-----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, DXRg4UhlwJCGXNc5FrPTZ8shhWoNBJbZT0Mltov+q/c1xTlHmXH1x6ggn2wOToS3 xF1xWZwS4BA2BlSOCKiHUA== 0000950131-98-003386.txt : 19980518 0000950131-98-003386.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950131-98-003386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-00983 FILM NUMBER: 98624358 BUSINESS ADDRESS: STREET 1: 4100 EDISON LAKES PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 46545-3440 BUSINESS PHONE: 2192737000 MAIL ADDRESS: STREET 1: 4100 EDISON LAKE PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 46545-3440 10-Q 1 FORM 10-Q 1998 FIRST QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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_____ - As of April 30, 1998, there were 22,100,000 shares of Registrant's Class A Common Stock, $.01 par value, and 21,188,240 shares of Registrant's Class B Common Stock, $.01 par value, outstanding. NATIONAL STEEL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE ---- Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997 3 Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 5 Consolidated Statements of Changes in Stockholders' Equity and Redeemable Preferred Stock-Series B - Three Months Ended March 31, 1998 and Year Ended December 31, 1997 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Legal Proceedings 14 Exhibits and Reports on Form 8-K 14
ITEM 1. FINANCIAL INFORMATION NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 1997 --------- -------- NET SALES $708,429 $757,618 Cost of products sold 637,427 653,204 Selling, general and administrative expense 38,037 32,444 Depreciation 31,080 35,151 Equity (income) loss of affiliates 82 (94) -------- -------- INCOME FROM OPERATIONS 1,803 36,913 Financing Costs: Interest and other financial income (5,443) (1,715) Interest and other financial expense 6,226 9,889 -------- -------- 783 8,174 -------- -------- INCOME BEFORE INCOME TAXES 1,020 28,739 Income tax provision (credit) (4,928) 2,074 -------- -------- NET INCOME 5,948 26,665 Less preferred stock dividends --- 2,741 -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $ 5,948 $ 23,924 ======== ======== BASIC EARNINGS PER SHARE: NET INCOME APPLICABLE TO COMMON STOCK $ .14 $.55 ======== ======== Weighted average shares outstanding (in thousands) 43,288 43,288 DILUTED EARNINGS PER SHARE: NET INCOME APPLICABLE TO COMMON STOCK $ .14 $.55 ======== ======== Weighted average shares outstanding (in thousands) 43,325 43,306 Dividends paid per Common Share $ .07 $ -- ======== ========
See notes to consolidated financial statements. 3 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
MARCH 31, December 31, 1998 1997 ----------- ------------ ASSETS Current assets Cash and cash equivalents $ 291,930 $ 312,642 Investments ---- 25,000 Receivables - net 269,727 284,306 Inventories - net: Finished and semi-finished products 277,158 261,648 Raw materials and supplies 109,882 112,554 ---------- ---------- 387,040 374,202 Deferred tax assets 8,597 8,597 ---------- ---------- Total current assets 957,294 1,004,747 Investments in affiliated companies 14,523 15,709 Property, plant and equipment 3,408,133 3,378,131 Less accumulated depreciation 2,172,897 2,149,107 ---------- ---------- 1,235,236 1,229,024 Other assets 214,747 203,979 ---------- ---------- TOTAL ASSETS $2,421,800 $2,453,459 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 265,169 $ 246,085 Accrued liabilities 311,849 359,749 Current portion of long-term debt 30,921 31,533 ---------- ---------- Total current liabilities 607,939 637,367 Long-term debt 304,224 310,976 Other long-term liabilities 669,741 668,138 Stockholders' equity Common Stock - par value $.01: Class A - authorized 30,000,000 shares, is and outstanding 22,100,000 221 221 Class B - authorized 65,000,000 shares; is and outstanding 21,188,240 212 212 Additional paid-in-capital 491,835 491,835 Retained earnings 348,794 345,876 Accumulated other comprehensive income: Minimum pension liability (1,166) (1,166) ---------- ---------- Total stockholders' equity 839,896 836,978 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,421,800 $2,453,459 ========== ==========
See notes to consolidated financial statements. 4 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,948 $ 26,665 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 31,080 35,151 Carrying charges related to facility sales and plant closings 1,343 5,179 Equity (income) loss of affiliates 82 (94) Dividends from affiliates 1,800 6,808 Postretirement benefits 7,323 10,039 Deferred income taxes (5,400) (5,400) Changes in working capital items: Investments 25,000 -- Receivables 14,579 (10,878) Inventories (12,838) 24,405 Accounts payable 19,084 (12,062) Accrued liabilities (47,900) 11,419 Other (13,118) (833) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 26,983 90,399 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (net) (37,301) (42,975) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (37,301) (42,975) CASH FLOWS FROM FINANCING ACTIVITIES Debt repayment (14,564) (15,613) Borrowings 7,200 -- Dividend payments on common stock (3,030) -- Payment of released Weirton benefit liabilities -- (2,806) Dividend payments on Preferred Stock-Series A -- (1,014) Dividend payments on Preferred Stock-Series B -- (210) Payment of unreleased Weirton liabilities and their release in lieu of cash dividends on Preferred Stock-Series B -- (1,819) ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (10,394) (21,462) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,712) 25,962 Cash and cash equivalents at the beginning of the period 312,642 109,041 ----------- ----------- Cash and cash equivalents at the end of the period $291,930 $135,003 =========== ===========
