ITEM 1. BUSINESS
BACKGROUND
Weirton Steel Corporation (the "Company") and its predecessor companies have been in the business of making and finishing steel products for nearly 90 years at the Company's facilities located in Weirton, West Virginia. From November 1929 to January 1984, the Company's business had been operated as the Weirton Steel Division of National Steel Corporation. Incorporated in Delaware in November 1982, the Company acquired its principal operating assets in January 1984.
The Company is a major "integrated" steelmaker. As such, it makes carbon steel from raw materials to industry and customer specifications. In primary steelmaking, iron ore pellets, iron ore, coke, limestone and other raw materials are consumed in blast furnaces to produce molten iron or "hot metal." The Company then converts the hot metal into raw or liquid steel through its basic oxygen furnaces where impurities are removed, recyclable scrap is added and metallurgy for end use is determined on a batch by batch basis. The Company's basic oxygen process shop ("BOP") is one of the largest in North America, employing two vessels, each with a steelmaking capacity of 360 tons per heat. Liquid steel from the BOP is then formed into slabs through the Company's multi- strand continuous caster. The slabs are then reheated, reduced and finished into coils by extensive rolling and shaping at the Company's modern hot strip mill and, in many cases, by further tempering, plating or coating at the Company's downstream finishing operations. See Item 2.
ITEM 2. PROPERTIES
The Company owns approximately 2,400 acres in the Weirton, West Virginia, area which are devoted to the production and finishing of steel products, research and development, storage, support services and administration. The Company owns trackage and railroad rolling stock for materials movement, water craft for barge docking, power generation facilities and numerous items of heavy industrial equipment. The Company has no material leases for real property. The Company's mill and related facilities are accessible by water, rail and road transportation. The Company believes that its facilities are suitable to its needs and are adequately maintained.
The Company's operating facilities include four blast furnaces; however, its current operating strategy employs a two blast furnace configuration with an annual hot metal capacity of approximately 3.0 million tons. Although the Company does not anticipate operating a three blast furnace configuration in the near term, under that operating scenario, its annual hot metal capacity could be increased to approximately 3.6 million tons. In March 1997, the Company completed a planned major reline and rebuild of its largest iron making facility, the No. 1 Blast Furnace, as part of a capital expenditure program for that facility approximating $85.0 million. The rebuild was designed to increase iron production and quality, improve production efficiencies, reduce costs and enhance environmental protection. While the rebuild was in progress, the Company utilized only its smaller No. 4 Blast Furnace, which necessitated the purchase of some outside slabs for finishing purposes. See Item 1. "Business--Raw Materials." The Company's ironmaking operations through 1996 also included a sinter plant, used to process scale, sludge and other by-products for recycling back into blast furnace operations. In December 1996, the Company temporarily discontinued operations at the sinter plant pending an assessment of the facility's production equipment and the feasibility of improvements believed necessary to assure the plant's continuing compliance with more stringent future air pollution control standards. This assessment is ongoing, and operations at the sinter plant did not resume in 1997. The Company increased its purchasing of iron pellets from outside commercial sources to replace the sinter plant output. The Company's primary steelmaking facilities include a two vessel BOP shop with an annual capacity of 3.0 million tons of raw steel (based on a two blast furnace operation). Primary steelmaking facilities also include a CAS-OB facility, two RH degassers, and a four
strand continuous caster with an annual slab production capacity of up to 3.0 million tons. The Company's downstream operations include a hot strip mill with a design capacity of 3.8 million tons, two continuous picklers, three tandem cold reduction mills, three hot dip galvanize lines, one electro-galvanize line, two tin platers, one chrome plater, one bi-metallic chrome/tin plating line and various annealing, temper rolling, shearing, cleaning and edge slitting lines, together with packaging, storage and shipping and receiving facilities. See the "Comparative Production and Shipments" section of Item 1 for additional information regarding production capacity and utilization rates.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved as a defendant or plaintiff in various litigation relating to claims arising out of its operations in the normal course of business. Such claims involving the Company as a defendant are generally covered by insurance. It is management's opinion that any liability resulting from existing litigation would not have a material effect on the Company's business, financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
As of March 16, 1998, there were 42,925,093 shares of common stock, $.01 par value ("Common Stock"), outstanding held by 3,789 stockholders of record. The principal market for the Common Stock is the New York Stock Exchange, on which that security has been listed since June 1989.
Dividends on the Company's Common Stock may be paid when and as declared by the Company's Board of Directors. The payment of dividends is subject to the applicable provisions of Delaware corporate law governing the Company and the discretion of the Company's Board of Directors, which, in exercising such discretion, considers the financial performance and capital requirements of the Company.
