-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FYRB95WjOLSVN7FUJ7W8fSo6nBD7knF2N+kx4STvnIqSjVE5UYzZviHACtWOb6FC UKpdyaQeJ2MTkJ7/hA+mxw== 0000950131-95-003171.txt : 19951119 0000950131-95-003171.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950131-95-003171 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL STEEL CORP CENTRAL INDEX KEY: 0000070578 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 250687210 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00983 FILM NUMBER: 95590343 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-Q 1 FORM 10-Q 1995 THIRD QUARTER F O R M 1 0 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-983 NATIONAL STEEL CORPORATION (Exact name of registrant as specified in its charter) Delaware 25-0687210 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): 219-273-7000 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the Registrant's Common Stock $ .01 par value, as of October 31, 1995, was 43,288,240 shares. NATIONAL STEEL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Statements of Consolidated Income -- Three Months Ended September 30, 1995 and 1994 3 Statements of Consolidated Income -- Nine Months Ended September 30, 1995 and 1994 4 Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994 5 Statements of Consolidated Cash Flows -- Nine Months Ended September 30, 1995 and 1994 6 Statements of Changes in Consolidated Stockholders' Equity and Redeemable Preferred Stock-Series B -- Nine Months Ended September 30, 1995 and Year Ended December 31, 1994 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Legal Proceedings 16 Exhibits and Reports on Form 8-K 17 Signatures 18 2 PART I. -- FINANCIAL INFORMATION NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Three Months Ended September 30, ------------------- 1995 1994 -------- -------- NET SALES $724,798 $683,546 Cost of products sold 634,435 592,964 Selling, general and administrative 36,810 33,932 Depreciation, depletion and amortization 36,731 34,569 Equity (income) loss of affiliates (2,543) 370 Unusual credit -- (59,101) -------- -------- INCOME FROM OPERATIONS 19,365 80,812 Financing costs Interest and other financial income (3,252) (1,064) Interest and other financial expense 12,073 15,137 -------- -------- 8,821 14,073 -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 10,544 66,739 Income tax provision (credit) (5,064) 4,256 -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 15,608 62,483 Extraordinary Item (net) 5,373 -- -------- -------- NET INCOME 20,981 62,483 Less preferred stock dividends (2,739) (2,740) ======== ======== Net income applicable to Common Stock $ 18,242 $ 59,743 ======== ======== PER SHARE DATA APPLICABLE TO COMMON STOCK: Income Before Extraordinary Item $ 0.30 $ 1.64 Extraordinary Item (net) 0.12 -- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $ 0.42 $ 1.64 ======== ======== Weighted average shares outstanding (in thousands) 43,286 36,370
See notes to consolidated financial statements. 3 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Nine Months Ended September 30, ----------------------- 1995 1994 ---------- ---------- NET SALES $2,214,085 $1,956,966 Cost of products sold 1,873,955 1,738,542 Selling, general and administrative 108,386 101,490 Depreciation, depletion and amortization 108,912 104,259 Equity (income) loss of affiliates (4,066) 384 Unusual charge (credit) 5,336 (59,101) ---------- ---------- INCOME FROM OPERATIONS 121,562 71,392 Other (Income) Expense Interest and other financial income (9,884) (2,618) Interest and other financial expense 40,215 47,111 Litigation judgment -- (110,972) ---------- ---------- 30,331 (66,479) ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 91,231 137,871 Income tax provision (credit) 612 (3,464) ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 90,619 141,335 Extraordinary Item (net) 5,373 -- ---------- ---------- NET INCOME 95,992 141,335 Less preferred stock dividends (8,218) (8,220) ---------- ---------- Net income applicable to Common Stock $ 87,774 $ 133,115 ========== ========== PER SHARE DATA APPLICABLE TO COMMON STOCK: INCOME BEFORE EXTRAORDINARY ITEM $ 1.94 $ 3.66 Extraordinary Item 0.12 -- ---------- ---------- NET INCOME APPLICABLE TO COMMON STOCK $ 2.06 $ 3.66 ========== ========== Weighted average shares outstanding (in thousands) 42,513 36,364
See notes to consolidated financial statements. 4 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Amounts) (Unaudited)
