<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996
REGISTRATION NO. 333-07913
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
---------------
WEIRTON STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
3312
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
DELAWARE 06-1075442
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OR OTHER NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
---------------
400 THREE SPRINGS DRIVE
WEIRTON, WEST VIRGINIA 26062-4989
(304) 797-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM R. KIEFER, ESQ.
400 THREE SPRINGS DRIVE
WEIRTON, WEST VIRGINIA 26062-4989
(304) 797-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
HARVEY L. SPERRY, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER UNIT PRICE FEE
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<S> <C> <C> <C> <C>
11 3/8% Senior Notes Due
2004.................. $125,000,000 100% $125,000,000 $43,103.45(/1/)
</TABLE>
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- -------------------------------------------------------------------------------
(/1/) Previously paid. ---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER LOCATION IN PROSPECTUS
-------------------- ----------------------
<S> <C>
1. Forepart of the Registration State-
ment and Outside Front Cover Page of
Prospectus............................. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front and Outside Back Cover
Pages of Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information.. Summary; Selected Historical Financial
and Operating Data; Risk Factors
4. Terms of the Transaction............ Summary; The Exchange Offer;
Capitalization; Description of Notes
5. Pro Forma Financial Information..... Not Applicable
6. Material Contracts with the Company
Being Acquired....................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.............. Not Applicable
8. Interests of Named Experts and Coun-
sel................................... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Not Applicable
10. Information with Respect to S-3
Registrants......................... Summary; Available Information;
Incorporation of Documents by
Reference; Management's Discussion
and Analysis of Financial Conditions
and Results of Operations; Business;
Management
11. Incorporation of Certain Information
by Reference........................ Incorporation of Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information
by Reference........................ Not Applicable
14. Information with Respect to
Registrants Other than
S-3 or S-2 Registrants............... Not Applicable
15. Information with Respect to S-3
Companies........................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies....................... Not Applicable
17. Information with Respect to
Companies Other Than
S-3 or S-2 Companies................. Not Applicable
18. Information if Proxies, Consents or
Authorizations
are to be Solicited.................. Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Incorporation of Documents by
Solicited or in an Exchange Offer...... Reference; Summary
</TABLE>
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 11 3/8% SENIOR NOTES
DUE 2004 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 11
3/8% SENIOR NOTES DUE 2004 THAT WERE ISSUED AND SOLD IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
---------------
Weirton Steel Corporation, a Delaware corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer") $125,000,000 in aggregate principal
amount of its 11 3/8% Senior Notes Due 2004 (the "Exchange Notes") for
$125,000,000 in aggregate principal amount of its outstanding 11 3/8% Senior
Notes Due 2004 that were issued and sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Senior Notes"
and, together with the Exchange Notes, the "Notes").
The terms of the Exchange Notes are substantially similar (including
principal amount, interest rate, maturity and ranking) to the terms of the
Senior Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes (i) are freely transferable by holders thereof
(except as provided below) and are issued without any covenant regarding their
registration. The Exchange Notes will be issued under the indenture governing
the Senior Notes. The Exchange Notes will be, and the Senior Notes are,
unsecured obligations of the Company and will be senior to all subordinated
indebtedness and pari passu with all existing and future senior unsecured
indebtedness of the Company. As of June 30, 1996, after giving effect to the
offering of the Senior Notes, the Company had $433.2 million of outstanding
senior unsecured indebtedness. The Company and its subsidiary have no senior
secured indebtedness. For a complete description of the terms of the Exchange
Notes, including provisions relating to the ability of the Company to create
indebtedness that is senior or pari passu to the Exchange Notes, see
"Description of the Notes." There will be no cash proceeds to the Company from
the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Senior Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance
of the Exchange Notes, such interest to be payable with the first interest
payment on the Exchange Notes, but will not receive any payment in respect of
interest on the Senior Notes accrued after the issuance of the Exchange Notes.
The Senior Notes were originally issued and sold on July 3, 1996 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act and Rule 144A of the Securities Act (the "Initial
Offering"). Accordingly, the Senior Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. Based upon its view of
interpretations provided to third parties by the Staff (the "Staff") of the
Securities and Exchange Commission (the "Commission"), the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
the Senior Notes may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder or any such other person which is
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Senior
Notes directly from the Company or (iii) a broker-dealer who acquired Senior
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of business of such holder and any beneficial owner, and such holders
are not engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such
Exchange Notes. Each broker-dealer who acquired Senior Notes directly from the
Company and is participating in the Exchange Offer must comply with the
registration and prospectus delivery provisions of the Securities Act. Broker-
dealers who acquired Senior Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the Exchange Notes. The Company has agreed that,
for a period of 120 days after this Registration Statement is declared
effective by the Commission, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. Each broker-dealer
who receives Exchange Notes pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any
(continued on next page)
---------------
SEE "RISK FACTORS" ON PAGE 10 HEREOF FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The date of this Prospectus is August 9, 1996
<PAGE>
(continued from previous page)
resale of such Exchange Notes. The Letter of Transmittal that is filed as an
exhibit to the Registration Statement of which this Prospectus is a part (the
"Letter of Transmittal") states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Any holder that cannot
rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
The Senior Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. Any Senior Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that
Senior Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Senior Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders
of Senior Notes will continue to be subject to the existing restrictions on
transfer thereof and the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the Senior
Notes except under certain limited circumstances. (See "Senior Notes
Registration Rights.") No assurance can be given as to the liquidity of the
trading market for either the Senior Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., New York City time, on September 11, 1996,
unless extended (the "Expiration Date"). The date of acceptance for exchange
of the Senior Notes (the "Exchange Date") will be the first business day
following the Expiration Date, upon surrender of the Senior Notes. Senior
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date; otherwise such tenders are irrevocable.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Periodic reports, proxy statements and other information filed by the
Company with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Company upon request.
The Company's Common Stock is listed on the New York Stock Exchange. Periodic
reports, proxy statements and other information filed by the Company can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, or on the Internet at http://www.sec.gov.
The Company is required by the terms of the indenture dated as of July 3,
1996 between the Company and Bankers Trust Company, as trustee (the
"Trustee"), under which the Senior Notes were issued, and under which the
Exchange Notes are to be issued (the "Indenture"), to furnish the Trustee with
annual reports containing consolidated financial statements audited by its
independent certified public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995; (2)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; (3) the Company's Current Report on Form 8-K, filed May 29, 1996; and
(4) the Company's Current Report on Form 8-K, dated June 27, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the termination of the exchange offer made herein shall be deemed
to be incorporated herein by reference and to be a part hereof from the date
of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement
i
<PAGE>
contained herein, or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, FROM THE
COMPANY. WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO WEIRTON STEEL
CORPORATION, 400 THREE SPRINGS DRIVE, WEIRTON, WEST VIRGINIA 26062-4989,
ATTENTION: WILLIAM R. KIEFER, VICE PRESIDENT-LAW AND SECRETARY (TELEPHONE 304-
797-2000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY AUGUST 30, 1996.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ i
SUMMARY.................................................................... 1
THE COMPANY................................................................ 1
THE EXCHANGE OFFER......................................................... 4
TERMS OF THE NOTES......................................................... 6
RISK FACTORS............................................................... 10
Consequences Of Failure To Exchange...................................... 10
Factors Relating To The Company.......................................... 10
Financial Results/Recent Developments.................................. 10
Deficiency of Earnings to Fixed Charges................................ 11
Collective Bargaining Agreements....................................... 11
Environmental Compliance Expenditures.................................. 11
Leverage............................................................... 12
Limitations on Raising Equity.......................................... 12
Voting Power........................................................... 13
No Prior Market........................................................ 13
Change of Control...................................................... 13
Factors Relating To The Steel Industry................................... 13
Cyclicality............................................................ 13
Capacity Utilization and Price Sensitivity............................. 13
Competition............................................................ 14
USE OF PROCEEDS............................................................ 14
THE EXCHANGE OFFER......................................................... 15
Purpose of the Exchange Offer............................................ 15
Terms of the Exchange.................................................... 15
Expiration Date; Extensions; Termination; Amendments..................... 16
How to Tender............................................................ 17
Terms and Conditions of the Letter of Transmittal........................ 19
Withdrawal Rights........................................................ 19
Acceptance of Senior Notes for Exchange; Delivery of Exchange Notes...... 20
Conditions to the Exchange Offer......................................... 20
Exchange Agent........................................................... 21
Solicitation of Tenders; Express......................................... 21
Appraisal Rights......................................................... 21
Federal Income Tax Consequences.......................................... 21
Other.................................................................... 22
CAPITALIZATION............................................................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................... 27
BUSINESS................................................................... 35
MANAGEMENT................................................................. 50
DESCRIPTION OF THE NOTES................................................... 53
General.................................................................. 53
Redemption............................................................... 53
Optional Redemption.................................................... 53
Selection and Notice of Redemption..................................... 53
Sinking Fund........................................................... 54
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Certain Covenants....................................................... 54
Limitations on Indebtedness........................................... 54
Limitations on Restricted Payments.................................... 54
Limitations on Mergers, Consolidations and Sales of Assets............ 55
Limitations on Transactions with Affiliates........................... 55
Restrictions on Disposition of Assets of the Company.................. 56
Limitations on Liens.................................................. 56
Limitations on Sale and Leaseback Transactions........................ 56
Limitations on Dividend and Other Payment Restrictions Affecting Sub-
sidiaries............................................................ 57
Change of Control Option.............................................. 57
Reports to Holders of the Notes....................................... 59
Certain Definitions..................................................... 59
Events of Default and Notice Thereof.................................... 65
Modification and Waiver................................................. 66
Satisfaction and Discharge of Indenture................................. 66
Concerning the Trustee.................................................. 66
Book-entry; Delivery and Form........................................... 67
Global Note........................................................... 67
Certificated Securities............................................... 68
Governing Law........................................................... 68
SENIOR NOTES REGISTRATION RIGHTS.......................................... 68
PLAN OF DISTRIBUTION...................................................... 70
LEGAL MATTERS............................................................. 71
EXPERTS................................................................... 71
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements included elsewhere
or incorporated by reference into this Prospectus. Unless the context otherwise
requires, the term "Company" refers to Weirton Steel Corporation and its sole
subsidiary, Weirton Receivables, Inc. ("WRI").
THE COMPANY
GENERAL
The Company is a major integrated producer of flat rolled carbon steel which
has been in the steelmaking and finishing business for more than 80 years. The
Company focuses on higher value-added products with demanding specifications,
such as tin mill products ("TMP") and coated sheet. TMP are sold primarily to
manufacturing and packaging companies for use as food, non-carbonated beverage
and general line cans; coated sheet is sold primarily to the construction
industry for use in a broad variety of building products and to service
centers. For the three months ended March 31, 1996, these value-added product
lines accounted for approximately 68% of the Company's revenues and 55% of its
shipments. Over the last five years, these value-added product lines have
accounted for approximately 71% of the Company's revenues and 59% of its
shipments. The remainder of the Company's revenues is derived from the sale of
hot and cold rolled sheet, which is used primarily for machinery, construction
products and other durable goods. The Company believes that its percentage of
value-added products to total production is among the highest of integrated
steel producers in the United States and provides it with a competitive
advantage against both domestic and foreign commodity steel producers.
Since 1988, the Company has made capital improvements in excess of $730
million, reduced its workforce by 31% and implemented a number of additional
cost reduction initiatives, all of which have contributed to increased
productivity. In particular, from 1988 to the first quarter of 1996, the
Company increased its overall yields from liquid steel to finished product from
approximately 74% to approximately 81% and reduced its employee hours per ton
from 6.41 to 4.31.
Incorporated in Delaware in November 1982, the Company acquired the principal
assets of National Steel Corporation's former Weirton Steel Division in January
1984 through an employee stock ownership plan (the "1984 ESOP"). Substantially
all the Company's employees participate in the 1984 ESOP and another stock
ownership plan formed in 1989 (the "1989 ESOP," and together with the 1984
ESOP, the "ESOPs"), which collectively owned common stock and preferred stock
accounting for approximately 48% of the total voting power of the Company's
capital stock as of March 31, 1996.
BUSINESS
TMP. The Company believes it is one of the largest domestic producers of TMP
and that it is considered to be a leading innovator of TMP in the United
States. TMP comprise a wide variety of light gauge coated steels, including tin
plate and black plate products, as well as electrolytic chromium coated steel.
The market for TMP is characterized by a relative balance between supply and
demand, a comparatively high cost of entry, a limited number of suppliers, and
major customers who traditionally have committed to a significant portion of
their annual purchase requirements in advance. As a result, TMP have enjoyed
more stable pricing, a greater resistance to recession and a higher level of
revenue predictability from year to year than the steel industry as a whole. In
the first quarter of 1996, the Company regained its TMP market share of 22%
that it held in 1993, prior to a fire in April 1994 which extensively damaged
the Company's No. 9 tandem mill (the "No. 9 Tandem Mill"). The No. 9 Tandem
Mill, which processes 70% to 80% of the coils required to manufacture TMP, was
out of operation until October 1994, and as a result, the Company's market
share for TMP dropped to 15% in 1994. TMP represented 41% of the Company's
total revenues in the first quarter of 1996 and 43% for the five years ended
December 31, 1995.
1
<PAGE>
Sheet Products. The Company's sheet products include hot rolled, cold rolled
and galvanized steel, which are used in a variety of industrial applications,
including construction and consumer durables. Less than 3% of the Company's
sales during the five year period ended December 31, 1995 were made directly to
auto manufacturers, and the Company does not produce bars, rods, wire or
structural products. The Company has sought to emphasize its higher value-added
galvanized and coated product lines by developing new products and by offering
a wide range of gauges, finishes and performance specifications. The Company
emphasizes clean steel quality and produces sheets in narrow and medium widths.
These factors have helped the Company achieve a higher degree of uniformity in
its sheet products and have allowed it to specialize in orders with demanding
specifications. Although demand for the Company's sheet products remained
strong during 1995 and into the first quarter of 1996, selling prices in the
steel industry (including those for the Company's products) steadily declined
during 1995. During the first quarter of 1996, the Company and the industry in
general announced price increases. In the second quarter of 1996, the Company
began to realize a portion of these price increases in sales to certain of its
customers. However, there can be no assurance that the Company will continue to
realize such price increases, or that prices will not decline in the future.
Sheet product sales represented 59% of the Company's total revenues for the
three months ended March 31, 1996 and 57% for the five years ended December 31,
1995.
BUSINESS STRATEGY
The Company's strategic objective is to be a first tier global provider, in
terms of cost, quality and customer service, of tin plate and other specialty
coated/plated products. The Company's strategy is to (i) continue to make cost
and productivity improvements, (ii) continue to improve its product mix toward
higher value-added products such as TMP and coated sheet and (iii) maximize the
utilization of its assets.
Cost and Productivity Improvements. The Company has identified several
capital expenditure projects that are anticipated to reduce production costs
and increase productivity, including a blast furnace reline and rebuild
scheduled for the fourth quarter of 1996 and the upgrade of the turbo blower on
its blast furnaces. Additionally, the Company is currently in the feasibility
study stage for the installation of a Pulverized Coal Injection facility
("PCI") which would reduce the Company's dependence on coke. Further,
management has recently initiated a new supply management program to coordinate
the acquisition of goods and services, and a new scrap management program which
is expected to allow for the use of lower cost scrap in the basic oxygen
process.
Improve Product Mix. The Company's strategy emphasizes the development,
production and shipment of higher value-added products which have generally
allowed the Company to realize higher margins. In particular, the Company is
seeking to further increase its market share in TMP through increased sales to
existing customers, the extension of its customer base and international
expansion.
Maximize Utilization of Assets. The Company is focusing on maximizing the
utilization of certain key operating assets by (i) increasing blast furnace hot
metal production, (ii) improving throughput at its caster and cold rolling
facilities, and (iii) fully utilizing excess capacity at its hot strip mill.
RECENT DEVELOPMENTS
On April 1, 1996, the Company announced that it shut down its No. 3 blast
furnace (the "No. 3 Blast Furnace") for an unscheduled 10-day outage to install
a new bell, a device which distributes the burden of raw materials into the
furnace for smelting. The adverse impact of this outage on second quarter
income from operations is expected to be between $5 million and $7 million.
On May 29, 1996, the Company announced that it was reducing its supervisory
and managerial workforce by approximately 200 employees, or approximately 20%,
as part of its ongoing broad-based effort to improve its cost position. The
restructuring charge associated with the workforce reduction is approximately
$17 million and will be recorded in the second quarter of 1996. The Company
expects the cash cost associated with the workforce
2
<PAGE>
reduction to be approximately $7.5 million over the next twelve months, with
the remainder extending beyond that period. The Company does not believe the
costs associated with the workforce reduction will have a significant impact on
the Company's liquidity. While the Company has no specific plan to further
reduce its workforce, it is currently evaluating further workforce reductions
and, to the extent the Company pursues such alternatives, it may be required to
record additional significant restructuring charges. The additional costs
associated with the No. 3 Blast Furnace outage, coupled with the restructuring
charge as well as any extraordinary loss associated with the repurchase of the
10 7/8% Notes and the 11 1/2% Notes, will likely cause the Company to report a
net loss for the year ending December 31, 1996.
THE REFINANCING
On May 29, 1996, the Company commenced a tender offer pursuant to which it
offered to purchase up to $65 million aggregate principal amount of its
outstanding 10 7/8% Senior Notes due October 15, 1999 (the "10 7/8% Notes") and
up to $35 million aggregate principal amount of its outstanding 11 1/2% Senior
Notes due March 1, 1998 (the "11 1/2% Notes") at an aggregate principal price
of approximately $106.0 million (the "Tender Offer"). The consideration for 10
7/8% Notes tendered pursuant to the Tender Offer was $1,053.77 per $1,000
principal amount and the consideration for 11 1/2% Notes tendered pursuant to
the Tender Offer was $1,048.06 per $1,000 principal amount, in each case plus
accrued interest up to, but not including, the payment date. The purpose of the
Tender Offer was to extend the maturities of the Company's outstanding
indebtedness by refinancing the 10 7/8% Notes and 11 1/2% Notes purchased
pursuant to the Tender Offer with the proceeds from the issuance and sale of
the Senior Notes.
The Tender Offer expired at 5:00 p.m., New York City Time on June 27, 1996.
On July 3, 1996, the Company issued and sold (the "Initial Offering")
$125,000,000 aggregate amount of 11 3/8% Senior Notes due 2004 (the "Senior
Notes"). The Senior Notes were sold at a discount of 98.088% to par. The net
proceeds to the Company, after underwriting commissions of $3.4 million and
approximately $0.5 million of other fees and expenses of the Initial Offering,
were approximately $118.7 million. The Company used a portion of the proceeds
from the Initial Offering to repurchase, concurrently with the consummation of
the sale of the Notes, $35 million aggregate principal amount of 11 1/2% Notes
and $65 million aggregate principal amount of 10 7/8% Notes tendered pursuant
to the Tender Offer, for an aggregate purchase price, inclusive of related
tender fees and expenses, of approximately $106.0 million. See "Use of
Proceeds."
The Company's principal executive offices are located at 400 Three Springs
Drive, Weirton, West Virginia, 26062-4989 (telephone (304) 797-2000).
3
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER.......... The Company is offering to exchange (the
"Exchange Offer") $125,000,000 aggregate
principal amount of 11 3/8% Senior Notes due 2004
(the "Exchange Notes") for $125,000,000 aggregate
principal amount of its outstanding 11 3/8%
Senior Notes due 2004 (the "Senior Notes"). The
Senior Notes were issued and sold by the Company
on July 3, 1996 in a transaction exempt from
registration under Section 4(2) of, and Rule 144A
under, the Securities Act. See "The Exchange
Offer--Purpose of the Exchange Offer." The form
and terms of the Exchange Notes are substantially
similar (including principal amount, interest
rate, maturity and ranking) to the form and terms
of the Senior Notes for which they may be
exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable
by holders thereof except as provided herein (see
"The Exchange Offer--Terms of the Exchange" and
"--Terms and Conditions of the Letter of
Transmittal") and are not subject to any covenant
regarding registration under the Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Senior Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an Affiliate of the Company,
(ii) a broker-dealer who acquired Senior Notes
directly from the Company or (iii) a broker-
dealer who acquired Senior Notes as a result of
market making or other trading activities),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are
acquired in the ordinary course of such holders'
business and such holders are not engaged in, and
do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes. Each broker-dealer who acquired Senior
Notes directly from the Company and is
participating in the Exchange Offer must comply
with the registration and prospectus delivery
provisions of the Securities Act. Each broker-
dealer who receives Exchange Notes pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging, and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act.
MINIMUM CONDITION........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Senior
Notes being tendered or accepted for exchange.
EXPIRATION DATE.............
The Exchange Offer will expire at 5:00 p.m., New
York City time, on September 11, 1996 unless
extended (the "Expiration Date").
4
<PAGE>
Letters of Transmittal must be received no later
EXCHANGE DATE............... than the Expiration Date to effect an exchange of
Senior Notes for Exchange Notes on the Exchange
Date. The first date of acceptance for exchange
for the Senior Notes will be the first business
day following the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER...................... The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer--Conditions to the
Exchange Offer." The Company reserves the right
to terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition.
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Senior Notes not accepted
for any reason will be returned without expense
to the tendering holders thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
PROCEDURES FOR TENDERING
SENIOR NOTES............... See "The Exchange Offer--How to Tender."
FEDERAL INCOME TAX
CONSEQUENCES............... The exchange for Exchange Notes by holders of
Senior Notes will not be a taxable exchange for
federal income tax purposes, and such holders
should not recognize any taxable gain or loss or
any interest income as a result of such exchange.
EFFECT ON HOLDERS OF
SENIOR NOTES................ As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Senior Notes pursuant to the terms of
this Exchange Offer, the Company will have
fulfilled a covenant contained in the terms of
the Senior Notes and the Registration Rights
Agreement (the "Registration Rights Agreement")
dated as of July 3, 1996 among the Company,
Lehman Brothers Inc. and Salomon Brothers Inc as
initial purchasers (collectively, the "Initial
Purchasers"), and, accordingly, the holders of
the Senior Notes will have no further
registration or other rights under the
Registration Rights Agreement, except under
certain limited circumstances. See "Senior Notes
Registration Rights." Holders of the Senior Notes
who do not tender their Senior Notes in the
Exchange Offer will continue to hold such Senior
Notes and will be entitled to all the rights and
limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Senior Notes will continue to be
subject to the restrictions on transfer provided
for in the Senior Notes and the Indenture. To the
extent that Senior Notes are tendered and
accepted in the Exchange Offer, the trading
market, if any, for the Senior Notes could be
adversely affected. See "Risk Factors--
Consequences of Failure to Exchange."
5
<PAGE>
TERMS OF THE NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of
Senior Notes. The form and terms of the Exchange Notes are substantially
similar to the form and terms of the Senior Notes except that the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof. The Exchange Notes will evidence
the same debt as the Senior Notes and will be entitled to the benefits of the
Indenture. See "Description of the Notes."
NOTES OFFERED............... $125,000,000 principal amount of 11 3/8% Senior
Notes Due 2004.
MATURITY.................... July 1, 2004.
INTEREST PAYMENT DATES...... Interest on the Notes will be payable in cash
semiannually on July 1 and January 1 of each
year, commencing January 1, 1997.
RANKING..................... The Notes will be unsecured obligations of the
Company and will be senior to all subordinated
indebtedness of the Company and pari passu with
all existing and future senior unsecured
indebtedness of the Company.
OPTIONAL REDEMPTION......... The Notes are not redeemable prior to July 1,
2000. On and after July 1, 2000, the Notes are
redeemable at the option of the Company, in whole
or in part, at the redemption prices set forth
herein, together with accrued interest thereon to
the redemption date. See "Description of the
Notes--Redemption--Optional Redemption."
MANDATORY REDEMPTION........ There are no mandatory redemption provisions for
the Notes.
CHANGE OF CONTROL........... Upon a Change of Control (as defined herein),
each holder of Notes will have the right to
require the Company to repurchase all or any part
of such holder's outstanding Notes at 101% of the
principal amount thereof, together with accrued
interest thereon to the repurchase date. See
"Description of the Notes--Certain Covenants--
Change of Control Option."
CERTAIN COVENANTS........... The Indenture contains covenants including, but
not limited to, covenants with respect to the
following matters: (i) limitations on
indebtedness; (ii) limitations on restricted
payments; (iii) limitations on mergers,
consolidations and sales of assets; (iv)
limitations on transactions with affiliates; (v)
restrictions on disposition of assets of the
Company; (vi) limitations on liens; (vii)
limitations on sale and leaseback transactions;
and (viii) limitations on dividend and other
payments restrictions affecting subsidiaries. The
protections afforded holders of Notes in the
event of a highly-leveraged transaction,
reorganization, restructuring, merger or similar
transaction involving the Company that may
adversely affect the holders are set forth in the
foregoing covenants and fully discussed in
"Description of the Notes--Certain Covenants."
Holders of Notes should carefully review these
covenants prior to making a decision with respect
to the Exchange Offer.
RISK FACTORS................ Holders of Senior Notes should carefully consider
the matters set forth under the caption "Risk
Factors" prior to making a decision with respect
to the Exchange Offer. See "Risk Factors."
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth summary historical financial and operating
data for the Company for the three months ended March 31, 1996 and March 31,
1995 and for each fiscal year in the five-year period ended December 31, 1995.
The summary historical financial data for the Company for each fiscal year in
the five-year period ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The historical financial data
for the three months ended March 31, 1996 and March 31, 1995 have been derived
from the Company's unaudited financial statements which, in the opinion of
management of the Company, contain all adjustments necessary for a fair
presentation of this information. The historical data with respect to the
results of operations for the three months ended March 31, 1996 should not be
regarded as necessarily indicative of the results that may be expected for the
entire year. This historical data should be read in conjunction with the
consolidated financial statements and notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. See "Incorporation of
Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT TON DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $340.9 $354.7 $1,351.7 $1,260.9 $1,201.1 $1,078.7 $1,036.3
Operating costs:
Cost of sales.......... 310.8 299.2 1,180.1 1,136.9 1,105.6 1,010.0 1,019.3
Selling, general and
administrative ex-
penses................ 9.5 8.2 34.4 31.5 32.5 30.5 29.1
Depreciation........... 14.5 15.1 54.7 46.3 49.1 38.6 34.3
Provision for profit
sharing(1)............ -- 16.1 24.2 17.6 -- -- --
Special items(2)....... -- (34.0) (41.5) (20.0) 17.3 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from op-
erations.............. 6.1 50.1 99.8 48.6 (3.4) (0.4) (46.4)
Unusual gain(3)........ -- -- 9.0 44.7 -- -- --
Net interest ex-
pense(4).............. 8.9 9.6 37.9 44.1 50.2 37.9 29.7
ESOP contributions(5).. 0.7 0.7 2.6 2.6 2.6 2.6 2.6
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes.......... (3.5) 39.8 68.3 46.6 (56.2) (40.9) (78.7)
Income tax (provision)
benefit............... 0.7 (7.7) (13.2) (7.5) 13.3 4.8 4.0
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
principles............ (2.8) 32.1 55.1 39.1 (42.9) (36.1) (74.7)
Extraordinary item(6).. -- -- (6.7) (3.9) (6.5) -- --
Cumulative effect of
changes in accounting
principles(7)......... -- -- -- -- (179.8) 4.3 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... (2.8) 32.1 48.4 35.2 (229.2) (31.8) (74.7)
Less: Preferred stock
dividend requirement.. -- -- -- (2.4) (3.1) (3.1) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ap-
plicable to common
shares................ $ (2.8) $ 32.1 $ 48.4 $ 32.8 $ (232.3) $ (34.9) $ (74.7)
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Income (loss) per com-
mon share before ex-
traordinary item...... $ (0.07) $ .73 $ 1.26 $ 1.06 $ (1.74) $ (1.57) $ (3.49)
Income (loss) per com-
mon share before cumu-
lative effect of ac-
counting changes...... (0.07) .73 1.10 0.95 (1.99) (1.57) (3.49)
Net income (loss) per
common share.......... (0.07) .73 1.10 0.95 (8.78) (1.40) (3.49)
Cash dividends paid.... -- -- -- -- -- -- --
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and equivalents... $ 104.4 $ 82.3 $ 131.8 $ 62.9 $ 89.0 $ 61.2 $ 84.2
Working capital........ 346.5 321.2 340.3 256.5 262.2 237.7 273.5
Total assets........... 1,277.5 1,233.7 1,314.0 1,230.9 1,240.7 1,005.4 1,038.0
Long-term debt
(including current
portion)(8)........... 407.9 394.5 407.9 394.5 495.3 503.2 505.3
Redeemable preferred
stock, net............ 16.6 15.1 15.9 14.5 36.7 34.2 31.0
Stockholders' equity
(deficit)............. $ 195.8 $ 181.3 $ 198.6 $ 149.2 $ (1.4) $ 231.3 $ 257.3
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------- ------- ------ ------ -------
(DOLLARS IN MILLIONS EXCEPT TON DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA (FOR THE
PERIOD, EXCEPT WHERE
NOTED):
EBITDA(9).............. $ 22.2 $ 41.7 $ 129.4 $ 90.5 $ 47.7 $ 39.9 $ (9.5)
Capital
expenditures(10)...... $ 13.4 $ 7.1 $ 52.4 $ 112.1 $ 13.3 $ 44.6 $ 113.9
Ratio of EBITDA to
interest expense...... 2.07 3.97 3.04 1.81 0.90 0.97 --
Ratio of net debt to
EBITDA(11)............ 3.41 1.87 2.13 3.67 8.51 11.08 --
Net debt to net
capitalization(12).... 59% 61% 56% 67% 92% 62% 59%
Ratio of earnings to
fixed charges(13)..... -- 4.46 2.48 1.85 -- -- --
Tons shipped (in
thousands)............ 712 705 2,718 2,606 2,431 2,102 1,939
Net sales per ton
shipped............... $ 479 $ 503 $ 497 $ 484 $ 494 $ 513 $ 534
Cost of sales per ton
shipped............... $ 437 $ 424 $ 434 $ 436 $ 455 $ 480 $ 526
Gross profit per ton
shipped............... $ 42 $ 79 $ 63 $ 48 $ 39 $ 33 $ 8
Operating income (loss)
per ton shipped,
excluding special
items(14)............. $ 9 $ 37 $ 26 $ 15 $ 6 $ 0 $ (24)
Active employees (at
end of period)........ 5,615 5,552 5,655 5,565 6,026 6,542 6,979
Employee hours per ton
of hot band produced.. 1.75 1.76 1.76 1.83 1.95 2.07 2.38
Employee hours per ton
shipped............... 4.31 4.38 4.44 4.89 5.31 6.53 7.55
Capacity utilization... 94% 99% 95% 91% 91% 83% 68%
Percentage of raw steel
continuously cast..... 100% 100% 100% 100% 100% 100% 97%
Yield (raw steel to
finished production).. 80.8% 80.8% 80.7% 83.0% 77.9% 72.3% 72.3%
</TABLE>
- --------
(1) The provision for employee profit sharing is calculated in accordance
with the profit sharing plan agreement. The provision is currently based
upon 33 1/3% of net income, subject to a minimum net worth provision of
$100.0 million.
(2) During the three months ended March 31, 1995 and the years ended December
31, 1995 and 1994, the Company's results of operations included the
recognition of $34.0 million, $34.0 million and $20.0 million,
respectively, of insurance recoveries relating to a business interruption
claim arising out of the fire which damaged the No. 9 Tandem Mill in April
1994. In addition, the year ended December 31, 1995 includes a $7.5
million settlement of a 1991 business interruption claim from an outage at
the Company's hot strip mill. The Company recognized a restructuring
charge of $17.3 million in the year ended December 31, 1993 associated
with an enhanced early retirement package as part of a Company cost
reduction program.
(3) The Company was required to recognize a new cost basis for property damage
insurance recoveries related to the No. 9 Tandem Mill which resulted in
the recognition of a pretax gain for the years 1995 and 1994 in the
amounts of $9.0 million and $44.7 million, respectively.
(4) Net interest expense does not include capitalized interest of $0.3
million, $0.2 million, $1.1 million , $2.3 million, $0.8 million, $6.1
million and $12.8 million for the three months ended March 31, 1996 and
1995, and for the years ended December 31, 1995, 1994, 1993, 1992 and
1991, respectively.
(5) Does not involve a net outflow of cash as these contributions are returned
to the Company in the form of payments on loans from the Company to the
ESOPs.
(6) Reflects certain costs incurred in connection with the early
extinguishment of debt.
(7) Effective January 1, 1992, the Company changed its method of accounting
for the depreciation of its steelmaking facilities from a straight-line to
a production-variable method. 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," SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," and SFAS No. 109, "Accounting for Income Taxes." The cumulative
effect of the 1993 accounting changes reflects the collective
implementation of the following accounting changes. The change in
accounting under SFAS No. 106 required the Company to recognize a pretax
charge of $303.9 million to account for the prior service cost of retiree
health care and life insurance benefits as well as an additional noncash
expense each quarter which began in the first quarter of 1993. The Company
also recorded a pretax charge of $4.0 million relating to the
implementation of SFAS No. 112, and a net income tax benefit of $128.1
million, representing the cumulative effect of the accounting change for
income taxes in accordance with SFAS No. 109.
(8) See "Capitalization" for information regarding certain adjustments made to
give effect to the Initial Offering and the Tender Offer.
(9) EBITDA represents the earnings of the Company before income taxes,
interest expense, depreciation and amortization, and for the three months
ended March 31, 1995 and the years 1995 and 1994, excludes the business
interruption and property damage insurance recoveries and the related
impact on the provision for profit sharing. EBITDA differs from the
definition of Consolidated EBITDA
8
<PAGE>
under the Indenture. See "Description of Notes." EBITDA is not a measure of
financial performance under generally accepted accounting principles
("GAAP"). Accordingly, it does not represent net income or cash flows from
operations as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. As a result, EBITDA should not
be considered as an alternative to net income, as an indicator of operating
performance or to cash flows as a measure of liquidity.
(10) Capital expenditures in 1995 and 1994 included $2.9 million and $74.6
million, respectively, for rebuilding the No. 9 Tandem Mill due to fire
damage. The Company received cash insurance recoveries for property damage
of $9.0 million and $45.0 million in 1995 and 1994, respectively, related
to the 1994 outage at the No. 9 Tandem Mill.
(11) For purposes of this ratio, EBITDA for the three months ended March 31,
1996 and March 31, 1995 have been annualized. Net debt represents long-
term debt minus cash and equivalents.
(12) Net debt represents long-term debt minus cash and equivalents, and net
capitalization represents total capitalization minus cash and equivalents.
(13) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before taxes plus fixed charges and (ii) fixed
charges consist of interest expense incurred, amortization of debt expense
and one-third of rental payments under operating leases (an amount
estimated by management to be the interest portion of such rentals).
Earnings did not cover fixed charges by $3.5 million, $56.2 million, $40.9
million and $78.7 million for the three months ended March 31, 1996 and
the years ended December 31, 1993, 1992 and 1991, respectively. The ratio
of earnings to fixed charges is not expected to be materially affected by
this Offering.
