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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, 2000.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to ________.
COMMISSION FILE NUMBER 1-10244
WEIRTON STEEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1075442
(State or other jurisdiction of (IRS employer identification #)
incorporation or organization)
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 31, 2000 was 41,206,677.
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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,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES....................................... $262,477 $279,571 $873,435 $811,985
OPERATING COSTS:
Cost of sales................................. 248,181 262,549 783,777 766,327
Selling, general and administrative expense... 13,026 9,682 30,899 29,612
Depreciation.................................. 16,249 13,553 49,338 43,892
Profit sharing................................ (590) -- -- --
-------- -------- -------- --------
Total operating costs...................... 276,866 285,784 864,014 839,831
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS................... (14,389) (6,213) 9,421 (27,846)
Loss from unconsolidated subsidiaries......... (10,448) (102) (18,359) (195)
Interest expense.............................. (8,746) (11,188) (26,270) (33,389)
Other income, net............................. 1,221 711 4,341 2,080
ESOP contribution............................. -- -- -- (1,305)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES........................ (32,362) (16,792) (30,867) (60,655)
Income tax benefit............................ (6,179) (2,407) (5,865) (8,953)
-------- -------- -------- --------
LOSS BEFORE MINORITY INTEREST................... (26,183) (14,385) (25,002) (51,702)
Minority interest in loss of consolidated
subsidiary................................. -- 748 -- 977
-------- -------- -------- --------
NET LOSS........................................ $(26,183) $(13,637) $(25,002) $(50,725)
======== ======== ======== ========
PER SHARE DATA:
Weighted average number of common shares (in
thousands):
Basic......................................... 41,313 41,580 41,456 41,579
Diluted....................................... 41,313 41,580 41,456 41,579
NET LOSS PER SHARE:
Basic...................................... $ (0.63) $ (0.33) $ (0.60) $ (1.22)
Diluted.................................... $ (0.63) $ (0.33) $ (0.60) $ (1.22)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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WEIRTON STEEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (UNAUDITED)
------------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents, including restricted cash of $775
and $810, respectively................................. $ 68,256 $ 209,270
Receivables, less allowances of $14,053 and $9,302,
respectively........................................... 137,186 104,647
Inventories............................................... 214,230 186,710
Deferred income taxes..................................... 42,517 42,517
Other current assets...................................... 3,655 3,167
---------- ----------
Total current assets................................... 465,844 546,311
Property, plant and equipment, net.......................... 485,323 514,464
Investment in unconsolidated subsidiaries................... 17,538 6,833
Deferred income taxes....................................... 114,975 109,110
Other assets and deferred charges........................... 10,880 10,804
---------- ----------
Total Assets........................................... $1,094,560 $1,187,522
========== ==========
LIABILITIES:
Current liabilities:
Payables.................................................. $ 122,611 $ 142,930
Employment costs.......................................... 70,009 81,688
Taxes other than income taxes............................. 11,363 13,805
Other current liabilities................................. 11,849 17,511
---------- ----------
Total current liabilities.............................. 215,832 255,934
Long term debt obligations.................................. 299,180 304,768
Long term pension obligations............................... 82,819 91,295
Postretirement benefits other than pensions................. 322,185 327,665
Other long term liabilities................................. 30,530 30,886
---------- ----------
Total Liabilities...................................... 950,546 1,010,548
Redeemable Stock, Net....................................... 22,279 22,973
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 50,000,000 shares authorized;
43,704,782 and 43,499,363 shares issued, respectively..... 437 435
Additional paid-in-capital.................................. 459,340 458,249
Retained earnings (deficit)................................. (323,196) (298,194)
Other stockholders' equity.................................. (14,846) (6,489)
---------- ----------
Total Stockholders' Equity............................. 121,735 154,001
---------- ----------
Total Liabilities, Redeemable Stock, Net, and
Stockholders' Equity.................................. $1,094,560 $1,187,522
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(25,002) $(50,725)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation........................................... 49,338 43,892
Loss from unconsolidated subsidiaries.................. 18,359 195
Amortization of deferred financing costs............... 1,263 1,022
ESOP contribution...................................... -- 1,305
Deferred income taxes.................................. (5,865) (8,952)
Cash provided (used) by working capital items:
Receivables.......................................... (32,539) (31,900)
Inventories.......................................... (27,520) 98,376
Payables............................................. (20,319) (42,086)
Other working capital................................ (20,271) 6,545
Long term pension obligation........................... (8,476) 7,040
Other.................................................. (4,935) (898)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ (75,967) 23,814
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans and advances to unconsolidated subsidiaries......... (30,319) --
Capital spending.......................................... (20,197) (16,953)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES....................... (50,516) (16,953)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt obligations............................. (5,831) --
Purchase of treasury stock................................ (15,972) --
Reissuance of treasury stock.............................. 7,205 --
Issuance of common stock.................................. 67 --
-------- --------
NET CASH USED BY FINANCING ACTIVITIES....................... (14,531) --
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS.......................... (141,014) 6,861
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 209,270 68,389
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 68,256 $ 75,250
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of capitalized interest................ $ 25,291 $ 28,217
Income taxes paid (refunded), net......................... 7,663 (1,973)
</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, 1999 Consolidated Condensed Balance Sheet, are unaudited.
