FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
Commission File Number 1-10244
WEIRTON STEEL CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 06-1075442
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(State or other jurisdiction (IRS employer identification
#)
of incorporation or organization)
400 Three Springs Drive, Weirton, West Virginia 26062
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(304)-797-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par New York Stock Exchange
value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate by checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price as of March 15, 1996, the aggregate
market value of the voting stock held by nonaffiliates of the
Registrant was $176,007,674. (The foregoing calculation includes
shares allocated under the Registrant's 1984 and 1989 Employee
Stock Ownership Plans to the accounts of employees who are not
otherwise affiliates and unallocated shares under the
Registrant's 1989 Employee Stock Ownership plan subject to voting
instructions of employees who are not otherwise affiliates.)
The number of shares of Common Stock ($.01 par value) of the
Registrant outstanding as of March 15, 1996 was 42,356,332.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain portions of the Registrant's 1995 Annual Report to
Stockholders are incorporated by reference into Parts I, II and
IV of this Annual Report on Form 10-K to the extent provided
herein.
(2) Certain portions of the Registrant's definitive Proxy
Statement filed pursuant to Regulation 14A (filed within 120 days
after the end of the fiscal year covered hereby) in connection
with the 1996 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K to the
extent provided herein.
PART I
Item 1. Description of Business
Background
Weirton Steel Corporation (the "Company") and its predecessor
companies have been in the business of making and finishing
steel products for nearly 90 years at the Company's facilities
located in Weirton, West Virginia. From November 1929 to January
1984, the Company's business had been operated as the Weirton
Steel Division (the "Division") of National Steel Corporation
("National"). Incorporated in Delaware in November 1982, the
Company acquired the principal assets of the Division in January
1984.
The Company is a major "integrated" steelmaker. As such, it
makes carbon steel from raw materials to industry and customer
specifications. In primary steelmaking, iron ore pellets, iron
ore, coke, limestone and other raw materials are consumed in
blast furnaces to produce molten iron or "hot metal." The
Company then converts the hot metal into raw or liquid steel
through its basic oxygen furnaces where impurities are removed,
recyclable scrap is added and metallurgy for end use is
determined on a batch by batch basis. The Company's basic oxygen
process shop ("BOP") is one of the largest in North America,
employing two vessels, each with a steelmaking capacity of 360
tons per heat. Liquid steel from the BOP is then formed into
slabs through the Company's multi-strand continuous caster. The
slabs are then reheated, reduced and finished by extensive
rolling, shaping, tempering and, in many cases, by the
application of plating or coating at the Company's downstream
operations. Finished products are normally shipped to customers
in the form of coils.
Principal Products and Markets
The Company offers a wide range of rolled carbon steel products
including hot and cold rolled sheet steel and both hot-dipped and
electrolytic galvanized products (collectively "Sheet Products")
as well as a broad line of coated steels, including tin plate,
chrome coated, and black plate, comprising Tin Mill Products
("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 each year in the period 1991
through 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 semi-finished products have been combined with Sheet
Products.
<TABLE>
<CAPTION>
1995 1994(1) 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Sheet products ...... 64% 70% 54% 48% 46%
Tin mill products ... 36 30 46 52 54
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
(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 a fire in April 1994 that severely damaged a cold
rolling facility (the "No. 9 Tandem") required for the production
of a substantial portion of the Company's TMP. The No. 9 Tandem
was rebuilt and was returned to normal operations in the first
quarter of 1995, which allowed the Company to resume a more
traditional product mix in 1995. See "Production and Shipments"
herein and Item 7, herein, "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 for each year in the period 1991 through
1995 by the Company to each of its principal markets.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Service Centers and Sheet
and Strip Converters.... 43% 45% 30% 24% 21%
Food and Beverage......... 25 25 37 41 44
Pipe and Tube............. 7 6 12 11 9
Construction.............. 9 13 9 8 7
Consumer Durables......... 3 4 4 6 8
Exports................... 9 - 1 3 1
Other .................... 4 7 7 7 10
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
A substantial portion of the Company's revenues are derived from
long-time customers, although the Company actively seeks new
customers and constantly seeks new markets for its products. A
substantial share of the Company's sheet and TMP products are
shipped to customers located in the eastern portion of the United
States. The strong demand worldwide for flat rolled carbon steel
products that began in early 1994 continued throughout 1995. The
Company responded by exporting approximately 9% of its shipments
compared to previous years when only nominal quantities where
shipped to the export market. The Company's products are sold
through salaried Company employees who operate from 7 district
sales offices. Sales orders taken in the field are subject to home
office approval.
Trade orders on hand for the Company's products at December 31,
1995, 1994 and 1993 amounted to approximately 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 1,072 thousand tons of hot rolled sheet,
which accounted for 28.2% of its total revenues.
Cold rolled sheet requires further processing including additional
rolling, annealing and tempering to enhance ductility and surface
characteristics. Cold roll is used in the construction, steel
service center, commercial equipment and container markets,
primarily for exposed parts where appearance and surface quality
are important considerations. In 1995, the Company shipped 173
thousand tons of cold rolled sheet, which accounted for 6.5% of its
total revenues.
Galvanized hot-dipped and electrolytic sheet is coated primarily
with zinc compounds to provide extended anti-corrosive properties.
Galvanized is sold to the electrical, construction, automotive,
container, appliance and steel service center markets. In 1995,
the Company shipped 636 thousand tons of galvanized products, which
accounted for 27.9% of total revenues.
Generally the Company obtains relatively higher profit margins on
its Sheet Products that require more extensive processing.
The following table, based on information from the American Iron
and Steel Institute ("AISI"), shows the Company's historical share
of the domestic Sheet Products market.
<TABLE>
<CAPTION>
Sheet Products
Historical Market Share
(In thousands of tons) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Industry shipments..... 47,458 47,217 41,616 38,099 35,590
Company shipments(1)... 1,956 1,991 1,536 1,206 1,082
Company market share... 4.1% 4.2% 3.7% 3.2% 3.0%
<FN>
(1) Includes secondary products.
</TABLE>
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
goals for development of its sheet business are focused on
increasing its percentage of coated products, such as galvanized,
while capitalizing on developing specialty markets such as
construction where the Company believes that its GALFAN (registered
trademark) product has potential in roofing and framing
applications. As part of its sheet products marketing strategy,
the Company is also making efforts to enhance high quality end use
of its products marketed through steel service centers, as well as
developing the hot rolled market for heavier gauge and higher
carbon applications for all markets.
Tin Mill Products. The Company has enjoyed substantial market
share and a widely held reputation as a high quality producer of
TMP, which comprise a wide variety of light gauge coated steels.
Tin plate and black plate products are sold under the Company name
and under such registered trademarks as WEIRITE and WEIRLITE. In
addition to tin plate and black plate, the Company produces
electrolytic chromium coated steel under the registered trademark
WEIRCHROME.
The Company is one of the largest domestic producers of TMP.
During 1995, the Company's market share of TMP was approximately
19%, an increase from the 15% market share it held in 1994. Prior
to 1994, the Company's market share of TMP was consistenly greater
than 20%. However, the outage of the No. 9 Tandem 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. See "Production and Shipments." TMP shipments on an
industry-wide basis have remained relatively steady in recent years
even as plastic, aluminum, composites and other materials have
competed for potential growth in some applications. The TMP market
is now primarily directed at food, beverage, and general line cans.
The majority of the Company's TMP sales have been to can
manufacturing and packaging companies, a substantial amount of
whose annual requirements are established in advance. This market
is characterized by a relatively low number of manufacturers.
During 1995, shipments to ten major can manufacturers accounted for
approximately 71% of the Company's TMP sales and its five largest
TMP customers accounted for 18% 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 AISI information, shows the Company's
historical share of the domestic TMP market.
Tin Mill Products
Historical Market Share
<TABLE>
<CAPTION>
(In thousands of tons) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
TMP industry shipments... 3,942 4,137 4,123 3,927 4,040
Company shipments(1)..... 752 615 895 890 857
Company market share..... 19% 15% 22% 23% 21%
<FN>
(1) Includes secondary products
</TABLE>
The Company has the capacity to produce sufficient quantities of
"clean" steel (steel with fewer impurities) to fill anticipated TMP
orders for the near term. The Company's facilities and expertise
also allow it to produce the lightest gauges of tin plate,
enhancing the manufacturing efficiencies of the Company's customers
and promoting the use of its steel in leading edge technology
products such as thin-walled containers.
The Company has been a leading innovator in the development of can
making technology through its WEIRTEC (registered trademark)
research and development center. Although accounting for less than
5% of the domestic beverage container market in recent years,
largely due to highly competitive prices for aluminum, the Company
believes that two piece thin-walled steel beverage containers have
significant potential for growth, primarily based on improved
production efficiencies for steel cans and increased industry
success in promoting the recycling of steel. The Company engages
in other end product research and development and provides support
services to its customers. The Company believes these services
have been of significant assistance, particularly to its TMP
customers, and promote the consumption of the Company's products.
See "Research and Development."
A Company-owned 1.1 million square foot Finished Products Warehouse
with storage and staging areas for TMP is located near the
Company's mill to facilitate "just in time" production and delivery
to several of the Company's major customers which are located in
attached, or nearby, manufacturing facilities. As steel coils are
needed by customers' operations, they are moved from the adjoining
central storage areas and loaded directly on to customers'
production lines. This arrangement provides reductions in
transportation costs for the Company and its customers.
Related Products and Services
From time to time, the Company has produced and sold slabs and hot
metal to other carbon steelmakers. On limited occasions, the
Company has also performed downstream processing of products for
other carbon steelmakers, as well as having its own products
further processed by other steelmakers. Since 1993, the Company
has successfully conducted developmental activities relating to
rolling and finishing various types and grades of stainless steel
on its hot mill. As a result, the Company is currently rolling and
finishing stainless steel on a tolling basis for a major stainless
steelmaker. To date, revenues from these activities have not been
material to the Company. The Company cannot predict whether it
will continue to provide such services on a tolling basis for
stainless products in the future.
Production and Shipments
In 1991, after three years of approximately 100 million tons of raw
steel production per year, the domestic steel industry's raw steel
production fell to 87.3 million tons and shipments declined to 78.9
million tons. However, starting with December 1991 and continuing
through 1995, the steel industry experienced a rebound in both
production and shipments. Similarly, capability utilization, which
had dropped to 74%, increased to 92% over this same period.
Industry raw steel production for 1995 was up approximately 3% to
100.9 million tons compared to 1994, while shipments increased by
approximately 1.7% to 96.9 million tons. The high levels of
production are continuing into 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 including the highest level of prime product shipments in
the Company's history. Although production and shipments levels
were slightly higher for 1995 as compared to 1994, the Company's
finished product mix in 1995 included more traditional levels of
TMP, as the rebuilt No. 9 Tandem 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 period
1991 through 1995.
<TABLE>
<CAPTION>
Production and Shipments
(In millions of tons) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Company
Raw steel production... 2.8 2.7 2.7 2.5 2.3
Capability............. 3.0 3.0 3.0 3.0(1) 3.4
Utilization............ 95% 91% 91% 83% 68%
Shipments ............. 2.7 2.6 2.4 2.1 1.9
Shipments as a percentage
of industry total... 2.8% 2.7% 2.7% 2.6% 2.4%
Industry
Raw steel production... 100.9 97.9 96.1 91.6 87.9
Capability........ 110.0 108.2 109.9 113.1 117.6
Utilization............ 92% 91% 87% 81% 74%
Shipments ............. 96.9 95.3 88.4 82.3 78.9
<FN>
(1)The reduction in 1992 reflects the discontinuation of ingot
teeming and reduction operations.
</TABLE>
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 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 issue being price and quality rather than availability of
supply.
The Company, unlike a number of its larger 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 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 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, and electricity. In
recent years, the Company has entered into natural gas purchase
contracts with gas suppliers and transportation contracts with
transmission companies to reduce prices paid for gas. The Company
generates a significant amount of electricity and steam for
processing operations from a mixture of excess blast furnace gas
and natural fuels. The Company continually attempts to conserve
and reduce the consumption of energy in its steelmaking operations.
A number of the Company's facilities have alternate fuel burning
capability. A substantial increase in the Company's energy costs
or a shortage in the availability of its sources could have an
adverse effect on the Company.
Management believes that the Company's long term raw materials
contracts are at generally competitive terms.
Competition and Other Industry Factors
The domestic steel industry is a cyclical business with intense
competition among producers. Manufacturers of products other than
steel, including plastics, aluminum, cardboard, ceramics and glass,
have made substantial competitive inroads into traditional steel
markets. During recessionary periods, the industry's high level of
production capacity relative to demand levels has resulted in the
reduction of selling prices across a broad range of products.
Integrated steelmakers also face increased competition from mini-
mills. Mini-mills are efficient, low-cost producers that generally
produce steel 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.
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 12.0 million tons of new
steelmaking capacity will be in place within the next five years,
further threatening the viability of older facilities. The Company
has responded to competitive cost reductions through its own
capital improvement program and cost reduction efforts to achieve
operating efficiencies.
