-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cCt/DqoIb0SVqGOTghNFIfHRITMBL3atXG9+AIkizieHx4RXFdtfssYKcbEDXtAW oL3MvL+Yem8ll4B/oB30cg== 0000950131-94-000290.txt : 19940309 0000950131-94-000290.hdr.sgml : 19940309 ACCESSION NUMBER: 0000950131-94-000290 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL STEEL CORP CENTRAL INDEX KEY: 0000070578 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 250687210 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-00983 FILM NUMBER: 94514904 BUSINESS ADDRESS: STREET 1: 4100 EDISON LAKES PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 465453440 BUSINESS PHONE: 2192737000 MAIL ADDRESS: STREET 1: 4100 EDISON LAKE PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 46545-3440 10-K 1 10-K 1993 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 1993 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 1-983 NATIONAL STEEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE 25-0687210 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4100 EDISON LAKES PARKWAY, MISHAWAKA, 46545-3440 IN (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 219-273-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Class B Common Stock New York Stock Exchange First Mortgage Bonds, 8 3/8% Series due 2006 New York Stock Exchange 4 5/8% Convertible Subordinated Debentures due 1994 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [_] AT MARCH 3, 1994, THERE WERE 36,361,100 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING. AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES: $208,568,588. THE AMOUNT SHOWN IS BASED ON THE CLOSING PRICE OF NATIONAL STEEL CORPORATION'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON MARCH 3, 1994. VOTING STOCK HELD BY OFFICERS AND DIRECTORS IS NOT INCLUDED IN THE COMPUTATION. HOWEVER, NATIONAL STEEL CORPORATION HAS MADE NO DETERMINATION THAT SUCH INDIVIDUALS ARE "AFFILIATES" WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT OF 1933. DOCUMENTS INCORPORATED BY REFERENCE: SELECTED PORTIONS OF THE 1994 PROXY STATEMENT OF NATIONAL STEEL CORPORATION ARE INCORPORATED BY REFERENCE INTO PART III OF THE REPORT ON FORM 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS National Steel Corporation, a Delaware corporation, and its consolidated subsidiaries (the "Company") is the fourth largest integrated steel producer in the United States as measured by production and shipments and is engaged in the production and sale of a wide variety of flat rolled carbon steel products, including hot rolled, cold rolled, galvanized, tin and chrome plated steels. Flat rolled carbon steel products account for approximately 50% of domestic steel industry shipments. The Company was formed through the merger of Weirton Steel, Great Lakes Steel and Hanna Iron Ore Company and was incorporated in Delaware on November 7, 1929. The Company built a finishing facility, now the Midwest Division, in 1961 and in 1971 purchased Granite City Steel Corporation, now the Granite City Division. On September 13, 1983, the Company became a wholly-owned subsidiary of National Intergroup, Inc. (collectively, with its subsidiaries, "NII") through a restructuring. On January 11, 1984, the Company sold the principal assets of its Weirton Steel Division and retained certain liabilities related thereto. On August 31, 1984, NKK Corporation (collectively, with its subsidiaries, "NKK") purchased a 50% equity interest in the Company from NII. On June 26, 1990, NKK purchased an additional 20% equity interest in the Company from NII. In April 1993, the Company completed an initial public offering of its Class B Common Stock. In October 1993, NII converted all of its shares of Class A Common Stock to an equal number of shares of Class B Common Stock, resulting in NKK having a 75.6% voting interest in the Company. NII sold substantially all of its shares of Class B Common Stock in the market in January 1994. STRATEGY The Company's mission is to be the most competitive steel company in the United States. The Company's strategy to achieve this goal is based on cooperative partnerships with its customers and employees and a strong alliance with its principal stockholder, NKK. Such cooperative efforts are intended to reduce costs and improve productivity and product quality. Customer Partnership A cooperative partnership with customers requires the Company to differentiate its products through superior quality and service. Management believes it is able to differentiate the Company's products and promote customer loyalty by establishing close relationships through early customer involvement, providing technical services and support and utilizing its Product Application Center and Technical Research Center facilities. To fulfill its customers' needs, the Company has developed and implemented a series of coordinated strategies in marketing, capital investment and research and development. Marketing Strategy. The Company's marketing strategy has concentrated on increasing the level of sales of higher value added products to the automotive, metal buildings and container markets. These segments demand high quality products, on-time delivery and effective and efficient customer service. This strategy is designed to increase margins, reduce competitive threats and maintain high capacity utilization rates by shifting the Company's product mix to higher quality products and providing superior customer service. Capital Investment Program. Since 1984, the Company has invested approximately $2 billion in capital improvements aimed at upgrading the Company's steelmaking and finishing operations to meet its customers' demanding requirements for higher quality products and to reduce production costs. Major projects include an electrolytic galvanizing line, a continuous caster, a ladle metallurgy station, a vacuum degasser, a complete coke oven battery rebuild and a high speed pickle line, each of which services the Great Lakes Division (located near Detroit, Michigan) and a continuous caster and a ladle metallurgy station each of which services the Granite City Division (located near St. Louis, Missouri). Major improvements at the Midwest Division (located near Chicago, Illinois) include the installation of process control equipment to upgrade its finishing capabilities. Capital investments for each of 1993, 1992 and 1991 were $160.7 million, $283.9 million and $178.2 million, respectively. In early 1991, the Company became the first major integrated U.S. steel producer to continuously cast 100% of its raw steel production. 2 To enable the Company to more efficiently meet the needs of its target markets and focus on higher value added products, the Company has entered into two separate joint ventures to build hot dip galvanizing facilities. One joint venture is with NKK and an unrelated third party and has been built to service the automotive industry. The second joint venture is being built to service the construction industry. Research and Development. The Company's research and development efforts focus on creating new steel products, developing new production processes to improve the quality and reduce the cost of the Company's existing product lines and providing product and technical support to customers. The Company operates a research and development facility near its Great Lakes Division to develop new products, improve existing products and develop more efficient operating procedures to meet the constantly increasing demands of the automotive, container and metal buildings markets. The research center employs approximately 55 chemists, physicists, metallurgists and engineers. In addition, the Company operates a Product Application Center near Detroit dedicated to providing product and technical support to customers. The Product Application Center assists customers with application engineering (selecting optimum metal and manufacturing methods), application technology (evaluating product performance) and technical developments (performing problem solving at plants). The Company spent $9.4 million, $9.5 million and $8.8 million for research and development in 1993, 1992 and 1991, respectively. In addition, the Company participates in various research efforts through the American Iron and Steel Institute ("AISI"). Since 1984, NKK has provided engineering and technical support to the Company principally by providing the full-time services of approximately 40 engineers, at the Company's expense, to the Company's Divisions. These engineers, as well as engineers and technical support personnel at NKK's facilities in Japan, assist in improving operating practices and developing new manufacturing processes. This support also includes providing input on ways to improve raw steel to finished product yields and preventative maintenance practices on equipment. Employee Partnership Since 1986, the Company has provided substantially all of its employees with employment security and economic incentives, such as profit sharing and productivity gainsharing (an incentive system that provides employees with bonuses tied to improvements in labor productivity), in exchange for more flexible work rules that, among other things, have permitted the Company to significantly reduce the number of job classifications for its represented employees and consequently increased the variety of tasks each employee may be requested to accomplish. These more flexible work rules have contributed to the Company's improved productivity as evidenced by its reduced manhours per net ton shipped, while permitting the Company to reduce employment levels through retirement and attrition. Despite the late settlement with the United Steelworkers of America (the "USWA") in the summer of 1993 and the strike by the USWA local which represents former employees of National Steel Pellet Company, a wholly-owned subsidiary of the Company ("NSPC"), management believes that the cooperative labor arrangements described above will continue to contribute to improved productivity at its principal facilities. (See "Employees" below). Alliance with NKK The Company has a strong alliance with its principal stockholder, NKK, the second largest steel company in Japan and the fifth largest in the world as measured by production. Since 1984, the Company has had access to a wide range of NKK's steelmaking, processing and applications technology. In addition, NKK has provided financial assistance to the Company in the form of investments, loans and introductions to Japanese financial institutions and trading companies. While no assurances can be given with respect to the extent of NKK's future financial support beyond existing contractual commitments, NKK has indicated that it presently plans to continue to provide technical support and research and development services of the nature and to the extent currently provided to the Company. 3 Product Quality The Company has focused its efforts on improving product quality through capital investments, research and development, NKK's technical support and employee training. Despite delivery and customer service problems in 1993, the Company has continued to receive numerous quality awards. In 1993, the Company received the prestigious General Motors Mark of Excellence award. Additionally, the Company received a 1993 Best-of-the-Best award from Midway Products, representing an eighteen month period of no rejections for hot rolled, cold rolled and coated products shipped from all three of the Company's principal facilities. The Company also achieved its quality objectives at Toyota and was recognized by Toyota as the only supplier to attain its demanding target levels four times in the last five years. During 1993, the Company's Great Lakes Division developed a bumper coil pickling process which improved surface quality on bumper products. The Granite City Division received supplier excellence awards from Trane Corporation and Accuride Corporation, the largest manufacturer of medium to heavy duty truck wheels in North America. At the Midwest Division, quality recognition included certified supplier awards from Steelcase Corporation, a major manufacturer of office furniture, and John Deere Corporation. Cost Reduction Programs The Company aggressively seeks to continually reduce costs in all facets of its business. Performance based compensation provides an incentive to all employees to focus on key cost and quality measures, such as manhours per ton and prime tons shipped. Facility engineers, who have access to a wide range of NKK process technologies, analyze and implement innovative steelmaking, processing and preventative maintenance methods on an ongoing basis. In addition, the Company works closely with its customers to develop products specifically suited to the needs of such customers through the use of its Product Application Center, thereby reducing engineering costs and minimizing start-up costs for each of the Company and its customers. The Company's customer service system integrates orders, inventory and delivery deadlines at all of the Company's divisions. Finally, the Company aggressively seeks and utilizes employee input with respect to cost cutting measures at all employee levels. Results of Strategic Initiative The Company's strategies of developing customer and employee partnerships, its alliance with NKK, and emphasis on quality improvement and implementing continuous cost reduction programs have resulted in increased productivity and yields, decreased employment levels and higher percentages of steel formed through continuous casting. The table set forth below illustrates these trends for the years 1989 to 1993.
1993 1992 1991 1990 1989 ----- ------ ------ ------ ------ Manhours per net ton shipped(1)......... 3.96 4.03 4.27 4.63 4.61 Number of employees (year-end)(2)....... 9,490 10,299 11,176 11,717 12,106 Liquid steel to finished prime product yield.................................. 79.6% 80.0% 79.6% 76.4% 78.5% Continuously cast percentage............ 100.0% 100.0% 99.8% 85.4% 88.7%
- -------- (1) Manhours per net ton shipped is calculated as hours worked by all steel employees, which includes employees at the steel divisions, corporate headquarters, the research and development centers and the Product Application Center, divided by net tons shipped, and excludes iron ore and certain other non-steel employee hours worked. (2) The number of employees was reduced by 579 in 1993 as a result of the temporary idling of NSPC. (See "Employees" below). CUSTOMERS The Company's marketing strategy concentrates on increasing the Company's sales of higher value added products targeted to customers in the automotive, metal buildings and container markets. The Company also markets its products to the pipe and tube and service center industries. The Company is a major supplier of hot and cold rolled steel and galvanized coils to the automotive industry, one of the most demanding steel consumers. Car and truck manufacturers require wide sheets of 4 steel, rolled to exact dimensions. In addition, formability and defect-free surfaces are critical. The Company has been able to successfully meet these demands. Its steels have been used in a variety of automotive applications including exposed and unexposed panels, wheels and bumpers. The Company believes it is a leading supplier of steel to the domestic metal buildings market. Roof and building panels are the principal applications for galvanized and Galvalume(R) steel in this market. Management believes that demand for Galvalume(R) steel will exhibit strong growth for the next several years partially as a result of a trend away from traditional building products and that the Company is well positioned to profit from this growth as a result of both its position in this market and additional capacity currently under construction. The Company produces chrome and tin plated steels to exact tolerances of gauge, shape, surface flatness and cleanliness for the container industry. Tin and chrome plated steels are used to produce a wide variety of food and non- food containers. In recent years, the market for tin and chrome plated steels has been both stable and profitable for the Company. The Company also supplies the pipe and tube and service center markets with hot rolled, cold rolled and coated sheet. The Company is a key supplier to transmission pipeline, downhole casing and structural pipe producers. Service centers generally purchase steel coils from the Company and may process them further or sell them directly to third parties without further processing. The following table sets forth the percentage of the Company's revenues from various markets for the past five years.
1993 1992 1991 1990 1989 ----- ----- ----- ----- ----- Automotive................................... 28.9% 27.2% 25.8% 26.4% 26.8% Metal buildings.............................. 14.3 12.8 11.2 11.2 11.4 Container.................................... 13.3 14.9 15.6 14.8 13.7 Pipe and Tube................................ 8.2 9.4 8.0 8.6 8.2 Service Centers.............................. 15.5 13.6 10.7 11.5 10.4 All Other.................................... 19.8 22.1 28.7 27.5 29.5 ----- ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Shipments to General Motors, the Company's largest customer, accounted for approximately 11%, 12% and 12% of net sales in each of 1993, 1992 and 1991, respectively. There can be no assurance that future net sales to General Motors will equal historical levels. Export sales accounted for approximately .1% of revenue in 1993, .5% in 1992 and 4.5% in 1991. The Company's products are sold through the Company's six sales offices located in Chicago, Detroit, Houston, Kansas City, Pittsburgh and St. Louis. Substantially all of the Company's net revenues are based on orders for short-term delivery. Accordingly, backlog is not meaningful when assessing future results of operations. OPERATIONS The Company operates three principal facilities: two integrated steel plants, the Great Lakes Division in Ecorse and River Rouge, Michigan, near Detroit and the Granite City Division in Granite City, Illinois, near St. Louis and a finishing facility, the Midwest Division in Portage, Indiana, near Chicago. The Company's centralized corporate structure, the close proximity of the Company's principal facilities and the complementary balance of processing equipment shared by them, enable the Company to closely coordinate the operations of these facilities in order to maintain high operating rates throughout its processing facilities and to maximize the return on its capital investments. Generally, the Company's facilities are well maintained, considered adequate and being utilized for their intended purposes. 5 The following table details effective steelmaking capacity, actual production, effective capacity utilization and percentage of steel continuously cast for the Company and the domestic steel industry for the years indicated. RAW STEEL PRODUCTION DATA
EFFECTIVE PERCENT EFFECTIVE ACTUAL CAPACITY CONTINUOUSLY CAPACITY PRODUCTION UTILIZATION CAST --------- ---------- ----------- ------------ (000'S OF NET TONS) (%) (%) THE COMPANY - ----------- 1993............................. 5,550 5,551 100.0 100.0 1992............................. 5,355 5,380 100.5 100.0 1991............................. 5,670 5,247 92.5 99.8 1990............................. 5,876 5,735 97.6 85.4 1989............................. 5,576 5,394 96.7 88.7 DOMESTIC STEEL INDUSTRY* - ------------------------ 1993............................. 109,900 96,077 87.4 85.5 1992............................. 113,100 92,949 82.2 79.3 1991............................. 117,700 87,896 74.7 75.8 1990............................. 116,800 98,906 84.7 66.6 1989............................. 115,900 97,943 84.5 64.8
- -------- *Information as reported by the AISI. The 1993 industry information is estimated by the AISI. The Company's effective capacity varies annually due to planned blast furnace outages for maintenance purposes. Effective capacity utilization fell to 92.5% in 1991 due, in part, to an unusually high level of inventory carried forward from 1990, along with scheduled maintenance outages at major finishing units and a low demand for steel products during the first half of the year. RAW MATERIALS Iron ore. The metallic iron requirements of the Company are supplied primarily from iron ore pellets that are produced from a concentration of low- grade ores. The Company formerly purchased a significant portion of its iron ore pellet requirements from NSPC. However, as a result of the temporary idling of NSPC, the Company has secured its pellet requirements from outside sources. The Company currently has entered into agreements that will satisfy its iron ore pellet requirements through 1994. It is management's intention to secure long-term contracts for the purchase of iron ore pellets for a period of one to three years. (See "Employees" below). Coal. In 1992, the Company decided to exit the coal business. At that time, the Company owned underground coal properties in Pennsylvania, Kentucky and West Virginia as well as undeveloped coal reserves in Pennsylvania and West Virginia. During 1993, the Pennsylvania and Kentucky properties were sold except for the coal reserves which were leased on a long term basis. Negotiations are in process for the sale of the West Virginia properties. While the undeveloped coal reserves are for sale there are no interested parties at the present time. The remaining coal assets totaling $42.7 million are included in the assets of the Company and constitute less than 2% of the Company's total assets. Adequate supplies of coal are readily available at competitive market prices. Coke. The Company operates two efficient coke oven batteries servicing the Granite City Division and the newly rebuilt No. 5 coke oven battery at the Great Lakes Division. The No. 5 coke battery enhances the quality and stability of the Company's coke supply, and incorporates state-of-the-art technology while meeting the requirements of the Clean Air Act. With the No. 5 coke battery rebuild, the Company has significantly improved its self-sufficiency and can supply approximately 60% of its annual coke requirements. The remaining coke requirements are met through competitive market purchases. 6 Limestone. The Company, through an affiliated company, has limestone reserves of approximately 80 million gross tons located in Michigan. During the last five years, approximately 59% of the Company's average annual consumption of limestone was derived from these reserves. The Company's remaining limestone requirements were purchased. Scrap and Other Materials. Supplies of steel scrap, tin, zinc, and other alloying and coating materials are readily available at competitive market prices. COMPETITION The Company is in direct competition with domestic and foreign flat rolled carbon steel producers and producers of plastics, aluminum and other materials which can be used in place of flat rolled carbon steel in manufactured products. Price, service and quality are the primary types of competition experienced by the Company. The Company believes it is able to differentiate its products from those of its competitors by, among other things, providing technical services and support and utilizing its Product Application Center and Technical Research Center facilities and by its focus on improving product quality through, among other things, capital investment and research and development, as described above. Imports. Domestic steel producers face significant competition from foreign producers and have been adversely affected by unfairly traded imports. Imports of finished steel products accounted for approximately 14% of the domestic market in 1993 and approximately 16% of the domestic market in 1992 and 1991. Many foreign steel producers are owned, controlled or subsidized by their governments. Decisions by these foreign producers with respect to production and sales may be influenced to a greater degree by political and economic policy considerations than by prevailing market conditions. In 1992, the Company and eleven other domestic steel producers filed unfair trade cases with the Commerce Department and the International Trade Commission (the "ITC") against foreign steel producers covering imports of flat rolled carbon steel products. In June 1993, the Commerce Department imposed final antidumping and subsidy margins averaging 37% for all products under review. In July 1993, the ITC made final determinations that material injury had occurred in cases representing an estimated 51% of the dollar value and 42% of the volume of all flat rolled carbon steel imports under investigation. In the four product categories, injury was found in cases relating to 97% of the volume of plate steel, 92% of the volume of higher value-added corrosion resistant steel and 36% of the volume of cold rolled steel. No injury was found with respect to hot rolled steel products. Approximately 30% of the Company's 1993 shipments consisted of corrosion resistant steel, 14% consisted of cold rolled steel and less than 1% consisted of plate steel. Approximately 45% of the Company's 1993 shipments consisted of hot rolled steel. Imports of products not covered by affirmative ITC injury determinations may increase as a result of the ITC determinations, which may have an adverse effect on the Company's shipments of these products and the prices it realizes for such products. The Company and the other domestic producers who filed these cases have appealed the negative decisions of the ITC and are defending appeals brought by foreign producers involving decisions favorable to domestic producers. These appeals are proceeding before the Court of International Trade in New York and, in the case of Canada, before Binational Dispute Panels under the U.S.-Canada Free Trade Agreement and decisions are not expected before the second half of 1994. Future increases in other steel imports are also possible, particularly if the value of the dollar should rise in relation to foreign currencies or if legislation implementing the recently concluded GATT Uruguay Round agreements is enacted in a form which substantially weakens United States trade laws. Reorganized/Reconstituted Mills. The intensely competitive conditions within the domestic steel industry have been exacerbated by the continued operation, modernization and upgrading of marginal steel production facilities through bankruptcy reorganization procedures, thereby perpetuating overcapacity in certain industry product lines. Overcapacity is also caused by the continued operation of marginal steel production facilities that have been sold by integrated steel producers to new owners, who operate such facilities with a lower cost structure. 7 Mini-mills. Domestic integrated producers, such as the Company, have lost market share in recent years to domestic mini-mills. Mini-mills provide significant competition in certain product lines, including hot rolled and cold rolled sheets, which represented, in the aggregate, approximately 60% of the Company's shipments in 1993. Mini-mills are relatively efficient, low-cost producers which produce steel from scrap in electric furnaces, have lower employment and environmental costs and target regional markets. Thin slab casting technologies have allowed mini-mills to enter certain sheet markets which have traditionally been supplied by integrated producers. One mini-mill has constructed two such plants and announced its intention to start a third in a joint venture with another steel producer. Certain companies have announced plans for, or have indicated that they are currently considering, additional mini-mill plants for sheet products in the United States. Steel Substitutes. In the case of many steel products, there is substantial competition from manufacturers of other products, including plastics, aluminum, ceramics, glass, wood and concrete. Conversely, the Company and certain other manufacturers of steel products have begun to compete in recent years in markets not traditionally served by steel producers. PATENTS AND TRADEMARKS The Company has the patents and licenses necessary for the operation of its business as now conducted. The Company does not consider its patents and trademarks to be material to the business of the Company. EMPLOYEES As of December 31, 1993, the Company employed 9,490 people. Approximately 7,300 (77%) of the Company's employees are represented by the USWA. Except as described below, the Company believes that its relationships with its collective bargaining units are good. On August 27, 1993, a new six year cooperative labor agreement (the "1993 Settlement Agreement") between the Company and the USWA was ratified by USWA members at the Company's three steel divisions and corporate headquarters. The new agreement, effective August 1, 1993 through July 31, 1999, protects the Company and the USWA from a strike or lockout for the duration of the agreement. Either the Company or the USWA may reopen negotiations after three years, except with respect to pensions and certain other matters, with any unresolved issues subject to binding arbitration. Under the 1993 Settlement Agreement, represented employees will receive improved pension benefits, bonuses to be paid over the term of the agreement, a $.50 per hour wage increase effective in August 1995, and an additional paid holiday for the years 1994, 1995 and 1996. The 1993 Settlement Agreement provides for the establishment of a Voluntary Employee Benefits Association trust (the "VEBA Trust") to which the Company has agreed to contribute a minimum of $10 million annually and, under certain circumstances, additional amounts calculated as set forth in the 1993 Settlement Agreement. The Company has granted to the VEBA a second mortgage on the No. 5 coke oven battery at the Great Lakes Division. The 1993 Settlement Agreement also provides for opportunities to reduce health care costs and for flexible work practices and opportunities to reduce manning levels through attrition. In addition, the 1993 Settlement Agreement grants the USWA the right to nominate a candidate, subject to the approval of the Company's Board of Directors and stockholders, for a seat on the Company's Board of Directors. NSPC has been idled since August 1, 1993, initially as a result of a labor dispute with the USWA upon expiration of the former labor contract on July 31, 1993. However, NSPC remains temporarily idled because the Company has obtained contracts to purchase pellets at a lower cost than NSPC's production costs. The USWA has filed 19 unfair labor practice charges with the National Labor Relations Board (the "NLRB") regarding the NSPC dispute. The USWA's charges include allegations that NSPC failed to bargain in good faith. NSPC has responded to these charges and has denied any unfair labor practices. If the NLRB finds against NSPC, it could issue an order requiring NSPC to pay back pay and front pay until the labor practices are corrected or to cease and desist unfair labor practices and bargain in good faith. 8 ENVIRONMENTAL MATTERS The Company's operations are subject to numerous laws and regulations relating to the protection of human health and the environment. The Company believes that it is in substantial compliance with such laws and regulations. The Company currently estimates that it will incur capital expenditures in connection with matters relating to environmental control of approximately $9.1 million and $8.0 million for 1994 and 1995, respectively. In addition, the Company expects to record expenses for environmental compliance, including depreciation, of approximately $70 million and $73 million for 1994 and 1995, respectively. Since environmental laws and regulations are becoming increasingly stringent, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future. In addition, due to the possibility of unanticipated factual or regulatory developments, the amount and timing of future environmental expenditures could vary substantially from those currently anticipated. The costs for environmental compliance may also place the Company at a competitive disadvantage with respect to foreign steel producers, as well as manufacturers of steel substitutes, that are subject to less stringent environmental requirements. In 1990, Congress passed amendments to the Clean Air Act which impose more stringent standards on air emissions. The Clean Air Act amendments will directly affect the operations of many of the Company's facilities, including its coke ovens. Under such amendments, coke ovens generally will be required to comply with progressively more stringent standards over the next thirty years. The Company believes that the costs for complying with the Clean Air Act amendments will not have a material adverse effect on the Company's financial condition. In 1990, the United States Environmental Protection Agency (the "EPA") released a proposed rule which establishes standards for the implementation of a corrective action program under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). The corrective action program requires facilities that are operating under a permit, or are seeking a permit, to treat, store or dispose of hazardous wastes to investigate and remediate environmental contamination. Currently, the Company is conducting an investigation at its Midwest Division facility. The Company estimates that the potential capital costs for implementing corrective actions at such facility will be approximately $8 million payable over the next several years. At the present time, the Company's other facilities are not subject to corrective action. Since 1989, the EPA and the eight Great Lakes states have been developing the Great Lakes Initiative, which will impose standards that are even more stringent than the best available technology standards currently being enforced. As required under section 118 of the Clean Water Act, as amended, which is intended to codify the efforts of the EPA and such states under the Great Lakes Initiative, on April 16, 1993, the EPA published the proposed "Water Quality Guidance for the Great Lakes System" (the "Guidance Document"). Once finalized, the Guidance Document will establish minimum water quality standards and other pollution control policies and procedures for waters within the Great Lakes System. The EPA intends to publish the final Guidance Document by October 1995. Preliminary studies conducted by the AISI prior to publication of the proposed Guidance Document estimate that the potential capital cost for a fully integrated steel mill to comply with draft standards under the Great Lakes Initiative can range from approximately $50 million to $175 million and the potential annual operating and maintenance cost will be approximately 15% of the estimated capital cost. Until the Guidance Document is finalized, the Company is unable to determine whether such estimates are accurate and whether the Company's actual costs for compliance will be comparable. Although the Company believes only the Great Lakes Division would be required to incur significant costs for compliance, there can be no assurances that such compliance will not have a material adverse effect on the Company's financial condition. The Company has recorded the reclamation and other costs to restore its coal and iron ore mines at its shutdown locations to their original and natural state, as required by various federal and state mining statutes. Additionally, in October 1993, NSPC announced its intention to temporarily idle the iron ore mining and pelletizing operations conducted at the facility. A final decision to permanently shut down these operations would result in additional charges. 9 ITEM 2. PROPERTIES The Granite City Division The Granite City Division, located in Granite City, Illinois, has an annual effective steelmaking capacity of 2.3 million tons. With the start-up of a second continuous caster in early 1991, all steel at this Division is now produced by continuous casting. The Granite City Division also uses ladle metallurgy to refine the steel chemistry to enable it to meet the exacting specifications of its customers. The Division's ironmaking facilities consist of two coke batteries and two blast furnaces. Finishing facilities include an 80 inch hot strip mill, a continuous pickler and two hot dip galvanizing lines. The Granite City Division ships approximately 20% of its total production to the Midwest Division for finishing. Principal products of the Granite City Division include hot rolled, cold rolled, hot dipped galvanized, grain bin and high strength, low alloy steels. The Granite City Division is located on 1,540 acres and employs approximately 3,150 people. The Division's proximity to the Mississippi River and other interstate transit systems, both rail and highway, provides easy accessibility for receiving raw materials and supplying finished steel products to customers. The Great Lakes Division The Great Lakes Division, located in Ecorse and River Rouge, Michigan, is an integrated facility engaged in steelmaking primarily for use in the automotive market with an annual effective steelmaking capacity of 3.2 million tons. With the start-up of a second continuous caster in late 1987, all steel at this Division is now produced by continuous casting. The Division's ironmaking facilities consist of a recent 85-oven coke battery rebuild and three blast furnaces. The Division also operates steelmaking facilities consisting of a vacuum degasser and a ladle metallurgy station. Finishing facilities include a hot strip mill, a skinpass mill, a shear line, two existing pickling lines, a new high speed pickle line, a tandem mill, a batch annealing station, two temper mills and two customer service lines, and an electrolytic galvanizing line. The Great Lakes Division ships approximately 40% of its production to the Midwest Division for finishing. Principal products of the Great Lakes Division include hot rolled, cold rolled, electrolytic galvanized, and high strength, low alloy steels. The Great Lakes Division is located on 1,100 acres and employs approximately 4,150 people. The Division is strategically located with easy access to lake, rail and highway transit systems for receiving raw materials and supplying finished steel products to customers. The Midwest Division The Midwest Division, located in Portage, Indiana, finishes hot rolled bands produced at the Granite City and Great Lakes Divisions primarily for use in the automotive, metal buildings and container markets. The Division's facilities include a continuous pickling line, two cold reduction mills and two continuous galvanizing lines, a 48 inch wide line which can produce galvanized or Galvalume(R) steel products and which services the metal buildings markets, and a 72 inch wide line which services the automotive market; finishing facilities for cold rolled products consisting of a batch annealing station, a sheet temper mill and a continuous stretcher leveling line; and an electrolytic cleaning line, a continuous annealing line, two tin temper mills, two tin recoil lines, an electrolytic tinning line and a chrome line which services the container markets. Principal products of the Midwest Division include tin mill products, hot dipped galvanized and Galvalume(R) steel, cold rolled, and electrical lamination steels. The Midwest Division is located on 1,100 acres in Portage, Indiana and employs approximately 1,400 people. Its location provides excellent access to rail, water and highway transit systems for receiving raw materials and supplying finished steel products to customers. 