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1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-983
NATIONAL STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Incorporated under the Laws of the State of Delaware 25-0687210
(State or other jurisdiction (I.R.S. Employer
of 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Class B Common Stock New York Stock Exchange
First Mortgage Bonds, 8-3/8% New York Stock Exchange
Series due 2006
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 3, 1997, there were 43,288,240 shares of the registrant's common
stock outstanding.
Aggregate market value of voting stock held by non-affiliates: $177,348,615.
The amount shown is based on the closing price of National Steel
Corporation's Common Stock on the New York Stock Exchange on March 3, 1997.
Voting stock held by officers and directors is not included in the computation.
However, National Steel Corporation has made no determination that such
individuals are "affiliates" within the meaning of Rule 405 under the Securities
Act of 1933.
Documents Incorporated By Reference:
Selected portions of the Annual Report to Stockholders for the year ended
December 31, 1996 are incorporated by reference into Part II and IV of the
Report on Form 10-K.
Selected portions of the 1997 Proxy Statement of National Steel Corporation
are incorporated by reference into Part III of this Report on Form 10-K.
1
NATIONAL STEEL CORPORATION
TABLE OF CONTENTS
Page
----
Part I
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 21
Part II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 24
Item 6 Selected Financial Data 24
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
Item 8 Financial Statements and Supplementary Data 24
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 24
Part III
Item 10 Directors and Executive Officers of the Registrant 25
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain Beneficial Owners and Management 25
Item 13 Certain Relationships and Related Transactions 25
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
2
PART I
ITEM 1. Business
National Steel Corporation, a Delaware corporation, and its consolidated
subsidiaries (the "Company") is the fourth largest integrated steel producer in
the United States as measured by production and is engaged in the manufacture
and sale of a wide variety of flat rolled carbon steel products, including hot
rolled, cold rolled, galvanized, tin and chrome plated steels. The Company
targets high value-added applications of flat rolled carbon steel for sale to
the automotive, construction and container markets. Since 1984, the Company has
invested approximately $2.4 billion in capital improvements to enhance the
Company's competitive position and penetrate growing segments of these markets.
The Company was formed through the merger of Great Lakes Steel Corporation,
Weirton Steel Corporation and Hanna Iron Ore Company and was incorporated in
Delaware on November 7, 1929. The Company built a finishing facility, now the
Midwest Division, in 1961, and in 1971 purchased Granite City Steel Corporation,
now the Granite City Division. On September 13, 1983, the Company became a
wholly-owned subsidiary of National Intergroup, Inc., which in October 1994
changed its name to FoxMeyer Health Corporation (collectively, with its
subsidiaries, hereinafter referred to as "FOX"), through a restructuring. In
January 1997, FOX changed its name to Avatex Corporation. On January 11, 1984,
the Company sold the principal assets of its Weirton Steel Division and retained
certain liabilities related thereto. On August 31, 1984, NKK Corporation
(collectively, with its subsidiaries, "NKK") purchased a 50% equity interest in
the Company from FOX. On June 26, 1990, NKK purchased an additional 20% equity
interest in the Company from FOX. In April 1993, the Company completed an
initial public offering of its Class B Common Stock. In October 1993, FOX
converted all of its shares of Class A Common Stock to an equal number of shares
of Class B Common Stock and subsequently sold substantially all of its shares of
Class B Common Stock in the market in January 1994, resulting in NKK owning
75.6% voting interest in the Company at December 31, 1994. On February 1, 1995,
the Company completed a primary offering of 6.9 million shares of Class B Common
Stock. Subsequent to the transaction, NKK's voting interest decreased to 67.6%.
The Company's principal executive offices are located at 4100 Edison Lakes
Parkway, Mishawaka, Indiana 46545-3440; telephone (219) 273-7000.
Strategy
The Company's mission is to achieve sustained profitability, thereby enhancing
stockholder value, by reducing the costs of production, and improving
productivity and product quality and shifting its product mix to higher priced,
higher value products. Management has developed a number of strategic
initiatives designed to achieve the Company's goals.
Reduction in Production Costs. Management's primary focus is to reduce the costs
of producing hot rolled bands, the largest component of the Company's finished
product cost. However, reducing all costs associated with the production process
is essential to the Company's overall cost reduction program. Management has
reduced production costs by better utilizing existing equipment, improving
productivity, involving labor in improving operating practices and by the cost
efficient use of steelmaking inputs. In addition, the Company's facility
engineers, who have access to a wide range of NKK process technologies, analyze
and implement innovative steelmaking and processing methods on an ongoing basis.
Marketing Strategy. The Company's marketing strategy has concentrated on
increasing the level of sales of higher value-added products to the automotive,
construction and container markets. These segments demand high quality products,
on-time delivery and effective and efficient customer service. This strategy is
designed to increase margins, reduce competitive threats and maintain high
capacity utilization rates by shifting the Company's product mix to higher
quality products and providing superior customer service.
3
To enable the Company to more efficiently meet the needs of its target markets
and focus on higher value-added products, the Company has entered into two
separate joint ventures to operate hot dip galvanizing facilities. One joint
venture is with NKK and an unrelated third party and has been built to service
the automotive industry. The second joint venture has been built to service the
construction industry. See "Properties--DNN Galvanizing Limited Partnership" and
"Double G Coatings, L.P." In 1995, the Company began construction of an
additional coating line which will serve the construction market. The line,
located at the Granite City Division, cost approximately $85.0 million and was
completed during the first quarter of 1996. A second line, currently under
construction at the Midwest Division, will cost approximately $70.0 million and
is scheduled to be completed during the second quarter of 1998. In addition,
during 1996, the Company began an expansion of the 72" galvanizing line at the
Midwest Division to further enable it to more effectively compete in these
value-added markets.
Quality Improvement. An important element of the Company's strategy is to reduce
the cost of poor quality, which currently results in the sale of non-prime
products at lower prices and requires substantial reprocessing costs. The
Company has made improvements in this area by improving process control,
utilizing employee based problem solving methods, eliminating dependence on
final inspection and reducing internal rejections and extra processing. In
addition, the Company became ISO 9002/QS 9000 registered during 1996.
Predictive Maintenance Program. Management is installing a predictive
maintenance program designed to maximize production and equipment life while
minimizing unscheduled equipment outages. This program should improve operations
stability through improved equipment reliability, which is expected to result in
improved productivity and reduced costs.
Alliance with NKK
The Company has a strong alliance with its principal stockholder, NKK, the
second largest steel company in Japan and the seventh largest in the world as
measured by production. Since 1984, the Company has had access to a wide range
of NKK's steelmaking, processing and applications technology. The Company's
engineers include approximately 35 engineers transferred from NKK, who serve
primarily at the Company's Divisions. These engineers, as well as engineers and
technical support personnel at NKK's facilities in Japan, assist in improving
operating practices and developing new manufacturing processes. This support
also includes providing input on ways to improve raw steel production to
finished product yields. In addition, NKK has provided financial assistance to
the Company in the form of investments, loans and introductions to Japanese
financial institutions and trading companies; however, there can be no
assurances given as to the extent of NKK's future financial support beyond
existing contractual commitments.
This alliance with NKK was further strengthened by the Agreement for the
Transfer of Employees (superceding a prior arrangement) entered into by the
Company and NKK effective as of May 1, 1995. This agreement was unanimously
approved by all directors of the Company who were not then, and have never been,
employees of NKK. Pursuant to the terms of the agreement, technical and business
advice is provided to the Company through NKK employees who are transferred to
the employ of the Company. The Company has agreed to reimburse NKK for certain
costs and expenses incurred by NKK in connection with the transfer of the
employees. The total amount of reimbursable expenses which the Company is
obligated to pay is capped at $11.7 million for the initial term of the
agreement, which ran from May 1, 1995 through December 31, 1996. The agreement
can be extended from year to year thereafter if approved by NKK and by a
majority of those directors of the Company who are not then, and have never
been, employees of NKK. This agreement has been extended for 1997 with the total
amount of reimbursable expenses capped at $7.0 million for the term of the
agreement, which runs from January 1, 1997 through December 31, 1997.
Customer Partnership
The Company's customer partnership enables the Company to differentiate its
products through superior quality and service. Management believes it is able to
differentiate the Company's products and promote
4
customer loyalty by establishing close relationships through early customer
involvement, providing technical services and support and utilizing its Product
Application Center and Technical Research Center facilities.
The Company operates a research and development facility near its Great Lakes
Division to develop new products, improve existing products and develop more
efficient operating procedures to meet the constantly increasing demands of the
automotive, construction and container markets. The research center employs
approximately 50 chemists, physicists, metallurgists and engineers. The research
center is responsible for, among other things, the development of five new high
strength steels for automotive weight reduction and a new galvanized steel for
the construction market. In addition, the Company operates a Product Application
Center near Detroit dedicated to providing product and technical support to
customers. The Product Application Center assists customers with application
engineering (selecting optimum metal and manufacturing methods), application
technology (evaluating product performance) and technical developments
(performing problem solving at plants). The Company spent $11.6 million, $9.8
million and $7.9 million for research and development in 1996, 1995 and 1994,
respectively. In addition, the Company participates in various research efforts
through the American Iron and Steel Institute (the "AISI").