Domestic producers face competition from foreign producers over a
broad range of products. Many foreign steel producers are owned,
controlled or subsidized by their governments, making these
producers subject to influence by political and economic policy
considerations as well as the prevailing market conditions.
Voluntary restraint arrangements covering 17 steel exporting
nations and the European Community, which limited steel imports
into the United States market, expired on March 31, 1992. A
replacement structure to reduce subsidies and other unfair trade
practices by foreign producers has not emerged. In 1992, a number
of domestic steel producers filed extensive unfair trade cases
covering imports of flat rolled carbon steel products. These cases
sought the imposition of anti-dumping and countervailing duties on
products alleged to have caused injury to domestic producers. In
July 1993, the U.S. International Trade Commission (the "ITC")
ruled antidumping and/or countervailing duties should be imposed on
imports of galvanized sheet and plate from a number of countries
representing the majority of imports, and on cold-rolled sheet from
three countries accounting for approximately one-third of total
imports. No duties were imposed on hot-rolled sheet imports. A
number of these cases were appealed and the rulings made thus far
by the Court of International Trade have upheld the ITC decisions.
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 semi-
finished products (primarily slabs), were at approximately 18%, 20%
and 16% in 1995, 1994 and 1993, respectively.
The Company's primary competitors in Sheet Products consist of the
entire steel industry. The Company's primary TMP competitors in
recent years have been USX Corporation, LTV Corporation, Bethlehem
Steel Corporation, National Steel Corporation, Wheeling-Pittsburgh
Steel Corporation and USS-POSCO Industries.
The Company experiences strong competition in all its principal
markets with respect to price, service and quality. The Company
believes that it competes effectively in all these categories by
focusing its marketing efforts on creating strong customer
relationships by providing high quality products at competitive
prices.
Research and Development
The Company engages in research and development for the improvement
of existing products, the development of new products, and the
development of product applications. It also seeks more efficient
operating techniques. During 1995, 1994 and 1993 the Company spent
approximately $3.2 million, $6.3 million and $5.4 million,
respectively, for Company sponsored research and development
activities. Expenditures for customer sponsored research have not
been material to the Company. The Company operates WEIRTEC, its
research and development center specializing in the advancement of
steel food and beverage packaging and steel manufacturing
processes. WEIRTEC maintains research and prototype steel
packaging manufacturing facilities and analytical laboratory
facilities located in Weirton, West Virginia. The facilities are
engaged in improving the Company's production and finishing
processes for TMP and sheet products. In recent years, WEIRTEC
has played a central role in the development of thin-wall, two
piece beverage can technology and other products seeking to
capitalize on the Company's production expertise, particularly in
coated products. See "Principal Products and Markets." The
Company believes that the scientists, engineers, technicians and
the WEIRTEC facilities enhance the Company's technical excellence,
product quality and customer service.
The Company owns a number of patents that relate to a wide variety
of products and applications and steel manufacturing processes, has
pending a number of patent applications, and has access to other
technology through agreements with other companies. The Company
believes that none of its patents or licenses, which expire from
time to time, or any group of patents or licenses relating to a
particular product or process, is of material importance in its
overall business. The Company also owns a number of registered
trademarks for its products.
Environmental Control
Compliance. The Company's is subject to extensive federal,
state and local laws and regulations governing discharges into the
air and water, as well as the handling and disposal of solid and
hazardous wastes. The Company is also subject to federal and state
requirements governing the remediation of environmental
contamination associated with past releases of hazardous
substances. In recent years, environmental control regulations
have been marked by increasingly strict compliance standards.
Governmental authorities have the power to enforce compliance with
these requirements, and violators may be subject to civil or
criminal penalties, injunctions or both. Third parties also may
have the right to sue to enforce compliance.
Company expenditures for environmental control facilities were
approximately $3.9 in 1995, $3.2 million in 1994 and $1.0 million
in 1993. For 1996, the Company has budgeted approximately $7.7
million in capital expenditures for environmental control
facilities. Given the nature of the steelmaking industry, it can
be expected that substantial additional capital expenditures will
be required from time to time to permit the Company to remain in
compliance with environmental regulations.
In the past, the Company has resolved environmental compliance
issues through consent decrees with certain environmental
authorities, pursuant to which the Company has paid fines and
penalties relating to violations, or alleged violations, of laws
and regulations. Those payments have not materially affected the
Company's financial position, results of operations, or its cash
flow. The Company believes that it is in substantial compliance
with its environmental control consent orders and agreements.
Waste Sites and Proceedings. Under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), and similar state statutes, the Environmental
Protection Agency (the "EPA") and state regulators generally have
authority to impose joint and several liability on waste
generators, owners, operators and others with respect to CERCLA
sites as potentially responsible parties ("PRPs"), regardless of
fault or the legality of the original disposal activity. The
Company is entitled to indemnification from National for certain
environmental liabilities, including those relating to CERCLA and
similar statutes, as more fully described below. The Company
believes that National has provided notices to EPA regarding a
number of sites as required by CERCLA, some of which had been used
by the Division prior to its sale to the Company, and two of which
subsequently became the property of the Company. The Company
understands that National has been involved, at the request of the
EPA or state agencies, in voluntary remedial activities with
respect to a number of such sites. Insofar as any of those sites
involve liabilities under CERCLA or other environmental laws or
regulations for prior Division activities, the Company believes it
is fully indemnified by National.
Hanover Township Site
In May 1992, the Company received notice from the Pennsylvania
Department of Environmental Resources that it was considering a
closure plan and post-closure plan for a solid waste landfill
facility in Hanover Township, Pennsylvania (the "Hanover Site")
operated by Starvaggi Industries Inc. From at least the 1960's
through mid-1983, National and, after mid-1983, the Division and
the Company disposed of solid wastes at the facility. The Company
believes that while it disposed of various materials which were
residual to the steelmaking industry, such materials were not
classified as hazardous wastes under applicable law. At this time,
definitive closure plans and post-closure care plans have not been
adopted. National's liability with respect to the closure of this
facility is limited to $1.0 million.
Brown's Island
In January 1993, the Company received a notification from the West
Virginia Division of Environmental Protection ("DEP") that four
ground water monitoring wells situated at the Division's former
coke making facilities on Brown's Island in Hancock County, West
Virginia tested in excess of maximum levels established by the EPA
and DEP for certain contaminants. The DEP requested the Company to
supply it with additional data regarding the site and stated that
additional investigation, and possible remediation would be
required. The Company and the DEP are discussion the
implementation of an enhanced ground water monitoring program for
the area. As required by the relevant indemnification agreements,
the Company has given notice to National of the DEP communication.
The Company believes that National will be responsible for any
required remediation.
Potential Multimedia Enforcement
In December 1993, The Company was informed by the DEP that the EPA
was considering initiating a "multimedia" enforcement action
against the Company. Multimedia actions involve coordinated
enforcement proceedings related to water, air or waste-related
issues stemming from a number of federal 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.
On March 1, 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
as required under the Company's hazardous waste permit, 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, however, the Company believes that any fines or penalties
assessed would not be material to the Company's financial position
or results of operations.
Ambient Air Violations
In October 1995, the Company received a Notice of Violation from
the EPA alleging violations of the DEP Regulations for Air
Pollution Control at four of the Company's facilities, which may
result in fines and penalties. The alleged violations are being
discussed in the multimedia negotiation process discussed
above.
Water Discharge Permitting
In June 1994, the DEP issued a renewal 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 Company appealed the Renewal permit to the West
Virginia Environmental Quality Board ("EQB").
In August 1995, the EQB submitted to the West Virginia Legislature
significant proposed changes to the Regulation. The Company
believes that these proposed changes will result in re-calculated
water quality-based effluent limitations which the Company can meet
using its existing wastewater treatment facilities. The proposed
changes were enacted by the Legislature in March 1996.
The DEP has provided the Company until June 30, 1998 to achieve
compliance with the renewal permit embodying the Regulation. The
Company is currently conducting settlement discussions with DEP on
the renewal NPEDES permit appeal. In view of the changes to the
Regulation discussed above, the Company believes that the permit
appeal discussions should be concluded without any material adverse
effect on the Company's financial position or its results of
operations.
For alleged violations in 1995 of the renewal permit, the Company
paid stipulated penalties to the DEP totaling $184,000 pursuant to
the terms of a 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 the
Resource Conservation and Recovery Act ("RCRA") and violations of
underground storage tank requirements with proposed penalties
aggregating approximately $250 thousand. The Company resolved all
underground storage tank issues in a consent order with the DEP
which was executed in December 1994, pursuant to a consent order
under which the Company paid an administrative settlement of $40
thousand. 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 items after the
acquisition. In addition, the Company, subject to the $1.0 million
limitation applicable to the Hanover Site described above, is
entitled to reimbursement for clean-up costs related to facilities,
equipment or areas involved in the management of solid or hazardous
wastes of the Division ("Waste Sites"), as long as the Waste Sites
were not used by the Company after the acquisition. Third-party
liability claims relating to Waste Sites are likewise covered by
the respective indemnifications.
The Company's ability to obtain future reimbursement or
indemnification relating to environmental claims from National
depends, in addition to National's continued financial viability,
on the nature of future claims made by the Company, whether the
parties can settle outstanding differences relating to
indemnification rights and the outcome of any necessary litigation
between the Company and National regarding such issues. The
Company and National have disagreed as to their respective
liabilities for approximately $210 thousand spent to date by the
Company to remediate sediments from National's former Brown's
Island coke plant.
The Company does not believe the future costs of environmental
compliance will have a material effect on its financial position,
results of operations or on its ability to compete with respect to
other integrated domestic steelmakers that are subject to the same
environmental requirements. The Company, like its competitors,
does not expect to be able to pass on to customers cost increases
specifically resulting from compliance with environmental
regulations.
Employees
At December 31, 1995, the Company had 5,655 employees, of whom
4,312 were engaged in the manufacture of steel products, 685 in
support services, 128 in sales and marketing activities and 530 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 programs and
attrition. Through this program, the Company has reduced its
workforce 19% since 1991.
The Company has collective bargaining agreements with the
Independent Steelworkers Union, which represents approximately
4,667 employees 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.
The Company's current labor agreements provided 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 did 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
workforce by layoffs, with exceptions for adverse financial,
operational, and business circumstances. In addition, the
agreements provide for certain improvements in the Company's
pension plan.
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 what will be
the terms of the 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 employee 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 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. Discovery is nearing
completion and that the matter is expected to be scheduled for
trial in the second half of 1996.
From January 1984 until June 1989, the Company was owned in its
entirety by its employees through the Company's 1984 Employee Stock
Ownership Plan (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 that security 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 27.4% of the outstanding common and
substantially all of the outstanding preferred shares of the
Company at March 15, 1996. These securities represented
approximately 49.2% of the voting power of the Company's voting
stock.
Item 2. Properties and Facilities
The Company owns approximately 2,500 acres in the Weirton, West
Virginia, area which are devoted to the production and finishing of
steel products, research and development, storage, support services
and administration. The Company owns trackage and railroad rolling
stock for materials movement, water craft for barge docking, power
generation facilities and numerous items of heavy industrial
equipment. The Company has no material leases for real property.
The Company's mill and related facilities are accessible by water,
rail and road transportation. The Company believes that its
facilities are suitable to its needs and are adequately maintained.
The Company's operating facilities include 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 first
half of 1997, at which time the Company will undertake a major
reline of that furnace. Although the Company does not anticipate
operating a three blast furnace configuration in the near term,
under that operating scenario, its annual hot metal capacity could
be increased to 3.2 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 bi-metallic chrome/tin plating line and various
annealing, temper rolling, shearing, cleaning and edge slitting
lines, together with packaging, storage and shipping and receiving
facilities. See the "Production and Shipments" section of Item 1
for additional information regarding production capacity and
utilization rates.
Item 3. Legal Proceedings
The Company is involved as a defendant or plaintiff in various
litigation relating to claims arising out of its operations in the
normal course of business. Such claims involving the Company as a
defendant are generally covered by insurance. It is management's
opinion that any liability resulting from existing litigation would
not have a material effect on the Company's business, financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
As of March 15, 1996, there were 42,356,332 shares of common stock,
$.01 par value ("Common Stock"), outstanding held by 3,485
stockholders of record. The principal market for the Common Stock
is the New York Stock Exchange, on which that security has been
listed since June 1989.
Dividends on the Company's Common Stock may be paid when and as
declared by the Company's Board of Directors. The payment of
dividends is subject to the applicable provisions of Delaware
corporate law governing the Company and the discretion of the
Company's Board of Directors, which, in exercising such discretion,
considers the financial performance and capital requirements of the
Company.
Under restrictive covenants relating to the Company's indebtedness,
the Company's ability to pay dividends on its stock is limited to
the greater of (i) $5.0 million or (ii) $5.0 million plus one-half
of the Company's cumulative consolidated net income since March 31,
1993, plus the net proceeds from subsequent issuances of certain
capital stock less certain allowable payments. As of December 31,
1995, pursuant to these covenants, the Company could pay dividends
on its Common Stock of up to $137.2 million.
