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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 JUNE 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)
<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 July 31, 2000 was 41,520,991.
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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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES....................................... $293,240 $267,276 $610,958 $532,414
OPERATING COSTS:
Cost of sales.............................. 254,978 242,262 535,596 503,778
Selling, general and administrative
expense.................................. 9,179 9,681 17,873 19,930
Depreciation............................... 16,545 15,163 33,089 30,339
Profit sharing provision................... 235 -- 590 --
-------- -------- -------- --------
Total operating costs................. 280,937 267,106 587,148 554,047
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS................... 12,303 170 23,810 (21,633)
Loss from unconsolidated subsidiaries...... (4,239) (80) (7,911) (93)
Interest expense........................... (8,852) (11,177) (17,524) (22,201)
Other income, net.......................... 1,382 751 3,120 1,369
ESOP contribution.......................... -- (652) -- (1,305)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES............... 594 (10,988) 1,495 (43,863)
Income tax provision (benefit)............. 125 (1,630) 314 (6,546)
-------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST.......... 469 (9,358) 1,181 (37,317)
Minority interest in loss of consolidated
subsidiary............................... -- 126 -- 229
-------- -------- -------- --------
NET INCOME (LOSS)............................... $ 469 $ (9,232) $ 1,181 $(37,088)
======== ======== ======== ========
PER SHARE DATA:
Weighted average number of common shares (in
thousands):
Basic...................................... 41,442 41,580 41,528 41,579
Diluted.................................... 43,729 41,580 44,170 41,579
NET INCOME (LOSS) PER SHARE:
Basic...................................... $ 0.01 $ (0.22) $ 0.03 $ (0.89)
Diluted.................................... $ 0.01 $ (0.22) $ 0.03 $ (0.89)
</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>
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents, including restricted cash of $775
and $810, respectively................................. $ 100,080 $ 209,270
Receivables, less allowances of $9,878 and $9,302,
respectively........................................... 180,413 104,647
Inventories............................................... 196,803 186,710
Deferred income taxes..................................... 42,517 42,517
Other current assets...................................... 3,257 3,167
---------- ----------
Total current assets................................... 523,070 546,311
Property, plant and equipment, net.......................... 491,462 514,464
Investment in unconsolidated subsidiaries................... 3,583 6,833
Deferred income taxes....................................... 108,797 109,110
Other assets and deferred charges........................... 10,284 10,804
---------- ----------
Total Assets........................................... $1,137,196 $1,187,522
========== ==========
LIABILITIES:
Current liabilities:
Payables.................................................. $ 138,318 $ 142,930
Employment costs.......................................... 60,715 81,688
Taxes other than income taxes............................. 12,817 13,805
Other current liabilities................................. 9,655 17,511
---------- ----------
Total current liabilities.............................. 221,505 255,934
Long term debt obligations.................................. 299,107 304,768
Long term pension obligations............................... 85,644 91,295
Postretirement benefits other than pensions................. 326,087 327,665
Other long term liabilities................................. 33,366 30,886
---------- ----------
Total Liabilities...................................... 965,709 1,010,548
Redeemable Stock, Net....................................... 22,417 22,973
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 50,000,000 shares authorized;
43,700,841 and 43,499,363 shares issued, respectively..... 437 435
Additional paid-in capital.................................. 459,237 458,249
Retained earnings (deficit)................................. (297,016) (298,194)
Other stockholders' equity.................................. (13,588) (6,489)
---------- ----------
Total Stockholders' Equity............................. 149,070 154,001
---------- ----------
Total Liabilities, Redeemable Stock and Stockholders'
Equity................................................ $1,137,196 $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>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,181 $(37,088)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation........................................... 33,089 30,339
Amortization of deferred financing costs............... 916 783
ESOP contribution...................................... -- 1,305
Deferred income taxes.................................. 313 (6,546)
Cash provided (used) by working capital items:
Receivables.......................................... (75,766) (18,125)
Inventories.......................................... (10,093) 77,213
Other current assets................................. (90) 3,254
Payables............................................. (4,612) (41,927)
Other current liabilities............................ (29,817) (6,874)
Long term pension obligation........................... (5,651) 5,776
Other.................................................. 8,058 (2,359)
--------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ (82,472) 5,751
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to unconsolidated subsidiary......................... (3,414) --
Capital spending.......................................... (10,087) (9,936)
--------- --------
NET CASH USED BY INVESTING ACTIVITIES....................... (13,501) (9,936)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt obligations............................. (5,831) --
Purchase of treasury stock................................ (14,658) --
Reissuance of treasury stock.............................. 7,205 --
Issuance of common stock.................................. 67 --
--------- --------
NET CASH USED BY FINANCING ACTIVITIES....................... (13,217) --
--------- --------
NET CHANGE IN CASH AND EQUIVALENTS.......................... (109,190) (4,185)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 209,270 68,389
--------- --------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 100,080 $ 64,204
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of capitalized interest................ $ 17,682 $ 14,517
Income taxes paid (refunded), net......................... 7,663 (1,982)
</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.
