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1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997 or
[_]Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-11767
RYERSON TULL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3431962
(State of Incorporation) (I.R.S. Employer Identification No.)
2621 WEST 15TH PLACE, CHICAGO, 60608
ILLINOIS
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (773) 762-2121
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Class A Common Stock ($1.00 par New York Stock Exchange, Inc.
value),
including Preferred Stock Purchase
Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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. [X]
As of February 18, 1998 the aggregate market value of the voting stock of
the registrant held by non-affiliates of the registrant was approximately
$79,000,000.(1)
The number of shares of Class A and Class B Common Stock ($1.00 par value)
of the registrant outstanding as of February 18, 1998 was 5,279,096 and
34,000,000, respectively, of which all of the Class B Common shares were owned
by Inland Steel Industries, Inc. and not publicly traded.
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(1) Excluding stock held by directors and officers of registrant, without
admission of affiliate status of such individual for any other purpose;
also excluding Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Report on Form 10-K incorporate by reference certain
information set forth in Exhibit 99, "Financial Information (to be included in
the Annual Report to Shareholders for 1997)," which is attached hereto, and is
incorporated by reference herein. Part III of this Report on Form 10-K
incorporates by reference certain information from the registrant's definitive
Proxy Statement which will be furnished to stockholders in connection with the
Annual Meeting of Stockholders of the registrant scheduled to be held on May
27, 1998.
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<PAGE>
PART I
ITEM 1. BUSINESS.
Ryerson Tull, Inc. ("RT"), a Delaware corporation and a majority-owned
subsidiary of Inland Steel Industries, Inc. ("ISI"), is the sole stockholder
of Joseph T. Ryerson & Son, Inc. ("Ryerson") and J. M. Tull Metals Company,
Inc. ("Tull") (RT, Ryerson and Tull, together with their subsidiaries, are
collectively referred to herein as the "Company"). RT has a single business
segment, which is comprised of Ryerson and Tull, leading steel service,
distribution and materials processing organizations. RT also owns 50% of
Ryerson de Mexico, a joint venture general line metals service center and
processor with facilities in Mexico.
On February 13, 1997, RT, through Ryerson, purchased all of the outstanding
stock of Thypin Steel Co. Inc. ("Thypin") for $120 million in cash plus the
assumption of $23 million of debt. Thypin was a privately held distributor of
carbon and stainless steel products with seven locations in the eastern United
States. On March 3, 1997, RT, through Tull, acquired substantially all the
assets of Cardinal Metals, Inc. ("Cardinal"), a privately held distributor and
processor of carbon steel products with a single facility located in Pounding
Mill, VA. On August 22, 1997, RT, through Ryerson, purchased all of the
outstanding stock of Omni Metals, Inc. ("Omni"), a privately held processor
and distributor of flat-rolled carbon steel products with a facility in
Knoxville, TN. Thypin and Omni have subsequently been merged into Ryerson.
OPERATIONS
RT's materials distribution operations in the United States are conducted
through its operating subsidiaries--Ryerson and Tull. Ryerson, Tull and
Ryerson Coil Processing Company ("Ryerson Coil"), a specialized processing
unit of Ryerson, are organized into five business units along regional and
product lines. The Company believes that it is the largest metals service
center in the United States based on sales revenue, with 1997 sales of $2.8
billion and a current U.S. market share of approximately 10%, based on the
Company's analysis of data prepared by the Steel Service Center Institute
("SSCI"). The Company distributes and processes metals and other materials
throughout the continental United States, and is among the largest purchasers
of steel in the United States.
Joseph T. Ryerson & Son, Inc.
Ryerson, with business unit headquarters in Philadelphia, PA (Ryerson East),
Chicago, IL (Ryerson Central), and Tukwila, WA (Ryerson West), is a leading
materials distribution organization. With full-line service centers in 35
major cities, Ryerson is engaged in the nationwide sale of its products
through its own sales organization. Ryerson maintains heavy-duty shears,
slitters, precision cut-to-length lines, high-speed saws, flame-cutting
machines and other processing equipment for use in furnishing custom cutting
and miscellaneous shapes in accordance with customer orders. The Ryerson Coil
unit, headquartered in Chicago, IL, performs processing through five
facilities for customers who traditionally buy large quantities of sheet steel
products. Ryerson also markets plant equipment products through a wholesale
industrial catalog.
J. M. Tull Metals Company, Inc.
Tull is one of the largest distributors of metals in the southeastern United
States. Tull and its wholly-owned subsidiary, AFCO Metals, Inc. ("AFCO"),
operate 20 service centers and two processing facilities located throughout
the southeastern and south-central United States. Tull produces a variety of
metals products with value-added processing, including welded steel tubing and
roll-formed shapes. Tull's products are sold principally through its own sales
staff.
Ryerson de Mexico
RT also owns, indirectly, a 50% interest in Ryerson de Mexico, a joint
venture with Altos Hornos de Mexico, S.A. de C.V., an integrated steel mill
operating in Mexico. Ryerson de Mexico, which was formed in 1994, is a general
line metals service center and processor with 12 facilities in Mexico. The
impact of Ryerson de Mexico on the Company's results of operations has not
been material.
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INDUSTRY OVERVIEW
Primary steel producers typically sell steel in the form of standard-sized
coils, sheets, plate, structurals, bars and tubes and generally sell in large
volumes with long lead times for production and delivery. Other primary metals
producers, such as producers of stainless steel and aluminum, also typically
sell their products in large volumes with long lead times for production and
delivery. However, many customers seek to purchase metals with customized
specifications, including value-added processing, in smaller volumes, on
shorter lead times and with more reliable delivery than primary metals
producers are able to provide. Metals service centers act as intermediaries
between primary metals producers and customers by purchasing metals in a
variety of shapes and sizes from primary metals producers in large volumes,
allowing metals service centers to take advantage of producer economies of
scale resulting in lower costs of materials purchased, and engaging in a
variety of distribution and value-added processing operations to meet the
demands of specific customers. Because metals service centers purchase metals
from a number of primary producers, they can maintain a consistent supply of
various types of metal used by their customers. Most importantly, however,
metals service centers generally have lower fixed costs than primary metals
producers. By purchasing products from metals service centers, customers may
be able to lower their inventory levels, decrease the time between the
placement of an order and receipt of materials and reduce internal expenses,
thereby lowering their total cost of raw materials. The Company believes that
the increased prevalence of just-in-time inventory needs of manufacturers and
intermediate processors has made and will continue to make the value-added
inventory, processing and delivery functions performed by metals service
centers more important in the metals market.
The industry is cyclical (with periods of strong demand and higher prices
followed by periods of weaker demand and lower prices), principally due to the
cyclical nature of the industries in which the largest consumers of metals
operate. Any significant slowdown in one or more of those industries could
have a material adverse effect on the demand for metals, resulting in lower
prices for metals and reduced profitability for metals service centers,
including the Company. Metals prices and metals service center profitability
improve as metal-consuming industries experience recoveries following economic
downturns.
The industry is comprised of many companies, the majority of which have
operations limited as to product line and size of inventory, with customers
located in a specific geographic area. Based on SSCI data, the Company
believes that the industry is comprised of between 750 and 1,000 service
centers, operating out of approximately 2,000 locations and servicing
approximately 300,000 customers. The industry is highly fragmented, consisting
of a large number of small companies and a few relatively large companies.
Based on the Company's analysis of SSCI data, the industry handled
approximately 29 million tons or approximately 24.4% of the metals distributed
in the United States in 1997.
The industry is divided into three major groups: general line service
centers, specialized service centers and processing centers, each of which
targets different market segments. General line service centers handle a broad
line of metals products and tend to concentrate on distribution rather than
processing. General line service centers range in size from one location to a
nationwide network of locations. For general line service centers, individual
order size in terms of dollars and tons tends to be small relative to
processing centers, while the total number of orders is typically very high.
Specialized service centers focus their activities on a narrower range of
product and service offerings than general line companies. Such service
centers provide a narrower range of services to their customers and emphasize
product expertise and lower operating costs, while maintaining a moderate
level of investment in processing equipment. Processing centers typically
process large quantities of steel purchased from primary producers for resale
to large industrial customers, such as the automotive industry. Because orders
are typically large, operation of a processing center requires a significant
investment in processing equipment.
PRODUCTS AND SERVICES
The Company carries a full line of carbon steel, stainless steel and
aluminum, and a limited line of alloy steel, nickel, red metals and plastics.
These materials are inventoried in a number of shapes, including coils,
sheets, rounds, hexagons, square and flat bars, plate, structurals and tubing.
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The following table sets forth the Company's shipments (by percentage of
sales revenue) for 1995, 1996 and 1997 for each of the Company's major product
lines.
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES REVENUE
----------------
PRODUCT LINE 1995 1996 1997
------------ ---- ---- ----
<S> <C> <C> <C>
Stainless and aluminum.................................. 27% 26% 27%
Carbon flat rolled...................................... 24 27 27
Bars, tubing and structurals ........................... 22 22 20
Fabrication and carbon plate............................ 20 20 20
Other................................................... 7 5 6
--- --- ---
Total .............................................. 100% 100% 100%
=== === ===
</TABLE>
More than one-half of the materials sold by the Company is processed. The
Company uses techniques such as sawing, slitting, blanking, pickling, cutting
to length, leveling, flame cutting, laser cutting, edge trimming, edge
rolling, fabricating and grinding to process materials to specified thickness,
length, width, shape and surface quality pursuant to specific customer orders.
Among the most common processing techniques used by the Company are pickling,
a chemical process using an acidic solution to remove surface oxide, commonly
called "scale," from steel which develops after the steel is hot rolled;
slitting, which is cutting coiled metals to specified widths along the length
of the coil; leveling, which is flattening metals and cutting them to exact
lengths; and edge rolling, a process which imparts round or smooth edges.
Although the Company often uses third-party fabricators to outsource certain
limited processes that the Company is not able to perform internally,
outsourcing these processes does not affect a significant part of the
Company's operations or constitute a significant part of the Company's
operating costs and expenses.
The plate burning and fabrication processes are particularly important to
the Company. These processes require sophisticated and expensive processing
equipment. As a result, rather than making investments in such equipment,
manufacturers have increasingly outsourced these processes to metals service
centers. The Company has flame or laser cutting capacity in 45 of its 63
facilities.
The Company also provides services and technical advice to its customers as
an integral part of providing products to its customers. The Company does not
charge customers separately for such services or advice, but rather includes
the costs of such services and advice in the price of products sold to such
customers.
The Company's services include: just-in-time delivery, production of kits
containing multiple products for ease of assembly by the customer, the
provision of Company-owned materials to the customer and the placement of
Company employees at the customer's site for inventory management, production
and technical assistance. The Company also provides special stocking programs
where products that would not otherwise be stocked by the Company are held in
inventory to meet certain customers' needs. The foregoing services are
designed to reduce customers' costs by minimizing their investment in
inventory and improving their production efficiency.
CUSTOMER BASE
The Company's customer base is diverse, numbering over 50,000. No customer
accounted for more than 2% of the Company's sales in 1997 and the top ten
customers accounted for approximately 7% of the Company's sales in 1997. The
Company's customer base includes most metal-consuming industries, most of
which are
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cyclical. The Company's shipments (by percentage of sales revenue) for 1995,
1996 and 1997 for each class of the Company's customers were as set forth in
the table below.
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES REVENUE
----------------
CLASS OF CUSTOMER 1995 1996 1997
----------------- ---- ---- ----
<S> <C> <C> <C>
Machinery manufacturers................................. 38% 38% 37%
Fabricated metals producers............................. 25 26 26
Transportation equipment producers...................... 10 10 9
Electrical machinery producers.......................... 9 8 8
Wholesale distributors.................................. 3 3 4
Construction-related purchasers......................... 3 4 5
Metals mills and foundries.............................. 3 3 3
Other................................................... 9 8 8
--- --- ---
Total............................................... 100% 100% 100%
=== === ===
</TABLE>
The Company's flat-rolled processing business unit, Ryerson Coil, generally
serves a customer base that differs from the Company's general line service
center business. A large portion of Ryerson Coil's customers have long-term
supply contracts. These contracts are typically at fixed prices and are
generally from three months to one year in duration, although Ryerson Coil has
a small number of arrangements with large customers that extend beyond one
year. Ryerson Coil attempts to limit its financial exposure on these fixed-
price sales arrangements by entering into fixed-price supply arrangements with
one or more suppliers for comparable periods of time. Ryerson Coil's customers
often seek large quantities of carbon sheet product that have undergone one or
more of the following processes: pickling, cutting to length, slitting,
tension leveling, texturing or blanking. Many of Ryerson Coil's approximately
600 customers are in the transportation, appliance, office furniture or
cabinetry businesses.
SUPPLIERS
In 1997, the Company purchased in excess of 3.0 million tons of materials
from many suppliers, including approximately 500,000 tons (or approximately
10.5% of the purchase dollars) from Inland Steel Company ("ISC"), a wholly-
owned subsidiary of ISI. The Company expects to continue purchasing
significant amounts of steel from ISC in the future, although there can be no
assurance that such purchases will continue. Excluding ISC, the Company's top
25 suppliers accounted for approximately 38% of 1997 purchases in dollars.