Capital Investment Program
Since 1984, the Company has invested over $2.4 billion in capital improvements
aimed at upgrading the Company's steelmaking and finishing operations to meet
its customers' demanding requirements for higher quality products and to reduce
production costs. As described above, one of the Company's strategic initiatives
is to more effectively utilize these substantial capital improvements. Major
projects include an electrolytic galvanizing line, a continuous caster, a ladle
metallurgy station, a vacuum degasser, a complete coke oven battery rebuild and
a high speed pickle line, each of which services the Great Lakes Division and a
continuous caster, a coating line and a ladle metallurgy station, each of which
services the Granite City Division. Major improvements at the Midwest Division
include the installation of process control equipment to upgrade its finishing
capabilities, expansion of the 72" galvanizing line and construction of a new
coating line scheduled for completion in 1998. Capital investments for each of
1996, 1995 and 1994 were $128.6 million, $215.4 million and $137.5 million,
respectively. Capital investments for 1997 and 1998 are expected to total
approximately $297.0 million.
Customers
The Company is a major supplier of hot and cold rolled steel and galvanized
coils to the automotive industry, one of the most demanding steel consumers. Car
and truck manufacturers require wide sheets of steel, rolled to exact
dimensions. In addition, formability and defect-free surfaces are critical. The
Company has been able to successfully meet these demands. Its steel has been
used in a variety of automotive applications including exposed and unexposed
panels, wheels and bumpers.
The Company is also a leading supplier of steel to the domestic construction
market. Roof and building panels are the principal applications for galvanized
and Galvalume(R) steel in this market. Management believes that demand for
Galvalume(R) steel will exhibit strong growth for the next several years
partially as a result of a trend away from traditional building products, and
that the Company is well positioned to profit from this growth as a result of
both its position in this market and additional capacity referred to above.
The Company produces chrome and tin plated steels to exacting tolerances of
gauge, shape, surface flatness and cleanliness for the container industry. Tin
and chrome plated steels are used to produce a wide variety of food and non-food
containers. In recent years, the market for tin and chrome plated steels has
been both stable and profitable for the Company.
The Company also supplies the pipe and tube and service center markets with hot
rolled, cold rolled and coated sheet. The Company is a key supplier to
transmission pipeline, downhole casing and structural pipe producers. Service
centers generally purchase steel coils from the Company and may process them
further or sell them directly to third parties without further processing.
5
The following table sets forth the percentage of the Company's revenues from
various markets for the past five years.
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Automotive 27.6% 27.8% 28.5% 28.9% 27.2%
Construction 21.6 20.5 18.3 16.8 15.2
Containers 10.6 11.3 13.2 13.3 14.9
Pipe and Tube 6.5 7.4 6.9 8.2 9.4
Service Centers 20.2 15.4 17.9 15.5 13.6
All Other 13.5 17.6 15.2 17.3 19.7
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Shipments to General Motors accounted for approximately 10% of net sales in
1994. No customer accounted for more than 10% of net sales in 1996 or 1995.
Export sales accounted for approximately .5% of revenue in 1996, 2.6% in 1995
and .9% in 1994. The Company's products are sold through sales offices located
in Chicago, Detroit, Houston, Indianapolis, Kansas City, Pittsburgh and St.
Louis. Substantially all of the Company's net revenues are based on orders for
short-term delivery, accordingly, backlog is not meaningful when assessing
future results of operations.
Operations
The Company operates three principal facilities: two integrated steel plants,
the Great Lakes Division in Ecorse and River Rouge, Michigan, near Detroit, and
the Granite City Division in Granite City, Illinois, near St. Louis, and a
finishing facility, the Midwest Division in Portage, Indiana, near Chicago. In
January 1997, the Company consolidated the Great Lakes Division and the Midwest
Division into a single business enterprise in order to improve the planning and
coordination of production at both plants. In addition, this will ensure the
best monitoring of costs and utilization of resources and will allow the Company
to more effectively meet customer needs.
The Company's centralized corporate structure, the close proximity of the
Company's principal steel facilities and the complementary balance of processing
equipment shared by them, will enable the Company to closely coordinate the
operations of these facilities in order to maintain high operating rates
throughout its processing facilities and to maximize the return on its capital
investments.
6
The following table details effective steelmaking capacity, actual production,
effective capacity utilization and percentage of steel continuously cast for the
Company and the domestic steel industry for the years indicated.
RAW STEEL PRODUCTION DATA
Effective Percent
Effective Actual Capacity Continuously
Capacity Production Utilization Cast
--------- ---------- ----------- ------------
(000's of net tons) (%) (%)
The Company
1996 7,000 6,557 93.7 100.0
1995 6,300 6,081 96.5 100.0
1994 6,000 5,763 96.1 100.0
1993 5,550 5,551 100.0 100.0
1992 5,355 5,380 100.5 100.0
Domestic Steel Industry*
1996 116,100 104,356 89.9 93.2
1995 112,500 104,930 93.3 91.1
1994 108,200 100,579 93.0 89.5
1993 109,900 97,877 89.1 85.7
1992 113,100 92,949 82.2 79.3
* Information as reported by the AISI. The 1996 industry information is
preliminary.
In 1996, capacity increased to 7,000,000 net tons primarily due to successfully
negotiated environmental relief at the Granite City Division. Unanticipated
blast furnace outages at midyear were the primary reason actual steel production
fell short of capacity. In 1995, effective capacity increased to 6,300,000 net
tons due to higher production levels at both the Great Lakes and Granite City
Divisions. Effective capacity increased to 6,000,000 net tons in 1994 due to the
fact that the Company did not reline any blast furnaces during this period. The
effective capacity of the Company was 5,355,000 net tons in 1992 as a result of
a scheduled blast furnace reline.
Raw Materials
Iron ore. The metallic iron requirements of the Company are supplied primarily
from iron ore pellets that are produced from a concentration of low grade ores.
The Company, directly through its wholly owned subsidiary, National Steel Pellet
Company ("NSPC") and through Iron Ore of Canada ("IOC") (see paragraph below),
has reserves of iron ore adequate to produce approximately 492 million gross
tons of iron ore pellets. The Company's iron ore reserves are located in
Minnesota, Michigan and Quebec, Canada. Excluding the effects of the thirteen
month period from August 1, 1993 through August 28, 1994 when NSPC was idled, a
significant portion of the Company's average annual consumption of iron ore
pellets was obtained from the deposits of the Company or those of its affiliate
during the last five years. The remaining iron ore pellets consumed by the
Company were purchased from third parties. Iron ore pellets available to the
Company from its own deposits, its affiliate and outside suppliers are
sufficient to meet the Company's total iron ore requirements at competitive
market prices for the foreseeable future.
On January 31, 1997, the Company announced that it had entered into a definitive
agreement with North Limited ("North") and Bethlehem Steel Corporation ("BSC"),
pursuant to which the Company and BSC will sell to North their respective
minority equity interests in IOC. The Company currently owns 21.7% of the shares
of IOC and plans to continue to purchase iron ore from IOC pursuant to long-term
contracts.
7
Coal. In 1992, the Company decided to exit the coal mining business. At that
time, the Company owned underground coal properties in Pennsylvania, Kentucky
and West Virginia as well as undeveloped coal reserves in Pennsylvania and West
Virginia. During 1993, the Pennsylvania and Kentucky properties were sold except
for the coal reserves which were leased on a long term basis. During 1994, one
of the West Virginia plant sites was sold, and in 1995, the remaining plant site
in West Virginia was leased for a 5 year term, with an option to extend for two
additional 5 year periods. Negotiations are in process for the long term lease
of certain West Virginia partially developed coal reserves. The remaining coal
assets constitute less than 2% of the Company's total assets. Adequate supplies
of coal are readily available at competitive market prices .
Coke. The Company operates two efficient coke oven batteries servicing the
Granite City Division and the recently rebuilt No. 5 coke oven battery at the
Great Lakes Division. The No. 5 coke battery enhances the quality and stability
of the Company's coke supply, and incorporates state-of-the-art technology while
meeting the requirements of the Clean Air Act. With the No. 5 coke battery
rebuild in 1992, the Company has significantly improved its self-sufficiency and
can supply approximately 60% of its annual coke requirements. In the fourth
quarter of 1996, the Company started up a pulverized coal injection process at
one of its three blast furnaces at the Great Lakes Division, with plans to start
up the same process at the other blast furnaces during 1997. Successful
implementation of this process should further reduce the Company's dependency on
outside coke supplies. The remaining coke requirements are met through
competitive market purchases.
Limestone. An affiliated company in which the Company holds a minority equity
interest has limestone reserves of approximately 74 million gross tons located
in Michigan. During the last five years, approximately 67% of the Company's
average annual consumption of limestone was derived from these reserves. The
Company's remaining limestone requirements were purchased at competitive market
prices from unaffiliated third parties.
Scrap and Other Materials. Supplies of steel scrap, tin, zinc and other
alloying and coating materials are readily available at competitive market
prices.
Patents and Trademarks
The Company has the patents and licenses necessary for the operation of its
business as now conducted. The Company does not consider its patents and
trademarks to be material to the business of the Company.
Employees
As of December 31, 1996, the Company employed 9,579 people. The Company has
labor agreements with the United Steelworkers of America (the "USWA") and other
labor organizations which collectively represent approximately 82.6% of the
Company's employees. In 1993, the Company entered into labor agreements, which
expire in 1999, with these various labor organizations.
Competition
The Company is in direct competition with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured products.
Price, service and quality are the primary types of competition experienced by
the Company. The Company believes it is able to differentiate its products from
those of its competitors by, among other things, providing technical services
and support, utilizing its Product Application Center and Technical Research
Center facilities and by its focus on improving product quality through, among
other things, capital investment and research and development, as previously
described.
8
Imports. Domestic steel producers face significant competition from foreign
producers and have been adversely affected by what the Company believes to be
unfairly traded imports. Imports of finished steel products accounted for
approximately 19% of the domestic market over the past three years. Many foreign
steel producers are owned, controlled or subsidized by their governments.
