<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 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 Identification No.)
incorporation or organization)
400 Three Springs Drive, Weirton, West Virginia 26062
- -------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
304-797-2000
-------------------------------
(Registrant's telephone number,
including area code)
Securities registered under Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
11 1/2% Notes due 1998 New York Stock Exchange
10 7/8% Notes due 1999 New York Stock Exchange
11 3/8% Notes due 2004 New York Stock Exchange
10 3/4% Notes due 2005 New York Stock Exchange
</TABLE>
Securities registered under Section 12(g) of the Act:
None
<PAGE> 2
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Based on the closing price as of March 14, 1997, the aggregate market
value of the voting stock held by nonaffiliates of the Registrant was
$126,183,008. The foregoing calculation includes shares allocated under the
Registrant's 1984 and 1989 Employee Stock Ownership Plans to the accounts of
employees who are not otherwise affiliates and unallocated shares under the
Registrant's 1989 Employee Stock Ownership Plan subject to voting instructions
of employees who are not otherwise affiliates.)
The number of shares of Common Stock ($.01 par value) of the
Registrant outstanding as of March 14, 1997 was 42,353,243.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain portions of the Registrant's 1996 Annual Report to Stockholders
are incorporated by reference into Parts I, II and IV of this Annual
Report on Form 10-K to the extent provided herein.
(2) Certain portions of the Registrant's definitive Proxy Statement filed
pursuant to Regulation 14 (filed within 120 days after the end of the
fiscal year covered hereby) in connection with the Registrant's 1997
Annual Meeting of Stockholders are incorporated by reference into Part
III of this Annual Report on Form 10-K to the extent provided herein.
- 2 -
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
PART I ................................................................................... 4
1. Business........................................................................... 4
2. Properties......................................................................... 20
3. Legal Proceedings.................................................................. 21
4. Submission of Matters to a Vote of Security Holders................................ 21
PART II ................................................................................... 22
5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 22
6. Selected Financial Data............................................................ 23
7. Management's Discussion and Analysis of Results of Operations and Financial
Condition...................................................................... 23
8. Financial Statements and Supplementary Data........................................ 23
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................................... 23
PART III ................................................................................... 24
10. Directors and Executive Officers of the Registrant................................. 24
11. Executive Compensation............................................................. 26
12. Security Ownership of Certain Beneficial Owners and Management..................... 26
13. Certain Relationships and Related Transactions..................................... 26
PART IV ................................................................................... 27
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................... 27
SIGNATURES......................................................................................... 32
EXHIBIT INDEX...................................................................................... 34
FINANCIAL STATEMENT SCHEDULES...................................................................... S-1
</TABLE>
- 3 -
<PAGE> 4
PART I
ITEM 1. BUSINESS
BACKGROUND
Weirton Steel Corporation (the "Company") and its predecessor
companies have been in the business of making and finishing steel products for
nearly 90 years at the Company's facilities located in Weirton, West Virginia.
From November 1929 to January 1984, the Company's business had been operated as
the Weirton Steel Division of National Steel Corporation. Incorporated in
Delaware in November 1982, the Company acquired its principal operating assets
in January 1984.
The Company is a major "integrated" steelmaker. As such, it makes
carbon steel from raw materials to industry and customer specifications. In
primary steelmaking, iron ore pellets, iron ore, coke, limestone and other raw
materials are consumed in blast furnaces to produce molten iron or "hot metal."
The Company then converts the hot metal into raw or liquid steel through its
basic oxygen furnaces where impurities are removed, recyclable scrap is added
and metallurgy for end use is determined on a batch by batch basis. The
Company's basic oxygen process shop ("BOP") is one of the largest in North
America, employing two vessels, each with a steelmaking capacity of 360 tons
per heat. Liquid steel from the BOP is then formed into slabs through the
Company's multi-strand continuous caster. The slabs are then reheated, reduced
and finished into coils by extensive rolling and shaping at the Company's
modern hot strip mill and, in many cases, by further tempering, plating or
coating at the Company's downstream finishing operations. See Item 2.
"Properties" for a more detailed description of the specific units involved in
the Company's operations.
PRINCIPAL PRODUCTS AND MARKETS
The Company offers a wide range of rolled carbon steel products,
including hot and cold rolled sheet steel and both hot-dipped and electrolytic
galvanized products (collectively, "Sheet Products"), as well as a broad line
of coated steels, including tin plate, chrome coated, and black plate,
comprising Tin Mill Products ("TMP"). The Company's products emphasize the
narrow to medium widths, up to 48" wide, reflective of its rolling and
finishing equipment, and cover a broad range of gauges, finishes and
performance specifications. The Company has developed significant expertise in
filling orders with demanding specifications.
The percentages of the Company's total revenues derived from the sale
of Sheet Products and TMP for each year in the five year period ended December
31, 1996 are shown in the following table. Total revenues include the sale of
"secondary" products, principally those products not meeting prime
specifications. Revenues from the sale of semi-finished products have been
combined with Sheet Products.
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
1996 1995 1994(1) 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sheet products............. 59% 64% 70% 54% 48%
Tin mill products.......... 41 36 30 46 52
----- ----- ----- ----- ------
100% 100% 100% 100% 100%
===== ===== ===== ===== ======
</TABLE>
- ----------------
(1) The percentage increase during 1994 in Sheet Product revenues compared
to TMP revenues resulted from strong market demand for the Company's
Sheet Products and a fire in April 1994 that severely damaged a cold
rolling facility required for the production of a substantial portion
of the Company's TMP. The facility was rebuilt and returned to normal
operations in the first quarter of 1995, which allowed the Company to
resume a more traditional product mix. See "Comparative Production and
Shipments" herein and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following table shows the percentage of total net tons of steel
products shipped by the Company to each of its principal markets for the five
year period ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Service Centers and Sheet
and Strip Converters........
48% 43% 45% 30% 24%
Food and Beverage........... 30 25 25 37 41
Pipe and Tube............... 6 7 6 12 11
Construction................ 8 9 13 9 8
Consumer Durables........... 2 3 4 4 6
Exports..................... 2 9 -- 1 3
Other....................... 4 4 7 7 7
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
A substantial portion of the Company's revenues are derived from
long-time customers, although the Company actively seeks new customers and
constantly seeks new markets for its products. A substantial share of the
Company's Sheet Products and TMP are shipped to customers located in the
eastern portion of the United States. A strong demand worldwide for flat rolled
carbon steel products that began in 1994 continued throughout 1995. The Company
responded by exporting approximately 9% of its shipments in 1995 compared to
previous years when only nominal quantities were shipped to export markets. The
Company's export efforts were hampered in 1996 by unfavorable exchange rates
and prices in foreign markets which disadvantaged domestic producers. As a
result, the Company experienced a sharp reduction in its 1996 exports of Sheet
Products, while TMP exports actually increased. The Company plans to ship
products to international markets when favorable economic and business
conditions exist.
- 5 -
<PAGE> 6
The Company's products are sold through salaried Company employees who
operate from corporate headquarters and through seven regional sales managers.
Sales orders taken in the field are subject to home office approval. Several
years ago the Company combined its sales force structure from separate Sheet
Products and TMP organizations into a unified commercial sales organization.
The unified organization is closely linked with technical services personnel
who assist the Company with product engineering and development. The Company
believes that the sales organization plays an important role in identifying and
achieving a more favorable strategic market mix for the Company. In October
1996, the Company became the first major domestic producer to initiate product
sales from its Internet website (http://www.weirton.com), which is updated
daily with excess and non-prime offerings.
Trade orders on hand for the Company's products at December 31, 1996,
1995 and 1994 amounted to approximately 528, 418 and 494 thousand tons,
respectively. Substantially all orders on hand at any time are expected to be
filled within a 12 month period. Since the Company produces steel in response
to orders primarily of established grades and specifications, resulting in
short order processing time and relatively rapid inventory turnover, it does
not believe that order backlog is material to its business.
Sheet Products. Hot rolled products are sold directly from the hot
strip mill as "hot bands," or are further processed using hydrochloric acid to
remove surface scale and are sold as "hot rolled pickled" or "hot rolled
pickled and oiled." Hot roll is used for unexposed parts in machinery,
construction products and other durable goods. Most of the Company's sales of
hot rolled products have been to steel service centers, pipe and tube
manufacturers and converters. In 1996, the Company shipped 974 thousand tons of
hot rolled sheet, which accounted for 23% of its total revenues.
Cold rolled sheet requires further processing including additional
rolling, annealing and tempering to enhance ductility and surface
characteristics. Cold roll is used in the construction, steel service center,
commercial equipment and container markets, primarily for exposed parts where
appearance and surface quality are important considerations. In 1996, the
Company shipped 242 thousand tons of cold rolled sheet, which accounted for 8%
of its total revenues.
Galvanized hot-dipped and electrolytic sheet is coated primarily with
zinc compounds to provide extended anti-corrosive properties. Galvanized is
sold to the electrical, construction, automotive, container, appliance and
steel service center markets. In 1996, the Company shipped 654 thousand tons of
galvanized products, which accounted for 27% of total revenues.
Generally, the Company obtains relatively higher profit margins on
those Sheet Products that require more extensive processing. The differences in
the spreads of pricing among these products have varied over time depending on
changes in their uses, demand and the competitive environment. Sheet Products
of the hot rolled variety are widely regarded as commodity items in the steel
industry.
- 6 -
<PAGE> 7
The following table, based on information from the American Iron and
Steel Institute ("AISI"), shows the Company's historical share of the domestic
Sheet Products market for each year in the five year period ended December 31,
1996.
Sheet Products
Historical Market Share
-----------------------
(In thousands of tons)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Industry shipments............. 50,022 47,845 47,217 41,616 38,099
Company shipments(1)........... 1,957 1,956 1,991 1,536 1,206
Company market share........... 3.9% 4.1% 4.2% 3.7% 3.2%
</TABLE>
- ----------------
(1) Includes secondary products.
While the Company's presence in the overall domestic Sheet Products
market is limited, in order to compete more effectively, the Company has
concentrated on developing offerings of more highly processed products and
production capability to provide the coil sizes favored by most of its
customers. The Company's strategy for development of its sheet business is
focused on increasing its mix of coated products, such as galvanized, while
capitalizing on developing specialty markets, such as construction, where the
Company believes that its GALFAN (registered trademark) products have potential
applications in roofing and framing. As part of its Sheet Products marketing
strategy, the Company is also making efforts to develop relationships with
strip re-rollers to increase sales of its cold rolled products, to enhance high
quality end use of its products marketed through steel service centers, and to
develop the hot rolled market for heavier gauge and higher carbon applications.
Tin Mill Products. The Company has enjoyed substantial market share
and a widely held reputation as a high quality producer of TMP. Although
categorized as "tin mill products," these products actually comprise a wide
variety of light gauge coated steels. Tin plate and black plate products are
sold under the Company name and under such registered trademarks as WEIRITE and
WEIRLITE. In addition to tin plate and black plate, the Company produces
electrolytic chromium coated steel under the registered trademark WEIRCHROME.
The Company is one of the largest domestic producers of TMP. During
1996, the Company's market share of TMP was approximately 22%. The Company's
market share of TMP has consistently approximated 22%, except for 1994 when it
achieved only a 15% share due to an extended cold rolling facility outage which
reduced the Company's TMP shipments significantly in the second half of that
year. TMP shipments on an industry-wide basis have remained relatively steady
in recent years even as plastic, aluminum, composites and other materials have
competed for potential growth in some applications. The TMP market is now
primarily directed at food, beverage, and general line cans. The majority of
the Company's TMP sales have been to can manufacturing and packaging companies,
a substantial amount of whose
- 7 -
<PAGE> 8
annual requirements are established in advance. This market is characterized by
a relatively small number of manufacturers and increasing concentration of
buying power. During 1996, shipments to the Company's five largest TMP customers
accounted for 21% of total revenues and shipments to Ball Corporation accounted
for approximately 10% of total revenues. The balance of the TMP is sold to
other can manufacturers, manufacturers of caps and closures and specialty
products ranging from film cartridges, lighting fixtures and battery jackets to
cookie sheets and curtain rods. As a result of more predictable sales patterns
for TMP, the Company is able to determine in advance a significant portion of
its production requirements, allowing it to operate its production facilities
more efficiently and adjust its marketing and production efforts for other
products. Historically, the greater predictability of the TMP market and its
relative pricing stability have served to cushion the Company against greater
price volatility in the Sheet Product market. However, TMP has long been a
market with limited opportunities for expansion on the domestic front.
The following table, based on AISI information, shows the Company's
historical share of the domestic TMP market for each year in the five year
period ended December 31, 1996.
Tin Mill Products
Historical Market Share
-----------------------
(In thousands of tons)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TMP industry shipments......... 4,108 3,942 4,137 4,123 3,927
Company shipments(1)........... 899 763 615 895 890
Company market share........... 22% 19% 15% 22% 23%
</TABLE>
- ----------------
(1) Includes secondary products.
The Company's strategy for the development of its TMP business focuses
on increasing sales to existing customers, extending the customer base and
international expansion. The Company has targeted selected overseas markets,
particularly in Asia and South America, which have a relatively low per capita
rate of can consumption. As these markets develop, the rate of can consumption
is expected to increase. The Company is attempting to establish relationships
that will permit penetration of these international markets for Company
products when favorable economic and business conditions exist.
The Company has the capacity to produce sufficient quantities of
"clean" steel (steel with fewer impurities) to fill anticipated TMP orders for
the near term. The Company's facilities and expertise also allow it to produce
the lightest gauges of tin plate, enhancing the manufacturing efficiencies of
the Company's customers and promoting the use of its steel in leading edge
technology products such as thin-walled containers.
- 8 -
<PAGE> 9
The Company has been a leading innovator in the development of can
making technology through its WEIRTEC (registered trademark) research and
development center. Although highly competitive prices for aluminum have
relegated steel to an insignificant share of the domestic beverage container
market in recent years, the Company believes that two piece thin-walled steel
beverage containers have potential for growth in this sector, based primarily
on improved production efficiencies for steel cans and increased industry
success in promoting the recycling of steel. However, the Company also believes
it is unlikely that this potential will be realized without a sustained
increase in aluminum prices and an effective program by domestic TMP producers
encouraging can makers to convert beverage can lines to steel. The Company
engages in other end product research and development and provides support
services to its customers. The Company believes these services have been of
significant assistance, particularly to its TMP customers, and promote the
consumption of the Company's products. See "Research and Development."
The Company owns and operates a 1.1 million square foot Finished
Products Warehouse (the "FPW") near the Company's mill with storage and staging
areas for TMP. The FPW facilitates "just in time" production and delivery to
eight of the Company's major TMP customers which are located in attached, or
nearby, manufacturing facilities. As steel coils are needed by customers'
operations, they are moved from the adjoining central storage areas and loaded
directly on to customers' production lines. This arrangement provides
reductions in transportation costs for the Company and its customers.
RELATED PRODUCTS AND SERVICES
After conducting successful developmental activities, the Company is
currently rolling and finishing various types and grades of stainless steel on
its hot mill on a tolling basis for several major stainless steelmakers.
Special operating procedures and expertise, generally not possessed by the
Company's domestic integrated carbon steel competitors, are required to roll
and finish stainless steel. To date, revenues from these activities have not
been material to the Company. From time to time, the Company has produced and
sold carbon steel slabs and hot metal to other carbon steelmakers. On limited
occasions, the Company has also performed downstream processing of products for
other carbon steelmakers, as well as having its own products further processed
by other steelmakers.
BUSINESS STRATEGY AND DEVELOPMENT
The Company's strategic objective is to be a first tier global
provider, in terms of cost, quality and customer service, of TMP and other
specialty coated and plated products. The Company's business strategy seeks to
achieve this objective by: (i) continuing to make cost and productivity
improvements; (ii) further improving its product mix toward higher value-added
products such as TMP and coated sheet; and (iii) maximizing the utilization of
its assets.
The Company's cost and productivity projects now being implemented
include: a capital improvement plan providing for, among other things, a major
reline and rebuild of the No. 1 Blast Furnace, together with related computer
system and automation upgrades, and the addition of looping capacity and shape
measurement and control systems at the No. 9 Tandem Mill
- 9 -
<PAGE> 10
(substantially rebuilt after a 1994 fire); new supply management programs to
coordinate and reduce costs in the procurement of material and services; new
programs to reduce energy and raw material requirements, ranging from scrap
management, to enhanced blast furnace turbo blowers to exploring the feasibility
of structuring a project leading to blast furnace pulverized coal injection
("PCI"); and programs to rationalize human resources with the Company's
competitive needs, including achieving new collective bargaining agreements with
the Company's unionized work force.
The Company's product mix improvement efforts are complementary to its
productivity improvements in that they seek to take advantage of the Company's
enhanced capability to produce a greater proportion of higher value added
products. The Company's product mix improvement efforts are focused on the
targeting of selective international markets for TMP and the development of
domestic specialty markets for coated products, such as galvanized in
construction and light gauge high tensile steel in packaging, together with
enhanced sales-customer-technical coordination and improved production
management and information systems.
The Company also seeks to maximize the utilization of available assets
through a number of projects and initiatives. As indicated in Item 2
"Properties", the design capacity of the Company's hot mill (rebuilt in 1992)
exceeds the design capacity of the Company's multi-strand caster (rebuilt in
1990) to produce slabs for reduction at the hot mill. As noted in "Related
Products and Services", the Company has utilized some of its excess hot mill
capacity in tolling activities for stainless and other carbon steelmakers and
in processing purchased slabs for its own value-added products as required by
the Company's order book. The Company has also sought to increase the amount of
hot metal from blast furnace operations and to improve operating practices in
order to maximize steelmaking at its BOP shop and caster and to increase
throughput at its value added downstream finishing facilities by, among other
things, enhancing its No. 9 Tandem Mill.
The Company continually develops and reviews strategies designed to
enhance the scope and improve the profitability of its business. In connection
with such activities, the Company is pursuing through discussions and
negotiations, or has under consideration, a variety of projects aimed at
exploiting product use, penetrating new markets or reducing operating costs.
These projects, if developed by the Company, could include joint ventures,
partnering or strategic alliances. The Company cannot predict whether, or to
what extent, the projects resulting from its ongoing business development
strategies will be implemented.
RAW MATERIALS
Unlike many of its larger competitors, the Company does not own or
participate in the ownership of raw material mining reserves from which it can
draw its production requirements. As a result, the Company must buy these
materials on the open market.
The Company has a contract with a subsidiary of Cleveland-Cliffs Inc.
to purchase a substantial part of the Company's standard and flux grade iron
ore pellet requirements through 2005. The contract provides for a minimum
tonnage of pellets to be supplied based on the production capacity of the
mining source during the contract periods, and for additional tonnages
- 10 -
<PAGE> 11
of pellets in specified circumstances. Purchase prices under the contract
generally depend upon the product costs of one of the mines.
The Company obtains the balance of its iron ore pellets and limestone
requirements, in most cases, from multiple sources with the issue being price
and quality rather than availability of supply.
The Company, unlike a number of its competitors, does not operate its
own coke making facilities. The Company has a contract with USX Corporation to
purchase blast furnace coke for a term which extends through December 31, 2001,
subject to extension. Under the contract, the Company must give notice by
mid-October of each year of its required coke volumes for the following year
and has the option to purchase up to 100% of its coke requirements for each
year, subject to a minimum of either 80% of requirements or a fixed tonnage,
depending on certain operating configurations at the Company's blast furnaces.
If the Company does not commit to take the tonnages above minimum requirements
for any year, the supplier has the option of determining whether it will supply
future tonnages above the minimum, until such time as it actually does so,
after which the Company again has the option to take its full requirements.
Coke prices under the contract are based on the prevailing market, subject to a
ceiling and floor over the life of the contract, a limit on annual change, and
certain adjustments based on blast furnace operations. The Company also had a
secondary coke supply agreement with another producer which expired in December
1996. The Company, like other steelmakers, has utilized or is planning to
install technologies calculated to achieve some reduction in the consumption of
coke in blast furnace operations. In addition, the Company continues to explore
alternative sources for coke, including from overseas suppliers. Nevertheless,
if coke making capacity available to the industry continues to decline, future
coke prices may be subject to significant escalation.
The Company utilizes scrap in its steelmaking process. Scrap steel is
available from multiple sources with the issue being price and quality rather
than availability of supply.
The Company operates as a 100% continuously cast producer. However,
the Company's requirements for slabs have from time to time exceeded the
production capacity of the Company's caster. Slabs from outside sources have
also been required as a result of production outages from iron or steelmaking
operations. Accordingly, the Company has purchased and may continue to
purchase slabs from other sources in order to meet the demand for its products
and to maximize the overall production efficiency of its operations. At the
present time, the Company expects to be able to purchase slabs as and when
needed.
The primary sources of energy used by the Company in its steel
manufacturing process are natural gas, oil, and electricity. In recent years,
the Company has entered into natural gas purchase contracts with gas suppliers
and transportation contracts with transmission companies. These long term
arrangements have helped to reduce or control fluctuations in prices paid for
gas. In 1995, the Company entered into a 15-year contract for the supply of
oxygen to its steelmaking facilities. This agreement significantly reduced the
Company's oxygen supply costs.