10 DNN Galvanizing Limited Partnership As part of its strategy to focus its marketing efforts on high quality steels for the automotive industry, the Company has entered into an agreement with NKK and an unrelated third party to build and operate the DNN Galvanizing Limited Partnership ("DNN"), a 400,000 ton per year, hot dip galvanizing facility in Windsor, Ontario, Canada. This facility incorporates state-of-the-art technology to galvanize steel for critically exposed automotive applications. The facility is modeled after NKK's Fukuyama Works Galvanizing Line that has provided high quality galvanized steel to the Japanese automotive industry for several years. The Company is committed to utilize 50% of the available line time of the facility and pay a tolling fee designed to cover fixed and variable costs with respect to 50% of the available line time, whether or not such line time is utilized. The plant began production in January 1993 and is currently operating at full capacity. The Company's steel substrate requirements are provided to DNN by the Great Lakes Division. In 1993, the ITC issued a final affirmative injury determination that certain galvanized steel products from Canada are being sold in the United States at less than fair value. Accordingly, certain types of galvanized steel, approximating 15% of the steel galvanized for the Company by DNN and shipped to the United States, are subject to an anti-dumping duty order and to cash deposits of 10.89%. The anti-dumping duty currently applies to the entire entered value of the affected types of products. The Company is currently appealing the ITC determination. If successful, such appeal would result in the duty deposit requirement applying only to the added value of the Canadian processing with respect to such product types, which the Company estimates to account for approximately 30% of the total value of such product types of the finished product. The other 70% of the value with respect to such product types results from U.S. production. The Company also intends to seek a refund of the entire anti-dumping duty upon administrative review, which will occur more than one year in the future. The Company does not believe that the costs that may be imposed on the Company as a result of this ITC determination will have a material adverse effect on the Company's financial condition. Double G Coatings, L.P. To continue to meet the needs of the growing metal buildings market, the Company and an unrelated third party formed a joint venture to build and operate Double G Coatings, L.P. ("Double G"), a 270,000 ton per year hot dip galvanizing and Galvalume(R) steel plant near Jackson, Mississippi. The plant will be capable of coating 48 inch wide steel coils with zinc to produce a product known as galvanized steel and a zinc/aluminum coating to produce a product known as Galvalume(R) steel. Double G will primarily serve the metal buildings segment of the construction market in the south central United States. The Company is committed to utilize and pay a tolling fee in connection with 50% of the available line time at the facility. The joint venture plant is scheduled to begin production in the second quarter of 1994 and is expected to operate at full capacity in 1995. The Company's steel substrate requirements will be provided to Double G by the Great Lakes and Midwest Divisions. ProCoil Corporation ProCoil Corporation ("ProCoil"), a joint venture among the Company, Marubeni Corporation, Mitsubishi Corporation and NKK, located in Canton, Michigan, operates a steel processing facility which began operations in 1988 and a warehousing facility which began operations in 1992. Each of the Company and Marubeni Corporation owns a 44% equity interest in ProCoil. ProCoil blanks, slits and cuts steel coils to desired lengths to service automotive market customers. In addition, ProCoil warehouses material to assist the Company in providing just-in-time delivery to customers. OTHER PROPERTIES Generally, the Company's properties are well maintained, considered adequate and being utilized for their intended purposes. The Company's corporate headquarters is located in Mishawaka, Indiana. 11 Except as stated below, the steel production facilities are owned in fee by the Company. A continuous caster and related ladle metallurgy facility and an electrolytic galvanizing line, which each service the Great Lakes Division, and a coke battery, which services the Granite City Division, are operated pursuant to the terms of operating leases with third parties and are not subject to a lien under the Company's First Mortgage Bonds. The electrolytic galvanizing lease, the coke battery lease and the continuous caster and related metallurgy facility lease are scheduled to expire in 2001, 2004 and 2008, respectively. Upon expiration, the Company has the option to extend the respective lease or purchase the facility at fair market value. All land (excluding certain unimproved land), buildings and equipment (excluding, generally, mobile equipment) that are owned in fee by the Company at the Great Lakes Division, Granite City Division and Midwest Division are subject to a lien under the First Mortgage Bonds, with certain exceptions, including a vacuum degasser and a pickle line which service the Great Lakes Division, a continuous caster which services the Granite City Division and the corporate headquarters in Mishawaka, Indiana. Additionally, the Company has granted to the VEBA a second mortgage on the No. 5 coke oven battery at the Great Lakes Division. 12 ITEM 3. LEGAL PROCEEDINGS In addition to the matters specifically discussed below, the Company is involved in various legal proceedings occurring in the normal course of its business. In the opinion of the Company's management, adequate provision has been made for losses which are likely to result from these actions. To the extent that such reserves prove to be inadequate, the Company would incur a charge to earnings, which could have a material adverse effect on the Company's results of operations for the applicable period. The outcome of these proceedings, however, is not expected to have a material adverse effect on the financial condition of the Company. For a description of certain environmental matters involving the Company, see "Environmental Matters" below. Baker's Port, Inc. v. National Steel Corporation On July 1, 1988, Baker's Port, Inc. ("BPI") and Baker Marine Corporation ("BMC") filed a lawsuit in the District Court for San Patricio County, Texas against the Company, two of its subsidiaries, NS Land Company ("NS Land") and Natland Corporation ("Natland"), and several other defendants, alleging breach of their general warranty of title, violation of the Texas Deceptive Trade Practice Act (the "DTPA") and fraud, in connection with the sale by Natland to BPI in 1981 of approximately 3,000 acres of land near Corpus Christi, Texas. Approximately $24.7 million of the purchase price was in the form of a note (the "Note") secured by a Deed of Trust (mortgage) and BMC's guarantee. BPI and BMC sought actual damages in excess of $55 million, or, alternatively, rescission of the sale, and exemplary damages in excess of $155 million, as well as treble damages under the DTPA. Natland counterclaimed for the amount defaulted on by BPI under the Note, approximately $13.3 million in principal and $10.8 million in interest at December 31, 1993, all of which has been reserved by the Company. The State of Texas also claimed the rights to certain riparian lands. On September 7, 1990, after trial, a judgment was entered, holding, among other things, (i) that the affirmative claims of BPI and BMC were barred, except as set forth in (iii) below, (ii) that recovery by Natland on the Note was barred, (iii) that BPI was entitled to approximately $.4 million plus pre-judgment interest thereon in the sum of approximately $.5 million, plus post-judgment interest thereon and (iv) that Natland's Deed of Trust lien on the property was fully released and discharged. On June 30, 1993, the Court of Appeals issued an opinion generally in favor of the Company and its subsidiaries. The Court of Appeals affirmed in part and reversed and remanded in part the judgment of the trial court. Specifically, the Court of Appeals (i) affirmed the dismissal by the trial court of the title claims brought by the State of Texas, (ii) reversed the finding by the trial court of $22 million of damages for fraud, which was applied to offset the amount then owing of approximately $19 million on the Note from BPI to Natland, (iii) reversed the trial court's award of approximately $.4 million plus pre-judgment interest thereon in the amount of approximately $.5 million plus post-judgment interest and (iv) remanded the case for a new trial on one remaining title claim. All parties have filed appeals and are awaiting a decision by the Texas Supreme Court as to whether or not it will hear the appeals. Until all appellate rights available to the parties have been exhausted, counsel is unable to predict the likelihood of a successful outcome. However, should the Court of Appeals' ruling be upheld, the case will be remanded for a new trial on limited issues which may favor the possibility of a successful outcome by Natland, NS Land and the Company. The Company has reserved $.9 million in its financial statements in connection with the matter and as a result of the trial court's decision, and the Note has been fully reserved on the Company's books. Detroit Coke Corporation v. NKK Chemical USA, Inc. On October 4, 1991, Detroit Coke Corporation ("Detroit Coke") filed a lawsuit against NKK Chemical USA, Inc. ("NKK Chemical") and the Company in the United States District Court for the Eastern District of Michigan, Southern Division, alleging damages in excess of $160 million arising under coal and coke purchase and sale agreements among the parties and a subsidiary of the Company. Detroit Coke alleges that the defendants supplied it with defective coal and coal blends, which caused damage to its coke making facility and environmental problems, thereby forcing the shutdown of its facility. On July 2, 1992, the action was transferred to the United States District Court for the Western District of Pennsylvania. In October 1992, 13 Detroit Coke added a new defendant, Trans-Tech Corporation, and claimed an additional $1.4 million allegedly due for coke and coke oven gas sales. While the Company has denied all the allegations of Detroit Coke and is defending this action, because the allegations have not yet been fully investigated, it is not possible at this stage of the litigation to make an assessment of the outcome of this case. Donner-Hanna Coke Joint Venture Hanna Furnace Corporation ("Hanna"), a wholly-owned subsidiary of the Company, was a 50% participant, along with LTV Steel Company, Inc. ("LTV"), in the Donner-Hanna Coke Joint Venture ("Donner-Hanna") which ceased its coke making operations in 1982. LTV filed a petition in July 1986 with the United States Bankruptcy Court for the Southern District of New York for relief under Chapter 11 of the Bankruptcy Code, and, with the approval of the Bankruptcy Court, rejected the Donner-Hanna-Coke Joint Venture Agreement. As a result of LTV's actions, Donner-Hanna has failed to make its annual minimum pension contributions to the trustee of its salaried and hourly pension plans (the "Plans") for each of the plan years 1985 through 1992 in the aggregate amount of approximately $7.2 million. The Company estimates the 1993 minimum contribution to be $.7 million, which also has not been made. The Company has fully reserved for these amounts at December 31, 1993. The total unfunded liability of the Plans was determined to be $15.5 million on May 20, 1993, for purposes of settling Hanna's bankruptcy claim against LTV. Since July 1991, the Pension Benefit Guaranty Corporation (the "PBGC") has funded the monthly pension benefits under the hourly pension plan. On August 13, 1993, the Internal Revenue Service assessed Hanna, as a general partner of Donner-Hanna, approximately $2.7 million for excise taxes (including interest through August 31, 1993) and penalties for plan years 1985 through 1991 arising from the failure to meet minimum funding standards for the Plans. In November 1993, Hanna contributed approximately $1.2 million to the salaried plan, representing proceeds from the sale of LTV stock received for Hanna's claim in the LTV bankruptcy proceeding. On December 30, 1993, the Pension Benefit Guarantee Corporation ("PBGC") notified Hanna and the Pension Committee for the Plans that the PBGC was terminating the hourly plan retroactive to July 1, 1991, and was terminating the salaried plan as of December 31, 1993. The PBGC has submitted a proposed Termination Agreement which is currently under review. The PBGC has indicated that it may seek to hold the Company liable for the unfunded liability of the Plans. Although the Company believes that under applicable law Hanna is solely liable and the Company has valid defenses to any such action by the PBGC, the Company is unable to predict with certainty the final outcome of any such action by the PBGC. Management believes that the final disposition of the Baker's Port, Detroit Coke and Donner-Hanna Coke matters will not have a material adverse effect on the Company's financial condition. ENVIRONMENTAL MATTERS The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties regardless of fault. Currently, an inactive site located at the Great Lakes Division facility is listed on the Michigan Environmental Response Act Site List, but remediation activity has not been required by the Michigan Department of Natural Resources ("MDNR"). In addition, the Company and certain of its subsidiaries are involved as a potentially responsible party ("PRP") at a number of off-site CERCLA or state superfund site proceedings. At several of these sites, any remediation costs incurred by the Company would constitute Weirton liabilities for which NII is required to indemnify the Company or other environmental liabilities for which NII has agreed to indemnify the Company. The more significant of these matters are described below. Ilada Energy Company Site. The Company and certain other PRPs have performed a removal action pursuant to an order issued by the EPA under Section 106 of CERCLA at this waste oil/solvent reclamation site located in East Cape Girardeau, Illinois. The Company received a special notice of liability with respect 14 to this site on December 21, 1988. The Company believes that there are approximately sixty-three PRPs identified at such site. Pursuant to an Administrative Order of Consent ("AOC"), the Company and other PRPs are currently performing a remedial investigation and feasibility study at such site to determine whether the residual levels of contamination of soil and groundwater remaining after the removal action pose any threat to either human health or the environment and therefore whether or not the site will require further remediation. During the remedial investigation and feasibility study, a floating layer of material, which the Company believes to be aviation fuel, was discovered above the groundwater. The Company does not know the extent of this contamination. Furthermore, the Company believes that this material is not considered to be a hazardous substance as defined under CERCLA. As a result, the Company is unable to estimate its potential liability. To date, the Company has paid approximately $2 million for work and oversight costs. Buck Mine Complex. This is a proceeding involving a large site, called the Buck Mine Complex, two discrete portions of which were formerly owned or operated by a subsidiary of the Company. This subsidiary was subsequently merged into the Company. The Company received a notice of potential liability from the MDNR with respect to this site on June 24, 1992. The Company's subsidiary had conducted mining operations at only one of these two parcels and had leased the other parcel to a mining company for numerous years. The MDNR alleges that this site discharged and continues to discharge heavy metals into the environment, including the Iron River. Because the Company and approximately eight other PRPs have declined to undertake a remedial investigation and feasibility study, the MDNR has advised the Company that it will undertake the investigation at this site and charge the costs thereof to those parties ultimately held responsible for the cleanup. The MDNR has orally advised the Company that the cost of the remedial investigation and feasibility study and the remediation at this site will be approximately $250,000, which cost will be allocated among the parties ultimately held responsible. The Company does not have complete information regarding the relationship of the other PRPs to the site and consequently, the Company is unable to estimate its potential liability, if any, in connection with this site. Port of Monroe Site. In February 1992, the Company received a notice of potential liability from the MDNR as a generator of waste materials at this landfill. The Company believes that there are approximately eighty other PRPs identified at this site. The Company's records indicate that it sent some material to the landfill. It is the Company's understanding that the remedial investigation and feasibility study for this site is presently being conducted. The Company does not yet have sufficient information regarding the nature and extent of contamination at such site and the nature and extent of the wastes that the other PRPs have sent to the site to estimate its potential liability, if any, in connection with the site. Hamtramck Site. In January 1993, the City of Hamtramck filed a complaint against the Sherwin-Williams Company and six other defendants seeking contribution of costs incurred in connection with the remediation of certain property located in Hamtramck, Michigan. In February 1993, the Sherwin-Williams Company filed a third party complaint against the Company and seven other third party defendants seeking contribution in connection with the site. The complaint alleges that the Company's Great Lakes Division engaged a third party waste oil hauler and processor that operated a tank farm at the site, to haul and/or treat some of the Division's waste oil. The Company entered into an agreement with the City of Hamtramck in 1983 pursuant to which the Company, without admitting liability, contributed to the funding of the cleanup of the tank farm, in return for which the City agreed to indemnify the Company for any releases. The Company has notified the City of this proceeding, and the City has agreed to defend and indemnify the Company in this matter. The Company is not aware of how many other parties are involved in this proceeding, and what, if any, potential liability the Company may have. However, the Company believes that whatever liability it may ultimately be assessed will be paid for by the City of Hamtramck. Martha C. Rose Chemicals Superfund Site. This proceeding involves a former PCB storage, processing and treatment facility located in Holden, Missouri. The Company received an initial request for information with respect to this site on December 2, 1986. The Company believes that there are over 700 PRPs identified at this site. The Company believes that it sent only one empty PCB transformer there. In July 1988, the Company entered into a Consent Party Agreement with the other PRPs and paid $48,134 in connection with 15 the remediation of such site. A record of decision selecting the final remedial action and an order pursuant to Section 106 of CERCLA requiring certain PRPs, not including the Company, to implement the final remedy have been issued by the EPA. To date, the PRP steering committee has raised approximately $35 million to pay for past removal actions, the remedial investigation and feasibility study and the final remedial action. While there can be no assurances, the Company believes that this amount is sufficient to cover such costs. However, if such costs were to exceed $35 million, the Company does not expect that additional payments required by it would be significant. Springfield Township Site. This is a proceeding involving a disposal site located in Springfield Township, Davisburg, Michigan in which approximately twenty-two PRPs have been identified. The Company received a general notice of liability with respect to this site on January 23, 1990. The Company and eleven other PRPs have entered into AOCs with the EPA for the performance of partial removal actions at such site and reimbursement of past response costs to the EPA. The Company's share of costs under the AOCs was $48,000. The PRPs are currently negotiating with the EPA regarding the final remedial action at such site. The EPA and the PRP steering committee have estimated that the cost to implement the final remedy is approximately $33 million and $20 million, respectively, depending upon the final remedy. The Company is currently negotiating with the other PRPs with respect to its share of such cost and has offered to pay $175,000 in connection with the final remedy. On November 10, 1993, the EPA issued a unilateral order pursuant to Section 106 of CERCLA requiring the PRP steering committee to implement the groundwater portion of the final remedy. The members of the PRP steering committee have entered into an agreement among themselves for the implementation of the groundwater portion of the final remedy. Subject to a final determination by the EPA as to what must be included in the groundwater portion of the final remedy, a preliminary estimate by the PRP steering committee of the cost of such work is approximately $300,000. Additionally, in response to a demand letter from the MDNR, the PRP steering committee and the MDNR have negotiated a preliminary agreement pursuant to which MDNR will be reimbursed approximately $700,000 for its past response costs. The Company has recorded its estimated liability for this matter. Rasmussen Site. The Company and nine other PRPs have entered into a Consent Decree with the EPA in connection with this disposal site located in Livingston, Michigan. The Company received a general notice of liability with respect to this site on September 27, 1988. The Company believes that there are approximately twenty-three PRPs at this site. A record of decision selecting the final remedial action for this site was issued by the EPA in March 1991. The PRP steering committee has estimated that remediation costs are approximately $18.5 million. Pursuant to a participation agreement among the PRPs, the Company's share of such costs is approximately $420,000, of which approximately $327,000 has been accrued by the Company and remains to be paid. Berlin and Farro Liquid Incineration Site. The Company has been identified as a generator of small amounts of hazardous materials allegedly deposited at this industrial waste facility located in Swartz Creek, Michigan. The Company received an initial request for information with respect to this site on September 19, 1983. The Company believes that there are approximately 125 PRPs at this site. A record of decision selecting the final remedial action for this site was issued by the EPA in September 1991. The EPA and the PRP steering committee have estimated that the cost of the selected remedy is approximately $8 million and $10.5 million, respectively. A third-party complaint has been filed against the Company by three PRPs for recovery of the EPA's past and future response costs. The Company has entered into a consent decree with the EPA which was lodged with the court on February 25, 1994. Pursuant to such consent decree the Company's share of liability will be approximately $105,000. In addition, the terms of the proposed consent decree provide that settling defendants who are plaintiffs in the above-referenced cost recovery action will execute and file a dismissal with prejudice as to their claims against the de minimis settling defendants, including the Company. In addition, the MDNR has demanded that the Company reimburse the state for its past response costs incurred at this site. In July 1993, the MDNR offered and the Company accepted a "de minimis" buyout settlement of the state's claims for approximately $1,500. The Company has recorded its estimated liability for this matter. 16 NII Sites. Remediation costs incurred by the Company at the following sites constitute Weirton Liabilities or other environmental liabilities for which NII has agreed to indemnify the Company: the Swissvale Site, Swissvale, Pennsylvania; Buckeye Site, Bridgeport, Ohio; Lowry Landfill, Aurora, Colorado; and Weirton Steel Corporation Site, Weirton, West Virginia. The Company was notified of potential liability with respect to each of these sites as follows: the Swissvale Site-- February 1985; Buckeye Site--September 1991; Lowry Landfill--December 1990; and Weirton Steel Corporation Site--January 1993. In accordance with the terms of an agreement between the Company and NII, in January 1994, NII paid the Company $10 million as an unrestricted prepayment for environmental obligations which may arise after such prepayment and for which NII has previously agreed to indemnify the Company. Since NII retains responsibility to indemnify the Company for any remaining environmental liabilities arising before such prepayment or arising after such prepayment and in excess of $10 million, these environmental liabilities are not expected to have a material adverse effect on the Company's liquidity. However, the failure of NII to satisfy any such indemnity obligations could have a material adverse effect on the Company's liquidity. The Company, Earth Sciences, Inc. and Southwire Company are general partners in the Alumet Partnership ("Alumet"), which has been identified by the EPA as one of approximately 260 PRPs at the Lowry Landfill Superfund Site. In the August 1993 proposed plan, the EPA has estimated the overall discounted costs for implementing the selected remedial action to be approximately $98 million. Based on information received by the Company, it appears that Alumet may have contributed approximately 3.8% of the overall volume of industrial materials sent to this site. Alumet has presented information to the EPA in support of its position that the material it sent to this site is not a hazardous substance. To date, however, the EPA has rejected this position, and on November 15, 1993, Alumet received a demand letter from the EPA requesting approximately $15.3 million for its past response costs incurred as of the date of the letter. The Company believes that the same demand letter was sent to all PRPs that sent over 300,000 gallons of waste to the site. The Company does not have sufficient information to estimate its portion of any liability resulting from the $15.3 million demand. The owners and operators of the Lowry Landfill-- the City and County of Denver, Waste Management of Colorado, Inc. and Chemical Waste Management, Inc.--are performing the remediation activities at the site. The City and County of Denver (the "Plaintiffs") in December 1991 filed a complaint against 40 of the PRPs seeking reimbursement for past and future response costs incurred by the Plaintiffs at the Lowry Landfill site. Subsequently, the Plaintiffs reached a confidential settlement agreement with Earth Sciences, Inc. and unsuccessfully attempted to add Alumet as a third- party defendant. In June 1993, Alumet received a settlement demand from the owners and operators of the Lowry Landfill for response costs associated with Alumet's wastes that were not covered by the earlier confidential settlement agreement. The Company believes that whatever liability it may be ultimately assessed will be covered by NII's indemnity obligations. Because this is a complex site with numerous operable units, PRPs and different types of wastes, and because remediation activities at this site are occurring in various stages, the Company is unable to estimate its potential liability at this site. In connection with the Buckeye Site, the Company and thirteen other PRPs have entered into an AOC with the EPA to perform a remedial design. The Company's allocated share for the remedial design, as established by a participation agreement for the remedial design executed by the PRPs, is 4.63%. The EPA and the PRP steering committee have estimated the cost for the remedial design to be approximately $3 million. The EPA has estimated that the total cost for remediation activities at this site is approximately $50 million. The PRPs are currently negotiating with the EPA to reduce the scope of the remediation activities at the site. Additionally, the Company and the other thirteen PRPs are discussing an additional participation agreement and allocation governing the costs of the final remedial action and are continuing to identify other PRPs. The Company believes that its share of the final remedial action costs will not exceed 4.63 percent. In January 1993, the Company was notified that the West Virginia Division of Environmental Protection (the "WVDEP") had conducted an investigation at a site in Weirton, West Virginia which was formerly owned by the Company's Weirton Steel Division and is currently owned by Weirton Steel Corporation. The 17 WVDEP alleged that samples taken from four groundwater monitoring wells located at this site contained elevated levels of contamination. Weirton Steel Corporation has agreed to cooperate with the WVDEP with respect to conducting a ground water monitoring program at the site. The Company does not have sufficient information to estimate its potential liability, if any, at this site. The Company has been named as a third-party defendant in a governmental action for reimbursement of EPA's response costs in connection with the Swissvale Site. The Company understands that on December 2, 1993, the EPA and the original defendants reached a tentative settlement agreement regarding EPA's cost recovery claim for $4.5 million. Pursuant to that tentative settlement agreement, the original defendants will pay a total of $1.5 million. The original defendants have requested that the eighteen third-party defendants, including the Company, pay a total of $375,000. The Company believes that its share should be less than $25,000. Other. The Company and its subsidiaries have been conducting steel manufacturing and related operations at numerous locations, including their present facilities, for over sixty years. Although the Company believes that it has utilized operating practices that were standard in the industry at the time, hazardous materials may have been released on or under these currently- or previously- owned sites. Consequently, the Company potentially may also be required to remediate contamination at some of these sites. The Company does not have sufficient information to estimate its potential liability in connection with any potential future remediation. However, the Company believes that if any such remediation is required, it will occur over an extended period of time. In addition, the Company believes that many of these sites may also be subject to indemnities by NII to the Company. In addition to the aforementioned proceedings, the Company is or may be involved in proceedings with various regulatory authorities which may require the Company to pay various fines and penalties relating to violations of environmental laws and regulations, comply with applicable standards or other requirements or incur capital expenditures to add or change certain pollution control equipment or processes. During 1992, the Wayne County Air Pollution Control Department (the "WCAPCD") issued 37 notices of violation to the Company in connection with particulate emissions at the basic oxygen furnace shop and the ladle metallurgy facility servicing the Great Lakes Division. In 1993, approximately 42 additional notices of violations have been issued to the Company in connection with alleged exceedances of particulate emissions standards covering various process and fugitive emissions sources. The Company is currently negotiating with the WCAPCD with respect to any potential liability that may result from the notices of violations. The Company is not yet able to estimate its liability with respect to these alleged violations. National Mines Corporation ("NMC"), a wholly-owned subsidiary of the Company, owns certain properties in West Virginia and Kentucky where mining operations were conducted by third-party contract miners. In connection with such operations, such contract miners were required to comply with applicable Federal and state mining laws (including conducting reclamation activities at such properties). However, since many of these contract miners allegedly failed to comply with such laws or to reclaim these properties, NMC has been faced with various claims as owner of such properties. NMC has entered into a settlement agreement with the State of Kentucky which will require NMC to pay $525,000 of the $1.6 million in civil penalties assessed against NMC's contract miners and require NMC to perform reclamation of various mining sites operated by its contract miners. The agreed upon reclamation was completed at a cost of approximately $100,000. The payment of $525,000, which has been accrued by the Company, will be made over 24 months, consisting of an initial payment of $125,000 and two annual payments of $200,000 each. In September 1993, the Indiana Department of Environmental Management ("IDEM") issued a Notice of Violation to the Company's Midwest Division alleging, among other things, that (1) the Division had failed to comply with enumerated provisions of its Hazardous Waste Management Permit (the "Permit") for its 18 Greenbelt Landfill; (2) the Division was conducting operations at its plant in violation of specified IDEM regulations; and (3) certain areas of the plant had experienced releases of solid or hazardous waste that should be prevented as part of a plan for preventative maintenance. IDEM demanded $351,875 in civil penalties. After extensive negotiations, without admission of any liability, the Company entered into an Agreed Order with IDEM in October 1993 which requires the Division to put certain compliance procedures in place and perform certain activities pursuant to the Permit, submit and implement a preventative maintenance program at certain areas of the plant and pay a civil penalty of $150,000. All such actions have been completed and a civil penalty of $150,000 has been paid. In connection with certain outfalls located at the Great Lakes Division facility, including the outfall at the 80-inch hot strip mill, the U.S. Coast Guard issued certain penalty assessments in 1992, three of which totalling $8,000 have been accrued by the Company and are under appeal. Depending upon the results of the pending challenges, there may be further assessments. The MDNR, in April 1992, also notified the Company of a potential enforcement action alleging approximately 63 exceedances of limitations at the outfall at the 80-inch hot strip mill. The Company requested the MDNR to provide more information concerning these exceedances. In April 1993, the MDNR identified the dates of the alleged exceedances, but no further action has taken place. In connection with certain of these proceedings, the Company has only commenced investigation or otherwise does not have sufficient information to estimate its potential liability, if any. Although the outcomes of the proceedings described above or any fines or penalties that may be assessed in any such proceedings, to the extent that they exceed any applicable reserves, could have a material adverse effect on the Company's results of operations for the applicable period, the Company has no reason to believe that any such outcomes, fines or penalties, whether considered individually or in the aggregate, will have a material adverse effect on the Company's financial condition. 19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1993. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Class B Common Stock is listed on the New York Stock Exchange (the "NYSE") and traded under the symbol "NS." The following table sets forth for the periods indicated the high and low sales prices of the Class B Common Stock on a quarterly basis as reported on the NYSE Composite Tape. Prior to March 30, 1993, the Company did not have any publicly traded shares.