(14) Represents income (loss) from operations, excluding insurance recoveries
and the related effect on the provision for profit sharing, for the three
months ended March 31, 1995 and for the years ended December 31, 1995 and
1994, and the restructuring charge for the year ended December 31, 1993
divided by tons shipped. Including the special items, operating income per
ton was $71, $37 and $19 for the three months ended March 31, 1995 and the
years ended December 31, 1995 and 1994, respectively.
9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Senior Notes for the Exchange Notes offered hereby, holders of
Senior Notes should consider carefully the following factors, which may be
generally applicable to the Senior Notes as well as the Exchange Notes:
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers primarily with respect to the future
operating performance of the Company. Holders of Senior Notes are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Prospectus,
including without limitation the information set forth below and the
information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," identifies important factors
that could cause such differences.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Senior Notes who do not exchange their Senior Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Notes as set forth in the legend
thereon as a consequence of the issuance of the Senior Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Senior Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Senior Notes under the Securities Act. In
addition, any holder of Senior Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. To the extent Senior Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the Senior Notes could be adversely affected. See "The Exchange Offer" and
"Senior Notes Registration Rights."
FACTORS RELATING TO THE COMPANY
Financial Results/Recent Developments. The Company reported a net loss of
$2.8 million for the first quarter of 1996 and net income of $48.4 million and
$35.2 million for the years ended December 31, 1995 and 1994, respectively.
The 1995 and 1994 results included favorable adjustments of $9.0 million and
$44.7 million, respectively, for property damage insurance recoveries and
$34.0 million and $20.0 million, respectively, for business interruption
insurance recoveries related to the 1994 outage at the No. 9 Tandem Mill. The
1995 and 1994 results also included extraordinary losses on the early
extinguishment of debt of $6.7 million and $3.9 million, respectively. The
1995 results also included a favorable adjustment of $7.5 million associated
with the settlement of a business interruption claim stemming from an outage
at its hot strip mill in 1991. Excluding the effect of these items, including
the impact on the provisions for profit sharing and income taxes, the Company
would have had net income of $24.2 million in 1995 and a net loss of $5.3
million in 1994.
In April 1996, the No. 3 Blast Furnace was shut down for an unscheduled 10-
day outage to install a new bell. The adverse impact of this outage on income
from operations for the second quarter of 1996 is expected to be between $5
million and $7 million. In May 1996, the Company announced it was reducing its
supervisory and managerial workforce by approximately 200 employees, or
approximately 20%, as part of its ongoing broad-based effort to improve the
Company's cost position. The Company will record a restructuring charge of
approximately $17 million in the second quarter of 1996 related to termination
benefits. The additional costs associated with the No. 3 Blast Furnace outage
coupled with the restructuring charge, as well as any extraordinary loss
associated with the repurchase of the 10 7/8% Notes and the 11 1/2% Notes,
will likely cause the
10
<PAGE>
Company to report a net loss for the year ending December 31, 1996. While the
Company has no specific plan to further reduce its workforce, the Company is
currently evaluating further workforce reductions and, to the extent the
Company pursues such alternatives, the Company may be required to record
additional significant restructuring charges.
The Company's ability to return to profitability is dependent upon a number
of factors, including the continued successful implementation of its cost
reduction and productivity improvement efforts, as well as factors beyond the
Company's control, including the level of steel and raw materials prices,
energy costs, domestic demand for steel products and the level of steel
imports. As a result of these and other factors, there can be no assurance
that the Company will be profitable in the future.
Deficiency of Earnings to Fixed Charges. For the three months ended March
31, 1996 and the years ended December 31, 1993, 1992 and 1991, the Company's
earnings were insufficient to cover fixed charges by approximately $3.5
million, $56.2 million, $40.9 million and $78.7 million, respectively. For the
three months ended March 31, 1995 and the years ended December 31, 1995 and
1994, the ratios of earnings to fixed charges were 4.46, 2.48 and 1.85,
respectively.
Collective Bargaining Agreements. The Company has collective bargaining
agreements effective through September 25, 1996 with the Independent
Steelworkers Union, which, as of March 31, 1996, represented approximately
4,581 employees in bargaining units covering production and maintenance
workers, clerical workers and nurses, and the Independent Guard Union, which,
as of March 31, 1996, represented approximately 48 employees. The Company
believes that its compensation structure places a heavier emphasis on profit
sharing compared to other major integrated steel producers. This emphasis
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 has not experienced work
stoppages in the course of prior labor negotiations, although there can be no
assurance that work stoppages will not occur in the future in connection with
negotiations or otherwise. There can be no assurance that the Company will be
able to enter into new collective bargaining agreements on terms acceptable to
it, or that any such agreements will not contain terms that are less favorable
than the terms of the existing collective bargaining agreements.
Environmental Compliance Expenditures. The facilities and operations of
domestic steelmakers are subject to a number of federal, state and local laws,
regulations and permits relating to environmental protection. The costs for
environmental compliance may serve to put domestic steelmakers at a relative
competitive disadvantage compared to foreign producers not subject to
similarly extensive regulation or producers of competitive materials which may
not be required to undergo equivalent compliance costs.
The Company has made, and expects to continue to make, substantial
expenditures to comply with federal, state and local environmental laws and
regulations. The Company has planned environmental capital expenditures for
1996 and 1997 of approximately $11.7 million and $5.0 million, respectively.
Unlike many of its domestic integrated competitors, the Company does not
operate coke making facilities and, as such, will not be required to comply
with federal Clean Air Act amendment standards applicable to those types of
facilities. Nevertheless, since environmental regulations are becoming
increasingly more stringent, the Company's environmental capital expenditures
and costs for compliance may increase in the future. Furthermore, due to the
possibility of unanticipated regulatory developments, the amount and timing of
future environmental expenditures may vary from those currently anticipated.
The West Virginia Division of Environmental Protection (the "DEP") has issued
a wastewater discharge permit to the Company containing substantially more
stringent effluent standards than the Company's previous permit. The Company
has appealed the limitations contained in the permit and the Company and the
DEP currently are negotiating in an attempt to resolve the terms of the
appealed permit. If the parties are unable to negotiate a mutually agreeable
settlement and the appeal is unsuccessful, the Company believes it will not be
able to ensure consistent compliance with certain provisions contained in the
permit without significant treatment technology and/or process changes, if
necessary. The Company cannot estimate the costs of installing such technology
or effecting such changes, if necessary, but believes that such costs could be
material. See "Business--Environmental Control."
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The sites at which the Company and its predecessors have conducted operations
have been in use for many years and, over such time, the Company and its
predecessors have released various substances, some of which may be classified
as hazardous. Consequently, the Company may be required to remediate
contamination at some of these sites. The Company has conducted investigation
or remediation activities at some of these sites. In addition, the Company has
been named as a potentially responsible party at certain third party owned
waste disposal sites. Although the Company is indemnified by National Steel
Corporation ("National"), the seller of the steelmaking division (the
"Division") acquired by the Company in 1984, against certain environmental
liabilities arising from activities prior to the acquisition, there can be no
assurance that National will pay or continue to pay under its indemnity
obligations. The ability of the Company to collect on claims for
indemnification covering environmental matters is related to National's
continued financial viability (including National's ability to collect certain
insurance proceeds with respect to environmental claims), the nature of future
claims made by the Company, certain limitations on National's liability,
whether the parties can settle certain differences which have arisen in their
respective interpretations of indemnification rights and the outcome of any
necessary litigation between the Company and National regarding such issues.
The Company does not carry insurance of the type that provides coverage similar
to the indemnification rights provided by National. See "Business--
Environmental Control."
The Company is continuing negotiations with the Environmental Protection
Agency ("EPA") regarding alleged violations of air, water and waste disposal
regulations. Although at this time it is not possible to determine the eventual
outcome of these negotiations, the Company will likely be required to pay fines
and penalties, commit to environmental related capital expenditure projects and
incur higher operating costs related to its environmental compliance programs.
The time period relating to the EPA negotiations extends until September
15, 1996. If a negotiated settlement is not reached by that date, the EPA has
indicated that it would likely commence a civil action in federal court. Based
on its review of the matters involved and discussions to date with
representatives of the EPA, while no assurance can be given, the Company does
not believe that any fines, penalties or costs to remediate would have a
material effect on the Company's financial position or results of operations.
However, it is expected that related capital expenditure projects and required
changes in operating practices will increase future operating costs, which may
have a significant effect on future results of operations. See "Business--
Environmental Control."
Leverage. Beginning in 1989, the Company incurred substantially increased
levels of indebtedness as one of the funding sources for its capital
improvement program. At March 31, 1996, the Company's indebtedness comprised
66% of its total capitalization. The Company has no immediate plans to incur
additional debt. From time to time, however, the Company may be required to
utilize outside financing for working capital purposes. Such financing may
involve the incurrence of debt. The Company will be permitted to incur
additional debt only if, at the time, it is able to comply with restrictions
under the Notes and any other applicable debt instruments. See "Description of
Notes--Certain Covenants."
Limitations on Raising Equity. The Company's Restated Certificate of
Incorporation (the "Restated Certificate") imposes restrictions on the
Company's ability to raise additional equity. The authorization of shares of
capital stock under the Restated Certificate (beyond the 50 million shares of
common stock and 7.5 million shares of preferred stock presently authorized)
generally requires the approval of a majority of the voting power if such
shares are to be used only for bona fide public offerings or in connection with
certain employee benefit plans. However, if shares are to be used for any other
purpose, their authorization must be approved by the vote of the holders of 80%
of the Company's capital stock. Limitations on the future use of shares, if
applicable, would deny the Company access to private markets for its shares and
could deprive the Company of needed capital at times when the permitted types
of issuance are not feasible or have less favorable terms. As a result of such
limitations and the Company's significant leverage, the Company may not be able
to make necessary capital or other expenditures on a timely basis and may not
be able to take advantage of certain business opportunities which might arise
in the future, all of which could affect the Company's ability to compete
effectively. In
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addition, the Restated Certificate provides that the specific terms and
conditions of each issuance of capital stock by the Company, with limited
exceptions, must be approved by the vote of at least 90% of the Company's
directors. The Company's Board of Directors is required to be composed of 14
members. A dissent by more than one director could prevent the Company from
issuing capital stock, even though the authorization of shares for such
issuance was approved by the Company's stockholders.
Voting Power. As of March 31, 1996, the ESOPs owned approximately 27% of the
Company's outstanding common stock and over 98% of the Company's preferred
stock, which account for approximately 48% of the total voting power of the
Company's capital stock. Employee voting power could increase 4% if the 4.7
million shares of common stock reserved for an employee purchase program over
the next four years are acquired by employees and assuming there is no further
dilution of employee ownership. At the end of each quarter, participants in
the 1984 ESOP may elect to receive distributions of common stock from the
ESOP, which, to the extent such distributed shares are then sold, reduces
employee voting power. The participants in the ESOPs, all of whom are present
or former employees of the Company, could, if they were to act collectively in
the voting of their shares, elect a majority of the Company's directors.
However, management does not believe it is likely that any such collective
voting would occur. The interests of ESOP participants may differ from those
of public stockholders and holders of the Company's indebtedness. Under the
terms of the Notes, a Change of Control (as defined) would require the Company
to offer to repurchase the Notes. See "Description of Notes--Certain
Covenants--Change of Control Option."
No Prior Market. There is no existing market for the Exchange Notes, and
there can be no assurance as to (i) the liquidity of any such market that may
develop, (ii) the ability of holders of Exchange Notes to sell their Exchange
Notes, or (iii) the price at which the holders of Exchange Notes would be able
to sell their Exchange Notes. If such a market were to exist, the Exchange
Notes could trade at prices that may be higher or lower than their principal
amount or purchase price, depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
debt securities.
Change of Control. The Company's ability to repurchase Notes following a
Change of Control may be limited by the factors descried under "Description of
the Notes--Certain Covenants--Change of Control Option."
FACTORS RELATING TO THE STEEL INDUSTRY
Cyclicality. The domestic steel industry is a cyclical industry
characterized by periods of excess capacity and intense competition. In the
latter half of 1989, steel prices and demand began to decline, and a number of
U.S. steel producers reported losses in 1990, 1991 and 1992 in a sluggish U.S.
economic environment. Factors such as production overcapacity, increased U.S.
and international competition, high labor costs, inefficient plants and
reduced levels of steel demand contributed to these losses. With stronger
demand in 1993 and 1994, the industry demonstrated improved performance. In
the second half of 1995, domestic demand began to soften, and the industry
experienced a trend of steadily declining selling prices. During the first
quarter of 1996, many steel producers announced price increases which have
begun to take effect in the second quarter of 1996. There can be no assurance
that the current price increases will continue to be realized or that prices
will not decline throughout the industry in the future.
Capacity Utilization and Price Sensitivity. According to the American Iron
and Steel Institute (the "AISI"), annual U.S. raw steel production capacity
has been reduced from approximately 151 million tons in 1983 to approximately
110 million tons in 1995. The reduction in domestic capacity generally
resulted in higher utilization rates, although overcapacity remains a problem
in certain product lines and may become a problem in other product lines,
particularly coated steels. The average utilization of domestic industry
capacity was 64% from 1983 through 1986 compared to 83% from 1987 through
1994, and 93% for 1995. From 1996 through 1998, an additional 10 million to 14
million tons of sheet capacity is expected to be brought into operation
primarily by mini-mills. Competitive pressures in the industry limit the
ability of producers to obtain price increases and can lead to declines in
prices, both of which may have a material adverse effect on the industry
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generally and on the Company specifically. There can be no assurance that
these and other factors will not have an adverse effect on the Company's
business, financial condition or results of operations.
Competition. Competition among domestic steelmakers is intense with respect
to price, service and quality. Domestic integrated steel producers have lost
market share to domestic mini-mills in recent years as these mills have
expanded their product lines from commodity type items to include larger-size
structural products and flat-rolled products. Mini-mills have enjoyed certain
cost advantages compared to integrated producers because of lower costs in
converting scrap to raw steel, lower employment and environmental costs and
the targeting of regional markets. In the past few years, mini-mills also have
substantially improved the quality of their products, particularly thin cast
steel, through the use of new technology which has allowed them to retain
overall conversion cost advantages. In recent years, competitive pressures
among domestic producers, including mini-mills, have extended to higher value-
added products, putting further pressure on prices and margins. In addition,
certain domestic integrated steelmakers have gone through reorganizations
under Chapter 11 of the U.S. Bankruptcy Code. Following their reorganizations,
these companies generally have reduced costs and become more effective
competitors. In addition, domestic steel producers have invested heavily in
new plant and equipment that, when combined with the implementation of manning
and other work rule changes, have enabled many domestic companies to improve
efficiency and increase productivity. Also, demand for certain of the
industry's products continues to be under pressure from products made with
aluminum, plastics, cardboard, glass, wood, concrete and ceramics, which may
offer substitutes for steel in certain applications.
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. From 1991 to 1995, imported steel represented 20% of all
steel sold in the United States. Factors such as attractive world export
prices, a lower U.S. dollar exchange rate and improved international
competitiveness of the domestic steel industry have recently contributed to
reduced import levels. The reversal of any one of these factors, or the
failure otherwise to control steel imports, may cause foreign competition to
increase.
Environmental Concerns. The facilities and operations of domestic
steelmakers are subject to a number of federal, state and local laws,
regulations and permits relating to environmental protection. The costs of
environmental compliance may serve to put domestic steelmakers at a relative
competitive disadvantage compared to foreign producers not subject to
similarly extensive regulation or producers of competitive materials which may
not be required to undergo equivalent compliance costs.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer. The net proceeds to the Company from the issuance of the
Senior Notes were approximately $119.2 million. The Company used a portion of
these net proceeds to repurchase, concurrently with the consummation of the
sale of the Senior Notes, $35 million aggregate principal amount of 11 1/2%
Notes and $65 million aggregate principal amount of 10 7/8% Notes that were
tendered pursuant to the Tender Offer, for an aggregate purchase price,
inclusive of related tender fees and expenses, of approximately $106.0
million. The Company used the remaining net proceeds for general corporate
purposes. Until used, the net proceeds of the Initial Offering have been
invested in short-term investment grade marketable securities or money market
funds.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the registration of the Senior Notes.
The Senior Notes were originally issued and sold on July 3, 1996 (the "Issue
Date"). Such sales were not registered under the Securities Act in reliance
upon the exemption provided by Section 4(2) of the Securities Act and Rule
144A under the Securities Act. The net proceeds from the sale of the Senior
Notes (approximately $119.2 million) were used in part to repurchase $35
million aggregate principal amount of 11 1/2% Notes and $65 million aggregate
principal amount of 10 7/8% Notes that were tendered pursuant to the Tender
Offer. In connection with the sale of the Senior Notes, the Company agreed to
file with the Commission a registration statement relating to an exchange
offer (the "Exchange Offer Registration Statement") pursuant to which the
Exchange Notes, another series of senior notes of the Company covered by such
registration statement and containing substantially similar terms as the
Senior Notes, except as set forth in this Prospectus, would be offered in
exchange for Senior Notes tendered at the option of the holders thereof. If
(i) the Company determines in reasonably good faith that (x) any changes in
the law or the applicable interpretations of the Staff of the Commission do
not permit the Company to effect the Exchange Offer, or (y) that the Exchange
Notes would not be tradeable upon receipt by the holders of Senior Notes that
participate in the Exchange Offer without restriction under state and federal
securities laws (other than due solely to the status of a holder of Senior
Notes as an Affiliate of the Company), (ii) the Exchange Offer is not
consummated within 165 days of the Issue Date, (iii) in certain circumstances,
certain holders of unregistered Exchange Notes so request within 135 days
after the consummation of the Exchange Offer or (iv) in the case of any holder
of Senior Notes that participates in the Exchange Offer, such holder of Senior
Notes does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than
due solely to the status of such holder of Senior Notes as an Affiliate of the
Company) and so notifies the Company within 60 days after such holder of
Senior Notes first becomes aware of such restriction and provides the Company
with a reasonable basis for its conclusion, in the case of each of clauses
(i)-(iv) of this sentence, the Company will file with the Commission a
registration statement (the "Shelf Registration Statement") to cover resales
of the Senior Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. In the event that (i) the Company fails to file the
Exchange Offer Registration Statement, (ii) the Exchange Offer Registration
Statement or, if applicable, the Shelf Registration Statement, is not declared
effective by the Commission, or (iii) the Exchange Offer is not consummated or
the Shelf Registration Statement ceases to be effective, in each case within
specified time periods, the Company shall pay liquidated damages to the
holders of the Senior Notes. See "Senior Notes Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in
principal amount of Senior Notes. The terms of the Exchange Notes are
substantially similar to the terms of the Senior Notes for which they may be
exchanged pursuant to this Exchange Offer, except that the Exchange Notes will
generally be freely transferable by holders thereof, and the holders of the
Exchange Notes (as well as remaining holders of any Senior Notes) will not be
entitled to registration rights under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the Senior Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Senior Notes
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may be offered for resale, resold and otherwise transferred by holders thereof
(other than any holder or any such other person which is (i) an Affiliate of
the Company, (ii) a broker-dealer who acquired Senior Notes directly from the
Company or (iii) a broker-dealer who acquired Senior Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of business of
such holder and any beneficial owner, and such holders are not engaged in, and
do not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes. Each broker-
dealer who acquired Senior Notes directly from the Company and is
participating in the Exchange Offer must comply with the registration and
prospectus delivery provisions of the Securities Act. Broker-dealers who
acquired Senior Notes as a result of market making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with
resales of the Exchange Notes. The Company has agreed that, for a period of
120 days after this Registration Statement is declared effective, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. Each broker-dealer who receives Exchange Notes pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging, and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Tendering holders of Senior Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Senior Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Senior Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance
of the Exchange Notes, such interest to be payable with the first interest
payment on the Exchange Notes, but will not receive any payment in respect of
interest on the Senior Notes accrued after the issuance of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on September 11, 1996 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and
from time to time prior to the Expiration Date by giving written notice to
Bankers Trust Company (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Senior Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Senior Notes for any reason,
including if any of the events set forth below under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Senior Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and
will either issue a press release or give written notice to the holders of the
Senior Notes as promptly as practicable. Unless the Company terminates the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Company will exchange the Exchange Notes for the Senior Notes on the
Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time
that notice of such waiver or amendment is first published, sent or given
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to holders of Senior Notes in the manner specified above, the Exchange Offer
is scheduled to expire at any time earlier than the expiration of a period
ending on the fifth business day from, and including, the date that such
notice is first so published, sent or given, then the Exchange Offer will be
extended until the expiration of such period of five business days. If there
is an increase or decrease in the consideration offered for the Senior Notes,
or a decrease in the percentage of Exchange Notes offered by the Company in
exchange for Senior Notes, notice of such increase or decrease shall be
published, sent or given to all holders of Senior Notes in the manner
specified above and the Exchange Offer will be extended at least ten business
days from when such notice is first published, sent or given to the holders of
Senior Notes.
The Company will file a post-effective amendment to the Registration
Statement of which this Prospectus is a part, and mail or otherwise deliver
copies of such amendment to holders of the Senior Notes, if any one of the
following events arises after the Registration Statement of which this
Prospectus is a part has been declared effective by the Commission: (a) the
Company materially amends the Exchange Offer; or (b) any facts or events arise
which individually, or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement, or the information set
forth under the caption "Plan of Distribution" therein.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Senior Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Senior Notes.
HOW TO TENDER
The tender to the Company of Senior Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of a Senior Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with the certificate or certificates representing the Senior Notes being
tendered and any required signature guarantees (or a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure
described below), to the Exchange Agent at its address set forth on the back
cover of this Prospectus on or prior to the Expiration Date or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Senior Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other
institution (each an "Eligible Institution") that is a member of a recognized
signature guarantee medallion program within the meaning of Rule 17Ad-15 under
the Exchange Act. If the Exchange Notes and/or Senior Notes not exchanged are
to be delivered to an address other than that of the registered holder
appearing on the note register for the Senior Notes, the signature on the
Letter of Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
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Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Senior Notes at The Depository Trust Company (the
"Depositary") for purposes of the Exchange Offer within two business days
after receipt of this Prospectus, and any financial institution that is a
participant in the Depositary may make book-entry delivery of Senior Notes by
causing the Depositary to transfer such Senior Notes into the Exchange Agent's
account at the Depositary in accordance with the Depositary's procedures for
transfer. However, although delivery of Senior Notes may be effected through
book-entry transfer at the Depositary, the Letter of Transmittal, with any
required signature guarantees or an Agent's Message (as defined below) in
connection with a book-entry transfer and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the
address specified on the back cover page of this Prospectus on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
A noteholder may tender Senior Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program ("ATOP"), for which the transaction will be eligible, and the
Depositary will then edit and verify the acceptance and send an Agent's
Message to the Exchange Agent for its acceptance. The term "Agent's Message"
means a message transmitted by the Depositary to, and received by, the
Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the Depositary has received an express acknowledgment from each
participant in the Depositary tendering the Senior Notes and that such
participant has received the Letter of Transmittal and agrees to be bound by
the terms of the Letter of Transmittal and the Company may enforce such
agreement against such participant.
THE METHOD OF DELIVERY OF SENIOR NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide his taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Senior Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected
if the Exchange Agent has received at its office listed on the back cover
hereof on or prior to the Expiration Date a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address
of the tendering holder, the principal amount of the Senior Notes being
tendered, the names in which the Senior Notes are registered and, if possible,
and if applicable, the certificate numbers of the Senior Notes to be tendered,
and stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange trading days after the date of execution of such
letter, telegram or facsimile transmission by the Eligible Institution, the
Senior Notes, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation)
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal (or
facsimile thereof) and any other required documents), or a properly completed
Agent's Message is received by the Exchange Agent within the time period set
forth above, the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange
Agent.
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A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) or
properly completed Agent's Message, is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Senior Notes tendered pursuant to
a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission
to similar effect (as provided above) by an Eligible Institution will be made
only against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Senior Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to the Company, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. Neither the
Company, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in tenders or shall incur
any liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Senior Notes for exchange (the "Transferor") thereby
exchanges, assigns and transfers the Senior Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Senior Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Senior
Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered Senior Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Senior Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The Transferor also warrants that it will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Senior Notes. The Transferor further agrees that acceptance of any
tendered Senior Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the Company shall
have no further obligations or liabilities thereunder (except in certain
limited circumstances). All authority conferred by the Transferor will survive
the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering Senior Notes and executing the Letter of Transmittal, the
Transferor certifies (a) that it is not an Affiliate of the Company, that it
is not a broker-dealer that owns Senior Notes acquired directly from the
Company or an affiliate of the Company, that it is acquiring the Exchange
Notes offered hereby in the ordinary course of such Transferor's business and
that such Transferor has no arrangement with any person to participate in the
distribution of such Exchange Notes; (b) that it is an Affiliate of the
Company or of the Initial Purchasers of the Senior Notes in the Initial
Offering and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it; or (c) that
it is a participating broker-dealer and that it will deliver a prospectus in
connection with any resale of the Exchange Notes.
WITHDRAWAL RIGHTS
Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as
19
<PAGE>
having tendered Senior Notes to be withdrawn, the certificate numbers of
Senior Notes to be withdrawn, the principal amount of Senior Notes to be
withdrawn, a statement that such holder is withdrawing his election to have
such Senior Notes exchanged, and the name of the registered holder of such
Senior Notes, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Senior Notes being withdrawn. The Exchange Agent will return
the properly withdrawn Senior Notes promptly following receipt of notice of
withdrawal. All questions as to the validity of notices of withdrawals,
including time of receipt, will be determined by the Company, and such
determination will be final and binding on all parties.
ACCEPTANCE OF SENIOR NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted
for exchange validly tendered Senior Notes when, as and if the Company has
given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Senior
Notes for the purposes of receiving Exchange Notes from the Company and
causing the Senior Notes to be assigned, transferred and exchanged. Upon the
terms and subject to the conditions of the Exchange Offer, delivery of
Exchange Notes to be issued in exchange for accepted Senior Notes will be made
by the Exchange Agent promptly after acceptance of the tendered Senior Notes.
Senior Notes not accepted for exchange by the Company will be returned without
expense to the tendering holders (or in the case of Senior Notes tendered by
book-entry transfer into the Exchange Agent's account at the Depositary
pursuant to the procedures described above, such non-exchanged Senior Notes
will be credited to an account maintained with such Depositary) promptly
following the Expiration Date or, if the Company terminates the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is so
terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in respect of any properly tendered Senior Notes not previously accepted
and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated by no later than
9:00 a.m. on the next business day following the Expiration Date, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (ii) assessing or seeking any
damages as a result thereof, or (iii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Senior Notes pursuant to the Exchange Offer; (b) any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (a)(i) or (ii) above or, in the reasonable judgment of
the Company, might result in the holders of Exchange Notes having obligations
with respect to resales and transfers of Exchange Notes which are greater than
those described in the interpretations of the Commission referred to on the
cover page of this Prospectus, or would otherwise make it inadvisable to
proceed with the Exchange Offer; or (c) a material adverse change shall have
occurred in the business, condition (financial or otherwise), operations, or
prospects of the Company.
20
<PAGE>
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in their sole discretion.
The failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Senior Notes
tendered and no Exchange Notes will be issued in exchange for any such Senior
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act").
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at its address set forth on the back cover page of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting and legal fees, will
be paid by the Company and are estimated at approximately $50,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Senior Notes in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Senior Notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
is being made on behalf of the Company by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF SENIOR NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange for Exchange Notes by holders of Senior Notes will not be a
taxable exchange for federal income tax purposes, and such holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
21
<PAGE>
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Senior Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Notes pursuant to the terms of this Exchange Offer,
the Company will have fulfilled a covenant contained in the terms of the
Senior Notes and the Registration Rights Agreement. Holders of the Senior
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for any such
rights under the Registration Rights Agreement, which by their terms terminate
or cease to have further effect as a result of the making of this Exchange
Offer. See "Description of the Notes." All untendered Senior Notes will
continue to be subject to the restriction on transfer set forth in the
Indenture. To the extent that Senior Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Senior Notes could be
adversely affected. See "Risk Factors--Consequences of Failure to Exchange."
The Company may in the future seek to acquire untendered Senior Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Senior
Notes which are not tendered in the Exchange Offer.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give effect to the Initial Offering and the
application of the estimated net proceeds therefrom as set forth under "Use of
Proceeds," assuming the repurchase of $65 million in aggregate principal
amount of 10 7/8% Notes and $35 million in aggregate principal amount of 11
1/2% Notes for an aggregate purchase price, inclusive of related tender fees
and expenses, of $106.0 million. Consummation of the Exchange Offer will not
affect the Company's principal amount of outstanding indebtedness.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Cash and equivalents............................ $ 104.4 $ 117.1
========= ==========
Current portion of long-term debt............... $ -- $ --
Long-term debt:
11 3/8% Notes due 2004........................ -- 125.0
11 1/2% Notes due 1998........................ 77.2 42.2
10 7/8% Notes due 1999........................ 149.7 84.7
10 3/4% Notes due 2005........................ 125.0 125.0
8 5/8% Pollution Control Bonds due 2014....... 56.3 56.3
Unamortized debt discount..................... (0.3) (2.6)(1)
--------- ----------
Total long-term debt.......................... 407.9 430.6
Redeemable preferred stock, net................. 16.6 16.6
Stockholders' equity............................ 195.8 190.7 (2)
--------- ----------
Total capitalization.......................... $ 620.3 $ 637.9
========= ==========
</TABLE>
- --------
(1) Reflects the $2.4 million difference between the aggregate principal
amount of the Notes and the price to investors for the Notes and the $0.1
million reduction of unamortized debt discount resulting from the
repurchase of the 10 7/8% Notes and the 11 1/2% Notes purchased pursuant
to the Tender Offer.
(2) Reflects an extraordinary after-tax charge of $5.1 million for the
recognition of premiums and previously deferred financing charges
resulting from the repurchase of the 10 7/8% Notes and the 11 1/2% Notes
purchased pursuant to the Tender Offer, but does not reflect the after-tax
charges to be recognized by the Company during the second quarter of 1996
related to the No. 3 Blast Furnace outage or the restructuring charge
associated with recent workforce reductions. See "Recent Developments."
23
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial and operating
data for the Company for the three months ended March 31, 1996 and March 31,
1995 and for each fiscal year in the five-year period ended December 31, 1995.
The selected historical financial data for the Company for each fiscal year in
the five-year period ended December 31, 1995 have been derived from the
audited consolidated financial statements of the Company. The historical
financial data for the three months ended March 31, 1996 and March 31, 1995
have been derived from the Company's unaudited financial statements which, in
the opinion of management of the Company, contain all adjustments necessary
for a fair presentation of this information. The historical data with respect
to the results of operations for the three months ended March 31, 1996 should
not be regarded as necessarily indicative of the results that may be expected
for the entire year. This historical data should be read in conjunction with
the consolidated financial statements and notes thereto of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. See "Incorporation of
Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT TON DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $340.9 $354.7 $1,351.7 $1,260.9 $1,201.1 $1,078.7 $1,036.3
Operating costs:
Cost of sales......................... 310.8 299.2 1,180.1 1,136.9 1,105.6 1,010.0 1,019.3
Selling, general and administrative
expenses............................. 9.5 8.2 34.4 31.5 32.5 30.5 29.1
Depreciation.......................... 14.5 15.1 54.7 46.3 49.1 38.6 34.3
Provision for profit sharing(1)....... -- 16.1 24.2 17.6 -- -- --
Special items(2)...................... -- (34.0) (41.5) (20.0) 17.3 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations......... 6.1 50.1 99.8 48.6 (3.4) (0.4) (46.4)
Unusual gain(3)....................... -- -- 9.0 44.7 -- -- --
Net interest expense(4)............... 8.9 9.6 37.9 44.1 50.2 37.9 29.7
ESOP contributions(5)................. 0.7 0.7 2.6 2.6 2.6 2.6 2.6
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes..... (3.5) 39.8 68.3 46.6 (56.2) (40.9) (78.7)
Income tax (provision) benefit........ 0.7 (7.7) (13.2) (7.5) 13.3 4.8 4.0
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item and cumulative effect of changes
in accounting principles............. (2.8) 32.1 55.1 39.1 (42.9) (36.1) (74.7)
Extraordinary item(6)................. -- -- (6.7) (3.9) (6.5) -- --
Cumulative effect of
changes in accounting principles(7).. -- -- -- -- (179.8) 4.3 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... (2.8) 32.1 48.4 35.2 (229.2) (31.8) (74.7)
Less: Preferred stock dividend re-
quirement............................ -- -- -- (2.4) (3.1) (3.1) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to common
shares............................... $ (2.8) $ 32.1 $ 48.4 $ 32.8 $ (232.3) $ (34.9) $ (74.7)
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Income (loss) per common share before
extraordinary item................... $ (0.07) $ .73 $ 1.26 $ 1.06 $ (1.74) $ (1.57) $ (3.49)
Income (loss) per common share before
cumulative effect of accounting
changes.............................. (0.07) .73 1.10 0.95 (1.99) (1.57) (3.49)
Net income (loss) per common share.... (0.07) .73 1.10 0.95 (8.78) (1.40) (3.49)
Cash dividends paid................... -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and equivalents.................. $ 104.4 $ 82.3 $ 131.8 $ 62.9 $ 89.0 $ 61.2 $ 84.2
Working capital....................... 346.5 321.2 340.3 256.5 262.2 237.7 273.5
Total assets.......................... 1,277.5 1,233.7 1,314.0 1,230.9 1,240.7 1,005.4 1,038.0
Long-term debt (including current
portion)(8).......................... 407.9 394.5 407.9 394.5 495.3 503.2 505.3
Redeemable preferred stock, net....... 16.6 15.1 15.9 14.5 36.7 34.2 31.0
Stockholders' equity (deficit)........ $ 195.8 $ 181.3 $ 198.6 $ 149.2 $ (1.4) $ 231.3 $ 257.3
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------- ------- ------ ------ -------
(DOLLARS IN MILLIONS EXCEPT TON DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA (FOR THE
PERIOD, EXCEPT WHERE
NOTED):
EBITDA(9).............. $ 22.2 $ 41.7 $ 129.4 $ 90.5 $ 47.7 $ 39.9 $ (9.5)
Capital
expenditures(10)...... $ 13.4 $ 7.1 $ 52.4 $ 112.1 $ 13.3 $ 44.6 $ 113.9
Ratio of EBITDA to
interest expense...... 2.07 3.97 3.04 1.81 0.90 0.97 --
Ratio of net debt to
EBITDA(11)............ 3.41 1.87 2.13 3.67 8.51 11.08 --
Net debt to net
capitalization(12).... 59% 61% 56% 67% 92% 62% 59%
Ratio of earnings to
fixed charges(13)..... -- 4.46 2.48 1.85 -- -- --
Tons shipped (in
thousands)............ 712 705 2,718 2,606 2,431 2,102 1,939
Net sales per ton
shipped............... $ 479 $ 503 $ 497 $ 484 $ 494 $ 513 $ 534
Cost of sales per ton
shipped............... $ 437 $ 424 $ 434 $ 436 $ 455 $ 480 $ 526
Gross profit per ton
shipped............... $ 42 $ 79 $ 63 $ 48 $ 39 $ 33 $ 8
Operating income (loss)
per ton shipped,
excluding special
items(14)............. $ 9 $ 37 $ 26 $ 15 $ 6 $ 0 $ (24)
Active employees (at
end of period)........ 5,615 5,552 5,655 5,565 6,026 6,542 6,979
Employee hours per ton
of hot band produced.. 1.75 1.76 1.76 1.83 1.95 2.07 2.38
Employee hours per ton
shipped............... 4.31 4.38 4.44 4.89 5.31 6.53 7.55
Capacity utilization... 94% 99% 95% 91% 91% 83% 68%
Percentage of raw steel
continuously cast..... 100% 100% 100% 100% 100% 100% 97%
Yield (raw steel to
finished production).. 80.8% 80.8% 80.7% 83.0% 77.9% 72.3% 72.3%
</TABLE>
- --------
(1) The provision for employee profit sharing is calculated in accordance
with the profit sharing plan agreement. The provision is currently based
upon 33 1/3% of net income, subject to a minimum net worth provision of
$100.0 million.
