<PAGE> 1
================================================================================
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 MARCH 31, 1997.
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 identification #)
organization)
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 April 30, 1997 was 42,615,762.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
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
MARCH 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
NET SALES............................................................. $349,585 $340,900
OPERATING COSTS:
Cost of sales.................................................... 327,159 309,944
Selling, general and administrative expense...................... 9,065 9,514
Depreciation..................................................... 16,926 14,505
-------- --------
Total operating costs.......................................... 353,150 333,963
-------- --------
INCOME (LOSS) FROM OPERATIONS......................................... (3,565) 6,937
Interest expense................................................. (11,950) (11,541)
Interest income.................................................. 832 1,797
ESOP contribution................................................ (653) (653)
-------- --------
LOSS BEFORE INCOME TAXES.............................................. (15,336) (3,460)
Income tax benefit............................................... (2,991) (675)
-------- --------
NET LOSS.............................................................. $(12,345) $ (2,785)
======== ========
PER SHARE DATA:
Weighted average number of common shares and equivalents (in
thousands) ..................................................... 42,613 42,347
NET LOSS PER COMMON SHARE............................................. $ (0.29) $ (0.07)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
UNAUDITED AUDITED
-------------- -----------------
<S> <C> <C>
Assets:
Cash and equivalents, includes restricted cash of
$2,019 and $2,010, respectively................... $ 75,253 $ 112,092
Receivables, less allowances of $9,464 and $7,684,
respectively...................................... 157,526 154,426
Inventories......................................... 228,887 259,139
Deferred income taxes............................... 51,872 51,872
Other current assets................................ 4,635 3,269
---------- -----------
Total current assets........................... 518,173 580,798
Property, plant and equipment, net.................. 621,725 610,494
Deferred income taxes............................... 94,962 91,971
Other assets and deferred charges................... 16,719 17,358
---------- -----------
Total assets................................... $1,251,579 $ 1,300,621
========== ===========
Liabilities:
Current portion of long term debt obligations....... $ 42,163 $ --
Other current liabilities........................... 228,686 271,305
Long term debt obligations.......................... 388,742 430,820
Long term pension obligations....................... 76,969 74,750
Postretirement benefits other than pensions......... 332,004 329,154
Other long term liabilities......................... 27,056 26,941
---------- -----------
Total liabilities.............................. 1,095,620 1,132,970
---------- -----------
Redeemable stock......................................... 19,100 18,447
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000
authorized; 42,821,859 and 42,592,850 shares
issued............................................ 433 426
Additional paid-in capital.......................... 455,941 455,311
Retained earnings (deficit)......................... (317,617) (305,272)
Other stockholders' equity.......................... (1,898) (1,261)
---------- -----------
Total stockholders' equity..................... 136,859 149,204
---------- -----------
Total liabilities, redeemable stock and
stockholders' equity......................... $1,251,579 $ 1,300,621
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES...................... $ 6,498 $(13,933)
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital spending................................................. (43,337) (13,446)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES................................. (43,337) (13,446)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES...................... -- --
NET CHANGE IN CASH AND EQUIVALENTS.................................... (36,839) (27,379)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD........................... 112,092 131,811
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD................................. $ 75,253 $104,432
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of capitalized interest....................... $ 9,937 $ 4,307
Income taxes paid................................................ -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
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 of operations for a full
year. As such, these financial statements should be read in conjunction with the
audited financial statements and notes thereto included or incorporated by
reference in the Company's 1996 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified, where necessary, to
conform to the presentation in the current period.
NOTE 2
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials.......................... $ 77,061 $ 87,733
Work-in-process........................ 59,667 76,526
Finished goods......................... 92,159 94,880
-------- ---------
$228,887 $ 259,139
======== =========
</TABLE>
NOTE 3
EARNINGS PER SHARE
The weighted average number of common and common equivalent shares used in
the calculation of net loss per common share were 42,612,646 and 42,346,589 for
the three months ended March 31, 1997 and 1996, respectively. The Series A
Preferred shares were excluded from the calculations for the quarters ended
March 31, 1997 and 1996, due to their antidilutive effect.
NOTE 4
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 discharge, air emissions and waste disposal.
5
<PAGE> 6
In March 1996, the West Virginia Department of Environmental Protection
("DEP") and the United States Environmental Protection Agency ("EPA") advised
the Company that it had identified a number of enforcement issues pertaining to
waste water discharge, air emissions and waste handling operations of the
Company. In September 1996, the Company and DEP and EPA reached a settlement
regarding these water, air and waste-related issues. Under the settlement, the
Company was required to pay a total penalty of $3.2 million. Such payment was
made in January 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 amount related to the remedial activity
has been accrued in the Company's balance sheet as of March 31, 1997.
