<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 1-10244
WEIRTON STEEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1075442
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
400 THREE SPRINGS DRIVE, WEIRTON, WEST VIRGINIA 26062-4989
(Address of principal executive offices)
(Registrant's telephone number, including area code)
(304) 797-2000
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock ($.01 par value) of the Registrant
outstanding as of October 31, 1996 was 42,353,235.
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<PAGE> 2
PART I. FINANCIAL INFORMAITON
ITEM 1. FINANCIAL STATEMENTS
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES................................. $366,174 $341,421 $1,042,654 $1,015,155
OPERATING COSTS:
Cost of sales........................ 340,030 304,825 960,183 877,996
Selling, general and administrative
expense............................ 9,766 8,553 29,382 25,437
Depreciation......................... 14,941 14,221 45,115 44,187
Restructuring charge................. -- -- 16,959 --
Provision for profit sharing......... -- 3,590 -- 22,750
Insurance recoveries................. -- -- -- (41,502)
-------- -------- ---------- ----------
Total operating costs........... 364,737 331,189 1,051,639 928,868
-------- -------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............. 1,437 10,232 (8,985) 86,287
-------- -------- ---------- ----------
Adjustment to carrying value of
damaged facility................... -- 9,000 -- 9,000
Interest expense..................... (11,551) (10,890) (33,037) (31,829)
Interest income...................... 1,234 1,231 4,151 3,281
ESOP contribution.................... (653) (653) (1,958) (1,958)
-------- -------- ---------- ----------
(10,970) (1,312) (30,844) (21,506)
-------- -------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES......... (9,533) 8,920 (39,829) 64,781
Income tax (benefit) provision....... (1,859) 1,739 (7,767) 12,563
-------- -------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (7,674) 7,181 (32,062) 52,218
Extraordinary loss on early
extinguishment of debt............. -- -- (5,431) (6,718)
-------- -------- ---------- ----------
NET INCOME (LOSS)......................... $ (7,674) $ 7,181 $ (37,493) $ 45,500
======== ======== ========== ==========
PER SHARE DATA:
Weighted average number of common
shares and equivalents (in
thousands)......................... 42,347 43,746 42,347 43,756
Net income (loss) per share before
extraordinary item...................... $ (0.18) $ 0.16 $ (0.76) $ 1.19
Extraordinary loss on early extinguishment
of debt................................. -- -- (0.13) (0.15)
-------- -------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE........ $ (0.18) $ 0.16 $ (0.89) $ 1.04
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
----------------- ------------
<S> <C> <C>
ASSETS:
Cash and equivalents, includes restricted cash of $2,000 and $1,373.. $ 114,069 $ 131,811
Receivables, less allowances of $7,734 and $8,688.................... 167,777 150,213
Inventories.......................................................... 257,982 255,360
Deferred income taxes................................................ 49,245 49,245
Other current assets................................................. 6,556 7,400
---------- ----------
Total current assets............................................ 595,629 594,029
---------- ----------
Property, plant and equipment, net................................... 585,941 586,430
Intangible asset..................................................... 31,412 31,412
Deferred income taxes................................................ 95,287 86,205
Other assets and deferred charges.................................... 18,022 15,945
---------- ----------
Total assets.................................................... $1,326,291 $1,314,021
========== ==========
LIABILITIES:
Current liabilities.................................................. $ 271,596 $ 253,726
Long term debt obligations........................................... 430,734 407,869
Long term pension obligations........................................ 95,969 94,689
Postretirement benefits other than pensions.......................... 323,654 317,893
Other long term liabilities.......................................... 25,297 25,348
---------- ----------
Total liabilities............................................... 1,147,250 1,099,525
---------- ----------
Redeemable stock.......................................................... 17,886 15,868
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000 shares authorized;
42,586,891 and 42,289,944 shares issued............................. 426 423
Additional paid-in capital........................................... 455,225 454,197
Retained earnings.................................................... (292,847) (255,354)
Other stockholders' equity........................................... (1,649) (638)
---------- ----------
Total stockholders' equity...................................... 161,155 198,628
---------- ----------
Total liabilities, redeemable stock and stockholders'
equity......................................................... $1,326,291 $1,314,021
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... $ 14,146 $ 84,334
CASH FLOWS USED BY INVESTING ACTIVITIES
