First
Quarter 1996
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 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 (IRS employer
identification
No.)
of incorporation or organization)
400 Three Springs Drive, Weirton, West Virginia
26062-4989
- ----------------------------------------------- -----
- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(304)-797-2000
Indicate by checkmark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
The number of shares of Common Stock ($.01 par value) of the
Registrant outstanding as of April 30, 1996 was 42,346,794.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1996 1995
-------------------
<S> <C> <C>
NET SALES $340,900 $354,686
OPERATING COSTS:
Cost of sales 310,752 299,185
Selling, general, administrativ 9,514 8,206
Depreciation 14,505 15,135
Provision for profit sharing - 16,072
Insurance recovery - (34,000)
-------- --------
Total Operating Costs 334,771 304,598
-------- --------
INCOME FROM OPERATIONS: 6,129 50,088
Interest expense (10,733) (10,502)
Interest income 1,797 911
ESOP contribution 653 653
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (3,460) 39,844
Income tax provision (benefit) (675) 7,701
-------- --------
NET INCOME (LOSS) $(2,785) $ 32,143
======== =======
PER SHARE DATA:
Weighted average number of 42,347 43,764
common shares and equivalents
Net income (loss) per common share $ (0.07) $ 0.73
======== ========
<FN> The accompanying notes are an integral part of these
statements.
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share amount)
March 31, 1996
December 31, 1995
-----------------
- -----------------
<S> <C> <C>
ASSETS:
Cash and equivalents, $104,432
$131,811
includes restricted cash of
$1,381 and $1,373
Notes and accounts receivable, 160,035
150,213
less allowances of $9,536
and $8,688
Inventories 237,924
255,360
Deferred income taxes 49,245
49,245
Other current assets 7,199
7,400
-----------
- -----------
Total current assets 558,835
594,029
Property, plant, and 585,371
586,430
equipment, net
Intangible assets 31,412
31,412
Deferred income taxes 86,879
86,205
Other assets and deferred 15,048
15,945
charges ----------
- ----------
Total assets $1,277,545
$1,314,021
==========
==========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
Liabilities:
Current liabilities $ 212,374 $
253,726
Long term debt obligations 407,907
407,869
Long term pension obligation 98,169
94,689
Postretirement benefits other 320,454
317,893
than pensions
Other long-term liabilities 26,177
25,348
---------
- ----------
Total liabilities $1,065,081
$1,099,525
Redeemable Stock: 16,619
15,868
Stockholders' Equity:
Common stock, $.01 par value; 426
423
50,000,000 shares authorized;
42,586,337 and 42,289,944
shares issued, respectively
Additional paid-in capital 455,207
454,197
Retained earnings (258,139)
(255,354)
Other stockholders' equity (1,649)
(638)
-----------
- -----------
Total stockholders' equity 195,845
198,628
------------
- -----------
Total liabilities, redeemable
stock and stockholders' equity $1,277,545 $
1,314,021
============
===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
1996 1995
------------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $(11,993) $24,310
CASH FLOWS USED BY INVESTING ACTIVITIES
EXPENDITURES FOR PROPERTY, PLANT AND (13,446) (7,141)
EQUIPMENT
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
OTHER, principally net book overdraft (1,940) 2,188
-------- -------
NET CHANGE IN CASH AND EQUIVALENTS (27,379) 19,357
CASH AND EQUIVALENTS AT BEGINNING
OF PERIOD 131,811 62,905
-------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $104,432 $82,262
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID,
NET OF CAPITALIZED INTEREST $ 4,307 $ 2,480
INCOME TAXES PAID - 153
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
WEIRTON STEEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars, or in millions
of dollars where indicated)
Note 1
BASIS OF PRESENTATION
The Consolidated Condensed Financial Statements presented herein
are unaudited. Weirton Steel Corporation and/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.
<TABLE>
<CAPTION>
Note 2
INVENTORIES
Inventories consisted of the following:
March 31, December 31,
1996 1995
____________ ___________
<S> <C> <C>
Raw materials $ 66,922 $ 77,557
Work-in-process 68,388 86,491
Finished goods 102,614 91,312
_________ _________
$ 237,924 $ 255,360
========= =========
</TABLE>
Note 3
EARNINGS PER SHARE
The weighted average number of common and common equivalent
shares used in the calculation of income (loss) per common share
were 42,346,589 and 43,764,379 for the three months ended March
31, 1996 and 1995, respectively.
Note 4
ENVIRONMENTAL COMPLIANCE
In December 1993, the Company was informed by the West Virginia
Division of Environmental Protection ('DEP') that the United
States Environmental Protection Agency ('EPA') was considering
initiating a 'multimedia' enforcement action against the Company.