Decisions by these foreign producers with respect to production and sales may be
influenced to a greater degree by political and economic policy considerations
than by prevailing market conditions.
Reorganized/Reconstituted Mills. The intensely competitive conditions within
the domestic steel industry have been exacerbated by the continued operation,
modernization and upgrading of marginal steel production facilities through
bankruptcy reorganization procedures, thereby perpetuating overcapacity in
certain industry product lines. Overcapacity is also caused by the continued
operation of marginal steel production facilities that have been sold by
integrated steel producers to new owners, who operate such facilities with a
lower cost structure.
Mini-mills. Domestic integrated producers, such as the Company, have lost
market share in recent years to domestic mini-mills. Mini-mills provide
significant competition in certain product lines, including hot rolled and cold
rolled sheets, which represented, in the aggregate, approximately 58% of the
Company's shipments in 1996. Mini-mills are relatively efficient, low-cost
producers which produce steel from scrap in electric furnaces, have lower
employment and environmental costs and target regional markets. Thin slab
casting technologies have allowed mini-mills to enter certain sheet markets
which have traditionally been supplied by integrated producers. One mini-mill
has constructed two such plants and is completing construction on a third plant.
Certain companies have announced plans for, or have indicated that they are
currently considering, additional mini-mill plants for sheet products in the
United States.
Steel Substitutes. In the case of many steel products, there is substantial
competition from manufacturers of other products, including plastics, aluminum,
ceramics, glass, wood and concrete. Conversely, the Company and certain other
manufacturers of steel products have begun to compete in recent years in markets
not traditionally served by steel producers.
Environmental Matters
The Company's operations are subject to numerous laws and regulations relating
to the protection of human health and the environment. The Company currently
estimates that it will incur capital expenditures in connection with matters
relating to environmental control of approximately $3.2 million and $21.0
million for 1997 and 1998, respectively. A major capital project in 1998 will be
the installation of air pollution control equipment at the National Steel Pellet
Plant. This equipment will be necessary to enable the Company to meet National
Ambient Air Quality Standards as anticipated increases in production levels
occur in the future. In addition, the Company expects to record expenses for
environmental compliance, including depreciation, of approximately $69.0 million
and $70.0 million for 1997 and 1998, respectively. Since environmental laws and
regulations are becoming increasingly stringent, the Company's environmental
capital expenditures and costs for environmental compliance may increase in the
future. In addition, due to the possibility of future factual or regulatory
developments, the amount and timing of future environmental expenditures could
vary substantially from those currently anticipated. The costs for environmental
compliance may also place the Company at a competitive disadvantage with respect
to foreign steel producers, as well as manufacturers of steel substitutes, that
are subject to less stringent environmental requirements.
In 1990, Congress passed amendments to the Clean Air Act which impose stringent
standards on air emissions. The Clean Air Act amendments will directly affect
the operations of many of the Company's facilities, including its coke ovens.
Under such amendments, coke ovens generally will be required to comply with
progressively more stringent standards over the next thirty years. The Company
believes that the costs for complying with the Clean Air Act amendments will not
have a material adverse effect, on an individual site basis or in the aggregate,
on the Company's financial position, results of operations or liquidity.
9
In 1990, the United States Environmental Protection Agency (the "EPA") released
a proposed rule which establishes standards for the implementation of a
corrective action program under the Resource Conservation Recovery Act of 1976,
as amended ("RCRA"). The corrective action program requires facilities that are
operating under a permit, or are seeking a permit, to treat, store or dispose of
hazardous wastes to investigate and remediate environmental contamination. The
Company has conducted an investigation at its Midwest Division facility and is
currently waiting for comments from the EPA regarding the results of the
investigation. The Company estimates that the potential capital costs for
implementing corrective actions at such facility will be approximately $8.0
million payable over the next several years. At the present time, the Company's
other facilities are not subject to corrective action.
The Company has recorded the reclamation costs to restore its coal and iron ore
mines at its shut down locations to their original and natural state, as
required by various federal and state mining statutes.
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. In addition, the Company and certain of its subsidiaries
are involved as potentially responsible parties ("PRPs") in a number of off-site
CERCLA or state superfund site proceedings. At several of these sites, any
remediation costs incurred by the Company are liabilities for which FOX has
agreed to indemnify the Company. 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 PRP's or the required
remediation activity to estimate its potential liability.
In connection with those sites involving Fox Meyer Health Corporation
(collectively with its subsidiaries "FOX"), which changed its name to Avatex
Corporation in January 1997, 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 December 31, 1996 and December 31, 1995, the balance,
including accrued interest and environmental insurance settlements, recorded as
prepaid FOX Environmental Liabilities totaled $8.6 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
stockholder's equity of FOX was reported in its Form 10-Q for the quarter ended
June 30, 1996 as a deficit of $88.4 million. As of December 31, 1996, this
deficit was $83.0 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.
10
ITEM 2. Properties
The Granite City Division.
The Granite City Division, located in Granite City, Illinois, has an effective
steelmaking capacity of approximately 3.0 million tons. All steel at this
Division is produced by continuous casting. The Granite City Division also uses
ladle metallurgy to refine the steel chemistry to enable it to meet the exacting
specifications of its customers. The Division's ironmaking facilities consist of
two coke batteries and two blast furnaces. Finishing facilities include an 80
inch hot strip mill, a continuous pickler and two hot dip galvanizing lines. In
1996, the Granite City Division completed construction of a 270,000 ton coating
facility to serve the construction market. This facility, known as Triple G,
cost approximately $85.0 million. Granite City Division ships approximately 20%
of its total production to the Midwest Division for finishing. Principal
products of the Granite City Division include hot rolled, cold rolled, hot
dipped galvanized, grain bin and high strength, low alloy steels.
The Granite City Division is located on 1,540 acres and employs 3,042 people.
The Division's proximity to the Mississippi River and other interstate transit
systems, both rail and highway, provides easy accessibility for receiving raw
materials and supplying finished steel products to customers.
The Great Lakes Division.
The Great Lakes Division, located in Ecorse and River Rouge, Michigan, is an
integrated facility engaged in steelmaking primarily for use in the automotive
market with an effective steelmaking capacity of approximately 4.0 million tons.
All steel at this Division is produced by continuous casting. The Division's
ironmaking facilities consist of a rebuilt 85-oven coke battery and three blast
furnaces. The Division also operates steelmaking facilities consisting of two
basic oxygen process vessels, a vacuum degasser and a ladle metallurgy station.
Finishing facilities include a hot strip mill, a skinpass mill, a shear line, a
new high speed pickle line, a tandem mill, a batch annealing station, two temper
mills, two customer service lines, and an electrolytic galvanizing line. The
Great Lakes Division ships approximately 40% of its production to the Midwest
Division for finishing. Principal products of the Great Lakes Division include
hot rolled, cold rolled, electrolytic galvanized, and high strength, low alloy
steels.
The Great Lakes Division is located on 1,100 acres and employs 3,717 people. The
Division is strategically located with easy access to water, rail and highway
transit systems for receiving raw materials and supplying finished steel
products to customers.
The Midwest Division.
The Midwest Division, located in Portage, Indiana, finishes hot rolled bands
produced at the Granite City and Great Lakes Divisions primarily for use in the
automotive, construction and container markets. The Midwest Division's
facilities include a continuous pickling line, two cold reduction mills, two
continuous galvanizing lines, a 48 inch wide line which can produce galvanized
or Galvalume(R) steel products and which services the construction market, and a
72 inch wide line which services the automotive market; finishing facilities for
cold rolled products consisting of a batch annealing station, a sheet temper
mill and a continuous stretcher leveling line, an electrolytic cleaning line, a
continuous annealing line, two tin temper mills, two tin recoil lines, an
electrolytic tinning line and a chrome line which services the container
markets. In 1995, the Midwest Division commenced construction of a 270,000 ton
coating line to serve the construction market. The line will cost approximately
$70.0 million and is scheduled to be completed in the second quarter of 1998. In
addition, during 1996, the Company began an expansion of the 72" galvanizing
line. Principal products of the Midwest Division include tin mill products, hot
dipped galvanized and Galvalume(R) steel, cold rolled, and electrical lamination
steels.
11
The Midwest Division is located on 1,100 acres and employs 1,489 people. Its
location provides excellent access to rail, water and highway transit systems
for receiving raw materials and supplying finished steel products to customers.
In January 1997, the Company consolidated the Great Lakes Division and the
Midwest Division into a single business enterprise in order to improve the
planning and coordination of production at both plants.
National Steel Pellet Company
National Steel Pellet Company ("NSPC"), located on the western end of the Mesabi
Iron Ore Range in Keewatin, Minnesota, mines, crushes, concentrates and
pelletizes low grade taconite ore into iron ore pellets. NSPC operations include
two primary crushers, ten primary mills, five secondary mills, a concentrator
and a pelletizer. The facility has a current annual effective iron ore pellet
capacity of over 5 million gross tons and has a combination of rail and vessel
access to the Company's integrated steel mills.
DNN Galvanizing Limited Partnership
As part of its strategy to focus its marketing efforts on high quality steels
for the automotive industry, the Company entered into an agreement with NKK and
Dofasco Inc., a large Canadian steel producer ("Dofasco"), to build and operate
DNN, a 400,000 ton per year, hot dip galvanizing facility in Windsor, Ontario,
Canada. This facility incorporates state-of-the-art technology to galvanize
steel for critically exposed automotive applications. The facility is modeled
after NKK's Fukuyama Works Galvanizing Line that has provided high quality
galvanized steel to the Japanese automotive industry for several years. The
Company is committed to utilize 50% of the available line time of the facility
and pay a tolling fee designed to cover fixed and variable costs with respect to
50% of the available line time, whether or not such line time is utilized. The
plant began production in January 1993 and is currently operating at full
capacity. The Company's steel substrate requirements are provided to DNN by the
Great Lakes Division.