See notes to consolidated financial statements. 5 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK - SERIES B (In Thousands of Dollars) (Unaudited)
ACCUMULATED COMMON COMMON PREFERRED ADDITIONAL OTHER STOCK - STOCK - STOCK - PAID-IN COMPREHENSIVE RETAINED CLASS A CLASS B SERIES A CAPITAL INCOME EARNINGS ------- ------- ---------- ---------- ----------------- --------- BALANCE AT JANUARY 1, 1997 $221 $212 $ 36,650 $465,359 $ (505) $142,625 Comprehensive Income: Net income 213,503 Other comprehensive income: Minimum pension liability (661) Comprehensive income Amortization of excess of book value over redemption value of Redeemable Preferred Stock - Series B 1,354 Cumulative dividends on Preferred Stock - Series A and B (11,606) Redemption of Preferred Stock - Series A (36,650) Redemption of Redeemable Preferred Stock - Series B and related settlement with Avatex 26,476 ------- ------- ---------- ---------- ----------------- ---------- BALANCE AT DECEMBER 31, 1997 221 212 --- 491,835 (1,166) 345,876 Net income and comprehensive income 5,948 Dividends paid (3,030) ------- ------- ---------- ---------- ----------------- ---------- BALANCE AT MARCH 31, 1998 $221 $212 $ --- $491,835 $(1,166) $348,794 ======= ======= ========== ========== ================= ========== TOTAL REDEEMABLE STOCKHOLDERS' PREFERRED STOCK - Equity Series B ------------- ----------------- BALANCE AT JANUARY 1, 1997 $644,562 $ 63,530 Comprehensive Income: Net income 213,503 Other comprehensive income: Minimum pension liability (661) ------------- ----------------- Comprehensive income 212,842 ------------- ----------------- Amortization of excess of book value over redemption value of Redeemable Preferred Stock - Series B 1,354 (1,354) Cumulative dividends on Preferred Stock - Series A and B (11,606) Redemption of Preferred Stock - Series A (36,650) Redemption of Redeemable Preferred Stock - Series B and related settlement with Avatex 26,476 (62,176) -------- ----------------- BALANCE AT DECEMBER 31, 1997 836,978 --- Net income and comprehensive income 5,948 Dividends paid (3,030) ------------- ----------------- BALANCE AT MARCH 31, 1998 $839,896 $ --- ============= =================
See notes to consolidated financial statements. 6 NATIONAL STEEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (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. The financial results presented for the three month period ended March 31, 1998 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, 1997 (the "1997 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 - AUDIT COMMITTEE INQUIRY AND SECURITIES AND EXCHANGE COMMISSION INQUIRY In the third quarter of 1997, the Audit Committee of the Company's Board of Directors was informed of allegations about managed earnings, including excess reserves and the accretion of such reserves to income over multiple periods, as well as allegations about deficiencies in the system of internal controls. The Audit Committee engaged legal counsel who, with the assistance of an accounting firm, inquired into these matters. The Company, based upon the inquiry, restated its financial statements for certain prior periods. On January 29, 1998, the Company filed a Form 10-K/A for 1996 and Forms 10-Q/A for the first, second and third quarters of 1997 reflecting the restatements. See these Forms for information about the restatement, the report of legal counsel to the Audit Committee and the recommendations, approved by the Board of Directors, to improve the Company's system of internal controls contained in the aforementioned report. The Securities and Exchange Commission (the "Commission") has authorized an investigation pursuant to a formal order of investigation relating to the matters described above. The Company has been cooperating with the staff of the Commission and intends to continue to do so. NOTE 3 - ACCOUNTING CHANGES During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income". Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Consequently, the Company has reported its changes in minimum pension liabilities, as required by SFAS 130, as comprehensive income in the appropriate financial statements presented herein. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 provides authoritative guidance on when internal-use software costs should be capitalized and when these costs should be expensed as incurred. Effective January 1, 1998, the Company has adopted SOP 98-1, however, there were no costs that were capitalized in the first quarter of 1998. NOTE 4 - 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 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 7 current revenue generation are expensed. With respect to costs for environmental assessments or remediation activities, or penalties or fines that may be imposed for noncompliance with such laws and regulations, such costs are accrued when it is probable that liability for such costs will be incurred and the amount of such costs can be reasonably estimated. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties, regardless of fault. The Company and certain of its subsidiaries are involved as potentially responsible parties ("PRPs") at a number of off-site CERCLA or state superfund site proceedings. 