-----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, FXVw4z+ItsP3v/VmXANhk5y/TmDU1JcEzyAwL7uHzSzQuTvzULBga8yqXOnfBoEl N9xvli5rZmNKa6B8fgfd4A== 0000950131-96-005746.txt : 19961115 0000950131-96-005746.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950131-96-005746 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661473 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 1996 THIRD QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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, 1996, 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, 1996 and 1995 3 Statements of Consolidated Income - Nine Months Ended September 30, 1996 and 1995 4 Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 5 Statements of Consolidated Cash Flows - Nine Months Ended September 30, 1996 and 1995 6 Statements of Changes in Consolidated Stockholders' Equity and Redeemable Preferred Stock-Series B - Nine Months Ended September 30, 1996 and Year Ended December 31, 1995 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 19 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 -------- -------- NET SALES $735,858 $724,798 Cost of products sold 637,006 634,435 Selling, general and administrative 38,943 36,810 Depreciation, depletion and amortization 36,501 36,731 Equity income of affiliates (3,518) (2,543) -------- -------- INCOME FROM OPERATIONS 26,926 19,365 Other (Income) Expense: Interest and other financial income (1,645) (3,252) Interest and other financial expense 11,096 12,073 Gain on sale of asset (3,732) -- -------- -------- 5,719 8,821 -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 21,207 10,544 Income tax credit (3,082) (5,064) -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 24,289 15,608 Extraordinary item -- 5,373 -------- -------- NET INCOME 24,289 20,981 Less preferred stock dividends (2,740) (2,739) -------- -------- Net income applicable to Common Stock $ 21,549 $ 18,242 ======== ======== PER SHARE DATA APPLICABLE TO COMMON STOCK: INCOME BEFORE EXTRAORDINARY ITEM $ .50 $ .30 Extraordinary item -- .12 -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $ .50 $ .42 ======== ======== Weighted average shares outstanding (in thousands) 43,288 43,286
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, 1996 1995 ---------- ---------- NET SALES $2,187,482 $2,214,085 Cost of products sold 1,953,643 1,873,955 Selling, general and administrative 102,822 108,386 Depreciation, depletion and amortization 109,111 108,912 Equity income of affiliates (7,181) (4,066) Unusual charge -- 5,336 ---------- ---------- INCOME FROM OPERATIONS 29,087 121,562 Other (Income) Expense: Interest and other financial income (5,338) (9,884) Interest and other financial expense 32,909 40,215 Gain on sale of asset (3,732) -- ---------- ---------- 23,839 30,331 ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 5,248 91,231 Income tax provision (credit) (13,857) 612 ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 19,105 90,619 Extraordinary Item -- 5,373 ---------- ---------- NET INCOME 19,105 95,992 Less preferred stock dividends (8,222) (8,218) ---------- ---------- Net income applicable to Common Stock $ 10,883 $ 87,774 ========== ========== PER SHARE DATA APPLICABLE TO COMMON STOCK: INCOME BEFORE EXTRAORDINARY ITEM $ .25 $ 1.94 Extraordinary Item -- .12 ---------- ---------- NET INCOME APPLICABLE TO COMMON STOCK $ .25 $ 2.06 ========== ========== Weighted average shares outstanding (in thousands) 43,288 42,513
See notes to consolidated financial statements. 4 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Amounts) (Unaudited)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ ASSETS Current assets $ 128,055 $ 127,616 Cash and cash equivalents 270,966 316,662 Receivables (net) Inventories: Finished and semi-finished products 286,872 276,162 Raw materials and supplies 152,022 135,852 ---------- ---------- 438,894 412,014 ---------- ---------- Total current assets 837,915 856,292 Investments in affiliated companies 63,388 59,885 Property, plant and equipment 3,622,322 3,540,214 Less allowances for depreciation, depletion and amortization 2,180,721 2,071,511 ---------- ---------- 1,441,601 1,468,703 Other assets 307,740 282,999 ---------- ---------- TOTAL ASSETS $2,650,644 $2,667,879 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 275,235 $ 255,574 Accrued liabilities 325,378 341,242 Current maturities of long term obligations 37,456 35,750 ---------- ---------- Total current liabilities 638,069 632,566 Long term obligations 320,131 339,613 Long term indebtedness to related parties 146,744 161,912 Other long term liabilities 914,355 912,201 Redeemable Preferred Stock--Series B 63,905 65,030 Stockholders' equity Common Stock--par value $.01: Class A--authorized 30,000,000 shares; issued and outstanding 22,100,000 221 221 Class B--authorized 65,000,000 shares; issued and outstanding 21,188,240 shares in 1996 and 21,176,156 shares in 1995 212 212 Preferred Stock--Series A 36,650 36,650 Additional paid-in-capital 465,359 465,359 Retained earnings 64,998 54,115 ---------- ---------- Total stockholders' equity 567,440 556,557 ---------- ---------- TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY $2,650,644 $2,667,879 ========== ==========
See notes to consolidated financial statements. 5 NATIONAL STEEL CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In Thousands of Dollars) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 -------- --------- Net Income $ 19,105 $ 95,992 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 109,111 108,912 Carrying charges related to facility sales and plant closings 16,788 18,231 Extraordinary item (net) -- (5,373) Equity income of affiliates (7,181) (4,066) Dividends from affiliates 4,375 900 Postretirement benefits 22,353 33,884 Deferred income taxes (16,200) (23,215) Changes in working capital items: Receivables 45,696 (24,709) Inventories (26,880) (49,594) Accounts payable 19,661 1,078 Accrued liabilities (16,149) 36,835 -------- --------- Other (36,262) (804) -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 134,417 188,071 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment (net) (80,752) (154,616) -------- --------- NET CASH USED BY INVESTING ACTIVITIES (80,752) (154,616) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options -- 169 Issuance of Class B Common Stock -- 104,734 Prepayment of related party debt -- (125,624) Debt repayment (32,944) (33,290) Payment of released Weirton benefit liabilities (11,220) (11,268) Dividend payments on Preferred Stock--Series A (3,020) (3,016) Dividend payments on Preferred Stock--Series B -- (867) Payment of unreleased Weirton liabilities and their release in lieu of cash dividends on Preferred Stock--Series B (6,042) (5,163) -------- --------- NET CASH USED BY FINANCING ACTIVITIES (53,226) (74,325) -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 439 (40,870) Cash and Cash Equivalents, Beginning of the Period 127,616 161,946 -------- --------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD $128,055 $ 121,076 ======== =========
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)