The Consolidated Condensed Balance Sheet as of December 31, 1999 has been
derived from the audited balance sheet included in the Company's 1999 Annual
Report. 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 controlling 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. On December 29, 1999, the Company sold a portion of its interest
in MetalSite, Inc. ("MetalSite"). The results and balances of MetalSite were
consolidated as of and for the nine months ended September 30, 1999. As a result
of the sale, the Company no longer retained a controlling interest in MetalSite.
Therefore, MetalSite's results and balances as of and for the period ended
September 30, 2000 were reported under the equity method.
Certain information and footnote disclosures normally prepared in
accordance with accounting principles generally accepted in the United States
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 1999 Annual Report on Form 10-K.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
NOTE 2
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials..................................... $ 44,061 $ 61,254
Work-in-process................................... 84,690 41,044
Finished goods.................................... 85,479 84,412
-------- --------
$214,230 $186,710
======== ========
</TABLE>
NOTE 3
EARNINGS PER SHARE
For the three months and nine months ended September 30, 2000, basic and
diluted earnings per share were the same; however, securities totaling 1,676,943
and 2,262,943, respectively, were excluded from the diluted earnings per share
calculation due to their anti-dilutive effect.
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For the three months and 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 anti-dilutive effect.
NOTE 4
PURCHASES OF COMMON STOCK FOR TREASURY
During April 1998, the Company announced that it had been authorized by the
board of directors to repurchase up to 10% or approximately 4.2 million shares
if its outstanding common stock. In February 2000, the Company announced that it
had been authorized by the board of directors to repurchase an additional 12% of
its capital stock. During the first nine months of 2000, the Company paid $16.0
million to repurchase approximately 2.6 million shares of its outstanding common
stock at prices ranging from $2.38 to $9.00 per share.
NOTE 5
OPTION ACTIVITY
During the first nine months of 2000, the Company issued 1.9 million shares
of common stock to persons who exercised stock options. The Company received
$7.3 million in proceeds from the issuance of those shares.
On October 4, 2000, the Company granted options to purchase 70,500 shares
of the Company's common stock under its 1987 Stock Option Plan. The option
exercise price of $2.63 per share equaled the stock market price on the date of
grant. The options vest in one-third increments beginning on the date of grant,
with the remaining two-thirds becoming exercisable after the second and third
years. The options expire ten years from the date of grant.
Also on October 4, 2000, the Company granted options to purchase 1,994,894
shares of the Company's common stock under its 1998 Stock Option Plan. All
options granted vest on May 23, 2010. The options expire the following day. The
options are subject to accelerated vesting based on the continued employment of
the recipients and the attainment of certain market prices for the Company's
common stock. The stock prices range from $6.12 to $12.41 and must be maintained
for 20 consecutive trading days for accelerated vesting to occur. Of the
1,994,894 options granted, 577,500 have an exercise price of $5.56. The
remaining grants have an exercise price of $6.69.
