-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ERdyDzL49tzHvZXFbxM4axxhKG0RIeLVv7wuYTB8+z1lvuimQJdTyJrVvPsJYF1h Q3RqO0gr2I962ZIr6P4hHw== 0000950152-01-503956.txt : 20010815 0000950152-01-503956.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503956 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LTV CORP CENTRAL INDEX KEY: 0000060731 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 751070950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04368 FILM NUMBER: 1712470 BUSINESS ADDRESS: STREET 1: 200 PUBLIC SQUARE STREET 2: P O BOX 655003 CITY: CLEVELAND STATE: OH ZIP: 44115-1069 BUSINESS PHONE: 2166225000 MAIL ADDRESS: STREET 1: 25 WEST PROSPECT AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114-2308 FORMER COMPANY: FORMER CONFORMED NAME: LING ALTEC ELECTRONICS INC DATE OF NAME CHANGE: 19660907 FORMER COMPANY: FORMER CONFORMED NAME: LING TEMCO ELECTRONICS INC DATE OF NAME CHANGE: 19710317 FORMER COMPANY: FORMER CONFORMED NAME: LING TEMCO VOUGHT INC DATE OF NAME CHANGE: 19660907 10-Q 1 l89597ae10-q.txt THE LTV CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 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 No. 1-4368 THE LTV CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-1070950 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 200 Public Square Cleveland, Ohio 44114-2308 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 622-5000 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 104,681,331 shares of common stock (as of June 30, 2001) 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE LTV CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in millions, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 ------- ------- ------- ------- SALES $ 959 $ 1,310 $ 1,948 $ 2,665 Costs and expenses: Cost of products sold 962 1,175 1,977 2,387 Depreciation and amortization 74 84 147 164 Selling, general and administrative 51 58 104 116 Results of affiliates' operations 2 3 2 - Loss on writedown of equity affiliate - 84 - 84 Net interest expense 17 25 31 49 Other (income) expense (2) (57) (10) (60) Special charges - 207 - 207 Reorganization and restructuring items 79 - 137 - ------- ------- ------- ------- Total 1,183 1,579 2,388 2,947 ------- ------- ------- ------- LOSS BEFORE INCOME TAXES (224) (269) (440) (282) Income tax provision (3) (3) (6) (6) ------- ------- ------- ------- Income (loss) before extraordinary loss (227) (272) (446) (288) Extraordinary loss on early extinguishment of debt (2) - (2) - ------- ------- ------- ------- NET INCOME (LOSS) $ (229) $ (272) $ (448) $ (288) ======= ======= ======= ======= Dividends on preferred stock (2) (2) (4) (4) ------- ------- ------- ------- NET LOSS TO COMMON SHAREHOLDERS $ (231) $ (274) $ (452) $ (292) ======= ======= ======= ======= Loss per share: Basic and diluted Loss before extraordinary loss $ (2.18) $ (2.74) $ (4.31) $ (2.92) Extraordinary loss (0.02) - (0.02) - ------- ------- ------- ------- Net income (loss) $ (2.20) $ (2.74) $ (4.33) $ (2.92) ======= ======= ======= ======= Average shares outstanding Basic and diluted 105 100 104 100 ======= ======= ======= ======= Cash dividends per common share $ - $ 0.03 $ - $ 0.06 ======= ======= ======= =======
- ------- See notes to consolidated financial statements. 1 3 THE LTV CORPORATION CONSOLIDATED BALANCE SHEET (in millions, except per share data)
June 30, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 49 $ 68 Receivables, less allowance for doubtful accounts 502 495 Inventories: Products 582 690 Materials, purchased parts and supplies 166 281 ------- ------- Total inventories 748 971 Prepaid expenses, deposits and other 33 25 ------- ------- Total current assets 1,332 1,559 ------- ------- INVESTMENTS IN AND ADVANCES TO AFFILIATES 116 106 GOODWILL AND OTHER INTANGIBLES, NET OF ACCUMULATED AMORTIZATION 331 338 OTHER NONCURRENT ASSETS 91 106 PROPERTY, PLANT AND EQUIPMENT 4,548 4,554 Allowance for depreciation (1,430) (1,305) ------- ------- Total property, plant and equipment 3,118 3,249 ------- ------- $ 4,988 $ 5,358 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 121 $ 45 Accrued employee compensation and benefits 84 56 Other accrued liabilities 94 53 Secured debt in default 659 667 ------- ------- Total current liabilities 958 821 ------- ------- NONCURRENT LIABILITIES Postemployment health care and other insurance benefits 46 46 Pension benefits 4 4 Other 36 52 ------- ------- Total noncurrent liabilities 86 102 ------- ------- LIABILITIES SUBJECT TO COMPROMISE 3,785 3,858 SHAREHOLDERS' EQUITY Preferred stock Series A Cumulative Convertible (aggregate liquidation value $62 1 2 in 2001 and $80 in 2000) Series B Convertible (aggregate liquidation value $50) 1 1 Common stock (par value $0.50 per share) 55 53 Additional paid-in capital 1,098 1,101 Retained earnings (deficit) (957) (509) Treasury stock (5 million shares at cost) (64) (65) Other comprehensive income (loss) and other 25 (6) ------- ------- Total shareholders' equity 159 577 ------- ------- $ 4,988 $ 5,358 ======= =======
- ---------------- See notes to consolidated financial statements. 2 4 THE LTV CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (Unaudited)
Six Months Ended June 30, ------------------------- 2001 2000 -------- --------- OPERATING ACTIVITIES Net loss $ (448) $ (288) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss 2 - Gain on sale of business - (26) Noncash special charges and write down of equity affiliate - 291 Depreciation and amortization 147 164 Pension funding less than related expense 25 19 Postemployment benefit payments more than related expense (11) (12) VEBA recoveries (funding) 4 (10) Reorganization and restructuring items 137 - Less: payments on reorganization and restructuring items (21) - Changes in assets, liabilities and other 215 (83) ------- ------- Net cash provided by operating activities 50 55 ------- ------- INVESTING ACTIVITIES Capital expenditures (42) (107) Investments in and advances to steel-related businesses (9) (18) Proceeds from sale of business - 29 Proceeds from sale / leaseback and other (2) 33 ------- ------- Net cash used in investing activities (53) (63) ------- ------- FINANCING ACTIVITIES Net borrowings (repayments) (8) (39) Deferred financing fees (8) - Dividends paid and other - (10) ------- ------- Net cash used in financing activities (16) (49) ------- ------- Net decrease in cash and cash equivalents (19) (57) Cash and cash equivalents at beginning of period 68 72 ------- ------- Cash and cash equivalents at end of period $ 49 $ 15 ======= ======= Supplemental cash flow information is presented as follows: Interest payments $ 33 $ 54 Income tax payments 1 10 Capitalized interest 3 7 Borrowings under credit facilities 2,983 2,407 Payments on borrowings under credit facilities 2,991 2,446
- ------ See notes to consolidated financial statements. 3 5 THE LTV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 NOTE (1) - On December 29, 2000, The LTV Corporation ("LTV" or the "Company") and forty-eight of its wholly owned subsidiaries (collectively, the "Debtors"), which include its principal operating subsidiaries, LTV Steel Company, Inc. ("LTV Steel"), Copperweld Corporation ("Copperweld") and VP Buildings, Inc. ("VP Buildings") filed voluntary petitions for reorganization under Chapter 11 ("Chapter 11") of the Federal Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court in the Northern District of Ohio, Eastern Division ("Court"). The Company is managing its business as debtor-in-possession subject to Court approval. The Company's consolidated financial statements have been prepared in conformity with the AICPA's Statement of Position 90-7, "Financial Reporting by Entities In Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The consolidated financial statements are prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if the Debtors are unable to continue as a going concern. As a result of the Chapter 11 filings, such matters are subject to significant uncertainty. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date ("prepetition") are stayed ("deferred"), absent specific Court authorization to pay such claims, while the Company continues to manage the business as debtor-in-possession. LTV received approval from the Court to pay or otherwise honor certain of its prepetition obligations, including employee wages and certain employee benefits. The Company believes provisions have been made in the accompanying consolidated financial statements for the potential claims that could be estimated at the date of these financial statements. The amount of the claims to be filed by the creditors could be significantly different than the amount of the liabilities recorded by the Company. The Company has many executory contracts that could be rejected during the Chapter 11 proceedings. As a result of the Chapter 11 filings, Events of Default, as defined in the related debt agreements, have occurred with respect to all of LTV's secured and undersecured debt. The secured debt has been classified as a current liability and the undersecured debt has been classified as liabilities subject to compromise. Under Chapter 11, the rights of and ultimate payments by the Company to prepetition creditors and to LTV's stockholders may be substantially altered. This could result in claims being liquidated in the Chapter 11 proceedings at less (and possibly substantially less) than 100% of their face value and the equity of LTV's common and preferred stockholders being diluted or cancelled. Certain claims in Chapter 11 may be asserted as having higher priorities in the plan of reorganization. The Company's prepetition creditors and its stockholders will each have votes in the plan of reorganization. The Company has not yet proposed a plan of reorganization. Due to material uncertainties, it is not possible to determine the additional amount of claims that may arise or ultimately be filed, or to predict the length of time LTV will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, whether the Company will continue to operate under its current organizational structure, or the effect of the proceedings on the business of LTV or its subsidiaries or on the interests of the various creditors and security holders. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the 4 6 instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. All adjustments that are, in the opinion of management, necessary for a fair presentation have been made and are of a recurring nature unless otherwise disclosed herein. Certain prior period amounts have been reclassified to conform to the current period presentation. The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. These financial statements supercede all previously issued financial statements. For further information, refer to the consolidated financial statements and the notes thereto for the year ended December 31, 2000 included in the 2000 Annual Report on Form 10-K and 10-K/A filed with the Securities and Exchange Commission. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses financial accounting and reporting for business combinations and supercedes APB No. 16 "Business Combinations" and SFAS No. 38 "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 142 provides that goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives (but with no maximum life). The Company is required to adopt these statements effective January 1, 2002. The effects of adopting these statements have not yet been determined. Amortization of goodwill totaled $10 million in 2000. NOTE (2) - Total comprehensive loss for the three months ended June 30, 2001 and 2000 totaled $221 million and $275 million, respectively. Total comprehensive loss for the six months ended June 30, 2001 and 2000 totaled $432 million and $291 million, respectively. On January 1, 2001, the Company adopted SFAS No. 133, as amended, which resulted in a transitional cumulative adjustment of $50 million of other comprehensive income for futures contracts that were sold in 2000. A total of $18 million of the transitional adjustment was reclassified to the Consolidated Statement of Operations as a reduction of cost of products sold in the six months ended June 30, 2001. Approximately $14 million is anticipated to be reclassified to the statement of operations during the next twelve months. The other comprehensive loss included in the balance sheet at June 30, 2000 was $3 million, with no material changes since December 31, 1999. NOTE (3) - Liabilities of the Company that existed at the time of the filing of the petition under Chapter 11 on December 29, 2000 are classified as liabilities subject to compromise. With the exception of the Company's secured debt and liabilities of non-filing subsidiaries, all liabilities as of the filing date were classified as liabilities subject to compromise and have been deferred. The Court authorized payments of wages and certain employee benefits and limited other prepetition obligations. Payments of prepetition obligations in 2001 of $184 million were primarily for wages, active and retiree healthcare, other employee related costs (including withholdings) and certain other limited obligations (including environmental and plant shutdown). Liabilities subject to compromise at June 30, 2001 and December 31, 2000 were as follows (in millions): 5 7
June 30, December 31, 2001 2000 ------------- ------------- Postemployment health care and other insurance benefits $1,556 $1,593 Pension benefits 684 642 Undersecured debt 572 572 Accounts payable 335 363 Accrued employee compensation and benefits 176 213 Environmental and plant rationalization 138 161 Benefits under the Coal Industry Retiree Health Benefit Act of 1992 132 130 Accrued taxes other than income 85 85 Accrued income taxes 25 27 Other 82 72 ------- ------- $3,785 $3,858 ======= =======
NOTE (4) - The following unaudited condensed combined financial statements of the Debtors were prepared on the same basis as the consolidated financial statements and are presented below in accordance with SOP 90-7 (in millions):
STATEMENT OF OPERATIONS Three months ended Six months ended June 30, 2001 June 30, 2001 ------------- ------------- Sales $ 831 $ 1,730 Costs and expenses: Cost of products sold 851 1,788 Depreciation and amortization 71 139 Selling, general and administrative 46 96 Net interest expense 14 23 Other (income) expense 1 (6) Reorganization and restructuring items 79 137 ------- ------- Total 1,062 2,177 ------- ------- Loss before income taxes (231) (447) Income tax provision (2) (5) ------- ------- Income (loss) before extraordinary loss (233) (452) Extraordinary loss on early extinguishment of debt (2) (2) ------- ------- Net loss $ (235) $ (454) ======= =======
6 8
BALANCE SHEET June 30, December 31, 2001 2000 ---------- ------------ Cash $ 34 $ 55 Accounts receivable, net 450 72 Intercompany receivable, net 36 941 Inventories 717 124 Prepaid expenses 23 22 ------ ------ Total current assets 1,260 1,214 ------ ------ Goodwill and other intangibles 334 334 Investments in non-Debtor subsidiaries 199 192 Other noncurrent assets 75 94 Property, plant and equipment, net 2,996 3,124 ------ ------ $4,864 $4,958 ====== ====== Accounts payable and accrued liabilities $ 259 $ 96 Secured debt in default 659 402 ------ ------ Total current liabilities 918 498 ------ ------ Other noncurrent liabilities 8 25 Liabilities subject to compromise 3,785 3,858 Shareholders' equity 153 577 ------ ------ $4,864 $4,958 ====== ======
7 9
STATEMENT OF CASH FLOWS Six months ended June 30, 2001 ---------------- Operating activities Net loss $(454) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss 2 Depreciation and amortization 139 Pension funding less than related expense 24 Postemployment benefit payments more than related expense (11) VEBA trust recoveries 4 Reorganization and restructure items 137 Less: payments against reorganization and restructuring items (21) Changes in assets, liabilities and other (47) ----- Net cash provided by operating activities (227) ----- Investing activities Capital expenditures (35) Investments in steel related businesses (9) ----- Net cash used by investing activities (44) ----- Financing activities Net borrowings under credit facilities 258 Deferred financing fees (8) ----- Net cash provided by investing activities 250 ----- Net decrease in cash and cash equivalents (21) Cash and cash equivalents at beginning of period 55 ----- Cash and cash equivalents at end of period $ 34 =====