Double G Coatings, L.P.
To continue to meet the needs of the growing construction market, the Company
and an unrelated third party formed a joint venture to build and operate Double
G Coatings, L.P. ("Double G"). Double G is a 270,000 ton per year hot dip
galvanizing and Galvalume(R) steel facility near Jackson, Mississippi. The
facility is capable of coating 48 inch wide steel coils with zinc to produce a
product known as galvanized steel and with a zinc and aluminum coating to
produce a product known as Galvalume(R) steel. Double G primarily serves the
metal buildings segment of the construction market in the south central United
States. The Company is committed to utilize and pay a tolling fee in connection
with 50% of the available line time at the facility. The joint venture commenced
production in the second quarter of 1994 and reached full operating capacity in
1995. The Company's steel substrate requirements are provided to Double G by the
Great Lakes and Midwest Division.
ProCoil Corporation
ProCoil Corporation ("ProCoil"), a joint venture between the Company, Marubeni
Corporation, Mitsubishi Corporation and NKK, located in Canton, Michigan,
operates a steel processing facility which began operations in 1988 and a
warehousing facility which began operations in 1992. The Company and Marubeni
Corporation each own a 44% equity interest in ProCoil. ProCoil blanks, slits and
cuts steel coils to desired lengths to service automotive market customers. In
addition, ProCoil warehouses material to assist the Company in providing
just-in-time delivery to customers. The Company is currently in the process of
purchasing NKK Corporation's two percent interest in ProCoil.
12
Other Properties
Generally, the Company's properties are well maintained, considered adequate and
being utilized for their intended purposes. The Company's corporate headquarters
is located in Mishawaka, Indiana. Except as stated below, the steel production
facilities are owned in fee by the Company. A continuous caster and related
ladle metallurgy facility and an electrolytic galvanizing line, which each
service the Great Lakes Division, and a coke battery, which services the Granite
City Division, are operated pursuant to the terms of operating leases with third
parties and are not subject to a lien securing the Company's First Mortgage
Bonds. The electrolytic galvanizing line lease, the coke battery lease and the
continuous caster and related metallurgy facility lease are scheduled to expire
in 2001, 2004, and 2008, respectively. Upon expiration, the Company has the
option to extend the respective lease or purchase the facility at fair market
value.
All land (excluding certain unimproved land), buildings and equipment
(excluding, generally, mobile equipment) that are owned in fee by the Company at
the Great Lakes Division, Granite City Division and Midwest Division are subject
to a lien securing the First Mortgage Bonds, with certain exceptions, including
a vacuum degasser and a pickle line which service the Great Lakes Division, a
continuous caster which services the Granite City Division and the corporate
headquarters in Mishawaka, Indiana. Additionally, the Company has agreed to
grant to the Voluntary Employee Benefit Association trust (the "VEBA Trust") a
second mortgage on the No. 5 coke oven battery at the Great Lakes Division.
For a description of certain properties related to the Company's production of
raw materials, see "Raw Materials" in Item 1 of this Form 10-K.
13
ITEM 3. Legal Proceedings
In addition to the environmental matters discussed below, the Company is
involved in various legal proceedings occurring in the normal course of its
business. In the opinion of the Company's management, adequate provision has
been made for losses which are likely to result from these actions.
Environmental Matters
CERCLA and State Superfund Proceedings
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar state superfund statutes generally
impose joint and several liability on present and former owners and operators,
transporters and generators for remediation of contaminated properties
regardless of fault. Currently, an inactive site located at the Great Lakes
Division facility is listed on the Michigan Environmental Response Act Site
List, but remediation activity has not been required by the Michigan Department
of Environmental Quality ("MDEQ"). In addition, the Company and certain of its
subsidiaries are involved as potentially responsible parties ("PRPs") in a
number of off-site CERCLA or state superfund site proceedings. The outcome of
these proceedings is not expected to have a material adverse effect on the
financial position, results of operations or liquidity of the Company. The more
significant of these matters are described below.
Buck Mine Complex. This is a proceeding involving a large site, located in
Caspian, Michigan, called the Buck Mine Complex, two discrete portions of which
were formerly owned or operated by a subsidiary of the Company. This subsidiary
was subsequently merged into the Company. The Company received a notice of
potential liability from the MDEQ with respect to this site on June 24, 1992.
The Company's subsidiary had conducted mining operations at only one of these
two parcels and had leased the other parcel to a mining company for numerous
years. The MDEQ alleges that this site discharged and continues to discharge
heavy metals into the environment, including the Iron River. Because the Company
and approximately eight other PRPs have declined to undertake a remedial
investigation and feasibility study, the MDEQ has advised the Company that it
will undertake the investigation at this site and charge the costs thereof to
those parties ultimately held responsible for the cleanup. The Company does not
have complete information regarding the relationship of the other PRPs to the
site, does not know the extent of the contamination or of any cleanup that may
be required and, consequently, is unable to estimate its potential liability, if
any, in connection with this site.
Ilada Energy Company Site. The Company and certain other PRPs have performed a
removal action pursuant to an order issued by the United States Environmental
Protection Agency ("EPA") under Section 106 of CERCLA at this waste oil/solvent
reclamation site located in East Cape Girardeau, Illinois. The Company received
a special notice of liability with respect to this site on December 21, 1988.
The Company believes that there are approximately 63 PRPs identified at such
site. Pursuant to an Administrative Order on Consent ("AOC"), the Company and
other PRPs performed a remedial investigation and feasibility study ("RI/FS") at
this site to determine whether the residual levels of contamination of soil and
groundwater remaining after the removal action pose any threat to either human
health or the environment and therefore whether or not the site will require
further remediation. The PRPs submitted a draft RI/FS to EPA and the Illinois
Environmental Protection Agency ("IEPA") and responded to the agencies' comments
on that document. Discussions between the PRPs and the agencies are ongoing. In
the course of performance of the RI/FS, a floating layer of material was
discovered above the groundwater. The Company's position, which was recently
sustained by both EPA and IEPA, is that this material is bulk aviation fuel and
is not considered to be a hazardous substance as defined under CERCLA. Due to
legal and factual uncertainties remaining at this site, the Company is unable to
estimate its ultimate potential liability. To date, the Company has paid
approximately $2 million for work and oversight costs.
14
Iron River (Dober Mine) Site. On July 15, 1994, the State of Michigan filed a
complaint in the Circuit Court for Ingham County, Michigan against M.A. Hanna
Company ("M.A. Hanna") seeking response costs in the amount of approximately
$365,000, natural resource damages in the amount of approximately $2 million and
implementation of additional response activities related to an alleged discharge
in Iron County, Michigan, to the Iron and Brule Rivers of acid mine drainage.
The State subsequently revised its response costs claim upward to approximately
$487,000 and its natural resources damages claim upward to $4,600,000. Under the
applicable statute, the State is also entitled to recover its attorneys' fees
and litigation costs if it prevails. M.A. Hanna operated the Dober Mine pursuant
to a management agreement with the Company. M.A. Hanna has requested that the
Company defend and indemnify it and the Company has undertaken the defense of
the State's claim. The Company, however, reserved the right to terminate such
defense. The Company filed on behalf of M.A. Hanna an answer to the complaint
denying liability at this site. On September 21, 1994 and November 9, 1994,
respectively, the Company filed a third party complaint and an amended third
party complaint naming a total of seven additional defendants. Additionally, on
November 15, 1994, the Company negotiated a case management order with the State
pursuant to which the court must rule on liability issues prior to addressing
other aspects of the case. That order also stays the third party actions pending
the court's decision regarding the liability issues. Subsequently, the court
denied the Company's motion for summary disposition of the liability issues in
the case. After some discovery, the court entered an order in November 1996
staying any further proceedings in this case while the Company engages in
settlement negotiations with the State and some of the third party defendants.
These settlement negotiations are ongoing.
Port of Monroe Site. In February 1992, the Company received a notice of
potential liability from the MDEQ as a generator of waste materials at this
landfill located in Monroe County, Michigan. The Company believes that there are
approximately 80 other PRPs identified at this site. The Company's records
indicate that it sent some material to the landfill. A draft RI/FS for
remediation work has been prepared by the owner/operator PRPs and submitted to
the MDEQ for its approval. The cost of this RI/FS was approximately $280,000. In
March 1994, the MDEQ demanded reimbursement from the PRPs for its past and
future response costs. The MDEQ has since agreed to accept $500,000 as
reimbursement for its past response costs incurred through October 1993. This
settlement has been embodied in a consent decree. The owner/operators of this
site and certain of the generator/transporter PRPs (including the Company) have
reached an agreement regarding an interim allocation that will generate
sufficient funds to satisfy the PRPs' obligations under the above-described
settlement with the MDEQ. The Company's share under this interim allocation is
approximately $50,000, which amount has been paid to the State. The
owner/operator PRPs have advised the Company orally that the overall cost of the
remedy for the site is expected to be less than $10 million. However, the
Company does not yet have sufficient information regarding the nature and extent
of contamination at the site and the nature and extent of the wastes that the
other PRPs have sent to the site to determine whether the $10 million estimate
is accurate. Based on currently available information, the Company believes that
its proportionate share of the ultimate liability at this site will be no more
than 10% of the total costs.
