WEIRTON STEEL CORP, 10-Q, 1999-11-15

WEIRTON STEEL CORP
10-Q, 1999-11-15
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________.

Commission File Number 1-10244

WEIRTON STEEL CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 06-1075442
(State or other jurisdiction of (IRS employer
incorporation or organization) identification #)
</TABLE>

400 THREE SPRINGS DRIVE, WEIRTON, WEST VIRGINIA 26062-4989
(Address of principal executive offices) (Zip Code)

(304)-797-2000
Registrant's telephone number, including area code:

Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

The number of shares of Common Stock ($.01 par value) of the Registrant
outstanding as of October 30, 1999 was 41,580,390.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES........................................ $279,571 $314,704 $811,985 $992,442
OPERATING COSTS:
Cost of sales............................... 262,549 282,072 766,327 872,881
Selling, general and administrative
expense................................... 9,682 8,996 29,612 28,047
Depreciation................................ 13,553 15,188 43,892 49,226
Profit sharing provision(benefit)........... -- (1,358) -- 2,355
-------- -------- -------- --------
Total operating costs.................. 285,784 304,898 839,831 952,509
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS.................... (6,213) 9,806 (27,846) 39,933
Income(loss) from unconsolidated
subsidiaries.............................. (102) (73) (195) 14
Interest expense............................ (11,188) (10,937) (33,389) (33,349)
Interest income............................. 711 1,259 2,080 3,875
ESOP contribution........................... -- (653) (1,305) (1,958)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES................ (16,792) (598) (60,655) 8,515
Income tax provision (benefit).............. (2,407) (111) (8,953) 1,575
-------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST........... (14,385) (487) (51,702) 6,940
Minority interest in loss of consolidated
subsidiary................................ 748 -- 977 --
-------- -------- -------- --------
NET INCOME (LOSS)................................ $(13,637) $ (487) $(50,725) $ 6,940
======== ======== ======== ========
PER SHARE DATA:
Weighted average number of common shares (in
thousands):
Basic....................................... 41,580 41,454 41,579 42,151
Diluted..................................... 41,580 41,454 41,579 43,901
NET INCOME (LOSS) PER SHARE:
Basic....................................... $ (0.33) $ (0.01) $ (1.22) $ 0.16
Diluted..................................... $ (0.33) $ (0.01) $ (1.22) $ 0.16
</TABLE>

The accompanying notes are an integral part of these financial statements.

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<PAGE> 3

WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents, includes restricted cash of $810 and
$1,275, respectively................................... $ 75,250 $ 68,389
Receivables, less allowances of $9,871 and $8,574,
respectively........................................... 144,178 112,278
Inventories............................................... 160,956 259,332
Deferred income taxes..................................... 41,254 43,254
Other current assets...................................... 3,680 4,443
---------- ----------
Total current assets................................... 425,318 487,696
Property, plant and equipment, net.......................... 549,297 576,238
Investment in unconsolidated subsidiaries................... 7,743 7,938
Deferred income taxes....................................... 120,363 111,411
Other assets and deferred charges........................... 11,418 12,416
---------- ----------
Total Assets........................................... $1,114,139 $1,195,699
========== ==========
LIABILITIES:
Current liabilities:
Current portion of long term debt obligations............. $ 84,044 $ 84,044
Payables.................................................. 78,611 120,697
Employment costs.......................................... 64,632 63,966
Taxes other than income taxes............................. 14,317 15,060
Other current liabilities................................. 14,815 10,957
---------- ----------
Total current liabilities.............................. 256,419 294,724
Long term debt obligations.................................. 304,881 304,626
Long term pension obligations............................... 88,948 81,908
Postretirement benefits other than pensions................. 334,522 337,443
Other long term liabilities................................. 35,022 33,217
---------- ----------
Total Liabilities...................................... 1,019,792 1,051,918
Redeemable Stock, net....................................... 23,407 22,238

STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 50,000,000 authorized;
43,564,156 and 43,178,134 shares issued, respectively..... 435 432
Additional paid-in capital.................................. 457,800 457,851
Retained earnings (deficit)................................. (379,866) (329,141)
Other stockholders' equity.................................. (7,429) (7,599)
---------- ----------
Total Stockholders' Equity............................. 70,940 121,543
---------- ----------
Total Liabilities, Redeemable Stock and Stockholders'
Equity................................................ $1,114,139 $1,195,699
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

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<PAGE> 4

WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(50,725) $ 6,940
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 43,892 49,226
Amortization of deferred financing costs............... 1,022 1,568
ESOP Contribution...................................... 1,305 1,958
Deferred income taxes.................................. (8,952) (2,114)
Cash provided (used) by working capital items:
Receivables.......................................... (31,900) 5,957
Inventories.......................................... 98,376 23,188
Other current assets................................. 2,763 (1,995)
Payables............................................. (42,086) (22,868)
Other current liabilities............................ 3,782 (1,099)
Long term pension obligation........................... 7,040 (23,960)
Other.................................................. (703) 2,421
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 23,814 39,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated subsidiaries................. -- (7,561)
Capital spending.......................................... (16,953) (32,664)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES....................... (16,953) (40,225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock................................ -- (5,765)
Repayment of debt obligations............................. -- (42,163)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES....................... -- (47,928)
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS.......................... 6,861 (48,931)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 68,389 124,690
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 75,250 $ 75,759
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of capitalized interest................ $ 28,217 $ 35,056
Income taxes paid (refunded), net......................... (1,973) 4,382
</TABLE>

The accompanying notes are an integral part of these financial statements.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, OR IN MILLIONS OF DOLLARS WHERE INDICATED)

NOTE 1

BASIS OF PRESENTATION

The Consolidated Condensed Financial Statements presented herein, other
than the December 31, 1998 Consolidated Condensed Balance Sheet, are unaudited.
Weirton Steel Corporation and/or Weirton Steel Corporation together with its
consolidated subsidiaries, are hereafter referred to as the "Company." Entities
of which the Company owns a controlling interest are consolidated; entities of
which the Company owns a less than majority interest are not consolidated and
are reflected in the consolidated condensed financial statements using the
equity method of accounting. All material intercompany accounts and transactions
with consolidated subsidiaries have been eliminated in consolidation.

Certain information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been either
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Although the Company believes that all adjustments
necessary for a fair presentation have been made, interim periods are not
necessarily indicative of the financial results of operations for a full year.
As such, these financial statements should be read in conjunction with the
audited financial statements and notes thereto included or incorporated by
reference in the Company's 1998 Annual Report on Form 10-K.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified, where necessary, to
conform to the presentation in the current period.

NOTE 2

INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials..................................... $ 29,526 $ 84,274
Work-in-process................................... 47,310 82,331
Finished goods.................................... 84,120 92,727
-------- --------
$160,956 $259,332
======== ========
</TABLE>

NOTE 3

EARNINGS PER SHARE

For the three months and the nine months ended September 30, 1999, basic
and diluted earnings per share were the same. However, securities totaling
1,718,376 and 1,703,489, respectively, were excluded from the diluted earnings
per share calculation due to their antidilutive effect. For the three months
ended September 30, 1998, basic and diluted earnings per share were the same.
Securities totaling 1,732,367 were excluded from the

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calculation due to their antidilutive effect. The following represents a
reconciliation between basic earnings per share and diluted earnings per share
for the nine months ended September 30, 1998.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ---------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Net income.................................... $6,940 42,151,390 $0.16
Effect of dilutive securities:
Series A Preferred............................ -- 1,725,663 --
Stock options................................. -- 24,439 --
------ ---------- -----
Diluted earnings per share:
Net income.................................... $6,940 43,901,492 $0.16
====== ========== =====
</TABLE>

NOTE 4

COMPREHENSIVE INCOME

Financial Accounting Standard No. 130 ("SFAS"), which establishes standards
for reporting and displaying comprehensive income and its components, requires
the reporting of all changes in equity of an enterprise that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net income and all other nonowner changes
in equity. Comprehensive income calculated under SFAS No. 130 is the same as the
net income reported by the Company for the three months and the nine months
ended September 30, 1999 and 1998.