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 L.P.
and MetalSite General Partner LLC (collectively "MetalSite"). The results and
balances of MetalSite were consolidated as of and for the six months ended June
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 June 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 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.
NOTE 2
INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw materials........................................ $ 30,836 $ 61,254
Work-in-process...................................... 83,032 41,044
Finished goods....................................... 82,935 84,412
-------- --------
$196,803 $186,710
======== ========
</TABLE>
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NOTE 3
EARNINGS PER SHARE
The following represents a reconciliation between basic earnings per share
and diluted earnings per share for the three months and six months ended June
30, 2000:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
------------------------------- -------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ---------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Net income............ $469 41,441,501 $0.01 $1,181 41,527,879 $0.03
Effect of dilutive
securities
Series A Preferred.... -- 1,634,024 -- -- 1,641,259 --
Stock options......... -- 652,984 -- -- 1,000,920 --
---- ---------- ----- ------ ---------- -----
Diluted earnings per share:
Net income............ $469 43,728,509 $0.01 $1,181 44,170,058 $0.03
==== ========== ===== ====== ========== =====
</TABLE>
For the three and six months ended June 30, 1999, basic and diluted
earnings per share were the same; however, securities totaling 1,725,665 and
1,720,516, respectively, were excluded from the diluted earnings per share
calculation due to their antidilutive 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 six months of 2000, the Company paid
$13.1 million to repurchase approximately 2.0 million shares of its outstanding
common stock at prices ranging from $3.88 to $9.00 per share.
NOTE 5
OPTION ACTIVITY
During the first six 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.
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 June 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
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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 Corus Group for the purpose of constructing and operating a
300,000-ton per year hot-dipped galvanizing line. Construction of GalvPro's
facility was being financed primarily through a ten-year loan of up to $49.0
million secured by GalvPro's assets. In connection with the initial funding of
the loan, the Company, jointly and severally with affiliates of Corus Group,
agreed to prepay a total of up to $6.0 million of the loan if GalvPro's facility
failed to attain certain defined efficiency standards within an allowed period
of time after operations commenced. The Company and Corus Group affiliates have
each secured their respective obligation to the other by pledging their interest
in GalvPro. GalvPro successfully commenced operations in October 1999 and has
satisfactorily attained the defined efficiency standards for which tests have
been performed.
The Company participates in a partner loan facility with MetalSite whereby
the Company funds a significant portion of MetalSite's operations. As of June
30, 2000, $8.4 million was outstanding under the partner loan facility. The
Company expects to continue to fund a portion of MetalSite's operations for the
foreseeable future.
The Company's ownership percentage in MetalSite may be decreased by
interests granted in accordance with MetalSite's Management Ownership Plan and
by options which may be exercised by Internet Capital Group, Inc. ("ICG").
Contingent on the occurrence of certain events as defined in the December 29,
1999 Security Purchase Agreement, ICG 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
six 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 six months of 2000, an estimated 20.2 million tons of foreign
steel were imported into the United States compared to 16.8 million tons for the
same period in 1999.
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.