- 11 -
<PAGE> 12
The Company generates a significant amount of electricity and
steam for processing operations from a mixture of excess blast furnace gas and
natural gas. The Company continually attempts to conserve and reduce the
consumption of energy in its steelmaking operations. A number of the Company's
facilities have alternate fuel burning capability. A substantial increase in
the Company's energy costs or a shortage in the availability of its sources
could have an adverse effect on the Company.
Management believes that the Company's long term raw materials
contracts are at generally competitive terms.
COMPARATIVE PRODUCTION AND SHIPMENTS
After experiencing a steep decline in production and shipments for
1991, the domestic steel industry experienced a rebound in both production and
shipments over the five year period from 1992 through 1996. Similarly,
capability utilization increased to more than 90% over the period, peaking at
93% in 1995. Industry raw steel production for 1996 at 102.2 million tons
represented a small decline compared to 1995, while shipments increased by
approximately 3.0% to 100.5 million tons. Steelmaking capability of the
domestic industry, which had been declining through 1994, continued to increase
substantially through 1996, as new facilities entered the marketplace.
In 1996, the Company produced 2.8 million tons of raw steel and
shipped 2.9 million tons of finished and semi-finished steel products including
the highest level of shipments in the Company's history. The following table
sets forth annual production capability, utilization rates and shipment
information for the Company and the domestic steel industry (as reported by the
AISI) for each year in the five year period ended December 31, 1996.
Production and Shipments
Historical Market Share
------------------------
(In thousands of tons)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Company
<S> <C> <C> <C> <C> <C>
Raw steel production...................... 2.8 2.8 2.7 2.7 2.5
Capability................................ 3.0 3.0 3.0 3.0 3.0
Utilization............................... 95.0% 95.0% 91.0% 91.0% 83.0%
Shipments................................. 2.9 2.7 2.6 2.4 2.1
Shipments as a percentage of industry
total................................... 2.9% 2.8% 2.7% 2.7% 2.6%
Industry
Raw steel production...................... 102.2 102.7 97.9 96.1 91.6
Capability................................ 116.1 110.4 108.2 109.9 113.1
Utilization............................... 90.0% 93.0% 91.0% 87.0% 81.0%
Shipments................................. 100.5 97.5 95.3 88.4 82.3
</TABLE>
- 12 -
<PAGE> 13
COMPETITION AND OTHER INDUSTRY FACTORS
The domestic steel industry is a cyclical business with intense
competition among producers. Manufacturers of products other than steel,
including plastics, aluminum, cardboard, ceramics and glass, have made
substantial competitive inroads into traditional steel markets. During
recessionary periods, the industry's high level of production capacity relative
to demand levels has resulted in the reduction of selling prices across a broad
range of products.
Integrated steelmakers also face increased competition from
mini-mills. Mini-mills are efficient, low-cost producers that generally
produce steel by melting scrap in electric arc furnaces, utilize new
technologies, have lower employment costs and target regional markets.
Mini-mills historically have produced lower profit margin products, such as
bars, rods, wire and other commodity-type steel products not produced by the
Company. Recently developed thin cast technology has allowed mini-mills to
enter certain of the sheet markets supplied by integrated producers. Six such
facilities have been placed in operation and are competing in the hot rolled,
cold rolled and galvanized marketplace, and other entities have announced plans
or are in the process of starting similar facilities. In other instances,
mini-mills seeking to capture segments of the flat rolled market have located
facilities where they are geographically advantaged compared to their
integrated competition. In general, prices for scrap, on which mini-mills are
more dependent than integrated steel producers, have increased the operating
costs of mini-mills. In response, some mini-mills have begun to develop scrap
substitution iron-making technologies. Mini-mills generally continue to have a
cost advantage over integrated steel producers. Most of the new capacity in the
domestic industry has resulted from growth in mini-mill operations, some of
which rival the capacity and product range of the integrated mills.
In response to increased competition, domestic steel producers have
invested heavily in new plant and equipment, which has improved efficiency and
increased productivity and quality. Many of these improvements are in active
service and, together with the achievement of other production efficiencies,
such as manning and other work rule changes, have tended to lower costs. In
addition, it is estimated that approximately 8 to 12 million tons of new
steelmaking capacity (primarily mini-mills) will be in place within the next
three years, further threatening the viability of less efficient facilities.
The Company has responded to competitive cost reductions through its own
capital improvement program and ongoing cost reduction efforts to achieve
operating efficiencies. Through 1992, the Company's efforts focused on its
steelmaking operations and hot mill. Since that time, the focus has shifted to
downstream operations and primary iron making.
Domestic producers face competition from foreign producers over a
broad range of products. Many foreign steel producers are aligned with
governmental interests and thereby subject to influence by political and
economic policy considerations, as well as prevailing market conditions.
Voluntary restraint arrangements covering 17 steel exporting nations and the
European Community, which limited steel imports into the United States market,
expired in 1992. A replacement structure (entitled the "Multilateral Steel
Agreement") to eliminate subsidies and other unfair trade practices by foreign
producers has been under negotiation since
- 13 -
<PAGE> 14
1992, without successful completion. In recent years, various domestic steel
producers filed extensive unfair trade cases covering imports of flat rolled
carbon steel products against foreign producers. These cases sought the
imposition of anti-dumping and countervailing duties on products alleged to have
caused injury to domestic producers. A high watermark for these cases occurred
in 1993 when the U.S. International Trade Commission (the "ITC") ruled
anti-dumping and/or countervailing duties should be imposed on imports of
galvanized sheet and plate representing the majority of imports, and on cold
rolled sheet accounting for approximately one-third of total imports. A number
of these cases were appealed and the Court of International Trade has upheld the
ITC decisions. A number of other cases have been filed with mixed results and
others are in progress. In general, the Company believes that the decisions have
not increased significantly the duties for those imports to levels where they
have served as effective competitive barriers. As a percentage of domestic
consumption, steel imports excluding semi-finished products (primarily slabs),
were at approximately 23%, 21%, and 24% in 1996, 1995 and 1994, respectively.
Competitive pressure from imports has been most intense at times when the U.S.
dollar has risen strongly against foreign currencies, increasing their pricing
advantages. In March 1997, the Company joined with two other domestic steel
producers and 29 domestic pipe and tube producers in requesting United States
government agencies to file a protest with the World Trade Organization (the
"WTO") over actions taken by the Republic of Korea to subsidize a Korean
producer, allegedly in violation of the WTO subsidy code, permitting the Korean
producer to flood Asian markets with low priced hot-rolled steel. The protest is
in the fact finding stage. If the WTO finds a subsidy violation, it could seek
to force the Korean producer to repay the subsidies or allow the United States
to impose compensatory duties.
The Company's primary competitors in Sheet Products consist of most
domestic and international integrated steel producers and mini-mills. The
Company's primary TMP competitors in recent years have been USX Corporation,
LTV Corporation, Bethlehem Steel Corporation, National Steel Corporation and
USS-POSCO Industries.
The Company experiences strong competition in all its principal
markets with respect to price, service and quality. The Company believes that
it competes effectively in all these categories by focusing its marketing
efforts on creating strong customer relationships by providing high quality
products at competitive prices.
RESEARCH AND DEVELOPMENT
The Company engages in research and development for the improvement of
existing products and processes, and the development of new products and
product applications. During 1996, 1995 and 1994, the Company spent
approximately $3.4 million, $3.2 million, and $6.3 million, respectively, for
research and development activities. WEIRTEC, the Company's research and
development center specializing in the advancement of steel can making
technology, maintains research and prototype steel packaging manufacturing
facilities, analytical laboratory facilities and computer simulation systems in
Weirton, West Virginia. In recent years, WEIRTEC has played a central role in
the development of thin-wall, two piece beverage can technology and other
products seeking to capitalize on the Company's production expertise,
particularly in coated products. WEIRTEC research projects have also included
clean steel
- 14 -
<PAGE> 15
production techniques, polymer to steel lamination, and the application of
galvanized steel products to the residential and commercial construction
industry. WEIRTEC assists customers in the development of new products and
collaborates with the AISI in the development of new product lines and
production techniques to increase the use and quality of steel as a material of
choice. The Company believes that the scientists, engineers, technicians and the
WEIRTEC facilities enhance the Company's technical excellence, product quality
and customer service.
The Company owns a number of patents that relate to a wide variety of
products and applications and steel manufacturing processes, has pending a
number of patent applications, and has access to other technology through
agreements with other companies. The Company believes that none of its patents
or licenses, which expire from time to time, or any group of patents or
licenses relating to a particular product or process, is of material importance
in its overall business. The Company also owns a number of registered
trademarks for its products.
ENVIRONMENTAL CONTROL
Compliance. The Company is subject to extensive federal, state and
local laws and regulations governing discharges into the air and water, as well
as the handling and disposal of solid and hazardous wastes. The Company is also
subject to federal and state requirements governing the remediation of
environmental contamination associated with past releases of hazardous
substances. In recent years, environmental regulations have been marked by
increasingly strict compliance standards. Violators of these regulations may be
subject to civil or criminal penalties, injunctions or both. Third parties also
may have the right to sue to enforce compliance.
Capital expenditures for environmental control facilities were
approximately $9.4 million in 1996, $3.9 million in 1995, and $3.2 million in
1994. For 1997, the Company has budgeted approximately $6.0 million in capital
expenditures for environmental control facilities. Given the nature of the
steelmaking industry, it can be expected that additional capital expenditures
will be required from time to time to permit the Company to remain in
compliance with current and future environmental regulations. Since the effects
of future requirements are not determinable at present, it is not possible to
predict the ultimate future cost of compliance. The Company, like its
competitors, does not expect to be able to pass on to customers cost increases
specifically resulting from compliance with environmental regulations.
In the past, the Company has resolved environmental compliance issues
through negotiated consent orders and decrees with environmental authorities,
pursuant to which the Company has paid civil penalties. The Company believes
that it is in substantial compliance with its environmental control consent
orders and decrees.
Multimedia Enforcement Settlement
In December 1993, the Company was informed by the West Virginia
Division of Environmental Protection (the "DEP") that the Environmental
Protection Agency (the "EPA") was considering initiating a "multimedia"
enforcement action against the Company. Multimedia actions involve coordinated
enforcement proceedings related to various environmental media
- 15 -
<PAGE> 16
such as water, air and waste. In recent years, such actions have resulted in
penalties and other commitments being obtained from many of the Company's
competitors.
In March 1996, the EPA and the DEP advised the Company that they had
identified a number of enforcement issues pertaining to water discharges, air
emissions and waste handling operations by the Company. The agencies proposed
that the parties attempt to resolve these issues during a six-month negotiation
period.
The Company executed a consent decree with the governmental agencies
in October 1996 in resolution of such issues. Under the consent decree, the
Company was required to pay a civil penalty of $3.2 million, which was paid in
January 1997. Additionally, the Company is required to conduct excavation,
cleanout and disposal of the contents in two treatment lagoons at an
approximate cost of $1.6 million. The consent decree also requires the Company
to undertake certain additional capital projects to assure compliance with
water, air and waste-related regulations in accordance with detailed
construction schedules. Such projects will include upgrades and modifications
to air emissions control equipment, wastewater treatment systems and waste
handling facilities. The environmental capital projects mandated by the consent
decree are estimated to total approximately $13.4 million, a significant
portion of which had been included in the Company's capital budget prior to the
negotiations which led to the settlement. The consent decree provides for
stipulated penalties for non-compliance.
The required capital projects, as well as other terms of the consent
decree, will necessitate changes in operating procedures at the Company's
facilities. While the Company will attempt to mitigate any increased operating
costs attributable to these changes, it nevertheless expects operating costs to
increase as a result of the requirements. At the present time, it is not
possible to estimate such increases, but the Company does not believe that any
such increase will be material to its results of operations.
Water Discharge Permitting
In June 1994, the DEP issued a renewal National Pollutant Discharge
Elimination System ("NPDES") permit to the Company for its water discharges.
The renewal NPDES permit contained a number of new requirements, including
stringent "water quality-based" effluent limitations based on a new West
Virginia regulation (the "Regulation"). The Company appealed the renewal permit
to the West Virginia Environmental Quality Board (the "EQB").
In August 1995, the EQB submitted to the West Virginia Legislature
significant changes to the Regulation. The proposed changes were enacted by the
Legislature in March 1996. The changes have resulted in re-calculated water
quality-based effluent limitations which the Company believes it can meet with
certain modifications to its existing wastewater treatment facilities.
In February 1997, the Company reached a settlement with the DEP
regarding the NPDES appeal. There are several remaining issues, the resolution
of which will be based on the results of studies which will be undertaken. It
is not possible at this time to estimate the costs which may be necessitated as
a result of such studies. However, the Company believes that such
- 16 -
<PAGE> 17
settlement and the completion of the studies and any necessary activities
pursuant to the studies will enable it to comply with the NPDES permit
requirements and limitations within the time frames provided for in the
settlement.
RCRA Corrective Action Order
In connection with the multimedia consent decree in 1996, the EPA also
issued a corrective action order. The order requires 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
does not know the nature or extent of hazardous materials located on its
property and it is not possible at present to estimate the ultimate cost to
comply with the order or to conduct any required remedial activity. However,
the Company has recorded approximately $2.9 million related to its current
estimate of costs associated with the investigative activities. The Company
believes that it may be entitled to indemnification, as described below, for at
least a portion of the costs incurred by the Company to comply with the
corrective action order and to undertake any required remedial action.
Waste Sites. Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and similar
state statutes, the EPA and state regulators have authority to impose strict,
joint and several liability on waste generators, owners, operators and other
potentially responsible parties ("PRPs") for the cost of remediating
contaminated properties. By reason of the agreements pursuant to which the
Company purchased the operating assets of the Weirton Steel Division (the
"Division") from National Steel Corporation ("National"), the Company is
entitled to indemnification from National for certain environmental
liabilities, including those relating to the remediation of certain
contaminated sites, as more fully described below. The Company understands that
National has provided notices to EPA regarding a number of such sites as
required by law. The Company further understands that National has been
involved, at the request of the EPA or state agencies, in voluntary remedial
activities with respect to a number of such sites. Insofar as any of those
sites involve liabilities under environmental laws or regulations for prior
Division activities, the Company believes it is indemnified by National.
The Company and/or its predecessors have been conducting steel
manufacturing and related operations at various locations, including the
Company's current plant site, for almost 90 years. Although the Company and its
predecessors utilized operating practices that were standard in the industry at
the time, hazardous substances may have been released on or under these sites.
In accordance with regulatory requirements under the Resource, Conservation and
Recovery Act ("RCRA"), the Company is required to investigate these prior
releases and take corrective action where deemed appropriate. See "RCRA
Corrective Action Order." In addition, the Company and its predecessors have
disposed of solid and hazardous wastes at various off-site waste disposal
sites. Pursuant to CERCLA and similar state laws, the Company may be required
to remediate contamination at some of these sites or participate in the sharing
of such costs as deemed necessary. The Company does not have sufficient
information to estimate its potential liability in connection with potential
future remediation in general. However, the Company
- 17 -
<PAGE> 18
believes that if any such remediation is required, it will occur over an
extended period of time. In addition, the Company believes that many of these
sites may also be subject to indemnity obligations by National to the Company.
Tex Tin Site
In September 1989, the EPA notified the Company that it was considered
to be among a number of PRPs for the disposal of wastes at the Tex Tin site
near Texas City, Texas, and requested the Company's voluntary participation in
certain remedial actions. The Company's records do not indicate any involvement
with the site by the Company. Both the Company and National were named as
defendants in a suit filed by Amoco Chemical Corporation in the U.S. District
Court for the Southern District of Texas in May 1996; the Company, however, was
never served with a summons and thus is not currently a party to the action.
The suit alleges that the Company, National and numerous other defendants are
liable for Amoco's remedial costs expended at the Tex Tin site. The Company
believes that National would be responsible for any remedial actions if there
had been prior involvement by the Division. The Company has given all required
notices to National for the purpose of facilitating its response to this
matter.
Hanover Township Site
In May 1992, the Company received notice from the Pennsylvania
Department of Environmental Resources that it was considering a closure plan
and post-closure plan for a solid waste landfill facility in Hanover Township,
Pennsylvania (the "Hanover Site") operated by Starvaggi Industries Inc. From at
least the 1960's through mid-1983, National and, after mid-1983, the Division
and the Company disposed of solid wastes at the facility. The Company believes
that while it disposed of various materials which were residual to the
steelmaking industry, such materials were not classified as hazardous wastes
under applicable law. At this time, definitive closure plans and post-closure
care plans have not been adopted. National's liability with respect to the
closure of this facility is limited to $1.0 million. Although there can be no
assurances, the Company does not anticipate that the costs for site closure
will exceed the limitation on National's liability.
Shiloh Landfill
The Company leases certain real property in Hancock County, West
Virginia, known as the Shiloh Landfill ("Shiloh Landfill"), from Shiloh River
Corporation ("SRC"). Under an agreement with SRC, which remains the operator of
the solid waste landfill at that site, the Company is the intended sole
disposer. The Company disposes of some of its general refuse, construction and
demolition debris, and industrial non-hazardous waste materials at the Shiloh
Landfill. In February 1997, SRC received a compliance order from the DEP, which
cited a number of operational deficiencies and required Shiloh Landfill to
undertake numerous activities for the purposes of remediating alleged
violations of applicable law and regulations. Although certain of the required
activities were undertaken by Shiloh Landfill in a timely manner, SRC and the
Company filed a notice of appeal on March 11, 1997 with regard to certain other
requirements and allegations. No further action has taken place with regard to
the appeal at this time.
- 18 -
<PAGE> 19
Indemnification. According to the agreements by which the Company
acquired the assets of the Division from National, the Company is entitled to
indemnification from National for liabilities, including governmental and
third-party claims, arising from violations prior to the acquisition, and
National is entitled to indemnification from the Company for such items after
the acquisition. In addition, the Company, subject to the $1.0 million
limitation applicable to the Hanover Site described above, is entitled to
reimbursement for clean-up costs related to facilities, equipment or areas
involved in the management of solid or hazardous wastes of the Division ("Waste
Sites"), as long as the Waste Sites were not used by the Company after the
acquisition. Third-party liability claims relating to Waste Sites are likewise
covered by the respective indemnifications.
The Company's ability to obtain future reimbursement or
indemnification relating to environmental claims from National depends, in
addition to National's continued financial viability, on the nature of future
claims made by the Company, whether the parties can settle any differences
relating to indemnification rights and the outcome of any proceedings involving
the Company and National regarding such issues. The Company understands that
National itself has indemnification arrangements with its former parent
corporation which may be applicable to provide funding for the payment of
environmental liabilities relating to the Division. In addition, National has
instituted an action in a West Virginia state court seeking a declaratory
judgment that certain of its insurance policies provide coverage for such
environmental liabilities, specifically including, but not limited to, claims
for which the Company may seek reimbursement from National. The Company thus
far is not a party to such litigation, but has been ordered to produce certain
records and documents.
EMPLOYEES
At December 31, 1996, the Company had 5,373 employees, of whom 4,201
were engaged in the manufacture of steel products, 578 in support services, 139
in sales and marketing activities and 455 in management and administration. In
1992, the Company implemented a strategic program designed to reduce its
workforce primarily through retirement programs and attrition. Through that
program, the Company reduced its overall workforce by 19% through 1995. In
1996, the Company implemented an additional program to reduce its supervisory
and managerial workforce by approximately 20%.
At December 31, 1996, approximately 4,478 Company employees in
bargaining units covering production and maintenance workers, clerical workers
and nurses were represented by the Independent Steelworkers Union (the "ISU").
On February 27, 1997, the Company reached a tentative agreement with the ISU on
a 54 month contract replacing the production and maintenance unit agreements
which expired on September 25, 1996. Negotiations continue with the ISU
concerning its other bargaining units and with the Independent Guard Union,
which represents 48 employees.
The tentative agreement covering approximately 3,975 production and
maintenance employees has been approved by the ISU's executive committee and
stewards. The Company expects that, once tentative agreements are reached for
the other ISU units, the proposed
- 19 -
<PAGE> 20
contracts will be submitted for membership approval. The Company cannot predict
when additional agreements will be reached or whether agreements submitted to
union members will be ratified. During the period while negotiations for a new
contract occurred, the terms of the prior contract were extended from time to
time. The tentative agreement provides for a pay increase which is retroactive
to the expiration of the prior agreement and pay increases going forward which
are consistent with the settlements reached in 1996 with other major integrated
steel producers. The tentative agreement further provides for a significant
relaxation in restrictive work rules pertaining to the assignment and scheduling
of employees. In addition, the agreement reduces limitations introduced in the
prior agreement on the Company's ability to reduce its workforce by layoffs. The
Company's profit sharing plan, which covers substantially all employees, remains
unchanged. The plan provides for participants to share in the Company's profits
each year at a rate equal to 1/3 of the Company's "adjusted net earnings" for
that year as defined under the plan, provided its net worth exceeds $100
million. If, however, payment of the full profit sharing amount would reduce the
Company's net worth to below $100 million, payments are reduced to an amount
necessary to maintain the $100 million threshold. If the Company's net worth is
in excess of $250 million, the profit sharing rate increases to 35%. However, if
payment of the full profit sharing amount would reduce the Company's net worth
below $250 million, payments at this rate would be limited as necessary to
maintain the $250 million threshold and the remainder of the payment would be
made at the 1/3 rate.