ASSETS September 30, December 31, 1995 1994 ------------- ----------- Current assets Cash and cash equivalents $ 121,076 $ 161,946 Receivables--net 317,578 292,869 Inventories: Finished and semi-finished products 279,952 261,480 Raw materials and supplies 137,654 106,532 ----------- ----------- 417,606 368,012 ----------- ----------- Total current assets 856,260 822,827 Investments in affiliated companies 60,884 57,676 Property, plant and equipment 3,515,083 3,360,467 Less allowances for depreciation, depletion and amortization (2,076,188) (1,966,539) ----------- ----------- 1,438,895 1,393,928 Other assets 247,564 224,954 ----------- ----------- TOTAL ASSETS $ 2,603,603 $ 2,499,385 =========== =========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY: Current liabilities Accounts payable $ 273,664 $ 272,586 Accrued liabilities 327,075 289,943 Current maturities of long temm debt 35,502 35,669 ----------- ----------- Total current liabilities 636,241 598,198 Long term obligations 342,420 360,375 Long term indebtedness to related parties 161,912 310,409 Other long term liabilities 851,367 810,292 Redeemable Preferred Stock--Series B 65,405 66,530 Stockholders' equity Common Stock--par value $.01: Class A--authorized 30,000,000 shares, issued and outstanding 22,100,000 shares 221 221 Class B--authorized 65,000,000 shares; issued and outstanding 21,188,240 shares in 1995 and 14,261,100 shares in 1994 212 143 Preferred Stock--Series A 36,650 36,650 Additional paid-in-capital 465,359 360,525 Retained earnings (deficit) 43,816 (43,958) ----------- ----------- Total stockholders' equity 546,258 353,581 ----------- ----------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY $ 2,603,603 $ 2,499,385 =========== ===========
See notes to consolidated financial statements. 5 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In Thousands of Dollars) (Unaudited)
Nine Months Ended September 30, --------------------- 1995 1994 --------- --------- Cash Flows from Operating Activities: Net Income $ 95,992 $ 141,335 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 108,912 104,259 Carrying charges related to facility sales and plant closings 18,231 23,819 Unusual items (excluding pensions and OPEB) -- (19,847) Extraordinary item (net) (5,373) -- Equity (income) loss of affiliates (4,066) 384 Dividends from affiliates 900 900 Long term pension liability (759) 8,630 Postretirement benefits 34,643 (9,986) Deferred income taxes (23,215) (6,740) Cash provided (used) by working capital items: Receivables (24,709) (55,599) Inventories (49,594) 39,967 Accounts payable 1,078 (36,653) Accrued liabilities 36,835 (3,252) Other (804) 10,995 --------- --------- Net Cash Provided by Operating Activities 188,071 198,212 --------- --------- Cash Flows from Investing Activities: Purchases of plant and equipment (154,616) (111,775) --------- --------- Net Cash Used by Investing Activities (154,616) (111,775) --------- --------- Cash Flows from Financing Activities Exercise of stock options 169 211 Issuance of Class B Common Stock 104,734 -- Prepayment of related party debt (125,624) -- Debt Repayment (33,290) (64,980) Borrowings -- 87,950 Payment of released Weirton benefit liabilities (11,268) (13,475) Dividend payments on Preferred Stock-Series A (3,016) (3,016) Dividend payments on Preferred Stock-Series B (867) (87) Payment of unreleased Weirton liabilities and their release in lieu of cash dividends on Preferred Stock-Series B (5,163) (5,943) --------- --------- Net Cash Provided (Used) by Financing Activities (74,325) 660 --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (40,870) 87,097 Cash and Cash Equivalents, Beginning of the Period 161,946 5,322 --------- --------- Cash and Cash Equivalents, End of the Period $ 121,076 $ 92,419 ========= =========
See notes to consolidated financial statements. 6 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK - SERIES B (In Thousands of Dollars) (Unaudited)
Redeemable Common Common Preferred Additional Retained Total Preferred Stock - Stock - Stock Paid-In- Earnings Stockholders Stock - Class A Class B Series A Capital (Deficit) Equity Series B ------- ------- --------- ---------- --------- ------------ ---------- BALANCE AT JANUARY 1, 1994 $221 $143 $36,650 $360,314 $(207,366) $189,962 $68,030 Net Income 168,512 168,512 Amortization of excess of book value over redemption value of Redeemable Preferred Stock - Series B 1,500 1,500 (1,500) Cumulative dividends on Preferred Stocks - Series A and B (12,538) (12,538) Exercise of stock options 211 211 Minimum pension liability 5,934 5,934 ------- ------- --------- ---------- --------- ------------ ---------- BALANCE AT DECEMBER 31, 1994 221 143 36,650 360,525 (43,958) 353,581 66,530 Net income 95,992 95,992 Amortization of excess of book value over redemption value of Redeemable Preferred Stock - Series B 1,125 1,125 (1,125) Cumulative dividends on Preferred Stocks - Series A and B (9,343) (9,343) Issuance of Common Stock - Class B 69 104,665 104,734 Exercise of stock options 169 169 ------- ------- --------- ---------- --------- ------------ ---------- BALANCE AT SEPTEMBER 30, 1995 $221 $212 $36,650 $465,359 $43,816 $546,258 $65,405 ======= ======= ========= ========== ========= ============ ==========