The Company purchases the majority of its inventories in the open market at
prevailing market prices. However, occasionally the Company enters into long-
term, fixed-price supply contracts to offset its long-term, fixed-price sales
contracts in order to minimize its financial exposure.
Because the Company uses many suppliers and because there is a substantial
overlap of product offerings from these suppliers, the Company believes it
will be able to meet its materials requirements for the foreseeable future.
The Company works with and monitors its suppliers in order to obtain
improvements in price, quality, service, delivery and performance. The Company
believes it has good relationships with most of its suppliers.
SALES AND MARKETING
Each of the Company's business units maintains its own sales and marketing
force. In addition to its office sales staff, the Company markets and sells
its products through the use of its field sales force that has extensive
product and customer knowledge and through a comprehensive catalog of the
Company's products. The
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Company's office and field sales staffs, which together consist of
approximately 800 employees, include technical and metallurgical personnel. In
addition, the Company's technically-oriented marketing departments develop
advertising materials and maintain product expertise for each of the various
types of materials sold and industries serviced by the Company.
CAPITAL EXPENDITURES
In recent years the Company has made capital expenditures to maintain,
improve and expand processing capabilities. Additions by the Company to
property, plant and equipment, together with retirements for the five years
ended December 31, 1997, excluding the initial purchase price of acquisitions,
are set forth below. Net capital additions during such period aggregated $85.2
million.
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS
---------------------------------
RETIREMENTS NET CAPITAL
ADDITIONS OR SALES ADDITIONS
--------- ----------- -----------
<S> <C> <C> <C>
1997.................................... $40.3 $12.0 $28.3
1996.................................... 24.1 6.0 18.1
1995.................................... 19.3 4.7 14.6
1994.................................... 20.4 12.4 8.0
1993.................................... 19.3 3.1 16.2
</TABLE>
The Company anticipates that capital expenditure and investments in joint
ventures, excluding acquisitions, will be in the range of $40 million to $50
million for 1998, which will be funded from cash generated by operations plus
possible borrowing under RT's credit facility.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 5,400 persons,
of which approximately 2,550 were salaried employees and approximately 2,850
were hourly employees. Approximately 40% of the hourly employees were members
of various unions, including the United Steelworkers and the Teamsters, and an
additional approximately 29% of the hourly employees have voted for union
certification in proceedings currently pending before the National Labor
Relations Board. The Company's relationship with the various unions generally
has been good, but occasional work stoppages have occurred. Over the last five
years, work stoppages have occurred at two facilities (approximately 4% of the
total number of facilities), have involved an average of 43 employees and have
lasted an average of six days. During 1998, labor contracts covering
approximately 160 employees at five facilities will expire. During 1999
contracts covering approximately 740 employees at 17 facilities will expire.
The current agreement with the United Steelworkers will expire on July 31,
1999, and agreements with the Teamsters expire on various dates during the
period March 31, 1998 through November 15, 2003. While management does not
expect any unresolvable issues to arise in connection with the renewal of any
of these contracts, no assurances can be given that any of these contracts
will be extended prior to their expiration.
Prior to April 30, 1996, certain of the Company's employees were eligible to
participate in the ISI Pension Plan, a noncontributory defined benefit pension
plan. Effective April 30, 1996, that portion of the ISI Pension Plan covering
the Company's current and former employees was separated and became the
Ryerson Tull Pension Plan.
Effective January 1, 1998, the Company froze the benefits accrued under the
Ryerson Tull Pension Plan, a defined benefit pension plan for certain salaried
employees, and instituted a defined contribution plan. Salaried employees
vested in their benefits accrued under the defined benefit plan at December
31, 1997 will be entitled to those benefits upon retirement. Certain
transition rules have been established for those salaried employees meeting
the specified age and service requirements.
COMPETITION
The Company is engaged in a highly fragmented and competitive industry. In
general, competition is based on quality, service, price and geographic
proximity. Based on SSCI data, the Company believes that the industry
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is comprised of between 750 and 1,000 service centers, operating out of
approximately 2,000 locations. The Company competes with many other general
line service centers, specialized service centers and processing centers on a
regional and local basis, some of which may have greater financial resources
and flexibility than the Company. The Company also competes to a lesser extent
with primary steel producers. Primary steel producers typically sell to very
large customers that require regular shipments of large volumes of steel.
Although these large customers sometimes use metals service centers to supply
a portion of their metals needs, metals service center customers typically are
consumers of smaller volumes of metals than customers of primary steel
producers. To the extent that some of the Company's competitors purchase a
higher percentage of metals than the Company from foreign steelmakers, such
competitors may benefit from favorable exchange rates or other economic or
regulatory factors that may result in a competitive advantage. This
competitive advantage may be offset somewhat by higher transportation costs
associated with importing metals into the United States. Excess capacity of
metals relative to demand in the industry since mid-1995 led to a weakening in
prices. As a result, the Company has been reducing its prices since mid-1995
to remain competitive.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company's operations are subject to many federal, state and local
regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
The Company's management believes that the Company is presently in substantial
compliance with all such laws and does not currently anticipate that the
Company will be required to expend any substantial amounts in the foreseeable
future in order to meet current environmental, workplace health or safety
requirements. However, additional costs and liabilities may be incurred to
comply with current and future requirements, which costs and liabilities could
have a material adverse effect on the Company's results of operations or
financial condition.
There are no known pending remedial actions or claims relating to
environmental matters that are expected to have a material effect on the
Company's financial position or results of operations. Some of the properties
owned or leased by the Company, however, are located in industrial areas or
have a history of heavy industrial use. These properties may potentially incur
environmental liabilities in the future that could have a material adverse
effect on the Company's financial condition or results of operations.
Capital and operating expenses for pollution control projects were
significantly below $1 million per year for the past five years and are
expected to remain at similar levels.
PATENTS AND TRADEMARKS
The Company owns several U.S. patents and U.S. and foreign trademarks,
service marks and copyrights. Certain of the trademarks are registered with
the U.S. Patent and Trademark Office and, in certain circumstances, with the
trademark offices of various foreign countries. The patents expire over
various periods of time beginning in 2011. The Company believes that the
expiration of its patents will not materially adversely affect its business.
The Company considers certain other information owned by it to be trade
secrets. The Company protects its trade secrets by, among other things,
entering into confidentiality agreements with its employees regarding such
matters and implementing measures to restrict access to sensitive data and
computer software source code on a need-to-know basis. The Company believes
that these safeguards adequately protect its proprietary rights and vigorously
defends these rights. While the Company considers all of its intellectual
property rights as a whole to be important, the Company does not consider any
single right to be essential to its operations as a whole.
RECENT DEVELOPMENTS
On March 17, 1998, ISI announced it had signed a binding letter agreement
with Ispat International N.V. ("Ispat") whereby Ispat will acquire ISC.
Following the sale, ISI's primary business will be metals distribution,
presently conducted by RT. ISI is currently considering a plan to combine with
RT into one entity subsequent to the closing of the sale. The sale is subject
to a definitive agreement, antitrust clearance, other closing conditions, and
the need to give the United Steelworkers of America the opportunity to make an
offer to purchase ISC. It is anticipated that the transaction will close in
the third quarter of 1998.
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ITEM 2. PROPERTIES.
Joseph T. Ryerson & Son, Inc.
Ryerson owns its regional business unit headquarters offices in Chicago (IL)
and leases regional headquarters offices in West Chester (PA) and Tukwila
(WA). Ryerson East's service centers are at Birmingham (AL), Buffalo (NY),
Cambridge (MA), Carnegie (PA), Charlotte (NC) (two facilities), Chattanooga
(TN), Cleveland (OH), Easton (PA), Fairless Hills (PA), Long Island City (NY),
Philadelphia (PA), and Wallingford (CT). Ryerson Central's service centers are
at Chicago (IL), Cincinnati (OH), Dallas (TX), Des Moines (IA), Detroit (MI),
Holland (MI), Houston (TX), Indianapolis (IN), Kansas City (MO), Milwaukee
(WI), Omaha (NE), Plymouth (MN), St. Louis (MO), Tulsa (OK), and Wausau (WI).
Ryerson West's service centers are at Commerce City (CO), Emeryville (CA),
Phoenix (AZ), Portland (OR), Renton (WA), Spokane (WA), Salt Lake City (UT)
and Vernon (CA). Ryerson Coil's processing facilities are located in Canton
(GA), Chicago (IL) (two facilities), Knoxville (TN), Marshalltown (IA),
Plymouth (MN) and New Hope (MN).
All of Ryerson's operating facilities are held in fee with the exception of
the facility at Birmingham (AL) (held under long-term lease), two at Cambridge
(MA) (both held under short-term lease), one at Charlotte (NC) (held under
long-term lease), one at Chicago (IL) (held under short-term lease), one at
Easton (PA) (held under long-term lease), one at Fairless Hills (PA) (held
under long-term lease), one at Holland (MI) (held under long-term lease), one
at Long Island City (NY) (held under short-term lease), one at New Hope (MN)
(held under short-term lease), a satellite facility at Omaha (NE) (held under
short-term lease), a portion of the property at Portland (OR) (held under
short-term lease), a portion of the property at St. Louis (MO) (held under
long-term lease), one facility at Salt Lake City (UT) (held under short-term
lease), and one at Wausau (WI) (held under short-term lease). In addition,
Ryerson holds under short-term lease a former operating facility at the
Village of Blasdell (NY). Ryerson's properties are adequate to serve its
present and anticipated needs.
J. M. Tull Metals Company, Inc.
Tull maintains service centers at Baton Rouge (LA), Birmingham (AL),
Charlotte (NC), Columbia (SC), Greensboro (NC), Greenville (SC), Jacksonville
(FL), Miami (FL), New Orleans (LA), Pounding Mill (VA), Richmond (VA), Tampa
(FL), and Norcross (GA), where its headquarters is located. All of these
facilities are owned by Tull in fee, except for the Columbia facility, which
is held under short-term lease. AFCO operates service centers at Fort Smith
(AR), Jackson (MS), Little Rock (AR), Oklahoma City (OK), Shreveport (LA),
West Memphis (AR) and Wichita (KA). AFCO's headquarters are located at
Norcross (GA), where it leases space owned in fee by Tull. Each of AFCO's
facilities is held in fee except the Wichita facility, which is held under a
short-term lease. Tull's properties are adequate to serve its present and
anticipated needs.
Ryerson de Mexico
Ryerson de Mexico, a joint venture in which RT owns, indirectly, a 50%
interest, owns twelve general line metals service centers and processing
centers in Mexico. Ryerson de Mexico's properties are adequate to serve its
present and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is named as a defendant in legal actions
arising in the ordinary course of its business. The Company is not a party to
any pending legal proceedings other than routine litigation incidental to its
business. Management does not believe that the resolution of these claims will
have a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT
Officers are elected by the Board of Directors of RT to serve for a period
ending with the next succeeding annual meeting of the Board of Directors held
immediately after the Annual Meeting of Stockholders. All executive officers
of RT, with the exception of Neil S. Novich and Darell R. Zerbe, have been
employed by RT or an affiliate of RT throughout the past five years.
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Set forth below are the executive officers of RT as of February 2, 1998, and
the age of each as of such date. Their principal occupations at present and
during the past five years, including positions and offices held with RT or a
significant subsidiary or affiliate of RT, are shown below.
NAME, AGE AND POSITIONS AND OFFICES HELD
PRESENT POSITION WITH DURING THE PAST FIVE YEARS
REGISTRANT
Robert J. Darnall, 59........ Mr. Darnall has been Chairman of RT since April
Chairman and Director 1995, a position he also held from November
1990 to June 1994. He has been Chairman and
Chief Executive Officer of ISI since 1992 and
its President, Chief Operating Officer and a
director since April 1986. He is also Chairman
and Chief Executive Officer of ISC, which he
joined in 1962, and has served as ISC's
Chairman since 1992, as a director since 1983,
as Chief Executive Officer from 1992 to 1995
and since April 1996, and as President for
various periods ending most recently in 1996.
Neil S. Novich, 43........... Mr. Novich has been President, Chief Executive
President and Chief Officer, Chief Operating Officer and a director
Executive Officer and Directorof RT, President of Ryerson and Chairman of
Tull since June 1994. He served as Chairman of
Ryerson from June 1994 to April 1995 and since
June 1996. He was a Senior Vice President of
ISI from January 1995 to May 1996 and served as
a Vice President of ISI from June 1994 to
January 1995. Prior to joining ISI in 1994, he
led the Distribution and Logistics Practice at
Bain & Company ("Bain"), an international
management consulting firm, from 1987.
Jay M. Gratz, 45............. Mr. Gratz has been Vice President of RT and of
Vice President and ISI since May 1997; Chief Financial Officer of
Chief Financial Officer RT since April 1996 and of ISI since May 1996.