From January 1984 until June 1989, the Company was owned in its
entirety by its employees through the Company's 1984 Employee Stock Ownership
Plan (the "1984 ESOP"), in which substantially all employees were participants.
In June 1989, the 1984 ESOP completed a public offering of common stock,
resulting in that security being listed and traded on the New York Stock
Exchange.
Substantially all the Company's employees participate in its two ESOPs
which owned approximately 27% of the outstanding common and substantially all
of the outstanding preferred shares of the Company at March 14, 1997. These
securities represented approximately 48% of the voting power of the Company's
voting stock.
ITEM 2. PROPERTIES
The Company owns approximately 2,500 acres in the Weirton, West
Virginia, area which are devoted to the production and finishing of steel
products, research and development, storage, support services and
administration. The Company owns trackage and railroad rolling stock for
materials movement, water craft for barge docking, power generation facilities
and numerous items of heavy industrial equipment. The Company has no material
leases for real property. The Company's mill and related facilities are
accessible by water, rail and road transportation. The Company believes that
its facilities are suitable to its needs and are adequately maintained.
The Company's operating facilities include four blast furnaces;
however, its current operating strategy employs a two blast furnace
configuration with an annual hot metal capacity of approximately 2.5 million
tons. Although the Company does not anticipate operating a three blast furnace
configuration in the near term, under that operating scenario, its annual hot
metal
- 20 -
<PAGE> 21
capacity could be increased to approximately 3.6 million tons. In April 1996,
the Company shut down its No. 3 Blast Furnace to replace a cracked bell at the
furnace top, as a result of which the Company's iron making capacity was reduced
temporarily. In November 1996, the Company began a planned major reline and
rebuild of its largest iron making vessel, the No. 1 Blast Furnace, as part of a
capital expenditure program for that facility approximating $83 million. The
rebuild is designed to increase iron production and quality, improve production
efficiencies, reduce costs and enhance environmental protection. The project is
scheduled for completion by the end of March 1997. While the rebuild is in
progress, the Company has been utilizing its smaller No. 4 Blast Furnace, which
has necessitated the purchase of some outside slabs for finishing purposes. See
Item 1. "Business -- Raw Materials." The Company has conducted feasibility
studies regarding the installation of PCI at its blast furnaces to further
exploit coke use reduction technologies. The completion of any PCI project,
however, would be subject to a number of factors, including the Company's
successful negotiation of terms relating thereto with outside parties. The
Company's ironmaking operations through 1996 also included a sinter plant, used
to process scale, sludges and other by-products for recycling back into blast
furnace operations. Effective December 31, 1996, the Company temporarily
discontinued operations at the sinter plant pending an assessment of the
facility's production equipment and the feasibility of improvements believed
necessary to assure the plant's continuing compliance with more stringent future
air pollution control standards. The Company began purchasing iron pellets from
outside commercial sources to replace the sinter plant output. The Company's
primary steelmaking facilities include a two vessel BOP shop with an annual
capacity of 3.0 million tons of raw steel (based on a two blast furnace
operation). Primary steelmaking facilities also include a CAS-OB facility, two
RH degassers, and a four strand continuous caster with an annual slab production
capacity of up to 3.0 million tons. The Company's downstream operations include
a hot strip mill with a design capacity of 3.8 million tons, two continuous
picklers, three tandem cold reduction mills, three hot dip galvanize lines, one
electro-galvanize line, two tin platers, one chrome plater, one bi-metallic
chrome/tin plating line and various annealing, temper rolling, shearing,
cleaning and edge slitting lines, together with packaging, storage and shipping
and receiving facilities. See the "Comparative Production and Shipments" section
of Item 1 for additional information regarding production capacity and
utilization rates.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved as a defendant or plaintiff in various
litigation relating to claims arising out of its operations in the normal
course of business. Such claims involving the Company as a defendant are
generally covered by insurance. It is management's opinion that any liability
resulting from existing litigation would not have a material effect on the
Company's business, financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 21 -
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
As of March 14, 1997, there were 42,353,243 shares of common stock,
$.01 par value ("Common Stock"), outstanding held by 3,661 stockholders of
record. The principal market for the Common Stock is the New York Stock
Exchange, on which that security has been listed since June 1989.
Dividends on the Company's Common Stock may be paid when and as
declared by the Company's Board of Directors. The payment of dividends is
subject to the applicable provisions of Delaware corporate law governing the
Company and the discretion of the Company's Board of Directors, which, in
exercising such discretion, considers the financial performance and capital
requirements of the Company.
Under restrictive covenants relating to the Company's indebtedness,
the Company's ability to pay dividends on its stock is limited to the greater
of (i) $5.0 million or (ii) $5.0 million plus one-half of the Company's
cumulative consolidated net income since March 31, 1993, plus the net proceeds
from subsequent issuances of certain capital stock, less certain allowable
payments. As of December 31, 1996, pursuant to these covenants, the Company
could pay dividends on its Common Stock of up to $114.4 million.
As of March 14, 1997, 10,971,520 shares of Common Stock, or 26% of the
outstanding shares of Common Stock, were held by one stockholder of record,
United National Bank - North, as Trustee of the 1984 ESOP. As of that date, the
1984 ESOP had approximately 6,781 participants who were active or former
employees of the Company. In addition, as of March 14, 1997 there were
1,736,070 shares of Convertible Voting Preferred Stock, Series A (the "Series A
Preferred Stock"), outstanding held by 316 stockholders of record. As of that
date, United National Bank - North, as Trustee of the Company's second Employee
Stock Ownership Plan (the "1989 ESOP"), was the record owner of 1,729,172
shares of the Series A Preferred Stock, or over 99% of the outstanding shares
of Series A Preferred Stock, subject to the terms and conditions of said Plan.
As of that date, the 1989 ESOP had approximately 7,502 participants who were
active or former employees of the Company. The Series A Preferred Stock is not
listed for trading on any exchange. The Series A Preferred Stock has a
liquidation preference of $5 per share and is convertible into one share of
Common Stock, subject to adjustment. Each share of Series A Preferred Stock is
entitled to 10 votes in all matters presented to the stockholders for approval.
Participants in the Company's two ESOPs have full voting rights over all shares
allocated to their accounts. See "Employees" under Item 1.
The following table sets forth, for the periods indicated, the high
and low sales prices of the Common Stock as reported in the consolidated
transaction reporting system.
- 22 -
<PAGE> 23
<TABLE>
<CAPTION>
1995 1996 1997(1)
----------------------- ----------------------- ----------------------
Quarter High Low High Low High Low
- ----------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
First 9-3/8 6-3/8 4-5/8 3-3/4 3-3/8 2-3/8
Second 8-3/8 6-7/8 4-1/4 3
Third 7-7/8 4-3/4 3-3/8 2-3/8
Fourth 5 3-7/8 3-1/2 2
- -----------------
(1) First Quarter 1997 through March 14, 1997.
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to "Selected Financial and Statistical Data" on page 42 of the
Company's 1996 Annual Report to Stockholders. With the exception of the
information specifically incorporated by reference, the 1996 Annual Report to
Stockholders is not to be deemed filed as part of this Report for purposes of
this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to pages 13 to 18, inclusive, of the Company's 1996 Annual Report to
Stockholders. With the exception of the information specifically incorporated
by reference, the 1996 Annual Report to Stockholders is not to be deemed filed
as part of this Report for purposes of this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item
are incorporated herein by reference to pages 19 to 41 inclusive, of the
Company's 1996 Annual Report to Stockholders and are listed in Item 14.
"Exhibits, Financial Statement Schedules and Reports on Form 8-K" hereof. With
the exception of the information specifically incorporated by reference, the
1996 Annual Report to Stockholders is not to be deemed filed as part of this
Report for purposes of this Item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-23-
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The information required by this item with respect to Directors of the
Company is incorporated herein by reference to the caption "Election of
Directors" and "Security Ownership of Certain Beneficial Owners and Management"
in the Company's definitive Proxy Statement relating to its 1997 Annual Meeting
of Stockholders. With the exception of the information specifically
incorporated by reference, said definitive Proxy Statement is not to be deemed
filed as part of this report for purposes of this item.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 14, 1997, were as
follows:
<TABLE>
<CAPTION>
Age at
Name March 14, 1997 Office
---- -------------- ------
<S> <C> <C>
Richard K. Riederer 53 President, Chief Executive Officer and
Chief Operating Officer
James B. Bruhn 56 Executive Vice President -Commercial
Craig T. Costello 49 Executive Vice President - Manufacturing
David L. Robertson 53 Executive Vice President - Human
Resources and Corporate Law
Earl E. Davis, Jr. 48 Vice President-Finance and Chief
Financial Officer
Thomas W. Evans 60 Vice President - Materials Management
David M. Gould 58 Vice President - Economic Development
William R. Kiefer 47 Vice President - Law and Secretary
Narendra M. Pathipati 39 Vice President - Corporate Development
and Strategy
Mac S. White, Jr. 64 Vice President - Engineering
Mark E. Kaplan 35 Controller
</TABLE>
Unless otherwise indicated below, the executive officers of the
Company have held the positions described for at least the last five years.
- 24 -
<PAGE> 25
Richard K. Riederer has been President and Chief Operating Officer
since January 1995 and Chief Executive Officer since November 1995. From
September 1994 to January 1995, he was Executive Vice President Finance and
Chief Financial Officer. Prior to that, he served as Vice President and Chief
Financial Officer beginning in January 1989. He has been a director of the
Company since October 1993.
James B. Bruhn has been Executive Vice President - Commercial since
September 1994. He joined the Company as Vice President - Sales and Marketing -
Tin Mill Products in July 1987, and was named Vice President-Tin Mill Products
Business in November 1992. He has been a director of the Company since May
1990.
Craig T. Costello has been Executive Vice President - Manufacturing
since September 1994. From October 1993 to September 1994, he served as
Vice President - Operations. Mr. Costello served as General Manager -
Operations from 1988 to 1993. He has been a director of the Company since
April 1996.
David L. Robertson has served as the Executive Vice President - Human
Resources and Corporate Law since March 1996. Prior to that, Mr. Robertson was
a senior partner in the law firm of Volk, Robertson & Hellerstedt.
Earl E. Davis, Jr. has served as Vice President - Finance and Chief
Financial Officer since July 1995. From May 1994 to July 1995, he served as
Controller. From August 1991 to April 1994, he served as Assistant
Controller.
Thomas W. Evans has been Vice President - Materials Management since
February 1988.
David M. Gould was named Vice President - Economic Development in
September 1994. Mr. Gould previously was Vice President - Sales and Marketing
- - Sheet Products from 1983 until September 1994.
William R. Kiefer has been Vice President - Law and Secretary since
May 1990.
Narendra M. Pathipati has served as Vice President - Corporate
Development and Strategy since July 1995. Mr. Pathipati served as Treasurer
of the Company from August 1991 to July 1995.
Mac S. White, Jr. has been Vice President - Engineering of the
Company since May 1992. From April 1989 to April 1992, Mr. White was Director
of Engineering for the Company.
Mark E. Kaplan has served as Controller since September 1995. Prior to
that, Mr. Kaplan was employed by Arthur Andersen LLP, where he held a number of
positions, most recently as Senior Audit Manager.
- 25 -
<PAGE> 26
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the caption "Executive Compensation" in the Company's definitive
Proxy Statement relating to its 1997 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, said
definitive Proxy Statement is not to be deemed to be filed as part of this
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement relating to its 1997
Annual Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, said definitive Proxy Statement is not
to be deemed to be filed as part of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- 26 -
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The list of financial statements required to be filed by Item 8.
Financial Statements and Supplementary Data of this Annual Report on
Form 10-K is as follows:
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Report of Independent Public Accountants................................................. (*)
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994......................................................... (*)
Consolidated Balance Sheets as of December 31,
1996 and 1995............................................................................ (*)
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................................................... (*)
Notes to Consolidated Financial Statements............................................... (*)
Supplementary Financial Information...................................................... (*)
- ----------------
* Incorporated in this Report by reference from pages 19 to 42,
inclusive, of the Company's 1996 Annual Report to
Stockholders referred to in Exhibit 13.1 below.
</TABLE>
2. The list of financial statement schedules required to be filed by
Item 8. Financial Statements and Supplementary Data of this Annual
Report on Form 10-K is as follows:
<TABLE>
<S> <C>
Report of Independent Public Accountants on Financial Statement
Schedules................................................................................ S-1
Schedules:
I Condensed Financial Information of Registrant............................... S-2
II Valuation and Qualifying Accounts........................................... S-5
</TABLE>
3. Exhibits.
The following exhibits are included in this Annual Report or are
incorporated herein by reference:
Exhibit 3.1 Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement
on Form S-1 filed May 3, 1989, Commission File
No. 33-28515).
Exhibit 3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994,
Commission File No. 1-10244).
- 27 -
<PAGE> 28
Exhibit 3.3 By-laws of the Company (incorporated by
reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-1 filed May 3,
1989, Commission File No. 33-28515).
Exhibit 3.4 Amendment to the By-laws of the Company
(incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994,
Commission File No. 1-10244).
Exhibit 3.5 Certificate of the Designation, Powers,
Preferences and Rights of the Convertible
Voting Preferred Stock, Series A
(incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989,
Commission File No. 1-10244)
Exhibit 4.1 Indenture dated October 17, 1989 between
the Company and First Bank (N.A.) as Trustee,
relating to the Company's 10-7/8% Senior
Notes due October 15, 1999, including Form
of Note (incorporated by reference to
Exhibits 4.1 and 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission File No.
1-10244).
Exhibit 4.2 Indenture dated March 1, 1993 between the
Company and Bankers Trust Company, as
trustee, relating to the Company's 11-1/2%
Senior Notes due 1998, including Form of Note
(incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to the Company's Registration
Statement on Form S-2 filed on February 9,
1993, Commission File No. 33-53476).
Exhibit 4.3 First Supplemental Indenture dated July 25,
1995 relating to the Company's 11-1/2% Senior
Notes due 1998 (incorporated by reference to
Exhibit 4.3 to the Company's Registration
Statement on Form S-4 filed on July 27,
1995, Commission File No. 33-61345).
Exhibit 4.4 Second Supplemental Indenture dated as of
August 12, 1996 between the Company and Bankers
Trust Company, as trustee, relating to the
Company's 11-1/2% Senior Notes due 1998
(incorporated by reference to Exhibit 4.2
to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996,
Commission File No 1-10244).
Exhibit 4.5 Indenture dated as of June 12, 1995 between
the Company and Bankers Trust Company, as
trustee, relating to $125,000,000 principal
amount of 10-3/4% Senior Notes due 2003,
including Form of Note
- 28 -
<PAGE> 29
(incorporated by reference to Exhibit 4.4
to the Company's Registration Statement
on Form S-4 filed on July 27, 1995,
Commission File No. 33-61345).
Exhibit 4.6 First Supplemental Indenture dated as of
August 12, 1996 between the Company and
Bankers Trust Company, as trustee, relating
to the Company's 10-3/4% Senior Notes due 2005
(incorporated by reference to Exhibit 4.1
to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996,
Commission file No. 1-10244).
Exhibit 4.7 Indenture dated July 3, 1996 between the
Company and Bankers Trust Company, as
trustee, relating to the Company's 11-3/8%
Notes due 2004 (incorporated by reference
to Exhibit 4.5 to the Company's Registration
Statement on Form S-4 filed on July 10, 1996,
Commission File No. 333-07913).
Exhibit 10.1 Redacted Pellet Sale and Purchase
Agreement dated as of September 30, 1991
between Cleveland-Cliffs Iron Company and the
Company (incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992,
Commission File No. 1-10244).
Exhibit 10.2 Coke Sale Agreement dated December 9, 1996
between the Company and USX Corporation (filed
herewith).
Exhibit 10.3 1984 Employee Stock Ownership Plan, as
amended and restated (incorporated by reference
to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended December
31, 1989, Commission File No. 1-10244).
Exhibit 10.4 1989 Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989,
Commission File No. 1-10244).
Exhibit 10.5 Amendments to the 1984 and 1989 Employee
Stock Ownership Plans, effective May 26, 1994
(incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
Exhibit 10.6 1987 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 filed May 3,
1989, Commission File No. 33-28515)
- 29 -
<PAGE> 30
Exhibit 10.7 Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit 10.19 of
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990,
Commission File No. 1-10244).
Exhibit 10.8 Employment Agreement between Richard K.
Riederer and the Company dated April 24, 1996
(incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, Commission
File No. 1-10244).
Exhibit 10.9 Letter Agreement between Richard K. Riederer
and the Company dated December 24, 1996
(filed herewith).
Exhibit 10.10 Employment Agreement between James B. Bruhn
and the Company (incorporated by reference
to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 10.11 Employment Agreement between Thomas W.
Evans and the Company dated April 21, 1987,
including Amendment dated July 19, 1993
(incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1993, Commission File No. 1-10244).
Exhibit 10.12 Employment Agreement between Craig T.
Costello and the Company dated July 20, 1993
(incorporated by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.13 Employment Agreement between William R.
Kiefer and the Company dated July 21, 1993
(incorporated by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.14 Employment Agreement between David L.
Robertson and the Company dated March 11, 1996
(incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, Commission
File No. 1-10244).
Exhibit 10.15 Employment Agreement between Narendra M.
Pathipati and the Company dated December 16,
1993 (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1993, Commission File No. 1-10244).
- 30 -
<PAGE> 31
Exhibit 10.16 Employment Agreement between Mac S. White
and the Company dated July 28, 1993
(incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.17 Amendment dated July 19, 1993 to
Employment Agreement dated June 8, 1987 between
David M. Gould and the Company (incorporated by
reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, Commission File No.
1-10244).
Exhibit 10.18 Employment Agreement between Earl E. Davis,
Jr. and the Company dated December 20, 1995
(incorporated by reference to Exhibit 10.3 to
the Company's Form 10-Q for the quarter ended
June 30, 1996, Commission File No. 1-10244).
Exhibit 10.19 Employment Agreement between Mark E.
Kaplan and the Company dated August 13, 1996
(incorporated by reference to Exhibit 10.1 on
the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996,
Commission File No. 1-10244).
Exhibit 13.1 1996 Annual Report to Stockholders of
Weirton Steel Corporation (filed herewith).
Except for those portions of the Annual Report
specifically incorporated by reference, such
report is furnished for the information of the
Securities and Exchange Commission and is not
to be deemed filed as part of this Annual
Report on Form 10-K.
Exhibit 22.1 Subsidiaries of the Company (incorporated
by reference to Exhibit 22.1 on the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, Commission File No.
1-10244).
Exhibit 23.1 Consent of Arthur Andersen LLP, independent
public accountants (filed herewith).
Exhibit 27 Financial data schedule for year ended
December 31, 1996 (filed herewith).
(b) The Company filed reports on Form 8-K each in reference to Item 5
thereof on May 29, 1996 and June 27, 1996.
(c) The exhibits as listed under Item 14(a)(3), are filed herewith or
incorporated herein by reference.
(d) The financial statement schedules listed under Item 14(a)(2), are
filed herewith.
- 31 -
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Weirton Steel Corporation has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27th day of March, 1997.
WEIRTON STEEL CORPORATION
By: /s/ Richard K. Riederer
--------------------------------
Richard K. Riederer
President and Chief Executive Officer
- 32 -
<PAGE> 33
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of Weirton Steel Corporation and in the capacities indicated on the 27th
day of March 1997.
/s/ Richard K. Riederer
- ------------------------------------- -------------------------------------
Richard K. Riederer Mark G. Glyptis
President and Chief Executive Officer Director
(principal executive officer)
/s/ Earl E. Davis /s/ Phillip A. Karber
- ------------------------------------- -------------------------------------
Earl E. Davis Phillip A. Karber
Chief Financial Officer Director
(principal financial officer)
/s/ Mark E. Kaplan /s/ Joseph J. Nowak
- ------------------------------------- -------------------------------------
Mark E. Kaplan Joseph J. Nowak
Controller Director
(principal accounting officer)
/s/ Michael Bozic /s/ Robert S. Reitman
- ------------------------------------- -------------------------------------
Michael Bozic Robert S. Reitman
Director Director
/s/ James B. Bruhn /s/ Richard F. Schubert
- ------------------------------------- -------------------------------------
James B. Bruhn Richard F. Schubert
Director Director
/s/ Richard R. Burt /s/ Thomas R. Sturges
- ------------------------------------- -------------------------------------
Richard R. Burt Thomas R. Sturges
Chairman of the Board of Directors Director
/s/ Craig T. Costello /s/ David I. J. Wang
- ------------------------------------- -------------------------------------
Craig T. Costello David I. J. Wang
Director Director
/s/ Robert J. D'Anniballe, Jr. /s/ Ronald C. Whitaker
- ------------------------------------- -------------------------------------
Robert J. D'Anniballe, Jr. Ronald C. Whitaker
Director Director
- 33 -
<PAGE> 34
EXHIBIT INDEX
Exhibit 3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 filed
May 3, 1989, Commission File No. 33-28515).
Exhibit 3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, Commission File No.
1-10244).
Exhibit 3.3 By-laws of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement
on Form S-1 filed May 3, 1989, Commission File
No. 33-28515).
Exhibit 3.4 Amendment to the By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, Commission File No.
1-10244).