COMMON COMMON PREFERRED ADDITIONAL RETAINED TOTAL REDEEMABLE STOCK - STOCK - STOCK - PAID-IN EARNINGS STOCKHOLDERS' PREFERRED STOCK - CLASS A CLASS B SERIES A CAPITAL (DEFICIT) EQUITY SERIES B ------- ------- --------- ---------- --------- ------------- ----------------- BALANCE AT JANUARY 1, 1995 $221 $143 $36,650 $360,525 $(43,958) $353,581 $66,530 Net income 110,796 110,796 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 Stock - Series A and B (12,458) (12,458) Issuance of Common Stock - Class B 69 104,665 104,734 Exercise of stock options 169 169 Minimum pension liability (1,765) (1,765) ---- ---- ------- -------- -------- -------- ------- BALANCE AT DECEMBER 31, 1995 221 212 36,650 465,359 54,115 556,557 65,030 Net income 19,105 19,105 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 Stock - Series A and B (9,347) (9,347) ---- ---- ------- -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 1996 $221 $212 $36,650 $465,359 $ 64,998 $567,440 $63,905 ==== ==== ======= ======== ======== ======== =======
See notes to consolidated financial statements. 7 NATIONAL STEEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (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 3 and 4. The financial results presented for the three and nine month periods ended September 30, 1996 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, 1995 (the "1995 Form 10-K") contains additional information and should be read in conjunction with this report. NOTE 2 - ACCOUNTING CHANGES During the third quarter of 1996, the Company changed the measurement date for pensions from December 31 to September 30 in order to provide for more timely information. The change in measurement date had no effect on 1996 expense and is expected to have an immaterial impact on the funded status of the Plan at December 31, 1996. During the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The adoption of SFAS 121 did not have an impact on the Company's financial statements. The Company also adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation" during the first quarter of 1996. SFAS 123 requires the Company to either adopt a fair value based method of expense recognition for all stock compensation based awards, or provide proforma net income and earnings per share information as if the recognition and measurement provisions of SFAS 123 had been adopted. The Company will continue to account for its stock based compensation awards following the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") and will provide the required fair value based proforma information in its annual financial statements. APB 25 requires compensation expense to be recognized only if the market price of the underlying stock exceeds the exercise price on the date of grant. The Company's stock based awards consist of stock options with an exercise price equal to market price on the date of grant. As such, the Company has not recorded compensation expense in connection with these awards. NOTE 3 - NONRECURRING ITEMS During the third quarter of 1996, the Company settled two disputes that resulted in aggregate gains totaling $11.2 million. On September 12, 1996, following the closing of the settlement agreement between the Company and Bakers Port, Inc., the Company sold 213 acres out of a total of 2,338 acres of land received in connection with the settlement. The sale generated a net gain of $3.7 million, which was recorded as other income in the statement of consolidated income. On August 15, 1996, the Company finalized the settlement agreement with the Pension Benefit Guaranty Corporation ("PBGC") relating to the Donner-Hanna Joint Venture pension plans. As a part of the settlement, the Company paid $8.5 million to 8 the PBGC. Since the Company had estimated and accrued $16 million for this liability, a gain of $7.5 million was recorded in connection with the settlement. This gain was recorded as a reduction to cost of goods sold during the third quarter of 1996. In addition, the Company made a $4.5 million contribution to the Hanna Iron Ore Division Pension Plan. (See Part II. Other Information, Item 1. Legal Proceedings.) 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. Accordingly, a restructuring charge of $34.2 million, or $25.6 million net of tax, was recorded during the fourth quarter of 1994. 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 first quarter of 1995. This charge was comprised of retiree postemployment benefits of $4.5 million, severance of $1.6 million, and a pension credit of $.8 million. The restructuring charges were recorded as unusual items. NOTE 4 - PRIMARY OFFERING OF CLASS B COMMON STOCK AND USE OF PROCEEDS TO PREPAY 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 at that time. 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 held by the public. The issuance of the additional shares of Class B Common Stock generated net proceeds of approximately $104.7 million, all of which was used for related party debt reduction during the third quarter of 1995. NOTE 5 - ENVIRONMENTAL 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. Due to the possibility of future changes in circumstances or regulatory requirements, the amount and timing of future environmental expenditures could vary from those currently anticipated. 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 of contaminated sites and parties whose waste was disposed of at the sites, regardless of fault. The Company and certain of its subsidiaries, as well as unrelated third parties, are involved as potentially responsible parties (each a "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 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. 9 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 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, 1996 and December 31, 1995, the balance, including accrued interest and insurance settlements, recorded as prepaid FOX Environmental Liabilities totaled $8.4 million and $7.2 million, respectively. The failure of FOX to satisfy its indemnity obligations in excess of the $10.0 million prepayment could have a material adverse effect on the Company's liquidity or results of operations. The Company's ability to fully realize the benefits of FOX's indemnification above the $10 million prepayment is necessarily dependent upon FOX's financial condition at the time of any claim with respect to such obligations. On August 20, 1996, FOX filed a Form 10-Q for its quarter ended June 30, 1996 in which it reported a writedown of $238.7 million in its investment in FoxMeyer Drug Company, its principal operating subsidiary. Primarily as a result of this writedown, the consolidated stockholders' equity of FOX was reported as a deficit of $88.4 million. On August 27, 1996, most of FOX's operating subsidiaries (including FoxMeyer Drug Company) filed for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court in Delaware. Although FOX, the parent company, was not included in the Chapter 11 filing, the Chapter 11 filing has caused the Company to have increased concerns about FOX's ability to honor its remaining indemnification obligations to the Company. FOX is subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. 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 progresses or the Company becomes aware of additional matters, the Company may be required to accrue charges in excess of those previously accrued. 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; however, 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 has recorded an aggregate environmental liability of approximately $20.7 million and $18.6 million at September 30, 1996 and December 31, 1995, respectively. 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 condition. 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. Other Information, Item 1. Legal Proceedings.) 