He was Vice President--Finance of RT from
September 1994 to April 1997, and of ISI from
May 1996 to April 1997. He was also Vice
President and Principal Financial Officer of
Inland Steel Company from March 1993 to January
1995 and Vice President--Finance of Inland
Steel Flat Products Company division of Inland
Steel Company from December 1991 to February
1993.
Thomas S. Cygan, 53.......... Mr. Cygan has been President of the Ryerson
President--Ryerson West West unit of Ryerson since November 1994. He
served as General Manager of Ryerson's Ryerson
Central Kansas City location from May 1981 to
November 1994.
Timothy L. LaPerre, 51....... Mr. LaPerre has been President of Ryerson Coil
President--Ryerson Coil Processing, a unit of Ryerson, since January
Processing 1993. He served as Vice President and General
Manager of Ryerson Coil Processing from March
1990 to January 1993. He also served as
Executive Vice President and General Manager of
Keelor Steel from March 1987 to March 1990.
Carl G. Lusted, 61........... Mr. Lusted has been President of the Ryerson
President--Ryerson Central Central unit of Ryerson since August 1990. Mr.
Lusted was Vice President and General Manager
of Tull from August 1984 to August 1990.
Stephen E. Makarewicz, 51.... Mr. Makarewicz has been President, Chief
President--Tull Metals Executive Officer and Chief Operating Officer
of Tull since October 1994. Mr. Makarewicz was
Vice President and General Manager of Ryerson's
Ryerson Central Chicago location from April
1992 to October 1994 and Vice President and
General Manager of Tull from June 1990 to April
1992.
8
<PAGE>
NAME, AGE AND POSITIONS AND OFFICES HELD
PRESENT POSITION WITH DURING THE PAST FIVE YEARS
REGISTRANT
Gary J. Niederpruem, 46...... Mr. Niederpruem has been President of the
President--Ryerson East Ryerson East unit of Ryerson since January
1993. He served as General Manager of Ryerson
East's Buffalo location from August 1985 to
January 1993.
William Korda, 50............ Mr. Korda has been Vice President--Human
Vice President--Human Resources of RT since October 1993. He served
Resources as RT's Manager of Human Resources from August
1992 to October 1993 and as Manager of Benefits
and Salary Administration for RT from January
1991 to August 1992.
Darell R. Zerbe, 55.......... Mr. Zerbe has been Vice President--Information
Vice President--Information Technology and Chief Information Officer of RT
Technology since February 1996. He served as Senior Vice
President, Management Information Systems, for
Venture Stores, Inc. from 1988 to February
1996.
Lily L. May, 48.............. Ms. May has been Controller of RT since May
Controller 1996. She was Vice President--Finance and
Purchasing and Controller of ISC from January
1995 through May 1996. Prior to that, she was
Director of Purchases and Energy of the Inland
Steel Flat Products Company division of ISC
from November 1993 to January 1995. She also
served as Director of Internal Auditing of ISI
from February 1992 to November 1993 and
Director of Corporate Accounting of ISI from
February 1991 to February 1992.
Vicki L. Avril, 43........... Ms. Avril has been Treasurer of RT since
Treasurer February 1994. She has also been Treasurer of
Ryerson and Tull since February 1994 and of ISI
and ISC since January 1994 and Director--
Corporate Planning of ISI since January 1995.
In addition, she was Director of Pension
Investments and Administration of ISI from June
1991 to January 1995 and Assistant Treasurer of
ISI from May 1993 to January 1994.
Charles B. Salowitz, 49...... Mr. Salowitz has been Corporate Secretary of RT
Corporate Secretary since April 1996. Since September 1995, he has
been Secretary of ISI and ISC. He has also been
Associate General Counsel of ISI since January
1995. He was an Assistant General Counsel of
ISI from July 1989 and Assistant Secretary from
July 1989 to September 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Class A Common Stock of RT is listed and traded on the New York Stock
Exchange. As of February 18, 1998, the number of holders of record of Class A
Common Stock of RT was 118.
The remaining information called for by this Item 5 is set forth under the
caption "Summary by Quarter" in Exhibit 99, "Financial Information," which is
attached hereto, and is incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item 6 with respect to each of the last
five years of RT is set forth under the caption "Eleven-Year Summary of
Selected Financial Data and Operating Results" in Exhibit 99, "Financial
Information," which is attached hereto, and is incorporated by reference
herein.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information called for by this Item 7 is set forth under the caption
"Management's Discussion of Operations and Financial Condition" in Exhibit 99,
"Financial Information," which is attached hereto, and is incorporated by
reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of RT called for by this Item 8,
together with the report thereon of the independent accountants dated February
18, 1998, are set forth under the captions "Report of Independent Accountants"
and "Statement of Accounting and Financial Policies and Business Description"
as well as in all consolidated financial statements and schedules of the
Company and the "Notes to Consolidated Financial Statements" in Exhibit 99,
"Financial Information," which is attached hereto, and is incorporated by
reference herein. The financial statement schedules listed under Item 14(a)2
of this Report on Form 10-K, together with the report thereon of the
independent accountants dated February 18, 1998, should be read in conjunction
with the consolidated financial statements. Financial statement schedules not
included in this Report on Form 10-K have been omitted because they are not
applicable or because the information called for is shown in the consolidated
financial statements or notes thereto.
Consolidated quarterly sales, earnings and per share common stock
information for 1996 and 1997 are set forth under the caption "Summary by
Quarter" in Exhibit 99, "Financial Information," which is attached hereto, and
is incorporated by reference herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item 10 with respect to directors of RT
will be set forth under the caption "Election of Directors" in RT's definitive
Proxy Statement which will be furnished to stockholders in connection with the
Annual Meeting of Stockholders to be held on May 27, 1998, and is hereby
incorporated by reference herein. The information called for with respect to
executive officers of RT is included in Part I of this Report on Form 10-K
under the caption "Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 will be set forth under the
caption "Executive Compensation" in RT's definitive Proxy Statement which will
be furnished to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 27, 1998, and is hereby incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The information called for by this Item 12 with respect to security
ownership of more than five percent of RT's Class A and Class B common stock
will be set forth under the caption "Additional Information Relating to Voting
Securities" in RT's definitive Proxy Statement which will be furnished to
stockholders in connection with the Annual Meeting of Stockholders scheduled
to be held on May 27, 1998, and is hereby incorporated by reference herein.
(b) The information called for by this Item 12 with respect to the security
ownership of directors and of management will be set forth under the caption
"Security Ownership of Directors and Management" in RT's
10
<PAGE>
definitive Proxy Statement which will be furnished to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 27, 1998,
and is hereby incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this Item 13 will be set forth under the caption
"Certain Relationships and Related Transactions" in RT's definitive Proxy
Statement which will be furnished to stockholders in connection with the
Annual Meeting of Stockholders to be held on May 27, 1998, and is hereby
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS A PART OF THIS REPORT.
1. CONSOLIDATED FINANCIAL STATEMENTS OF RT. The consolidated financial
statements listed below are set forth in Exhibit 99, "Financial
Information," which is attached hereto, and is incorporated by
reference herein.
Report of Independent Accountants dated February 18, 1998.
Statement of Accounting and Financial Policies.
Consolidated Statements of Income and Reinvested Earnings for the
three years ended December 31, 1997.
Consolidated Statement of Cash Flows for the three years ended
December 31, 1997.
Consolidated Balance Sheet at December 31, 1997 and 1996.
Schedule to Consolidated Financial Statements: Long-Term Debt
Notes to Consolidated Financial Statements.
2.FINANCIAL STATEMENT SCHEDULES OF RT.
Report of Independent Accountants on Financial Statement
Schedules dated February 18, 1998. (Included on page 12 of this
Report)
Consent of Independent Accountants. (Included on page 12 of this
Report.)
For the years ended December 31, 1997, 1996 and 1995:
Schedule I--Condensed Financial Information (Parent Company
only). (Included on pages 13 to 15 inclusive in this Report.)
Schedule II--Reserves. (Included on page 16 of this Report.)
3. EXHIBITS. The exhibits required to be filed by Item 601 of
Regulation S-K are listed in the Exhibit Index which is attached
hereto, and incorporated by reference herein.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by RT during the quarter ended
December 31, 1997.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Ryerson Tull, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1998, appearing on page 7 of Exhibit 99, "Financial
Information," (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed in Item 14(a)2 of this
Annual Report on Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 18, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Form S-8 (No. 333-06977)
and the Registration Statement on Form S-8 (No. 333-06989) of Ryerson Tull,
Inc., of our report dated February 18, 1998, appearing on page 7 of Exhibit
99, "Financial Information," which is attached hereto, and is incorporated by
reference herein. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 30, 1998
12
<PAGE>
RYERSON TULL, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Income:
Intercompany interest income...................... $ 5.2 $ 0.4 $ --
Equity in income of subsidiaries.................. 81.2 73.8 86.5
----- ----- -----
86.4 74.2 86.5
----- ----- -----
Expenses:
Interest and other expenses....................... 25.7 12.4 --
Intercompany interest expense..................... 7.9 3.7 0.1
----- ----- -----
33.6 16.1 0.1
----- ----- -----
Income before income taxes.......................... 52.8 58.1 86.4
Provision for income taxes.......................... 10.0Cr. 5.2Cr. 2.1Cr.
----- ----- -----
Net income.......................................... $62.8 $63.3 $88.5
===== ===== =====
</TABLE>
- --------
Cr. = Credit
13
<PAGE>
RYERSON TULL, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 62.8 $ 63.3 $ 88.5
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Equity in undistributed earnings of subsidiaries.... (81.2) (73.8) (86.5)
Deferred income taxes............................... (4.6) 1.3 (0.1)
Change in: Intercompany accounts.................... 3.0 (4.6) --
Accounts payable......................... 0.1 0.3 --
Accrued liabilities...................... (0.9) 11.0 --
Other deferred items................................ 1.7 (1.2) --
------ ------- ------
Net adjustments................................... (81.9) (67.0) (86.6)
------ ------- ------
Net cash provided from (used for) operating
activities....................................... (19.1) (3.7) 1.9
------ ------- ------
INVESTING ACTIVITIES
Net investments in subsidiaries....................... (0.4) (2.2) --
Dividends received from subsidiaries.................. -- 75.0 --
------ ------- ------
Net cash provided from (used for) investing
activities....................................... (0.4) 72.8 --
------ ------- ------
FINANCING ACTIVITIES
Change in notes to and from related companies......... 7.6 69.2 (1.9)
Issuance of common stock.............................. -- 77.1 --
Long-term debt issued................................. -- 242.8 --
Dividends paid........................................ -- (445.9) --
------ ------- ------
Net cash provided from (used for) financing
activities....................................... 7.6 (56.8) (1.9)
------ ------- ------
Net increase in cash and cash equivalents............. (11.9) 12.3 --
Cash and cash equivalents--beginning of year.......... 12.3 -- --
------ ------- ------
Cash and cash equivalents--end of year................ $ 0.4 $ 12.3 $ --
====== ======= ======
</TABLE>
14
<PAGE>
RYERSON TULL, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
BALANCE SHEET
AT DECEMBER 31, 1997 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................... $ 0.4 $ 12.3
Receivables from related companies:
Notes...................................................... 46.5 --
Other...................................................... 1.6 4.6
------ ------
Total current assets..................................... 48.5 16.9
Investment in subsidiary companies............................. 741.2 659.6
Deferred income taxes.......................................... 12.7 8.1
Deferred charges and other assets.............................. 7.0 8.4
------ ------
Total assets............................................. 809.4 693.0
------ ------
LIABILITIES
Current Liabilities
Accounts payable............................................. 0.4 0.3
Notes payable to related companies........................... 121.4 67.3
Accrued liabilities.......................................... 10.1 11.0
------ ------
Total current liabilities................................ 131.9 78.6
Long-term debt................................................. 250.0 250.0
------ ------
Total liabilities........................................ 381.9 328.6
------ ------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; authorized--16,000,000;
issued and outstanding--no shares for 1997 and 1996........... -- --
Class A common stock, $1.00 par value; authorized--100,000,000
shares; issued and outstanding--5,283,762 shares for 1997 and
5,277,127 shares for 1996..................................... 5.3 5.3
Class B common stock, $1.00 par value; authorized, issued and
outstanding--34,000,000 shares................................ 34.0 34.0
Capital in excess of par value................................. 304.5 304.5
Reinvested earnings............................................ 85.2 22.4
Unearned restricted stock award compensation................... (0.2) (0.5)
Cumulative translation adjustment.............................. (1.3) (1.3)
Treasury stock, at cost--common stock of 2,031 shares in 1997
and no shares in 1996......................................... -- --
------ ------
Total stockholders' equity............................... 427.5 364.4
------ ------
Total liabilities and stockholders' equity............... $809.4 $693.0
====== ======
</TABLE>
15
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II--RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PROVISIONS FOR ALLOWANCES
CLAIMS AND DOUBTFUL ACCOUNTS
YEARS --------------------------------------------
ENDED BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
DECEMBER BEGINNING CHARGED FROM END OF
31 OF YEAR TO INCOME RESERVES YEAR
- -------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1997............................... $6.0 $2.6 $(0.5)(A) $8.1
1996............................... $6.4 $0.6 $(1.0)(A) $6.0
1995............................... $6.3 $1.2 $(1.1)(A) $6.4
</TABLE>
- --------
NOTES:
(A) Bad debts written off during year.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Ryerson Tull, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
RYERSON TULL, INC.