Rasmussen Site. The Company and nine other PRPs have entered into a Consent
Decree with the EPA in connection with this disposal site located in Livingston,
Michigan. The Company received a general notice of liability with respect to
this site on September 27, 1988. The Company believes that there are
approximately 23 PRPs at this site. A record of decision selecting the final
remedial action for this site was issued by the EPA in March 1991. The PRP
steering committee has estimated that remediation costs are approximately $19.7
million. Pursuant to a participation agreement among the PRPs, the Company's
share of such costs is 2.25%. Therefore, the Company's share of liability should
be approximately $443,000. To date, the Company has paid approximately $275,000
of that amount.
Springfield Township Site. This is a proceeding involving a disposal site
located in Springfield Township, Davisburg, Michigan in which approximately 22
PRPs have been identified. The Company received a general notice of liability
with respect to this site on January 23, 1990. The Company and 11 other PRPs
have entered into AOCs with the EPA for the performance of partial removal
actions at such site and reimbursement of past response costs to the EPA. The
Company's share of costs under the AOCs was
15
$48,000. On November 10, 1993, the EPA issued a unilateral order pursuant to
Section 106 of CERCLA requiring the PRP steering committee to implement the
groundwater portion of the final remedy. The members of the PRP steering
committee have entered into an agreement among themselves for the implementation
of this unilateral order. Subject to a final determination by the EPA as to what
must be included, a preliminary estimate by the PRP steering committee of the
cost of such work is approximately $300,000. Additionally, the PRP steering
committee and the MDEQ have negotiated an AOC pursuant to which the MDEQ will be
reimbursed approximately $700,000 for its past response costs incurred through
July 1993. The Company has paid its share of this settlement amount, which was
approximately $11,000. The PRPs are currently negotiating with the EPA regarding
the final remedial action at this site. The EPA and the PRP steering committee
had originally estimated the cost to implement the final remedy at approximately
$33 million and $20 million, respectively. Based upon this overall cost
estimate, the Company had offered to pay $175,000 as its share of the costs to
implement the final remedy. A proposed amendment to the Record of Decision has
been submitted to the EPA which would allow greater post-remediation
concentrations of PCBs to remain in the subsurface soil, and discussions
relating to this amendment are ongoing. If approved by the EPA, the cost range
for implementation of the final remedy would be between $3.3 million and $12.2
million. Settlement discussions among the various PRPs are also ongoing, and a
tentative settlement has been reached. If that settlement is ultimately accepted
by all parties, the Company's share of the remediation costs would be less than
the Company's original $175,000 settlement offer.
Waste, Inc. Site. On December 30, 1994, the EPA notified the Company's Midwest
Division that it was a PRP with respect to a site located in Michigan City,
Indiana known as the Waste, Inc. Landfill Site. The EPA's correspondence noted
that the Company may have contributed only a small amount of waste to this site
and that the Company may be a de minimis PRP. The EPA has informed the Company
that there are approximately 25 non de minimis PRPs, as well as approximately
200 de minimis PRPs, at this site. The EPA has estimated the cost of the remedy
at this site to be between $16 and $16.5 million. The Company has been advised
that EPA issued a Section 106 Unilateral Order to some non-de minimis PRPs to
implement the remedy and that EPA is continuing to negotiate with those PRPs the
terms of a buyout which EPA will ultimately offer to the de minimis parties,
including the Company. When those negotiations are complete, EPA intends to
initiate settlement negotiations with the de minimis PRPs.
FOX Sites
Remediation costs incurred by the Company at the following sites constitute
environmental liabilities for which FOX has agreed to indemnify the Company. In
accordance with the terms of an agreement between the Company and FOX, in
January 1994, FOX paid the Company $10 million as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
FOX had previously agreed to indemnify the Company. FOX retained responsibility
to indemnify the Company for any remaining environmental liabilities arising
before such prepayment or arising after such prepayment and in excess of $10
million. However, the failure of FOX to satisfy any such indemnity obligations
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 obligation is necessarily dependent upon FOX's financial
condition at the time of any claim with respect to such obligations. FOX is
subject to the informational requirements of the Exchange Act and, in accordance
therewith, files reports and other information with the Commission. See
"Environmental Matters" in Item 1 of this Form 10-K.
Buckeye Site. The EPA has notified the Company that it is one of a number of
PRPs with respect to the Buckeye Site located in Belmont County, Ohio, and has
requested the Company's voluntary participation in certain remedial actions. The
Company and thirteen other PRPs have entered into a consent order with the EPA
to perform collectively the remedial design pursuant to an AOC between the PRP
group and the EPA which took effect on February 10, 1992. The Company's
allocated share for the remedial design, as established by a participation
agreement for the remedial design executed by the PRPs, is 4.63% for the first
$1.6 million and 5.05% thereafter. The EPA and the PRP steering committee have
estimated the total cost for the remedial design phase to be approximately $3
million. The EPA's proposed remediation
16
activities with respect to the site are estimated to cost approximately $25
million. The PRPs are currently negotiating with EPA to reduce the scope of the
remedy at the site and, therefore, the ultimate cost of remediation at this site
cannot be estimated. In March 1994, the Company was served with a copy of a
complaint filed in Federal District Court for the Southern District of Ohio,
located in Columbus, Ohio, by Consolidation Coal Company, a former owner and
operator of the site. Among other claims, the complaint seeks participation from
the Federal Abandoned Mine Reclamation Fund, joinder of certain public entities,
one of which delivered waste to the site, and damages and indemnity from current
owners of the site. One count of the complaint names the Company and nine other
industrial PRPs and seeks a determination of the allocation of responsibility
among the alleged industrial generators involved with the site. On June 27, 1996
the Company entered into a Settlement Agreement with Consolidated Coal Company,
Allegheny Ludlum Corporation, USX Corporation, Beazer East, Inc., SKF USA, Inc.,
Ashland, Inc., Aristech Chemical Corporation and the Pullman Company which
resolved the litigation brought by Consolidated Coal Company with respect to the
Buckeye Site. Under the terms of the settlement, the Company has agreed to pay
2.8 percent of the response costs associated with the Buckeye Site. The
Settlement Agreement is contingent upon the Court's approval and entry of a
Consent Decree with EPA.
Weirton Steel - Browns Island. In January 1993, the Company was notified that
the West Virginia Division of Environmental Protection ("WVDEP") had conducted
an investigation on Brown's Island, Weirton, West Virginia which was formerly
owned by the Company's Weirton Steel Division and is currently owned by Weirton
Steel Corporation ("WSC"). The WVDEP alleged that samples taken from four
groundwater monitoring wells located at this site contained elevated levels of
contamination. WVDEP informed WSC that additional investigation, possible
groundwater and soil remediation, and on-site housecleaning were required at the
site. WSC has spent approximately $210,000 to date on remediation of an
emergency wastewater lagoon located on Brown's Island. WSC has sought
reimbursement of that amount and is likely to seek reimbursement of any
additional remediation costs involving the lagoon from the Company. The Company
paid the $210,000 to WSC in February, 1997 and FOX has reimbursed the Company
for that amount. In addition, assuming a site accepts the waste material,
additional sums will be spent on disposal and backfilling. The WVDEP may require
additional investigation or remediation at the Brown's Island facility in the
future. In addition, WSC agreed to a three-year groundwater monitoring program
of the Brown's Island facility. The Company receives copies of the results of
that groundwater monitoring program. To date, no groundwater remediation has
been required, and the Company cannot yet determine if remediation will be
required in the future.
Weirton Steel - EPA Order. On September 16, 1996, EPA issued an administrative
unilateral order under the Resource Conservation and Recovery Act ("RCRA"),
requiring WSC to undertake certain investigative activities with regard to
cleanup of possible environmental contamination on Weirton Steel property. WSC
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 WSC considers these areas to be within
the scope of certain indemnity provisions of the Assignment and Assumption
Agreement between WSC and the Company. At this time, the Company is unable to
determine the cost of the activities resulting from the EPA's unilateral order
or the extent to which those activities will result in an indemnity obligation
on the part of the Company.
Tex-Tin Site. On or about August 12, 1996 Amoco Chemical Company ("Amoco")
filed a cost recovery and contribution civil suit pursuant to CERCLA Sections
107 and 113(f) 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 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 costs 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 at the Tex-Tin site at this time, although waste-in lists indicate
that the Company's former Weirton Steel Division sent less than 1 percent of the
waste identified at the site.
17
Other Environmental Matters
The Company and its subsidiaries have been conducting steel manufacturing and
related operations at numerous locations, including their present facilities,
for over sixty years. Although the Company believes that it has utilized
operating practices that were standard in the industry at the time, hazardous
materials may have been released on or under these currently or previously owned
sites. Consequently, the Company potentially may also be required to remediate
contamination at some of these sites. The Company does not have sufficient
information to estimate its potential liability in connection with any potential
future remediation. However, based on its past experience and the nature of
environmental remediation proceedings, the Company believes that if any such
remediation is required, it will occur over an extended period of time.
In addition to the aforementioned proceedings, the Company is or may be involved
in proceedings with various regulatory authorities which may require the Company
to pay various fines and penalties relating to violations of environmental laws
and regulations, comply with applicable standards or other requirements or incur
capital expenditures to add or change certain pollution control equipment or
processes. These proceedings are described below:
Granite City Division - Alleged Air Violations. On or about March 2, 1995, the
Company received Notices of Violation ("NOVs") and Findings of Violation
("FOVs") issued by the EPA covering alleged violations of various air emission
requirements at the Granite City Division basic oxygen furnace shop, coke oven
batteries and by-products plant. On or about February 6, 1996, the EPA filed an
administrative complaint proposing a penalty assessment of approximately
$125,000 with respect to the alleged violations at the coke oven battery and the
by-products plant. The Company responded by requesting an administrative hearing
to resolve outstanding legal and factual issues and also requested an informal
settlement conference. EPA also issued to the Company a Request for Information
under the Clean Air Act pursuant to which the Company was required to, and did,
conduct visible emission observations at the stack of the basic oxygen furnace
shop through June 30, 1996.