As of March 15, 1996, 11,269,914 shares of Common Stock, or 26.6%
of the outstanding shares of Common Stock, were held by one
stockholder of record, United National Bank - North, as Trustee of
the 1984 ESOP. As of that date, the 1984 ESOP had approximately
7,398 participants who were active or former employees of the
Company. In addition, as of March 15, 1996 there were 1,726,752
shares of Convertible Voting Preferred Stock, Series A (the "Series
A Preferred Stock"), outstanding held by 299 stockholders of
record. As of that date, United National Bank - North, as Trustee
of the Company's second Employee Stock Ownership Plan (the "1989
ESOP"), was the record owner of 1,717,289 shares of the Series A
Preferred Stock, or over 99% of the outstanding shares of Series A
Preferred Stock, subject to the terms and conditions of said Plan.
As of that date, the 1989 ESOP had approximately 7,561 participants
who were active or former employees of the Company. The Series A
Preferred Stock is not listed for trading on any exchange. The
Series A Preferred Stock has a liquidation preference of $5 per
share and is convertible into one share of Common Stock, subject to
adjustment. Each share of Series A Preferred Stock is entitled to
10 votes in all matters presented to the stockholders for approval.
Participants in the Company's two ESOPs have full voting rights
over all shares allocated to their accounts. See "Employees" under
Item 1.
The following table sets forth, for the periods indicated, the high
and low sales prices of the Common Stock as reported in the
consolidated transaction reporting system.
<TABLE>
<CAPTION>
1994 1995 1996 (1)
Quarter High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First 11 6-1/4 9-3/8 6-3/8 4-5/8 3-3/4
Second 10-7/8 8 8-3/8 6-7/8
Third 10-1/4 7-1/2 7-7/8 4-3/4
Fourth 10-1/8 7-3/4 5 3-7/8
<FN>
(1)First Quarter 1996 through 3/15/96
</TABLE>
Item 6. Selected Financial Data
The information required by this Item is incorporated herein by
reference to "Selected Financial and Statistical Data" on page 44
of the Company's 1995 Annual Report to Stockholders. With the
exception of the information specifically incorporated by
reference, the 1995 Annual Report to Stockholders is not to be
deemed filed as part of this Report for purposes of this Item.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this Item is incorporated herein by
reference to pages 15 to 20, inclusive, of the Company's 1995
Annual Report to Stockholders. With the exception of the
information specifically incorporated by reference, the 1995 Annual
Report to Stockholders is not to be deemed filed as part of this
Report for purposes of this Item.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this
Item are incorporated herein by reference to pages 21 to 43,
inclusive, of the Company's 1995 Annual Report to Stockholders and
are listed in "Item 14.--Exhibits, Financial Statement Schedules
and Reports on Form 10-K" hereof. With the exception of the
information specifically incorporated by reference, the 1995 Annual
Report to Stockholders is not to be deemed filed as part of this
Report for purposes of this Item.
Item 9. Changes in or Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company
The information required by this item with respect to Directors of
the Company is incorporated herein by reference to the caption "The
Election of Directors" and "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy
Statement relating to its 1996 Annual Meeting of Stockholders.
With the exception of the information specifically incorporated by
reference, said definitive Proxy Statement is not to be deemed
filed as part of this report for purposes of this item.
Executive Officers of the Company
The executive officers of the Company as of March 15, 1996, were as
follows:
Age at
March 15,
NAME 1996 OFFICE
Richard K. Riederer 52 President, Chief
Executive Officer and
Chief Operating
Officer
James B. Bruhn 55 Executive Vice
President -
Commercial
Craig T. Costello 48 Executive Vice
President -
Manufacturing
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
Unless otherwise indicated below, the executive officers of the
Company have held the positions described 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.
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.
David L. Robertson has served as the 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. Previous 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 was 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.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by
reference to the caption "Executive Compensation" in the Company's
definitive Proxy Statement relating to its 1996 Annual Meeting of
Stockholders. With the exception of the information specifically
incorporated by reference, said definitive Proxy Statement is not
to be deemed to be filed as part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated herein by
reference to the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive Proxy Statement
relating to its 1996 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by
reference, said definitive Proxy Statement is not to be deemed to
be filed as part of this report.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by
reference to the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement relating
to its 1996 Annual Meeting of Stockholders. With the exception of
the information specifically incorporated by reference, said
definitive Proxy Statement is not to be deemed to be filed as part
of this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)1.The list of financial statements required to be filed by "Item
8--Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K is as follows:
Financial Statements Page
Report of Independent Public Accountants . . . . . . . . . (*)
Consolidated Statements of Income for the years ended
December 31, 1995, 1994, and 1993. . . . . . . . . . . . . (*)
Consolidated Balance Sheets as of December 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . (*)
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994, and 1993. . . . . . . . . . (*)
Notes to Consolidated Financial Statements . . . . . . . . (*)
Supplementary Financial Information. . . . . . . . . . . . (*)
*Incorporated in this Report by reference from pages 21 to 43,
inclusive, of the Company's 1995 Annual Report to Stockholders
referred to in Exhibit 13.1 below.
2.The list of financial statement schedules required to be filed by
"Item 8--Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K is as follows:
Report of Independent Accountants
on Financial Statement
Schedules . . . . . . . . . . . . . S-1
Schedules:
I - Condensed Financial Information
of Registrant S-2
II - Valuation and Qualifying Accounts S-3
3. Exhibits
The following exhibits are included in this Annual Report or are
incorporated herein by reference:
Exhibit 3.1 Reinstated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 filed May 3, 1989, Commission
File No. 33-28515).
Exhibit 3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, Commission File No. 1-10244).
Exhibit 3.3 By-laws of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement on Form S-1
filed May 3, 1989, Commission File No. 33-28515).
Exhibit 3.4 Amendment to the By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994,
Commission File No. 1-10244).
Exhibit 3.5 Certificate of the Designation, Powers, Preferences
and Rights of the Convertible Voting Preferred Stock, Series A
(incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989,
Commission File No. 1-10244)
Exhibit 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 October 15, 1999, including Form of Note
(incorporated by reference to Exhibits 4.1 and 4.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, Commission File No. 1-10244).
Exhibit 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 (incorporated
by reference to Exhibit 4.1 to Amendment No. 2 to the Company's
Registration Statement on Form S-2 filed on February 9, 1993,
Commission File No. 33-53476).
Exhibit 4.3 First Supplemental Indenture dated July 25, 1995
relating to the Company's 11-1/2% Senior Notes due 1998
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 filed on July 27, 1995,
Commission File No. 33-61345).
Exhibit 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 2003,
including Form of Note (incorporated by reference to Exhibit 4.4 to
the Company's Registration Statement on Form S-4 filed on July 27,
1995, Commission File No. 33-61345).
Exhibit 10.1 Redacted Pellet Sale and Purchase Agreement dated
as of September 30, 1991 between Cleveland-Cliffs Iron Company and
the Company (incorporated by reference to Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1992, Commission File No. 1-10244).
Exhibit 10.2 Coke Sale Agreement dated January 1, 1993 and
signed July 13, 1993 between the Registrant and USX Corporation
(incorporated by reference to Exhibit 10.30 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993,
Commission File No. 1-10244).
Exhibit 10.3 1984 Employee Stock Ownership Plan, as amended and
restated (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission File No. 1-10244).
Exhibit 10.4 1989 Employee Stock Ownership Plan (incorporated
by reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, Commission File
No. 1-10244).
Exhibit 10.5 Amendments to the 1984 and 1989 Employee Stock
Ownership Plans, effective May 26, 1994 (filed herewith).
Exhibit 10.6 1987 Stock Option Plan (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on Form S-1
filed May 3, 1989, Commission File No. 33-28515)
Exhibit 10.7 Description of the Company's Performance
Incentive Plan (incorporated 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).
Exhibit 10.8 Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit 10.19 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990,
Commission File No. 1-10244).
Exhibit 10.9 Employment Agreement between Richard K. Reiderer
and the Company (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 filed May 3, 1989,
Commission File No. 33-28515).
Exhibit 10.10 Employment Agreement between Herbert Elish and
the Company dated as of July 1, 1990, including Amendment dated
August 5, 1993 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 and Exhibit 10.25 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.11 Employment Agreement between James B. Bruhn and
the Company (incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 filed May 3, 1989,
Commission File No. 33-28515).
Exhibit 10.12 Employment Agreement between Thomas W. Evans and
the Company dated April 21, 1987, including Amendment dated July
19, 1993 (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and Exhibit 10.28 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.13 Employment Agreement between Craig T. Costello
and the Company dated July 20, 1993 (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, Commission File No. 1-10244).
Exhibit 10.14 Employment Agreement between William R. Kiefer
and the Company dated July 21, 1993 (incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, Commission File No. 1-10244).
Exhibit 10.15 Employment Agreement between John H. Walker and
the Company dated July 21, 1993 (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, Commission File No. 1-10244).
Exhibit 10.16 Employment Agreement between Narendra M.
Pathipati and the Company dated December 16, 1993 (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, Commission File
No. 1-10244).
Exhibit 10.17 Employment Agreement between Mac S. White and the
Company dated July 28, 1993 (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, Commission File No. 1-10244).
Exhibit 10.18 Amendment dated July 19, 1993 to Employment
Agreement dated June 8, 1987 between David M. Gould and the Company
(incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.19 Amendment dated July 21, 1993 to the Employment
Agreement dated June 8, 1987 between William C. Brenneisen and the
Company (incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Commission File No. 1-10244).
Exhibit 13.1 1995 Annual Report to Stockholders of Weirton
Steel Corporation (filed herewith). Except for those portions of
the Annual Report specifically incorporated by reference, such
report is furnished for the information of the Securities and
Exchange Commission and is not to be deemed filed as part of this
Annual Report on Form 10-K.
Exhibit 22.1 Subsidiaries of the Company (filed herewith).
Exhibit 23.1 Consent of Arthur Andersen LLP, independent public
accountants (filed herewith).
Exhibit 27. Financial data schedule for year ended December
31, 1995 (filed herewith).
(b) The Company filed reports on Form 8-K each in reference to
Item 5 thereof on January 30, and June 23, 1995.
(c) The exhibits as listed under Item 14.(a)(3), are filed
herewith or incorporated herein by reference.
(d) The financial statement schedules listed under Item
14.(a)(2), are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, Weirton Steel
Corporation has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 28th day of
March, 1996.
WEIRTON STEEL CORPORATION
By /s/ Richard K. Riederer
Richard K. Riederer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the
following persons on behalf of Weirton Steel Corporation and in the
capacities indicated on the 28th day of March, 1996.