The settlement also requires the Company to undertake certain capital
projects to assure compliance with water, air and waste-related regulations.
Such capital costs will include upgrades and modifications to waste water
treatment systems, air emissions control equipment and waste handling
facilities. Under the settlement, the Company committed to environmental related
capital projects currently estimated at approximately $13.4 million. Through
March 31, 1997, the Company has expended approximately $4.1 million related to
these capital commitments.
The required capital projects, 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 increased
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 increase will be material to its results of operations.
In connection with the 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 has recorded
approximately $2.9 million related to its current estimate of costs associated
with the investigative activities. It is reasonably possible that a change in
estimate will occur. Because the Company does not currently know the nature or
the extent of hazardous material 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.
The Company believes that National Steel Corporation ("NSC") is obligated
to reimburse the Company for a portion of any costs that may be incurred by the
Company to comply with the corrective action order and to undertake any required
remedial action. Pursuant to the agreement whereby the Company purchased the
Division in 1984, NSC 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.
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."
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
In the first quarter of 1997, the Company recognized a net loss of $12.3
million or $0.29 per common share, compared to a net loss of $2.8 million or
$0.07 per common share for the same period in 1996.
Net sales in the first quarter of 1997 were $349.6 million, an increase of
$8.7 million or 2.6% from the first quarter of 1996. Total shipments in the
first quarter of 1997 were 699 thousand tons compared to first quarter of 1996
shipments of 712 thousand tons.
6
<PAGE> 7
Sheet product sales for the first quarter of 1997 increased $16.8 million
to $216.9 million. Shipments of sheet product in the first quarter of 1997 were
486 thousand tons compared to 490 thousand tons in the first quarter of 1996.
The increase in sheet product sales is primarily attributable to an increase in
selling prices as well as improved product mix.
The first quarter of 1997 revenues from tin mill products were $132.7
million on shipments of 213 thousand tons compared to $140.8 million on 222
thousand tons for the same period in 1996. The decrease results primarily from
lower tin mill product shipments.
Costs of sales for the first quarter of 1997 were $327.2 million compared
to $309.9 million for the first quarter of 1996. This increase resulted
primarily from an unplanned outage of the Company's hot strip mill, costs
associated with the rebuild and subsequent startup of the No. 1 Blast Furnace
and minor disruptions in the primary metals facilities.
Interest expense for the quarter ended March 31, 1997, was $12.0 million,
an increase of $0.4 million compared to the same period in 1996. The increase in
interest expense is due to the higher levels of outstanding debt obligations and
higher average interest rates on this debt during the first quarter of 1997
compared to 1996.
During the first quarter of 1997 the Company recognized interest income of
$0.8 million compared to $1.8 million in the first quarter of 1996. The decrease
in interest income is due to a lower level of invested funds during the first
quarter of 1997 compared to the same period in 1996.
During the quarter ended March 31, 1997, the Company had an income tax
benefit of $3.0 million compared to an income tax benefit of $0.7 million in the
corresponding period in 1996. The increase in 1997 results from the generation
of a higher level of net operating loss carryforwards than in 1996 and the
recognition of a portion of the net operating losses as a deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had cash and equivalents of $75.3 million
compared to $112.1 million as of December 31, 1996. This decrease in cash and
equivalents is due primarily to the net loss for the quarter ended March 31,
1997, capital spending made in connection with the rebuild of the No. 1 Blast
Furnace, pension plan funding and the payment of an environmental penalty.
As of March 31, 1997, and December 31, 1996, 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 $78.1 and $68.0 million, respectively.
In April 1997, the Company issued a letter of credit of $15.2 million which
reduces the Company's base amount of participation interests available for cash
sale.
In the first quarter of 1997, the Company's reclassified to current $42.2
million of Senior Note obligations due March 1, 1998. Based upon available cash
on hand and the amount of cash expected to be generated from operating
activities, the Company expects to have sufficient cash to meet its near term
needs, including the retirement of the Senior Note obligations in the first
quarter of 1998 and the completion of the 1997 capital spending plan. To the
extent that cash on hand and cash from operating activities do not generate an
adequate amount of cash, the Company expects that cash requirements will be
supplemented through the Company's Receivables Participation Agreement.