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On October 28, 1999, the Company filed a trade case against Japan for
allegedly setting illegal prices on its tin mill products sold in American
markets. On August 8, 2000, the ITC set final antidumping duties of 95% on
Japanese imports of tin mill products. The duties will be applied to Japanese
tin mill products for a five-year period.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
In the second quarter of 2000, the Company recognized net income of $0.5
million or $0.01 per diluted share compared to a net loss of $9.2 million or
$0.22 per diluted share for the same period in 1999.
Net sales in the second quarter of 2000 were $293.2 million, an increase of
$26.0 million or 10% from the second quarter of 1999. Total shipments in the
second quarter of 2000 were 653 thousand tons compared to the second quarter of
1999 shipments of 606 thousand tons. The increase in shipments of 47 thousand
tons reflects continued strong end-user demand and improved operating and
delivery performance.
Sheet product net sales for the second quarter of 2000 were $181.7 million,
an increase of $24.8 million from the second quarter of 1999. Shipments of sheet
product in the second quarter of 2000 were 462 thousand tons compared to 422
thousand tons in the second quarter of 1999. The increase in revenue resulted
from the increase in shipments and improved selling prices.
Tin mill product net sales for the second quarter of 2000 were $111.5
million, an increase of $1.3 million from the second quarter of 1999. Shipments
of tin mill product in the second quarter of 2000 were 191 thousand tons
compared to 185 thousand tons for the same period in 1999.
Cost of sales for the second quarter of 2000 were $255.0 million, or $390
per ton, compared to $242.3 million, or $400 per ton, for the second quarter 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 $1.4 million to $16.5 million in the second
quarter of 2000 when compared to the second quarter of 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 $4.2 million
when compared to the second quarter of 1999. The additional loss resulted from
the inclusion of the equity losses of MetalSite and losses incurred by GalvPro
during the early phases of its operations.
Interest expense decreased $2.3 million in the second 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 second quarter of 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999
In the first half of 2000, the Company recognized net income of $1.2
million or $0.03 per diluted share compared to a net loss of $37.1 million or
$0.89 per diluted share for the same period in 1999.
Net sales in the first half of 2000 were $611.0 million, an increase of
$78.5 million or 15% from the first half of 1999. Total shipments in the first
half of 2000 were 1.4 million tons compared to the first half of 1999 shipments
of 1.2 million tons. The increase in shipments of 208 thousand tons reflects
continued strong end-user demand and improved operating and delivery
performance.
Sheet product net sales for the first half of 2000 were $392.8 million, an
increase of $91.9 million from the first half of 1999. Shipments of sheet
product in the first half of 2000 were 1,019 thousand tons compared to 798
thousand tons in the first half of 1999. The increased revenue was the result of
an improvement in sheet product selling prices as well as the increase in
volume.
Tin mill product net sales for the first half of 2000 were $218.2 million,
a decrease of $13.3 million from the first half of 1999. Shipments of tin mill
product in the first half of 2000 were 375 thousand tons compared to 389
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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 half of 2000 were $535.6 million, or $384 per
ton, compared to $503.8 million, or $425 per ton, for the first half 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.
Selling, general and administrative expense decreased $2.1 million in the
first half of 2000, compared to the first half of 1999. The decrease resulted
primarily from the inclusion of MetalSite's SG&A costs in the first half of
1999, which were consolidated. MetalSite,s results for the first half of 2000
were reported using the equity method of accounting.
Depreciation expense increased $2.8 million to $33.1 million in the first
six 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 $7.8 million
from the first half of 1999 to the first half of 2000. The additional loss
resulted primarily from the losses of GalvPro and MetalSite. The results of
MetalSite were recorded using the equity method of accounting the first half of
2000 versus consolidated results in the first half of 1999.
Interest expense decreased $4.7 million in the first half 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 half of 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and equivalents of $100.1 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 six months
ended June 30 are summarized below:
<TABLE>
<CAPTION>
2000 1999
--------- -------
DOLLARS IN THOUSANDS
<S> <C> <C>
Net cash provided (used) by operating activities....... $ (82,472) $ 5,751
Net cash used by investing activities.................. (13,501) (9,936)
Net cash used by financing activities.................. (13,217) --
--------- -------
Decrease in cash....................................... $(109,190) $(4,185)
========= =======
</TABLE>
Net cash flows from operating activities were $(82.5) million and $5.8
million for the six months ended June 30, 2000 and June 30, 1999, respectively.