NOTE (5) - LTV operates in three reportable segments: Integrated Steel, Metal Fabrication and Corporate and Other. Integrated Steel manufactures and sells a diversified line of carbon flat rolled steel products consisting of hot rolled and cold rolled sheet and galvanized products. The tin mill facilities were sold on March 1, 2001 to the U. S. Steel Group of the USX Corporation pursuant to an agreement made with USX Corporation in October 2000 and subsequently approved by the Court in February 2001. Sales are made primarily to the domestic transportation, appliance, and electrical equipment markets. The product lines of the Metal Fabrication segment include pipe, conduit, mechanical and structural tubular products for use in transportation, agriculture, oil and gas, and construction industries; bimetallic wire for the telecommunications and utilities industries; manufactured pre-engineered, low-rise steel buildings systems for manufacturing, warehousing and commercial applications. LTV is in the process of selling VP Buildings, a metal buildings systems manufacturer, and expects to complete the sale prior to the end of 2001. Corporate and Other consists of corporate investments and related income and expenses and in 2000 included the results of two steel technology joint ventures, Trico Steel Company L.L.C. ("Trico Steel") and Cliffs and Associates Limited ("CAL"). The Trico Steel investment was written off effective in the fourth quarter of 2000 8 10 because Trico Steel ceased operations and filed for protection under Chapter 11 of the Bankruptcy Code. As a result, the Company determined that any recovery of its investment in Trico Steel would be remote. The CAL investment was sold on June 30, 2000. The results of the ventures are included in the prior year through those dates, respectively. LTV's reportable segments are strategic business units grouped by similar products, technologies and manufacturing processes. Segments are managed separately because each serves a different market and group of customers. Segment performance is measured on profit or loss before special items, income taxes and interest. Integrated Steel accounts for intersegment sales at current market prices as if transactions had taken place with third parties.
For the three months ended June 30, 2001 2000 ------------------------------------------- ------------------------------------------- (dollars in millions) Integrated Metal Corporate Integrated Metal Corporate Steel Fabrication & Other Total Steel Fabrication & Other Total ---------- ----------- ------- ------ ---------- ----------- ------- -------- Trade sales $ 605 $ 354 $ - $ 959 $ 862 $ 448 $ - $ 1,310 Intersegment sales 45 - - 45 35 - - 35 Segment income (loss) before income taxes and special items (129) 7 (23) (145) 28 27 (117) (62) Special charges - - - - (205) (2) - (207) Reorganization and restructuring items (69) - (10) (79) - - - -
For the six months ended June 30, 2001 2000 ------------------------------------------- ------------------------------------------- (dollars in millions) Integrated Metal Corporate Integrated Metal Corporate Steel Fabrication & Other Total Steel Fabrication & Other Total ---------- ----------- ------- ------ ---------- ----------- ------- -------- Trade sales $ 1,232 $ 716 $ - $ 1,948 $ 1,785 $ 880 $ - $ 2,665 Intersegment sales 85 - - 85 69 - - 69 Segment income (loss) before income taxes and special items (274) 8 (37) (303) 22 49 (146) (75) Special charges - - - - (205) (2) - (207) Reorganization and restructuring items (110) (1) (26) (137) - - - -
NOTE (6) - On March 20, 2001, the Court approved two new debtor-in-possession financing facilities that were closed on April 9, 2001. The first facility is a Secured Revolving Credit Facility ("Revolving Credit Facility") which replaces the Company's receivables and inventory facilities. The obligation is guaranteed by the direct and indirect subsidiaries of LTV that have filed for bankruptcy. The commitment under the Revolving Credit Facility is $582 million and may be further limited by amounts of receivables and inventories. Of the total commitment, $103 million may be used for standby letters of credit; an additional $20 million may be used for letters of credit when the Working Capital Facility (described below) is terminated. Borrowings under the Revolving Credit Facility will be required to be repaid in full and the commitment will terminate on the earlier of June 30, 2002 or the substantial consummation of a plan of reorganization that is confirmed by the Court or any other court having jurisdiction over the Chapter 11 proceedings. The commitment amount under the Revolving Credit Facility will be reduced by $100 million on September 30, 2001, by $100 million on December 31, 2001 and by an additional $200 million on March 31, 2002. Substantially all of LTV Steel's and Georgia Tubing Corporation's (a wholly owned subsidiary of LTV) receivables and inventories and the receivables of Welded Tube and Copperweld's domestic subsidiaries are pledged as collateral. In addition, the lenders have a first priority lien on the Company's integrated steel plant in Hennepin, Illinois (the "Hennepin Plant") equal to $28 million and a junior lien on all other assets of the debtors pledged under the Company's five-year secured term loan of $225 million (the "Secured Facility") and the Working Capital Facility. Additionally, the commitment will be reduced by 50% of net cash proceeds received from the sale of VP Buildings in excess of the amount required to paydown 9 11 the $100 million Working Capital Facility. Upon a sale of the Hennepin Plant, 100% of the net cash proceeds up to $28 million shall be applied to permanently reduce the then current commitment, if any, under the Working Capital Facility, and 50% of the remainder shall be used to permanently reduce the commitment under the Revolving Credit Facility. Upon the sale of any integrated steel asset other than the Hennepin Plant, 100% of the net cash proceeds shall be applied to permanently reduce the then current commitment, if any, under the Working Capital Facility, and 50% of the remainder shall be applied to permanently reduce the commitment under the Revolving Credit Facility. Interest is, at the Company's option, the Alternate Base Rate (which is the greater of the prime rate, a base CD rate (as defined) plus 1.0% or the Federal Funds Effective Rate plus 0.5%) plus 1.5% or LIBOR plus 2.5%. Interest is payable monthly. The Company is required to meet certain covenants relating to cumulative EBITDA and capital expenditures, minimum liquidity and is prohibited from paying dividends. The second debtor-in-possession facility is a $100 million financing facility for working capital purposes that consists of a $65 million revolving credit facility and a $35 million term loan facility (together the "Working Capital Facility"). The borrowers under the facility are the Company, VP Buildings, Copperweld and its domestic subsidiaries, Georgia Tubing Corporation and LTV Steel. The $65 million revolving credit facility may be limited by amounts of VP Buildings' receivables, inventories or EBITDA. The Working Capital Facility will terminate on the earlier of June 30, 2002, the substantial consummation of a plan of reorganization that is confirmed by the Court or any other court having jurisdiction over the Chapter 11 proceedings or the sale of VP Buildings. This facility is guaranteed by the direct and indirect subsidiaries of LTV that have filed for bankruptcy. The Working Capital Facility lenders have a first lien on substantially all the assets of VP Buildings and the fixed assets of LTV Steel, subject to the $28 million Hennepin Plant lien described above and subject to the lien on the west side of the Cleveland Works granted under an United Steel Workers of America ("USWA") Collateral Trust Agreement securing the payment of retiree medical benefits and pension obligations. The Working Capital Facility lenders also have a junior lien on certain other assets pledged under the Secured Facility and the Revolving Credit Facility. Interest on the revolving credit portion of the Working Capital Facility is at the greater of 11% or the prime rate plus 2% and, for the term loan portion of the Working Capital Facility the greater of 12.25% or the prime rate plus 3.25%. Interest is payable monthly. The Company and VP Buildings are required to meet certain covenants relating to cumulative EBITDA and capital expenditures, minimum liquidity and the Company is prohibited from paying dividends. On July 31, 2001, LTV negotiated an amendment to the Working Capital Facility that reduced the $65 million revolving credit facility to $45 million and revised the EBITDA covenant. All other provisions remain in effect and the amendment is subject to approval by the Bankruptcy Court. 10 12 NOTE (7) - Pursuant to SOP 90-7, provisions for gains and losses resulting from the reorganization and restructuring of the business are reported in the consolidated Statement of Operations separately as reorganization and restructuring items. Amounts were recorded as follows (in millions):