Multimedia actions involve coordinated enforcement proceedings
related to water, air and waste-related issues stemming from a
number of federal and state statutes and rules. In October 1995,
the Company received a Notice of Violation from the EPA alleging
seven violations of DEP regulations for air pollution control,
which may result in fines and penalties. Additionally, the EPA
has conducted inspections of the Company's facilities regarding
waste-related issues.
Although no multimedia enforcement action has been commenced
against the Company, the Company has continued to meet with
representatives of the EPA regarding the alleged violations, as
well as environmental compliance issues related to air, water and
waste disposal. The Company and the EPA are attempting to resolve
these issues during a six-month negotiating period, which extends
to September 15, 1996. The EPA has indicated that it would
expect a negotiated settlement to include necessary corrective
steps to address noncompliance issues, remediation programs to
address contamination at solid waste management units and a civil
penalty. The EPA has indicated that consideration would be given
to offsetting any cash penalty through the performance of
supplemental environmental projects. If a settlement is not
reached by September 15, 1996, the EPA has indicated that it
would likely commence a civil enforcement action against the
Company. Based on its review of the matters involved, the
Company does not believe that any fines or penalties assessed
above amounts accrued, would have a material adverse effect on
the Company's financial position or results of operations.
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.'
In April 1994, the Company's No. 9 Tandem (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 plate operations. The
Company began rebuilding and repairing 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.
Following the fire that damaged the No. 9 Tandem, the Company had
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 decreases
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. Sheet products such as hot rolled products generally
provide lower profit margins than more highly processed products
such as tin and chrome plate. The Company's expectations were
that it would regain its share of the tine mill products 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 was soft in early 1995. As a
result, the pace at which the Company's share of tin mill
products recovered was slower than expected.
Throughout 1995 the Company gradually achieved a more traditional
product mix and by the first quarter of 1996 had acquired a share
of the 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 the first quarter of 1995.
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 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 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 $77.5 million.
The Company also maintains insurance for business interruption,
subject to a deductible. 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 MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995
In the first quarter of 1996, the Company recognized a net loss
of $2.8 million or $0.07 per common share, compared to net income
of $32.1 million or $0.73 per common share for the same period in
1995. The first quarter 1995 results included a favorable pretax
adjustment of $34.0 million for the above mentioned business
interruption insurance recovery and a pretax provision for
employee profit sharing of $16.1 million. Excluding the effect
of the insurance recovery, and its resulting effects on the
provision for profit sharing and income taxes, net income for the
first quarter of 1995 would have been $12.6 million or $0.29 per
share.
Net sales in the first quarter of 1996 were $340.9 million, a
decrease of $13.8 million or 3.9% from the first quarter of 1995.
Total shipments in the first quarter of 1996 were 712 thousand
tons compared to first quarter of 1995 shipments of 705 thousand.
While demand for the Company's products continued to be strong in
the first quarter of 1996, selling prices, particularly with
respect to sheet products, were lower than in the first quarter
of 1995, following an industry wide trend. The Company has
announced price increases the effect of which are expected to be
realized in the second quarter of 1996.
Sheet product sales for the first quarter of 1996 declined $41.7
million to $200.1 million. Shipments of sheet product in the
first quarter of 1996 were 490 thousand tons compared to 525
thousand tons in the first quarter of 1995. As described above,
during the periods immediately following the outage of the No.9
Tandem, the Company's product mix was shifted more heavily to
sheet product from tin mill products. The resumption of a more
traditional product mix along with lower experienced selling
prices resulted in lower sheet product revenues during the first
quarter of 1996 compared to 1995.
The first quarter of 1996 revenues from tin mill products were
$140.8 million on shipments of 222 thousand tons compared to
$112.8 million on 180 thousand tons for the same period in 1995
reflecting the recovery of the Company's tin mill product market
share. The product mix for the first quarter of 1996 reflects a
level of tin mill product shipments comparable to that
experienced prior to the No. 9 Tandem outage.
Operating costs for the first quarter of 1996 were $436 per ton
compared to $424 per ton for the first quarter of 1995. This
increase is primarily attributable to the shift in product mix
from sheet products to the higher cost tin mill product.
Additionally, the Company experienced higher operating costs
related to the severe weather conditions in the first quarter of
1996, as well as higher energy and raw material costs.
Operating profit was $9 per ton for the first quarter of 1996
compared to $71 per ton for the same period in 1995. The
decrease was due to lower selling prices, higher operating costs
and the absence of the insurance recovery in the first quarter of
1996; offset by improved product mix and no provision for profit
sharing in the current period.
Selling, general and administrative expenses were $9.5 million
for the first quarter of 1996, an increase of $1.3 million
compared to the first quarter of 1995. The increase is primarily
due to higher benefit costs and increased outside purchased
services.