/s/ Richard K. Riederer
Richard K. Riederer Phillip A. Karber
President and Director
Chief Executive Officer
(principal executive officer)
/s/ Earl E. Davis /s/ Joseph J. Nowak
Earl E. Davis Joseph J. Nowak
Chief Financial Officer Director
(principal financial
officer)
/s/ Mark E. Kaplan /s/ Robert S. Reitman
Mark E. Kaplan Robert S. Reitman
Controller (principal Director
accounting officer)
/s/ Michael Bozic /s/ Richard F. Schubert
Michael Bozic Richard F. Schubert
Director Director
/s/ James B. Bruhn /s/ Thomas R. Sturges
James B. Bruhn Thomas R. Sturges
Director Director
/s/ Robert J. D'Anniballe, Jr. /s/ David I.J. Wang
Robert J. D'Anniballe, Jr. David I.J. Wang
Director Director
/s/ Mark G. Glyptis /s/ Ronald C. Whitaker
Mark G. Glyptis Ronald C. Whitaker
Director Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Weirton Steel Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Weirton Steel Corporation's annual report to stockholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 22, 1996. Our audits were made for
the purpose of forming an opinion on those basic financial
statements taken as a whole. The schedules listed in the index in
Item 14 (a)2 of the Form 10-K are the responsibility of the
Company's management and are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not a
part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 22, 1996
S-1
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
Schedule I
(Dollars in thousands, except per share data)
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
NET SALES $1,351,711 $1,260,864 $1,201,093
OPERATING COSTS:
Cost of sales 1,179,950 1,136,936 1,105,558
Discount on sale
of finance receiv-
ables
to subsidiary 18,522 14,719 5,209
Selling, general
and
administrative
expense 31,142 28,563 31,535
Depreciation 54,699 46,309 49,113
Restructuring charge - - 17,340
Provision for
profit sharing 22,499 17,581 -
Insurance recov-
eries (41,502) (20,000) -
Total operating
costs 1,265,310 1,224,108 1,208,755
INCOME (LOSS)
FROM OPERATIONS 86,401 36,756 (7,662)
Adjustment to
carrying value
of damaged
facility 9,000 44,746 -
Interest expense (41,920) (49,260) (52,634)
Interest income 5,423 6,330 2,737
Dividends received
from subsidary 6,056 5,529 2,168
ESOP contribution (2,610) (2,610) (2,610)
INCOME (LOSS) BEFORE
INCOME TAXES 62,350 41,491 (58,001)
Income tax prov-
ision 12,181 6,484 (13,988)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 50,169 35,007 (44,013)
Extraordinary loss
on early
extinguishment
of debt (6,718) (3,851) (6,549)
INCOME BEFORE (LOSS)
CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 43,451 31,156 (50,562)
Cumulative effect
of accounting
change - - (179,803)
NET INCOME (LOSS) $ 43,451 $ 31,156 $ (230,365)
========= ========= ============
Less: Preferred
stock dividend
requirement - 2,339 3,125
NET INCOME (Loss)
APPLICABLE TO
COMMON SHARES $ 43,451 $ 28,817 $ (233,490)
PER SHARE DATA:
Weighted average
number of common
shares and
equivalents
(in thousands) 43,781 34,470 26,473
Net income (loss)
before
extraordinary items $ 1.15 $ 0.95 $ (1.78)
Extraordinary loss
on early extin-
guishment
of debt (0.16) (0.11) (0.25)
Net income(loss)
before cumulative
effect of accounting
change 0.99 0.84 (2.03)
Cumulative effect
of accounting
change - - (6.79)
NET INCOME (LOSS)
PER COMMON SHARE $ 0.99 $ 0.84 $ (8.82)
========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
CONDENSED PARENT COMPANY BALANCE SHEETS
Schedule I
(Dollars in thousands, except share data)
Year Ended December 31,
1995 1994
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents $121,690 $ 57,221
Accounts receivable, net 15,996 19,147
Inventories:
Raw Material 77,557 100,319
Work-in-process 86,49 89,106
Finished goods 91,312 81,093
Deferred income taxes 49,245 42,570
Other current assets 7,309 7,871
Total current assets 449,600 397,327
Property, plant and
equipment, net 586,430 588,903
Investment in Weirton
Receivables, Inc. 129,927 111,094
Intangible asset 31,412 17,213
Deferred income taxes 88,607 98,493
Other assets and
deferred charges 15,732 12,761
TOTAL ASSETS $1,301,708 $1,225,791
========= ============
LIABILITIES:
Current liabilities:
Payables 123,105 136,038
Employment costs 88,115 84,487
Pension liability 12,471 -
Other 27,858 36,514
Total Current Liabilities 251,549 257,039
Long term debt obligations 407,869 394,505
Long term pension obligations 94,689 68,093
Postretirement benefits other
than pensions 317,893 316,185
Other long term liabilities 25,246 31,429
TOTAL LIABILITIES 1,097,246 1,067,251
REDEEMABLE PREFERRED STOCK 15,868 14,485
STOCKHOLDERS' EQUITY
Common stock, $0.01 par
value;
50,000,000 authorized; 423 420
42,289,844 and 42,027,405
shares issued
Additional paid-in capital 454,197 452,746
Retained earnings (265,388) (308,839)
Other stockholders' equity (638) (272)
TOTAL STOCKHOLDERS' EQUITY 188,594
TOTAL LIABILITIES,
REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY $1,301,708 $1,225,791
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Weirton Steel Corporation
Condensed Parent Company Statements of Cash Flows
Schedule I
(Dollars in Thousands)
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $135,506 $46,255 $174,171
CASH FLOWS FROM
INVESTING ACTIVITIES:
Expenditures for
property,
plant and equipment:
Spending to restore
damaged facilities (2,948) (74,611) -
Less:Insurance recoveries 9,000 45,000 -
Other capital spending (49,410) (37,456) (116,913)
Investment in Weirton
Receivables, Inc. (18,833) 5,819 (13,324)
NET CASH USED BY INVESTING
ACTIVITIES (62,191) (61,248) (130,237)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayments of debt
obligations (118,800) (101,101) (148,114)
Proceeds from the
issuance
of common stock - 116,087 -
Redemption of preferred
stock, Series B - (25,000) -
Proceeds from issuance of
long term debt 125,000 - 140,000
Common shares issuable (577) 1,454 1,119
Dividends paid - (2,339) (3,125)
Purchase of common
treasury shares - - (1,455)
Deferred financing costs (4,325) (2,245) (13,520)
Other, principally
net book
overdrafts (10,144) 8,553 (3,229)
NET CASH USED BY FINANCING
ACTIVITIES (8,846) (4,591) (28,324)
NET CHANGE IN CASH AND
EQUIVALENTS 64,469 (19,584) 15,610
CASH AND EQUIVALENTS
AT BEGINNING OF PERIOD 57,221 76,805 61,195
CASH AND EQUIVALENTS
AT END OF PERIOD $121,690 $ 57,221 $ 76,805
Supplement cash flow
information ======== ========== ==========
Interest paid, net of
capitalized interest $ 44,416 $ 52,091 $ 47,311
Income taxes paid
(refunded) 10,593 - (1,779)
</TABLE>
S-2
<TABLE>
<CAPTION>
Weirton Steel Corporation and Subsidiary
Valuation and Qualifying Accounts
For the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
Balance at Charges to Balance at Beginning of Cost and End of
Description Year Period Expense Deductions Period
Allowance for
doubtful accounts
discounts, claims
and allowances
<S> <C> <C> <C> <C> <C>
1995 $6,405 $19,396 $17,113 $8,688
1994 5,719 17,302 16,616 6,405
1993 5,545 16,346 16,172 5,719
Valuation
allowance for
deferred
tax assets
1995 $42,640 $ - $11,697 $30,943
1994 50,768 - 8,128 42,640
1993 - 50,768 - 50,768
S-3
</TABLE>
Exhibit 10.5
AMENDMENT
TO
WEIRTON STEEL CORPORATION 1984 EMPLOYEE STOCK OWNERSHIP PLAN
(Effective May 26, 1994, except as otherwise indicated)
I.The following terms shall be added to the Definitions in Section
2:
Nominating Committee.........The committee elected as provided
in Section 16A to nominate and certify to Weirton's Board of
Directors an ESOP Director pursuant to Weirton's Restated
Certificate of Incorporation.
II.Effective February 15, 1991 and January 1, 1994, the definition
of 'Compensation' in Section 2 is amended to read as follows:
The total cash compensation paid to an Employee by Weirton in each
Plan Year, as reported on IRS Form W-2 (Excluding for purposes of
Plan any amount received during an individual's probationary period
following his initial employment with Weirton), plus any amounts
paid to an Employee by Weirton under a sickness and accident
program or salary continuation program as includible in such
Employee's gross income under Section 104(a)(3) of the Code, and
for periods on and after February 15, 1991, any reductions from an
Employee's compensation under Weirton's Tax Deferred Savings Plan;
provided, however, that (i) for the 1989-1993 Plan Years, only the
first $200,000 (or such greater amount as determined by the
Internal Revenue Service), and (ii) for the 1994 and subsequent
Plan Years, only the first $150,000 (or such greater amount as
determined by the Internal Revenue Service), of an Employee's
Compensation may be taken into account for purposes of the Plan.
III.Section 11(d) through paragraph (1) shall be amended to read as
follows:
(d) Subject to paragraph (c) above and otherwise as required by
law, no distributions shall be made under this paragraph (d) during
any Lock-up Period (as hereinafter defined). For purposes of the
Plan, 'Lock-up Period' means, with respect to any distribution of
Weirton Stock or securities convertible into Weirton Stock
registered for sale under the Securities Act of 1933, as amended,
and sold through underwriters, that period of time commencing upon
the signing of an underwriting agreement between Weirton, any
selling stockholder or others (including the Trustee),on the one
hand, and the representatives of the underwriters, on the other
hand, and ending upon the date set forth in such underwriting
agreement, not to exceed and aggregate of 180 days in any Plan
Year, as the period during which sales of Weirton Stock may not be
made without the consent of such representatives or underwriters.
(1) As of any Valuation Date except a Valuation Date occurring
during a Lock-up Period, each Participant may request a
distribution of part or all of his Capital Accumulation (under the
ESOP) in accordance with administrative rules and procedures
established by the Committee and following receipt of written
explanation of the Federal and state income tax consequences of
such a distribution, subject to the provisions of subparagraph (2)
below.
IV.Section 12(c) through paragraph (1) shall be amended to read as
follows:
(c) No distributions shall be made under this paragraph (c) or
paragraph (f)or (g) below during a Lock-up Period (as defined in
Section 11(d)), and, providing Section 14(b) is no longer
applicable, this paragraph (c)shall apply, except during a Lock-up
Period.
(1) A former Participant's Capital Accumulation will be computed
following his Termination of Service. Distribution of such Capital
Accumulation will be paid or commence as soon as practicable
following the Valuation Date next following the Participant's
Termination of Service (or, if later, the Valuation Date next
following a Lock-up Period) or any subsequent Valuation Date not
later than the last day of the Plan Year in which he attains age
70-1/2, if later, as the Participant elects in writing to the
Committee.
V.Effective January 1, 1993, Section 13(g) is amended to read as
follows:
(g)Notwithstanding the foregoing provisions of this Section:
(i) For any distribution of benefits under this Section to any
Participant or Beneficiary which constitutes an eligible rollover
distribution (as defined in Code Section 402(f)(2)(a)), if such
distributee so elects in such manner and at such time as the
Committee determines in accordance with Federal income tax
regulations, the Committee shall direct the Trustee to pay the
amount of such distribution in a direct trust-to-trust transfer to
an eligible retirement plan (as defined in Code Section
401(a)31(D)) designated by such distributee; and
(ii) For any distribution of benefits under this Section to any
Participant or Beneficiary which does not constitute an eligible
rollover distribution, the Committee shall direct the Trustee to
comply with the applicable withholding requirements of Section 3405
of the Code with respect to the distribution of cash from the
Trust.
VI.A new Section 16A shall be added to read in its entirety as
follows:
Section 16A Nominating Committee
(a) A Nominating Committee, which committee is the 'ESOP Nominating
Committee' referred to in Article FIFTH of Weirton's Restated
Certificate of Incorporation, shall be maintained under the
provisions of this Plan. The Nominating Committee is the identical
Committee required to be maintained pursuant to Section 16A of the
1989 ESOP. Any change with respect to the Nominating Committee
made under this Plan likewise shall be required to be made under
the 1989 ESOP. The composition, duties and other functions of the
Nominating Committee shall be set forth in this Section and, to the
extent required by any other section of the Plan, as set forth
therein. Any other matter affecting the conduct of the Nominating
Committee which is not set forth in the Plan and otherwise is not
inconsistent with the terms of the Plan or law may be the subject
of a resolution or rule of the Nominating Committee adopted by
majority vote of its respective members and will not, as such, be
deemed an amendment of the Plan.
(b) The Nominating Committee shall consist of five (5) members, all
of whom shall be Participants either under this Plan or the 1984
ESOP, or both, and all of whom shall be elected by popular vote of
the Participants as set forth herein. The members of the
Nominating Committee shall be elected from among the following
categories: (i) Category I - 'Represented Active Employees' - one
(1) members; (ii) Category II - 'Non-Represented Active Employees'
- - one (1) member; (iii) Category III - 'former Employees' - one
(1)member; and (iv) Category IV - 'At-large' - two (2) members. As
used in the preceding sentence, the Category: (A) 'Represented
active Employees' shall include, as defined elsewhere in this Plan,
all Employees who (x) received Compensation for the performance of
services during the Plan Years immediately preceding and including
their election to the Nominating Committee, (y) at time of election
had not incurred a Termination of Service and (z) are members of
the Union or are otherwise covered by the provisions of a
collective bargaining agreement between Weirton and the Union or
another collective bargaining agent; (B) 'Non-Represented Active
Employees' shall include, as defined elsewhere in this Plan, all
Employees included in (x) and (y) of the preceding clause (A), but
not (z); (C) 'Former Employees' shall include, as defined elsewhere
in this Plan, all Employees who are Participants who have incurred
a Termination of Service at the time any determination regarding
this Category is made; and (D) 'At-large' shall include all
Participants in the Plan regardless of whether they are included in
any other Category.
No member of the Nominating Committee may serve on the committee as
an elected representative from more than one Category at the same
time. Each member of the Nominating Committee from Categories I,
II and III shall be a person included in the definition of the
Category from which he or she is elected; provided, that no
participant who holds or has held a 'Disqualifying Position' shall
be eligible to be a member. The term 'Disqualifying Position'
shall include anyone who has ever: (i) been employed by Weirton in
an executive management capacity (which shall include Job Class 56
or higher, or any successor equivalent status as determined from
time to time by the Nominating Committee); (ii) served as an
officer, steward, employee or staff representative of the Union or
any other labor organization which may at anytime represent any
Employees for collective bargaining purposes; (iii) served as an
Employee in an internal or external communications position with
Weirton; or (iv) is a spouse, parent, sibling or child of any
person described in (i) through (iii). Members of the Nomination
Committee may serve as long as they maintain their qualifications
for eligibility as stated in this paragraph.