(2) During the three months ended March 31, 1995 and the years ended December
31, 1995 and 1994, the Company's results of operations included the
recognition of $34.0 million , $34.0 million and $20.0 million,
respectively, of insurance recoveries relating to a business interruption
claim arising out of the fire which damaged the No. 9 Tandem Mill in
April 1994. In addition, the year ended December 31, 1995 includes a $7.5
million settlement of a 1991 business interruption claim from an outage
at the Company's hot strip mill. The Company recognized a restructuring
charge of $17.3 million in the year ended December 31, 1993 associated
with an enhanced early retirement package as part of a Company cost
reduction program.
(3) The Company was required to recognize a new cost basis for property
damage insurance recoveries related to the No. 9 Tandem Mill which
resulted in the recognition of a pretax gain for the years 1995 and 1994
in the amounts of $9.0 million and $44.7 million, respectively.
(4) Net interest expense does not include capitalized interest of $0.3
million, $0.2 million, $1.1 million , $2.3 million, $0.8 million, $6.1
million and $12.8 million for the three months ended March 31, 1996 and
1995, and for the years ended December 31, 1995, 1994, 1993, 1992 and
1991, respectively.
(5) Does not involve a net outflow of cash as these contributions are
returned to the Company in the form of payments on loans from the Company
to the ESOPs.
(6) Reflects certain costs incurred in connection with the early
extinguishment of debt.
(7) Effective January 1, 1992, the Company changed its method of accounting
for the depreciation of its steelmaking facilities from a straight-line
to a production-variable method. 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," SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and SFAS No. 109, "Accounting for Income
Taxes." The cumulative effect of the 1993 accounting changes reflects the
collective implementation of the following accounting changes. The change
in accounting under SFAS No. 106 required the Company to recognize a
pretax charge of $303.9 million to account for the prior service cost of
retiree health care and life insurance benefits as well as an additional
noncash expense each quarter which began in the first quarter of 1993.
The Company also recorded a pretax charge of $4.0 million relating to the
implementation of SFAS No. 112, and a net income tax benefit of $128.1
million, representing the cumulative effect of the accounting change for
income taxes in accordance with SFAS No. 109.
(8) See "Capitalization" for information regarding certain adjustments made
to give effect to the Initial Offering and the Tender Offer.
(9) EBITDA represents the earnings of the Company before income taxes,
interest expense, depreciation and amortization and for the three months
ended March 31, 1995 and the years 1995 and 1994, excludes the business
interruption and property damage insurance recoveries and the related
impact on the provision for profit sharing. EBITDA differs from the
definition of Consolidated EBITDA under the Indenture. See "Description
of Notes." EBITDA is not a measure of financial performance under
generally accepted
25
<PAGE>
accounting principles ("GAAP"). Accordingly, it does not represent net
income or cash flows from operations as defined by GAAP and does not
necessarily indicate that cash flows will be sufficient to fund cash needs.
As a result, EBITDA should not be considered as an alternative to net
income, as an indicator of operating performance or to cash flows as a
measure of liquidity.
(10) Capital expenditures in 1995 and 1994 included $2.9 million and $74.6
million, respectively, for rebuilding the No. 9 Tandem Mill due to fire
damage. The Company received cash insurance recoveries for property
damage of $9.0 million and $45.0 million in 1995 and 1994, respectively,
related to the 1994 outage at the No. 9 Tandem Mill.
(11) For purposes of this ratio, EBITDA for the three months ended March 31,
1996 and March 31, 1995 have been annualized. Net debt represents long-
term debt minus cash and equivalents.
(12) Net debt represents long-term debt minus cash and equivalents, and net
capitalization represents total capitalization minus cash and
equivalents.
(13) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before taxes plus fixed charges and (ii) fixed
charges consist of interest expense incurred, amortization of debt
expense and one-third of rental payments under operating leases (an
amount estimated by management to be the interest portion of such
rentals). Earnings did not cover fixed charges by $3.5 million, $56.2
million, $40.9 million and $78.7 million for the three months ended March
31, 1996 and the years ended December 31, 1993, 1992 and 1991,
respectively. The ratio of earnings to fixed charges is not expected to
be materially affected by this Offering.
(14) Represents income (loss) from operations, excluding insurance recoveries
and the related effect on the provision for profit sharing, for the three
months ended March 31, 1995 and for the years ended December 31, 1995 and
1994, and the restructuring charge for the year ended December 31, 1993
divided by tons shipped. Including the special items, operating income
per ton was $71, $37 and $19 for the three months ended March 31, 1995
and the years ended December 31, 1995 and 1994, respectively.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, as a major integrated producer of flat rolled carbon steel,
competes in a cyclical market where product demand is generally influenced by
several factors, including: the strength of the economies of the U.S. and
other major steel consuming countries; restrictions on imports by foreign
producers; fluctuating exchange rates; and worldwide production capacity. The
Company's major product lines are TMP and sheet products. Although the Company
is generally influenced by the cyclical nature of the industry and competitive
pressures, management believes the Company's major product lines and the
attributes of its particular operating facilities differentiate the Company
favorably in certain respects from other producers.
The market for TMP is generally characterized by a relatively limited number
of competitors, and customers who make annual commitments at prices which have
been relatively stable compared to prices of other steel products. The Company
believes its TMP customers are less sensitive to fluctuations in the general
business cycle than users of other steel products, such as automobile and
appliance manufacturers. Stability of TMP prices has also been due in part to
the fact that imports have historically represented a small percentage of the
domestic TMP market.
In contrast with TMP, selling prices for the Company's sheet products are
more sensitive to changes in demand due to the wide variety of end use, broad
customer base and the large number of producers. The majority of the Company's
sheet products are sold in the spot market or under quarter-to-quarter pricing
arrangements primarily to steel service centers and other steel and strip
converters. Although demand for the Company's sheet products remained strong
during 1995 and into the first quarter of 1996, selling prices in the steel
industry (including those for the Company's products) steadily declined during
1995. During the first quarter of 1996, the Company and the industry in
general announced price increases. In the second quarter of 1996, the Company
began to realize a portion of these price increases in sales to certain of its
customers. However, there can be no assurance that the Company will continue
to realize such price increases, or that prices will not decline in the
future.
In April 1994, the Company's No. 9 Tandem Mill sustained extensive damage
from a fire which occurred while the unit was undergoing maintenance. This
cold rolling facility had traditionally supplied approximately 70% to 80% of
the coils required by the Company's tin and chrome plating operations. The
Company compensated for the reduction in cold rolling capacity by increasing
its sales of hot rolled products in 1994. The shift from TMP to sheet products
resulted in the realization of lower average selling prices during the period
in which the No. 9 Tandem Mill was not in service. Sheet products such as hot
rolled products generally provide lower profit margins than more highly
processed products such as tin and chrome plate. Although the No. 9 Tandem
Mill returned to full operations in the first quarter of 1995, severe weather
conditions caused the late planting of major food crops and, consequently,
softened the demand for TMP in 1995. As a result, the pace at which the
Company's share of TMP recovered was slower than expected. Throughout 1995,
the Company gradually achieved a more traditional product mix and by the first
quarter of 1996 had acquired a share of the TMP market comparable to that
prior to the fire.
RECENT DEVELOPMENTS
On April 1, 1996, the Company announced that it shut down the No. 3 Blast
Furnace for an unscheduled 10-day outage to install a new bell, a device which
distributes the burden of raw materials into the furnace for smelting. The
estimated adverse impact of this outage on second quarter income from
operations is expected to be between $5 million and $7 million.
On May 29, 1996, the Company announced that it was reducing its supervisory
and managerial workforce by approximately 200 employees, or approximately 20%,
as part of its ongoing broad-based effort to improve the Company's cost
position. The restructuring charge associated with this reduction is
approximately $17 million and will be recorded in the second quarter of 1996.
The Company expects the cash costs over the next twelve months to be
approximately $7.5 million, with the remainder extending beyond that period.
The Company does not believe the costs associated with the restructuring will
have a significant impact on the Company's near term liquidity. While the
Company has no specific plan to further reduce its workforce, the Company is
currently
27
<PAGE>
evaluating further workforce reductions and, to the extent the Company pursues
such alternatives, the Company may be required to record additional
significant restructuring charges. The additional costs associated with the
No. 3 Blast Furnace outage coupled with the restructuring charge, as well as
any extraordinary loss associated with the refinancing of the 10 7/8% Notes
and the 11 1/2% Notes, will likely cause the Company to report a net loss for
the year ending December 31, 1996.
THE REFINANCING
On May 29, 1996, the Company commenced the Tender Offer, pursuant to which
it offered to purchase up to $65 million aggregate principal amount of its
outstanding 10 7/8% Notes and up to $35 million aggregate principal amount of
its outstanding 11 1/2% Notes at an aggregate principal price of approximately
$106.0 million. The consideration for 10 7/8% Notes tendered pursuant to the
Tender Offer was $1,053.77 per $1,000 principal amount and the consideration
for 11 1/2% Notes tendered pursuant to the Tender Offer was $1,048.06 per
$1,000 principal amount, in each case plus accrued interest up to, but not
including, the payment date. The purpose of the Tender Offer was to extend the
maturities of the Company's outstanding indebtedness by refinancing the 10
7/8% Notes and 11 1/2% Notes purchased pursuant to the Tender Offer with the
proceeds from the issuance and sale of the Senior Notes.
The Tender Offer expired at 5:00 p.m., New York City Time on June 27, 1996.
On July 3, 1996, the Company issued and sold the $125 million aggregate amount
of Senior Notes. The Senior Notes were sold at a discount of 98.088% to par.
The net proceeds to the Company after underwriting commissions of $3.4 million
and approximately $0.5 million of other fees and expenses of the Initial
Offering, were approximately 118.7 million. The Company used a portion of the
proceeds from the Initial Offering to repurchase, concurrently with the
consummation of the sale of the Notes, $35 million aggregate principal amount
of 11 1/2% Notes and $65 million aggregate principal amount of 10 7/8% Notes
tendered pursuant to the Tender Offer, for an aggregate purchase price,
inclusive of related tender fees and expenses, of approximately $106.0
million. See "Use of Proceeds."
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Shipments:(1)
TMP............................... 222 180 763 615 895
Sheet products:
Hot rolled sheet................. 259 282 1,112 1,070 687
Cold rolled sheet................ 59 59 188 198 181
Galvanized sheet................. 172 184 655 723 668
------ ------ ------- ------- -------
Total sheet products............ 490 525 1,955 1,991 1,536
------ ------ ------- ------- -------
Total shipments............... 712 705 2,718 2,606 2,431
Results per ton shipped:
Net sales per ton shipped......... $ 479 $ 503 $ 497 $ 484 $ 494
Cost of sales per ton shipped..... (437) (424) (434) (436) (455)
------ ------ ------- ------- -------
Gross profit per ton shipped...... $ 42 $ 79 $ 63 $ 48 $ 39
Operating income per ton shipped,
excluding special items(2)....... $ 9 $ 37 $ 26 $ 15 $ 6
Profit margin percentages:
Gross profit margin............... 8.8% 15.7% 12.7% 9.9% 7.9%
Operating income margin, excluding
special items(2)................. 1.9% 7.4% 5.2% 3.1% 1.2%
</TABLE>
- --------
(1) In thousands of tons.
(2) Represents income from operations excluding insurance recoveries and the
related effect on the provision for profit sharing, for the three months
ended March 31, 1995 and years ended December 31, 1995 and 1994, and the
restructuring charge for the year ended December 31, 1993 divided by tons
shipped. Including the special items, operating income per ton was $71,
$37 and $19, for the three months ended March 31, 1995 and the years
ended December 31, 1995 and 1994, respectively.
28
<PAGE>
Three Months Ended March 31, 1996 Compared To Three Months Ended March 31,
1995
In the first quarter of 1996, the Company recognized a net loss of $2.8
million or $0.07 per common share, compared to net income of $32.1 million or
$0.73 per common share for the same period in 1995. The first quarter 1995
results included a favorable pretax adjustment of $34.0 million for business
interruption insurance recovery relating to the No. 9 Tandem Mill and a pretax
provision for employee profit sharing of $16.1 million. Excluding the effect
of the insurance recovery, and its resulting effects on the provision for
profit sharing and income taxes, net income for the first quarter of 1995
would have been $12.6 million or $0.29 per share.
Net sales in the first quarter of 1996 were $340.9 million, a decrease of
$13.8 million or 3.9% from the first quarter of 1995. Total shipments in the
first quarter of 1996 were 712 thousand tons compared to first quarter of 1995
shipments of 705 thousand tons.
While demand for the Company's products continued to be strong in the first
quarter of 1996, selling prices, particularly with respect to sheet products,
were lower than in the first quarter of 1995, following an industry-wide
trend. The Company announced price increases during the first quarter of 1996.
In the second quarter of 1996, the Company began to realize a portion of these
price increases in sales to certain of its customers. However, there can be no
assurance that the Company will continue to realize such price increases, or
that prices will not decline in the future.
Sheet product sales for the first quarter of 1996 declined $41.7 million to
$200.1 million. Shipments of sheet products in the first quarter of 1996 were
490 thousand tons compared to 525 thousand tons in the first quarter of 1995.
As described above, during the periods immediately following the outage of the
No. 9 Tandem Mill, the Company's product mix was shifted more heavily to sheet
product from TMP. The resumption of a more traditional product mix along with
lower selling prices resulted in lower sheet product sales during the first
quarter of 1996 compared to 1995.
TMP sales in the first quarter of 1996 were $140.8 million on shipments of
222 thousand tons compared to $112.8 million on 180 thousand tons for the same
period in 1995 reflecting the recovery of the Company's TMP market share. The
product mix for the first quarter of 1996 reflects a level of TMP shipments
comparable to that experienced prior to the No. 9 Tandem Mill outage.
Cost of sales per ton for the first quarter of 1996 was $437 per ton
compared to $424 per ton for the first quarter of 1995. This increase was
primarily attributable to the shift in product mix from sheet products to the
higher cost TMP. Additionally, the Company experienced higher operating costs
related to the severe weather conditions in the first quarter of 1996, as well
as higher energy and raw material costs.
Operating income was $9 per ton for the first quarter of 1996 compared to
$71 per ton for the same period in 1995. The decrease was due to the absence
of insurance recoveries, lower selling prices and higher operating costs.
These negative factors were partially offset by an improved product mix and no
provision for profit sharing in the current period.
Selling, general and administrative expenses were $9.5 million for the first
quarter of 1996, an increase of $1.3 million compared to the first quarter of
1995. The increase was primarily due to higher benefit costs and increased
purchased services.
During the first quarter of 1996, the Company recognized interest income of
$1.8 million compared to $0.9 million in the first quarter of 1995. This
increase in interest income was primarily due to a higher level of invested
funds during the first quarter of 1996 compared to the same period in 1995.
1995 Compared To 1994
Net income in 1995 was $48.4 million or $1.10 per common share compared to
$35.2 million or $0.95 per common share in 1994. The 1995 and 1994 results
included a pretax provision for employee profit sharing of $24.2 million and
$17.6 million, respectively.
29
<PAGE>
The 1995 and 1994 results included favorable adjustments for business
interruption and property damage insurance recoveries. The Company received
$44.7 million for property damage and $20.0 million for business interruption
in 1994 related to the No. 9 Tandem Mill. The Company settled its claims
related to the No. 9 Tandem Mill in 1995 and received additional proceeds of
$9.0 million for property damage and $34.0 million for business interruption.
In addition, the Company's business interruption claim stemming from an outage
at its hot strip mill in March 1991 was settled for $7.5 million in 1995. Net
income for 1995 also included a $6.7 million extraordinary loss on the early
extinguishment of debt while 1994 results included a similar loss of $3.9
million. Excluding these nonrecurring items, and the resulting effect on the
provision for employee profit sharing, net income for 1995 would have been
$24.2 million or, $0.55 per common share, compared with a loss of $5.3
million, or $0.22 per common share for 1994.
The resumption of production at the No. 9 Tandem Mill had a significant
effect on the Company's volume of shipments in 1995, as well as its product
mix compared to 1994. Total shipments in 1995 were 2,718 thousand tons
compared to 2,606 thousand tons in 1994.
Sheet product shipments decreased 36 thousand tons from 1994 to 1,955
thousand tons in 1995. Sales generated by sheet products in 1995 were $864.8
million, a decline of $15.7 million from 1994 primarily related to the
decreased shipments. In 1995, the Company expanded its marketing efforts in
response to demand for its sheet products internationally. As a result,
approximately 12% of the Company's sheet product shipments in 1995 were
exported compared to nominal amounts in prior years.
In the second quarter of 1994, in spite of the No. 9 Tandem Mill outage, the
Company was able to fill a majority of its orders for its TMP customers from
inventory on hand. However, during the second half of 1994, the No. 9 Tandem
Mill remained out of service and the Company lost a portion of its share of
the TMP market. Sales from TMP increased $106.5 million in 1995 over 1994, of
which $89.8 million was attributable to the higher level of shipments and a
more favorable product mix. Although demand in 1995 reflected periods of
softness, previously negotiated annual selling prices were higher and
contributed $16.7 million to the increase in sales in 1995 compared to 1994.
As a result of the increase in TMP shipments and selling prices, offset by
lowered sheet product shipments caused by the resumption of production at the
No. 9 Tandem Mill, total sales in 1995 increased 7.2% to $1,351.7 million from
$1,260.9 million in 1994.
Cost of sales as a percentage of net sales was 87.3% in 1995 compared to
90.2% in 1994. This improvement resulted from the shift in product mix from
sheet products to higher margin TMP.
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
(IN THOUSANDS, EXCEPT PER TON AMOUNTS)
<S> <C> <C>
Cost of sales...................... $ 1,180,053 $ 1,136,936
Shipments in tons.................. 2,718 2,606
------------------- -------------------
Cost of sales per ton.............. $ 434 $ 436
=================== ===================
</TABLE>
Depreciation expense increased $8.4 million to $54.7 million in 1995. This
increase was the result of increased production, greater overall capital
spending and the recognition of a new cost basis for the rebuilt No. 9 Tandem
Mill. Capitalized spending for the No. 9 Tandem Mill in 1995 and 1994 was $2.9
million and $74.6 million, respectively.
Interest expense was $42.5 million in 1995, a decrease of $7.5 million from
1994. The decrease resulted from a reduction of approximately $101.1 million
in outstanding debt obligations during the fourth quarter of 1994 using
available cash and a significant portion of the proceeds of a public offering
of the Company's common stock in August 1994.
30
<PAGE>
In June 1995, the Company sold $125.0 million of its 10 3/4% Senior Notes
due 2005 (the "10 3/4% Notes"). The net proceeds of the offering were $121.0
million, of which $118.8 million was used to purchase $30.0 million principal
amount of its 11 1/2% Notes and $82.0 million principal amount of its 10 7/8%
Notes. As a result, the Company recognized an after-tax extraordinary loss of
$6.7 million related to premiums paid to repurchase the notes and the
immediate recognition of previously deferred financing costs related to the
purchase of the notes. This compares to a similar extraordinary loss of $3.9
million recognized in 1994 resulting from the early repayment of approximately
$101.1 million of senior debt.
The Company elected for federal income tax purposes not to recognize a new
basis for the costs associated with the rebuilt No. 9 Tandem Mill. As such,
the 1995 income tax provision reflected principally the reduction of net
deductible temporary differences. The 1994 income tax provision included the
utilization of regular federal net operating loss carry forwards, a reduction
of net deferred deductible temporary differences and a current provision for
alternative minimum tax. The 1995 and 1994 provisions were offset by favorable
adjustments to the carrying value of the Company's net deferred tax assets.
1994 Compared To 1993
In 1994, the Company recognized net income of $35.2 million, or $0.95 per
common share, compared to a net loss of $229.2 million, or $8.78 per common
share in 1993. The net results for 1994 included a pretax favorable adjustment
to the carrying value of the damaged No. 9 Tandem Mill of $44.7 million and a
pretax provision for employee profit sharing of $17.6 million. The net results
for 1993 were reduced by a pretax restructuring charge of $17.3 million and
the after-tax cumulative effect on prior years of accounting changes of $179.8
million. The 1994 and 1993 results included after-tax extraordinary losses of
$3.9 million and $6.5 million, respectively, related to costs associated with
the early extinguishment of debt.
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, sales in 1994 of $1,260.9 million
for all products combined were $59.8 million, or 5.0%, higher than in 1993.
The Company's operating profit of $48.5 million in 1994, which included $20.0
million of insurance recoveries received through the end of 1994 under the
Company's business interruption coverage, reflected higher operating costs
caused by the No. 9 Tandem Mill outage. Nevertheless, the Company's operating
performance in 1994 exceeded that for 1993 when the Company recognized an
operating loss of $3.4 million.
The demand for the Company's hot rolled and coated sheet products was 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 in 1994, an increase of 455 thousand tons, or 29.6%, compared to
1993. 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 in 1994.
Average selling prices for sheet products were higher in 1994 than in 1993,
adding $52.6 million to sales. Product mix changes added $17.9 million,
bringing the increase in total sheet product sales to $228.5 million for 1994
over 1993.
In 1994, the Company shipped 615 thousand tons of TMP, a decrease of 279
thousand tons, or 31.2%, compared to 1993, reflecting the impact of the outage
of the No. 9 Tandem Mill. This decline in TMP shipments caused total TMP sales
to decline by $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 to the extent of $9.0 million. Product mix changes also decreased
1994 sales by $2.4 million from 1993.
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 per ton in direct
production costs over 1993.
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
(IN THOUSANDS, EXCEPT PER TON AMOUNTS)
<S> <C> <C>
Cost of sales...................... $ 1,136,936 $ 1,105,558
Shipments in tons.................. 2,606 2,431
------------------- -------------------
Cost of sales per ton.............. $ 436 $ 455
=================== ===================
</TABLE>
31
<PAGE>
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 to $50.0 million in 1994 from $52.8 million in
1993 when, in the fourth quarter of 1994, the Company purchased $101.1 million
in outstanding senior notes using available cash and a significant portion of
the proceeds from the August 1994 public offering of common stock. The
purchases included the payment of certain premiums and required the
recognition of previously deferred financing costs. As a result, the Company
had an after-tax extraordinary loss of $3.9 million in 1994. The Company had
an after-tax extraordinary loss of $6.5 million in 1993 related to premiums
and the immediate recognition of previously deferred financing costs related
to indebtedness refinanced with the proceeds from the public sale of its 11
1/2% 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.
In 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Benefits Other Than Pensions";
SFAS No. 112, "Employers' Accounting for Postemployment Benefits"; and SFAS
No. 109, "Accounting for Income Taxes." The change in accounting under SFAS
No. 106 required the Company to recognize a pretax charge of $303.9 million to
account for the prior service costs of retiree healthcare and life insurance
benefits. 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 $128.1
million, representing the cumulative effect of the accounting change for
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The table below sets forth selected measures of liquidity and capital
resources of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------
1996 1995 1995 1994 1993
--------- --------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash and equivalents....... $ 104.4 $ 82.3 $ 131.8 $ 62.9 $ 89.0
Working capital............ 346.5 321.2 340.3 256.5 262.2
Net cash (used) provided by
operating activities...... (12.0) 24.3 121.1 45.6 69.5
Net cash (used) provided by
financing activities...... (1.9) 2.2 (8.8) (4.6) (28.3)
Capital expenditures....... 13.4 7.1 52.4 112.1 13.3
Total assets............... 1,277.5 1,233.7 1,314.0 1,230.9 1,240.7
Long-term debt (including
current portion).......... 407.9 394.5 407.9 394.5 495.3
Redeemable preferred stock,
net....................... 16.6 15.1 15.9 14.5 36.7
Stockholders' equity
(deficit)................. $ 195.8 $ 181.3 $ 198.6 $ 149.2 $ (1.4)
</TABLE>
As of March 31, 1996, the Company had cash and equivalents of $104.4 million
compared to $131.8 million as of December 31, 1995 and $62.9 million as of
December 31, 1994. This decrease in cash and equivalents between December 31,
1995 and March 31, 1996 was due primarily to the payment during the first
quarter of 1996 of approximately $24.2 million of profit sharing. During 1995,
the Company completed a private sale of
32
<PAGE>
$125.0 million principal amount of 10 3/4% Notes. The net proceeds of the
offering were approximately $121.0 million, of which $118.8 million was used
to purchase approximately $30.0 million principal amount of 11 1/2% Notes and
$82.0 million principal amount of 10 7/8% Notes. The Company exchanged these
notes for substantially identical notes which were registered under the
Securities Act. In addition, during 1995, the Company received approximately
$53.0 million related to the settlement of insurance claims.
The Company's net deferred tax assets were $136.1 million as of March 31,
1996, which consisted primarily of the carrying value of net operating loss
carryforwards and other tax credits and net deductible temporary differences
available to reduce the Company's cash requirements for the payment of future
federal income tax. The Company was required in 1995 and 1994, and may be
required in future periods, to make cash payments for income taxes under
federal alternative minimum tax regulations.
The Company has in place, through WRI, a receivable participation agreement
with a group of four banks (the "WRI Receivable Participation Agreement"). The
facility, which is AAA rated by Standard & Poor's Ratings Services, provides
for a total commitment by the banks of up to $85.0 million, including a letter
of credit subfacility of up to $25.0 million. The WRI Receivable Participation
Agreement, as amended, makes the facility available to WRI through April 2000.
As of March 31, 1996, $4.0 million in letters of credit under the subfacility
were outstanding. Based upon the Company's available cash on hand as of March
31, 1996, and the amount of cash it anticipates will be provided from
operating activities in the near term, the Company expects to have sufficient
cash to meet its near-term requirements. As such, it does not expect WRI to
sell participation interests to the banks in the near term. As of March 31,
1996, after reductions from amounts in place under the letter of credit
subfacility, the base amount of participation interests available for cash
sales was approximately $81.0 million. Additionally, the Company has no
scheduled debt repayment until 1998 when its 11 1/2% Notes become due.
INVESTMENT IN FACILITIES
Excluding the cost to rebuild the No. 9 Tandem Mill, capital spending was
approximately $49.5 million in 1995 compared to $37.5 million in 1994. The
Company spent approximately $2.9 million and $74.6 million in 1995 and 1994,
respectively, to rebuild the No. 9 Tandem Mill. Expenditures for property,
plant and equipment for the first three months of 1996 totaled $13.4 million.
The Company's planned capital expenditures for 1996 and 1997 are
approximately $85 million and $47 million, respectively, and include spending
for a major reline and rebuild of the Company's No. 1 Blast Furnace, expected
to begin in the latter half of 1996, and improvements on the Company's No. 4
Blast Furnace. Other planned capital improvement expenditures for 1996 and
1997 include approximately $6.9 million to install gauge and additional
looping capacity on the No. 9 Tandem Mill, $6.0 million to install fire
protection systems and $4.5 million to install in-line side trimming on the
No. 2 Plater. Also included in the Company's planned capital expenditures for
1996 and 1997 are approximately $11.7 million and $5.0 million, respectively,
for environmental control projects. At present, cash provided from operating
activities, together with cash on hand, is expected to be sufficient to fund
the capital budget and to 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 requirements for capital
improvements would be financed through the WRI Receivable Participation
Agreement.
ENVIRONMENTAL MATTERS
The Company is continuing negotiations with the EPA regarding alleged
violations of environmental laws and regulations, as well as compliance issues
related to air, water and waste disposal. Although at this time it is not
possible to determine the eventual outcome of these negotiations, the Company
will likely be required to pay fines and penalties, commit to environmental
related capital expenditure projects and incur higher operating costs related
to its environmental compliance programs. The Company may also be required to
conduct remediation activities at certain waste disposal sites. At this time,
it is not possible to determine if any remediation activities
33
<PAGE>
would be subject to indemnification by National. The time period related to
the EPA negotiations extends to September 15, 1996. Based on its review of the
matters involved and discussions to date with representatives of the EPA,
while no assurance can be given, the Company does not believe that any fines,
penalties or costs to remediate would have a material effect on the Company's
financial position or results of operations. However, it is expected that
related capital expenditure projects and required changes in operating
practices will increase future operating costs, which may have a significant
effect on future results of operations. See "Business--Environmental Control."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." SFAS No. 121 requires that the carrying value
of long-lived operating assets, when determined to be impaired, be adjusted so
as not to exceed the estimated undiscounted cash flows provided by such
assets. SFAS No. 121 also addresses the accounting for long-lived assets that
are to be disposed of in future periods. The Company adopted the provisions of
SFAS No. 121 in the first quarter of 1996. The adoption of SFAS No. 121 did
not have any effect on the Company's financial position or results of
operations for the quarter ended March 31, 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 recommends, but does not require, that companies
change their method of accounting for stock-based compensation plans to one
that attributes compensation costs equal to the fair value of a stock-based
compensation arrangement over the periods in which service is rendered.
Companies not electing to change their method of accounting are required,
among other things, to provide additional disclosure which in effect restates
a company's results for comparative periods as if the new method of accounting
had been adopted. The Company intends to continue its present accounting
policy relating to stock-based compensation and will provide the required
disclosures, as permitted by SFAS No. 123.
34
<PAGE>
BUSINESS
GENERAL
The Company is a major integrated producer of flat rolled carbon steel which
has been in the steelmaking and finishing business for more than 80 years. The
Company focuses on higher value-added products with demanding specifications,
such as TMP and coated sheet. TMP are sold primarily to manufacturing and
packaging companies for use as food, non-carbonated beverage and general line
cans; coated sheet is sold primarily to the construction industry for use in a
broad variety of building products and to service centers. For the three
months ended March 31, 1996, these value-added product lines accounted for
approximately 68% of the Company's revenues and 55% of its shipments. Over the
last five years, these value-added product lines have accounted for
approximately 71% of the Company's revenues and 59% of its shipments. The
remainder of the Company's revenues is derived from the sale of hot and cold
rolled sheet, which is used primarily for machinery, construction products and
other durable goods. The Company believes that its percentage of value-added
products to total production is among the highest of integrated steel
producers in the United States and provides it with a competitive advantage
against both domestic and foreign commodity steel producers.
Since 1988, the Company has made capital improvements in excess of $730
million, reduced its workforce by 31% and implemented a number of additional
cost reduction initiatives, all of which have contributed to increased
productivity. As a result of these achievements, the Company believes its
operating costs per ton of hot band are below the industry average among North
American steel producers. The Company's capital improvements have included
enhancing the Company's capacity to make clean steel, rebuilding its multi-
strand continuous caster and upgrading its hot strip rolling mill to be one of
the most modern in the world. Specifically, the Company has achieved the
following:
. Reduced its employee hours per ton from 6.41 hours per ton shipped in
1988 to 4.31 hours per ton shipped in the first quarter of 1996.
. Increased its overall yields from liquid steel to finished product from
74% in 1988 to approximately 81% in the first quarter of 1996.
. Raised average hot metal production per furnace from 2,409 tons per day
in 1988 (utilizing three furnaces) to 3,299 tons per furnace per day in
the first quarter of 1996 (utilizing two furnaces) and lowered
conversion costs.
. Increased operating rates at the hot strip mill by 4% per turn of
production in the first quarter of 1996 compared to 1988. Moreover,
through improved production scheduling, average operating delays for the
hot strip mill have been reduced by more than 20% from 1988 levels.
. Increased its productivity (defined as tons rolled per hour operated) at
the No. 9 Tandem Mill 14% from 1993, the year prior to the fire and
subsequent rebuild of the No. 9 Tandem Mill, to the first quarter of
1996.
BUSINESS STRATEGY
The Company's strategic objective is to be a first tier global provider, in
terms of cost, quality and customer service, of tin plate and other specialty
coated and plated products. The Company's strategy is to (i) continue to make
cost and productivity improvements, (ii) continue to improve its product mix
towards higher value-added products such as TMP and coated sheet and (iii)
maximize the utilization of its assets.
Cost and Productivity Improvements. The Company's strategy is to continue to
make cost and productivity improvements through, among other things, the
following plans or programs:
. The Company's current capital improvement plan includes approximately
$80 million for a major reline and rebuild of the No. 1 Blast Furnace,
and an upgrade of the related computer systems, as well as additional
automation and other improvements. The reline and rebuild of the No. 1
Blast Furnace is expected to increase the Company's iron producing
capacity, provide energy cost savings, and reduce manpower requirements
and raw material costs. This project is expected to be completed in the
first quarter of 1997.
35
<PAGE>
. In May 1996, the Company announced that as part of its ongoing broad-
based effort to improve its cost position, the Company was reducing its
supervisory and managerial workforce by approximately 200 employees, or
approximately 20%. While the Company currently has no specific plan to
further reduce its workforce, the Company continues to evaluate other
workforce reductions.
. The Company is planning further capital improvements of approximately
$6.9 million to the No. 9 Tandem Mill aimed at increasing capacity by an
additional 15% per year. These improvements are expected to be completed
in the first half of 1997.
. Beginning in the first quarter of 1996, the Company initiated a new
supply management program to coordinate the acquisition of goods and
services, from rolling oils to raw materials. This program seeks to
achieve cost savings by consolidating suppliers, introducing new lower
cost suppliers, using alternative negotiating approaches, purchasing a
greater percentage of goods at bulk rates and redesigning material and
process requirements. To date, the Company has implemented the initial
phase of this program with respect to the sourcing of lubricants, oils
and machine shop and fabricating services.
. The Company has undertaken several projects that are anticipated to
reduce costs of production, including an upgrade of the turbo blowers on
its blast furnaces, which will reduce the Company's energy requirements.
The Company also has implemented a new scrap management program which is
expected to allow for the use of lower cost scrap in the basic oxygen
process.
. The Company is currently conducting feasibility studies regarding the
installation of PCI. PCI is designed to inject coal into the blast
furnace, thereby reducing the Company's coke consumption.
Improve Product Mix. The Company's strategy emphasizes the development,
production and shipment of higher value-added products which have generally
allowed the Company to realize higher margins. In 1995, high value-added
products (TMP, galvanized and other coated sheet) represented 52% of the
Company's total shipments compared to an average (weighted by tons) of
approximately 36% among the Company's integrated competitors.
The Company is seeking to further increase its market share in TMP through
increased sales to existing customers, the extension of its customer base and
international expansion. The Company has targeted markets in China, India and
South America which have a low per capita rate of can consumption compared to
the United States. As these markets continue to develop, the rate of can
consumption is expected to increase significantly. The Company is attempting
to establish relationships that will permit penetration of these markets and
plans to ship products to international markets when favorable economic and
business conditions exist.