NOTE 5

FINANCING ARRANGEMENTS

On March 29, 1999, through its wholly owned subsidiary, Weirton Receivables
Inc. ("WRI"), the Company amended its existing Receivables Facility with a group
of three banks (the "WRI Amended Receivables Facility"). The WRI Amended
Receivables Facility provides a total commitment by the banks of up to $80.0
million, including a letter of credit subfacility of up to $25.0 million. The
amount of participation interest in the accounts receivable available for cash
sale to the banks fluctuates depending upon the nature and amounts of
receivables generated by the Company which are sold into the program, and
certain financial tests applicable to them.

The financial tests that were applicable to the receivable facility prior
to March 29, 1999 were amended so that, in most cases, the amount of
participation interest available for cash sale to the banks is greater under the
WRI Amended Receivables Facility than under the pre-existing facility. The WRI
Amended Receivables Facility has a term that extends through March 2004. The
March 29, 1999 amendment also modified the events and circumstances that would
cause the termination of the facility. The other terms and conditions of the WRI
Amended Receivables Facility are substantially the same as those of the
pre-existing facility.

Because the WRI Amended Receivables Facility contains concentration
limitation provisions, from time to time, receivables from one of the Company's
major customers were ineligible to be considered in the calculation of
participation interest available for cash sale to the banks. As a result, on
August 9, 1999, WRI and one of the participating banks agreed to a second
receivable facility ("Additional Receivable Facility") based on the receivables
of the aforementioned major customer of the Company.

The Additional Receivable Facility provides for a total commitment by the
participating bank of up to $20.0 million. The amount of participation interest
in the accounts receivable from the major customer available for sale to the
bank fluctuates depending upon the nature and amount of receivables from the
customer generated by the Company which are sold into the program and certain
financial tests applicable to them. Events that would cause the termination of
the Additional Receivable Facility are similar to those that exist under the WRI
Amended Receivables Facility.

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<PAGE> 7

As of September 30, 1999, while no funded participation interest had been
sold under the WRI Amended Receivables Facility or the Additional Receivable
Facility, $12.8 million in letters of credit under the subfacility was in place.
After amounts in place under the letter of credit subfacility, the base amount
available for cash sale under both facilities was approximately $66.9 million.

NOTE 6

ENVIRONMENTAL COMPLIANCE

The Company, as well as its domestic competitors, is subject to stringent
federal, state and local environmental laws and regulations concerning, among
other things, waste water discharge, air emissions and waste disposal. As a
consequence, the Company has incurred, and will continue to incur, substantial
capital expenditures and operating and maintenance expenses in order to comply
with regulatory requirements.

As of September 30, 1999, the Company had an accrued liability of $9.8
million for known and identifiable environmental related costs to comply with
negotiated and mandated settlements of various actions brought by the United
States Environmental Protection Agency ("EPA") and the West Virginia Department
of Environmental Protection. The EPA is also 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. Because the
Company does not currently know the nature or the extent of hazardous material
which may be located on the property, it is not possible at the present time to
estimate the ultimate cost to comply with the EPA's requirements or conduct
remedial activity that may be required.

NOTE 7

COMMITMENTS AND CONTINGENCIES

The Company participates in a joint venture GalvPro L.P. ("GalvPro") with
affiliates of Koninklijke Hoogovens ("Hoogovens") to construct and operate a
300,000-ton per year hot dipped galvanizing line. The facility is expected to be
completed and become operational in the fourth quarter of 1999. Construction of
GalvPro's facility is being financed primarily through a ten-year term loan of
up to $49.0 million secured by GalvPro's assets. In connection with the initial
funding of the loan in February 1999, the Company, jointly and severally with
affiliates of Hoogovens, agreed to prepay up to a total of $6.0 million of the
loan if GalvPro's facility fails to attain certain defined efficiency standards
within an allowed period of time after operations commence. Except for the
prepay agreements, the $49.0 million term loan is non-recourse to the Company
and Hoogovens affiliates. The Company and Hoogovens affiliates have each secured
their respective obligations to the other by pledging their interest in GalvPro.