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 discharges, 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, 2000, the Company had an accrued liability of $9.0
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 (the "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
substances which may be located on the Company's properties 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 substances
which may be located on its properties, 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.
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NOTE 7
JOINT VENTURE ACTIVITY
GalvPro LP ("GalvPro") was formed in 1997 with affiliates of Dutch
steelmaker Koninklijke Hoogovens (now a unit of Corus Group PLC ("Corus")) for
the purpose of constructing and operating a 300,000 ton hot-dipped galvanizing
line. GalvPro is owned by the Company (47.5%), Corus (47.5%) and GalvPro
management (5%).
Construction of GalvPro's facility and its day to day working capital needs
are financed primarily through a ten year loan secured by GalvPro's assets and a
working capital facility secured by GalvPro's inventory and receivables. At
September 30, 2000, GalvPro had total assets of $87.8 million, total liabilities
of $102.8 million, and a net deficit of $15.0 million. As of September 30, 2000,
$45.0 million was outstanding under the term loan facility and $12.2 million was
outstanding under the working capital facility. Both the term loan and the
working capital facility are without recourse to any equity owner.
As a result of failure to comply with a financial covenant, GalvPro
incurred an event of default under the loan facility during the third quarter of
2000. Although GalvPro's lender has not initiated any remedies, it has proposed
a significant restructuring of the loan.
Since GalvPro commenced operations in October 1999, the working capital
requirements have been financed by advances from the Company and Corus, cash
generated by operations and its working capital facility. As of September 30,
2000, the Company had made advances to the joint venture totaling $24.1 million.
As of September 30, 2000, after recognition of related equity losses and
$6.0 million in additional loss, the Company's net investment in GalvPro totaled
$11.6 million, which approximated its equity ownership of the book value of the
underlying net assets.
The Company is presently evaluating a number of possible alternatives with
respect to the venture. Among them are restructuring of the financing
arrangement, entity structure and strategic direction. Not withstanding the
Company's belief that its investment in GalvPro is properly stated as of the
balance sheet date, some of the alternatives that are currently under
consideration, and potential continued adverse business conditions, may result
in the recognition of future additional equity losses.
On July 27, 2000, MetalSite LP and MetalSite General Partner LLC (together
"the Partnership") were merged into MetalSite, Inc., a Delaware Corporation. In
exchange for its interest in the Partnership, the Company was given an
equivalent interest in the common stock of MetalSite. A portion of the common
stock owned by Weirton was held in escrow and subject to distribution to
employees of MetalSite as described in Note 8.
On October 5, 2000, the Company agreed to loan MetalSite $10.0 million in
exchange for a Convertible Promissory Note (the "Note") and Warrants to purchase
additional shares of MetalSite common stock. The Note carries a term of 18
months, with an interest rate of 5.0%. The Company may opt to convert the
principal and interest of the Note into MetalSite common stock at defined ratios
upon the occurrence of specific transactions and events as defined in the Note
agreement.
The warrants entitle the Company to purchase 250,000 shares of MetalSite
common stock at $6.00 per share. The warrants expire in 10 years.
NOTE 8
COMMITMENTS AND CONTINGENCIES
The Company participates in partner loan facilities with MetalSite whereby
the Company funds a portion of MetalSite's operations. As of September 30, 2000,
$11.2 million was outstanding under one facility. Under a second partner loan
facility, the Company expects to continue to fund a portion of MetalSite's
operations for the foreseeable future.
As of September 30, 2000 the Company owned 6,546,000 or 21.82% of the
outstanding shares of MetalSite. Of theses shares, 545,455, or 1.82% of the
outstanding shares of MetalSite, were held in escrow pursuant to
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option agreements of MetalSite employees. Subject to certain performance
measures, the employees of MetalSite may exercise options and require the
Company to issue shares from escrow to the employees.
Contingent on the occurrence of certain events as defined in the December
29, 1999 Security Purchase Agreement, Internet Capital Group, Inc. would have
the option to purchase, and the Company would be required to sell a 10% equity
interest (determined on a pre-offering basis) in MetalSite at an average market
price based upon the trading prices of MetalSite's equity securities during a
ten-day period prior to notice of exercise of such option.