The Company's strategy for development of its sheet business is focused on
increasing its percentage of coated products, such as galvanized products, by
capitalizing on developing specialty markets such as construction where the
Company believes that its GALFAN products have potential use in roofing and
framing applications. As part of this strategy, the Company is also making
efforts to enhance high quality end use of its products, as well as developing
the hot rolled market for heavier gauge and higher carbon applications for all
markets.
WEIRTEC, the Company's research and development center specializing in the
advancement of steel can making technology, is an integral part of the
Company's ability to expand its value-added products. WEIRTEC has been
instrumental in the development of technology for thin-walled food and
beverage containers and lids and continues to focus its efforts on the
development of technology that features the use of light gauge, high tensile
steel.
Maximize Utilization of Assets. The Company is focusing on maximizing the
utilization of certain key operating assets by (i) increasing blast furnace
hot metal production, (ii) improving throughput at its caster and cold rolling
facilities and (iii) fully utilizing excess capacity at its hot strip mill.
The Company has planned capital improvements for its blast furnaces and cold
rolling facilities that are expected to increase both quality and capacity
over current levels. The increased production at the blast furnaces will
provide for larger quantities
36
<PAGE>
of hot metal for steel making operations, while improvements, primarily at the
No. 9 Tandem Mill, will increase throughput, thus providing the ability to
produce more value-added products.
The Company's hot strip mill has excess capacity relative to the Company's
slab production. The Company has one of the few hot strip mills that is
capable of rolling both carbon and stainless steels, while meeting exacting
customer specifications. The Company currently, or has in the past, utilized
the excess capacity by purchasing slabs to meet its order book and providing
conversion services for carbon and stainless steel producers. The Company
plans to continue the development of these alternatives to provide additional
utilization of its enhanced rolling facility.
PRINCIPAL PRODUCTS AND MARKETS
The Company offers a wide range of rolled carbon steel products including
hot and cold rolled sheet steel and both hot-dipped and electrolytic
galvanized products as well as a broad line of coated steels, including tin
plate, chrome coated, and black plate, which comprise TMP. The Company's
products emphasize the narrow to medium widths, up to 48^ wide, reflective of
its rolling and finishing equipment, and cover a broad range of gauges,
finishes and performance specifications. The Company has developed significant
expertise in filling orders with demanding specifications.
The percentages of the Company's total revenues derived from the sale of
sheet products, and TMP for the three months ended March 31, 1996 and for each
fiscal year in the five-year period ended December 31, 1995 are shown in the
following table. Total revenues include the sale of secondary products,
principally those products not meeting prime specifications. Revenues from the
sale of semifinished products have been combined with sheet products.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ ------------------------------
1996 1995 1994(1) 1993 1992 1991
------------ ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sheet products.................... 59% 64% 70% 54% 48% 46%
TMP............................... 41 36 30 46 52 54
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
- --------
(1) The percentage increase during 1994 in Sheet Product revenues versus TMP
revenues compared to the trend in prior years resulted from strong market
demand for the Company's Sheet Products and the outage of the No. 9
Tandem Mill from April 1994 to October 1994. See "--Production and
Shipments" herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The following table shows the percentage of total net tons of steel products
shipped by the Company to each of its principal markets for the three months
ended March 31, 1996 and for each fiscal year in the five-year period ended
December 31, 1995.
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ ------------------------------
1996 1995 1994 1993 1992 1991
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service Centers and Sheet and
Strip Converters................. 49% 43% 45% 30% 24% 21%
Food and Beverage................. 28 25 25 37 41 44
Pipe and Tube..................... 5 7 6 12 11 9
Construction...................... 8 9 13 9 8 7
Consumer Durables................. 4 3 4 4 6 8
Exports........................... 2 9 -- 1 3 1
Other............................. 4 4 7 7 7 10
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
37
<PAGE>
A substantial portion of the Company's revenues are derived from long-time
customers, although the Company actively seeks new customers and new markets
for its products. A large share of the Company's sheet and TMP products are
shipped to customers located in the Eastern and Midwestern portion of the
United States. The Company plans to ship products to international markets
when favorable economic and business conditions exist. The Company's products
are sold through salaried Company employees who operate from 7 district sales
offices.
Trade orders on hand for the Company's products at March 31, 1996 and
December 31, 1995, 1994 and 1993 amounted to approximately 697, 418, 494 and
449 thousand tons, respectively. Substantially all orders on hand at any time
are expected to be filled within a 12 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 1995, the
Company shipped 1,112 thousand tons of hot rolled products, which accounted
for 28.9% of its total revenues.
Cold rolled sheet requires further processing including additional rolling,
annealing and tempering to enhance ductility and surface characteristics. Cold
rolled sheet is used by the construction, steel service center, commercial
equipment and container industries, primarily for exposed parts where
appearance and surface quality are important considerations. In 1995, the
Company shipped 188 thousand tons of cold rolled sheet, which accounted for
6.8% of its total revenues.
Galvanized hot-dipped and electrolytic sheet is coated primarily with zinc
compounds to provide extended anti-corrosive properties. Galvanized products
are sold to the electrical, construction, automotive, container, appliance and
steel service center markets. In 1995, the Company shipped 655 thousand tons
of galvanized products, which accounted for 28.3% of total revenues.
The Company generally obtains higher profit margins on its sheet products
that require more extensive processing.
The following table, based on information from the AISI, shows the Company's
historical share of the domestic sheet products market for the three months
ended March 31, 1996 and for each fiscal year in the five-year period ended
December 31, 1995.
SHEET PRODUCTS
HISTORICAL MARKET SHARE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ --------------------------------------
1996 1995 1994 1993 1992 1991
------------ ------ ------ ------ ------ ------
(IN THOUSANDS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Industry shipments......... 12,429 47,845 47,217 41,616 38,099 35,590
Shipments(1)............... 490 1,955 1,991 1,536 1,212 1,082
Market share............... 3.9% 4.1% 4.2% 3.7% 3.2% 3.0%
</TABLE>
- --------
(1) Includes secondary products.
While the Company's presence in the overall sheet products market is
limited, the Company has concentrated on developing offerings of more highly
processed products and production capability to provide the coil sizes favored
by most of its customers. The Company's strategy for development of its sheet
business is 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 products have
potential in
38
<PAGE>
roofing and framing applications. As part of this 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.
TMP. 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 registered trademark WEIRCHROME.
The Company is one of the largest domestic producers of TMP. During the
first quarter of 1996, the Company's market share of TMP was approximately
22%, an increase from the 19% and 15% market share held in 1995 and 1994,
respectively. Prior to 1994, the Company's market share of TMP was
consistently greater than 20%. However, the outage of the No. 9 Tandem Mill in
April 1994 reduced the Company's TMP shipments significantly in the second
half of 1994. During 1995, the Company began to regain its TMP market share
and achieved a more traditional product mix, as it resumed normal operations
following the rebuild of the No. 9 Tandem Mill in the first quarter of 1995.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "--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 have competed for potential growth in
some applications. The TMP market is now primarily directed at food, juices
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 1995, shipments to ten
major can manufacturers accounted for approximately 74% of the Company's TMP
sales and its five largest TMP customers accounted for 19% 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,
allowing it to operate its production facilities more efficiently and adjust
its marketing and production efforts for other products. Historically, the
greater predictability of the TMP market and its relative pricing stability
have served to cushion the Company against greater price volatility in the
sheet product market.
The following table, based on information from the AISI, shows the Company's
historical share of the domestic TMP market for the three months ended March
31, 1996 and for each fiscal year in the five-year period ended December 31,
1995.
TMP
HISTORICAL MARKET SHARE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------
1996 1995 1994 1993 1992 1991
------------ ----- ----- ----- ----- -----
(IN THOUSANDS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Industry shipments.............. 996 3,942 4,137 4,123 3,927 4,040
Shipments(l).................... 222 763 615 895 890 857
Market share.................... 22% 19% 15% 22% 23% 21%
</TABLE>
- --------
(1) Includes secondary products
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. 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.
39
<PAGE>
The Company has been a leading innovator in the development of can making
technology through its WEIRTEC research and development center. The Company
engages in 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 eight 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.
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 in December 1991 and continuing through 1995, the steel industry
experienced a rebound in both production and shipments. Similarly, capacity
utilization, which was 74% in 1991, increased to 93% in 1995. Industry raw
steel production for 1995 was up approximately 5% to 102.7 million tons
compared to 1994, while shipments increased by approximately 2% to 97.5
million tons. The high levels of production have continued through the first
quarter of 1996 for both the Company and the domestic steel industry.
In 1995, the Company produced 2.8 million tons of raw steel and shipped 2.7
million tons of finished and semi-finished steel products. Although production
and shipment levels were slightly higher for 1995 as compared to 1994, the
Company's finished product mix in 1995 included higher levels of TMP, as the
rebuilt No. 9 Tandem Mill was brought on line. 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
three months ended March 31, 1996 and for each fiscal year in the five-year
period ended December 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993 1992 1991
------------ ----- ----- ----- ----- -----
(IN MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Company:
Raw steel production....... 0.7 2.8 2.7 2.7 2.5 2.3
Capacity................... 0.8 3.0 3.0 3.0 3.0(1) 3.4
Utilization................ 94% 95% 91% 91% 83% 68%
Shipments.................. 0.7 2.7 2.6 2.4 2.1 1.9
Shipments as a percentage
of industry total......... 2.8% 2.8% 2.7% 2.7% 2.6% 2.4%
Industry:
Raw steel production....... 26.0 102.7 97.9 96.1 91.6 87.9
Capacity................... 28.0 110.4 108.2 109.9 113.1 117.6
Utilization................ 93% 93% 91% 87% 81% 74%
Shipments.................. 24.9 97.5 95.3 88.4 82.3 78.9
</TABLE>
- --------
(1) The reduction in 1992 reflects the discontinuation of teemed slab
production.
STEELMAKING PROCESS
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
40
<PAGE>
("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 process of continuous casting. The Company
operates a multi-strand continuous caster, rebuilt in 1990, which allows the
Company to 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. Finished products are
normally shipped to customers in the form of coils. The Company believes that
its hot rolling mill, with two walking beam reheat furnaces, reversing rougher
and millstand drive and control improvements, is a world-class facility that
greatly enhances the Company's competitive capabilities. In addition, the
Company has linked its steelmaking and rolling equipment with computer-control
systems and is in the process of installing an integrated manufacturing
control system to coordinate production and sales activities.
The following chart shows the configuration of the Company's major
production facilities:
[Description of chart for EDGAR purposes: chart showing the configuration of the
Company's major production facilities.]
RAW MATERIALS
Unlike many of its larger competitors, the Company does not own or
participate in the ownership of raw material mining reserves from which it can
draw its production requirements. As a result, the Company must buy these
materials on the open market.
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 through 2005.
The contract provides for a minimum tonnage of pellets to be supplied based on
the production capacity
41
<PAGE>
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.
The Company obtains the balance of its iron ore pellets and limestone
requirements, in most cases, from multiple sources with the variable factors
being price and quality rather than availability of supply.
The Company, unlike a number of its larger integrated competitors, 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,
which expires in September 1996, provides for tonnages of 750,000 per calendar
year 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 with another coke producer which runs through
December 1996. The Company, like other steelmakers, has utilized or is
planning to install technologies calculated to achieve some reduction in the
consumption of coke in blast furnace operations. The Company is actively
pursuing future long term sources of coke, both domestically and abroad, and
believes that it will be successful in obtaining coke necessary for its
anticipated operations. However, if coke making capacity available to the
industry continues to decline, future coke prices may be subject to
significant escalation. The Company is engaged in negotiations with USX
Corporation to extend its current contract; however, there can be no assurance
that the Company will be able to extend the contract or that alternative
sources of supply will be available to the Company at all or on as favorable
terms.
The Company utilizes scrap in its steelmaking process. Scrap steel is
available from a number of sources at prevailing market prices.
The Company's requirements for slabs have from time to time exceeded the
production capacity of the Company's caster 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, oxygen 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
natural 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 recently entered into a 15 year contract for the
supply of oxygen to its steelmaking facilities. This new agreement
significantly reduces the Company's oxygen supply costs. 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
generally on competitive terms.
COMPETITION AND OTHER INDUSTRY FACTORS
The domestic steel industry is a cyclical industry 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.
42
<PAGE>
Integrated steelmakers also face increased competition from mini-mills.
Mini-mills are efficient, low-cost producers that generally produce steel by
melting scrap in electric furnaces, utilize new technologies, have lower
employment costs and target regional markets. Mini-mills historically have
produced lower profit margin products, such as 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. 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 similar facilities. In other instances, mini-mills seeking to capture
segments of the flat rolled market have located facilities where they are
geographically advantaged compared to their integrated competition. In
general, prices for scrap, on which mini-mills are more dependent than
integrated steel producers, have increased the operating costs of mini-mills.
In response, some mini-mills have begun to develop scrap substitution iron-
making technologies. Mini-mills generally continue to have a cost advantage
over integrated steel producers.
In response to increased competition, domestic steel producers have invested
heavily in new plant and equipment, which has improved efficiency and
increased productivity and quality. 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. In
addition, it is estimated that approximately 10 to 14 million tons of new
steelmaking capacity (primarily mini-mills) will be in place within the next
three years, further threatening the viability of less efficient facilities.
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 antidumping 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. However, the Company
believes that the decisions have not significantly increased the duties for
those imports to levels where they have served as effective competitive
barriers. As a percentage of domestic consumption, steel imports excluding
semifinished products (primarily slabs), were at approximately 21%, 24% and
17% in 1995, 1994 and 1993, respectively.
The Company's primary competitors in sheet products consist of most domestic
and international integrated steel producers and mini-mills. The Company's
primary TMP competitors in recent years have been USX Corporation, LTV
Corporation, Bethlehem Steel Corporation, National Steel Corporation and USS-
POSCO Industries. The Company experiences strong competition in all its
principal markets with respect to price, service and quality.
RESEARCH AND DEVELOPMENT
The Company engages in research and development for the improvement of
existing products and processes, and the development of new products and
product applications. During 1995, 1994 and 1993, the Company spent
approximately $3.2 million, $6.3 million and $5.4 million, respectively, for
research and development activities. WEIRTEC, the Company's research and
development center specializing in the advancement of steel can making
technology, maintains research and prototype steel packaging manufacturing
facilities, analytical laboratory facilities and computer simulation systems
in Weirton, West Virginia. 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
43
<PAGE>
capitalize on the Company's production expertise, particularly in coated
products. WEIRTEC is currently conducting research projects on clean steel
production techniques, polymer to steel lamination and the application of
galvanized steel products in the residential and commercial construction
industry. See "--Principal Products and Markets." WEIRTEC assists customers in
the development of new products and collaborates with the AISI in the
development of new product lines and production techniques that will increase
the use and quality of steel products. The Company believes that the
scientists, engineers, technicians and the facilities of WEIRTEC 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 is subject to extensive federal, state and local
environmental laws and regulations, including those 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.
Capital expenditures for environmental control facilities were approximately
$3.9 million in 1995, $3.2 million in 1994 and $1.0 million in 1993. For 1996
and 1997, the Company has budgeted approximately $11.7 million and $5.0
million, respectively, in capital expenditures for environmental control
facilities. Given the nature of the steelmaking industry, it can be expected
that substantial additional expenditures will be required from time to time to
permit the Company to remain in compliance with environmental regulations. In
addition, new or expanded environmental requirements could increase the
Company's environmental costs in the future. Since the effects of future
requirements are not presently determinable, it is not possible to predict the
ultimate future cost of compliance. 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.
In the past, the Company has resolved environmental compliance issues
through consent decrees with certain environmental authorities, pursuant to
which the Company has implemented corrective actions and paid fines and
penalties relating to violations, or alleged violations, of environmental laws
and regulations. The Company's near-term focus for environmental compliance
centers on procedures to achieve ambient air quality and water pollution
control standards. In addition to improving its monitoring and study programs,
the Company anticipates taking affirmative action to reduce sulfur dioxide and
particulate emissions primarily by changing operating policies and by
improving the quality of maintenance procedures. In an effort to improve its
water pollution discharge compliance performance, the Company initiated in
1993 an around-the-clock environmental control supervisory function and is
seeking to create a mobile maintenance group dedicated to environmentally safe
operation.
Waste Sites and Proceedings. Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and similar
state statutes, the EPA and state regulators may seek to impose joint and
several liability on waste generators, owners, operators and others with
respect to contaminated 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
44
<PAGE>
that National has provided notices to the EPA regarding a number of sites as
required by CERCLA which had been used by the Division prior to its sale to
the Company, two of which are located on property owned by the Company.
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 indemnified by National.
The Company and/or its predecessors have been conducting steel manufacturing
and related operations at various locations, including the Company's current
plant site, for over eighty years. Although the Company and its predecessors
utilized operating practices that were standard in the industry at the time,
hazardous substances may have been released on or under these sites. In
accordance with regulatory requirements under the Resource, Conservation and
Recovery Act ("RCRA"), the Company anticipates that it will be required to
investigate these prior releases and take corrective action where deemed
appropriate. In addition, the Company and its predecessors have disposed of
solid and hazardous wastes at various off-site waste disposal sites, at some
of which sites hazardous substances may have been released. Pursuant to CERCLA
and similar state laws, the Company may be required to remediate contamination
at some of these sites or participate in the sharing of such costs as deemed
necessary. The Company does not have sufficient information to estimate its
potential liability in connection with any potential future remediation.
However, the Company believes that if any such remediation is required, it
will occur over an extended period of time. In addition, the Company believes
that many of these sites may also be subject to indemnity obligations by
National to the Company.
In March 1988 and September 1989, respectively, the Pennsylvania Department
of Environmental Resources ("PADER") and/or the EPA notified the Company that
it was considered to be among a number of PRPs for the disposal of wastes at
the Municipal and Industrial Disposal Company site near Elizabeth,
Pennsylvania and at the Tex Tin site near Texas City, Texas, and requested the
Company's voluntary participation in certain remedial actions. The Company's
records do not indicate any involvement with either site by the Company. Both
the Company and National have been named as defendants in a suit filed by
Amoco Chemical Corporation in the U.S. District Court for the Southern
District of Texas in May 1996. The suit alleges that the Company, National and
numerous other defendants are liable for Amoco's remedial costs at the Tex Tin
site. The Company believes that National would be responsible for any remedial
actions if there had been prior involvement by the Division. The Company has
given all required notices to National for the purpose of facilitating its
response to this matter.
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 consisted primarily
of the disposal of the drums. The drum remediation proceeded pursuant to an
EPA approved work plan. On December 14, 1993, the Company received written
approval from the EPA that all of the requirements of the work plan had been
satisfactorily completed. There can be no assurance that the EPA will not
require additional monitoring or remediation of the site. The Company believes
that National, under its indemnity agreements with the Company, is responsible
for any environmental liabilities involving the site, including reimbursement
for the total cost of the remediation program. National has reimbursed the
Company for the $761,000 spent by the Company to date on the remediation
program at this site. However, in June 1994, the Company received and paid an
invoice from the EPA seeking payment for oversight and response costs incurred
by the EPA with regard to this site in the approximate amount of $12,000. The
Company believes that this sum represents the final expenditure related to
this remediation program and expects to be reimbursed by National for this
sum.
In May 1992, the Company received notice from the PADER 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 although it
45
<PAGE>
disposed of various materials which were residual to the steelmaking industry,
such materials were not classified as hazardous substances under applicable
law. At this time, definitive closure plans and post-closure care plans have
not been adopted. National's contractually assumed reimbursement obligation to
the Company with respect to the closure of this facility is limited to $1.0
million. Although there can be no assurances, the Company does not anticipate
that the costs for site closure will exceed the limitation on National's
liability.
West Virginia Division of Environmental Protection. In January 1993, the
Company received a notification from the 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, currently owned but never operated by
the Company, 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. The Company expects that any additional monitoring or remediation
which may be required will be discussed in the multimedia enforcement process
described below. The Company has given notice to National of the DEP
communication. Although the Company believes that National will be responsible
for any required remediation National has not yet reimbursed the Company for
approximately $210,000 spent to date by the Company for remediation activities
to remediate certain sediments.
In October 1992, the Company entered into a consent order with the DEP that
provided for administrative fines and penalties to be assessed against the
Company for asserted spills of various substances under provisions of the
federal Clean Water Act administered by the DEP. The consent order required the
payment of an administrative settlement in the amount of $99,000 as well as the
application of $40,000 to a "best management practices" plan to reduce or
eliminate the frequency of spills at the tin mill, which plan is being
implemented. The consent order also provides for stipulated penalties upon the
occurrence of future spills. The Company is working to improve its operating
practices to minimize the occurrence of spills.
Potential Multimedia Enforcement Action. 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 and waste-related issues stemming
from a number of federal and state statutes and rules. In recent years, such
actions have resulted in penalties and other commitments being obtained from
many of the Company's competitors.
In March 1996, the EPA advised the Company that it had identified a number of
enforcement issues pertaining to waste water discharges, air emissions and
waste handling operations by the Company. The EPA proposed that the parties
attempt to resolve these issues during a six-month negotiation period. The EPA
indicated that it would expect a negotiated settlement to include necessary
corrective steps to address noncompliance issues and a civil penalty. However,
the EPA also indicated that consideration would be given to offsetting a
portion of any cash penalty through the Company's performance of supplemental
environmental projects. If a negotiated settlement could not be reached by
September 15, 1996, the EPA indicated that it would commence a civil
enforcement action in federal court. The Company agreed to proceed with the
negotiation process, which began on March 14, 1996. The Company cannot predict
the results of its negotiations with the EPA, including whether an agreement
can be reached, the cost of any required compliance, or the extent of any
penalty. Likewise, the Company cannot predict whether the EPA will initiate
enforcement proceedings or their outcome. Based on its review of the matters
involved and discussions to date with representatives of the EPA, while no
assurance can be given, the Company does not believe that any fines, penalties
or costs to remediate would have a material effect on the Company's financial
position or results of operations. However, it is expected that related capital
expenditure projects and required changes in operating practices will increase
future operating costs, which may have a significant effect on future results
of operations.
Air Emission Notice of Violation. In October 1995, the Company received a
Notice of Violation from the EPA alleging violations of certain West Virginia
regulations relating to air emissions at four of the Company's facilities,
which may result in fines and penalties. The alleged violations are being
discussed in the multimedia
46
<PAGE>
negotiation process. The Company has undertaken certain capital projects and
anticipates implementing operational changes designed to enhance air emission
control at these facilities.
Water Discharge Permitting. In June 1994, the DEP issued a renewal National
Pollutant Discharge Elimination System ("NPDES") permit to the Company for its
water discharges. The renewal NPDES permit contained a number of new
requirements, including stringent "water quality-based" effluent limitations
based on West Virginia regulation (the "Regulation"). The DEP has given the
Company until June 30, 1998 to comply with the renewal permit. The Company
appealed the renewal permit to the West Virginia Water Resources Board and is
currently conducting settlement discussions with state and EPA regulators
relating to the limitations contained in the renewal permit. The Company cannot
predict the outcome of these negotiations. However, the Company believes that
it will not be able to ensure consistent compliance with certain limitations
contained in the permit as issued without significant treatment technology
and/or process changes. The Company cannot estimate the cost of installing such
technology or effecting such changes, if necessary.
Additionally, in March 1996, the West Virginia Legislature enacted certain
changes in the West Virginia regulations that served as a basis for portions of
the renewal permit and as a result of these changes, the Company believes
certain effluent limitations contained in the renewal permit will be
recalculated. Although there can be no assurances, the Company believes that it
can meet these limitations using its existing wastewater treatment facilities.
However, if the appeal is unsuccessful and/or the new regulation does not
result in recalculated effluent standards, the Company believes it will not be
able to ensure consistent compliance with certain provisions contained in the
permit without significant treatment technology and/or process changes, if
necessary. The Company cannot estimate the cost of installing such technology
or effecting such changes, if necessary, but believes that such costs could be
material.
To date, the Company has paid stipulated penalties to the DEP totaling
$184,000 pursuant to the terms of the 1992 consent order 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 RCRA and violations of underground storage
tank requirements with proposed penalties aggregating approximately $250,000.
In connection with the underground storage tank issues, the Company entered
into a consent order with the DEP, in December 1994, pursuant to which the
Company paid an administrative settlement of $40,000 and conducted a site
investigation for leaking underground storage tanks. The Company has
substantially completed remediation activities at the areas contaminated by
leaking underground storage tanks and is currently continuing groundwater
monitoring and recovery of any free phase product. The balance of the alleged
RCRA violations are being discussed in connection with the multimedia
negotiation process.
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 matters 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 previously described Hanover
site is specifically subject to a $1.0 million limitation of National's
contractually assumed reimbursement obligation to the Company.
There can be no assurance that National will pay or continue to pay under its
indemnity obligations. 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 (including National's
ability to collect
47
<PAGE>
certain insurance proceeds with respect to environmental claims), on the
nature of future claims made by the Company, certain limitations on National's
liability, 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.
EMPLOYEES
At March 31, 1996, the Company had 5,615 employees, of whom 4,337 were
engaged in the manufacture of steel products, 590 in support services, 190 in
sales and marketing activities and 498 in management and administration. In
1992, the Company implemented a program, as part of its business strategy,
that was designed to reduce its workforce primarily through retirement and
attrition. After giving effect to the most recent workforce reduction
announced in May 1996, the Company has reduced its workforce by approximately
33% since 1988.
The Company has collective bargaining agreements with the Independent
Steelworkers Union, which represents approximately 4,581 employees as of March
31, 1996 in bargaining units covering production and maintenance workers,
clerical workers, nurses; and the Independent Guard Union, which represents 48
employees. The agreements terminate on September 25, 1996. Historically, the
Company's compensation structure has placed 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. See "Risk Factors--Collective Bargaining
Agreements."
The Company's current labor agreements provide for the payment of bonuses in
the gross amount of $3,500 per employee, to be paid in installments over the
three year 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 1995, the Company
accrued profit sharing of $24.2 million, which was paid in March 1996. The
labor agreements limit the Company's exposure to increased costs of health
care while providing increased medical coverages through a managed health care
"point of service" program and a ceiling on the Company's cash basis cost of
health care for future retirees. The agreements also contain limitations on
the Company's ability to reduce its represented workforce by layoffs, with
exceptions for adverse financial, operational, and business circumstances. In
addition, the agreements provide for certain improvements in the Company's
defined benefit plan.
The Company and its unions are commencing negotiations on new collective
bargaining agreements. The Company cannot predict whether it will reach new
contracts with its represented employees prior to the expiration of the
current agreements, or the terms of such new contracts. The Company believes
that its new labor contracts should continue to emphasize cost control
features to sustain the Company's ability to withstand industry downcycles.
In March 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 members conducted
an illegal work stoppage at the Company's tin mill in February 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
48
<PAGE>
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. The action is
pending trial.
From January 1984 until June 1989, the Company was owned in its entirety by
its employees through the 1984 ESOP, in which substantially all employees were
participants. In June 1989, the 1984 ESOP completed a public offering of
common stock, resulting in the common stock being listed and traded on the New
York Stock Exchange.
Substantially all of the Company's employees participate in its two ESOPs
which owned approximately 27% of the outstanding common and approximately 98%
of the outstanding preferred shares of the Company at March 31, 1996. As of
March 31, 1996, the two ESOPs represented approximately 48% of the Company's
voting power.
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 a sinter plant and 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 an
operating furnace that is nearing the end of its campaign, anticipated to be
in the fourth quarter of 1996, at which time the Company will undertake a
major reline and rebuild of that furnace. Although the Company does not
anticipate operating a three blast furnace configuration in the near term,
under that operating scenario, its annual hot metal capacity could be
increased to 3.6 million tons. The Company's primary steelmaking facilities
include a two vessel BOP shop with an annual capacity of 3.0 million tons of
raw steel based on a two blast furnace operation. Primary steelmaking
facilities also include a CAS-OB facility, two RH degassers, and 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 bimetallic chrome/tin plating
line and various annealing, temper rolling, shearing, cleaning and edge
slitting lines, together with packaging, storage and shipping and receiving
facilities.
LEGAL PROCEEDINGS
The Company is involved as a defendant or plaintiff in various legal
proceedings 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, financial position or results of operations.
49
<PAGE>
MANAGEMENT
The directors and executive officers of the Company as of March 15, 1996
were as follows:
<TABLE>
<CAPTION>
AGE AT
NAME MARCH 15, 1996 OFFICE
- ---- -------------- ------
<S> <C> <C>
Richard K. Riederer(1).. 52 President, Chief Executive Officer and
Chief Operating Officer; Director
James B. Bruhn(1)....... 55 Executive Vice President--Commercial;
Director
Craig T. Costello(1).... 48 Executive Vice President--Manufacturing;
Director
David L. Robertson...... 52 Executive Vice President--Human Resources
and Corporate Law
Earl E. Davis, Jr. ..... 47 Vice President--Finance and Chief Financial
Officer
Thomas W. Evans......... 59 Vice President--Materials Management
David M. Gould.......... 57 Vice President--Economic Development
William R. Kiefer....... 46 Vice President--Law and Secretary
Narendra M. Pathipati... 38 Vice President--Corporate Development and
Strategy
John H. Walker.......... 38 Vice President--Operations
Mac S. White, Jr. ...... 63 Vice President--Engineering
Mark E. Kaplan.......... 34 Controller
Richard E. Burt(2)...... 49 Chairman of the Board of Directors
Robert J. 39
D'Anniballe(3)......... Director
Michael Bozic(2)........ 55 Director
Mark G. Glyptis(3)...... 44 Director
Phillip A. Karber(3).... 49 Director
Joseph J. Nowak(4)...... 64 Director
Robert S. Reitman(2).... 62 Director
Richard F. Schubert(2).. 59 Director
David I.J. Wang(2)...... 63 Director
Ronald C. Whitaker(2)... 48 Director
Thomas R. Sturges(2).... 51 Director
</TABLE>
- --------
(1) Management Director
(2) Independent Director
(3) Union Director
(4) ESOP Director
Unless otherwise indicated below, the directors and executive officers of
the Company have held their respective positions as officers and/or directors
of the Company for at least the last five years.
Richard K. Riederer has been President and Chief Operating Officer since
January 1995 and Chief Executive Officer since November 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.
50
<PAGE>
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--Manufacturing 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. Mr. Costello has been a director of the Company since 1996.
David L. Robertson has served as Executive Vice President--Human Resources
and Corporate Law since March 15, 1996. Prior to that, Mr. Robertson was a
senior partner in the law firm of Volk, Robertson & Hellerstedt.
Earl E. Davis, Jr. has served as Vice President--Finance and Chief Financial
Officer since July 1995. From May 1994 to July 1995, he served as Controller.
From August 1991 to April 1994, he served as Assistant Controller. Prior to
August 1991, Mr. Davis was Director of Internal Audit.
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 Vice President--Law and Secretary since May 1990.
From March 1988 to May 1990, he served as Director--Legal Affairs and
Secretary.
Narendra M. Pathipati has served as Vice President--Corporate Development
and Strategy since July 1995. Mr. Pathipati served as Treasurer of the Company
from August 1991 to July 1995. From February 1990 to July 1991, he served as
Director of Financial Planning and Analysis.
John H. Walker has been Vice President--Operations since July 1995. From
April 1994 to July 1995, Mr. Walker was General Manager--Operations. Mr.
Walker was Director--Operations Planning from March 1990 to April 1994.
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.
Mark E. Kaplan has served as Controller since September 1995. Prior to that,
Mr. Kaplan was employed by Arthur Andersen LLP, where he held a number of
positions, most recently as Senior Manager in the Audit Department.
Richard R. Burt has been Chairman of the Board of the Company since April 1,
1996. He has also been Chairman of International Equity Partners, LLP, an
international financial services firm since 1994. Mr. Burt has also held the
following positions: Partner, McKinsey and Company from 1991 to 1994; Chief
Negotiator for the United States in the Strategic Arms Reduction Talks (START)
from 1989 to 1991; Director of the Lauder Institute of the Wharton School of
Business, Hollinger International Inc. and The Mitchell Hutchins Funds managed
by PaineWebber, Inc.; Chairman of the Board of Video Lottery Technologies,
Inc.; and a Member of the International Advisory Council of the Bank of
Montreal.
Robert J. D'Anniballe, Jr. is a partner in the law firm of Alpert,
D'Anniballe & Visnic, which serves as general counsel to the ISU.
Michael Bozic has been Chairman, Chief Executive Officer and Director of
Levitz Furniture Corporation since 1995. He was former President and Chief
Executive Officer and director of Hills Stores Company from 1991 to 1995. Mr.
Bozic is also a director of EagleMark Financial Services, Inc., Dean Witter
InterCapital, Inc. and the United Negro College Fund. He has been a director
of the Company since 1994.
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<PAGE>
Mark G. Glyptis has been President of the ISU since August 1991. He has been
an employee of the Company since 1973.
Phillip A. Karber has been a corporate Vice President of BDM International,
Inc., a firm that provides information technology services to both the public
and private sector in the United States and abroad, since 1989. He joined BDM
in 1971. During a leave of absence from BDM, Mr. Karber served as an advisor
on strategy development to the Secretary of Defense from 1981 to 1983. His
other affiliations include: director of the German American Business
Association; Washington, D.C. Metropolitan Area Y.M.C.A.; Advisory Board,
Mosher Institute; and Texas A&M University. He has been a director of the
Company since 1992.
Joseph J. Nowak is currently a director of Penn Power Company. He served as
Vice-President of Armco, Inc., a specialty steel producer, from 1992 to 1993
and as Executive Vice President of Cyclops Corporation, a specialty steel
producer, from 1988 to 1992. Mr. Novak has been a director of the Company
since 1995.
Robert S. Reitman is Chairman, President, Chief Executive Officer and
Director of the Tranzonic Companies, a manufacturer of paper and plastic
products principally for industrial use. He is also a director of Society
National Bank. Mr. Reitman has been a director of the Company since 1995.
Richard F. Schubert served as the President and Chief Executive Officer of
the Points of Light Foundation from 1990 to 1995. Mr. Schubert has been the
Chairman of the Peter F. Drucker Foundation since 1995 and also holds the
position of Chairman of BioRelease, Inc., a biotechnology firm. He is a
Director of National Alliance Business and Management Training Corporation.
David I.J. Wang is a director of U.G.I. Corporation and Americas, Inc., as
well as several privately held companies. He is a member of the Advisory
Boards at Georgia Institute of Technology and Hampton University. Mr. Wang
served as Executive Vice President and Director of International Paper Co.
from 1987 to 1991. He has been a director of the Company since 1992.
Ronald C. Whitaker has been the President and Chief Executive Officer of
EWI, Inc., a supplier of metal fabrications and prototype products for
automotive/truck/bus industries since 1995. He served as the Chairman,
President and Chief Executive Officer of Colt's Manufacturing Company from
1992 to 1995 and as President of Wheelabrator Corporation, from 1988 to 1992.
Mr. Whitaker has been a director of the Company since 1995. In 1996, EWI filed
a petition under Chapter 11 of the United States Bankruptcy Code.
Thomas R. Sturges has been Executive Vice President of The Harding Group
Inc., an investment firm, since February 1990.
The Restated Certificate provides for a Board of Directors of 14 members
divided into three classes, designated as Class I, Class II and Class III,
respectively. Each class serves a three-year term, and the terms are staggered
so that the term of one class expires at each year's annual meeting of
stockholders. At each annual meeting of stockholders, therefore, a different
class of directors is elected.