Expenditures for property, plant and equipment............................ (44,626) (34,238)
Less: Insurance recoveries................................................ -- 9,000
-------- --------
NET CASH USED BY INVESTING ACTIVITIES.......................................... (44,626) (25,238)
-------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Repayment of debt obligation.............................................. (105,676) (118,800)
Proceeds from issuance of debt obligation................................. 122,610 125,000
Deferred financing costs.................................................. (3,996) (4,325)
Other, principally net book overdraft..................................... (200) (11,938)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............................... 12,738 (10,063)
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS............................................. (17,742) 49,033
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................... 131,811 62,905
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD.......................................... $114,069 $111,938
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of capitalized interest................................ $ 26,656 $ 27,906
Income taxes paid......................................................... -- 7,693
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
WEIRTON STEEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, OR IN MILLIONS OF DOLLARS AS INDICATED)
NOTE 1
BASIS OF PRESENTATION
The Consolidated Condensed Financial Statements presented herein are
unaudited. Weirton Steel Corporation and/or Weirton Steel Corporation together
with its wholly-owned subsidiary, Weirton Receivables, Inc., are hereafter
referred to as the "Company." Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the financial results for a full year. As
such, these financial statements should be read in conjunction with the
financial statements and notes thereto included or incorporated by reference in
the Company's 1995 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior amounts have been reclassified, where necessary, to conform
to the presentation in the current period.
NOTE 2
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
Raw materials................................... $ 89,052 $ 77,557
Work-in-process................................. 73,865 86,491
Finished goods.................................. 95,065 91,312
-------- ---------
$257,982 $ 255,360
======== =========
</TABLE>
NOTE 3
EARNINGS PER SHARE
The weighted average number of common shares and equivalents used in the
calculation of income (loss) per common share were 42,347,154 and 43,746,193 for
the three months ended September 30, 1996 and 1995, respectively, and 42,346,931
and 43,756,215 for the nine months ended September 30, 1996 and 1995,
respectively.
NOTE 4
RESTRUCTURING CHARGE
On May 29, 1996, the Company announced that it was reducing its supervisory
and managerial workforce by approximately 200 employees, or approximately 20%.
The restructuring charge associated with this reduction was $17.0 million and
related primarily to early retirement and termination benefits. The
restructuring charge was recorded in the second quarter of 1996.
5
<PAGE> 6
NOTE 5
ENVIRONMENTAL COMPLIANCE
In December 1993, the Company was informed by the West Virginia Department
of Environmental Protection (DEP) that the United States Environmental
Protection Agency (EPA) was considering initiating a "multimedia" enforcement
action against the Company. The Company has agreed to a proposed settlement with
the EPA and DEP regarding water, air and waste-related issues. If the settlement
agreement is approved by the United States District Court for the Northern
District of West Virginia, the Company will be required to pay a total penalty
of $3.2 million. Such payment is expected to be made in the fourth quarter of
1996 or in the first quarter of 1997. Additionally, the Company will be required
to conduct certain remedial activity at one of its waste disposal sites, which
is expected to cost approximately $1.6 million. The amounts related to the
penalties and the remedial activity have been accrued in the Company's balance
sheet as of September 30, 1996.
The proposed settlement also requires the Company to undertake certain
capital projects to assure compliance with air, water and waste-related
regulations. Such capital costs will include upgrades and modifications to air
emissions control equipment, wastewater treatment systems and waste handling
facilities. Under the proposed settlement, the Company has committed to
environmental related capital projects totaling approximately $12.2 million, a
significant portion of which was included in the Company's capital plan prior to
commencement of multimedia negotiations with EPA and DEP.
The required capital expenditures, as well as other terms of the proposed
settlement, will require changes in operating procedures at the Company's
facilities. While the Company expects to attempt to mitigate any increases in
operating costs attributable to such changes, it nevertheless expects operating
costs to increase as a result. At the present time it is not possible to
estimate the increase in operating costs, but the Company does not believe that
any such increases will be material to its results of operations.