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. The Company has also recorded the reclamation and other costs to restore its coal 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 these matters progress or the Company becomes aware of additional matters, the Company may be required to accrue charges in excess of those previously accrued. 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 recorded an aggregate environmental liability of approximately $18.4 million and $18.7 million at March 31, 1998 and December 31, 1997, 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 these 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 and liquidity for the applicable period. NOTE 5 - EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the period plus dilutive stock options which are determined through the application of the treasury stock method. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 Net Sales - --------- Net sales for the first quarter of 1998 totaled $708.4 million, a 6.5% decrease compared to net sales of $757.6 million during the corresponding 1997 period. Tons shipped in the first quarter of 1998 were 1,419,000 compared to 1,521,000 in the first quarter of 1997. The 102,000 ton decrease in shipments, which was primarily caused by the "A" blast furnace reline at the Company's Great Lakes Division, resulted in approximately $50.0 million of the decrease in sales in 1998 compared to 1997. Also contributing to the sales decrease was a $7 per ton decrease in selling price, which reduced sales by approximately $11.0 million and a $5.0 million decrease due to market and customer mix, when compared to the first quarter of 1997. Product mix improvements amounting to $15.0 million offset the decreases described above along with increases in non-steel sales of approximately $2.0 million. Gross Margin (net sales less cost of products sold and depreciation) - ------------- Gross margin in the first quarter of 1998 was $39.9 million, or 5.6% of net sales, compared to gross margin of $69.3 million, or 9.1% of net sales, during the corresponding 1997 period. The decrease in gross margin in the first quarter of 1998 is primarily the result of lower net sales due to lower shipments, lower selling prices and mix as described in the net sales discussion above. Costs were higher in the first quarter of 1998 as compared to a year earlier due to a planned reline of the Company's "A" blast furnace at its Great Lakes Division. Consequently, raw steel production was 1,573,000 tons during the first quarter of 1998, which represents a 3.7% decrease compared to the 1,634,000 tons produced during the same 1997 period. In addition to the impact of lost production volume and higher maintenance costs associated with the reline, the effects of a late winter storm that affected the Company's Midwest Division and an unplanned outage at the National Steel Pellet Company also impacted production costs. The effect of all these above mentioned items reduced gross margins by approximately $16.0 million, and were primarily confined to the first quarter, except for the blast furnace reline which will also impact the second quarter as it resumed production at the end of April. These impacts were partially offset by improved operating unit yield performances and lower raw material costs, as well as lower depreciation expense, as a result of the sale of the Great Lakes Division No. 5 coke battery, and lower costs due to the result of the settlement with Avatex Corporation, both of which occurred after the first quarter of 1997 and amounted to approximately $9.0 million. In addition, outside steel purchases were lower by $5.0 million compared to 1997 and an insurance settlement of $1.7 million was realized in the first quarter of 1998. Selling, General and Administrative Expense - ------------------------------------------- Selling, general and administrative expense in the first quarter of 1998 was $38.0 million, or 5.4% of net sales, compared to $32.4 million, or 5.0% of net sales in the corresponding 1997 period. This $5.6 million increase is a result of the recognition of expense associated with stock appreciation rights and increases in professional services costs offset slightly by lower information systems costs. Net Financing Costs - ------------------- Net financing costs of $0.8 million for the three months ended March 31, 1998 represent a $ 7.4 million decrease compared to the same 1997 period. This improvement is partially attributable to a $3.7 million increase in interest income on short term investments. Additionally, lower interest expense of $3.7 million resulted from lower average debt levels. 9 Income Taxes - ------------ The Company recorded current taxes payable of $0.5 million and $7.4 million in the first quarter of 1998 and 1997, respectively. The Company also recorded a deferred tax benefit of $5.4 million in the first quarters of both 1998 and 1997. The Company's effective tax rate is lower than the combined federal and state statutory rates primarily because of continued utilization of available federal and state net operating loss carryforwards and the recognition of additional deferred tax benefits. 10 LIQUIDITY AND SOURCES OF CAPITAL - -------------------------------- The Company's liquidity needs arise primarily from capital investments, working capital requirements, pension funding requirements, principal and interest payments on its indebtedness and common stock dividend payments. The Company has satisfied these liquidity needs with funds provided by long term borrowings and cash provided by operations. Additional sources of liquidity consist of a Receivables Purchase Agreement (the "Receivables Purchase Agreement") with commitments of up to $200.0 million and an expiration date of September 2002 and both a $100.0 million and a $50.0 million credit facility, both of which are secured by the Company's inventories (the "Inventory Facilities") and expire in May 2000 and July 1999, respectively. 