See notes to consolidated financial statements 7 NATIONAL STEEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of National Steel Corporation and its majority owned subsidiaries (the "Company") presented herein are unaudited. However, in the opinion of management, such statements include all adjustments necessary for a fair presentation of the results for the periods indicated. All such adjustments made were of a normal recurring nature, except for the items discussed in Notes 2 and 4. The financial results presented for the three and nine month periods ended September 30, 1995 are not necessarily indicative of results of operations for the full year. The Annual Report of the Company on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K") contains additional information and should be read in conjunction with this report. Certain items in prior years have been reclassified to conform with the current year presentation. NOTE 2 - PRIMARY OFFERING OF CLASS B COMMON STOCK AND USE OF PROCEEDS TO PREPAY RELATED PARTY DEBT On February 1, 1995, the Company completed a public offering of 6,900,000 shares of its Class B Common Stock, bringing the total number of shares of Class B Common Stock issued and outstanding to 21,176,156, representing 32.4% of the combined voting power of the outstanding capitol stock of the Company. As a result of the offering, NKK Corporation, through its ownership of all 22,100,000 issued and outstanding shares of Class A Common Stock, holds the remaining 67.6% of the combined voting power of the outstanding capital stock of the Company. The issuance and sale of the additional shares of Class B Common Stock generated net proceeds of approximately $104.7 million. On August 7, 1995, the Company utilized these proceeds, along with an additional amount of $20.9 million funded from the Company's available cash, to prepay $133.3 million principal amount of the outstanding $323.3 million related party debt associated with the rebuild of the No. 5 Coke Oven Battery serving the Great Lakes Division. This transaction resulted in an extraordinary item of $5.4 million, net of related income tax expense of $.5 million, or $.12 per share. NOTE 3 - ENVIRONMENTAL AND LEGAL PROCEEDINGS The Company's operations are subject to numerous laws and regulations relating to the protection of human health and the environment. Because these 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 them. 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 relating to such assessments and activities, 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, operators, transporters and generators for remediation of contaminated properties, regardless of fault. The Company and certain of its subsidiaries are involved as potentially responsible parties (each, a "PRP") at a number of off-site CERCLA or state superfund site proceedings. At some of 8 these sites, any remediation costs incurred by the Company would constitute liabilities for which FoxMeyer Health Corporation ("FOX") is required to indemnify the Company ("FOX 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. In connection with those sites involving FOX Environmental Liabilities, in January 1994, the Company received $10.0 million from FOX as an unrestricted prepayment for such liabilities, for which the Company recorded $10.0 million as a liability in its consolidated balance sheet. The Company is required to repay FOX portions of the $10.0 million plus accrued interest to the extent the Company's expenditures for such FOX Environmental Liabilities do not meet specified levels by certain dates over a twenty year period. At September 30, 1995 and December 31, 1994, the balance recorded as prepaid FOX Environmental Liabilities totaled $10.5 and $10.0 million, respectively. 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. 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 any of these environmental matters discussed above 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 and liquidity for the applicable period, the Company has no reason to believe that such outcomes, whether considered individually or in the aggregate, will have a material adverse effect on the Company's financial condition. The Company recorded environmental liabilities aggregating approximately $17.8 million and $17.1 million at September 30, 1995 and December 31, 1994, respectively. Since 1989, the United States Environmental Protection Agency (the "EPA") and the eight Great Lakes states have been developing the Great Lakes Initiative, which will impose water quality standards that are even more stringent than the best available technology standards currently being enforced. On March 23, 1995, the EPA published the final "Water Quality Guidance for the Great Lakes System" (the "Guidance Document"). The Guidance Document establishes minimum water quality standards and other pollution control policies and procedures for waters within the Great Lakes System. Although the full impact of the Guidance Document is not yet known, preliminary studies conducted in 1993 by the American Iron and Steel Institute prior to the final publication of the Guidance Document estimated that the potential capital cost for a fully integrated steel mill to comply with draft standards under the Great Lakes Initiative could range from approximately $50 million to $175 million and the potential annual operating and maintenance cost would be approximately 15% of the estimated capital cost. Until the impact of the final Guidance Document can be fully analyzed, the Company is unable to determine whether such estimates are accurate and whether the Company's actual costs for compliance will be comparable. There can be no assurances that such compliance will not have a material adverse effect on the Company's financial condition. The Company is involved in various non-environmental legal proceedings most of which occur in the normal course of its business. The Company does not believe that the proceedings will have a material adverse effect, either individually or in the aggregate, on the Company's financial position. However, with respect to certain of the proceedings, if reserves prove to be inadequate and the Company incurs a charge to earnings, such charge could have a material adverse effect on the Company's results of operations for the applicable period. Certain other proceedings, if decided adversely to the Company, could have a material adverse effect on cash flows. See "Part II, Item 1 - Legal Proceedings". 