In connection with the multimedia negotiations EPA issued a corrective
action order, effective October 18, 1996, requiring the Company to conduct
investigative activities to determine the nature and extent of hazardous
materials which may be located on the Company's property and to evaluate and
propose corrective measures needed to abate any unacceptable risks. The Company
estimates expenditures in excess of $1 million in 1997 and 1998 related to the
investigative activities. Because the Company does not currently know the nature
or the extent of hazardous waste located on the property, it is not presently
possible to estimate the ultimate cost to comply with this order or conduct
remedial activity that may be required in the future.
The Company believes that National Steel Corporation (National) is
obligated to reimburse the Company for a portion of any cost that may be
incurred by the Company to comply with the corrective action order and to
undertake any required remedial action. Pursuant to the agreements whereby the
Company acquired the operating assets of Weirton Steel Division (Division) from
National in 1984, National retained liability for cleanup costs related to solid
or hazardous waste facilities, areas or equipment as long as such were not used
by the Company in its operations subsequent to the acquisition.
NOTE 6
FINANCING ARRANGEMENTS
In July 1996, the Company sold in a private placement $125.0 million
aggregate principal amount of 11 3/8% Senior Notes due 2004. The net proceeds of
the offering were $118.6 million, of which $105.7 million was used to repurchase
$65.0 million aggregate principal of the 10 7/8% Senior Notes and $35.0 million
aggregate principal amount of the 11 1/2% Senior Notes. On September 12, 1996,
the Company exchanged the privately placed notes for notes that were registered
under the Securities Act of 1933. The Company recognized in the nine months
ended September 30, 1996, an after-tax extraordinary loss of $5.4 million
associated with the early extinguishment of debt and includes the premiums paid
to repurchase the notes and the recognition of previously deferred financing
costs associated with the retired debt.
6
<PAGE> 7
NOTE 7
LABOR NEGOTIATIONS
Approximately 84% of the Company's workforce is covered under collective
bargaining agreements with the Independent Steelworkers' Union and Independent
Guards' Union. The labor agreement expired on September 25, 1996, however, the
Company and the unions agreed to extend the current agreement to December 15,
1996. The Company and the unions are currently conducting negotiations in an
effort to reach a new agreement by the December 15, 1996, deadline.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis of the Company's financial condition and
results of operations should be read together with the unaudited consolidated
condensed financial statements and notes thereto. The unaudited consolidated
condensed financial statements of Weirton Steel Corporation include the accounts
of its wholly-owned subsidiary Weirton Receivables, Inc. ("WRI"). Weirton Steel
Corporation and/or Weirton Steel Corporation together with its subsidiary are
hereafter referred to as the "Company."
Throughout 1995 the Company gradually achieved a more traditional product
mix following a 1994 fire that damaged the No. 9 Tandem Mill (the "No. 9
Tandem") and by the first quarter of 1996 had acquired a share of the tin mill
products market comparable to that prior to the fire. The resumption of the
Company's normal operating configuration in the first quarter of 1996 had a
significant effect on its volume of shipments, as well as its product mix
compared to 1995.
The Company recognized in the third quarter of 1995 and the second quarter
of 1994 adjustments that totaled $53.7 million to the carrying value of the No.
9 Tandem. Total spending to restore the No. 9 Tandem was approximately $77.6
million. The Company also maintains insurance for business interruption.
Insurance recoveries of $20.0 million and $34.0 million were received in the
first quarter of 1994 and first quarter of 1995, respectively, for the No. 9
Tandem business interruption claim. The Company's claim for business
interruption related to the No. 9 Tandem was settled in 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
In the third quarter of 1996, the Company recognized a net loss of $7.7
million or $0.18 per common share, compared to net income of $7.2 million or
$0.16 per common share for the same period in 1995. The third quarter 1995
results included a favorable pretax adjustment of $9.0 million for a property
damage insurance recovery related to the No. 9 Tandem. Excluding the effect of
the insurance recovery, and its resulting effect on the provision for profit
sharing and income taxes, net income for the third quarter of 1995 would have
been $2.0 million or $0.05 per share.
Net sales in the third quarter of 1996 were $366.2 million, an increase of
$24.8 million or 7.3% from the third quarter of 1995. Total shipments in the
third quarter of 1996 were 750 thousand tons compared to third quarter of 1995
shipments of 698 thousand tons.