The Restated Certificate also provides for certain qualifications among the
Company's directors. Specifically, at least three members of the Board of
Directors (the "Union Directors") must be designated by the Company's primary
recognized collective bargaining agent (the "Union"), currently the ISU,
provided the Union meets certain requirements. One of the Union Directors must
be the president of the Union and the other two are designated by
certification of the executive committee of the Union. The Restated
Certificate further provides that three members of the Board of Directors (the
"Management Directors") must consist of the Chief Executive Officer of the
Company and two of the Company's employees designated by the Chief Executive
Officer. Seven directors must not be, nor ever have been, employees of the
Company or its predecessor, or the Union, and may not be affiliated with
persons having certain substantial business relationships with the Company.
One director is the "ESOP Director" who is required to be nominated by the
Board of Directors pursuant to a certification by a nominating committee
elected by the 1984 and 1989 ESOP participants.
52
<PAGE>
DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Senior Notes were issued, under
the Indenture dated July 3, 1996, between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. The Notes are subject to all such terms, and
prospective investors are referred to the Indenture and the Trust Indenture
Act for a statement of such terms.
The following statements are summaries of the material terms of the Notes
and the Indenture and do not purport to be complete. Such summaries make use
of certain terms defined in the Indenture and are qualified in their entirety
by express reference to the Indenture, a copy of which is available upon
request from the Company or the Trustee and has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. Certain of such
defined terms are set forth below under "--Certain Definitions."
GENERAL
The Exchange Notes will bear 11 3/8% interest from and including the date
such Exchange Notes are first issued under the Indenture, payable semiannually
on July 1 and January 1 of each year, commencing January 1, 1997, to holders
of record ("Holders") at the close of business on June 15 or December 15
immediately preceding each such interest payment date. Holders whose Senior
Notes are accepted for exchange will receive accrued interest thereon to, but
not including, the date of issuance of the Exchange Notes. The Notes will be
due on July 1, 2004, and will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The holders of the Notes may be entitled to liquidated damages in certain
circumstances if the Company does not meet its registration requirements with
respect to the Notes. See "Senior Notes Registration Rights."
The Notes are unsecured obligations of the Company limited to an aggregate
amount of $125 million. The Notes are senior to all subordinated indebtedness
of the Company and pari passu with all existing and future senior unsecured
indebtedness of the Company.
REDEMPTION
Optional Redemption. The Notes may not be redeemed at the option of the
Company prior to July 1, 2000. The Notes will be subject to redemption at any
time on or after July 1, 2000, at the option of the Company, in whole or in
part, at the following redemption prices (expressed as percentages of the
principal amount), plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date, if redeemed during the 12-month period beginning
July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000........................ 105.6875%
2001........................ 102.8438%
2002 and thereafter......... 100.0000%
</TABLE>
Selection and Notice of Redemption. In the event that less than all of the
Notes are to be redeemed at any time, selection of Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, on a pro rata basis,
provided, however, that the Notes will be redeemed only in the amount of
$1,000 or integral multiples thereof. Notice of redemption to the Holders of
Notes to be redeemed as a whole or in part shall be given by mailing notice of
such redemption by first-class mail, postage prepaid, at least 30 days and not
more than 60 days prior to the date fixed for redemption to such Holders of
Notes at their last addresses as they shall appear upon the registry books. On
and after the redemption date, interest and Liquidated Damages (as defined
herein), if any, cease to accrue on Notes or portions thereof called for
redemption.
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Sinking Fund. There will be no sinking fund for the Notes.
CERTAIN COVENANTS
The following is a summary of certain covenants that are contained in the
Indenture. Such covenants will be applicable (unless waived or amended as
permitted by the Indenture) so long as any of the Notes are outstanding.
Limitations on Indebtedness. The Company will not, and will not permit any
Subsidiary to, create, incur, assume, become liable for or guarantee the
payment of (collectively, an "incurrence") any Indebtedness (including
Acquired Indebtedness), other than Permitted Indebtedness, or permit any
Subsidiary to issue any Preferred Stock other than Preferred Stock that is
issued to and held by the Company or a wholly owned Subsidiary of the Company
(so long as the Company or a wholly owned Subsidiary owns such Preferred
Stock); provided the Company may incur, and may permit any Subsidiary to
incur, Indebtedness (including Acquired Indebtedness) if (a) at the time of
such event and after giving effect thereto, on a pro forma basis, the ratio of
Consolidated EBITDA to Consolidated Fixed Charges for the four fiscal quarters
immediately preceding such event for which financial information is available
consistent with the Company's prior practice, taken as one period and
calculated on the assumption that such Indebtedness had been incurred on the
first day of such four-quarter period and, in the case of Acquired
Indebtedness, on the assumption that the related acquisition (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in
such pro forma calculation, would have been greater than 1.75 to 1, and (b) no
Default or Event of Default shall have occurred and be continuing at the time
or as a consequence of the incurrence of such Indebtedness.
Notwithstanding the foregoing, the Company will not permit any Subsidiary to
incur Indebtedness (including Acquired Indebtedness) unless, at the time of
the incurrence of such Indebtedness and after giving effect thereto, on a pro
forma basis, without duplication, the sum of (i) the aggregate amount of
Indebtedness (including Acquired Indebtedness and Permitted Indebtedness) of
all Subsidiaries of the Company plus (ii) the aggregate amount of all
outstanding Indebtedness secured by Liens issued, assumed or guaranteed by the
Company or any Subsidiary (excluding Indebtedness secured by Permitted Liens)
plus (iii) the aggregate amount of Attributable Debt incurred by the Company
or any Subsidiary in respect of sale and leaseback transactions does not at
such time exceed 10% of Consolidated Net Tangible Assets.
Limitations on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, make any Restricted
Payment unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments (the fair market value of any such
Restricted Payment, if other than cash, as determined in good faith by the
Company's Board of Directors and evidenced by a resolution of such Board)
declared or made after the Issue Date does not exceed the greater of (i) $5
million or (ii) the sum of (A) 50% of the Consolidated Net Income of the
Company on a cumulative basis during the period (taken as one accounting
period) from April 1, 1993 and ending on the last day of the Company's last
fiscal quarter ending prior to the date of such Restricted Payment (or in
the event such Consolidated Net Income shall be a deficit, minus 100% of
such deficit), plus (B) 100% of the aggregate net cash proceeds of, and the
fair market value of marketable securities (as determined in good faith by
the Company's Board of Directors and evidenced by a resolution of such
Board) received by the Company from, the issue or sale after April 1, 1993
of Capital Stock of the Company (other than the issue or sale of (x)
Disqualified Stock, (y) Capital Stock of the Company to any Subsidiary of
the Company or (z) Capital Stock convertible (whether at the option of the
Company or the holder thereof or upon the happening of any event) into any
security other than its Capital Stock) and any Indebtedness or other
securities of the Company convertible into or exercisable for Capital Stock
(other than Disqualified Stock) of the Company which has been so converted
or exercised, as the case may be, minus (C) $25 million in respect of the
redemption of the Company's Preferred Stock, Series B, in September 1994
plus (D) $5 million;
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provided that, notwithstanding the foregoing,
(I) the Company shall be permitted to make Permitted Payments, and
(II) the Company and any Subsidiary shall be permitted to make
Investments in Permitted Joint Ventures if at the time of such Investment
and after giving effect thereto, on a pro forma basis, (X) the Company
could incur at least $1.00 of Indebtedness (other than Permitted
Indebtedness) pursuant to clause (a) of the "Limitations on Indebtedness"
covenant (assuming for purposes of such calculation, if such Investment is
made other than with borrowed funds or funds obtained by the issuance of
Capital Stock specifically for the purpose of such Investment, that the
Company incurred Indebtedness in an amount equal to such Investment bearing
interest at the weighted average rate of interest paid by the Company on
its outstanding Indebtedness during the four fiscal quarters most recently
ended), (Y) the aggregate amount of Investments made pursuant to this
clause (II), less the aggregate amount of dividends, other distributions of
earnings and returns of capital received by the Company from such Permitted
Joint Ventures in cash, does not exceed $50 million and (Z) no Default or
Event of Default shall have occurred and be continuing; and
provided further that the foregoing clause (b) shall not prevent (i) the
payment of any dividend within 60 days of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions of this covenant or (ii) the redemption, repurchase, retirement or
other acquisition of any Capital Stock of the Company in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Capital Stock of the Company (other than
any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (b) (ii) (B) of the preceding
paragraph; or (iii) the defeasance, redemption or repurchase of Indebtedness
which is subordinated in right of payment to the Notes with the net cash
proceeds from an incurrence of Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Capital
Stock of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (b) (ii) (B) of the preceding paragraph.
Limitations on Mergers, Consolidations and Sales of Assets. The Company will
not consolidate or merge with or into, or sell, lease, convey or otherwise
dispose of all or substantially all of its assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to any Person (other than a merger with or into a Wholly Owned
Subsidiary; provided that such Wholly Owned Subsidiary is not organized in a
foreign jurisdiction), unless: (a) the entity formed by or surviving any such
consolidation or merger (if other than the Company), or to which sale, lease,
conveyance or other disposition shall have been made (the "Surviving Entity"),
is a corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia; (b) the Surviving Entity
assumes by supplemental indenture all of the obligations of the Company on the
Notes and the Indenture; (c) immediately after the transaction, no Default or
Event of Default shall have occurred and be continuing; (d) immediately after
giving effect to such transaction, the Consolidated Net Worth of the Surviving
Entity would be at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (e) immediately after giving effect
to such transaction on a pro forma basis, the Surviving Entity could incur at
least $1.00 of Indebtedness (other than Permitted Indebtedness) pursuant to
clause (a) of the "Limitations on Indebtedness" covenant.
Limitations on Transactions with Affiliates. So long as any of the Notes
remain outstanding, neither the Company nor any of its Subsidiaries will
directly or indirectly enter into any transaction or series of related
transactions involving aggregate consideration in excess of $1 million in any
fiscal year with any Affiliate or holder of 5% or more of any class of Capital
Stock of the Company (including any Affiliates of such holders) except for any
transaction (including any loans or advances by or to any Affiliate) (i) the
terms of which are fair and reasonable to the Company or such Subsidiary, as
the case may be, and are at least as favorable as the terms which could be
obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis with Persons who are not
such a holder, an Affiliate of such holder or Affiliate of the Company and
(ii) which has been approved by a majority of the Company's directors
(including a majority
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<PAGE>
of the Company's independent directors, if any) in the exercise of their
fiduciary duties; provided that any transaction shall be conclusively deemed
to be on terms which are fair and reasonable to the Company or any of its
Subsidiaries and on terms which are at least as favorable as the terms which
could be obtained on an arm's-length basis with Persons who are not such a
holder, an Affiliate of such a holder or Affiliate of the Company, if such
transaction is approved by the Board of Directors (including a majority of the
Company's independent directors, if any). This covenant does not apply to (a)
any transaction between the Company and any of its Wholly Owned Subsidiaries
or between any of its Wholly Owned Subsidiaries, (b) any Restricted Payment
not otherwise prohibited by the "Limitations on Restricted Payments" covenant
or (c) any transaction pursuant to an agreement in existence on the date of
the Indenture and included as an exhibit to the Exchange Act Reports.
Restrictions on Disposition of Assets of the Company. Subject to the
provisions of Section 8.1 of the Indenture entitled "Covenant not to Merge,
Consolidate Sell or Convey Property Except Under Certain Conditions," the
Company will not, and will not permit any of its Subsidiaries to, make any
Asset Disposition unless (i) the Company (or the Subsidiary, as the case may
be) receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith by
the Company's management if the consideration is less than $200,000 or if the
consideration is greater than $200,000 in good faith by the Company's Board of
Directors and evidenced by a resolution of such Board provided that no
resolution of the Board shall be required in connection with the disposition
of approximately 200 contiguous acres adjacent to the Company's headquarters
at 400 Three Springs Drive, Weirton, West Virginia), (ii) not less than 75% of
the consideration received by the Company (or the Subsidiary, as the case may
be) is in the form of cash or Cash Equivalents and (iii) the Net Cash Proceeds
of the Asset Disposition are within 270 days, at the Company's election,
invested in the business or businesses of the Company as of the Issue Date or
any related business, or, to the extent not so invested, are applied to make
an Asset Disposition Offer (as defined in the Indenture) to purchase the Notes
(on a pro rata basis if the amount available for such repurchase is less than
the outstanding principal amount of the Notes) or any other Indebtedness which
is pari passu with the Notes, at a purchase price of 100% of the principal
amount thereof plus accrued interest to the date of repayment. Notwithstanding
the foregoing, the Company and its Subsidiaries will not be required to apply
any Net Cash Proceeds in accordance with this provision except to the extent
that the aggregate gross proceeds from all Asset Dispositions which are not
applied in accordance with this provision exceed $25 million.
Limitations on Liens. The Company will not, and will not permit any
Subsidiaries to, issue, assume or guarantee any Indebtedness secured by a Lien
(other than a Permitted Lien) of or upon any Property (including any income or
profits therefrom or assignment or conveyance of any right to receive income
therefrom) of the Company or any Subsidiary or any shares of stock or debt of
any Subsidiary which owns Property, whether such Property is owned at the date
of the Indenture or thereafter acquired, without making effective provision
whereby the Notes (together with, if the Company shall so determine, any other
debt of the Company ranking equally with the Notes and then existing or
thereafter created) shall be secured by such Lien equally and ratably with
such Indebtedness, so long as such Indebtedness shall be so secured; provided
that the foregoing prohibition shall not apply to liens with respect to sale
and leaseback transactions regarding the No. 9 Tandem Mill or the Foster
Wheeler Steam Generating Facility.
Notwithstanding the foregoing, and subject to the provisions of the
"Limitations on Indebtedness" covenant, the Company or any Subsidiary may
issue, assume or guarantee Indebtedness secured by Liens without equally and
ratably securing the Notes, provided that, after giving effect thereto,
without duplication, the sum of (i) the aggregate amount of all outstanding
Indebtedness secured by Liens so issued, assumed or guaranteed (excluding
Indebtedness secured by Permitted Liens) plus (ii) the aggregate amount of
Attributable Debt incurred by the Company or any Subsidiary in respect of sale
and leaseback transactions plus (iii) the aggregate amount of Indebtedness
(including Acquired Indebtedness and Permitted Indebtedness) of all
Subsidiaries of the Company does not at such time exceed 10% of Consolidated
Net Tangible Assets.
Limitations on Sale and Leaseback Transactions. The Company will not and
will not permit any Subsidiary to enter into any sale and leaseback
transaction with respect to any Property (whether now owned or hereafter
acquired) unless the net proceeds of the sale or transfer of the property to
be leased are at least equal to
56
<PAGE>
the fair market value (as determined by the Board of Directors of the Company)
of such Property and unless the Company or such Subsidiary would be entitled
under the "Limitations on Indebtedness" and "Limitations on Liens" covenants,
without equally and ratably securing the Notes, to issue, assume or guarantee
debt secured by a mortgage on such property in an amount at least equal to the
Attributable Debt in respect of such sale and leaseback transaction; provided,
however, that the foregoing prohibition does not apply to (i) leases between
the Company and a Subsidiary or between Subsidiaries or (ii) sales and
leasebacks with respect to the No. 9 Tandem Mill or the Foster Wheeler Steam
Generating Facility; provided that the Company must be able to incur, in
respect of such sale and leaseback transactions, debt in an amount at least
equal to the present value (discounted at the rate of interest implicit in the
terms of the lease) of the obligation of the lessee for the net rental
payments during the remaining term of the lease (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended) under the "Limitations on Indebtedness" covenant.
Limitations on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary of the Company to (a)(i) pay dividends or make any
other distributions on its Capital Stock, or any other interest or
participation in or measured by its profits, owned by the Company or a
Subsidiary of the Company, or (ii) pay any Indebtedness owed to the Company or
a Subsidiary of the Company, (b) make loans or advances to the Company or a
Subsidiary of the Company or (c) transfer any of its properties or assets to
the Company or a Subsidiary of the Company, except for Permitted Liens and
Liens permitted under the second paragraph of "Limitations on Liens" and such
other encumbrances or restrictions existing under or by reason of (i) any
restrictions, with respect to a Subsidiary that is not a Subsidiary on the
date of the Indenture, under any agreement in existence at the time such
Subsidiary becomes a Subsidiary (unless such agreement was entered into in
connection with, or in contemplation of, such entity becoming a Subsidiary on
or after the date of the Indenture), (ii) any restrictions under any agreement
evidencing any Acquired Indebtedness of a Subsidiary of the Company incurred
pursuant to the provisions described under the "Limitations on Indebtedness"
covenant; provided that such restrictions shall not restrict or encumber any
assets of the Company or its Subsidiaries other than such Subsidiary, (iii)
terms relating to the nonassignability of any operating lease, (iv) any
encumbrance or restriction existing under any agreement that refinances or
replaces the agreements containing restrictions described in clauses (i)-
(iii), provided that the terms and conditions of any such restrictions are no
less favorable to the holders of the Notes than those under the agreement so
refinanced or replaced or (v) any encumbrance or restriction due to applicable
law.
Change of Control Option. In the event that there shall occur a Change of
Control, each Holder of the Notes shall have the right, at the Holder's
option, to require the Company to purchase all or any part of such Holder's
Notes, on the date (the "Repurchase Date") that is 90 days after notice of the
Change of Control, at 101% of the principal amount thereof, plus accrued
interest and Liquidated Damages, if any, to the Repurchase Date.
On or before the thirtieth day after the Change of Control, the Company is
obligated to mail, or cause to be mailed, to all Holders of record of such
Notes a notice regarding the Change of Control and the repurchase right.
Substantially simultaneously with mailing of the notice, the Company shall
cause a copy of such notice to be published in a newspaper of general
circulation in the Borough of Manhattan, the City of New York. To exercise a
repurchase right, the holder of such Notes must deliver, at least two Business
Days prior to the Repurchase Date, written notice to the Company (or an agent
designated by the Company for such purpose) of the Holder's exercise of such
right, together with the Note with respect to which the right is being
exercised, duly endorsed for transfer. Such written notice from the Holder
shall be irrevocable unless the rescission thereof is duly approved by the
Continuing Directors (as defined herein).
The Company will comply with all applicable tender offer rules and
regulations, including Section 14(e) of the Exchange Act and the rules
thereunder, if the Company is required to give a notice of right of repurchase
as a result of a Change of Control.
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If a Change of Control occurred, the Company likely would not have
sufficient cash resources to purchase Notes that may be tendered by Holders
exercising the rights described above. In such case, the Company would have to
seek additional debt or equity financing in amounts sufficient to permit such
repurchase. There can be no assurance that any such financing would be
available when required. Although the Company is not subject to any
contractual restriction limiting its ability to repurchase Notes following a
Change of Control, there can be no assurance that any such restriction will
not arise in the future. The Company's outstanding indebtedness consists of
the Notes, the 11 1/2% Notes, the 10 7/8% Notes, the 10 3/4% Notes and the
City of Weirton, West Virginia 8 5/8% Pollution Control Bonds due 2014 (the
"Pollution Control Bonds"). This outstanding debt may limit the Company's
ability to incur additional indebtedness in amounts sufficient to fulfill the
Company's obligation to repurchase Notes tendered by Holders in the event that
a Change of Control occurs. Generally, the covenants applicable to the 11 1/2%
Notes and the 10 3/4% Notes provide limitations substantially similar to those
contained in the Indenture applicable to the Notes and discussed herein in
"Description of the Notes--Certain Covenants." The covenants applicable to the
10 7/8% Notes and the Pollution Control Bonds are less restrictive on the
Company's ability to incur additional indebtedness than the covenants
described herein. Moreover, the Company is subject to certain restrictions on
its ability to raise additional equity. See "Risk Factors--Factors Relating to
the Company--Limitation on Raising Equity." The Company's failure to
repurchase a Holder's Notes, in the event of a Change of Control, for a period
of 60 days after the date on which the Company received written notice
specifying such failure, shall create an Event of Default. Such notice is a
"Notice of Default" under the Indenture and must demand that the Company
remedy its failure to repurchase. The "Notice of Default" must be given by
registered or certified mail, return receipt requested, to the Company by the
Trustee, or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes at the time outstanding.
"Change of Control" means (i) any sale, lease or other transfer (in one
transaction or a series of transactions) of more than 75% of the assets of the
Company to any Person (other than a Wholly Owned Subsidiary of the Company);
(ii) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act (other than the 1984 ESOP, the 1989 ESOP or any other
employee benefit plan of the Company)) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Capital Stock of the Company
representing more than 50% of the voting power of such Capital Stock; (iii)
Continuing Directors cease to constitute at least a majority of the Board of
Directors of the Company; or (iv) the stockholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company.
"Continuing Director" means a director who either was a member of the Board
of Directors of the Company on the date of the Indenture, or who became a
director of the Company subsequent to such date and whose election, or
nomination for election by the Company's stockholders, was duly approved by a
majority of the Continuing Directors then on the Board of Directors of the
Company.
Because the events described above could be expected to occur in connection
with certain forms of takeover attempts, these provisions could deter hostile
or friendly acquisitions of the Company where the person attempting the
acquisition views itself as unable to finance the purchase of the principal
amount of Notes which may be tendered to the Company upon occurrence of a
Change of Control.
The Company's 11 1/2% Notes, 10 7/8% Notes and 10 3/4% Notes, which rank
pari passu with the Notes and of which approximately $433.2 million aggregate
principal amount was outstanding as of March 31, 1996, on a pro forma basis
after giving effect to the Initial Offering and the Tender Offer, contain
substantially similar provisions relating to the definition of Change of
Control. The 10 7/8% Notes, however, also require a Change of Control to be
accompanied by a downgrading of the Company's credit rating for the holder
repurchase option to be exercised. Nevertheless, the exercise of the
repurchase option by holders of the Notes, to the extent that it causes or
leads to a downgrading of the Company's credit rating under the 11 1/2% Notes,
10 7/8% Notes and 10 3/4% Notes, could effectively trigger the repurchase
option by the holders of those notes. In either event, the ability of Holders
to have their Notes repurchased pursuant to the Change of Control provision
effectively may be limited by the Company's financial ability to make any
required repurchases at such time.
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Reports to Holders of the Notes. So long as the Company is subject to the
periodic reporting requirements of the Exchange Act, it will continue to
furnish the information required thereby to the Commission and to the Trustee.
The Indenture provides that even if the Company is entitled under the Exchange
Act not to furnish such information to the Commission, it will nonetheless
continue to furnish information under Section 13 of the Exchange Act to the
Trustee as if it were subject to such periodic reporting requirements so long
as at least 10% of the Notes remain outstanding. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, at all times prior to the date of effectiveness of
a Registration Statement, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, the Company shall supply to
such Holder or such prospective purchaser the information required by Rule
144A under the Securities Act, unless the Company is then subject to Section
13 or 15(d) of the Exchange Act and reports filed thereunder satisfy the
information requirements of Rule 144A(d), as then in effect.
The foregoing covenants set forth in full the protections offered holders of
Notes in the event of a highly-leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect the holders. See "--Modification and Waiver" for provisions
relating to the waiveability of the foregoing covenants.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness or Preferred Stock of any Person
existing at the time such Person became a Subsidiary of the Company (or such
Person is merged into the Company or one of the Company's Subsidiaries), or
assumed in connection with the acquisition of assets from any such Person
(other than assets acquired in the ordinary course of business), excluding
Indebtedness or Preferred Stock incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company.
"Affiliate" means, when used with reference to a specified Person, any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Person specified. For the purposes of this
definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Asset Disposition" means, with respect to any Person, any sale, transfer,
conveyance, lease or other disposition (including, without limitation, by way
of merger, consolidation or sale and leaseback or sale of shares of Capital
Stock in any Subsidiary) by such Person or any of its Subsidiaries to any
Person (other than to such Person or a Wholly Owned Subsidiary of such Person
and other than in the ordinary course of business) of any Property. For
purposes of this definition, the term "Asset Disposition" shall not include
any sale, transfer, conveyance, lease or other disposition of assets and
properties of the Company that is governed by the provision relating to
"Limitation on Mergers, Consolidations and Sales of Assets."
"Attributable Debt" means, with respect to any sale and leaseback
transaction, at the date of determination, the present value (discounted at
the rate of interest implicit in the terms of the lease) of the obligation of
the lessee for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended); provided, however, there shall not be
deemed to be any Attributable Debt in respect of any sale and leaseback
transaction if the Company or a Subsidiary would be entitled pursuant to the
provisions of clauses (a) through (f) under the definition "Permitted Liens"
to issue, assume or guarantee debt secured by a mortgage upon the property
involved in such transaction without
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equally and ratably securing the Notes. "Net rental payments" under any lease
for any period means the sum of such rental and other payments required to be
paid in such period by the lessee thereunder, not including, however, any
amount required to be paid by such lessee (whether or not designated as rent
or additional rent) on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges required to be paid by such lessee
thereunder or any amounts required to be paid by such lessee thereunder
contingent upon the amount of sales, maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, (ii) commercial paper
with a maturity of 180 days or less issued by a corporation organized under
the laws of any state of the United States of America or the District of
Columbia and rated at least A-2 by Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc., or at least P-2 by Moody's
Investors Service, Inc., (iii) time deposits with, and certificates of
deposits and banker's acceptances issued by, any bank having capital surplus
and undivided profits of not less than $100 million and maturing not more than
180 days from the date of creation thereof, (iv) repurchase agreements that
are secured by a perfected security interest in an obligation described in
clause (i) and are with any bank described in clause (iii), and (v) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's Investors Service, Inc. or
Standard & Poor's Ratings Services.
"Commodity Agreement" means any option or futures contract or similar
agreement or arrangement designed to protect the Company against fluctuations
in commodity prices.
"Consolidated EBITDA" means, for any period, on a consolidated basis for the
Company and its Subsidiaries, the sum for such period (without duplication) of
(a) Consolidated Net Income, (b) income taxes (other than income taxes
positive or negative attributable to extraordinary and non-recurring gains or
losses on asset sales) with respect to such period determined in accordance
with GAAP, (c) net interest expense for such period determined in accordance
with GAAP, (d) depreciation and amortization expenses (including, without
duplication, amortization of debt discount and debt issue costs), determined
in accordance with GAAP and (e) other non-cash items reducing Net Income,
minus non-cash items increasing Net Income, determined in accordance with
GAAP, less any cash payments made in such period with respect to any accruals
for non-cash items subsequent to the Issue Date which are included in the
foregoing clause (e) for any period.
"Consolidated Fixed Charges" means, for any period, the sum of (a) the net
interest expense of the Company and its Subsidiaries for such period whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
capital lease obligations and imputed interest with respect to attributable
Debt), (b) interest incurred during the period and capitalized by the Company,
(c) any interest expense on Indebtedness of another Person that is guaranteed
by the Company or one of its Subsidiaries or secured by a Lien on assets of
the Company or one of its Subsidiaries (whether or not such guarantee or Lien
is called upon) and (d) the product of (i) all cash dividend payments on any
series of Preferred Stock of any Subsidiary or Disqualified Stock of the
Company or any of its Subsidiaries, times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the Company and its
Subsidiaries, expressed as a decimal, in each case, on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" of the Company for any period means (i) the Net
Income (or loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded from this clause (i): (a) the Net Income of any Person
other than a Consolidated Subsidiary in which the Company or any of its
Consolidated Subsidiaries has a joint interest with a third party except to
the extent of the amount of dividends or distributions actually paid in cash
to the Company or a Consolidated Subsidiary during such period, (b) the Net
Income of any other Person accrued prior to the date it becomes a Subsidiary
with respect to which Consolidated Net Income is calculated, or is merged into
or
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consolidated with such Person or any of its Subsidiaries or that Person's
assets are acquired by such Person or any of its Subsidiaries, (c) the Net
Income (but only if positive) of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary to such Person or to any other Subsidiary of such Net Income is not
at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (d) without duplication, any gains
or losses attributable to the sale, lease, conveyance or other disposition of
assets (including without limitation Capital Stock of any Subsidiary of such
Person), whether owned on the date of issuance of the Notes or thereafter
acquired, in one or more related transactions outside the ordinary course of
business, (e) any non-cash charge reducing Net Income resulting from the
adoption by the Company of SFAS No. 106 and (f) any non-cash charge reducing
Net Income required by Statement 5 of the Financial Accounting Standards Board
which relates to increased pension or retirement costs resulting from the
implementation of the Company's Efficiency Program less (ii) the aggregate
amount of net cash payments made during the period by the Company or any
Subsidiary not reflected in Net Income during such period which relate to the
increased pension and retirement costs of the Company resulting from the
implementation of the Company's Efficiency Program.
"Consolidated Net Tangible Assets" means, as of any particular time, the
total assets of the Company and its Consolidated Subsidiaries, as shown on the
audited consolidated balance sheet contained in the latest annual report to
stockholders of the Company after deducting therefrom:
(a) all current liabilities excluding any thereof which are by their
terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is
being computed and excluding current maturities of long-term indebtedness;
(b) deferred income taxes and deferred pension liabilities to the extent
the related intangible asset, if any, is not otherwise deducted in
calculating Consolidated Net Tangible Assets, deferred income taxes
resulting from the adoption by the Company of SFAS No. 106 and deferred
income taxes resulting from the implementation of the Company's Efficiency
Program;
(c) all reserves, including, without limitation, reserves for
liabilities, fixed or contingent, depreciation, amortization, obsolescence,
deletion, insurance and inventory valuation (but excluding contingency
reserves not allocated for any particular purpose) carried by such
corporation or other person and not deducted in computing such total
assets;
(d) any prepaid expenses, deferred charges or unamortized debt discount
and expense;
(e) minority interests in Subsidiaries, if any;
(f) any write-up in the book value of any asset resulting from a
revaluation thereof subsequent to December 31, 1995 (other than a write-up
of any assets constituting part of the assets and business of another
corporation made in connection with the acquisition, direct or indirect, of
the assets and business of such other corporation);
(g) the amount, if any, at which any stock of the Company appears upon
the asset side of such balance sheet; and
(h) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangible assets, all as shown in such
consolidated balance sheet;
plus an amount equal to Attributable Debt in respect of any sale and leaseback
transactions not capitalized on such balance sheet.
"Consolidated Net Worth" means, with respect to any Person engaged in a
merger, consolidation or sale of assets, the consolidated stockholder's equity
of such Person and its Subsidiaries, as determined in accordance with GAAP but
excluding the effect of the adoption by such Person of SFAS No. 106 and
excluding any restructuring charges taken by such Person in connection with
such merger, consolidation or sale of assets.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.
"Disqualified Stock" means any Capital Stock (i) that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Notes or (ii) upon which the Company
or any of its Subsidiaries has a contractual obligation to compensate the
holder thereof for losses incurred upon the sale or other disposition thereof;
provided that any portion or series of such Capital Stock which by its terms,
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund or otherwise, no earlier than the day following the
maturity date of the Notes shall not constitute Disqualified Stock; and
provided further that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a change in control occurring on or prior to the maturity date
of the Notes shall not constitute Disqualified Stock if (i) the change in
control provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions of the "Change in
Control Option" and (ii) such Capital Stock specifically provides that the
Company will not repurchase or redeem any such stock pursuant to such
provisions prior to the Company's repurchase of such Notes as are required to
be repurchased pursuant to the provisions of the "Change in Control Option."
"Efficiency Program" means the program announced by the Company in July 1992
involving manpower reductions to be achieved over a five-year period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"Indebtedness" means, without duplication, (i) any liability of any entity
(A) for borrowed money, or under any reimbursement obligation relating to a
letter of credit, (B) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in connection with
the acquisition of any businesses, properties or assets of any kind or with
services incurred in connection with capital expenditures, or (C) in respect
of capitalized lease obligations, (ii) any liability of others described in
the preceding clause (i) that the entity has guaranteed or that is otherwise
its legal liability, (iii) to the extent not otherwise included, obligations
under Currency Agreements, Commodity Agreements or Interest Protection
Agreements, (iv) all Disqualified Stock valued at the greatest amount payable
in respect thereof on a liquidation (whether voluntary or involuntary) plus
accrued and unpaid dividends, and (v) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (i)-(iv) above, provided that Indebtedness shall not
include accounts payable (including, without limitation, accounts payable to
the Company by any Subsidiary or to any such Subsidiary by the Company or any
other Subsidiary, in each case, in accordance with customary industry
practice) or liabilities to trade creditors of any entity arising in the
ordinary course of business.
"Interest Protection Agreement" of any Person means any interest rate swap
agreement, interest rate collar agreement, option or future contract or other
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in interest rates.
"Investments" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions, (ii) all
guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iv) all other items that would be
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classified as investments (including, without limitation, purchases of assets
outside the ordinary course of business) on a balance sheet of such Person
prepared in accordance with GAAP.
"Issue Date" means the date on which the Notes are originally issued under
the Indenture.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this definition, the Company shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Net Cash Proceeds" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise (including any cash
received upon sale or disposition of such note or receivable), but only as and
when received), excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to the Property disposed of in such Asset Disposition or received in
any other non-cash form unless and until such non-cash consideration is
converted into cash therefrom, in each case, net of all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP as a consequence of such Asset Disposition and, in
each case net of a reasonable reserve for the after-tax cost of any
indemnification payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by the Company or any of its
Subsidiaries in connection with such Asset Disposition (but excluding any
payments, which by the terms of the indemnities will not, under any
circumstances, be made during the term of the Notes), and net of all payments
made on any Indebtedness which is secured by such Property, in accordance with
the terms of any Lien upon or with respect to such Property or which must by
its terms or by applicable law be repaid out of the proceeds from such Asset
Disposition, and net of all distributions and other payment made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition.
"Net Income" of any Person for any period means the consolidated net income
or loss, as the case may be, of such Person and its Subsidiaries for such
period determined in accordance with GAAP; provided that there shall be
excluded all extraordinary gains or losses net of respective tax effects
(less, without duplication, all fees and expenses relating thereto).