Great Lakes Division - Coke Oven By-Products Plant. On or about February 24,
1997, the Company received an FOV issued by the EPA that alleges certain
violations of labeling, equipment and monitoring requirements at the Great Lakes
Division Coke Oven By-Products Plant. No demand for penalties or sanctions was
set forth in the FOV. A conference has been scheduled with the EPA to discuss
the allegations.
Great Lakes Division - Multimedia Inspection. Representatives from the EPA
National Enforcement Investigation Center ("NEIC") conducted a two-week,
multimedia inspection of the Company's Great Lakes facility in April 1996.
Similar NEIC investigations have been conducted at other industrial facilities
over the past year, including a significant number in the iron and steel
industry. At the close of the inspection, the NEIC presented a preliminary list
of enforcement issues and questions. The Company is in the process of evaluating
the NEIC's preliminary findings and has taken action to address a number of the
issues.
Great Lakes Division - Opacity Notice of Violation. The EPA issued an NOV to
the Company's Great Lakes Division on or about August 28, 1995, alleging
violations of specified opacity regulations at the Division's A blast furnace
and basic oxygen furnace shop. The Company requested a conference with EPA,
which was held on September 25, 1995. No demand or proposal for penalties or
other sanctions was contained in the NOV.
Great Lakes Division Outfalls Proceedings. The United States Coast Guard
("USCG") has issued or proposes to issue a number of penalty assessments with
respect to alleged oil discharges at certain outfalls at the Company's Great
Lakes Division facility. The Company has appealed many of the USCG's
determinations, has paid amounts in settlement of a few, and is engaged in
settlement discussions with respect to the others. The Company believes that its
aggregate exposure with respect to these proposed penalty assessments is not
expected to exceed $500,000.
18
The MDEQ, in April 1992, notified the Company of a potential enforcement action
alleging approximately 63 exceedances of limitations at the outfall at the 80-
inch hot strip mill. In July 1994, the MDEQ requested that the Company submit a
comprehensive plan for addressing oil discharges from the 80-inch hot strip
mill. The Company submitted the proposed plan in August 1994, and the plan was
fully implemented by February 1995. The Company has proposed to MDEQ that it
will perform a preliminary engineering and treatability study with respect to
alternate control systems while it simultaneously evaluates the effectiveness of
the comprehensive plan. Under this proposal, the Company would continue with the
installation of alternate control systems only if the comprehensive plan proved
to be unsuccessful. By letter dated June 28, 1995, the MDEQ accepted the
Company's proposal and, by subsequent correspondence, proposed a one year
demonstration period commencing on July 15, 1995, which has since been
completed. By letter of May 28, 1996, the MDEQ sent the Company a draft consent
order to address compliance issues at the 80-inch hot strip mill. Subsequently,
on June 17, 1996, representatives of the Company, the MDEQ and the USCG met to
discuss settlement. At that meeting, the Company presented evidence that no
further control equipment is necessary at the 80-inch hot strip mill.
Additionally, at this meeting, the MDEQ made an initial penalty demand of
$350,000. Settlement negotiations are ongoing. In the event that the Company's
comprehensive plan were to prove unsuccessful in addressing the MDEQ's concerns,
the cost of installation of alternative control systems would be approximately
$13 million.
On February 5, 1997, the State of Michigan filed a complaint in the Circuit
Court for the 30th Judicial District, Ingham County, Michigan, against the
Company's Great Lakes Division alleging approximately 75 violations of
limitations contained in two NPDES water discharge permits covering the Zug
Island and Main Plant facilities. The complaint seeks (i) to enjoin the Company
from discharging substances into the water in violation of Michigan law, (ii)
fines of not less than $2,500 and not more than $25,000 per day of violation,
and (iii) attorneys fees and costs incurred by the State. Settlement discussions
are ongoing.
Great Lakes Division - Wayne County Air Pollution Control Department. Since
January 1992, the Wayne County Air Pollution Control Department ("Wayne County")
has issued approximately 109 NOVs to the Company in connection with alleged
exceedances of emission standards and work practice standards covering various
process and fugitive emission sources at the Company's Great Lakes Division.
Wayne County and the Company currently have negotiated a consent order to
resolve approximately 68 of these NOVs. Pursuant to the terms of the consent
order, the Company has paid a $250,000 penalty and will implement an
environmental credit program valued at $250,000. The consent order was executed
by the parties and was effective December 15, 1996. There has been no activity
with respect to the other 41 NOVs.
National Mines Corporation - Isabella Mine. National Mines Corporation ("NMC"),
a wholly-owned subsidiary of the Company, previously owned and operated a coal
mine and coal refuse disposal area in Pennsylvania commonly known as the
Isabella Mine. The area covered under NMC's mining permit was approximately 140
acres. A reclamation bond in the amount of $1,200,000 was held by the
Pennsylvania Department of Environmental Resources ("DEP") for that area. NMC
subsequently ceased coal refuse disposal and mining operations at the site and
reclaimed the disposal areas. In June 1993, NMC sold the Isabella property to
Global Coal Recovery, Inc. ("Global"), a coal refuse reprocessor. Global applied
for and received a new mining permit from DEP for a total area of about 375
acres, including acreage previously covered under NMC's permit. As part of the
terms of sale, NMC agreed to allow Global to use NMC's $1,200,000 reclamation
bond as security to obtain the new permit from the DEP. Global was obligated to
repay NMC the $1,200,000. Global assumed all environmental liability associated
with the Isabella Mine as part of the transaction.
Subsequent to the sale of the Isabella Mine to Global, Global extracted coal
from a refuse pile at the mine, and in doing so, disturbed reclamation work NMC
had previously performed. Global was ultimately unable to profitably operate the
Isabella Mine at a profit and subsequently defaulted on its agreements to NMC.
Global and its contractors abandoned the site in October 1995. The DEP
subsequently took enforcement actions against Global and its contractors for
unabated discharges of mine drainage as well as other violations associated with
reclamation obligations at the Isabella site. The enforcement actions were
unsuccessful in eliminating the environmental violations at the site. On August
13, 1996, the DEP revoked the mining permit
19
for the Isabella Mine held by Global. Additionally, on November 1, 1996, the DEP
issued a notice of forfeiture with respect to the $1,200,000 reclamation bond
posted by NMC. NMC has appealed this forfeiture to the Environmental Hearing
Board. NMC has presented DEP with a plan pursuant to which NMC would perform
reclamation of the site, in lieu of the forfeiture of the bond. Negotiations 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 alleging (i) releases to the environment
between 1990 and 1996; (ii) violations of solid waste requirements; and (iii)
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 responded to the Notice on
December 4, 1996. Discussions between the Company and IEPA are ongoing.
In connection with certain of these proceedings, the Company has only commenced
investigation or otherwise does not have sufficient information to estimate its
potential liability, if any. Although the outcomes of the proceedings described
above or any fines or penalties that may be assessed in any such proceedings, to
the extent that they exceed any applicable reserves, could have a material
adverse effect on the Company's results of operations and liquidity for the
applicable period, the Company does not believe that any such outcomes, fines or
penalties, whether considered individually or in the aggregate, will have a
material adverse effect on the Company's financial condition. The Company's
accrued environmental liabilities at December 31, 1996 and December 31, 1995
were $21.6 million, and $18.6 million, respectively.
20
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1996.
21
Executive Officers of the Registrant
The following sets forth certain information with respect to the executive
officers of the Company. Executive officers are elected by the Board of
Directors of the Company generally, at the first meeting of the Board after each
annual meeting of stockholders. Officers of the Company serve at the discretion
of the Board of Directors and are subject to removal at any time.
Osamu Sawaragi, Chairman of the Board and Chief Executive Officer. Mr.
Sawaragi, age 68, has been a Director of the Company since June 1990 and was
elected Chairman in 1994. In August 1996, Mr. Sawaragi was appointed to the
position of Chief Executive Officer. Prior thereto he was employed by NKK as a
Director beginning in 1984, Managing Director in 1986, Senior Managing Director
in 1989, Executive Vice President from 1990 to 1994 and Senior Counsel from 1994
to 1996.
John A. Maczuzak, President and Chief Operating Officer. Mr. Maczuzak, age 55,
joined the Company as Vice President and General Manager - Granite City Division
in May 1996. He was appointed Executive Vice President and Acting Chief
Operating Officer in August 1996. On December 10, 1996 Mr. Maczuzak was
appointed to his present position. Mr. Maczuzak was formerly employed by ProTec
Coating Company as General Manager and has more than 31 years of broad based
experience in the steel industry.
Hiroshi Matsumoto, Executive Vice President, Corporate Planning and
Development. Mr. Matsumoto, age 45, joined the Company as Vice President and
Assistant to the Chief Operating Officer in June 1994, following eighteen years
with NKK. In July 1995, Mr. Matsumoto was appointed Vice President - Business
and Strategic Planning. He was appointed to his present position in February
1996. Mr. Matsumoto served as manager of NKK's corporate planning department
from 1982 to 1986. For the following three years, he was a guest fellow at The
Brookings Institution, lecturing on "The Trade Balance Between Japan and the
United States-Problems and Solutions." In 1989 he was appointed to serve as the
first senior representative in the Washington D.C. office of NKK's American
subsidiary, NKK America Inc.