9 NOTE 4 - NON-RECURRING ITEMS Reduction in Workforce - During the fourth quarter of 1994, the Company finalized and implemented a plan that resulted in a workforce reduction of approximately 400 salaried nonrepresented employees which resulted in a restructuring charge of $34.2 million, or $25.6 million net of tax. During the first quarter of 1995, the Company recorded an additional restructuring charge of $5.3 million, or $3.6 million net of tax, as a result of the various elections made by the terminated employees during the quarter. The aggregate restructuring charge of $39.5 million was comprised of retiree postemployment benefits ("OPEB") - $26.5 million; severance $12.5 million; pensions - ($2.6) million and other - $3.1 million. Substantially all of the amounts related to severance and other have been paid as of September 30, 1995. The remaining balance of $23.9 million relates primarily to OPEB and pensions and will require the utilization of cash over the retirement lives of the affected employees. National Steel Pellet Company - National Steel Pellet Company ("NSPC") was temporarily idled in October 1993, following a strike by the United Steelworkers of America ("USWA") which occurred on August 1, 1993. At December 31, 1993, it was previous management's intention to externally satisfy its iron ore pellet requirements for a period of at least three years, which would have caused NSPC to remain idle for that period. Accordingly, a liability of $108.6 million related to the idle period was recorded as an unusual charge during the fourth quarter of 1993. In June 1994, management determined that if a total reduction of $4 per gross ton in delivered pellet costs from pre-strike costs could be achieved, NSPC could be reopened on a cost effective basis. After a series of successful negotiations with the USWA and other stakeholders that led to the requisite $4 per gross ton cost reduction, the facility reopened in August 1994. The reopening of NSPC during the third quarter of 1994 resulted in the restoration of $59.1 million of the 1993 unusual charge. Litigation Judgment - On January 24, 1994, the United States Supreme Court denied the Bessemer & Lake Erie Railroad (the "B&LE") petition to hear the appeal in the Iron Ore Antitrust Litigation, thus sustaining a judgment in favor of the Company against the B&LE. On February 11, 1994, the Company received $111.0 million, including interest, in satisfaction of this judgment. This gain was reclassified from Income from Operations to Other Income to more properly reflect the trend in operating income and had no effect on net income or earnings per share as previously reported. NOTE 5 - INCOME TAXES The Company's effective tax rate is lower than the federal statutory rate primarily because of the continued utilization of available operating loss carryforwards. As such, the Company anticipates paying alternative minimum tax at an annual effective rate of approximately 5.0% in 1995. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 Net Sales Net sales for the third quarter of 1995 totaled $724.8 million, an improvement of $41.3 million, or 6.0% compared to the corresponding period in 1994. This improvement is attributable to increased volume and higher average selling prices. However, these improvements were partially offset by a shift in product mix to lower priced hot rolled products and export sales. Steel shipments for the third quarter of 1995 totaled 1,336,000 tons, a slight increase compared to 1,316,000 tons shipped during the same 1994 period. Cost of Products Sold During the third quarter of 1995, cost of products sold as a percentage of net sales increased to 87.5% compared to 86.7% during the same 1994 period. This increase was primarily attributable to hourly wage increases, expenses related to cold mill and pickle line upgrades at the Granite City Division as well as the completion of a blast furnace reline at the same location. Raw steel production totaled 1,532,000 tons compared to 1,312,000 tons produced during the third quarter of 1994. Unusual Item National Steel Pellet Company ("NSPC") was temporarily idled in October 1993, following a strike by the United Steelworkers of America ("USWA") which occurred on August 1, 1993. At December 31, 1993, it was previous management's intention to externally satisfy its iron ore pellet requirements for a period of at least three years, which would have caused NSPC to remain idle for that period. Accordingly, a contingent liability of $108.6 million related to the idle period was recorded as an unusual charge during the fourth quarter of 1993. In June 1994, management determined that if a total reduction of $4 per gross ton in delivered pellet costs from pre-strike