The amount of the prepayment is graduated based on operating performance,
but it will not exceed $6.0 million. The Company's management believes that the
likelihood that GalvPro will fail to meet the minimum operating performance
level is remote. Notwithstanding management's belief, GalvPro, together with the
project lender, is loss payee under a policy of efficacy insurance carried by
the project's general contractor. The policy provides up to $4.0 million in
coverage in the event GalvPro fails to commence operation on schedule and up to
an additional $4.0 million if GalvPro's facility fails to operate at the defined
efficiency standards required by the loan.

NOTE 8

SUBSEQUENT EVENT

On October 3, 1999, the Company sold a participation interest of $35.0
million under the WRI Amended Receivables Facility. On October 15, 1999, the
Company paid $84.0 million to redeem its 10 7/8% Senior Notes at maturity plus
an additional $4.6 million in accrued interest on the notes. On October 31,
1999, after consideration of letters of credit and funded purchases outstanding,
the total base amount available for cash sale under both the WRI Amended
Receivables Facility and the Additional Receivable Facility was $27.8 million.

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<PAGE> 8

In October 1999, the Company and a lender agreed to a new working capital
facility of up to $100.0 million secured by a first priority lien on the
Company's inventory. Implementation of the agreement is subject to the execution
by the parties of definitive documentation and the satisfaction of customary
conditions by the Company. The agreement is subject to certain incurrence tests
that are substantially similar to the Company's current indentures.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This discussion and analysis of the Company's financial condition and
results of operations should be read together with the unaudited consolidated
condensed financial statements and notes thereto. The unaudited consolidated
condensed financial statements of Weirton Steel Corporation include the accounts
of its wholly and majority owned subsidiaries. Weirton Steel Corporation and/or
Weirton Steel Corporation together with its subsidiaries are hereafter referred
to as the "Company."

OVERVIEW

The Company is a major integrated producer of flat rolled carbon steels
with major product lines consisting of sheet and tin mill product. Sheet product
includes hot and cold rolled and both hot-dipped and electrolytic galvanized
steels. Tin mill product includes tin-plate, chrome coated and black plate.

Domestic steel producers face significant competition from foreign
producers. Beginning in the second half of 1998 and continuing through the first
nine months of 1999, foreign competition adversely affected product prices in
the United States and the tonnages sold by domestic producers. The relative
strength of foreign economies, including foreign markets for steel, and
fluctuation in the value of the United States dollar against foreign currencies
substantially affect the intensity of foreign competition. In 1998, foreign
producers exported 41.4 million tons of steel to the United States, an all time
record, compared to 31.2 million tons in 1997. A significant portion of the
increase occurred in the second half 1998 and a significant amount of such
tonnage was being dumped in violation of U.S. law.

The Company and other domestic steel producers are seeking legal and
legislative remedies to stop the flow of illegally dumped steel imported into
the United States.

On June 11, 1999, the International Trade Commission ("ITC") ruled that
hot-rolled imports from Japan had damaged the domestic steel industry. Based on
the ITC's ruling, anti-dumping duties of up to 67% imposed by the U.S.
Department of Commerce will be effective for five years.

The Company had also filed hot rolled cases against Brazilian and Russian
producers. The Commerce Department negotiated voluntary restraint agreements
with producers from Brazil and Russia in lieu of imposing duties. The agreements
set a maximum annual tonnage of hot rolled exports from each country into the
domestic market. The agreements also set a minimum price for the imported
products.