(c) Members of the Nominating Committee shall be elected for three-
year terms as a result of an election held during the fourth
quarter of the Plan Year preceding the Plan Year in which their
terms are to commence; provided, however, that the first term of
office shall extend from the election first following the adoption
of the provisions of this Section until the January 1st of the
calendar year preceding the year when the first term of office of
the first ESOP Director, as defined in the aforesaid Article FIFTH,
is scheduled to expire. In order to run as a candidate for the
Nominating Committee, a Participant must file with the Committee a
petition on a form prescribed by the Committee, which petition must
be filed when required by the Committee. Each member of the
Nominating Committee shall be elected by Participants voting on a
one-participant/one-vote basis with each Participant having one
vote per Category. Each member from Categories I, II and III shall
be elected by a plurality vote and, with respect to Category IV,
the individual receiving the plurality of votes and the next
highest number of votes shall be elected.
(d) Members of the Nominating Committee shall serve while they
remain qualified until their respective resignation, death or
removal and until their respective successors are elected. Any
vacancies in the Nominating Committee howsoever occurring between
regularly scheduled elections shall be filled by persons meeting
the qualifications of the Categories creating the vacancies by a
vote of the remaining members of the Nominating Committee, which
vote shall be not less than one vote fewer than unanimous. No
member of the nominating Committee may be removed during a term of
office except for cause. As used in the preceding sentence,
'cause' shall mean conduct with respect to the Plan of comparable
nature as to allow the removal of the member, if the member were
being removed as a director of Weirton.
(e) The function of the Nominating Committee shall be to search
for, screen, select, from time to time, one or more individuals to
serve on Weirton's Board of Directors as the ESOP Director in
accordance with the qualifications for ESOP Director set forth in
Weirton's Restated Certificate of incorporation and this Section.
The Nominating Committee shall endeavor to select candidates base
on its judgment of the ability of such candidates to represent the
best interests of Participants as stockholders of Weirton.
Participants shall have the right to submit suggested candidates to
the Nominating Committee for consideration. The selection of any
candidate as an ESOP Director shall be determined by the
affirmative vote of not less than 80% of the entire Nominating
Committee. The Nominating Committee shall complete the selection
processing in such time as so to certify the results of its
selection to Weirton's Board of Directors sufficiently in advance
to permit a candidate to be submitted for election by Weirton's
stockholders at each meeting at which an ESOP Director is to be
elected. The Nominating Committee shall have all other rights and
powers, consistent with law and this Plan, to carry out its duties,
including without limitation communicating with any incumbent ESOP
Director to facilitate that director' communication with
Participants. The Nominating Committee's actions shall be taken by
meetings duly called upon notice, convened and conducted in
accordance with rules adopted by the committee, which shall
include, in all events, that actions be taken in writing.
(f) The members of the Nominating Committee shall be covered to the
fullest extent permitted by applicable policies of insurance
maintained by Weirton or the Trustee on behalf of the Trust
covering fiduciaries under the Plan. All expenses incurred by the
Nominating Committee, and members duly authorized, reasonable and
necessary to perform their respective functions shall be paid for
in accordance with Section 7 to the extent not paid for by Weirton.
No member of the Nominating Committee shall receive any
remuneration for services as a member of the committee.
VII.Effective January 1, 1989, ARTICLE IV of Exhibit A is deleted
in ARTICLE V thereof redesignated as ARTICLE IV.
AMENDMENT
TO
WEIRTON STEEL CORPORATION 1989 EMPLOYEE STOCK OWNERSHIP PLAN
(Effective May 26, 1994, except as otherwise indicated)
I.The following terms shall be added to the Definitions in Section
2:
Nominating Committee.........The committee elected as provided in
Section 16A to nominate and certify to Weirton's Board of Directors
an ESOP Director pursuant to Weirton's Restated Certificate of
Incorporation.
Recontributed Share Property. Any (A) shares of Weirton
Stockconsisting of its Convertible Voting Preferred Stock, Series
A, which (i) at any time had been held in the Trust, (ii)had been
acquired subsequently by Weirton pursuant to Weirton's exercise of
its rights under Section 14(a) of the Plan or the exercise of
rights by or on behalf of a Participant under Section 14(b) and
(iii) are being contributed to the Trust by Weirton from its
treasury not as Financed Shares, and (B) all cash or other property
contributed with Weirton Stock identified in (A) which reflects
dividends or other rights accompanying such stock.
II. Effective February 15, 1991 and January 1, 1994, the
definition of 'compensation' in Section 2 is amended to read as
follows:
The total cash compensation paid to an Employee by Weirton in each
Plan Year, as reported on IRS Form W-2 (Excluding for purposes of
Plan any amount received during an individual's probationary period
following his initial employment with Weirton), plus any amounts
paid to an Employee by Weirton under a sickness and accident
program or salary continuation program as includible in such
Employee's gross income under Section 104(a)(3) of the Code, and
for periods on and after February 15, 1991, any reductions from an
Employee's compensation under Weirton's Tax Deferred Savings Plan;
provided, however, that (i) for the 1989-1993 Plan Years, only the
first $200,000 (or such greater amount as determined by the
Internal Revenue Service), and (ii) for the 1994 and subsequent
Plan Years, only the first $150,000 (or such greater amount as
determined by the Internal Revenue Service), of an Employee's
Compensation may be taken into account for purposes of the Plan.
III.Section 3(c) shall be amended to read as follows:
(c) Participation in the Plan shall continue until such
participation terminates following the Participant's Retirement,
death or other Termination of Service, as provided in Section
12(a). A Participant is entitled to share in the allocations of
Plan Contributions (other than Plan Contributions of Recontributed
Share Property) under Section 6(a) for each Plan Year in which he
is credited with at least one Hour of Service while a Participant.
A Participant is entitled to share in allocations of Plan
Contributions consisting of Recontributed Share Property under
Section 6(a) for each Plan Year in which he is credited with at
least one Hour of Service while a Participant and has Compensation
of at least $1,000.
IV. A new Section 4(d) shall be added to read in its entirety as
follows:
(d) Plan Contributions of Recontributed Share Property shall be
made pursuant to this Section 4(d). For each Plan Year, Weirton
shall determine the total number of shares of Weirton Stock
constituting Recontributed Share Property held by it (or subject to
its disposition) as at such year end ('Available Shares') and the
total number of Participants who are eligible pursuant to Section
3(c) to receive allocations of Plan Contributions consisting of
Recontributed Share Property ('Total Eligible Participants').
Weirton shall contribute to the Trustee as Plan Contributions for
such Plan Year all shares of Weirton Stock (and any other related
property constituting Recontributed Share Property) as equals the
largest whole number multiple of the Total Eligible Participants
not in excess of the aforesaid total number of Available Shares.
Any shares not contributed for a Plan Year will be carried forward
as allowed pursuant to the operation of the prior two sentences.
V.Section 6(a) shall be amended to read as follows:
(a) Allocation of Plan Contributions - Plan Contributions under
Section 4(a), other than relating to Recontributed Share Property,
for each Plan Year will be allocated as of the Anniversary Date
among the Weirton Stock Accounts and Cash Accounts of Participants
so entitled under Section 3(c) in the ratio that the Compensation
of each Participant (while a Participant) bears to the total
Compensation of all such Participants (while Participants) for that
Plan Year. Plan Contributions consisting of Recontributed Share
Property will be allocated as of the Anniversary date among the
Weirton Stock Accounts and Cash Accounts (to the extent any cash in
respect of Recontributed Share Property is received) of
Participants so entitled under Section 3(c) on an equal basis per
capita among all Participants so entitled.
VI.Effective January 1, 1993, Section 13(f) is amended to read as
follows:
(f)Notwithstanding the foregoing provisions of this Section:
(i) For any distribution of benefits under this Section to any
Participant or Beneficiary which constitutes an eligible rollover
distribution (as defined in Code Section 402(f)(2)(a)), if such
distributee so elects in such manner and at such time as the
Committee determines in accordance with Federal income tax
regulations, the Committee shall direct the Trustee to pay the
amount of such distribution in a direct trust-to-trust transfer to
an eligible retirement plan (as defined in Code Section
401(a)(31)(D)) designated by such distributee; and
(ii) For any distribution of benefits under this Section to any
Participant or Beneficiary which does not constitute an eligible
rollover distribution, the Committee shall direct the Trustee to
comply with the applicable withholding requirements of Section 3405
of the Code with respect to the distribution of cash from the
Trust.
VII.A new Section 16A shall be added to read in its entirety as
follows:
(a) A Nominating Committee, which committee is the 'ESOP Nominating
Committee' referred to in Article FIFTH of Weirton's Restated
Certificate of Incorporation, shall be maintained under the
provisions of this Plan. The Nominating Committee is the identical
Committee required to be maintained pursuant to Section 16A of the
1984 ESOP. Any change with respect to the Nominating Committee
made under this Plan likewise shall be required to be made under
the 1984 ESOP. The composition, duties and other functions of the
Nominating Committee shall be as set forth therein. Any other
matter affecting the conduct of the Nominating Committee which is
not set forth in the Plan and otherwise is not inconsistent with
the terms of the Plan or law may be the subject of a resolution or
rule of the Nominating Committee adopted by majority vote of its
respective members and will not, as such, be deemed an amendment of
the Plan.
(b) The Nominating Committee shall consist of five (5) members, all
of whom shall be Participants either under this Plan or the 1984
ESOP, or both, and all of whom shall be elected by popular vote of
the Participants as set forth herein. The members of the
Nominating Committee shall be elected from among the following
categories: (i) Category I - 'Represented Active Employees' - one
(1) members; (ii) Category II - 'Non-Represented Active Employees'
- - one (1) member; (iii) Category III - 'former Employees' - one
(1)member; and (iv) Category IV - 'At-large' - two (2) members. As
used in the preceding sentence, the Category: (A) 'Represented
active Employees' shall include, as defined elsewhere in this Plan,
all Employees who (x) received Compensation for the performance of
services during the Plan Years immediately preceding and including
their election to the Nominating Committee, (y) at time of election
had not incurred a Termination of Service and (z) are members of
the Union or are otherwise covered by the provisions of a
collective bargaining agreement between Weirton and the Union or
another collective bargaining agent: (B) 'Non-Represented Active
Employees' shall include, as defined elsewhere in this Plan, all
Employees included in (x) and (y) of the preceding clause (A), but
not (z); (C) 'Former Employees' shall include, as defined elsewhere
in this Plan, all Employees who are Participants who have incurred
a Termination of Service at the time any determination regarding
this Category is made; and (D) 'At-large' shall include all
Participants in the Plan regardless of whether they are included in
any other Category.
No member of the Nominating Committee may serve on the committee as
an elected representative from more than one Category at the same
time. Each member of the Nominating Committee from Categories I,
II and III shall be a person included in the definition of the
Category from which he or she is elected; provided, that no
participant who holds or has held a 'Disqualifying Position' shall
be eligible to be a member. The term 'Disqualifying Position'
shall include anyone who has ever: (i) been employed by Weirton in
an executive management capacity (which shall include Job Class 56
or higher, or any successor equivalent status as determined from
time to time by the Nominating Committee); (ii) served as an
officer, steward, employee or staff representative of the Union or
any other labor organization which may at anytime represent any
Employees for collective bargaining purposes; (iii) served as an
Employee in an internal or external communications position with
Weirton; or (iv) is a spouse, parent, sibling or child of any
person described in (i) through (iii). Members of the Nomination
Committee may serve as long as they maintain their qualifications
for eligibility as stated in this paragraph.
(c) Members of the Nominating Committee shall be elected for three-
year terms as a result of an election held during the fourth
quarter of the Plan Year preceding the Plan Year in which their
terms are to commence; provided, however, that the first term of
office shall extend from the election first following the adoption
of the provisions of this Section until the January 1st of the
calendar year preceding the year when the first term of office of
the first ESOP Director, as defined in the aforesaid Article FIFTH,
is scheduled to expire. In order to run as a candidate for the
Nominating Committee, a Participant must file with the Committee a
petition on a form prescribed by the Committee, which petition must
be filed when required by the Committee. Each member of the
Nominating Committee shall be elected by Participants voting on a
one-participant/one-vote basis with each Participant having one
vote per Category. Each member from Categories I, II and III shall
be elected by a plurality vote and, with respect to Category IV,
the individual receiving the plurality of votes and the next
highest number of votes shall be elected.
(d) Members of the Nominating Committee shall serve while they
remain qualified until their respective resignation, death or
removal and until their respective successors are elected. Any
vacancies in the Nominating Committee howsoever occurring between
regularly scheduled elections shall be filled by persons meeting
the qualifications of the Categories creating the vacancies by a
vote of the remaining members of the Nominating Committee, which
vote shall be not less than one vote fewer than unanimous. No
member of the nominating Committee may be removed during a term of
office except for cause. As used in the preceding sentence,
'cause' shall mean conduct with respect to the Plan of comparable
nature as to allow the removal of the member, if the member were
being removed as a director of Weirton.
(e) The function of the Nominating Committee shall be to search
for, screen, select, from time to time, one or more individuals to
serve on Weirton's Board of Directors as the ESOP Director in
accordance with the qualifications for ESOP Director set forth in
Weirton's Restated Certificate of incorporation and this Section.