Demand for the Company's products continued to be strong in the third
quarter of 1996. Selling prices with respect to sheet products were lower than
in the third quarter of 1995, however, due to higher shipment levels and an
improved product mix, sheet products sales for the third quarter of 1996
increased $2.4 million to $218.4 million. Shipments of sheet products in the
third quarter of 1996 were 513 thousand tons compared to 504 thousand tons in
the third quarter of 1995. The increase in sheet product revenue is a result of
higher shipping volumes partially offset by lower comparative selling prices.
The third quarter of 1996 revenues from tin mill products were $147.8
million on shipments of 237 thousand tons compared to $125.4 million on 194
thousand tons for the same period in 1995 reflecting the recovery of the
Company's tin mill product market share. The increase in tin mill product
revenue is primarily attributable to increased volume, which was partially
offset by lower average selling prices.
7
<PAGE> 8
Operating costs for the third quarter of 1995 were $474 per ton, which
included a provision for profit sharing, compared to $486 per ton for the third
quarter of 1996. Operating costs per ton increased due to a shift to higher cost
tin mill products, increased slab purchase costs in anticipation of an outage at
the No. 1 Blast Furnace for reline and the recording of costs associated with
the proposed EPA settlement.
Operating profit, excluding the non-recurring items, was $2 per ton for the
third quarter of 1996 compared to $18 per ton for the same period in 1995. The
decrease is due to lower selling prices and higher operating costs, as described
above, in the third quarter of 1996; offset by improved product mix and the
absence of a profit sharing provision in 1996.
Selling, general and administrative expenses were $9.8 million for the
third quarter of 1996 or an increase of $1.2 million compared to the third
quarter of 1995. The increase is primarily due to higher benefit costs and
increased outside purchased services.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
In the nine months ended September 30, 1996, the Company recognized a net
loss of $37.5 million or $0.89 per common share, compared to net income of $45.5
million or $1.04 per common share for the same period in 1995. The nine months
ended September 30, 1996, results included a pretax restructuring charge of
$17.0 million associated with the approximately 20% reduction of the supervisory
and managerial workforce and a $5.4 million extraordinary after tax loss for
cost recognized in conjunction with the refinancing of $100.0 million of the
Company's senior note obligations. The nine months ended September 30, 1995,
results included favorable pretax adjustments of $41.5 million for the No. 9
Tandem and hot strip mill business interruption insurance recoveries, $9.0
million for the No. 9 Tandem property damage insurance recovery, and an
extraordinary after tax loss of $6.7 million associated with the 1995 early
extinguishment of debt. Excluding the effect of these non-recurring items, and
their resulting impact on the provision for profit sharing and income taxes, net
loss for the nine months ended September 30, 1996 would have been $18.4 million
or $0.43 per share compared to net income for the nine months ended September
30, 1995, of $21.3 million or $0.49 per share.
Net sales in the nine months ended September 30, 1996, were $1,042.7
million, an increase of $27.5 million from the same period in 1995. Total
shipments in the nine months ended September 30, 1996, were 2,169 thousand tons
compared to the nine months ended September 30, 1995, shipments of 2,033
thousand tons.
Demand for the Company's products continued to be strong in the nine months
ended September 30, 1996, however selling prices, particularly with respect to
sheet products, were lower than in the nine months ended September 30, 1995.
Sheet product sales for the nine months ended September 30, 1996, declined $51.2
million to $618.4 million. Shipments of sheet product in the nine months ended
September 30, 1996, were 1,491 thousand tons compared to 1,489 thousand tons in
the nine months ended September 30, 1995. Even though sheet product shipments in
the nine months ended September 30, 1996, were generally similar to the same
period in 1995, lower experienced selling prices resulted in lower sheet product
revenue, which were partially offset by an improved product mix.
The nine months ended September 30, 1996, revenues from tin mill products
were $424.3 million on shipments of 678 thousand tons compared to $345.5 million
on 544 thousand tons for the same period in 1995, reflecting the recovery of the
Company's tin mill product market share. The increase in tin mill product
revenue is primarily attributable to increased volume; however the revenue
increase due to volume was partially offset by lower average selling prices due
to the resumption of a customer mix similar to that experienced prior to the No.