Neil S. Novich
By:-----------------------------------
Neil S. Novich
President and Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Ryerson
Tull, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Robert J. Darnall Chairman and March 30, 1998
- ------------------------------ Director
Robert J. Darnall
Neil S. Novich President and Chief March 30, 1998
- ------------------------------ Executive Officer
Neil S. Novich and Director
(Principal Executive
Officer)
Jay M. Gratz Vice President and March 30, 1998
- ------------------------------ Chief Financial
Jay M. Gratz Officer (Principal
Financial Officer)
Lily L. May Controller March 30, 1998
- ------------------------------ (Principal
Lily L. May Accounting Officer)
Richard G. Cline Director
James A. Henderson Director
Jerry K. Pearlman Director
Charles B. Salowitz
By:
-------------------------
Charles B. Salowitz
Donald S. Perkins Director Attorney-in-fact
March 30, 1998
Jean-Pierre Rosso Director
Ronald L. Thompson Director
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of RT. (Filed as --
Exhibit 3.1 to RT's Registration Statement on Form S-1
(File No. 333-3235), and incorporated by reference
herein.)
3.2 By-Laws of RT. (Filed as Exhibit 3.2 to RT's Quarterly --
Report on Form 10-Q for the quarter ended June 30,
1996, and incorporated by reference herein.)
4.1 Indenture, dated as of July 1, 1996, between RT and The --
Bank of New York. (Filed as Exhibit 4.1 to RT's Quar-
terly Report on Form 10-Q for the quarter ended June
30, 1996, and incorporated by reference herein.)
4.2 Specimen of 8 1/2% Notes due July 15, 2001. (Filed as --
Exhibit 4.2 to RT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated by
reference herein.)
4.3 Specimen of 9 1/8% Notes due July 15, 2006. (Filed as --
Exhibit 4.3 to RT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated by
reference herein.)
4.4 Rights Agreement between RT and Harris Trust and Sav- --
ings Bank, as Rights Agent, dated as of June 10, 1996.
(Filed as Exhibit 4.4 to RT's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, and incorpo-
rated by reference herein.)
4.5 Form of Class A Common Stock Certificate. (Filed as Ex- --
hibit 4.5 to RT's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and incorporated by refer-
ence herein.)
[The registrant hereby agrees to provide a copy of any --
other agreement relating to long- term debt at the re-
quest of the Commission.]
10.1 Registration Rights Agreement between RT and Inland --
Steel Industries, Inc., dated as of June 26, 1996.
(Filed as Exhibit 10.1 to RT's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, and incorpo-
rated by reference herein.)
10.2* Change in Control Agreement, dated as of March 27, --
1996, between Inland Steel Industries, Inc. and Neil S.
Novich. (Filed as Exhibit 10.6 to RT's Registration
Statement on Form S-1 (File No. 333-3235), and incorpo-
rated by reference herein.)
10.3* Employment Agreement between Inland Steel Industries, --
Inc. and Carl G. Lusted, dated June 27, 1990. (Filed as
Exhibit 10.4 to RT's Registration Statement on Form S-1
(File No. 333-3235), and incorporated by reference
herein.)
10.4* Employment Agreement dated as of April 8, 1994, between --
Inland Steel Industries, Inc. and Neil Novich. (Filed
as Exhibit 10.N.(8) to Inland Steel Industries, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, and incorporated by reference here-
in.)
10.5* Copy of Assumption and Amendment Agreement, dated Janu- --
ary 22, 1997, by and among Inland Steel Industries,
Inc., Ryerson Tull, Inc,. and Carl G. Lusted. (Filed as
Exhibit 10.6 to RT's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and incorporated
by reference herein.)
10.6* Form of Change in Control Agreements, dated as of March --
27, 1996, between Inland Steel Industries, Inc. and the
parties listed on the Schedule thereto. (Filed as Ex-
hibit 10.5 to RT's Registration Statement on Form S-1
(File No. 333-3235), and incorporated by reference
herein.)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Annual Report on Form 10-K.
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.7* Amended Schedule to Form of Change in Control Agreement --
referred to in Exhibit 10.6* above. (Filed as Exhibit
10.T.(3)* to Inland Steel Industries, Inc.'s Annual Re-
port on Form 10-K for the fiscal year ended December
31, 1997, and incorporated by reference herein.)
10.8* Copy of form of Severance Agreement, dated January 28, --
1998, between Inland Steel Industries, Inc. and each of
the four executive officers of Inland Steel Industries,
Inc. identified on the exhibit relating to terms and
conditions of termination of employment following a
change in control of Inland Steel Industries, Inc.
(Filed as Exhibit 10.R to Inland Steel Industries,
Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated by reference
herein.)
10.9* Amended listing of executive officers of the Company --
who are parties to the form of Inland Steel Industries,
Inc. Severance Agreement, dated January 28, 1998, re-
ferred to in Exhibit 10.8* above.......................
10.10* Form of Change in Control Agreements, dated as of June
10, 1996, between RT and the parties listed on the
Schedule thereto.......................................
10.11* Amended Schedule to Change in Control Agreement re-
ferred to in Exhibit 10.10* above......................
10.12* Change in Control Agreement, dated as of June 10, 1996, --
between RT and Neil S. Novich. (Filed as Exhibit 10.8
to RT's Registration Statement on Form S-1 (File No.
333-3235), and incorporated by reference herein.
10.13 Corporate Separation Agreement between RT and Inland --
Steel Industries, Inc., dated as of June 26, 1996.
(Filed as Exhibit 10.12 to RT's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, and in-
corporated by reference herein.)
10.14 Cross-License Agreement between RT and Inland Steel In- --
dustries, Inc., dated as of June 26, 1996. (Filed as
Exhibit 10.13 to RT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated by
reference herein.)
10.15 Tax Sharing Agreement between RT and Inland Steel In- --
dustries, Inc., dated as of June 26, 1996. (Filed as
Exhibit 10.14 to RT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated by
reference herein.)
10.16 ESOP Guarantee Agreement between Joseph T. Ryerson & --
Son, Inc. and the Purchasers named therein, dated Au-
gust 15, 1990. (Filed as Exhibit 10.15 to RT's Regis-
tration Statement on Form S-1 (File No. 333-3235), and
incorporated by reference herein.)
10.17* Inland Steel Industries, Inc. Non-Qualified Thrift --
Plan, as amended. (Filed as Exhibit 10.A to Inland
Steel Industries, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, and incorpo-
rated by reference herein.)
10.18* Inland Steel Industries, Inc. Supplemental Retirement --
Benefit Plan for Covered Employees, as amended. (Filed
as Exhibit 10.B to Inland Steel Industries, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated by reference here-
in.)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Annual Report on Form 10-K.
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.19* Inland Steel Industries, Inc. Special Retirement Bene- --
fit Plan for Covered Employees, as amended. (Filed as
Exhibit 10.C to Inland Steel Industries, Inc.'s Quar-
terly Report on Form 10-Q for the quarter ended Septem-
ber 30, 1997, and incorporated by reference herein.)
10.20* Inland 1995 Incentive Stock Plan, as amended (Filed as --
Exhibit 10.E to Inland Steel Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1997, and incorporated by reference herein.)
10.21* Inland 1988 Incentive Stock Plan. (Filed as Exhibit --
10.B to Inland Steel Industries, Inc.'s Quarterly Re-
port on Form 10-Q for the quarter ended June 30, 1995,
and incorporated by reference herein.)
10.22* Inland 1992 Incentive Stock Plan, as amended. (Filed as --
Exhibit 10.C to Inland Steel Industries, Inc.'s Quar-
terly Report on Form 10-Q for the quarter ended June
30, 1995, and incorporated by reference herein.)
10.23* Inland Steel Industries, Inc.'s Annual Incentive Plan, --
as amended. (Filed as Exhibit 10.A to Inland Steel In-
dustries, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated by
reference herein.)
10.24* Inland Steel Industries, Inc. Special Achievement Award --
Plan. (Filed as Exhibit 10.I to Inland Steel Indus-
tries, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, and incorporated by ref-
erence herein.)
10.25* Inland Steel Industries, Inc. Deferred Compensation --
Plan for Certain Employees, as amended. (Filed as Ex-
hibit 10.J to Inland Steel Industries, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1994, and incorporated by reference herein.)
10.26* Ryerson Tull, Inc.'s Annual Performance Improvement In- --
centive Plan. (Filed as Exhibit 10.2 to RT's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated by reference herein.)
10.27* Ryerson Tull Directors' Compensation Plan. (Filed as --
Exhibit 10.S.(1) to Inland Steel Industries, Inc.'s An-
nual Report on Form 10-K for the fiscal year ended De-
cember 31, 1997, and incorporated by reference herein.)
10.28* Ryerson Tull, Inc. Supplemental Retirement Plan for --
Covered Employees, as amended September 24, 1997.
(Filed as Exhibit 10.1 to RT's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, and in-
corporated by reference herein.)
10.29* Ryerson Tull 1996 Incentive Stock Plan, as amended --
(Filed as Exhibit 10.D to Inland Steel Industries,
Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated by reference
herein.)
10.30* Ryerson Tull Nonqualified Savings Plan. (Filed as Ex- --
hibit 10.S.(2) to Inland Steel Industries, Inc.'s An-
nual Report on Form 10-K for the fiscal year ended De-
cember 31, 1997, and incorporated by reference herein.)
12 Statement re: Computation of Ratio of Earnings to Fixed --
Charges (Filed as Amendment No 2 to RT's Registration
Statement on Form S-1 (File No. 333-3235), and incorpo-
rated by reference herein.)
21 Subsidiaries of the Registrant.........................
23 Consent of Independent Accountants appearing on page 12 --
of this Annual Report on Form 10-K.
24 Powers of Attorney.....................................
27 Financial Data Schedules...............................
99 Financial Information to be included in the Annual Re-
port to Shareholders for 1997..........................
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Annual Report on Form 10-K.
20
<PAGE>
EXHIBIT 10.9
AMENDED LISTING ONLY TO
-----------------------
Copy of Form of Severance Agreement
dated January 28, 1998
between
Inland Steel Industries, Inc.
and each of:
Robert J. Darnall
Jay M. Gratz
<PAGE>
EXHIBIT 10.10
June 10, 1996
Dear :
Ryerson Tull, Inc. ("RTI") considers it essential to the best interests of
its stockholders to foster the continuous employment of key management personnel
of RTI and its affiliates (collectively, the "Company"). In this connection, the
Board of Directors of RTI (the "Board") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of RTI and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company, although no such change is
now contemplated. In order to induce you to remain in the employ of the Company
and in consideration of your agreement set forth in Subsection 2(ii) hereof, RTI
agrees that you shall receive the severance benefits set forth in this letter
agreement ("Agreement") in the event your employment with the Company is
terminated subsequent to a "change in control of the Company" (as defined in
Section 2 hereof) under the circumstances described below. In the event that you
receive severance benefits hereunder, such benefits shall be in lieu of, and you
shall not be entitled to receive, any benefits or payments under any other
severance plan, policy or agreement of or with the Company. In addition, if you
are or become entitled to benefits from the Company pursuant to another
agreement providing for benefits on account of a change in control or the law of
a jurisdiction other than the United States or any state or territory thereof as
<PAGE>
Page 2
a result of an event for which benefits are payable to you pursuant this
Agreement, the benefits paid to you pursuant to this Agreement shall be reduced
by the amount paid to you pursuant to such other agreement or law; provided,
however, that if you become entitled to benefits under this Agreement and an
agreement with Inland Steel Industries, Inc. ("ISI") on account of a change in
control of ISI or any of its subsidiaries, including RTI and its subsidiaries,
the benefits provided under your agreement with ISI will be reduced by the
amount of benefits payable to you pursuant to this Agreement on account of such
change in control. In no event shall you be entitled to benefits under an
agreement with ISI and this Agreement on account of the same events constituting
a change in control, except as provided in the preceding sentence.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1996; provided, however, that
commencing on January 1, 1997 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless,
during the preceding year but not later than June 30 of such preceding year, RTI
shall have given notice that it does not wish to extend this Agreement.
Notwithstanding the preceding sentence, (i) if your employer is a direct or
indirect subsidiary of RTI, this Agreement shall terminate on the date on which
RTI ceases to own, directly or indirectly, at least 80 percent of your employer
for any reason which does not constitute a change in control of the Company, and
(ii) if a change in control of the Company or a potential change in control of
the Company shall have occurred during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period of twenty-four
(24) months beyond the month in which such change in control or potential change
in control of the Company occurred unless earlier terminated under clause (i) of
this Section 1.
