FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par New York Stock Exchange
value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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[ ]
Indicate by checkmark 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. [ ]
Based on the closing price as of March 15, 1995, the aggregate
market value of the voting stock held by nonaffiliates of the
Registrant was $304,401,690. (The foregoing calculation includes
shares allocated under the Registrant's 1984 and 1989 Employee
Stock Ownership Plans to the accounts of employees who are not
otherwise affiliates and unallocated shares under the
Registrant's 1989 Employee Stock Ownership plan subject to voting
instructions of employees who are not otherwise affiliates.)
The number of shares of Common Stock ($.01 par value) of the
Registrant outstanding as of March 15, 1995 was 41,986,440.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain portions of the Registrant's 1994 Annual Report to
Stockholders are incorporated by reference into Parts I, II and
IV of this Annual Report on Form 10-K to the extent provided
herein.
(2) Certain portions of the Registrant's definitive Proxy
Statement filed pursuant to Regulation 14A (filed within 120 days
after the end of the fiscal year covered hereby) in connection
with the 1995 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K to the
extent provided herein.
PART I
Item 1. Description of Business
Background
Weirton Steel Corporation (the "Company") and its
predecessor companies have been in the business of making and
finishing steel products for more than eighty years at the
Company's facility located in Weirton, West Virginia. From
November 1929 to January 1984, the Company's business had been
operated as the Weirton Steel Division (the "Division") of
National Steel Corporation ("National"). Incorporated in
Delaware in November 1982, the Company acquired the principal
assets of the Division in January 1984. Until June 1989, all of
the capital stock of the Company was owned by an ESOT, which held
such shares pursuant to an ESOP ("1984 ESOP"), for the benefit of
the employees of the Company. In June 1989, the 1984 ESOP sold
shares of common stock in a public offering, and the common stock
was listed and is now traded on the New York Stock Exchange.
The Company makes carbon steel from raw materials to
industry and customer specifications. In primary steelmaking,
iron ore pellets, iron ore, coke, limestone and other raw
materials are consumed in blast furnaces to produce molten iron
or "hot metal." The Company then converts the hot metal into raw
or liquid steel through its basic oxygen furnaces where
impurities are removed, recyclable scrap is added and metallurgy
for end use is determined on a batch by batch basis. The
Company's basic oxygen process shop ("BOP") is one of the largest
in North America, employing two vessels, each with a steelmaking
capacity of 360 tons per heat. Liquid steel from the BOP is then
formed into slabs through the Company's multi-strand continuous
caster, which allows the Company to continuously cast 100% of the
steel it produces. The slabs are then reheated, reduced and
finished by extensive rolling, shaping, tempering and, in many
cases, by the application of plating or coating at the Company's
downstream operations. Finished products are normally shipped to
customers in the form of coils.
Principal Products and Markets
The Company is a major integrated producer of flat
rolled carbon steel with principal product lines consisting of
sheet products and tin mill products ("TMP"). The Company offers
a full range of sheet products that include hot and cold rolled
sheet steel up to 48" wide and both hot-dipped and electrolytic
galvanized products. TMP include tin plate, chrome coated, and
black plate. The Company's products emphasize the narrow to
medium widths reflective of its rolling and finishing equipment
and covers a broad range of gauges, finishes and performance
specifications. The Company has developed significant expertise
in filling orders with demanding specifications.
The Company's sales as a percentage of its total
revenues for each year in the period 1990 through 1994 are shown
in the following table.
<TABLE>
<CAPTION>
(Percentage of revenues)(1)
1994(2) 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Sheet products ...... 70% 54% 48% 46% 53%
Tin mill products ... 30 46 52 54 47
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
<FN>
(1) The above table includes revenues from the sale of secondary
products, principally those products not meeting prime
specifications. Revenues from the sale of semi-finished products
have been included in sheet products.
(2) The percentage increase during 1994 in the Company's
revenues attributable to sheet products versus TMP compared to
the trend in prior years resulted from strong market demand for
the Company's sheet products and a fire on April 6, 1994 that
damaged a cold rolling facility (the "No. 9 Tandem") required for
the production of a substantial portion of the Company's TMP.
See "Production and Shipments" herein and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 to the Company's Consolidated Financial
Statements (incorporated herein by reference to pages 23 to 28
inclusive, and page 36, respectively, of the Company's 1994
Annual Report to Stockholders) for further discussion regarding
the damage to the No. 9 Tandem.
</TABLE>
The following table shows the percentage of total net
tons of steel products shipped for each year in the period 1990
through 1994 by the Company to each of its principal markets.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Service Centers & Sheet
and Strip Converters. 45% 30% 24% 21% 20%
Food and Beverage...... 25 37 41 44 42
Pipe and Tube.......... 6 12 11 9 10
Construction........... 13 9 8 7 8
Consumer Durables...... 4 4 6 8 4
Other ................. 7 8 10 11 16
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
A substantial portion of the Company's revenues are
derived from long-time customers, although the Company actively
seeks new customers and constantly seeks new markets for its
products. A substantial share of the Company's TMP and sheet
products are shipped to customers located in the eastern portion
of the United States. The Company's products are sold through
salaried Company employees who operate from 7 district sales
offices. Sales orders taken in the field are subject to home
office approval.
Trade orders on hand for the Company's products at
December 31, 1994, 1993, and 1992 amounted to approximately 494
thousand tons, 449 thousand tons, and 308 thousand tons,
respectively. Substantially all orders on hand at any time are
expected to be filled within a twelve month period. Since the
Company produces steel in response to orders primarily of
established grades and specifications, resulting in short order
processing time and relatively rapid inventory turnover, it does
not believe that order backlog is material to its business.
Sheet Products. Hot rolled products are sold directly
from the hot strip mill as "hot bands," or are further processed
using hydrochloric acid to remove surface scale and are sold as
"hot rolled pickled." Hot rolled sheet is used for unexposed
parts in machinery, construction products and other durable
goods. Most of the Company's sales of hot rolled products have
been to steel service centers, pipe and tube manufacturers and
converters. In 1994, the Company sold 1,042 thousand tons of hot
rolled sheet, which accounted for 29.9% of its total revenues.
Cold rolled sheet, which requires further processing
consisting of additional rolling, annealing and tempering to
enhance ductility and surface characteristics, is used in the
construction, steel service center, commercial equipment and
container markets, primarily for exposed parts where appearance
and surface quality are important considerations. In 1994, the
Company sold 187 thousand tons of cold rolled sheet, which
accounted for 7.5% of its total revenues.
Galvanized hot-dipped and electrolytic sheet, which is
coated primarily with zinc compounds to provide extended anti-
corrosive properties, is sold to the electrical, construction,
automotive, container, appliance and steel service center
markets. In 1994, the Company sold 698 thousand tons of
galvanized products, which accounted for 31.6% of total revenues.
Generally, the Company's sheet products which receive extensive
processing obtain higher profit margins.
The following table, based on information from the
American Iron and Steel Institute ("AISI"), shows the Company's
historical share of the domestic Sheet Products market.
<TABLE>
<CAPTION>
Sheet Products
Historical Market Share
(In thousands of tons) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Industry Shipments..... 47,217 41,616 38,099 35,590 38,039
Company shipments(1)... 1,991 1,536 1,206 1,082 1,285
Company market share... 4.2% 3.7% 3.2% 3.0% 3.4%
<FN>
(1) Includes secondary products.
</TABLE>
While the Company's presence in the overall sheet
market is limited, the Company has concentrated on developing
offerings of more highly processed products and production
capability to provide the larger coils favored by most of its
customers. The Company's goals for development of its sheet
business are focused on increasing its percentage of coated
products, such as galvanized, while capitalizing on developing
specialty markets such as construction where the Company believes
that its GALFAN (registered trademark) product has potential in
roofing and framing applications. As part of its sheet marketing
strategy, the Company is also making efforts to enhance high
quality end use of its products marketed through steel service
centers, as well as developing the hot rolled market for heavier
gauge and higher carbon applications for all markets.
Tin Mill Products. The Company has enjoyed substantial
market share and a widely held reputation as a high quality
producer of TMP, which comprise a wide variety of light gauge
coated steels. Tin plate and black plate products are sold under
the Company name and under such registered trademarks as WEIRITE
and WEIRLITE. In addition to tin plate and black plate, the
Company produces electrolytic chromium coated steel under the
trademark WEIRCHROME.
The Company is one of the largest domestic producers of
TMP. The Company's historical share of the domestic market for
TMP remained relatively constant through the first quarter of
1994. Due to the subsequent reduction of TMP production in 1994
caused by the No. 9 Tandem fire, the Company accounted for
approximately 15% of the TMP market for the year as a whole, a
decrease from the 22% market share it held in 1993. See
"Production and Shipments." TMP shipments on an industry-wide
basis have remained relatively steady in recent years even as
plastic, aluminum, composites and other materials competed for
potential growth in some applications. The TMP market is now
primarily directed at food, beverage, and general line cans. The
majority of the Company's TMP sales have been to can
manufacturing and packaging companies, a substantial amount of
whose annual requirements are established in advance. This
market is characterized by a relatively low number of
manufacturers. During 1994, shipments to ten major can
manufacturers accounted for approximately 74% of the Company's
TMP sales and its five largest TMP customers accounted for 18.1%
of total revenues. The balance of the TMP is sold to other can
manufacturers, manufacturers of caps and closures and specialty
products ranging from film cartridges, lighting fixtures and
battery jackets to cookie sheets and curtain rods. As a result
of more predictable sales patterns for TMP, the Company is able
to determine in advance a significant portion of its production
requirements which allows the Company to operate its production
facilities more efficiently and adjust its marketing and
production efforts for other products.
The following table, based on AISI information, shows
the Company's historical share of the domestic TMP market.
<TABLE>
<CAPTION>
Tin Mill Products
Historical Market Share
(In thousands of tons) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
TMP industry shipments... 4,137 4,123 3,927 4,040 4,032
Company shipments(1)..... 615 895 890 857 874
Company market share..... 15% 22% 23% 21% 22%
<FN>
(1) Includes secondary products
</TABLE>
The Company has the capacity to produce sufficient
quantities of "clean" steel (steel with fewer impurities) to fill
anticipated TMP orders for the near term. Expansion of
downstream annealing and tempering capacity, however, would be
necessary before large TMP production increases could be
achieved. The Company's facilities and expertise also allow it
to produce the lightest gauges of tin plate, enhancing the
manufacturing efficiencies of the Company's customers and
promoting the use of its steel in leading edge technology
products such as thin-walled containers.
The Company has been a leading innovator in the
development of can making technology through its WEIRTEC research
and development center. Although accounting for less than 5% of
the domestic beverage container market in recent years, largely
due to highly competitive prices for aluminum, the Company
believes that two piece thin-walled steel beverage containers
have significant potential for growth, primarily based on
improved production efficiencies for cans and increased industry
success in promoting the recycling of steel. The Company engages
in other end product research and development and provides
support services to its customers. The Company believes these
services have been of significant assistance, particularly to its
TMP customers, and promote the consumption of the Company's
products. See "Research and Development."
A Company-owned 1.1 million square foot Finished
Products Warehouse with storage and staging areas for TMP is
located near the Company's mill to facilitate "just in time"
production and delivery to several of the Company's major
customers which are located in attached, or nearby, manufacturing
facilities. As steel coils are needed by customers' operations,
they are moved from the adjoining central storage areas and
loaded directly on to customers' production lines. This
arrangement provides reductions in transportation costs for the
Company and its customers.
Related Products and Services
From time to time, the Company has produced and sold
slabs to other carbon steelmakers. On limited occasions, the
Company has also had its products further processed by other
steelmakers. Since 1993, the Company has successfully conducted
developmental activities relating to rolling and finishing
various types and grades of stainless steel on its hot mill. As
a result, the Company is currently rolling and finishing
stainless steel on a tolling basis for a major stainless
steelmaker. To date, revenues from these activities have not
been material to the Company. The Company cannot predict whether
it will continue to provide such services on a tolling basis for
stainless products in the future.
Production and Shipments
In 1991, after three years of approximately 100 million
tons of raw steel production per year, the domestic steel
industry's raw steel production fell to 87.3 million tons and
shipments declined to 78.9 million tons. However, starting with
December 1991 and continuing through 1994, the steel industry
experienced a rebound in both production and shipments.
Similarly, capacity utilization which had dropped to 74%
increased to 90.5% over this same period. Industry raw steel
production for 1994 was up approximately 1.9% to 97.9 million
tons compared to 1993, while shipments increased by approximately
7.8% to 95.3 million tons.
On April 6, 1994, the Company's No. 9 Tandem sustained
major damage from a fire which occurred while the unit was
undergoing maintenance. This cold rolling facility normally
supplies approximately 70% to 80% of the coils required by the
Company's tin and chrome plating operations. The Company began
rebuilding and repair operations immediately to restore the No. 9
Tandem. Startup operations began in October 1994 and the unit
has since resumed full production. While the No. 9 Tandem was
out of service, the Company increased the cold rolling output of
its remaining tandem mill facilities. The Company also
compensated for the reduction in cold rolling capacity by
increasing its sales of hot rolled products.
The Company maintained insurance for both property
damage and business interruption applicable to the No. 9 Tandem.
The policies providing these coverages are subject to deductibles
of $0.5 million for property damage and $5.0 million for business
interruption. Insurance recoveries as of December 31, 1994
included $45 million for property damage and $20 million for
business interruption. In January 1995, the Company received an
additional $10 million under its business interruption coverage
bringing the total recoveries through such date to $30 million
under this coverage. In February 1995, the Company conditionally
agreed to resolve the remainder of its claim for business
interruption for $29 million, bringing the total recoveries on
that aspect of the claim to $54 million, after allowance for the
$5.0 million deductible. The Company is pursuing settlement of
the property damage claim.
In 1994, the Company produced 2.7 million tons of raw
steel and shipped 2.6 million tons of finished and semi-finished
steel products. The following table sets forth annual production
capability, utilization rates and shipment information for the
Company and the domestic steel industry (as reported by the AISI)
for the period 1990 through 1994.
<TABLE>
<CAPTION>
Production and Shipments
(In millions of tons) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Company
Raw steel production... 2.7 2.7 2.5 2.3 2.7
Capability............. 3.0 3.0 3.0* 3.4 3.4
Utilization............ 91% 91% 83% 68% 79%
Shipments ............. 2.6 2.4 2.1 1.9 2.2
Shipments asa percentage
of industry total... 2.7% 2.7% 2.6% 2.4% 2.6
Industry
Raw steel production... 97.9 96.1 91.6 87.9 98.9
Capability............. 108.2 109.9 113.1 117.6 116.7
Utilization............ 90.5% 87% 81% 74% 84%
Shipments ............. 95.3 88.4 82.3 78.9 84.7
<FN>
(*)The reduction in 1992 reflects the discontinuation of ingot
teeming and reduction operations.
</TABLE>
Raw Materials
The Company purchases iron ore pellets, iron ore, coal,
coke, limestone, scrap and other necessary raw materials in the
open market. The raw materials are acquired from multiple
sources with the issue being price and quality rather than
availability of supply.
In October 1991, the Company entered into a contract
with a subsidiary of Cleveland-Cliffs Inc ("Cliffs") to purchase
a substantial part of the Company's standard and flux grade iron
ore pellet requirements for a twelve year period which began in
1992 and was extended through 2005. The contract provides for a
minimum tonnage of pellets to be supplied based on the production
capacity of the mining source during the contract periods, and
for additional tonnages of pellets in specified circumstances.
Purchase prices under the contract generally depend upon the
product costs of one of the mines.
Unlike many other domestic integrated producers, the
Company does not have its own coke making facilities. In July
1993, the Company entered into an agreement with USX Corporation
to purchase blast furnace coke. The agreement provides for
tonnages of 750,000 per calendar year in 1994 through 1996, or
the actual annual requirements of the Company if less than the
stated amount. The price is to be the prevailing market price
(subject to a ceiling and floor) for blast furnace coke
determined each October prior to the delivery year. As a
secondary coke supply, the Company also entered into an agreement
in January 1994 with Shenango Incorporated, which runs through
December 1996. The Company and other steelmakers are installing
technology calculated to achieve some reduction in the
consumption of coke in blast furnace operations. However, if
coke making capacity available to the industry continues to
decline, future coke prices may be subject to significant
escalation.
The Company's requirements for slabs have from time to
time exceeded the caster's production capacity and the Company
has purchased and may continue to purchase slabs from other
sources in order to meet the demand for its products and to
maximize the overall production efficiency of its entire
operations. At the present time, the Company expects to be able
to purchase slabs as and when needed.
The primary sources of energy used by the Company in
its steel manufacturing process are natural gas, oil, coal and
electricity. In recent years, the Company has entered into
natural gas purchase contracts with gas suppliers and
transportation contracts with transmission companies to reduce
prices paid for gas. The Company generates a significant amount
of electricity and steam for processing operations from a mixture
of excess blast furnace gas and natural fuels. The Company
continually attempts to conserve and reduce the consumption of
energy in its steelmaking operations. A number of the Company's
facilities have alternate fuel burning capability. A substantial
increase in the Company's energy costs or a shortage in the
availability of its sources could have an adverse effect on the
Company.
Management believes that the Company's long term raw
materials contracts are at generally competitive terms.
Competition and Other Industry Factors
The domestic steel industry is a cyclical business with
intense competition among producers. Manufacturers of products
other than steel, including plastics, aluminum, cardboard,
ceramics and glass, have made substantial competitive inroads
into traditional steel markets. During recessionary periods, the
industry's high level of production capacity relative to demand
levels has resulted in the reduction of selling prices across a
broad range of products.
Integrated steelmakers also face increased competition
from mini-mills. Mini-mills are efficient, low-cost producers
that generally produce steel from scrap in electric furnaces,
utilize new technologies, have lower employment costs and target
regional markets. Mini-mills historically have produced lower
margin bars, rods, wire and other commodity-type steel products
not produced by the Company. Recently developed thin cast
technology has allowed mini-mills to enter certain of the sheet
markets supplied by integrated producers, and certain mini-mills
have built, or are building, facilities to do so. Two such
facilities have been placed in operation and are competing in the
hot rolled, cold rolled and galvanized marketplace, and other
entities have announced plans or are in the process of starting
such facilities. Escalating prices for scrap (the basic raw
material used in melting operations and on which mini-mills are
more dependent than integrated steel producers) have increased
the operating costs of mini-mills, particularly during the past
year. In response, some mini-mills have begun to develop scrap
substitution iron-making technologies.
In response to increased competition, domestic steel
producers have invested heavily in new plant and equipment, which
has improved efficiency and increased productivity. Many of
these improvements are in active service and, together with the
achievement of other production efficiencies such as manning and
other work rule changes, have tended to lower costs. The Company
has responded to competitive cost reduction through its own
capital improvement program and cost reduction efforts to achieve
operating efficiencies.
Domestic producers face competition from foreign
producers over a broad range of products. Many foreign steel
producers are owned, controlled or subsidized by their
governments, making these producers subject to influence by
political and economic policy considerations as well as the
prevailing market conditions. Voluntary restraint arrangements
covering 17 steel exporting nations and the European Community,
which limited steel imports into the United States market,
expired on March 31, 1992. A replacement structure to reduce
subsidies and other unfair trade practices by foreign producers
has not emerged. In 1992, a number of domestic steel producers
filed extensive unfair trade cases covering imports of flat
rolled carbon steel products. These cases sought the imposition
of anti-dumping and countervailing duties on products alleged to
have caused injury to domestic producers. In July 1993, the U.S.