9 Tandem outage.
Operating costs, excluding the effect of the non-recurring items, for the
nine months ended September 30, 1996, and 1995 were $477 per ton and $471 per
ton, respectively. Operating costs in the nine months ended September 30, 1996,
were adversely affected by an unplanned blast furnace outage in April 1996,
higher raw material and energy costs, costs associated with the proposed EPA
settlement and a higher cost product mix. The higher operating costs compared to
1995 were partially offset by the absence of a profit sharing provision in 1996.
Operating profit, excluding the effects of non-recurring items, was $4 per
ton for the nine months ended September 30, 1996, compared to $28 per ton for
the same period in 1995. The decrease is due to lower selling prices and higher
operating costs, as described above, offset by an improved product mix and the
absence of a profit sharing provision in 1996.
8
<PAGE> 9
Selling, general and administrative expenses were $29.4 million for the
nine months ended September 30, 1996, or an increase of $4.0 million compared to
the nine months ended September 30, 1995. The increase is primarily due to
higher employee benefit costs and increased outside purchased services.
During the nine months ended September 30, 1996 the Company recognized
interest income of $4.2 million compared to $3.3 million in the nine months
ended September 30, 1995. This increase in interest income is primarily due to a
higher level of invested funds during the nine months ended September 30, 1996,
compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash and equivalents of $114.0
million compared to $131.8 million as of December 31, 1995. This decrease in
cash and equivalents is due primarily to the payment during the nine months
ended September 30, 1996, of approximately $24.2 million of profit sharing,
which was partially offset by the net proceeds from the issuance of senior notes
during 1996 as described below.
In July 1996, the Company sold in a private placement $125.0 million
aggregate principal amount of 11 3/8% Senior Notes due 2004. The net proceeds of
the offering were $118.6 million, of which $105.7 million was used to repurchase
$65.0 million aggregate principal of the 10 7/8% Senior Notes and $35.0 million
aggregate principal amount of the 11 1/2% Senior Notes. On September 12, 1996,
the Company exchanged the privately placed notes for notes that were registered
under the Securities Act of 1933. The Company recognized in the nine months
ended September 30, 1996, an after-tax extraordinary loss of $5.4 million
associated with the early extinguishment of debt and includes the premiums paid
to repurchase the notes and the recognition of previously deferred financing
costs associated with the retired debt.
The refinancing of the 11 1/2% Senior Notes and the 10 7/8% Senior Notes
reduced the maturities of these obligations in 1998 and 1999 from $77.2 million
and $149.7 million, respectively, to $42.2 million and $84.7 million,
respectively.
As of September 30, 1996, and December 31, 1995, after reductions for
amounts in place under its letter of credit subfacility, WRI had a base amount
of participation interests available for cash sales under the Company's
Receivables Participation Agreement of approximately $76.3 million and 71.6
million, respectively.
The Company's net deferred tax assets were $144.5 million as of September
30, 1996, which consist primarily of the carrying value of net operating loss
carryforwards and other tax credits and net deductible temporary differences
available to reduce the Company's cash requirements for the payment of future
federal income tax. The change in deferred tax assets since December 31, 1995,
primarily represents net operating loss carryforwards generated by the Company
in 1996. The valuation of the deferred tax assets are based upon the Company's
current assessment of the realizability of such assets.
INVESTMENT IN FACILITIES
Expenditures for property, plant and equipment for the nine months ended
September 30, 1996, totaled $44.6 million. The Company's planned capital
expenditures for 1996 are approximately $69.0 million and include spending for a
major blast furnace reline which began in October 1996 and is expected to extend
into the first quarter of 1997. The Company expects to fund its capital
expenditures program with cash generated from operations or cash on hand, and if
necessary, from proceeds from the sale of participation interests under the
Receivables Participation Agreement.
ENVIRONMENTAL COMPLIANCE
In December 1993, the Company was informed by the West Virginia Department
of Environmental Protection (DEP) that the United States Environmental
Protection Agency (EPA) was considering initiating a "multimedia" enforcement
action against the Company. The Company has agreed to a proposed settlement with
the EPA and DEP regarding water, air and waste-related issues. If the settlement
agreement is approved by the United States District Court for the Northern
District of West Virginia, the Company will be required to pay a total penalty
of $3.2 million. Such payment is expected to be made in the fourth quarter of
1996 or in the first quarter of 1997. Additionally, the Company will be required
to conduct certain remedial activity at one of its waste disposal sites, which
is expected to cost
9
<PAGE> 10
approximately $1.6 million. The amounts related to the penalties and the
remedial activity have been accrued in the Company's balance sheet as of
September 30, 1996.