2. Change in Control; Potential Change in Control. (i) No benefits shall
be payable hereunder unless there shall have been a potential change in control
or a change in control of the Company, as set forth below. For purposes of this
Agreement, a "change in control of the Company" shall be deemed to have occurred
if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than
(w) the Company, (x) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, (y) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (z) a corporation
owned, directly or indirectly, by the stockholders of RTI in substantially the
same proportions as their ownership of stock of RTI, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
<PAGE>
Page 3
or indirectly, of securities of RTI (not including in the securities
beneficially owned by such person any securities acquired directly from RTI or
its affiliates) representing 40% or more of the combined voting power of RTI's
then out standing securities; (B) during any period of two consecutive years
(not including any period prior 60 days after the date of this Agreement),
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with RTI to effect a transaction described in clauses (A), (C) or (D)
of this Subsection) whose election by the Board or nomination for election by
RTI's stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
("Continuing Directors"), cease for any reason to constitute a majority thereof;
(C) the stockholders of RTI approve a merger or consolidation of RTI with any
other corporation, other than a merger or consolidation which would result in
the voting securities of RTI outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, at least 60% of the combined voting power of the voting securities
of RTI or such surviving entity outstanding immediately after such merger or
consolidation, or a merger or consolidation effected to implement a
recapitalization of RTI (or similar transaction) in which no person acquires
more than 50% of the combined voting power of RTI's then outstanding securities;
(D) the stockholders of RTI approve a plan of complete liquidation of RTI or an
agreement for the sale or disposition by RTI of all or substantially all of
RTI's assets; or (E) there occurs (x) a sale or disposition, directly or
indirectly, other than to a person described in subclause (w), (x) or (z) of
clause (A) of this Subsection, of securities of your employer, any direct or
indirect parent company of your employer or any company that is a subsidiary of
your employer and is also a significant subsidiary (as defined below) of RTI
(your employer and such a parent or subsidiary being a "Related Company"),
representing 50% or more of the combined voting power of the securities of such
Related Company then outstanding, (y) a merger or consolidation of a Related
Company with any other corporation, other than a merger or consolidation which
would result in 50% or more of the combined voting power of the surviving
company being beneficially owned by RTI or by a majority owned direct or
indirect subsidiary of RTI, or (z) the sale or disposition of all or
substantially all the assets of a Related Company to a person other than RTI or
a majority owned direct or indirect subsidiary of RTI; provided, however, that
no change in control of the Company shall be deemed to have occurred under this
Section 2(ii) if (I) such transaction includes or involves a sale to the public
or a distribution to the stockholders of RTI of more than 50% of the voting
securities of your employer or a direct or indirect parent
<PAGE>
Page 4
of your employer, and (II) your employer or a direct or indirect parent of your
employer agrees to become a successor to RTI under this Agreement or you are
covered by an agreement providing for benefits upon a change in control of your
employer following an event described in clause (E). For purposes of this
Agreement, the term "significant subsidiary" has the meaning given to such term
under Rule 405 of the Securities Act of 1933, as amended.
(ii) For purposes of this Agreement, a "potential change in control of the
Company" shall be deemed to have occurred if (A) RTI enters into an agreement,
the consummation of which would result in the occurrence of a change in control
of the Company, (B) any person (including RTI) publicly announces an intention
to take or to consider taking actions which if consummated would constitute a
change in control of the Company; (C) any person, other than (w) the Company,
(x) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, (y) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (z) a corporation owned, directly or
indirectly, by the stockholders of RTI in substantially the same proportions as
their ownership of stock of RTI, who is or becomes the beneficial owner,
directly or indirectly, of securities of RTI representing 9.5% or more of the
combined voting power of RTI's then outstanding securities, increases his
beneficial ownership of such securities by 5% or more over the percentage so
owned by such person on the date hereof; or (D) the Board adopts a resolution to
the effect that, for purposes of this Agreement, a potential change in control
of the Company has occurred.
You agree that, subject to the terms and conditions of this Agreement, in
the event of a potential change in control of the Company, you will remain in
the employ of the Company until the earliest of (i) a date which is six (6)
months from the occurrence of such potential change in control of the Company,
(ii) the termination by you of your employment by reason of Disability or
Retirement, as defined in Subsection 3(i), or (iii) the occurrence of a change
in control of the Company. If your employment is terminated by the Company
without Cause (as defined in Subsection 3(ii) below) within twelve (12) months
after the occurrence of a potential change in control of the Company and a
change in control of the Company occurs within six (6) months after such
termination, you shall be entitled to the compensation and benefits hereunder as
if your termination of employment without Cause followed a change in control of
the Company; provided, however, that no benefits shall be payable under this
sentence if prior to the change in control of the Company, RTI ceased to own,
directly or indirectly, at least 80% of your employer.
<PAGE>
Page 5
(iii) The foregoing to the contrary notwithstanding, a change in control
of the Company shall not be deemed to have occurred with respect to you if (A)
the event first giving rise to the potential change in control of the Company
involves a publicly announced transaction or publicly announced proposed
transaction which at the time of the announcement has not been previously
approved by the Board and (B) you are "part of a purchasing group" proposing the
transaction. A change in control of the Company shall also not be deemed to have
occurred with respect to you if you are part of a purchasing group which
consummates the change in control transaction. You shall be deemed "part of a
purchasing group" for purposes of the two preceding sentences if you are an
equity participant or have agreed to become an equity participant in the
purchasing company or group (except for (A) passive ownership of less than 1% of
the stock of the purchasing company or (B) ownership of equity participation in
the purchasing company or group which is otherwise not deemed to be significant,
as determined prior to the change in control of the Company by a majority of the
non-employee Continuing Directors).
3. Termination Following Change in Control. If a change in control of the
Company, as defined in Section 2 hereof, shall have occurred, you shall be
entitled to the benefits provided in Subsection 4(iii) hereof upon the
subsequent termination of your employment during the term of this Agreement
unless such termination is (A) because of your death, Disability or Retirement,
(B) by the Company for Cause, or (C) by you other than for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months, and
within thirty (30) days after written notice of termination is given you shall
not have returned to the full-time performance of your duties, your employment
may be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination on or after your normal
retirement age in accordance with the Company's retirement policy generally
applicable to its salaried employees or in accordance with any retirement
arrangement established with your consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination by
you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively)
<PAGE>
Page 6
after a written demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clauses (A) or (B) of the first sentence of this Subsection
and specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without
your express written consent, the occurrence after a change in control of the
Company of any of the following circumstances unless, in the case of paragraphs
(A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the
Date of Termination specified in the Notice of Termination, as defined in
Subsections 3(v) and 3(iv), respectively, given in respect thereof:
(A) the assignment to you of any duties inconsistent with your status
as an executive officer of the Company or a substantial adverse alteration
in the nature or status of your responsibilities from those in effect
immediately prior to the change in control of the Company other than any
such alteration primarily attributable to the fact that the Company may no
longer be a public company;
(B) a reduction by the Company in your annual base salary as in
effect on the date hereof or as the same may be increased from time to
time;
(C) the Company's requiring that your principal place of business be
at an office located more than 50 miles from where your principal place of
business is located immediately prior to the change in control of the
Company, except for required travel on the Company's business to
<PAGE>
Page 7
an extent substantially consistent with your business travel obligations
immediately prior to the change in control of the Company;
(D) the failure by the Company, without your consent, to pay to you
any portion of your current compensation, or to pay to you any portion of
an installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such compensation
is due;
(E) the failure by the Company to continue in effect any compensation
plan in which you participate immediately prior to the change in control of
the Company which is material to your total compensation, including but
not limited to the Inland Steel Industries Annual Incentive Plan (the
"Annual Incentive Plan"), Inland Special Achievement Award Plan, Inland
1986 Employee Stock Purchase Plan, Ryerson Tull 1996 Incentive Stock Plan
(the "Incentive Plan'), Ryerson Tull Supplemental Retirement Benefit Plan
for Covered Employees (the "Supplemental Plan"), Inland Steel Industries
Nonqualified Thrift Plan (the "Nonqualified Thrift Plan"), Ryerson Tull
Pension Plan (the "Pension Plan") and Inland Steel Industries Thrift Plan
(the "Thrift Plan") or any substitute or alternative plans adopted prior to
the change in control (including substitute plans adopted by the Company in
replacement of plans previously sponsored by Inland Steel Industries,
Inc.), unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or the
failure by the Company to continue your participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time of the
change in control;
(F) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, life insurance, medical, health and accident, flexible
spending or disability plans or programs in which you were participating at
the time of the change in control of the Company, the taking of any action
by the Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit enjoyed by you
at the time of the change in control of the Company, or the failure by the
Company to provide you with the number of paid vacation days to which you
are entitled on the basis of years of service
<PAGE>
Page 8
with the Company in accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) the failure of RTI to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as contemplated in
Section 5 hereof; or
(H) any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of
Subsection (iv) below (and, if applicable, the requirements of Subsection
(ii) above); for purposes of this Agreement, no such purported termination
shall be effective.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii) above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection (ii)
above shall not be less than thirty (30) days, and in the case of a termination
pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given); provided that if within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this proviso), the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of
<PAGE>
Page 9
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (which
is not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected) but shall be deemed to be within the
twenty four (24) month period following a change in control of the Company;
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance plans and programs
in which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Subsection.
Amounts paid under this Subsection are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
4. Compensation Upon Termination or During Disability. Following a change
in control of the Company, as defined by Subsection 2(i), upon termination of
your employment or during a period of Disability you shall be entitled to the
following benefits:
(i) During any period that you fail to perform your full-time duties with
the Company as a result of incapacity due to physical or mental illness, you
shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all compensation payable to you
under the Pension Plan, Supplemental Plan, Annual Incentive Plan, Thrift Plan
and Nonqualified Thrift Plan during such period, until this Agreement is
terminated pursuant to Section 3(i) hereof. Thereafter, in the event your
employment shall be terminated, your benefits shall be determined under the
Company's retirement, insurance and other compensation plans and programs then
in effect in accordance with the terms of such plans and programs.
(ii) If your employment shall be terminated by the Company for Cause or by
you other than for Good Reason, Disability, death or Retirement, the Company
shall pay you your full base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Company
<PAGE>
Page 10
at the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by you for Good
Reason, then you shall be entitled to the compensation and benefits provided
below:
(A) the Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is
given, plus all other amounts to which you are entitled under any
compensation plan or program of the Company, at the time such payments are
due, except as otherwise provided below.
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you a lump sum severance payment (together with the payments
provided in paragraphs C, D and E below, the "Severance Payments") equal to
two times the sum of (x) your annual base salary in effect immediately
prior to the occurrence of the circumstance giving rise to the Notice of
Termination given in respect thereof, and (y) the average annual amount of
the Award paid to you pursuant to the Annual Incentive Plan or similar
successor plan with respect to the five years immediately preceding that in
which the Date of Termination occurs, such average annual amount being
calculated by aggregating all such Awards paid with respect to such five
years and dividing such aggregate amount by the number of years for which
such an Award was actually paid to you.
(C) notwithstanding any provision of the Annual Incentive Plan and
the Inland Special Achievement Award Plan, the Company shall pay to you a
lump sum amount equal to the sum of (x) any incentive compensation which
has been allocated or awarded to you for a completed fiscal year or other
measuring period preceding the Date of Termination but has not yet been
paid, and (y) a pro rata portion to the Date of Termination for the current
fiscal year or other measuring period of the amount equal to the Target
Award percentage applicable to you under the Annual Incentive Plan or
similar successor plan on the Date of Termination times your annual base
salary then in effect.
(D) in lieu of shares of common stock of RTI ("RTI Shares") issuable
upon exercise of outstanding options ("Options"), if any, granted
<PAGE>
Page 11
to you under RTI's stock option plans (which Options shall be cancelled
upon the making of the payment referred to below), you shall receive an
amount in cash equal to the product of (i) the excess of (x) in the case of
incentive stock options (as defined in section 422A of the Internal Revenue
Code of 1986, as amended (the "Code")) ("ISOs")), granted after the date
hereof, the closing price of RTI's shares as reported on the New York Stock
Exchange Composite Transactions on or next preceding the Date of
Termination, in the case of all other options, the Change in Control Price
(as defined below), over (y) the per share exercise price of each Option
held by you (whether or not then fully exercisable), times (ii) the number
of RTI Shares covered by each such option. For purposes of this Agreement,
the "Change in Control Price" means (1) with respect to a merger or
consolidation of RTI described in Section 2(i)(C) in which the
consideration per share of RTI's common stock to be paid for the
acquisition of shares of common stock specified in the agreement of merger
or consolidation is all in cash, the highest such consideration per share,
(2) with respect to a change in control of the Company by reason of an
acquisition of securities described in Section 2(i)(A), the highest price
per share for any share of RTI's common stock paid by any holder of any of
the securities representing 40% or more of the combined voting power of RTI
giving rise to the change in control of the Company, and (3) with respect
to a change in control of the Company by reason of a merger or
consolidation of RTI (other than a merger or consolidation described in
Clause (1) next above), stockholder approval of an agreement or plan
described in Section 2(i)(D), a change in the composition of the Board
described in Section 2(i)(B) or a change in control of the Company pursuant
to Section 2(i)(E) (relating to mergers, consolidations and sales of
securities or assets of a Related Company), the highest price per share of
common stock reported on the New York Stock Exchange Composite Transactions
(or, if such shares are not traded on the New York Stock Exchange, such
other principal market on which such shares are traded) during the sixty
(60) day period ending on the date the change in control of the Company
occurs.