Exhibit 3.5 Certificate of the Designation, Powers, Preferences
and Rights of the Convertible Voting Preferred
Stock, Series A (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989,
Commission File No. 1-10244)
Exhibit 4.1 Indenture dated October 17, 1989 between the Company
and First Bank (N.A.) as Trustee, relating to the
Company's 10-7/8% Senior Notes due October 15, 1999,
including Form of Note (incorporated by reference
to Exhibits 4.1 and 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission File No. 1-10244).
Exhibit 4.2 Indenture dated March 1, 1993 between the Company and
Bankers Trust Company, as trustee, relating to the
Company's 11-1/2% Senior Notes due 1998, including
Form of Note (incorporated by reference to Exhibit
4.1 to Amendment No. 2 to the Company's Registration
Statement on Form S-2 filed on February 9, 1993,
Commission File No. 33-53476).
Exhibit 4.3 First Supplemental Indenture dated July 25,
1995 relating to the Company's 11-1/2% Senior
Notes due 1998 (incorporated by reference to
Exhibit 4.3 to the Company's Registration
Statement on Form S-4 filed on July 27,
1995, Commission File No. 33-61345).
- 34 -
<PAGE> 35
Exhibit 4.4 Second Supplemental Indenture dated as of
August 12, 1996 between the Company and Bankers
Trust Company, as trustee, relating to the
Company's 11-1/2% Senior Notes due 1998
(incorporated by reference to Exhibit 4.2
to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996,
Commission File No 1-10244).
Exhibit 4.5 Indenture dated as of June 12, 1995 between
the Company and Bankers Trust Company, as
trustee, relating to $125,000,000 principal
amount of 10-3/4% Senior Notes due 2003,
including Form of Note (incorporated by
reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-4 filed on
July 27, 1995, Commission File No. 33-61345).
Exhibit 4.6 First Supplemental Indenture dated as of
August 12, 1996 between the Company and
Bankers Trust Company, as trustee, relating
to the Company's 10-3/4% Senior Notes due 2005
(incorporated by reference to Exhibit 4.1
to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996,
Commission file No. 1-10244).
Exhibit 4.7 Indenture dated July 3, 1996 between the
Company and Bankers Trust Company, as
trustee, relating to the Company's 11-3/8%
Notes due 2004 (incorporated by reference
to Exhibit 4.5 to the Company's Registration
Statement on Form S-4 filed on July 10, 1996,
Commission File No. 333-07913).
Exhibit 10.1 Redacted Pellet Sale and Purchase
Agreement dated as of September 30, 1991
between Cleveland-Cliffs Iron Company and the
Company (incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992,
Commission File No. 1-10244).
Exhibit 10.2 Coke Sale Agreement dated December 9, 1996
between the Company and USX Corporation (filed
herewith).
Exhibit 10.3 1984 Employee Stock Ownership Plan, as
amended and restated (incorporated by reference
to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended December
31, 1989, Commission File No. 1-10244).
Exhibit 10.4 1989 Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989,
Commission File No. 1-10244).
- 35 -
<PAGE> 36
Exhibit 10.5 Amendments to the 1984 and 1989 Employee
Stock Ownership Plans, effective May 26, 1994
(incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
Exhibit 10.6 1987 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 filed May 3,
1989, Commission File No. 33-28515)
Exhibit 10.7 Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit 10.19 of
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990,
Commission File No. 1-10244).
Exhibit 10.8 Employment Agreement between Richard K.
Riederer and the Company dated April 24, 1996
(incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, Commission
File No. 1-10244).
Exhibit 10.9 Letter Agreement between Richard K. Riederer
and the Company dated December 24, 1996
(filed herewith).
Exhibit 10.10 Employment Agreement between James B. Bruhn
and the Company (incorporated by reference
to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 filed May
3, 1989, Commission File No. 33-28515).
Exhibit 10.11 Employment Agreement between Thomas W.
Evans and the Company dated April 21, 1987,
including Amendment dated July 19, 1993
(incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1993, Commission File No. 1-10244).
Exhibit 10.12 Employment Agreement between Craig T.
Costello and the Company dated July 20, 1993
(incorporated by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.13 Employment Agreement between William R.
Kiefer and the Company dated July 21, 1993
(incorporated by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.14 Employment Agreement between David L.
Robertson and the Company dated March 11, 1996
(incorporated by reference to Exhibit 10.2 to
- 36 -
<PAGE> 37
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, Commission
File No. 1-10244).
Exhibit 10.15 Employment Agreement between Narendra M.
Pathipati and the Company dated December 16,
1993 (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1993, Commission File No. 1-10244).
Exhibit 10.16 Employment Agreement between Mac S. White
and the Company dated July 28, 1993
(incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993,
Commission File No. 1-10244).
Exhibit 10.17 Amendment dated July 19, 1993 to
Employment Agreement dated June 8, 1987 between
David M. Gould and the Company (incorporated by
reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, Commission File No.
1-10244).
Exhibit 10.18 Employment Agreement between Earl E. Davis,
Jr. and the Company dated December 20, 1995
(incorporated by reference to Exhibit 10.3 to
the Company's Form 10-Q for the quarter ended
June 30, 1996, Commission File No. 1-10244).
Exhibit 10.19 Employment Agreement between Mark E.
Kaplan and the Company dated August 13, 1996
(incorporated by reference to Exhibit 10.1 on
the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996,
Commission File No. 1-10244).
Exhibit 13.1 1996 Annual Report to Stockholders of
Weirton Steel Corporation (filed herewith).
Except for those portions of the Annual Report
specifically incorporated by reference, such
report is furnished for the information of the
Securities and Exchange Commission and is not
to be deemed filed as part of this Annual
Report on Form 10-K.
Exhibit 22.1 Subsidiaries of the Company (incorporated
by reference to Exhibit 22.1 on the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, Commission File No.
1-10244).
Exhibit 23.1 Consent of Arthur Andersen LLP, independent public
accountants (filed herewith).
Exhibit 27 Financial data schedule for year ended
December 31, 1996 (filed herewith).
- 37 -
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Weirton Steel Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Weirton Steel Corporation's
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 21, 1997. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index in Item 14(a)2 of the Form 10-K are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not a
part of the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
January 21, 1997
S-1
<PAGE> 39
WEIRTON STEEL CORPORATION
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
Schedule I
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Decembrer 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $1,383,301 $1,351,711 $1,260,864
OPERATING COSTS:
Cost of sales 1,282,424 1,179,950 1,136,936
Discount on sale of finance receivables to subsidiary 19,768 18,522 14,719
Selling, general and administrative expense 35,600 31,142 28,563
Depreciation 58,019 54,699 46,309
Restructuring charge 16,959 - -
Provision for profit sharing - 22,499 17,581
Insurance recoveries - (41,502) (20,000)
------------- ------------- -------------
Total operating costs 1,412,770 1,265,310 1,224,108
------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (29,469) 86,401 36,756
------------- ------------- -------------
Adjustment to carrying value of damaged facility - 9,000 44,746
Interest expense (43,806) (41,920) (49,260)
Interest income 6,191 5,423 6,330
Dividends received from subsidary 6,436 6,056 5,529
ESOP contribution (2,610) (2,610) (2,610)
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (63,258) 62,350 41,491
Income tax provision (benefit) (12,335) 12,181 6,484
------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (50,923) 50,169 35,007
Loss on early extinguishment of debt, net (5,431) (6,718) (3,851)
------------- ------------- -------------
NET INCOME (LOSS) $ (56,354) $ 43,451 $ 31,156
============= ============= =============
Less: Preferred stock dividend requirement - - 2,339
------------- ------------- -------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (56,354) $ 43,451 $ 28,817
============= ============= =============
PER SHARE DATA:
Weighted average number of common shares
and equivalents (in thousands) 42,370 43,781 34,470
Net income (loss) before extraordinary items $ (1.20) $ 1.15 $ 0.95
Loss on early extinguishment of debt (0.13) (0.16) (0.11)
------------- ------------- -------------
NET INCOME (LOSS) PER COMMON SHARE $ (1.33) $ 0.99 $ 0.84
============= ============= =============
</TABLE>
S-2
<PAGE> 40
WEIRTON STEEL CORPORATION
CONDENSED PARENT COMPANY BALANCE SHEET
Schedule I
(Dollars in thousands, except share amount)
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets:
Cash and equivalents $ 102,876 $ 121,690
Receivables 15,608 15,996
Inventories:
Raw materials 87,733 77,557
Work-in-process 76,526 86,491
Finished goods 94,880 91,312
Deferred income taxes 51,872 49,245
Other current assets 3,574 7,309
------------ ------------
Total current assets 433,069 449,600
Property, plant and equipment, net 610,494 586,430
Investment in Weirton Receivables, Inc. 125,707 129,927
Intangible asset - 31,412
Deferred income taxes 95,933 88,607
Other assets and deferred charges 18,162 15,834
------------ ------------
Total assets $1,283,365 $1,301,810
============ ============
Liabilities:
Current liabilities:
Payables $ 164,778 $ 123,105
Employment costs 65,067 88,115
Pension liablity 12,000 12,471
Other 28,670 27,858
------------ ------------
270,515 251,549
Long term debt obligations 430,820 407,869
Long term pension obligations 74,750 94,689
Postretirement benefits other than pensions 329,154 317,893
Other long term liabilities 26,941 25,348
------------ ------------
Total liabilities 1,132,180 1,097,348
------------ ------------
Redeemable stock 18,447 15,868
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000
authorized;42,592,850 and 42,289,944 shares issued 426 423
Additional paid-in capital 455,311 454,197
Retained earnings (321,742) (265,388)
Other stockholders' equity (1,257) (638)
------------ ------------
Total stockholders' equity 132,738 188,594
------------ ------------
Total liabilities, redeemable stock and
stockholders' equity $1,283,365 $1,301,810
============ ============
</TABLE>
S-3
<PAGE> 41
WEIRTON STEEL CORPORATION
CONDENSED PARENT COMPANY STATEMENT OF CASH FLOWS
Schedule I
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------- ----------- ------------
<S> <C> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 31,293 $ 125,362 $ 54,808
CASH FLOWS USED BY INVESTING ACTIVITIES
Spending to restore damaged facilities - (2,948) (74,611)
Less: Insurance recoveries - 9,000 45,000
Other capital spending (67,937) (49,410) (37,456)
Investment in Weirton Receivables, Inc. 4,220 (18,833) 5,819
------------- ----------- ------------
NET CASH USED BY INVESTING ACTIVITIES (63,717) (62,191) (61,248)
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Repayment of debt obligations (105,676) (118,800) (101,101)
Proceeds from the issuance of common stock - - 116,087
Redemption of preferred stock, Series B - - (25,000)
Proceeds from issuance of long term debt obligations 122,610 125,000 -
Common shares issuable 773 (577) 1,454
Dividends paid - - (2,339)
Deferred financing costs (4,097) (4,325) (2,245)
------------- ----------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 13,610 1,298 (13,144)
NET CHANGE IN CASH AND EQUIVALENTS (18,814) 64,469 (19,584)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 121,690 57,221 76,805
------------- ----------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 102,876 $ 121,690 $ 57,221
============= =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of capitalized interest $ 40,275 $ 44,416 $ 52,091
Income taxes paid (refunded), net (3,699) 10,593 -
Dividends from Weirton Receivable, Inc. 6,436 6,805 5,181
</TABLE>
S-4
<PAGE> 42
Weirton Steel Corporation and Subsidiary
Valuation and Qualifying Accounts
For the years ended December 31, 1996, 1995 and 1994
Schedule II
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charges to Balance at
Beginning of Cost and End of
Description Year Period Expense Deductions Period
- ----------------------------------------- ------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
discounts, claims and allowances
1996 $ 8,688 $26,832 $27,836 $ 7,684
1995 6,405 19,396 17,113 8,688
1994 5,719 17,302 16,616 6,405
Valuation allowance for deferred
tax assets
1996 $30,943 $10,306 $ $41,249
1995 42,640 - 11,697 30,943
1994 50,768 - 8,128 42,640
</TABLE>
S-5
<PAGE> 1
Exhibit 10.2
COKE SALE AGREEMENT
BETWEEN
WEIRTON STEEL CORPORATION
AND
USX CORPORATION
December 9, 1996
<PAGE> 2
COKE SALE AGREEMENT
THIS AGREEMENT is entered into this 9th day Of December 1996, by and
between USX CORPORATION, a Delaware corporation having offices at Pittsburgh,
PA (hereinafter "Seller") and WEIRTON STEEL CORPORATION, a Delaware corporation
located at Weirton, WV (hereinafter "Buyer").
WITNESSETH:
THAT, in consideration of the promises herein set forth and intending
to be legally bound, the parties hereby agree as follows:
I. TERM
This Agreement shall be effective January 1, 1997, and unless sooner
terminated pursuant to the various provisions of this Agreement, shall continue
for a period of five years through December 31, 2001. The foregoing
notwithstanding, Seller agrees to provide Buyer on or before December 31, 2000,
with written notification of its intention whether or not to enter into
negotiations with Buyer to extend all or part of this Agreement beyond its
expiration date.
II. PRODUCT
The product to be purchased and sold hereunder shall be blast furnace
coke produced at the Clairton Coke Works located in Clairton, PA ("Blast
Furnace Coke").
III. QUANTITY AND SCHEDULING
A. During the calendar year 1997, Seller shall sell and deliver to
Buyer and Buyer shall purchase and accept delivery from Seller, pursuant to the
terms and
-2-
<PAGE> 3
conditions of this Agreement, 850,000 net tons of Blast Furnace Coke
(hereinafter "1997 Basic Tonnage"). During the calendar year 1997, Seller shall
also sell and deliver to Buyer and Buyer shall purchase and accept delivery
from Seller, pursuant to the terms and conditions of this Agreement, an
additional 150,000 net tons of Blast Furnace Coke (hereinafter "1997 Additional
Tonnage").
B. During each of the calendar years 1998, 1999; 2000 and 2001 and
subject to the provisions of Article III.C below, Seller shall sell and deliver
to Buyer and Buyer shall purchase and accept delivery from Seller, pursuant to
the terms and conditions of this Agreement, the greater of (i) 80% of Buyer's
total annual requirement for Blast Furnace Coke or (ii) 850,000 net tons of
Blast Furnace Coke. The tonnage of Blast Furnace Coke that Seller is obligated
to sell Buyer, and that Buyer is obligated to purchase from Seller, in any year
pursuant to this Article III.B is hereinafter referred to as the "Basic
Tonnage" for such year.
C. Seller acknowledges that Buyer is currently considering the use of
a blast furnace pulverized coal injection system ("PCI"), the adoption of which
is expected to reduce the total annual requirements of Buyer hereunder for
Blast Furnace Coke. The provisions of Article III.B to the contrary
notwithstanding, in the event the Buyer declares to Seller on or before October
31, 1997, the intention of Buyer to implement PCI, the quantity of Blast
Furnace Coke Seller shall sell and deliver to Buyer and Buyer shall purchase
and accept delivery from Seller for each of the remaining calendar years of the
term of this Agreement, commencing the first full year after PCI becomes
operational on Buyer's blast furnaces, shall be the lesser of Buyer's total
annual requirement for Blast Furnace Coke or (ii) 850,000 net tons of Blast
Furnace Coke. The tonnage of Blast Furnace Coke that Seller is obligated to
sell Buyer, and that Buyer is obligated to purchase from Seller, in any year
pursuant to this Article III.C is hereinafter referred to as the "PCI Adjusted
Basic Tonnage" for such year.
-3-
<PAGE> 4
D. In addition to Buyer's Basic Tonnage purchases or Buyer's PCI
Adjusted Basic Tonnage purchases in any year pursuant to Article III.B or
Article III.C above., Buyer shall have the option, exercisable in writing by
Buyer no later than October 15 of the immediately preceding calendar year, to
purchase from Seller and Seller shall be obligated to sell to Buyer, an
additional amount of Blast Furnace Coke in each year of the term of this
Agreement up to an amount equal to the difference, if any, between the Buyer's
total annual Blast Furnace Coke requirements for such year minus the Basic
Tonnage or PCI Adjusted Basic Tonnage, as the case may be. The amount of
additional tonnage that is so designated by Buyer for purchase from Seller in
any such year is hereinafter referred to as the "Additional Tonnage". The
foregoing notwithstanding, in the event Buyer fails in any year of the term of
this Agreement to timely exercise its option to purchase from Seller the
Additional Tonnage, the Seller shall, except as otherwise provided in this
Article III.D., be relieved of its obligation to sell to Buyer any Additional
Tonnage during the remaining term of this Agreement. Each year thereafter,
Buyer may request to buy Additional Tonnage from Seller by October 15 of the
immediately preceding calendar year and Seller has the right but not the
obligation to supply to Buyer the Additional Tonnage. In such case Seller shall
notify Buyer in writing no later than November 1 of the immediately preceding
year as to whether or not Seller will sell and supply the Additional Tonnage to
Buyer for such year. If Seller in any such year agrees to sell and supply the
Additional Tonnage to the Buyer, then for subsequent years the option reverts
to Buyer, exercisable in writing no later than October 15 of the immediately
preceding calendar year, to purchase from Seller and Seller shall be obligated
to sell to Buyer Additional Tonnage as described herein above.
E. Deliveries of both the 1997 Basic Tonnage and the 1997 Additional
Tonnage, and the deliveries of both the Basic Tonnage or PCI Adjusted Basic
Tonnage
-4-
<PAGE> 5
and any Additional Tonnage in subsequent years, shall be made throughout each
year in installments at as uniform a rate as practicable. During the course of
each year Buyer and Seller will mutually agree with respect to any changes to
delivery schedules.
IV. DELIVERY
A. Seller shall deliver Blast Furnace Coke hereunder to Buyer F.O.B.
rail car at Clairton Works, or if requested by Buyer and agreed to by Seller,
deliveries may be made to Buyer F.O.B. truck or barge at Clairton Works,
provided however, Seller may require Buyer to reimburse Seller for any costs
incurred in loading barges, to the extent that such costs are in excess of
Seller's costs for loading to rail cars.
B. Weights used for freight billing purposes shall be the basis upon
which Buyer shall pay USX for Blast Furnace Coke delivered hereunder, and
unless objected to in writing by either party within 30 days after its receipt
thereof, said weights shall be conclusive as to the quantities purchased
hereunder, as long as the tare weight used to calculate the weight on the
freight bill was established not less than two years prior to the date of the
rail car loading. If a car with a tare weight more than two years old is
loaded hereunder, and if Seller does not object in writing to Buyer within six
(6) months of the date of loading, then the freight bill weight shall be
conclusive. If the Seller does object in writing to Buyer within six months,
then the freight bill weight shall not be conclusive and the parties shall
negotiate in good faith to determine the weight which shall be used for billing
purposes.
C. Seller shall freeze-condition deliveries of Blast Furnace Coke
during winter months as directed by Buyer with a product acceptable to Buyer,
The seasonal
-5-
<PAGE> 6
starting and finishing dates of such treatment will be furnished in writing
each year by Buyer with reasonable prior notice to allow Seller to procure the
freeze-conditioning product ahead of such date. All costs of such treatment
will be invoiced once for each calendar month and reimbursed to Seller by Buyer
within fifteen (15) days following presentation of invoice itemizing such
charges. Seller will retain records of freeze-conditioning for ninety (90) days
and make them available to Buyer for inspection and review upon request.
D. If, for reasons other than those excused under Article IX, (Force
Majeure) Buyer is unable to accept deliveries at a uniform rate or as set forth
in Delivery Schedule that has been accepted by Seller, or if Buyer requests the
delay of any deliveries and Seller approves, quantities whose delivery is
delayed shall be delivered into a separately established stockpile at Clairton
Works that will contain only Blast Furnace Coke of Buyer. The stockpile shall
be appropriately marked by Seller to reflect the ownership thereof by Buyer. In
the event that Buyer deems it advisable to file Uniform Commercial Code
Financing Statements for informational purposes indicating the ownership
interest of Buyer in the stockpiled Blast Furnace Coke, Seller shall upon
request of Buyer execute such statements as are reasonably required by Buyer.
Buyer shall pay Seller, for all Blast Furnace Coke delivered into such
stockpile, the purchase price plus a charge of $10.00 per net ton to pay for
materials handling (stocking and de- stocking) and for Buyer's in-kind
reimbursement by Seller of screening losses at out turn. Title to such Blast
Furnace Coke shall pass to Buyer upon delivery into stockpile; Seller shall
invoice Buyer, pursuant to Article VII, (Payment) the purchase price plus the
entire $10.00 stockpile charge based on the date of delivery into stockpile.
Stockpiled Blast Furnace Coke shall be rescreened and loaded into railcars at
the request of Buyer for shipment to Weirton. Seller shall be responsible to
meet quality specifications on Blast Furnace Coke delivered to Buyer
-6-
<PAGE> 7
from stockpile only at the time it is delivered into stockpile, except that
Seller shall retain fines from the rescreening process and reimburse Buyer a
like quantity of specification Blast Furnace Coke. Weight of Blast Furnace Coke
loaded from stockpile shall be adjusted to account for moisture variation
between Blast Furnace Coke entering and being recovered from stockpile.
V. QUALITY
A. Blast Furnace Coke shall conform as closely as practicable to the
specifications set forth on Exhibit A, with price adjustments for deliveries
that deviate as to certain standards to be paid as set forth on said Exhibit.