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - ----------------------- RESULTS OF OPERATIONS - COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 Net Sales - --------- Net sales for the third quarter of 1996 totaled $735.9 million, an improvement of $11.1 million, or 1.5%, compared to the corresponding period in 1995. This increase was primarily attributable to a 98,000 ton increase in shipments and an improvement in product mix from hot rolled products to cold rolled and coated products. These improvements were partially offset by a decrease in average selling prices. Steel shipments for the third quarter of 1996 were 1,434,000 tons, a 7.3% increase compared to the 1,336,000 tons shipped during the corresponding 1995 period. Cost of Products Sold - --------------------- The Company's cost of products sold of $637.0 million during the third quarter of 1996 represents a slight increase compared to the same period in 1995. Increases in costs resulting from higher shipments and unplanned blast furnace outages at the Granite City Division were offset by lower raw material sales, a settlement gain, discussed below, and a reduction in several employee benefit related accruals, along with the Company's cost reduction programs. During the third quarter of 1996, the Company produced 1,542,000 net tons of steel, a slight increase compared to the 1,532,000 net tons produced during the corresponding 1995 period. Selling, General and Administrative Expense - ------------------------------------------- Selling, general and administrative expense of $38.9 million during the third quarter of 1996 represents an increase of $2.1 million compared to the corresponding 1995 period. This increase is primarily a result of an increase in certain employee benefit related items and was partially offset by less spending on professional services. Financing Costs - --------------- Net financing costs of $9.5 million during the third quarter of 1996 represents a $.6 million increase compared to the corresponding 1995 period. The August 1995 prepayment of $133.3 million of debt resulted in a $2.0 million reduction in interest expense during the quarter. However, this was more than offset by a decrease in capitalized interest expense as well as a reduction in interest income as a result of lower average cash balances. Settlement of Legal Proceedings - ------------------------------- During the third quarter of 1996, the Company settled two disputes that resulted in aggregate gains totaling $11.2 million. On September 12, 1996, following the closing of the settlement agreement between the Company and Bakers Port, Inc., the Company sold 213 acres out of a total of 2,338 acres of land received in connection with the settlement. The sale generated a net gain of $3.7 million, which was recorded as other income in the statement of consolidated income. 11 On August 15, 1996, the Company finalized the settlement agreement with the PBGC relating to the Donner-Hanna Joint Venture Plans. As a part of the settlement, the Company paid $8.5 million to the PBGC. Since the Company had estimated and accrued $16 million for this liability, a gain of $7.5 million was recorded in connection with the settlement. This gain reduced cost of goods sold during the third quarter of 1996. (See Part II. Other Information, Item 1. Legal Proceedings.) Labor Negotiations - ------------------ In 1993, the Company and the United Steelworkers of America ("USWA") negotiated a six year labor agreement continuing through July 1999, with a reopener provision in 1996 for specified payroll items and employee benefits. Under the terms of the reopener, if the parties could not reach a settlement, they were to submit final offers to an arbitrator who would, after a hearing, consider the information and fashion a remedy in his award. On October 30, 1996, the arbitrator handed down his award regarding the arbitration of the reopener. Under the arbitrator's award, USWA employees will receive an immediate wage increase of fifty cents an hour retroactive to August 1, 1996, with increases of twenty five cents an hour on each of August 1, 1997 and 1998. In addition, $500 lump sum bonuses will be paid on each of May 1, 1998 and 1999. The Company estimates that these items, along with certain other provisions in the agreement, will increase employee related expenses by approximately $4 million, $7 million, $15 million and $18 million for the years ended December 31, 1996, 1997 and 1998, and 1999, respectively. 12 COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 Net Sales - --------- Net sales for the first nine months of 1996 totaled $2.19 billion compared to $2.21 billion during the same 1995 period. Net sales declined despite a 335,000 net ton increase in steel shipments primarily as a result of a decrease in average selling prices. The increased tonnage, however, favorably impacted the Company's income from operations. Steel shipments for the first nine months of 1996 were 4,441,000 tons, an 8.2% increase compared to the 4,106,000 tons shipped during the corresponding 1995 period. Cost of Products Sold - --------------------- The Company's cost of products sold for the first nine months of 1996 totaled $1.95 billion, a $79.7 million increase compared to the same 1995 period. This increase is primarily attributable to the 335,000 net ton increase in steel shipments, unplanned blast furnace outages at the Granite City Division, as well as a shift in product mix to more costly but higher value added products. Higher natural gas prices due to extreme cold weather earlier in the year also increased costs. These increases were partially offset by the Company's cost reduction programs. Raw steel production totaled 4,895,000 tons for the first nine months of 1996, a 9.9% increase from the 4,455,000 tons produced during the nine month period ended September 30, 1995. Selling, General and Administrative Expense - ------------------------------------------- Selling, general and administrative expense of $102.8 million during the first nine months of 1996 represents a $5.6 million decrease compared to the corresponding 1995 period. This decrease is a result of the favorable settlement of a lawsuit earlier in the year, along with a reduction in the level of spending for professional services. Unusual Item - ------------ During the fourth quarter of 1994, the Company recorded an unusual charge of $34.2 million related to a reduction of the salaried nonrepresented workforce. During the first quarter of 1995, an additional charge of $5.3 million was recorded as an unusual item as a result of various elections made by the terminated employees during that quarter. Financing Costs - --------------- Net financing costs of $27.6 million for the nine months ended September 30, 1996 represents a $2.7 million decrease compared to the same 1995 period. The August 1995 prepayment of $133.3 million of debt resulted in a $9.4 million reduction in interest expense during the first nine months of 1996, which was partially offset by a reduction in interest income as a result of lower cash balances, as well as a decrease in capitalized interest expense. Primary Offering of Class B Common Stock - ---------------------------------------- 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 at that time. 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 held by the public. The issuance 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. 