On July 12, 1999, the ITC ruled unanimously that evidence existed that cold
rolled imports from twelve countries injured the domestic steel industry in
1998. The ruling came in response to complaints brought by the Company and six
other domestic producers that foreign producers from twelve countries sold cold
rolled steel at prices that violated U.S. trade laws. The case was forwarded to
the Commerce Department, which assessed preliminary duties ranging from 16.7% to
177.6% against seven countries. Final determinations are not anticipated until
March 2000. The Commerce Department is currently investigating in order to make
a final antidumping determination. On October 25, 1999, the Company and two
labor organizations filed additional trade cases alleging that Japanese
producers have dumped tin mill products in violation of federal trade law. The
cases are currently under review by the ITC.

The efforts of the Company and other domestic producers and labor
organizations have had some impact on import levels. Imports declined in the
first nine months of 1999 when compared to the average rate of imports during
the second half of 1998. However, the import surge in the second half of 1998
continued to adversely affect the domestic steel market in the first nine months
of 1999. When compared to the first nine months of 1998, the Company's first
half 1999 results reflect weaker demand and lower pricing. In response to these
weak
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<PAGE> 9

market conditions, the Company idled its No. 4 Blast Furnace in December 1998.
It remained idle for the first nine months of 1999. The Company met its order
requirements from the output of its No. 1 Blast Furnace, the reduction of
existing inventory and sourcing slabs from third parties.

The Company believes that market conditions and demand for its products are
strengthening and will continue to strengthen into next year. In response, the
Company plans to restart the No. 4 Blast Furnace in early December 1999.

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998

In the third quarter of 1999, the Company recognized a net loss of $13.6
million or $0.33 per diluted share compared to a net loss of $0.5 million or
$0.01 per diluted share for the same period in 1998. The results for the third
quarter of 1998 included a benefit for profit sharing of $1.4 million. The
benefit was recorded to reverse the previously accrued profit sharing provisions
due to the third quarter loss and anticipated losses for the remainder of 1998.

Net sales in the third quarter of 1999 were $279.6 million, a decrease of
$35.1 million or 11% from the third quarter of 1998. Total shipments in the
third quarter of 1999 were 663 thousand tons compared to the third quarter of
1998 shipments of 646 thousand tons.

Sheet product net sales for the third quarter of 1999 were $166.9 million,
a decrease of $27.2 million from the third quarter of 1998. Shipments of sheet
products in the third quarter of 1999 were 466 thousand tons compared to 449
thousand tons in the third quarter of 1998. The decrease in sheet product sales
was primarily attributable to a decrease in average selling prices as well as a
shift to a lower value-added product mix.

Tin mill product net sales for the third quarter of 1999 were $112.7
million on shipments of 197 thousand tons compared to $121.0 million on 197
thousand tons for the same period in 1998. The decrease was due primarily to
lower tin mill product shipments and overall lower average selling prices in the
third quarter of 1999 compared to the same period in 1998.

Costs of sales for the third quarter of 1999 were $262.5 million, or $396
per ton, compared to $282.1 million, or $437 per ton, for the third quarter of
1998. The decrease in cost of sales per ton resulted from the shipment of a
lower cost product mix and the economic benefits of sourcing slabs from third
parties to meet incremental requirements.

Depreciation expense decreased $1.6 million to $13.6 million in the third
quarter of 1999 when compared to the third quarter of 1998. The decrease is
primarily attributable to lower units of production depreciation caused by
idling the No. 4 Blast Furnace and lower overall production levels throughout
the Company's operation.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

In the first nine months of 1999, the Company recognized net loss of $50.7
million or $1.22 per diluted share compared to net income of $6.9 million or
$0.16 per diluted share for the same period in 1998. The results for the first
nine months of 1998 included a provision for profit sharing of $2.4 million.

Net sales in the first nine months of 1999 were $812.0 million, a decrease
of $180.5 million or 18% from the first nine months of 1998. Total shipments in
the first nine months of 1999 were 1,849 thousand tons compared to the first
nine months of 1998 shipments of 2,027 thousand tons.