"Permitted Indebtedness" means (i) Indebtedness of the Company and its
Subsidiaries outstanding immediately following the issuance of the Notes and
the application of the proceeds of the Senior Notes in the manner set forth
under "Use of Proceeds," herein including Indebtedness of the Company's 1989
ESOP guaranteed by the Company even if acquired by the Company; (ii) the
Notes; (iii) Indebtedness in respect of obligations of the Company to the
Trustee under the Indenture; (iv) indebtedness of the Company or any of its
Subsidiaries pursuant to a credit facility, the principal amount outstanding
under which shall not exceed, on the date such indebtedness is incurred, 80%
of the accounts receivable as reflected on the consolidated financial
statements of the Company and 50% of the inventory as reflected on the
consolidated financial statements of the Company, and which indebtedness is
secured by such accounts receivable or inventory ("Permitted Working Capital
Indebtedness"); (v) intercompany obligations (including intercompany debt or
Disqualified Stock of a Subsidiary which is held by the Company or a
Subsidiary of the Company) of the Company and each of its Subsidiaries;
provided, however, that the obligations of the Company to any of its
Subsidiaries with respect to such Indebtedness shall be subject to a
subordination agreement between the Company and its Subsidiaries providing for
the subordination of such obligations in right of payment from and after such
time as all Notes issued and outstanding shall become due and payable (whether
at stated maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under the Indenture and the Notes;
provided further that any Indebtedness or Disqualified Stock of the Company or
any Subsidiary owed to any other Subsidiary that ceases to be a Subsidiary
shall be deemed to be incurred and shall be treated as an incurrence for
purposes of the covenant described under "Limitations on Indebtedness" at the
time the Subsidiary in question ceased to be a Subsidiary; (vi) Indebtedness
of the Company under any Currency Agreements, Commodity
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Agreements or Interest Protection Agreements; (vii) additional Indebtedness of
the Company or its Subsidiaries the aggregate principal amount of which does
not exceed $100 million and (viii) any Refinancing Indebtedness, provided that
(A) the original issue amount of the Refinancing Indebtedness shall not exceed
the maximum principal amount (following the date of the Indenture and the
application of the net proceeds of the Notes in accordance with "Use of
Proceeds") herein and accrued interest of the Indebtedness to be repaid (or if
such Indebtedness was issued at an original issue discount, the original issue
price plus amortization of the original issue discount at the time of the
incurrence of the Refinancing Indebtedness less the amount of any prepayments
on or prior to the date of the Indenture and any prepayments made applying the
net proceeds of the Notes), plus the reasonable fees and expenses directly
incurred in connection with such Refinancing Indebtedness, (B) Refinancing
Indebtedness incurred by any Subsidiary shall not be used to repay or refund
outstanding Indebtedness of the Company or any other Subsidiary, and (C) with
respect to any Refinancing Indebtedness that refinances Indebtedness ranking
junior in right of payment to the Notes, (1) the Refinancing Indebtedness does
not require any principal payments prior to the maturity of the Notes and has
an average weighted life that is equal to or greater than the average weighted
life of the Notes and (2) the Refinancing Indebtedness is subordinated to the
Notes to the same or greater extent and on substantially the same terms or
terms more favorable to the holder of the Notes.
"Permitted Joint Venture" means the interest of the Company in any
corporation, association or other business entity of which 50% or less, but
not less than 10%, of the total voting stock or other interest is at the time
owned or controlled, directly or indirectly, by the Company or one of more of
its Subsidiaries or a combination thereof, provided that such corporation,
association or entity is engaged in the business or businesses of the Company
or any related business.
"Permitted Liens" means (a) Liens on Property of, or any shares of stock of
or debt of, any corporation existing at the time such corporation becomes a
Subsidiary or at the time such corporation is merged into the Company or a
Subsidiary, (b) Liens in favor of the Company or any Subsidiary, (c) Liens in
favor of governmental bodies to secure progress or advance payments, (d) Liens
securing industrial revenue or pollution control bonds, (e) Liens upon
accounts receivable and related intangibles and inventory of the Company or
any Subsidiary securing Permitted Working Capital Indebtedness, (f) statutory
Liens or landlords', carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have
been made therefor or (g) any extensions, renewals or replacements of Liens
referred to in clauses (a) through (f) above.
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (i) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock); (ii) any dividend or other distribution with respect to Capital Stock
payable to the Company by any of its Subsidiaries or by a Subsidiary to
another Subsidiary; and (iii) payments made by the Company in satisfaction of
any put obligation imposed on the Company by Section 409 of the Internal
Revenue Code of 1986, and any successor provision, relating to shares of the
Company's Preferred Stock, Series A, authorized and issued on or before the
Issue Date and held in the Company's 1989 ESOP.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or any other entity or organization or government or any agency
of political subdivision thereof.
"Preferred Stock" of any Person means all Capital Stock of such Person which
has a preference in liquidation or a preference with respect to the payment of
dividends.
"Prohibited Investment" means, with respect to any Person, any Investment by
such Person that is not a Subsidiary of such Person, other than (i) an
Investment in Cash Equivalents, (ii) to the extent not included in
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clause (i), (a) negotiable instruments held for collection, (b) outstanding
travel, moving or other similar advances to officers, employees and
consultants of such Person, (c) lease or utility deposits or other similar
deposits or (d) Capital Stock, debt obligations or similar securities received
in settlement of debts owed to such Person or its Subsidiaries as a result of
the foreclosure, perfection or enforcement of any Liens by such Person or any
of its Subsidiaries, but, in each case, only to the extent such Investments
are made in the ordinary course of business, and (iii) sales of goods on trade
credit terms consistent with the past practices of such Person or otherwise
consistent with trade credit terms in common use in the industry.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Refinancing Indebtedness" means any renewals, extensions, substitutions,
refundings, refinancings or replacements of the Indebtedness referred to in
clauses (i) through (vii) of the definition of Permitted Indebtedness.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) and (y) in the
case of Subsidiaries of the Company, dividends or distributions payable to the
Company or to a Subsidiary of the Company); (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock, or any option,
warrant, or other right to acquire shares of Capital Stock, of the Company or
any of its Subsidiaries; (iii) the making of any principal payment on, or the
purchase, defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Indebtedness which is subordinated in
right of payment to the Notes; (iv) the making of any Prohibited Investment or
guarantee of any Prohibited Investment in any Person and (v) the making of any
payment to a holder of Capital Stock of the Company to reimburse such holder
for losses incurred by such holder upon the disposition of such Capital Stock
by such holder.
"Subsidiary" means, with respect of any Person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Wholly Owned Subsidiary" means, at any time, a Subsidiary all of the
Capital Stock of which (except directors' qualifying shares) are at the time
owned directly or indirectly by the Company.
EVENTS OF DEFAULT AND NOTICE THEREOF
The term "Event of Default" when used in the Indenture means any one of the
following: (i) failure of the Company to pay interest and Liquidated Damages,
if any, for 30 days or principal when due; (ii) failure of the Company to
perform any other covenant in the Indenture for 60 days after notice from the
Trustee or the Holders of 25% in principal amount of the Notes outstanding;
(iii) acceleration of the maturity of other indebtedness of the Company in
excess of $25 million which acceleration is not rescinded or annulled, or
which indebtedness is not discharged, within 10 days after notice; and (iv)
certain events of bankruptcy, insolvency or reorganization of the Company.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of any Default (the term "Default" to include the events specified
above without grace or notice) known to it, give to the Holders of Notes
notice of such Default; provided that, except in the case of a Default in the
payment of principal of, interest or Liquidated Damages, if any, on any of the
Notes, the Trustee shall be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interest of the
Holders of Notes. The Indenture requires the Company to certify to the Trustee
annually as to whether any default occurred during such year.
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In case an Event of Default shall occur and be continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given
by the Holders of Notes), may declare all unpaid principal and accrued
interest on the Notes then outstanding to be due and payable immediately. Such
acceleration may be annulled and past Defaults (except, unless theretofore
cured, a Default in payment of principal of or interest on the Notes) may be
waived by the Holders of a majority in principal amount of the Notes then
outstanding, upon the conditions provided in the Indenture.
The Indenture provides that no Holder of a Note may institute any action or
proceeding at law or equity or in bankruptcy or otherwise in pursuit of any
remedy under the Indenture unless the Trustee shall have failed to act within
60 days after notice of an Event of Default and request by Holders of at least
25% in principal amount of the Notes and the offer to the Trustee of indemnity
satisfactory to it; provided, however, that such provision does not affect the
right to sue for enforcement of any overdue payment on the Notes.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
principal amount of the outstanding Notes, provided that no such modification
or amendment may, without the consent of the Holder of each Note affected
thereby, (i) reduce the rate, or change the time or place for payment, of
interest and Liquidated Damages, if any, on any Note, or reduce any amount
payable on the redemption hereof, (ii) reduce the principal, or change the
fixed maturity or place of payment, of any Note, (iii) change the currency of
payment of principal of or interest and Liquidated Damages, if any, on any
Note, (iv) reduce the principal amount of outstanding Notes necessary to
modify or amend the Indenture, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note or (vi) modify any
of the foregoing provisions or reduce the principal amount of outstanding
Notes necessary to waive any covenant or past Default. Holders of not less
than a majority in principal amount of the outstanding Notes may waive certain
past Defaults. See "Events of Default and Notice Thereof."
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged upon payment in full of all the Notes
outstanding thereunder, or upon the deposit with the Trustee, in trust, of
cash and/or direct obligations of the United States of America backed by its
full faith and credit which, through the payment of interest and Liquidated
Damages, if any, and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay principal of, and
each installment of interest and Liquidated Damages, if any, on the Notes, on
the stated maturity of such payments in accordance with the terms of the
Indenture and the Notes. In the case of any such deposit, certain of the
Company's obligations under the Indenture, including the obligation to pay the
principal of and any interest and Liquidated Damages, if any, on such Notes,
shall continue until the Notes are paid in full. The Company will be entitled
to make such deposit if the Company has delivered to the Trustee (i)(A) a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance of the
Indenture and will be subject to federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit and defeasance had not occurred, or (B) an opinion of counsel (who may
be an employee of or counsel for the Company), reasonably satisfactory to the
Trustee, to the same effect as clause (i)(A) above accompanied by a ruling to
the same effect published by the Internal Revenue Service, and (ii) an opinion
of counsel (who may be an employee of or counsel for the Company), reasonably
satisfactory to the Trustee, to the effect that, after the passage of 90 days
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of
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any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in Section 310(b) of the Trust Indenture
Act), it must eliminate such conflict or resign.
The Holders of a majority in principal amount of all outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy or power available to the Trustee,
provided that such direction does not conflict with any rule of law or with
the Indenture.
In case an Event of Default shall occur (and shall not be cured or waived),
the Trustee will be required to exercise its powers with the degree of care
and skill of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the Holders
of Notes, unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
DELIVERY AND FORM; BOOK-ENTRY PROCEDURES
Book-entry; Delivery and Form
The certificates representing the Exchange Notes will be issued in fully
registered form and may, if agreed by the Company and the Holder, be issued in
the form of a permanent global certificate in fully registered form (the
"Global Note") and will be deposited with the Trustee as custodian for The
Depository Trust Company ("the Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary.
So long as the Depositary, or its nominee, is the registered owner or holder
of the Global Note, the Depositary or such nominee, as the case may be, will
be considered the sole owner or holder of the Exchange Notes represented by
such Global Note for all purposes under the Indenture and the Exchange Notes.
No beneficial owner of an interest in the Global Note will be able to transfer
that interest except in accordance with the Depositary's applicable
procedures, in addition to those provided for under the Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic computerized book-entry changes in accounts of
its Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of the Depositary only
through the Depositary's Participants or the Depositary's Indirect
Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Note and (ii) ownership of the Exchange Notes evidenced by the Global Note
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests
of the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. The Depositary's records reflect only the
identity of the Participants to whose accounts portions of the principal
amount of the Global Note are credited, which may or may not be the beneficial
owners of such interests in the Global Note. Prospective purchasers are
advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes evidenced by the Global
Note will be limited to such extent.
Except as described below, owners of interests in the Global Note will not
have Notes registered in their names, will not receive physical delivery of
Exchange Notes in definitive form and will not be considered the registered
owners or holders thereof under the Indenture for any purpose. The deposit of
the Global Note with the Depositary and its registration in the name of Cede &
Co. effects no change in the beneficial owners of interests in the Global
Note.
67
<PAGE>
Payments of the principal of, premium (if any) and interest on, the Global
Note will be made to the Depositary or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the record
relating to or payments made on account of beneficial ownership interests in
the Global Note or for maintaining, supervising or reviewing any record
relating to such beneficial ownership interest. The Company believes, however,
that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interest in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Exchange Notes (including the
presentation of Exchange Notes for exchange as described below) only at the
direction of one or more Participants to whose account the Depositary interest
in the Global Note is credited and only in respect of such portion of the
aggregate principal amount of Exchange Notes as to which such participant or
participants has or have given such direction. However, if there is an Event
of Default under the Exchange Notes or the Indenture, the Depositary will
exchange the Global Note for Exchange Notes in definitive form, which it will
distribute to its Participants.
Although the Depositary customarily agrees to the foregoing procedures in
order to facilitate transfers of interests in global notes among participants
of the Depositary, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by the Depositary or
its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Certificated Securities. If the Depositary is at any time unwilling or
unable to continue as a depository for the Global Note and a successor
depository is not appointed by the Company within 90 days, Exchange Notes in
definitive form will be issued in exchange for the Global Note.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the laws of the State of New York.
SENIOR NOTES REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Registration Rights
Agreement dated as of July 3, 1996 pursuant to which the Company agreed, for
the benefit of the holders of the Senior Notes, at the Company's cost, (i)
within 45 days after the Issue Date, to file this Exchange Offer Registration
Statement pursuant to which the Senior Notes will be exchanged for the
Exchange Notes, which will have the terms substantially similar to the Senior
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions), and (ii) to cause this Exchange Offer Registration
Statement to be declared effective under the Securities Act within 135 days
after the Issue Date. Upon this Exchange Offer Registration Statement being
declared effective, the Company will offer the Exchange Notes in exchange for
surrender of the Senior Notes. The Company agreed to keep the Exchange Offer
open for 20 business days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed to the holders of the Senior
Notes. For each Senior Note surrendered to the Company pursuant to the
Exchange Offer, the holder of such Senior Note will receive an Exchange Note
having a principal amount equal to that of the surrendered Senior Note.
Interest on each Exchange Note will accrue from (A) the later of (i) the last
interest payment date on which interest was paid on the Senior Note
surrendered in exchange therefor, or (ii) if the Senior Note is surrendered
for exchange on a date in a period which includes the record date for an
interest payment date to occur on or after the date of such exchange and as to
which interest will be paid, the date of such interest payment date or (B) if
no interest has been paid on the Senior Note, from the date of original
issuance. See "The Exchange Offer."
68
<PAGE>
In the event that (i) the Company determines in reasonably good faith that
(x) any changes in the law or the applicable interpretations of the Staff of
the Commission do not permit the Company to effect the Exchange Offer, or (y)
that the Exchange Notes would not be tradeable upon receipt by the Holders
that participate in the Exchange Offer without restriction under state and
federal securities laws (other than due solely to the status of a Holder as an
Affiliate of the Company), (ii) the Exchange Offer is not consummated within
165 days of the Issue Date, (iii) in certain circumstances, certain holders of
unregistered Exchange Notes so request within 135 days after the consummation
of the Exchange Offer or (iv) in the case of any holder of Senior Notes that
participates in the Exchange Offer, such holder of Senior Notes does not
receive Exchange Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such holder of Senior Notes as an affiliate of the Company) and
so notifies the Company within 60 days after such holder of Senior Notes first
becomes aware of such restriction and provides the Company with a reasonable
basis for its conclusion, in the case of each of clauses (i)-(iv) of this
sentence, then the Company will promptly deliver to the holders of Senior
Notes and the Trustee written notice thereof and, at its cost, (a) as promptly
as practicable, file the Shelf Registration Statement, (b) use all reasonable
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act by the 165th day after the Issue Date and (c) use all
reasonable efforts to keep the Shelf Registration Statement effective until
three years after its effective date, or such shorter period ending when (i)
all Senior Notes covered by the Shelf Registration Statement have been sold in
the manner set forth and as contemplated therein or (ii) a subsequent Shelf
Registration Statement covering all unregistered Senior Notes has been
declared effective under the Securities Act. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each holder of the
Senior Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Senior Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Senior Notes. A
holder of Senior Notes that sells such Senior Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each
holder of the Senior Notes will be required to deliver information to be used
in connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have its Senior Notes included in
the Shelf Registration Statement and to benefit from the provisions regarding
liquidated damages set forth in the following paragraph.
In the event that either (i) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 45th calendar day following
the Issue Date, (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the 135th calendar day following the Issue Date or
(iii) the Exchange Offer is not consummated or the Shelf Registration
Statement is not declared effective on or prior to the 165th calendar day
following the Issue Date or the Shelf Registration Statement ceases to be
effective (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Company will pay liquidated damages to each
holder of Senior Notes with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Senior Notes held by such holder
of Senior Notes ("Liquidated Damages"). The amount of Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Senior
Notes until all such Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.50 per week per $1,000 principal amount of
Senior Notes. All accrued Liquidated Damages will be paid by the Company on
each interest payment date to the Global Security Holder by wire transfer of
same day funds and to holders of Certificated Securities by wire transfer to
the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages shall cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
69
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Senior Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired
Senior Notes directly from the Company or (iii) a broker-dealer who acquired
Senior Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the Staff has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Senior Notes to the Initial
Purchasers, or a Participating Broker-Dealer who acquires Exchange Notes
directly from the Company other than as a result of market-making activity or
ordinary trading activities) with the prospectus contained in the Exchange
Offer Registration Statement. Pursuant to the Registration Rights Agreement,
the Company has agreed to permit Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use
this Prospectus in connection with the resale of such Exchange Notes. The
Company has agreed that, for a period of 120 days after the Exchange Date, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal. However, Participating Broker-Dealers who acquired Notes directly
from the Company other than as a result of market-making activities or
ordinary trading activities may not fulfill their Prospectus delivery
requirements with this Prospectus, but must comply with the registration and
prospectus delivery requirements of the Securities Act.
Each holder of the Senior Notes who wishes to exchange its Senior Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer--Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Senior Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that
it will deliver a prospectus in connection with any resale by it of such
Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
70
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
will be passed upon for the Company by Willkie Farr & Gallagher, New York, New
York.
EXPERTS
The consolidated audited financial statements included, and schedules
incorporated by reference, in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Consolidated Condensed Statements of Income for the three month
periods ended March 31, 1996 and 1995................................... F-2
Consolidated Condensed Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995................................................... F-3
Unaudited Consolidated Condensed Statements of Cash Flows for the three
month periods ended March 31, 1996 and 1995............................. F-4
Notes to Unaudited Consolidated Condensed Financial Statements........... F-5
Report of Independent Public Accountants................................. F-7
Consolidated Statements of Income for the three years ended December 31,
1995, 1994 and 1993..................................................... F-8
Consolidated Balance Sheets as of December 31, 1995 and 1994 ............ F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993..................................................... F-10
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993........................................ F-11
Notes to Consolidated Financial Statements............................... F-12
</TABLE>
F-1
<PAGE>
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales............................................ $ 340,900 $354,686
Operating costs:
Cost of sales...................................... 310,752 299,185
Selling, general and administrative expense........ 9,514 8,206
Depreciation....................................... 14,505 15,135
Provision for profit sharing....................... -- 16,072
Insurance recovery................................. -- (34,000)
----------- -----------
Total operating costs............................ 334,771 304,598
----------- -----------
Income from operations............................... 6,129 50,088
----------- -----------
Interest expense................................... (10,733) (10,502)
Interest income.................................... 1,797 911
ESOP contribution.................................. (653) (653)
----------- -----------
Income (loss) before income taxes.................... (3,460) 39,844
Income tax provision (benefit)..................... (675) 7,701
----------- -----------
Net income (loss).................................... $ (2,785) $ 32,143
=========== ===========
Per share data:
Weighted average number of common shares and
equivalents....................................... 42,347 43,764
Net income (loss) per common share................. $ (0.07) $ 0.73
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Assets:
Current assets:
Cash and equivalents, includes restricted
cash of $1,381 and $1,373.................. $ 104,432 $ 131,811
Notes and accounts receivable, less
allowances of $9,536 and $8,688............ 160,035 150,213
Inventories................................. 237,924 255,360
Deferred income taxes....................... 49,245 49,245
Other current assets........................ 7,199 7,400
---------- ----------
Total current assets.................... 558,835 594,029
Property, plant, and equipment, net.......... 585,371 586,430
Intangible assets............................ 31,412 31,412
Deferred income taxes........................ 86,879 86,205
Other assets and deferred charges............ 15,048 15,945
---------- ----------
Total assets............................ $1,277,545 $1,314,021
========== ==========
Liabilities:
Current liabilities.......................... $ 212,374 $ 253,726
Long term debt obligations................... 407,907 407,869
Long term pension obligation................. 98,169 94,689
Postretirement benefits other than pensions.. 320,454 317,893
Other long-term liabilities.................. 26,177 25,348
---------- ----------
Total liabilities....................... 1,065,081 1,099,525
---------- ----------
Redeemable stock............................. 16,619 15,868
Stockholders' equity:
Common stock, $.01 par value; 50,000,000
shares authorized; 42,586,337 and 42,289,944
shares issued............................... 426 423
Additional paid-in capital................... 455,207 454,197
Retained earnings (deficit).................. (258,139) (255,354)
Other stockholders' equity................... (1,649) (638)
---------- ----------
Total stockholders' equity.............. 195,845 198,628
---------- ----------
Total liabilities, redeemable stock and
stockholders' equity........................ $1,277,545 $1,314,021
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net cash (used) provided by operating activities........... $ (11,993) $ 24,310
Cash flows from investing activities
Expenditures for property, plant and equipment............. (13,446) (7,141)
Cash flows (used) provided by financing activities
Other, principally net book overdraft...................... (1,940) 2,188
--------- --------
Net change in cash and equivalents......................... (27,379) 19,357
Cash and equivalents at beginning of period................ 131,811 62,905
--------- --------
Cash and equivalents at end of period...................... $ 104,432 $ 82,262
========= ========
Supplemental cash flow information:
Interest paid, net of interest capitalized................ $ 4,307 $ 2,480
Income taxes paid......................................... -- 153
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, OR IN MILLIONSOF DOLLARS WHERE INDICATED)
NOTE 1
BASIS OF PRESENTATION
The Consolidated Condensed Financial Statements presented herein are
unaudited. Weirton Steel Corporation and/or Weirton Steel Corporation together
with its wholly-owned subsidiary, Weirton Receivables, Inc. are hereafter
referred to as the "Company." Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the financial results of operations for a
full year. As such, these financial statements should be read in conjunction
with the financial statements and notes thereto included or incorporated by
reference in the Company's 1995 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified, where necessary, to
conform to the presentation in the current period.
NOTE 2
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials......................................... $ 66,922 $ 77,557
Work-in-process....................................... 68,388 86,491
Finished goods........................................ 102,614 91,312
-------- --------
$237,924 $255,360
======== ========
</TABLE>
NOTE 3
EARNINGS PER SHARE
The weighted average number of common and common equivalent shares used in
the calculation of income (loss) per common share were 42,346,589 and
43,764,379 for the three months ended March 31, 1996 and 1995, respectively.
NOTE 4
ENVIRONMENTAL COMPLIANCE
In December 1993, the Company was informed by the West Virginia Division of
Environmental Protection ("DEP") that the United States Environmental
Protection Agency ("EPA") was considering initiating a
F-5
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
"multimedia" enforcement action against the Company. Multimedia actions
involve coordinated enforcement proceedings related to water, air and waste-
related issues stemming from a number of federal and state statutes and rules.
In October 1995, the Company received a Notice of Violation from the EPA
alleging seven violations of DEP regulations for air pollution control, which
may result in fines and penalties. Additionally, the EPA has conducted
inspections of the Company's facilities regarding waste-related issues.
Although no multimedia enforcement action has been commenced against the
Company, the Company has continued to meet with representatives of the EPA
regarding the alleged violations, as well as environmental compliance issues
related to air, water and waste disposal. The Company and the EPA are
attempting to resolve these issues during a six-month negotiating period,
which extends to September 15, 1996. The EPA has indicated that it would
expect a negotiated settlement to include necessary corrective steps to
address noncompliance issues and a civil penalty. The EPA has indicated that
consideration would be given to offsetting a portion of any cash penalty
through the performance of supplemental environmental projects. If a
settlement is not reached by September 15, 1996, the EPA has indicated that it
would likely commence a civil enforcement action against the Company. Based on
its review of the matters involved and discussions to date with
representatives of the EPA, while no assurance can be given, the Company does
not believe that any fines, penalties or costs to remediate would have a
material effect on the Company's financial position or results of operations.
However, it is expected that related capital expenditure projects and required
changes in operating practices will increase future operating costs, which may
have a significant effect on future results of operations.
F-6
<PAGE>
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,
1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes, 7, 8 and 9 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.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 22, 1996
(except for the matter discussed
in Note 14, as to which the date
is May 29, 1996)
F-7
<PAGE>
WEIRTON STEEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.................. $ 1,351,711 $ 1,260,864 $ 1,201,093
Operating costs:
Cost of sales............ 1,180,053 1,136,936 1,105,558
Selling, general and
administrative expense.. 34,440 31,504 32,458
Depreciation............. 54,699 46,309 49,113
Provision for profit
sharing................. 24,178 17,581 --
Insurance recoveries..... (41,502) (20,000) --
Restructuring charge..... -- -- 17,340
--------------- --------------- ---------------
Total operating costs.. 1,251,868 1,212,330 1,204,469
--------------- --------------- ---------------
Income (loss) from
operations................ 99,843 48,534 (3,376)
Adjustment to carrying
value of damaged
facility................ 9,000 44,746 --
Interest expense......... (42,519) (49,999) (52,802)
Interest income.......... 4,615 5,795 2,626
ESOP contribution........ (2,610) (2,610) (2,610)
--------------- --------------- ---------------
Income (loss) before income
taxes..................... 68,329 46,466 (56,162)
Income tax provision
(benefit)............... 13,255 7,454 (13,272)
--------------- --------------- ---------------
Income (loss) before
extraordinary item........ 55,074 39,012 (42,890)
Loss on early
extinguishment of debt.. 6,718 3,851 6,549
--------------- --------------- ---------------
Income (loss) before
cumulative effect of
accounting changes........ 48,356 35,161 (49,439)
Cumulative effect of
accounting changes........ -- -- (179,803)
--------------- --------------- ---------------
Net income (loss).......... $ 48,356 $ 35,161 $ (229,242)
=============== =============== ===============
Less: Preferred stock
dividend requirement...... -- 2,339 3,125
--------------- --------------- ---------------
Net income (loss)
applicable to common
shares.................... $ 48,356 $ 32,822 $ (232,367)
=============== =============== ===============
Per Share Data:
Weighted average number of
common shares and
equivalents (in
thousands)................ 43,781 34,470 26,473
Income (loss) per common
share before extraordinary
item...................... $ 1.26 $ 1.06 $ (1.74)
Loss on early
extinguishment of debt.. (0.16) (0.11) (0.25)
--------------- --------------- ---------------
Income (loss) per common
share before cumulative
effect of accounting
changes................... $ 1.10 $ 0.95 $ (1.99)
Cumulative effect of
accounting changes...... -- -- (6.79)
--------------- --------------- ---------------
Net income (loss) per
common share.............. $ 1.10 $ 0.95 $ (8.78)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
WEIRTON STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Assets:
Current assets:
Cash and equivalents, includes restricted cash of
$1,373 and $1,329, respectively................... $ 131,811 $ 62,905
Receivables, less allowances of $8,688 and $6,405,
respectively...................................... 150,213 131,902
Inventories........................................ 255,360 270,518
Deferred income taxes.............................. 49,245 42,570
Other current assets............................... 7,400 5,603
----------- -----------
Total current assets............................. 594,029 513,498
----------- -----------
Property, plant and equipment, net................... 586,430 588,903
Intangible asset..................................... 31,412 17,213
Deferred income taxes................................ 86,205 98,493
Other assets and deferred charges.................... 15,945 12,813
----------- -----------
Total assets..................................... $ 1,314,021 $ 1,230,920
=========== ===========
Liabilities:
Current liabilities:
Payables........................................... $ 123,105 $ 136,038
Employment costs................................... 89,793 84,487
Pension liability.................................. 12,471 --
Taxes other than income taxes...................... 19,376 21,256
Income taxes....................................... -- 4,579
Other.............................................. 8,981 10,679
----------- -----------
Total current liabilities........................ 253,726 257,039
Long term debt obligations........................... 407,869 394,505
Long term pension obligation......................... 94,689 68,093
Postretirement benefits other than pensions.......... 317,893 316,185
Other long term liabilities.......................... 25,348 31,429
----------- -----------
Total liabilities................................ 1,099,525 1,067,251
----------- -----------
Redeemable stock:
Preferred stock, 7,500,000 shares authorized:
Preferred stock, Series A, $0.10 par value;
1,769,865 and 1,800,000 shares authorized;
1,769,865 and 1,787,688 shares issued; 1,764,791
and 1,754,327 subject to put...................... 25,589 26,013
Less: Preferred treasury stock, Series A, at cost,
40,423 and 33,361 shares............................ (586) (326)
Deferred ESOP compensation........................... (9,135) (11,202)
----------- -----------
Total redeemable stock............................... 15,868 14,485
----------- -----------
Stockholders' equity:
Preferred stock, Series A, $0.10 par value; 5,074
and 12,312 shares not subject to put.............. 74 87
Common stock, $0.01 par value; 50,000,000 shares
authorized; 42,289,944 and 42,027,405 shares
issued............................................ 423 420
Additional paid-in capital........................... 454,197 452,746
Common shares issuable, 332,076 and 348,040 shares... 1,170 1,747
Retained earnings (deficit).......................... (255,354) (303,710)
Less: common treasury stock, at cost, 275,829 and
373,340 shares...................................... (1,882) (2,106)
----------- -----------
Total stockholders' equity........................... 198,628 149,184
----------- -----------
Total liabilities, redeemable stock and stockholders'
equity.............................................. $ 1,314,021 $ 1,230,920
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
WEIRTON STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 48,356 $ 35,161 $(229,242)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation............................... 54,699 46,309 49,113
Amortization of deferred financing costs... 2,212 2,509 1,965
Restructuring charge....................... -- -- 17,340
Adjustment to carrying value of damaged
facility.................................. (9,000) (44,746) --
ESOP contribution.......................... 2,610 2,610 2,610
Cumulative effect of accounting changes.... -- -- 179,803
Loss from early extinguishment of debt..... 6,718 3,851 6,549
Deferred income taxes...................... 7,240 1,942 (13,272)
Cash provided (used) by working capital
items:
Receivables.............................. (18,311) (2,898) (5,110)
Inventories.............................. 15,158 (27,859) 1,907
Other current assets..................... (1,797) (1,746) 4,325
Payables................................. (2,351) 17,454 24,986
Other current liabilities................ 9,620 3,099 18,070
Long term pension obligation............... 12,397 (726) 19,374
Other...................................... (6,441) 10,601 (8,963)
--------- --------- ---------
Net cash provided by operating activities.... 121,110 45,561 69,455
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and
equipment:
Spending to restore damaged facility..... (2,948) (74,611) --
Less: Insurance recoveries............... 9,000 45,000 --
Other capital spending................... (49,410) (37,456) (13,324)
--------- --------- ---------
Net cash used by investing activities........ (43,358) (67,067) (13,324)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt obligations............. (118,800) (101,101) (148,114)
Proceeds from issuance of debt
obligations............................... 125,000 -- 140,000
Proceeds from issuance of common stock..... -- 116,087 --
Redemption of preferred stock, Series B.... -- (25,000) --
Dividends paid............................. -- (2,339) (3,125)
Common shares issuable..................... 1,170 1,454 1,119
Purchase of common treasury stock.......... -- -- (1,455)
Deferred financing costs................... (4,325) (2,245) (13,520)
Other, principally net book overdrafts..... (11,891) 8,553 (3,229)
--------- --------- ---------
Net cash used by financing activities........ (8,846) (4,591) (28,324)
--------- --------- ---------
Net change in cash and equivalents........... 68,906 (26,097) 27,807
Cash and equivalents at beginning of period.. 62,905 89,002 61,195
--------- --------- ---------
Cash and equivalents at end of period........ $ 131,811 $ 62,905 $ 89,002
========= ========= =========
Supplemental cash flow information:
Interest paid, net of interest
capitalized............................... $ 44,416 $ 52,091 $ 47,311
Income taxes paid (refunded)............... 10,593 -- (1,779)
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
WEIRTON STEEL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
COMMON SHARES COMMON SERIES A
COMMON STOCK ADDITIONAL ISSUABLE RETAINED TREASURY STOCK NOT SUBJECT TO PUT
----------------- PAID-IN ----------------- EARNINGS ---------------- ---------------------
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) SHARES AMOUNT SHARES AMOUNT
---------- ------ ---------- -------- ------- --------- ------- ------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholders'
Equity as of
December 31,
1992............. 26,419,705 $264 $334,834 365,421 $ 1,153 $(104,165) 208,353 $ (825) 1,497 $ 10
Net loss......... -- -- -- -- -- (229,242) -- -- -- --
Purchase of
treasury stock... -- -- -- -- -- -- 181,200 (1,455) -- --
Conversion of
preferred stock.. -- -- -- -- -- -- (8,148) 65 -- --
Reclassification
of preferred
Series A not
subject to put... -- -- -- -- -- -- -- -- 1,272 6
Employee stock
purchase plan:
Shares issued... 300,047 3 942 (300,047) (945) -- -- -- -- --
Shares
issuable........ -- -- -- 299,971 1,012 -- -- -- -- --
Board of
Directors
deferred
compensation
plan:
Shares issued... -- -- -- -- -- -- -- -- -- --
Shares
issuable........ -- -- -- 31,704 107 -- -- -- -- --
Dividends payable
($6.25 per
preferred share,
Series B)........ -- -- -- -- -- (3,125) -- -- -- --
---------- ---- -------- -------- ------- --------- ------- ------- ---------- --------
Stockholders'
Equity
Consolidated as
of December 31,
1993............. 26,719,752 267 335,776 397,049 1,327 (336,532) 381,405 (2,215) 2,769 16
Net income....... -- -- -- -- -- 35,161 -- -- -- --
Issuance of
common stock..... 15,000,000 150 115,937 -- -- -- -- -- -- --
Conversion of
preferred stock.. -- -- -- -- -- -- (8,065) 109 -- --
Reclassification
of preferred
Series A not
subject to put... -- -- -- -- -- -- -- -- 9,543 71
Employee stock
purchase plan:
Shares issued... 299,971 3 1,009 (299,971) (1,012) -- -- -- -- --
Shares issua-
ble............. -- -- -- 240,086 1,350 -- -- -- -- --
Board of
Directors
deferred
compensation
plan:
Shares issued... 7,682 -- 24 (7,682) (24) -- -- -- -- --
Shares
issuable........ -- -- -- 18,558 106 -- -- -- -- --
Dividends payable
($4.6875 per
preferred share,
Series B)........ -- -- -- -- -- (2,339) -- -- -- --
---------- ---- -------- -------- ------- --------- ------- ------- ---------- --------
Stockholders'
Equity
Consolidated as
of December 31,
1994............. 42,027,405 420 452,746 348,040 1,747 (303,710) 373,340 (2,106) 12,312 87
Net income....... -- -- -- -- -- 48,356 -- -- -- --
Conversion of
preferred stock.. 22,453 1 74 -- -- -- -- -- (8,546) (32)
Reclassification
of preferred
Series A not
subject to put... -- -- -- -- -- -- -- -- 1,308 19
Employee stock
purchase plan:
Shares issued... 240,086 2 1,348 (240,086) (1,350) -- -- -- -- --
Shares
issuable........ -- -- -- 295,764 893 -- -- -- -- --
Board of
Directors
deferred
compensation
plan:
Shares issued... -- -- 29 (107,954) (253) -- (97,511) 224 -- --
Shares
issuable........ -- -- -- 36,312 133 -- -- -- -- --
---------- ---- -------- -------- ------- --------- ------- ------- ---------- --------
Stockholders'
Equity
Consolidated as
of December 31,
1995............. 42,289,944 $423 $454,197 332,076 $ 1,170 $(255,354) 275,829 $(1,882) 5,074 $ 74
========== ==== ======== ======== ======= ========= ======= ======= ========== ========
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Stockholders'
Equity as of
December 31,
1992............. $ 231,271
Net loss......... (229,242)
Purchase of
treasury stock... (1,455)
Conversion of
preferred stock.. 65
Reclassification
of preferred
Series A not
subject to put... 6
Employee stock
purchase plan:
Shares issued... --
Shares
issuable........ 1,012
Board of
Directors
deferred
compensation
plan:
Shares issued... --
Shares
issuable........ 107
Dividends payable
($6.25 per
preferred share,
Series B)........ (3,125)
-------------
Stockholders'
Equity
Consolidated as
of December 31,
1993............. (1,361)
Net income....... 35,161
Issuance of
common stock..... 116,087
Conversion of
preferred stock.. 109
Reclassification
of preferred
Series A not
subject to put... 71
Employee stock
purchase plan:
Shares issued... --
Shares issua-
ble............. 1,350
Board of
Directors
deferred
compensation
plan:
Shares issued... --
Shares
issuable........ 106
Dividends payable
($4.6875 per
preferred share,
Series B)........ (2,339)
-------------
Stockholders'
Equity
Consolidated as
of December 31,
1994............. 149,184
Net income....... 48,356
Conversion of
preferred stock.. 43
Reclassification
of preferred
Series A not
subject to put... 19
Employee stock
purchase plan:
Shares issued... --
Shares
issuable........ 893
Board of
Directors
deferred
compensation
plan:
Shares issued... --
Shares
issuable........ 133
-------------
Stockholders'
Equity
Consolidated as
of December 31,
1995............. $ 198,628
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, OR IN MILLIONS OF DOLLARS
WHERE INDICATED)
NOTE 1
BASIS OF PRESENTATION
For the years ended and as of December 31, 1995 and 1994, the financial
statements herein include the accounts of Weirton Steel Corporation and its
wholly-owned subsidiary, Weirton Receivables, Inc. ("WRI"). 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."