The Nominating Committee shall endeavor to select candidates base
on its judgment of the ability of such candidates to represent the
best interests of Participants as stockholders of Weirton.
Participants shall have the right to submit suggested candidates to
the Nominating Committee for consideration. The selection of any
candidate as an ESOP Director shall be determined by the
affirmative vote of not less than 80% of the entire Nominating
Committee. The Nominating Committee shall complete the selection
processing in such time as so to certify the results of its
selection to Weirton's Board of Directors sufficiently in advance
to permit a candidate to be submitted for election by Weirton's
stockholders at each meeting at which an ESOP Director is to be
elected. The Nominating Committee shall have all other rights and
powers, consistent with law and this Plan, to carry out its duties,
including without limitation communicating with any incumbent ESOP
Director to facilitate that director's communication with
Participants. The Nominating Committee's actions shall be taken by
meetings duly called upon notice, convened and conducted in
accordance with rules adopted by the committee, which shall
include, in all events, that actions be taken in writing.
(f) The members of the Nominating Committee shall be covered to the
fullest extent permitted by applicable policies of insurance
maintained by Weirton or the Trustee on behalf of the Trust
covering fiduciaries under the Plan. All expenses incurred by the
Nominating Committee, and members duly authorized, reasonable and
necessary to perform their respective functions shall be paid for
in accordance with Section 7 to the extent not paid for by Weirton.
No member of the Nominating Committee shall receive any
remuneration for services as a member of the committee.
VIII.Effective January 1, 1989, ARTICLE IV of Exhibit A is deleted
in ARTICLE V thereof redesignated as ARTICLE IV.
Weirton Steel Corporation 1995 Annual Report Exhibit 13.1
- --------------------------------------------
Weirton Steel Corporation
400 Three Springs Drive
Weirton, WV 26062-4989
(304) 797-2000
The Corporation
Weirton Steel Corporation, a major integrated steel producer, was
formed in 1982 for the purpose of acquiring the assets of the
Weirton Steel Division of National Steel Corporation. On January
11, 1984, the Company completed the acquisition in a transaction
financed through an Employee Stock Ownership Plan. The Company and
its predecessors have operated as an integrated steel producer in
the Weirton, West Virginia, area since 1909. All operating units
are situated at the Weirton location and have an annual raw steel
production capacity of approximately 3 million tons. The Company
produces flat rolled carbon steels in sheet and strip form. These
products are sold chiefly as hot rolled, cold rolled or coated
products, including hot dipped and electro-galvanized steels and
tin mill products. Food and beverage cans, general packaging, pipe
and tube, service centers, construction and shipping containers are
the major market sectors supplied by the Company.
Product development and manufacturing process research is conducted
at the Weirton Technology Center (WEIRTEC registered trademark) in
Weirton, West Virginia.
Weirton's common stock is listed and traded on the New York Stock
Exchange under the symbol WS.
About the Cover
The 'SERV#1CE' symbol was designed after Weirton Steel, in 1995,
was ranked best in customer service in a nationwide survey of steel
buyers. The symbol also means that service is a strategic priority
at Weirton. It is helping us to win orders in today's more
demanding steel market, where many customers prefer suppliers who
will work with them in areas such as inventory control and
technical support. The story of how Weirton uses service for
competitive advantage begins on page 5.
Contents
Financial and Operating Highlights 1
Letter from the President and CEO 2
Special Section 5
Financial Index 14
Board of Directors and Officers 45
Stockholder Information 45
<TABLE>
<CAPTION>
Financial and Operating Highlights
(Dollars in thousands) 1995 1994
<S> <C> <C>
Net sales $1,351,711 $1,260,864
Operating income 99,843 48,534
Extraordinary item (6,718) (3,851)
Net income 48,356 35,161
Working capital 340,303 258,459
Working capital ratio 2.3:1 2.0:1
Long term debt 407,869 394,505
Number of common shares
outstanding at year end 42,014,115 41,654,065
Number of preferred
shares outstanding
at year end 1,729,442 1,766,639
Capital expenditures(1) 52,358 112,067
Depreciation 54,699 46,309
Tons raw steel produced 2,838,800 2,721,600
Tons steel shipped 2,718,000 2,606,200
Number of employees
at year end 5,627 5,565
<FN>
(1) Includes expenditures of $2.9 million and $74.6 million in 1995
and 1994, respectively, for the rebuild of No. 9 tandem mill due to
fire damage.
</TABLE>
Letter to Shareholders
I am pleased to write to you for the first time in my capacity as
Chief Executive Officer of Weirton Steel.
The year 1995 was a year of significant achievement at the Company.
We started the year at a great disadvantage, largely as a result of
the damage caused by the 1994 fire at our No. 9 tandem mill, where
the majority of coils for our tin mill products are produced.
Nevertheless, the tireless efforts of everyone associated with the
rebuild of that mill helped us to recover our lost tin mill
production and to post satisfactory results for the year.
Net income for 1995 was $48.4 million, or $1.10 per common share,
versus $35.2 million, or $0.95 per common share in 1994. These
results were driven by revenues of $1,351.7 million, 7.2% more than
in 1994, and overall shipments of 2,718,000 tons, a slight increase
over 1994, when we shipped 2,606,200 tons. Profitability also
benefited from insurance recoveries related to the fire.
Despite our positive performance in 1995, we must not lose sight of
the fact that the steel industry operates in a commodity-driven,
fiercely competitive global market. In order for Weirton to succeed
in this environment, it is crucial that we adhere to a strategy
that will help us remain competitive far into the future.
In that strategy, Weirton must be a global provider of integrated
steel products; it must exploit its competitive advantages, strive
to be the low-cost producer in the industry and develop new
products and markets. Moreover, all of this must be done while
providing the highest level of service to our customers. This won't
be easy. The marketplace in which we compete requires us to remain
totally focused upon and committed to constant improvements in
operations and market reach.
In 1995 there were numerous developments that will contribute to
the successful implementation of our strategy:
Our on-time delivery performance improved significantly and
was higher than it has ever been, increasing by 44%; and Weirton
was ranked number one in service by the 1995 Steel Customer
Satisfaction Report. In recognition of this outstanding track
record, the Company's order rate was at a high level throughout
1995 and promises to remain at that level well into 1996.
We continued to gain market share in tin mill products. Our
share at the end of 1995 was close to historic levels, a dramatic
improvement over where we were at the end of 1994 as a result of
the fire at the No. 9 tandem mill. We believe that we will continue
to gain additional market share in 1996 in tin mill products. The
rapid progress that Weirton has made in this area is a testament to
our customers' high regard for our tin mill products.
Our mills operated at maximum productivity and efficiency in 1995,
setting records for yields in all product areas. A record level of
prime shipments was attained in 1995, accompanied by production
records at the blast furnaces, continuous caster, and the hot strip
mill.
Exports were higher in 1995 than at any other time in our history.
We consider globalization to be crucial to maintaining and
expanding our competitiveness in the steel industry. As such, we
have sought to establish a presence and valuable partnerships in
selected areas throughout the world with the objective of expanding
the marketing of our products and the sourcing of materials for our
operations.
The solid foundation that we have today at Weirton was developed
under the strong guidance of Herb Elish, who retired as Chairman
and Chief Executive Officer on December 31, 1995. During his
eight-year tenure, Herb oversaw the modernization of Weirton into
a leading integrated steel producer. On behalf of everyone
associated with Weirton, I would like to thank Herb for his
commitment to and leadership of the Company.
On January 25, 1996, the Company announced that Richard R. Burt,
Chairman of International Equity Partners, LLP, will become
Chairman of the Board of Directors on April 1, 1996.
Weirton's Board also elected three other new directors in 1995:
Ronald C. Whitaker, President and CEO of EWI, Incorporated; Robert
S. Reitman, Chairman, President and CEO of The Tranzonic Companies;
and Joseph J. Nowak, former Vice Chairman of Armco Incorporated.
Each of these individuals brings a new perspective and dimension of
experience to Weirton.
I look forward to working with Weirton employees to ensure that
Weirton Steel will continue to thrive at this promising, yet
challenging, time in our existence.
Increasing shareholder value is generally recognized as one of the
most significant corporate objectives. I want to assure all
shareholders of this Company that the focus of this management team
will be to increase total shareholder value, and we will work to
this end each and every day.
Richard K. Riederer
President and Chief Executive Officer
March 4, 1996
The Road to the Top
At a time when customer service has become a key source of
competitive advantage in the steel industry, Weirton Steel is
emerging as a service leader. Weirton was ranked number one in
service in the 1995 Steel Customer Satisfaction Report published by
Jacobson & Associates. Our 97% satisfaction rating was four points
above any other integrated producer, and 13 points above the
largest minimill. The nearly 900 steel buyers in the Jacobson
survey also said that service weighs heavily in the buying
decision, almost as much as quality. Weirton received good marks in
this area as well. But the customer votes that really mattered were
the ones showing up on the Weirton order books. In 1995, Weirton
set a new company record for prime shipments. We grew our accounts
with many large customers and won long-term contracts for the
future. And what swung the deal, in many cases, was our ability to
provide services such as technical support and flexible, responsive
delivery. Smart buyers no longer chase the lowest price per ton.
They seek a 'total package' of product and services that will add
value to their own products and help them control their total cost
of using steel. John Jacobson, the consultant whose firm did the
1995 survey, predicts that 'incremental profit opportunities will
be greatest' for suppliers perceived as offering such a package.
Thus, while Weirton continues to cut costs, the big news is how we
are differentiating ourselves with services that customers value
highly. In today's steel industry, this is a major route to
shareholder value.
Technology Where It Counts
Customers today put steel through paces not dreamed of in the past,
cutting and forming precise shapes at lightning speeds. A slight
change in the properties of the steel, or a slight adjustment to a
machine, can make a production line sing or scream to a halt.
Technical support is crucial, and Weirton excels in several areas.
We respond rapidly: When a canmaker's line went down last fall, we
put a team of four specialists on a plane overnight to solve the
problem. We are proactive: At Ball Corporation, quality supervisor
Dave Maple talks of the many production problems 'that never
happened because Weirton reps were in here catching them early.' At
our own mill, we use the new computer-based IMIS (Integrated
Manufacturing Information System) and are adding L&IS (Logistics &
Integrated Scheduling) systems to manage order flow, reduce lead
times, and ensure on-time deliveries. Our WEIRTEC research center
is a laboratory for customers' new products. Canmakers use our FEA
(Finite Element Analysis) software to predict the behavior of tin
mill products in complex shapes, then employ our pilot can lines
and tooling to hone the production process. Technology-based
service is a competitive advantage that does not require major
investment. The objective is to apply technology in ways that make
a quantifiable difference for customers.
What Steel Buyers Want
'Of all the sales reps who called on us, only one came in here and
talked about width and gauge control. We thought, 'This guy really
knows our mill,' says Ted Grodhaus, Vice President for Pipe
Products at Skyline Steel Corporation in Atlanta. The rep was
Weirton's Ron Zumer. Skyline a major new maker of spiralweld pipe
now buys over 40% of its carbon plate from Weirton. 'Service
starts with the opening exchanges of the first conversation,'
confirms Bill Cooper, Director of Customer Assurance and Technical
Services at Weirton. He adds, 'We're not just selling a product.
We're selling a mix of our product and the customers' processes.'
Service is the art of making that mix work. It means not just
broadly promising 'quality' steel, but knowing which aspects of
quality need to be emphasized in each case (such as width and gauge
for spiralweld pipe). It means not just boasting of on-time
delivery percentages, but delivering in a pinch. It means not just
providing day-to-day technical service, but working with customers
to develop new applications for steel. Service at Weirton is a
company-wide effort to assure that our steel performs for those who
use it.
Building Long-Term Relationships
In 1995, Weirton and a processing partner won a new three-year
contract to supply 100% of the tin plate for a large oil filter
plant. Here in Weirton, where eight long-time customers have
plants, we signed a one-year contract to supply 60% of the hot
rolled steel used by the Signode plant up from 20% in the past.
Quarterly and spot orders from other major customers ran high
despite strong competition from foreign mills and minimills.
'Service is what builds these relationships and keeps them tight,'
says Carl Chiarenza, General Manager for Product Sales and Service
at Weirton. Responsive delivery and timely order
status are key service items in an age when customers are cutting
inventories and cycle times. At Wheatland Tube Company in Sharon,
Pa., Purchasing Director Bill Rodemoyer says, 'We try to maintain
a flexible, fluid operation, and we know that Weirton will bend
over backward to get us the steel we need at any time.' Rodemoyer
also likes our technical support because technical reps visit
Wheatland for monthly quality reviews. Weirton mill operators
exchange tips with the shop floor at Wheatland. Weirton sales reps
'know their stuff,' Rodemoyer says. His bottom line on us:
'Whatever you need, they'll jump right on it. You can go home at
night feeling good.'