Despite improved operating performance, cash flows from operations declined
primarily due to higher receivable and inventory balances at June 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 half of 2000 consisted
of $10.1 million in capital spending and $3.4 million in loans to an
unconsolidated subsidiary. Net cash used by investing activities for the same
period in 1999 consisted of $9.9 million in capital spending. The Company's
planned capital expenditures for 2000 are approximately $31.0 million.
During the first half of 2000, the Company repurchased approximately 2.2
million shares of its outstanding common stock at a cost of $14.7 million and
realized proceeds of $7.3 from the exercise of stock options. Also during the
first half 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 half of 1999.
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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 June
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 $71.2 million. Letters of
credit outstanding under the Receivables Participation Agreement were $8.8
million at June 30, 2000.
The Company is currently negotiating an amendment to the WRI Receivables
Participation Agreement. The amendment would exclude accounts receivable from
certain affiliated entities. The amendment would provide the Company with
additional flexibility in financing and other arrangements with certain
affiliates.
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 June 30, 2000, no amounts were outstanding under the Inventory
Facility, and $98.4 million was available for borrowing.
The Company's net deferred tax assets were $151.3 million as of June 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 and the amount of cash expected to be
generated from operating activities, the Company expects to have sufficient cash
to meet its short term needs, including the completion of the 2000 capital
spending plan.
To the extent that cash on hand and cash generated from operating
activities do not generate an adequate amount of cash, the Company expects that
cash requirements can be met by the Inventory Facility or the Receivables
Participation Agreements.
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 June 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 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
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beginning after June 15, 2000. Management has not yet determined how Statement
133 will impact the Company's consolidated financial statements.
OUTLOOK
Demand for flat rolled steel products in the Company's markets remains
steady. However, increased imports have again weakened the Company's order entry
and shipping rates in recent months. Consequently, the Company expects a loss in
the third quarter.
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 June 30, 2000, WeBCo had three outstanding forward contracts to sell
foreign currencies. A hypothetical 10% change in the applicable June 30, 2000
spot rates would result in a change in WeBCo's pretax income ranging from
approximately $3.3 million to $(3.3) million.
11
<PAGE> 12
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
On May 24, 2000, the Company's Annual Meeting of Stockholders was held and
the following proposals were voted upon:
(1) Affirmation of the four nominees to serve on the Board of Directors
until 2003:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
Richard R. Burt 47,167,735 6,380,046
Richard K. Riederer 45,824,272 7,723,509
Thomas R. Sturges 47,932,362 5,615,419
Michael Bozic 46,766,937 6,780,844
</TABLE>
(2) Affirmation of Arthur Andersen LLP as the Company's Independent Public
Accountants for the fiscal year ending December 31, 2000:
For: 48,371,975 Against: 5,104,494 Abstain: 71,312
(3) Approval of 2000 Employee Stock Purchase Plan:
For: 48,546,968 Against: 4,909,946 Abstain: 90,867
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 -- Employment agreement between Earl E. Davis, Jr. and the
Company dated March 23, 2000.
Exhibit 10.2 -- Employment agreement between Mark E. Kaplan and the
Company dated February 10, 2000.
Exhibit 10.3 -- Employment agreement between William R. Kiefer and the
Company dated February 14, 2000.
Exhibit 10.4 -- Employment agreement between David L. Robertson and the
Company dated February 2000.
Exhibit 10.5 -- Employment agreement between Michael J. Scott and the
Company dated April 1, 2000.
Exhibit 10.6 -- Employment agreement between Edward L. Scram and the
Company dated April 1, 2000.
Exhibit 10.7 -- Employment agreement between Frank Tluchowski and the
Company dated March 23, 2000.
Exhibit 10.8 -- Employment agreement between John H. Walker and the
Company dated March 13, 2000.
Exhibit 27 -- Financial Data Schedule for the six months ended June 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.
12
<PAGE> 13
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)
August 14, 2000
13