June 30, 2001 -------------------------------------- Three months ended Six months ended ------------------ ----------------- Sale of tin mill facilities $ - $ 39 Rejection of executory contracts and abandonment of capitalized software 59 59 LTV Steel Mining shutdown costs 7 7 Salaried employee termination costs 3 6 Chapter 11 administrative expenses, including professional fees 11 28 Interest income (1) (2) ------------------ ----------------- $ 79 $ 137 ================== =================
NOTE (8) - All of LTV's existing subsidiaries, including Copperweld and Welded Tube, and future domestic wholly owned subsidiaries of LTV (other than certain unrestricted subsidiaries and special purpose subsidiaries established for working capital facilities) fully and unconditionally, jointly and severally guarantee LTV's obligation to pay principal, premium, if any, and interest with respect to the 11.75% Senior Notes due October 2009, the 8.2% Senior Notes due September 2007 and the Secured Facility. The following supplemental condensed consolidating financial statements of The LTV Corporation present (in millions): balance sheets as of June 30, 2001 and December 31, 2000; statements of operations for the three months and six months ended June 30, 2001 and 2000; and statements of cash flows for the six months ended June 30, 2001 and 2000. The LTV Corporation (Parent), the Guarantors and Non-Guarantor Subsidiaries' investments in subsidiaries are accounted for using the equity method. Necessary elimination entries have been made to consolidate the Parent and all of its subsidiaries. 11 13
Condensed Consolidating Balance Sheet (in millions) June 30, 2001 -------------------------------------------------------------------------- Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated --------- ----------- --------------- ------------- -------------- Cash and cash equivalents $ 36 $ 5 $ 8 $ - $ 49 Receivables - 452 50 - 502 Inventories - 718 30 - 748 Other current assets 12 18 3 - 33 --------- ----------- --------------- ------------- -------------- Total current assets 48 1,193 91 - 1,332 --------- ----------- --------------- ------------- -------------- - Intercompany, net 1,260 793 (48) (2,005) - Goodwill and other intangibles - 327 4 - 331 Investments and other noncurrent assets 73 231 8 (105) 207 Property, plant and equipment, net - 3,015 103 - 3,118 --------- ----------- --------------- ------------- -------------- Total assets $1,381 $5,559 $ 158 $ (2,110) $ 4,988 ========= =========== =============== ============= ============== Accounts payable and accrued liabilities $ 10 $ 255 $ 34 $ - $ 299 Secured debt in default - 659 - - 659 --------- ----------- --------------- ------------- -------------- Total current liabilities 10 914 34 - 958 --------- ----------- --------------- ------------- -------------- Postemployment health care and other insurance benefits - 35 11 - 46 Pension benefits - 1 3 - 4 Other - 10 26 - 36 Liabilities subject to compromise 32 3,753 - - 3,785 Liabilities subject to compromise - Intercompany 1,180 825 - (2,005) - Shareholders' equity 159 21 84 (105) 159 --------- ----------- --------------- ------------- -------------- Total liabilities and shareholders' equity $1,381 $5,559 $ 158 $ (2,110) $ 4,988 ========= =========== =============== ============= ==============
December 31, 2000 -------------------------------------------------------------------------- Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated --------- ----------- --------------- ------------- -------------- Cash and cash equivalents $ 39 $ 17 $ 12 $ - $ 68 Receivables 3 72 420 - 495 Inventories - 125 846 - 971 Other current assets 1 21 3 - 25 --------- ----------- --------------- ------------- -------------- Total current assets 43 235 1,281 - 1,559 --------- ----------- --------------- ------------- -------------- - Intercompany, net 1,307 900 (754) (1,453) - Goodwill and other intangibles - 334 4 - 338 Investments and other noncurrent assets 449 221 12 (470) 212 Property, plant and equipment, net - 3,145 104 - 3,249 --------- ----------- --------------- ------------- -------------- Total assets $1,799 $4,835 $ 647 $ (1,923) $ 5,358 ========= =========== =============== ============= ============== Accounts payable and accrued liabilities $ - $ 103 $ 51 $ - $ 154 Long-term secured debt in default - 197 470 - 667 --------- ----------- --------------- ------------- -------------- Total current liabilities - 300 521 - 821 --------- ----------- --------------- ------------- -------------- Postemployment health care and other insurance benefits - 35 11 - 46 Pension benefits - 1 3 - 4 Other - 27 25 - 52 Liabilities subject to compromise 39 3,819 - 3,858 Liabilities subject to compromise - Intercompany 1,183 270 - (1,453) - Shareholders' equity 577 383 87 (470) 577 --------- ----------- --------------- ------------- -------------- Total liabilities and shareholders' equity $1,799 $4,835 $ 647 $ (1,923) $ 5,358 ========= =========== =============== ============= ==============
12 14 Condensed Consolidating Statement of Operations (in millions)
Three Months Ended June 30, 2001 ------------------------------------------------------------------------------ Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- -------------- Net sales $ - $ 876 $ 98 $ (15) $ 959 Costs and expenses: Cost of products sold - 893 84 (15) 962 Depreciation and amortization - 70 4 - 74 Selling, general and administrative 8 39 4 - 51 Results of affiliates' operations 206 - - (204) 2 Net interest and other (income) expense 1 12 2 - 15 Reorganization and restructuring items 11 68 - - 79 -------- ----------- ---------------- ------------- -------------- Total 226 1,082 94 (219) 1,183 -------- ----------- ---------------- ------------- -------------- Income (loss) before income taxes (226) (206) 4 204 (224) Income tax provision (3) - - - (3) -------- ----------- ---------------- ------------- -------------- Income loss before extraordinary loss (229) (206) 4 204 (227) Extraordinary loss on early extinguishment of debt - - (2) - (2) -------- ----------- ---------------- ------------- -------------- Net income (loss) $ (229) $ (206) $ 2 $ 204 $ (229) ======== =========== ================ ============= ==============
Three Months Ended June 30, 2000 ------------------------------------------------------------------------------ Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- -------------- Net sales $ - $ 1,204 $ 1,039 $ (933) $ 1,310 Costs and expenses: Cost of products sold - 1,108 1,000 (933) 1,175 Depreciation and amortization - 82 2 - 84 Selling, general and administrative 6 49 3 - 58 Results of affiliates' operations 267 (14) - (250) 3 Loss on write down of equity affiliate - 84 - - 84 Net interest and other (income) expense - (43) 11 - (32) Special charges - 207 - - 207 -------- ----------- ---------------- ------------- -------------- Total 273 1,473 1,016 (1,183) 1,579 -------- ----------- ---------------- ------------- -------------- Income (loss) before income taxes (273) (269) 23 250 (269) Income tax provision 1 - (4) - (3) -------- ----------- ---------------- ------------- -------------- Net income (loss) $ (272) $ (269) $ 19 $ 250 $ (272) ======== =========== ================ ============= ==============