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. The Company has satisfied these liquidity needs with funds provided by long term borrowings and cash provided by operations. One source of liquidity consists of a Receivables Purchase Agreement (the "Receivables Purchase Agreement") with commitments of up to $200 million. During July 1996, the Company amended the Receivables Purchase Agreement extending the expiration date to May 2001. Also during July 1996, the Company entered into a new $100 million credit facility and a new $50 million credit facility, which will expire in May 2000 and July 1997, respectively, both of which are secured by the Company's inventories (the "Inventory Facilities"). The Company is currently in compliance with all material covenants of, and obligations under, the Receivables Purchase Agreement, the Inventory Facilities and other debt instruments. On September 30, 1996, there were no cash borrowings outstanding under the Receivables Purchase Agreement or the Inventory Facilities, and outstanding letters of credit under the Receivables Purchase Agreement totaled $89.6 million. During the first nine months of 1996, the maximum availability under the Receivables Purchase Agreement, after reduction of letters of credit outstanding, varied from $59.3 million to $108.9 million and was $72.3 million as of September 30, 1996. At September 30, 1996, the Company's available sources of liquidity totaled $350 million. At September 30, 1996, total debt and redeemable preferred stock as a percentage of total capitalization decreased to 50.0% as compared to 52.0% at December 31, 1995. Cash and cash equivalents totaled $128.0 million at September 30, 1996 as compared to $127.6 million at December 31, 1995. Cash Flows from Operating Activities - ------------------------------------ For the nine months ended September 30, 1996, cash provided from operating activities totaled $134.4 million. This is primarily attributable to the impact of working capital items and noncash charges for depreciation and postretirement benefits, as well as net income of $19.1 million. An increase in accounts payable and a decrease in accounts receivable had the most significant positive effects upon cash provided by working capital, due primarily to the timing of cash disbursement clearings and cash receipts. The above mentioned favorable effects were offset by an increase in inventories, both in finished steel and raw materials, along with a decrease in accrued liabilities. Cash Flows from Investing Activities - ------------------------------------ Capital investments for the nine months ended September 30, 1996 and 1995 amounted to $80.8 million and $154.6 million, respectively. The 1996 spending is primarily due to the 72" continuous galvanizing line upgrade and the construction of the new 48" galvanizing line, both at the Midwest Division, along with the completion of the coating line at the Granite City Division. The Company plans to invest approximately $40.0 million during the remainder of 1996 for expenditures which include the above mentioned projects. Cash Flows from Financing Activities - ------------------------------------ During the first nine months of 1996, the Company utilized $53.2 million for financing activities which included scheduled repayments of debt, as well as dividend payments on the Company's preferred stock. During the first quarter of 1995, the Company completed a primary offering of 6,900,000 million shares of Class B Common Stock. The issuance of this stock generated net proceeds of $104.7 million, which was used along with cash from operations during the third quarter of 1995 to prepay related party debt. 14 OTHER - ----- Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Statements made by the Company in reports, such as this Form 10-Q, in press releases and in statements made by employees in oral discussions, that are not historical facts, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements, by their nature, involve risk and uncertainty. A variety of factors could cause business conditions and the Company's actual results and experience to differ materially from those expected by the Company or expressed in the Company's forward looking statements. These factors include, but are not limited to, the following: (1) changes in market prices and market demand for the Company's products; (2) changes in the costs or availability of the raw materials and other supplies used by the Company in the manufacture of its products; (3) equipment failures or outages at the Company's steelmaking and processing facilities; (4) losses of customers; (5) changes in the levels of the Company's operating costs and expenses; (6) collective bargaining agreement negotiations, strikes, labor stoppages or other labor difficulties; (7) actions by the Company's competitors, including domestic integrated steel producers, foreign competitors, mini-mills and manufacturers of steel substitutes, such as plastics, aluminum, ceramics, glass, wood and concrete; (8) changes in industry capacity; (9) changes in economic conditions in the United States and other major international economies, including rates of economic growth and inflation; (10) worldwide changes in trade, monetary or fiscal policies; (11) changes in the legal and regulatory requirements applicable to the Company; and (12) the effects of extreme weather conditions. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Baker's Port, Inc. v. National Steel Corporation. With reference to the matter involving claims arising out of the sales of land in Texas to Baker's Port, Inc. ("BPI"), previously reported in the 1995 Form 10-K, the settlement agreement was finalized and executed by the parties on September 12, 1996. As a part of the settlement, the lawsuit brought by BPI and Baker Marine Corporation has been dismissed with prejudice. Donner-Hanna Coke Joint Venture. With reference to the matter involving The Hanna Furnace Corporation ("Hanna"), Donner-Hanna-Coke Joint Venture ("Donner- Hanna") and the Pension Benefit Guaranty Corporation ("PBGC"), previously reported in the 1995 Form 10-K, the settlement agreement was finalized and executed by the parties on August 15, 1996. As a part of the settlement, the Company paid the PBGC $8.5 million in cash and made a supplemental contribution to the Hanna Iron Ore Division Pension Plan of $4.5 million, and the Company and its subsidiaries and affiliates were given a full release from any liability in connection with the Donner-Hanna salaried and hourly pension plans (the "Plans"). The lawsuit filed by the PBGC in the Western District of New York was terminated by the entry of an agreed judgment on September 30, 1996. In addition, Hanna and the Company entered into a settlement agreement with the Internal Revenue Service (the "IRS") dated August 9, 1996, whereby the IRS released its claims against Hanna for the excise tax liability and related penalties arising from the failure to meet minimum funding standards for the Plans prior to their termination, in exchange for the payment to the IRS of $25,000. 