Sheet product net sales for the first nine months of 1999 were $467.8
million, a decrease of $148.2 million from the first nine months of 1998.
Shipments of sheet product in the first nine months of 1999 were 1,263 thousand
tons compared to 1,424 thousand tons in the first nine months of 1998. The
decrease in sheet product sales was primarily attributable to a decrease in
average selling prices as well as lower shipping volume.

The first nine months of 1999 net sales from tin mill products were $344.2
million on shipments of 586 thousand tons compared to $376.4 million on 603
thousand tons for the same period in 1998. The decrease

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<PAGE> 10

was due primarily to lower tin mill product shipments and overall lower average
selling prices in the first nine months of 1999 compared to the same period in
1998.

Costs of sales for the first nine months of 1999 were $766.3 million, or
$414 per ton, compared to $872.9 million, or $431 per ton, for the first nine
months of 1998. The decrease in cost of sales per ton resulted from the shipment
of a lower cost product mix and the economic benefit of sourcing slabs from
third parties to meet incremental requirements.

Depreciation expense decreased $5.3 million to $43.9 million in the first
nine months of 1999 when compared to the same period in 1998. The decrease is
primarily attributable to lower production variable depreciation caused by
idling the No. 4 Blast Furnace and lower overall production levels throughout
the Company's operation.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1999, the Company had cash and equivalents of $75.3
million compared to $68.4 million as of December 31, 1998. The Company's
liquidity requirements arise primarily from working capital requirements, debt
service and capital investments. The Company's statements of cash flows for the
nine months ended September 30 are summarized below:

<TABLE>
<CAPTION>
1999 1998
-------- --------
DOLLARS IN THOUSANDS
<S> <C> <C>
Net cash provided by operating activities.............. $ 23,814 $ 39,222
Net cash used by investing activities.................. (16,953) (40,225)
Net cash provided (used) by financing activities....... -- (47,928)
-------- --------
Increase (decrease) in cash............................ $ 6,861 $(48,931)
======== ========
</TABLE>

Net cash flows from operating activities were $23.8 million and $39.2
million for the nine months ended September 30, 1999 and 1998, respectively. The
decline in cash flow from operations is primarily due to weaker operating
results. Also, while inventory reductions in 1999 exceeded those in 1998, the
cash flow gains were partially offset by the negative cash flow impact of
decreased payables and increased receivables.

Net cash used by investing activities for the first nine months of 1999
consisted of $17.0 million in capital spending. Net cash used by investing
activities for the same period in 1998 consisted of $32.7 million in capital
spending and $7.6 million of investments in unconsolidated subsidiaries. The
Company's planned capital expenditures for 1999 are approximately $20.0 million.

The Company repaid $42.2 million of senior notes in March 1998 and
repurchased $5.8 million of its common stock through the third quarter of 1998.

On March 29, 1999, Weirton Receivables Inc. ("WRI"), a wholly owned
subsidiary of the Company amended its receivables participation agreement with a
group of three banks (the "WRI Amended Receivables Facility"). The WRI Amended
Receivables Facility provides a total availability for cash sales of up to $80.0
million, including a letter of credit subfacility of $25.0 million. As of
September 30, 1999, after reductions for amounts in place under its letter of
credit subfacility, the base amount available for cash sales under the WRI
Amended Receivables Facility was $47.8 million.

10
<PAGE> 11

cause the termination of the Additional Facility are similar to those that exist
under the WRI Amended Receivables Facility.

In order to continue to improve its liquidity position, the Company
continues to pursue various operating initiatives. These include continuing
inventory reduction programs supported by purchase consignment agreements and
arrangements related to the strategic sourcing of raw materials and slabs.
Further inventory reductions are planned through changes in operating practices.

The Company's net deferred tax assets were $161.6 million as of September
30, 1999. These consisted primarily of the carrying value of net operating loss
carryforwards and other tax credits and net deductible temporary differences
available to reduce the Company's cash requirements for the payment of future
federal income tax. The Company may be required in future periods to make cash
payments for income taxes under federal alternative minimum tax regulations.