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 steel products for nearly 90 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 (the "Division") in January 1984. In connection with
the asset purchase, NSC retained liability for claims and litigation arising
out of the operation of the Division based on occurrences prior to May 1,
1983, principally related to pension, life insurance and healthcare benefits
for retired employees, pension benefits for active employees based upon
service prior to the sale, and certain environmental conditions.
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 sold 4.5 million shares of the Company's common stock
in a public offering. The Company's common stock is 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 voting Redeemable 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 10 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 its Redeemable Preferred Stock, Series B
(the "Series B Preferred") to Cleveland-Cliffs Inc for a purchase price equal
to the aggregate redemption amount of $25.0 million. The Company redeemed the
Series B Preferred in September 1994.
In September 1991, the Company contributed to its defined benefit pension
plan (the "Pension Plan") 3,870,968 shares of its common stock having an
aggregate fair value of $15.0 million. In September 1992, the Company issued
2.0 million shares of its common stock to the Pension Plan, having an
aggregate fair value of $8.25 million.
F-12
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1994, the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation increasing the number of
authorized shares of 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 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 and the Pension Plan
participated in a public sale of the Company's common stock and sold 15.0
million and 4.55 million shares, respectively.
Substantially all of the Company's employees participate in the 1984 ESOP
and the 1989 ESOP which, after giving effect to the above-mentioned
transactions, owned approximately 27.4% of the issued and outstanding common
and substantially all the preferred shares of the Company as of December 31,
1995. The common and preferred shares owned by the 1984 ESOP and the 1989 ESOP
combined represent approximately 49.2% of the voting power of the Company's
voting stock as of December 31, 1995.
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 $3.2 million, $13.8 million and $5.1 million as of December
31, 1995, 1994 and 1993, 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 cost or market, cost being determined
by the first-in, first-out (FIFO) method. 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.
Depreciation of steelmaking facilities is determined by the production-
variable method which adjusts straight-line depreciation to reflect actual
production levels. The cost of relining blast furnaces is amortized over the
estimated production life of the lining. All other assets are depreciated on a
straight-line basis.
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.
F-13
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." Effective with the
adoption of the standard, the value of all such benefits is actuarially
determined and recognized on an accrual method.
Employee Stock Ownership Plan (ESOP) Accounting
The Company recognizes as compensation expense an amount based upon its
required contributions to the ESOPs. The resulting expense approximates the
cost to the ESOPs for the shares allocated to participants for the period. The
number of shares allocated to participants for the period is determined based
on the ratio of the period's debt principal payment to the total estimated
debt principal payments. Shares are then allocated to individual participants
based on the participant's relative compensation.
Employee Profit Sharing
The provision for employee profit sharing is calculated in accordance with
the Profit Sharing Plan. The pretax provisions in 1995 and 1994 were 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 $3.2 million, $6.3
million and $5.4 million in 1995, 1994 and 1993, 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." Under SFAS No. 109, deferred income tax
assets and liabilities are recognized to reflect the future income tax
consequences of carryforwards and differences between the tax basis and
financial accounting basis of assets and liabilities.
NOTE 4
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Raw materials.............................................. $ 77,557 $100,319
Work-in-process............................................ 86,491 89,106
Finished goods............................................. 91,312 81,093
-------- --------
$255,360 $270,518
======== ========
</TABLE>
F-14
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Land................................................... $ 1,098 $ 807
Buildings.............................................. 8,689 7,918
Machinery, equipment and other......................... 845,650 778,161
Construction-in-progress............................... 63,798 80,216
--------- ---------
919,235 867,102
Less: Allowances for depreciation...................... (332,805) (278,199)
--------- ---------
$ 586,430 $ 588,903
========= =========
</TABLE>
In April 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 rebuilt the No. 9 Tandem and start-up operations began in October
1994.
The Company maintains insurance for property damage applicable to its
production facilities, including the No. 9 Tandem. The policy providing this
coverage is subject to a deductible. Insurance recoveries related to the No. 9
Tandem in 1995 and 1994 included $9.0 million and $45.0 million, respectively
for property damage.
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 for the years ended December 31, 1995 and
1994, adjustments to the carrying value of the No. 9 Tandem to the extent of
insurance recoveries received during such periods. Total spending in 1995 and
1994 to restore the No. 9 Tandem was approximately $2.9 million and $74.6
million, respectively.
The Company also maintains insurance for business interruption, subject to a
deductible. The Company's claim for business interruption related to the No. 9
Tandem was settled in 1995. Insurance recoveries of $34.0 million and $20.0
million were received in 1995 and 1994, respectively, for the No. 9 Tandem
business interruption claim. Total funds received in 1995 and 1994 for both
property damage and business interruption claims related to the No. 9 Tandem
were $110.5 million. In addition, the Company's business interruption claim
stemming from an outage at its hot strip mill in March 1991 was settled for
$7.5 million in 1995.
Capitalized interest costs applicable to facilities under construction for
the years ended December 31, 1995, 1994 and 1993, amounted to $1.1 million,
$2.3 million and $0.8 million, respectively.
F-15
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6
FINANCING ARRANGEMENTS
Debt Obligations
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
11 1/2% Senior Notes due 3/1/98........................... $ 77,150 $107,150
10 7/8% Senior Notes due 10/15/99......................... 149,749 231,749
10 3/4% Senior Notes due 6/1/2005......................... 125,000 --
8 5/8% Pollution Control Bonds due 11/1/2014.............. 56,300 56,300
-------- --------
408,199 395,199
Less: Unamortized debt discount........................... 330 694
-------- --------
Long term debt obligations................................ $407,869 $394,505
======== ========
</TABLE>
On October 17, 1989, the Company completed a public offering of its Senior
Notes in the principal amount of $300.0 million. These unsecured Senior Notes
bear interest at 10 7/8% and mature October 15, 1999.
On November 1, 1989, the Company refinanced two previous pollution control
bond issues having an aggregate principal amount of $56.3 million through the
issuance of the 1989 Pollution Control Bonds which bear interest at 8 5/8% and
mature November 1, 2014.
On March 4, 1993, the Company completed a public offering of $140.0 million
of its Senior Notes. These unsecured Senior Notes bear interest at 11 1/2% per
annum and mature March 1, 1998. The Company recognized an after-tax
extraordinary loss of $6.5 million in 1993 related to premiums and the
immediate recognition of previously deferred financing costs related to
indebtedness refinanced with the proceeds from the public sale of its 11 1/2%
Senior Notes.
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 offering 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. In addition, the purchase required the
immediate recognition of previously deferred financing costs. As a result, the
Company recognized in 1994 an after-tax extraordinary loss of $3.9 million.
In June 1995, the Company privately sold $125.0 million of its 10 3/4%
Senior Notes due 2005. The net proceeds were $121.0 million, of which $118.8
million was used during the third quarter of 1995 to purchase approximately
$30.0 million principal amount of its 11 1/2% Senior Notes and $82.0 million
principal amount of its 10 7/8% Senior Notes. In October 1995, the Company
exchanged the privately sold notes for notes that were registered under the
Securities Act of 1933. The Company recognized an after-tax extraordinary loss
of $6.7 million related to premiums paid to purchase the notes together with
the immediate recognition of previously deferred financing costs related to
the purchased notes.
In connection with the sale of the 10 3/4% Senior Notes, the Company
obtained the consent from the remaining holders of the 11 1/2% Senior Notes to
modify certain covenants in the indenture governing such notes, with the
objective of providing uniformity among the covenants in the indentures
governing the Company's 10 3/4% and 10 7/8% Senior Notes. The indentures
governing the Senior Notes contain covenants that limit, among other things,
the incurrence of additional indebtedness, the declaration and payment of
dividends and
F-16
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995, pursuant to this covenant, the
Company's ability to pay dividends on its common stock was limited to $137.2
million. Upon the occurrence of a change in control, as defined under the
indentures, 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.
The Company's Senior Notes are ranked equally and are senior to the 1989
Pollution Control Bonds.
The Company does not have any scheduled principal payments on its
indebtedness until 1998 when the $77.2 million principal amount outstanding of
the 11 1/2% Senior Notes becomes due and 1999 when the $149.7 million
principal amount outstanding of the 10 7/8% Senior Notes becomes due.
Receivables Participation Agreement
The Company has in place, through a subsidiary, a receivables participation
agreement with a group of four banks. The facility provides for a total
commitment by the banks of up to $85.0 million, including a letter of credit
subfacility of up to $25.0 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, WRI. WRI
finances its ongoing receivable purchases from a combination of cash
collections on receivables already in the pool, short term intercompany
obligations and issuances of redeemable preferred stock to Weirton Steel
Corporation. As of December 31, 1995, while no funded participation interests
had been sold under the facility, $4.0 million in letters of credit under the
subfacility were in place. 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 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 sale was approximately $71.6 million as of
December 31, 1995.
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 1995, the Participation Agreement was
extended through April 2000. 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, include those typical of sellers of similar property and
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. As of December 31, 1995, WRI had a net worth of
$132.3 million and outstanding receivables of $138.2 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 uses certain lease arrangements to supplement its financing
activities.
F-17
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense under operating leases was $4.7 million, $6.7 million and
$7.3 million for the years ended 1995, 1994 and 1993, respectively. The
minimum future lease payments under noncancelable operating leases are $3.9
million, $3.4 million, $2.5 million, $0.9 million and $0.6 million for the
years ending 1996 through 2000, respectively, and $2.0 million thereafter.
NOTE 7
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 calendar years 1995, 1994 and 1993, the Company
contributed $22.4 million, $69.7 million and $25.6 million, respectively, to
the Pension Plan.
The Pension Plan's assets are held in trust, the investments of which
consist primarily of common stocks, fixed income securities and short term
investments.
Following are the components of the Company's net pension cost recognized in
1995, 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost................................. $ 16,060 $ 17,847 $ 10,192
Interest cost on projected benefit
obligation.................................. 48,346 45,155 41,714
Actual return on plan assets................. (33,580) (30,938) (30,300)
Net amortization and deferral................ 16,464 16,464 15,112
-------- -------- --------
$ 47,290 $ 48,528 $ 36,718
======== ======== ========
</TABLE>
The following table reconciles the funded status of the Pension Plan to the
accrued pension obligation recognized as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested............................................ $ 518,309 $ 431,632
Nonvested......................................... 29,877 25,416
--------- ---------
548,186 457,048
Effect of projected compensation increases.......... 170,296 131,927
--------- ---------
Actuarial present value of projected benefit
obligation......................................... 718,482 588,975
Plan assets at fair value........................... 441,026 388,955
--------- ---------
Projected benefit obligation in excess of plan
assets............................................. 277,456 200,020
Items not yet recognized:
Actuarial (losses) gains.......................... (41,652) 27,380
Remaining net obligation at transition............ (53,132) (60,522)
Prior service cost................................ (106,924) (115,998)
Additional minimum liability........................ 31,412 17,213
--------- ---------
Accrued pension obligation.......................... $ 107,160 $ 68,093
========= =========
</TABLE>
F-18
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accrued pension obligation is classified for financial statement
presentation as of December 31, 1995 and 1994, as follows:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Pension liability, a component of current liabilities..... $ 12,471 $ --
Long term pension obligation.............................. 94,689 68,093
-------- -------
$107,160 $68,093
======== =======
</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>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average interest rate used to
discount the projected, accumulated and
vested benefit obligations to present
value.................................. 7.25% 8.5% 7.5%
Expected rate of return on plan assets.. 8.75% 8.75% 8.75%
Assumed increase in compensation 2% for 2% for 2% for
levels................................. 1 year 2 years 3 years
and 4% and 4% and 4%
thereafter thereafter thereafter
</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.
The Company's accumulated pension benefit obligation exceeded assets
available for plan benefits and the Company's unfunded accrued pension
obligations by $31.4 million and $17.2 million as of December 31, 1995 and
1994, respectively. As a result, the Company recognized at the respective
dates an additional minimum liability and an intangible asset of an equal
amount. The increase in the additional minimum liability and intangible asset
as of December 31, 1995, from a year earlier results principally from the
lower interest rate assumption used to discount the accumulated pension
benefit obligation to present value which reflects the recent trend of
decreasing rates of return available on long term investments.
In the first quarter of 1993, as part of the Company's ongoing cost
reduction program, an enhanced retirement package was offered through December
31, 1994, to employees meeting certain eligibility requirements. The Company
recognized a pretax restructuring charge of $17.3 million to account for the
costs associated with implementing the enhanced retirement package.
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 collective bargaining agreements with the Company's
represented employees that became effective in September 1993, retirees who
have not yet reached age 65 who retire after January 1, 1995, are
F-19
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
base 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 required the accrual of the estimated cost of
retirees' medical and other benefits over the periods during which employees
render the service that qualifies them for such benefits. The provisions of the
standard allowed 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 was adopted or amortized prospectively over a
period of up to 20 years. The Company elected to immediately recognize its
transition obligation upon adoption, which as of 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 1995, 1994 and 1993 is comprised of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during period....... $ 5,373 $ 7,214 $11,833
Interest cost on accumulated postretirement
benefit obligation.............................. 25,082 20,618 18,548
Net amortization and deferral.................... (4,693) (4,680) --
------- ------- -------
$25,762 $23,152 $30,381
======= ======= =======
</TABLE>
The actuarially determined net periodic expense in 1995, 1994 and 1993 for
retiree medical and life insurance benefits exceeded the $20.4 million, $13.1
million and $12.4 million cash outlay for providing such benefits by
approximately $5.4 million, $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
as of December 31, 1995 and 1994 :
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retirees and beneficiaries........................... $234,058 $184,537
Active employees fully eligible for benefits......... 25,507 23,649
Other active participants............................ 63,524 66,276
-------- --------
Total accumulated postretirement benefit obligation.... 323,089 274,462
Items not yet recognized:
Actuarial (losses) gains............................. (18,540) 19,212
Prior service cost................................... 32,763 38,252
-------- --------
Accrued postretirement benefit obligation.............. $337,312 $331,926
======== ========
</TABLE>
F-20
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accrued postretirement benefit obligation as of December 31, 1995 and
1994, is classified for financial statement presentation as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accrued postretirement benefits, a component of accrued
employment costs....................................... $ 19,419 $ 15,741
Postretirement benefits other than pensions............. 317,893 316,185
-------- --------
$337,312 $331,926
======== ========
</TABLE>
The increase in the Company's accumulated postretirement benefit obligation
as of December 31, 1995, compared to 1994 results primarily from a lower
interest rate assumption used to discount the obligation to present value
reflecting the recent trend of decreasing rates of return available on long
term investments. Consistent with the Company's approach to measuring its
accumulated benefit obligation for pensions, the interest rate used to measure
the obligation as of December 31, 1995, was decreased to 7.25%. The interest
rate used to discount the accumulated postretirement obligation to present
value as of December 31, 1994, was 8.5%.
The medical cost and administrative expense rates used to project
anticipated cash flows and measure the Company's postretirement benefit
obligation as of December 31, 1995, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
FOR RETIREES WHO HAVE NOT YET FOR RETIREES WHO ARE AGE 65
REACHED AGE 65 AND OLDER
-------------------------------- -------------------------------
1995 1994 1993 1995 1994 1993
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Base medical cost trend:
Rate in first year.... 9.0% 9.5% 10.0% 8.0% 8.25% 8.5%
Ultimate rate......... 4.25% 5.5% 4.5% 4.25% 5.5% 4.5%
Year in which ultimate
rate is reached...... 2003 2003 2003 2003 2003 2003
Major medical cost
trend:
Rate in first year.... 11.80% 13.1% 14.4% N/A N/A N/A
Ultimate rate......... 4.25% 5.5% 4.5% N/A N/A N/A
Year in which ultimate
rate is reached...... 2003 2003 2003 N/A N/A N/A
Administrative expense
trend.................. 4.25% 5.5% 4.5% 4.25% 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 $2.0 million, $1.9 million and $4.8
million in 1995, 1994 and 1993, respectively, and would have increased the
accumulated postretirement benefit obligation by $21.1, million and $18.6
million as of December 31, 1995 and 1994, respectively.
For purposes of measuring life insurance benefits as of December 31, 1995
and 1994, 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.
F-21
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8
POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
112. This standard required 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 assumptions 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, 1995 and 1994 was 7.25%
and 8.5%, respectively.
Other actuarial assumptions and demographic data, as applicable, that were
used to measure the postemployment benefit obligation as of December 31, 1995
and 1994, were consistent with those used to measure pension and other
postretirement benefit obligations for each respective year.
Upon determination as of January 1, 1993, of the accumulated postemployment
transition obligation, and after considering amounts already accrued, the
Company recognized in 1993 a cumulative accounting charge of $4.0 million to
fully recognize its postemployment benefit obligation as of January 1, 1993.
NOTE 9
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109. Under SFAS No. 109, deferred income tax assets and liabilities are
recognized reflecting the future tax consequences of net operating loss and
tax credit carryforwards and differences between the tax basis and the
financial reporting basis of assets and liabilities. The components of the
Company's deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards...... $ 101,325 $ 92,423
Deductible temporary differences:
Inventories........................................ 15,662 16,910
Property, plant and equipment...................... 204 17,044
Pensions and other long term liabilities........... 16,101 19,840
Postretirement benefits other than pensions........ 131,779 128,221
Other deductible temporary differences............. 20,715 17,240
Valuation allowance................................ (30,943) (42,640)
--------- ---------
254,843 249,038
Deferred tax liabilities:
Accumulated depreciation............................. (119,393) (107,975)
--------- ---------
Net deferred tax asset................................. $ 135,450 $ 141,063
========= =========
</TABLE>
As of December 31, 1995, the Company had available, for federal and state
income tax purposes, regular net operating loss carryforwards of approximately
$183.2 million expiring in 2006 through 2008; an alternative minimum tax
credit of approximately $17.8 million; and general business tax credits of
approximately $11.6 million.
F-22
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995 and 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 available alternative minimum tax net operating
loss carryforwards of $4.7 million in 1995 and $11.7 million in 1994 and $2.5
million and $1.5 million of available general business credits in 1995 and
1994, respectively, the Company recognized alternative minimum taxes of $6.0
million and $4.6 million in 1995 and 1994, respectively.
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 that under its current business strategy it will be
able to generate taxable income 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 length of time associated with the carryforward period available to
utilize net operating losses and certain tax credits not associated with SFAS
No. 106 liabilities, is more definite. A significant portion of these net
operating losses are attributable to the realization of differences between
the tax basis and financial reporting basis of the Company's fixed assets. In
the aggregate, such differences, including depreciation, are expected to
reverse within the allowable carryforward periods. 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.
Notwithstanding the Company's expectations as to its ability to fully
utilize its deferred tax attributes, the Company, since it adopted the
provisions of SFAS No. 109, has conservatively recognized a valuation
allowance that reduces the carrying value of its deferred tax attributes on a
basis that considers the individual characteristics of the attributes
comprising its deferred tax assets.
The elements of the Company's deferred income taxes associated with its
results before extraordinary item and cumulative effect of accounting changes
for the years ended December 31, 1995, 1994 and 1993, respectively, along with
the allocation of deferred taxes to other income statement items are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current income tax provision:
Federal.................................... $ (6,014) $ (4,579) $ --
Deferred income tax (provision) benefit:
Federal.................................... (17,839) (10,242) 21,421
State...................................... (2,726) (1,694) 2,248
Valuation allowance........................ 13,324 9,061 (10,397)
-------- -------- --------
Income tax (provision) benefit........... (13,255) (7,454) 13,272
Other components of the Company's total
income tax (provision) benefit are allocated
to the consolidated statements of income as
follows:
Deferred income tax benefit allocated to
extraordinary item........................ 1,627 933 1,536
Deferred income tax benefit allocated to
cumulative effect on prior years of
accounting changes........................ -- -- 128,197
-------- -------- --------
Total income tax (provision) benefit..... $(11,628) $ (6,521) $143,005
======== ======== ========
</TABLE>
F-23
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The total income tax provision recognized by the Company in 1995 reconciles
to that computed under the federal statutory corporate rate as follows:
<TABLE>
<CAPTION>
INCOME BEFORE EXTRAORDINARY
INCOME TAXES ITEM TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Federal income tax (provision)
benefit computed at statutory rate
of 35%............................. $(23,853) $ 2,921 $(20,932)
State income taxes net of federal
income tax effect.................. (2,726) 333 (2,393)
Valuation allowance................. 13,324 (1,627) 11,697
-------- ------- --------
$(13,255) $ 1,627 $(11,628)
======== ======= ========
</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
INCOME TAXES ITEM TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Federal income tax (provision)
benefit computed at statutory rate
of 35%............................. $(14,821) $1,675 $(13,146)
State income taxes net of federal
income tax effect.................. (1,694) 191 (1,503)
Valuation allowance................. 9,061 (933) 8,128
-------- ------ --------
$ (7,454) $ 933 $ (6,521)
======== ====== ========
</TABLE>
The total income tax provision recognized by the Company in 1993 reconciles
to that computed under the federal statutory corporate rate as follows:
<TABLE>
<CAPTION>
CUMULATIVE
EFFECT OF
LOSS BEFORE EXTRAORDINARY ACCOUNTING
INCOME TAXES ITEM CHANGES TOTAL
------------ ------------- ---------- --------
<S> <C> <C> <C> <C>
Federal income tax benefit
computed at statutory rate
of 34%..................... $ 19,095 $ 2,748 $149,450 $171,293
State income taxes net of
federal income tax effect.. 2,248 324 17,582 20,154
Effect of retroactive change
in federal statutory rate
to 35% and other
adjustments................ 2,326 -- -- 2,326
Valuation allowance......... (10,397) (1,536) (38,835) (50,768)
-------- ------- -------- --------
$ 13,272 $ 1,536 $128,197 $143,005
======== ======= ======== ========
</TABLE>
NOTE 10
REDEEMABLE STOCKS
In June 1989, the Company sold 1.8 million shares of the Series A Preferred
to the 1989 ESOP. The 1989 ESOP financed the purchase by issuing to the
Company a $26.1 million promissory note, payable ratably over a 10 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 10 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. As
such, shares of Series A Preferred distributed to 1989 ESOP participants
following
F-24
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
termination of service are given 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 $25.0 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 Series B Preferred
issuance, the Company entered into a supply agreement with a subsidiary of
Cleveland-Cliffs Inc to furnish the Company with the majority of its iron ore
pellet requirements for a 12 year period which began in 1992 and extends
through 2005. Upon redemption, the Series B Preferred lost its serial
designation.
NOTE 11
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. In 1995, the Company granted options to purchase
55,000 shares of the Company's common stock at exercise prices ranging from
$4.38 per share to $8.88 per share. Options covering 521,000 shares were
granted in 1994 at an exercise price of $8.69 per share. Generally, the
options granted under the 1987 Stock Option Plan vest in one-third increments
beginning two years after the grant date, with the remaining two-thirds
becoming exercisable ratably after the third and fourth years.
No stock options were granted in 1993. Options covering 180,000 shares were
outstanding as of December 31, 1995, that were granted prior to 1993 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 10
years following the date of grant.
Activity under the 1987 Stock Option Plan is summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of period......... 701,000 240,000 240,000
Granted............................................ 55,000 521,000 --
Repurchased/forfeited.............................. (8,000) (60,000) --
Exercised.......................................... -- -- --
------- ------- -------
Outstanding at end of period....................... 748,000 701,000 240,000
======= ======= =======
Exercisable at end of period....................... 270,000 180,000 240,000
Available for future grant......................... 2,000 49,000 510,000
</TABLE>
In October 1989, the Company registered 1.5 million shares of its common
stock to be offered over a 5-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 an additional 5.0
million shares of its common stock to be offered over a 5-year period
beginning January 1, 1995, to eligible employees under its 1994 Employee Stock
Purchase Plan. 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
F-25
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
each year. As of December 31, 1995, 295,764 shares valued at approximately
$0.9 million were issuable in accordance with the 1994 Employee Stock Purchase
Plan.
During 1991, the Company adopted a deferred compensation plan (the
"Directors' Deferred Compensation Plan") to permit non-employee members of the
Board of Directors to receive shares of common stock in lieu of cash payments
for total compensation or a portion thereof for services provided in their
capacity as a member of the Board of Directors. The Director's Deferred
Compensation Plan provides for the stock portion of the directors compensation
to be valued at 90% of the lesser of the stock's average trading price at the
beginning and the end of each year. As of December 31, 1995, 36,312 shares
valued at $0.1 million were issuable to the directors who selected deferred
compensation.
NOTE 12
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 10 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 $19.0 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 sale of $140.0 million of its Senior Notes
in March 1993, the Company purchased the balance of the outstanding 9.0% 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 interest income and expense related to the
9.0% ESOP notes are offset within the Company's net financing costs.
NOTE 13
EARNINGS PER SHARE
The weighted average number of common and common equivalent shares used in
the calculation of the income (loss) per common share was 43,781,395,
34,469,921 and 26,472,907 for the years ended December 31, 1995, 1994 and
1993, respectively. The shares of Series A Preferred were excluded from the
1993 calculations due to their antidilutive effect. The assumed exercise of
stock options would not result in significant dilution in those periods.
If the 1994 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 common share.
F-26
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14
ENVIRONMENTAL COMPLIANCE, LEGAL PROCEEDINGS AND COMMITMENTS
Environmental Compliance
The Company, as well as its domestic competitors, is subject to stringent
federal, state and local environmental laws and regulations concerning, among
other things, waste water discharges, air emission and waste disposal. The
Company spent approximately $3.9 million for pollution control capital
projects in 1995.
Pursuant to agreements entered into between the Company and NSC under which
the Company acquired its operating assets in 1984, NSC retained liability,
including governmental and third-party claims, arising from environmental
violations prior to the acquisition. NSC also retained liability for cleanup
costs, including third-party claims, related to solid or hazardous waste
sites, as long as the sites were not used by the Company in its operations
subsequent to the acquisition.
In March 1996, the EPA advised the Company that it had identified a number
of enforcement issues pertaining to waste water discharges, air emissions and
waste handling operations by the Company. The EPA proposed that the parties
attempt to resolve these issues during a six-month negotiation period. The EPA
indicated that it would expect a negotiated settlement to include necessary
corrective steps to address noncompliance issues, remediation programs to
address contamination at solid waste management units and a civil penalty.
However, the EPA also indicated that consideration would be given to
offsetting any cash penalty through the Company's performance of supplemental
environmental projects. If a negotiated settlement could not be reached by
September 15, 1996, the EPA indicated that it would commence a civil
enforcement action in federal court. The Company agreed to proceed with the
negotiation process, which began on March 14, 1996. The Company cannot predict
the results of its negotiations with the EPA, including whether an agreement
can be reached, the cost of any required compliance, or the extent of any
penalty. Likewise, the Company cannot predict whether the EPA will initiate
enforcement proceedings or their outcome. Based on its review of the matters
involved, and discussions to date with representatives of the EPA, while no
assurance can be given, the Company does not believe that any fines, penalties
or costs to remediate would have a material effect on the Company's financial
position or results of operations. However, it is expected that related
capital expenditure projects and required changes in operating practices will
increase future operating costs, which may have a significant effect on future
results of operations.
The Company intends to comply with all legal requirements regarding the
environment. New or expanded environmental requirements could increase the
Company's environmental costs in the future. Since the effect of future
requirements are not presently determinable, it is not possible to predict
with a high degree of precision the ultimate future cost of compliance;
however, the Company does not believe the future costs of environmental
compliance or the cost of current outstanding environmental matters will have
a material effect on its financial position, results of operations or on its
competitive position with respect to other integrated domestic steelmakers
that are generally subject to the same environmental requirements.
Legal Proceedings
The Company, in the ordinary course of business, is the subject of, or party
to, various pending or threatened legal 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.
Commitments
In October 1991, the Company entered into a supply agreement with a
subsidiary of Cleveland-Cliffs Inc to provide the majority of its iron ore
pellet requirements beginning in 1992 and extending through 2005.
F-27
<PAGE>
WEIRTON STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the purchase of 750,000 tons of blast furnace
coke in 1996, or the actual annual requirement 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.
NOTE 15
LINE OF BUSINESS INFORMATION
The Company operates a single line of business, the making and finishing of
carbon steel products including sheet and tin mill products. In 1995 and 1994,
no single customer accounted for 10% or more of net sales. In 1993 one
customer accounted for 11% of net sales. Approximately 82% of the Company's
workforce is covered under collective bargaining agreements with the
Independent Steelworkers' Union and Independent Guards' Union. The current
collective bargaining agreements are due to expire in September 1996.
NOTE 16
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 EQUIVALENTS
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, 1995 and 1994.
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 as of December 31, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and equivalents.................... $131,811 $131,811 $ 62,905 $ 62,905
Series A Redeemable Preferred stock..... 25,003 7,113 25,687 15,900
Long term debt obligations.............. 407,869 408,231 394,505 392,526
</TABLE>
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
As of December 31, 1995 and 1994, the Company had trade receivables
outstanding of $17.3 million and $12.8 million, respectively, from customers
who had been acquired in leveraged transactions.
F-28
<PAGE>
All tendered Senior Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent
for the Exchange Offer is
BANKERS TRUST COMPANY
By Facsimile:
(615) 315-0139
Confirm By Telephone:
(615) 835-3572 or
(615) 835-3573
By Mail:
Bankers Trust Company
c/o BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Dept.
P.O. Box 292737
Church Street Station
Nashville, Tennessee 37229-2737
By Hand/Overnight Delivery:
Bankers Trust Company
Corporate Trust and Agency Group
Reorganization Department
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding in which such person is made a party by reason of
his being or having been a director, officer, employee or agent of the
Company. The statute provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. The Certificate of Incorporation and By-Laws of the
Company provide for indemnification of the directors and officers of such
entities to the full extent permitted by the Delaware General Corporation Law.
Article Twelve of the Company's Certificate of Incorporation provides as
follows:
"TWELFTH. No director of the Corporation shall be personally liable to
the Corporation or to any stockholder for monetary damages for a breach of
fiduciary duty as a director, except liability (i) for any breach of a
director's duty of loyalty to the Corporation or to its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful purchases by the Corporation of its capital stock
pursuant to Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which a director receives an improper personal
benefit, except to the extent any such liability is subsequently authorized
by the law of Delaware to be reduced or eliminated. No amendment to or
repeal of any of the provisions of this Article TWELFTH shall eliminate or
reduce the effect of this Article TWELFTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
TWELFTH would accrue or arise, prior to such amendment or repeal of an
inconsistent provision."
Article IX of the Company's By-Laws provides as follows:
Section 1. Each current or former director, officer, employee or agent of
the Corporation, or any person who may have served at its request as a
director or officer of another corporation in which it owns stock or of
which it is a creditor (or in a comparable position in another form of
entity in which the Corporation owns an equity interest or with which it is
a joint venturer or of which it is a creditor), and such person's heirs,
executors, and administrators (each, an "Indemnitee"), shall be indemnified
by the Corporation against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation), to which he or she may be
made a party by reason of any alleged acts or omissions in such capacity if
such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, such person had no
reasonable cause to believe his or her conduct was unlawful.
Section 2. Each Indemnitee shall be indemnified by the Corporation
against all expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of any alleged acts or omissions in such
capacity if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been finally
adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that despite
the adjudication of liability but in view of all of the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.
II-1
<PAGE>
Section 3. Expenses incurred by an Indemnitee in defending any civil or
criminal action may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Indemnitee to repay such amount if it
shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation.
Section 4. The foregoing rights of indemnification and advancement of
expenses shall be in addition to and not exclusive of any and all other
rights to which such Indemnitee might be entitled as a matter of law.