13 15 Condensed Consolidating Statement of Operations (in millions)
Six Months Ended June 30, 2001 ------------------------------------------------------------------------------ Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- -------------- Net sales $ - $ 1,777 $ 196 $ (25) $ 1,948 Costs and expenses: Cost of products sold - 1,830 172 (25) 1,977 Depreciation and amortization - 140 7 - 147 Selling, general and administrative 14 82 8 - 104 Results of affiliates' operations 407 4 - (409) 2 Net interest and other (income) expense (6) 15 12 - 21 Reorganization and restructuring items 27 110 - - 137 -------- ----------- ---------------- ------------- -------------- Total 442 2,181 199 (434) 2,388 -------- ----------- ---------------- ------------- -------------- Income (loss) before income taxes (442) (404) (3) 409 (440) Income tax provision (6) - - - (6) -------- ----------- ---------------- ------------- -------------- Income (loss) before extraordinary loss (448) (404) (3) 409 (446) Extraordinary loss on early extinguishment of debt - - (2) - (2) -------- ----------- ---------------- ------------- -------------- Net income (loss) $ (448) $ (404) $ (5) $ 409 $ (448) ======== =========== ================ ============= ==============
Six Months Ended June 30, 2000 ------------------------------------------------------------------------------ Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- -------------- Net sales $ - $ 2,458 $ 2,132 $ (1,925) $ 2,665 Costs and expenses: Cost of products sold - 2,237 2,075 (1,925) 2,387 Depreciation and amortization - 159 5 - 164 Selling, general and administrative 13 96 7 - 116 Results of affiliates' operations 273 (5) - (268) - Loss on write down of equity affiliate - 84 - - 84 Net interest and other (income) expense - (28) 17 - (11) Special charges - 207 - - 207 -------- ----------- ---------------- ------------- -------------- Total 286 2,750 2,104 (2,193) 2,947 -------- ----------- ---------------- ------------- -------------- Income (loss) before income taxes (286) (292) 28 268 (282) Income tax provision (2) - (4) - (6) -------- ----------- ---------------- ------------- -------------- Net income (loss) $ (288) $ (292) $ 24 $ 268 $ (288) ======== =========== ================ ============= ==============
14 16 Condensed Consolidating Cash Flows Statement (in millions)
Six Months Ended June 30, 2001 --------------------------------------------------------------------------- Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- ------------- Cash provided by (used in) operating activities $ 5 $ (428) $ 473 $ - $ 50 Investing activities: Capital expenditures - (35) (7) - (42) Investments in steel related businesses - (9) - - (9) Other - (2) - - (2) -------- ----------- ---------------- ------------- ------------- Net cash provided by (used in) investing activities - (46) (7) - (53) -------- ----------- ---------------- ------------- ------------- Financing activities: Net borrowings/(repayments) - 462 (470) - (8) Deferred financing fees (8) - - - (8) -------- ----------- ---------------- ------------- ------------- Net cash provided by (used in) financing activities (8) 462 (470) - (16) -------- ----------- ---------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (3) (12) (4) - (19) Cash and cash equivalents at beginning of period 39 17 12 - 68 -------- ----------- ---------------- ------------- ------------- Cash and cash equivalents at end of period $ 36 $ 5 $ 8 $ - $ 49 ======== =========== ================ ============= =============
Six Months Ended June 30, 2000 --------------------------------------------------------------------------- Non-Guarantor Parent Guarantor Subsidiaries Eliminations Consolidated -------- ----------- ---------------- ------------- ------------- Cash provided by (used in) operating activities $ 5 $ 6 $ 44 $ - $ 55 Investing activities: Capital expenditures - (101) (6) - (107) Investments in affiliates - (18) - - (18) Proceeds from sale of business - 29 - - 29 Proceeds from sale / leaseback and other - 46 (13) - 33 -------- ----------- ---------------- ------------- ------------- Net cash provided by (used in) investing activities - (44) (19) - (63) -------- ----------- ---------------- ------------- ------------- Financing activities: Net repayments - (4) (35) - (39) Dividends paid and other (10) - - - (10) -------- ----------- ---------------- ------------- ------------- Net cash provided by (used in) financing activities (10) (4) (35) - (49) -------- ----------- ---------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (5) (42) (10) - (57) Cash and cash equivalents at beginning of period 9 40 23 - 72 -------- ----------- ---------------- ------------- ------------- Cash and cash equivalents at end of period $ 4 $ (2) $ 13 $ - $ 15 ======== =========== ================ ============= =============
15 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Summary results for the three months and six months ended June 30, 2001 and 2000 for each segment are listed below ($ in millions):
Three Months Ended June 30, -------------------------------------------------------------------------------------- Integrated Steel Metal Fabrication Corporate and Other -------------------------- -------------------------- -------------------------- 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- Sales - Trade $ 605 $ 862 $ 354 $ 448 $ - $ - Intersegment 45 35 - - - - Cost of products sold 701 825 306 385 - - Selling, general and administrative 18 26 25 25 8 7 Results of affiliates' operations 2 - - - - 3 Write down of equity affiliate - - - - - 84 Net interest expense - - - 1 17 24 Other (income) expense (1) (53) - (4) (1) - Income (loss) before income taxes and items below (129) 28 7 27 (23) (117) Special charges - (205) - (2) - - Reorganization and restructuring items (69) - - - (10) - Tons in thousands: Steel shipments - Trade 1,526 1,771 419 502 Intersegment 183 93 Raw steel production 1,939 2,168 Operating rate 86% 101%
Six Months Ended June 30, -------------------------------------------------------------------------------------- Integrated Steel Metal Fabrication Corporate and Other -------------------------- -------------------------- -------------------------- 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- Sales - Trade $ 1,232 $ 1,785 $ 716 $ 880 $ - $ - Intersegment 85 69 - - - Cost of products sold 1,434 1,700 628 756 - - Selling, general and administrative 39 50 51 52 14 14 Results of affiliates' operations 2 - - (1) - 1 Write down of equity affiliate - - - - - 84 Net interest expense - - - 1 31 48 Other (income) expense (1) (53) (1) (6) (8) (1) Income (loss) before income taxes and items below (274) 22 8 49 (37) (146) Special charges - (205) - (2) - - Reorganization and restructuring items (110) - (1) - (26) - Tons in thousands: Steel shipments - Trade 3,037 3,727 840 993 Intersegment 344 191 Raw steel production 3,769 4,415 Operating rate 88% 102%