costs could be achieved, NSPC could be reopened on a cost effective basis. After a series of successful negotiations with the USWA and other stakeholders that led to the requisite $4 per gross ton cost reduction, the facility reopened in August 1994. The reopening of NSPC during the third quarter of 1994 resulted in the restoration of $59.1 million of the 1993 unusual charge. Other (Income) Expense Financing Costs - Net financing costs of $8.8 million represent a 37.3% decrease compared to net financing costs of $14.1 million during the third quarter of 1994. This decrease is attributable to higher short term investment earnings resulting from the receipt of cash generated by the issuance of 6.9 million shares of Class B Common Stock in February 1995, coupled with a decrease in interest expense as a result of the reduction of debt. Income Taxes The Company's effective tax rate is lower than the federal statutory rate primarily because of the continued utilization of available operating loss carryforwards. As such, the Company anticipates paying alternative minimum tax at an annual effective rate of approximately 5.0% in 1995. 11 Primary Offering of Class B Common Stock and Use of Proceeds to Prepay Related Party Debt On February 1, 1995, the Company completed a primary offering of 6,900,000 shares of Class B Common Stock, bringing the total number of shares of Class B Common Stock issued and outstanding to 21,176,156. Subsequent to the offering, NKK Corporation, through its ownership of all 22,100,000 issued and outstanding shares of Class A Common Stock, holds 67.6% of the combined voting power of the Company. The remaining 32.4% of the combined voting power is publicly held. The issuance and sale of the additional shares of Class B Common Stock generated net proceeds of approximately $104.7 million. On August 7, 1995, the Company utilized these proceeds, along with an additional amount of $20.9 million funded from the Company's available cash, to prepay $133.3 million principal amount of the outstanding $323.3 million related party debt associated with the rebuild of the No. 5 Coke Oven Battery serving the Great Lakes Division. This transaction resulted in an extraordinary item of $5.4 million, net of related income tax expense of $.5 million, or $.12 per share. 12 COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 Net Sales Net sales for the first nine months of 1995 totaled $2.2 billion, a 13.1% increase when compared to the 1994 period. This increase was attributable to both an increase in shipments and realized selling prices and was somewhat offset by an unfavorable product mix shift to lower priced hot rolled products and export sales. Steel shipments for the nine month period were 4,106,000 tons, a 7.4% increase compared to 3,824,000 tons shipped in the 1994 period. Cost of Products Sold Cost of products sold as a percentage of net sales decreased from 88.8% for the nine month period ended September 30, 1994 to 84.6% for the corresponding 1995 period. This decrease is reflective of improvements in performance yields, as well as higher shipment volumes and improvements in average selling prices. Raw steel production was 4,455,000 tons compared to 4,106,000 tons produced during the nine month period ended September 30, 1994. Unusual Item During the fourth quarter of 1994, the Company finalized and implemented a plan that resulted in a workforce reduction of approximately 400 salaried nonrepresented employees which resulted in a restructuring charge of $34.2 million, or $25.6 million net of tax. During the first quarter of 1995, the Company recorded an additional restructuring charge of $5.3 million, or $3.6 million net of tax, as a result of the various elections made by the terminated employees during the quarter. The aggregate restructuring charge of $39.5 million was comprised of OPEB - $26.5 million; severance $12.5 million; pensions - ($2.6) million and other - $3.1 million. Substantially all of the amounts related to severance and other have been paid as of September 30, 1995. The remaining balance of $23.9 million primarily relates to OPEB and pensions and will require the utilization of cash over the retirement lives of the affected employees. Other (Income) Expense Financing Costs - Net financing costs of $30.3 million during the first nine months of 1995 represent a 31.8% decrease compared to net financing costs of $44.5 million during the corresponding 1994 period. This decrease is primarily attributable to higher short term investment earnings resulting from the receipt of cash generated by the issuance of 6.9 million shares of Class B Common Stock, coupled with a decrease in interest expense as a result of the reduction in debt. Litigation judgment - On January 24, 1994, the United States Supreme Court denied the Bessemer & Lake Erie Railroad (the "B &LE") petition to hear the appeal in the Iron Ore Antitrust Litigation, thus sustaining a judgment in favor of the Company against the B&LE. On February 11, 1994, the Company received $111.0 million, including interest, in satisfaction of this judgment. This gain was reclassified from Income from Operations to Other Income to more properly reflect the trend in operating income and had no effect on net income or earnings per share as previously reported. 