursue the final settlement of its
claim for property damage to the No. 9 Tandem.
The net results for the second quarter of 1995, exclusive of the above
mentioned special adjustments, would have been $6.7 million or $.15 per share
compared to a net loss of $7.6 million or $.29 per share in the second quarter
of 1994, adjusted to exclude the effect the No. 9 Tandem property insurance
recovery.
<TABLE>
<CAPTION>
Second Second
Quarter Quarter
1995 1994
<S> <C> <C>
Net income as reported $ 6,176 $ 18,637
After tax effect of insurance recoveries (6,039) (26,197)
Extraordinary item 6,718 -
Effect of adjustments on provision for
profit sharing (195) -
---------- --------
Net income (loss), exclusive of
special items $ 6,660 $ (7,560)
Net income (loss) per common share, $ .15 $ (.29)
exclusive of special items
</TABLE>
The comparison of the adjusted net results reflects the adverse effect on
the Registrant's operations in
the second quarter of 1994 caused by the fire that damaged the No. 9 Tandem.
Notwithstanding the disruption
to the Registrant's operations caused by the fire, revenues in the second
quarter of 1994 were $335.5 million,
which represented the seventh consecutive quarter of increasing revenues.
This level of revenues reflected the strong demand for the Registrant's sheet
products in 1994 and the Registrant's ability to shift its product mix
to meet market demand.
The strong demand for the Registrant's sheet products continued
throughout 1994 and into the first quarter of 1995. Beginning in the first
quarter and through the second quarter of 1995, the market for the
Registrant's sheet products began to soften and although sheet product
selling prices had experienced gains over
the previous quarterly periods, further anticipated selling
price increases did not materialize. The Registrant
believes the general slowdown of the economy in early 1995 has caused
high levels of inventory in the
manufacturing sector which had an adverse effect on the Registrant's
volume of shipments in the second quarter of 1995.
In the second quarter of 1994, in spite of the fire, the Registrant
was able to supply its tin plate customers a majority of their orders
from inventory and by the second quarter of 1995 the No. 9 Tandem had
been returned to full production. As such, the volume of tin plate
shipments in the second quarters of 1994 and
1995 were relatively comparable. Prices for tinplate have increased
since the second quarter of 1994.
The overall effect of the soft market for sheet products in
second quarter of 1995, and the timing of the fire and the rebuilding
of the No. 9 Tandem, was a reduction in revenues of $16.5 million compared to
the second quarter of 1994.
<TABLE>
<CAPTION>
(In million of dollars) Selling Product
Price Shipments Mix Total
<S> <C> <C> <C> <C>
Sheet products $15.7 $(33.7) $(2.4) $(20.4)
Tin mill products 4.3 (.4) - 3.9
Total $20.0 $(34.1) $(2.4) $(16.5)
</TABLE>
Prior to the No. 9 Tandem outage in the second quarter of 1994, the
Registrant had achieved five consecutive quarters of improved operating
performance. Operating costs, however, were adversely affected during the
second quarter and the balance of 1994 because of the fire.
<TABLE>
<CAPTION>
(In thousands of dollars, Second Second
except per ton data) Quarter Quarter
1995 1994
------- -------
<S> <C> <C>
Operating costs $293,081 $332,595
Profit sharing (3,088) -
Insurance recovery 7,502 -
------- --------
Adjusted operating costs 297,495 332,595
Shipments in tons 630,065 702,259
------- -------
Adjusted operating
costs per ton $ 472 $ 474
==== ====
</TABLE>
The adjusted operating costs per ton in the second quarter of 1995, when
compared to the relatively high operating costs in 1994's second quarter,
reflects the Registrant's shift in product mix back to higher value products
following restoration of the No. 9 Tandem and the effect of higher energy and
raw material costs. There was no provision for profit sharing recognized in the
second quarter of 1994.
The Registrant recognized $2.5 million lower interest expense in the second
quarter of 1995 compared to the same quarter a year ago as a result of a
reduction in its debt obligations. In addition, the Registrant lowered its
financing cash requirements by $.8 million compared to a year ago as a result of
a redemption of its preferred stock, Series B. See Liquidity and Capital
Resources.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994
In the first half of 1995, the Registrant had net income of $38.3 million,
or $0.88 per share, compared to net income of $21.5 million, or $0.70 per share,
in the first half of 1994. The net results for the first half of 1995 were
favorably affected by a $7.5 million pretax adjustment to recognize the
settlement of a business interruption insurance claim related to an outage at
the Registrant's hot strip mill in March 1991, caused by an explosion of a
reversing rougher roller. During the first half of 1995, the Registrant's
results of operations were favorably affected by the recognition of $34.0
million related to the recovery under its business interruption coverage
regarding the damage to the No. 9 Tandem, bringing the total amount recovered
by the Registrant to date for this claim to $54.0 million. The net results
for the first half of 1995 were adversely affected by an extraordinary charge
of $6.7 million for costs to refinance a portion of the Registrant's 10-7/8%
and 11-1/2% Senior Notes. The net results for the first half of 1994
includes a pretax favorable adjustment of $32.5 million related to the
recognition of a new cost basis for the amount of
property insurance recovery with respect to a claim for the damage to the No. 9
Tandem. The Registrant is continuing to pursue the final settlement of its
claim for property damage to the No. 9 Tandem.