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 in conjunction with and are qualified in
their entirety by the unaudited consolidated condensed financial statements of
the Company 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 2000, imported steel, some of which was dumped in violation of
United States trade laws, adversely affected product prices in the United States
and tonnages sold by domestic producers. The relative strength of foreign
economies, including foreign markets for steel, and fluctuations in the value of
the United States dollar against foreign currencies substantially affect the
intensity of foreign competition. In 1999 foreign producers exported 35.6
million tons of steel to the United States. This was the second highest import
level in history surpassed only by the 41.4 million tons imported in 1998.
During the first nine months of 2000, an estimated 30.3 million tons of foreign
steel were imported into the United States compared to 26.5 million tons for the
same period in 1999.
The penetration of imported steel into the domestic market caused steel
prices to decrease throughout the third quarter of 2000. The Company and other
domestic producers have sought and continue to seek legal and legislative
remedies to stop the flow of illegally dumped steel imported into the United
States.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
In the third quarter of 2000, the Company recognized a net loss of $26.2
million or $0.63 per diluted share compared to a net loss of $13.6 million or
$0.33 per diluted share for the same period in 1999.
Net sales in the third quarter of 2000 were $262.5 million, a decrease of
$17.1 million or 6% from the third quarter of 1999. Total shipments in the third
quarter of 2000 were 583 thousand tons compared to the third quarter of 1999
shipments of 663 thousand tons. The decrease in shipments of 80 thousand tons
reflects weaker market conditions for the Company's sheet products. Though
end-user demand remains strong, increased import activity has created an excess
domestic supply.
Sheet product net sales for the third quarter of 2000 were $148.6 million,
a decrease of $18.3 million from the third quarter of 1999. Shipments of sheet
product in the third quarter of 2000 were 386 thousand tons compared to 466
thousand tons in the third quarter of 1999. The decline in revenue was primarily
a result of the decline in shipments.
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Tin mill product net sales for the third quarter of 2000 were $113.9
million, an increase of $1.2 million from the third quarter of 1999. Shipments
of tin mill product in the third quarters of 2000 and 1999 were 197 thousand
tons. The increase in revenue resulted from slightly higher average selling
prices in the third quarter of 2000 when compared to the same period in 1999.
Cost of sales for the third quarter of 2000 were $248.2 million, or $426
per ton, compared to $262.5 million, or $396 per ton, for the third quarter of
1999. The increase in cost of sales per ton was primarily attributable to a
shift in product mix and the impact of lower overall shipments.
Selling, general and administrative expense increased $3.3 million to $13.0
million in the third quarter of 2000 when compared to the third quarter of 1999.
The increase is primarily attributable to an increase in reserve for bad debt
expense related to a specific customer.
Depreciation expense increased $2.7 million to $16.2 million in the third
quarter of 2000 when compared to the third quarter of 1999. The increase is
primarily attributable to the two blast furnace configuration employed in the
third quarter of 2000 compared to a one blast furnace configuration employed in
the third quarter of 1999.
The Company's loss from unconsolidated subsidiaries increased $10.3 million
when compared to the third quarter of 1999. The additional loss resulted from
the inclusion of MetalSite's equity losses of $1.5 million, GalvPro's equity
losses of $3.8 million and a $6.0 million additional equity loss associated with
the operations of GalvPro resulting primarily from start-up expenditures and
market conditions.
Interest expense decreased $2.4 million in the third quarter of 2000 when
compared to the same period in 1999. The Company redeemed $84.0 million in
Senior Notes at maturity in October 1999, resulting in lower average outstanding
debt during the third quarter of 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
In the first nine months of 2000, the Company recognized a net loss of
$25.0 million or $0.60 per diluted share compared to a net loss of $50.7 million
or $1.22 per diluted share for the same period in 1999.
Net sales in the first nine months of 2000 were $873.4 million, an increase
of $61.5 million or 8% from the first nine months of 1999. Total shipments in
the first nine months of 2000 were 2.0 million tons compared to the first nine
months of 1999 shipments of 1.8 million tons. The increase in shipments of 200
thousand tons reflects continued strong end-user demand and improved operating
and delivery performance. The increases in revenue and shipments during the
first six months of 2000 compared to the first six months of 1999 were partially
offset by lower shipments and revenue during the third quarter of 2000.