SALE PRICE --------------- HIGH LOW ------- ------- Year Ended December 31, 1993 First Quarter................................................. $15 3/8 $14 Second Quarter................................................ 20 3/8 14 Third Quarter................................................. 20 5/8 10 7/8 Fourth Quarter................................................ 13 3/8 10 3/8
As of December 31, 1993, there were approximately 45 registered holders of the Company's Class B Common Stock. The Company has not paid dividends on its Common Stock since 1984, with the exception of an aggregate dividend payment of $6.7 million in 1989. The Company is currently prohibited from paying cash dividends on its Common Stock, including the Class B Common Stock, by covenants contained in certain of the Company's financing arrangements. In the event the payment of dividends is not prohibited in the future by such covenants, the decision whether to pay dividends on the Common Stock will be determined by the Board of Directors in light of the Company's earnings, cash flows, financial condition, business prospects and other relevant factors. Holders of Class A Common Stock and Class B Common Stock will be entitled to share ratably, as a single class, in any dividends paid on the Common Stock. In addition, dividends with respect to the Common Stock are subject to the prior payment of cumulative dividends on any outstanding series of Preferred Stock, including the Series A Preferred Stock and Series B Preferred Stock. 20 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL INFORMATION (DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER TON DATA)
YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ STATEMENT OF OPERATIONS DATA: Net sales.............................. $2,419 $2,373 $2,330 $2,508 $2,576 Cost of products sold.................. 2,254 2,107 2,103 2,203 2,233 Depreciation, depletion and amortiza- tion.................................. 137 114 117 117 103 ------ ------ ------ ------ ------ Gross profit........................... 28 152 110 188 240 Selling, general and administrative.... 137 133 139 145 146 Unusual items.......................... 111 37 111 -- -- Income (loss) from operations.......... (218) (12) (131) 57 108 Financing costs (net).................. 62 62 59 31 21 Income (loss) before income taxes, ex- traordinary items and cumulative effect of accounting changes.......... (280) (75) (189) 26 87 Extraordinary credit (charge).......... -- (50) -- 3 23 Cumulative effect of accounting changes............................... (16) 76 -- -- -- Net income (loss) applicable to Common Stock................................. (272) (66) (207) 13 83 Per share data applicable to Common Stock: Income (loss) before extraordinary items and cumulative effect of accounting changes.................. (7.55) (3.61) (8.11) .32 1.77 Net income (loss).................... (8.04) (2.58) (8.11) .43 2.45 Cash dividends paid.................. -- -- -- -- .20 AS OF DECEMBER 31, -------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ BALANCE SHEET DATA: Cash and cash equivalents ............. $ 5 $ 55 $ 64 $ 165 $ 83 Working capital ....................... 27 74 120 256 144 Net property, plant and equipment...... 1,399 1,395 1,249 1,225 1,064 Total assets........................... 2,304 2,189 1,986 2,105 1,807 Long-term obligations and related party indebtedness due within one year...... 28 33 32 39 26 Long-term obligations and related party indebtedness.......................... 674 662 486 434 281 Redeemable Preferred Stock--Series B... 68 138 141 145 -- Stockholders' equity................... 190 327 393 599 733 Total debt and redeemable preferred stock as a percent of total capital- ization............................... 80.2% 71.8% 62.6% 50.8% 29.5% YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ OTHER DATA: Shipments (net tons, in thousands) .... 5,005 4,974 4,906 4,876 4,957 Raw steel production (net tons, in thousands) ............................ 5,551 5,380 5,247 5,735 5,394 Effective capacity utilization......... 100.0% 100.5% 92.5% 97.6% 96.7% Continuously cast percentage........... 100.0% 100.0% 99.8% 85.4% 88.7% Liquid steel to finished prime product yield................................. 79.6% 80.0% 79.6% 76.4% 78.5% Manhours per net ton shipped........... 3.96 4.03 4.27 4.63 4.61 Number of employees (year-end)......... 9,490* 10,299 11,176 11,717 12,106 Capital investments.................... $ 161 $ 284 $ 178 $ 286 $ 153 Operating profit (loss) per net ton shipped excluding unusual items .............. $ (21) $ 5 $ (4) $ 12 $ 22 Common shares outstanding at year end (in thousands)........................ 36,361 25,500 25,500 29,750 34,000
- -------- *The number of employees was reduced by 579 in 1993 as a result of the temporary idling of NSPC. 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During 1993, the Company experienced operating problems which were the result of a combination of unusual factors. Early in the year, the Company suffered an explosion and fire at its electrolytic galvanizing line. At the same time, demand from the automotive market for ultra-low carbon steel used in the production of coated products was rapidly rising. As a result, the Company began to experience difficulties in attaining on time deliveries for such steel. In an attempt to meet its commitment to customer service, the Company rapidly expanded production of ultra-low carbon steels, causing operating inefficiencies and leading to the generation of non-prime products. Additionally, the Company purchased steel and services from outside providers to meet this increased demand, resulting in higher production costs. Concurrently, the Company completed the construction and start-up of several new facilities such as the DNN joint venture, the rebuild of the No. 5 coke oven battery and the No. 5 pickle line, which caused some disruption of existing operations. These operational problems, along with measures taken in preparation for a potential work stoppage at the Company's steel divisions and corporate headquarters, were among the more significant events contributing to higher costs in 1993. In the fourth quarter of 1993, management initiated a number of steps to improve quality and delivery performance. As a first step, the Company made key management changes at two of its three Divisions along with a number of other personnel changes. Secondly, management intentionally reduced its 1993 fourth quarter order book to improve delivery performance. The Company activated a number of multi-disciplined teams to focus on solving production problems. Also, at the Company's request, NKK dispatched several technical improvement teams to aid in the investigation and to propose corrective action for the operating problems. Management anticipates that its results for 1994 will be favorably impacted by the $15 per ton price increase effective January 3, 1994 on all new spot market orders for hot rolled, cold rolled and coated products. The Company's ability to successfully implement such price increase is subject to, among other things, the strength of the Company's principal customer markets and general economic conditions. In 1993, approximately 40% of the Company's shipments, and a slightly higher percentage of net sales, were covered by sales contracts with a duration of 12 months or longer. To the extent that the Company is successful in implementing the announced price increase, such increase will not be reflected in sales made pursuant to such contracts prior to their expiration. On January 24, 1994, the United States Supreme Court denied the Bessemer & Lake Erie Railroad's ("B&LE") petition for certiorari in the Iron Ore Antitrust Litigation, thus sustaining the Company's judgment against the B&LE. On February 11, 1994, the Company received approximately $111 million, including interest, in satisfaction of this judgment. Pursuant to the terms of the 1993 Settlement Agreement, approximately $11 million of the proceeds will be deposited into the VEBA Trust established to prefund the Company's OPEB (defined below) obligation with respect to USWA represented employees. Of the remaining proceeds, the Company plans to use approximately $40 million to repay outstanding indebtedness and the remaining proceeds will be used for working capital and general corporate purposes. The Company will recognize this gain in the first quarter of 1994. Anticipated First Quarter 1994 Results Excluding the effect of the gain from the B&LE judgment, the Company currently expects to report a net loss for the first quarter of 1994 due to a slight seasonal shift in the Company's product mix and the negative impact of particularly severe winter weather on the Company's operations. The ability of the Company to return to profitability is dependent upon several managerial and operational changes implemented to reduce costs, improve productivity and achieve an improved product mix. Performance will also be affected by factors outside the Company's control, including the level of steel prices, domestic steel demand and the level of the U.S. dollar. 22 RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND 1992 Net Sales Net sales for 1993 increased by 1.9% to $2,418.8 million, due primarily to increases in volume and realized selling prices, coupled with a favorable shift in product mix. Steel shipments in 1993 were 5,005,000 tons, up 0.6% from 4,974,000 tons in 1992. Raw steel production increased to 5,551,000 tons, a 3.2% increase from the 5,380,000 tons produced in 1992. Cost of Products Sold Cost of products sold of $2,254.0 million reflects an increase of $147.2 million compared to the same period in 1992. This increase was largely the result of the Company's implementation of Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106" or "OPEB"), effective January 1, 1993. The excess of the postretirement benefit expense under SFAS 106 over the former pay-as-you-go basis was approximately $59.5 million in 1993. Additionally, $25.3 million of present value interest relating to postretirement benefit liabilities and certain Weirton benefit liabilities, previously recorded for facility sales and restructurings and charged to interest expense, was charged to cost of products sold. The remaining portion of the increase can be attributed primarily to operational and economic factors, as discussed above. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 2.9% from $132.8 million in 1992, to $136.7 million in 1993, primarily due to legal costs incurred in pursuing unfair trade litigation. Depreciation, Depletion and Amortization Depreciation expense for 1993 increased by $22.6 million, or 19.7% as compared to 1992, primarily as a result of the completion of the rebuild of the No. 5 coke oven battery at the Great Lakes Division in November 1992. Unusual Items Related to the Temporary Idling of NSPC The Company formerly purchased a significant portion of its iron ore pellet requirements from NSPC. On August 1, 1993, the USWA went on strike against NSPC over demands for a new labor contract at NSPC. In October 1993, NSPC announced its intention to temporarily idle the facility. During the period from August 1, 1993 to date, the Company has secured its pellet requirements from outside sources. The Company has entered into agreements that will satisfy its iron ore pellet requirements through 1994 at a lower cost than could be obtained by operating NSPC. It is management's intention to secure long term contracts for the purchase of iron ore pellets for a period of one to three years. The Company recorded an unusual charge of $108.6 million during the fourth quarter of 1993 which is comprised of employee benefits related charges of $90.9 million (principally pensions and OPEB), taxes of $7.9 million and miscellaneous other costs of $9.8 million relating to the three year idle period. Management has not made a final decision regarding the permanent shutdown of NSPC; however, such a decision would result in additional charges which management currently estimates to be approximately $160 million. Financing Costs Net financing costs decreased by $0.3 million from 1992 to 1993. Interest expense associated with the financing of the No. 5 coke oven battery rebuild was $25.1 million in 1993. However, this was largely offset by a $20.5 million reduction in financing costs for present value interest expense attributable to postretirement benefits which are now being charged to cost of products sold. 23 Income Taxes The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), at December 31, 1992. At that time, available tax planning strategies served as the only basis for determining the amount of the net deferred tax asset to be recognized. As a result, a full valuation allowance was recorded, except for the $43 million recognized pursuant to those tax planning strategies. In 1993, the Company determined it was more likely than not that sufficient future taxable income would be generated to justify increasing the net deferred tax asset after valuation allowance to $80.6 million. Accordingly, the Company recognized an additional deferred tax asset of $37.6 million in 1993, which had the effect of decreasing the Company's net loss by a like amount. Cumulative Effect of Accounting Change During the fourth quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employer's Accounting for Postemployment Benefits" ("SFAS 112"), which requires accrual accounting for benefits payable to inactive employees who are not retired. The cumulative effect as of January 1, 1993 of this change was to decrease net income by $16.5 million or $.49 per share. The results of operations for the first quarter of 1993 have been restated to reflect the effect of adopting SFAS 112 at January 1, 1993. The effect of the change on 1993 income before the cumulative effect of the change was not material; therefore, the remaining quarters of 1993 have not been restated. Adoption of SFAS 106 During the first quarter of 1993, the Company adopted SFAS 106, which requires the accrual of retiree medical and life insurance costs as these benefits are earned, rather than recognition of these costs as claims are paid. At January 1, 1993, the Company calculated its transition obligation to be $622.1 million with $66.1 million recorded prior to implementation of SFAS 106 in connection with facility sales and restructurings. The Company has elected to amortize its transition obligation over a period of 20 years. Total postretirement benefit cost in 1993 was $123.7 million, or $85.6 million excluding the $38.1 million of curtailment charges related primarily to the idling of NSPC. Excluding these curtailment charges, the excess of postretirement benefit expense recorded under SFAS 106 over the Company's former method of accounting for these benefits was $59.5 million, or $1.08 per share net of tax. Discount Rate Assumptions As a result of a decline in long term interest rates in the United States, at December 31, 1993, the Company reduced the discount rate used to calculate the actuarial present value of its accumulated benefit obligation for OPEB by 100 basis points to 7.75% and for pensions by 125 basis points to 7.50%, from the rate used at January 1, 1993. The effect of these changes did not impact 1993 expense. However, this decline in the discount rate used to calculate the pension obligation increased the minimum pension liability recorded on the Company's balance sheet to $134.7 million and increased the related intangible asset to $128.8 million, with the remaining $5.9 million charged to stockholders' equity. While the same reduction in the discount rate as of December 31, 1993 also applies to the actuarial present value of the Company's OPEB obligation, such reductions do not result in any increase in the recorded liability or potential charge to equity because of different required accounting principles. The Company expects its 1994 pension and OPEB expense to increase by approximately $27 million and $6 million, respectively, as a result of this decrease in the discount rate, among other things. Additionally, the Company anticipates that its pension contributions for the 1994 plan year will increase by approximately $30 million, primarily attributable to increases in benefits resulting from the 1993 Settlement Agreement, together with the decrease in the discount rate. 24 Comparability of Earnings Per Share While the Company has chosen to amortize its SFAS 106 transition obligation over twenty years, certain of the Company's competitors have chosen to immediately recognize their respective SFAS 106 transition obligations. As a result, any earnings per share ("EPS") comparison between the Company and these competitors must be adjusted for the per share adverse impact of this amortization. Based upon weighted average shares outstanding for the year ended December 31, 1993, the Company's after tax EPS was negatively impacted by $0.51. USWA Agreement On August 27, 1993, the 1993 Settlement Agreement between the Company and the USWA was ratified by union members of the Company's three steel divisions and corporate headquarters. The 1993 Settlement Agreement, effective August 1, 1993 through July 31, 1999, protects the Company and the USWA from a strike or lockout for the duration of the agreement. Either the Company or the USWA may reopen negotiations, except with respect to pensions and certain other matters, after three years, with any unresolved issues subject to binding arbitration. The Company estimates the additional annual cost resulting from the 1993 Settlement Agreement to be approximately $25 million per year through 1996. However, there is the potential that these higher costs may be reduced by productivity gains which are difficult to quantify. The Company is unable to estimate the impact of the 1993 Settlement Agreement beyond 1996 since it then may be reopened as discussed above. RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1992 AND 1991 Net Sales Net sales for 1992 increased by 1.9% to $2,373.3 million, due primarily to a shift in product mix from lower priced export, secondary and slab sales to higher priced coated products, coupled with an increase in steel shipments. A general decline in selling prices was partially offset by an improvement in product mix. Steel shipments in 1992 were 4,974,000 tons, up 1.4% from 4,906,000 tons in 1991. The increase in shipments reflected modest improvements in the domestic steel market in 1992. Raw steel production increased to 5,380,000 tons, a 2.5% increase from the 5,247,000 tons produced in 1991. Cost of Products Sold The Company's cost of products sold as a percentage of net sales decreased from 90.2% in 1991 to 88.8% in 1992. This decrease was primarily the result of a Company-wide emphasis on cost-reduction programs which began in the second quarter of 1991 and continued throughout 1992 and was achieved despite an average $.50 per hour wage increase which became effective January 1, 1992 under the Company's prior labor agreement with the USWA and the continuing escalation in health care costs. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by 4.7% from $139.3 million in 1991 to $132.8 million in 1992 primarily as a result of the Company's cost reduction programs. Unusual Items In 1992, the Company recorded unusual charges aggregating $37.0 million relating principally to a pension window and the Company's decision to exit the coal mining business. A charge of $13.3 million was recognized relating to a 1992 pension window as part of the consolidation of certain staff functions and the relocation of the Company's corporate offices to Mishawaka, Indiana from Pittsburgh, Pennsylvania. The decision to relocate was made in order to be closer to the Company's customer base, to consolidate certain staff functions and to be closer to the Company's steel plants. As a result of management's decision to exit the coal mining business, an unusual charge of $24.9 million was recognized in the fourth quarter to reduce certain coal properties to net realizable value and record postretirement, environmental and other liabilities. 25 During 1991, the Company recorded unusual charges which totalled $110.7 million. A charge of $41.5 million was recognized for the estimated costs to be incurred in conjunction with the consolidation of certain staff functions and relocation in 1992 of the Company headquarters as described above. A charge of $25.5 million was recognized relating to the Company's decision to permanently idle its Mathies coal mine after efforts to obtain third party financing to reopen the mine after a fire were unsuccessful. Concurrently, the Company undertook an evaluation of its other coal properties and operations. While no decision was made during 1991 as to the disposition of these properties, the net book value of certain of the assets exceeded their net realizable value. Therefore, a charge of $43.7 million was recognized to reduce certain coal properties to net realizable value and to recognize postemployment, environmental and other liabilities. Financing Costs Interest and other financial income decreased to $2.0 million, a decrease of $4.1 million. This decrease was attributable to lower interest rates coupled with lower average balances of cash and cash equivalents. Interest and other financial expense was $64.0 million in 1992 compared to $64.8 million in 1991. Extraordinary Item During 1992, the Company recorded a charge of $50 million, representing management's best estimate of the Company's liability for United Mine Workers of America ("UMWA") beneficiaries under the Rockefeller Amendment. Since the Company notified the UMWA that it did not intend to renew its labor contract which expired February 1, 1993, thereby ending the Company's active involvement in the coal industry, the $50 million charge was recorded as an extraordinary item in accordance with accounting guidance provided by the Emerging Issues Task Force. No deferred tax benefits were recognized relating to the $50 million charge generated by the Rockefeller Amendment. Based upon preliminary assignments from the Secretary of Health and Human Services received during 1993, the Company believes this reserve is adequate. Cumulative Effect of Accounting Change During the fourth quarter of 1992, the Company adopted SFAS 109. The Company formerly accounted for income taxes under the provisions of Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes." As permitted under SFAS 109, the Company elected not to restate the financial statements of prior years. The effect of adopting SFAS 109 as of January 1, 1992 was recorded as a cumulative effect of a change in accounting method and reduced the Company's net loss by $76.3 million, or $2.99 per share. The previously reported net loss for the first quarter of 1992 has been restated and reduced by $76.3 million. The change did not have an impact on the remaining quarters of 1992. LIQUIDITY AND SOURCES OF CAPITAL The Company's liquidity needs arise primarily from capital investments, principal and interest payments on its indebtedness and working capital requirements. The Company has satisfied these liquidity needs over the last three years primarily with funds provided by long-term borrowings, cash provided by operations and proceeds of the Company's initial public offering (the "IPO") of Class B Common Stock in 1993. The Company's available sources of liquidity include a $100 million revolving secured credit arrangement (the "Revolver"), a $150 million subordinated loan agreement (the "Subordinated Loan Agreement") and $25 million in uncommitted, unsecured lines of credit (the "Uncommitted Lines of Credit"). The Company is currently in compliance with all material covenants of, and obligations under, its Revolver, Subordinated Loan Agreement, Uncommitted Lines of Credit and other debt instruments. The Company has satisfied its liquidity needs without extensive use of its credit facilities. Cash and cash equivalents totaled $5.3 million and $55.2 million as of December 31, 1993 and 1992, respectively. Excluding the effect of the IPO, this represents a decrease of $191.3 million, primarily due to costs incurred in expanding the Company's properties and equipment. Also, on May 4, 1993 the Company used $67.8 million of the IPO proceeds to fund the early redemption of 10,000 shares of the Series B Preferred Stock held by NII. 26 Cash Flows from Operating Activities For the year ended December 31, 1993, cash provided from operating activities decreased by $73.2 million compared to 1992, due to the effect of working capital items, along with a reduction in net income after adjusting for the effect of non cash items on operations. Changes in working capital items reduced cash flows by $27.2 million during 1993, as a substantial decrease in accounts payable was combined with the smaller negative effects of accounts receivable and accrued liabilities changes. In 1992, working capital items had a $36.0 million favorable impact on cash flows from operations, due primarily to the timing of cash disbursement clearings. Cash Flows from Investing Activities Capital investments for the years ended December 31, 1993 and 1992 amounted to $160.7 million and $283.9 million, respectively, which included $31.9 million and $198.4 million related to the complete rebuild of the No. 5 coke oven battery at the Great Lakes Division. Additionally, in 1993, the Company spent $58.9 million on the relining of a blast furnace servicing the same division. Budgeted capital investments approximating $346.1 million, of which $92.5 million are committed at December 31, 1993, are expected to be made during 1994 and 1995, including the completion of a pickle line servicing the Great Lakes Division and the relining of a blast furnace servicing the Granite City Division. Cash Flows from Financing Activities In April 1993, the Company completed its IPO of 10,861,100 shares of its Class B Common Stock, at an offering price of $14 per share, which generated net proceeds to the Company of approximately $141.4 million. On May 4, 1993, the Company utilized $67.8 million of the IPO proceeds to fund the early redemption of 10,000 shares of the Series B Redeemable Preferred Stock (the "Series B Preferred Stock") held by NII. Total borrowings for the years ended December 31, 1993 and 1992 amounted to $40.6 million and $209.7 million, respectively, primarily representing the remaining financing from a subsidiary of NKK related to the rebuild of the No. 5 coke oven battery at the Great Lakes Division. Correspondingly, cash basis interest expense increased by $19.7 million from 1992 to 1993 as a result of the completion of, and commencement of permanent financing for, the No. 5 coke oven battery. Sources of Financing During 1993, the Company utilized $20 million of the proceeds from the IPO to reduce the amount of construction financing outstanding and the total financing commitment for a pickle line servicing the Great Lakes Division to $90 million. As of December 31, 1993, the construction financing was being provided by the contractor and was not a liability of the Company. In January 1994, upon completion and acceptance of the pickle line pursuant to the construction contract, the permanent financing commenced with repayment scheduled to occur over a fourteen-year period. The pickle line is not subject to the lien under the Company's First Mortgage Bonds, but is subject to a first mortgage in favor of the lender. The Revolver was amended and restated on December 31, 1992 to extend the expiration date to December 31, 1994. The Revolver permits the Company to borrow up to $100 million on a short-term basis and provides the Company with the ability to issue up to $150 million in letters of credit. The Revolver is secured by the accounts receivable and inventories of the Company. No borrowings have been outstanding on the Revolver since 1987. At December 31, 1993 and 1992, letters of credit outstanding totaled $113.7 million and $113.6 million, respectively. The Subordinated Loan Agreement, which was entered into in May 1991 with a United States subsidiary of NKK, was also extended in December 1992 to an expiration date of April 1, 1995. The Subordinated Loan Agreement permits the Company to borrow up to $150 million on an unsecured, short-term basis. The 27 Revolver requires that the first $50 million in borrowings by the Company in excess of thirty days must come from the Subordinated Loan Agreement. Additional amounts borrowed would alternate between the Revolver and the Subordinated Loan Agreement up to $25 million in each increment. On February 7, 1994, the Company borrowed $20 million under the Subordinated Loan Agreement, all of which was repaid on February 17, 1994. Prior to this, the last borrowing on the Subordinated Loan Agreement occurred in 1991, when the Company borrowed $50 million, all of which was repaid later in that year. The Uncommitted Lines of Credit permit the Company to borrow up to $25 million on an unsecured, short-term basis for periods of up to thirty days. One of these arrangements expires on March 31, 1994, while the other has no fixed expiration date but may be withdrawn at any time without notice. During 1993, the Company borrowed a maximum of $7.7 million under its Uncommitted Lines of Credit, which was repaid the following day. No borrowings were outstanding at December 31, 1993 and 1992. However, in February 1994, the Company borrowed a maximum of $5.0 million under the Uncommitted Lines of Credit which was repaid later in the month. Weirton Liabilities and Preferred Stock In connection with the Company's June 1990 recapitalization, the Company received $146.6 million from NII in cash and recorded a net present value equivalent liability with respect to certain released Weirton benefit liabilities, primarily healthcare and life insurance. As a result of this transaction, the Company's future cash flow will decrease as the released Weirton benefit liabilities are paid. During 1993, such cash payments were $20.0 million compared to $15.3 million during 1992. On October 28, 1993, NII converted all of its 3,400,000 shares of Class A Common Stock to an equal number of shares of Class B Common Stock. During January 1994, NII sold substantially all of such shares of Class B Common Stock. As previously agreed, the Company received $10 million of proceeds from the sale of such shares from NII as an unrestricted prepayment for environmental obligations which may arise after such prepayment and for which NII has previously agreed to indemnify the Company. The Company is required to repay to NII portions of the $10 million to the extent the Company's expenditures for such environmental liabilities do not reach specified levels by certain dates over a twenty year period. Since NII retains responsibility to indemnify the Company for remaining environmental liabilities (i) arising before such prepayment or (ii) arising after such prepayment and in excess of $10 million, these environmental liabilities are not expected to have a material adverse effect on the Company's liquidity. However, the failure of NII to satisfy any such indemnity obligations could have a material adverse effect on the Company's liquidity. In connection with the June 1990 recapitalization, the Series B Preferred Stock was issued to NII. On May 4, 1993, the Company redeemed 10,000 shares of Series B Preferred Stock held by NII. These shares were subject to mandatory redemption on August 5, 1995. Pursuant to the terms of the Series B Preferred Stock and certain other agreements between the Company and NII, the Company paid the redemption amount directly to a pension trustee and released NII from a corresponding amount of NII's indemnification obligations with respect to certain employee benefit liabilities of the Company retained in connection with the sale of its Weirton Steel Division. At December 31, 1993, there were 10,000 remaining shares of Series B Preferred Stock issued and outstanding, all of which were held by NII. The Series B Preferred Stock carries annual cumulative dividend rights of $806.30 per share, which equates to approximately an 11% yield. At December 31, 1993 and 1992, $68.0 million and $137.8 million, respectively, of the Series B Preferred Stock was outstanding. Dividends on the Series B Preferred Stock are cumulative and payable quarterly in the form of a release of NII from its obligation to indemnify the Company for a corresponding amount of the remaining unreleased portion of the Weirton benefit liabilities to the extent such liabilities are due and owing, with the balance, if any, payable in cash. The Series B Preferred Stock dividend permitted release and payment of $10.6 million and $15.4 million of previously unreleased Weirton benefit liabilities during 1993 and 1992, respectively, and cash dividends of $1.4 million and $.8 million during 1993 and 1992, respectively, to reimburse NII for an obligation previously incurred in connection with the Weirton benefit liabilities. 28 The remaining Series B Preferred Stock is presently subject to mandatory redemption by the Company on August 5, 2000 at a redemption price of $58.3 million and may be redeemed beginning January 1, 1998 without the consent of NII at a redemption price of $62.2 million. Based upon the Company's actuarial analysis, the unreleased Weirton benefit liabilities approximate the aggregate remaining dividend and redemption payments with respect to the Series B Preferred Stock and accordingly, such payments are expected to be made in the form of releases of NII from its obligations to indemnify the Company for corresponding amounts of the remaining unreleased Weirton benefit liabilities. Dividend and redemption payments with respect to the Series B Preferred Stock reduce the Company's cash flow, even though they are paid in the form of a release of NII from such obligations, because the Company is obligated, subject to certain limited exceptions, to pay such amounts to the trustee of the pension plan included in the Weirton benefit liabilities. If any dividend or redemption payment otherwise required pursuant to the terms of the Series B Preferred Stock is less than the amount required to satisfy NII's then current indemnification obligation, NII would be required to pay such shortfall in cash to the Company. The Company's ability to fully realize the benefits of NII's indemnification obligations is necessarily dependent upon NII's financial condition at the time of any claim with respect to such obligations. The June 1990 recapitalization agreement also created the Series A Preferred Stock which carries annual cumulative dividend rights of $806.30 per share, which equates to an 11% yield. The Series A Preferred Stock is held by NKK and $36.7 million was outstanding at December 31, 1993 and 1992. Dividends on the Series A Preferred Stock are paid quarterly in cash and totalled $4 million in each of the years ended December 31, 1993, 1992 and 1991. Miscellaneous At December 31, 1993, obligations guaranteed by the Company approximated $41.0 million, compared to $16.7 million at December 31, 1992. This increase in 1993 is primarily due to additional borrowings of the Double G Coatings, L.P. joint venture, 50% of which are separately guaranteed by the Company. Total debt and redeemable preferred stock as a percentage of total capitalization increased to 80.2% at December 31, 1993 as compared to 71.8% at December 31, 1992 as the Company's net loss of $258.9 million more than offset the effect of the Company's IPO, which increased stockholders' equity by $141.4 million, as well as the early redemption of 10,000 shares of Series B Preferred Stock. On January 24, 1994, the United States Supreme Court denied the B&LE's petition for certiorari, thus sustaining the Company's judgment against the B&LE. On February 11, 1994, the Company received approximately $111 million, including interest, in satisfaction of this judgment. Pursuant to the terms of the 1993 Settlement Agreement, approximately $11 million of the proceeds will be deposited into the VEBA Trust. Of the remaining proceeds, the Company plans to use approximately $40 million to repay outstanding indebtedness and the remaining proceeds will be used for working capital and general corporate purposes. ENVIRONMENTAL The Company's operations are subject to numerous laws and regulations relating to the protection of human health and the environment. The Company will incur significant capital expenditures in connection with matters relating to environmental control and will also be required to expend additional amounts in connection with ongoing compliance with such laws and regulations, including, without limitation, the Clean Air Act amendments of 1990. Proposed regulations establishing standards for corrective action under RCRA and the Guidance Document may also require further significant expenditures by the Company in the future. Additionally, the Company is currently one of many potentially responsible parties at a number of sites requiring remediation. The Company has estimated that it will incur capital expenditures for matters relating to environmental control of approximately $9.1 million and $8.0 million for 1994 and 1995, respectively. In addition, the Company expects to record expenses for environmental compliance, including depreciation, in the amount of approximately $70 million and $73 million for 1994 and 1995, respectively. Since environmental laws are becoming increasingly stringent, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and financial statement schedules of the Company are submitted pursuant to the requirements of Item 8: NATIONAL STEEL CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES
PAGE ---- Report of Ernst & Young Independent Auditors............................. 31 Statements of Consolidated Income--Years Ended December 31, 1993, 1992 and 1991................................................................ 32 Consolidated Balance Sheets--December 31, 1993 and 1992.................. 33 Statements of Consolidated Cash Flows--Years Ended December 31, 1993, 1992 and 1991........................................................... 34 Statements of Changes in Consolidated Stockholders' Equity and Redeemable Preferred Stock--Series B--Years Ended December 31, 1993, 1992 and 1991. 35 Notes to Consolidated Financial Statements............................... 36 Schedule V--Property, Plant and Equipment................................ 53 Schedule VI--Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment........................................... 54 Schedule VII--Guarantees of Securities of Other Issuers.................. 55 Schedule VIII--Valuation and Qualifying Accounts......................... 56 Schedule IX--Short-Term Borrowings....................................... 57 Schedule X--Supplementary Income Statement Information................... 58
30 REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS Board of Directors National Steel Corporation We have audited the accompanying consolidated balance sheets of National Steel Corporation and subsidiaries (the "Company") as of December 31, 1993 and 1992, and the related statements of consolidated income, cash flows, and changes in stockholders' equity and redeemable preferred stock--Series B for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 8. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Steel Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note A to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for postretirement and postemployment benefits, and in 1992 the Company changed its method of accounting for income taxes. Ernst & Young Fort Wayne, Indiana January 26, 1994, except for the last paragraph of Note S as to which the date is February 11, 1994 31 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ---------- ---------- ---------- NET SALES.............................. $2,418,800 $2,373,317 $2,329,815 Cost of products sold.................. 2,253,972 2,106,743 2,102,520 Selling, general and administrative.... 136,656 132,801 139,345 Depreciation, depletion and amortiza- tion.................................. 137,500 114,880 117,008 Equity income of affiliates............ (2,160) (5,600) (9,063) Unusual items.......................... 110,966 36,984 110,700 ---------- ---------- ---------- LOSS FROM OPERATIONS................... (218,134) (12,491) (130,695) Financing costs Interest and other financial income.. (1,862) (1,995) (6,128) Interest and other financial expense. 63,647 64,031 64,830 ---------- ---------- ---------- 61,785 62,036 58,702 ---------- ---------- ---------- LOSS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES.................... (279,919) (74,527) (189,397) Income tax provision (credit).......... (37,511) 156 118 ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES............................... (242,408) (74,683) (189,515) Extraordinary item..................... -- (50,000) -- Cumulative effect of accounting changes............................... (16,453) 76,251 -- ---------- ---------- ---------- NET LOSS............................... (258,861) (48,432) (189,515) Less: preferred stock dividends........ (13,364) (17,449) (17,257) ---------- ---------- ---------- NET LOSS APPLICABLE TO COMMON STOCK........................... $ (272,225) $ (65,881) $ (206,772) ========== ========== ========== PER SHARE DATA APPLICABLE TO COMMON STOCK: - --------------------------------------------------------------------------- LOSS BEFORE EXTRAORDINARY ITEM AND CU- MULATIVE EFFECT OF ACCOUNTING CHANGES.................... $ (7.55) $ (3.61) $ (8.11) Extraordinary item..................... -- (1.96) -- Cumulative effect of accounting changes............................... (.49) 2.99 -- ---------- ---------- ---------- NET LOSS APPLICABLE TO COMMON STOCK.... $ (8.04) $ (2.58) $ (8.11) ========== ========== ========== Weighted average shares outstanding (in thousands)............................ 33,879 25,500 25,500