13 LIQUIDITY AND SOURCES OF CAPITAL - -------------------------------- The Company's liquidity needs arise primarily from capital investments, working capital requirements and principal and interest payments on its indebtedness. In addition to the Company's 1995 and 1993 public offerings of Class B Common Stock and the receipt of approximately $111.0 million in February 1994 from the satisfaction of a judgment in favor of the Company against the B&LE, the Company has satisfied these liquidity needs with funds provided by long term borrowings and cash provided by operations. Cash and cash equivalents totaled $121.1 million at September 30, 1995 as compared to $161.9 million at December 31, 1994. This decrease is primarily a result of the Company's prepayment of $133.3 million aggregate principal amount of related party debt associated with the rebuild of the No. 5 Coke Oven Battery serving the Great Lakes Division. Cash from the Company's operations, as well as proceeds realized in connection with the primary offering of 6.9 million shares of Class B Common Stock completed on February 1, 1995, were utilized to prepay the aforementioned related party debt. Cash Flows from Operating Activities For the nine months ended September 30, 1995, cash provided by operating activities decreased by $10.1 million compared to the same 1994 period. However, excluding the after tax effect of the B&LE gain of $107.9 million in 1994, cash provided by operating activities increased by $97.8 million. This increase is primarily a result of improvement in income from operations. Cash Flows from Investing Activities Capital investments for the nine months ended September 30, 1995 and 1994 amounted to $154.6 and $111.8 million, respectively. The 1995 spending is largely attributable to a planned blast furnace reline at the Granite City Division, as well as the commencement of construction of a steel coating line at the same location. The 1994 spending was largely attributable to the completion of a pickle line servicing the Great Lakes Division. The Company plans to invest an additional $61.6 million during the remainder of 1995 for capital expenditures to improve its plant and equipment. Cash Flows from Financing Activities Financing activities for the first nine months of 1995 included the issuance of 6.9 million shares of Class B Common Stock which generated net proceeds of $104.7 million, offset by debt repayments of $158.9 million, which includes the cash prepayment of $125.6 million of related party debt associated with the rebuild of the No. 5 Coke Oven Battery, and other debt payments totaling $33.3 million. Financing activities for the first nine months of 1994 included borrowings of $88.0 million related to the completion of a pickle line servicing the Great Lakes Division, as well as the prepayment of $40.6 million aggregate principal amount of its outstanding First Mortgage Bonds. Sources of Financing The Company's available sources of liquidity consist of a Receivables Purchase Agreement with commitments of up to $200 million and $15 million in an uncommitted, unsecured line of credit. On May 16, 1995, the Receivables Purchase Agreement was amended to increase the amount available under this agreement from a maximum of $180 million to a maximum of $200 million. Additionally, the expiration date was extended from May 16, 1997 to May 16, 2000. On September 30, 1995, there were no cash borrowings outstanding under the Receivables Purchase Agreement, and outstanding letters of credit under the Receivables Purchase Agreement totaled $81.0 million. Total debt and redeemable preferred stock as a percentage of total capitalization improved to 52.6% at September 30, 1995, as compared to 68.6% at December 31, 1994, primarily as a result of the prepayment of $133.3 million aggregate principal amount of related party debt, improved net income and the issuance of an additional 6.9 million shares of Class B Common Stock during the first quarter of 1995. 14 Other Construction of Coating Lines - As a part of the Company's long term strategy to increase its percentage of shipments of higher margin products, two new coating lines, each rated at 270,000 net tons, are in the process of being constructed. These coating lines will serve the metal buildings market for use in pre- engineered buildings and for residential roofing, siding and framing. The line which will be located at the Granite City Division will cost approximately $80 million and is scheduled for completion in the second quarter of 1996. The line which will be located at the Midwest Division will cost approximately $70 million and is scheduled to be completed in the second quarter of 1998. The Company will finance the Granite City line from internally generated funds. Financing alternatives for the Midwest line are still being evaluated. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS USX Corporation v. National Steel Corporation. With reference to the matter involving claims by USX Corporation ("USX") arising out of the Company's hiring of five management employees and one former management employee of USX's Gary Works, previously reported in the Company's 1994 Form 10-K, the parties have agreed to a settlement of all claims. The settlement calls for the Company to make certain charitable contributions in USX's name. The specific terms of the settlement are, by agreement of the parties, confidential, but the settlement will not have a material effect on the Company's financial condition, liquidity or results of operations. 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. The Company and certain of its subsidiaries are involved as a potentially responsible parties at a number of off-site CERCLA or state superfund site proceedings. Iron River (Dober Mine) Proceeding. With reference to the matter involving the Iron River (Dober Mine) Site located in Iron County, Michigan, previously reported in the Company's 1994 Form 10-K and its first quarter 1995 Form 10-Q, the Company filed a third party complaint to include USX Corporation and Cliffs Mining Company as additional defendants, and later filed an amended third party complaint joining as additional defendants several local municipalities, as well as ARAMARK Uniform Services, Inc. The Company recently entered into settlement discussions with the State of Michigan in an effort to resolve this case prior to the parties' engaging in extensive discovery. Conservation Chemical Company Site. With reference to the matter involving the Conservation Chemical Company Site located in Gary, Indiana, previously reported in the Company's 1994 Form 10-K, several "de minimis" parties have formed a group for the purpose of attempting to negotiate a "de minimis" settlement with the Environmental Protection Agency. The Company was invited to join this group, and is currently considering whether or not to do so. Other Great Lakes Division Outfalls Proceedings. With respect to the matter involving certain outfalls located at the Company's Great Lakes Division facility, including the outfalls at the 80 inch hot strip mill, previously reported in the Company's 1994 Form 10-K and its first and second quarter 1995 Forms 10-Q, the Company has received seven additional letters from the U.S. Coast Guard ("USCG") during the third quarter of 1995 regarding the planned assessment of additional civil penalties totaling $85,000 for alleged oil discharges from National Pollutant Discharge Elimination System outfalls. The Company paid $5,000 on or about October 5, 1995, in settlement of one of these seven assessments. Of the remaining penalty assessments, the Company intends to either appeal the assessments, or to reach settlements with the USCG. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following is an index of the exhibits included in this Report on Form 10-Q: 10A Third Amendment to Amended and Restated Loan Agreement dated August 2, 1995, between NUF Corporation and the Company. 27A Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K dated October 24, 1995 reporting on Item 5, Other Events. The report related to the press release issued on October 18, 1995 announcing the Company's third quarter results of operations. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL STEEL CORPORATION BY /s/ William N. Harper ---------------------------------------------- William N. Harper, Vice President and Chief Financial Officer BY /s/ Carl M. Apel ---------------------------------------------- Carl M. Apel, Corporate Controller, Accounting and Assistant Secretary Date: November 10, 1995 18 NATIONAL STEEL CORPORATION QUARTERLY REPORT ON FORM 10-Q EXHIBIT INDEX FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 10-A Third Amendment to Amended and Restated Loan Agreement dated August 2, 1995, between NUF Corporation and the Company. 27-A Financial Data Schedule EX-10.(A) 2 AMENDMENT RECEIVE PURCHASE THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT BETWEEN NUF CORPORATION AS LENDER AND NATIONAL STEEL CORPORATION AS BORROWER DATED AS OF AUGUST 2, 1995 This Third Amendment to the Amended and Restated Loan Agreement (the "Third Amendment") is dated as of August 2, 1995 and entered into by and between NUF Corporation, a Delaware Corporation ("NUF") and National Steel Corporation, a Delaware Corporation ("NSC"). RECITALS -------- WHEREAS, NUF, as Lender, and NSC, as Borrower, have entered into a Loan Agreement dated as of December 27, 1990, which Loan Agreement was amended and restated on July 31, 1991, February 18, 1992 and October 30, 1992, and which Loan Agreement was further modified by the First Amendment, dated February 1, 1993 and by the Second Amendment, dated May 19, 1993 (the Loan Agreement, as amended, the "Amended and Restated Loan Agreement"); WHEREAS, through funds obtained from The Export-Import Bank of Japan (the "Exim Bank") pursuant to a Loan Agreement dated February 28,1992, between the Exim Bank and NUF (the "Exim Loans") and pursuant to the terms of the Amended and Restated Loan Agreement, NUF has made several tranches of loans to NSC in the aggregate principal amount equal to $200,000,000 in connection with the financing of the construction and operation of the No. 5 Coke Battery (the "Exim Bank Funded Loans"); WHEREAS, currently, NSC has funds not immediately necessary for its operations or capital improvements; WHEREAS, NSC desires to prepay on August 7, 1995 (the "Prepayment