16 18 INTEGRATED STEEL Sales in the second quarter 2001 decreased due to 11% lower average selling prices on shipments that were 8% lower than the prior year quarter. In the first six months of 2001 sales decreased due to 14% lower shipments and 10% lower average steel selling prices compared to the prior year period. Cost of products sold as a percentage of sales increased in the 2001 periods primarily as a result of lower production volume and lower selling prices in the 2001 periods and the favorable settlement of an environmental insurance claim recorded in the second quarter of 2000. Raw steel production at the Company's steelmaking facilities decreased in the 2001 periods, primarily due to reduced operating levels as a result of lower demand. The Company follows American Iron and Steel Institute ("AISI") standards in calculating its maximum operating rate based on 95% of blast furnace capacity, which recognizes the average effect of blast furnace relines. Steel production may be supplemented with purchases of semifinished steel when demand for the Company's products exceeds production capability. Selling, general and administrative expenses in the 2001 periods were lower than the comparable 2000 periods' expenses primarily due to lower spending on professional fees and employment costs. Results of affiliates' operations in the 2001 periods reflects the write off of the Company's investment in MetalSite L. P. Included in other income and expense in the second quarter of 2000 are gains of $53 million from the demutualization of Metropolitan Life Insurance Company and the sale of LTV's investment in Presque Isle Corporation, a limestone quarry facility. METAL FABRICATION Sales in the 2001 periods decreased primarily due to lower shipments in the tubular products and metal buildings markets. Shipments decreased by 83,000 tons in the second quarter and 153,000 tons in the first half of 2001 over the same periods in the prior year. The sales decline was also due to lower average selling prices in the tubular products markets. Additionally, metal buildings sales were 22% lower and 21% lower for the three months and six months ended June 30, 2001, respectively, compared to the prior year periods. Cost of products sold as a percentage of sales increased in the 2001 periods primarily due to lower average selling prices and lower shipments. Selling, general and administrative expenses were about equal to the prior year periods. CORPORATE AND OTHER Interest expense was lower in the 2001 periods due to the suspension of interest expense on the Company's undersecured debt during the bankruptcy proceedings of $15 million and $29 million for the second quarter and six months ended June 30, 2001, respectively. 17 19 Results of the Trico Steel and CAL joint ventures were included in the results of affiliates' operations in the 2000 periods. Trico Steel was written off effective in the fourth quarter of 2000 because the Company determined that any recovery of its investment would be remote. The CAL investment was written down by $84 million to its fair value and sold in June 2000. INCOME TAXES The cash taxes consist of state and foreign taxes and federal taxes including a less than 80% owned subsidiary that was sold on June 30, 2000. In all periods presented, the Company has recorded full valuation allowances to offset the non-cash tax benefit arising from the losses. At this time, the Company has concluded that the realization of deferred tax assets is not deemed to be "more likely than not" and, consequently, established a valuation reserve for all of its net deferred tax assets. The Company's ability to reduce its future income tax payments through the use of net operating loss carryforwards could be significantly limited on an annual basis if the Company were to undergo an "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986. For the purpose of preserving LTV's ability to utilize its net operating loss carryforwards, Article Ninth of LTV's Restated Certificate of Incorporation prohibits, with certain limited exceptions, any unapproved acquisition of common stock that would cause the ownership interest percentage of the acquirer or any other person to increase to 4.5% or above. However, an "ownership change" may occur when the Company emerges from Chapter 11 and would limit the annual use of net operating loss carryforwards after emergence from bankruptcy. LIQUIDITY AND FINANCIAL RESOURCES The Company's sources of liquidity include cash and cash equivalents, cash from operations, and amounts available under its debtor-in-possession facilities. Interest expense for the first six months of 2001 was $31 million. The accrual and payment of interest on the undersecured debt has been suspended. The contractual amount of interest not accrued at June 30, 2001 was $29 million. Availability under LTV's existing credit facilities at June 30, 2001 was $119 million. In 2001, cash provided by operating activities amounted to $50 million. Major uses of cash during 2001 were $42 million in capital expenditures. Since filing under Chapter 11, no dividends have been paid, no shares have been repurchased and the new debtor-in-possession facilities prohibit the payment of dividends on all preferred and common stock. Under the Company's debtor-in-possession credit facilities, liquidity will be impacted by the uncertainty of the bankruptcy proceedings, including restructuring and settlement of prepetition obligations, the terms of the debtor-in-possession credit facilities and the ability to obtain other financing. See Note 6 in the Notes to Consolidated Financial Statements for a complete description of the debtor-in-possession credit facilities and the related commitment reductions throughout the term of the credit facilities. As a result of these uncertainties, there can be no assurance existing or future sources of liquidity will be adequate. 18 20 The Company expects that it will not meet the consolidated EBITDA covenant under its debtor-in -possession credit facilities as of July 31, 2001 and is currently negotiating a waiver or amendment with the lenders. If a waiver or amendment is not obtained, the Company's liquidity may be reduced. The Company expects to negotiate with its Revolving Credit Facility lenders a deferral of the scheduled September 30, 2001 commitment reduction of $100 million if it has not obtained additional funding under the Emergency Steel Loan Guarantee Program by September 30, 2001. OTHER ITEMS On July 9, 2001 the Company negotiated a modified labor agreement with the United Steelworkers of America ("USWA") effective as of August 1, 2001 and expiring on February 1, 2006. The agreement is expected to provide significant cost reductions through deferral of wage increases, flexible work rules, cost savings in active and retiree health care, and reduced employment levels. The agreement also permits LTV to borrow from the Voluntary Employee Beneficiary Association trust fund to pay health and life insurance benefits of USWA retirees from July 1, 2001 through the expiration of the modified labor agreement. The modified labor agreement becomes effective only if it is approved by the USWA, LTV's Board of Directors and the Bankruptcy Court. Additionally, the following conditions must be met prior to October 31, 2001 for the agreement to become effective: receipt by the Company of unrestricted availability of $250 million in addition to the current lending arrangements with final maturity no earlier than December 31, 2005 under the Emergency Steel Loan Guarantee Program; approval by the Pension Benefit Guaranty Corporation of new pension funding arrangements to allow the Company to reduce its annual pension funding obligations between 2001 and 2007 to levels that can be supported by the Company's cash flows based on reasonable forecasts; and an agreement by the Company and USWA on a program concerning the Company's Cleveland Works West Side facility. LTV's Board of Directors and the Bankruptcy Court approved the agreement in July 2001 and ratification is expected by USWA employees in August 2001. In April 2001, the Company announced its intention to permanently close the Direct Hot Charge Complex ("DHCC") and C-1 blast furnace of the West Side of the Cleveland Works. The DHCC, which has an annual raw steel capacity of about 2 million tons, consists of a basic oxygen furnace steelmaking shop, a continuous slab caster and hot strip mill. The facilities employ about 800 hourly and 100 salaried people. Approximately half of the affected employees will be eligible to retire. Under the modified labor agreement, the DHCC will remain on hot idle until October 31, 2001 while studies are conducted for possible future reuse of the facility. No shutdown costs have been accrued at June 30, 2001. In July 2001, LTV's largest customer, General Motors, announced its intention not to renew its supply agreement with the Company after expiration of the current agreement at the end of 2001. General Motors represented 9% of the total revenues of LTV in 2000. The Company anticipates