The proposed settlement also requires the Company to undertake certain
capital projects to assure compliance with air, water and waste-related
regulations. Such capital costs will include upgrades and modifications to air
emissions control equipment, wastewater treatment systems and waste handling
facilities. Under the proposed settlement, the Company has committed to
environmental related capital projects totaling approximately $12.2 million, a
significant portion of which was included in the Company's capital plan prior to
commencement of multimedia negotiations with EPA and DEP.
The required capital expenditures, as well as other terms of the proposed
settlement, will require changes in operating procedures at the Company's
facilities. While the Company expects to attempt to mitigate any increases in
operating costs attributable to such changes, it nevertheless expects operating
costs to increase as a result. At the present time it is not possible to
estimate the increase in operating costs, but the Company does not believe that
any such increases will be material to its results of operations.
In connection with the multimedia negotiations EPA issued a corrective
action order, effective October 18, 1996, requiring the Company to conduct
investigative activities to determine the nature and extent of hazardous
materials which may be located on the Company's property and to evaluate and
propose corrective measures needed to abate any unacceptable risks. The Company
estimates expenditures in excess of $1 million in 1997 and 1998 related to the
investigative activities. Because the Company does not currently know the nature
of or the extent of hazardous waste located on the property, it is not presently
possible to estimate the ultimate cost to comply with this order or conduct
remedial activity that may be required in the future.
The Company believes that National Steel Corporation (National) is
obligated to reimburse the Company for a portion of any cost that may be
incurred by the Company to comply with the corrective action order and to
undertake any required remedial action. Pursuant to the agreements whereby the
Company acquired the operating assets of Weirton Steel Division (Division) from
National in 1984, National retained liability for cleanup costs related to solid
or hazardous waste facilities, areas and equipment, as long as such were not
used by the Company in its operations subsequent to the acquisition.
LABOR NEGOTIATIONS
Approximately 84% of the Company's workforce is covered under collective
bargaining agreements with the Independent Steelworkers' Union and Independent
Guards' Union. The labor agreement expired on September 25, 1996, however, the
Company and the unions agreed to extent the current agreement to December 15,
1996. The Company and the unions are currently conducting negotiations in an
effort to reach a new agreement by the December 15, 1996, deadline.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Environmental Compliance.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE> 11
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 10.1--Employee Agreement between Mark E. Kaplan and the Company
dated August 13, 1996.
Exhibit 27.--Financial Data Schedule for the nine months ended September
30, 1996.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on May 29, 1996, and
June 27, 1996.
11
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEIRTON STEEL CORPORATION
Registrant
By: /s/ MARK E. KAPLAN
-----------------------------
Mark E. Kaplan
Controller (Principal
Accounting Officer)
November 12, 1996
12
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the date written below by and between WEIRTON STEEL
CORPORATION, a Delaware corporation, with its principal executive offices
located at Three Springs Drive, Weirton, West Virginia 26062 (hereinafter called
the "Corporation") and the individual employee whose name and address appear on
the signature page hereto (hereinafter called "Employee").
The parties hereto agree as follows:
First: Term and Duties: The term of this Agreement shall commence on the
date hereof and shall continue until terminated in accordance with Paragraph
Second. During the term hereof, Employee shall serve as a full-time, salaried
employee of the Corporation. Employee's duties, title, salary and other benefits
shall be as agreed upon from time to time between Employee and the Corporation.
Second: Eligibility for Termination Benefits: (a) Subject to paragraph (d)
of Paragraph Third, if Employee's employment with the Corporation is terminated
by the Corporation without just cause, Employee shall receive such benefits
hereunder ("Termination Benefits") as determined in accordance with Paragraph
Third, provided Employee, if requested, remains in the employment of the
Corporation for a period not exceeding 60 days following receipt of a written
notice of such termination. For purposes of this Agreement, termination of
Employee's employment by the Corporation shall constitute a termination for
"just cause" only if such termination is for one of the following reasons: (i)
conviction of a felony punishable by a prison sentence of more than one year;
(ii) habitual use of drugs without a prescription or habitual, excessive use of
alcohol to the extent that any of such uses materially interferes with
Employee's performance of his duties; or (iii) refusal or failure, after notice,
by Employee to perform or discharge duties and responsibilities appropriate to
his position, which refusal or failure amounts to an extended and gross neglect
of his duties to the Corporation. Except as otherwise specifically set forth in
this Agreement or as otherwise prohibited by law, all rights of Employee, and
all obligations of the Corporation under this Agreement, shall cease and
terminate on, and as of, the date of termination of employment for just cause.