International Trade Commission (the "ITC") ruled antidumping
and/or countervailing duties should be imposed on imports of
galvanized sheet and plate from a number of countries
representing the majority of imports, and on cold-rolled sheet
from three countries accounting for approximately one-third of
total imports. No duties were imposed on hot-rolled sheet
imports. A number of these cases were appealed and the rulings
made thus far by the Court of International Trade have upheld the
ITC decisions. The decisions have not significantly increased
the duties for those imports. As a percentage of domestic
consumption, steel imports excluding semi-finished products
(primarily slabs), were at approximately 16% in 1992 and 1993,
but rose to approximately 20% in 1994. Both semi-finished and
finished steel imports reached record levels in 1994, as domestic
demand expanded rapidly and the domestic steel industry operated
in excess of 90% of capacity. The resurgence in the economies of
Europe and Asia may lead to reduced import levels from these
areas in 1995, while economic uncertainty may lead to higher
import levels from the Commonwealth of Independent States and
Mexico.
The Company's primary competitors in sheet products
consist of the entire steel industry. The Company's primary TMP
competitors in recent years have been USX Corporation, LTV
Corporation, Bethlehem Steel Corporation, National Steel
Corporation, Wheeling-Pittsburgh Steel Corporation and USS-POSCO
Industries.
The Company experiences strong competition in all its
principal markets with respect to price, service and quality.
The Company believes that it competes effectively in all these
categories by focusing its marketing efforts on creating strong
customer relationships by providing high quality products at
competitive prices.
Research and Development
The Company engages in research and development for the
improvement of existing products, the development of new
products, and the development of product applications. It also
seeks more efficient operating techniques. During 1994, 1993 and
1992, respectively, the Company spent approximately $6.3 million,
$5.4 million, and $4.7 million for Company sponsored research and
development activities. Expenditures for customer sponsored
research have not been material to the Company. The Company
operates WEIRTEC (registered trademark), its research and
development center specializing in the advancement of steel food
and beverage packaging and steel manufacturing processes.
WEIRTEC maintains research and prototype steel packaging
manufacturing facilities and analytical laboratory facilities
located in Weirton. The facilities are engaged in improving the
Company's production and finishing processes for TMP and sheet
products. In recent years, WEIRTEC has played a central role in
the development of thin-wall, two piece beverage can technology
and other products seeking to capitalize on the Company's
production expertise, particularly in coated products. See
"Principal Products." The Company believes that the scientists,
engineers, technicians and the WEIRTEC facilities enhance the
Company's technical excellence, product quality and customer
service.
The Company owns a number of patents that relate to a
wide variety of products and applications and steel manufacturing
processes, has pending a number of patent applications, and has
access to other technology through agreements with other
companies. The Company believes that none of its patents or
licenses, which expire from time to time, or any group of patents
or licenses relating to a particular product or process, is of
material importance in its overall business. The Company also
owns a number of registered trademarks for its products.
Environmental Control
Compliance. The Company's business operations are
subject to extensive federal, state and local laws and
regulations governing discharges into the air and water, as well
as the handling and disposal of solid and hazardous wastes. The
Company is also subject to federal and state requirements
governing the remediation of environmental contamination
associated with past releases of hazardous substances. In recent
years, environmental control regulations have been marked by
increasingly strict compliance standards. Governmental
authorities have the power to enforce compliance with these
requirements, and violators may be subject to civil or criminal
penalties, injunctions or both. Third parties also may have the
right to sue to enforce compliance.
Company expenditures for environmental control
facilities were approximately $3.2 million in 1994, $1.0 million
in 1993, and $1.0 million in 1992. For 1995, the Company has
budgeted approximately $10.6 million in capital expenditures for
environmental control facilities. Given the nature of the
steelmaking industry, it can be expected that substantial
additional capital expenditures will be required from time to
time to permit the Company to remain in compliance with
environmental regulations.
In the past, the Company has resolved environmental
compliance issues through consent decrees with certain
environmental authorities pursuant to which the Company has paid
fines and penalties relating to violations, or alleged
violations, of laws and regulations. Those payments have not
materially affected the Company's financial position or its cash
flow. The Company believes that it is in substantial compliance
with the environmental control consent orders and agreements.
See the discussion below for recent developments involving the
Company's water discharge permit.
Waste Sites and Proceedings. Under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), and similar state statutes, the
Environmental Protection Agency (the "EPA") and state regulators
generally have authority to impose joint and several liability on
waste generators, owners, operators and others with respect to
CERCLA sites as potentially responsible parties ("PRPs"),
regardless of fault or the legality of the original disposal
activity. The Company is entitled to indemnification from
National for certain environmental liabilities, including those
relating to CERCLA and similar statutes, as more fully described
below. The Company believes that National has provided notices
to EPA regarding a number of sites as required by CERCLA, some of
which had been used by the Division prior to its sale to the
Company, and two of which subsequently became the property of the
Company. The Company understands that National has been
involved, at the request of the EPA or state agencies, in
voluntary remedial activities with respect to a number of such
sites. Insofar as any of those sites involve liabilities under
CERCLA or other environmental laws or regulations for prior
Division activities, the Company believes it is fully indemnified
by National.
Avenue H Site
During February 1991, the Company received notification
under CERCLA that it may incur or may have incurred a liability
as a PRP with respect to a drum site located near Avenue H in
Weirton, West Virginia. According to Company records, the drum
site is on property owned, but never used, by the Company.
Following consultation with appropriate agencies, the Company
initiated a voluntary remediation program at the site, which
program has been substantially completed. National, under its
agreements with the Company, has reimbursed the Company for
substantially all remediation expenditures which have
approximated $800 thousand.
Hanover Township Site
In May 1992, the Company received notice from the
Pennsylvania Department of Environmental Resources that it was
considering a closure plan and post-closure plan for a solid
waste landfill facility in Hanover Township, Pennsylvania (the
"Hanover Site") operated by Starvaggi Industries Inc. From at
least the 1960's through mid-1983, National and, after mid-1983,
the Division and the Company disposed of solid wastes at the
facility. The Company believes that while it disposed of various
materials which were residual to the steelmaking industry, such
materials were not classified as hazardous wastes under
applicable law. At this time, definitive closure plans and post-
closure care plans have not been adopted. National's liability
with respect to the closure of this facility is limited to $1.0
million.
Brown's Island
In January 1993, the Company received a notification
from the West Virginia Division of Environmental Protection
("DEP") that four ground water monitoring wells situated at the
Division's former coke making facilities on Brown's Island in
Hancock County, West Virginia tested in excess of maximum levels
established by the EPA and DEP for certain contaminants. The DEP
requested the Company to supply it with additional data regarding
the site and stated that additional investigation, and possible
remediation would be required. The Company and the DEP are
discussing the implementation of an enhanced ground water
monitoring program for the area. As required by the relevant
indemnification agreements, the Company has given notice to
National of the DEP communication. The Company believes that
National will be responsible for any required remediation.
Potential Multimedia Enforcement
In December 1993, the Company was informed by the DEP
that the EPA was considering initiating a "multimedia"
enforcement action against the Company. Multimedia actions
involve coordinated enforcement proceedings related to water, air
or waste-related issues stemming from a number of federal
statutes and rules. In recent years, such actions have resulted
in penalties and other commitments being obtained from many of
the Company's competitors. If past practices are followed, DEP
would issue a new National Pollutant Discharge Elimination System
("NPDES") water discharge permit to the Company and then monitor
compliance by the Company before making any recommendation to the
EPA concerning a federal enforcement action. Neither compliance
with the permit nor a recommendation from DEP that a multimedia
enforcement action not be commenced can preclude the EPA from
commencing such an action. However, no multimedia enforcement
action has been commenced against the Company.
Water Discharge Permitting
On June 30, 1994, the DEP issued a renewal NPDES permit
to the Company for its water discharges. The renewal NPDES
permit contains a number of new requirements, including stringent
"water quality-based" effluent limitations based on West Virginia
regulation (the "Regulation"). The Company does not believe that
it can ensure consistent compliance with the new limitations
without significant treatment technology and process changes.
Based on the Regulation in its current form and the Company's
review to date, the Company is not able to estimate the cost of
process changes and facility additions necessary to achieve
compliance. The Company has filed an appeal with respect to the
renewal NPDES permit.
In November 1994, the Company joined the West Virginia
Manufacturers Association ("WVMA") in seeking modifications of
the regulation from the West Virginia legislature. As a result
of the Company's efforts, the DEP agreed to grant the Company an
additional year to comply with the new standards under the
renewal NPDES permit and the Company understands that public
hearings will be held on the Regulation with a view toward
presenting the Legislature with a proposed modification by August
1995. No assurance can be given that the Company will be
successful in the appeal or its attempt to have the Regulation
modified.
For alleged violations in 1994 of both the renewal
permit and prior permit, the Company has paid stipulated
penalties to the DEP totaling $92,500 pursuant to the terms of
consent orders between the Company and the DEP.
Waste Handling and Underground Storage Tank Notice of Violation
In July 1994, the DEP issued notices of violation and a
draft consent order wherein it alleged various violations under
the Resource Conservation and Recovery Act ("RCRA") and
violations of underground storage tank requirements with proposed
penalties aggregating approximately $250 thousand. The Company
resolved all underground storage tank issues in a consent order
with the DEP which was executed in December 1994, pursuant to a
consent order under which the Company paid an administrative
settlement of $40 thousand and the Company is awaiting the DEP's
response to settlement discussions relating to the balance of the
alleged RCRA violations.
Indemnification. According to the agreements by which
the Company acquired the assets of the Division from National,
the Company is entitled to indemnification from National for
liabilities, including governmental and third-party claims,
arising from violations prior to the acquisition, and National is
entitled to indemnification from the Company for such items after
the acquisition. In addition, the Company, subject to the $1.0
million limitation applicable to the Hanover Site described
above, is entitled to reimbursement for clean-up costs related to
facilities, equipment or areas involved in the management of
solid or hazardous wastes of the Division ("Waste Sites"), as
long as the Waste Sites were not used by the Company after the
acquisition. Third-party liability claims relating to Waste
Sites are likewise covered by the respective indemnifications.
The Company's ability to obtain future reimbursement or
indemnification relating to environmental claims from National
depends, in addition to National's continued financial viability,
on the nature of future claims made by the Company, whether the
parties can settle outstanding differences relating to
indemnification rights and the outcome of any necessary
litigation between the Company and National regarding such
issues. The Company and National have disagreed as to their
respective liabilities for approximately $210 thousand spent to
date by the Company to remediate sediments from National's former
Brown's Island coke plant.
The Company does not believe the future costs of
environmental compliance will have a material effect on its
financial position or on its ability to compete with respect to
other integrated domestic steelmakers that are subject to the
same environmental requirements. The Company, like its
competitors, does not expect to be able to pass on to customers
cost increases specifically resulting from compliance with
environmental regulations.
Employees
At December 31, 1994, the Company had 5,565 employees,
of whom 4,239 were engaged in the manufacture of steel products,
675 in support services, 124 in sales and marketing activities
and 527 in management and administration. The number of
employees at December 31, 1994 represented an 8% reduction
compared to the prior year end. In 1992, the Company implemented
a program, as part of its business strategy, that was designed to
reduce its workforce primarily through retirement programs and
attrition. Through this program, a workforce reduction of 20.2%
was realized from year end 1991 through year end 1994.
The Company has collective bargaining agreements with
the Independent Steelworkers Union, which represents 4,588
employees in bargaining units covering production and maintenance
workers, clerical workers, nurses, and the Independent Guard
Union, which represents 47 employees. The agreements terminate
on September 25, 1996. The Company believes that its
compensation structure places a heavier emphasis on profit
sharing compared to other major integrated steel producers. This
structure tends to cause the wage portion of the Company's
employment costs to be relatively higher during periods of
profitability and relatively lower during periods of low earnings
or losses.
The Company's most recent labor agreements provide for
the payment of bonuses in the gross amount of $3,500 per
employee, to be paid in installments over the term of the
contracts, but do not provide for wage increases. During the
terms of the agreements, the Company's profit sharing plan, which
covers substantially all employees, provides for participants to
share in the Company's profits each year at a rate equal to 1/3
of the Company's "adjusted net earnings" for that year as defined
under the plan, provided its net worth exceeds $100 million. If,
however, payment of the full profit sharing amount would reduce
the Company's net worth below $100 million, payments are reduced
to an amount necessary to maintain the $100 million threshold.
If the Company's net worth is in excess of $250 million, the
profit sharing rate increases to 35%. However, if payment of the
full profit sharing amount would reduce the Company's net worth
below $250 million, payments at this rate would be limited as
necessary to maintain the $250 million threshold and the
remainder of the payment would be made at the 1/3 rate. For
1994, the Company accrued profit sharing of $17.6 million, which
was paid in March 1995. The labor agreements limit the Company's
exposure to increased costs of healthcare while providing
increased medical coverages through a managed healthcare "point
of service" program and a ceiling on the Company's cash basis
cost of healthcare for future retirees. The agreements also
contain limitations on the Company's ability to reduce its
workforce by layoffs, with exceptions for adverse financial,
operational, and business circumstances. In addition, the
agreements provide for certain improvements in the Company's
pension plan.
On March 16, 1995, the Company filed an action in the
United States District Court for the Northern District of West
Virginia entitled Weirton Steel Corporation v. Independent
Steelworkers Union under Section 301 of the Labor-Management
Relations Act of 1947, as amended. The suit alleges that the
defendant Independent Steelworkers Union and certain of its
employee members conducted an illegal work stoppage at the
Company's tin mill on February 19, 1995 in violation of the
collective bargaining agreement between the union and the
Company. The action seeks a court order directing the parties to
utilize the grievance resolution provisions of the bargaining
agreement as the exclusive, proper procedure for settling
differences and also seeks compensatory damages for the Company's
loss of the use of its facility during the stoppage in such
amount as the court finds proper.
From January 1984 until June 1989, the Company was
owned in its entirety by its employees through the 1984 ESOP, in
which substantially all the employees were participants. In June
1989, the 1984 ESOP completed a public offering of 4.5 million
shares of common stock of the Company, which common stock is now
listed and traded on the New York Stock Exchange. In connection
with the public offering of common stock, the Company also sold
1.8 million shares of Convertible Voting Preferred Stock, Series
A (the "Series A Preferred") to a new Employee Stock Ownership
Plan (the "1989 ESOP") which shares are entitled to ten times the
number of votes of the common stock into which it is convertible.
Substantially all of the Company's employees
participate in the two ESOPs which, after giving effect to the
above-mentioned and certain other transactions, owned
approximately 28% of the issued and outstanding common and
substantially all the preferred shares of the Company at March
15, 1995. The common stock and the Series A Preferred owned by
the two ESOPs constitute approximately 49.3% of the voting power
of the Company's voting stock.
Item 2. Properties and Facilities
The Company owns approximately 2,500 acres in the
Weirton, West Virginia, area which are devoted to the production
and finishing of steel products, research and development,
storage, support services and administration. The Company owns
trackage and railroad rolling stock for materials movement, water
craft for barge docking, power generation facilities and numerous
items of heavy industrial equipment. The Company has no material
leases for real property. The Company's mill and related
facilities are accessible by water, rail and road transportation.
The Company believes that its facilities are suitable to its
needs and are adequately maintained.
The Company's operating facilities include four blast
furnaces; however, its current operating strategy employs a two
blast furnace configuration with an annual hot metal capacity of
approximately 2.5 million tons. One currently idled furnace is
being refurbished and will replace one operating furnace that is
nearing the end of its campaign which is estimated to be in 1996,
at which time the Company will undertake a major reline of that
furnace. Although the Company does not anticipate operating a
three blast furnace configuration in the near term, under this
operating scenario, its annual hot metal capacity could be
increased to 3.2 million tons. The Company's primary steelmaking
facilities also include a sinter plant, and a two vessel BOP with
an annual capacity of 3.0 million tons of raw steel based on a
two blast furnace operation. In February 1994, the Company
completed the installation of a new vessel in its BOP furnace,
replacing one that had been in service for nearly 20 years. The
Company's primary steelmaking facilities also include a CAS-OB
facility, two RH degassers, a four strand continuous caster with
an annual slab production capacity of up to 3.0 million tons.
The Company's downstream operations include a hot strip mill with
a design capacity of 3.8 million tons, two continuous picklers,
three tandem cold reduction mills, three hot dip galvanize lines,
one electro-galvanize line, two tin platers, one chrome plater,
one bi-metallic chrome/tin plating line and various annealing,
temper rolling, shearing, cleaning and edge slitting lines,
together with packaging, storage and shipping and receiving
facilities. See the "Production and Shipments" section of Item 1
for additional information regarding production capacity and
utilization rates.
Item 3. Legal Proceedings
On August 9, 1994, the Circuit Court of Hancock County,
West Virginia approved the settlement of Godich, et al. v. Elish,
et al., and Godich, et al. v. Willkie Farr and Gallagher, et al.,
stockholder derivative actions. The actions were dismissed upon
the payment to the Company by National Union Fire Insurance
Company of Pittsburgh, Pennsylvania, the insurer of the Company's
Directors and Officers liability policy of $6.2 million. After
deduction of expenses attributable to the prosecution and defense
of the action, the proceeds to the Company were approximately
$0.7 million.
The Company is involved as a defendant or plaintiff in
other litigation relating to claims arising out of its operations
in the normal course of business. Such claims involving the
Company as a defendant are generally covered by insurance. It is
management's opinion that any liability resulting from existing
litigation would not have a material effect on the Company's
business or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
As of March 15, 1995, there were 41,986,440 shares of
common stock, $.01 par value ("Common Stock"), outstanding held
by 3,236 stockholders of record. The principal market for the
Common Stock is the New York Stock Exchange, on which that
security has been listed since June 1989.
Dividends on the Company's Common Stock are paid when
and as declared by the Company's Board of Directors. Quarterly
cash dividends of $0.16 per share on Common Stock were last paid
on December 15, 1990. The payment of future dividends is subject
to the applicable provisions of Delaware corporate law governing
the
Company and the discretion of the Company's Board of Directors,
which in exercising such discretion will consider the financial
performance and capital requirements of the Company.
Under covenants of the indenture covering the Company's
11-1/2% Senior Notes, the Company's ability to pay dividends on
its Common Stock 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 Company's
cumulative consolidated net income since March 31, 1993, plus the
net proceeds from subsequent issuances of certain capital stock
less certain allowable payments. As of December 31, 1994,
pursuant to this covenant, the Company could pay dividends on its
Common Stock of $107.1 million.
As of March 15, 1995, 11,892,234 shares of Common
Stock, or 28.3% of the outstanding shares of Common Stock, were
held by one stockholder of record, United National Bank - North,
as Trustee of the 1984 ESOP. As of that date, the 1984 ESOP had
approximately 7,524 participants who were active or former
employees of the Company. In addition, as of March 15, 1995
there were 1,759,764 shares of Series A Preferred Stock
outstanding held by 252 stockholders of record. As of that date,
United National Bank - North, as Trustee of the Company's 1989
ESOP, was the record owner of 1,748,504 shares of the Series A
Preferred Stock, or over 99% of the outstanding shares of Series
A Preferred Stock, subject to the terms and conditions of said
Plan. As of that date, the 1989 ESOP had approximately 7,740
participants who were active or former employees of the Company.
The Series A Preferred Stock is not listed for trading on any
exchange. The Series A Preferred Stock has a liquidity
preference of $5 per share and is convertible into one share of
Common Stock, subject to adjustment. Each share of Series A
Preferred Stock is entitled to 10 votes in all matters presented
to the owners of common stock for approval. Participants in the
Company's two ESOPs have full voting rights over all shares
allocated to their accounts. See "Employees" under Item 1.
On September 30, 1994, the Company redeemed 500,000
shares of the Redeemable Preferred Stock, Series B, which was
sold in October 1991 to evidence a $25 million investment in the
Company by Cleveland-Cliffs Inc. The aggregate redemption price
was $25 million.
The following table sets forth, for the periods
indicated, the high and low sales prices of the Common Stock as
reported in the consolidated transaction reporting system.