B. Seller shall sample the Blast Furnace Coke produced by each
production turn as per its standard practice (four belt cuts per shift),
perform chemical and a physical analyses according to ASTM
standards/guidelines, or other mutually agreed guidelines, such as Clairton's
ISO Quality Operating Procedures, and average the analyses of said samples to
determine a daily weighted average analysis that shall be deemed to be the
analysis of Blast Furnace Coke loaded into railcars for Buyer's account on said
day. The average analysis for the day shall be transmitted electronically to
such persons or places as Buyer may from time to time direct as soon as
available (usually 24 hours following loading of rail cars). Such daily
analysis shall be determinative of product value for purposes of billing and
payment of the purchase price and, unless objected to in writing by either
party within 30 days after its receipt thereof, such daily analysis shall be
conclusive for all purposes whatsoever. Buyer shall have the right but not the
obligation to review at their discretion the Clairton ISO Quality Standard
Operating Procedures.
C. Seller shall retain the samples used for the proximate analyses for
not less than fourteen (14) days. Each such sample shall be appropriately
labeled so as to
-7-
<PAGE> 8
identify the loading date, sample preparation date, and turn from which the
same was taken. The samples as retained by Seller shall be turned over to Buyer
as and when requested,
D. In the event Buyer adopts PCI for its blast furnaces, the parties
agree to meet and in good faith agree upon fair and equitable adjustments, as
appropriate, to the price adjustments and/or standards set forth on Exhibit "A"
to reflect changes in Buyer's operations resulting in whole or in put from
Buyer's adoption of PCI.
VI. PRICE
Buyer shall pay Seller for each net ton (consisting of 2,000 pounds
avoirdupois) of Blast Furnace Coke, delivered hereunder a price, expressed in
U.S. dollars per net ton, F.O.B. railcar at Clairton Coke Works, determined as
follows:
A. The price for 1997 Basic Tonnage shall be $108.90 per net ton. The
price for 1997 Additional Tonnage shall be $106.00 per net ton.
B. The price for deliveries made during each of the years 1998, 1999,
2000 and 2001, shall be determined during the October immediately preceding the
year in question by agreement of Buyer and Seller and shall be based on Market
Price for Blast Furnace Coke that the parties believe will be in effect during
the next calendar year. Market Price as referenced in this Agreement shall be
defined and determined as follows:
(1) Market Price is that price at which Buyer could buy and Seller
could sell Blast Furnace Coke under terms and conditions substantially
comparable to this Agreement. Substantially comparable terms and conditions
include:
> A term of not less than twelve (12) months.
-8-
<PAGE> 9
> A volume of not less than 100,000 tons per year.
> Comparable Blast Furnace Coke quality specifications or price
adjustments.
> Comparable payment terms.
> Price negotiation which has occurred within the past six (6)
months for sales and deliveries during the next calendar year.
(2) The Market Price will be determined by reference to the price in
transactions with terms and conditions as stated above, considering the
following criteria listed without regard to any order of priority;
a. The price Buyer does or could pay for Blast Furnace Coke from
other foreign or domestic suppliers, F.O.B. Weirton, WV, less the prevailing
freight rate from Clairton, PA to Weirton, WV.
b. The price at which Seller sells Blast Furnace Coke to other
buyers, F.O.B. Clairton, PA, plus the prevailing freight rate from Clairton, PA
to Weirton, WV.
(3) Specifically not included in transaction to determine Market Price
are the following:
a. Spot sales, where spot sale is defined as a short term agreement
for a relatively small quantity.
b. Distressed sale or purchase, where such distressed transaction
is defined as a transaction in which the Seller of Buyer enters into the sale
because of an economic or physical condition which requires the prompt sale,
purchase or movement of Blast Furnace Coke.
C. In case Buyer and Seller are unable to agree upon a price for any
year as required by Article VI.B., the price shall be determined by a third
party according to the
-9-
<PAGE> 10
procedure set forth in this Article VI.C. Either party may serve upon the other
a written notice of its demand that the price determination be submitted to a
third party. Within ten (10) days following service of the demand, the parties
shall exchange statements of their final proposed price for the year in
question together with memoranda setting forth their arguments in support of
their final proposals and copies of all relevant supporting documents. Within
ten (10) days following the exchange of final proposals, the parties shall
agree upon a third party to make the price determination, which third party
shall be familiar with Blast Furnace Coke and the basis upon which Blast
Furnace Coke is bought and sold, and shall mail to such third party a joint
letter which will define the matter in dispute. The letter shall also provide
directions to such third party (i) to consider only the final positions and
supporting materials exchanged by the parties in considering the matter, (ii)
to choose, subject to the limitation on price changes set forth in Article
VI.C., the final proposed price of one of the parties as the price that will be
in effect for the year in question, rather than effect a compromise, (iii)
arrive at a decision based upon the definitions and pursuant to the
determination criteria set forth in Article VI.B., (iv) to render a decision in
writing, and (v) any other directions upon which the parties mutually agree.
The cost of the third party's services shall be divided equally between the
parties. The third party's price determination shall be binding on the parties
hereto, and, if necessary, judgment declaring the price may be entered thereon
in any court having jurisdiction. If the parties are unable to agree upon a
third party to determine a price pursuant to this Article VI.C., then each party
shall submit a nominee and a statement of the nominee's qualifications to the
Chief Judge of the United States District Court for the Western District of
Pennsylvania, who shall decide upon one or the other of such nominees as the
third party.
D. It is the intent of the parties hereto to establish a reasonable
pricing mechanism for product delivered hereunder, based on market price. The
parties also
-10-
<PAGE> 11
desire to protect themselves from the uncertainties of the coke market, and,
therefore, agree to establish maximum and minimum product price parameters as
follows:
(1) Notwithstanding anything else in this Agreement to the contrary
and regardless of the Market Price established pursuant to the procedures
described hereinabove, the actual price for product delivered hereunder shall
not exceed $119.00 per net ton for the term of this Agreement.
(2) Notwithstanding anything else in this Agreement to the contrary
and regardless of the Market Price established pursuant to the procedures
described hereinabove, the actual price for product delivered hereunder shall
not be less than $103.00 per net ton for the term of this Agreement but subject
to the provisions of Article VIE.
(3) Notwithstanding anything else in the Agreement to the contrary,
and regardless of the Market Price established pursuant to the procedures
described hereinabove, in no event shall the actual price of the Basic Tonnage
or PCI Adjusted Tonnage delivered hereunder for each of the years 1998, 1999,
2000 and 2001 be increased or decreased by more than $4.00 per net ton from the
price of the Basic Tonnage or PCI Adjusted Tonnage applicable to the
immediately preceding year. By way of illustrations in no event shall the
actual price for 1998 exceed $112.90 per net ton or be less than $104.90 per
net ton. There shall be no carryover from any year to the next calendar year of
any increases or decreases in the Market Price not included by reason of the
operation of this Article VI.D(3) in the actual price of the product delivered
hereunder in any such year.
E. In the event Buyer declares on or before October 31, 1997, its
intention not to implement PCI during the term of this Agreement, Seller shall
give Buyer a prospective credit equal to the product of $1.50 per ton times the
sum of (i) the Additional Tonnage plus (ii) the difference between the Basic
Tonnage minus the PCI
-11-
<PAGE> 12
Adjusted Basic Tonnage for all Additional Tonnage delivered hereunder. If in
the event the credit lowers the price of the Additional Tonnage below the
minimums stated in Article VI D 3 and Article VI.D.2, the lower price for the
Additional Tonnage will prevail.
VII. PAYMENT
Seller shall invoice Buyer for each trainload of Blast Furnace Coke
delivered hereunder. During 1997 each trainload shall be assumed to be contain
about 85% 1997 Basic Tonnage and 15% 1997 Additional Tonnage, and shall be
invoiced accordingly. If pricing in subsequent years is different for Basic
Tonnage or PCI Adjusted Basic Tonnage and any Additional Tonnage, each
trainload shall be apportioned on a pro rata basis and invoiced in manner
similar to that used during 1997. At the end of each contract year, the
respective tonnages and invoice amounts will be reconciled with the Basic
Tonnage at the contract amount. Buyer shall pay Seller the net amount invoiced
within thirty (30) days following date of invoice, by check mailed to an
address specified by Seller.
VIII. USE OF PRODUCT
Buyer represents and warrants that none of the Blast Furnace Coke
purchased hereunder is intended for resale.
IX. FORCE MAJEURE
A. In the event of any delay in Seller's performance or if Buyer is
unable to accept deliveries due to fire, explosion, strike or other difference
with workmen, shortage of utility, facility, material or labor, delay in
transportation, breakdown or accident, compliance with or other action taken to
carry out the intent or purpose of any law or regulation or any cause beyond
that party's reasonable control (any of which
-12-
<PAGE> 13
events shall be deemed to be an event of "force majeure"), the party whose
performance is delayed and prevented thereby shall be excused and the term of
this Agreement shall be extended for a period equal to the total length of such
delays or failures to perform to permit delivery of the quantities whose
delivery was delayed (hereinafter "Extended Term"); provided, however, that
should any event of force majeure prevent Seller from performing its
obligations under this Agreement for a period of six (6) consecutive months or
longer, Buyer shall have the right, while said force majeure remains in effect,
to terminate this Agreement upon written notice received by Seller. Prices in
effect during the Extended Term, if any, shall be negotiated during October of
2001 pursuant to the procedure set forth in Article VI herein.
B. The party that suffers a delay or fails to perform hereunder by
virtue of an event of force majeure shall promptly notify the other party of
the occurrence of such event, giving full particulars, and shall promptly
notify the other party of the cessation of such event.
X. WAIVERS AND REMEDIES
A. The failure of Buyer or Seller to insist in any one or more
instances upon strict performance of any of the provisions of this Agreement or
to take advantage of any of their rights hereunder shall not be construed as a
waiver of any such provision or the relinquishment of any such right, but the
same shall continue and remain in full force and effect.
B. Except as set forth in this paragraph, Buyer's sole remedies for
deliveries of Blast Furnace Coke that do not meet the "maximum" or "minimum"
specifications set forth on Exhibit A shall be the price adjustments provided
herein or, if the Blast Furnace Coke is substantially out of compliance with
said maximums or minimums on a
-13-
<PAGE> 14
consistent basis, Buyer may suspend deliveries and purchases hereunder until
Blast Furnace Coke production substantially conforms to said maximums and
minimums. In the event Seller fails within three (3) consecutive months of the
suspension by Buyer of deliveries hereunder to produce Blast Furnace Coke on a
consistent basis which substantially conforms to the maximums and minimums,
Buyer shall have the right to terminate this Agreement upon written notice
received by Seller. Should the +4" size maximum be violated by any delivery of
Blast Furnace Coke hereunder, Buyer may notify Seller of its dissatisfaction
with said Blast Furnace Coke prior to use thereof and prior to unloading the
rail car, truck or barge, whereupon Seller shall elect whether (a) to have the
Blast Furnace Coke returned to Seller at Seller's expense, reimbursing Buyer
for its cost of transportation, or (b) to permit Buyer to consume the Blast
Furnace Coke, reimbursing Buyer for its additional expenses incurred in
handling or processing said Blast Furnace Coke.
C. In no event shall either Buyer or Seller be liable to the other, by
reason of a default in the performance of any of its obligations hereunder, for
special damages of any kind or for consequential damages, in either case,
relating to damage to property, personal injury, disruptions in production,
lost profits or business opportunities. Specific performance shall not be
sought by, or awarded to, Buyer as a remedy for any unexcused failure of Seller
to deliver the quantities and quality of product specified herein.
D. SELLER HEREBY DISCLAIMS, AND BUYER HEREBY WAIVES, ANY AND ALL
IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
XI. DEFAULT
-14-
<PAGE> 15
A. Except for default and/or termination as provided for in paragraphs
IX.A., XB., and XI.B., no default by Buyer or Seller in the performance of any
of its obligations hereunder which, except for this provision, would be a legal
basis for rescission or termination of this Agreement by the other party, shall
give or result in such right unless and until the party in default shall fail
to correct the default within thirty (30) days after having received written
notice of a claim of such default from the other party.
B. In the event of default of Buyer in payment, Seller may suspend
further deliveries hereunder until such default has been corrected. If such
default is not corrected within thirty (30) days of Seller giving written
notice of such default, then Seller may terminate this Agreement.
XII. ASSIGNMENT
Neither Buyer nor Seller shall have the right to assign this Agreement
without the prior written consent of the other, which consent shall be in the
sole discretion of the party from whom it is sought, provided, however, that if
and to the extent either party guarantees the performance of any affiliated
entity, it may, to the extent of such guaranty, assign all or any portion of
its rights, duties and obligations pursuant to this Agreement to such
affiliated entity.
XIII. TERMINATION
This Agreement shall be terminated automatically upon Buyer
permanently discontinuing operation of its blast furnaces at Weirton, WV or
upon Seller permanently discontinuing its coke operations at Clairton Works.
XIV. NOTICES
-15-
<PAGE> 16
Except as otherwise provided in this Agreement, all notices under this
Agreement shall be in writing and shall be deemed to have been duly given if
sent:
(1) by first class registered or certified mail, postage prepaid; or (2) by
overnight delivery service which provides proof of delivery; or (3) by hand
delivery; or (4) by telecopy with a duplicate copy sent via first class mail,
postage prepaid, addressed as follows:
USX: USX Corporation
600 Grant Street
Pittsburgh, PA 15219-4776
ATTN: Director - Raw Materials
Planning, Procurement, Distribution &
Sales
Phone: (412) 433-3620
Fax: (412) 433-3624
BUYER: Weirton Steel Corporation
400 Three Springs Drive
Weirton, WV 26062-4989
ATTN: Vice President - Materials Management
Phone: (304) 797-2234
Fax: (304) 797-2821
or to the address the intended recipient shall have most recently specified for
such purpose in writing delivered to the other party.
XV. CHOICE OF LAW
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania, without regard to the principles therein
pertaining to the conflicts of law.
XVI. FINAL AGREEMENT
-16-
<PAGE> 17
This Agreement constitutes the final and complete agreement between
the parties with respect to the subject matter hereof, and all other prior
documents negotiations, agreements, and communications between the parties with
respect to the subject matter hereof. This Agreement may not be modified or
amended except by a written agreement executed by authorized representatives of
Buyer and Seller.
XVII. SEVERABILITY
If any provision of this Agreement, or the application thereof to any
party hereto, is held illegal, unenforceable, or otherwise invalid by
government promulgation or court decree, such holding shall not affect the
other provisions or applications of this Agreement which can be given effect
without the invalid provision, provided that the parties shall promptly
negotiate in good faith as to adjustments in this Agreement as may be necessary
to eliminate any inequity created by the provision being declared invalid.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written by their duly authorized
corporate officers.
WEIRTON STEEL CORPORATION
By:
------------------------
Vice President - Materials
Management
USX CORPORATION
By:
--------------------------
Director-Raw Materials Planning,
Procurement, Distribution & Sales
U.S. Steel Group
-17-
<PAGE> 18
EXHIBIT A
QUALITY SPECIFICATIONS
FOR
WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
Parameter Typical Daily Penalty Rejection Penalty Frequency
Standard Range/Limit
Deviation
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stability, % 60.0 1.55 57.0 - 55.0 < 55.0 $ 0.60 per point Each lot
per ton. pro rata
- --------------------------------------------------------------------------------------------------------------------------
Hardness, % 70.0 1.15 n/a n/a n/a "
- --------------------------------------------------------------------------------------------------------------------------
Moisture, % 2.50 2.00 6.5 - 8.0 >8.0 $1.23 per 1.0% "
point pro rata
- --------------------------------------------------------------------------------------------------------------------------
Ash, % 8.4 0.20 9.0 - 9.6 >9.6 $2.90 Per 1.0 % "
point per ton pro
rata
- --------------------------------------------------------------------------------------------------------------------------
Sulfur, % 0.76 0.03 0.85 - 0.95 >0.95 $1.30 per 0.1% "
point per ton pro
rata
- --------------------------------------------------------------------------------------------------------------------------
Volatile Matter, % 0.65 0.12 n/a >1.00 "
- --------------------------------------------------------------------------------------------------------------------------
Fixed Carbon, % By diff N/A N/A "
- --------------------------------------------------------------------------------------------------------------------------
CSR 59
- --------------------------------------------------------------------------------------------------------------------------
CRI
- --------------------------------------------------------------------------------------------------------------------------
Ash chemistry
- --------------------------------------------------------------------------------------------------------------------------
Phosphorous, % P in 0.010 Monthly
coke
- --------------------------------------------------------------------------------------------------------------------------
Alkali, % Na20 + % 0.209 Monthly
K2O, in the ash
- --------------------------------------------------------------------------------------------------------------------------
Size, % Each lot
- --------------------------------------------------------------------------------------------------------------------------
+4inch 0 >7.4 "
- --------------------------------------------------------------------------------------------------------------------------
+3 inch cumulative 11.0 "
- --------------------------------------------------------------------------------------------------------------------------
+2 inch cumulative 55.0 "
- --------------------------------------------------------------------------------------------------------------------------
+1 inch cumulative 95.0 "
- --------------------------------------------------------------------------------------------------------------------------
Minus 3/4 inch 2.50 5.0 - 10.0 >10.0 Adjust invoice "
- --------------------------------------------------------------------------------------------------------------------------
Mean size Each lot
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.9
[LOGO]
WEIRTON
STEEL CORPORATION
Mr. Richard K. Riederer
741 Chestnut Road
Sewickley, PA 15143
Dear Mr. Riederer:
This letter is intended to evidence a revision of Weirton Steel Corporation's
("Weirton") contractual agreement with you under its Senior Supplemental
Executive Retirement Program ("SERP").
In relation to your Target Benefit and Accrued Target Benefit under SERP
Sections 5.1 and 5.2, respectively, 7% shall be substituted for 3.3%, and 70%
shall be substituted for 55%. In all other respects, your rights and
obligations under the SERP will be applied in accordance with the SERP's terms,
with one exception.
The revision is effective as of November 16, 1995, but applies to all your
years of benefit service with Weirton. Thus, Weirton will make available to you
a catch-up payment to cover your pre-November, 1995 benefit service at the
time of the 1996 SERP payments. This catch-up payment amount will be calculated
by the SERP's actuary based on the SERP's normal assumptions and will be
covered by the tax gross-up provisions of the SERP.
Please sign, date and return the original of this letter where indicated below
to evidence your agreement with these terms and return it to me. A signed copy
of this letter is enclosed for your records.
Very truly yours,
/s/ WILLIAM R. KIEFER
- ------------------------------------
William R. Kiefer
Vice President-Law
Agreed to this 24 day of December, 1996, effective as of my date of hire by
Weirton Steel Corporation.
/s/ RICHARD K. RIEDERER 12/24/96
- ------------------------------------ ----------------
Richard K. Riederer Date
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This discussion and analysis of Weirton Steel
Corporation's (the "Company") financial condition and
results of operations should be read together with the
consolidated financial statements and notes thereto, which
begin on page 19.
The Company is a major integrated producer of flat rolled
carbon steels with major product lines consisting of sheet
and tin mill products. Sheet products include hot and cold
rolled and both hot-dipped and electrolytic galvanized
steels. Tin mill products include tinplate, chrome coated
and black plate.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
The net loss for 1996 was $49.9 million or $1.18 per
common share compared to net income of $48.4 million or
$1.10 per common share in 1995. The results for 1996
included a pretax restructuring charge of $17.0 million
associated with an approximately 20% reduction in the
managerial and supervisory workforce and a $5.4 million
after-tax extraordinary loss on the early extinguishment
of debt related to the refinancing of a portion of the
Company's senior note obligations. The 1995 results
included favorable adjustments for business interruption
and property damage insurance recoveries. The Company
received $9.0 million for property damage and $34.0
million for business interruption in 1995 related to
damage caused by a fire at the Company's No. 9 Tandem
Mill. In addition, the Company's business interruption
claim stemming from an outage at its hot strip mill in
March 1991 was settled for $7.5 million. The 1995 results
included a pretax provision for employee profit sharing of
$24.2 million. Net income for 1995 also included a $6.7
million after-tax extraordinary loss on the early
extinguishment of debt. Excluding the effect of these
non-recurring items, and the resulting impact on the
provisions for profit sharing and income taxes, the net
loss for 1996 would have been $30.8 million or $0.73 per
common share compared to net income for 1995 of $24.2
million or $0.55 per common share.
Total shipments in 1996 were 2,857 thousand tons compared
to 2,718 thousand tons in 1995. Net sales were $1,383.3
million in 1996 compared to $1,351.7 million in 1995.
<TABLE>
<CAPTION>
(In thousands, except per ton amounts) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,383,301 $1,351,711
Shipments in tons 2,857 2,718
- ---------------------------------------------------------------------------------------------------------------------------
Net sales per ton $ 484 $ 497
- -----------------------------------------------------------------------------------------==================================
</TABLE>
Sheet product shipments in 1996 were slightly more than
1995 at 1,957 thousand tons reflecting continued high
demand for the Company's product. However, net sales
generated by sheet products in 1996 declined $41.8 million
to $823.0 million primarily as a result of lower average
selling prices, particularly in the first half of the
year, reflecting weak industry-wide pricing.