Sheet product net sales for the first nine months of 2000 were $541.4
million, an increase of $73.6 million from the first nine months of 1999.
Shipments of sheet product in the first nine months of 2000 were 1.4 million
tons compared to 1.3 million tons in the first nine months of 1999. The
increased revenue was primarily the result of an improvement in sheet product
selling price over the first six months of 2000.
Tin mill product net sales for the first nine months of 2000 were $332.0
million, a decrease of $12.2 million from the first nine months of 1999.
Shipments of tin mill product in the first nine months of 2000 were 572 thousand
tons compared to 586 thousand tons for the same period in 1999. The decrease in
revenue was primarily the result of the decrease in shipment volume.
Costs of sales for the first nine months of 2000 were $783.8 million, or
$396 per ton, compared to $766.3 million, or $414 per ton, for the first nine
months of 1999. The decrease in cost of sales per ton was primarily attributable
to better operating performance, lower employee benefit costs and a change in
product mix.
Depreciation expense increased $5.4 million to $49.3 million in the first
nine months of 2000 when compared to the same period in 1999. The increase is
primarily attributable to restarting the No. 4 Blast Furnace in December 1999
and higher overall production levels throughout the Company's operation.
The Company's loss from unconsolidated subsidiaries increased $18.2 million
from the first nine months of 1999 to the first nine months of 2000. The
additional loss resulted primarily from the losses of GalvPro
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($15.9 million) and MetalSite ($3.8 million). The results of MetalSite were
recorded using the equity method of accounting the first nine months of 2000
versus consolidated results in the first nine months of 1999.
Interest expense decreased $7.1 million in the first nine months of 2000
when compared to the same period in 1999. The Company redeemed $84.0 million in
Senior Notes in October 1999, resulting in lower average outstanding debt during
the first nine months of 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and equivalents of $68.3
million compared to $209.3 million as of December 31, 1999. 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>
2000 1999
--------- -------
DOLLARS IN THOUSANDS
<S> <C> <C>
Net cash provided (used) by operating activities....... $ (75,967) $23,814
Net cash used by investing activities.................. (50,516) (16,953)
Net cash used by financing activities.................. (14,531) --
--------- -------
Increase (decrease) in cash............................ $(141,014) $ 6,861
========= =======
</TABLE>
Net cash flows provided (used) from operating activities were $(76.0)
million and $23.8 million for the nine months ended September 30, 2000 and
September 30, 1999, respectively. Despite improved operating performance, cash
flows from operations declined primarily due to higher inventory balances at
September 30, 2000, and the payment of profit sharing and alternative minimum
tax during the first quarter of 2000. The increase in accounts receivable
resulted in part from the reduction in funded participation interests in the
Company's Receivables Participation Agreement.
Net cash used by investing activities for the first nine months of 2000
consisted of $20.2 million in capital spending and $30.3 million in loans and
advances to unconsolidated subsidiaries. Net cash used by investing activities
for the same period in 1999 consisted of $17.0 million in capital spending. The
Company's planned capital expenditures for 2000 are approximately $43.5 million.
During the first nine months of 2000, the Company repurchased approximately
2.6 million shares of its outstanding common stock at a cost of $16.0 million
and realized proceeds of $7.3 from the exercise of stock options. Also during
the first nine months of 2000, the Company retired approximately $5.8 million in
long-term debt prior to maturity through open market purchases. The Company had
no cash flows from financing activities for the first nine months of 1999.
In September 2000, the U.S. government approved the Company's application
for a $25.5 million loan through the Emergency Steel Loan Guaranty Act. The
Company is currently completing a loan agreement to be guaranteed under the
Emergency Steel Loan Guaranty Act.