See notes to consolidated financial statements. 32 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
ASSETS ------ DECEMBER 31, ---------------------- 1993 1992 ---------- ---------- Current assets Cash and cash equivalents............................. $ 5,322 $ 55,220 Receivables, less allowances (1993--$21,380; 1992--$26,385)....................... 224,709 218,082 Inventories: Finished and semi-finished products................. 246,285 239,459 Raw materials and supplies.......................... 124,812 132,367 ---------- ---------- 371,097 371,826 ---------- ---------- Total current assets.............................. 601,128 645,128 Investments in affiliated companies..................... 58,278 56,409 Property, plant and equipment Land and land improvements............................ 221,224 219,593 Buildings............................................. 259,037 291,460 Machinery and equipment............................... 2,816,531 2,775,090 ---------- ---------- 3,296,792 3,286,143 Less: Allowance for depreciation, depletion and amortization........................... 1,898,055 1,890,676 ---------- ---------- Net property, plant and equipment................. 1,398,737 1,395,467 Deferred income taxes................................... 80,600 43,000 Intangible pension asset................................ 128,765 12,100 Other assets............................................ 36,692 36,412 ---------- ---------- TOTAL ASSETS...................................... $2,304,200 $2,188,516 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY --------------------------------- Current liabilities Accounts payable...................................... $ 242,294 $ 257,217 Salaries and wages.................................... 49,602 47,950 Withheld and accrued taxes............................ 74,444 72,672 Pension and other employee benefits................... 69,679 70,643 Other accrued liabilities............................. 107,556 86,403 Income taxes.......................................... 2,700 2,972 Long-term obligations and related party indebtedness due within one year.................................. 28,257 33,468 ---------- ---------- Total current liabilities......................... 574,532 571,325 Long-term obligations................................... 344,096 352,265 Long-term indebtedness to related parties............... 329,995 309,500 Long-term pension liability ............................ 288,793 120,219 Postretirement benefits other than pensions............. 157,435 66,116 Other long-term liabilities............................. 351,357 304,598 Commitments and contingencies Redeemable Preferred Stock--Series B.................... 68,030 137,802 Stockholders' equity Common Stock, par value $.01: Class A--authorized 30,000,000 shares; issued and outstanding 22,100,000 shares in 1993 and 25,500,000 shares in 1992.......................... 221 255 Class B--authorized 65,000,000 shares; issued and outstanding 14,261,100 shares...................... 143 -- Preferred Stock--Series A............................. 36,650 36,650 Additional paid-in capital............................ 360,314 218,991 Retained earnings (deficit)........................... (207,366) 70,795 ---------- ---------- Total stockholders' equity.......................... 189,962 326,691 ---------- ---------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY................... $2,304,200 $2,188,516 ========== ==========
See notes to consolidated financial statements. 33 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................... $(258,861) $ (48,432) $(189,515) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization.. 137,500 114,880 117,008 Carrying charges related to facility sales and plant closings....................... 35,597 30,832 21,511 Unusual items (excluding pensions and OPEB).................................... 37,900 23,739 107,127 Equity income of affiliates............... (2,160) (5,600) (9,063) Dividends from affiliates................. 5,765 6,738 10,144 Long-term pension liability............... 51,909 17,443 14,624 Postretirement benefits................... 97,562 -- -- Extraordinary item........................ -- 50,000 -- Deferred income taxes..................... (37,600) -- -- Cumulative effect of accounting changes... 16,453 (76,251) -- Cash provided (used) by working capital items: Receivables............................... (6,627) (4,239) (17,220) Inventories............................... 729 (8,120) 49,947 Accounts payable.......................... (14,923) 72,726 (28,071) Accrued liabilities....................... (6,336) (24,365) (1,967) Other....................................... 2,063 (17,193) (4,367) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVI- TIES................................... 58,971 132,158 70,158 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment.. (160,708) (283,941) (178,225) Proceeds from sale of assets................ 7,182 860 486 --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES... (153,526) (283,081) (177,739) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Class B Common Stock............ 141,432 -- -- Redemption of Preferred Stock--Series B..... (67,804) -- -- Debt repayments............................. (33,469) (32,450) (121,410) Borrowings.................................. 84 12,150 4,513 Borrowings from related parties............. 40,500 197,500 162,000 Payment of released Weirton benefit liabili- ties....................................... (20,001) (15,340) (17,689) Payment of unreleased Weirton liabilities and their release in lieu of cash dividends on Preferred Stock--Series B............... (10,594) (15,356) (16,125) Dividend payments on Preferred Stock--Series A.......................................... (4,030) (4,033) (4,031) Dividend payments on Preferred Stock--Series B.......................................... (1,461) (777) -- --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVI- TIES................................... 44,657 141,694 7,258 --------- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS..... (49,898) (9,229) (100,323) Cash and Cash Equivalents, Beginning of the Year......................................... 55,220 64,449 164,772 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF THE YEAR.... $ 5,322 $ 55,220 $ 64,449 ========= ========= ========= SUPPLEMENTAL CASH PAYMENT INFORMATION: Interest and other financing costs paid (net of amounts capitalized).................... $ 51,886 $ 32,224 $ 43,493 Income taxes paid........................... 72 130 1,257
See notes to consolidated financial statements. 34 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK--SERIES B (IN THOUSANDS OF DOLLARS)
COMMON COMMON STOCK STOCK REDEEMABLE -- -- PREFERRED ADDITIONAL RETAINED TOTAL PREFERRED CLASS CLASS STOCK-- PAID-IN EARNINGS STOCKHOLDERS' STOCK-- A B SERIES A CAPITAL (DEFICIT) EQUITY SERIES B ------ ------ --------- ---------- --------- ------------- ---------- BALANCE AT JANUARY 1, 1991................... $ 75 $-- $36,650 $219,171 $ 343,448 $599,344 $144,802 Restatement for 340 for 1 stock split effected in the form of a stock dividend............... 180 (180) Net loss................ (189,515) (189,515) Amortization of excess of book value over re- demption value of Re- deemable Preferred Stock--Series B ....... 3,500 3,500 (3,500) Cumulative dividends on Preferred Stocks--Se- ries A and B.................. (20,757) (20,757) ---- ---- ------- -------- --------- -------- -------- BALANCE AT DECEMBER 31, 1991 .................. $255 $-- $36,650 $218,991 $ 136,676 $392,572 $141,302 Net loss................ (48,432) (48,432) Amortization of excess of book value over re- demption value of Re- deemable Preferred Stock--Series B........ 3,500 3,500 (3,500) Cumulative dividends on Preferred Stocks--Se- ries A and B.................. (20,949) (20,949) ---- ---- ------- -------- --------- -------- -------- BALANCE AT DECEMBER 31, 1992................... $255 $-- $36,650 $218,991 $ 70,795 $326,691 $137,802 Net loss................ (258,861) (258,861) Redemption of Redeemable Preferred Stock--Series B ..................... (67,804) Amortization of excess of book value over re- demption value of Re- deemable Preferred Stock--Series B ....... 1,968 1,968 (1,968) Cumulative dividends on Preferred Stocks--Se- ries A and B ................. (15,332) (15,332) Issuance of Common Stock--Class B ........ 109 141,323 141,432 Conversion of 3,400,000 shares of NII Common Stock--Class A to Com- mon Stock-- Class B ............... (34) 34 Minimum pension liabili- ty..................... (5,936) (5,936) ---- ---- ------- -------- --------- -------- -------- BALANCE AT DECEMBER 31, 1993................... $221 $143 $36,650 $360,314 $(207,366) $189,962 $ 68,030 ==== ==== ======= ======== ========= ======== ========
See notes to consolidated financial statements. 35 NATIONAL STEEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of National Steel Corporation and its majority owned subsidiaries (the "Company"). Cash Equivalents: Cash equivalents are short-term investments which consist principally of time deposits at cost which approximates market. These investments have maturities of three months or less at the time of purchase. Inventories: Inventories are stated at the lower of last-in, first-out ("LIFO") cost or market. If the first-in, first-out ("FIFO") cost method of inventory accounting had been used, inventories would have been approximately $169.5 million and $141.3 million higher than reported at December 31, 1993 and 1992, respectively. During each of the last three years certain inventory quantity reductions caused liquidations of LIFO inventory values. These liquidations decreased net income for the quarters and years ended December 31, 1993 and 1992, by $3.0 million and $3.4 million, respectively, and increased net income for the quarter and year ended December 31, 1991 by approximately $10.9 million. Investments: Investments in affiliated companies (corporate joint ventures and 20% to 50% owned companies) are stated at cost plus equity in undistributed earnings since acquisition. Undistributed earnings of affiliated companies included in retained earnings at December 31, 1993 and 1992 amounted to $7.2 million and $11.3 million, respectively. Property, Plant and Equipment: Property, plant and equipment are stated at cost and include certain expenditures for leased facilities. Interest costs applicable to facilities under construction are capitalized. Capitalized interest amounted to $5.8 million in 1993, $14.4 million in 1992 and $4.5 million in 1991. Amortization of capitalized interest amounted to $5.7 million in 1993, $4.6 million in 1992 and $4.5 million in 1991. Depreciation, Depletion and Amortization: Depreciation of production facilities and amortization related to capitalized lease obligations are generally provided by charges to income computed by the straight-line method. Provisions for depreciation and depletion of certain raw material facilities and furnace relinings are computed on the basis of tonnage produced in relation to estimated total production to be obtained from such facilities. Environmental: Estimated losses from environmental contingencies are accrued and charged to income when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. (See Note M--Environmental Liabilities.) Research and Development: Research and development costs are expensed when incurred and are charged to cost of products sold. Expenses for 1993, 1992 and 1991 amounted to approximately $9.4 million, $9.5 million and $8.8 million, respectively. Income Taxes: Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"), whereby deferred items are determined based on differences between the financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to 1992, the Company accounted for income taxes under Accounting Principles Board Opinion No. 11 ("APB 11"). 36 Financial Instruments: The Company's financial instruments, as defined by Statement of Financial Accounting Standards No. 107, consist of cash and cash equivalents, long-term obligations (excluding capitalized lease obligations), and the Series B Preferred Stock (defined below). The Company's estimate of the fair value of these financial instruments approximates their carrying amounts at December 31, 1993. Accounting Changes: During 1993, the Company adopted two new Financial Accounting Standards Board Statements, "Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106" or "OPEB") and "Employer's Accounting for Postemployment Benefits" ("SFAS 112"). (See Note F--Postretirement Benefits Other Than Pensions and Note G--Postemployment Benefits.) Earnings per Share: Earnings (loss) per share of Common Stock ("EPS") is computed by dividing net income or loss applicable to common stockholders by the sum of the weighted average of the shares of common stock outstanding during the period plus common stock equivalents, if dilutive. Business Segment: The Company is engaged in a single line of business, the production and processing of steel. The Company targets high value added applications of flat rolled carbon steel for sale to the automotive, metal buildings and container markets. The Company also sells hot and cold rolled steel to a wide variety of other users including the pipe and tube industry and independent steel service centers. In 1993, a single customer accounted for approximately 11% of net sales and approximately 12% of net sales in 1992 and 1991. Sales of the Company's products to the automotive market accounted for approximately 29%, 27% and 26% of the Company's total net sales in 1993, 1992 and 1991, respectively. Concentration of credit risk related to the Company's trade receivables is limited due to the large numbers of customers in differing industries and geographic areas. Reclassifications: Certain items in prior years have been reclassified to conform with the current year presentation. NOTE B--CAPITAL STRUCTURE AND INITIAL PUBLIC OFFERING OF COMMON STOCK Ownership. At December 31, 1993, 75.6% of the voting control of the Company was owned by NKK Corporation (collectively with its subsidiaries "NKK"). The majority of this control has been acquired since 1984 from National Intergroup, Inc. (collectively with its subsidiaries "NII") which owned 5.8% of the voting control of the Company at December 31, 1993. (See Note S--Subsequent Events.) In April 1993, the Company completed an initial public offering (the "IPO") of 10,861,100 shares of its Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), at an offering price of $14 per share, which generated net proceeds to the Company of approximately $141.4 million. In connection with the IPO, 30,000,000 shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), were authorized and the then outstanding 75,000 shares of existing Common Stock received a 340 for 1 stock split effectuated in the form of a stock dividend and the common stock was automatically converted to Class A Common Stock. Stockholders' equity at December 31, 1991 has been retroactively adjusted to reflect this stock dividend. As a result of the IPO, all preferred stock outstanding became non- voting. On October 28, 1993, NII converted each of its 3,400,000 shares of Class A Common Stock to 3,400,000 shares of Class B Common Stock, bringing the total number of outstanding shares of Class A and Class B Common Stock to 22,100,000 and 14,261,100, respectively, at December 31, 1993. (See Note S--Subsequent Events.) At December 31, 1993 the Company's capital structure was as follows: Series A Preferred Stock At December 31, 1993, there were 5,000 shares of Series A Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), issued and outstanding. Annual dividends of $806.30 per share on the Series A Preferred Stock are cumulative and payable quarterly. The Series A Preferred Stock is not subject to mandatory redemption by the Company and is non-voting. 37 Series B Redeemable Preferred Stock On May 4, 1993, the Company redeemed 10,000 shares of the Series B Redeemable Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"), held by NII. These shares were subject to mandatory redemption on August 5, 1995. The cost of the redemption totaled $67.8 million and was funded from proceeds received in connection with the IPO. If the redemption of these shares had occurred at the beginning of the year, EPS for 1993 would have increased by $.06. Pursuant to the terms of the Series B Preferred Stock and certain other agreements between the Company and NII, the Company paid the redemption amount directly to a pension trustee and released NII from a corresponding amount of NII's indemnification obligations with respect to certain employee benefit liabilities of the Company retained in connection with the sale of its Weirton Steel Division. (See Note J--Weirton Liabilities.) At December 31, 1993 there were 10,000 remaining shares of Series B Preferred Stock issued and outstanding and held by NII. Annual dividends of $806.30 per share on the Series B Preferred Stock are cumulative and payable quarterly. Dividends and redemption proceeds, to the extent required by the Stock Purchase and Recapitalization Agreement (the "Recapitalization Agreement"), are used to release NII from its indemnification obligations with respect to the remaining unreleased liabilities for certain employee benefits for the employees of its former Weirton Steel Division ("Weirton") employees (the "Weirton Benefit Liabilities"). (See Note J--Weirton Liabilities.) The Series B Preferred Stock dividend permitted release and payment of $10.6 million and $15.3 million of previously unreleased Weirton Benefit Liabilities during 1993 and 1992, respectively, and a cash dividend of $1.4 million and $.8 million during 1993 and 1992, respectively, to reimburse NII for an obligation previously incurred in connection with the Weirton Benefit Liabilities. Upon the occurrence of certain events detailed in the Recapitalization Agreement, prior to or coincident with the Series B Preferred Stock final redemption, the released Weirton Benefit Liabilities will be recalculated by an independent actuary. Any adjustment to bring the balances of the released Weirton Benefit Liabilities to such recalculated amount will be dealt with in the Series B Preferred Stock redemption proceeds or otherwise settled. If the Company does not meet its preferred stock dividend and redemption obligations when due, NII has the right to cause NKK to purchase the Company's preferred stock dividend and redemption obligations. The Series B Preferred Stock is nontransferable and nonvoting. The remaining Series B Preferred Stock is subject to mandatory redemption on August 5, 2000 at a redemption price of $58.3 million and may not be redeemed prior to January 1, 1998 without the consent of NII. Periodic adjustments are made to consolidated retained earnings for the excess of the book value of the Series B Preferred Stock at the date of issuance over the redemption value. Based upon the Company's actuarial analysis, the unreleased Weirton Benefit Liabilities approximate the aggregate remaining dividend and redemption payments with respect to the Series B Preferred Stock and accordingly, such payments are expected to be made in the form of releases of NII from its obligations to indemnify the Company for corresponding amounts of the remaining unreleased Weirton Benefit Liabilities. At that time, the Company will be required to deposit cash equal to the redemption amount in the Weirton Retirement Trust, thus leaving the Company's net liability position unchanged. The Series B Preferred Stock, with respect to dividend rights and rights on liquidation, ranks senior to the Company's common stock and equal to the Series A Preferred Stock. Class A Common Stock At December 31, 1993, the Company had 30,000,000 shares of $.01 par value Class A Common Stock authorized, of which 22,100,000 shares were issued and outstanding and owned by NKK. Each share of Class A Common Stock is entitled to two votes. No cash dividends were paid in 1993, 1992 or 1991. Class B Common Stock At December 31, 1993, the Company had 65,000,000 shares of $.01 par value Class B Common Stock authorized. Of the 14,261,100 shares issued and outstanding, 3,400,000 were owned by NII and the remaining 10,861,100 shares were publicly traded. (See Note S--Subsequent Events.) No cash dividends were paid in 1993. 38 The Company is restricted from paying cash dividends on Common Stock by various debt covenants. (See Note D--Long-Term Obligations and Related Party Indebtedness.) As of December 31, 1993, NKK held 75.6% of the combined voting power of the Company's 36,361,100 outstanding shares of Common Stock, while NII held 5.8% of the combined voting power of the Company. (See Note S--Subsequent Events.) The remaining 10,861,100 shares of Class B Common Stock held by the public represented 18.6% of the combined voting power of the outstanding Common Stock. NOTE C--INVESTMENT IN IRON ORE COMPANY OF CANADA Summarized financial information for Iron Ore Company of Canada, a 19.96% owned affiliated company accounted for by the equity method is presented below:
YEARS ENDED DECEMBER 31, --------------------------- 1993 1992 1991 -------- -------- -------- (U.S. DOLLARS IN THOUSANDS) Current assets............................... $132,663 $137,495 $130,843 Property, plant and equipment and other as- sets........................................ 372,467 376,286 361,289 Current liabilities.......................... 95,336 98,725 81,048 Long-term obligations and other liabilities.. 157,273 149,280 138,099 Sales and operating revenues................. 382,465 399,582 476,518 Gross profit................................. 53,892 72,274 107,721 Income before cumulative effect of accounting changes..................................... 26,215 16,203 38,121 Cumulative effect of accounting changes...... (15,097) 5,836 -- Net income................................... 11,118 22,039 38,121 Company's equity in: Net assets............................... 50,403 53,049 54,488 Net income............................... 2,219 4,399 7,609
NOTE D--LONG-TERM OBLIGATIONS AND RELATED PARTY INDEBTEDNESS Long-term obligations and related party indebtedness at December 31, 1993 and 1992 were as follows:
1993 1992 -------- -------- (DOLLARS IN THOUSANDS) First Mortgage Bonds, 8.375% Series due August 1, 2006, with general first liens on principal plants, properties, certain subsidiaries, and an affiliated company............................................. $115,587 $115,587 Convertible Subordinated Debentures, 4.625% payable annually through 1994, convertible into NII common stock at $59.37 per share........................... 2,311 3,977 Vacuum Degassing Facility Loan, 10.336% fixed rate due in semi-annual installments through 2000, with a first mortgage in favor of the lenders.............. 42,661 47,090 Continuous Caster Facility Loan, 10.057% fixed rate to 2000 when the rate will be reset to a current rate. Equal semi-annual payments due through 2007, with a first mortgage in favor of the lenders.................... 128,859 132,946 Coke Battery Loan, 7.615% fixed rate with semi-annual payments due through 2008. Lenders are wholly-owned subsidiaries of NKK and are unsecured............... 343,332 309,500 Headquarters Building Loan, current interest rate 4.275%, reset semi-annually through 1999, with a first mortgage in favor of the lender............... 8,923 10,000 Unsecured project financing.......................... -- 13,540 Capitalized lease obligation......................... 32,806 34,371 Other................................................ 27,869 28,222 -------- -------- Total long-term obligations and related party indebt- edness.............................................. 702,348 695,233 Less long-term obligations due within one year....... 28,257 33,468 -------- -------- Long-term obligations and related party indebtedness. $674,091 $661,765 ======== ========
39 Future minimum payments for all long-term obligations and leases as of December 31, 1993 are as follows:
OTHER LONG- CAPITALIZED OPERATING TERM LEASE LEASES OBLIGATIONS ----------- --------- ----------- (DOLLARS IN THOUSANDS) 1994................................... $ 5,491 $ 58,577 $ 26,506 1995................................... 6,101 58,087 40,143 1996................................... 6,712 54,922 59,891 1997................................... 6,712 52,090 47,093 1998................................... 6,712 48,719 48,425 After 1998............................. 20,136 263,548 447,484 ------- -------- -------- Total payments......................... 51,864 $535,943 $669,542 ======== ======== Less amount representing interest.... 19,058 Less current portion of obligation under capitalized lease............. 1,751 ------- Long-term obligation under capital- ized lease............................... $31,055 =======
Operating leases include a coke battery facility which services the Granite City Division and expires in 2004, a continuous caster and the related ladle metallurgy facility which services the Great Lakes Division and expires in 2008, and an electrolytic galvanizing facility which services the Great Lakes Division (the "EGL") and expires in 2001. Upon expiration, the Company has the option to extend the leases or purchase the equipment at fair market value. The Company's remaining operating leases cover various types of properties, primarily machinery and equipment, which have lease terms generally for periods of 2 to 20 years, and which are expected to be renewed or replaced by other leases in the normal course of business. Rental expense under operating leases totaled $70.7 million, in 1993, $79.8 million in 1992 and $81.2 million in 1991. During 1993, the Company borrowed $40.5 million from a United States subsidiary of NKK, thereby completing the $350.0 million construction period financing for the No. 5 coke oven battery rebuild at the Great Lakes Division. Later in 1993, the Company paid $6.7 million in principal, and recorded $25.1 million in interest expense on the coke battery loan. Accrued interest on the loan as of December 31, 1993 was $10.5 million. Additionally, deferred financing costs related to the loan were $4.5 million and $4.2 million, respectively, as of December 31, 1993 and 1992. Credit Arrangements The Company's credit arrangements include a $100 million revolving secured credit arrangement (the "Revolver"), a $150 million subordinated loan agreement (the "Subordinated Loan Agreement") and $25 million in uncommitted, unsecured lines of credit (the "Uncommitted Lines of Credit"). The Revolver was amended and restated in December 1992 to extend the expiration date to December 31, 1994. The Revolver permits the Company to borrow up to $100 million on a short term basis, and provides the Company with the ability to issue up to $150 million in letters of credit. The Revolver is secured by the accounts receivable and inventories of the Company. This arrangement has interest rates which approximate current market rates for periods of one, two, three or six months. At December 31, 1993 and 1992, no borrowings were outstanding and letters of credit outstanding amounted to $113.7 million and $113.6 million, respectively, under the Revolver. The Subordinated Loan Agreement, which was entered into in May 1991 with a United States subsidiary of NKK, was also extended in December 1992 to an expiration date of April 1, 1995. This arrangement has 40 interest rates which approximate current market rates for periods from one month to six months and permits the Company to borrow up to $150 million on an unsecured, short-term basis. The Revolver requires that the first $50 million in borrowings by the Company in excess of thirty days must come from the Subordinated Loan Agreement. Additional amounts borrowed would alternate between the Revolver and the Subordinated Loan Agreement up to $25 million in each increment. There were no borrowings under the Subordinated Loan Agreement during 1993 or 1992. The Uncommitted Lines of Credit permit the Company to borrow up to $25 million on an unsecured, short-term basis for periods of up to thirty days. One of these arrangements expires on March 31, 1994, while the other has no fixed expiration date and may be withdrawn at any time without notice. During 1993, the Company borrowed a maximum of $7.7 million under its Uncommitted Lines of Credit, which was repaid the next day. No borrowings were outstanding at December 31, 1993 and 1992. At December 31, 1993 the Company was prohibited from paying cash dividends on Common Stock by various common stock dividend covenants. The most restrictive dividend covenant is contained in the EGL lease agreement. The Company is not restricted from paying its annual Series A and B Preferred Stock dividend obligations. NOTE E--PENSIONS The Company has various non-contributory defined benefit pension plans covering substantially all employees. Benefit payments for salaried employees are based upon a formula which utilizes employee age, years of credited service and the highest five consecutive years of pensionable earnings during the last ten years preceding normal retirement. Benefit payments to most hourly employees are the greater of a benefit calculation utilizing fixed rates per year of service or the highest five consecutive years of pensionable earnings during the last ten years preceding retirement, with a premium paid for years of service in excess of thirty years. The Company's funding policy is to contribute, at a minimum, the amount necessary to meet minimum funding standards as prescribed by applicable law. The Company utilizes a long-term rate of return of 9.0% for funding purposes. The Company's pension contributions for the 1993 and 1992 plan years were $30.8 million and $28.0 million, respectively. The Company anticipates that its 1994 pension contributions will increase by approximately $30 million attributable to both increases in benefits resulting from the July 31, 1993 settlement agreement (the "1993 Settlement Agreement") between the Company and the United Steelworkers of America ("USWA") and the decrease in the discount rate used to measure the pension obligation. Pension cost and related actuarial assumptions utilized are summarized below:
1993 1992 1991 --------- -------- --------- (DOLLARS IN THOUSANDS) Assumptions: Discount rate.......................... 8.75% 8.75% 8.75% Return on assets....................... 9.50% 9.50% 9.50% Average rate of compensation increase.. 5.50% 5.50% 5.50% Pension Cost: Service cost........................... $ 21,537 $ 18,924 $ 19,302 Interest cost.......................... 100,783 96,004 92,719 Actual return on plan assets........... (160,561) (58,772) (170,534) Net amortization and deferral.......... 89,567 (13,860) 108,196 --------- -------- --------- Net pension expense.................... 51,326 42,296 49,683 Curtailment and special termination charges............................... 35,005 12,656 1,627 Other.................................. 169 577 191 --------- -------- --------- Total pension costs.................. $ 86,500 $ 55,529 $ 51,501 ========= ======== =========
41 In connection with the temporary idling of National Steel Pellet Company ("NSPC"), a wholly-owned subsidiary of the Company, special termination benefits of $31.9 million related to hourly NSPC plan participants were recorded at December 31, 1993 and included in total pension cost above. (See Note P--Temporary Idling of National Steel Pellet Company.) The funded status of the Company's plans at year end along with the actuarial assumptions utilized are as follows:
1993 1992 ---------- ---------- (DOLLARS IN THOUSANDS) Assumptions: Discount rate................................. 7.50% 8.75% Average rate of compensation increase......... 4.40% 5.50% Funded status: Accumulated benefit obligations ("ABO") in- cluding vested benefits of $1,280,360 and $944,913 for 1993 and 1992, respectively..... $1,345,592 $1,006,769 Effect of future pensionable earnings increas- es........................................... 90,589 152,640 ---------- ---------- Projected benefit obligations ("PBO")......... 1,436,181 1,159,409 Plans' assets at fair market value............ 1,089,273 990,217 ---------- ---------- PBO in excess of plan assets at fair market value........................................ 346,908 169,192 Unrecognized transition obligation............ (80,197) (85,415) Unrecognized net gain......................... 24,107 59,332 Unrecognized prior service cost............... (125,788) (28,479) Adjustment required to recognize minimum pen- sion liability............................... 134,691 12,100 ---------- ---------- Total pension liability......................... 299,721 126,730 Less pension obligation due within one year..... 10,928 6,511 ---------- ---------- Long-term pension liability................. $ 288,793 $ 120,219 ========== ==========
The adjustment required to recognize the minimum pension liability of $134.7 million in 1993 represents the excess of the ABO over the fair value of plan assets in underfunded plans, and is primarily the result of the 1.25% decrease in the discount rate, as well as increased pension benefits resulting from the 1993 Settlement Agreement. The unfunded liability in excess of the unrecognized prior service cost of $5.9 million was recorded as a reduction in stockholders' equity at December 31, 1993. The remaining portion of the unfunded liability of $128.8 million was offset by an intangible pension asset. At December 31, 1993, the Company's pension plans' assets were comprised of approximately 50.0% equity investments, 39.9% fixed income investments, 4.1% cash and 6.0% in other investments including real estate and venture capital. NOTE F--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Effective January 1, 1993, the Company implemented SFAS 106 which requires accrual of retiree medical and life insurance benefits as these benefits are earned rather than recognition of these costs as claims are paid. In 1993, the excess of total postretirement benefit expense recorded under SFAS 106 over the Company's former method of accounting for these benefits was $97.6 million, or $59.5 million excluding curtailment charges, or $1.77 and $1.08 per share net of tax, respectively. In 1993 the Company's cash OPEB payments were approximately $32 million. The Company provides health care and life insurance benefits for certain retirees and their dependents. Generally, employees are eligible to participate in the medical benefit plans if they retired under one of the 42 Company's pension plans on other than a deferred vested basis, and at the time of retirement had at least 15 years of continuous service. However, salaried employees hired after January 1, 1993 are not eligible to participate in the plans. The Company's medical benefit plans are contributory. Health care benefits are funded as claims are paid; thus adoption of SFAS 106 has no impact on the cash flows of the Company. However, as discussed below, the Company will begin prefunding the OPEB obligation for USWA represented employees in 1994. The Company elected to amortize the unrecognized transition obligation, which was calculated to be $556.0 million at January 1, 1993, over a period of 20 years, in part, to continually focus the attention of its employees on the magnitude of its rising health care costs. Amortization of the transition obligation will adversely impact EPS on an after tax basis by approximately $.45 per year for the next 19 years based upon shares of common stock outstanding at December 31, 1993. The components of postretirement benefit cost and related actuarial assumptions are as follows:
1993 ---------- (DOLLARS IN THOUSANDS) Assumptions: Discount rate................................................ 8.75% Health care trend rate....................................... 11.20% Postretirement benefit cost: Service cost................................................. $ 12,912 Interest cost................................................ 52,811 Amortization of transition obligation........................ 28,071 Gains........................................................ (8,176) -------- Net periodic benefit cost.................................... 85,618 Curtailment charges.......................................... 38,061 -------- Total postretirement benefit cost.......................... $123,679 ========
In connection with the temporary idling of NSPC, curtailment charges of $36.7 million related to hourly NSPC plan participants were recorded at December 31, 1993 and included in total postretirement benefit cost at December 31, 1993. (See Note P--Temporary Idling of National Steel Pellet Company.) The following represents the plans' funded status reconciled with amounts recognized in the Company's balance sheet and related actuarial assumptions:
1993 --------------------------- DECEMBER 31 JANUARY 1 ----------- --------- (DOLLARS IN THOUSANDS) Assumptions: Discount rate............................. 7.75% 8.75% Health care trend rate.................... 10.30% 11.20% Accumulated postretirement benefit obliga- tion ("APBO"): Retirees.................................. $ 457,295 $ 431,683 Fully eligible active participants........ 99,773 95,384 Other active participants................. 117,765 95,054 ---------- --------- Total................................... 674,833 622,121 Plan assets at fair value:.................. -- -- ---------- --------- APBO in excess of plan assets............. 674,833 622,121 Unrecognized transition obligation........ (503,683) (556,005) Unrecognized net loss..................... (13,715) -- ---------- --------- Postretirement benefit liability........ $ 157,435 $ 66,116 ========== =========
43 The assumed health care cost trend rate of 10.3% in 1994 decreases gradually to the ultimate trend rate of 5.0% in 2002 and thereafter. A 1.0% increase in the assumed health care cost trend rate would have increased the APBO at December 31, 1993 and postretirement benefit cost for 1993 by $26.7 million and $3.3 million, respectively. Differences between January 1, 1993 SFAS 106 disclosures at December 31, 1993 and in the Company's March 31, 1993 Form 10-Q reflect the fact that the adoption amounts disclosed in interim reports were based upon preliminary claims data through December 31, 1992, whereas the year end disclosure was based upon final data. In addition, the Company utilized a flat 8.75% discount rate at January 1, 1993 versus an initial rate of 6.0% which was to gradually increase to a 9.0% rate in 1996, as discussed in the March 31, 1993 Form 10-Q. In connection with the 1993 Settlement Agreement between the Company and the USWA, the Company will begin prefunding the OPEB obligation with respect to USWA represented employees in 1994. Under the terms of the 1993 Settlement Agreement, a Voluntary Employee Benefit Association trust (the "VEBA Trust") will be established to which the Company has agreed to contribute a minimum of $10 million annually and, under certain circumstances, additional amounts calculated as set forth in the 1993 Settlement Agreement. The Company has granted to the VEBA a second mortgage on the No. 5 coke oven battery at the Great Lakes Division. NOTE G--POSTEMPLOYMENT BENEFITS During the fourth quarter of 1993, the Company adopted SFAS 112 which requires accrual accounting for benefits payable to inactive employees who are not retired. Among the more significant benefits included are worker's compensation, long-term disability and continued medical coverage for disabled employees and surviving spouses. The Company previously followed the practice of accruing for many of these benefits, but did not base these accruals on actuarial analyses. Prior year financial statements have not been restated to reflect the change in accounting method. The cumulative effect as of January 1, 1993 of this change was to increase the net loss by $16.5 million or $.49 per share. The results of operations for the first quarter have been restated to reflect the effect of adopting SFAS 112 at January 1, 1993. The effect of the change on 1993 income before the cumulative effect of the change was not material, therefore the remaining quarters of 1993 have not been restated. NOTE H--OTHER LONG-TERM LIABILITIES Other long-term liabilities at December 31, 1993 and 1992 consisted of the following:
1993 1992 -------- -------- (DOLLARS IN THOUSANDS) Deferred gain on sale leasebacks....................... $ 29,032 $ 31,281 Insurance and employee benefits (excluding pensions and OPEB)................................................. 97,442 88,925 Plant closings......................................... 74,127 45,780 Released Weirton Benefit Liabilities................... 122,137 125,981 Other.................................................. 28,619 12,631 -------- -------- Total other long term liabilities...................... $351,357 $304,598 ======== ========
NOTE I--INCOME TAXES Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method as required by SFAS 109. As permitted under the new 44 pronouncement, prior years' financial statements were not restated. The cumulative effect of adopting SFAS 109, as of January 1, 1992, was to decrease the net loss for 1992 by $76.3 million. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 1993 and 1992 are as follows:
1993 1992 --------- --------- (DOLLARS IN THOUSANDS) Deferred tax assets: Reserves......................................... $ 180,600 $ 204,900 Employee benefits................................ 120,600 44,200 Net operating loss carryforwards................. 189,600 138,100 Leases........................................... 24,200 23,500 Deferred gain.................................... 8,500 9,100 Federal tax credits.............................. 5,200 5,200 Other............................................ 18,400 4,700 --------- --------- Total deferred tax assets...................... 547,100 429,700 Valuation allowance................................ (263,200) (189,100) --------- --------- Deferred tax assets net of valuation allowance... 283,900 240,600 --------- --------- Deferred tax liabilities: Book basis of property in excess of tax basis.... (151,900) (148,100) Excess tax LIFO over book........................ (31,000) (29,400) Other............................................ (20,400) (20,100) --------- --------- Total deferred tax liabilities................. (203,300) (197,600) --------- --------- Net deferred tax asset after valuation allowance. $ 80,600 $ 43,000 ========= =========
In 1992, available tax planning strategies served as the only basis for determining the amount of the net deferred tax asset to be recognized. As a result, a full valuation allowance was recorded, except for the $43.0 million recognized pursuant to those tax planning strategies. In 1993, the Company determined that it was more likely than not that sufficient future taxable income would be generated to justify increasing the net deferred tax asset after valuation allowance as presented above. Accordingly, the Company recognized an additional deferred tax asset of $37.6 million in 1993, which had the effect of decreasing the Company's net loss by a like amount, bringing the net deferred tax asset to $80.6 million at December 31, 1993. Significant components of the provision for income taxes are as follows:
LIABILITY DEFERRED METHOD METHOD -------------- -------- 1993 1992 1991 -------- ---- -------- (DOLLARS IN THOUSANDS) Current: state and foreign........................ $ 89 $156 $118 Deferred.......................................... (37,600) -- -- -------- ---- ---- Total tax provision (credit).................. $(37,511) $156 $118 ======== ==== ====
45 The reconciliation of the income tax computed at the U.S. federal statutory tax rates to income tax expense is:
DEFERRED LIABILITY METHOD METHOD ------------------- -------- 1993 1992 1991 --------- -------- -------- (DOLLARS IN THOUSANDS) Tax at U.S. statutory rates............... $(103,700) $(25,300) $(64,400) Extraordinary item........................ -- (17,000) -- Net operating loss carryforward for which no benefit was recognized................ 51,500 35,856 35,020 Temporary deductible differences for which no benefit was recognized (net).......... 22,600 10,400 33,798 State and foreign income taxes, net of federal benefit.......................... 100 100 100 Depletion................................. -- (2,300) (2,000) Dividend exclusion........................ (1,600) (1,600) (2,400) Other..................................... (6,411) -- -- --------- -------- -------- Total tax provision................... $ (37,511) $ 156 $ 118 ========= ======== ========
At December 31, 1993, the Company has unused net operating loss carryforwards of approximately $525.3 million which expire as follows: $30.7 million in 1998, $78.1 million in 2000, $71.3 million in 2001, $108.0 million in 2006, $99.4 million in 2007 and $137.8 million in 2008. Tax benefits relating to operating loss carryforwards were not recorded in 1991 in accordance with APB 11. To date, the Company believes that it has not undergone an ownership change for federal income tax purposes, however there can be no assurance that the Company will not undergo such a change in the future. Future events, some of which may be beyond the Company's control, could cause an ownership change. An ownership change may substantially limit the Company's ability to offset future taxable income with its net operating loss carryforwards. At December 31, 1993, the Company has unused alternative minimum tax credit carryforwards of approximately $3.2 million which may be applied to offset its future regular federal income tax liabilities. These tax credits may be carried forward indefinitely. NOTE J--WEIRTON LIABILITIES On January 11, 1984, the Company completed the sale of substantially all of the assets of its Weirton Steel Division to Weirton Steel Corporation, a corporation owned by its employees, through an employee stock ownership trust. In connection with the sale of Weirton, the Company retained certain existing and contingent liabilities (the "Weirton Liabilities") including the Weirton Benefit Liabilities, which consist of, among other things, pension benefits for the then active employees based on service prior to the sale, and pension, life and health insurance benefits for the then retired employees and certain environmental liabilities. As part of the 1984 sale of a 50% interest in the Company to NKK, NII agreed, as between NII and the Company, to provide in advance sufficient funds for payment and discharge of, and to indemnify the Company against, all obligations and liabilities of the Company, whether direct, indirect, absolute or contingent, incurred or retained by the Company in connection with the sale of Weirton. As part of the 1990 ownership transaction whereby NKK purchased an additional 20% ownership in the Company, the Company released NII from indemnification of $146.6 million of certain defined Weirton Benefit Liabilities. NII also reaffirmed its agreement to indemnify the Company for Weirton environmental liabilities as to which the Company is obligated to Weirton Steel Corporation. (See Note S--Subsequent Events.) On May 4, 1993, the Company released NII from an additional $67.8 million of previously unreleased Weirton Benefit Liabilities in connection with the early redemption of 10,000 shares of Series B Preferred Stock. At December 31, 1993, the net present value of the released Weirton Benefit Liabilities, based upon a discount factor of 12.0% per annum, is $140.1 million. NII continues to indemnify the Company for the 46 remaining unreleased Weirton Benefit Liabilities and other liabilities. Since the Company is indemnified by NII for such remaining liabilities, they are not recorded in the Company's consolidated balance sheet. Such Weirton Liabilities are comprised of (i) the unreleased Weirton Benefit Liabilities, the amount of which, based on the Company's actuarial analysis, approximates the aggregate remaining dividend and redemption payments of $112.7 million with respect to the Series B Preferred Stock and (ii) other contingent liabilities, such as environmental liabilities, that are not currently estimable. NOTE K--UNUSUAL ITEMS During 1993, the Company recorded unusual charges which totaled $111.0 million, primarily relating to the temporary idling of NSPC. (See Note P-- Temporary Idling of National Steel Pellet Company.) A fourth quarter charge of $108.6 million was recorded to recognize various liabilities incurred in connection with the idling, most notably pensions and postemployment benefits. Additionally, the Company recorded a charge of $4.5 million relating to the acceptance by represented office and technical employees of a voluntary pension window offered by the Company as a part of its functional consolidation and reorganization plan. In 1992, the Company recorded unusual charges aggregating $37.0 million relating principally to a pension window and the Company's decision to exit the coal mining business. A charge of $13.3 million was recognized relating to a 1992 pension window as part of the consolidation of certain staff functions and the relocation of its corporate office to Mishawaka, Indiana from Pittsburgh, Pennsylvania. As a result of management's decision to exit the coal mining business, an unusual charge of $24.9 million was recognized during the fourth quarter to reduce certain coal properties to net realizable value and record postemployment, environmental and other liabilities. During 1991, the Company recorded unusual charges which totaled $110.7 million. A charge of $41.5 million was recorded for the estimated costs anticipated to be incurred in conjunction with the consolidation of certain staff functions and relocation in 1992 of the corporate headquarters to Mishawaka, Indiana from Pittsburgh, Pennsylvania. An unusual charge of $25.5 million related to the Company's decision to permanently idle its Mathies coal mine after efforts to obtain third party financing to reopen the mine after a fire were unsuccessful. Concurrently, the Company undertook an evaluation of its other coal properties and operations and recorded an unusual charge of $43.7 million to reduce certain coal properties to net realizable value and to recognize postemployment, environmental and other liabilities. NOTE L--RELATED PARTY TRANSACTIONS Summarized below are transactions between the Company and NKK, NII and the Company's affiliated companies accounted for under the equity method. The Company had borrowings outstanding with an NKK affiliate totaling $343.3 million and $309.5 million as of December 31, 1993 and 1992, respectively. (See Note D--Long-Term Obligations and Related Party Indebtedness.) Subsidiaries of the Company sold coal to and purchased coke from a subsidiary of NKK in 1991 totaling $7.5 million and $22.5 million, respectively. There were no such coal sales or coke purchases of this type in 1993 or 1992. Accounts receivable and accounts payable relating to these transactions totalled $3.2 million and $2.5 million, respectively, at each of the two years ended December 31, 1993. The Company's selling, general and administrative expenses for 1992 and 1991 included charges of $2.2 million and $3.9 million, respectively, for facilities provided and direct services performed by NII for the benefit of the Company, all of which arrangements have expired or have been terminated. During January 1994, NII completed the sale of substantially all of its 3,400,000 shares of Class B Common Stock. In both 1993 and 1992, cash dividends of $4.0 million were paid on the Series A Preferred Stock. Accrued dividends of $0.6 million were recorded as of December 31, 1993 and 1992 related to the Series A Preferred Stock. For 1993 and 1992, Series B Preferred Stock dividend payments totaling $12.0 million and $16.1 million were made through the release and payment of $10.6 million and $15.3 million of previously unreleased Weirton Benefit Liabilities and $1.4 million and $.8 million of cash to reimburse NII for an 47 obligation previously incurred in connection with certain Weirton Liabilities, respectively. At December 31, 1993 and 1992, accrued dividends related to the Series B Preferred Stock totalled $1.2 million and $2.4 million, respectively. The Company is contractually required to purchase its proportionate share of raw material production from certain affiliated companies. Such purchases of raw materials and services aggregated $65.9 million in 1993, $63.3 million in 1992 and $65.3 million in 1991. Additional expenses were incurred in connection with the operation of a joint venture agreement. (See Note N--Other Commitments and Contingencies.) Accounts payable at December 31, 1993 and 1992 included amounts with affiliated companies accounted for by the equity method of $29.1 million and $24.3 million, respectively. NOTE M--ENVIRONMENTAL LIABILITIES The Company's operations are subject to numerous laws and regulations relating to the protection of human health and the environment. Because these environmental laws and regulations are quite stringent and are generally becoming more stringent, the Company has expended, and can be expected to expend in the future, substantial amounts for compliance with these laws and regulations. It is the Company's policy to expense or capitalize, as appropriate, environmental expenditures that relate to current operating sites. Environmental expenditures that relate to past operations and which do not contribute to future or current revenue generation are expensed. With respect to costs for environmental assessments or remediation activities, or penalties or fines that may be imposed for noncompliance with such laws and regulations, such costs are accrued when it is probable that liability for such costs will be incurred and the amount of such costs can be reasonably estimated. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties regardless of fault. The Company and certain of its subsidiaries are involved as a potentially responsible party ("PRP") at a number of off-site CERCLA or state superfund site proceedings. At some of these sites, any remediation costs incurred by the Company would constitute liabilities for which NII is required to indemnify the Company ("NII Environmental Liabilities"). In addition, at some of these sites, the Company does not have sufficient information regarding the nature and extent of the contamination, the wastes contributed by other PRPs, or the required remediation activity to estimate its potential liability. With respect to those sites which the Company has sufficient information to estimate its potential liability, excluding any site involving NII Environmental Liabilities, the Company has recorded an aggregate liability of approximately $2 million, which it anticipates paying over the next several years. In connection with those sites involving NII Environmental Liabilities, in January, 1994, the Company received $10 million from NII as an unrestricted prepayment for such liabilities for which the Company recorded $10 million as a liability in its consolidated balance sheet. The Company is required to repay NII portions of the $10 million to the extent the Company's expenditures for such NII Environmental Liabilities do not meet specified levels by certain dates over a twenty year period. NII will continue to be obligated to indemnify the Company for all other NII Environmental Liabilities (i) arising before such prepayment or (ii) arising after such prepayment and exceeding the $10 million prepayment. (See Note J--Weirton Liabilities and Note S--Subsequent Events.) The Company has also recorded the reclamation and other costs to restore its coal and iron ore mines at its shutdown locations to their original and natural state, as required by various federal and state mining statutes. (See Note K-- Unusual Items). Additionally, in October 1993, NSPC announced its intention to temporarily idle the iron ore mining and pelletizing operations conducted at the facility. A final decision to permanently shut down these operations would result in additional charges. (See Note P--Temporary Idling of National Steel Pellet Company.) 48 Since the Company has been conducting steel manufacturing and related operations at numerous locations for over sixty years, the Company potentially may be required to remediate or reclaim any contamination that may be present at these sites. The Company does not have sufficient information to estimate its potential liability in connection with any potential future remediation at such sites. Accordingly, the Company has not accrued for such potential liabilities. As these matters progress or the Company becomes aware of additional matters, the Company may be required to accrue charges in excess of those previously accrued. However, although the outcome of any of the matters described, to the extent they exceed any applicable reserves, could have a material adverse effect on the Company's results of operations for the applicable period, the Company has no reason to believe that such outcome will have a material adverse effect on the Company's financial condition. In April 1993, the United States Environmental Protection Agency published a proposed guidance document establishing minimum water quality standards and other pollution control policies and procedures for the Great Lakes System. Until such guidance document is finalized, the Company cannot estimate its potential costs for compliance, and there can be no assurances that such compliance will not have a material adverse effect on the Company's financial condition. NOTE N--OTHER COMMITMENTS AND CONTINGENCIES The Company has an agreement providing for the availability of raw material loading and docking facilities through 2002. Under this agreement, the Company must make advance freight payments if shipments fall below specified minimum tonnages. At December 31, 1993, the maximum amount of such payments, before giving effect to certain credits provided in the agreement, totals approximately $18 million or $2 million per year. During the three years ended December 31, 1993, no advance freight payments were made as the Company's shipments exceeded the minimum tonnage requirements. The Company anticipates its shipments will exceed the minimum tonnage requirements in 1994. In September 1990, the Company entered into a joint venture agreement to build a $240 million continuous galvanizing line to serve North American automakers. This joint venture coats steel products for the Company and an unrelated third party. The Company is a 10% equity owner of the facility, an unrelated third party is a 50% owner, and a subsidiary of NKK owns the remaining 40%. The Company has contributed $5.6 million in equity capital, which represents its total equity requirement. In addition, the Company is committed to utilize and pay a tolling fee in connection with 50% of the available line-time of the facility. The agreement extends for 20 years after the start of production, which commenced in January 1993. In March 1992, a wholly-owned subsidiary of the Company finalized a turnkey contract for the construction and permanent financing of a pickle line (the "Pickle Line") servicing the Great Lakes Division. The total financing commitment amounts to $110 million. During 1993 the Company utilized $20 million of the proceeds from the IPO to reduce the amount of construction borrowings outstanding and the total commitment to $90 million. As of December 31, 1993 the construction period financing was being provided by the contractor and was not a liability of the Company. In January 1994, upon completion and acceptance of the Pickle Line, the permanent financing commenced with repayment occurring over a fourteen-year period. The Pickle Line will not be subject to the lien under the Company's First Mortgage Bonds, but will be subject to a first mortgage in favor of the lender. In May 1992, the Company signed an agreement to enter into a joint venture with an unrelated third party. The joint venture, Double G Coating Company, L.P. ("Double G"), of which the Company owns 50%, is constructing a $90 million steel coating facility near Jackson, Mississippi to produce galvanized and Galvalume(R) steel sheet for the metal buildings market. Approximately 20% of the total cost will be financed equally through partners' capital contributions with the remaining 80% financed by a group of third party lenders. The Company has committed to invest capital contributions of approximately $9 million of which $7.6 million has been contributed to date. The balance of approximately $1.4 million will be paid during the 49 first half of 1994. In addition, the Company is committed to utilize and pay a tolling fee in connection with 50% of the available line time at the facility. Management anticipates that production will begin in mid-1994. In August 1992, Double G entered into a loan agreement with a consortium of lenders that provides up to $75 million in construction-period financing which converts to a 10 year loan upon completion and acceptance of the facility by Double G. Repayment of the permanent loan is scheduled to commence 18 months after completion and acceptance of the facility and will be amortized over 10 years. Double G will provide a first mortgage on its property, plant and equipment and the Company has separately guaranteed 50% of the debt. At December 31, 1993, outstanding borrowings on the construction loan were $60.4 million, of which $30.2 million is separately guaranteed by the Company. The Company has agreements to purchase approximately 1.4 million gross tons of iron ore pellets per year through 1999 from an affiliated company, and 5.4 million gross tons in 1994 from various non-affiliated companies. In 1994, purchases under such agreements will approximate $50 million and $145 million, respectively. Additionally, the Company has agreed to purchase its proportionate share of the limestone production of an affiliated company, which will approximate $2 million per year. The Company is guarantor of specific obligations of ProCoil Corporation, an affiliated company, approximating $10.8 million and $9.5 million at December 31, 1993 and 1992, respectively. NOTE O--EXTRAORDINARY ITEM The Rockefeller Amendment, which became effective February 1, 1993, is designed to provide funding for the United Mine Workers of America ("UMWA") retiree medical and life insurance benefits programs by transferring funds from other sources and imposing a liability on all signatories to certain UMWA collective bargaining agreements for current fund deficits and present and future benefit costs for qualifying UMWA retirees. The Company has subsidiaries that are signatories of the 1988 UMWA Wage Agreement and thus falls within the Rockefeller Amendment's provisions. The Rockefeller Amendment also extends, jointly and severally, the liability for the cost of retiree medical and life insurance benefits to any members of the signatory operator's control group, which would include the Company. During 1992, the Company recorded a charge of $50 million, representing management's best estimate of its liability for UMWA beneficiaries. Based upon preliminary assignments from the Secretary of Health and Human Services received during 1993, the Company believes this reserve is adequate. However, the amount is subject to future adjustment when additional information relating to beneficiaries becomes available. NOTE P--TEMPORARY IDLING OF NATIONAL STEEL PELLET COMPANY On August 1, 1993, the USWA went on strike against NSPC over demands for a new labor contract at NSPC. In October 1993, NSPC announced its intention to temporarily idle the facility. During the period from August 1, 1993 to date, the Company has secured its pellet requirements from other sources. The Company currently has entered into agreements that will satisfy its iron ore pellet requirements through 1994 at a lower cost than could be obtained by operating NSPC. It is management's intention to secure long term contracts for the purchase of iron ore pellets for a period of one to three years. The Company recorded an unusual charge of $108.6 million during the fourth quarter of 1993 which is comprised of employee benefit related charges of $90.9 million (principally pensions and OPEB), taxes of $7.9 million and miscellaneous other costs of $9.8 million relating to the three year idle period. Management has not made a final decision regarding the permanent shutdown of NSPC; however, a decision to permanently shut down the facility would result in additional charges which management currently estimates to be approximately $160 million. The USWA has filed 19 unfair labor practice charges with the National Labor Relations Board (the "NLRB") regarding the NSPC dispute. The USWA's charges include allegations that NSPC failed to bargain in good faith. NSPC has responded to the charges and has denied any unfair labor practices. If the NLRB finds against NSPC, it could issue an order requiring NSPC to pay back pay and front pay until the labor practices are corrected or to cease and desist unfair labor practices and bargain in good faith. 50 NOTE Q--LONG TERM INCENTIVE PLAN The Long Term Incentive Plan was established in 1993 in connection with the IPO and has authorized the grant of options for up to 750,000 shares of Class B Common Stock to certain executive officers, non-employee directors and other employees of the Company. The exercise price of the options equals the fair market value of the Common Stock on the date of grant. All options granted have 10 year terms and generally vest and become fully exercisable at the end of the three years of continued employment. However, in the event that termination is by reason of retirement, permanent disability or death, the option must be exercised in whole or in part within 24 months of such occurrences. The Company currently follows the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", which requires compensation expense for the Company's options to be recognized only if the market price of the underlying stock exceeds the exercise price on the date of grant. Accordingly, the Company has not recognized compensation expense for its options granted in 1993. A reconciliation of the Company's stock option activity, and related information, for 1993 follows:
EXERCISE NUMBER PRICE OF (WEIGHTED OPTIONS AVERAGE) -------- --------- Balance outstanding at January 1, 1993................ -- -- Granted............................................... 755,000 $13.99 Exercised............................................. -- Forfeited............................................. (170,832) -------- Balance outstanding at December 31, 1993.............. 584,168 $13.99 ======== Exercisable at December 31, 1993...................... 5,418 ========
On January 1, 1994, an additional 43,750 options became exercisable. Outstanding stock options did not enter into the determination of EPS in 1993 as their effect was antidilutive. NOTE R--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Following are the unaudited quarterly results of operations for the years 1993 and 1992. The quarters ended March 31, 1993 and 1992 have each been restated to reflect adoption of SFAS 112 and SFAS 109, respectively, retroactive to the beginning of each of those years. The remaining quarters of 1993 and 1992 were not impacted by the changes. Reference should be made to Note K--Unusual Items concerning adjustments affecting the fourth quarters of 1993 and 1992.
1993 --------------------------------------------- THREE MONTHS ENDED, (RESTATED) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------- -------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales........................ $587,398 $622,684 $623,272 $ 585,446 Gross profit (loss).............. (3,737) 19,389 15,055 (3,379) Unusual charges.................. -- -- (3,294) (107,672) Loss before cumulative effect of accounting change............... (53,665) (17,463) (32,479) (138,801) Cumulative effect of accounting change.......................... (16,453) -- -- -- Net loss......................... (70,118) (17,463) (32,479) (138,801) Per share earnings applicable to Common Stock: Loss before cumulative effect of accounting change............... $ (2.19) $ (.58) $ (.97) $ (3.89) Net loss......................... $ (2.81) $ (.58) $ (.97) $ (3.89)
51
1992 --------------------------------------------- THREE MONTHS ENDED, (RESTATED) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------- -------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales........................ $564,076 $621,287 $615,205 $572,749 Gross profit..................... 29,849 52,342 44,103 25,400 Unusual charges.................. -- (2,800) (9,000) (25,184) Income (loss) before extraordi- nary item and cumulative effect of accounting change............ (19,070) 4,493 (11,121) (48,985) Extraordinary item............... -- -- -- (50,000) Cumulative effect of accounting change.......................... 76,251 -- -- -- Net income (loss)................ 57,181 4,493 (11,121) (98,985) Per share earnings applicable to Common Stock: Net income (loss) before extraordinary item and cumulative effect of accounting change.......................... $ (.92) $ .01 $ (.61) $ (2.09) Net income (loss)................ $ 2.07 $ .01 $ (.61) $ (4.05)
NOTE S--SUBSEQUENT EVENTS During January 1994, NII sold substantially all of its 3,400,000 shares of Class B Common Stock. In connection with the IPO, the Company entered into a definitive agreement (the "Agreement") with NII and NKK which amends certain terms and conditions of the Recapitalization Agreement. Pursuant to the Agreement, NII paid the Company $10 million as an unrestricted prepayment for environmental obligations which may arise after such prepayment and for which NII has previously agreed to indemnify the Company. The Company is required to repay to NII portions of the $10 million to the extent the Company's expenditures for such environmental liabilities do not reach specified levels by certain dates over a twenty year period. NII retains responsibility to indemnify the Company for remaining environmental liabilities arising before such prepayment or arising after such prepayment and in excess of $10 million. On January 24, 1994, the United States Supreme Court denied Bessemer & Lake Erie's ("B&LE") petition for certiorari in the Iron Ore Antitrust Litigation, thus sustaining the Company's judgement against the B&LE. On February 11, 1994, the Company received approximately $111 million, including interest, in satisfaction of this judgment. Pursuant to the terms of the 1993 Settlement Agreement, approximately $11 million of the proceeds will be deposited into a VEBA Trust established to prefund the Company's OPEB obligation with respect to USWA represented employees. (See Note F--Postretirement Benefits Other Than Pensions.) Of the remaining proceeds, the Company plans to use approximately $60 million for working capital and general corporate purposes and nearly $40 million to repay outstanding indebtedness. The Company had not recorded a gain for this contingency as of December 31, 1993, pending the outcome of the B&LE petition. However, the Company will recognize this gain in the first quarter of 1994. 52 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- ---------- --------- ----------- ------------- ------------- BALANCE AT OTHER CHANGES BEGINNING ADDITIONS ADD (DEDUCT) BALANCE AT CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD -------------- ---------- --------- ----------- ------------- ------------- YEAR ENDED DECEMBER 31, 1993 Land and land improve- ments................ $ 219,593 $ 5,396 $ 3,765 $-- $ 221,224 Buildings............. 291,460 4,034 36,457(2) -- 259,037 Machinery and equip- ment................. 2,775,090 151,278(1) 109,837(3) -- 2,816,531 ---------- -------- -------- ---- ---------- TOTAL............... $3,286,143 $160,708 $150,059 $-- $3,296,792 ========== ======== ======== ==== ========== YEAR ENDED DECEMBER 31, 1992 Land and land improve- ments................ $ 205,342 $ 14,901 $ 650 $-- $ 219,593 Buildings............. 275,412 16,087 39 -- 291,460 Machinery and equip- ment................. 2,563,330 252,953(1) 41,193 -- 2,775,090 ---------- -------- -------- ---- ---------- TOTAL............... $3,044,084 $283,941 $ 41,882 $-- $3,286,143 ========== ======== ======== ==== ========== YEAR ENDED DECEMBER 31, 1991 Land and land improve- ments................ $ 212,881 $ 1,884 $ 9,423 $-- $ 205,342 Buildings............. 274,093 1,368 49 -- 275,412 Machinery and equip- ment................. 2,432,067 174,973(1) 43,710 -- 2,563,330 ---------- -------- -------- ---- ---------- TOTAL............... $2,919,041 $178,225 $ 53,182 $-- $3,044,084 ========== ======== ======== ==== ==========
NOTE 1--Includes approximately $31.9 million, $198.4 million and $101.6 million at December 31, 1993, 1992 and 1991, respectively, related to the No. 5 coke battery rebuild. NOTE 2--Includes $31.3 million related to the sale of coal properties. NOTE 3--Includes $47.6 million related to the sale of coal properties. 53 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C (1) COLUMN D COLUMN E COLUMN F -------- ---------- ----------------- ----------- -------- ------------- OTHER CHANGES BALANCE AT ADDITIONS CHARGED ADD BEGINNING TO (DEDUCT) BALANCE AT CLASSIFICATION OF PERIOD COSTS AND EXPENSE RETIREMENTS DESCRIBE END OF PERIOD -------------- ---------- ----------------- ----------- -------- ------------- YEAR ENDED DECEMBER 31, 1993 Land and land improve- ments................ $ 90,771 $ 3,987 $ 581 $-- $ 94,177 Buildings............. 167,978 4,341 27,875(2) -- 144,444 Machinery and equip- ment................. 1,631,927 129,172 101,665(3) -- 1,659,434 ---------- -------- -------- ---- ---------- TOTAL............... $1,890,676 $137,500 $130,121 $-- $1,898,055 ========== ======== ======== ==== ========== YEAR ENDED DECEMBER 31, 1992 Land and land improve- ments................ $ 77,455 $ 13,350 $ 34 $-- $ 90,771 Buildings............. 163,441 4,578 41 -- 167,978 Machinery and equip- ment................. 1,554,218 115,201(4) 37,492 -- 1,631,927 ---------- -------- -------- ---- ---------- TOTAL............... $1,795,114 $133,129 $ 37,567 $-- $1,890,676 ========== ======== ======== ==== ========== YEAR ENDED DECEMBER 31, 1991 Land and land improve- ments................ $ 74,782 $ 2,746 $ 73 $-- $ 77,455 Buildings............. 158,081 5,360 -- -- 163,441 Machinery and equip- ment................. 1,461,264 139,765(5) 46,811 -- 1,554,218 ---------- -------- -------- ---- ---------- TOTAL............... $1,694,127 $147,871 $ 46,884 $-- $1,795,114 ========== ======== ======== ==== ==========
NOTE 1--The annual provision for depreciation has been computed principally in accordance with the following ranges of lives: Land and land improve- ments.................... 10 to 20 years Buildings................. 10 to 45 years Machinery and equipment... 3 to 15 years
NOTE 2--Includes $25.0 million related to the sale of coal properties. NOTE 3--Includes $44.4 million related to the sale of coal properties. NOTE 4--Includes $18.2 million related to writedowns of certain coal mining assets. NOTE 5--Includes $30.9 million related to asset writedowns of Mathies coal mine as well as certain coal mining assets. 54 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G -------- -------- -------- -------- -------- -------- -------- NATURE OF ANY DEFAULT BY ISSUER OF AMOUNT AMOUNT IN SECURITIES GUARANTEED TOTAL OWNED BY TREASURY IN PRINCIPAL, NAME OF ISSUER OF AMOUNT PERSON(S) OF ISSUER INTEREST, SINKING SECURITIES GUARANTEED BY TITLE OF ISSUE OF GUARANTEED FOR WHICH OF FUND OR REDEMPTION PERSON FOR EACH CLASS OF AND STATEMENT SECURITIES NATURE OF PROVISIONS, OR WHICH STATEMENT IS FILED SECURITIES GUARANTEED OUTSTANDING IS FILED GUARANTEED GUARANTEE PAYMENT OF DIVIDENDS - ------------------------ --------------------- ----------- --------- ---------- --------- --------------------- ProCoil Corporation..... Notes Payable & Principal Equipment Leases $10,786 None None and Interest None Double G Coating Principal Company, L.P........... Construction Loan 30,199(1) None None and Interest None ------- Total................. $40,985 =======
NOTE 1--The Company has separately guaranteed 50% of the debt relating to financing the construction of the Double G facility. The Loan Agreement provides for borrowing up to $75.0 million. 55 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- --------- ----------------------- ------------ ------------- ADDITIONS ----------------------- BALANCE CHARGED TO AT CHARGED TO OTHER BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD ----------- --------- ---------- ---------- ------------ ------------- YEAR ENDED DECEMBER 31, 1993 RESERVES DEDUCTED FROM ASSETS Allowances and discounts on trade notes and accounts receivable........ $ 26,385 $10,565(4) $ -- $15,570(1) $ 21,380 Valuation allowance on deferred tax assets............ 189,100 -- 74,100(3) -- 263,200 YEAR ENDED DECEMBER 31, 1992 RESERVES DEDUCTED FROM ASSETS Allowances and discounts on trade notes and accounts receivable........ $ 28,058 $18,871(4) $ -- $20,544(1) $ 26,385 Valuation allowance on deferred tax assets............ 139,900(2) -- 49,200(3) -- 189,100 YEAR ENDED DECEMBER 31, 1991 RESERVES DEDUCTED FROM ASSETS Allowances and discounts on trade notes and accounts receivable........ $ 26,758 $18,513(4) $ -- $17,213(1) $ 28,058
NOTE 1--Doubtful accounts charged off, net of recoveries, claims and discounts allowed and reclassifications to other assets. NOTE 2--Represents the amount of the valuation allowance at January 1, 1992, the adoption date of SFAS 109. NOTE 3--Represents the increase in the net deferred tax asset for which no benefit was recognized. NOTE 4--Included in these amounts are reserves for doubtful accounts of $(2,693), $2,434 and $2,716 for 1993, 1992 and 1991, respectively. Other charges consist primarily of claims for pricing adjustments and discounts allowed. 56 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- --------- -------- ----------- ----------- --------- WEIGHTED AVERAGE MAXIMUM AVERAGE INTEREST WEIGHTED AMOUNT AMOUNT RATE BALANCE AVERAGE OUTSTANDING OUTSTANDING DURING CATEGORY OF AGGREGATE AT END OF INTEREST DURING THE DURING THE THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(1) PERIOD(2) --------------------- --------- -------- ----------- ----------- --------- YEAR ENDED DECEMBER 31, 1993 Revolver................ -- -- -- -- -- Subordinated Loan Agree- ment................... -- -- -- -- -- Uncommitted Lines of Credit................. -- -- $ 7,700 $ 21 3.94% YEAR ENDED DECEMBER 31, 1992 Revolver................ -- -- -- -- -- Subordinated Loan Agree- ment................... -- -- -- -- -- Uncommitted Lines of Credit................. -- -- $12,500 $ 107 4.70% YEAR ENDED DECEMBER 31, 1991 Revolver................ -- -- -- -- -- Subordinated Loan Agree- ment................... -- -- $50,000 $24,389 6.70% Uncommitted Lines of Credit................. -- -- 5,000 22 6.41
NOTE 1--The average amount outstanding during the period was computed by dividing the total of daily balances outstanding by total days in the year. NOTE 2--The weighted average interest rate during the period was computed by dividing the actual interest expense by the average short-term debt outstanding. 57 NATIONAL STEEL CORPORATION AND SUBSIDIARIES SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B -------- -------------------------- CHARGED TO COSTS AND EXPENSES -------------------------- YEAR ENDED DECEMBER 31, ITEM 1993 1992 1991 ---- -------- -------- -------- Maintenance and repairs............................. $346,482 $333,399 $332,788 ======== ======== ======== Taxes other than payroll and income taxes: Real and personal property........................ $ 47,331 $ 43,030 $ 43,084 Other............................................. 14,476 16,254 15,874 -------- -------- -------- $ 61,807 $ 59,284 $ 58,958 ======== ======== ========
58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 59 PART III ITEM 10. EXECUTIVE OFFICERS The following table sets forth, as of December 31, 1993, certain information with respect to the executive officers of the Company. Executive officers are chosen by the Board of Directors of the Company at the first meeting of the Board after each annual meeting of stockholders. Officers of the Company serve at the discretion of the Board of Directors and are subject to removal at any time.