The net results for the first half of 1995, exclusive of the above
mentioned special adjustments, would have been $19.3 million or $.44 per share
compared to a net loss of $6.3 million or $.27 per share in the first half of
1994, adjusted to exclude the effect the No. 9 Tandem property insurance
recovery.
<TABLE>
<CAPTION>
First First
6 mos. 6 mos.
1995 1994
--------- ---------
<S> <C> <C>
Net income as reported $ 38,319 $ 21,496
After tax effect of
insurance recoveries (33,409) (26,197)
Extraordinary item 6,718 -
Effect of adjustments on
provision for profit sharing 7,661 -
-------- --------
Net income (loss), exclusive of
special items $ 19,289 $ (4,701)
Net income (loss) per common
share, exclusive of
special items $ .44 $ (.18)
====== ======
</TABLE>
The comparison of the adjusted net results reflects the adverse effect on
the Registrant's operations in the first half of 1994 caused by the fire that
damaged the No. 9 Tandem. Notwithstanding the disruption to the Registrant's
operations caused by the fire, revenues in the first half of 1994 for all
products combined were $660.6 million. This level of revenues reflected the
strong demand for the Registrant's sheet products in 1994 and the Registrant's
ability to shift its product mix to meet market demand.
The strong demand for the Registrant's sheet products continued throughout
1994 and into the first quarter of 1995. Beginning in the first quarter and
through the second quarter of 1995, the market for the Registrant's sheet
products began to soften and although sheet product selling prices had
experienced gains over the previous quarterly periods, further anticipated
selling price increases did not materialize. The Registrant believes the
general slowdown of the economy in early 1995 has caused high levels of
inventory in the manufacturing sector which had an adverse effect on the
Registrant's volume of shipments in the first half of 1995.
In the first half of 1994, in spite of the fire, the Registrant was able
to supply its tin plate customers a majority of their orders from inventory and
by the second quarter of 1995 the No. 9 Tandem had been returned to full
production. As such, the volume of tin plate shipments in the first six months
of 1994 was relatively stable. In the first half of 1995 the Registrant
experienced lower shipments beginning in the second quarter due to the decline
in production by food can manufacturers brought about by severe weather
conditions that caused late plantings of major food crops in the midwestern
states.
Revenues were $13.1 million higher in the first half of 1995 than 1994's
comparable period, principally as a result of increases in selling prices for
the Registrant's sheet and tin mill products, which more than offset lower
shipments of sheet and tin mill products.
<TABLE>
<CAPTION>
(In million of dollars) Selling Product
Price Shipments Mix Total
<S> <C> <C> <C> <C>
Sheet products $28.7 $(10.2) $(0.7) $ 17.8
Tin mill products 8.4 (12.9) (0.2) (4.7)
Total $37.1 $(23.1) $(0.9) $ 13.1
</TABLE>
Prior to the No. 9 Tandem outage in the second quarter of 1994, the
Registrant had achieved five consecutive quarters of improved operating
performance. Operating costs, however, were adversely affected during the
balance of 1994 because of the fire.
<TABLE>
<CAPTION>
(In thousands of dollars, First First
except per ton data) 6 mos. 6 mos.
1995 1994
<S> <C> <C>
Operating costs $597,679 $641,230
Profit sharing (19,160) -
Insurance recovery 41,502 -
Adjusted operating costs 620,021 641,230
Shipment in tons 1,335,109 1,358,389
Adjusted operating
costs per ton $ 464 $ 472
===== =====
</TABLE>
The adjusted operating costs per ton in the first half of 1995, when
compared to the relatively high operating costs in 1994's first half, reflects
the Registrant's shift in product mix back to higher value products following
restoration of the No. 9 Tandem and the effect of higher energy and raw material
costs.
The Registrant recognized $5.1 million lower interest expense in the first
half of 1995 compared to the same period a year ago as a result of a reduction
in its debt obligations. In addition, the Registrant lowered its financing cash
requirements by $1.6 million compared to a year ago as a result of a redemption
of its preferred stock, Series B. See Liquidity and Capital Resources.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's cash and equivalents of $103.0 million at June 30, 1995
was higher than the $62.9 million on hand at December 31, 1994, primarily due to
recoveries on insurance claims.