(E) in lieu of RTI Shares awarded or issuable to you as performance
and/or restricted shares, if any, pursuant to the Incentive Plan or similar
successor plan or plans (which RTI Shares shall be cancelled upon the
making of the payment referred to below), you shall receive an amount in
cash equal to the product of (i) the Change in Control Price, times (ii)
the total of the number of restricted shares awarded to you and then
outstanding pursuant to the Incentive Plan
<PAGE>
Page 12
and/or any similar successor plan(s), plus a number of performance shares
equal to the total number of performance shares paid or payable to you with
respect to the two immediately preceding performance periods under any
performance award or awards made pursuant to the Incentive Plan, and/or any
similar successor plan(s).
(F) the Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999 of
the Code to any payment or benefit provided hereunder). Such payments shall
be made at the later of the times specified in paragraph (J) below, or
within five (5) days after your request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may
require.
(G) in the event that you become entitled to any payments provided
for hereinabove (the "Contract Payments"), if the Contract Payments or
other portion of the Total Payments (as defined below) will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company
shall pay to you, no later than the fifth day following the Date of
Termination, an additional amount (the "Gross-Up Payment") such that the
net amount retained by you, after deduction of any Excise Tax on the
Contract Payments and such other Total Payments and any federal and state
and local income and other payroll taxes and Excise Tax upon the payment
provided for by this subsection, shall be equal to the Contract Payments
and such other Total Payments.
(H) for purposes of determining whether any of the payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection with a
change in control of the Company or your termination of employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a change in
control or any person affiliated with the Company or such person) payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a change in
control or any person affiliated with the Company or such person (together
with the Contract Payments, the "Total Payments"), shall be treated as
"parachute
<PAGE>
Page 13
payments" within the meaning of Section 280G(b)(2) of the Code and all
"excess parachute payments" within the meaning of Section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax unless in the opinion of
tax counsel selected by RTI's independent auditors and reasonably
acceptable to you, such other payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code in excess of the
base amount allocable to such reasonable compensation within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the amount of
the Total Payments or (B) the amount of excess parachute payments within
the meaning of Section 280G(b)(l) of the Code (after applying clause (i)
above), and (iii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by RTI's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, you shall
be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rate
of taxation in the state and locality of your residence on the Date of
Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
(I) in the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of
termination of your employment, you shall repay to the Company at the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal
and state and local income tax imposed on the Gross-Up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or amount of
which cannot be determined at the
<PAGE>
Page 14
time of the Gross-Up Payment), the Company shall make an additional gross-
up payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
(J) the payments provided for in paragraphs (B), (C), (D) and (E)
above, shall be made not later than the fifth day following the Date of
Termination, provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a
loan by the Company to you payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(iv) If your employment shall be terminated (A) by the Company other than
for Cause, Retirement or Disability or (B) by you for Good Reason, then for a
twenty-four (24) month period after such termination, the Company shall arrange
to provide you with: (1) life, disability, accident and health insurance
benefits substantially similar to those which you are receiving immediately
prior to the Notice of Termination, (2) financial advisory services similar to
those provided currently to executives of the Company by Ayco Corporation and
(3) outplacement services. Benefits otherwise receivable by you pursuant to
this Subsection 4(iv) shall be reduced to the extent comparable benefits are
actually received by you during the twenty-four (24) month period following your
termination, and any such benefits actually received by you shall be reported to
the Company. Any rights that you have to continuation of life, disability,
accident or health coverage under applicable state or federal law shall be in
addition to those provided under this Agreement.
(v) If your employment shall be terminated (A) by the Company other than
for Cause, Retirement or Disability or (B) by you for Good Reason, then in
addition to the retirement benefits to which you are entitled under the Pension
Plan or Supplemental Plan or any successor plans thereto, the Company shall pay
you in cash at the time and in the manner provided in paragraph (J) of
Subsection 4(iii), a lump sum equal to the excess of (x) the actuarial
equivalent
<PAGE>
Page 15
of the retirement pension (taking into account any early retirement subsidy
associated therewith and determined as a straight life annuity commencing at age
sixty-five (65) or any earlier date, but in no event earlier than the second
anniversary of the Date of Termination whichever annuity yields a greater
benefit) which you would have accrued under the terms of the Pension Plan or
Supplemental Plan (without regard to any amendments to any such plans made
subsequent to a change in control of the Company and on or prior to the Date of
Termination, which amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if you were fully vested
thereunder and had accumulated (after the Date of Termination) twenty-four (24)
additional months of age and service credit thereunder at the higher of the rate
of average compensation during the twelve (12) months prior to the change in
control of the Company or the rate of average compensation used to calculate
your benefits under such plans immediately preceding the Date of Termination,
over (y) the actuarial equivalent of the retirement pension (taking into account
any early retirement subsidy associated therewith and determined as a straight
life annuity commencing at age sixty-five (65) or any earlier date, but in no
event earlier than the Date of Termination whichever annuity yields a greater
benefit) which you had then accrued pursuant to the provisions of the Pension
Plan. For purposes of this Subsection, "actuarial equivalent" shall be
determined using the same assumptions utilized under the Pension Plan for
purposes of determining alternative forms of benefits immediately prior to the
change in control of the Company.
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise, except as provided in Section 4(iv).
(vii) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under the
Pension Plan, the Thrift Plan, Supplemental Plan, Nonqualified Thrift Plan (or
any substitute or alternative plan or plans) and any other plan or agreement
relating to retirement benefits.
5. Successors; Binding Agreement. (i) RTI will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of RTI to expressly
assume
<PAGE>
Page 16
and agree to perform this Agreement in the same manner and to the same extent
that RTI or the Company would be required to perform it if no such succession
had taken place. Failure of RTI to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you terminate your
employment for Good Reason following a change in control of the Company, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. In the
event a successor of RTI assumes and agrees to perform this Agreement, by
operation of law or otherwise, the term "RTI", as used in this Agreement, shall
mean such successor and the term "Company" shall mean, collectively, such
successor and the affiliates of such successor.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notice to the Company shall be directed to the attention of the Board
with a copy to the Secretary of RTI, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
<PAGE>
Page 17
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Illinois. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law.
The obligations of the RTI and the Company under Section 4 shall survive the
expiration of the term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Settlement of Disputes; Arbitration. All claims by you for benefits
under this Agreement shall be directed to and determined by the Board and shall
be in writing. Any denial by the Board of a claim for benefits under this
Agreement shall be delivered to you in writing and shall set forth the specific
reasons for the denial and the specific provisions of this Agreement relied
upon. The Board shall afford a reasonable opportunity to you for a review of the
decision denying a claim and shall further allow you to appeal to the Board a
decision of the Board within sixty (60) days after notification by the Board
that your claim has been denied. Any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Chicago, Illinois, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to RTI the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely,
<PAGE>
Page 18
RYERSON TULL, INC.
By: ___________________________________
Its: Vice President - Human Resources
Agreed to this ______ day
of __________________, 1996.
______________________________ (Signature)
<PAGE>
EXHIBIT 10.11
Amended Schedule to Form of Change in Control Agreements, Dated as of June 10,
1996, Between RT and the parties listed on the Schedule thereto
Robert J. Darnall
Jay M. Gratz
Carl G. Lusted
Stephen E. Makarewicz
Gary J. Niederpruem
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF RYERSON TULL, INC.
----------------------------------
The subsidiaries of Ryerson Tull, Inc. (other than certain subsidiaries which,
considered in the aggregate as a single subsidiary, do not constitute a
significant subsidiary), one of which is incorporated in the State of Delaware
and one of which is incorporated in the State of Georgia, as noted below, and
each of which is wholly owned by Ryerson Tull, Inc., are as follows:
Joseph T. Ryerson & Son, Inc.
(a Delaware corporation)
J. M. Tull Metals Company, Inc.
(a Georgia corporation)
<PAGE>
EXHIBIT 24
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January,
1998.
Richard G. Cline
-----------------------------------
Richard G. Cline
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January,
1998.
Robert J. Darnall
--------------------------------------
Robert J. Darnall
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of January,
1998.
James A. Henderson
------------------------------------
James A. Henderson
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January,
1998.
Neil S. Novich
---------------------------------------
Neil S. Novich
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of January,
1998.
Jerry K. Pearlman
---------------------------------------
Jerry K. Pearlman
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January,
1998.
Donlad S. Perkins
------------------------------------
Donald S. Perkins
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January,
1998.
Jean-Pierre Rosso
-------------------------------------
Jean-Pierre Rosso
<PAGE>
RYERSON TULL, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director
and(or) officer of Ryerson Tull, Inc., a Delaware corporation, do hereby
nominate, constitute and appoint Robert J. Darnall, Jay M. Gratz, Vicki L. Avril
and Charles B. Salowitz, or any one or more of them, my true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Ryerson Tull, Inc. to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the preparation and
filing of the Annual Report on Form 10-K of said Ryerson Tull, Inc. for the
fiscal year ended December 31, 1997, including specifically, but without
limitation thereof, full power and authority to sign my name as a director
and(or) officer of said Ryerson Tull, Inc. to said Annual Report on Form 10-K
and any amendment thereto, hereby ratifying and confirming all that said
attorneys and agents, or any of them, shall do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of January,
1998.