Through a wholly-owned subsidiary Weirton Receivables Inc. ("WRI"), the
Company has two receivables participation agreements with a group of three
banks, the WRI Receivables Participation Agreement and the Additional Receivable
Facility. As of December 31, 1999, $35.0 million of funded participation
interest had been sold to the banks and $12.7 million in letters of credit under
the subfacility were outstanding. Subsequent to December 31, 1999, the $35.0
million of funded participation interest was no longer outstanding. As of
September 30, 2000, after reductions for amounts in place under its letter of
credit subfacility, the base amount of participation interest available for cash
sale under both receivable facilities was approximately $58.0 million. Letters
of credit outstanding under the Receivables Participation Agreement were $8.8
million at September 30, 2000.
The Company negotiated an amendment to the WRI Receivables Participation
Agreement. The amendment excludes accounts receivable from certain affiliated
entities. The amendment provides the Company with additional flexibility in
financing and other arrangements with certain affiliates.
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The Company also has a working capital facility of up to $100.0 million
secured by a first priority lien on the Company's inventory (the "Inventory
Facility"). As of September 30, 2000, no amounts were outstanding under the
Inventory Facility, and $100.0 million was available for borrowing.
The Company's net deferred tax assets were $157.5 million as of September
30, 2000. 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
additional cash payments for income taxes under federal alternative minimum tax
regulations.
Based upon available cash on hand, the amount of cash expected to be
generated from operating activities and cash available under the Inventory
Facility and Receivables Participation Agreements, the Company expects to have
sufficient cash to meet its short term needs, including the completion of its
capital spending plans.
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 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, 2000, the Company had an accrued liability of $9.0
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 (the "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
substances which may be located on the Company's properties 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 substances
which may be located on its properties, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities -- a replacement of FASB
Statement No. 125" was issued. SFAS No. 140 revises criteria for accounting for
asset securitizations, other financial-asset transfers, and collateral and
introduces new disclosures, but otherwise carries forward most of SFAS No. 125's
provisions without amendment. SFAS No. 140 has an immediate impact through new
disclosure requirements and amendments of the collateral provisions of SFAS No.
125. These changes must be applied for fiscal years ending after December 15,
2000. The Company is currently evaluating the effects of SFAS No. 140 and is
preparing a plan for implementation.
On December 3, 1999, the SEC staff released Staff Accounting Bulletin No.
101, "Revenue Recognition" ("SAB No. 101") to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
Subsequent to the release, the SEC deferred the implementation date of SAB No.
101 until no later than the fourth quarter of fiscal years beginning after
December 15, 1999. SAB No. 101 does not change existing literature on revenue
recognition, but rather it clarifies the staff's position on pre-existing
literature. The new standard does not require management to change existing
revenue recognition policies and therefore had no impact on the Company's
reported financial position or results of operations at September 30, 2000.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). 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.
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Management has not yet determined how Statement 133 will impact the Company's
consolidated financial statements.
OUTLOOK
Increased imports have again weakened the Company's order entry and
shipping rates in recent months. The weak market combined with increasing
natural gas prices will adversely affect results in the fourth quarter.
In response to weak market conditions, the Company is reviewing various
operating strategies designed to decrease production levels to more closely
coincide with shipments.
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 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 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 due to the foregoing and other
factors. Such forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. 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
The Company's 50% owned unconsolidated subsidiary, WeBCo, utilizes forward
contracts to mitigate its exposure to changes in foreign currency exchange
rates. At September 30, 2000, WeBCo had two outstanding forward contracts to
sell foreign currencies. A hypothetical 10% change in the applicable September
30, 2000 spot rates would result in a change in WeBCo's pretax income ranging
from approximately $1.6 million to $(0.8) million.
A primary source of energy used by the Company in its steel manufacturing
process is natural gas. For the three months ended September 30, 2000, the
average price of natural gas consumed by the Company was $3.00/mcf for a total
cost of $13.0 million. The Company expects its natural gas prices will increase
to $5.50/mcf during the fourth quarter of 2000 for a total cost of $16.5
million. A hypothetical 10% change in the Company's natural gas prices would
result in a change in the Company's fourth quarter pretax income ranging from
approximately $1.7 million to $(1.7) million.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27-Financial Data Schedule for the nine months ended September
30, 2000.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K on March 16, 2000 and
January 6, 2000.
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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
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
November 14, 2000
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