The Company maintains an insurance policy provided for indemnification of
its officers, directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under
certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
(a) Exhibits:
</TABLE>
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of the Company.(a)
3.2 Certificate of Amendment to Restated Certificate of Incorporation of
the Company.(d)
3.3 By-laws of the Company.(a)
3.4 Amendment to By-laws of the Company.(d)
3.5 Certificate of the Designation, Powers, Preferences and Rights of
the Convertible Voting Preferred Stock, Series A.(b)
4.1 Indenture dated October 17, 1989 between the Company and First Bank
(N.A.), as trustee, relating to the Company's 10 7/8% Senior Notes
Due 1999, including form of Note.(b)
4.2 Indenture dated March 1, 1993 between the Company and Bankers Trust
Company, as trustee, relating to the Company's 11 1/2% Senior Notes
Due 1998, including form of Note.(j)
4.3 First Supplemental Indenture relating to the Company's 11 1/2%
Senior Notes due 1998, dated July 25, 1995. (l)
4.4 Indenture, dated as of June 12, 1995, between the Company and
Bankers Trust Company, as trustee, relating to $125,000,000
principal amount of 10 3/4% Senior Notes due 2005, including form of
Senior Note. (l)
4.5 Indenture dated as of July 3, 1996 between the Company and Bankers
Trust Company, as trustee, relating to $125,000,000 principal amount
of 11 3/8% Senior Notes due 2004, including form of Senior Note.**
4.6 Registration Rights Agreement, dated as of July 3, 1996, among the
Company and Lehman Brothers, Inc. and Salomon Brothers Inc.**
5 Opinion of Willkie Farr & Gallagher.*
10.1 Pellet Sale Agreement dated June 25, 1991, between USX Corporation
and the Company.(k)
10.2 1984 Employee Stock Ownership Plan, as amended and restated.(b)
10.3 1989 Employee Stock Ownership Plan.(b)
10.4 1987 Stock Option Plan.(a)
10.5 Employment Agreement between Herbert Elish and the Company dated as
of July 1, 1990.(g)
10.6 Employment Agreement between James B. Bruhn and the Company.(a)
10.7 Employment Agreement between Thomas W. Evans and the Company dated
April 21, 1987.(d)
10.8 Employment Agreement between Richard K. Riederer and the Company.(a)
10.9 Amendment dated July 19, 1993 to the Employment Agreement dated
April 21, 1987 between Thomas W. Evans and the Company.(i)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Redacted Pellet Sale and Purchase Agreement dated as of September
30, 1991 between Cleveland-Cliffs Iron Company and the Company.(f)
10.11 Deferred Compensation Plan for Directors effective as of January 1,
1991, for all directors who are not officers or other employees of
the Company.(g)
10.12 Coke Sale Agreement dated January 1, 1993 and signed July 13, 1993
between the Company and USX Corporation.(h)
10.13 Employment Agreement between Craig T. Costello and the Company dated
July 20, 1993.(i)
10.14 Employment Agreement between William R. Kiefer and the Company dated
July 21, 1993.(i)
10.15 Employment Agreement between John H. Walker and the Company dated
July 21, 1993.(i)
10.16 Employment Agreement between Narendra M. Pathipati and the Company
dated December 16, 1993.(i)
10.17 Employment Agreement between Mac S. White and the Company dated July
28, 1993.(i)
10.18 Amendment dated August 5, 1993 to the Employment Agreement dated
July 1, 1990 between Herbert Elish and the Company.(i)
10.19 Amendment dated July 19, 1993 to the Employment Agreement dated June
8, 1987 between David M. Gould and the Company.(i)
10.20 Amendment dated July 21, 1993 to the Employment Agreement dated June
8, 1987 between William C. Brenneisen and the Company. (i)
10.21 Description of the Company's Performance Incentive Plan. (n)
10.22 Amendments to the 1984 and 1989 Employee Stock Ownership Plans,
effective May 26, 1994. (o)
12 Statement Regarding Computation of Ratios.*
21 Subsidiary of the Registrant. (m)
23.1 Consent of Arthur Andersen LLP, independent public accountants.*
23.2 Consent of Willkie Farr & Gallagher (included within Exhibit 5).*
24 Powers of Attorney (included on Signature Page).**
25 Statement on Form T-1 of Eligibility of Trustee.**
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Nominees.*
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(a) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, filed May 3, 1989, Commission File No. 33-28515.
(b) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, filed March 27, 1990,
Commission File No. 1-10244.
(c) Incorporated herein by reference to the Company's Current Report on Form
10-Q for the quarter ended June 30, 1995, Commission File No. 1-10244.
(d) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, filed March 30, 1995,
Commission File No. 1-10244.
(e) Incorporated herein by reference to the Company's Current Report on Form
8-K, filed October 9, 1991, Commission File No. 1-10244.
(f) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992, filed August 14, 1992,
Commission File No. 1-10244.
II-3
<PAGE>
(g) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, filed April 1, 1991,
Commission File No. 1-10244.
(h) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993, filed August 13, 1993,
Commission File No. 1-10244.
(i) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, filed March 30, 1994,
Commission File No. 1-10244.
(j) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-2, filed February 9, 1993, Commission No.
33-53476.
(k) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, filed March 27, 1992,
Commission File No. 1-10244.
(l) Incorporated herein by reference to Amendment No.2 to the Company's
Registration Statement on Form S-2, filed October 6, 1995, Commission File
No. 33-61345.
(m) Incorporated herein by reference to the Company's Registration Statement
on Form S-4, filed July 27, 1995, Commission File No. 33-61345.
(n) Incorporated herein by reference to the caption "Annual Compensation"
appearing on pages 11 and 12 of the Company's Definitive Proxy Statement
dated April 25, 1995 for its 1995 Annual Meeting of Stockholders.
(o) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, Commission File No. 33-
61345.
(b) Financial Statement Schedules:
Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions, the foregoing provisions described
under Item 20 above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4 of the Securities Act, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of this
Registration Statement through the date of responding to the request.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933. as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Weirton, State of West Virginia, on August 8, 1996.
WEIRTON STEEL CORPORATION
/s/ William R. Kiefer
By: William R. Kiefer
Title: Vice President-Law and
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
President and Chief
* Executive Officer August 8, 1996
- ------------------------------------- (principal
RICHARD K. RIEDERER executive officer)
* Vice President- August 8, 1996
- ------------------------------------- Finance and Chief
EARL E. DAVIS, JR. Financial Officer
(principal
financial officer)
Chairman of the
* Board of Directors August 8, 1996
- -------------------------------------
RICHARD E. BURT
Director
* August 8, 1996
- -------------------------------------
MICHAEL BOZIC
Director
- ------------------------------------- August 1996
JAMES B. BRUHN
Director
* August 8, 1996
- -------------------------------------
CRAIG T. COSTELLO
Director
- ------------------------------------- August , 1996
ROBERT J. D'ANNIBALLE, JR.
Director
- ------------------------------------- August , 1996
MARK G. GLYPTIS
II-5
<PAGE>
SIGNATURE TITLE DATE
Director
- ------------------------------------- August , 1996
PHILLIP A. KARBER
Director
* August 8, 1996
- -------------------------------------
JOSEPH J. NOWAK
Director
* August 8, 1996
- -------------------------------------
ROBERT S. REITMAN
Director
- ------------------------------------- August , 1996
RICHARD F. SCHUBERT
Director
* August 8, 1996
- -------------------------------------
THOMAS R. STURGES
Director
* August 8, 1996
- -------------------------------------
DAVID J. WANG
Director
* August 8, 1996
- -------------------------------------
RONALD C. WHITAKER
/s/ Mark E. Kaplan Controller
- ------------------------------------- (principal August 8, 1996
MARK E. KAPLAN accounting officer)
/s/ William R. Kiefer
*By: ___________________________
WILLIAM R. KIEFER ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
4.5 Indenture dated as of July 3, 1996 between the Company and Bankers Trust
Company, as trustee relating to $125,000 principal amount at 11 3/8%
Senior Notes due 2004, including form of Senior Note.**
4.6 Registration Rights Agreement, dated as of July 3, 1996, among the
Company and Lehman Brothers Inc. and Salomon Brothers Inc.**
5 Opinion of Willkie Farr & Gallagher.*
12 Statement Regarding Computation of Ratios.*
23.1 Consent of Arthur Andersen LLP, independent public accountants.*
23.2 Consent of Willkie Farr & Gallagher (included within Exhibit 5).*
24 Powers of Attorney (included on Signature Page).**
25 Statement on Form T-1 of Eligibility of Trustee.**
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Nominees.*
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
Exhibit 5
[Willkie Farr & Gallagher Letterhead]
August 9, 1996
Weirton Steel Corporation
400 Three Springs Drive
Weirton, West Virginia 26062-4989
Re: Registration Statement on Form S-4
(File No. 333-07913)
----------------------------------
Dear Sirs:
We are counsel to Weirton Steel Corporation, a Delaware corporation (the
"Company"), and have acted as such in connection with various legal matters
relating to the filing of a Registration Statement on Form S-4 (File No. 333-
07913), (the "Registration Statement") under the Securities Act of 1933, as
amended, covering $125,000,000 in aggregate principal amount of 11 3/8% Senior
Notes due 2004 (the "Exchange Notes") for $125,000,000 in aggregate principal
amount of outstanding 11 3/8% Senior Notes due 2004 that were issued and sold in
a transaction exempt from registration under the Securities Act of 1933, as
amended (the "Senior Notes"). The Senior Notes were issued under, and the
Exchange Notes are to be issued under, the Indenture dated as of July 3, 1996
between the Company and Bankers Trust Company, as trustee (the "Trustee"). The
exchange will be made pursuant to an exchange offer (the "Exchange Offer")
contemplated by the Registration Statement.
In so acting, we have examined copies of such records of the Company and such
other certificates and documents as we have deemed relevant and necessary for
the opinions hereinafter set forth. In such examination, we have assumed the
genuineness of all signatures, and the authenticity of all documents submitted
to us as originals and the conformity to authentic originals of all documents
submitted to us as certified or reproduced copies. We have also assumed the
legal capacity of all persons executing such documents and the truth and
correctness of any representations or warranties therein contained. As to
various questions of fact material to such opinions, we have relied upon
certificates of officers of the Company and of public officials.
Based upon the foregoing, we are of the opinion that:
1. The Company is duly formed and validly existing under the laws of the State
of Delaware.
<PAGE>
Weirton Steel Corporation
August 9, 1996
Page 2
2. The execution and delivery of the Indenture have been duly authorized by
the Company and the Indenture constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization and other similar laws affecting the enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
3. The Exchange Notes have been duly authorized and, when duly executed by the
proper officers of the Company, duly authenticated by the Trustee and
issued by the Company in accordance with the terms of the Indenture and the
Exchange Offer, will constitute valid and binding obligations of the
Company and will be entitled to the benefits of the Indenture, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization and other similar laws affecting the enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
This opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of the type typically applicable to transactions contemplated by the
Exchange Offer, and we do not express any opinion with respect to the laws of
any other country, state or jurisdiction.
This opinion letter is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the date
hereof.
<PAGE>
Weirton Steel Corporation
August 9, 1996
Page 3
We consent to being named in the Registration Statement and related Prospectus
as counsel who are passing upon the legality of the Exchange Notes for the
Company and to the reference to our name under the caption "Legal Matters" in
such Prospectus. We also consent to your filing copies of this opinion as an
exhibit to the Registration Statement or any amendment thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
WEIRTON STEEL CORPORATION
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES, EBITDA TO
INTEREST EXPENSE, AND NET DEBT TO EBITDA
(dollars in thousands, except where stated otherwise)
CALCULATION OF EARNINGS TO FIXED CHARGES
- ----------------------------------------
Three Months Ended
March 31, Year Ended December 31,
------------------------ -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Fixed Charges:
Income Before Income Tax ($3,460) $39,844 $68,329 $46,466 ($56,162) ($40,876) ($78,715)
Interest Expense 10,733 10,502 42,519 49,999 52,802 40,921 32,833
Debt Fee Amortization 846 444 2,212 2,509 1,965 1,219 2,024
33.3% of Lease Expense 325 559 1,566 2,235 2,449 2,140 2,163
---------- ---------- --------- ---------- --------- ---------- ----------
SEC Definition of Earnings $8,444 $51,348 $114,626 $101,209 $1,054 $3,404 ($41,695)
Interest Expense $10,733 $10,502 $42,519 $49,999 $52,802 $40,921 $32,833
Debt Fee Amortization 846 444 2,212 2,509 1,965 1,219 2,024
33.3% of Lease Expenses 325 559 1,566 2,235 2,449 2,140 2,163
---------- ---------- --------- ---------- --------- ---------- ----------
SEC Definition of Fixed Charges $11,904 $11,504 $46,297 $54,743 $57,216 $44,280 $37,020
Earnings / Fixed Charges 0.71 4.46 2.48 1.85 0.02 0.08 (1.13)
---------- ---------- --------- ---------- --------- ---------- ----------
Earnings deficiency (in millions) $3.5 - - - $56.2 $40.9 $78.7
--- ---------- --------- ---------- ---- ---- ----
<CAPTION>
CALCULATION OF EBITDA TO INTEREST EXPENSE
- -----------------------------------------
Three Months Ended
March 31, Year Ended December 31,
------------------------ -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes ($3,460) $39,844 $68,329 $46,466 ($56,162) ($40,876) ($78,715)
Interest expense 10,733 10,502 42,519 49,999 52,802 40,921 32,833
Depreciation 14,505 15,135 54,699 46,309 49,113 38,617 34,335
Amortization 442 444 2,212 2,509 1,965 1,219 2,024
Business interruption recoveries - (34,000) (41,502) (20,000) - - -
Property damage recoveries - - (9,000) (44,746) - - -
Provision for pofit sharing - 9,758 12,099 9,917 - - -
---------- ---------- --------- ---------- --------- ---------- ----------
EBITDA $22,220 $41,683 $129,356 $90,454 $47,718 $39,881 ($9,523)
------- ------- -------- ------- ------- ------- -------
EBIDTA to interest expense 2.07 3.97 3.04 1.81 0.90 0.97 -
---------- ---------- --------- ---------- --------- ---------- ----------
<CAPTION>
CALCULATION OF NET DEBT TO EBITDA
- ---------------------------------
Three Months Ended
March 31, Year Ended December 31,
------------------------ -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Debt $407,907 $394,533 $407,869 $394,505 $495,252 $503,241 $505,299
Cash (104,432) (82,262) (131,811) (62,905) (89,002) (61,195) (84,163)
---------- ---------- --------- ---------- --------- ---------- ----------
Net debt $303,475 $312,271 $276,058 $331,600 $406,250 $442,046 $421,136
---------- ---------- --------- ---------- --------- ---------- ----------
Net Debt to EBITDA 3.41 1.87 2.13 3.67 8.51 11.08 -
---------- ---------- --------- ---------- --------- ---------- ----------
</TABLE>
<PAGE>
Exhibit 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
August 9, 1996
<PAGE>
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON SEPTEMBER
11, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
WEIRTON STEEL CORPORATION
400 Three Springs Drive
Weirton, West Virginia 26062-4989
LETTER OF TRANSMITTAL
For 11 3/8% Senior Notes due 2004
Exchange Agent:
Bankers Trust Company
Facsimile Transmission:
(615) 315-0139
Confirm by telephone to:
(615) 835-3572 or
(615) 835-3573
By Mail:
Bankers Trust Company
c/o BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Dept.
P.O. Box 292737
Nashville, Tennessee 37229-2737
By Hand/Overnight Delivery:
Bankers Trust Company
Corporate Trust and Agency Group
Reorganization Department
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated August 9, 1996
(the "Prospectus") of Weirton Steel Corporation, a Delaware corporation (the
"Issuer"), and this Letter of Transmittal for 11 3/8% Senior Notes due 2004
which may be amended from time to time (this
<PAGE>
"Letter"), which together constitute the Issuer's offer (the "Exchange Offer")
to exchange $1,000 principal amount of its 11 3/8% Senior Notes due 2004 (the
"Exchange Notes") for each $1,000 in principal amount of its outstanding 11 3/8%
Senior Notes due 2004 that were issued and sold on July 3, 1996 in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Senior Notes").
The undersigned has completed, executed and delivered this Letter to indicate
the action he or she desires to take with respect to the Exchange Offer.
All holders of Senior Notes who wish to tender their Senior Notes must, prior
to the Expiration Date: (1) complete, sign, and deliver this Letter, or a
facsimile thereof, to the Exchange Agent, in person or to the address set forth
above; and (2) tender (and not withdraw) his or her Senior Notes or, if a tender
of Senior Notes is to be made by book-entry transfer to the account maintained
by the Exchange Agent at The Depository Trust Company (the "Depositary"),
confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in
accordance with the procedures for tendering described in the Instructions to
this Letter. Holders of Senior Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter to be delivered to
the Exchange Agent on or prior to the Expiration Date, must tender their Senior
Notes according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer -- How to Tender" in the Prospectus. (See
Instruction 1).
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Senior Notes when, as and if the Company has given
written notice thereof to the Exchange Agent.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or William R. Kiefer, Vice President-Law and Secretary of the
Company, at (304) 797-2000, 400 Three Springs Drive, Weirton, WV 26062-4989.
-2-
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Senior Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Senior Notes on a separate SIGNED schedule and affix that
schedule to this Letter.
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE PRINCIPAL AMOUNT PRINCIPAL
HOLDER(S) (PLEASE FILL IN IF BLANK) NUMBER(S)(1) OF SENIOR NOTES AMOUNT OF
SENIOR NOTES
TENDERED(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
_______________________________________________
_______________________________________________
_______________________________________________
TOTALS:
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Senior Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Senior Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Senior Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the
Senior Notes tendered with this Letter, the undersigned exchanges, assigns and
transfers to, or upon the order of, the Issuer all right, title and interest in
and to the Senior Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Senior Notes, with
full power of substitution, to: (a) deliver certificates for such Senior Notes
to or for the order of the Issuer; (b) deliver Senior Notes and all accompanying
evidence of transfer and authenticity to, or upon the order of, the Issuer, upon
receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes
to which the undersigned is entitled upon the acceptance by the Issuer of the
Senior Notes tendered under the Exchange Offer; and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Senior Notes, all
in accordance
-3-
<PAGE>
with the terms of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Senior Notes tendered
hereby and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Senior Notes tendered.
The undersigned agrees that acceptance of any tendered Senior Notes by the
Issuer and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Issuer of its obligations under the Registration
Rights Agreement (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Issuer will have no further obligations or liabilities
thereunder (except in certain limited circumstances). By tendering Senior
Notes, the undersigned certifies (a) that it is not an Affiliate of the Company,
that it is not a broker-dealer that owns Senior Notes acquired directly from the
Company or an affiliate of the Company, that it is acquiring the Exchange Notes
offered hereby in the ordinary course of such Transferor's business and that
such Transferor has no arrangement with any person to participate in the
distribution of such Exchange Notes; (b) that it is an Affiliate of the Company
or of the initial purchaser of the Senior Notes in the Initial Offering and that
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it; or (c) that it is a participating
broker-dealer and that it will deliver a prospectus in connection with any
resale of the Exchange Notes.
The undersigned represents that if it is not a broker-dealer, it is not
engaged in, and does not intend to engage in, a distribution of the Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
in the Exchange Offer, it represents that the Senior Notes to be exchanged for
the Exchange Notes were acquired as a result of market-making, or other trading
activities.
The undersigned acknowledges that, if it is a broker-dealer that will receive
Exchange Notes for its own account, it will deliver a prospectus in connection
with any resale of such Exchange Notes. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Senior Notes not tendered but represented by a certificate also
encompassing Senior Notes which are tendered) to the undersigned at the address
set forth in Box 1.
-4-
<PAGE>
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the Prospectus and this Letter, the Prospectus shall prevail.
[ ] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITARY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:___________________________________________
Account Number:__________________________________________________________
Transaction Code Number:_________________________________________________
[ ] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Owner(s):__________________________________________
Date of Execution of Notice of Guaranteed Delivery:______________________
Window Ticket Number (if available):_____________________________________
Name of Eligible Institution which Guaranteed Delivery:__________________
-5-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT SENIOR NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
--------------------------- ----------
X
--------------------------- ----------
SIGNATURE(S) OF OWNER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
--------------------------------
This box must be signed by registered holder(s) of Senior Notes as their name(s)
appear(s) on certificate(s) for Senior Notes, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with this
Letter. If signature is by a trustee, executor, administrator, guardian, officer
or other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below (See Instruction 3).
Name(s)
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity
------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Signature(s) Guaranteed
-----------------------------------------------------
by an Eligible Institution: (AUTHORIZED SIGNATURE)
(If required by
-----------------------------------------------------
Instruction 4) (TITLE)
-----------------------------------------------------
(NAME OF FIRM)
-6-
<PAGE>
BOX 3
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S NAME: BANKERS TRUST COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW.
SOCIAL SECURITY NUMBER(S)
OR EMPLOYER IDENTIFICATION
NUMBER(S)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE
FORM W-9 PART 2-CERTIFICATION- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
DEPARTMENT OF THE (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
TREASURY INTERNAL number to be issued to me), and
REVENUE SERVICE (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup
PAYOR'S REQUEST FOR withholding as a result of a failure to report all interest or dividends, or (c) the IRS has
TAXPAYER IDENTIFICATION notified me that I am no longer subject to backup withholding.
NUMBER ("TIN") CERTIFICATION INSTRUCTIONS -- You must cross out Item (2) above if you have been notified by the IRS
that you are currently subject to backup withholding because of under reporting interest or dividends
on your tax return.
- ------------------------------------------------------------------------------------------------------------------------------------
PART 3
SIGNATURE DATE , 1996
------------------------- -----------
AWAITING TIN [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable cash payments made to me thereafter will be withheld until provide a
taxpayer identification number.
Signature Date , 1996
-------------------------- --------------
-7-
<PAGE>
<TABLE>
<S> <C>
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Senior To be completed ONLY if certificates for Senior
Notes in a principal amount not exchanged, or Notes in a principal amount not exchanged, or
Exchange Notes, are to be issued in the name of Exchange Notes, are to be sent to someone other
someone other than the person whose signature than the person whose signature appears in Box 2
appears in Box 2, or if Senior Notes delivered by or to an address other than that shown in Box 1.
book-entry transfer which are not accepted for
exchange are to be returned by credit to an Deliver:
account maintained at the Depositary other than
the account indicated above. (check appropriate boxes)
Issue and deliver: [ ] Senior Notes not tendered
(check appropriate boxes) [ ] Exchange Notes, to:
[ ] Senior Notes not tendered Name
-------------------------------------------
[ ] Exchange Notes, to: (PLEASE PRINT)
Name Address
--------------------------------------------- ----------------------------------------
(PLEASE PRINT)
-----------------------------------------------
Address
Please complete the Substitute Form W-9 at Box 3
Tax I.D. or Social Security Number:
--------------
</TABLE>
-8-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Senior
Notes or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Senior Notes or a Book-Entry Confirmation, as the
case may be, and any other required documents is at the election and risk of the
tendering holder, but except as otherwise provided below, the delivery will be
deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Senior Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Senior Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Senior Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Senior Notes at the Depositary for purposes of
the Exchange Offer within two business days after receipt of this Prospectus,
and any financial institution that is a participant in the Depositary may make
book-entry delivery of Senior Notes by causing the Depositary to transfer such
Senior Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Senior Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal, with any required signature guarantees or an Agent's
Message (as defined below) in connection with a book-entry transfer and any
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at the address specified on the back cover page of this
Prospectus on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
A noteholder may tender Senior Notes that are held through the Depositary
by transmitting its acceptance through the Depositary's Automatic Tender Offer
Program ("ATOP"), for which the
-9-
<PAGE>
transaction will be eligible, and the Depositary will then edit and verify the
acceptance and send an Agent's Message to the Exchange Agent for its acceptance.
The term "Agent's Message" means a message transmitted by the Depositary to, and
received by, the Exchange Agent and forming part of the Book-Entry Confirmation,
which states that the Depositary has received an express acknowledgment from
each participant in the Depositary tendering the Senior Notes and that such
participant has received the Letter of Transmittal and agrees to be bound by the
terms of the Letter of Transmittal and the Company may enforce such agreement
against such participant.
THE METHOD OF DELIVERY OF SENIOR NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his taxpayer identification number (social security number or employer
identification number) and certify that such number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal, so as to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to the
Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Senior Notes to reach
the Exchange Agent before the Expiration Date, a tender may be effected if the
Exchange Agent has received at its office listed on the back cover hereof on or
prior to the Expiration Date a Notice of Guaranteed Delivery or a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the principal amount of the Senior
Notes being tendered, the names in which the Senior Notes are registered and, if
possible, the certificate numbers of the Senior Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Senior
Notes, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation) are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal (or
facsimile thereof) and any other required documents), or a properly completed
Agent's Message is received by the Exchange Agent within the period set forth
above, the Company may, at its option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Senior Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Senior Notes (or
a timely Book-Entry Confirmation).
-10-
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Senior Notes will be determined
by the Issuer, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which, in the opinion of the Issuer's counsel, would
be unlawful. The Issuer also reserves the right to waive any irregularities or
conditions of tender as to particular Senior Notes. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their Senior Notes. Neither the Company, the Exchange Agent nor any other
person will be under any duty to give notification of any defects or
irregularities in tenders or shall incur any liability for failure to give any
such notification. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of any Senior Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must so indicate the principal
amount tendered in the fourth column of Box 1 above. All of the Senior Notes
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
A certificate for Senior Notes not tendered will be sent to the holder, unless
otherwise provided in Box 5, as soon as practicable after the Expiration Date,
in the event that less than the entire principal amount of Senior Notes
represented by a submitted certificate is tendered (or, in the case of Senior
Notes tendered by book-entry transfer, such non-exchanged Senior Notes will be
credited to an account maintained by the holder with the Book-Entry Transfer
Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. For a withdrawal to be effective, a
written or facsimile transmission notice of withdrawal must be timely received
by the Exchange Agent at its address set forth on the back cover of this
Prospectus prior to the Expiration Date. Any such notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered Senior
Notes to be withdrawn, the certificate numbers of Senior Notes to be withdrawn,
the principal amount of Senior Notes to be withdrawn, a statement that such
holder is withdrawing his election to have such Senior Notes exchanged, and the
name of the registered holder of such Senior Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Senior Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Senior Notes promptly following receipt
of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS. If this Letter is signed by
the holder(s) of Senior Notes tendered hereby, the signature must correspond
with the name(s) as written on the face of the certificate(s) for such Senior
Notes, without alteration, enlargement or any change whatsoever.
If any of the Senior Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Senior Notes are held
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter as there are names in
which certificates are held.
-11-
<PAGE>
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Senior Notes are tendered; and/or (ii)
untendered Senior Notes, if any, are to be issued to the holder of record, then
the holder of record need not endorse any certificates for tendered Senior
Notes, nor provide a separate bond power. If any other case, the holder of
record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuer.
4. GUARANTEE OF SIGNATURES. Signatures on this Letter must be guaranteed
by an Eligible Institution, unless Senior Notes are tendered: (i) by a holder
who has not completed the Box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on this Letter; or (ii) for the account of an
Eligible Institution. In the event that the signatures in this Letter or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by an Eligible Institution (as defined in Instruction 1,
above). If Senior Notes are registered in the name of a person other than the
signer of this Letter, the Senior Notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer, in their
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Senior Notes not exchanged are to be issued
or sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Senior
Notes by book-entry transfer may request that Senior Notes not exchanged be
credited to such account maintained at the Depositary as such holder may
designate.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Senior Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange Notes pursuant to
the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Senior Notes are in more than one name or
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<PAGE>
are not in the name of the actual owner, consult the enclosed Guidelines for
information on which TIN to report.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Senior Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Senior
Notes not exchanged are to be delivered to, or are to be issued in the name of,
any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Senior
Notes to the Company or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
8. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend
or waive any of the specified conditions in the Exchange Offer in the case of
any Senior Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Senior Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent, at the address indicated above, for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered
Senior Notes or a Book-Entry Confirmation and all other required documents) must
be received by the Exchange Agent on or before the Expiration Date (as defined
in the Prospectus).
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<PAGE>
Exhibit 99.2
WEIRTON STEEL CORPORATION
EXCHANGE OFFER
TO HOLDERS OF ITS
11 3/8% SENIOR NOTES DUE 2004
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated August 9, 1996 (the "Prospectus") of
Weirton Steel Corporation ("Issuer") under "The Exchange Offer -- How to Tender"
and in the Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Weirton Steel Corporation (the "Issuer") to
exchange $125,000,000 in aggregate principal amount of its 11 3/8% Senior Notes
due 2004 (the "Exchange Notes") for $125,000,000 in aggregate principal amount
of its outstanding 11 3/8% Senior Notes due 2004 that were issued and sold on
July 3, 1996 in a transaction exempt from registration under the Securities Act
of 1933, as amended (the "Senior Notes"), this form or one substantially
equivalent hereto must be used to accept the Exchange Offer of the Issuer if:
(i) certificates for the Senior Notes are not immediately available; or (ii)
time will not permit all required documents to reach the Exchange Agent (as
defined below) on or prior to the Expiration Date (as defined in the Prospectus)
of the Exchange Offer. Such form may be delivered by hand or transmitted by
telegram, facsimile transmission or letter to the Exchange Agent.
TO: BANKERS TRUST COMPANY (the "Exchange Agent")
By Facsimile:
(615) 315-0139
Confirm by telephone to:
(615) 835-3572 or
(615) 835-3573
By Mail:
Bankers Trust Company
c/o BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Department
P.O. Box 292737
Nashville, Tennessee 37229-2737
By Hand/Overnight Delivery:
Bankers Trust Company
Corporate Trust and Agency Group
Reorganization Department
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the
principal amount of Senior Notes set forth below pursuant to the guaranteed
delivery procedures described in the Prospectus and the Letter of Transmittal.
The undersigned understands that no withdrawal of a tender of Senior Notes
may be made on or after the Expiration Date. The undersigned understands that
for a withdrawal of a tender of Senior Notes to be effective, a written notice
of withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Senior Notes for Exchange
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) such Senior Notes (or Book-Entry Confirmation of the
transfer of such Senior Notes into the Exchange Agent's account at The
Depository Trust Company ("DTC")) and (ii) a Letter of Transmittal (or facsimile
thereof) with respect to such Senior Notes, properly completed and duly
executed, with any required signature guarantees, this Notice of Guaranteed
Delivery and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Date: _________________________________
Holder(s) or Authorized
Signatory: __________________________ Address: ______________________________
_______________________________________
Name(s) of Registered
Holder(s): __________________________ Area Code and Telephone No.:___________
_____________________________________ _______________________________________
_____________________________________
If Senior Notes will be delivered by
Principal Amount of Senior book-entry transfer to DTC, check
Notes Tendered: _____________________ the box below:
_____________________________________
[ ]
Certificate No.(s) of Senior
Notes (if available): _______________
DTC Account No.: ______________________
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<PAGE>
The Notice of Guaranteed Delivery must be signed by the holder(s) exactly as
their name(s) appear on certificate(s) for Senior Notes, or if tendered by a
participant in DTC, exactly as such participant's name appears on a security
position listing as the owner of Senior Notes, or by person(s) authorized to
become holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________________________
________________________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
-3-
<PAGE>
GUARANTEE
(Not To Be Used For Signature Guarantee)
The undersigned, a recognized member of the Medallion Signature Guarantee
Program or any other "eligible guarantor institution," as such term is defined
in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as
amended (each, an "Eligible Institution"), hereby (i) guarantees that the
Exchange Agent will receive, at its address set forth above, within three New
York Stock Exchange, Inc., trading days after the date hereof, either the
certificates representing the Senior Notes rendered hereby in proper form for
transfer or timely confirmation of a book-entry transfer of such Senior Notes
into the Exchange Agent's account at The Depository Trust Company (pursuant to
the procedure set forth in "The Exchange Offer - How to Tender - Book-Entry
Transfer" of the Prospectus) together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof), with any
required signature guarantees and any other documents required by the Letter of
Transmittal or a properly transmitted Agent's Message, (ii) represents that such
tender complies with Rule 14e-4 under the Securities Exchange Act of 1934 ("Rule
14e-4"), to the extent that Rule 14e-4 applies to such tender, and (iii)
represents that each holder of Senior Notes on whose behalf this tender is being
made is deemed to own the Senior Notes being tendered within the meaning of Rule
14e-4.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal or
Agent's Message, and Senior Notes to the Exchange Agent within the time period
shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
Name of Firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Title: _________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Zip Code)
Area Code and Telephone Number: ________________________________________________
Dated: ___________ , 1996
NOTE: DO NOT SEND CERTIFICATES WITH THIS FORM. CERTIFICATES SHOULD BE SENT TO
THE EXCHANGE AGENT WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
-4-
<PAGE>
Exhibit 99.3
WEIRTON STEEL CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF
11 3/8% SENIOR NOTES DUE 2004
FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF
OUTSTANDING 11 3/8% SENIOR NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
To Our Clients:
Enclosed for your consideration is a Prospectus dated August 9, 1996 (as
the same may be amended or supplemented from time to time, the "Prospectus") and
a form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Weirton Steel Corporation (the "Issuer") to
exchange $125,000,000 in aggregate principal amount of its 11 3/8% Senior Notes
due 2004 (the "Exchange Notes") for $125,000,000 in aggregate principal amount
of its outstanding 11 3/8% Senior Notes due 2004 that were issued and sold on
July 3, 1996 in a transaction exempt from registration under the Securities Act
of 1933, as amended (the "Senior Notes").
The material is being forwarded to you as the beneficial owner of Senior
Notes carried by us for your account or benefit but not registered in your name.
A tender of any Senior Notes may be made only by us as the registered holder and
pursuant to your instructions. Therefore, the Issuer urges beneficial owners of
Senior Notes registered in the name of a broker, dealer, commercial bank, trust
company or other nominee to contact such registered holder promptly if they wish
to tender Senior Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender
any or all Senior Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Senior
Notes.
The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on
Wednesday, September 11, 1996, unless extended (the "Expiration Date"). Senior
Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the
procedures described in the Prospectus, at any time prior to the Expiration
Date.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER SENIOR NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE
PROVISIONS OF THE EXCHANGE OFFER.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 in principal amount of
Exchange Notes for each $1,000 in principal amount of Senior Notes, of which
$125,000,000 aggregate principal amount of the Senior Notes was outstanding as
of July 31, 1996. The terms of the Exchange Notes are substantially similar to
the terms of the Senior Notes, except that the Exchange Notes will generally be
freely transferable by holders thereof, and the holders of the Exchange Notes
(as well as remaining holders of any Senior Notes) will not be entitled to
registration rights under the Registration Rights Agreement.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE
OFFER--CONDITIONS TO THE EXCHANGE OFFER" IN THE PROSPECTUS.
<PAGE>
3. The Issuer has agreed to pay the expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of Bankers Trust
Company, the exchange agent, and printing, accounting, and legal fees.
4. Any transfer taxes incident to the transfer of Senior Notes from the
tendering holder to the Issuer will be paid by the Issuer, except as otherwise
provided in the Prospectus and the Letter of Transmittal.
If you wish to have us tender any or all of your Senior Notes held by us
for your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Senior Notes held by us and registered in our
name for your account or benefit.
-2-
<PAGE>
Exhibit 99.4
WEIRTON STEEL CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF
11 3/8% SENIOR NOTES DUE 2004
FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF
OUTSTANDING 11 3/8% SENIOR NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated August 9, 1996 (as
the same may be amended or supplemented from time to time, the "Prospectus") and
a form of Letter of Transmittal (the "Letter of Transmittal") relating to the
offer (the "Exchange Offer") by Weirton Steel Corporation (the "Issuer") to
exchange $125,000,000 in aggregate principal amount of its 11 3/8% Senior Notes
due 2004 (the "Exchange Notes") for $125,000,000 in aggregate principal amount
of its outstanding 11 3/8% Senior Notes due 2004 that were issued and sold on
July 3, 1996 in a transaction exempt from registration under the Securities Act
of 1933, as amended (the "Senior Notes").
We are asking you to contact your clients for whom you hold Senior Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Senior Notes registered in
their own name. The Issuer will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. You will, however, be reimbursed by the Issuer for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Issuer will pay all transfer taxes, if
any, applicable to the tender of Senior Notes to it or its order, except as
otherwise provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the
tender of Senior Notes and for the information of your clients;
3. A form of letter that may be sent to your clients for whose
accounts you hold Senior Notes registered in your name or the name of
your nominee, with space provided for obtaining the clients'
instructions with regard to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on Wednesday, September 11, 1996, unless extended
(the "Expiration Date"). Senior Notes tendered pursuant to the Exchange Offer
may be withdrawn, subject to the procedures described in the Prospectus, at any
time prior to the Expiration Date.
<PAGE>
In all cases, exchanges of Senior Notes accepted for exchange pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange Agent
of certificates representing such Senior Notes (or evidence of a book-entry
delivery into the Exchange Agent's account at The Depository Trust Company), the
Letter of Transmittal (or facsimile thereof) properly completed and duly
executed, with any required signature guarantees, or a properly completed
Agent's Message (as defined in the Prospectus), and any other documents required
by the Prospectus and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from Bankers
Trust Company, the Exchange Agent, by calling (615) 835-3572 or (615) 835-3573.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
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