Bernard D. Henely, Senior Vice President and General Counsel. Mr. Henely, age
53, joined the Company as Vice President and General Counsel in September 1995.
He was appointed to his present position in February 1996. Mr. Henely was
formerly employed by Clark Equipment Company for over twenty-five years, where
he served as Vice President and General Counsel from 1984 to 1995.
George D. Lukes, Jr., Senior Vice President - Quality Assurance, Technology
and Production Planning. Mr. Lukes, age 50, joined the Company in June 1994 to
fill the newly created position of Vice President-Quality Assurance and Customer
Satisfaction. He was appointed to his present position in February 1996. Mr.
Lukes had previously been employed by U.S. Steel since 1968. He served in a
succession of process, product and administrative metallurgical posts before
being appointed Manager-Quality Assurance at U.S. Steel's Fairless Works in
1983.
David A. Pryzbylski, Senior Vice President - Administration and Secretary. Mr.
Pryzbylski, age 47, joined the Company in June 1994 as Vice President-Human
Resources and Secretary. He was appointed to his present position in February
1996. Mr. Pryzbylski had previously been employed by U.S. Steel since 1979. He
held a number of management positions at steel and mining operations, serving
since 1987 as Senior Human Resource Manager at its Gary Works facility.
22
David L. Peterson, Group Vice President - Regional Operations. Mr. Peterson,
age 46, joined the Company in June 1994 as Vice President and General Manager -
Great Lakes Division. In January 1997 he was appointed to the position of Group
Vice President - Regional Operations which includes the Great Lakes and the
Midwest Divisions. Mr. Peterson had formerly been employed by U.S. Steel since
1971. He was promoted to the plant manager level at U.S. Steel in 1988 and
directed all operating functions from cokemaking to sheet and tin products. In
1988 he was named Plant Manager - Primary Operations at U.S. Steel's Gary Works
facility.
Robert G. Pheanis, Vice President and General Manager - Midwest Division. Mr.
Pheanis, age 61, joined the Company in June 1994 as Vice President and General
Manager - Midwest Division. Mr. Pheanis formerly served in various management
positions at U.S. Steel at the Gary Works facility for 35 years and in 1992 was
named its Plant Manager - Finishing Operations, with responsibility for its
total hot rolled, sheet and tin operations.
James H. Squires, Vice President and General Manager - Granite City Division.
Mr. Squires, age 58, began his career with the Company in 1956 as a laborer in
the blast furnace area and went on to hold numerous positions as an hourly
worker. In 1964, he accepted a salaried position and advanced through the
operating organization. In October 1996, Mr. Squires was appointed to his
current position.
Joseph R. Dudak, Vice President, Strategic Sourcing. Mr. Dudak, age 49, began
his career with the Company as an engineer at the Midwest Division in 1970. In
1973, he moved to the Granite City Division and served as Superintendent of
Energy Management & Utilities from 1977 until moving to corporate headquarters
in 1981. He served as Director of Energy & Environmental Affairs from 1981 to
1994, when he was appointed to his present position.
William E. Goebel, Vice President, Marketing and Sales. Mr. Goebel, age 57,
joined the Company in 1968 following employment with Morgan Guaranty Trust
Company and Bethlehem Steel Corporation. After assignments in the Company's New
York and Philadelphia district sales offices, he moved to the Great Lakes
Division as a Product Manager-Cold Rolled in 1979. He transferred to the
corporate marketing and sales department in 1981, holding a succession of
management posts before assuming the Company's top marketing and sales post in
1993.
William E. McDonough, Acting Chief Financial Officer and Treasurer. Mr.
McDonough, age 38, began his career with the Company in 1985 in the financial
department. He has held various positions of increasing responsibility including
Assistant Treasurer and Manager, Treasury Operations and was promoted to
Treasurer in December 1995. In July 1996, Mr. McDonough was appointed Acting
Chief Financial Officer.
Carl M. Apel, Controller. Mr. Apel, age 41, joined the Company in 1986. Mr.
Apel has served in various management capacities of increasing responsibility
within the Company's financial organization including Manager, General
Accounting and Internal Control at the Company's Midwest Division prior to being
promoted to Controller in 1992.
23
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this item is included on page 42 of the registrant's
Annual Report to the Shareholders for the fiscal year ended December 31, 1996
and is incorporated herein by reference.
ITEM 6. Selected Financial Data
The information required by this item is included on page 16 of the registrant's
Annual Report to the Shareholders for the fiscal year ended December 31, 1996
and is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is included on pages 17 through 21 of the
registrant's Annual Report to the Shareholders for the fiscal year ended
December 31, 1996 and is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information required by this item is included on pages 22 through 40 of the
registrant's Annual Report to the Shareholders for the fiscal year ended
December 31, 1996 and is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
24
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference from the
section captioned "Executive Officers" in Part I of this report and from the
sections captioned "Information Concerning Nominees for Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference from the
sections captioned "Executive Compensation", "Summary Compensation Table",
"Stock Option Tables", "Option Grants in 1996", "Aggregated Option Exercises in
1996 and December 31, 1996 Option Values", "Pension Plans", "Pension Plan
Table", "Employment Agreements" and "Compensation of Directors" in the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders. With the exception
of the information specifically incorporated by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report for purposes of this
Item.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the
sections captioned "Security Ownership of Directors and Management" and
"Additional Information Relating to Voting Securities" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders. With the exception of the
information specifically incorporated by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report for purposes of this
Item.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
section captioned "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
25
PART IV
ITEMS 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report:
The following is an index of the financial statements, schedule and exhibits
included in this Report or incorporated herein by reference.
(1) Financial Statements
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
Page
----
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 ................................... *
Consolidated Balance Sheets as of December 31, 1996, and
December 31, 1995 .................................................. *
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 ................................... *
Consolidated Statements of Shareholders' Equity and
Redeemable Preferred Stock -Series B for the years
ended December 31, 1996, 1995 and 1994 ............................. *
Notes to Consolidated Financial Statements (Including
Quarterly Financial Data) .......................................... *
(2) Consolidated Financial Statement Schedule
The following consolidated financial statement schedule of National Steel
Corporation and Subsidiaries is filed as a part of this Report:
Schedule II -- Valuation and Qualifying Accounts and
Reserves, years ended December 31, 1996, 1995 and 1994 ............. F-1
* Incorporated in Item 8 of this Report by reference from pages 22 to 40,
inclusive, of the Company's 1996 Annual Report to Stockholders referred to below
which pages are filed with this Report as Exhibit 13. With the exception of
those pages, the 1996 Annual Report to Stockholders is not to be deemed filed as
part of this Report for purposes of this Item. The Schedule listed above should
be read in conjunction with the consolidated financial statements in such 1996
Annual Report to Stockholders.
Schedules not included have been omitted because they are not applicable or
the required information is shown in the consolidated financial statements or
notes thereto.
26
Separate financial statements of subsidiaries not consolidated and 50
percent or less owned persons accounted for by the equity method have been
omitted because considered in the aggregate as a single subsidiary they do not
constitute a significant subsidiary.
(3) Exhibits
See the attached Exhibit Index. Items 10-N, 10-O, 10-P, 10-CC, 10-DD, 10-EE, 10-
FF, 10-GG, 10-HH, 10-II, 10-KK, 10-LL and 10-MM are management contracts or
compensatory plans or arrangements.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1996, no reports on Form 8-K were
filed by the Company.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Mishawaka, State
of Indiana, on March 14, 1997.
NATIONAL STEEL CORPORATION
By: /s/ William E. McDonough
--------------------------------------------
William E. McDonough
Acting Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in the
capacities indicated on March 14, 1997.
Name Title
---- -----
/s/ Osamu Sawaragi Director; Chairman of the Board and Chief
- ------------------------- Executive Officer
Osamu Sawaragi
/s/ Kenichiro Sekino Director
- -------------------------
Kenichiro Sekino
/s/ Yoshiharu Onuma Director
- -------------------------
Yoshiharu Onuma
/s/ Frank J. Lucchino Director
- -------------------------
Frank J. Lucchino
/s/ Bruce K. MacLaury Director
- -------------------------
Bruce K. MacLaury
/s/ Keiichiro Sakata Director
- -------------------------
Keiichiro Sakata
/s/ Susumu Terao Director; Director of Finance
- -------------------------
Susumu Terao
/s/ William E. McDonough Acting Chief Financial Officer and Treasurer
- -------------------------
William E. McDonough
/s/ Carl M. Apel Controller
- ------------------------
Carl M. Apel
28
Exhibit Index
Except for those exhibits which are incorporated by reference, as indicated
below, all exhibits are being filed along with this Form 10-K.
Exhibit
Number Exhibit Description
- ------ -------------------
2-A Assets Purchase Agreement between Weirton Steel Corporation and the
Company, dated as of April 29, 1983, together with collateral
agreements incident to such Assets Purchase Agreement, filed as
Exhibit 2-A to the annual report of the Company on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference.
2-B Stock Purchase Agreement by and among NKK Corporation, National
Intergroup, Inc. and the Company, dated August 22, 1984, together with
certain collateral agreements incident to such Stock Purchase
Agreement and certain schedules to such agreements, filed as Exhibit
2-B to the annual report of the Company on Form 10-K for the year
ended December 31, 1995, is incorporated herein by reference.
2-C Stock Purchase and Recapitalization Agreement by and among National
Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A.
Corporation and the Company, dated as of June 26, 1990, filed as
Exhibit 2-C to the annual report of the Company on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference.