The Registrant's capitalization includes three main elements: long term
debt obligations, redeemable stock, and stockholders' equity. Such
capitalization is shown below as of December 31, 1993 and June 30, 1995.
<TABLE>
<CAPTION>
(In thousands of dollars)
% %
June 30, of December 31, of
Debt Obligations: 1995 Total 1993 Total
<S> <C> <C> <C> <C>
10-3/4% Senior notes due 2005 $125,000 $ -
11-1/2% Senior notes due 1998 77,150 140,000
10-7/8% Senior notes due 1999 149,749 300,000
8-5/8% Pollution Control Bonds
due 2014 56,300 56,300
Unamortized debt discount (407) (1,048)
--------- ------- --------- ------
Total debt obligations 407,792 67% 495,252 93%
Redeemable stock 15,710 2 36,721 7
Stockholders' Equity:
Common stock 423 267
Additional paid-in capital 454,099 335,776
Retained earnings (265,391) (336,535)
Other stockholders' equity (1,653) (872)
--------- --------
Total stockholders' equity 187,478 31 (1,364) -
--------- ------- --------- -------
Total capitalization $610,980 100% $530,609 100%
======= === ======= ===
</TABLE>
Beginning in 1989, the Registrant incurred substantially increased levels
of indebtedness in order to fund a capital improvement program under which the
Registrant spent in excess of $550 million over a three year period to upgrade
the principal components of its steelmaking facilities. Net losses during 1991
through 1993 that included the net unfavorable effect of required changes in
accounting methods for retiree health care and income taxes also contributed to
the significant increase in the Registrant's financial leverage. As a result,
at December 31, 1993, debt obligations and redeemable preferred stocks
represented 93% and 7%, respectively, of the Registrant's capitalization. In
order to reduce its financial leverage and increase its financial flexibility,
the Registrant completed a public sale of 15.0 million shares of its common
stock in August 1994, the proceeds of which were used to make a discretionary
contribution of $20.0 million to the Registrant's pension plan and $25.0 million
was used to redeem all the Registrant's Redeemable Preferred Stock, Series B.
In addition, during the fourth quarter of 1994, the Registrant used the
remaining net proceeds from the sale of common stock and $32.3 million of its
cash on hand to purchase $68.3 million of its 10-7/8% Senior Notes and $32.8
million of its 11-1/2% Senior Notes.
As a result of the sale of common stock and net profits of $71.1 million
since December 31, 1993, the Registrant's financial leverage has been
significantly improved.
In order to provide further financial flexibility, the Registrant issued
and sold on June 12, 1995, $125 million of its Senior Notes through an
underwritten private placement. The 10-3/4% Senior Notes due June 1, 2005, are
senior to the Registrant's Pollution Control Bonds and rank pari passu with the
Registrant's 10-7/8% and 11-1/2% Senior Notes. The net proceeds to the
Registrant were approximately $121 million. The Registrant used $118.8 million
of the proceeds to retire approximately $30 million aggregate principal amount
of its 11-1/2% Senior Notes and approximately $82 million aggregate principal
amount of its 10-7/8% Senior Notes. This Senior Note refinancing effectively
extends the maturity period for a portion of its debt obligations and reduces
the Registrant's interest expense. The Registrant's second quarter results
reflect an after tax extraordinary charge of $6.7 million for costs of
repurchasing the 10-7/8% and 11-1/2% Senior Notes.
The indenture governing the 10-3/4% Senior Notes contains certain covenants
that limit, among other things, the incurrence of additional indebtedness, the
declaration and payment of dividends and distributions on the Registrant's
capital stock, as well as mergers, consolidations, restrictions on disposition
of assets of the Registrant, limitations on transactions with affiliates and
limitations on sale and leaseback transactions. Under covenants affecting the
Registrant's ability to pay dividends on its common stock, the Registrant is
limited as to the payment of aggregate dividends after March 31, 1993, to the
greater of (i)$5.0 million or (ii)$5.0 million plus one-half of the Registrant's
cumulative consolidated net income since March 31, 1993, plus the net proceeds
from issuances of certain capital stock less $25.0 million related to the
Registrant's redemption of its Series B Preferred Stock in the third quarter of
1994. As of June 30, 1995, pursuant to this covenant, the Registrant's ability
to pay dividends on its common stock was limited to $137.6 million. Upon the
occurrence of a change in control, as defined under the indenture, holders of
the 10-3/4% Senior Notes will have the right to require the Registrant to
repurchase all or any part of such holder's outstanding notes at 101% of the
principal amount thereof, together with accrued interest thereon to the
repurchase date.