EXECUTIVE NAME (AGE) OFFICER SINCE POSITION ---------- ------------- -------- (1) Kokichi Hagiwara (69)...... 1986 Chairman of the Board (2) Osamu Sawaragi (65)........ 1990 Vice Chairman of the Board Ronald H. Doerr (53).......... 1984 President and Chief Executive Officer (3) James N. Howell (52)....... 1984 Senior Vice President and Chief Operating Officer Yoshito Tokumitsu (57)........ 1987 Senior Vice President and Assistant to the Chief Executive Officer Keisuke Murakami (55)......... 1991 Vice President--Administration Richard E. Newsted (36)....... 1987 Vice President, Chief Financial Officer and Secretary Richard P. Coffee, Sr. (48)... 1986 Vice President, Human Resources William E. Goebel (54)........ 1993 Vice President, Marketing and Sales David A. Chatfield (54)....... 1987 Vice President and General Manager, Great Lakes Division, and Diversified Businesses Kenneth J. Leonard (45)....... 1993 Vice President and General Manager, Granite City Division Robert E. Westergren (56)..... 1984 Vice President and General Manager, Midwest Division Richard S. Brzenk (51)........ 1987 Vice President, Information Systems William D. Thompson (67)...... 1990 Vice President, Government Affairs James L. Wainscott (36)....... 1991 Treasurer and Assistant Secretary Carl M. Apel (38)............. 1992 Corporate Controller, Accounting and Assistant Secretary Milan J. Chestovich (51)...... 1985 Assistant Secretary
- -------- (1) Retired as CEO effective October 14, 1993 and as Chairman of the Board effective December 31, 1993. (2) Elected Chairman of the Board effective January 1, 1994. (3) Resigned effective February 3, 1994. All of the above-named executive officers, with the exception of Mr. Thompson, who previously served with NII, have served in various management capacities with the Company, NKK or one of its subsidiaries for more than the last five years. Certain information with respect to Directors as required by this Item is incorporated by reference from the Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, the Company's Proxy Statement is not to be deemed filed as part of this report for purposes of this Item. 60 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference from the Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, the Company's Proxy Statement is not to be deemed filed as part of this report for purposes of this Item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from the Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, the Company's Proxy Statement is not to be deemed filed as part of this report for purposes of this Item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from the Company's Proxy Statement for the 1994 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, the Company's Proxy Statement is not to be deemed filed as part of this report for purposes of this Item. 61 THIS PAGE INTENTIONALLY LEFT BLANK 62 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The list of financial statements filed as part of this report is submitted as a separate section, the index to which is located on page 30. (2)The list of financial statement schedules required to be filed by Item 8 is located on page 30. All other schedules of National Steel Corporation and subsidiaries for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) EXHIBITS:
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- 2-A Asset Purchase Agreement between Weirton Steel Corporation and the Company, dated as of April 29, 1983, together with collateral agreements incident to such Assets Purchase Agreement, filed as Exhibit 2 to the report of National Intergroup, Inc. on Form 8-K dated January 10, 1984, is incorporated herein by reference. 2-B Stock Purchase Agreement by and among NKK Corporation, National Intergroup, Inc. and the Company, dated August 22, 1984, together with certain collateral agreements incident to such Stock Purchase Agreement and certain schedules to such agreements are incorporated by reference to Exhibit (2) (sequential pages 5 to and including 248 to National Intergroup, Inc.'s Form 8-K dated August 31, 1984, Commission File No. 1-8549). Other schedules to such agreements identified therein have been omitted, but any of such schedules will be furnished supplementally to the Commission upon request. 2-C Stock Purchase and Recapitalization Agreement by and among National Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and the Company dated as of June 26, 1990, filed as Exhibit 2 to the current report of the Company on Form 8-K dated July 10, 1990, is incorporated herein by reference. 2-D Amendment to Stock Purchase and Recapitalization Agreement by and among, National Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and the Company, dated July 31, 1991, filed as Exhibit 2-F to the annual report of the Company on Form 10-K, for the year ended December 31, 1991, is incorporated herein by reference. 3-A The Sixth Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 3-B Form of Amended and Restated By-laws of the Company, a copy of which is attached hereto. 4-A NSC Stock Transfer Agreement between National Intergroup, Inc., the Company, NKK Corporation and NII Capital Corporation, filed as Exhibit 4-M to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 1986, is incorporated herein by reference. 4-B Certificate of Designation of Series A Preferred Stock dated June 26, 1990, filed as Exhibit 4-M to the annual report of the Company on Form 10-K, for the year ended December 31, 1990, is incorporated herein by reference. 4-C Certificate of Designation of Series B Preferred Stock dated June 26, 1990, filed as Exhibit 4-N to the annual report of the Company on Form 10-K, for the year ended December 31, 1990, is incorporated herein by reference.
63 10-A Amended and Restated Lease Agreement between the Company and Wilmington Trust Company, dated as of December 20, 1985, relating to the EGL, filed as Exhibit 10-A to the annual report of the Company on Form 10-K, for the year ended December 31, 1985, is incorporated herein by reference. 10-B Lease Agreement between The Connecticut National Bank as Owner Trustee and Lessor and National Acquisition Corporation as Lessee dated as of September 1, 1987 for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-F to the annual report of the Company on Form 10-K, for the year ended December 31, 1987, is incorporated herein by reference. 10-C Lease Supplement No. 1 dated as of September 1, 1987 between The Connecticut National Bank as Owner Trustee and National Acquisition Corporation as the Lessee for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-G to the annual report of the Company on Form 10-K, for the year ended December 31, 1987, is incorporated herein by reference. 10-D Lease Supplement No. 2 dated as of November 18, 1987 between The Connecticut National Bank as Owner Trustee and National Acquisition Corporation as Lessee for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-H to the annual report of the Company on Form 10-K, for the year ended December 31, 1987, is incorporated herein by reference. 10-E Purchase Agreement dated as of March 25, 1988 relating to the Stinson Motor Vessel among Skar-Ore Steamship Corporation, Wilmington Trust Company, General Foods Credit Investors No. 1 Corporation, Stinson, Inc. and the Company, and Time Charter between Stinson, Inc. and the Company, filed as Exhibit 10-E to the annual report of the Company on Form 10-K, for the year ended December 31, 1988, are herein by reference. 10-F Amended and Restated Weirton Agreement dated June 26, 1990, between National Intergroup, Inc., NII Capital Corporation and the Company, filed as Exhibit 10-F to the annual report of the Company on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10-G Amendment to Amended and Restated Weirton Liabilities Agreement dated July 31, 1991 between National Intergroup, Inc., NII Capital Corporation and the Company, filed as Exhibit 10-H to the annual report of the Company on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10-H Indenture of Mortgage and Deed of Trust, dated May 1, 1952, between the Company and Great Lakes Steel Corporation and City Bank Farmers Trust Company and Ralph E. Morton, as Trustees, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 2-9639), is incorporated herein by reference. 10-I Second Supplemental Indenture, dated as of January 1, 1957, between the Company and City Bank Farmers Trust Company and Francis M. Pitt, as Trustees, filed as Exhibit 2-C to the Company's Registration Statement on Form S-9 (Registration No. 2-15070), is incorporated herein by reference. 10-J Fourth Supplemental Indenture, dated as of December 1, 1960, between the Company and First National City Trust Company and Francis M. Pitt, as Trustees, filed as Exhibit 4(b)(5) to the Registration Statement of the M. A. Hanna Company on Form S-1 (Registration No. 2-19169), is incorporated herein by reference. 10-K Fifth Supplemental Indenture dated as of May 1, 1962 between the Company, First National City Trust Company, as Trustee, and First National City Bank, as Successor Trustee, filed as Exhibit 19-A to the annual report of the Company on Form 10-K, for the year ended December 31, 1988, is incorporated herein by reference.
64 10-L Eighth Supplemental Indenture, dated as of September 19, 1973, between the Company and First National City Bank and E. J. Jaworski, as Trustees, filed as Exhibit 2-I to the Company's Registration Statement on Form S-7 (Registration No. 2-56823), is incorporated herein by reference. 10-M Ninth Supplemental Indenture, dated as of August 1, 1976, between the Company and Citibank, N.A., and E. J. Jaworski, as Trustees, filed as Exhibit 2-J to the Company's Registration Statement on Form S-7 (Registration No. 2-56823), is incorporated herein by reference. 10-N Indenture, dated as of December 1, 1964, between Granite City Steel Company and Chemical Bank New York Trust Company, Trustee, filed as Exhibit 4(a) to the Registration Statement of Granite City Steel Company on Form S-1 (Registration No. 2-22916), is incorporated herein by reference. 10-O Supplemental Indenture dated as of August 8, 1984 between National Intergroup, Inc., the Company and Chemical Bank as Trustee, filed as Exhibit 19-A to the annual report of the Company on Form 10-K, for the year ended December 31, 1987, is incorporated herein by reference. 10-P Put Agreement by and among NII Capital Corporation, NKK U.S.A. Corporation and the Company, dated June 26, 1990, filed as Exhibit 4-O to the annual report of the Company on Form 10-K, for the year ended December 31, 1990, is incorporated herein by reference. 10-Q Subordinated Loan Agreement dated May 8, 1991, between NUF Corporation and the Company, filed as Exhibit 4-P to the annual report of the Company on Form 10-K, for the year ended December 31, 1991, is incorporated herein by reference. 10-R First Amendment to Subordinated Loan Agreement, dated December 9, 1991, between NUF Corporation and the Company, filed as Exhibit 4-Q to the annual report of the Company on Form 10-K, for the year ended December 31, 1991, is incorporated herein by reference. 10-S Second Amendment to Subordinated Loan Agreement, dated December 29, 1992, between NUF Corporation and the Company, filed as Exhibit 10-S to the annual report of the Company on Form 10-K, dated February 5, 1993, is incorporated herein by reference. 10-T Amended and Restated Loan Agreement, dated October 30, 1992, between NUF Corporation and the Company filed as Exhibit 10-T to the annual report of the Company on Form 10-K, dated February 5, 1993, is incorporated herein by reference. 10-U First Amendment to Amended and Restated Loan Agreement dated February 1, 1993, between NUF Corporation and the Company filed as Exhibit 10-U to the annual report of the Company on Form 10-K, dated February 5, 1993, is incorporated herein by reference. 10-V 1993 National Steel Corporation Long-Term Incentive Plan, filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-W 1993 National Steel Corporation Non-Employee Directors' Stock Option Plan, filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-X National Steel Corporation Management Incentive Compensation Plan dated January 30, 1989, filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-Y Employment Agreement, dated January 29, 1992, as supplemented March 4, 1992, between the Company and Robert E. Westergren, filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference.
65 10-Z Form of Indemnification Agreement, filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1, Registration No. 33- 57952, is incorporated herein by reference. 10-AA Shareholders' Agreement, dated as of September 18, 1990, among DNN Galvanizing Corporation, 904153 Ontario Inc., National Ontario Corporation and Galvatek America Corporation, filed as Exhibit 10.27 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-BB Partnership Agreement, dated as of September 18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit 10.28 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-CC Amendment No. 1 to the Partnership Agreement, dated as of September 18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit 10.29 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-DD Agreement, dated as of February 3, 1993, among the Company, NKK, NKK U.S.A. Corporation, NII and NII Capital Corporation, filed as Exhibit 10.30 to the Company's Registration Statement on Form S-1, Registration No. 33-57952, is incorporated herein by reference. 10-EE Second Amendment to Amended and Restated Loan Agreement dated May 19, 1993, between NUF Corporation and the Company, a copy of which is attached hereto. 10-FF Agreement, dated as of May 19, 1993, among the Company and NKK Capital of America, Inc., a copy of which is attached hereto. 10-GG Employment Agreement, dated October 14, 1993, between the Company and Ronald H. Doerr, President and Chief Executive Officer of the Company, a copy of which is attached hereto. 21 List of Subsidiaries of the Company, a copy of which is attached hereto. 23 Consent of Independent Auditors, a copy of which is attached hereto.
(b) No reports on Form 8-K were filed during the last quarter of 1993. (c) Exhibits 3-B, 10-EE, 10-FF, 10-GG, 21 and 23, which are required by Item 601 of Regulation S-K, are filed as part of this report. 66 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF MISHAWAKA, STATE OF INDIANA, ON THIS 4TH DAY OF MARCH, 1994. National Steel Corporation /s/ Richard E. Newsted By: _________________________________ Richard E. Newsted Vice President, Chief Financial Officer and Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY IN THE CAPACITIES AND ON THE DATE INDICATED ON MARCH 4, 1994. /s/ Osamu Sawaragi ---------------------------------------- Osamu Sawaragi Director and Chairman /s/ Ronald H. Doerr ---------------------------------------- Ronald H. Doerr Director, President and Chief Executive Officer /s/ Yoshito Tokumitsu ---------------------------------------- Yoshito Tokumitsu Director, Senior Vice President and Assistant to the Chief Executive Officer /s/ Keisuke Murakami ---------------------------------------- Keisuke Murakami Director and Vice President--Administration /s/ Edwin V. Clarke, Jr. ---------------------------------------- Edwin V. Clarke, Jr. Director /s/ Masayuki Hanmyo - ----------------------------------------- Masayuki Hanmyo Director /s/ Kenichiro Sekino - ----------------------------------------- Kenichiro Sekino Director /s/ Robert J. Slater - ----------------------------------------- Robert J. Slater Director /s/ Richard E. Newsted - ----------------------------------------- Richard E. Newsted Vice President, Chief Financial Officer and Secretary /s/ Carl M. Apel - ----------------------------------------- Carl M. Apel Corporate Controller, Accounting and Assistant Secretary 67 NATIONAL STEEL CORPORATION ANNUAL REPORT ON FORM 10-K EXHIBIT INDEX YEAR ENDED DECEMBER 31, 1993
PAGE ---- 3-B Form of Amended and Restated By-laws of the Company, a copy of which is attached hereto. 10-EE Second Amendment to Amended and Restated Loan Agreement dated May 19, 1993, between NUF Corporation and the Company, a copy of which is attached hereto. 10-FF Agreement, dated as of May 19, 1993, among the Company and NKK Capital of America, Inc., a copy of which is attached hereto. 10-GG Employment Agreement, dated October 14, 1993, between the Company and Ronald H. Doerr, President and Chief Executive Officer of the Company, a copy of which is attached hereto. 21 List of Subsidiaries of the Company, a copy of which is attached hereto. 23 Consent of Independent Auditors, a copy of which is attached hereto.
EX-3.B 2 FORM OF AMEND BYLAWS EXHIBIT 3B AMENDED AND RESTATED BY-LAWS OF NATIONAL STEEL CORPORATION [Approved by the Board of Directors on October 14, 1993] OFFICES ------- 1. Registered Office. The registered office of National Steel Corporation (the "Corporation") shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof shall be The Corporation Trust Company. 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may determine from time to time, or as the business of the Corporation may require. MEETINGS OF STOCKHOLDERS ------------------------ 3. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. 4. Annual Meetings. The Annual Meeting of Stockholders shall be held on such date and at such time as shall be determined by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. If the Board of Directors fails to set a time and date for the Annual Meeting, it shall be held on the second Wednesday of May at 10:00 a.m., and if a legal holiday, then on the next following business day. Written notice of the Annual Meeting of Stockholders shall be given in the same manner set forth in Section 39 hereof, at least ten (10) days prior to the meeting to each stockholder entitled to vote thereat. 5. Special Meetings. A Special Meeting of Stockholders, for any purpose or purposes, may be called at any time by the Board of Directors and shall be called by the Chairman of the Board of Directors, the President or the Secretary at the request in writing of stockholders owning at least fifty percent (50%) of the voting power of the capital stock of the Corporation issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at all Special Meetings of stockholders shall be confined to the matters specified in the notice of meeting. The place, date and hour of the Special Meeting and the purpose or purposes for which the meeting is called shall be given in the manner set forth in Section 39 hereof at least ten (10) days before such meeting to each stockholder entitled to vote thereat. 6. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, as amended and restated, the holders of a majority of the voting power of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, but in no event less than one-third of the shares entitled to vote at the meeting, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. 7. Voting. Unless otherwise required by law, the Certificate of Incorporation, as amended and restated, or these By-Laws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the voting power of the capital stock represented and entitled to vote thereat. Each stockholder represented at a meeting of stockholders shall be entitled to cast such number of votes as set forth in the Certificate of Incorporation, as amended and restated, with respect to such capital stock, for each share entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy, but no proxy shall be voted on or after three years from its date unless such proxy provides for a longer period. All proxies shall be filed with the Secretary of the Corporation. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting shall be cast by written ballot. Each election of directors shall be conducted by one or more inspectors or judges, who may or may not be stockholders, appointed by the chairman of the meeting. The inspectors or judges shall be sworn to the faithful performance of their duties and shall, in writing, certify to the returns. No person who is a candidate for the office of director shall be an inspector or judge. 2 8. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, as amended and restated, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 9. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares by class registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. 10. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 9 or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. DIRECTORS --------- 11. Number and Election of Directors. The property and business of the Corporation shall be managed by a Board of Directors, which shall consist of nine (9) directors. Directors need not be stockholders. Except as provided in Section 12, directors shall be elected by a plurality of the votes cast at the Annual Meeting of Stockholders and each director shall be elected to serve until the next Annual Meeting of Stockholders following said director's election and until said director's successor shall be duly elected and qualified, or until said director's earlier resignation or removal. 12. Vacancies. Vacancies in newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the entire Board of Directors, and any other vacancy occurring on the Board of Directors may be filled by a majority of the directors then in office though less than a quorum is present, or by a sole remaining director. The directors so chosen to fill a vacancy shall hold office until the next 3 annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. 13. Duties and Powers. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation, as amended and restated, or by these By-Laws, directed or required to be exercised or done by the stockholders. 14. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held at such time and at such place as may from time to time be determined by the Board of Directors. Notice of regular meetings shall be given in the manner set forth in Sections 39 and 40 hereof to each director at least five (5) days prior thereto. Special meetings of the Board of Directors may be called by the Chairman or the Secretary and shall be called by the Secretary upon the written request of any three directors. Oral or written notice thereof stating the place, date and hour of the meeting shall be given to each director at least five (5) days before the date of the meeting. 15. Quorum. At all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present and voting at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 16. Actions of the Board. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 17. Meetings by Means of Conference Telephone. Members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 17 shall constitute presence in person at such meeting. 18. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of 4 an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have any and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. 19. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be compensated for their services in such manner as the Board of Directors may determine. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may also be compensated in such manner as the Board of Directors may determine for attending committee meetings. OFFICERS -------- 20. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman (who must be a director), a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also designate any Vice Chairman of the Board of Directors (who must be a director) to be an officer and may choose one or more Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and a Controller. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation, as amended and restated, or these By- Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman and Vice Chairman of the Board of Directors, need such officers be directors of the Corporation. 21. Election. The Board of Directors shall annually elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors, with or without cause. Any vacancy occurring in any of the offices of the Chairman, the President, Secretary or Treasurer shall be filled by the Board of Directors. Any vacancy occurring in any other office may be filled by, or pursuant to authority delegated by, the Board of Directors or may be left unfilled. Officers of the Corporation shall be entitled to receive such compensation for their services as officers as may be fixed by, or pursuant to authority delegated by, the Board of Directors. Each of the compensated officers of the Corporation shall be full-time employees of the Corporation unless the Board of Directors expressly authorizes otherwise. The positions of Chairman and/or Vice Chairman of the Board of Directors may be held by persons who are 5 not full-time employees of the Corporation, in which event such persons will not be compensated by reason of holding such positions; provided that such persons shall be permitted to receive reimbursement for their expenses of attendance at Board and Board committee meetings under Section 19 hereof. 22. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President, and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. 23. Chairman of the Board of Directors. The Chairman of the Board shall preside at all meetings of the Board of Directors. The Chairman shall also perform all such other duties and exercise all such other powers as these By- Laws or the Board of Directors may from time to time prescribe. 24. Vice Chairman. The Vice Chairman of the Board, if there is one, in the absence or disability of the Chairman of the Board, shall perform the duties of the Chairman of the Board and shall perform such other duties as the Board of Directors may from time to time prescribe. 25. President. The President shall be the chief executive officer of the Corporation. The President shall preside at all meetings of the stockholders. If the President is a member of the Board, then at the request, or in the absence or disability, of the Chairman or Vice Chairman of the Board of Directors, the President shall preside at meetings of the Board of Directors. Under the direction of the Board of Directors, the President shall have the general management of the business of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect, and, in general, shall perform all duties as are usually incident to the office of the chief executive officer of a corporation. The President shall also perform all such other duties and exercise all such other powers as from time to time may be assigned to the President by these By-Laws or by the Board of Directors. 26. Senior Vice President(s); Vice President(s). The Senior Vice Presidents, if any, and the Vice Presidents shall perform such duties and have such powers as shall be assigned to said officers by the Board of Directors or the President. At the request of the President, or in the event of the President's absence or inability or refusal to act, the Senior Vice President or Vice President designated by the Board of Directors shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. 6 27. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation, and the Secretary or any other officer of the Corporation shall have authority to affix the same to any instrument requiring it; and when so affixed, it may be attested by the signature of the Secretary or by the signature of any other such officer. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by the Secretary's signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. 28. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep, or cause to be kept, full and accurate accounts of receipts and disbursements in books belonging to the Corporation and kept for that purpose. The Treasurer shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the President, taking proper vouchers for such disbursements, and shall render to the President an account of all transactions as Treasurer and of the financial condition of the Corporation. In addition, the Treasurer shall perform all the usual duties incident to the office of Treasurer. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of such office and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the Treasurer belonging to the Corporation. 29. Assistant Secretaries. The Assistant Secretary or Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to such Assistant Secretary or Assistant Secretaries by the Board of Directors or the President, and, in the absence of the Secretary or in the event of the Secretary's disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. 30. Assistant Treasurers. The Assistant Treasurer or Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to such Assistant Treasurer or Assistant Treasurers by the Board of Directors or the President, and, in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, 7 shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of such office and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the Assistant Treasurer belonging to the Corporation. 31. Controller. The Controller, if any, shall perform such duties as shall be assigned to the Controller by the Board of Directors or the President. 32. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. In case of the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director, provided a majority of the entire Board of Directors concurs therein. STOCK ----- 33. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, either manually or by facsimile, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or the Vice President, Chief Financial Officer, and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by a stockholder in the Corporation. Each certificate issued by the Corporation representing shares of Class A Common Stock shall bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE SECURITIES ARE SUBJECT TO CERTAIN LIMITATIONS ON TRANSFER SET FORTH IN THE RESTATED CERTIFICATE OF INCORPORATION OF NATIONAL STEEL CORPORATION. A COPY OF SUCH CERTIFICATE OF 8 INCORPORATION IS ON FILE WITH THE SECRETARY OF NATIONAL STEEL CORPORATION. 34. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if said person were such officer, transfer agent or registrar at the date of issue. 35. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or said owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 36. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by said person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. 37. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 38. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or 9 interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. NOTICES ------- 39. Notices. Except as otherwise provided in these By-Laws, whenever written notice is required by law, the Certificate of Incorporation, as amended and restated, or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telecopy, telex or cable. 40. Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation, as amended or restated, or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. GENERAL PROVISIONS ------------------ 41. Fiscal Year. The fiscal year shall begin the first day of January in each year. 42. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, as amended and restated, if any, may be declared by the Board of Directors at any regular or special meeting, out of funds legally available for the payment thereof, in such amounts as the Board of Directors, in its sole discretion may determine. Dividends may be paid in cash, in property (including, but not limited to, in the form of a release of liabilities whether or not then due and owing to the Corporation or otherwise), or in shares of the capital stock of the Corporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. 43. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. 44. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal 10 may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION --------------- 45. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 47, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including internal investigations) (other than an action by or in the right of the Corporation) by reason of the fact that said person is or was or has agreed to become a director, officer, employee, fiduciary, trustee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee, fiduciary, trustee or agent of another corporation, partnership, joint venture, trust, pension plan, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by said person or on said person's behalf in connection with such action, suit, investigation or proceeding, and any appeal therefrom, if said person acted in good faith and in a manner said person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which said person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful. 46. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 47, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or investigation (including internal investigations) or proceedings by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that said person is or was or has agreed to become a director, officer, employee, fiduciary, trustee or agent of the Corporation, or is or was or has agreed to serve at the request of the Corporation as a director, officer, employee, fiduciary, trustee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, pension plan or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against expenses (including attorneys' fees) actually and reasonably incurred by said person in connection with the defense or settlement of such action, suit, investigation or proceeding or any appeal therefrom, if said person acted in good faith and in a manner said person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any 11 claim, issue or matter as to which said person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, said person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 47. Authorization of Indemnification. Any indemnification under Sections 45 and 46 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, fiduciary, trustee or agent is proper in the circumstances because said person has met the applicable standard of conduct set forth in Sections 45 or 46, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director, officer, employee, fiduciary, trustee or agent of the Corporation has been successful on the merits or otherwise, including without limitation, the dismissal of an action without prejudice, in defense of any action, suit, investigation or proceeding referred to in Sections 45 and 46, or in defense of any claim, issue or matter therein, said person shall be indemnified against all costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by said person or on said person's behalf in connection therewith, without the necessity of authorization in the specific case. 48. Good Faith Defined. For purposes of any determination under Section 47, a person shall be deemed to have acted in good faith and in a manner said person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such conduct was unlawful, if said person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied by the officers of the Corporation or another enterprise in the course of such officers' duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 48 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which said person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 48 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 45 or 46, as the case may be. 49. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 47, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware 12 for indemnification to the extent otherwise permissible under Sections 45 and 46. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such officer or director has met the applicable standards of conduct set forth in Sections 45 or 46, as the case may be. Neither a contrary determination in the specific case under Section 47 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 49 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. 50. Expenses Payable in Advance. Costs, charges and expenses incurred by a person referred to in Sections 45 and 46 in defending or investigating a threatened or pending action, suit, investigation or proceeding shall be paid to the extent provided herein by the Corporation in advance of the final disposition of such action, suit, investigation or proceeding; provided, however, that (i) the payment of such costs, charges and expenses incurred by a director or officer of the Corporation in the capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition of such action, suit, investigation or proceeding shall be made only upon receipt of a written undertaking (in the form of an unsecured promissory note) by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in these By-Laws, and (ii) the payment of such costs, charges and expenses incurred by other employees, fiduciaries, trustees and agents may be so paid in advance upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may, in the manner set forth above, and upon approval of such director, officer, employee, fiduciary, trustee or agent of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit, investigation or proceeding, whether or not the Corporation is a party to such action, suit, investigation or proceeding. 51. Payment of Indemnification Amounts. Any indemnification under Sections 45, 46, and 47, or advance of costs, charges and expenses provided for or authorized under Section 50 of these By-Laws, shall be made promptly, and in any event within sixty (60) days, upon the written request of the director, officer, employee, fiduciary, trustee or agent. The right to indemnification or advances to the extent provided by these By-Laws shall be enforceable by the director, officer, employee, fiduciary, trustee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within sixty (60) days. Said person's costs and expenses incurred in connection with successfully establishing said person's right to indemnification or advances, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 50 where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Sections 45 or 13 46, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in Sections 45 and 46 of these By-Laws, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 52. Nonexclusivity of Indemnification and Advancement of Expenses. The rights to indemnification by these By-Laws shall be construed so as to mandate indemnification to the fullest extent permitted by applicable law (including, without limitation, Section 145 of the Delaware General Corporation Law, as amended) and shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under the Certificate of Incorporation, as amended or restated, any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding office or while employed by or acting as an agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee, fiduciary, trustee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification and advances under these By-Laws shall be deemed to be a contract between the Corporation and each director, officer, employee, fiduciary, trustee or agent of the Corporation who serves or served in such capacity at any time while these indemnification provisions of the By-Laws are in effect. Any repeal or modification of these indemnification provisions of the By-Laws or any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not, to the extent permitted by applicable law, in any way diminish any rights to indemnification and/or advances of such director, officer, employee, fiduciary, trustee or agent or the obligations of the Corporation arising hereunder for said person's conduct prior to such appeal or modification. 53. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee, fiduciary, trustee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee, fiduciary, trustee or agent of another corporation, partnership, joint venture, trust, pension plan, employee benefit or other similar plan or other enterprise against any liability asserted against said person and incurred by said person or on said person's behalf in any such capacity, or arising out of said person's status as such, whether or not the Corporation would have the power or the obligation to indemnify said person against such liability under the provisions of these By-Laws. 54. Validity. If these indemnification provisions of the By-Laws or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and provide advances to each director, officer, employee, fiduciary, 14 trustee and agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines, penalties, excise taxes and amounts paid in settlement with respect to any action, suit, investigation or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of these By-Laws that shall not have been invalidated and to the full extent permitted by applicable law. 55. Limitations on Indemnification. Notwithstanding any other provision of these By-Laws, the Corporation shall not be required to indemnify any person for any costs, charges, expenses (including attorneys' fees), judgments, fines, penalties, excise taxes and amounts paid in settlement incurred in any action, suit, investigation or proceeding (which shall not be deemed to include counterclaims or affirmative defenses) initiated by or participated in as an intervenor or amicus curiae by the person seeking indemnification unless the initiation of or participation in such action, suit, investigation or proceeding is authorized, either before or after its commencement, by the Board of Directors. This Section 55 does not apply to reimbursement of expenses incurred in successfully prosecuting or defending the right to indemnification granted by or pursuant to these By-Laws. 56. Certain Definitions. For purposes of these Sections 46 through 56, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of these Sections 46 through 56 with respect to the resulting or surviving corporation as said person would have with respect to such constituent corporation if its separate existence had continued. For purposes of these Sections 46 through 56, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner said person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the Corporation" as referred to in these Sections 46 through 56. AMENDMENTS ---------- 57. Amendment. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors; provided, however, that notice of such alteration, amendment, repeal or adoption of 15 new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the voting power of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors. The stockholders may adopt a By-Law or By-Laws by the vote of the holders of a majority of the voting power of the outstanding capital stock entitled to vote thereon at any such annual or special meeting, and any By-Law so adopted may contain the provision that it is not subject to amendment or repeal by the Board of Directors. 58. Entire Board of Directors. As used in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. 16 EX-10.EE 3 2ND AMEND TO LOAN AGREE ================================================================================ EXHIBIT 10EE SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT between NUF CORPORATION, as Lender and NATIONAL STEEL CORPORATION, as Borrower Dated as of May 19, 1993 ================================================================================ THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of May 19, 1993, is made by and between NUF CORPORATION, a corporation organized and existing under the laws of the State of Delaware, as lender (the "Lender"), and NATIONAL STEEL CORPORATION, a corporation existing under the laws of the State of Delaware, as borrower (the "Borrower"). WHEREAS, pursuant to the Amended and Restated Loan Agreement, dated as of October 30, 1992, between the Lender and the Borrower (the "Loan Agreement"), the Lender agreed to make construction loans to the Borrower in the amount of up to Three Hundred Million Dollars ($300,000,000) to enable the Borrower to finance a portion of the costs, including interest and fees, associated with the construction and installation of the Facility and a permanent loan upon the completion of construction of the Facility; WHEREAS, the Borrower has requested the Lender, and the Lender has agreed, to make an additional loan to the Borrower in the amount of up to Thirty-Seven Million Five Hundred Thousand Dollars ($37,500,000) on February 5, 2000; and WHEREAS, the parties hereto wish to amend the Loan Agreement to provide for such additional loan; NOW, THEREFORE, the parties hereto agree as follows: 1. Capitalized terms used herein and not otherwise defined herein shall have the meanings specified in Appendix A to the Loan Agreement. 2. From and after the date hereof, the Loan Agreement shall be amended as follows: A. the last sentence of Section 2A of the Loan Agreement shall be amended to read as follows: The loans made under this Section 2.A, together with the Exim Bank Funded Loans made under Section 3.A hereof, the Permanent Loan made under Section 4.A hereof, the Additional Loan made under Section 4-I.A hereof and the Mini Additional Loan made under Section 4-II.A hereof are herein referred to individually as a "Loan" and collectively as the "Loans," and the Loans made under this Section 2.A hereof are herein referred to individually as a "Construction Loan" and collectively as the "Construction Loans." B. A new Section 4-II shall be added to the Loan Agreement as follows: SECTION 4.II MINI ADDITIONAL PERMANENT FINANCING. A. Mini Additional Loan. The Lender agrees, on and subject to the terms and conditions of this Agreement to make an additional loan (the "Mini Additional Loan") to the Borrower on February 5, 2000 (the -2- "Mini Additional Loan Date") in the principal amount of up to but not exceeding U.S. $37,500,000. B. Interest on Mini Additional Loan. The Borrower agrees to pay interest and fees, if any, on the unpaid principal amount of the Mini Additional Loan at a rate equal to the Mini Additional Loan Interest Rate as of the Mini Additional Loan Date for the period from and including the Mini Additional Loan Date until the maturity date of the Mini Additional Loan. In the event the outstanding principal of the Mini Additional Loan or any accrued interest thereon or fee incurred in connection therewith is not paid in full when due (whether at stated maturity by acceleration or otherwise), such outstanding principal and (to the extent permitted by law) such interest and fees shall continue to bear, as the case may be, interest from the due date thereof until paid in full at the Mini Additional Loan Interest Rate plus two percent (2%) per annum. Accrued interest and fees on the Mini Additional Loan shall be paid on each Permanent Loan Interest Payment Date and on the date such Loan is paid in full. C. Voluntary Mini Additional Loan Prepayment. The Borrower shall have the right, on any Permanent Loan Interest Payment Date, to prepay the Mini Additional Loan in whole or in part, provided that (i) the Borrower shall give the Lender not less than twenty (20) Business Days' prior written notice of such prepayment (which notice shall be irrevocable and effective upon receipt); (ii) each partial prepayment shall be in a minimum amount of U.S. $1,000,000 or an integral multiple thereof; (iii) the Borrower shall pay interest on the amount prepaid accrued to the date of prepayment; and (iv) the Borrower shall pay all costs reasonably incurred by the Lender in connection with the termination of (a) any borrowing or other funding arrangements that the Lender may enter into in connection with funding the Mini Additional Loan or (b) any rate swap, or portion thereof, that the Lender may enter into in connection with funding the Mini -3- Additional Loan (together, the "Mini Additional Loan Termination Costs"). At any reasonable time and from time to time, the Borrower may request that the Lender provide to the Borrower a written estimate of the Mini Additional Loan Termination Costs, if any, which the Borrower would pay if a prepayment were made as provided herein on a date set forth in such request. The Lender shall provide such estimate within three (3) Business Days after its receipt of the Borrower's request. Neither the failure of the Lender to provide such estimate as aforesaid nor any variance between such estimate and the actual Mini Additional Loan Termination Costs shall constitute a waiver by the Lender of its right to receive payment of any actual Mini Additional Loan Termination Costs from the Borrower. C. Section 5.A. of the Loan Agreement shall be amended by adding the following at the end of such section: (iv) The Borrower shall repay the principal of the Mini Additional Loan in six (6) equal payments of Six Million Two Hundred Fifty Thousand Dollars ($6,250,000) on each Permanent Loan Interest Payment Date. The Mini Additional Loan shall terminate and the Borrower shall pay all outstanding principal of the Additional Loan and all accrued interest thereon, if any, on February 5, 2003, or if such day is not a Business Day, then the next succeeding Business Date. D. Section 5.C of the Loan Agreement shall be amended by adding the following at the end of such section: The interest on the Mini Additional Loan shall be computed on the basis of a year of 360 days and the actual number of days elapsed, from and including the Mini Additional Loan Date to, but not including, the date the Mini Additional Loan is paid in full. -4- E. Section 5.D of the Loan Agreement shall be amended to read as follows: D. Notes. The Construction Loans, taken together, shall be evidenced by a single promissory note in substantially the form of Exhibit B hereto, the Permanent Loan shall be evidenced by a single promissory note in substantially the form of Exhibit C hereto, the Exim Bank Funded Loans, taken together, shall be evidenced by a single promissory note in substantially the form of Exhibit C-1 hereto, the Additional Loan shall be evidenced by a single promissory note substantially in the form of Exhibit C-2 and the Mini Additional Loan shall be evidenced by a single promissory note substantially in the form of Exhibit C-3 (or any promissory note or notes exchanged or substituted therefor pursuant hereto; such promissory notes being referred to herein individually as a "Note" and collectively as the "Notes"). F. A new Section 6.F. shall be added at the end of Section 6 of the Loan Agreement as follows: F. Further Conditions to the Mini Additional Loan. It shall be a condition precedent to the making of the Mini Additional Loan on the Mini Additional Loan Date, that: (i) the Company shall have prepaid the principal amount of the Permanent Loan by an amount equal to no less than $100,000,000 on or before December 27, 1993; (ii) the representations and warranties made by the Borrower in this Agreement shall be true and correct on and as of the date of the making of the Mini Additional Loan with the same force and effect as if made on and as of such date, except to the extent any such representation or warranty expressly related solely to an earlier date; -5- (iii) no Default shall have occurred and be continuing; (vi) the Lender shall have received the Note evidencing the Mini Additional Loan, duly executed by the Borrower; (v) each of the Operative Documents executed prior to the making of the Mini Additional Loan remains in full force and effect; and (vi) the Lender shall have received such other documents and evidence in connection with the matters contemplated by the Operative Documents executed prior to the making of the Mini Additional Loan as the Lender may reasonably require. 3. The following new definitions shall be added to Appendix A of the Loan Agreement as follows: "Mini Additional Loan" means a Loan made pursuant to, and bearing the interest rate set forth in, Section 4.II of the Loan Agreement. "Mini Additional Loan Commitment" means the commitment of the Lender to provide a Mini Additional Loan to the Borrower pursuant to Section 4-II of the Loan Agreement. "Mini Additional Loan Interest Rate" means the rate per annum equal to the sum of (i) the actual funding rate received by the Lender related to the principal amount of the Mini Additional Loan plus (ii) the Borrowing Cost plus (iii) the Permanent Loan Margin. 4. The following definitions contained in Appendix A shall be amended to read as follows: "Borrowing Cost" means any cost (including, without limitation, any -6- prepayment penalty, charge and penalty and any breakage or early termination cost or any initial swap costs or attorneys fees) charged to the Lender in connection with the funding of any Bank Funded Construction Loan, the Permanent Loan, the Additional Loan or the Mini Additional Loan, as the case may be. "Business Day" means (i) in the case of a Construction Loan, the Permanent Loan, the Additional Loan or the Mini Additional Loan, any day other than a Saturday, Sunday or other day on which commercial banking institutions in either New York City or London are required by law to be closed or (ii) in the case of an Exim Bank Funded Loan, any day other than Saturday, Sunday or other day on which commercial banking institutions in Tokyo are required by law to be closed. "Commitments" means the Construction Loan Commitment, the Exim Bank Funded Loan Commitment, the Permanent Loan Commitment, the Additional Loan Commitment and the Mini Additional Loan Commitment, and "Commitment" means any of them. 5. A new Exhibit C-3 in the form of Annex I hereto shall be added to the Loan Agreement. 6. All references to the Loan Agreement contained in and in any other document delivered in connection with the Loan Agreement shall be deemed to refer to the Loan Agreement as amended by this Amendment. 7. This Amendment may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Amendment by signing any such counterpart. -7- 8. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 9. This Amendment and the Loan Agreement as amended hereby constitute the entire agreement and understanding between the parties hereto and supersede any and all prior agreements and understanding relating to subject matter hereof. Except as amended hereby, all terms of the Loan Agreement shall remain in full force and effect and are hereby confirmed in all respect. IN WITNESS WHEREOF, the parties hereto have caused the Amendment to be duly executed as of the date first above written. NUF CORPORATION By:___________________________ Name: Title: NATIONAL STEEL CORPORATION By:___________________________ Name: Title: -8- Annex I EXHIBIT C-3 MINI ADDITIONAL LOAN NOTE $37,500,000 Mishawaka, Indiana February 5, 2000 FOR VALUE RECEIVED, NATIONAL STEEL CORPORATION, a Delaware corporation (the "Maker"), hereby promises to pay to the order of NUF CORPORATION, a Delaware corporation (the "Lender"), the principal sum of THIRTY-SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($37,500,000), together with interest on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until such principal amount is paid in full at a rate per annum equal to the applicable Mini Additional Loan Interest Rate, payable in the manner stated in, and calculated in accordance with the terms of the Amended and Restated Loan Agreement, dated October 30, 1992, as amended by the First Amendment to Amended and Restated Loan Agreement, dated as of February 1, 1993 and the Second Amendment to Amended and Restated Loan Agreement dated as of May 19, 1993 each by and among the Lender and the Maker (collectively, and as further amended, the "Loan Agreement"), to which reference is hereby made and which is incorporated herein by reference. This Note is issued pursuant to the Loan Agreement, and any holder of this Loan Note is entitled to the benefits thereof. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Loan Agreement and Appendix A thereto. Payments of principal, interest and other amounts due hereunder shall be payable in the manner stated in the Loan Agreement. The Maker shall pay, on demand, interest on any overdue principal at a rate equal to the Mini Additional Loan Interest Rate plus two percent (2%) per annum, calculated in accordance with the terms of the Loan Agreement. Prepayments of principal, in whole or in part, are authorized at the times, in the circumstances and in the manner stated in the Loan Agreement. All payments of principal and interest shall be payable in such coin and currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be made without deduction or set-off or counterclaim of the Maker against the Lender. If an Event of Default shall occur and be continuing, the entire balance of this Note, and the Interest that shall have accrued thereon, shall become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. This Note shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. NATIONAL STEEL CORPORATION By:___________________________ Name: Title: -2- EX-10.FF 4 AGREE OF NATL STK+NKKCAP ================================================================================ EXHIBIT 10FF LOAN AGREEMENT between NKK CAPITAL OF AMERICA, INC., as Lender and NATIONAL STEEL CORPORATION, as Borrower Dated as of May 19, 1993 ================================================================================ LOAN AGREEMENT TABLE OF CONTENTS PAGE SECTION 1. DEFINITIONS................................................... 1 SECTION 2. THE LOANS..................................................... 2 A. The Loans........................................................ 2 B. Interest on the Loans............................................ 3 C. Use of Proceeds.................................................. 3 SECTION 3. PRINCIPAL REPAYMENT; CURRENCY AND PLACE OF PAYMENT; COMPUTATIONS; NOTE................................ 4 A. Principal Repayment.............................................. 4 B. Currency and Place of Payment.................................... 4 C. Computations..................................................... 4 D. Notes............................................................ 5 SECTION 4. CONDITIONS PRECEDENT.......................................... 5 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER................ 9 A. Representations and Warranties................................... 9 B. Survival of Representations and Warranties....................... 12 SECTION 6. COVENANTS..................................................... 12 SECTION 7. EVENTS OF DEFAULT............................................. 15 SECTION 8. TAXES......................................................... 20 A. Taxes............................................................ 20 B. Continuing Obligations........................................... 22 SECTION 9. CHANGE OF LAW................................................. 22 SECTION 10. INDEMNIFICATION.............................................. 23 A. Agreement to Indemnify........................................... 23 B. Notice of Indemnifiable Claim.................................... 24 C. Failure to Defend................................................ 25 SECTION 11. REPORTING REQUIREMENTS....................................... 25 SECTION 12. MISCELLANEOUS PROVISIONS..................................... 25 A. Waiver........................................................... 25 B. Notices.......................................................... 26 C. Expenses......................................................... 27 D. GOVERNING LAW.................................................... 27 E. Severability..................................................... 28 F. Assignment....................................................... 29 G. Counterparts..................................................... 29 -i- APPENDIX A -- Definitions EXHIBIT A -- Notice EXHIBIT B -- Interest Rate and Principal Repayment Schedule for the Tranche A Loan and the Tranche C Loan EXHIBIT C -- Note EXHIBIT D -- Opinion of Yukevich, Blume & Zangrilli -ii- THIS LOAN AGREEMENT, dated as of May 19, 1993, is made by and between NKK CAPITAL OF AMERICA, INC., a corporation organized and existing under the laws of the State of Delaware, as lender (the "Lender") and NATIONAL STEEL CORPORATION, a corporation existing under the laws of the State of Delaware, as borrower (the "Borrower"). WHEREAS, the Borrower has requested the Lender to make a loan to the Borrower to make partial repayments of loans made by NUF Corporation to the Company in connection with the financing of a portion of the costs associated with the construction and installation of the Facility, and the Lender has agreed to make such loan on and subject to the terms and conditions hereof; NOW THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein shall have the meanings specified in Appendix A attached hereto and made a part hereof. SECTION 2. THE LOANS. A. THE LOANS. The Lender agrees, on and subject to the terms and conditions of this Agreement, during the period from the Closing Date to no later than, but not including, the Termination Date, to make Loans to the Borrower in an aggregate principal amount up to but not exceeding One Hundred Million United States Dollars (U.S. $100,000,000) (each loan made hereunder shall be referred to individually as a "Loan" and collectively as the "Loans"). The Lender shall make advances hereunder to the Borrower between the date hereof and December 27, 1993 on any Business Day with five days' prior notice (except in the case of the initial advances which can be made on the date hereof without such notice) (each a "Notice" which shall be in the form of Exhibit A hereto) by the Lender to the Borrower; provided, however, that no further Loans shall be made to the Borrower after December 27, 1993. Each Notice shall provide the amount of the Loan to be made, the maturity date thereof, the interest rate thereon and the schedule of repayment of the principal thereof. It is agreed by the parties hereto that the initial Loan made hereunder (referred to as "Tranche A Loan") and the second Loan made hereunder (referred to as "Tranche C Loan") shall each be in the approximate amount of U.S. $37,500,000 and shall be made on or about May 19, 1993. -2- B. INTEREST ON THE LOANS. The Borrower agrees that, for the period from and including the Closing Date until all outstanding principal of each Loan is repaid, interest shall be payable in arrears, on each Interest Payment Date on the unpaid principal amount of each Loan at a rate equal to the Interest Rate (it is understood that the Interest Rate for the Tranche A Loan and the Tranche C Loan should be equal to the interest rate set forth in Exhibit B hereto). In the event the outstanding principal of any Loan or any accrued interest thereon or fee incurred in connection therewith is not paid in full when due (whether at stated maturity by acceleration or otherwise), such outstanding principal and (to the extent permitted by law) such interest and fees shall continue to bear, as the case may be, interest from the due date thereof until paid in full at the Interest Rate plus two percent (2%) per annum. Accrued interest and fees on each Loan shall be paid on each Interest Payment Date and on the date such Loan is paid in full. C. USE OF PROCEEDS. The proceeds of the Loans shall be used by the Company for the sole purpose of making repayments of principal under the NUF Loan Agreement. -3- SECTION 3. PRINCIPAL REPAYMENT; CURRENCY AND PLACE OF PAYMENT; COMPUTATIONS; NOTE. A. PRINCIPAL REPAYMENT. The Borrower shall repay the aggregate outstanding principal amount of each Loan pursuant to the schedule of principal repayment included in the relevant Note and/or Notice and in any event, no later than the Termination Date; provided, however, that the aggregate outstanding principal amount of the Tranche A Loan and the Tranche C Loan shall be repaid in accordance with the repayment schedule at Exhibit B hereto. B. CURRENCY AND PLACE OF PAYMENT. All payments on account of the principal of and interest on each Loan and on each Note or any other amounts payable by the Borrower hereunder shall be made without set-off or counterclaim to the account of the Lender (Account Number 002-007657) at Fuji Bank and Trust Company, New York, New York, not later than 11:00 a.m., local time on the due date thereof, or if such day is not a Business Day, on the next succeeding Business Day, in Dollars and in immediately available funds. C. COMPUTATIONS. The interest on the outstanding principal amount of each Loan shall be computed on the basis of a -4- year of 360 days and the actual number of days elapsed, from and including the date of the making of such Loan to, but not including, the date such Loan is paid in full. D. NOTES. Each Loan shall be evidenced by a promissory note in substantially the form of Exhibit C hereto (each such promissory note being referred to herein individually as a "Note" and collectively as the "Notes"). Each Note shall include the schedule of repayment of the principal amount of the Loan to which such Note relates as described in the relevant Notice. SECTION 4. CONDITIONS PRECEDENT. A. The obligation of the Lender to make the initial Loan hereunder is subject to the receipt by the Lender of the following, each of which shall be satisfactory in form and substance to the Lender: (i) Certified copies of the charter documents and by-laws of the Borrower and certified resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Agreement and the Notes and certified copies of all documents evidencing other necessary action with respect thereto. -5- (ii) Certificates signed by duly authorized officers of the Borrower and certifying the names and offices of the individuals authorized to sign this Agreement and the Notes and the other documents or certificates to be delivered pursuant thereto, and providing signature specimens for each such individual, on which certificates the Lender may conclusively rely unless and until revised certificates are similarly so delivered with respect to documents or instruments to be delivered by such party after delivery of such revised certificates. (iii) Evidence that this Agreement and the initial Note have been duly completed, executed and delivered by each Person intended to be a party thereto and are in full force and effect (including, without limitation, an execution copy of this Agreement). (iv) A signed copy of an opinion of Yukevich, Blume & Zangrilli, counsel to the Borrower, dated the Closing Date, in substantially the form of Exhibit D hereto. (v) The initial Note duly executed by the Borrower. -6- (vi) A certificate signed by a duly authorized officer of the Borrower certifying that (a) the representations and warranties made by the Borrower in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except to the extent any such representation or warranty expressly related solely to an earlier date and (b) no Default shall have occurred and be continuing. (vii) Evidence, satisfactory to the Lender, that NSC has arranged for prepayment of the principal of the Permanent Loan under the NUF Loan Agreement in an amount at least equal to the initial Loan. (viii) The Lender shall have received such other documents and evidence in connection with the matters contemplated by the Operative Documents executed prior to the making of the initial Loan as the Lender may reasonably require. B. The obligations of the Lender to make each subsequent Loan is subject to the receipt by the Lender of the -7- following, each of which shall be satisfactory in form and substance to the Lender: (i) The Note relating to each such subsequent Loan duly executed by the Borrower. (ii) A certificate signed by a duly authorized officer of the Borrower, dated the date of the making of such subsequent Loan, certifying that (a) the representa-tions and warranties made by the Borrower in this Agreement shall be true and correct on and as of the date of the making of such subsequent Loan with the same force and effect as if made on and as of such date, except to the extent any such representation or warranty expressly related solely to an earlier date and (b) no Default shall have occurred and be continuing. (iii) Evidence, satisfactory to the Lender, that NSC has arranged for prepayment of the principal of the Permanent Loan under the NUF Loan Agreement in an amount at least equal to each Loan. -8- (iv) The Lender shall have received such other documents and evidence as the Lender may reasonably request. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. A. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lender as follows: (i) The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware with all requisite power to execute and deliver the Operative Documents to which it is or will be a party and to perform its obligations hereunder and thereunder, and is duly qualified and in good standing to do business as a foreign corporation in each state or other jurisdiction where such qualification is required. (ii) The Operative Documents to which it is or will be a party have been duly authorized, and such Operative Documents will be duly executed and delivered by the Borrower and, assuming due authorization, execution and delivery by the other parties hereto and thereto, -9- constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. (iii) Neither the execution, delivery and performance by the Borrower of any Operative Documents to which it is or will be a party nor the consummation of the transaction contemplated hereby or thereby, including, without limitation, the construction, installation or operation of the Facility, will conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any encumbrance upon the Borrower or any of the property or assets of the Borrower pursuant to the terms of, any applicable law or regulation, its charter documents or by-laws or any indenture, mortgage, deed of trust, loan agreement, guaranty, lease financing agreement or other similar agreement or instrument under which the Borrower is a debtor or a guarantor, nor will such action result in any violation of the provisions of the charter documents or the by-laws of the Borrower. -10- (iv) There are no legal, governmental or other proceedings pending to which the Borrower is subject, and no such proceedings are known by the Borrower to be threatened or contemplated by governmental authorities or threatened by others, that would materially impair the Borrower's ability to perform its obligations under any Operative Documents to which it is or will be a party. (v) No approval of, notice to or registration with, or the taking of any other action in respect of, any federal, state, municipal or other governmental authority, or any other Person, and no filing, recording, publication or registration in any public office or any other place, is now, or in the future will be, required or necessary to authorize the execution, delivery and performance by the Borrower of any Operative Documents to which it is or will be a party, or for the legality, validity, binding effect or enforceability thereof. (vi) The obligations of the Borrower represented by the Loans and the Notes shall constitute direct, unconditional and general obligations of the Borrower -11- and will rank at least pari passu with the highest ranking unsecured indebtedness of the Borrower to any other Person as of the date hereof, except for any indebtedness which ranks higher than the Borrower's obligations under the Loans by operation of law. B. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the Borrower shall survive the execution and delivery of this Agreement, and the making of each Loan evidenced hereby. SECTION 6. COVENANTS. The Borrower agrees that, so long as the Commitment is in effect and until payment in full of the principal of and interest on each Loan and all other amounts payable by the Borrower hereunder: (a) The proceeds of each Loan shall be used by the Borrower solely to make payments of principal under the NUF Loan Agreement. (b) The Borrower shall not change the location of its principal place of business and the place where its records concerning the Operative Documents are kept without prior written notice to the Lender. -12- (c) The Borrower shall (i) duly perform all of its obligations under each of the Operative Documents to which it is a party; (ii) permit the Lender and its representatives at all reasonable times to inspect the Facility and its books and records relating to the Operative Documents; and (iii) take such other actions and execute such documents as the Lender may deem necessary or appropriate to effectuate the purposes of the Operative Documents. (d) The Borrower agrees that it shall not enter into any written amendment of or supplement to any Operative Documents to which it is a party or execute or deliver any written waiver of or modification of, or consent under, the terms of the Operative Documents, unless such supplement, amendment, waiver, modification or consent is consented to in writing by the Lender. (e) The Borrower shall pay and discharge all taxes and governmental charges upon it, or against its properties or assets, prior to the date after which penalties attach for failure to pay, except to the extent the Borrower is contesting in good faith its obligation to pay such taxes or charges by appropriate proceedings and has established adequate reserves therefor. -13- (f) The Borrower shall not (i) merge or consolidate with or into any corporation, or (ii) sell, lease or otherwise transfer all or any substantial part of its assets to any other Person (except in the ordinary course of business), whether now owned or hereafter acquired; provided that a wholly-owned subsidiary of the Borrower may merge into the Borrower. (g) The Borrower shall take all action necessary to ensure that the obligations of the Borrower under or in connection with this Agreement, the Loans or the Notes ("Borrower's Obligations") will constitute direct, unconditional and general obligations of the Borrower ranking at least pari ---- passu with the highest ranking unsecured indebtedness of the Borrower to any other Person, except for any indebtedness which ranks higher than Borrower's Obligations by operation of law. (h) The Borrower shall immediately inform the Lender of (i) the imposition of any law, decree or regulation materially affecting the Borrower or the Facility; (ii) any material amendment to the Operative Documents; and (iii) any substantial change in the business activities of the Borrower or related to the Facility. -14- (i) The Borrower shall promptly inform the Lender of the occurrence of (i) any event or circumstance which interferes or threatens to interfere with the implementation, completion or operation of the Facility, or (ii) any other matter which materially affects the corporate or business activities or existence of the Borrower. (j) The Borrower shall give the Lender immediate written notice of the occurrence of any Default or any event which interferes, or threatens to interfere with the performance by the Borrower of its obligations under this Agreement. SECTION 7. EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall have occurred and be continuing: (a) The Borrower defaults in any payment of principal or interest or any other payment on the due date thereof under this Agreement or under any Note and such non-payment continues for 10 days after notice. (b) The Borrower fails duly to observe or perform any of its other covenants or agreements in any Operative Document -15- for a period of twenty (20) calendar days after the date on which notice of such failure shall have been given to the Borrower. (c) Any material representation or warranty by the Borrower in any Operative Document to which it is a party or any certificate delivered in connection therewith shall have proven not to have been true and correct when made, or any obligation of the Borrower under any Operative Document shall at any time and for any reason cease to constitute a valid and binding obligation of the Borrower. (d) The Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding up, or composition or readjustment of debts, (v) fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under any bankruptcy law, or (vi) take any corporate action for the purpose of effecting any of the foregoing. -16- (e) A proceeding or case shall be commenced, without the application or consent of the Borrower in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding-up or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or of all or any substantial part of its assets, or (iii) similar relief in respect of the Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or a warrant of attachment, execution or similar process shall be issued against any property of the Borrower having a value in excess of U.S. $500,000 and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of twenty (20) days; or an order for relief against the Borrower shall be entered in an involuntary case under such bankruptcy law. (f) Except as permitted by any Operative Document, the Facility or any part thereof shall be sold, transferred or otherwise disposed of prior to payment in full of the principal of and interest on each Loan and all other amounts payable by the Borrower hereunder. -17- (g) Any event or condition shall occur which results in the acceleration of the maturity of any indebtedness for borrowed moneys (including indebtedness under any guarantees) of the Borrower exceeding $5,000,000 in aggregate principal amount at the time outstanding or enables the holder of such indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof. (h) NKK Corporation, a corporation organized under the laws of Japan, shall cease to hold directly or indirectly shares constituting a majority of the combined voting power of all classes of voting stock of the Borrower and have voting power to elect a majority of the directors thereof. (i) The occurrence of an Event of Default (as defined in the NUF Loan Agreement) under the NUF Loan Agreement which relates to the Borrower. (j) The occurrence of an Event of Default (as defined in the NCA Loan Agreement) under the NCA Loan Agreement which relates to the Borrower. THEREUPON, (i) in the case of an Event of Default other than one referred to in clause (d), (e), (f), (g) or (h) above, -18- the Lender may, by notice to the Borrower, forthwith terminate the Commitment and may declare the then unpaid principal of and accrued interest on each Loan due and payable to the Lender and (ii) in the case of the occurrence of an Event of Default referred to in clause (d), (e), (f), (g) or (h) above, unless the Lender shall otherwise elect, the Commitment shall be automatically terminated and the then unpaid principal of and accrued interest on each Loan shall automatically become due and payable to the Lender. In the event the principal of, premium, if any, and accrued interest on any Loan is declared due and payable or is automatically accelerated as hereinabove provided, all other amounts payable by the Borrower under this Agreement and under each Note shall, concurrently with such declaration or acceleration, as the case may be, automatically and without further act, forthwith become due and payable, without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. The Borrower shall indemnify the Lender on demand for all reasonable costs, losses and expenses (including, without limitation, legal fees and funding and foreign exchange losses) incurred as a consequence of any Default or Event of Default. -19- SECTION 8. TAXES. A. TAXES. The Borrower will pay to the Lender all principal of and interest on each Loan and all other amounts payable by the Borrower hereunder or under any other Operative Document free and clear of, and without liability or reduction for or on account of, any present or future taxes, levies, imposts, duties, fees, assessments or other charges or withholdings of whatsoever nature now or hereafter imposed on the Lender or its affiliates in connection with any Loan or any Operative Document, whether imposed by a U.S. federal, state or local government or by a foreign government, except to the extent imposed as a consequence of the Lender or its affiliates engaging in any activity unrelated to the transactions contemplated by the Operative Documents whether taken in conjunction with the transactions contemplated hereby or otherwise (all such non-excluded taxes, levies, imposts, duties, fees, assessments and other charges or withholdings being herein called "Taxes"). If any Taxes are so levied or imposed, the Borrower will pay to the Lender the full amount of such Taxes, and such additional amounts in respect of such Taxes as may be necessary so that every payment of principal of and interest on each Loan and all other amounts payable by the Borrower hereunder or under any other Operative Document after withholding or deduction for or on account of any such Taxes and after taking into account any -20- additional Taxes wherever imposed with respect to the receipt of such additional amounts, will not be less than any amount provided for herein or therein. The Borrower will indemnify and hold harmless the Lender against and reimburse to the Lender upon demand for the amount of any Taxes paid by the Lender. If the Lender shall determine that any credit or deduction for income tax purposes with respect to any withholding Taxes on payments of interest on any Loan expressly specified as such hereunder is available to the Lender in its domicile, the Lender shall use its best efforts in good faith to allocate to such credit or deduction such Taxes in connection with payments under this Agreement with all other like taxes that may be claimed by the Lender as a credit or deduction with a view towards achieving equality of treatment in apportioning such available credit or deduction on the basis of all applicable facts and circumstances, and, in the event the Lender shall make a demand for indemnification under this Section 8.A for or on account of any such Taxes, the obligation of the Borrower to indemnify the Lender for such Taxes shall be reduced pro tanto (a certificate --- ----- of the Lender as to the amount of such reduction to be conclusive in the absence of manifest error). -21- B. CONTINUING OBLIGATIONS. The agreements of the Borrower under this Section 8 shall survive repayment of the Loans. SECTION 9. CHANGE OF LAW. Notwithstanding any other provision herein, in the event that any change in any applicable law or regulation or in the interpretation or administration thereof shall make it unlawful (a) for the Lender to honor its Commitment, then its Commitment shall terminate or (b) for the Lender to maintain the Loans, then the principal amount of the Loans then outstanding, together with interest accrued thereon and any other amounts payable by the Borrower under this Agreement and each other Operative Document, shall be prepaid in full by the Borrower on the next succeeding Interest Payment Date or such earlier date as may be required by applicable law or regulation. The Lender shall use good faith efforts to change its lending office for the purpose of honoring its Commitment or maintaining the Loans, as the case may be, in compliance with applicable law (provided that nothing herein shall obligate the Lender to take any steps which the Lender considers to be adverse to its interests). -22- SECTION 10. INDEMNIFICATION. A. AGREEMENT TO INDEMNIFY. The Borrower agrees to indemnify, pay and hold the Lender, its officers, directors, employees and agents (collectively called the "Indemnified Parties") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnified Parties in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnified Parties shall be designated a party thereto), which may be imposed on, incurred by, or asserted against that Indemnified Party, in any manner relating to or arising out of the use or intended use of the proceeds of the Loans hereunder or any of the Operative Documents to which the Borrower is a party, including without limitation, any liabilities arising in connection with any state or federal environmental laws, rules or regulations, (collectively, the "Indemnifiable Claims"); provided that the Borrower shall have no obligation to an Indemnified Party hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of that Indemnified Party. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is -23- violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified liabilities incurred by the Indemnified Parties or any of them. The agreements of the Borrower under this Section 10 shall survive the repayment of the Loans. B. NOTICE OF INDEMNIFIABLE CLAIM. Any Indemnified Party seeking indemnification under this Section 10 with respect to Indemnifiable Claims resulting from the assertion of liability by third parties shall give notice to the Borrower within twenty (20) days of becoming aware of any such Indemnifiable Claim. In case any such liability is asserted against any Indemnified Party, and it notifies the Borrower thereof, the Borrower will promptly assume the defense thereof with counsel satisfactory to Borrower. Notwithstanding the foregoing, (i) no Indemnified Party shall have any obligation to give any notice of any assertion of liability by a third party unless such assertion is in writing, and (ii) the rights of any Indemnified Party to be indemnified hereunder in respect of Indemnifiable Claims resulting from the assertion of liability by third parties shall not be adversely affected by the Indemnified Party's failure to give notice pursuant to the foregoing, unless and only to the extent that the Borrower is materially prejudiced thereby. -24- C. FAILURE TO DEFEND. In the event that the Borrower, within twenty (20) days after receipt of a notice pursuant to Section 10.B of an Indemnifiable Claim, fails to assume the defense of such Indemnified Party against such Indemnified Claim, such Indemnified Party shall have the right to undertake the defense, compromise or settlement of such Indemnifiable Claim on behalf of and for the account and risk of the Borrower. SECTION 11. REPORTING REQUIREMENTS. The Borrower shall furnish to the Lender: (a) Promptly upon availability and in any event within one hundred and ten (110) days after the end of each fiscal year of the Borrower, the annual audited consolidated financial statements of the Borrower. (b) Promptly, such other information concerning the Borrower as the Lender may from time to time reasonably request. SECTION 12. MISCELLANEOUS PROVISIONS. A. WAIVER. No failure on the part of the Lender to exercise and no delay in exercising and no course of dealing with respect to any right, power or privilege under this Agreement or any other Operative Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or -25- privilege under this Agreement or any other Operative Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. B. NOTICES. Except as otherwise specified herein, all notices and other communications hereunder or under any other Operative Document shall be in writing (which may be by telecopy transmission) and shall be deemed to have been duly given (i) when given by mail, on the date seven (7) calendar days after being deposited in the mails, registered or certified and airmail postage prepaid, or (ii) when given by telecopy, on the date transmitted by telecopy (with confirmed answerback and with prompt telephone confirmation of receipt of such telecopy by the intended recipient), addressed or directed to either party hereto at its address or telecopy number, respectively, given below or, as to any such party, at such other address or telecopy number as such party shall have notified in writing the party giving such notice: -26- If to the Borrower: National Steel Corporation 4100 Edison Lakes Parkway Mishawaka, Indiana 46545 Attention: Treasurer Telecopier: (219) 273-7478 If to the Lender: NKK Capital of America, Inc. c/o NUF Corporation 450 Park Avenue 25th Floor New York, NY 10022 Attention: Treasurer Telecopier: (212) 826-6345 In addition, for purposes of computing any grace period hereunder, reference to any given number of Business Days or calendar days shall be computed by reference to the specified period of time in the Lender's domicile. C. EXPENSES. The Borrower shall pay all legal fees and expenses incurred by the Borrower and all reasonable legal fees and expenses and Borrowing Costs incurred by the Lender in connection with the making of the Loans. D. GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ALL JUDICIAL ACTIONS, SUITS OR PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO ITS OBLIGATIONS, -27- LIABILITIES OR OTHER MATTERS UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH PROCEEDINGS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER ACCEPTS, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY, FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. THE BORROWER HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTIONS, INCLUDING WITHOUT LIMITATION ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF THE LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING AGAINST THE BORROWER IN THE COURT OF ANY JURISDICTION. E. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of -28- such prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provisions in any other jurisdiction. F. ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the Lender and the Borrower and their respective successors and assigns; provided, that neither the Lender nor the Borrower may, except as expressly permitted herein, assign, transfer, grant participations in or otherwise dispose of any or all of its rights or obligations hereunder (any such assignment, transfer, participations or other dispositions being herein called a "Transfer"). The Borrower agrees that the Lender may Transfer any of its rights and obligations hereunder and under the other Operative Documents with the prior consent of the Borrower (such consent not to be unreasonably withheld). The Borrower shall not be responsible for any additional amounts payable under Section 8 hereof incurred at the time of any such Transfer by the Lender solely as a consequence of such Transfer. G. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. -29- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. NKK CAPITAL OF AMERICA, INC. By:_______________________________ Name:__________________________ Title:_________________________ NATIONAL STEEL CORPORATION By:_______________________________ Name:__________________________ Title:_________________________ -30- APPENDIX A to the LOAN AGREEMENT As used in the Loan Agreement, the following terms shall have the definitions set forth below and such definitions shall be equally applicable to both the singular and plural forms: "Applicable Loan Margin" means 0.5% per annum. "Borrowing Cost" means any commercially reasonable cost (including, without limitation, any issuance costs, attorneys fees, prepayment penalty, charge or penalty and any breakage or early termination cost) charged to the Lender in connection with the funding of any Loan. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banking institutions in either New York City or London are required by law to be closed. "Closing Date" means the date on which all of the conditions precedent included in Section 4.A hereof have been satisfied. "Commitment" means the commitment of the Lender to provide the Loans to the Borrower pursuant to Section 2 of the Loan Agreement. "Default" means an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "U.S.$" refer to dollars in lawful money of the United States of America. -1- "Events of Default" has the meaning attributed to it in Section 7 of the Loan Agreement. "Facility" means that certain coke oven battery to be constructed by the Borrower at its Great Lakes Division. "Governmental Approval" means any authorization, consent, approval, license, ruling, permit, certificate, exemption, filing or registration by or with the United States or any state or local government authority or legal or administrative body. "Indebtedness" means with respect to any Person, the following (whether outstanding on the date of this Agreement or at any time thereafter without duplication): (a) all indebtedness of such Person for borrowed money: (b) all indebtedness for the deferred purchase price of property or services; (c) all reimbursement obligations of such Person under or in respect of letters of credit or banker's acceptances; (d) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (e) all obligations of such Person under capital leases; and (f) all direct or indirect guarantees, endorsements, ovals and similar obligations of such Person in respect of, and all obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of any other Person specified in any of the preceding clauses. "Interest Payment Date" means each February 5 and August 5; provided that, if any such date is not a Business Day, the relevant Interest Payment Date shall be the next succeeding Business Day (unless such succeeding Business Day falls in another calendar month, in which event the relevant Interest Payment Date shall be the next preceding Business Day). "Interest Rate" with respect to each Loan means the rate per annum equal to the actual funding rate received by the Lender related to the principal amount of such Loan plus the Applicable Loan Margin. "Loan" and "Loans" have the meanings attributed to such terms in Section 2.A of the Loan Agreement. -2- "Loan Agreement," unless the context otherwise requires, means the Loan Agreement between the Lender and the Borrower dated as of May 19, 1993. "NCA Loan Agreement" means that certain Loan Agreement, dated October 30, 1992 between NKK Capital of America, Inc. and National Steel Corporation, as amended from time to time. "Note" and "Notes" have the meanings attributed to such terms in Section 3.D of the Loan Agreement. "NUF Loan Agreement" means that certain Amended and Restated Loan Agreement, dated October 30, 1992, between NUF Corporation and National Steel Corporation, as amended from time to time. "Operative Documents" means the Loan Agreement and each Note, and "Operative Document" means any of them. "Person" means an individual, corporation, partnership, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Taxes" has the meaning attributed to it in Section 8 of the Loan Agreement. "Termination Date" means February 5, 2000. "Transfer" has the meaning assigned in Section 12.F of the Loan Agreement. -3- EXHIBIT A [Letterhead of NKK Capital of America, Inc.] NOTICE __________, 19__ VIA TELECOPY OR CERTIFIED OR REGISTERED - --------------------------------------- AIR MAIL - RETURN RECEIPT REQUESTED - ----------------------------------- National Steel Corporation 4100 Edison Lakes Parkway Mishawaka, Indiana 46545 Attention: Vice President - Finance and Treasurer Re: Loan Agreement between NKK Capital of America, Inc. and National Steel Corporation, dated as of May __, 1993 (the "Loan Agreement") ------------------------------------------------------------------ Gentlemen: Pursuant to Section 2.A of the Loan Agreement, NKK Capital of America, Inc. is hereby providing you with the Notice five (5) days prior to the Lending Date set forth below, as follows: 1. Lending Date: ____________________ 2. Amount: U.S.$_____________________ 3. Maturity Date: ___________________ 4. Interest Rate: The actual funding rate received by NKK Capital of America, Inc. plus 0.50% subject to any adjustments for any Borrowing Cost (as defined in the Loan Agreement) is ________ percent. 5. The schedule of the repayment of the principal of the Loan shall be as follows: Date Amount ---- ------ ________________ ________________ ________________ ________________ ________________ ________________ ________________ ________________ Very truly yours, NKK CAPITAL OF AMERICA, INC. By:___________________________ Name: Title: -2- EXHIBIT C NOTE $_______________ Mishawaka, Indiana Date:_______________ FOR VALUE RECEIVED, NATIONAL STEEL CORPORATION, a Delaware corporation (the "Maker"), hereby promises to pay to the order of NKK CAPITAL OF AMERICA, INC., a Delaware corporation (the "Lender"), __________________________ Dollars ($__________), together with interest on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until such principal amount is paid in full at a rate per annum equal to the Interest Rate, payable in the manner stated in, and calculated in accordance with the terms of the Loan Agreement, dated as of May __, 1993, by and among the Lender and the Maker (the "Loan Agreement"), to which reference is hereby made and which is incorporated herein by reference. This Note is issued pursuant to the Loan Agreement, and any holder of this Note is entitled to the benefits thereof. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Loan Agreement and Appendix A thereto. Payments of interest and other amounts due hereunder shall be payable in the manner stated in the Loan Agreement. The Maker shall pay, on demand, interest on any overdue principal at a rate equal to the Interest Rate plus two ---- percent (2%) per annum, calculated in accordance with the terms of the Loan Agreement. The Maker shall pay the principal amount of the amounts due hereunder on the dates and in the amounts described below: Date Amount ---- ------ ____________ ___________________ ____________ ___________________ ____________ ___________________ ____________ ___________________ Except as provided above, the prepayments of principal, in whole or in part, are authorized at the times, in the circumstances and in the manner stated in the Loan Agreement. All payments of principal and interest shall be payable in such coin and currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be made without deduction or set-off or counterclaim of the Maker against the Lender. If an Event of Default shall occur and be continuing, the entire balance of this Note, and the interest that shall have accrued thereon, shall become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. This Note shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. NATIONAL STEEL CORPORATION By:___________________________ Name: Title: -2- EX-10.GG 5 EMPLOY AGREE EXHIBIT 10GG AGREEMENT THIS AGREEMENT, made effective as of the 14th day of October, 1993 ("Effective Date"), by and between National Steel Corporation ("NSC") and Ronald H. Doerr ("Doerr") WITNESSETH WHEREAS, Doerr has served as President and Chief Operating Officer of NSC since 1990; and WHEREAS, NSC desires Doerr to be the President and Chief Executive Officer ("CEO") of NSC on the Effective Date, and, as President and CEO, to exercise strong leadership and guidance, and to undertake certain specific responsibilities, to enable NSC to achieve favorable business and financial results; and WHEREAS, NSC is willing to grant Doerr certain specific authority and assurances to enable him and to induce him to so perform; and WHEREAS, Doerr is willing to undertake such leadership role and responsibilities and to accept such authority and assurances under the terms and conditions of this Agreement; and WHEREAS, the benefits described in Section 5 of this Agreement are in addition to and not in substitution for any benefits to which Doerr may be entitled under any existing or future plans or programs maintained by NSC for its senior executives or employees. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: -1- 1. Term. The term of this Agreement shall commence on the Effective Date and shall continue until October 1, 1996 and thereafter from year to year, unless and until this Agreement is terminated at the end of any month after the Effective Date by either party giving to the other party at least thirty (30) days advance written notice of termination. 2. Responsibilities. During the term of this Agreement, Doerr shall be employed as President and CEO of NSC and, as such, shall exercise leadership to enable the management and employees of NSC to: (i) stabilize and improve operations with substantial reduction or elimination of unscheduled down time and significant yield improvement; (ii) improve NSC's mix of products, markets and customers; (iii) meet NSC customer requirements for the on-time delivery of proper quantities of quality products; (iv) stop losses and achieve sustained profitability for NSC; (v) continue a sound capital improvement program for NSC; and (vi) increase shareholder value in NSC. Doerr's performance as President and CEO shall be judged by the NSC Board of Directors (the "Board") and its Compensation Committee in substantial measure by the degree of NSC's success in achieving the above-described goals. -2- 3. Authority. To enable Doerr, as President and CEO, to exercise the leadership necessary to achieve the goals described in Section 2 above, he shall have the following authority and powers, subject always to the overall direction of the Board: (i) the authority to develop and implement the organizational structure and authorities and responsibilities of the management of NSC; and (ii) the authority to determine which employees shall hold key management positions, including the power to appoint, remove and fire and hire such employees; and (iii) the authority granted to him in his office of President and CEO under NSC's charter, by-laws and applicable law, including the general management of the business of NSC. 4. Compensation. (a) For the period from the Effective Date through December 31, 1993, Doerr's initial Base Pay shall be $351,000 per year. Commencing January 1, 1994 and continuing thereafter for the term of this Agreement or until increased by the Board, Doerr's Base Pay shall be $450,000 per year. Doerr's Base Pay during the term of this Agreement may be changed by the Board to recognize Doerr's performance of his responsibilities as President and CEO of NSC and such other factors as the Board deems appropriate, but at no time after January 1, 1994 and during the term of this Agreement shall Doerr's Base Pay be less than his Base Pay on January 1, 1994. (b) During the term of this Agreement, Doerr shall also be (i) entitled to participate in such retirement, profit sharing, gainsharing, stock bonus, incentive compensation (cash or equity), equity compensation, group insurance, health care, salary continuance and other fringe benefit plans and perquisites, if any, as may be provided from time to time for senior executives of NSC, (ii) provided with reimbursement of expenses related to his -3- employment by NSC on a basis no less favorable than that which may be authorized from time to time by the Board, in its sole discretion, for senior executives generally, and (iii) entitled to vacation and holidays in accordance with NSC's normal personnel policies for senior executives. (c) During the term of this Agreement and for a period of one year after the termination of this Agreement, NSC will pay the cost of financial and tax planning services for Doerr. Such services will be furnished by a provider chosen by Doerr with the approval of NSC. 5. Termination of Agreement ------------------------ (a) Termination Without Cause. If this Agreement is terminated, other than pursuant to subsections (c) or (d), below, without cause by NSC before October 1, 1996, Doerr shall be entitled to the following from NSC: (i) a monthly payment beginning in the month next following the date as of which this Agreement is terminated and ending in the month in which Doerr's death occurs, in an amount equal to: (A) the regular pension that would have been payable under the National Steel Corporation Retirement Program ("Retirement Program") if Doerr had been credited with the greater of his actual Benefit Service (as such term is defined in the Retirement Program) or 30 years of Benefit Service, calculated (1) on the basis of earnings (as defined in the Retirement Program) determined without regard to the limit on annual compensation under section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), or the exclusion under the Retirement Program for compensation deferred under the National Steel Corporation Executive Deferred -4- Compensation Plan ("EDC Plan"), (2) without regard to any applicable maximum benefit limitation under section 415 of the Code, and (3) without regard to any reduction for early retirement applicable under the Retirement Program; reduced by (B) the actuarial equivalent of the amount, if any, payable under the EDC Plan as a Supplemental Pension (as such term is defined in the EDC Plan), calculated on the basis of the actuarial factors set forth in EDC Plan and payments in the form of a single life annuity beginning and ending on the dates payments begin and end under this paragraph (i); further reduced by (C) the sum of the regular pension payable to Doerr under the Retirement Program and monthly amounts payable to Doerr in the form of a single life annuity under the National Steel Corporation ERISA Parity Plan, such reduction to begin as of the earliest date Doerr is eligible to begin to receive a pension under the Retirement Program and calculated as of such date, whether or not Doerr has applied for or begun to receive a pension under the Retirement Program; provided that the reductions described in subparagraphs (B) and (C), above, for amounts payable under the EDC Plan and the ERISA Parity Plan shall not be imposed if any such amount is not, in fact, paid, for reasons beyond the control or fault of Doerr (including forfeiture under the terms of the EDC Plan), at the time scheduled for payment under terms of the respective plan(s); and -5- (ii) a lump sum payment which shall be paid within ninety (90) days after termination of this Agreement and shall equal (A) the amount that would have been payable under the National Steel Corporation Supplemental Retirement Program ("SRP") if Doerr had been credited with the greater of his actual Benefit Service (as such term is defined in the Retirement Program) or 30 years of Benefit Service, reduced by (B) the amount payable to Doerr under the SRP; provided that the amounts described in (A) and (B) of this paragraph (ii) shall be calculated as if benefits under the SRP were paid as of the date this Agreement is terminated; and provided further that the reduction for the amount payable under the SRP shall not be imposed if such amount is not, in fact, paid, for reasons beyond the control or fault of Doerr, at the time scheduled for payment under the terms of the SRP; and (iii) a lump sum payment equal to the amount of any matching contributions and earnings thereon under the EDC Plan that may have been forfeited, which amount shall be paid as soon as possible but not later than ninety (90) days after termination of this Agreement; and (iv) a lump sum payment equal to two (2) years of Doerr's Base Pay in effect immediately prior to the termination of this Agreement, which in no event shall be less than the Base Pay effective as of January 1, 1994, which amount shall be paid within ten (10) days after termination of this Agreement; and (v) a bonus under the Management Incentive Compensation Program ("MICP") for the year in which this Agreement is terminated, whether or not this Agreement is -6- terminated by reason of Doerr's retirement, disability or death, if a bonus is payable to other senior executives of NSC under the MICP for such year, calculated under the terms of the MICP on a pro rata basis at Doerr's target rate; and (vi) full exercisability, as of the date next preceding the date as of which this Agreement is terminated, of any Options granted to but not otherwise exercisable by Doerr under the National Steel Corporation 1993 Long-Term Incentive Plan; and (vii) transfer of ownership of the NSC-provided automobile that Doerr was using immediately before the termination of this Agreement at no cost to him; and (viii) participation in such group insurance, health care and other fringe benefit plans and perquisites, if any, as may be provided from time to time for senior executives of NSC who retire with eligibility for immediate pension from the Retirement Program and not less than fifteen years of service; provided that participation in any retiree health care plans shall be at Doerr's cost if benefits under such plans would otherwise be taxable to Doerr, and NSC shall pay Doerr additional amounts equal to the cost of such participation. For purposes of this Section 5, termination of this Agreement without cause shall mean: (i) termination by NSC of this Agreement (which shall be deemed to include termination of Doerr's employment or status as President and CEO of NSC), or -7- (ii) the failure of NSC to fulfill its obligations to Doerr in any material respect, under this Agreement or otherwise, including any action or refusal to act by officers or directors NSC which prevents or interferes with his ability to perform under this Agreement or to carry out his other duties as President and CEO, or any material change in his functions, duties or responsibilities which reduce the dignity, responsibility, importance or scope of his position, unless the sole reason for said termination or failure by NSC is the willful misconduct, gross negligence or act(s) of moral turpitude of Doerr. (b) Termination On or After October 1, 1996. If this Agreement is terminated, other than pursuant to subsections (c) or (d), below, by NSC without cause or by Doerr in accordance with Section 1 hereof, on or after October 1, 1996, Doerr shall be entitled to the benefits described in paragraphs (i) and (iii), if any, (vii) and (viii) of subsection (a), above; provided that if this Agreement is so terminated by NSC without cause Doerr shall also be entitled to the benefits described in paragraphs (iv), (v), and (vi) of subsection (a), above. (c) Disability. If Doerr incurs a disability and becomes eligible for benefits under the Long Term Disability Program of National Steel Corporation (the "LTD Plan"), and this Agreement has not been terminated, Doerr shall be entitled to receive from NSC 50% of his Base Pay in effect immediately prior to the onset of his disability, reduced by the amount of any benefits received under the LTD Plan, until this Agreement is terminated by NSC or Doerr. Upon -8- termination of this Agreement following Doerr's eligibility for benefits under the LTD Plan, Doerr shall be entitled to the benefits described in paragraphs (i), (ii) and (iii), if any, (iv), (v), (vi), (vii) and (viii) of subsection (a), above. (d) Death. If Doerr dies during the term of this Agreement, this Agreement shall be deemed terminated upon his death, the benefits described in paragraphs (iv), (v) and (vi) of subsection (a), above, shall be provided to his estate; the benefits described in paragraph (vii) and 50% of the benefits described in paragraph (ii) of subsection (a), above, shall be provided to his surviving spouse, if any; and monthly payments shall be made to his surviving spouse, if any, beginning in the month following Doerr's death and ending in the month of her death, in an amount equal to 50% of the monthly amount that would otherwise have been payable to Doerr during his life under paragraph (i) of subsection (a), above, if such amount were payable in the form of a joint and 50% survivor annuity, calculated on the basis of the applicable actuarial factors set forth in the Retirement Program. 6. Confidentiality --------------- (a) Doerr agrees to keep secret and retain in the strictest confidence all material confidential information pertaining to NSC, its subsidiaries and its affiliated companies, including without limitation inventions, trade secrets, know-how, customer lists, prices and pricing policies, financial information, operations, methods and proprietary information of any nature, and not disclose such material confidential information to anyone outside NSC, its subsidiaries and its affiliated companies (except to attorneys retained on behalf of NSC), either during the term of this Agreement or after its termination, except in the course of performing duties hereunder or with NSC's express written consent. -9- (b) All documents, written information, records, data, computer information and material, tapes, film, and other material of any kind incorporating confidential information of the type described in subsection (a), above, including but not limited to memoranda, notes, sketches, records, reports, manuals, business plans and notebooks in Doerr's possession or under his control during the term of his employment by NSC shall be the exclusive property of NSC and shall be delivered by him to NSC upon termination of his employment by NSC. 7. Waiver and Release of Claims. Doerr hereby waives, and releases NSC, its affiliates, directors, officers and employees, from, any and all past, present or future claims, damages, liabilities, demands and causes of action of every nature, kind and character whatsoever, known and unknown (herein collectively called "Claims"), including, but not limited to, any age discrimination or other discrimination Claims or breach of contract Claims, which he has or may have against NSC and/or its parent corporations, shareholders, subsidiaries and affiliates and all and each of their officers, directors, employees, agents and representatives, based on or arising out of, or in any way in connection with, any facts, events, circumstances or occurrences which have occurred or exist up to and including the date of the signing of this Agreement or which will occur in the course of the lawful and proper performance of this Agreement, including the present or future effects of such facts, events, circumstances or occurrences. Doerr agrees that in the event NSC commits a breach or breaches of this Agreement, Doerr's sole and exclusive remedy shall be, and NSC's liability shall be limited to, damages equal to the payments and benefits to be provided by NSC hereunder and to Doerr's cost of litigation, if any, to enforce his rights hereunder, including reasonable attorneys' fees, if Doerr is successful. 8. Successor Company. NSC shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation, exchange or otherwise) to all or substantially all of the business or assets of NSC as of the Effective Date, by agreement in form and substance reasonably satisfactory to Doerr, to acknowledge expressly that this Agreement is binding upon and enforceable against NSC in accordance with the terms hereof, and to become -10- jointly and severally obligated with NSC to perform this Agreement in the same manner and to the same extent that NSC would be required to perform if no such succession or successions had taken place. Failure of NSC to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and, at Doerr's election, shall be deemed a termination of this Agreement without cause which shall entitle Doerr to the benefits described in subsection 5(a) hereof. 9. No Mitigation. Doerr shall not be required to mitigate the amount of any payment or benefit provided for in Section 5 hereof by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation he may earn by other employment or otherwise. 10. Contents of Agreement; Amendment and Assignment. ----------------------------------------------- (a) This Agreement constitutes the entire agreement of the parties regarding the subject matter hereof, and any and all prior or contemporaneous statements, representations, negotiations, commitments or agreements, oral or written, relating to the subject matter of this Agreement are merged herein and superseded hereby and are of no legal force and effect whatsoever. This Agreement cannot be amended or modified except by means of a written amendment approved by the Board and executed both by Doerr and by a duly authorized officer of NSC on behalf of the Board, which amendment states that it is intended to modify this Agreement. (b) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Doerr hereunder are of a personal nature and shall not be assignable or delegable in whole or in part by Doerr without the prior written consent of NSC. 11. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or -11- unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 12. Effectiveness. This Agreement shall become effective as of the Effective Date after approval by resolution of the Board and execution and delivery by the parties. 13. Headings. All headings contained in this Agreement are only for purposes of reference and are of no legal force and effect. 14. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Indiana without giving effect to any conflict of laws provisions. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of its Effective Date. NATIONAL STEEL CORPORATION /s/ Ronald H. Doerr By: xxxxxxxxxxxxxxxxxxxxxxxx - -------------------------- ------------------------------ Ronald H. Doerr Chairman of the Board -12- EX-21.1 6 LIST OF SUBIDIARIES EXHIBIT 21 NATIONAL STEEL CORPORATION SUBSIDIARIES
JURISDICTION PERCENTAGE OF OUTSTANDING NAME INCORPORATION STOCK OWNED ---- ------------- ----------- American Steel Corporation............................ Michigan 100% Delray Connecting Railroad............................ Michigan 100% D. W. Pipeline Company................................ Michigan 100% Fayette Land Company.................................. Delaware 100% Granite City Steel Company............................ Illinois 100% Granite Intake Corporation............................ Delaware 100% Granite Office Building Corporation................... Illinois 100% Great Lakes Steel Corporation......................... Delaware 100% The Hanna Furnace Corporation......................... New York 100% Hanna Ore Mining Company.............................. Minnesota 100% Liberty Pipe and Tube, Inc............................ Texas 100% Mathies Coal Company.................................. Pennsylvania 86.67% Mid-Coast Minerals Corporation........................ Delaware 100% Midwest Steel Corporation............................. Pennsylvania 100% Natcoal, Inc.......................................... Delaware 100% National Acquisition Corporation...................... Delaware 100% National Caster Acquisition Corporation............... Delaware 100% National Caster Operating Corporation................. Delaware 100% National Casting Corporation.......................... Delaware 100% National Coal Mining Company.......................... Delaware 100% National Coating Limited.............................. Delaware 100% National Coating Line Corporation..................... Delaware 100% National Materials Procurement Corporation............ Illinois 100% National Mines Corporation............................ Pennsylvania 100% National Ontario Corporation.......................... Delaware 100% National Ontario II, Limited.......................... Delaware 100% National Pickle Line Corporation...................... Delaware 100% National Steel Pellet Company......................... Delaware 100% Natland Corporation................................... Delaware 100% NS Land Company....................................... New Jersey 100% NSC Realty Corporation................................ Delaware 100% NSL, Inc.............................................. Delaware 100% Peter White Coal Mining Company....................... West Virginia 100% Puritan Mining Company................................ Michigan 100% Rostraver Corporation................................. Delaware 100% Skar-Ore Steamship Corporation........................ Delaware 100% The Teal Lake Iron Mining Company..................... Michigan 100%
EX-23.1 7 CONSENT OF AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements: . Form S-8 No. 33-51991 pertaining to the 1994 and 1995 Stock Grants to Union Employees, . Form S-8 No. 33-51081 pertaining to the 1993 National Steel Corporation Long-Term Incentive Plan, . Form S-8 No. 33-51083 pertaining to the 1993 National Steel Corporation Non-Employee Director's Stock Option Plan, and . Form S-8 No. 33-51087 pertaining to the National Steel Retirement Savings Plan and National Steel Represented Employee Retirement Savings Plan; of our report dated January 26, 1994, except for the last paragraph of Note S as to which the date is February 11, 1994, with respect to the consolidated financial statements and schedules of National Steel Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1993. Ernst & Young Fort Wayne, Indiana March 7, 1994 -----END PRIVACY-ENHANCED MESSAGE-----