Tin mill product shipments in 1996 were 900 thousand tons
compared to 763 thousand tons in 1995; an increase of 18%.
Tin mill product shipments resulted in net sales of $560.3
million in 1996, an increase of $73.4 million compared to
1995. The increase in net sales is attributable to the
increase in tin mill product shipments, but was partially
offset by lower average selling prices compared to 1995.
13
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of sales as a percentage of net sales was 92.7% in
1996 compared to 87.3% in 1995 reflecting lower average
selling prices, higher raw material and energy costs and
costs associated with shutdown of the No. 1 Blast Furnace
for a major rebuild in the fourth quarter of 1996.
Additionally, operating costs in 1996 were adversely
affected by an unplanned blast furnace outage in April
1996, costs associated with an environmental settlement,
and higher cost product mix.
<TABLE>
<CAPTION>
(In thousands, except per ton amounts) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost of sales $1,282,923 $1,180,053
Shipments in tons 2,857 2,718
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales per ton $ 449 $ 434
- ---------------------------------------------------------------------------------==========================================
</TABLE>
Selling, general and administrative expenses were $39.1
million compared to $34.4 million in 1995. The increase
was primarily attributable to higher employee benefit
costs and increased outside purchase services, partially
offset by lower salary costs resulting from the workforce
reduction in 1996.
Depreciation expense increased $3.3 million to $58.0
million in 1996. This increase was the result of increased
production and a higher depreciable asset base.
A $17.0 million restructuring charge was recognized in
1996, in connection with the approximately 20% reduction
in the supervisory and managerial workforce. The
restructuring charge included approximately $10.1 million
of severance benefits for terminated employees, $3.8
million related to a special retirement supplement for
those eligible for retirement and $3.1 million for other
termination related benefits. Approximately $2.3 million
of the $17.0 million charge was paid in 1996.
Interest expense was $44.4 million in 1996, an increase of
$1.8 million from 1995. The increase resulted from a net
increase of approximately $23.0 million of senior debt
obligations during the third quarter of 1996.
During 1996, the Company had an income tax benefit of
$10.8 million, compared to an income tax provision of
$13.3 million in 1995. The 1996 income tax benefit results
primarily from the generation of net operating losses and
the recognition of a portion of the net operating losses
as a deferred tax asset.
In July 1996, the Company refinanced approximately $100.0
million of its senior notes through the issuance of $125.0
million principal amount of 11-3/8% Senior Notes due 2004.
The refinancing resulted in the recognition of a $5.4
million after-tax extraordinary loss on the early
extinguishment of debt. In 1995, the Company recognized a
$6.7 million after-tax extraordinary loss on the early
extinguishment of debt as the result of the refinancing of
$112.0 million of the Company's senior notes through the
issuance of $125.0 million principal amount of 10-3/4%
Senior Notes due 2005.
1995 COMPARED TO 1994
Net income in 1995 was $48.4 million or $1.10 per common
share compared to $35.2 million or $0.95 per common share
in 1994. The 1995 and 1994 results included pretax
provisions for employee profit sharing of $24.2 million
and $17.6 million, respectively.
The 1995 and 1994 results included favorable adjustments
for business interruption and property damage insurance
recoveries resulting from damage caused by a fire at the
Company's No. 9 Tandem Mill. The Company received $44.7
million for property damage and $20.0 million for business
interruption in 1994 related to the No. 9 Tandem Mill. The
Company settled its claims related to the No. 9 Tandem
Mill in 1995 and received additional proceeds of $9.0
million for property damage and $34.0 million for business
interruption. In addition, the Company's business
interruption claim stemming from an outage at its hot
strip mill in March 1991 was settled for $7.5 million in
1995. Net income for 1995 also included a $6.7 million
after-tax extraordinary loss on the early extinguishment
of debt while 1994 results included a similar loss of $3.9
million. Excluding these nonrecurring items, and the
resulting effects on the provisions for employee profit
sharing and income taxes, net income for 1995 would have
been $24.2 million or, $0.55 per common share, compared to
a loss of $5.3 million, or $0.22 per common share for
1994.
14
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The resumption of production at the No. 9 Tandem Mill had
a significant effect on the Company's volume of shipments
in 1995, as well as its product mix compared to 1994.
Approximately 70% to 80% of the Company's tin and chrome
plating operations require steel that has been processed
at the No. 9 Tandem Mill. Total shipments in 1995 were
2,718 thousand tons compared to 2,606 thousand tons in
1994.
<TABLE>
<CAPTION>
(In thousands, except per ton amounts) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,351,711 $1,260,864
Shipments in tons 2,718 2,606
- ---------------------------------------------------------------------------------------------------------------------------
Net sales per ton $ 497 $ 484
- ---------------------------------------------------------------------------------------====================================
</TABLE>
Sheet product shipments decreased 36 thousand tons from
1994 to 1,955 thousand tons in 1995. Net sales generated
by sheet products in 1995 were $864.8 million, a decline
of $15.7 million from 1994 primarily related to the
decreased shipments. In 1995, the Company expanded its
marketing efforts in response to demand for its sheet
products internationally. As a result, approximately 12%
of the Company's sheet product shipments in 1995 were
exported compared to nominal amounts in prior years.
In the second quarter of 1994, not withstanding the No. 9
Tandem Mill outage, the Company was able to fill a
majority of its orders for its tin mill product customers
from inventory on hand. However, during the second half of
1994, the No. 9 Tandem Mill remained out of service and
the Company lost a portion of its share of the tin mill
product market. Sales from tin mill products increased
$106.5 million in 1995 over 1994, of which $89.8 million
was attributable to the higher level of shipments and a
more favorable product mix. Although demand in 1995
reflected periods of softness, previously negotiated
annual selling prices were higher and contributed $16.7
million to the increase in sales in 1995 compared to 1994.
As a result of the increase in tin mill product shipments
and selling prices, offset by lowered sheet product
shipments caused by the resumption of production at the
No. 9 Tandem Mill, total sales in 1995 increased 7.2% to
$1,351.7 million from $1,260.9 million in 1994.
Cost of sales as a percentage of net sales was 87.3% in
1995 compared to 90.2% in 1994. This improvement resulted
from the shift in product mix from sheet products to
higher margin tin mill product.
<TABLE>
<CAPTION>
(In thousands, except per ton amounts) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except per ton amounts)
<S> <C> <C>
Cost of sales $1,180,053 $1,136,936
Shipments in tons 2,718 2,606
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales per ton $ 434 $ 436
- ---------------------------------------------------------------------------------------====================================
</TABLE>
Depreciation expense increased $8.4 million to $54.7
million in 1995. This increase was the result of increased
production, greater overall capital spending and the
recognition of a new cost basis for the rebuilt No. 9
Tandem Mill. Capitalized spending for the No. 9 Tandem
Mill in 1995 and 1994 was $2.9 million and $74.6 million,
respectively.
Interest expense was $42.5 million in 1995, a decrease of
$7.5 million from 1994. The decrease resulted from a
reduction of approximately $101.1 million in outstanding
senior notes during the fourth quarter of 1994 using
available cash and a portion of the proceeds of a public
offering of the Company's common stock in August 1994.
In 1995 the Company recognized an after-tax extraordinary
loss on the early extinguishment of debt of $6.7 million
relating to the refinancing of approximately $112.0
million of senior notes through the issuance of $125.0
million principal amount of 10-3/4% Senior notes due 2005.
This compares to a similar after-tax extraordinary loss of
$3.9 million recognized in 1994 resulting from the early
repayment of approximately $101.1 million of senior notes
from the proceeds of a common stock offering.
15
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company elected for federal income tax purposes not to
recognize a new basis for the costs associated with the
rebuilt No. 9 Tandem Mill. As such, the 1995 income tax
provision reflected principally the reduction of net
deductible temporary differences. The 1994 income tax
provision included the utilization of regular federal net
operating loss carry forwards, a reduction of net deferred
deductible temporary differences and a current provision
for alternative minimum tax. The 1995 and 1994 provisions
were offset by favorable adjustments to the carrying value
of the Company's net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash and
equivalents of $112.1 million compared to $131.8 million
as of December 31, 1995. This decrease in cash and
equivalents between December 31, 1996 and December 31,
1995 was due primarily to the net loss incurred by the
Company in 1996, and payment during the first quarter of
1996 of approximately $24.2 million of profit sharing for
1995. The Company's cash position was positively affected
by a net increase in cash after the refinancing of senior
note obligations in July 1996.
In July 1996, the Company sold in a private offering
$125.0 million principal amount of 11-3/8% Senior Notes
due 2004. The net proceeds of the offering were $118.5
million, of which $105.7 million was used to repurchase
$65.0 million principal amount of the 10-7/8% Senior Notes
and $35.0 million principal amount of the 11-1/2% Senior
Notes. The Company subsequently exchanged the privately
held notes for substantially similar registered notes. The
Company recognized in 1996 an after-tax extraordinary loss
of $5.4 million associated with the early extinguishment
of debt which included the premiums to repurchase the
notes and the recognition of previously deferred financing
costs associated with the refinanced debt. The remaining
outstanding portion of the 11-1/2% Senior Notes totaling
$42.2 million will be reclassified to current on the
balance sheet in the first quarter of 1997. The Company
has no scheduled debt repayment until 1998 when its
11-1/2% Senior Notes become due.
The Company's net deferred tax assets were $143.8 million
as of December 31, 1996, which consisted primarily of the
carrying value of net operating loss carryforwards,
postretirement benefits other than pensions 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 deferred tax assets were
partially offset by a deferred tax liability related to
depreciation. The Company was required in 1996 and 1995,
and may be required in future periods, to make cash
payments for income taxes under federal alternative
minimum tax regulations. In 1996 the Company received a
tax refund of $4.0 million related to the 1995 tax year.
The Company has in place through its wholly owned
subsidiary, Weirton Receivables Inc. ("WRI"), a receivable
participation agreement with a group of four banks (the
"WRI Receivable Participation Agreement"). The facility
provides for a total commitment by the banks of up to
$85.0 million, including a letter of credit subfacility of
up to $25.0 million. The WRI Receivable Participation
Agreement, as amended, makes the facility available to WRI
through April 2001. As of December 31, 1996, $4.0 million
in letters of credit under the subfacility were
outstanding. Based upon the Company's available cash on
hand as of December 31, 1996, and the amount of cash it
anticipates will be provided from operating activities,
the Company expects to have sufficient cash to meet its
near-term requirements. As such, it does not expect WRI to
sell participation interests to the banks in the
near-term. As of December 31, 1996, after reductions for
amounts in place under the letter of credit subfacility,
the base amount of participation interests available for
cash sales was approximately $68.0 million.
16
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTMENT IN FACILITIES
Capital additions in 1996 were approximately $83.1 million
compared to $52.3 million in 1995. The Company's planned
capital additions for 1997 are approximately $60.0 million
and include spending to complete a major reline and
rebuild of the Company's No. 1 Blast Furnace, expected to
be completed in the first quarter of 1997, expenditures
for a utilities process control system and improvements at
the No. 9 Tandem Mill. Also included in the Company's
planned capital additions for 1997 are approximately $6.0
million for environmental control projects. At present,
cash provided from operating activities, together with
cash on hand, are expected to be sufficient to fund the
capital budget and to meet any near-term working capital
requirements. To the extent that operating activities do
not generate an adequate amount of cash, the Company
expects that any cash requirements for capital
improvements would be financed through the WRI Receivable
Participation Agreement.
ENVIRONMENTAL AFFAIRS
In March 1996, the West Virginia Department of
Environmental Protection ("DEP") and the United States
Environmental Protection Agency ("EPA") advised the
Company that they 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 amounts related to the penalty and the
remedial activity have been accrued in the Company's
balance sheet as of December 31, 1996.
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 air emissions
control equipment, waste water treatment systems and waste
handling facilities. Under the settlement, the Company has
committed to environmental related capital projects
estimated at approximately $13.4 million, a significant
portion of which was included in the Company's capital
budget prior to commencement of the negotiations with EPA
and DEP.
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.
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.
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 former NSC
Weirton Steel 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.
17
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS WEIRTON STEEL CORPORATION
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LABOR NEGOTIATIONS
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, on February 27, 1997, the
Company and the union for the hourly production and
maintenance workforce reached a tentative agreement on a
54-month collective bargaining agreement which is subject
to approval by the membership of the union. The Company is
continuing negotiations with the remaining represented
employees in an effort to reach new collective bargaining
agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that the carrying value of
long-lived operating assets, when determined to be
impaired, be adjusted so as not to exceed the estimated
undiscounted cash flows provided by such assets. SFAS No.
121 also addresses the accounting for long-lived assets
that are to be disposed of in future periods. The Company
adopted the provisions of SFAS No. 121 in the first
quarter of 1996. The adoption of SFAS No. 121 did not have
a material effect on the Company's financial position or
results of operations for the year ended December 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 elected not to adopt the recognition
provisions of SFAS No. 123 but instead has complied with
the related disclosure requirements. Had the recognition
requirements been adopted in 1995 the pro forma results
would have been a net loss of $50.2 million or $1.19 per
common share in 1996, and a net income of $48.0 million or
$1.10 per common share in 1995.
In October 1996, the American Institute of Certified
Public Accountants issued Statement of Position 96-1 ("SOP
96-1"), "Environmental Remediation Liabilities." SOP 96-1
provides guidance related to the recognition, measurement,
display and disclosure of environmental remediation
liabilities. While application of the provisions of SOP
96-1 is not required until fiscal year 1997, the Company
has applied SOP 96-1 to its financial statements for the
year ended December 31, 1996.
18
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,383,301 $1,351,711 $1,260,864
OPERATING COSTS:
Cost of sales 1,282,923 1,180,053 1,136,936
Selling, general and
administrative expense 39,102 34,440 31,504
Depreciation 58,019 54,699 46,309
Restructuring charge 16,959 -- --
Provision for profit sharing -- 24,178 17,581
Insurance recoveries -- (41,502) (20,000)
- ---------------------------------------------------------------------------------------------------------------------------
Total operating costs 1,397,003 1,251,868 1,212,330
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (13,702) 99,843 48,534
Adjustment to carrying value of damaged facility -- 9,000 44,746
Interest expense (44,366) (42,519) (49,999)
Interest income 5,415 4,615 5,795
ESOP contribution (2,610) (2,610) (2,610)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (55,263) 68,329 46,466
Income tax provision (benefit) (10,776) 13,255 7,454
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (44,487) 55,074 39,012
Loss on early extinguishment of debt - net of tax 5,431 6,718 3,851
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (49,918) $ 48,356 $ 35,161
Less: Preferred stock dividend requirement -- -- 2,339
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (49,918) $ 48,356 $ 32,822
- ----------------------------------------------------------------------=====================================================
PER SHARE DATA:
Weighted average number of common shares
and equivalents (in thousands) 42,370 43,781 34,470
Income (loss) per common share before extraordinary item $ (1.05) $ 1.26 $ 1.06
Loss on early extinguishment of debt (0.13) (0.16) (0.11)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (1.18) $ 1.10 $ 0.95
- ----------------------------------------------------------------------=====================================================
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 8
CONSOLIDATED BALANCE SHEETS WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents, includes
restricted cash of $2,010 and $1,373, respectively $ 112,092 $ 131,811
Receivables, less allowances of $7,684 and $8,688, respectively 154,426 150,213
Inventories 259,139 255,360
Deferred income taxes 51,872 49,245
Other current assets 3,269 7,400
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 580,798 594,029
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 610,494 586,430
Intangible asset -- 31,412
Deferred income taxes 91,971 86,205
Other assets and deferred charges 17,358 15,945
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,300,621 $1,314,021
- ----------------------------------------------------------------------------------------===================================
LIABILITIES:
Current liabilities:
Payables $164,778 $ 123,105
Employment costs 65,067 89,793
Pension liability 12,000 12,471
Taxes other than income taxes 16,703 19,376
Other 12,757 8,981
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 271,305 253,726
Long term debt obligations 430,820 407,869
Long term pension obligation 74,750 94,689
Postretirement benefits other than pensions 329,154 317,893
Other long term liabilities 26,941 25,348
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,132,970 1,099,525
- ---------------------------------------------------------------------------------------------------------------------------
REDEEMABLE STOCK:
Preferred stock, 7,500,000 shares authorized:
Preferred stock, Series A, $0.10 par value; 1,762,723
and 1,769,865 shares authorized and issued;
1,757,649 and 1,764,791 subject to put 25,188 25,589
Less:Preferred treasury stock, Series A, at cost,
14,865 and 40,423 shares (216) (586)
Deferred ESOP compensation (6,525) (9,135)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL REDEEMABLE STOCK 18,447 15,868
- ---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.10 par value;
5,074 shares not subject to put 74 74
Common stock, $0.01 par value; 50,000,000 shares
authorized; 42,592,850 and 42,289,944 shares issued 426 423
Additional paid-in capital 455,311 454,197
Common shares issuable, 259,177 and 332,076 shares 773 1,170
Deferred compensation (385) --
Retained earnings (deficit) (305,272) (255,354)
Less: Common treasury stock, at cost, 239,648 and 275,829 shares (1,723) (1,882)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 149,204 198,628
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY $1,300,621 $1,314,021
- ----------------------------------------------------------------------------------------===================================
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (49,918) $ 48,356 $ 35,161
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 58,019 54,699 46,309
Amortization of deferred financing costs 1,982 2,212 2,509
Restructuring charge 16,959 -- --
Adjustment to carrying value of damaged facility -- (9,000) (44,746)
ESOP contribution 2,610 2,610 2,610
Loss on early extinguishment of debt 5,431 6,718 3,851
Deferred income taxes (7,078) 7,240 1,942
Cash provided (used) by working capital items:
Receivables (4,213) (18,311) (2,898)
Inventories (3,779) 15,158 (27,859)
Other current assets 4,131 (1,797) (1,746)
Payables 24,743 (12,933) 26,102
Other current liabilities (35,188) 9,620 3,099
Long term pension obligation 6,973 12,397 (726)
Other 13,936 (7,750) 10,506
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,608 109,219 54,114
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment:
Spending to restore damaged facility -- (2,948) (74,611)
Less: Insurance recoveries -- 9,000 45,000
Other capital spending (67,937) (49,410) (37,456)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (67,937) (43,358) (67,067)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt obligations (105,676) (118,800) (101,101)
Proceeds from issuance of debt obligations 122,610 125,000 --
Proceeds from issuance of common stock -- -- 116,087
Redemption of preferred stock, Series B -- -- (25,000)
Dividends paid on preferred stock -- -- (2,339)
Common shares issuable 773 1,170 1,454
Deferred financing costs (4,097) (4,325) (2,245)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED(USED) BY FINANCING ACTIVITIES 13,610 3,045 (13,144)
- ---------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND EQUIVALENTS (19,719) 68,906 (26,097)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 131,811 62,905 89,002
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 112,092 $ 131,811 $ 62,905
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest capitalized $ 40,275 $ 44,416 $ 52,091
Income taxes paid (refunded), net (3,699) 10,593 --
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional
(Dollars in thousands, except per share data) Shares Amount Paid-in Capital
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY CONSOLIDATED
AT DECEMBER 31, 1993 26,719,752 $267 $335,776
Net income -- -- --
Issuance of common stock 15,000,000 150 115,937
Conversion of preferred stock -- -- --
Reclassification of preferred Series A
not subject to put -- -- --
Employee stock purchase plan:
Shares issued 299,971 3 1,009
Shares issuable -- -- --
Board of Directors deferred compensation plan:
Shares issued 7,682 -- 24
Shares issuable -- -- --
Dividends payable ($4.6875 per preferred share,
Series B) -- -- --
- --------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY CONSOLIDATED
AT DECEMBER 31, 1994 42,027,405 420 452,746
Net income -- -- --
Conversion of preferred stock 22,453 1 74
Reclassification of preferred Series A
not subject to put -- -- --
Employee stock purchase plan:
Shares issued 240,086 2 1,348
Shares issuable -- -- --
Board of Directors deferred compensation plan:
Shares issued -- -- 29
Shares issuable -- -- --
- --------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY CONSOLIDATED
AT DECEMBER 31, 1995 42,289,944 423 454,197
Net loss -- -- --
Conversion of preferred stock 7,142 -- 94
Exercise of preferred stock put options -- -- 13
Purchase of treasury stock -- -- --
Employee stock purchase plan:
Shares issued 295,764 3 1,034
Shares issuable -- -- --
Board of Directors deferred compensation plan:
Shares issued -- -- (27)
Shares issuable -- -- --
Deferred compensation -- -- --
- --------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY CONSOLIDATED
AT DECEMBER 31, 1996 42,592,850 $426 $455,311
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 11
WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
Common Common Preferred Series A
Shares Issuable Retained Treasury Stock Not Subject to Put
------------------ Deferred Earnings ------------------- ------------------ Stockholders'
Shares Amount Compensation (Deficit) Shares Amount Shares Amount Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
397,049 $ 1,327 $ -- $(336,532) 381,405 $(2,215) 2,769 $ 16 $ (1,361)
-- -- -- 35,161 -- -- -- -- 35,161
-- -- -- -- -- -- -- -- 116,087
-- -- -- -- (8,065) 109 -- -- 109
-- -- -- -- -- -- 9,543 71 71
(299,971) (1,012) -- -- -- -- -- -- --
240,086 1,350 -- -- -- -- -- -- 1,350
(7,682) (24) -- -- -- -- -- -- --
18,558 106 -- -- -- -- -- -- 106
-- -- -- (2,339) -- -- -- -- (2,339)
- --------------------------------------------------------------------------------------------------------------------
348,040 1,747 -- (303,710) 373,340 (2,106) 12,312 87 149,184
-- -- -- 48,356 -- -- -- -- 48,356
-- -- -- -- -- -- (8,546) (32) 43
-- -- -- -- -- -- 1,308 19 19
(240,086) (1,350) -- -- -- -- -- -- --
295,764 893 -- -- -- -- -- -- 893
(107,954) (253) -- -- (97,511) 224 -- -- --
36,312 133 -- -- -- -- -- -- 133
- --------------------------------------------------------------------------------------------------------------------
332,076 1,170 -- (255,354) 275,829 (1,882) 5,074 74 198,628
-- -- -- (49,918) -- -- -- -- (49,918)
-- -- -- -- -- -- -- -- 94
-- -- -- -- -- -- -- -- 13
-- -- -- -- 131 (1) -- -- (1)
(295,764) (1,037) -- -- -- -- -- -- --
228,774 681 -- -- -- -- -- -- 681
(36,312) (133) -- -- (36,312) 160 -- -- --
30,403 92 -- -- -- -- -- -- 92
-- -- (385) -- -- -- -- -- (385)
- --------------------------------------------------------------------------------------------------------------------
259,177 $ 773 $(385) $(305,272) 239,648 $(1,723) 5,074 $ 74 $149,204
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
NOTE 1
BASIS OF PRESENTATION
The financial statements herein include the accounts of
Weirton Steel Corporation and its wholly-owned subsidiary,
Weirton Receivables, Inc. ("WRI"). Weirton Steel
Corporation together with its subsidiary are herein
referred to as the "Company."