Under restrictive covenants relating to the Company's indebtedness, the Company's ability to pay dividends on its stock is limited to the greater of (i) $5.0 million or (ii) $5.0 million plus one-half of the Company's cumulative consolidated net income since March 31, 1993, plus the net proceeds from subsequent issuances of certain capital stock, less certain allowable payments. As of December 31, 1997, pursuant to these covenants, the Company could pay dividends on its Common Stock of up to $110.4 million.
As of March 16, 1998, 10,504,071 shares of Common Stock, or 24.5% of the outstanding shares of Common Stock, were held by one stockholder of record, United National Bank--North, as Trustee of the 1984 ESOP. As of that date, the 1984 ESOP had approximately 6,540 participants who were active or former employees of the Company. In addition, as of March 16, 1998 there were 1,743,981 shares of Convertible Voting Preferred Stock, Series A (the "Series A Preferred Stock"), outstanding held by 364 stockholders of record. As of that date, United National Bank--North, as Trustee of the Company's second Employee Stock Ownership Plan (the "1989 ESOP"), was the record owner of 1,699,171 shares of the Series A Preferred Stock, or over 97.4% of the outstanding shares of Series A Preferred Stock, subject to the terms and conditions of said Plan. As of that date, the 1989 ESOP had approximately 5,252 participants who were active or former employees of the Company. The Series A Preferred Stock is not listed for trading on any exchange. The Series A Preferred Stock has a liquidation preference of $5 per share and is convertible into one share of Common Stock, subject to adjustment. Each share of Series A Preferred Stock is entitled to 10 votes in all matters presented to the stockholders for approval. Participants in the Company's two ESOPs have full voting rights over all shares allocated to their accounts. See "Employees" under Item 1.
The following table sets forth, for the periods indicated, the high and low sales prices of the Common Stock as reported in the consolidated transaction reporting system.
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(1) First Quarter 1998 through March 16, 1998.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to "Selected Financial and Statistical Data" on page 39 of the Company's 1997 Annual Report to Stockholders. With the exception of the information specifically incorporated by reference, the 1997 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by reference to pages 13 to 16, inclusive, of the Company's 1997 Annual Report to Stockholders. With the exception of the information specifically incorporated by reference, the 1997 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are incorporated herein by reference to pages 17 to 39 inclusive, of the Company's 1997 Annual Report to Stockholders and are listed in Item 14. "Exhibits, Financial Statement Schedules and Reports on Form 8-K" hereof. With the exception of the information specifically incorporated by reference, the 1997 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The information required by this item with respect to Directors of the Company is incorporated herein by reference to the caption "Election of Directors" and "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive Proxy Statement relating to its 1998 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, said definitive Proxy Statement is not to be deemed filed as part of this report for purposes of this item.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 16, 1998 were as follows:
Unless otherwise indicated below, the executive officers of the Company have held the positions described for at least the last five years.
Richard K. Riederer has been President since January 1995 and Chief Executive Officer since November 1995. From September 1994 to January 1995, he was Executive Vice President Finance and Chief Financial Officer. Prior to that, he served as Vice President and Chief Financial Officer beginning in January 1989. He has been a director of the Company since October 1993.
James B. Bruhn has been Executive Vice President since September 1994. From September 1994 to March 1997, he was Executive Vice President--Commercial. He joined the Company as Vice President--Sales and Marketing--Tin Mill Products in July 1987, and was named Vice President--Tin Mill Products Business in November 1992.
Craig T. Costello has been Chief Operating Officer since January 1997. From September 1994 to the present, he also served as Executive Vice President--Manufacturing. From October 1993 to September 1994 he served as Vice President--Operations. Mr. Costello served as General Manager--Operations from 1988 to 1993. He has been a director of the Company since April 1996.
Earl E. Davis, Jr. has been Executive Vice President--Commercial since October 1997. From July 1995 to October 1997 he served as Vice President--Finance and Chief Financial Officer. From May 1994 to July 1995, he served as Controller. From August 1991 to April 1994, he served as Assistant Controller. He has been a director of the Company since October 1997.
David L. Robertson has served as the Executive Vice President--Human Resources and Corporate Law since March 1996. Prior to that, Mr. Robertson was a senior partner in the law firm of Volk, Robertson & Hellerstedt.
Narendra M. Pathipati has been serving as Senior Vice President--Corporate Development and Strategy since October 1997. From July 1995 until October 1997, Mr. Pathipati served as Vice President--Corporate Development and Strategy. He also served as Treasurer of the Company from August 1991 to July 1995.