<TABLE>
<CAPTION>
1993 1994 1995 (1)
Quarter High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First 7-1/8 3-7/8 11 6-1/4 7-1/4 6-7/8
Second 10 6-1/4 10-7/8 8
Third 9-1/8 5-3/8 10-1/4 7-1/2
Fourth 7-7/8 5-3/4 10-1/8 7-3/4
<FN>
(1)First Quarter 1995 through 3/15/95
</TABLE>
Item 6. Selected Financial Data
The information required by this Item is incorporated
herein by reference to "Selected Financial and Statistical Data"
on page 52 of the Company's 1994 Annual Report to Stockholders.
With the exception of the information specifically incorporated
by reference, the 1994 Annual Report to Stockholders is not to be
deemed filed as part of this Report for purposes of this Item.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this Item is incorporated
herein by reference to pages 23 to 28, inclusive, of the
Company's 1994 Annual Report to Stockholders. With the exception
of the information specifically incorporated by reference, the
1994 Annual Report to Stockholders is not to be deemed filed as
part of this Report for purposes of this Item.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data
required by this Item are incorporated herein by reference to
pages 29 to 51, inclusive, of the Company's 1994 Annual Report
to Stockholders and are listed in "Item 14.--Exhibits, Financial
Statement Schedules and Reports on Form 10-K" hereof. With the
exception of the information specifically incorporated by
reference, the 1994 Annual Report to Stockholders is not to be
deemed filed as part of this Report for purposes of this Item.
Item 9. Changes in or Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company
The information required by this item with respect to
Directors of the Company is incorporated herein by reference to
the caption "Election of Directors" and "Additional Information-
Director and Officer Securities Reports" in the Company's
definitive Proxy Statement relating to its 1995 Annual Meeting of
Stockholders. With the exception of the information specifically
incorporated by reference, said definitive Proxy Statement is not
to be deemed filed as part of this report for purposes of this
item.
Executive Officers of the Company
The executive officers of the Company as of March 15,
1995, were as follows:
Age at
March 15,
NAME 1995 OFFICE
Herbert Elish 61 Chairman and Chief
Executive Officer
Richard K. Riederer 51 President, Chief
Operating Officer
& Chief
Financial Officer
James B. Bruhn 54 Executive Vice
President -
Commercial
Craig T. Costello 47 Executive Vice
President -
Operations
William C. Brenneisen 53 Senior Vice
President
- Human Resources
Thomas W. Evans 58 Vice President -
Materials Management
David M. Gould 56 Vice President -
Economic Development
William R. Kiefer 45 Vice President - Law
and Secretary
Mac S. White, Jr. 62 Vice President -
Engineering
Narendra M. Pathipati 37 Treasurer
Earl E. Davis, Jr. 46 Controller
Unless otherwise indicated below, the executive
officers of the Company have held the positions described for at
least the last five years.
Herbert Elish has been Chairman of the Board of
Directors and Chief Executive Officer of the Company since July
1987. He served from July 1987 until January 1995 as President.
He has been a director of the Company since 1983.
Richard K. Riederer has been President and Chief
Operating Officer since January 1995. From September 1994 to
January 1995, he was Executive Vice President - Finance and Chief
Financial Officer. Prior to that, he served as Vice President
and Chief Financial Officer beginning in January 1989. He has
been a director of the Company since October 1993.
James B. Bruhn has been Executive Vice President -
Commercial since September 1994. He joined the Company as Vice
President - Sales and Marketing - Tin Mill Products in July 1987,
and was named Vice President-Tin Mill Products Business in
November 1992. He has been a director of the Company since May
1990.
Craig T. Costello has been Executive Vice President -
Operations since September 1994. From October 1993 to September
1994, he served as Vice President - Operations. Mr. Costello
served as General Manager - Operations from 1988 to 1993.
William C. Brenneisen has served as the Senior Vice
President - Human Resources since September 1994. From February
1988 to September 1994, he served as Vice President - Human
Resources.
Thomas W. Evans has been Vice President - Materials
Management since February 1988.
David M. Gould was named Vice President - Economic
Development in September 1994. Mr. Gould previously was Vice
President - Sales and Marketing - Sheet Products from 1983 until
September 1994.
William R. Kiefer has been the Vice President -Law and
Secretary since May 1990. From March 1988 to May 1990 he was
Director - Legal Affairs and Secretary.
Mac S. White, Jr. has been Vice President - Engineering
of the Company since May 1992. From April 1989 to April 1992,
Mr. White was Director of Engineering for the Company.
Narendra M. Pathipati has served as Treasurer since
August 1991. From February 1990 to July 1991, he served as
Director of Financial Planning and Analysis for the Company.
Earl E. Davis, Jr. has served as Controller since May
1994. From August 1991 to April 1994, he served as Assistant
Controller. Mr. Davis previously was Director of Internal Audit.
Item 11. Executive Compensation
The information required by this Item is incorporated
herein by reference to the caption "Executive Compensation" in
the Company's definitive Proxy Statement relating to its 1995
Annual Meeting of Stockholders. With the exception of the
information specifically incorporated by reference, said
definitive Proxy Statement is not to be deemed to be filed as
part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated
herein by reference to the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive
Proxy Statement relating to its 1995 Annual Meeting of
Stockholders. With the exception of the information specifically
incorporated by reference, said definitive Proxy Statement is not
to be deemed to be filed as part of this report.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated
herein by reference to the caption "Certain Relationships and
Related Transactions" in the Company's definitive Proxy Statement
relating to its 1995 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by
reference, said definitive Proxy Statement is not to be deemed to
be filed as part of this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
1. The list of financial statements required to be filed by
"Item 8--Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K is as follows:
Page
Financial Statements
Report of Independent Public Accountants (1)
Statements of Income for the years ended
December 31, 1994, 1993, and 1992. . . (1)
Balance Sheets as of December 31,
1994 and 1993 . . . . . . . . . (1)
Statements of Cash Flows for the years
ended December 31, 1994, 1993, and 1992 (1)
Notes to Financial Statements. . . . . (1)
Supplementary Financial Information (1)
(1) Incorporated in this Report by reference from pages 29 to
51, inclusive, of the Company's 1994 Annual Report to
Stockholders referred to in Exhibit 13.1 below.
2. The list of financial statement schedules required to be
filed by "Item 8--Financial Statements and Supplementary Data" of
this Annual Report on Form 10-K is as follows:
Report of Independent Accountants
on Financial Statement
Schedules . . . . . . . . . . . . . S-1
Schedules:
I - Condensed Financial Information
of Registrant S-2
II - Valuation and Qualifying Accounts S-3
3. Exhibits
The following listing of exhibits are included in this
Report or incorporated herein by reference.
Exhibit 3.1 Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement
on Form S-1 filed May 3, 1989, Commission
File No. 33-28515).
Exhibit 3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
(filed herewith).
Exhibit 3.3 By-laws of the Company (incorporated by
reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 3.4 Amendment to the By-laws of the Company
(filed herewith).
Exhibit 3.5 Certificate of the Designation, Powers,
Preferences and Rights of the Convertible
Voting Preferred Stock, Series A
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of
1934 on Form 10-K filed March 28, 1990,
Commission File No. 1-10244).
Exhibit 4.1 Indenture dated October 17, 1989 between the
Company and First Bank (N.A.) as Trustee,
pursuant to which the 10-7/8% Senior Notes
due October 15, 1999 Notes were issued
(incorporated by reference to Exhibit 4.1 to
the Company's Annual Report pursuant to
Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K filed March
28, 1990, Commission File No. 1-10244).
Exhibit 4.2 Form of Notes (included as Exhibit A to
Exhibit 4.1).
Exhibit 10.1 Pellet Sale Agreement dated June 25, 1991,
between USX Corporation and the Company
(incorporated by reference to Exhibit 10.2
to the Company's Annual Report pursuant to
Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K filed March
27, 1992, Commission File No. 1-10244).
Exhibit 10.2 1984 Employee Stock Ownership Plan, as
amended and restated (incorporated by
reference to Exhibit 10.3 to the Company's
Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 on
Form 10-K filed March 28, 1990, Commission
File No. 1-10244).
Exhibit 10.3 1989 Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.4 to
the Company's Annual Report pursuant to
Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K filed March
28, 1990, Commission File No. 1-10244).
Exhibit 10.4 1987 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 10.5 Employment Agreement between Herbert Elish
and the Company dated as of July 1, 1990
(incorporated by reference to Exhibit 10.6
to the Company's Annual Report pursuant to
Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, filed April 1, 1991,
Commission File No. 1-10244).
Exhibit 10.7 Employment Agreement between James B. Bruhn
and the Company (incorporated by reference
to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 10.8 Employment Agreement between Thomas W. Evans
and the Company dated April 21, 1987 (filed
herewith).
Exhibit 10.9 Employment Agreement between Richard K.
Riederer and the Company (incorporated by
reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 10.13 Redacted Pellet Sale and Purchase Agreement
dated as of September 30, 1991 between the
Cleveland-Cliffs Iron Company and the Company
(incorporated by reference to Exhibit 10.18
to the Company's Quarterly Report pursuant to
Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-Q filed August 14, 1992,
Commission File No. 1-10244).
Exhibit 10.14 Deferred Compensation Plan for Directors
effective as of January 1, 1991, for all
directors who are not officers or other
employees of the Company (incorporated by
reference to Exhibit 10.19 of the Company's
Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 on form
10-K filed April 1, 1991, Commission File No.
1-10244).
Exhibit 10.18 Coke Sale Agreement dated January 1, 1993 and
signed July 13, 1993 between the Registrant
and USX Corporation (incorporated by reference to
Exhibit 10.30 to the Company's quarterly report
pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 filed August
13, 1993, Commission File No. 1-10244).
Exhibit 10.19 Employment Agreement between Craig T.
Costello and the Company dated July 20, 1993
(incorporated by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-K
filed March 30, 1994, Commission File No. 1-
10244).
Exhibit 10.20 Employment Agreement between William R.
Kiefer and the Company dated July 21, 1993
(incorporated by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-K filed
March 30, 1994, Commission File No. 1-10244).
Exhibit 10.22 Employment Agreement between John H. Walker
and the Company dated July 21, 1993 (incorporated
by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K filed
March 30, 1994, Commission File No. 1-10244).
Exhibit 10.23 Employment Agreement between Narendra M.
Pathipati and the Company dated December 16,
1993 (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form
10-K filed March 30, 1994, Commission File
No. 1-10244).
Exhibit 10.24 Employment Agreement between Mac S. White and
the Company dated July 28, 1993 (incorporated
by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K filed March
30, 1994, Commission File No. 1-10244).
Exhibit 10.25 Amendment dated August 5, 1993 to the
Employment Agreement dated July 1, 1990
between Herbert Elish and the Company
(incorporated by reference to Exhibit 10.25 to
the Company's Annual Report on Form 10-K filed
March 30, 1994, Commission File No. 1-10244).
Exhibit 10.26 Amendment dated July 19, 1993 to the
Employment Agreement dated June 8, 1987 between
David M. Gould and the Company (incorporated
by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K filed March 30,
1994, Commission File No. 1-10244).
Exhibit 10.27 Amendment dated July 21, 1993 to the
Employment Agreement dated June 8, 1987 between William
C. Brenneisen and the Company (incorporated
by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K filed March 30,
1994, Commission File No. 1-10244).
Exhibit 10.28 Amendment dated July 19, 1993 to the
Employment Agreement dated April 21, 1987 between
Thomas W. Evans and the Company (incorporated
by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K filed March 30,
1994, Commission File No. 1-10244).
Exhibit 13.1 1994 Annual Report to Stockholders of Weirton
Steel Corporation (filed herewith). Except
for those portions of the Annual Report
specifically incorporated by reference, such
report is furnished for the information of
the Securities and Exchange Commission and is not
to be deemed filed as part of this Annual
Report on Form 10-K.
Exhibit 22.1 Subsidiaries of the Company (filed
herewith).
Exhibit 24.1 Consent of Arthur Andersen LLP, independent
public accountants (filed herewith).
Exhibit 27 Financial data schedule for year ended
December 31, 1994 (filed herewith).
(b) The Company filed reports on Form 8-K each in
reference to Item 5 thereof on April 19, July 11,
July 19, and September 13, 1994.
(c) The exhibits as listed under Item 14.(a)(3), are
filed herewith or incorporated herein by
reference.
(d) The financial statement schedules listed under I
Item 14.(a)(2), are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, Weirton Steel
Corporation has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the
30th day of March, 1995.
WEIRTON STEEL CORPORATION
By /s/ Herbert Elish
Herbert Elish
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of Weirton Steel Corporation and in
the capacities indicated on the 30th day of March, 1995.
/s/ Herbert Elish /s/ Gordon C. Hurlbert
Herbert Elish Gordon C. Hurlbert
Chairman of the Board and Director
Chief Executive Officer
(principal executive officer)
/s/ Richard K. Riederer
Richard K. Riederer Phillip A. Karber
Director and Chief Operating Director
Officer (principal financial
officer)
/s/ Earl E. Davis, Jr. /s/ Richard F. Schubert
Earl E. Davis, Jr. Richard F. Schubert
Controller (principal Director
accounting officer)
/s/ Michael Bozic /s/ Harvey L. Sperry
Michael Bozic Harvey L. Sperry
Director Director
/s/ James B. Bruhn /s/ Thomas R. Sturges
James B. Bruhn Thomas R. Sturges
Director Director
/s/ David I.J. Wang
Robert J. D'Anniballe, Jr. David I.J. Wang
Director Director
/s/ Ronald C. Whitaker
Mark G. Glyptis Ronald C. Whitaker
Director Director
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Weirton Steel Corporation:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Weirton Steel Corporation's Annual Report to
Stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 24, 1995. Our audit
was made for the purpose of forming an opinion on those basic
financial statements taken as a whole. The schedules listed in
the index in Item 14-2(b) of the Form 10-K are the responsibility
of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not a part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 30, 1995
S-1
-----------------------------------------------------------------
WEIRTON STEEL CORPORATION-UNCONSOLIDATED
SEC SCHEDULE I
CONDENSED FINANCIAL STATEMENTS
OF PARENT COMPANY
UNCONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993
---------------------
<S> <C> <C>
NET SALES(1) $1,260,864 $1,201,093
OPERATING COSTS:
Cost of Sales(1) 1,136,936 1,105,558
Discount on Sale of Finance 14,719 5,209
Receivables to Subsidiary(1)
Selling, General, 28,563 31,535
Administrative
Depreciation 46,309 49,113
Restructuring Charge - 17,340
Provision for profit sharing 17,581 -
Insurance recoveries to date (20,000) -
--------- ---------
Total Operating Costs 1,224,108 1,208,755
--------- ---------
INCOME(LOSS) FROM OPERATIONS 36,756 (7,662)
Adjustment to carrying value
of damaged facility 44,746 -
OTHER INCOME(EXPENSE):
Interest Expense (49,260) (52,634)
Interest Income 6,330 2,737
Dividends Received from 5,529 2,168
Subsidiary(2)
--------- ---------
Net Other Expense (37,401) (47,729)
--------- ---------
INCOME(LOSS)BEFORE ESOP CONTR. 44,101 (55,391)
ESOP Contribution 2,610 2,610
--------- ---------
INCOME(LOSS)BEFORE INCOME TAX 41,491 (58,001)
Income Tax Provision (benefit) 6,484 (13,988)
--------- ---------
INCOME(LOSS)BEF. EXTRAORDINARY 35,007 (44,013)
Extraordinary item-loss on
early extinguishment of debt 3,851 6,549
--------- ---------
INCOME(LOSS) BEF.CUMULATIVE 31,156 (50,562)
EFFECT OF ACCOUNTING CHANGES
Cumulative effect on prior - (179,803)
years of accounting changes
--------- ---------
NET INCOME(LOSS) $ 31,156 $(230,365)
========= =========
<FN>
(1) Excludes net sales of
finance receivables to sub-
sidiary that are eliminated
in consolidation.
(2) Amounts eliminated in
consolidation.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
NET INCOME(LOSS) $ 31,156 $(230,365)
Less: Preferred stock dividend 2,339 3,125
requirement --------- ---------
NET INCOME(LOSS) APPLICABLE $ 28,817 $(233,490)
TO COMMON SHARES ========= =========
PER SHARE DATA:
Weighted average number of 34,470 26,473
common shares and equivalents
Income(loss) per common share $ 0.95 $(1.78)
before extraoridnary item
Extraordinary item (0.11) (0.25)
--------- ---------
Income(loss) per common share 0.84 (2.03)
before cumulative effect on
prior years of acctg.changes
Cumulative effect of - (6.79)
accounting changes --------- ---------
NET INCOME(LOSS) PER COMMON $ 0.84 $ (8.82)
SHARE ======== ========
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION-UNCONSOLIDATED
SEC SCHEDULE I
CONDENSED FINANCIAL STATEMENTS
OF PARENT COMPANY
UNCONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amount)
1994 1993
------- -------
<S> <C> <C>
ASSETS:
Current Assets:
Cash, and equivalents, $ 57,221 $ 76,805
includes restricted cash of
$1022 and $602, respectively
Receivables, less allowances 19,147 22,286
$6,405 and $5,719,
respectively(2)
Inventories:
Raw materials 100,319 74,766
Work-in-process 89,106 74,109
Finished goods 81,093 93,784
Deferred income taxes 42,570 25,732
Other current assets 7,871 4,142
-------- ---------
Total current assets 397,327 371,624
Property, plant, and 588,903 523,728
equipment, net
Investment in Weirton 111,094 116,913
Receivables, Inc.
Intangible asset 17,213 91,289
Deferred income taxes 98,493 117,990
Other assets and deferred 12,761 18,050
charges ------ ---------
Total Assets $1,225,791 $1,239,594
======== =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
Liabilities:
Current liabilities: $ $
Payables 136,038 109,937
Employment costs 84,487 66,519
Pension liability - 20,394
Other 36,514 31,189
-------- --------
Total current liabilities 257,039 228,038
Long term debt obligations 394,505 495,252
Long term pension obligation 68,093 142,894
Postretirement benefits other 316,185 308,985
than pensions
Other long term liabilities 31,429 30,188
--------- ---------
Total Liabilities 1,067,251 1,205,358
<FN>
(2) Includes $16,722 and $5,367,
respectively of receivables from
subsidiary that are eliminated
in consolidation.
<S> <C> <C>
Redeemable Stock 14,485 36,721
Stockholders' Equity:
Common stock, $.01 par value; 420 267
50,000,000 and 30,000,000
shares authorized;
42,027,405, and 26,719,752
shares issued
Additional paid-in capital 452,746 335,776
Retained earnings (308,839) (337,656)
Other stockholders' equity (272) (872)
------- ---------
Total Stockholders' Equity 144,055 (2,485)
(Deficit) ------- ---------
Total Liabilities, Redeemable $1,225,791 $1,239,594
Stock and Stockholders' Equity ========= =========
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION-UNCONSOLIDATED
SEC SCHEDULE I
CONDENSED FINANCIAL STATEMENTS
OF PARENT COMPANY
UNCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
1994 1993
------- -------
<S> <C> <C>
NET CASH PROVIDED BY $ 44,010 $160,651
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for property, (67,067) (13,324)
plant and equipment
Investment in Weirton 5,819 (116,913)
Receivables, Inc. --------- ---------
Net cash used by investing (61,248) (130,237)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayments of debt obligations (101,101) (148,114)
Proceeds from issuance of debt - 140,000
obligations
Proceeds from issuance of 116,087 -
common stock
Redemption of preferred (25,000) -
stock, Series B
Other 7,668 (6,690)
------- --------
Net cash used by ( 2,346) (14,804)
financing activities
NET CHANGE IN CASH AND EQUIVALENTS (19,584) 15,610
CASH AND EQUIVALENTS AT BEGINNING 76,805 61,195
OF PERIOD ------ -------
CASH AND EQUIVALENTS AT END OF $57,221 $76,805
PERIOD ===== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest 52,091 47,311
capitalized
Income taxes paid (refunded) - 1,779
Dividends received from Weirton 5,181 2,166
Receivables, Inc.