replacing the potential loss of General Motors business with increased shipments to existing customers and selling to new customers. In April 2001, the Company announced the signing of a non-binding letter of intent to sell all of the assets of VP Buildings and certain related subsidiaries. The parties were unable to reach a final agreement. The Company subsequently announced that VP Buildings would be sold through a 19 21 bankruptcy-process auction to be held on August 21, 2001. A number of parties have submitted initial bids in order to become qualified to participate in the auction. A sale is anticipated to be completed prior to the end of the year and any sale is subject to the approval of the Court. LTV recorded special charges of $409 million in 2000 for the closure of the LTV Steel Mining iron ore operation and a Cleveland tubing facility, and the impairment and write-down of an electroplating line and tin mill facilities. Spending against the reserve was $16 million in the first six months of 2001 with a balance remaining of $21 million at June 30, 2001. An additional $7 million provision was recorded as part of the reorganization and restructuring items in June 2001. On April 1, 2001, the Cleveland Cliffs Inc prepetition option agreement to purchase the LTV Steel Mining assets expired by its terms. LTV is currently negotiating a potential sale of the LTV Steel Mining assets. In the fourth quarter of 1998, a reserve of $55 million was recorded for the shutdown of cold roll finishing operations in the No. 2 finishing department at the Cleveland Works, recognition of an asset impairment at an electrogalvanizing joint venture, the shutdown of an electric-weld pipe line and a salaried workforce reduction. During the first six months of 2001, $1 million was charged to this reserve with a balance remaining at June 30, 2001 of $1 million. LTV established reserves for the cost of the closure and clean-up at the Pittsburgh coke plant in the third quarter of 1997. The Company charged $2 million against this reserve in 2001 with a balance remaining of $21 million at June 30, 2001. ENVIRONMENTAL LIABILITIES AND OTHER CONTINGENCIES LTV is subject to changing and increasingly stringent environmental laws and regulations concerning air emissions, water discharges and waste disposal, as well as remediation activities that involve the clean-up of environmental media such as soils and groundwater. 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 such requirements. Additionally, if any of the Company's facilities are unable to meet required environmental standards or laws, those operations could be temporarily or permanently closed. If, in the future, the Company were required to investigate and remediate any contamination at plant sites where hazardous wastes have been used pursuant to the Resource Conservation Recovery Act, the Company could be required to record additional liabilities. The Company is unable to make meaningful estimates of the cost of these potential liabilities at this time, but they could have a material adverse effect on LTV's interim or annual operating results and liquidity. Management does not believe that there would be a material adverse effect on LTV's financial position. In addition, certain environmental laws such as Superfund can impose liability for the entire cost of clean-up of contaminated sites upon any of the current and former site owners or operators or parties who sent waste to these sites, regardless of fault or the lawfulness of the original disposal activity. Permits and environmental controls are also required at LTV's facilities to reduce air and water pollution from certain operations; and these permits are subject to modification, renewal and revocation by issuing authorities. Additional permits may be required, or more onerous conditions may be imposed in our existing permits as a result of increases in production or modifications to certain of our facilities. 20 22 The Company is unable to make a meaningful estimate of the amount or range of possible losses that could result from an unfavorable outcome in the following environmental and litigation matters: approximately 1,750 asbestosis Ohio worker compensation claims filed since August 1, 1999 and a notice of violation issued in 1995 by the Indiana Department of Environmental Management alleging releases of contaminants onto and beneath the ground at the Indiana Harbor Works. The Company's results of operations in one or more interim or annual periods could be materially affected by unfavorable results in one or both of these matters. Based on information known to the Company, management believes the outcome of these matters should not have a material adverse effect upon the consolidated cash flows or financial position of the Company. The Company is the subject of various other threatened or pending legal actions, contingencies and commitments in the normal course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such matters will not have a material adverse effect on the consolidated financial statements of the Company. Due to the Chapter 11 filings, litigation relating to prepetition claims against the Debtors is stayed; however, certain claims by the government or governmental agencies seeking equitable or other non-equitable relief against the Debtors are not subject to the automatic stay. The Company spent approximately $3 million and $9 million for environmental clean-up and related demolition costs at operating and idled facilities for the six months ended June 30, 2001 and 2000, respectively. At June 30, 2001, the Company has a recorded liability of $119 million for known and identifiable environmental and related demolition costs. As the Company becomes aware of additional matters or obtains more information, it may be required to record additional liabilities for environmental remediation, investigation and clean-up of contamination. The Company also spent approximately $2 million and $5 million in the first six months of 2001 and 2000 for environmental compliance-related capital projects and expects it will be required to spend an average of approximately $12 million annually in capital expenditures during the next five years to meet environmental standards. OUTLOOK As was evidenced by all domestic integrated steel producers reporting losses for the six months ended June 30, 2001, demand across the steel industry and for LTV's Integrated Steel segment's products has softened and average selling prices continue to be weak. The Integrated Steel segment is pursuing aggressive cost reduction measures to be able to return to profitability. The Company has negotiated a tentative modified labor agreement with the USWA to permit the Company to restructure with significantly reduced costs in the future. The potential loss of General Motors as a customer could have a significant impact on the Company's business, however, the Company anticipates replacing the potential lost tonnage through increased shipments with existing customers and selling to new customers. The Metal Fabrication segment is experiencing lower shipment levels and softened demand due to the slower overall economic conditions in 2001. 21 23 This report includes forward-looking statements. Our use of words such as "outlook," "anticipate," "believe," "estimate," "expect" and similar words is intended to identify these statements as forward-looking. These statements represent our current judgment on what the future holds. While the Company believes them to be reasonable, a number of important factors could cause actual results to differ materially from those projected. These factors include relatively small changes in market price or market demand; changes in domestic capacity; changes in raw material costs; increased operating costs; loss of business from major customers, especially for high value-added product; availability of post petition financing; negative market and credit impact from the Chapter 11 filings; unanticipated expenses; substantial changes in financial markets; labor unrest; unfair foreign competition; major equipment failure; unanticipated results in pending legal proceedings; or the timing and cost of completion of divestitures or shutdown of facilities. Due to material uncertainties, it is not possible to predict the length of time LTV will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, whether the Company will continue to operate under its current organizational structure, or the effect of the proceedings on the business of LTV or its subsidiaries. 