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications have been made to prior year
amounts to conform with current year presentation.
NOTE 2
ORGANIZATION AND BACKGROUND
The Company and its predecessor companies have been in the
business of making and finishing steel products for nearly
90 years. From November 1929 to January 1984, the
Company's business was operated as either a subsidiary or
a division of National Steel Corporation ("NSC").
Incorporated in Delaware in November 1982, the Company
acquired the principal assets of NSC's former Weirton
Steel Division (the "Division") in January 1984.
From January 1984 until June 1989, the Company was owned
in its entirety by its employees through an Employee Stock
Ownership Plan (the "1984 ESOP"). In June 1989, the 1984
ESOP sold 4.5 million shares of the Company's common stock
in a public offering. In connection with the public
offering of common stock in June 1989, the Company sold
1.8 million shares of voting Redeemable Preferred Stock,
Series A (the "Series A Preferred") to a new Employee
Stock Ownership Plan (the "1989 ESOP"). Each share of
Series A Preferred is convertible at any time into one
share of common stock, subject to adjustment, and is
entitled to 10 times the number of votes allotted to the
common stock into which it is convertible.
In May 1994, the Company's stockholders approved an
amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares
of common stock from 30.0 million shares to 50.0 million
shares. In August 1994, the Company and the Company's
pension plan participated in a public offering of the
Company's common stock and sold 15.0 million and 4.55
million shares, respectively.
Substantially all of the Company's employees participate
in the 1984 ESOP and the 1989 ESOP which, after giving
effect to the above-mentioned transactions, owned
approximately 26.6% of the issued and outstanding common
shares and substantially all the preferred shares of the
Company as of December 31, 1996. The common and preferred
shares held by the 1984 ESOP and the 1989 ESOP combined
represent approximately 48.0% of the voting power of the
Company's voting stock as of December 31, 1996.
24
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES
CASH
The liability representing outstanding checks drawn
against a zero-balance general disbursement bank account
is included in accounts payable for financial statement
presentation. Such amounts were $2.5 million and $3.2
million as of December 31, 1996 and 1995, respectively.
CASH EQUIVALENTS
Cash equivalents, which consist primarily of certificates
of deposit, commercial paper and time deposits, are stated
at cost, which approximates fair value. For financial
statement presentation, the Company considers all highly
liquid investments purchased with maturities of 90 days or
less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out method.
Inventory costs include materials, labor and manufacturing
overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Major
additions are capitalized, while the cost of maintenance
and repairs which do not improve or extend the lives of
the respective assets is charged to expense in the year
incurred. Interest costs applicable to facilities under
construction are capitalized. Gains or losses on property
dispositions are credited or charged to income.
Depreciation of steelmaking facilities is determined by
the production-variable method which adjusts straight-line
depreciation to reflect actual production levels. The cost
of relining blast furnaces is amortized over the estimated
production life of the lining. All other assets are
depreciated on a straight-line basis.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) ACCOUNTING
The Company recognizes as compensation expense an amount
based upon its required contributions to the ESOPs. The
resulting expense approximates the cost to the ESOPs for
the shares allocated to participants for the period. The
number of shares allocated to participants for the period
is determined based on the ratio of the period's debt
principal payment to the total estimated debt principal
payments. Shares are then allocated to individual
participants based on the participant's relative
compensation.
EMPLOYEE PROFIT SHARING
The provision for employee profit sharing is calculated in
accordance with the Profit Sharing Plan. There was no
provision for employee profit sharing in 1996. The pretax
provisions in 1995 and 1994 were based upon 33-1/3% of net
income.
RESEARCH AND DEVELOPMENT
Research and development costs related to improvement of
existing products, development of new products and the
development of more efficient operating techniques are
charged to expense as incurred and totaled $3.4 million,
$3.2 million, and $6.3 million in 1996, 1995, and 1994,
respectively.
25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
NOTE 4
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 87,733 $ 77,557
Work-in-process 76,526 86,491
Finished goods 94,880 91,312
- ---------------------------------------------------------------------------------------------------------------------------
$259,139 $255,360
- -----------------------------------------------------------------------------------========================================
</TABLE>
NOTE 5
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,107 $ 1,098
Buildings 9,088 8,689
Machinery, equipment and other 895,151 845,650
Construction-in-progress 95,881 63,798
- ---------------------------------------------------------------------------------------------------------------------------
1,001,227 919,235
Less: Allowances for depreciation (390,733) (332,805)
- ---------------------------------------------------------------------------------------------------------------------------
$ 610,494 $ 586,430
- --------------------------------------------------------------------------------===========================================
</TABLE>
In April 1994, the Company's No. 9 Tandem Mill sustained
major damage from a fire. This cold reduction mill is a
major component of the Company's operating facilities and
normally processes approximately 70% to 80% of the steel
coils required for the Company's tin and chrome plating
operations. The Company rebuilt the No. 9 Tandem Mill and
start-up operations began in October 1994.
Property damage insurance recoveries related to the No. 9
Tandem Mill in 1995 and 1994 were $9.0 million and $45.0
million, respectively. 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 for the years ended
December 31, 1995 and 1994, adjustments to the carrying
value of the No. 9 Tandem Mill to the extent of insurance
recoveries received during such periods. Total spending in
1995 and 1994 to restore the No. 9 Tandem Mill was $2.9
million and $74.6 million, respectively.
The Company's claim for business interruption related to
the No. 9 Tandem Mill was settled in 1995. Business
interruption insurance recoveries of $34.0 million and
$20.0 million were received in 1995 and 1994,
respectively. Total funds received in 1995 and 1994 for
both property damage and business interruption claims
related to the No. 9 Tandem Mill were $110.5 million. In
addition, the Company's business interruption claim
stemming from an outage at its hot strip mill in March
1991 was settled for $7.5 million in 1995.
Capitalized interest applicable to facilities under
construction for the years ended December 31, 1996, 1995
and 1994, amounted to $1.1 million, $1.1 million and $2.3
million, respectively. The Company had approximately $15.2
million of non-cash capital additions as of December 31,
1996, included in accounts payable.
26
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
NOTE 6
FINANCING ARRANGEMENTS
DEBT OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
11-1/2% Senior Notes due 3/1/98 $ 42,163 $ 77,150
10-7/8% Senior Notes due 10/15/99 84,712 149,749
11-3/8% Senior Notes due 7/1/2004 125,000 --
10-3/4% Senior Notes due 6/1/2005 125,000 125,000
8-5/8% Pollution Control Bonds due 11/1/2014 56,300 56,300
- ---------------------------------------------------------------------------------------------------------------------------
433,175 408,199
Less: Unamortized debt discount 2,355 330
- ---------------------------------------------------------------------------------------------------------------------------
Long term debt obligations $430,820 $407,869
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
In July 1996, the Company completed a private offering of
$125.0 million of its 11-3/8% Senior Notes due 2004. The
net proceeds of the offering were $118.5 million, of which
$105.7 million was used to repurchase $65.0 million
principal amount of the 10-7/8% Senior Notes and $35.0
million principal amount of 11-1/2% Senior Notes. The
privately placed notes were subsequently exchanged for
substantially similar publicly registered notes. The
Company recognized a $5.4 million after-tax extraordinary
loss on the early extinguishment of debt, which included
the premiums paid to purchase the notes and the
recognition of previously deferred financing costs.
In June 1995, the Company completed an offering of $125.0
million of its 10-3/4% Senior Notes due 2005. The net
proceeds were $121.0 million, of which $118.8 million was
used to purchase approximately $30.0 million principal
amount of its 11-1/2% Senior Notes and $82.0 million
principal amount of its 10-7/8% Senior Notes. The Company
recognized an after-tax extraordinary loss on the early
extinguishment of debt of $6.7 million related to premiums
paid to purchase the notes and the immediate recognition
of previously deferred financing costs related to the
purchased notes.
In 1994, the Company retired $68.3 million of its 10-7/8%
Senior Notes and $32.8 million of its 11-1/2% Senior Notes
using cash on hand and a portion of the proceeds from the
Company's August 1994 common stock offering. The purchases
of senior notes required the payment of certain premiums
in excess of their principal amount and the immediate
recognition of previously deferred financing costs. As a
result, the Company recognized in 1994 a $3.9 million
after-tax extraordinary loss on the early extinguishment
of debt.
The indentures governing the Senior Notes are
substantially similar and contain covenants that limit,
among other things, the incurrence of additional
indebtedness, the declaration and payment of dividends and
distributions on the Company's capital stock, as well as
mergers, consolidations, liens and sales of certain
assets. Under covenants affecting the Company's ability to
pay dividends on its common stock, the Company is limited
as to the payment of aggregate dividends after March 31,
1993, to the greater of (i) $5.0 million or (ii) $5.0
million plus one-half of the Company's cumulative
consolidated net income since March 31, 1993, plus the net
proceeds from future issuances of certain capital stock
less certain allowable payments. As of December 31, 1996,
pursuant to this covenant, the Company's ability to pay
dividends on its common stock was limited to $114.4
million. Upon the occurrence of a change in control, as
defined under the indentures, holders of the Senior Notes
will have the option to cause the Company to repurchase
their Senior Notes at 101% of the principal amount, plus
accrued interest to the date of repurchase.
27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
The Company's Senior Notes are ranked equally and are
senior to the 1989 Pollution Control Bonds.
The Company has scheduled principal payments of $42.2
million on its 11-1/2% Senior Notes in 1998 and $84.7
million on the 10-7/8% Senior Notes in 1999. No other
principal payments become due within the next five years.
RECEIVABLES PARTICIPATION AGREEMENT
The Company has in place, through a subsidiary, a
receivables participation agreement with a group of four
banks. The facility provides for a total commitment by the
banks of up to $85.0 million, including a letter of credit
subfacility of up to $25.0 million. The Company sells
substantially all of its accounts receivable as they are
generated, to its wholly-owned subsidiary, WRI. WRI
finances its ongoing receivable purchases from a
combination of cash collections on receivables already in
the pool, short term intercompany obligations and
issuances of redeemable preferred stock to Weirton Steel
Corporation. As of December 31, 1996, while no funded
participation interests had been sold under the facility,
$4.0 million in letters of credit under the subfacility
were in place. The amount of participation interests
committed to be purchased by the banks fluctuates
depending upon the amounts and nature of receivables
generated by the Company which are sold into the program,
and certain financial tests applicable to them. With
respect to the receivables comprising the pool and the
financial tests applicable to such, and after reduction
for amounts in place under the letter of credit
subfacility, the base amount available for cash sale was
approximately $68.0 million as of December 31, 1996.
Funded purchases of participation interests by the banks
under the facility are generally available on a revolving
basis for three years, subject to extension as agreed to
by the banks. In 1996, the Participation Agreement was
extended through April 2001. Weirton Steel Corporation
continues to act as servicer of the assets sold into the
program and continues to make billings and collections in
the ordinary course of business according to its
established credit practices. Except for warranties given
by Weirton Steel Corporation concerning the eligibility of
receivables sold to WRI under the program, the
transactions under the facility are generally nonrecourse.
WRI's commitments to the banks, which do not include
warranties as to collectibility of the receivables,
include those typical of sellers of similar property and
are secured by its interest in the receivables and related
security. WRI is subject to certain restrictions regarding
its indebtedness, liens, asset sales not contemplated by
the facility, guarantees, investments, other transactions
with its affiliates, including Weirton Steel Corporation,
and the maintenance of a minimum net worth of not less
than the greater of $5.0 million or 10% of the outstanding
receivables. As of December 31, 1996, WRI had a net worth
of $120.2 million and outstanding receivables of $146.1
million. The banks and other creditors of WRI have a
priority claim on all assets of WRI prior to those assets
becoming available to any of Weirton Steel Corporation's
creditors.
LEASES
The Company uses certain lease arrangements to supplement
its financing activities.
Rental expense under operating leases was $5.6 million,
$4.7 million and $6.7 million for the years ended December
31, 1996, 1995, and 1994, respectively. The future minimum
lease payments under noncancelable operating leases are
$5.1 million, $4.1 million, $2.3 million, $1.5 million and
$1.3 million for the years ending 1997 through 2001,
respectively, and $1.3 million thereafter.
28
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
NOTE 7
EMPLOYEE RETIREMENT BENEFITS
PENSIONS
The Company has a noncontributory defined benefit pension
plan which covers substantially all employees (the
"Pension Plan"). The Pension Plan provides benefits that
are based generally upon years of service and compensation
during the final years of employment.
The Company's funding policy is influenced by its general
cash requirements but, at a minimum, complies with the
funding requirements of federal laws and regulations.
During the years ended December 31, 1996, 1995 and 1994,
the Company contributed $40.5 million, $22.4 million and
$69.7 million, respectively, to the Pension Plan.
The Pension Plan's assets are held in trust, the
investments of which consist primarily of common stocks,
fixed income securities and short term investments.
Following are the components of the Company's net pension
cost recognized in 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 20,221 $ 16,060 $ 17,847
Interest cost on projected benefit obligation 49,773 48,346 45,155
Actual return on plan assets (57,634) (63,239) (12,717)
Net amortization and deferral 35,325 46,123 (1,757)
- ---------------------------------------------------------------------------------------------------------------------------
$ 47,685 $47,290 $ 48,528
- -------------------------------------------------------------------========================================================
</TABLE>
The following table reconciles the funded status of the
Pension Plan to the accrued pension obligation recognized
as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $496,852 $ 518,309
Nonvested 37,034 29,877
- ---------------------------------------------------------------------------------------------------------------------------
533,886 548,186
Effect of projected compensation increases 173,511 170,296
- ---------------------------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation 707,397 718,482
Plan assets at fair value 499,211 441,026
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 208,186 277,456
Items not yet recognized:
Actuarial (losses) gains 22,156 (41,652)
Remaining net obligation at transition (45,742) (53,132)
Prior service cost (97,850) (106,924)
Additional minimum liability -- 31,412
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension obligation $ 86,750 $ 107,160
- ----------------------------------------------------------------------------------=========================================
</TABLE>
29
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
The accrued pension obligation is classified for financial
statement presentation as of December 31, 1996 and 1995,
as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pension liability, a component of current liabilities $12,000 $ 12,471
Long term pension obligation 74,750 94,689
- ---------------------------------------------------------------------------------------------------------------------------
$86,750 $107,160
- ------------------------------------------------------------------------------------=======================================
</TABLE>
The Company's projected, accumulated and vested pension
obligations and expense have been actuarially measured
through the use of certain significant assumptions. The
table below depicts the assumptions used to measure the
Company's pension obligations and its net periodic
expense.
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate used to discount
the projected, accumulated and vested benefit
obligations to present value 7.75% 7.25% 8.50%
Expected rate of return on plan assets 9.25% 8.75% 8.75%
Assumed increase in compensation levels 4.00% 2.0% for 2.0% for
1 year 2 years
and 4.0% and 4.0%
thereafter thereafter
</TABLE>
The assumed weighted average interest rate used to
discount the pension obligations to present value is based
upon the rates of return on high-quality, fixed-income
investments currently available.
The Company's accumulated pension benefit obligation
exceeded assets available for plan benefits and the
Company's unfunded accrued pension obligations by $31.4
million as of December 31, 1995. As a result, the Company
recognized on that date an additional minimum liability
and an intangible asset of an equal amount. The decrease
in the additional minimum liability and intangible asset
as of December 31, 1996, from a year earlier results from
the higher interest rate assumption used to discount the
accumulated pension benefit obligation ("ABO") to present
value, better than expected return on plan assets and the
Company's $40.5 million contribution in 1996. This
decrease was partially offset by an increase in the ABO due
to the recognition of approximately $3.8 million of
pension related benefits included in the restructuring
charge.
BENEFITS OTHER THAN PENSIONS
The Company provides healthcare and life insurance
benefits to substantially all of the Company's retirees
and their dependents. The health care plans contain
cost-sharing features including co-payments, deductibles
and lifetime maximums. The life insurance benefits
provided to retirees are generally based upon annual base
pay at retirement for salaried employees and specific
amounts for represented employees.
The amount of net periodic expense for postretirement
health care and life insurance benefits recognized in
1996, 1995 and 1994 is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during period $ 5,766 $ 5,373 $ 7,214
Interest cost on accumulated postretirement benefit obligation 23,767 25,082 20,618
Net amortization and deferral (4,688) (4,693) (4,680)
- ---------------------------------------------------------------------------------------------------------------------------
$24,845 $25,762 $23,152
- -------------------------------------------------------------------------==================================================
</TABLE>
30
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
The actuarially determined net periodic expense in 1996,
1995 and 1994 for retiree medical and life insurance
benefits exceeded the $16.0 million, $20.4 million and
$13.1 million cash outlay for providing such benefits by
approximately $8.8 million, $5.4 million and $10.0
million, respectively.
The following table sets forth the components of the
accumulated postretirement benefit obligation and the
reconciliation of amounts recognized as of December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation attributable to:
Retirees and beneficiaries $229,145 $234,058
Active employees fully eligible for benefits 40,289 25,507
Other active participants 76,356 63,524
- ---------------------------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 345,790 323,089
Items not yet recognized:
Actuarial (losses) gains (27,706) (18,540)
Prior service cost 28,070 32,763
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $346,154 $337,312
- -----------------------------------------------------------------------------------========================================
</TABLE>
The accrued postretirement benefit obligation as of
December 31, 1996 and 1995, is classified for financial
statement presentation as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued postretirement benefits, a component
of accrued employment costs $ 17,000 $ 19,419
Postretirement benefits other than pensions 329,154 317,893
- ---------------------------------------------------------------------------------------------------------------------------
$346,154 $337,312
- -----------------------------------------------------------------------------------========================================
</TABLE>
Consistent with the Company's approach to measuring its
accumulated benefit obligation for pensions, the interest
rate used to measure the obligation as of December 31,
1996, was increased to 7.75%. The interest rate used to
discount the accumulated postretirement obligation to
present value as of December 31, 1995, was 7.25%.
The medical cost and administrative expense rates used to
project anticipated cash flows and measure the Company's
postretirement benefit obligation as of December 31, 1996,
1995 and 1994, are as follows:
<TABLE>
<CAPTION>
For retirees who For retirees who
have not yet are age 65
reached age 65 and older
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Base medical cost trend:
Rate in first year 8.75% 9.00% 9.50% 7.75% 8.00% 8.25%
Ultimate rate 4.75% 4.25% 5.50% 4.75% 4.25% 5.50%
Year in which ultimate
rate is reached 2003 2003 2003 2003 2003 2003
Major medical cost trend:
Rate in first year 10.50% 11.80% 13.10% N/A N/A N/A
Ultimate rate 4.75% 4.25% 5.50% N/A N/A N/A
Year in which ultimate
rate is reached 2003 2003 2003 N/A N/A N/A
Administrative expense trend 4.75% 4.25% 5.50% 4.75% 4.25% 5.50%
</TABLE>
31
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
A one percentage point increase in the assumed health care
trend rates for each future year would have increased the
aggregate service and interest cost components of the net
periodic expense by $2.0 million, $2.0 million, and $1.9
million in 1996, 1995 and 1994, respectively, and would
have increased the accumulated postretirement benefit
obligation by $24.3 million and $21.1 million as of
December 31, 1996 and 1995, respectively.
For purposes of measuring life insurance benefits as of
December 31, 1996 and 1995, increases in compensation
levels were assumed to be 2.0% through 1996 and 4.0%
thereafter.