<FN>
S-2
</TABLE>
-----------------------------------------------------------------
<TABLE>
<CAPTION>
SEC SCHEDULE II
WEIRTON STEEL CORPORATION and SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
For each of the three years ended December 31, 1994
(Dollars in thousands)
Description Balance Deductions Balance
at beg. of Charged from at end
period to expense Reserves of period
----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
1994
Allowance for $5,719 $17,302 $16,616 $6,405
Doubtful accts,
Discounts, Clms
and Allowances
Valuation allow-
ance for defrd
tax assets 50,768 - 8,128 42,640
1993
Allowance for $5,545 $16,346 $16,172 $5,719
Doubtful accnts
Discounts, Clms
and Allowances
Valuation allow- - 50,768 - 50,768
ance for defrd
tax assets
1992
Allowance for $8,339 $19,935 $22,729 $5,545
Doubtful accnts
Discounts, Clms
and Allowances
<FN>
S-3
</TABLE>
Exhibit 3.2
Certificate of Amendment to the Restated Certificate
of Incorporation of Weirton Steel Corporation Under Section
242 of the Delaware General Corporation Law
-----------------------------------------------------------------
The undersigned, being a duly appointed and acting Vice
President of Weirton Steel Corporation, a corporation organized
under the laws of the State of Delaware (the "Corporation"), for
the purpose of amending a restated certificate of incorporation
of the Corporation (the "Restated Certificate of Incorporation"),
hereby certifies, pursuant to Sections 242 and 103 of the General
Corporation Law, as follows:
FIRST: The name of the Corporation is Weirton Steel
Corporation.
SECOND: The Restated Certificate of Incorporation of the
Corporation was filed by the Secretary of State on April 28,
1989.
THIRD: The amendment effected hereby was duly adopted,
proposed and declared advisable by the Board of Directors of the
Corporation at a meeting duly called upon notice in accordance
with the Restated Certificate of Incorporation, and duly adopted
by the holders of a requisite number of shares of Common Stock
and Convertible Voting Preferred Stock, Series A, being all
classes of stock entitled to vote thereon, in accordance with
Section 242 of the General Corporation Law of the State of
Delaware, at a special meeting of stockholders duly called upon
notice in accordance with Section 222 of such law, held on May
26, 1994.
FOURTH: The Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting Article FOURTH,
paragraph (a), in its entirety and by adding new Article FOURTH,
paragraph (a), reading as follows:
"FOURTH. the total number of shares of stock which the
Corporation shall have the authority to issue is Fifty-Seven
Million, Five Hundred Thousand (57,500,000) shares consisting of
Seven Million Five Hundred Thousand (7,500,000) shares of
Preferred Stock having a par value of ten cents ($.10) each, and
Fifty Million (50,000,000) shares of Common Stock having a par
value of one cent ($.01) each; provided that, the number of
shares of Common Stock to be issued by the Corporation above
Thirty Million (30,000,000) shares shall be limited to Fifteen
Million (15,000,000) shares for use solely in connection with
bona fide public offerings and Five Million (5,000,000) shares
for use solely in connection with 'Employee Plans,' as defined in
Article ELEVENTH; and further provided, that if any shares of
Common Stock authorized for use in connection with such Employee
Plans remain without having been sold to employees by the end of
the fifth calendar year commencing after approval by stockholders
of the amendment to this Article FOURTH, paragraph (a), providing
the increase in authorized capital above Thirty Million
(30,000,000) shares of Common Stock, all such remaining shares of
Common Stock shall be available for use in connection with bona
fide public offerings by the Corporation."
FIFTH: The Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting Article FIFTH in its
entirety and by adding new Article FIFTH, reading as follows:
"FIFTH: The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors of
the Corporation which shall consist of fourteen (14) persons.
The terms, classifications, qualifications and election of the
Board of Directors and the filling of vacancies thereon shall be
as provided herein or in the By-Laws to the extent not
inconsistent with the provisions of this Certificate of
Incorporation. The members of the Board of Directors shall be
divided into three classes, namely Class I, Class II and Class
III, each of which shall be, as nearly as possible, of equal
size. The classification shall be such that the term of officer
of one class shall expire each succeeding year, with the term of
office of Class I to expire at the 1991 annual meeting of
stockholders, the term of office of Class II to expire at the
1992 annual meeting of stockholders, and the term of office of
Class III to expire at the 1990 annual meeting of stockholders.
Members of the various classes of the Board of Directors
shall consist only of those individuals who are at the time of
their election an eligible candidate by virtue of satisfying the
qualifications described below and who thereafter continue to
satisfy the qualifications described below. Except as set forth
below with respect to an Agent no longer satisfying the
definition of "union," the term of office of any incumbent
director shall be shortened and shall automatically expire, and
such individual's seat shall immediately become vacant, by reason
of such director's failure to continue to satisfy a qualification
requirement after such director's election to the Board of
Directors and initial qualification.
Three members of the Board of Directors shall be qualified
to serve by virtue of being the then President (or other Chief
Executive Officer) of the Union and two other individuals who are
designated by certification of the Executive Committee (or other
executive person or body functioning as its successor) of the
Union (collectively, the "Union Directors"). As used in this
Restated Certificate of Incorporation, "Union" means the
recognized collective bargaining agent ("Agent") referred to in
subclause (z) of Section 8(a)(iii) of the Corporation's Employee
Stock Ownership Plan (ESOP), in the form adopted as of January
11, 1984, so long as such Agent represents at least 50% of all
employees of the Corporation, considering all bargaining units
represented by such Agent.
Three members of the Board of directors shall be qualified
to serve by virtue of one of them being the officer designated as
the Chief Executive Officer of the Corporation and two others
being employees of the Corporation who are not members of the
Union and who are designated by certification of such Chief
Executive Officer (collectively, the "Management Directors").
Seven members of the Board of Directors shall be qualified
to serve by virtue of being individuals who satisfy the criteria
set forth in the definition of "Independent Director" contained
in this paragraph (collectively, the "Independent Directors").
"Independent Director" shall mean an individual who : (a) is not,
and has never been, an employee of the corporation or its
predecessor or any of their respective subsidiaries or affiliates
or of the Union; (b) is not, and is not affiliated with a person
that is, an advisor or consultant to the Corporation or any of
its subsidiaries or affiliates or the Union or has been such
within the two-year period preceding such individual's election
or appointment as an Independent Director; (c) has not, and is
not affiliated with a person (except solely by reason of being a
director, trustee or person serving in a similar capacity not
employed by such person) that has, had a Substantial Financial
Transaction with the Corporation or any of its subsidiaries or
affiliates within the two-year period preceding such individual's
appointment or election as a Independent Director; and (d) is not
a spouse, parent sibling or child of any person described by (a)
through (c). Notwithstanding the preceding sentence, an
independent director may perform additional services, as a
director, at the request of the Board of Directors, which are
similar to those services regularly performed by directors, and
be compensated, with the approval of the Board of Directors, for
the performance of such services. For purposed of this
paragraph, the definitions of "affiliate," "control" and "person"
contained in Article ELEVENTH shall be applicable and the
following additional definitions shall apply: (i) "subsidiary"
of the Corporation means any corporation, a majority of the
voting stock of which is owned, directly or indirectly through
one or more other subsidiaries, by the Corporation; and (ii)
"Substantial Financial Transaction" means one or more business
transactions between a specified person on the one hand and the
Corporation or any of its subsidiaries or affiliates on the
other hand, wherein consideration has been paid or rendered for
the sale, exchange, lease or other transfer for value of goods,
services, money or other property, including without limitation
the sale of securities, the fair market value of which during any
12-month period preceding the date of measurement has amounted to
more than $100,000. The qualification requirements of this
paragraph, other than those set forth in clause (a) of the second
sentence hereof, shall not apply to any person serving
continuously as an Independent Director from the last annual
meeting of stockholders of the Corporation at which such person
was elected until the next annual meeting of stockholders
following the adoption of the amendment to Article FIFTH set
forth herein.
One member of the Board of Directors (the "ESOP Director")
shall be qualified to serve by virtue of (a) meeting the
qualification requirements set forth in the preceding paragraph
with respect to Independent Directors and (b) being designated by
certification of the "ESOP Nominating Committee," as defined
under the Corporation's 1984 and 1989 Employee Stock Ownership
Plans (the "ESOPs") in the respective form of each such plan as
in effect on the date the amendment to the Certificate of
Incorporation effecting this change is filed with the Secretary
of State of Delaware; provided, that, except as provided
otherwise in this Article FIFTH with respect to the removal of
directors, the ESOP Director so designated by such certifications
shall not cease to be qualified while serving such individual's
term of office solely by virtue of such certification being
withdrawn, lapsing or otherwise being revoked during such term.
No nomination of any candidate for election by stockholders
as an Independent Director shall be eligible for consideration
unless a written statement setting forth such candidate's name,
qualification, and background is delivered to the Nominating
Committee of the Board of Directors (or if no such committee is
then constituted, then to the Board of Directors) not less than
sixty (60) days prior to the annual or special meeting at which
an election for directors is to occur.
No director need be a stockholder of the Corporation. No
director may be nominated or appointed for any term of office
which would begin after such person's 65th birthday.
Subject to the foregoing and to the requirement set forth
above that each director shall at all times satisfy the
qualifications to be a director described herein for the
particular category pursuant to which they were elected to be a
director, at each annual meeting of stockholders the successors
to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third
succeeding annual meeting and until their successors shall be
duly elected and qualified.
Subject to the rights, if any, of the holders of any series
of Preferred Stock then outstanding, any vacancy occurring in the
Board of directors, whether from death, resignation, retirement,
disqualification, removal from office or other cause shall be
filled from among eleigible candidates of the sam category (i.e.,
Union, Management, Independent or ESOP, as the case may be,
including any required certification) as held the vacant seat
immediately prior to the vacancy, solely by the concurring vote
of a majority of the directors then in office, whether or not a
quorum, and any director so chose shall hold office for the
remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor shall have
been duly elected and qualified (so long as such director remains
qualified); provided, however, that (i) no Union Director shall
be deemed to be disqualified during such director's then current
term of office solely by virtue of the particular agent no longer
satisfying the definition of "Union" set forth herein, but if,
upon the expiration of any Union Director's term or upon any
vacancy of a Union Director's seat, the particular Agent does not
satisfy such definition of "Union," such seat shall be filled
only by a candidate qualified to serve as an Independent
Director; and (ii) no ESOP Director shall be deemed to be
disqualified during such director's then current term of office
solely by virtue of the termination or discontinuation of the
ESOPs, but if, upon the expiration of any ESOP Director's term or
upon any vacancy of an ESOP director's seat, the ESOPs have been
terminated or otherwise discontinued, such seat shall be filled
only by a candidate qualified to serve as an Independent
Director.
No director may be removed except for cause and then only by
an affirmative vote of at least two-thirds of the Eligible Votes
at a duly constituted meeting of stockholders called for such
purpose. At least 30, but not more than 60, days prior to such
meeting of stockholders, written notice shall be sent to the
director or directors whose removal will be considered at such
meeting. Upon such affirmative vote to remove any director, the
office of such removed director shall immediately become vacant
and shall as promptly thereafter as practicable be filled as set
forth above."
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be duly executed and the corporate
seal to be hereunto affixed as of the 26th day of May, 1994.
WEIRTON STEEL CORPORATION
By:/s/ Richard K. Riederer
Richard K. Riederer
Vice President
Attest:
By:/s/ William R. Kiefer
William R. Kiefer
Secretary
Exhibit 3.4
AMENDMENT TO THE BY-LAWS OF WEIRTON STEEL CORPORATION
The By-Laws of Weirton Steel Corporation are hereby
amended by deleting Article III, Section 2(b) and by adding new
Article III, Section 2(b) reading as follows:
"A Nominating Committee shall be appointed by
resolution of the entire Board of Directors for the purposes of
identifying, screening and recommending to the Board candidates
to be nominated as Independent Directors (as defined in such
Article FIFTH). The Nominating Committee shall consist of five
(5) directors of whom one (1) shall be the director who is
president of the Union (as defined in such Article FIFTH), one
(1) shall be the officer designated as the Chief Executive
Officer of the Corporation or a director appointed by such
person, one (1) shall be an ESOP Director (as defined in such
Article FIFTH), and two (2) shall be Independent Directors as
designated by resolution passed by the entire Board. This
Section 2(b) of this Article III may not be amended or repealed,
except upon the favorable vote of not less than 80% of the
Eligible Votes (as defined in Article ELEVENTH of the Restated
Certificate of Incorporation)."
WEIRTON STEEL CORPORATION 1994 ANNUAL REPORT Exhibit 13.1
---------------------------------------------
Each year for the last eight years I have written a message
to shareholders in our Annual Reports. Taken together, these
messages provide a chronicle of our progress and -- at times,
struggles -- to transform Weirton Steel into an industry leader.
This year I can report that we are well on our way to achieving
all of our goals, and that in 1995, we should begin to
demonstrate the true earnings power of the new Weirton Steel.
In the next section of this report we quantify some of the
benefits we have achieved from the efforts of the past several
years. During this period every facet of the Company's
operations has seen fundamental change:
--The $550 million capital program now gives us world class
steelmaking and rolling facilities.
--The cost reduction efforts reduced employment by approximately
30% since 1988. It is a special achievement that virtually all
of these personnel reductions took place through voluntary
retirements, thereby preserving jobs for our younger employees,
who are the future of the Company, while giving those ready to
retire the opportunity to do so.
--Total Quality Management has resulted in lowering annual costs
by over $ 46 million since the program's inception in 1992. TQM
has been central to our efforts to change the way work is planned
and performed and manufacturing processes controlled. The
combination of improved analysis and teams of employees
throughout the mill identifying opportunities for improvement in
costs and quality is making a fundamental difference. Perhaps
most important for the future, the concept of "continuous
improvement" is now imbedded in the organization, meaning that
further improvements in quality, cost and service are assured.
--New automated systems are in place to improve our operations
and provide real time information for decision making. In the
belief that the future will belong to those companies who take
advantage of the power of computer technology, two years ago we
embarked on a project to produce the first fully automated
integrated mill scheduling system in the world. Our Logistics
and Integrated Scheduling system, partially funded by the U. S.
Department of Energy, and partnered by West Virginia University
and Westinghouse Science Technology Center, is now beginning to
be installed in the mill and will be fully operational by 1997.
It has the potential of transforming our relations with our
customers, as well as the way we manage our operations and
inventories.
--The 1994 sale of $117 million of equity enabled us to reduce
our high debt level and improve our financial leverage. This
successful equity offering gave us a good start to our goal of a
40% debt to capitalization ratio. In 1994 we reduced our
liabilities by $200 million, and the expected cash flows over the
near term should permit us to make further substantial gains.
A year ago we expected 1994 to be the first year that
Weirton Steel's earnings would reflect the changes described
above. In fact, for the fourth quarter of 1993 and the first
quarter of 1994, taken together, the Company achieved the best
operating profit per ton in the U.S. integrated steel industry,
and we expected the rest of 1994 to reflect the same relative
performance. Instead, the year was dominated by the effects of
the fire that severely damaged the No. 9 tandem mill, the mill
which processes the majority of our tin mill products. However,
the new Weirton Steel was able to absorb the impact of the fire
in a way that would not have been possible a few years earlier.
Because the rebuilt hot strip mill permits us to compete in
substantially more markets, we had the flexibility to actually
increase our total shipments, compared to 1993, in spite of a
sharp reduction in tin plate shipments.
What truly stands out about 1994, however, was the
dedication and effort of the people of our Company to rebuild and
restart the tandem mill. After the fire there were forecasts
that the rebuild would take a full year, but the job was done in
half that time. That level of extraordinary effort is what has
always made our Company unique and is our most important
foundation for a successful future.
Despite the fire, and indicating the fundamental strength of
our operations now, we reported a profit in 1994 of $35.2
million, or $0.95 per share, compared to a loss in 1993 of $229.2
million, or $8.78 per share.
In January of 1995, I announced my intention to leave the
Company by the end of the year. The objectives the Board of
Directors and I laid out to insure the success of the Company
eight years ago have largely been accomplished. We now have a
solid foundation upon which to embark on the changes necessary to
insure that Weirton Steel remains a superior company well into
the next century. In my view, new long term plans and
initiatives should be developed by a management team that will be
in place long enough to see them implemented. With the normal
retirement age of 65, I would not be able to lead that effort.
In my opinion, we have a highly competent management team to
lead the Company into the future. The election of Dick Riederer
as President and Chief Operating Officer begins the transition to
a new leadership that can build on the achievements of the past
and create new successes in the future.
ROLLING!
Weirton's modernized plant extends market
reach and targets higher value-added products
Seven years ago, Weirton Steel set out to transform an
obsolescent, high cost plant into an advanced-technology
facility, competitive with any in the world. It was a major
commitment to modernization and a $550 million investment in the
future. The new equipment is up and running.
By rebuilding its continuous caster, Weirton Steel has moved into
the forefront of 100% continuous cast steel producers.
Modernization of the hot strip mill has raised quality and
efficiency to world class standards, extended product capability,
and opened the way for providing rolling services for others.
Simultaneously, there were major upgrades underway in blast
furnaces, pickling, desulfurization, ladle metallurgy,
environmental compliance programs, and a host of processes
improved by Total Quality Management teams.
Results: Weirton Steel has reduced costs by over $60 a ton since
1990, improved quality, and created new opportunities in major
markets.
Larger coils, improved surface quality, and a wider range of
gauges have expanded Weirton's potential sheet product markets
from 10 million to 35 million annual tons today. This includes
new opportunities to sell higher margin products to the
automotive and construction industries.
As a result of its strengthened competitive position, Weirton is
rolling.
ROLLING!
Weirton gains momentum from a stronger
balance sheet and greater financial flexibility
As 1994 began, Weirton Steel had completed its transformation to
leading edge technology, facilities and operating profitability.
But another matter required attention.
The heavy spending on capital improvements, plus required
accounting changes and several years of losses had left the
Company with a shrunken equity base and a high level of debt.
In August 1994, Weirton completed a successful public sale of 15
million shares of common stock. The benefits from the sale on
Weirton's future are profound:
A significant increase in stockholders' equity.
Long term liabilities were reduced by $200 million, including
long term debt, which in turn lightened the burden of interest
costs which had reached approximately $1 million a week.
The pension plan was strengthened.
Greater financial flexibility - essential in weathering industry
downturns and in making future capital investments when necessary
to protect the Company's hard-won competitive position.
An increase in average daily trading volume in the Company's
common stock on the NYSE, from 25,500 shares to 197,500 shares.
As a signpost for the future, the public sale of common stock,
combined with a trend to stronger earnings, points to a
significantly strengthened balance sheet - another fundamental
indicator that Weirton is rolling.
ROLLING!
Weirton is running at higher yields and lower
costs - setting a new pace for the industry
The first quarter of 1994 marked a turning point when Weirton
Steel joined the top third of domestic integrated steel producers
as measured by operating profit per ton.
The story is shown by:
Weirton's yield - the ratio of raw steel to finished product -
stood at 74% prior to 1989. In 1994, it reached 80%. Each
percentage point is equivalent to $4.7 million in reduced
operating costs.
Blast furnace production per day comparing 1989 to 1994 has
increased from 2,172 to 3,285 tons per furnace, enabling the
Company to move from a three blast furnace to a two blast furnace
operation.
Man hours required to produce a ton of hot band dropped from 2.4
in 1989 to 1.8 in 1994 - a pace of productivity improvement well
ahead of industry trends.