22 24 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. BANKRUPTCY FILINGS On December 29, 2000, LTV and 48 of its direct and indirect subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Ohio, Eastern Division, as described in LTV's periodic reports previously filed with the Securities and Exchange Commission. UNITED STATES TRADE CASES 2001 CASES Section 201 Investigation On June 22, 2001, President Bush requested the International Trade Commission ("ITC") to initiate an investigation under section 201 of the Trade Act of 1974 to determine whether certain steel products are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industries producing like or directly competitive products. Upon completion of its investigation, the ITC will make a recommendation to President Bush regarding necessary relief, if any. 1998 CASES Hot Rolled Steel Cases In September 1998, LTV Steel joined with eleven other domestic steel producers, the United Steel Workers of America and the Independent Steel Workers Union in filing antidumping and/or countervailing duty petitions against several countries, including Russia and Brazil, that are described in LTV's periodic reports previously filed with the SEC. Despite the U. S. Department of Commerce's ("DOC") issuance of substantial final dumping determinations against imports from Russia and Brazil, the DOC entered into a suspension agreement with both countries. LTV Steel, along with other domestic integrated producers, filed suit in the Court of International Trade ("CIT") to nullify these agreements. With respect to Russia, the CIT held that the DOC failed to articulate legal standards for determining when a suspension agreement is in the public interest and whether the suspension agreement prevents price suppression or undercutting. In July 2001, the parties once again presented oral arguments to the CIT regarding the proper legal standards and are now awaiting a ruling by the CIT. 23 25 With respect to Brazil, the CIT held that the DOC failed to give appropriate consideration to the domestic industry's comments opposing the Brazilian suspension agreement and will remand to the DOC for further determinations. The parties are awaiting those determinations. LTV Steel is continuing to monitor the surge in unfairly traded imports and its effect on our operations, and anticipates that additional unfair trade cases may be filed or other relief requested. ENVIRONMENTAL PROCEEDINGS Indiana Harbor Works. As a result of a multi-media environmental inspection of the Indiana Harbor works in June and July 2000 by the Environmental Protection Agency ("EPA") and the Indiana Department of Environmental Management ("IDEM") described in LTV's periodic reports previously filed with the SEC, the EPA recently advised LTV Steel that it has identified alleged violations of the Clean Water Act, the Clean Air Act, The Toxic Substances Control Act and the Resource Conservation and Recovery Act ("RCRA") at the Indiana Harbor Works. At the same time, the EPA notified LTV Steel that it will pursue having LTV Steel undertake at the Indiana Harbor Works corrective action under RCRA. LTV has disputed many of the EPA's findings, including the justification offered for the corrective action demand. The EPA and LTV Steel have agreed to exchange information and continue to meet in an effort to settle the issues which have been raised. In July 2001, IDEM notified LTV Steel of alleged violations of air quality standards at the Indiana Harbor Works sinter plant, the H-3 and H-4 blast furnaces and the basic oxygen furnace shop. IDEM proposed an Agreed Order to deal with the alleged violations, which contemplates that certain air quality control equipment would be installed and a civil penalty of $305,000 paid. LTV Steel is of the view that IDEM's proposals for dealing with the alleged violations and the proposed civil penalty are not justified and expects to meet with IDEM to discuss alternative solutions to the problems IDEM has identified. State of Ohio. As a result of changes in operations at LTV Steel's Cleveland Works, it has been determined that certain of the planned modifications to the Cleveland Works water quality control facilities, at an estimated cost of $1.6 million, are not required. LTV Steel is in discussions with the Ohio Attorney General's Office and the Ohio EPA for the purpose of modifying those provisions of the consent agreement described in LTV's periodic reports previously filed with the SEC pursuant to which the modifications were to be implemented, so as to take into account the changed circumstances. OTHER Since August 1, 1999, approximately 1,750 asbestosis Ohio workers' compensation claims have been filed against LTV Steel, the majority of which were filed on behalf of retired employees who worked at facilities that were closed in the early 1980's. LTV anticipates that additional claims may be filed. 24 26 ITEM 5. OTHER INFORMATION. REQUIRED APPROVAL FOR CERTAIN PURCHASES OF COMMON STOCK For the purpose of preserving LTV's ability to utilize certain favorable tax attributes, Article Ninth of LTV's Restated Certificate of Incorporation prohibits, with certain limited exceptions, any unapproved acquisition of common stock that would cause the ownership interest percentage of the acquirer or any other person to increase to 4.5% or above. A person's ownership interest percentage for purposes of Article Ninth is determined by reference to specified federal income tax principles, including attribution of shares from certain related parties, deemed exercise of rights to acquire stock and aggregation of shares purchased by persons acting in concert. PURCHASES OF COMMON STOCK FROM ANY PERSON OTHER THAN THE COMPANY ARE SUBJECT TO THE LIMITATIONS IMPOSED BY ARTICLE NINTH, AND ANY UNAPPROVED PURCHASE IN EXCESS OF THE AMOUNTS PERMITTED BY ARTICLE NINTH WILL BE VOID AB INITIO. A PROSPECTIVE PURCHASER OF COMMON STOCK WHO BELIEVES THAT IT MAY BE SUBJECT TO THE LIMITATIONS IMPOSED BY ARTICLE NINTH SHOULD CONSULT WITH THEIR ADVISORS OR LTV IN ADVANCE OF ACQUIRING SUCH SECURITIES TO DETERMINE IF ADVANCE APPROVAL MUST BE OBTAINED FROM LTV'S BOARD OF DIRECTORS. LTV's Board of Directors was required by Article Ninth of LTV's Restated Certificate of Incorporation to consider during 1999 whether to waive the transfer restrictions in Article Ninth with respect to all future transfers of securities. At its December 1999 meeting, the Board of Directors, after considering all relevant factors, determined not to waive Article Ninth at that time. 25 27 ITEM 6. EXHIBITS AND REPORTS ON 8-K. (a) Exhibits None (b) Reports on Form 8-K Current Report on Form 8-K, filed with the Commission (File No. 1-4368) on May 22, 2001, filing the summary financial information of The LTV Corporation and 48 of its direct and indirect subsidiaries for the month and year-to-date ended April 30, 2001. Current Report on Form 8-K, filed with the Commission (File No. 1-4368) on June 21, 2001, filing the summary financial information of The LTV Corporation and 48 of its direct and indirect subsidiaries for the month and year-to-date ended May 31, 2001. Current Report on Form 8-K, filed with the Commission (File No. 1-4368) on July 31, 2001, filing the summary financial information of The LTV Corporation and 48 of its direct and indirect subsidiaries for the month and year-to-date ended June 30, 2001. 26 28 SIGNATURES 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. THE LTV CORPORATION ------------------------------------------ (Registrant) By /s/ George T. Henning ----------------------------------------- George T. Henning Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 14, 2001 ----------------------------------- 27 -----END PRIVACY-ENHANCED MESSAGE-----