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 party ("PRP") in a number of off-site CERCLA or state superfund site proceedings. Iron River (Dober Mine) Site. With reference to the matter involving the Iron River (Dober Mine) Site located in Iron County, Michigan, previously reported in the 1995 Form 10-K and second quarter 1996 Form 10-Q, the State of Michigan has revised its response costs claim upward to approximately $487,000 and its natural resource damages claim upward to $4,000,000. Settlement discussions with the State and with third party defendants are ongoing. Great Lakes Division---Wayne County Air Pollution Control Department. With reference to the matter involving alleged exceedances of certain particulate emissions standards at the Company's Great Lakes Division, previously reported in the 1995 Form 10-K, the Company and the Wayne County Air Pollution Control Department have agreed upon the terms of a Consent Order pursuant to which the Company would pay a $250,000 civil penalty and would implement an environmental credit program valued at $250,000. Entry of the Consent Order and payment of the civil penalty are expected to occur in the fourth quarter of 1996. National Mines Corporation---Isabella Mine. With reference to the matter involving certain reclamation obligations at the former National Mines Corporation ("NMC") Isabella Mine, previously reported in the Company's second quarter 1996 Form 10-Q, on August 13, 1996, the Pennsylvania Department of Environmental Protection ("DEP") revoked the mining permit for the Isabella Mine held by Global Coal 16 Recovery, Inc. ("Global"). Additionally, the DEP advised that it intends to forfeit the $1,200,000 reclamation bond posted by NMC in the form of a letter of credit. On August 22, 1996, NMC representatives met with DEP and presented a proposed reclamation plan for the mine site. This reclamation plan was presented as an alternative to forfeiture of the bond. DEP has indicated a willingness to consider NMC's proffered alternative and negotiations of specific terms and conditions are ongoing. Granite City Division - Illinois Environmental Protection Agency Violation Notice. On October 18, 1996, the Illinois Environmental Protection Agency ("IEPA") issued a Violation Notice to the Company alleging (1) releases to the environment between 1990 and 1996; (2) violations of solid waste requirements and (3) violations of the National Pollutant Discharge Elimination System ("NPDES") water permit limitations, at the Company's Granite City Division. No demand or proposal for penalties or other sanctions was contained in the Notice; however, the Notice does contain a recommendation by IEPA that the Company conduct an investigation of these releases and, if necessary, remediate any contamination discovered during that investigation. The Company has 45 days from its receipt of the Notice to respond to the IEPA. The Company is reviewing the specific allegations in connection with preparing its response, but does not currently believe that any additional remediation will be necessary. FOX SITES. - ---------- As previously reported in the 1995 Form 10-K, FoxMeyer Health Corporation ("FOX") has agreed to indemnify the Company for remediation costs incurred by the Company with respect to operations at the Company's former Weirton Steel Division (including the Weirton Steel Site and the Tex Tin Site described below), as well as with respect to the operations of Donner-Hanna Coke Joint Venture, The Hanna Furnace Corporation and the Alumet Partnership. As stated in the 1995 Form 10-K, the failure of FOX to satisfy its indemnity obligations in excess of the $10.0 million prepayment made to the Company could have a material adverse effect on the Company's liquidity and results of operations. The Company's ability to fully realize the benefits of FOX's indemnification obligation in excess of the $10 million prepayment is necessarily dependent upon FOX's financial condition at the time of any claim with respect to such obligations. On August 20, 1996, FOX filed a Form 10-Q for its quarter ended June 30, 1996 in which it reported a writedown of $238.7 million in its investment in FoxMeyer Drug Company, its principal operating subsidiary. Primarily as a result of this writedown, the consolidated stockholders' equity of Fox at June 30, 1996 was reported as a deficit of $88.4 million. On August 27, 1996, most of FOX's operating subsidiaries (including FoxMeyer Drug Company) filed for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court in Delaware. Although FOX, the parent company, was not included in the Chapter 11 filing, the Chapter 11 filing has caused the Company to have increased concerns about FOX's ability to honor its remaining indemnification obligations to the Company. FOX is subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. Weirton Steel Site. With reference to the matter involving the Weirton Steel Site described in the 1995 Form 10-K, Weirton Steel Corporation has rejected the Company's offer of settlement to cap the Company's liability for the Brown's Island emergency lagoon at $480,000, and is seeking $210,000 in reimbursement for remediation costs expended at the site to date. In addition, the United States Environmental Protection Agency ("EPA") has issued an administrative unilateral order under the Resource Conservation and Recovery Act ("RCRA"), requiring Weirton Steel Corporation to undertake certain investigative activities with regard to clean-up of possible environmental contamination on Weirton Steel property. Weirton Steel Corporation has informed the Company that the Mainland Coke Plant, Brown's Island, and the Avenue H Disposal Site are likely to be included within the areas of investigation required by EPA and that Weirton Steel Corporation considers these areas to be within the scope of certain indemnity provisions of the Assignment and Assumption Agreement between Weirton Steel and the Company. At this time, the Company is unable to determine if activities resulting from EPA's unilateral order to Weirton Steel will result in an indemnity obligation on the part of the Company. 17 Tex-Tin Site. On or about August 12, 1996, Amoco Chemical Company ("Amoco") filed a cost recovery and contribution civil suit pursuant to sections 107 and 113(f) of CERCLA in the United States District Court for the Southern District of Texas. Plaintiff Amoco has been involved in investigations of the contamination at the former Tex-Tin Superfund Site in Texas City, Galveston County, Texas, pursuant to an Administrative Order and Consent ("AOC") entered into with the EPA. Plaintiff alleges that the Company is one of approximately 100 defendants jointly and severally liable under CERCLA Section 107 for plaintiff's cost of those investigations and future response costs. Amoco has spent approximately $9 million pursuant to the AOC at the Tex-Tin Superfund Site. The Company is unable to ascertain the extent of its liability, if any, at the Tex-Tin site at this time. 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See attached Exhibit Index (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the third quarter of 1996. 19 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 E. McDonough ------------------------------------------------------ William E. McDonough, Acting Chief Financial Officer and Treasurer BY /s/ Carl M. Apel ------------------------------------ Carl M. Apel, Corporate Controller Date: November 12, 1996 20 NATIONAL STEEL CORPORATION QUARTERLY REPORT ON FORM 10-Q EXHIBIT INDEX FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 10-A Amendment No. 2 and Consent to the Receivables Purchase Agreement, dated as of July 18, 1996, among the Company, National Steel Funding Corporation and Morgan Guaranty Trust Company of New York 10-B Supplement to Employment Contract dated July 30, 1996 between National Steel Corporation and George D. Lukes 10-C Supplement to Employment Contract dated July 30, 1996 between National Steel Corporation and David L. Peterson 27-A Financial Data Schedule EX-10.