Hot band costs per ton - by first quarter 1994, Weirton was
outperforming two-thirds of North American steel producers on
this key criterion.
Then, in April of 1994, fire damaged the No. 9 tandem mill, and
some industry observers predicted at least a year-long outage
before the mill could be restored to operation. But having been
through a major modernization, the Company drew on its experience
to bring the mill back into service. Six months after the fire,
the mill restarted, and Weirton is rolling again.
ROLLING!
Weirton's innovative scheduling systems
aim for a breakthrough in customer service
and manufacturing flexibility
Part of Weirton Steel's strategy for the future is to enhance its
position as an industry leader in responsive customer service.
That means keeping promises for both quality and delivery. In
turn, near-flawless tracking and controlling of a complex network
of materials, processes, orders and schedules will be required.
So throughout the plant modernization from 1988 to 1992, Weirton
Steel focused not only on production lines but also on developing
the logistical and scheduling systems that would enable the
Company's production facilities to operate as an integrated unit.
This effort began with a system called IMIS - for Integrated
Manufacturing Information System - now in its third year. IMIS
placed computer systems on the plant floor to electronically
track production, providing real-time order status to the
customer.
The next step in the process is the breakthrough system known as
Logistics and Integrated Scheduling (L&IS). By 1997, L&IS is
expected to provide electronic scheduling to all 45 operating
units, more effectively utilizing in-process inventory and
optimizing production load levels. This system makes it possible
to plan production for maximum efficiency, quality, and delivery
performance and to adapt quickly and intelligently to changes.
The promise of L&IS is an unprecedented level of flexibility in
adapting to customer needs, opening the way to new levels of
consistently high on-time delivery performance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
This discussion and analysis of the Company's financial
condition and results of operations should be read together with
the consolidated financial statements and notes thereto, which
begin on page 29.
The Company is a major integrated producer of flat
rolled carbon steels with major product lines consisting of tin
mill and sheet products. Tin mill products include tinplate,
chrome coated, and black plate. Sheet products include hot and
cold rolled and both hot-dipped and electrolytic galvanized
steels.
In order to modernize steelmaking and hot rolling
facilities, in 1988, the Company commenced a four year capital
program, investing in excess of $550 million. As a result of the
modernization, the Company improved its product quality and mix,
broadened its customer base, and reduced its average cost per ton
of steel shipped. The Company's modernized operating facilities
permit the Company to maximize the production capabilities of its
operating facilities.
Beginning in 1989, the Company incurred substantial
indebtedness to fund its capital improvement program. At December
31, 1990, stockholders' equity in the Company represented 45% of
its capitalization. At December 31, 1993, because of financial
performance attributable to the implementation of the capital
program, economic conditions and certain accounting changes,
stockholders' equity in the Company had been reduced to a deficit
of $1.4 million. In August 1994, in order to reduce its debt
burden, the Company publicly sold 15.0 million shares of common
stock, the proceeds of which were used to reduce the Company's
financial obligations.
On April 6, 1994, the Company'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 normally supplies approximately 70% to 80% of the coils
required by the Company's tin and chrome plating operations. The
Company began rebuilding and repair operations immediately to
restore the No. 9 Tandem and startup operations began in October
1994. While the No. 9 Tandem was out of service, the Company
increased the cold rolling output of its remaining facilities.
The Company also compensated for the reduction in cold rolling
capacity by increasing its sales of hot rolled products. The
Company anticipates normal operations throughout 1995.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
In 1994, the Company recognized net income of $35.2
million, or $0.95 per share, compared to a net loss of $229.2
million, or $8.78 per share in 1993. The net results for 1994
include a pre-tax favorable adjustment to the carrying value of
the damaged No. 9 Tandem of $44.7 million and a pre-tax provision
for employee profit sharing of $17.6 million. The net results
for 1993 were reduced by a pre-tax restructuring charge of $17.3
million and the after-tax cumulative effect on prior years of
accounting changes of $179.8 million.
Operating and net results for 1994 were adversely
affected by the fire that extensively damaged the No. 9 Tandem
mill. Notwithstanding the disruption to the Company's operations
caused by the fire, revenues in 1994 of $1,261 million for all
products combined were $59.8 million, or 5.0% higher than in 1993
and reached their highest level over the last five years. The
Company's operating profit of $48.5 million in 1994, which
included insurance recoveries received through year end of $20.0
million under the Company's business interruption coverage,
reflected higher operating costs caused by the No. 9 Tandem
outage. Nevertheless, the Company's operating performance in 1994
exceeded that for 1993 when the Company recognized an operating
loss of $3.4 million. Prior to the No. 9 Tandem outage in the
second quarter of 1994, the Company had achieved five consecutive
quarters of improved operating performance.
As a result of current economic conditions, the demand
for the Company's hot rolled and coated sheet products remained
strong in 1994. Market conditions and the adjustment by the
Company of its product mix after the fire resulted in a record
1,991 thousand tons of sheet product shipments to trade customers
in 1994, an increase of 455 thousand tons, or 29.6%, compared to
a year ago. Shipments of hot rolled products increased 58% from
1993 levels and, together with a 9% shipping volume increase for
coated sheet products, primarily galvanized, contributed $158.0
million in higher revenues. Average selling prices for sheet
products increased, adding $52.6 million to revenues. Product
mix changes added $17.9 million, bringing the increase in total
sheet product revenues to $228.5 million for 1994 over 1993.
In 1994, the Company shipped 615 thousand tons of tin
products to trade customers, a decrease of 279 thousand tons, or
31.2%, compared to 1993, reflecting the consequences of the No. 9
Tandem outage. Thus, total tin product revenues declined $168.7
million in 1994 from 1993. Volume decreases accounted for $175.3
million of the decline, while selling price increases offset the
volume decrease by $9.0 million. Product mix changes also
decreased the revenues by $2.4 million.
Cost of sales in 1994 as a percentage of net sales was
90.2% compared to 92.0% for 1993 and reflected an improvement of
$19/ton in direct production costs over last year. A further
improvement had been anticipated for 1994 prior to the No. 9
Tandem fire in the second quarter.
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
---- ----
<S> <C> <C>
Cost of sales $1,136,936 $1,105,558
Shipments in tons 2,606,200 2,430,600
--------- ---------
Cost of sales per ton $ 436 $ 455
</TABLE>
Depreciation expense decreased $2.8 million to $46.3
million in 1994 from $49.1 million in 1993. This change
reflected a reduction in blast furnace depreciation on the
variable units of production method due to the extended life
(before relining) of the existing furnaces, which had been fully
reserved through early 1994. The Company's accounting policy
recognizes depreciation on production equipment on a production-
variable method which adjusts straight-line depreciation to
reflect actual production levels.
Interest expense decreased $2.8 million from $52.8
million in 1993 to $50.0 million in 1994, due to a fourth quarter
debt reduction from proceeds of the common stock sale in August
1994.
In the fourth quarter of 1994, the Company purchased
$101.1 million of its public notes using available cash and a
portion of the proceeds from the August 1994 public sale of
common stock. The purchases included the payment of certain
premiums and required recognition of previously deferred debt
issuance expenses. As a result, the Company had an after-tax
extraordinary charge of $3.9 million in 1994. The Company had an
after-tax extraordinary charge of $6.5 million in 1993 related to
premiums and the immediate recognition of previously deferred
debt issuance expenses related to indebtedness refinanced with
the proceeds from the public sale of its 11 1/2% senior notes.
The income tax provision recognized in 1994 resulted
from the utilization of regular Federal net operating loss
carryforwards, a reduction of net deferred deductible temporary
differences and a current provision for alternative minimum tax.
The 1994 provision was offset by favorable adjustments to the
carrying value of the Company's net deferred tax assets. The
income tax benefit recognized in 1993 reflected principally the
net realizable value of additional net operating losses generated
during 1993 and net deferred tax asset carrying value adjustments
related primarily to a change in the Federal statutory rate.
1993 COMPARED TO 1992
Revenues in 1993 of $1,201 million were considerably
higher than in 1992 and reached their highest level over the
previous four years. Total revenues in 1993 increased by $122.4
million, or 11.3%, from 1992. Higher shipment levels,
specifically for the Company's sheet products, contributed $139.2
million in additional revenues in 1993. However, combined
average selling prices in the first half of 1993 followed a
downward trend that began in 1991; and although price increases
on sheet products increased revenues in the third quarter of
1993, combined average selling prices for the full year ended
below the average for 1992. Lower average selling prices,
combined with a slight change in product mix, reduced revenues by
$16.8 million compared to 1992.
In 1993, a record 1,536 thousand tons of sheet products
were shipped to trade customers, reflecting an increase of 324
thousand tons, or nearly 27%, compared to 1992. Shipments of hot
rolled products increased 56% from 1992 levels and, together with
an 18% shipping volume increase for coated sheet products,
primarily galvanized, contributed $134.2 million in higher
revenues. An increase in average selling prices for sheet
products added $6.0 million to revenues in 1993. The higher
shipment volumes and selling prices, combined with a slight
change in product mix which decreased revenues by $2.0 million,
resulted in a net increase in revenues on sheet products of
$138.2 million for 1993 over 1992.
Revenues from the sale of tin mill products decreased
by $15.8 million in 1993 compared to 1992. Although slightly
higher volumes and a small change in product mix accounted for a
$5.5 million increase, average selling prices which were lower
than 1992 prices for most tin mill products decreased revenues by
$21.3 million.
Cost of sales in 1993 as a percentage of net sales was
92.0% compared to 93.6% for 1992 and reflected an improvement of
$25/ton in direct production costs over 1992. Without giving
effect to additional non cash charges stemming from a change in
1993 in the Company's method of accounting for retiree
healthcare, direct production costs were $33/ton less than they
were in 1992.
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
---- ----
<S> <C> <C>
Cost of Sales $1,105,558 $1,010,022
Additional non cash (18,067) -
retiree healthcare charges
--------- ---------
$1,087,491 $1,010,022
Shipments in tons 2,430,600 2,102,400
--------- ---------
Cost of Sales per ton $ 447 $ 480
</TABLE>
The improvement over the prior year was attributable
primarily to greater production yields and improved operating
performance. Operating yields as measured from hot metal
production through slab production improved in 1993 compared to
performance levels in 1992.
Depreciation expense increased $10.5 million to $49.1
million in 1993 from $38.6 million in 1992. This change
reflected an increase in the Company's depreciable asset base, as
well as higher production levels experienced in 1993.
Interest expense increased $11.9 million to $52.8
million in 1993 from $40.9 million in 1992, principally due to
higher interest rates on long-term debt and lower amounts of
capitalized interest. Capitalized interest declined to $0.8
million in 1993 from $6.1 million in 1992 following the
substantial completion of the Company's capital improvement
program.
In the first quarter of 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions"; SFAS No. 112, "Employers' Accounting for
Postemployment Benefits"; and SFAS No. 109, "Accounting for
Income Taxes," all of which had a material effect on the
Company's earnings and net worth.
The change in accounting under SFAS No. 106 required
the Company to recognize a pretax charge of $304 million to
account for the prior service cost of retiree healthcare and life
insurance benefits as well as an additional ongoing non cash
expense which amounted to $18.0 million in 1993. The Company
also recorded a pretax charge of $4.0 million related to the
implementation of SFAS No. 112 and a net income tax benefit of
$128.2 million, of which $115.5 million related to the adoption
of SFAS No. 106, representing the cumulative effect of the
accounting change for income taxes in accordance with SFAS No.
109.
In addition to the effect of the accounting changes,
the Company also recognized a pretax restructuring charge of
$17.3 million to account for the cost of an enhanced early
retirement package.
An extraordinary charge of $6.5 million on an after-tax
basis was also recognized by the Company in the first quarter of
1993 related to costs associated with the prepayment of bank and
institutional debt which was refinanced in conjunction with the
Company's first quarter public sale of $140 million of its senior
notes.
The income tax benefit recognized in 1993 reflected
principally the net realizable value of additional net operating
losses generated during 1993 and net deferred tax asset carrying
value adjustments related primarily to a change in the Federal
statutory rate. The income tax benefit in 1992 resulted from a
$2.9 million recovery of state income taxes paid in prior years
and $1.8 million of net recoverable Federal income tax
adjustments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents of $62.9 million at
December 31, 1994, were lower than the $89.0 million on hand at
December 31, 1993. Net proceeds from the public sale of 15.0
million shares of its common stock in August 1994 were used to
make a discretionary contribution of $20.0 million to the
Company's pension plan and $25.0 million was used to redeem all
the Series B Redeemable Preferred Stock. In addition, during the
fourth quarter 1994, the Company used the remaining portion of
the net proceeds from the offering and approximately $32.3
million of its cash on hand to purchase 11-1/2% Senior Notes due
1998 and 10-7/8% Senior Notes due 1999.
The Company's capitalization includes three main
elements: long term debt obligations, redeemable stock, and
stockholders' equity. Capitalization changed as shown below from
December 31, 1993 to December 31, 1994:
<TABLE>
<CAPTION>
December % of December % of
(Dollars in millions) 31, 1994 Total 31, 1993 Total
________ _______ ________ _____
<S> <C> <C> <C> <C>
Long term debt $394.5 70% $ 495.3 93%
Redeemable stock 14.5 3 36.7 7
Stockholders' equity 149.2 27 (1.4) -
________ _______ _______ ____
Total Capitalization $558.2 100% $ 530.6 100%
</TABLE>
The sale of 15.0 million shares of the Company's common
stock in August 1994, and the use of proceeds, has significantly
improved the Company's financial flexibility.
In August 1993, the Company initiated, through a new
subsidiary, Weirton Receivables, Inc., a receivables
participation agreement with a group of five banks. The
facility, which is AAA rated by Standard & Poors provides for a
total commitment by the banks of up to $85 million, including a
letter of credit subfacility of up to $25 million. As of
December 31, 1994, and December 31, 1993, 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 Company's available cash on hand
at December 31, 1994, and the amount of cash it anticipates will
be provided from operating activities in the near term, the
Company expects to have no immediate cash requirements. As such,
it does not expect the subsidiary to sell participation interests
to the banks in the near term. At December 31, 1994, and
December 31, 1993, after reductions for amounts in place under
the letter of credit subfacility, the base amount available for
cash sales was approximately $81.7 million and $64.6 million,
respectively. During the period that began with the facility's
implementation through December 31, 1994, the base amount
available for cash sales has ranged from $64.3 million to $81.9
million. In addition, the Company 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 becomes due. On August 5, 1994, the Company, the
subsidiary and the participating banks agreed to extend the
receivables participation agreement for an additional year
through August 24, 1997.
The Company had gross deferred tax attributes which total
$183.7 million at December 31, 1994, and represented net
operating loss carryforwards and other tax credits and net
deductible temporary differences, all of which the Company
believes can be used to reduce the Company's cash requirements
for the payment of future Federal regular income tax. The
Company may be subject to cash requirements under Federal
alternative minimum tax.
INVESTMENT IN FACILITIES
Following the completion of the capital improvement
program, capital spending was reduced to $37.5 million in 1994,
exclusive of charges to rebuild the No. 9 Tandem, and $14.4
million in 1993. The Company has spent $74.6 million to restore
the damaged No. 9 Tandem facility. Insurance recoveries through
year end for property damage to the No. 9 Tandem have been $45.0
million.
The Company anticipates its spending for capital
improvements in 1995 will approximate $80 million, including
spending toward a major blast furnace reline. The Company's
operating facilities include four blast furnaces; however, its
current operating strategy employs a two blast furnace
configuration with an annual hot metal capacity of approximately
2.5 million tons. One of the two furnaces currently operating
will be relined toward the end of 1995 or early 1996 at a cost of
approximately $58 million, of which $22 million is estimated to
be spent in 1995. Other capital improvement expenditures for
1995 include approximately $14 million for tin mill plating lines
and $13.5 million for environmental control. At present, cash
provided from operating activities, together with cash on hand,
is expected to be sufficient to fund this capital budget and meet
any near term working capital requirements. To the extent that
near term operating activities do not generate an adequate amount
of cash, the Company expects that any cash shortfall would be
financed from its receivables participation agreement.
<TABLE>
<CAPTION>
Weirton Steel Corporation
STATEMENTS OF INCOME
Year Ended December 31,
(Dollars in thousands, except 1994 1993 1992
per share data)--------------------------------------------------
(Consolidated)
<S> <C> <C> <C>
NET SALES $1,260,864 $1,201,093 $1,078,691
OPERATING COSTS:
Cost of sales 1,136,936 1,105,558 1,010,022
Selling, general and 31,504 32,458 30,470
administrative expense
Depreciation 46,309 49,113 38,617
Provision for profit sharing 17,581 - -
Insurance recoveries to date (20,000) - -
Restructuring charge - 17,340 -
--------- --------- ---------
Total operating costs 1,212,330 1,204,469 1,079,109
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 48,534 (3,376) (418)
Unusual item:
Adjustment to carrying value 44,746 - -
of damaged facility
OTHER INCOME (EXPENSE):
Interest expense (49,999) (52,802) (40,921)
Interest income 5,795 2,626 3,073
--------- --------- ---------
Net other expense (44,204) (50,176) (37,848)
--------- --------- ---------
INCOME (LOSS) BEFORE ESOP 49,076 (53,552) (38,266)
CONTRIBUTION
ESOP contribution 2,610 2,610 2,610
--------- --------- ---------
INCOME (LOSS) BEFORE 46,466 (56,162) (40,876)
INCOME TAXES
Income tax benefit 7,454 (13,272) (4,763)
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRA- 39,012 (42,890) (36,113)
ORDINARY ITEM
Loss on early extinguishment 3,851 6,549 -
of debt --------- --------- --------
INCOME (LOSS) BEFORE CUMULA- 35,161 (49,439) (36,113)
TIVE EFFECT OF ACCOUNTING Chg
Cumulative effect on prior - (179,803) 4,356
years of accounting changes --------- --------- ---------
NET INCOME (LOSS) $ 35,161 $(229,242) $(31,757)
========= ========= =========
Less: Preferred stock dividend 2,339 3,125 3,125
requirement --------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO $ 32,822 $(232,367) $(34,882)
COMMON SHARES
PER SHARE DATA:
Weighted average number of com. 34,470 26,473 24,914
shares and equivalents
Income(loss) per common share $ 1.06 $ (1.74) $ (1.57)
before extraordinary item
Extraordinary item (0.11) (0.25) -
Income(loss) per common share --------- --------- ---------
before cumulative effect of $ 0.95 $ (1.99) $ (1.57)
accounting changes
Cumulative effect of - (6.79) 0.17
accounting changes --------- --------- --------
NET INCOME (LOSS) PER COMMON $ 0.95 $ (8.78) $ (1.40)
SHARE ========= ========= ========
PRO FORMA PER SHARE DATA:
Net loss applicable to common $(39,238)
shares assuming change in met.