Targeting Growth Markets
'We are reversing the old trend,' says Len Jenkins, Director of the
WEIRTEC R&D center. 'For years other materials displaced steel; now
you will see steel displacing other materials.' Jenkins passes
around one of our new steel beverage cans. It feels as light as an
aluminum can. It has been lightweighted to 22 grams, which should
give it a distinct cost advantage over aluminum. Steel supplies
about half of the beverage can market in Europe, and Jenkins -
recruited to WEIRTEC three years ago from England's Metal Box PLC
- - thinks steel will be a serious competitor in the U.S. beverage
can market. Talks are under way with major canmakers and soft drink
firms to bring the new can to market. Weirton is partnering with
customers and end-users to successfully market many new products,
from specialty containers and coated steels to value-added products
for residential construction. These developments fit in well with
Weirton's growth strategy. Jim Bruhn, Executive Vice
President-Commercial at Weirton, describes the strategy as follows:
'Identify the market segments and customers we want to serve over
the long run, then form alliances with those people and with their
customers. Provide delivery, quality, new applications all the
things that create value at every step downstream. In short we will
grow as a high-value, service-oriented provider, as distinct from
a commodity supplier.'
Financial Contents
Management's Discussion and Analysis 15
Consolidated Statements of Income 21
Consolidated Balance Sheets 22
Consolidated Statements of Cash Flows 23
Statements of Changes
in Stockholders' Equity 24
Notes to Consolidated Financial Statements 26
Management Responsibility Statement 43
Report of Independent Public Accountants 43
Selected Financial and Statistical Data 44
Board of Directors and Officers 45
Stockholder Information 45
Management's Discussion and Analysis
Weirton Steel Corporation
of Financial condition and Results of Operations
BACKGROUND
This discussion and analysis of Weirton Steel Corporation's (the
'Company') financial condition and results of operations should be
read together with the consolidated financial statements and notes
thereto, which begin on page 21.
The Company is a major integrated producer of flat rolled carbon
steels with major product lines consisting of sheet and tin mill
products. Sheet products include hot and cold rolled and both
hot-dipped and electrolytic galvanized steels. Tin mill products
include tinplate, chrome coated and black plate.
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 rolling facility had
traditionally supplied approximately 70% to 80% of the coils
required by the Company's tin and chrome plating operations. The
Company began rebuilding and repair operations immediately to
restore the No. 9 Tandem. Startup operations began early in the
fourth quarter of 1994 and the Company resumed normal operations in
late 1994. While the No. 9 Tandem was out of service during 1994,
the Company increased the cold rolling output of its remaining
facilities. The Company also compensated for the reduction in cold
rolling capacity by increasing its sales of hot rolled products,
however; that product line generally provides lower profit margins
than more highly processed products such as tin and chrome plate.
RESULTS OF OPERATIONS
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.
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. The Company settled its claims related to the No. 9 Tandem
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.
Following the fire that damaged the No. 9 Tandem, the Company
adjusted its production during the balance of 1994 to a product mix
more heavily comprised of hot rolled and coated sheet products,
while tin mill product shipments were decreased significantly. The
shift from tin mill products to sheet products resulted in the
realization of lower average selling prices during the period in
which the No. 9 Tandem was not in service. Average selling price
per ton in 1995 improved, as the Company resumed normal operations
and achieved a more traditional product mix, which contributed
$16.7 million in higher revenues in 1995 compared to 1994.
The resumption of the Company's normal operating configuration in
1995 had a significant effect on its volume of shipments, 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 and
included the highest level of prime product shipments in the
Company's history.
Sheet product shipments decreased 36 thousand tons from 1994 to
1,955 thousand tons in 1995. Revenue generated by sheet products in
1995 was $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 were exported compared to nominal
amounts in prior years.
In the second quarter of 1994, in spite of the No. 9 Tandem outage,
the Company was able to fill a majority of its orders for its tin
mill product customers from inventory on hand. However, during the
second half of 1994 the No. 9 Tandem remained out of service and
the Company, as expected, lost a portion of its share of the tin
mill products market. The Company's expectations were that it would
regain its share of the market over a relatively short period of
time following the No. 9 Tandem's return to full operations in the
first quarter of 1995. Severe weather conditions however, caused
the late planting of major food crops in the midwestern states and
consequently, the demand for tin mill products to soften in the
second quarter of 1995. As a result, the pace at which the
Company's share of tin mill products recovered was slower than
expected and, although 24.1% higher than in 1994, shipments in 1995
did not reach the level experienced in 1993, the last full year
prior to the No. 9 Tandem outage. Revenues from tin mill products
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 revenues in 1995
compared to 1994.
As a result of the increase in tin mill product shipments and
selling prices, offset by lowered sheet product shipments caused by
the resumption of a more normal operating configuration, total
revenues 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 tin mill
products.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Cost of sales $1,180,053 $1,136,936
Shipments in tons 2,718,000 2,606,200
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. Capitalized spending for the No. 9
Tandem 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.
In June 1995, the Company sold $125.0 million of its 10-3/4% Senior
Notes due 2005. 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% Senior Notes and $82.0 million
principal amount of its 10-7/8% Senior 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. 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 carryforwards, 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 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. Notwithstanding the
disruption to the Company's operations caused by the fire, revenues
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 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 revenues. Product mix changes
added $17.9 million, bringing the increase in total sheet product
revenues to $228.5 million for 1994 over 1993.
In 1994, the Company shipped 615 thousand tons of tin mill
products, a decrease of 279 thousand tons, or 31.2%, compared to
1993, reflecting the impact of the outage of the No. 9 Tandem. This
caused total tin mill product revenues 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 revenues 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>
(Dollars in thousands) 1994 1993
<S> <C> <C>
Cost of sales $1,136,936 $1,105,558
Shipments in tons 2,606,200 2,430,600
Cost of sales per ton $ 436 $ 455
======== ========
</TABLE>
Depreciation expense decreased $2.8 million to $46.3 million in
1994 from $49.1 million in 1993. This change reflected a reduction
in blast furnace depreciation on the variable units of production
method due to the extended life (before relining) of the existing
furnaces, which had been fully reserved through early 1994. The
Company's accounting policy recognizes depreciation on production
equipment on a production-variable method which adjusts
straight-line depreciation to reflect actual production levels.
Interest expense decreased 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 of its 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% Senior Notes.
The income tax provision recognized in 1994 resulted from the
utilization of regular federal net operating loss carryforwards, a
reduction of net deferred deductible temporary differences and a
current provision for alternative minimum tax. The 1994 provision
was offset by favorable adjustments to the carrying value of the
Company's net deferred tax assets. The income tax benefit
recognized in 1993 reflected principally the net realizable value
of additional net operating losses generated during 1993 and net
deferred tax asset carrying value adjustments related primarily to
a change in the federal statutory rate.
In 1993, the Company adopted Statement of Financial Accounting
Standards ('SFAS') No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions'; SFAS No. 112,
'Employers' Accounting for Postemployment Benefits'; and SFAS No.
109, 'Accounting for Income Taxes.' The change in accounting under
SFAS No. 106 required the Company to recognize a pretax charge of
$304.0 million to account for the prior service cost 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 $128.2 million,
representing the cumulative effect of the accounting change for
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1995, the Company had $131.8 million of cash and cash
equivalents compared with $62.9 million at year-end 1994. During
1995, the Company completed a private sale of $125.0 million
principal amount of 10-3/4% Senior 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 the 11-1/2% Senior Notes and $82.0 million principal amount of
the 10-7/8% Senior Notes. The Company exchanged these notes for
substantially identical notes which were registered under the
Securities Act of 1933.
In addition, during 1995, the Company received approximately $53.0
million related to the settlement of insurance claims.
The Company's capitalization includes three main elements: long
term debt obligations, redeemable stock and stockholders' equity as
shown below as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Dec. 31, % of Dec. 31, % of
(Dollars in millions) 1995 Total 1994 Total
<S> <C> <C> <C> <C>
Long term debt obligations $407.9 65% $394.5 70%
Redeemable stock 15.9 3 14.5 3
Stockholders' equity 198.6 32 149.2 27
Total capitalization $622.4 100% $558.2 100%
===== === ===== ====
</TABLE>
The Company's improvement in its total capitalization and its debt
to total capitalization percentage from 1994 to 1995 was primarily
due to the net income generated in 1995.
The Company has in place, through a subsidiary, a receivables
participation agreement with a group of four banks. The facility,
which is AAA rated by Standard & Poor's, 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 agreement, as
amended, makes the facility available to the Company through April
2000. While no funded participation interests had been sold under
the facility as of December 31, 1995, $4.0 million in letters of
credit under the subfacility were outstanding. Based upon the
Company's available cash on hand as of December 31, 1995, 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 the subsidiary to sell participation interests to the banks
in the near term. As of December 31, 1995, after reductions for
amounts in place under the letter of credit subfacility, the base
amount available for cash sale was approximately $71.6 million.
Additionally, the Company has no scheduled debt repayment until
1998 when its 11-1/2% Senior Notes become due.
The Company had net deferred tax assets, excluding the valuation
allowance, which totaled $166.4 million as of December 31, 1995,
and represented net operating loss carryforwards and other tax
credits and net deductible temporary differences, all of which the
Company believes can be used to reduce the Company's cash
requirements for the payment of future federal regular income tax.
The Company 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.
INVESTMENT IN FACILITIES
Excluding the cost to rebuild the No. 9 Tandem, capital spending
was approximately $49.4 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.
The Company anticipates its spending for capital improvements in
1996 will be approximately $84.6 million, including spending toward
a major blast furnace reline that was rescheduled from 1995 to
1996-1997. Other planned capital improvement expenditures for 1996
include approximately $6.6 million for tin mill plating lines and
approximately $7.7 million for environmental control. At present,
cash provided from operating activities, together with cash on
hand, is expected to be sufficient to fund the capital budget and
meet any near term working capital requirements. To the extent that
near term operating activities do not generate an adequate amount
of cash, the Company expects that any cash requirements for capital
improvements would be financed from its receivables participation
agreement.
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. During the last five
years, the Company has spent approximately $11.2 million for
pollution control capital projects and expects to spend $7.7
million for such projects in 1996.
Pursuant to agreements entered into by the Company and National
Steel Corporation ('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 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 '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. The Company has also met with representatives of the EPA
regarding the alleged violations and the Company's environmental
compliance as to water, air and waste-related issues. No multimedia
enforcement action has been commenced against the Company. At this
time, the Company cannot assess the likely outcome of these
matters, but believes that any fines and penalties would not be
material to its financial position or 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 cost in the future. Since the
effects 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.
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 asset. SFAS No.
121 also addresses the accounting for long-lived assets that are
expected to be disposed of in future periods.
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 disclosures
which in effect restate a company's results for comparative periods
as if the new method of accounting had been adopted.
The Company will be subject to the provisions of SFAS No. 121 and
SFAS No. 123 in 1996. The Company does not believe that the
adoption of either of these accounting pronouncements will have a
material effect on its financial position or results of operations.
<TABLE>
<CAPTION>
CONSOLIDATED Statements of Income
Weirton Steel Corporation
Year Ended December 31,
(Dollars in thousands,
except per share data) 1995 1994 1993
<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)
======= ======== =======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Weirton Steel Corporation
December 31,
(Dollars in thousands,
except per share data) 1995 1994
ASSETS:
Current assets:
<S> <C> <C>
Cash and equivalents, includes
restricted cash of $1,373
and $1,329, respectively $131,811 $62,905
Receivables, less allowances
$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
and1,800,000 shares
authorized; 1,769,865 and
1,787,688shares 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
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Weirton Steel Corporation
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
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 extin-
guishment 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
======== ======= =======
<FN>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of
interest capitalized 44,416 52,091 47,311
Income taxes paid
(refunded) 10,593 - (1,779)
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
WEIRTON STEEL CORPORATION
(Dollars in thousands, except per share data)
Common Stock Additional
Shares Amount Paid in capital
<S> <C> <C> <C>
Stockholders' Equity as of
December 31, 1992 26,419,705 $264 $334,834
Net loss - - -
Purchase of treasury stock - - -
Conversion of preferred stock - - -
Reclassification of preferred
Series A not subject to put - - -
Employee stock purchase plan:
Shares issued 300,047 3 942
Shares issuable - - -
Board of Directors deferred
compensation plan:
Shares issued - - -
Shares issuable - - -
Dividends payable ($6.25 per
preferred share, Series B) - - -
- ---------------------------------------------------------------
Stockholders' Equity Consol-
idated as of December 31, 1993 26,719,752 267 335,776
Net income - - -
Issuance of common stock 15,000,000 150 115,937
Conversion of preferred stock - - -
Reclassification of preferred
Series A not subject to put - - -
Employee stock purchase plan:
Shares issued 299,971 3 1,009
Shares issuable - - -
Board of Directors deferred
compensation plan:
Shares issued - - -
Shares issuable - - -
Dividends payable ($4.6875
per preferred share,Series B) - - -
- --------------------------------------------------------------
Stockholders' Equity Consol-
idated as of December 31, 1994 42,027,405 420 452,746
Net income - - -
Conversion of preferred stock 22,453 1 74
Reclassification of preferred
Series A not subject to put - - -
Employee stock purchase plan:
Shares issued 240,086 2 1,348
Shares issuable - - -
Board of Directors deferred
compensation plan:
Shares issued - - 29
Shares issuable - - -
- --------------------------------------------------------------
Stockholders' Equity Consol-
idated as of December 31, 1995 42,289,944 $423 $454,197
</TABLE>
<TABLE>
<CAPTION>
Preferred
Common Shares Retained Common Series A Stockholders'
Issuable Earnings Treasury stk Not ST put Equity
Shares Amount (Deficit) Shares Amt Shares Amt
- ------ ------ -------- ------ ---- ------ ---- ---------
<C> <C> <C> <C> <C> <C> <C> <C>
365,421 1,153 (104,165) 208,353 (825) 1,497 10 $231,271
- - (229,242) - - - - (229,242)
- - - 181,200 (1455) - - (1,455)
- - - (8,148) 65 - - 65
- - - - - 1,272 6 6
(300047) (945) - - - - - -
299,971 1,012 - - - - - 1,012
- - - - - - - -
31,704 107 - - - - - 107
- - (3,125) - - - - (3,125)
- -----------------------------------------------------------------
397,049 1,327 (336,532) 381,405 (2215) 2,769 16 (1,361)
- - 35,161 - - - - 35,161
- - - - - - - 116,087
- - - (8,065) 109 - - 109
- - - - - 9,543 71 71
(299971) (1012) - - - - - -
240,086 1,350 - - - - - 1,350
(7,682) (24) - - - - - -
18,558 106 - - - - - 106
- - (2,339) - - - - (2,339)
- ----------------------------------------------------------------
348,040 1,747 (303,710) 373,340 (2106) 12312 87 149,184
- - 48,356 - - - - 48,356
- - - - - (8546) (32) 43
- - - - - 1,308 19 19
(240086) (1350) - - - - - -
295,764 893 - - - - - 893
(107954) (253) - (97,511) 224 - - -
36,312 133 - - - - - 133
- ----------------------------------------------------------------
332,076 $1170 $(255,354) 275,829 (1882) 5,074 $74 $198,628
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WEIRTON STEEL CORPORATION
(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.