(b) The Corporation shall be deemed to have agreed to a termination in
accordance with paragraph (a) of this Paragraph Second from and after the date
(i) the Employee is assigned duties or responsibilities significantly
inconsistent with and less than the Employee's position, duties,
responsibilities or status with the Corporation as in effect upon execution of
this Agreement, (ii) the Employee's base salary, excluding any bonus or other
compensation derived from any employee benefit plan, is ever reduced below any
level attained by the Employee, or (iii) the Employee is required to reside
other than in the Greater Pittsburgh Area in order to perform his duties for the
Corporation; provided, that such action is taken without the Employee's consent,
and within 30 days after the occurrence of any such event the Employee notifies
the Corporation that he is so deeming the Corporation to have elected to
terminate his employment, whereupon the Corporation shall be deemed to have
terminated such employment as of the date of any such action or the date of such
notice at the option of the Employee. If the date of termination is deemed to be
a date earlier than the date of such notice, and the Corporation, upon receipt
of such notice, promptly takes all actions hereunder required in the event of
such termination, no intervening delay in taking such actions may be construed
as a violation of this Agreement.
Third: Amount and Duration of Termination Benefits:
(a) Upon the termination of Employee's employment on any date in accordance
with Paragraph Second (the "Termination Date"), Employee shall be treated as
being an inactive employee for 18 months following the Termination Date, and
Employee shall receive a total of 18 months base salary (excluding vacation or
special pay) in effect at the Termination Date as follows: (i) 12 months base
salary to be paid in one lump sum within 10 days following the Termination Date;
(ii) starting in the 13th month following the Termination Date and ending in the
18th month following the Termination Date, six months base salary to be paid in
six monthly installments. Any income earned by Employee from employment, or
otherwise from a trade or business, in the 13th through the 18th month following
the Termination Date (excluding any self-employment income), shall reduce on a
dollar-for-dollar basis the compensation payable to Employee during such months
pursuant to this paragraph.Employee shall report all such other compensation to
the Corporation. Furthermore, for a period of 18 months following the
Termination Date, the Corporation shall (iii) continue to provide coverage for
Employee and applicable dependents under all benefit plans of the Corporation
providing life
<PAGE> 2
insurance or health, disability, hospitalization and major medical insurance at
such levels as are not less than those in effect at the time of the Termination
Date; and (iv) to the extent allowable under applicable law, cause Employee to
continue to earn service credit for all purposes under any pension or retirement
plan maintained by the Corporation in which Employee participated at the time of
the Termination Date; provided, however, that the coverage referred to in clause
(iii) shall be suspended during any period in which and to the extent Employee
is eligible for similar coverage under another employer plan. Notwithstanding
the above, the Corporation shall not be obligated as provided in this Paragraph
Third during any period when employee does not comply with Paragraph Fourth. For
all other purposes, Employee's employment shall terminate on the Termination
Date.
(b) Nothing in paragraph (a) of this Paragraph Third shall be construed to
require the Corporation to maintain any employee or management benefit program
solely for the purpose of covering or providing benefits to Employee.
(c) The Corporation shall promptly reimburse Employee for the reasonable
legal fees and expenses incurred by Employee in connection with enforcing any
right of Employee pursuant to paragraph (a) or (b) of Paragraph Second, or
paragraph (a) of this Paragraph Third; provided, however, that the Corporation
will only reimburse Employee for such legal fees and expenses if, in connection
with enforcing any right of Employee pursuant to this Agreement, either (i) a
judgment has been rendered in favor of Employee by a duly authorized court of
law, or (ii) the Corporation and Employee have entered into a settlement
agreement providing for the payment to Employee of any or all amounts due
hereunder.