of depreciation is applied
retroactively
Net loss per common share $ (1.57)
----------
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands, except per 1994 1993
share data)--------------------------------------------------------
ASSETS:
<S> <C> <C>
Current assets:
Cash and equivalents, includes $ 62,905 $ 89,002
restricted cash of $1,329 and
$882, respectively
Receivables, less allowances of 131,902 129,004
$6,405 and $5,719, respectively
Inventories 270,518 242,659
Deferred income taxes 42,570 25,732
Other current assets 5,603 3,857
-------- ---------
Total current assets 513,498 490,254
Property, plant and equipment, net 588,903 523,728
Intangible asset 17,213 91,289
Deferred income taxes 98,493 117,273
Other assets and deferred charges 12,813 18,170
--------- ---------
TOTAL ASSETS $1,230,920 $1,240,714
========= =========
LIABILITIES:
Current liabilities:
Payables 136,038 109,937
Employment costs 84,487 66,519
Pension liability - 20,394
Taxes other than income taxes 21,256 17,433
Income taxes 4,579 -
Other 10,679 13,755
--------- ---------
Total current liabilities 257,039 228,038
Long term debt obligations 394,505 495,252
Long term pension obligation 68,093 142,894
Postretirement benefits other than 316,185 308,985
pensions
Other long term liabilities 31,429 30,188
--------- ---------
TOTAL LIABILITIES 1,067,251 1,205,357
REDEEMABLE STOCK:
Preferred stock, 7,500,000 shares
authorized:
Preferred stock, Series A, $0.10 26,013 26,084
par value; 1,800,000 shares
authorized; 1,787,688&1,797,231
shares issued; 1,754,327 and
1,779,468 subject to put
Less: Preferred treasury stock (326) (130)
Series A, at cost,33,361 and
17,763 shares
Deferred ESOP compensation (11,202) (13,812)
Preferred stock, Series B, $0.10 - 24,579
par value; 675,000 shares
authorized; 0 and 500,000 shares
issued --------- ---------
TOTAL REDEEMABLE STOCK 14,485 36,721
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.10 87 16
par value;12,312 and 2,769 shares
issued not subject to put
Common stock, $0.01 par value; 420 267
50,000,000 and 30,000,000 shares
authorized;42,027,405 & 26,719,752
shares issued
Additional paid-in capital 452,746 335,776
Common shares issuable,348,040 and 1,747 1,327
397,049
Retained earnings (303,710) (336,535)
Less: Common treasury stock, at cost, (2,106) (2,215)
373,340 and 381,405 shares --------- --------
TOTAL STOCKHOLDERS' EQUITY 149,184 (1,364)
(DEFICIT)
--------- --------
TOTAL LIABILITIES, REDEEMABLE STOCK $1,230,920 $1,240,714
AND STOCKHOLDERS' EQUITY ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FR. OPERATING ACTIVITIES:
NET INCOME (LOSS) $35,161 $(229,242) $(31,757)
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Provision for contribution to ESOP 2,610 2,610 2,610
and repayment of note
Depreciation 46,309 49,113 38,617
Amortization of debt discount 139 125 113
Amortization of other noncurrent 2,370 1,840 1,056
assets
Deferred income taxes 1,942 (13,272) -
Restructuring charge - 17,340 -
Adjustment to carrying value of (44,746) - -
damaged facility
Cumulative effect of accounting - 179,803 -
changes
Loss from early extinguishment 3,851 6,549 -
of debt
Debt issuance fees - (13,520) -
Debt redemption fees (2,245) - -
Cash provided (used) by working
capital items:
Receivables (2,898) (5,110) 769
Inventories (27,859) 1,907 11,940
Other current assets (1,746) 4,325 6,219
Payables 17,454 24,986 (9,248)
Other current liabilities 3,099 18,070 (10,907)
Long term pension obligation (726) 19,374 6,272
Other 10,601 (8,963) 1,994
NET CASH PROVIDED BY OPERATING --------- -------- --------
ACTIVITES 43,316 55,935 13,322
CASH FLOWS FR. INVESTING ACTIVITIES:
Expenditures for property, plant &
equipment: Spending to (74,611) - -
restore damaged facility
Less: Insurance recoveries to date 45,000 - -
Other capital spending (37,456) (13,324) (44,610)
NET CASH FLOWS USED BY INVESTING -------- -------- --------
ACTIVITIES (67,067) (13,324) (44,610)
CASH FLOWS FR. FINANCING ACTIVITIES:
Repayments of debt obligations (101,101) (148,114) (2,171)
Proceeds from issuance of debt - 140,000 -
obligations
Proceeds from issuance of 116,087 - 8,250
common stock
Redemption of preferred stock, (25,000) - -
Series B
Dividends paid (2,339) (3,125) (3,125)
Common shares issuable 1,454 1,119 1,074
Purchase of common treasury stock - (1,455) (568)
Other, principally net book 8,553 (3,229) 4,860
overdrafts
NET CASH (USED) PROVIDED BY FINANCING -------- -------- --------
ACTIVITIES (2,346) (14,804) 8,320
-------- -------- --------
NET CHANGE IN CASH AND EQUIVALENTS (26,097) 27,807 (22,968)
CASH AND EQUIVALENTS AT BEGIN.OF PER. 89,002 61,195 84,163
-------- -------- --------
CASH AND EQUIVALENTS AT END OF PER. 62,905 89,002 61,195
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest $52,091 $47,311 $40,937
capitalized
Income tax refunds - 1,779 11,009
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------- Common Shares
Common Stock Additional Issuable Retained
($ in 000's Shares Amt. Paidin Capital Shares Amount Earnings
ex.per share data)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHEquity
12/31/91 24,091,727 $241 $325,554 352,542 $1,132 $(69,283)
Net loss (31,757)
Issuance of
common stock 2,000,000 20 8,230
Purchase of
treasury stock
Conversion of
preferred stock
Reclassific.
of preferred
Series A,
not subject
to put
Employee stock
purchase plan:
Shares issued 327,978 3 1,050 (327,978) (1,053)
Shares issuable 300,047 945
Board of Direc.
deferred comp.
plan:Shares
issued
Shares issuable 40,810 129
Divid. payable
($6.25 per pre-
ferred (3,125)
share, Ser. B)
Amortiz.of
deferred comp.
--------------------------------------------------------------------------------
SHEquity at
12/31/92 26,419,705 264 334,834 365,421 1,153 (104,165)
Net loss (229,242)
Purchase of
treasury stock
Conversion of
preferred stock
Reclass. of
preferred Ser.
A,not subject
to put
Employee SPP:
Shares issued 300,047 3 942 (300,047) (945)
Shares issuable 299,971 1,012
Board of Direc.
deferred comp.
plan:Shares
issued
Shares issuable 31,704 107
Dividends pay.
($6.25 per pref (3,125)
share, Ser. B)
Amortiz. of
deferred comp.
-------------------------------------------------------------------------------
SHEquity Cons. 26,719,752 267 335,776 397,049 1,327 (336,532)
12/31/93
Net income 35,161
Issuance of
common stock 15,000,000 150 115,937
Purchase of
treasury stk
Conversion of
preferred stock
Reclass. of
pref.Series A,
not subject
to put
Employee SPP:
Shares issued 299,971 3 1,009 (299,971) (1,012)
Shares
issuable 240,086 1,350
Board of Dir.
deferred comp.
plan:Shares
issued 7,682 - 24 (7,682) (24)
Shares issuable 18,558 106
Divid.payable
($4.6875 per
preferred (2,339)
share, Ser. B)
-------------------------------------------------------------------------------
SHEquity Cons. 42,027,405 $420 $452,746 348,040 $1,747 $(303,710)
12/31/94
-------------------------------------------------------------------------------
<CAPTION>
Common Treasury Stk Deferred Preferred Series A Stockholders'
Shares Amount Compensation Not subject to put Equity
--------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
78,558 $(259) $(50) 625 $ 6 $257,341
(31,757)
8,250
130,056 (568) (568)
(261) 2 2
872 4 4
945
129
(3,125)
50 50
------------------------------------------------------------------------------
208,353 (825) - 1,497 10 231,271
(229,242)
181,200 (1,455) (1,455)
(8,148) 65 65
1,272 6 6
1,012
107
(3,125)
-------------------------------------------------------------------------------
381,405 (2,215) - 2,769 16 (1,361)
35,161
116,087
(8,065) 109 109
9,543 71 71
1,350
106
(2,339)
------------------------------------------------------------------------------
373,340 $(2,106) $ - 12,312 $87 $149,184
-------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars, except share amounts, or in millions of
dollars where indicated)
Note 1
BASIS OF PRESENTATION
For the periods ended and as of December 31, 1994, the
financial statements herein include the accounts of Weirton Steel
Corporation and its wholly-owned subsidiary, Weirton Receivables,
Inc. Prior to August 26, 1993, the financial statements include
only the accounts of Weirton Steel Corporation. Weirton Steel
Corporation and/or Weirton Steel Corporation together with its
subsidiary are hereafter referred to as the "Company."
Certain portions of the prior periods' financial statements
have been reclassified where necessary to conform to the
presentation used in the current period.
Note 2
ORGANIZATION AND BACKGROUND
The Company and its predecessor companies have been in the
business of making and finishing of steel products for more than
eighty years. From November 1929 to January 1984, the Company's
business had been operated as a subsidiary of or a division of
National Steel Corporation ("NSC"). Incorporated in Delaware in
November 1982, the Company acquired the principal assets of NSC's
former Weirton Steel Division in January 1984. In connection
with the asset purchase, NSC retained liability for claims and
litigation arising out of the operation of its former Weirton
Steel Division based on occurrences prior to May 1, 1983,
principally related to pension benefits for active employees
based upon service prior to the sale and pension benefits, life
insurance and health care for retired employees.
From January 1984 until June 1989, the Company was owned in
its entirety by its employees through an Employee Stock Ownership
Plan (the "1984 ESOP"). In June 1989, the 1984 ESOP completed a
public offering of 4.5 million shares of common stock of the
Company, which security is now listed and traded on the New York
Stock Exchange.
In connection with the public offering of common stock in
June 1989, the Company sold 1.8 million shares of Convertible
Voting Preferred Stock, Series A (the "Series A Preferred") to a
new Employee Stock Ownership Plan (the "1989 ESOP"). Each share
of Series A Preferred is convertible at any time into one share
of common stock, subject to adjustment, and is entitled to ten
times the number of votes allotted to the common stock into which
it is convertible.
In October 1991, in connection with an iron ore pellet
supply agreement, the Company issued 0.5 million shares of
Redeemable Preferred Stock, Series B (the "Series B Preferred")
to Cleveland-Cliffs Inc for a purchase price equal to the
aggregate redemption amount of $25 million. Holders of the
Series B Preferred did not generally vote on stockholder matters.
In September 1991, the Company issued to its defined benefit
pension plan (the "Pension Plan") 3,870,968 shares of its common
stock (the "1991 Pension Plan Shares") having an aggregate fair
value of $15.0 million. In September 1992, the Company issued
2.0 million shares of its common stock (the "1992 Pension Plan
Shares") having an aggregate fair value of $8.25 million to the
Pension Plan in a substantially similar transaction.
In May 1994, the Company's stockholders approved an
amendment of the Company's Restated Certificate of Incorporation
increasing the number of shares of its authorized common stock
from 30.0 million shares to 50.0 million shares. The amendment
provided that 15.0 million shares of such increase were to be
issued only in conjunction with bona fide public offerings of the
common stock and that up to 5.0 million shares of such increase
were to be issued only pursuant to employee benefit plans. In
August 1994, the Company publicly sold 15.0 million shares of
common stock and the Pension Plan publicly sold 4.55 million
shares of the Company's common stock.
In September 1994, the Company used a portion of the
proceeds from the August 1994 sale of common stock to redeem the
Series B Preferred.
Substantially all of the Company's employees participate in
the two ESOPs which, after giving effect to the above-mentioned
transactions, owned approximately 32% of the issued and
outstanding common and substantially all the preferred shares of
the Company at December 31, 1994. The common and preferred
shares owned by the two ESOPs represent approximately 49.8% of
the voting power of the Company's voting stock.
Note 3
SIGNIFICANT ACCOUNTING POLICIES
Cash
The liability representing outstanding checks drawn against
a zero-balance general disbursement bank account that is funded
as checks are presented for payment is included in accounts
payable for financial statement presentation. Such amount was
$13.8 million, $5.1 million and $8.3 million at December 31,
1994, 1993 and 1992, respectively.
Cash Equivalents
Cash equivalents, which consist primarily of certificates of
deposit, commercial paper and time deposits, are stated at cost,
which approximates fair value. For financial statement
presentation, the Company considers all highly liquid investments
purchased with an original maturity of 90 days or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of first-in, first-out
(FIFO) cost or market. Inventory costs include materials, labor
and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment is valued at cost. Major
additions are capitalized, while the cost of maintenance and
repairs which do not improve or extend the lives of the
respective assets is charged to expense in the year incurred.
Interest costs applicable to facilities under construction are
capitalized. Gains or losses on property dispositions are
credited or charged to income.
The Company changed its method of accounting for
depreciation of its steelmaking facilities effective January 1,
1992, from the straight-line method to a production-variable
method which adjusts straight-line depreciation to reflect actual
production levels. The Company believes the production-variable
method of depreciation is preferable to the method previously
used because it recognizes that depreciation of steelmaking
facilities is related substantially to both physical wear and the
passage of time. Moreover, this method of depreciating
steelmaking facilities is an accepted industry practice which,
accordingly, allows for a meaningful comparison of the Company's
operations to that of its competitors. The cost of relining
blast furnaces is amortized over the estimated production life of
the lining.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and changed its method of
accounting for these costs from the cash method to an accrual
method.
Postemployment Benefits
Effective January 1, 1993, the Company adopted the
provisions of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." Under the Company's previous method of
accounting, certain employee benefits covered by this standard
were accounted for on the cash method, while certain other
benefits were accounted for on an accrual method. Effective with
the adoption of the standard, the value of all such benefits is
actuarially determined and recognized on an accrual method.
ESOP Accounting
The Company recognizes as compensation expense an amount
based upon its required contributions to the ESOPs. The resulting
charge approximates the cost to the ESOPs for the shares
allocated to participants for that period. The number of shares
allocated to participants for that period is determined based on
the ratio of that period's debt service payment to the total
estimated debt service. Shares are then allocated to individual
participants based on the participant's relative compensation.
Shares reacquired by the ESOPs are reallocated annually among
active participants on a per capita basis.
Employee Profit Sharing
The provision for employee profit sharing is calculated in
accordance with the Profit Sharing Plan Agreement. The provision
for 1994 is based upon 33 1/3% of net income.
Research and Development
Research and development costs related to improvement of
existing products, development of new products and the
development of more efficient operating techniques are charged to
expense as incurred and totaled $6,270, $5,430 and $4,686 in
1994, 1993 and 1992, respectively.
Income Taxes
Effective January 1, 1993, the Company changed its method of
accounting for income taxes for financial reporting by adopting
the provisions of SFAS No. 109, "Accounting for Income Taxes."
The Company had previously accounted for income taxes pursuant to
the provisions of Accounting Principles Board Opinion ("APBO")
No. 11, "Accounting for Income Taxes." Under the new method,
deferred income tax assets and liabilities are recognized to
reflect the future income tax consequences of carryforwards and
differences between the tax bases and financial accounting bases
of assets and liabilities.
Note 4
MAJOR DAMAGE TO FACILITY
On April 6, 1994, the Company'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 reduction
mill is a major component of the Company's operating facilities
and normally processes approximately 70% to 80% of the steel
coils required for the Company's tin plating operations. The
Company has since rebuilt the No. 9 Tandem and start-up
operations began in October 1994.
The Company maintains insurance for both property damage and
business interruption applicable to its production facilities
including the No. 9 Tandem. The policies providing these
coverages are subject to deductibles of $0.5 million for property
damage and $5.0 million for business interruption. Insurance
recoveries as of December 31, 1994, included $45 million for
property damage and $20 million for business interruption. The
Company is pursuing additional recoveries under both its property
damage and business interruption coverages related to the damage
of the No. 9 Tandem. In January 1995, the Company received an
additional $10 million under its business interruption coverage,
bringing the total recoveries through such date to $30 million
under this coverage. In February 1995, the Company agreed to
resolve the remainder of its claim for business interruption for
$29 million, bringing the total recoveries to $54 million, after
the $5.0 million deductible. The Company is pursuing the final
settlement of the property damage claim.
Insurance recoveries for property damage associated with
events of this type require the recognition of a new cost basis
for the rebuilt facility. As a result, the Company has
recognized in its statement of income for the year ended
December 31, 1994, an adjustment to the carrying value of the No.
9 Tandem to the extent of insurance recoveries received. Total
spending to restore the No. 9 Tandem was approximately $74.6
million in 1994.
Note 5
INVENTORIES
Inventories consisted of the following at December 31, 1994
and 1993:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Raw materials $100,319 $74,766
Work-in-process 89,106 74,109
Finished goods 81,093 93,784
$270,518 $242,659
======= =======
</TABLE>
Note 6
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $ 807 $ 810
Buildings 7,918 7,918
Machinery, equipment and other 778,161 685,863
Construction-in-progress 80,216 62,391
867,102 756,982
Less: Allowances for
depreciation (278,199) (233,254)
------- -------
$588,903 $523,728
======= =======
</TABLE>
Capitalized interest costs applicable to facilities under
construction for the years ended December 31, 1994, 1993 and 1992
amounted to $2.3 million, $0.8 million and $6.1 million,
respectively.
Note 7
FINANCING ARRANGEMENTS
Debt Obligations
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
11-1/2% Senior Notes due 3/1/98 $107,150 $140,000
10-7/8% Senior Notes due 10/15/99 231,749 300,000
8-5/8% Pollution Control Bonds 56,300 56,300
due 11/1/2014 ------- -------
395,199 496,300
Less: Unamortized debt discount 694 1,048
------- -------
Long term debt obligations $394,505 $495,252
======= =======
</TABLE>
On October 17, 1989, the Company completed a public offering
of its senior notes in the principal amount of $300 million.
These unsecured senior notes bear interest at 10-7/8% and mature
October 15, 1999. The indenture governing these senior notes
provides for an option, in the event certain "qualifying
downgrades" occur in the rating of the senior notes following the
occurrence of certain designated events related to changes in
control of the Company, whereby noteholders will have the option
to cause the Company to repurchase the senior notes at 100% of
principal plus accrued interest.
On November 1, 1989, the Company refinanced two previous
pollution control bond issues having an aggregate principal
amount of $56.3 million. The 1989 pollution control bonds bear
interest at 8-5/8%, mature November 1, 2014, are subordinate to
the Company's senior note obligations and are subject to a change
in control option similar to that governing the 10-7/8% senior
notes.
On March 4, 1993, the Company completed a public offering of
$140 million of its senior notes. These unsecured senior notes
bear interest at 11-1/2% per annum, mature March 1, 1998, are
senior to all subordinated obligations of the Company and equal
to the Company's other senior indebtedness. The indenture
governing the senior notes contains other covenants that limit,
among other things, the incurrence of additional indebtedness,
the declaration and payment of dividends and distributions on the
Company's capital stock, as well as mergers, consolidations,
liens and sales of certain assets. Under covenants affecting the
Company's ability to pay dividends on its common stock, the
Company 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 Company's cumulative consolidated
net income since March 31, 1993, plus the net proceeds from
future issuances of certain capital stock less certain allowable
payments. As of December 31, 1994, pursuant to this covenant,
the Company's ability to pay dividends on its common stock was
limited to $5.0 million. Upon the occurrence of a change in
control, as defined under the indenture, holders of the senior
notes will have the option to cause the Company to repurchase
their senior notes at 101% of the principal amount, plus accrued
interest to the date of repurchase.
In the fourth quarter of 1994, the Company purchased in the
market $68.3 million of its 10-7/8% senior notes and $32.8
million of its 11-1/2% senior notes using cash on hand and a
portion of the proceeds from the Company's August 1994 public
sale of 15.0 million shares of its common stock. The purchases
of senior indebtedness included the payment of certain premiums
in excess of their principal amount. The purchase required the
immediate recognition of previously deferred debt issuance
expenses. As a result, the Company recognized in its statement
of income for 1994 an after-tax extraordinary charge of $3.9
million. The Company recognized an after-tax extraordinary
charge of $6.5 million in 1993 related to premiums and the
immediate recognition of previously deferred issuance expenses
related to indebtedness refinanced with the proceeds from the
public sale of its 11-1/2% senior notes. The Company does not
have any scheduled principal payments on senior or subordinated
notes until 1998 when the $107.2 million principal amount of the
11-1/2% senior notes becomes due.