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 March 31, 1998, 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 $91.0 million. During the first quarter of 1998, the maximum availability under the Receivables Purchase Agreement, after reduction of letters of credit outstanding, varied from $76.3 million to $109.0 million and was $106.4 million as of March 31, 1998. At March 31, 1998, total debt as a percentage of total capitalization decreased to 28.5% as compared to 29.0% at December 31, 1997. Cash and cash equivalents totaled $291.9 million at March 31, 1998 as compared to $312.6 million at December 31, 1997. The Company is continuing to evaluate other possible uses of the proceeds of the sale of non-core assets, including additional pension and Voluntary Employees' Beneficiary Association ("VEBA Trust") funding, additional debt retirements and additional strategic investment opportunities. Cash Flows from Operating Activities - ------------------------------------ For the quarter ended March 31, 1998, cash provided from operating activities amounted to $27.0 million, which is primarily attributable to the impact of noncash charges for depreciation and postretirement benefits along with net income of $5.9 million. 11 Cash Flows from Investing Activities - ------------------------------------ Capital investments for the quarters ended March 31, 1998 and 1997 amounted to $37.3 million and $43.0 million, respectively. The 1998 spending is mainly attributable to the on-going construction of the new coating line at the Midwest Division and repairs to the Great Lakes Division "A" blast furnace. The 1997 spending was primarily for the 72 inch continuous galvanizing line upgrade and the construction of the new coating line, both at the Midwest Division. The Company plans to invest approximately $185 million during the remainder of 1998 for capital expenditures, including a new hot dip galvanizing line, new business systems and mobile equipment purchases as well as improvements at its other facilities. Cash Flows from Financing Activities - ------------------------------------ During the first quarter of 1998, the Company utilized $10.4 million of cash for financing activities which included scheduled payments of debt, as well as dividend payments on the Company's common stock. OTHER - ----- Year 2000 Issues - ---------------- The "Year 2000" problem is caused by software which processes years using only two digits in the date field. In computer programming, programmers routinely create date fields with only two digit years in an effort to conserve computer memory. If not corrected, this programming technique would cause computer applications to fail or give erroneous results by or at the year 2000. The Company is in the process of correcting this problem and has formed a committee consisting of executive management to oversee all Year 2000 activities. The Company has already begun work on projects related to Year 2000 and spent approximately $0.6 million in the first quarter of 1998 and $1.8 million in 1997. The Company expects to spend up to $10.0 million on Year 2000 projects during 1998 and 1999, and anticipates final completion of these projects to occur sometime in the second quarter of 1999. The cost and completion of the Year 2000 projects are based on management's best estimates and were derived utilizing certain industry standard estimation techniques and analysis of actual programs. Assumptions are relative to the timing of future events and availability of resources. Various factors could cause expected cost and completion times to differ from those anticipated. However, the Company does not believe that Year 2000 issues will have a material adverse impact on the Company's financial condition or results of operations. Great Lakes Division Property Tax Appeal - ---------------------------------------- In 1991, the Corporation filed a lawsuit in the Michigan Tax Tribunal against the cities of River Rouge and Ecorse seeking a reduction in the assessed value of the real estate and personal property at the Corporation's Great Lakes Division. The lawsuit was amended year by year to cover the tax years 1991 through 1994. Following a decision by the Michigan Tax Tribunal in August 1996 reducing the assessed values, all parties appealed this decision. In January 1998, the Court of Appeals issued a written opinion in which it affirmed in part, vacated in part and remanded the case to the Michigan Tax Tribunal. A second case involving tax years 1995 through 1997 is also pending in the Michigan Tax Tribunal. The parties are currently engaged in settlement negotiations to resolve these matters. Any settlement is not expected to have a material impact on the financial position of the Company. Impact of Recently Issued Accounting Standards - ---------------------------------------------- In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement changes the way public companies are required to report operating segment information in annual financial statements and in interim financial reports to stockholders. Operating segments are determined consistent with the way management organizes and evaluates financial information internally for making decisions and assessing performance. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Statement is effective for financial statements for fiscal years beginning December 15, 1997, and the Company will adopt the Statement, as required, effective December 31, 1998. Although the Company continues to evaluate the impact that this Statement will have on its financial reporting, the Company does not expect significant additional reporting requirements. 12 In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which is effective for fiscal years beginning after December 15, 1997, and will be adopted by the Company, as required, effective December 31, 1998. The statement will standardize disclosures about pensions and other postretirement benefits in an effort to make the information more understandable. Implementation of this disclosure standard will not affect the financial position or results of operations of the Company. Dividend on Common Stock - ------------------------ On April 27, 1998, the Company's board of directors declared a regular quarterly common stock dividend of $0.07 per share, payable on June 10, 1998, to shareholders of record on May 22, 1998. 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 including changes in interest rates; (11) changes in the legal and regulatory requirements applicable to the Company; and (12) the effects of extreme weather conditions. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS Granite City Division - Alleged Air Violations. With respect to the matter - ---------------------------------------------- involving alleged violations of various air emission requirements at the Company's Granite City Division's basic oxygen furnace shop, coke oven batteries and by-products plant, previously reported in the Company's 1997 Form 10-K, a Consent Decree embodying the agreed upon settlement has been executed by the Company and returned to the Justice Department for execution and entry. Great Lakes Division - Multimedia Inspection. With respect to the matter - -------------------------------------------- involving a multimedia inspection of the Company's Great Lakes Division facility by the United States Environmental Protection Agency ("EPA"), previously reported in the Company's 1997 Form 10-K, a Consent Order embodying the agreed upon settlement has been executed by the Company and the EPA. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See attached Exhibit Index (b) Reports on Form 8-K The Company filed two reports on Form 8-K dated February 18, 1998 reporting on Item 5, Other Events. The Company filed a report on Form 8-K dated March 4, 1998 reporting on Item 5, Other Events. The Company filed a report on Form 8-K dated March 26, 1998 reporting on Item 5, Other Events. 14 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/ John A. Maczuzak -------------------- John A. Maczuzak President and Chief Operating Officer BY /s/ Michael D. Gibbons --------------------- Michael D. Gibbons Acting Chief Financial Officer Date: May 14, 1998 15 NATIONAL STEEL CORPORATION QUARTERLY REPORT ON FORM 10-Q/A EXHIBIT INDEX For the quarterly period ended March 31, 1998 15.1 Independent Accountants' Review Report 15.2 Acknowledgment Letter on Unaudited Interm Financial Information 27-A Financial Data Schedule 16 EX-15.1 2 INDEPENDENT ACCOUNTANT'S REPORT Exhibit 15.1 Independent Accountants' Review Report Board of Directors National Steel Corporation We have reviewed the accompanying consolidated balance sheet of National Steel Corporation and subsidiaries (the Company) as of March 31, 1998, and the related consolidated statements of income for the three-month period ended March 31, 1998 and 1997, of cash flows for the three-month period ended March 31, 1998 and 1997, and of changes in stockholders' equity and redeemable preferred stock-- Series B for the three-month period ended March 31, 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of National Steel Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of income, cash flows, and stockholders' equity and redeemable preferred stock-- Series B for the year then ended (not presented here), and in our report dated January 28, 1998 (except for Notes C, I, and K, as to which the date is February 26, 1998), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP Fort Wayne, Indiana May 15, 1998 EX-15.2 3 ACKNOWLEDGMENT LETTER ON UNAUDITED EXHIBIT 15.2 Board of Directors National Steel Corporation We are aware of the incorporation by reference in the following Registration Statements: Form S-8, No. 33-51991, pertaining to the 1994 and 1995 Stock Grants to Union Employees, Form S-8, No. 33-51081, pertaining to the 1993 National Steel Corporation Long-Term Incentive Plan, Form S-8, No. 33-51083, pertaining to the 1993 National Steel Corporation Non-Employee Director's Stock Option Plan, and Form S-8, No. 33-61087, pertaining to the National Steel Retirement Savings Plan and National Steel Represented Employee Retirement Savings Plan, of our report dated May 15, 1998 relating to the unaudited interim consolidated financial statements of National Steel Corporation and subsidiaries that are included in its Form 10-Q for the quarter ended March 31, 1998. Ernst & Young LLP Fort Wayne, Indiana May 15, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 291,930 0 290,192 20,465 387,040 957,294 3,408,133 2,172,897 2,421,800 607,939 304,224 0 0 433 839,463 2,421,800 708,429 708,429 637,427 637,427 69,199 2,821 783 1,020 (4,928) 5,948 0 0 0 5,948 0.14 0.14
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