As of December 31, 1998, the Company had a pension funding credit of
approximately $83.2 million. Accordingly, the Company is not required to
contribute to its pension plan in 1999. The Company made no contribution to its
pension plan during the first nine months of 1999.

Based upon available cash on hand, the amount of cash expected to be
generated from operating activities, and the amount of cash available under the
WRI Receivable Facility, the Company expects to have sufficient cash to meet its
short term needs, including completion of its capital spending plans.

YEAR 2000

The Company faces difficulties resulting from computer programs being
written using two digits rather than four to define the applicable year. The
Company owns computer hardware and software and date-sensitive electronic
devices which may recognize a date using "00" as the year 1900 rather than the
year 2000. Such systems could cause disruption of operations, including
production difficulties and a temporary inability to process ordinary business
transactions.

The Company started its Year 2000 readiness effort in 1996. The Company
currently employs a task force to analyze potential areas of risk associated
with the Year 2000. The Company, led by the task force, is executing a Year 2000
readiness plan which includes:

-- prioritizing and focusing on those information technology (IT) systems
and production (non-IT) systems which are critical to the operations
and pose the greatest operational, environmental, quality and
financial risk to the Company.

-- allocating appropriate resources to fix the Year 2000 problem.

-- communicating with, and aggressively pursuing, critical third parties
to help ensure the Year 2000 readiness of their products and services.

-- performing rigorous Year 2000 testing of critical systems.

-- participating in and exchanging Year 2000 information with industry
trade associations, such as the American Iron & Steel Institute, the
Association of Iron and Steel Engineers and the Steel Industry Systems
Association.

11
<PAGE> 12

-- engaging qualified outside engineering and information technology
consulting firms to assist in the Year 2000 impact assessment and
readiness effort.

-- assessing the readiness of third party vendors, suppliers, customers
and service providers.

State of Readiness

The Company targeted the third quarter of 1999 for complete Year 2000
readiness including integration testing, contingency planning and tracking the
readiness of third parties. The Company believes that all of its business
critical systems are currently Year 2000 ready. The balance of 1999 will be used
to further validate Year 2000 readiness.

The chart below provides the percentage completion of the various phases of
the Year 2000 Plan. The phases included are:

1. Y2K Inventory -- identification of the systems and processes that may be
affected by the year 2000.

2. Y2K Impact Assessment -- the analysis performed to determine the Year
2000 date impact of the Company's Year 2000 inventory.

3. Y2K Readiness- The percent completion of Y2K readiness of inventory of
date impacted items including items already made Year 2000 ready and
those items made Year 2000 ready through renovation/replacement. We only
consider systems ready for which testing and implementation activities
have been completed.

<TABLE>
<CAPTION>
PERCENT COMPLETED
------------------------------------
Y2K Y2K IMPACT Y2K
SEPTEMBER 30, 1999 INVENTORY ASSESSMENT READINESS
- ------------------ --------- ---------- ---------
<S> <C> <C> <C>
IT Systems.................................. 100% 100% 100%
Non-IT Systems.............................. 100% 100% 100%
</TABLE>

Third Parties

The Company depends on third-party suppliers for raw materials, energy,
utilities, telecommunications, transportation and other goods and services
critical to the operation. The Company contacted all of its critical third party
suppliers and analyzed their Year 2000 readiness based on responses to the
Company's inquiries. The Company has evaluated the Year 2000 readiness of its
suppliers and service providers via written inquiries, direct contacts and site
visits. Through these procedures and the development of contingency plans, the
Company believes it has adequately minimized the risk associated with the
potential failure of third party vendors to provide goods and services without
significant interruption.

Costs to Achieve Year 2000 Readiness

As part of its capital plan, the Company replaced certain of its business
systems dealing with human resources. The Company also replaced, or is in the
process of replacing, certain of its business systems dealing with financial
reporting. The planned replacement of these systems was accelerated to achieve
Year 2000 readiness. Through September 30, 1999, the Company spent $15.6 million
on these projects. The Company plans to spend an additional $0.3 million to
complete testing of the financial reporting systems.