Additionally, the Registrant solicited the consent from the remaining
holders of its 11-1/2% Senior Notes to modify certain covenants in the indenture
governing such notes with the objective of providing uniformity in the covenants
contained in the indentures governing the Registrant's 10-3/4% and 11-1/2%
Senior Notes. The required majority of the holders of the 11-1/2% Senior
Notes have approved the amendment of the indenture.
The Registrant has in place, through a subsidiary, Weirton Receivables,
Inc., a receivables participation agreement that provides for a total commitment
by the participating banks of up to $85 million, including a letter of credit
subfacility of up to $25 million. As of June 30, 1995, and December 31, 1994,
while no funded participation interests had been sold under the facility, $3.1
million in letters of credit under the subfacility were in place at such dates.
Based upon the Registrant's available cash on hand at June 30, 1995, and the
amount of cash it anticipates will be provided from operations in the near term,
the Registrant does not expect the subsidiary to sell participation interests to
the banks in the near term. At June 30, 1995, and December 31, 1994, after
reductions for amounts in place under the letter of credit subfacility, the base
amount available for cash sales was approximately $80.3 million and $81.7
million, respectively. The Registrant does not have any scheduled cash
requirements related to its long term debt obligations until 1998 when the
remaining outstanding portion of its 11-1/2% Senior Notes become due. Early
in the third quarter of 1995, the receivables participation
agreement was extended to April 30, 2000.
The Registrant has net deferred tax assets which total $132.5 million at
June 30, 1995, and represent the carrying value of net operating loss
carryforwards and other tax credits and net deductible temporary differences,
all of which is available to reduce the Registrant's cash requirements for the
payment of future Federal regular income tax. As a result of its financial
performance in the first half of 1995, the Registrant has been subject to cash
requirements under Federal alternative minimum tax and it anticipates it will
continue to be subject to such requirements during the balance of 1995. As of
June 30, 1995, the Registrant paid income taxes of $5.0 million related to this
requirement.
INVESTMENT IN FACILITIES
Expenditures for property plant and equipment in the first six months of
1995 totaled $19.2 million. The Registrant expects capital spending for 1995 to
approximate $68.5 million, which includes an estimated $10 million for materials
to be used in a major blast furnace reline set for early 1996. The Registrant
expects to fund these improvements from cash on hand and cash generated from
operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 1995, the Registrant's Annual Meeting of Stockholders was
held and the following proposals were voted upon:
(1) Affirmation of the four Class I nominees for service on the Board of
Directors:
Name of Director Votes for Votes Withheld
Michael Bozic 53,073,966 3,318,564
Richard R. Burt 52,812,001 3,580,529
Richard K. Riederer 52,523,375 3,869,155
Thomas R. Sturges 49,308,405 7,084,125
(2) Affirmation of the five Class II nominees for service on the Board of
Directors:
Name of Director Votes for Votes Withheld
Joseph J. Nowak 53,269,260 3,123,270
Robert S. Reitman 53,202,947 3,189,583
Richard F. Schubert 49,048,277 7,344,253
David I.J. Wang 48,203,278 8,189,252
Ronald C. Whitaker 53,203,722 3,188,808
(3) Affirmation of the proposal approving the adoption of the 1994 Employee
Stock Purchase Plan:
For 42,896,251 Against 3,202,938 Abstain 699,180
Non-vote 9,594,161
(4) Affirmation of the ratification of Arthur Andersen LLP as the Registrant's
Independent Auditors for the fiscal year ending December 31, 1995:
For 53,099,730 Against 3,249,053 Abstain 43,747
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. - Financial Data Schedule for six months ended June 30,
1995.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K on June 23, 1995
containing information pursuant to Items 5 and 7 thereof.
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
WEIRTON STEEL CORPORATION
Registrant
By /s/ Earl E. Davis
Earl E. Davis
Controller
(Principal Accounting Officer)
July 27, 1995
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Jun-30-1995
<CASH> 12,039
<SECURITIES> 90,960
<RECEIVABLES> 132,788
<ALLOWANCES> 6,647
<INVENTORY> 280,349
<CURRENT-ASSETS> 567,223
<PP&E> 884,299
<DEPRECIATION> 308,152
<TOTAL-ASSETS> 1,261,666
<CURRENT-LIABILITIES> 217,444
<BONDS> 407,792
<COMMON> 423
15,710
0
<OTHER-SE> 187,055
<TOTAL-LIABILITY-AND-EQUITY> 1,261,666
<SALES> 673,734
<TOTAL-REVENUES> 673,734
<CGS> 573,171
<TOTAL-COSTS> 597,679
<OTHER-EXPENSES> 1,305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,939
<INCOME-PRETAX> 55,861
<INCOME-TAX> 10,824
<INCOME-CONTINUING> 45,037
<DISCONTINUED> 0
<EXTRAORDINARY> (6,718)
<CHANGES> 0
<NET-INCOME> 38,319
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
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