Thomas W. Evans has been Vice President--Materials Management since February 1988.
David M. Gould was named Vice President--Economic Development in September 1994. Mr. Gould previously was Vice President--Sales and Marketing--Sheet Products from 1983 until September 1994.
William R. Kiefer has been Vice President--Law and Secretary since May 1990.
Frank G. Tluchowski was appointed to the position of Vice President-Engineering and Technology in February 1998. Prior to that appointment, Mr. Tluchowski served as general manager-engineering since September 1996. He was also area manager of the tin mill from November 1990 to September 1996.
Mark E. Kaplan has served as Controller since September 1995. Prior to that, Mr. Kaplan was employed by Arthur Andersen LLP, where he held a number of positions, most recently as Senior Audit Manager.
Patrick B. Stewart has served as Chief Information Officer since August 1997. From January 1994 to August 1997 Mr. Stewart served as Director-Information Services. He served as Senior Manager Distributed Processing from April 1993 to January 1994, and prior to that as Manager Distributed Processing from June 1991 to April 1993.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the caption "Executive Compensation" in the Company's definitive Proxy Statement relating to its 1998 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, said definitive Proxy Statement is not to be deemed to be filed as part of this report.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive Proxy Statement relating to its 1998 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, said definitive Proxy Statement is not to be deemed to be filed as part of this report.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The list of financial statements required to be filed by Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K is as follows:
2. The list of financial statement schedules required to be filed by Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K is as follows:
3. Exhibits.
The following exhibits are included in this Annual Report or are incorporated herein by reference:
(b) The Company filed reports on Form 8-K each in reference to Item 5 thereof on January 31, 1997 and October 3, 1997.
(c) The exhibits as listed under Item 14(a)(3), are filed herewith or incorporated herein by reference.
(d) The financial statement schedules listed under Item 14(a)(2), are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Weirton Steel Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of March, 1998.
WEIRTON STEEL CORPORATION
By: /s/ RICHARD K. RIEDERER ---------------------------------- Richard K. Riederer President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended this Report has been signed below by the following persons on behalf of Weirton Steel Corporation and in the capacities indicated on the 27th day of March, 1998.
/s/ RICHARD K. RIEDERER - ------------------------------------------------------Richard K. Riederer President and Chief Executive Officer (principal executive and financial officer)
/s/ MARK E. KAPLAN - ------------------------------------------------------Mark E. Kaplan Controller (principal accounting officer)
/s/ MICHAEL BOZIC - ------------------------------------------------------Michael Bozic Director
/s/ R. BURT - ------------------------------------------------------Richard R. Burt Chairman of the Board of Directors
/s/ CRAIG T. COSTELLO - ------------------------------------------------------Craig T. Costello Director
/s/ ROBERT J. D'ANNIBALLE - ------------------------------------------------------Robert J. D'Anniballe Director
/s/ EARL E. DAVIS - ------------------------------------------------------Earl E. Davis Director /s/ MARK G. GLYPTIS - ------------------------------------------------------Mark G. Glyptis Director
/s/ PHILLIP A. KARBER - ------------------------------------------------------Phillip A. Karber Director
/s/ JOSEPH J. NOWAK - ------------------------------------------------------Joseph J. Nowak Director
/s/ ROBERT S. REITMAN - ------------------------------------------------------Robert S. Reitman Director
/s/ RICHARD F. SCHUBERT - ------------------------------------------------------Richard F. Schubert Director
/s/ THOMAS R. STURGES - ------------------------------------------------------Thomas R. Sturges Director
/s/ D. I. J. WANG - ------------------------------------------------------David I. J. Wang Director
/s/ RONALD C. WHITAKER - ------------------------------------------------------Ronald C. Whitaker Director
EXHIBIT INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Weirton Steel Corporation:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Weirton Steel Corporation's annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 26, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index in Item 14(a)2 of the Form 10-K are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania, January 26, 1998
S-1
WEIRTON STEEL CORPORATION CONDENSED PARENT COMPANY STATEMENTS OF INCOME
SCHEDULE I (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
S-2
WEIRTON STEEL CORPORATION CONDENSED PARENT COMPANY BALANCE SHEET
SCHEDULE I (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNT)
S-3
WEIRTON STEEL CORPORATION CONDENSED PARENT COMPANY STATEMENT OF CASH FLOWS
SCHEDULE I (DOLLARS IN THOUSANDS)
S-4
WEIRTON STEEL CORPORATION AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
S-5