Through September 30, 1999, in addition to the replacement of the human
resources and financial reporting systems, the Company spent approximately $6.0
million in remediation costs to achieve Year 2000 readiness. All of these
remediation costs have been properly expensed in the period incurred in the
Company's Consolidated Condensed Statements of Income.

Year 2000 Risks to the Company

The Year 2000 problem poses significant operational, environmental, quality
and financial risk to the Company. Failure of the Company's Year 2000 readiness
plan could result in business consequences which might include production delays
and outages, inability to obtain needed goods and services from third party
vendors and

12
<PAGE> 13

suppliers, inability to process ordinary business transactions, lost revenue and
failure of management controls. Although the Company believes it has taken the
necessary steps to mitigate the risks associated with the Year 2000 problem,
there can be no assurance that the Year 2000 problem will not have a material
adverse affect on the Company's business, financial condition and results of
operations.

Contingency Plans

The Company identified and developed specific contingency plans to mitigate
the effects of possible Year 2000 disruptions. The plans include additional
staffing during the transition period, alternative power sources to help protect
assets and limit operating disruptions and alternative procedures in the event
of failure of critical systems.

The adequacy of the Year 2000 readiness plans are based on management's
best estimates and assumptions of future events. There can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated.

ENVIRONMENTAL COMPLIANCE

As of September 30, 1999, the Company had a liability of $9.8 million for
known and identifiable environmental related costs to comply with negotiated and
mandated settlements of various actions brought by the United States
Environmental Protection Agency ("EPA") and the West Virginia Department of
Environmental Protection. The EPA is also 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. Because the
Company does not currently know the nature or the extent of hazardous material
which may be located on the property, it is not possible at the present time to
estimate the ultimate cost to comply with EPA's requirements or conduct remedial
activity that may be required.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. In
June 1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the effective date of FASB
Statement No. 133, which amends Statement 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years). Management has not determined how
Statement 133 will impact the Company's financial statements.

FORWARD LOOKING STATEMENTS

This Item contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based on assumptions and expectations, including sales levels, market
conditions, pricing and other factors which may not be realized and are
inherently subject to risk and uncertainties, many of which cannot be predicted
with accuracy. Future events and actual results, financial and otherwise, may
differ from the results discussed or anticipated in the forward-looking
statements. Although the Company believes that its assumptions made in
connection with the forward-looking statements are reasonable, there are no
assurances that such assumptions or expectations will prove to have been
correct. The Company's forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities
13
<PAGE> 14

Litigation Reform Act of 1995, as embodied in the above referenced statute. The
Company is under no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

No material changes in information has occurred for the three month and
nine month periods ended September 30, 1999 that would cause the information
reported in this section in the Company's 1998 annual report on Form 10-K to be
inaccurate.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None

14
<PAGE> 15

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

WEIRTON STEEL CORPORATION
Registrant

By /s/ MARK E. KAPLAN
------------------------------------
Mark E. Kaplan
Controller
(Principal Accounting Officer)

November 15, 1999

<ARTICLE> 5

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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 75,250
<SECURITIES> 0
<RECEIVABLES> 154,049
<ALLOWANCES> (9,871)
<INVENTORY> 160,956
<CURRENT-ASSETS> 425,318
<PP&E> 1,010,978
<DEPRECIATION> (461,681)
<TOTAL-ASSETS> 1,114,139
<CURRENT-LIABILITIES> 256,419
<BONDS> 304,881
23,407
233
<COMMON> 435
<OTHER-SE> 70,272
<TOTAL-LIABILITY-AND-EQUITY> 1,114,139
<SALES> 811,985
<TOTAL-REVENUES> 811,985
<CGS> 766,327
<TOTAL-COSTS> 839,831
<OTHER-EXPENSES> (1,557)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,389
<INCOME-PRETAX> (59,678)
<INCOME-TAX> (8,953)
<INCOME-CONTINUING> (50,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,725)
<EPS-BASIC> (1.22)
<EPS-DILUTED> (1.22)

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