OTHER
As a condition of the purchase of the Company's assets
from NSC, NSC agreed to retain liability for pension
service and the cost of life and health insurance for
employees of the Company's predecessor business who
retired through May 1, 1983. NSC also retained the
liability for pension service through May 1, 1983, for
employees of the predecessor business who subsequently
became active employees of the Company.
NOTE 8
POSTEMPLOYMENT BENEFITS
The major items comprising the Company's obligation for
postemployment benefits are (i) workers' compensation;
(ii) severance programs which include medical coverage
continuation; and (iii) sickness and accident protection,
which includes medical and life insurance benefits.
Consistent with the assumptions used to measure the
Company's accumulated benefit obligations for pensions and
retiree health care and life insurance benefits, the
interest rate used to discount the accumulated
postemployment benefit obligation to present value as of
December 31, 1996 and 1995 was 7.75% and 7.25%,
respectively. Other actuarial assumptions and demographic
data, as applicable, that were used to measure the
postemployment benefit obligation as of December 31, 1996
and 1995, were consistent with those used to measure
pension and other postretirement benefit obligations for
each respective year. As of December 31, 1996 and 1995,
the Company had accrued $19.9 million and $19.2 million,
respectively, for postemployment benefit obligations.
OTHER
In May 1996, the Company announced that it was reducing
its supervisory and managerial workforce by approximately
20%. The restructuring charge associated with this
reduction was $17.0 million. The restructuring charge
included approximately $10.1 million of severance benefits
(including compensation, healthcare and outplacement
services), approximately $3.8 million related to special
retirement supplements for eligible employees and $3.1
million related to other termination related benefits.
Approximately $2.3 million of the $17.0 million was paid
in 1996.
32
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
NOTE 9
INCOME TAXES
Deferred income tax assets and liabilities are recognized
reflecting the future tax consequences of net operating
loss and tax credit carryforwards and differences between
the tax basis and the financial reporting basis of assets
and liabilities. The components of the Company's deferred
income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 108,517 $ 101,325
Deductible temporary differences:
Allowance for doubtful accounts 1,950 1,950
Inventories 16,442 15,662
Pensions 21,739 16,101
Postretirement benefits other than pensions 135,000 131,779
Accrued liabilities 23,525 18,969
Valuation allowance (41,249) (30,943)
- ---------------------------------------------------------------------------------------------------------------------------
265,924 254,843
Deferred tax liabilities:
Accumulated depreciation (122,081) (119,393)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 143,843 $ 135,450
- -----------------------------------------------------------------------------------========================================
</TABLE>
As of December 31, 1996, the Company had available, for
federal and state income tax purposes, regular net
operating loss carryforwards of approximately $212.6
million expiring in 2006 through 2011; an alternative
minimum tax credit of approximately $13.6 million; and
general business tax credits of approximately $12.0
million expiring in 1999 to 2005.
In 1996, 1995 and 1994, as a result of its deferred tax
attributes, the Company did not generate any liability for
regular federal income tax purposes. The Company
recognized alternative minimum taxes of $0.4 million, $6.0
million and $4.6 million in 1996, 1995 and 1994,
respectively. The Company utilized alternative minimum tax
net operating loss carryforwards of $4.7 million in 1995
and $11.7 million in 1994 and general business credits of
$2.5 million in 1995 and $1.5 million in 1994.
The Company's deferred tax assets increased during 1996
due primarily to an increase in net operating loss
carryforwards and expenses in excess of deductible amounts
for pension and postretirement benefits other than
pensions.
Future operating costs under SFAS No. 106 are expected to
exceed deductible amounts for income tax purposes for many
years. Based upon the length of the period during which
the SFAS No. 106-generated deferred tax asset can be
utilized and the Company's expectations that under its
current business strategy it will be able to generate
taxable income over the long term, the Company believes
that it is more likely than not that future taxable income
will be sufficient to fully offset these future
deductions.
33
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
The length of time associated with the carryforward period
available to utilize net operating losses and certain tax
credits not associated with SFAS No. 106 liabilities, is
more definite. A significant portion of these net
operating losses are attributable to the realization of
differences between the tax basis and financial reporting
basis of the Company's fixed assets. In the aggregate,
such differences, including depreciation, are expected to
reverse within the allowable carryforward periods. In
addition, certain tax planning strategies that include,
but are not limited to, changes in methods of depreciation
for tax purposes, adjustments to employee benefit plan
funding strategies and potential sale lease-back
arrangements, could be employed to avoid expiration of the
attributes. Not withstanding the Company's belief that it
will be able to utilize its deferred tax assets, the
Company has recorded a valuation allowance of $41.2
million against its deferred tax assets.
The elements of the Company's deferred income taxes
associated with its results before extraordinary item for
the years ended December 31, 1996, 1995 and 1994,
respectively, along with the allocation of deferred taxes
to other income statement items are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax provision (benefit):
Federal $ (3,699) $ 6,014 $ 4,579
Deferred income tax provision (16,067) 20,565 11,936
Valuation allowance 8,990 (13,324) (9,061)
- ---------------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) (10,776) 13,255 7,454
Deferred income tax benefit allocated to
extraordinary item (1,316) (1,627) (933)
- ---------------------------------------------------------------------------------------------------------------------------
-- --
Total income tax provision (benefit) $(12,092) $ 11,628 $ 6,521
- -------------------------------------------------------------------========================================================
</TABLE>
The income tax provision (benefit) recognized by the
Company for the years ended December 31, 1996, 1995 and
1994, reconciled to that computed under the federal
statutory corporate rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at federal statutory rate $(19,342) $ 23,853 $14,821
State income taxes, net of federal (2,211) 2,726 1,694
Permanent differences 1,787 -- --
Valuation allowance 8,990 (13,324) (9,061)
- ----------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $(10,776) $ 13,255 $ 7,454
- --------------------------------------------------------------------==================================================
</TABLE>
34
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
NOTE 10
REDEEMABLE STOCKS
In June 1989, the Company sold 1.8 million shares of the
Series A Preferred to the 1989 ESOP. The 1989 ESOP
financed the purchase by issuing to the Company a $26.1
million promissory note, payable ratably over a 10-year
period. Each share of Series A Preferred is convertible
at any time into one share of common stock, subject to
adjustment, and is entitled to 10 times the number of
votes allotted to the common stock into which it is
convertible. The Series A Preferred has a preference on
liquidation over common stock of $5 per share. The Series
A Preferred has no preference over common stock as to
dividends. The Series A Preferred is not intended to be
readily tradable on an established market. As such, shares
of Series A Preferred distributed to 1989 ESOP
participants following termination of service are given a
right, exercisable for limited periods prescribed by law,
to cause the Company to repurchase the shares at fair
value. The Company also has a right of first refusal upon
proposed transfers of distributed shares of Series A
Preferred which it has agreed, to the extent it is
permitted, to exercise and to contribute or sell
reacquired shares to the 1989 ESOP. In 1994, the 1989 ESOP
was amended to provide that shares of Series A Preferred
reacquired by the 1989 ESOP be reallocated annually among
active employee participants on a per capita basis.
Accordingly, if not repurchased by the Company or
reacquired by the 1989 ESOP, shares of Series A Preferred
automatically convert into common stock upon transfer by a
distributee.
In October 1991, the Company issued 0.5 million shares of
the Series B Preferred to Cleveland-Cliffs Inc for a
purchase price equal to the aggregate redemption amount of
$25.0 million. The Series B Preferred was entitled to
annual dividends of $6.25 per share. The Company redeemed
all the Series B Preferred in September 1994. In
connection with the Series B Preferred issuance, the
Company entered into a supply agreement with a subsidiary
of Cleveland-Cliffs Inc to furnish the Company with the
majority of its iron ore pellet requirements for a 12-year
period which began in 1992 and extends through 2005. Upon
redemption, the Series B Preferred lost its serial
designation.
NOTE 11
STOCK PLANS
The Company has a stock option plan (the "1987 Stock
Option Plan"), an employee stock purchase plan (the "1989
Employee Stock Purchase Plan") and a deferred compensation
plan for non-employee members of the board of directors
(the "Directors' Deferred Compensation Plan"). The Company
accounts for these plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees," under which compensation costs, if applicable,
have been determined. Had compensation costs for these
plans been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," (SFAS No. 123), net income
(loss) and earnings per share would have been the
following:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss): As reported $(49,918) $48,356
Pro forma (50,221) 48,033
Net income (loss) per common share: As reported $(1.18) $1.10
Pro forma (1.19) 1.10
</TABLE>
35
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
Because the SFAS 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the
resulting pro forma compensation costs may not be
representative of that expected in future years.
The Company may grant options for up to 750,000 shares
under the 1987 Stock Option Plan. The Company has 750,000
outstanding options as of December 31, 1996. Under the
1987 Stock Option Plan the option exercise price equals
the stock's market price on the date of grant. Generally,
the options granted under the 1987 Stock Option Plan vest
in one-third increments beginning after the date of grant,
with the remaining two-thirds becoming exercisable after
the second and third years.
Activity under the 1987 Stock Option Plan is summarized
below:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of period 748,000 $8.38 701,000 $8.60 240,000 $8.33
Granted 65,000 2.50 55,000 5.61 521,000 8.69
Repurchased/forfeited (63,000) 8.69 (8,000) 8.69 (60,000) 8.33
Exercised -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period 750,000 7.84 748,000 8.38 701,000 8.60
Exercisable at end of period 430,000 8.10 270,000 8.45 180,000 8.33
Weighted average fair value
of option granted $4.01 $9.01 --
</TABLE>
As of December 31, 1996, 180,000 of the 750,000 options
outstanding have an exercise price of $8.33 and a weighted
average contractual life of 0.8 years. All of these
options are exercisable. The remaining options have
exercise prices between $2.50 and $8.88, with a weighted
average exercise price of $7.69 and a weighted average
remaining contractual life of 8.2 years. Of these options
250,000 are exercisable; their weighted average exercise
price is $7.93.
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for grants
in 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average risk free interest rate 6.56% 6.35%
Expected dividend yield 0% 0%
Expected lifes of options 7 years 7 years
Expected volatility rate 0.50 0.50
</TABLE>
36
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
In October 1994, the Company registered an additional 5.0
million shares of its common stock to be offered over a
5-year period beginning January 1, 1995, to eligible
employees under its 1994 Employee Stock Purchase Plan. The
1994 Employee Stock Purchase Plan provides for
participants to purchase the Company's common stock at 85%
of the lesser of the stock's closing price at the
beginning or the end of each year. The shares must be held
by the employees for 2 years prior to public sale. As of
December 31, 1996, 228,774 shares valued at approximately
$0.7 million were issuable in accordance with the 1994
Employee Stock Purchase Plan.
During 1991, the Company adopted the Directors' Deferred
Compensation Plan to permit non-employee members of the
Board of Directors to receive shares of common stock in
lieu of cash payments for total compensation or a portion
thereof for services provided in their capacity as a
member of the Board of Directors. The Company reserved
300,000 shares for issuance under the Directors' Deferred
Compensation Plan. Shares to directors are issued to a
trust until such time as the shares are distributed to the
directors. The Directors' Deferred Compensation Plan
provides for the stock portion of the directors
compensation to be valued at 90% of the lesser of the
stock's average trading price at the beginning and the end
of each year. As of December 31, 1996, 30,403 shares
valued at $0.1 million were issuable to the directors who
selected deferred compensation and 85,525 shares with a
cost of $0.3 million were held by the trust.
NOTE 12
ESOP FINANCING
The purchase by the 1989 ESOP of the Series A Preferred
was financed through the issuance of a $26.1 million
promissory note to the Company payable ratably over a 10
year period. The Company's contribution to the 1989 ESOP
for the principal and interest components of debt service
is immediately returned. As such, the respective interest
income and expense on the ESOP notes are entirely offset
within the Company's net financing costs. As of December
31, 1996, 1,170,000 shares of Series A Preferred were
allocated to participants of the 1989 ESOP.
NOTE 13
EARNINGS PER SHARE
The weighted average number of common and common
equivalent shares used in the calculation of the net
income (loss) per common share was 42,370,365, 43,781,395
and 34,469,921 for the years ended December 31, 1996, 1995
and 1994, respectively. The assumed exercise of stock
options would not result in significant dilution in those
periods. The shares of Series A Preferred were excluded
from the 1996 calculation due to their antidilutive
effect.
If the 1994 offering of the Company's common stock had
taken place on January 1, 1994, and the net proceeds
therefrom along with $32.3 million of the Company's
available cash on hand had been used as previously
described, the net income for the year ended December 31,
1994, would have increased to $40.2 million. Accordingly,
the net results per share applicable to common stock would
have been net income of $0.92 per common share.
37
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
NOTE 14
ENVIRONMENTAL COMPLIANCE, LEGAL PROCEEDINGS AND COMMITMENTS
ENVIRONMENTAL COMPLIANCE
The Company, as well as its domestic competitors, is
subject to stringent federal, state and local
environmental laws and regulations concerning, among other
things, waste water discharges, air emission and waste
disposal. The Company spent approximately $9.4 million for
pollution control capital projects in 1996.
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 is 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 amounts related to the penalty and the
remedial activity have been accrued in the Company's
balance sheet as of December 31, 1996.
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 air emissions
control equipment, waste water treatment systems and waste
handling facilities. Under the settlement, the Company has
committed to environmental related capital projects
estimated at approximately $13.4 million, a significant
portion of which was included in the Company's capital
budget prior to commencement of the negotiations with EPA
and DEP.
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 activity. 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 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.
The Company believes that 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.
38
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is the
subject of, or party to, various pending or threatened
legal actions. The Company believes that any ultimate
liability resulting from these actions will not have a
material adverse effect on its financial position or
results of operations.
COMMITMENTS
In October 1991, the Company entered into a supply
agreement with a subsidiary of Cleveland-Cliffs Inc to
provide the majority of its iron ore pellet requirements
beginning in 1992 and extending through 2005.
In 1995, the Company entered into a 15-year agreement to
purchase 100% of its oxygen and nitrogen requirements from
an independent third party. The contract specifies that
the Company will pay a base monthly charge that is
adjusted annually based upon a percentage of the change in
the producers price index for industrial commodities.
In 1996, the Company entered into an agreement commencing
on January 1, 1997 through December 31, 2001, with USX
Corporation to purchase blast furnace coke. The agreement
provides for the purchase of the greater of 850,000 tons
of blast furnace coke annually, or 80% of the actual
annual requirement of the Company. Such quantities are
subject to adjustment based upon changes in the Company's
operating configuration. The price is to be the prevailing
market price (subject to a ceiling and floor) for blast
furnace coke.
As of December 31, 1996, the Company had outstanding
purchase orders for additions and improvements to property
of $14.4 million.
NOTE 15
LINE OF BUSINESS INFORMATION
The Company operates a single line of business, the making
and finishing of carbon steel products including sheet and
tin mill products. In 1996, one customer accounted for 10%
of net sales. In 1995 and 1994, no single customer
accounted for 10% or more of net sales.
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, on February 27, 1997, the
Company and the union for the hourly production and
maintenance workforce reached a tentative agreement on a
54-month collective bargaining agreement which is subject
to approval by the membership of the union. The Company is
continuing negotiations with the remaining represented
employees in an effort to reach new collective bargaining
agreements.
39
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION
(In thousands of dollars, except per share amounts,
or in millions of dollars where indicated)
NOTE 16
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
AND SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The following methods and assumptions were used to
estimate the fair value of each class of financial
instruments for which it is practicable to estimate that
value:
CASH AND EQUIVALENTS
The carrying amount approximates fair value because of the
short maturity of those investments.
REDEEMABLE PREFERRED STOCK
The fair value of the Series A Preferred stock was
determined based upon an independent appraisal performed
as of December 31, 1996 and 1995.
LONG TERM DEBT OBLIGATIONS
The fair values of the Company's long term debt
obligations are estimated based upon quoted market prices.
The estimated fair values of the Company's financial
instruments are as follows as of December 31, 1996 and
1995, respectively:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents $112,092 $112,092 $131,811 $131,811
Series A Redeemable Preferred stock 24,972 5,681 25,003 7,113
Long term debt obligations 430,820 439,849 407,869 408,231
</TABLE>
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
As of December 31, 1996 and 1995, the Company had trade
receivables outstanding of $18.2million and $17.3 million,
respectively, from highly leveraged customers.
One customer accounted for 23% of trade receivables as of
December 31, 1996.
40
<PAGE> 29
MANAGEMENT RESPONSIBILITY STATEMENT WEIRTON STEEL CORPORATION
The accompanying consolidated financial statements of the
Company are the responsibility of its management and have
been prepared in conformity with generally accepted
accounting principles.
The Company has a system of internal controls, including a
Code of Ethics, designed to provide reasonable assurance
that assets are safeguarded, financial statements are
reliable and a high standard of business conduct is
maintained. Management monitors the system for compliance,
and internal auditors independently measure its
effectiveness.
The Company's independent public accountants, Arthur
Andersen LLP, audit its financial statements in accordance
with generally accepted auditing standards. The report of
the independent public accountants is included in this
report.
The Board of Directors pursues its oversight role for the
financial statements through its Audit Committee. The
Audit Committee continued its practice of meeting
quarterly to review the financial affairs of the Company
and to interface with the internal audit staff and
independent public accountants. Both the independent
public accountants and the internal auditors have full and
free access to the Audit Committee.
Management believes that the existing system of internal
controls, the independent audit and the Audit Committee
provide reasonable assurance that the Company's financial
accounting system adequately maintains accountability for
assets, assures the integrity of financial statements and
maintains its commitment to a high standard of business
conduct.
/s/ RICHARD K. RIEDERER /s/ EARL E. DAVIS, JR.
Richard K. Riederer Earl E. Davis, Jr.
President, Chief Vice President -
Executive Officer Finance & Chief
Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Weirton Steel Corporation:
We have audited the accompanying consolidated balance
sheets of Weirton Steel Corporation (a Delaware
corporation) and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Weirton Steel Corporation and
subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 21, 1997
41
<PAGE> 30
SELECTED FINANCIAL AND STATISTICAL DATA WEIRTON STEEL CORPORATION
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,383 $ 1,352 $ 1,261 $ 1,201 $ 1,079
Operating expenses 1,397 1,252 1,212 1,204 1,079
Depreciation 58 55 46 49 39
Income taxes (benefit) (10.8) 13.3 7.5 (13.3) (4.8)
Profit sharing -- 24.2 17.6 -- --
Contribution to ESOP 3 3 3 3 3
Net income (loss) (49.9) 48.4 35.2 (229.2) (31.8)
Net income (loss) per common share (1.18) 1.10 0.95 (8.78) (1.40)
Total assets 1,301 1,314 1,231 1,241 1,005
Additions to property, plant
and equipment 83 52 112 14 45
Long term debt 431 408 395 495 491
Redeemable preferred stock, net 18 16 14 37 34
Working capital $ 309 $ 340 $ 256 $ 262 $ 238
Number of common shares
outstanding at year end, (in thousands) 42,353 42,014 41,654 26,338 26,211
Number of preferred shares
outstanding at year end, (in thousands) 1,748 1,729 1,767 2,282 2,296
Stockholders' equity (deficit) $ 149 $ 199 $ 149 $ (1) $ 231
Stockholders' equity (deficit)
per common share $ 3.52 $ 4.73 $ 3.57 $ (0.05) $ 8.82
===========================================================================================================================
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
Quarterly periods in 1996 Quarterly periods in 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 341 $ 366 $ 336 $ 341 $ 337 $ 341 $ 319 $ 355
Gross profit 18 26 26 30 34 37 45 56
Operating profit (loss) (4) 1 (17) 6 14 10 26 50
Net income (loss) (12) (8) (27) (3) 3 7 6 32
Net income (loss) per share:
On common stock prior
to extraordinary item $(0.29) $(0.18) $(0.51) $(0.07) $0.07 $0.16 $0.29 $0.73
Extraordinary item -- -- (0.13) -- -- -- (0.15) --
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share
of common stock $(0.29) $(0.18) $(0.64) $(0.07) $0.07 $0.16 $0.14 $0.73
- ---------------------------------------------==============================================================================
</TABLE>
42
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports, included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8, Registration
No. 33-31429, relating to the Company's 1989 Employee Stock Purchase Plan and
Registration No. 33-56251, relating to the Company's 1994 Employee Stock
Purchase Plan and Deferred Compensation Plan for Directors.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 112,092
<SECURITIES> 0
<RECEIVABLES> 162,110
<ALLOWANCES> (7,684)
<INVENTORY> 259,139
<CURRENT-ASSETS> 580,798
<PP&E> 1,001,227
<DEPRECIATION> (390,733)
<TOTAL-ASSETS> 1,300,621
<CURRENT-LIABILITIES> 271,305
<BONDS> 430,820
18,447
74
<COMMON> 426
<OTHER-SE> 148,704
<TOTAL-LIABILITY-AND-EQUITY> 1,300,621
<SALES> 1,383,301
<TOTAL-REVENUES> 1,383,301
<CGS> 1,282,923
<TOTAL-COSTS> 1,397,003
<OTHER-EXPENSES> (2,805)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,366
<INCOME-PRETAX> (55,263)
<INCOME-TAX> (10,776)
<INCOME-CONTINUING> (44,487)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,431)
<CHANGES> 0
<NET-INCOME> (49,918)
<EPS-PRIMARY> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