Ronald L. Thompson
-----------------------------------
Ronald L. Thompson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET, AND
THE SUMMARY OF STOCKHOLDERS' EQUITY CONTAINED IN THE ANNUAL REPORT ON FORM 10-K
TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 305,800
<ALLOWANCES> 8,100
<INVENTORY> 425,700
<CURRENT-ASSETS> 729,000
<PP&E> 543,300
<DEPRECIATION> 258,300
<TOTAL-ASSETS> 1,177,300
<CURRENT-LIABILITIES> 346,000
<BONDS> 257,000
0
0
<COMMON> 39,300
<OTHER-SE> 388,200
<TOTAL-LIABILITY-AND-EQUITY> 1,177,300
<SALES> 2,789,400
<TOTAL-REVENUES> 2,789,400
<CGS> 2,474,400
<TOTAL-COSTS> 2,474,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,600
<INCOME-PRETAX> 105,400
<INCOME-TAX> 42,600
<INCOME-CONTINUING> 62,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,800
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
</TABLE>
<PAGE>
EXHIBIT 99
FINANCIAL INFORMATION
(TO BE INCLUDED IN THE ANNUAL REPORT TO SHAREHOLDERS FOR 1997)
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA AND OPERATING RESULTS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER TON DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of
Earnings
Net sales....... $2,789.4 $2,394.0 $2,450.1 $2,197.5 $1,893.3 $1,716.6 $1,655.9
Gross profit.... 619.4 558.1 576.2 514.9 457.8 424.2 403.5
Operating
profit.......... 144.2(1) 120.0 148.7 98.1 56.4 27.1 16.2
Income before
income taxes.... 105.4(1) 103.5 145.4 88.3 38.1 5.9 (11.5)
Net income...... 62.8(1) 63.3 88.5 53.3 26.7 (80.8)(2) (9.2)
Earnings per
share--basic and
diluted(4)...... 1.60(1,3) 1.72(3) 2.60 1.57 0.79 (2.38) (0.27)
Financial
Position at Year-
End
Inventory--
current
value(5)........ $ 538.1 $ 439.4 $ 409.2 $ 405.8 $ 384.9 $ 360.1 $ 371.5
Working capital. 383.0 425.6 500.2 425.8 366.8 187.7 162.6
Property, plant
and equipment... 285.0 251.0 249.7 252.5 257.2 257.8 268.2
Total assets.... 1,177.3 932.2 972.6 891.3 828.3 751.4 765.3
Long-term debt.. 257.0 263.2 18.9 23.6 28.2 25.7 N/A
Stockholders'
equity.......... 427.5 364.4 668.5 580.0 526.7 350.0 430.7
Financial Ratios
Inventory
turnover--
current
value(5)........ 4.0 4.2 4.2 4.1 3.8 3.5 3.2
Operating asset
turnover........ 2.8 2.9 2.9 2.7 2.4 2.2 2.0
Operating profit
on operating
assets (OP/OA).. 14.6% 14.3% 17.6% 12.2% 7.3% 3.5% 2.0%
Return on ending
stockholders'
equity.......... 14.7 17.4 13.2 9.2 5.1 (23.1)(2) (1.6)
Volume and Per
Ton Data
Tons shipped
(000)........... 3,020 2,514 2,347 2,327 2,078 1,872 1,736
Average selling
price per ton... $ 924 $ 952 $ 1,044 $ 944 $ 911 $ 917 $ 954
Gross profit per
ton............. 205 222 245 221 220 226 232
Expenses per
ton(6).......... 163 174 182 179 193 212 223
Operating profit
per ton(7)...... 42 48 63 42 27 14 9
Profit Margins
Gross profit as
a percent of
sales........... 22.2% 23.3% 23.5% 23.4% 24.2% 24.7% 24.4%
Expenses as a
percent of
sales(6)........ 17.7 18.3 17.4 19.0 21.2 23.1 23.4
Operating profit
as a percent of
sales(7)........ 4.5 5.0 6.1 4.5 3.0 1.6 1.0
Other Data
Average number
of employees.... 5,314 4,904 5,125 5,195 5,067 5,132 5,315
Tons shipped per
average
employee........ 568 513 458 448 410 365 327
Capital
expenditures.... $ 40.4 $ 24.1 $ 19.3 $ 20.4 $ 19.3 $ 9.3 $ 9.8
EBITDA.......... 164.5 139.9 169.8 112.4 69.6 38.8 25.3
Cash flow from
operating
activities...... 44.6 60.0 84.4 79.7 (25.3) 46.1 40.4
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988 1987
-------- -------- -------- --------
DOLLARS IN MILLIONS, EXCEPT
PER SHARE AND PER TON DATA
<S> <C> <C> <C> <C>
Summary of
Earnings
Net sales....... $1,825.4 $1,973.4 $1,815.3 $1,442.3
Gross profit.... 436.0 452.1 456.9 375.1
Operating
profit.......... 18.1 63.8 115.7 61.9
Income before
income taxes.... (20.2) 22.6 80.3 35.6
Net income...... (19.4) 16.4 74.3 33.6
Earnings per
share--basic and
diluted(4)...... (0.57) 0.48 2.19 0.99
Financial
Position at Year-
End
Inventory--
current
value(5)........ $ 439.1 $ 439.2 $ 428.6 $ 379.4
Working capital. 163.4 128.9 174.5 227.4
Property, plant
and equipment... 277.2 258.5 210.6 189.4
Total assets.... 796.5 810.1 703.1 641.3
Long-term debt.. N/A N/A N/A N/A
Stockholders'
equity.......... 439.9 389.3 373.0 298.7
Financial Ratios
Inventory
turnover--
current
value(5)........ N/A N/A N/A N/A
Operating asset
turnover........ 2.2 2.3 2.5 2.3
Operating profit
on operating
assets (OP/OA).. 2.2% 7.3% 15.7% 10.1%
Return on ending
stockholders'
equity.......... (4.4) 4.2 19.9 11.2
Volume and Per
Ton Data
Tons shipped
(000)........... 1,847 1,850 1,528 1,515
Average selling
price per ton... $ 988 $ 1,067 $ 1,188 $ 952
Gross profit per
ton............. 236 244 299 248
Expenses per
ton(6).......... 226 210 223 207
Operating profit
per ton(7)...... 10 34 76 41
Profit Margins
Gross profit as
a percent of
sales........... 23.9% 22.9% 25.2% 26.0%
Expenses as a
percent of
sales(6)........ 22.9 19.7 18.8 21.7
Operating profit
as a percent of
sales(7)........ 1.0 3.2 6.4 4.3
Other Data
Average number
of employees.... 5,506 5,353 4,994 4,886
Tons shipped per
average
employee........ 335 346 306 310
Capital
expenditures.... $ 29.6 $ 53.4 $ 31.6 $ 21.7
EBITDA.......... 22.4 67.3 117.2 65.7
Cash flow from
operating
activities...... 72.3 26.4 92.8 34.5
</TABLE>
- ----
(1) Includes an $8.9 million pretax pension curtailment gain and an $8.9
million pretax gain on the sale of assets. Before these one-time gains,
operating profit was $126.3 million, income before income taxes was $87.6
million, net income was $52.2 million and earnings per share were $1.33.
(2) Net income in 1992 was negatively impacted by $84.1 million as a result of
the adoption of FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and FASB Statement No. 109,
"Accounting for Income Taxes."
(3) Earnings for 1997 reflect a full year's interest expense on the $250
million of Notes issued in July 1996 in conjunction with RT's initial
public offering, compared with a half year's expense in 1996. Interest
expense on these Notes was 36 cents per share in 1997 and 19 cents per
share in 1996.
(4) Weighted average shares used to calculate 1997 and 1996 earnings per share
were 39.3 million and 36.7 million, respectively. Prior to 1996, 34.0
million shares were used in the calculation of earnings per share.
(5) Current value of inventory consists of book value of inventory plus LIFO
reserve.
(6) Expenses are defined as operating expenses plus depreciation and
amortization.
(7) Operating profit is defined as gross profit minus expenses.
N/A--Not available
1
<PAGE>
MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
COMPARISON OF 1997 WITH 1996
Net Sales
Sales increased 16.5 percent to $2.79 billion in 1997 from $2.39 billion in
1996. Approximately three-fourths of the sales gain was attributable to the
acquisitions of Thypin Steel, Cardinal Metals and Omni Metals in 1997.
Shipments of 3.02 million tons in 1997 rose 20.1 percent from 2.51 million
tons in 1996. The Company's average selling price per ton declined 2.9 percent
to $924 in 1997 from $952 in 1996 due to a continued excess supply of metals
relative to demand in the steel industry. The Company's market share increased
to 10.2 percent in 1997 from 9.1 percent in 1996, based on data from the Steel
Service Center Institute ("SSCI").
Gross Profit
Gross profit--the difference between net sales and the cost of materials
sold--rose 11.0 percent to $619.4 million in 1997 from $558.1 million in 1996.
Gross profit as a percent of sales declined to 22.2 percent from 23.3 percent.
Gross profit per ton decreased to $205 in 1997 from $222 in 1996, as average
selling price per ton declined 2.9 percent and material cost per ton decreased
1.5 percent.
Expenses
Expenses--which consist of operating expenses, depreciation and
amortization--were 12.5 percent higher in 1997 than in 1996. However, expenses
increased less than tons shipped and, as a result, expenses per ton declined
to $163 in 1997 from $174 in 1996. The improvement in expenses per ton was due
to the Company's continuing strong focus on cost control. Tons shipped per
employee, a measure of productivity, increased 10.7 percent in 1997 to 568
tons from 513 tons in the prior year.
Operating Profit
Operating profit in 1997 benefited from an $8.9 million gain on the sale of
real estate in Boston, MA, and Jersey City, NJ, and an $8.9 million pension
curtailment gain. The pension curtailment gain resulted from freezing benefits
under a defined benefit plan and implementing a defined contribution plan for
certain salaried employees effective January 1, 1998. Excluding these gains,
operating profit of $126.3 million in 1997 was 5.2 percent higher than $120.0
million in 1996. The increase in operating profit was due to strong volume
gains and reduced expenses per ton, partly offset by weaker gross margins.
General Corporate and Other Expense, Net of Income Items
General corporate expense--the charge from Inland Steel Industries, Inc.
("ISI") for services rendered to the Company--decreased to $5.5 million in
1997 from $6.4 million in 1996. Interest income declined to $0.3 million in
1997 from $4.2 million in 1996, due to a reduction in cash and cash equivalent
balances resulting entirely from acquisitions. Other expenses increased $1.0
million in 1997 from 1996, mainly due to costs associated with being a public
company.
Interest and Other Expense on Debt
Interest and other expense on debt increased to $32.6 million from $14.3
million in 1996. 1997 results reflected a full year's interest on the $250
million of Notes issued in conjunction with the initial public offering,
compared to a half year's interest in 1996, and higher interest expense
incurred on short-term borrowings arising mainly from acquisitions.
Provision for Income Taxes
Income taxes increased 6.0 percent to $42.6 million in 1997 from $40.2
million in 1996 due to an increase in taxable income and an increase in the
effective tax rate from 38.9 percent to 40.4 percent.
2
<PAGE>
COMPARISON OF 1996 WITH 1995
Net Sales
Sales of $2.39 billion in 1996 declined 2.3 percent compared with $2.45
billion in 1995. The effect of a 7.1 percent increase in tons shipped--to 2.51
million tons from 2.35 million tons--was more than offset by an 8.8 percent
decrease in the average selling price per ton to $952 from $1,044. Excess
supply of metals relative to demand in the steel industry in 1996 led to the
decline in selling prices. Based on analysis of SSCI data, the Company
expanded its share of the market to 9.1 percent in 1996 compared with 8.4
percent in 1995.
Gross Profit
Gross profit declined 3.1 percent to $558.1 million in 1996 from $576.2
million in 1995. Gross profit as a percent of sales dipped slightly to 23.3
percent from 23.5 percent. Gross profit per ton declined to $222 in 1996
versus $245 in 1995, as an 8.8 percent decrease in average selling price per
ton more than offset an 8.5 percent decrease in material cost per ton.
Expenses
Expenses increased by 2.5 percent in 1996. The increase in expenses was less
than the increase in tons shipped and, on a per ton basis, expenses declined
to $174 from $182. The average employee count decreased 4.3 percent to 4,904
in 1996 from 5,125 in 1995, and tons shipped per employee increased 12.0
percent to 513 tons from 458 tons.
Operating Profit
Operating profit decreased 19.3 percent to $120.0 million in 1996 from
$148.7 million in 1995. The benefits of an increase in tons shipped and lower
expenses per ton were not enough to offset the impact of a lower average
selling price per ton and the resulting decline in gross profit per ton.
General Corporate and Other Expense, Net of Income Items
General corporate expense decreased to $6.4 million in 1996 from $6.8
million in 1995. Other items, principally interest income, decreased to $4.2
million in 1996 from $6.1 million in 1995 because of lower cash and cash
equivalent balances.
Interest and Other Expense on Debt
Interest and other expense on debt increased to $14.3 million from $2.6
million due to the $250 million of Notes issued in mid-1996 in conjunction
with the initial public offering. See Recapitalization.
Provision for Income Taxes
Income taxes decreased 29.3 percent to $40.2 million in 1996 from $56.9
million in 1995, primarily due to a decrease in taxable income and a slight
reduction in the effective tax rate, which decreased to 38.9 percent in 1996
from 39.1 percent in 1995.
RECAPITALIZATION
In the second quarter of 1996, ISI undertook a recapitalization that
involved RT. As part of the recapitalization, RT exchanged existing shares of
RT common stock, all of which were owned by ISI, for 34.0 million shares of
new-issue Class B common stock ($1.00 par value). RT also sold 5.2 million
shares of new-issue Class A common stock ($1.00 par value) in a public
offering, the net proceeds of which approximated $77.1 million.
Prior to the issuance of the Class A common stock, RT declared and paid
dividends of $445.9 million to ISI, of which $152.1 million was in cash and
$293.8 million was in the form of a note payable. ISI used $63.2
3
<PAGE>
million of the cash dividend to repay intercompany borrowing from RT and its
subsidiaries. Of the $445.9 million of dividends paid to ISI, $198.3 million
eliminated the reinvested earnings balance that existed at June 26, 1996,
while the remaining $247.6 million reduced capital in excess of par value.
In July 1996, RT sold $150 million of 8.5 percent Notes due July 15, 2001
and $100 million of 9.125 percent Notes due July 15, 2006 in a public
offering. The net proceeds of the offering, along with a portion of RT's cash
on hand, were used to pay the $293.8 million note balance due ISI.
Effective June 1, 1996, as the result of a capital contribution from ISI to
RT, Inland Industries de Mexico and its 50 percent-owned Ryerson de Mexico
joint venture became part of the Company. The contribution increased both
investments in joint ventures and capital in excess of par value by $18.9
million. The impact of Ryerson de Mexico on the Company's results of
operations has not been material.
LIQUIDITY AND FINANCING
The Company finished 1997 with no cash and cash equivalents and a short-term
borrowing balance of $121.4 million, compared with $23.9 million of cash and
cash equivalents and no short-term borrowing at year-end 1996. The reduction
in cash and cash equivalent balances and the increase in short-term borrowing
resulted entirely from acquisitions.
For 1997, net cash provided from operating activities amounted to $44.6
million, compared to $60.0 million for 1996. The decline is mainly
attributable to higher interest expense in 1997.
As part of the recapitalization that took place in 1996, RT, on June 26,
1996, established a new committed four-year $250 million bank revolving credit
facility. The $200 million credit facility at Joseph T. Ryerson & Son, Inc.
("Ryerson") and the $25 million credit facility at J. M. Tull Metals Company,
Inc. were concurrently terminated.
During the third quarter of 1997, RT extended the term of its $250 million
revolving credit facility to September 5, 2002, while reducing both the
commitment fee and interest rate related to the facility. Restrictions
contained in the bank facility and the Notes indenture prohibit RT from, among
other things, declaring or paying dividends on RT common stock under certain
conditions. Considering these restrictions, at December 31, 1997, up to $76
million of common dividends could have been paid.