Date") $138,663,082.28, which corresponds to the sum of the outstanding principal amounts of (i) a tranche of the Exim Bank Funded Loans disbursed on March 5, 1992 (the "March Tranche"), the outstanding principal amount (not taking into account any payment to be made on the Prepayment Date pursuant to this Third Amendment) of which will be $112,664,620.12 on the Prepayment Date, and (ii) another tranche of the Exim Bank Funded Loans disbursed on June 5, 1992 (the "June Tranche"), the outstanding principal amount (not taking into account any payment to be made on the Prepayment Date pursuant to this Third Amendment) of which will be $25,998,462.16 on the Prepayment Date; WHEREAS, the payment schedule of the Exim Bank Funded Loans is included as Attachment 3 to the Amended and Restated Loan Agreement; and WHEREAS, the parties wish to enter into this Third Amendment to further amend the Amended and Restated Loan Agreement, to permit NSC to prepay the March and June Tranches. NOW THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: I. DEFINED TERMS Capitalized terms used and not otherwise defined herein shall have the meanings specified in the Amended and Restated Loan Agreement. II. AMENDMENTS TO THE AMENDED AND RESTATED LOAN AGREEMENT Section 3.A. and Subsection 5.A.(iii) of the Amended and Restated Loan Agreement are hereby amended by adding the following at the end of Subsection 5.A. (iii): Notwithstanding anything to the contrary in Section 3.A. above and this Subsection 5.A.(iii), interest and principal with respect to the Exim Bank Funded Loans shall be repaid in accordance with the Amended and Restated Attachment 3, which is attached as Annex I to the Third Amendment to the Loan Agreement, dated as of August 2, 1995, and entered into by and between the Lender and the Borrower. III. NSC'S REPRESENTATIONS AND WARRANTIES A. NSC hereby represents and warrants to NUF that the following statements are true, correct and complete as of the date hereof: 1. NSC has all requisite corporate power and authority to enter into this Third Amendment and to carry out the transactions contemplated by, and 2 perform its obligations under, the Amended and Restated Agreement as amended by this Third Amendment (the "Amended Agreement"). 2. The execution and delivery by NSC of this Third Amendment and the performance by NSC of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to NSC, the Certificate of Incorporation or Bylaws of NSC or any order, judgment or decree of any court or other agency of government binding on NSC, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of NSC, (iii) result in or require the creation or imposition of any lien upon any of the properties or assets of NSC, or (iv) require any approval of stockholders or any approval or consent of any person under any contractual obligation of NSC. 3. The execution and delivery by NSC of this Third Amendment and the performance by NSC of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 4. This Third Agreement and the Amended Agreement have been duly executed and delivered by NSC and are the legally valid and binding obligations of NSC, enforceable against NSC in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. B. The representations and warranties of NSC contained in the Amended and Restated Loan Agreement are true, correct and complete in all material respects on and as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. C. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Third Amendment that would constitute an Event of Default under the Amended and Restated Loan Agreement. 3 D. It shall constitute an Event of Default under the Amended Agreement if any representation or warranty made by NSC in this Third Amendment shall prove to have been false in any material respects when made. IV. MISCELLANEOUS. A. The obligation of NSC to perform the terms of this Third Amendment shall be unconditional and irrevocable and NSC shall repay the Exim Bank Funded Loans strictly in accordance with the Amended and Restated Attachment 3 under all circumstances, including, without limitation, failure of NSC to meet any of the representations or warranties made in this Third Agreement. B. The execution, delivery and performance of this Third Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of NUF under the Amended and Restated Loan Agreement. C. This Third Amendment shall be effective immediately upon execution. D. This Third Amendment shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the state of New York, without regard to its conflicts of laws principles. E. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 4 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. NUF CORPORATION By: /s/ Masao Goda --------------------------- Name: Masao Goda Title: President NATIONAL STEEL CORPORATION By: /s/ William E. McDonough --------------------------- Name: William E. McDonough Title: Assistant Treasurer 5 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 121,076 0 333,674 16,096 417,606 856,260 3,515,083 2,076,188 2,603,603 636,241 504,332 433 65,405 36,650 509,175 2,603,603 2,214,085 2,214,085 1,873,955 1,873,955 217,657 911 30,331 91,231 612 0 0 5,373 0 95,992 2.06 2.06
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