2-D Amendment to Stock Purchase and Recapitalization Agreement by and
among, National Intergroup, Inc., NII Capital Corporation, NKK
Corporation, NKK U.S.A. Corporation and the Company, dated July 31,
1991, filed as Exhibit 2-F to the annual report of the Company on Form
10-K, for the year ended December 31, 1991, is incorporated herein by
reference.
3-A The Sixth Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
3-B Form of Amended and Restated By-laws of the Company.
4-A NSC Stock Transfer Agreement between National Intergroup, Inc., the
Company, NKK Corporation and NII Capital Corporation dated December
24, 1985, filed as Exhibit 4-A to the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
4-B Certificate of Designation of Series A Preferred Stock dated June 26,
1990, filed as Exhibit 4-B to the annual report of the Company on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
4-C Certificate of Designation of Series B Preferred Stock dated June 26,
1990, filed as Exhibit 4-C to the annual report of the Company on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
29
4-D The Company is a party to certain long term debt agreements where the
amount involved does not exceed 10% of the Company's total assets. The
Company agrees to furnish a copy of any such agreement to the
Commission upon request.
10-A Amended and Restated Lease Agreement between the Company and
Wilmington Trust Company, dated as of December 20, 1985, relating to
the Electrolytic Galvanizing Line, filed as Exhibit 10-A to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-B Lease Agreement between The Connecticut National Bank as Owner Trustee
and Lessor and National Acquisition Corporation as Lessee dated as of
September 1, 1987 for the Ladle Metallurgy and Caster Facility located
at Ecorse, Michigan, filed as Exhibit 10-B to the annual report of the
Company on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10-C Lease Supplement No. 1 dated as of September 1, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as the Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-C to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-D Lease Supplement No. 2 dated as of November 18, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-D to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-E Purchase Agreement dated as of March 25, 1988 relating to the Stinson
Motor Vessel among Skar-Ore Steamship Corporation, Wilmington Trust
Company, General Foods Credit Investors No. 1 Corporation, Stinson,
Inc. and the Company, and Time Charter between Stinson, Inc. and the
Company, filed as Exhibit 10-E to the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
10-F Amended and Restated Weirton Agreement dated June 26, 1990, between
National Intergroup, Inc., NII Capital Corporation and the Company,
filed as Exhibit 10-F to the annual report of the Company on Form 10-K
for the year ended December 31, 1991, is incorporated herein by
reference.
10-G Amended and Restated Weirton Liabilities Agreement dated July 31, 1991
between National Intergroup, Inc., NII Capital Corporation and the
Company, filed as Exhibit 10-H to the annual report of the Company on
Form 10-K for the year ended December 31, 1991, is incorporated herein
by reference.
10-H Put Agreement by and among NII Capital Corporation, NKK U.S.A.
Corporation and the Company, dated June 26, 1990, filed as Exhibit 10-
H to the annual report of the Company on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10-I Subordinated Loan Agreement dated May 8, 1991, between NUF Corporation
and the Company, filed as Exhibit 4-P to the annual report of the
Company on Form 10-K, for the year ended December 31, 1991, is
incorporated herein by reference.
10-J First Amendment to Subordinated Loan Agreement dated December 9, 1991,
between NUF Corporation and the Company, filed as Exhibit 4-Q to the
annual report of the Company on Form 10-K, for the year ended December
31, 1991, is incorporated herein by reference.
30
10-K Second Amendment to Subordinated Loan Agreement, dated December 29,
1992, between NUF Corporation and the Company, filed as Exhibit 10-S
to the annual report of the Company on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10-L Amended and Restated Loan Agreement, dated October 30, 1992, between
NUF Corporation and the Company filed as Exhibit 10-T to the annual
report of the Company on Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
10-M First Amendment to Amended and Restated Loan Agreement dated February
1, 1993, between NUF Corporation and the Company filed as Exhibit 10-U
to the annual report of the Company on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10-N 1993 National Steel Corporation Long-Term Incentive Plan, filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-O 1993 National Steel Corporation Non-Employee Directors' Stock Option
Plan, filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-57952, is incorporated herein by
reference.
10-P National Steel Corporation Management Incentive Compensation Plan
dated January 30, 1989, filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-Q Purchase and Sale Agreement, dated as of May 16, 1994 between the
Company and National Steel Funding Corporation, filed as Exhibit 10-A
to the quarterly report of the Company on Form 10-Q/A for the quarter
ended March 31, 1994, is incorporated herein by reference.
10-R Form of Indemnification Agreement.
10-S Shareholders' Agreement, dated as of September 18, 1990, among DNN
Galvanizing Corporation, 904153 Ontario Inc., National Ontario
Corporation and Galvatek America Corporation, filed as Exhibit 10.27
to the Company's Registration Statement on Form S-1, Registration No.
33-57952, is incorporated herein by reference.
10-T Partnership Agreement, dated as of September 18, 1990, among Dofasco,
Inc., National Ontario II, Limited, Galvatek Ontario Corporation and
DNN Galvanizing Corporation, filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-U Amendment No. 1 to the Partnership Agreement, dated as of September
18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek
Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit
10.29 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-V Agreement, dated as of February 3, 1993, among the Company, NKK, NKK
U.S.A. Corporation, NII and NII Capital Corporation, filed as Exhibit
10.30 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
31
10-W Second Amendment to Amended and Restated Loan Agreement dated May 19,
1993, between NUF Corporation and the Company, filed as Exhibit 10-EE
to the annual report of the Company on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10-X Agreement, dated as of May 19, 1993, among the Company and NKK Capital
of America, Inc., filed as Exhibit 10-FF to the annual report of the
Company on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
10-Y Receivables Purchase Agreement, dated as of March 16, 1994, between
the Company and National Steel Funding Corporation, filed as exhibit
10-A to the quarterly report of the Company on Form 10-Q/A for the
quarter ended June 30, 1994, is incorporated herein by reference.
10-Z Amendment Number One to the Receivables Purchase Agreement, dated as
of May 31, 1995, between the Company and National Steel Funding
Corporation, filed as exhibit 10-A to the quarterly report of the
Company on Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10-AA Third Amendment to Amended and Restated Loan Agreement dated August 2,
1995, between NUF Corporation and the Company, filed as exhibit 10-A
to the quarterly report on Form 10-Q for the quarter ended September
30, 1995, is incorporated herein by reference.
10-BB Agreement for the Transfer of Employees by and between NKK Corporation
and the Company, dated as of May 1, 1995, filed as Exhibit 10-CC to
the annual report of the Company on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10-CC Employment contract dated April 30, 1996 between National Steel
Corporation and V. John Goodwin, filed as Exhibit 10-A to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-DD Employment contract dated April 30, 1996 between National Steel
Corporation and Bernard D. Henely, filed as Exhibit 10-B to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-EE Employment contract dated April 30, 1996 between National Steel
Corporation and George D. Lukes, filed as Exhibit 10-C to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-FF Employment contract dated April 30, 1996 between National Steel
Corporation and David L. Peterson, filed as Exhibit 10-D to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-GG Employment contract dated December 11, 1996 between National Steel
Corporation and Robert G. Pheanis.
10-HH Employment contract dated April 30, 1996 between National Steel
Corporation and David A. Pryzbylski, filed as Exhibit 10-F to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-II Employment contract dated May 1, 1996 between National Steel
Corporation and John A. Maczuzak, filed as Exhibit 10-G to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
32
10-JJ 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, filed as
Exhibit 10-A to the quarterly report of the Company on Form 10-Q for
the quarter ended September 30, 1996, is incorporated herein by
reference.
10-KK Supplement to Employment contract dated July 30, 1996 between National
Steel Corporation and George D. Lukes, filed as Exhibit 10-B to the
quarterly report of the Company on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
10-LL Supplement to Employment contract dated July 30, 1996 between National
Steel Corporation and David L. Peterson, filed as Exhibit 10-C to the
quarterly report of the Company on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
10-MM Employment contract dated December 11, 1996 between National Steel
Corporation and Osamu Sawaragi.
10-NN Amendment No. 1 to Agreement for the Transfer of Employees by and
between the Company and NKK Corporation.
13 Portions of the Company's 1996 Annual Report to Stockholders which are
incorporated by reference into this Form 10-K.
21 List of Subsidiaries of the Company.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
33
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ---------------------------------- ----------- -------------
ADDITIONS
----------------------------------
Balance at Charged to
Beginning Charged to Other Accounts - Deductions - Balance at
Description of Period Costs and Expense Describe Describe End of Period
----------- ----------- ----------------- -------------- ----------- -------------
Year Ended December 31, 1996
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 19,986 $23,560 (1) $ ---- $22,226 (3) $ 21,320
Valuation allowance on deferred
tax assets 159,400 ---- (33,900) (2) ---- 125,500
Year Ended December 31, 1995
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 15,185 $21,046 (1) $ ---- $16,245 (3) $ 19,986
Valuation allowance on deferred
tax assets 208,000 ---- (48,600) (2) ---- 159,400
Year Ended December 31, 1994
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 21,380 $28,504 (1) $ ---- $34,699 (3) $ 15,185
Valuation allowance on deferred
tax assets 263,200 ---- (55,200) (2) ---- 208,000
NOTE 1 - Provision for doubtful accounts of $2,748, $4,854 and $(3,155) for
1996, 1995 and 1994, respectively and other charges consisting
primarily of claims for pricing adjustments and discounts allowed.
NOTE 2 - Represents the increase or (decrease) in the net deferred tax asset.
NOTE 3 - Doubtful accounts charged off, net of recoveries, claims and discounts
allowed and reclassification to other assets.
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