During the first quarter of 1996 the Company recognized interest
income of $1.8 million compared to $0.8 million in the first
quarter of 1995. This increase in interest income is primarily
due to a higher level of invested funds during the first quarter
of 1996 compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash and equivalents of
$104.4 million compared to $131.8 million as of December 31,
1995. This decrease in cash and equivalents is due primarily to
the payment during the first quarter of 1996, of approximately
$24.2 million of profit sharing.
As of March 31, 1996, and December 31, 1995, after reductions for
amounts in place under its letter of subfacility, WRI had a base
amount of participation interests available for cash sales under
the Company's Receivables Participation Agreement of
approximately $81.0 and 71.6 million, respectively.
The Company's net deferred tax assets increased $0.7 million to
$136.1 million as of March 31, 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.
INVESTMENT IN FACILITIES
Expenditures for property, plant and equipment for the first
three months of 1996 totaled $13.1 million. The Company's
planned capital expenditures for 1996 are approximately $84.6
million and include spending for a major blast furnace reline
expected to begin in the later half of 1996. 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
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.
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.
Although no multimedia enforcement action has been commenced
against the Company, the Company has continued to meet with
representatives of the EPA regarding the alleged violations, as
well as environmental compliance issues related to air, water and
waste disposal. The Company and the EPA are attempting to resolve
these issues during a six-month negotiating period, which extends
to September 15, 1996. The EPA has indicated that it would
expect a negotiated settlement to include necessary corrective
steps to address noncompliance issues, remediation programs to
address contamination at solid waste management units and a civil
penalty. The EPA has indicated that consideration would be given
to offsetting any cash penalty through the performance of
supplemental environmental projects. If a settlement is not
reached by September 15, 1996, the EPA has indicated that it
would likely commence a civil enforcement action against the
Company. Based on its review of the matters involved, the
Company does not believe that any fines or penalties assessed
above amounts accrued, would have a material adverse effect on
the Company's 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 outstanding environmental
matters will have a material adverse effect on its financial
position, results of operation or on its competitive position
with respect to other integrated domestic steel makers that are
generally subject to the same environmental requirements.
OUTLOOK
On April 1, the Company's No. 3 Blast Furnace was taken out of
service to replace a cracked bell. The outage lasted eight days,
and the furnace is now back to full production. The Company
expects its operating performance in the second quarter to be
adversely affected in the range of $5 million to $7 million as a
result of the outage.
The Company is currently considering a plan to reduce its salary
workforce during the second quarter of 1996. Although the
financial statement impact of such
a workforce reduction has not yet been determined, it is likely
that the resulting charge will have a material adverse effect on
the Company's results of operations for the second quarter of
1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ('FASB')
issued Statement on Financial Accounting Standards ('SFAS') No.
121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.' SFAS No. 121 requires that
the carrying value of long-lived operating assets, when
determined to be impaired, be adjusted so as not to exceed the
estimated undiscounted cash flows provided by such assets. SFAS
No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of in future periods. The Company
adopted the provisions of SFAS No. 121 in the first quarter of
1996. The adoption of SFAS No. 121 did not have any effect on
the Company's financial position or results of operations for the
quarter ended March 31, 1996.
In October 1995, the FASB issued SFAS No. 123, 'Accounting for
Stock-Based Compensation.' SFAS No. 123 recommends, but does not
require, that companies change their method of accounting for
stock-based compensation plans to one that attributes
compensation costs equal to the fair value of a stock-based
compensation arrangement over the periods in which service is
rendered. Companies not electing to change their method of
accounting are required, among other things, to provide
additional disclosure which in effect restates a company's
results for comparative periods as if the new method of
accounting had been adopted. The Company intends to continue its
present accounting policy relating to stock-based compensation
and will provide the required disclosures, as permitted by SFAS
No. 123.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. - Financial Data Schedule for three months
ended
March 31, 1996.
(b) Reports on Form 8-K
None
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)
May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 104,432
<SECURITIES> 0
<RECEIVABLES> 169,571
<ALLOWANCES> 9,536
<INVENTORY> 237,924
<CURRENT-ASSETS> 558,835
<PP&E> 932,681
<DEPRECIATION> 347,310
<TOTAL-ASSETS> 1,277,545
<CURRENT-LIABILITIES> 212,374
<BONDS> 407,907
<COMMON> 426
16,619
0
<OTHER-SE> 195,419
<TOTAL-LIABILITY-AND-EQUITY> 1,277,545
<SALES> 340,900
<TOTAL-REVENUES> 340,900
<CGS> 310,752
<TOTAL-COSTS> 334,771
<OTHER-EXPENSES> 653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,733
<INCOME-PRETAX> (3,460)
<INCOME-TAX> (675)
<INCOME-CONTINUING> (2,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,785)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