(A) 2 AM#2 & CONSENT-RECEIVABLES PURCHASE AGREEMENT EXHIBIT 10.A CONFORMED COPY AMENDMENT NO. 2 AND CONSENT AMENDMENT NO. 2 AND CONSENT dated as of July 18, 1996 (the "Amendment") to the Receivables Purchase Agreement, dated as of May 16, 1994 (as amended to date, the "Receivables Purchase Agreement") among MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), in its capacity as Administrative Agent, NATIONAL STEEL FUNDING CORPORATION, a Delaware corporation ("NSFC"), NATIONAL STEEL CORPORATION, a Delaware corporation, ("NSC") the financial institutions party thereto, as buyers (the "Buyers"), the Letter of Credit Issuing Banks party thereto, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as structuring and collateral agent (the "Receivables Collateral Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into the Receivables Purchase Agreement; WHEREAS, the parties hereto desire to amend the Receivables Purchase Agreement to provide for the pledging of inventory by NSC under an Inventory Security Agreement dated as of the date hereof (the "Inventory Security Agreement") between NSC and The Long-Term Credit Bank of Japan, Ltd. ("LTCB") as Collateral Agent to secure its obligations under an Inventory Credit Agreement dated as of the date hereof (the "Inventory Credit Agreement") among NSC, the lenders listed therein, and LTCB as structuring agent and collateral agent, and under the Credit Agreement dated as of the date hereof (the "Fuji Credit Agreement") between NSC and the Fuji Bank and Trust Company; and WHEREAS, it is further necessary to evidence the consent and instruction of the Buyers with respect to the related Intercreditor Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Receivables Purchase Agreement shall have the meaning assigned to such term in the Receivables Purchase Agreement. SECTION 2. Amendment to Section 1.01 of the Receivables Purchase Agreement. Section 1.01 of the Receivables Purchase Agreement is amended by (i) replacing "May 16, 2000" in the definition of "Expiry Date" with "May 16, 2001" and (ii) adding, in their appropriate alphabetical positions, the following definitions: "Fuji Credit Agreement" means the Credit Agreement dated as of July 18, 1996 between NSC and The Fuji Bank and Trust Company, as amended from time to time. "Inventory Credit Agreement" means the Inventory Credit Agreement dated as of July 18, 1996 among NSC, the Lenders listed therein, The Long-Term Credit Bank of Japan, Ltd., ("LTCB") as Administrative Agent, and LTCB as Structuring Agent and Collateral Agent, as amended from time to time. "Inventory Security Agreement" means the Inventory Security Agreement dated as of July 18, 1996 between NSC, and The Long-Term Credit Bank of Japan, Ltd., as Structuring Agent and Collateral Agent, as amended from time to time. SECTION 3. Amendment to Section 6.01 of the Receivables Purchase Agreement. Section 6.01 of the Receivables Purchase Agreement is amended by replacing "." at the end of paragraph (u) with"; or", and adding the following new paragraph (v): (v) an Automatic Release Termination (as defined in the Inventory Security Agreement) shall occur under the Inventory Security Agreement, or an Event of Default specified in clause (g) or (h) of Section 6.1 of the Inventory Credit Agreement or clause (g) or (h) of Section 6.1 of the Fuji Credit Agreement shall occur with respect to the Borrower thereunder, or an Enforcement Notice (as defined in the Inventory Security Agreement) shall be given to the Borrower under the Inventory 2 Security Agreement; or a Release Termination Notice is given under the Intercreditor Agreement; or any of the provisions of the Inventory Security Agreement, the Inventory Credit Agreement or the Fuji Credit Agreement relating to the automatic release of Proceeds of Inventory (as defined in the Inventory Security Agreement) including, without limitation, any defined terms or other provisions incorporated therein shall be waived or amended or otherwise have been modified or limited in force and effect without the consent of all of the Buyers and the Reserve L/C Bank. SECTION 4. Amendment to Section 6.02 of the Receivables Purchase Agreement. Section 6.02 of the Receivables Purchase Agreement is amended by adding immediately following the text "Section 6.01(n)" the following new text: "or a Termination Event under Section 6.01(v)" SECTION 5. Amendment to Schedule I of the Receivables Purchase Agreement. Schedule I of the Receivables Purchase Agreement is amended to read in its entirety as set forth in Exhibit A attached hereto. SECTION 6. Changes in Commitments. With effect from and including the date this Amendment No. 2 and Consent becomes effective in accordance with Section 9 hereof, the Commitment of each Buyer shall be the amount set forth opposite the name of such Buyer on the signature page hereof. SECTION 7. Consent to the Intercreditor Agreement. The Buyers party hereto hereby consent to, and instruct Morgan Guaranty Trust Company of New York as Collateral Agent to enter into, on behalf of the Buyers, an Intercreditor Agreement substantially in the form attached as Exhibit B hereto. SECTION 8. Governing Law. This Amendment and Consent shall be governed by and construed in accordance with the laws of the State of New York. 3 SECTION 9. Counterparts; Effectiveness. This Amendment and Consent may be signed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Consent shall become effective as of the date hereof when the Administrative Agent shall have received (i) duly executed counterparts hereof signed by NSFC and all of the Buyers (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (ii) notice from NSC that each of the Inventory Credit Agreement and Fuji Credit Agreement have become effective. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. NATIONAL STEEL FUNDING CORPORATION By: /s/ William E. McDonough ------------------------------------- Title: Treasurer NATIONAL STEEL CORPORATION, as Servicer By: /s/ William E. McDonough ------------------------------------- Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: /s/ Laura E. Reim ------------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Structuring and Collateral Agent and Reserve Letter of Credit Issuing Bank By: /s/ Robert J. Henchey ------------------------------------- Title: Vice President 5 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Letter of Credit Issuing Bank By: /s/ Laura E. Reim ------------------------------------- Title: Vice President THE FUJI BANK AND TRUST COMPANY, as Letter of Credit Issuing Bank By: /s/ Yuichi Tsuchiko ------------------------------------- Title: Vice President BANK OF TOKYO-MITSUBISHI, LTD., as Letter of Credit Issuing Bank By: /s/ Akihiko Hagura ------------------------------------- Title: Vice President COMERICA BANK, as Letter of Credit Issuing Bank By: /s/ David L. Morrison ------------------------------------- Title: Assistant Vice President 6 BUYERS: $30,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Laura E. Reim ------------------------------------- Title: Vice President $30,000,000 THE FUJI BANK AND TRUST COMPANY By: /s/ Yuichi Tsuchiko ------------------------------------- Title: Vice President $25,000,000 COMERICA BANK By: /s/ David L. Morrison ------------------------------------- Title: Assistant Vice President $25,000,000 BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ Akihiko Hagura ------------------------------------- Title: Vice President $20,000,000 THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Taisuke Hitomi ------------------------------------- Title: Deputy General Manager 7 $15,000,000 THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH By: /s/ Gregg Silver ------------------------------------- Title: Vice President and Group Leader $15,000,000 THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: /s/ Noburu Himata ------------------------------------- Title: Senior Vice President $15,000,000 NBD BANK By: /s/ Mark A. Weitzel ------------------------------------- Title: Second Vice President $15,000,000 THE YASUDA TRUST AND BANKING CO., LTD. By: /s/ Tetsuro Miyazawa ------------------------------------- Title: Vice President and Manager $10,000,000 MELLON BANK, N.A. By: /s/ Roger N. Stanier ------------------------------------- Title: Vice President 8 EXHIBIT A Additions, Changes, Deletions to National Steel Funding Corp. RPA - Amendment No.2