(d) Notwithstanding any other provision of this Agreement, if the
Employee's employment with the Corporation is terminated for any reason and (i)
the Employee has attained 65 years of age, (ii) for the 2-year period
immediately prior to such termination the Employee is employed in a bona fide
executive or a high policy-making position and (iii) the Employee is entitled to
an immediate nonforfeitable annual retirement benefit from a pension, profit
sharing, savings, or deferred compensation plan, or any combination of such
plans, of the Corporation, which equals in the aggregate, at least $44,000, the
Employee will not be entitled to any Termination Benefits hereunder.
Fourth: Confidentiality and Non-Competition:
(a) Employee shall not, during the term hereof or subsequent to the
Termination Date, divulge, furnish or make accessible to anyone (otherwise than
as consented to by the Corporation) any knowledge or information, techniques,
plans, trade or business secrets or confidential information relating to the
business of the Corporation or with respect to any other confidential or secret
aspect of the business of the Corporation, nor shall Employee make any use of
the same for his own purposes or for the benefit of anyone under any
circumstances; provided that, after the Termination Date, these restrictions
shall not apply to such knowledge, techniques, plans, trade or business secrets
or confidential information which is then in, or subsequently becomes part of,
the public domain, except because of disclosure by Employee without the
Corporation's consent.
(b) Except with the consent of the Corporation and provided the Corporation
has made the payment required under clause (i) of paragraph (a) of Paragraph
Third, for a period of one year after the Termination Date, Employee shall not
engage in any business (whether as an officer, director, owner, employee,
partner or other direct or indirect participant and except for and to the extent
of any business engaged in by Employee at the Termination Date and consented to
by the Corporation) competing with any portion of the steel business in which
the Corporation is actively engaged in the United States as of the Termination
Date. For such period, Employee also shall not interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between the
Corporation and any customer, supplier, lessor, lessee or employee of the
Corporation.
(c) It is the desire of the parties that the provisions of this Paragraph
Fourth be enforced to the fullest extent permissible under the laws and public
policies in each jurisdiction in which enforcement might be sought. Accordingly,
if any particular portion of this Paragraph Fourth be adjudicated as invalid or
unenforceable, this Paragraph Fourth shall be deemed amended to delete therefrom
such portion so adjudicated, such deletion to apply only with respect to the
operation of this Paragraph Fourth in the particular jurisdiction so
adjudicating. If there is a breach or threatened breach of this Paragraph Fourth
by Employee, the Corporation shall be entitled to an injunction restraining
Employee from such breach, but nothing herein shall be construed as prohibiting
the Corporation from pursuing any other remedies for such breach or threatened
breach.
2
<PAGE> 3
Fifth: Disability: If Employee is unable to render full-time services to
the Corporation of the character required to perform the duties of his
employment with the Corporation with reasonable efficiency for a period of six
consecutive months, commencing after the date hereof, by reason of illness,
disability or incapacity and the Corporation terminates Employee's employment
thereafter, Employee shall not be entitled to any Termination Benefits
hereunder; provided, that this Paragraph Fifth shall not apply in any case where
Employee, upon such termination, would not qualify under any program of
long-term disability benefits provided by the Corporation.
Sixth: Waiver of Breach: A waiver by the Corporation or Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
Seventh: Entire Agreement: This Agreement contains the entire
understanding and agreement between the parties and cannot be amended, modified
or supplemented in any respect, except by an agreement in writing signed by the
party against whom enforcement of any amendment, modification or supplement is
sought.
Eighth: Successors and Assigns: This Agreement shall inure to the benefit
of and be binding upon the Corporation and its successors and assigns including,
without limitation, any corporation or other entity which may acquire all or
substantially all of the capital stock, assets and/or business of the
Corporation or with or into which the Corporation may be consolidated or merged,
and Employee, his heirs, executors, administrators and legal representatives.
Ninth: Governing Law: This Agreement shall be governed by the laws of the
State of West Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day written below.
WEIRTON STEEL CORPORATION
Dated: August 13, 1996
By: /s/ RICHARD K. RIEDERER
--------------------------------
Richard K. Riederer
Title: President & CEO
EMPLOYEE
Name: /s/ MARK E. KAPLAN
-----------------------------
Mark E. Kaplan
Controller
Address: 119 Stonewood Drive
Bethel Park, PA 15102
3
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