The Company's net deferred tax assets increased $3.0 million to $146.8
million as of March 31, 1997, 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 1997 totaled $43.3 million. Included in capital spending is approximately
$15.2 million of 1996 capital additions included in accounts
7
<PAGE> 8
payable as of December 31, 1996 and subsequently paid in the first quarter of
1997. The Company's planned capital additions for 1997 are approximately $50.0
million and include the remaining spending for a major rebuild of the No. 1
Blast Furnace, which was completed in the first quarter of 1997, and
approximately $9.0 million related to environmental compliance.
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 discharge, air emissions and waste disposal.
In March 1996, the West Virginia Department of Environmental Protection
("DEP") and the United States Environmental Protection Agency ("EPA") advised
the Company that it had identified a number of enforcement issues pertaining to
waste water discharge, air emissions and waste handling operations of the
Company. In September 1996, the Company and DEP and EPA reached a settlement
regarding these water, air and waste-related issues. Under the settlement, the
Company was required to pay a total penalty of $3.2 million. Such payment was
made in January 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 amount related to the remedial activity
has been accrued in the Company's balance sheet as of March 31, 1997.
The settlement also requires the Company to undertake certain capital
projects to assure compliance with water, air and waste-related regulations.
Such capital costs will include upgrades and modifications to waste water
treatment systems, air emissions control equipment and waste handling
facilities. Under the settlement, the Company committed to environmental related
capital projects currently estimated at approximately $13.4 million. Through
March 31, 1997, the Company has expended approximately $4.1 million related to
these capital commitments.
The required capital projects, 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 increased
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 increase will be material to its results of operations.
In connection with the 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 has recorded
approximately $2.9 million related to its current estimate of costs associated
with the investigative activities. It is reasonably possible that a change in
estimate will occur. Because the Company does not currently know the nature or
the extent of hazardous material 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.
The Company believes that National Steel Corporation ("NSC") is obligated
to reimburse the Company for a portion of any costs that may be incurred by the
Company to comply with the corrective action order and to undertake any required
remedial action. Pursuant to the agreement whereby the Company purchased the
Division in 1984, NSC 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.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 differs from current accounting guidance in that earnings
per share is classified as basic earnings per share and diluted earnings per
share, compared to primary earnings per share and fully diluted earnings per
share under current standards. Basic earnings per share differs from primary
earnings per share in that it includes only the weighted average
8
<PAGE> 9
common shares outstanding and does not include any dilutive securities in the
calculation. Diluted earnings per share under the new standard differs in
certain calculations compared to fully diluted earnings per share under the
existing standards. Adoption of SFAS No. 128 is required for interim and annual
periods ending after December 15, 1997. Had the Company applied the provisions
of SFAS No. 128 in the first quarter of 1997 there would have been no impact on
the earnings per share calculations compared to that which is being reported.
RECENT DEVELOPMENTS
Approximately 84% of the Company's workforce is covered under collective
bargaining agreements which were scheduled to expire on September 25, 1996, and
were extended by mutual agreement. While working under these extensions and
negotiating, during the first quarter of 1997 the Company reached tentative
agreements on 54-month collective bargaining agreements with members of the
production and maintenance bargaining unit, salary non-exempt bargaining unit
and professionals bargaining units. Such tentative agreements are subject to
approval by the membership of the bargaining units. The Company is continuing
negotiations with the remaining union employees, who are represented by the
Independent Guards' Union, in an effort to reach a new collective bargaining
agreement.
On March 25, 1997, the Company began startup operations at the newly
rebuilt and modernized No. 1 Blast Furnace. On April 8, 1997, the Company began
idling the No. 3 Blast Furnace. The production at the remaining iron making
facilities is expected to provide sufficient molten iron for the Company's
steelmaking operations.
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, 1997.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on January 31, 1997.
9
<PAGE> 10
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 9, 1997
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 75,253
<SECURITIES> 0
<RECEIVABLES> 166,990
<ALLOWANCES> (9,464)
<INVENTORY> 228,887
<CURRENT-ASSETS> 518,173
<PP&E> 1,029,384
<DEPRECIATION> (407,659)
<TOTAL-ASSETS> 1,251,579
<CURRENT-LIABILITIES> 270,849
<BONDS> 388,742
19,100
74
<COMMON> 433
<OTHER-SE> 136,352
<TOTAL-LIABILITY-AND-EQUITY> 1,251,579
<SALES> 349,585
<TOTAL-REVENUES> 349,585
<CGS> 327,159
<TOTAL-COSTS> 353,150
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,950)
<INCOME-PRETAX> (15,336)
<INCOME-TAX> (2,991)
<INCOME-CONTINUING> (12,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,345)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