Receivables Participation Agreement
On August 26, 1993, the Company initiated, through a new
subsidiary, a receivables participation agreement with a group of
five banks. The facility provides for a total commitment by the
banks of up to $85 million, including a letter of credit
subfacility of up to $25 million. To implement the facility, the
Company sold substantially all of its accounts receivable, and
sells additional receivables as they are generated, to its
wholly-owned subsidiary, Weirton Receivables, Inc. ("WRI"). WRI
finances its ongoing receivable purchases from a combination of
cash collections on receivables already in the pool, short term
intercompany obligations, issuances of redeemable preferred
stock. As of 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
date. The amount of participation interests committed to be
purchased by the banks fluctuates depending upon the amounts and
nature of receivables generated by the Company which are sold
into the program, and certain financial tests applicable to them.
With respect to the receivables comprising the pool at December
31, 1994, and the financial tests applicable to such, and after
reduction for amounts in place under the letter of credit
subfacility, the base amount available for cash sales was
approximately $81.7 million. During the period beginning August
26, 1993, through December 31, 1994, the base amount available
for cash sales ranged from approximately $64.3 million to $81.9
million.
Funded purchases of participation interests by the banks
under the facility are generally available on a revolving basis
for three years, subject to extension as agreed to by the banks.
In 1994, the Participation Agreement was extended through August
1997. Weirton Steel Corporation continues to act as servicer of
the assets sold into the program and continues to make billings
and collections in the ordinary course of business according to
its established credit practices. Except for warranties given by
Weirton Steel Corporation concerning the eligibility of
receivables sold to WRI under the program, the transactions under
the facility are generally nonrecourse. WRI's commitments to the
banks, which do not include warranties as to collectibility of
the receivables, but do include those typical of sellers of
similar property, are secured by its interest in the receivables
and related security. WRI is subject to certain restrictions
regarding its indebtedness, liens, asset sales not contemplated
by the facility, guarantees, investments, other transactions with
its affiliates, including Weirton Steel Corporation, and the
maintenance of a minimum net worth of not less than the greater
of $5.0 million or 10% of the outstanding receivables. At
December 31, 1994, WRI had a net worth of $111.4 million and
outstanding receivables of $129.5 million. The banks and other
creditors of WRI have a priority claim on all assets of WRI prior
to those assets becoming available to any of Weirton Steel
Corporation's creditors.
Leases
The Company also uses certain lease arrangements to
supplement its financing activities.
Rental expense under operating leases was $6,705, $7,346 and
$6,419 for the years 1994, 1993 and 1992, respectively. The
minimum future lease payments under noncancelable operating
leases are $4,019, $2,717, $2,324, $1,526 and $215 for the years
1995 through 1999, respectively, and zero after 1999.
Note 8
EMPLOYEE RETIREMENT BENEFITS
Pensions
The Company's Pension Plan covers substantially all of its
employees. The Pension Plan provides benefits that are based
generally upon years of service and compensation during the final
years of employment.
The Company's funding policy is influenced by its general
cash requirements but, at a minimum, complies with the funding
requirements of Federal laws and regulations. During the
calendar years of 1994, 1993 and 1992, the Company contributed
$69,655, $25,648 and $28,790, respectively, to the Pension Plan.
The 1994 contributions to the Pension Plan included a $20.0
million discretionary contribution by the Company using a portion
of the net proceeds from its August 1994 public sale of common
stock.
In 1992 and 1991, a portion of the Company's contribution to
the Pension Plan for each year was made in the form of the
Company's common stock. In connection with the Company's public
sale of 15.0 million shares of its common stock in August 1994,
the Pension Plan publicly sold 4.55 million shares of the
Company's common stock, the proceeds of which were retained by
the Pension Plan.
The Pension Plan's assets are held in trust, the investments
of which consist primarily of common stocks (including the
remaining 1.32 million common shares of the Company with a market
value of $12.2 million at December 31, 1994), fixed income
securities and short term investments.
Following are the components of the Company's net pension
cost recognized in 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Service cost $17,847 $10,192 $11,645
Interest cost on projected
benefit obligation 45,155 41,714 34,135
Actual return on plan assets (30,938) (30,300) (11,036)
Net amortization and deferral 16,464 15,112 (8,592)
$48,528 $36,718 $26,152
====== ====== ======
</TABLE>
The increase in net pension expense for 1994 compared to
1993 results principally from plan changes in connection with new
collectively bargained labor agreements entered into with the
Company's represented workforce in the first quarter of 1994.
The following table reconciles the funded status of the
Pension Plan to the accrued pension obligation recognized in the
balance sheets at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested $431,632 $461,449
Nonvested 25,416 40,324
457,048 501,773
Effect of projected compen-
sation increases 131,927 81,516
Actuarial present value of projected
benefit obligation 588,975 583,289
Plan assets at fair value 388,955 338,485
Projected benefit obligation in
excess of plan assets 200,020 244,804
Items not yet recognized in
the balance sheets:
Actuarial gains (losses) 27,380 (51,433)
Remaining net obligation
at transition (60,522) (67,912)
Prior service cost (115,998) (53,460)
Additional minimum liability 17,213 91,289
Other accrued pension liabilities 2,161 -
Accrued pension obligation $ 70,254 $163,288
====== ========
</TABLE>
The accrued pension obligation is classified for financial
statement presentation at December 31, 1994 and 1993, as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Pension liability, a component
of current liabilities $ - $20,394
Long term pension obligation 70,254 142,894
$ 70,254 $163,288
====== ======
</TABLE>
The Company's projected, accumulated and vested pension
obligations and expense have been actuarially measured through
the use of certain significant assumptions. The table below
depicts the assumptions used to measure the Company's pension
obligations and its net periodic expense.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Weighted average interest rate used 8.5% 7.5 % 8.75%
to discount the projected, acc.
and vested benefit obligations to
present value
Expected rate of return on plan 8.75% 8.75% 9.25%
assets
Assumed increase in compensation 2% for 2% for 5%
levels 2 yrs 3 yrs
annually
& 4% & 4%
forwd. forwd.
</TABLE>
The assumed weighted average interest rate used to discount
the pension obligations to present value is based upon the rates
of return on high-quality, fixed-income investments currently
available matched against expected benefit cash flows, thereby
reflecting a rate at which the obligations could be effectively
settled.
The Company's accumulated pension benefit obligation
exceeded assets available for plan benefits and the Company's
unfunded accrued pension obligations by $17.2 million and $91.3
million at December 31, 1994 and 1993, respectively. As a
result, the Company recognized at the respective dates an
additional minimum liability and an intangible asset of an equal
amount. The significant decrease in the additional minimum
liability and intangible asset at December 31, 1994, from a year
earlier results principally from the higher interest rate
assumption used to discount the accumulated pension benefit
obligation to present value which reflects the recent trend of
increasing rates of return available on long term investments.
In addition, the lower additional minimum liability reflects an
increased level of funding.
In the first quarter of 1993, the Company recognized a
pretax restructuring charge of $17.3 million to account for the
costs associated with implementing an enhanced retirement
package. The early retirement package is part of the Company's
ongoing cost reduction program.
Benefits Other Than Pensions
Substantially all of the Company's retirees are covered
under medical and life insurance plans.
Retirees who have not yet reached age 65 are entitled to
medical benefits that provide for first-dollar coverage on
certain hospital and surgical services, major medical coverage
that contains retiree-paid deductibles and co-insurance
requirements, and a prescription drug program under which a
majority of the cost is paid by the Company. Retirees who have
reached age 65 are covered by the same plan, except they are not
eligible for the prescription drug program and the payment of
plan benefits is coordinated with Medicare on a nonduplication
basis.
As a result of the collectively bargained labor agreements
entered into with the Company's represented employees in the
first quarter of 1994, retirees who have not yet reached age 65
who retire after January 1, 1995, are covered by a Point of
Service plan which contains retiree paid deductibles and lower
out of network coverage. Such agreements, among other things,
limit the Company's exposure to increased costs of providing
these benefits by requiring retiree contributions should actual
costs exceed certain amounts established under the plan.
Coverage under the medical plan is extended to spouses and
unmarried children with certain age restrictions. Eligibility
for benefits continues beyond the death of the retiree or active
employee eligible to retire.
Life insurance benefits provided to retirees are generally
based upon annual basic pay at retirement for salaried employees
and specific amounts for hourly employees.
Effective January 1, 1993, the Company adopted the
provisions of SFAS No. 106. This accounting method requires the
accrual of the estimated cost of retirees' medical and other
benefits over the period during which employees render the
service that qualifies them for such benefits. The provisions of
the standard allow for a "transition obligation," representing
benefits earned in prior periods by both retirees and current
employees, to be recognized in the period in which the standard
is adopted or amortized prospectively over a period of up to 20
years. The Company elected to recognize immediately its
transition obligation, which at January 1, 1993, was actuarially
determined to be $303.9 million.
The amount of net periodic expense for postretirement health
care and life insurance benefits recognized in 1994 and 1993 is
comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Service cost-benefits earned during period $ 7,214 $11,833
Interest cost on accumulated postretirement
benefit obligation 20,618 18,548
Net amortization and deferral (4,680) -
------ -----
$23,152 $30,381
====== ======
</TABLE>
The reduction in net periodic expense for 1994 compared to
1993 results from plan changes in connection with collectively
bargained labor agreements entered into with the Company's
represented employees in the first quarter of 1994.
The actuarially determined net periodic expense in 1994 and
1993 for retiree medical and life insurance benefits exceeded the
$13.1 million and $12.4 million cash outlay for providing such
benefits by approximately $10.0 million and $18.0 million,
respectively.
The following table sets forth the components of the
accumulated postretirement benefit obligation and the
reconciliation of amounts recognized in the balance sheets as of
December 31, 1994 and 1993:
<TABLE>
<CAPTION> December 31,
1994 1993
<S> <C> <C>
Accumulated postretirement benefit
obligation attributable to:
Retirees and beneficiaries $184,537 $131,494
Active employees fully eligible for
benefits 23,649 75,142
Other active participants 66,276 118,671
Total accumulated postretirement benefit ------- -------
obligation 274,462 325,307
Items not yet recognized in balance sheets:
Actuarial gains (losses) 19,212 (3,322)
Prior service cost 38,252 -
------- -------
Accrued postretirement benefit obligation $331,926 $321,985
======= =======
</TABLE>
The accrued postretirement benefit obligation as of December
31, 1994 and 1993, is classified for financial statement
presentation as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Accrued postretirement benefits, component $15,741 $ 13,000
of accrued employment costs
Postretirement benefits other than pensions 316,185 308,985
------- -------
$331,926 $321,985
======= =======
</TABLE>
The reduction in the Company's accumulated postretirement
benefit obligation at December 31, 1994 compared to 1993 results
from the previously mentioned plan changes and an increase in the
interest rate assumption used to discount the obligation to
present value. As a result of the recent trend of increasing
rates of return available on long term investments, and
consistent with the Company's approach to measuring its
accumulated benefit obligation for pensions, the interest rate
used to measure the obligation at December 31, 1994, was
increased to 8.5%. The interest rate used to discount the
accumulated postretirement obligation to present value as of
December 31, 1993, was 7.5%.
The medical cost and administrative expense rates used to
project anticipated cash flows and measure the Company's
postretirement benefit obligation at December 31, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
For retirees who For retirees who
have not yet are age 65
reached age 65 and older
---------------- -----------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Base medical cost trend:
Rate in first year 9.5% 10.0% 8.25% 8.5%
Ultimate rate 5.5% 4.5% 5.5% 4.5%
Year in which ultimate 2003 2003 2003 2003
rate is reached
Major medical cost trend:
Rate in first year 13.1% 14.4% n/a n/a
Ultimate rate 5.5% 4.5% n/a n/a
Year in which ultimate 2003 2003 n/a n/a
rate is reached
Administrative expense trend 5.5% 4.5% 5.5% 4.5%
</TABLE>
A one percentage point increase in the assumed health care
trend rates for each future year would have increased the
aggregate service and interest cost components of the net
periodic expense by $1.9 million and $4.8 million in 1994 and
1993, respectively, and would have increased the accumulated
postretirement benefit obligation by $18.6 million and $40.5
million at December 31, 1994 and 1993, respectively.
For purposes of measuring life insurance benefits at
December 31, 1994 and 1993, increases in compensation levels were
assumed to be 2% through 1996 and 4% thereafter.
Other
As a condition of the purchase of the Company's assets from
NSC, NSC agreed to retain liability for pension service and the
cost of life and health insurance for employees of the Company's
predecessor business who retired through May 1, 1983. NSC also
retained the liability for pension service through May 1, 1983,
for employees of the predecessor business who became active
employees of the Company.
Note 9
POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted the
provisions of SFAS No. 112. This new standard requires the
Company to recognize the present value of its obligation to
provide certain benefits to former or inactive employees who are
not yet eligible for retirement. Liabilities associated with (i)
workers' compensation, (ii) severance programs which include
medical coverage continuation and (iii) sickness and accident
protection, which includes medical and life insurance benefits
are the major items comprising the Company's obligation for
postemployment benefits.
Consistent with the basis that was used to measure the
Company's accumulated benefit obligations for pensions and
retiree health care and life insurance benefits, the interest
rate used to discount the accumulated postemployment benefit
obligation to present value as of December 31, 1994, increased to
8.5% from 7.5%, the rate used to measure the obligation at
December 31, 1993. Other actuarial assumptions and demographic
data used to measure this obligation as of December 31, 1994 and
1993, were consistent with those used to measure pension or other
postretirement benefits as the case may be.
Upon determination as of January 1, 1993, of the accumulated
postemployment transition obligation, and after considering
amounts already accrued, the Company was required to recognize in
1993 a cumulative accounting charge of $4.0 million to fully
recognize its postemployment obligation as of January 1, 1993.
Note 10
INCOME TAXES
Effective January 1, 1993, the Company adopted the
provisions of SFAS No. 109. The Company previously accounted
for income taxes pursuant to the provisions of APBO No. 11.
Under SFAS No. 109, deferred income tax assets and liabilities
are recognized which reflect the future tax consequences of net
operating loss and tax credit carryforwards and differences
between the tax and financial reporting bases of assets and
liabilities. The components of the Company's deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
Deferred tax assets: 1994 1993
<S> <C> <C>
Net operating loss and tax credit $92,423 $94,988
carryforwards
Deductible temporary differences:
Inventories 16,910 13,696
Property, plant and equipment 17,044 11,619
Pensions and other long term 19,840 36,499
liabilities
Postretirement benefits other 128,221 125,732
than pensions
Other deductible temporary 17,240 9,331
differences
Valuation allowance (42,640) (50,768)
-------- --------
249,038 241,097
Deferred tax liabilities:
Accumulated depreciation (107,975) (98,092)
Net deferred tax asset $141,063 $143,005
======= =======
</TABLE>
As of December 31, 1994, the Company had available, for
Federal and state income tax purposes, regular net operating loss
carryforwards of approximately $176.2 million expiring in 2006
through 2008; an alternative minimum tax credit of approximately
$10.8 million; and general business tax credits of approximately
$12.6 million.
In 1994, as a result of its deferred tax attributes, the
Company did not generate any liability for regular Federal income
tax purposes; however, after utilization of all available
alternative minimum tax net operating loss carryforwards of $11.7
million and $1.5 million of available general business credits,
the Company recognized a current alternative minimum tax
liability of $4.6 million, which amount is included with other
current liabilities for financial statement presentation.
As of January 1, 1993, deferred tax liabilities associated
with existing taxable temporary differences exceeded deferred tax
assets from future deductible temporary differences, excluding
those attributable to SFAS No. 106, by approximately $24.6
million. The recognition by the Company as of January 1, 1993,
of the entire transition obligation related to adopting the
provisions of SFAS No. 106 resulted in the recognition of a
$115.5 million deferred tax asset. Future operating costs under
SFAS No. 106 are expected to exceed deductible amounts for income
tax purposes for many years. In addition, under current Federal
tax regulations, should the Company incur tax losses in future
periods, such losses may be carried forward to offset taxable
income for a period of up to 15 years. Based upon the length of
the period during which the SFAS No. 106-generated deferred tax
asset can be utilized and the Company's expectations regarding
its ability to generate taxable earnings over the long term, the
Company believes that it is more likely than not that future
taxable income will be sufficient to fully offset these future
deductions. The Company believes its potential to generate
sustained taxable earnings over the long term and its ability to
further utilize existing net operating loss carryforwards and tax
credits is supported primarily through the future productivity
benefits of its recent capital improvement program and current
business strategy which calls for certain cost reductions and
other opportunities. Under its capital improvement program,
which was substantially completed in 1992, the Company spent in
excess of $550 million to upgrade its steelmaking and hot rolling
facilities. As a result of the program, the Company's enhanced
production capabilities have allowed it to achieve significant
operating efficiencies, including improving its overall yields
from liquid steel to finished production and expanding its
potential sheet market to more than three times the size of its
previous potential market. Manpower reductions and improved
operating practices have also increased the Company's
productivity; and in the first quarter of 1994, it entered into
collective bargaining agreements which, among other things, limit
the Company's exposure to increased costs of providing health
care to its workforce while providing increased medical
coverages.
The length of time associated with the carryforward period
available to utilize existing net operating losses and certain
tax credits is more definite. A significant portion of the
Company's net operating losses is attributable to the realization
of differences between tax and financial reporting bases of the
Company's fixed assets. In the aggregate, such differences,
including depreciation, are expected to reverse within the
allowable carryforward periods.
The Company believes its ability to utilize its deferred tax
attributes in the near term will be favorably affected by its
capital improvement program and business strategy. In addition,
certain tax planning strategies that include, but are not limited
to, changes in methods of depreciation for tax purposes,
adjustments to employee benefit plan funding strategies, and
potential sale lease-back arrangements, could be employed to
avoid expiration of the attributes.
In August 1994, the Company publicly sold 15.0 million
shares of common stock and the Pension Plan publicly sold 4.55
million shares of the Company's common stock. Under Section 382
of the Internal Revenue Code of 1986, as amended (the "Code"),
certain ownership changes may substantially limit or prohibit the
utilization of certain tax attributes subject to the carryforward
provisions under the Code. In order for the Company to conclude
that the utilization of its tax attributes would not be limited
as a result of the public offerings, the Company applied to the
Internal Revenue Service ("IRS") for appropriate rulings to that
effect. In the December 1994, the IRS issued favorable rulings
to the Company.
Notwithstanding the Company's expectations as to its ability
to fully utilize its deferred tax attributes and the receipt of
the rulings from the IRS, since it adopted the provisions of SFAS
No. 109, the Company has conservatively had since January 1993 a
valuation allowance that reduces the carrying value of its
deferred tax attributes. During 1994 and 1993, the Company
recognized adjustments to its valuation reserve that resulted in
net carrying values for the components of its deferred taxes
proportional to those established as of the adoption date.