Schedule 1 Special Obligors and Concentration Limits ----------------------------------------- Rating ------ Obligor A-1 A-2 A-3 Unrated ------- ---- ---- ---- -------- General Motors Corporation 20% 16% 10% 4% Ford Motor Company 15% 8% 7% 4% Chrysler Motors Corporation 15% 8% 7% 4% Silgan Containers Corporation 10% 8% 7% 6% Heidtman Steel Products, Inc. 10% 8% 6% 5% Ball Heekin Corporation 10% 8% 7% 6%
The rating referred to above at any time is the rating then assigned by S&P to the short-term unsecured debt of the Obligor. 9 EXECUTION COPY INTERCREDITOR AGREEMENT INTERCREDITOR AGREEMENT, dated as of July 18, 1996 (as amended, modified or supplemented from time to time, this "Agreement), among THE LONG-TERM CREDIT BANK OF JAPAN, LTD., acting through its New York Branch ("LTCB"), as Administrative Agent (the "Administrative Agent") for the lenders listed in the Inventory Credit Agreement, dated as of the date hereof (as amended, modified as supplemented from time to time, to "Inventory Credit Agreement"), LTCB in its capacity as collateral agent and structuring agent (the "Collateral Agent) under the Inventory Security Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time, the "Inventory Security Agreement"), between National Steel Corporation, a Delaware corporation ("NSC"), and LTCB as Collateral Agent, MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), in its capacity as Administrative Agent, under the Receivables Purchase Agreement, dated as of May 16, 1994 (as amended, modified or supplemented from time to time, the "Receivables Facility"), among National Steel Funding Corporation, a Delaware corporation ("NSFC"), NSC, as Servicer, the financial institutions party thereto (the "Buyers"), certain letter of credit issuing banks, J.P. MORGAN DELAWARE, as reserve letter of credit bank, MORGAN GUARANTY, as Administrative Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as structuring and collateral agent (the "Receivables Collateral Agent"), and THE FUJI BANK AND TRUST COMPANY, acting through its New York Branch ("FUJI"). W I T N E S S E T H: -------------------- WHEREAS, pursuant to and subject to the terms and conditions set forth in an Inventory Credit Agreement, the Lenders listed therein (the "LTCB Lenders"), have agreed to make extensions of credit to NSC, which extensions of credit are to be secured by a first priority security interest in the Inventory (as defined in the Inventory Security Agreement) of NSC and the proceeds thereof (such inventory and such proceeds thereof, collectively, the "Inventory Collateral"), granted pursuant to the Inventory Security Agreement; WHEREAS, pursuant to and subject to the terms and conditions set forth in a Credit Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time, the "Fuji Credit Agreement"), between NSC and Fuji, Fuji has agreed to make extensions of credit to NSC, which extensions of credit are to be secured by a second priority security interest in the Inventory Collateral, pursuant to the Inventory Security Agreement; WHEREAS, pursuant to and subject to the terms of the Receivables Facility, the Buyers have agreed to make extensions of credit to NSFC, in order to enable NSFC to purchase certain eligible accounts receivable from NSC, and in connection therewith, the Buyers have purchased undivided interests in the receivables of NSC; WHEREAS, it is a condition precedent to the agreement of the LTCB Lenders to extend credit under the Inventory Credit Agreement and to the agreement of Fuji to extend credit -10- EXECUTION COPY under the Fuji Credit Agreement (collectively, the "Inventory Facilities"), that the Collateral Agent and the LTCB Lenders have a first priority security interest in the Inventory Collateral and the Collateral Agent and Fuji have a second priority security interest in the Inventory Collateral; and WHEREAS, the Collateral Agent, the LTCB Lenders, Fuji, Morgan Guaranty, and the Receivables Collateral Agent desire to enter into this Agreement to establish their respective relative rights concerning the Inventory Collateral. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Security Interest Priorities; Release. ------------------------------------- a. Notwithstanding (i) the date, manner or order of perfection of the security interests in and liens on the Inventory Collateral or the lien notation or filing of financing statements or continuation statements, and (ii) any provisions of the Uniform Commercial Code of any applicable jurisdiction or any other applicable law or judicial decision, each of the Collateral Agent, the LTCB Lenders, Fuji, Morgan Guaranty and the Receivables Collateral Agent agrees that the security interests of the Collateral Agent, on behalf of the LTCB Lenders and Fuji, in the Inventory Collateral shall have priority over the security interest of the Receivables Collateral Agent in the Inventory Collateral to the full extent of NSC's obligations outstanding from time to time to the respective Lenders under the Inventory Facilities (the "NSC Inventory Obligations"); provided, however, that such security interest in the proceeds of the Inventory shall be automatically released upon the sale of such Inventory until the earliest of (i) an event of default specified in clauses (g) or (h) of Section 6.1 of the Inventory Credit Agreement or clauses (g) or (h) of the Fuji Credit Agreement, (ii) the second Business Day after notice (a "Release Termination Notice") has been given by the Collateral Agent to the Receivables Collateral Agent that an event of default under clause (a) of Section 6.1 of the Inventory Credit Agreement or clause (a) of Section 6.1 of the Fuji Credit Agreement has occurred and is then continuing, and that the Collateral Agent has been instructed under the Inventory Security Agreement to give such notice, or (iii) the second Business Day after a Release Termination Notice has been given by the Collateral Agent to the Receivables Collateral Agent that any other event of default has occurred and is continuing under either the Inventory Credit Agreement or the Fuji Credit Agreement if the Release Termination Notice sets forth that, at the date of such notice, the Borrowing Base (as determined under the Inventory Credit Agreement) is less than the aggregate Secured Obligations (as defined in the Inventory Security Agreement). b. The parties hereto acknowledge and agree that the interest of the Receivables Collateral Agent and the Buyers in the Inventory Collateral is limited to the extent set forth in the definition of "Related Security" contained in the Receivables Facility. Section 2. Representation. By its execution and delivery of this Agreement, the Receivables Collateral Agent represents and warrants that it has received the consent of the necessary Buyers and the other parties to the Receivables Facility to the execution and delivery by the Receivables Collateral Agent of this Agreement for and on behalf of the Buyers and such other parties to the Receivables Facility. Section 3. Miscellaneous. ------------- -11- EXECUTION COPY (a) Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with receipt confirmed either mechanically or in writing by a person at the office of the recipient), personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. (b) Amendments. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, supplemented, modified, waived or terminated except in a written instrument signed by all of the parties hereto. (c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (d) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. (e) Termination. This Agreement shall terminate upon the termination of the Inventory Facilities or Receivables Facility, and the satisfaction in full of all obligations due thereunder. (f) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. THE LONG-TERM CREDIT BANK OF JAPAN, LTD., New York Branch as Collateral Agent under the Inventory Security Agreement By Title: Address for Notices: 165 Broadway New York, New York 10006 -12- EXECUTION COPY Facsimile No.: (212) 608-2529 Telephone No.: (212) 335-4605 Attention: Mitsuo Ueno THE LONG-TERM CREDIT BANK OF JAPAN, LTD., New York Branch as Administrative Agent under the Inventory Credit Agreement By Title: Address for Notices: 165 Broadway New York, New York 10006 Facsimile No.: (212) 608-2529 Telephone No.: (212) 335-4605 Attention: Mitsuo Ueno -13- EXECUTION COPY THE FUJI BANK AND TRUST COMPANY By ------------------------------------ Title: Address for Notices: -------------------- Two World Trade Center New York, New York 10048 Facsimile No.: (212) 321-9649 Telephone No.: (212) 898-2411 Attention: T. Umezawa MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent under the Receivables Purchase Agreement By ------------------------------------ Title: Address for Notices: -------------------- 60 Wall Street New York, New York 10260 Facsimile No.: (212) 648-5336 Telephone No.: (212) 648-6793 Attention: Laurie Reim -14- EXECUTION COPY MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as structuring and collateral agent under the Receivables Purchase Agreement By --------------------------------- Title: Address for Notices: -------------------- Morgan Christiana Center 500 Stanton Christiana Road Newark, Delaware 19713 Facsimile No.: (302) 634-5490 Telephone No.: (302) 634-5488 Attention: Robert Henchey ACKNOWLEDGED AND AGREED: NATIONAL STEEL CORPORATION By ------------------------ Title: Address for Notices: 4100 Edison Lakes Parkway Mishawaka, Indiana 46545-3440 Facsimile No.: (219) 273-7478 Telephone No.: (219) 273-7414 -15- EX-10.(B) 3 SUPPLEMENT TO EMPLOYMENT CONTRACT DATED 7/30/96 EXHIBIT 10.B July 30, 1996 Mr. George D. Lukes 4101 Brentwood Drive Valparaiso, Indiana 46383 Dear Mr. Lukes: Re: Supplemental Death and Disability Benefits This letter supplements your Employment Agreement with National Steel Corporation (the "Company") dated and effective as of April 30, 1996. In addition to the benefits and other commitments set forth in the Employment Agreement, the Company agrees to provide you with supplemental death and disability benefits on the following conditions. Capitalized terms have the same meanings as set forth in the Employment Agreement. 1. If you die during the Term of the Employment Agreement, the Company will provide to your designated beneficiary a death benefit in an amount which, when aggregated with death benefits under any other plan, program or arrangement sponsored or maintained by the Company without charge to you (other than death benefits under any tax qualified retirement or savings plan or under any nonqualified deferred compensation plan designed to supplement any such tax qualified retirement or savings plan), equals three times your annual base salary in effect as of the date of this letter. Your designated beneficiary for purposes of this death benefit will be the beneficiary or beneficiaries you have designated for purposes of the Company's group term life insurance plan. 2. If you incur a Disability during the Term of the Employment Agreement, the Company will provide you with a payment each month, beginning with the month in which occurs your Disability Effective Date and continuing until the earliest of your death, your 65th birthday or the date your Disability ceases, in an amount equal to 50% of your monthly base salary in effect as of the date of this letter, reduced by any disability benefits provided under any long term disability plan, program or arrangement sponsored or maintained by the Company, including but not limited to the Long Term Disability Program of National Steel Corporation or any successor plan or arrangement. National Steel Corporation By: V. John Goodwin President and Chief Executive Officer EX-10.(C) 4 SUPPLEMENT TO EMPLOYMENT CONTRACT DATED 7/30/96 EXHIBIT 10.C July 30, 1996 Mr. David L. Peterson 906 Coldspring Northville, MI 46167 Dear Mr. Peterson: Re: Supplemental Death and Disability Benefits This letter supplements your Employment Agreement with National Steel Corporation (the "Company") dated and effective as of April 30, 1996. In addition to the benefits and other commitments set forth in the Employment Agreement, the Company agrees to provide you with supplemental death and disability benefits on the following conditions. Capitalized terms have the same meanings as set forth in the Employment Agreement. 1. If you die during the Term of the Employment Agreement, the Company will provide to your designated beneficiary a death benefit in an amount which, when aggregated with death benefits under any other plan, program or arrangement sponsored or maintained by the Company without charge to you (other than death benefits under any tax qualified retirement or savings plan or under any nonqualified deferred compensation plan designed to supplement any such tax qualified retirement or savings plan), equals three times your annual base salary in effect as of the date of this letter. Your designated beneficiary for purposes of this death benefit will be the beneficiary or beneficiaries you have designated for purposes of the Company's group term life insurance plan. 2. If you incur a Disability during the Term of the Employment Agreement, the Company will provide you with a payment each month, beginning with the month in which occurs your Disability Effective Date and continuing until the earliest of your death, your 65th birthday or the date your Disability ceases, in an amount equal to 50% of your monthly base salary in effect as of the date of this letter, reduced by any disability benefits provided under any long term disability plan, program or arrangement sponsored or maintained by the Company, including but not limited to the Long Term Disability Program of National Steel Corporation or any successor plan or arrangement. National Steel Corporation By: V. John Goodwin President and Chief Executive Officer EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 128,055 0 291,299 20,333 438,894 837,915 3,622,322 2,180,721 2,650,644 638,069 466,875 433 63,905 36,650 530,357 2,650,644 735,858 735,858 637,006 637,006 66,413 1,781 9,451 21,207 (3,082) 24,289 0 0 0 24,289 0.50 0.50
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