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.
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>
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.
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 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.
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
Actuarial present value of accumulated benefit obligation:
<S> <C> <C>
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>
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 levels 2% for 2% for 2% for
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 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>
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 For retirees who
have not yet are age 65
reached age 65 and older
1995 1994 1993 1995 1994 1993
Base medical cost trend:
<S> <C> <C> <C> <C> <C> <C>
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 11.8% 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.
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
Deferred tax assets:
<S> <C> <C>
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.
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
Current income tax
provision:
<S> <C> <C> <C>
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
</TABLE>
Other components of the Company's total income tax
(provision) benefit are allocated to the consolidated
statements of income as follows:
<TABLE>
<S> <C> <C> <C>
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>
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 benefit recognized by the Company in 1993
reconciles to that computed under the federal statutory corporate
rate as follows:
<TABLE>
<CAPTION>
Cumulative
Extra- Effect of
Loss Before ordinary Accounting
Income Taxes Item Changes Total
<S> <C> <C> <C> <C>
Federal income tax
benefit computed $ 19,095 $ 2,748 $149,450 $171,293
at statutory rate
of 34%
State income taxes
net of federal 2,248 324 17,582 20,154
income tax effect
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 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 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.
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 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 '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. The Company has also met with representatives of the EPA
regarding the alleged violations and the Company's environmental
compliance as to water, air and waste-related issues. No multimedia
enforcement action has been commenced against the Company. At this
time, the Company cannot assess the likely outcome of these
matters, but believes that any fines and penalties would not be
material to its financial position or 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.
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.
MANAGEMENT RESPONSIBILITY STATEMENT
WEIRTON STEEL CORPORATION
The accompanying consolidated financial statements of the Company
are the responsibility of its management and have been prepared in
conformity with generally accepted accounting principles.
The Company has a system of internal controls, including a Code of
Ethics, designed to provide reasonable assurance that assets are
safeguarded, financial statements are reliable and a high standard
of business conduct is maintained. Management monitors the system
for compliance, and internal auditors independently measure its
effectiveness.
The Company's independent public accountants, Arthur Andersen LLP,
audit its financial statements in accordance with generally
accepted auditing standards. The report of the independent public
accountants is included in this report.
The Board of Directors pursues its oversight role for the financial
statements through its Audit Committee. The Audit Committee
continued its practice of meeting quarterly to review the financial
affairs of the Company and to interface with the internal audit
staff and independent public accountants. Both the independent
public accountants and the internal auditors have full and free
access to the Audit Committee.
Management believes that the existing system of internal controls,
the independent audit and the Audit Committee provide reasonable
assurance that the Company's financial accounting system adequately
maintains accountability for assets, assures the integrity of
financial statements and maintains its commitment to a high
standard of business conduct.
/s/Richard K. Riederer
Richard K. Riederer
President, Chief Executive Officer
/s/Earl E. Davis, Jr.
Earl E. Davis, Jr.
Vice President - Finance &
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Weirton Steel Corporation:
We have audited the accompanying consolidated balance sheets of
Weirton Steel Corporation (a Delaware corporation) and subsidiary
as of December 31, 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.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 22, 1996
SELECTED FINANCIAL AND STATISTICAL DATA
WEIRTON STEEL CORPORATION
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales 1,352 1,261 1,201 1,079 1,036
Operating expenses 1,252 1,212 1,204 1,079 1,083
Depreciation 55 46 49 39 34
Taxes on income 13.3 7.5 (13.3) (4.8) (4)
Profit sharing 24.2 17.6 - - -
Contribution to ESOP 3 3 3 3 3
Net income (loss) 48.4 35.2 (229.2) (31.8) (74.7)
Net income (loss)
per common share 1.10 0.95 (8.78) (1.40) (3.49)
Total assets 1,314 1,231 1,241 1,005 1,038
Additions to property
plant and equipment 52 112 14 45 114
Long term debt 408 395 495 491 503
Redeemable preferred
stock, net 16 14 37 34 31
Working capital 340 256 262 238 273
Cash dividends declared
per common share - - - - -
Number of common shares
outstanding at year end
(in thousands) 42014 41654 26338 26211 24013
Number of preferred
shares outstanding at
year end (in thousands) 1729 1767 2282 2296 2298
Stockholders' equity
(deficit) 199 149 (1) 231 257
Stockholders' equity
(deficit) per common
share 4.73 3.57 (.05) 8.82 10.72
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
(unaudited)
(Dollars in millions, except per share data)
Quarterly periods in 1995
4th 3rd 2nd 1st
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $337 $341 $319 $355
Gross profit 34 37 45 56
Operating profit 14 10 26 50
Net income(loss) 3 7 6 32
Net income(loss)
pershare: on common stock
prior to extraord.item 0.07 0.16 0.29 0.73
Extraordinary item - - (0.15) -
Net income(loss) per
share of common stock 0.07 0.16 0.14 0.73
- -----------------------------------------------------------
<CAPTION>
Quarterly periods in 1994
4th 3rd 2nd 1st
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $304 $296 $336 $325
Gross profit 34 30 23 37
Operating profit 25 4 3 17
Net income(loss) 18 (4) 18 3
Net income(loss)
pershare: on common stock
prior to extraord.item 0.50 (.15) 0.63 0.07
Extraordinary item (.09) - - -
Net income(loss) per
share of common stock 0.41 (.15) 0.63 0.07
- -----------------------------------------------------------
</TABLE>
Weirton Steel Corporation
Board of Directors
Richard R. Burt, Chairman**+
(effective 4/1/96)
Chairman
International Equity Partners, LLP
Washington, DC
Michael Bozic**$
President and CEO
Levitz Furniture Company
Boca Raton, Florida
James B. Bruhn**+
Executive Vice President
Commercial
Weirton Steel Corporation
Weirton, West Virginia
Robert J. D'Anniballe, Jr.*+
Partner
Alpert, D'Anniballe & Visnic
Weirton, West Virginia
Mark G. Glyptis**+=
President
Independent Steelworkers Union
Weirton, West Virginia
Phillip A. Karber * **
Former Corporate Vice President
and Director, Center for Technology
and Public Policy Research
BDM International, Inc.
McLean, Virginia
Joseph J. Nowak$**+=
Former Vice Chairman
Armco, Inc.
Pittsburgh, Pennsylvania
Robert S. Reitman$**=
Chairman, President and CEO
The Tranzonic Companies
Pepper Pike, Ohio
Richard K. Riederer
President, Chief Executive Officer
and Chief Operating Officer
Weirton Steel Corporation
Weirton, West Virginia
Richard F. Schubert$+
Former President and CEO
The Points of Light Foundation
Washington, DC
Thomas R. Sturges*+
Executive Vice President
The Harding Group
Greenwich, Connecticut
David I.J. Wang * **
Former Executive Vice President
International Paper Company
Naples, Florida
Ronald C. Whitaker*$=
President and CEO
EWI, Incorporated
Southfield, Michigan
* Member of Audit Committee
** Member of Finance and Strategic Planning Committee
$ Member of Management Development and Compensation Committee
+ Member of Corporate Responsibility Committee
= Member of Nominating Committee
Executive Officers of the Company
Richard K. Riederer
President, Chief Executive Officer
and Chief Operating Officer
James B. Bruhn
Executive Vice President - Commercial
Craig T. Costello
Executive Vice President - Manufacturing
David L. Robertson
Executive Vice President
Human Resources and Corporate Law
Earl E. Davis
Vice President of Finance
and Chief Financial Officer
Thomas W. Evans
Vice President
Materials Management
David M. Gould
Vice President
Economic Development
William R. Kiefer
Vice President - Law and Secretary
Narendra M. Pathipati
Vice President
Corporate Development and Strategy
John H. Walker
Vice President
Operations
Mac S. White, Jr.
Vice President
Engineering
Mark E. Kaplan
Controller and
Principal Accounting Officer
ESOP Information
Inquiries about Employee Stock Ownership Plan accounts should be
directed to the Weirton Steel Corporation ESOP Administrator at the
Executive Offices.
Stockholder Information
Additional copies of this Annual Report
or reports filed with the Securities and Exchange Commission, and
copies of the Company's quarterly earnings releases
can be obtained by writing to:
Investor Relations
Weirton Steel Corporation
400 Three Springs Drive
Weirton, West Virginia 26062-4989
Telephone (304) 797-2728
Faxed copies of the Company's news releases, including quarterly
earnings releases, may be obtained by calling Company News On Call
at (800) 758-5804. This electronic system will request a six-digit
code (961575) and enable you to request specific news releases to
be sent to your fax machine.
Notice of Annual Meeting
A notice of the annual meeting and proxy statement and a proxy
voting card as well as a copy of the current Annual Report will be
mailed to each stockholder prior to the meeting.
Executive Offices
Weirton Steel Corporation
400 Three Springs Drive
Weirton, West Virginia 26062-4989
Telephone (304) 797-2000
Stock Transfer Agent and Registrar
The Company's transfer agent and registrar for its common stock is
KeyCorp Shareholder Services, Inc. of Cleveland, Ohio. Stockholders
wishing to transfer their shares of the Company's common stock to
someone else or to change the name on a stock certificate should
contact the Shareholder Communications Department, KeyCorp
Shareholder Services, Inc., P.O. Box 6477, Cleveland, Ohio
44144-2302, Telephone (800) 542-7792 for assistance.
Independent Public Accountants
The Company's independent public accountants are Arthur Andersen
LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania 15222.
Exhibit 22.1
Subsidiary Percentage owned by State of
Registrant Incorporation
Weirton Receivables, Inc. 100% Delaware
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports, included or incorporated by reference
in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8, Registration No. 33-31429, relating to the
Company's 1989 Employee Stock Purchase Plan and Registration No.
33-56251, relating to the Company's 1994 Employee Stock Purchase
Plan and Deferred Compensation Plan for Directors.
ARTHUR ANDERSEN LLP
Pittsburgh,Pennsylvania
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 10,788
<SECURITIES> 121,033
<RECEIVABLES> 158,901
<ALLOWANCES> 8,688
<INVENTORY> 255,360
<CURRENT-ASSETS> 594,029
<PP&E> 919,235
<DEPRECIATION> 332,805
<TOTAL-ASSETS> 1,314,021
<CURRENT-LIABILITIES> 253,726
<BONDS> 407,869
<COMMON> 423
15,868
74
<OTHER-SE> 198,131
<TOTAL-LIABILITY-AND-EQUITY> 1,314,021
<SALES> 1,351,711
<TOTAL-REVENUES> 1,351,711
<CGS> 1,180,053
<TOTAL-COSTS> 1,251,868
<OTHER-EXPENSES> 2,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,519
<INCOME-PRETAX> 68,329
<INCOME-TAX> 13,255
<INCOME-CONTINUING> 55,074
<DISCONTINUED> 0
<EXTRAORDINARY> (6,718)
<CHANGES> 0
<NET-INCOME> 48,356
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