The elements of the Company's deferred income taxes
associated with its results before extraordinary items and
cumulative effect of accounting changes for the years ended
December 31, 1994 and 1993, respectively, along with the
allocation of deferred taxes to other income statement items are
as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Current income tax (provision) benefit:
Federal $ (4,579) $ -
Deferred income tax (provision) benefit:
Federal $(10,242) $21,421
State (1,694) 2,248
Valuation allowance 9,061 (10,397)
Income tax (provision) benefit (7,454) 13,272
Other components of the Company's
total income tax benefit are
allocated to the consolidated
statements of income as follows:
Def. income tax benefit allocated to 933 1,536
extraordinary item
Def. income tax benefit allocated to - 128,197
cumulative effect on prior years
of accounting changes
Total income tax (provision)benefit $ (6,521) $143,005
======= =======
</TABLE>
The total income tax provision recognized by the Company in
1994 reconciles to that computed under the Federal statutory
corporate rate as follows:
<TABLE>
<CAPTION>
Income before Extraordinary Total
income taxes item
---------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax $(14,821) $1,675 $(13,146)
(provision) benefit comp.
at statutory rate of 35%
State income taxes net of (1,694) 191 (1,503)
Federal income tax effect
Valuation allowance 9,061 (933) 8,128
-------- ------- --------
$ (454) $ 933 $ (6,521)
======== ======= ========
</TABLE>
During August 1993, the statutory rate applicable to Federal income taxes
increased to 35% from 34% retroactive to January 1, 1993, thereby increasing
the realizable value of the Company's unutilized deferred tax assets. As
such, the total income tax benefit recognized by the Company in 1993
reconciles to that computed under the Federal statutory corporate rate as
follows:
<TABLE>
<CAPTION>
Loss before Extraordinary Cumulative effect Total
income taxes item of accounting changes
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax $19,095 $2,748 $149,450 $171,293
benefit computed at
statutory rate of 34%
State income taxes 2,248 324 17,582 20,154
net of Federal income
tax effect
Effect of retroactive 2,326 - - 2,326
change in Federal
statutory rate to 35%
and other adjustments
Provision for valuation (10,397) (1,536) (38,835) (50,768)
allowance -------- -------- ------- -------
$13,272 $1,536 $128,197 $143,005
====== ====== ======= =======
</TABLE>
As noted above, prior to January 1, 1993, the Company
accounted for income taxes in accordance with APBO No. 11. The
disclosures regarding the Company's income taxes as of and for
the year ended December 31, 1992 are as follows:
<TABLE>
<CAPTION>
1992
<S> <C>
Income tax benefit:
Federal $1,779
State 2,984
-----
Total income tax benefit $4,763
=====
Sources of deferred income taxes:
Depreciation $18,964
Inventories (508)
Pension (536)
Effect of net operating losses on def. taxes (20,174)
Other 2,254
-------
Total deferred income taxes $ -
=======
</TABLE>
The income tax benefit differs from that computed under the
applicable Federal statutory corporate rate as follows:
<TABLE>
<S> <C>
Federal statutory rate $13,898
State income taxes, net of Federal inc.tax effect 2,984
Limitation on utilization of net operating
loss carrybacks (12,119)
------
Total income tax benefit $ 4,763
=====
</TABLE>
Note 11
REDEEMABLE STOCKS
In June 1989, the Company sold 1.8 million shares of the
Series A Preferred to the 1989 ESOP, which financed the purchase
by issuing to the Company a $26.1 million promissory note,
payable ratably over a ten-year period. Each share of Series A
Preferred is convertible at any time into one share of common
stock, subject to adjustment, is entitled to ten times the number
of votes allotted to the common stock into which it is
convertible, and has a preference on liquidation over common
stock of $5 per share. The Series A Preferred has no preference
over common stock as to dividends. The Series A Preferred is not
intended to be readily tradable on an established market.
Accordingly, shares of Series A Preferred distributed to 1989
ESOP participants following termination of service will be
subject to a right, exercisable for limited periods prescribed by
law, to cause the Company to repurchase the shares at fair value.
The Company also has a right of first refusal upon proposed
transfers of distributed shares of Series A Preferred which it
has agreed, to the extent it is permitted, to exercise and to
contribute or sell reacquired shares to the 1989 ESOP. In 1994,
the 1989 ESOP was amended to provide that shares of Series A
Preferred reacquired by the 1989 ESOP be reallocated annually
among active employee participants on a per capita basis. If not
repurchased by the Company or reacquired by the 1989 ESOP, shares
of Series A Preferred automatically convert into common stock
upon transfer by a distributee.
In October 1991, the Company issued 0.5 million shares of
the Series B Preferred to Cleveland-Cliffs Inc for a purchase
price equal to the aggregate redemption amount of $25 million.
The Series B Preferred was entitled to annual dividends of $6.25
per share. The Company redeemed all the Series B Preferred in
September 1994. In connection with the original stock issue, the
Company entered into a supply agreement with a subsidiary of
Cleveland-Cliffs to furnish the Company with the major part of
its iron ore pellets for a twelve-year period which began in 1992
and was extended through 2005.
Note 12
STOCK PLANS
The Company has a stock option plan (the "1987 Stock Option
Plan") which provides for 750,000 shares of the Company's common
stock to be available for the granting of options. Options
covering 501,000 shares were granted in 1994 at an exercise price
of $8.69 per share, which equaled the fair value of such options
on their date of grant. Generally, the options granted in 1994
are exercisable in one-third increments commencing on October 1,
1996, with an additional one-third of the options becoming
exercisable on each of October 1, 1997 and 1998. No stock
options were granted in 1993 or 1992. Options covering 180,000
shares were granted for periods prior to 1992 under employment
contracts with certain executive officers at an exercise price of
$8.33 per share. All such options remain outstanding and
exercisable. Options granted under the 1987 Stock Option Plan
are exercisable for a maximum of ten years following the date of
grant.
There were 69,000 shares available for future grant at
December 31, 1994.
Activity under the 1987 Stock Option Plan is summarized
below:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Options outstanding at beginning
of period 240,000 240,000 240,000
Granted 501,000 - -
Repurchased (60,000) - -
Exercised - - -
Outstanding at end of period 681,000 240,000 240,000
Exercisable at end of period 180,000 240,000 230,000
Available for future grant 69,000 510,000 510,000
</TABLE>
In October 1989, the Company registered 1.5 million shares
of its common stock to be offered over a five-year period
beginning January 1, 1990, to eligible employees through payroll
deductions under its 1989 Employee Stock Purchase Plan. In
October 1994, the Company registered 5.0 million shares of its
common stock to be offered over a five-year period beginning
January 1, 1995, to eligible employees under its 1994 Employee
Stock Purchase Plan.
The 1994 Employee Stock Purchase Plan requires stockholder
approval. If such approval is not obtained, the 1994 Employee
Stock Purchase Plan will be terminated and any amounts
accumulated through payroll deductions will be returned to the
employees.
During 1991, the Company adopted a deferred compensation
plan to permit members of its Board of Directors to receive
shares of common stock in lieu of cash payments for total
compensation or a portion thereof for services they provided.
Both the 1989 Employee Stock Purchase Plan and the
Directors' Deferred Compensation Plan provide for respective
participants to purchase the Company's common stock at 90% of the
lesser of the stock's average trading price at the beginning or
the end of each year. At December 31, 1994, 240,086 shares
valued at approximately $1.4 million were issuable in accordance
with the Employee Stock Purchase Plan. These shares were issued
during February 1995. At December 31, 1994, 107,954 shares
valued at $0.6 million were issuable to the Directors who
selected deferred compensation.
The 1994 Employee Stock Purchase Plan provides for participants
to purchase the Company's common stock at 85% of the lesser of
the stock's closing price at the beginning or the end of each
year.
Note 13
ESOP FINANCING
The purchase by the 1989 ESOP of the Series A Preferred was
financed through the issuance of a $26.1 million promissory note
to the Company payable ratably over a ten-year period. The
Company's contribution to the 1989 ESOP for the principal and
interest components of debt service was immediately returned. As
such, the respective interest income and expense on the ESOP
notes were entirely offset within the Company's net financing
costs.
Effective November 1, 1990, the 1989 ESOP entered into a
refinancing, which was guaranteed by the Company, under which $19
million of 9.0% ESOP notes were sold to certain institutional
investors. Following this refinancing, the net interest expense
component of the Company's ESOP contribution was included in
interest expense.
In connection with the Company's public sale of $140 million
of its senior notes in March 1993, the Company purchased the
balance of the outstanding 9.0% senior ESOP notes which had been
reduced to the principal amount of $14.1 million. Following this
purchase, the Company was reestablished as the sole lender to the
1989 ESOP and, as such, the ESOP note interest income and expense
are offset within the Company's net financing costs.
Note 14
EARNINGS PER SHARE
The weighted average number of common and common equivalent
shares used in the calculation of the income (loss) per share was
34,469,921, 26,472,907 and 24,914,026 for the years ended
December 31, 1994, 1993 and 1992, respectively. The shares of
Series A Preferred were excluded from the 1993 and 1992
calculations due to their antidilutive effect. The assumed
exercise of stock options would not result in significant
dilution in those periods.
If the offering of the Company's common stock had taken
place on January 1, 1994 and the net proceeds therefrom along
with $32.3 million of the Company's available cash on hand had
been used as previously described, the net income for the year
ended December 31, 1994, would have increased to $40.2 million.
Accordingly, the respective net results per share applicable to
common stock would have been net income of $0.92 per share.
Note 15
COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, is the
subject of, or party to, various pending or threatened legal and
environmental actions. The Company believes that any ultimate
liability resulting from these actions will not have a material
adverse effect on its financial position or results of
operations.
In October 1991, the Company entered into an iron ore
pellet supply agreement with a subsidiary of Cleveland-Cliffs Inc
to provide the majority of tonnage needed beginning in 1992 and
extending through 2005.
In July 1993, the Company entered into an agreement with USX
Corporation to purchase blast furnace coke during the remainder
of 1993 through December 1996. The agreement provides for
tonnages of 750,000 per calendar year in 1994 through 1996, or
the actual annual requirements of the Company if less than the
stated amount. The price is to be the prevailing market price
(subject to a ceiling and floor) for blast furnace coke
determined each October prior to the delivery year.
On August 9, 1994, the Circuit Court of Hancock County,
West Virginia approved the settlement Godich, et al. v. Elish, et
al., and Godich, et al. v. Willkie Farr and Gallagher, et al.,
stockholder derivative actions upon the payment to the Company by
National Union Fire Insurance Company of Pittsburgh,
Pennsylvania, the insurer of the Company's Directors and Officers
liability policy of $6.2 million. After deduction of plaintiff's
attorney's fees and expenses and expenses attributable to the
prosecution and defense of the action, the proceeds to the
Company were $2.2 million.
Note 16
LINE OF BUSINESS INFORMATION
The Company operates a single line of business, the making
and finishing of steel products including carbon sheet and tin
products. In 1994, no single customer accounted for 10% or more
of net sales. During 1993 and 1992, one customer accounted for
11% and 12% of net sales, respectively.
Note 17
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Cash and Short Term Investments
The carrying amount approximates fair value because of the
short maturity of those investments.
Redeemable Preferred Stock
The fair value of the Series A Preferred Stock was
determined based upon an independent appraisal performed as of
December 31, 1994 and 1993. The fair value of the Series B
Preferred Stock at December 31, 1993, was estimated based upon
quoted market prices for similar issues.
Long Term Debt
The fair values of the Company's long term debt obligations
are estimated based upon quoted market prices.
The estimated fair values of the Company's financial instruments
are as follows at December 31, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and short term $62,905 $62,905 $89,002 $89,002
investments
Redeemable preferred
stock:
Series A 25,687 15,900 25,954 11,122
Series B - - 24,579 25,000
Long term debt 394,505 392,526 495,252 516,378
</TABLE>
Significant Group Concentrations of Credit Risk
As of December 31, 1994 and 1993, the Company had trade
receivables outstanding of $12,756 and $18,958, respectively,
from customers who had been acquired in leveraged transactions.
MANAGEMENT RESPONSIBILITY STATEMENT
The accompanying consolidated financial statements of
the Company are the responsibility of its management and have
been prepared in conformity with generally accepted accounting
principles.
The Company has a system of internal controls,
including a Code of Ethics, designed to provide reasonable
assurance that assets are safeguarded, financial statements are
reliable, and a high standard of business conduct is maintained.
Management monitors the system for compliance and internal
auditors independently measure its effectiveness.
The Company's independent auditors, Arthur Andersen
LLP, audit its financial statements in accordance with generally
accepted auditing standards. The report of the independent
auditors is included in this report.
The Board of Directors pursues its oversight role for
the financial statements through its Audit Committee. The Audit
Committee continued its practice of meeting quarterly to review
the financial affairs of the Company and to interface with the
internal audit staff and independent auditors. Both the
independent auditors and the internal auditors have full and free
access to the Audit Committee.
Management believes that the existing system of
internal controls, the independent audit, and the Audit Committee
provide reasonable assurance that the Company's financial
accounting system adequately maintains accountability for assets,
assures the integrity of financial statements, and maintains its
commitment to a high standard of business conduct.
/s/ Herbert Elish
Herbert Elish
Chairman & Chief Executive Officer
/s/ Richard K. Riederer
Richard K. Riederer
President, Chief Operating Officer &
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Weirton Steel Corporation:
We have audited the accompanying consolidated balance
sheets of Weirton Steel Corporation (a Delaware corporation) and
subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period
ended December 31, 1994. 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 generally
accepted auditing standards. 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 Weirton Steel Corporation and subsidiary as
of December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 8, 9 and 10 to the consolidated
financial statements, effective January 1, 1993, the Company
changed its method of accounting for postretirement benefits
other than pensions, postemployment benefits and income taxes.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 24, 1995
SELECTED FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
Dollars in millions, except per share data
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,261 $1,201 $1,079 $1,036 $1,191
Operating expenses 1,212 1,204 1,079 1,083 1,173
Depreciation 46 49 39 34 29
Taxes on income 7.5 (13.3) (4.8) (4) 0.8
Profit sharing 17.6 - - - -
Contribution to ESOP 3 3 3 3 2
Net income (loss) 35.2 (229.2) (31.8) (74.7) 0.3
Net income (loss) per
common share 0.95 (8.78) (1.40) (3.49) 0.01
Total assets 1,231 1,241 1,005 1,038 965
Additions to property,
plant, and
equipment 112 14 45 114 182
Long term debt 395 495 491 503 397
Redeemable preferred
stock, net 14 37 34 31 4
Working capital 258 262 238 273 265
Cash dividends declared
per common share - - - - 0.64
Number of common shares
outstanding
at year end, in 000's 41,654 26,338 26,211 24,013 19,949
Number of preferred
shares outstanding
at year end, in 000's 1,767 2,282 2,296 2,298 1,799
Stockholders' equity
(deficit) 149 (1) 231 257 317
Stockholders' equity
per common share 3.57 (.05) 8.82 10.72 15.87
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
Quarterly periods in 1994 Quarterly periods in 1993
-------------------------------------------------------
$ in millions, 4th 3rd 2nd 1st 4th 3rd 2nd 1st
ex.per share data
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $304 $296 $336 $325 $301 $301 $301 $298
Gross profit 34 30 23 37 33 23 21 18
Operating profit
(loss) 25 4 3 17 15 1 (1) (18)
Net income
(loss) 18 (4) 18 3 4 (10) (11) (212)
Net income
(loss)per share:
On common stk
prior to
accting changes .41 (.15) .63 .07 .11 (.40) (.46) (1.24)
Cumulative eff.
of accnt changes - - - - - - - (6.79)
------ ------ ------ ------ ------ ------ ------ ---
Net income
(loss)per share
of common stock .41 (.15) .63 .07 .11 (.40) (.46) (8.03)
---------------------------------------------------------------------------
</TABLE>
WEIRTON STEEL CORPORATION
BOARD OF DIRECTORS
Michael Bozic+
President and CEO
Hills Stores Company,
Canton, Massachusetts
James B. Bruhn Harvey L. Sperry+
Executive Vice President Commercial Partner,
Weirton Steel Corporation Willkie, Farr &
Weirton, West Virginia Gallagher
New York, New York
Robert J. D'Anniballe, Jr.*
Partner, Thomas R.
Sturges*+
Alpert, D'Anniballe & Visnic Executive Vice
Weirton, West Virginia President, The
Harding Group
Greenwich, CT
Herbert Elish*+
Chairman and Chief David I.J. Wang*+
Executive Officer Former Executive
Ex Officio Member of Committees Vice President
Weirton Steel Corporation International
Paper
Weirton, West Virginia Company
Naples, Florida
Mark G. Glyptis*
President, Independent Steelworkers Union
Weirton, West Virginia
Gordon C. Hurlbert+
President and CEO
GCH Management Services, Inc.
Pittsburgh, Pennsylvania
Phillip A. Karber*+
Corporate Vice President and Director
Center for Technology and Public Policy Research
BDM International, Inc.
McLean, Virginia
Richard K. Riederer
President, Chief Operating Officer
and Chief Financial Officer
Weirton Steel Corporation
Weirton, West Virginia
Richard F. Schubert+
President and CEO
The Points of Light Foundation
Washington, D.C.
*Member of Audit Committee
+Member of Compensation Committee
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of Weirton Steel Corporation as of March
15, 1995 were as follows:
Herbert Elish,
Chairman of the Board and
Chief Executive Officer
Richard K. Riederer
President, Chief Operating Officer
and Chief Financial Officer
James B. Bruhn
Executive Vice President -
Commercial
Craig T. Costello
Executive Vice President -
Operations
William C. Brenneisen
Senior Vice President -
Human Resources
Thomas W. Evans
Vice President
Materials Management
David M. Gould
Vice President
Economic Development
William R. Kiefer
Vice President
Law and Secretary
Mac S. White, Jr.
Vice President
Engineering
Narendra M. Pathipati
Treasurer
Earl E. Davis, Jr.
Controller
ESOP INFORMATION
Inquiries about Employee Stock Ownership Plan accounts should be
directed to Weirton Steel Corporation ESOP Administrator, at the
Executive Offices.
STOCKHOLDER INFORMATION
Additional copies of this Annual Report or reports filed with the
Securities and Exchange Commission and copies of the Company's
quarterly reports to stockholders can be obtained by writing to:
Investor Relations
Weirton Steel Corporation
400 Three Springs Drive
Weirton, West Virginia 26062-4989
Telephone (304) 797-2728
NOTICE OF ANNUAL MEETING
A notice of the annual meeting and proxy statement and a proxy
voting card as well as a copy of the current Annual Report will
be mailed to each stockholder prior to the meeting.
EXECUTIVE OFFICES
Weirton Steel Corporation
400 Three Springs Drive
Weirton, West Virginia 26062-4989
Telephone (304) 797-2000
STOCK TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for its common stock
is Society National Bank of Cleveland, Ohio. Stockholders
wishing to transfer their shares of the Company's common stock to
someone else or to change the name on a stock certificate should
contact the Shareholder Communications Department, Society
National Bank, 2073 E.9th Street, P.O. Box 6477, Cleveland, Ohio
44101-1477, Telephone (216)737-5745 for assistance. Changes of
address or questions regarding stockholder accounts should also
be directed to the Shareholder Communications Department.
INDEPENDENT AUDITORS
The Company's independent auditors are Arthur Andersen LLP, 2100
One PPG Place, Pittsburgh, Pennsylvania 15222.
Exhibit 22.1
Subsidiary Percentage owned by State of
Registrant Incorporation
Weirton Receivables, Inc. 100% Delaware
Arthur Andersen LLP Exhibit 24.1
2100 One PPG Place
Pittsburgh, PA 15222
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports, included or incorporated by
reference in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8, Registration No. 33-31429,
relating to the Company's 1989 Employee Stock Purchase Plan.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<CASH> 13,646
<SECURITIES> 49,259
<RECEIVABLES> 131,902
<ALLOWANCES> 6,405
<INVENTORY> 270,518
<CURRENT-ASSETS> 513,498
<PP&E> 867,102
<DEPRECIATION> 278,199
<TOTAL-ASSETS> 1,230,920
<CURRENT-LIABILITIES> 257,039
<BONDS> 394,505
<COMMON> 420
14,485
0
<OTHER-SE> 134,279
<TOTAL-LIABILITY-AND-EQUITY> 1,230,920
<SALES> 1,260,864
<TOTAL-REVENUES> 1,260,864
<CGS> 1,136,936
<TOTAL-COSTS> 1,212,330
<OTHER-EXPENSES> 2,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,999
<INCOME-PRETAX> 46,466
<INCOME-TAX> 7,454
<INCOME-CONTINUING> 39,012
<DISCONTINUED> 0
<EXTRAORDINARY> 3,851
<CHANGES> 0
<NET-INCOME> 35,161
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