In order to provide additional borrowing flexibility, RT established a five-
year, $250 million uncommitted line of credit with its parent, ISI, on March
27, 1997. Interest under this credit line is at market rates. Under terms of
the agreement, ISI may, at its sole option, demand repayment of any or all
amounts outstanding at any time.
At December 31, 1997, RT had outstanding borrowing under the ISI line of
credit of $121.4 million. The short-term borrowings were used entirely for the
acquisition of Thypin Steel and Cardinal Metals during the first quarter and
Omni Metals during the third quarter of 1997, including the repayment of debt
assumed in the Thypin and Omni acquisitions. On a combined basis, RT had
committed and uncommitted lines of credit of $378.6 million unused as of
December 31, 1997. However, there can be no assurance that ISI will continue
to make the $250 million credit line available to RT in the future.
Additionally, a covenant contained in the bank credit facility restricts the
amount of additional debt, including additional borrowings under the credit
lines, that RT can incur, to $264 million as of December 31, 1997.
As of December 31, 1997, Ryerson was also the guarantor of $96.5 million of
the ISI Thrift Plan ESOP notes (the "ESOP Guarantee"). The ESOP notes are
payable in installments through July 2004. The ESOP Guarantee requires
compliance with various financial covenants, including minimum net worth and
leverage ratio tests, and also limits Ryerson's ability to advance funds or
make dividend payments to RT. Under these covenants, Ryerson's ability to make
dividend payments or advance funds to RT at any time is limited to $30 million
(i) plus 80% of net income (decreased by 100% of net losses) earned by Ryerson
since December 31,
4
<PAGE>
1989, (ii) minus the dollar amount of dividends paid and capital stock
repurchased and the balance of any advances outstanding, and (iii) plus
capital contributions to Ryerson and the proceeds from the issuance of any
capital stock or certain other investments during such period. At December 31,
1997, approximately $196 million of advances or dividends to RT were allowed
under the ESOP Guarantee.
The indenture under which the $250 million of Notes were issued contains
covenants limiting, among other things, the creation of secured indebtedness,
sale and leaseback transactions, the repurchase of capital stock, transactions
with affiliates and mergers, consolidations and certain sale of assets. In
addition, the Notes restrict the payment of dividends, although to a lesser
extent than the bank credit facility described above.
The debt ratings of RT's Notes at year-end 1997 were unchanged from a year
ago:
<TABLE>
<S> <C>
Moody's............................. Ba 1
Standard & Poor's................... BB
</TABLE>
The Company had a debt-to-capital ratio of 47 percent at the end of 1997 and
a coverage ratio for earnings before interest, taxes, depreciation and
amortization to interest expense of 5 times for the year 1997.
The Company believes that available borrowings under its credit facilities
and anticipated cash flow from operations will provide sufficient liquidity to
meet its scheduled debt retirements, fund its capital program and meet any
operating cash requirements that may arise for at least the next two years.
CAPITAL EXPENDITURES, ACQUISITIONS AND INVESTMENTS IN JOINT VENTURES
Capital expenditures and investments in joint ventures during 1997 totaled
$40.8 million, compared to $26.3 million in 1996. Capital expenditures were
primarily for buildings, machinery and equipment.
On February 13, 1997, RT, through Ryerson, purchased all of the outstanding
stock of Thypin Steel Co., Inc. ("Thypin") for $120 million in cash plus the
assumption of $23 million of debt. Thypin was a privately held distributor of
carbon and stainless steel products that had seven locations in the eastern
United States. On March 3, 1997, RT, through Tull, acquired substantially all
the assets of Cardinal Metals, Inc., a privately held distributor and
processor of carbon steel products that operated a single facility located in
Pounding Mill, Virginia. On August 22, 1997, RT, through Ryerson, purchased
all of the outstanding stock of Omni Metals, Inc., a privately held processor
and distributor of flat rolled carbon steel products that operated a facility
in Knoxville, Tennessee.
The Company anticipates capital expenditures and investments in joint
ventures, excluding acquisitions, to be in the range of $40 million to $50
million in 1998, which will continue to expand the Company's processing
capacity.
PENSIONS
Effective April 30, 1996, that portion of the ISI Pension Plan covering the
Company's current and former employees was separated and became the Ryerson
Tull Pension Plan. Due to this separation, the Company's benefit obligation
was remeasured using plan data and actuarial assumptions as of April 30, 1996.
An amount of assets proportional to the liabilities assumed by the Ryerson
Tull Pension Plan was allocated to this new plan. As a result, the Company
recognized a $25.4 million decrease in its prepaid pension cost, a $16.5
million reduction in reinvested earnings and an $8.9 million deferred tax
asset increase in 1996.
The Company's pension plan currently meets the minimum funding requirements
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Company's current policy is to continue to fund the plan in the future to
at least meet these minimum funding standards. Although the Company was not
required to make any pension plan contributions during 1997, the Company
elected to make a voluntary cash contribution of $6.9 million to enhance the
pension plan's funded status.
Effective January 1, 1998, the Company froze the benefits accrued under the
Ryerson Tull Pension Plan, a defined benefit pension plan for certain salaried
employees, and instituted a defined contribution plan. Salaried employees
vested in their benefits accrued under the defined benefit plan at December
31, 1997, will be entitled
5
<PAGE>
to those benefits upon retirement. Certain transition rules have been
established for those salaried employees meeting the specified age and service
requirements. The change in pension plan for salaried employees resulted in a
one-time pretax curtailment gain of $8.9 million that was recognized in 1997.
YEAR 2000 COMPLIANCE PROGRAMS
The Company relies to a significant degree on various computer-supported
procedures in various operations, including order processing, inventory
tracking, delivery, distribution and accounting. Company personnel from
Information Technology and other departments have been identifying and
correcting, since late 1996, and continue to identify and correct, date-
sensitive hardware, software and procedures that could disrupt operations
approaching and after the start of the next millennium ("Year 2000 issues").
The Company continues to dedicate significant internal resources in a range of
disciplines to address Year 2000 issues, as well as to receive assistance from
several consulting groups. Currently, it is expected that the Company will
expend in total approximately $7 million (excluding internal personnel costs)
in bringing the Company's systems into Year 2000 compliance. A significant
percentage of the effort has already been undertaken and it is anticipated
that needed modifications to the Company's information systems will be
completed well in advance of year-end 1999.
The Company has received inquiries from some of its customers and suppliers
regarding the extent of the Company's Year 2000 compliance programs, and is
setting up processes to start working with selected customers and suppliers.
The Company cannot be assured that all entities with which it transacts
significant business will finalize their Year 2000 system upgrades in a timely
or complete manner.
Although unlikely, it is possible that, as a result of such a potential
failure by major customers or suppliers, or a delay or oversight in the
Company's effort to address Year 2000 issues, the Company could experience an
adverse impact, which could be material, on the results of operations or
financial position of the Company.
FINANCIAL RESPONSIBILITY
Senior management is responsible for the integrity and objectivity of the
financial data reported by Ryerson Tull, Inc. and its subsidiaries. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, and in management's judgment reflect
fairly the consolidated financial position, cash flows and results of
operations of Ryerson Tull and its subsidiary companies.
The Company maintains systems of internal accounting controls and procedures
to provide reasonable assurance of the safeguarding and accountability of
Company assets, and to ensure that its financial records provide a reliable
basis for the preparation of financial statements and other data.
Internal accounting control is maintained through:
. The ongoing activities of corporate staff, line officers and accounting
management to monitor the adequacy of internal accounting control systems
throughout the Company
. The selection and proper training of qualified personnel
. The appropriate separation of duties in organizational arrangements
. The establishment and communication of accounting and business policies
together with detailed procedures for their implementation
. The use of an intensive ongoing program of internal auditing
. The use of a detailed budgeting system to assure that expenditures are
properly approved and charged
Stockholders annually elect a firm of independent accountants to audit the
annual financial statements (their current report appears below). The
principal role of the Audit Committee of the Board of Directors (consisting
entirely of non-management Directors) is to review the conclusions reached by
management in its evaluation of internal accounting controls, approve the
scope of audit programs and evaluate audit results of both independent
accountants and internal auditors. Both groups have unrestricted access to the
Audit Committee, without the presence of management.
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Ryerson Tull, Inc.
In our opinion, the consolidated financial statements on pages 8 through 25
present fairly, in all material respects, the financial position of Ryerson
Tull, Inc. (a majority-owned subsidiary of Inland Steel Industries, Inc.) and
subsidiary companies at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Chicago, Illinois
February 18, 1998
7
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1997 1996 1995
-------- -------- --------
DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Consolidated Statement of Income
Net sales.......................................... $2,789.4 $2,394.0 $2,450.1
Cost of materials sold............................. 2,170.0 1,835.9 1,873.9
-------- -------- --------
Gross profit....................................... 619.4 558.1 576.2
Operating expenses................................. 466.5 416.0 405.7
Depreciation and amortization...................... 26.5 22.1 21.8
Pension curtailment gain........................... 8.9 -- --
Gain on sale of assets............................. 8.9 -- --
-------- -------- --------
Operating profit................................... 144.2 120.0 148.7
Other expenses:
General corporate and other expense, net of
income items.................................... 6.2 2.2 0.7
Interest and other expense on debt............... 32.6 14.3 2.6
-------- -------- --------
Income before income taxes......................... 105.4 103.5 145.4
Provision for income taxes (Note 10)............... 42.6 40.2 56.9
-------- -------- --------
Net income......................................... $ 62.8 $ 63.3 $ 88.5
======== ======== ========
Earnings per share--basic and diluted.............. $ 1.60 $ 1.72 $ 2.60
======== ======== ========
Consolidated Statement of Reinvested Earnings
Balance at beginning of year....................... $ 22.4 $ 173.9 $ 85.4
Net income......................................... 62.8 63.3 88.5
Reinvested earnings impact of pension plan split... -- (16.5) --
Dividends on common stock.......................... -- (198.3) --
-------- -------- --------
Balance at end of year............................. $ 85.2 $ 22.4 $ 173.9
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements on pages 15-25.
8
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN
CASH YEAR ENDED
DECEMBER 31
------------------------
1997 1996 1995
------- ------- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Operating Activities
Net income........................................... $ 62.8 $ 63.3 $ 88.5
------- ------- ------
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization...................... 26.5 22.1 21.8
Pension curtailment gain........................... (8.9) -- --
Net gain on sales of assets........................ (8.9) -- (0.2)
Deferred employee benefit cost..................... (1.7) 3.8 (14.4)
Deferred income taxes.............................. 1.4 (3.5) 0.5
Change in:
Receivables...................................... (16.0) 9.4 (16.7)
Inventories...................................... (34.3) (51.5) 10.4
Other assets..................................... 4.9 (2.6) (2.3)
Accounts payable................................. 22.0 5.6 (7.0)
Payables to related companies.................... 8.1 2.8 (0.4)
Accrued liabilities.............................. (7.7) 10.4 4.2
Other deferred items............................. (3.6) 0.2 --
------- ------- ------
Net adjustments................................ (18.2) (3.3) (4.1)
------- ------- ------
Net cash provided from operating activities.. 44.6 60.0 84.4
------- ------- ------
Investing Activities
Acquisitions......................................... (139.9) -- --
Capital expenditures................................. (40.4) (24.1) (19.3)
Proceeds from sales of assets........................ 18.2 2.0 1.9
Investments in joint ventures........................ (0.4) (2.2) --
------- ------- ------
Net cash used for investing activities....... (162.5) (24.3) (17.4)
------- ------- ------
Financing Activities
Sale of Class A common stock......................... -- 77.1 --
Long-term debt issued................................ -- 242.8 --
Long-term debt retired............................... (2.1) (8.2) (4.7)
Dividends paid....................................... -- (445.9) --
Change in notes to and from related companies........ 121.4 68.8 (11.2)
Reduction of debt assumed in acquisitions............ (25.3) -- --
------- ------- ------
Net cash provided by (used for) financing
activities.................................. 94.0 (65.4) (15.9)
------- ------- ------
Net increase (decrease) in cash and cash equivalents. (23.9) (29.7) 51.1
Cash and cash equivalents--beginning of period..... 23.9 53.6 2.5
------- ------- ------
Cash and cash equivalents--end of period........... $ -- $ 23.9 $ 53.6
======= ======= ======
Supplemental Disclosures
Cash paid during the period for:
Interest........................................... $ 31.2 $ 2.3 $ 3.0
Income taxes, net.................................. 38.5 47.9 56.4
Non-cash activities:
Investments and advances increased by capital
contribution from Inland Steel Industries, Inc.... -- 18.9 --
</TABLE>
See Notes to Consolidated Financial Statements on pages 15-25.
9
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------
1997 1996
-------- ------
DOLLARS IN
MILLIONS
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................. $ -- $ 23.9
Receivables less provision for allowances, claims and
doubtful accounts of $8.1 and $6.0, respectively.......... 297.7 234.4
Inventories (Note 1)....................................... 425.7 314.3
Deferred income taxes (Note 10)............................ 5.6 13.6
-------- ------
Total current assets................................... 729.0 586.2
-------- ------
Investments and advances (Note 12)........................... 20.7 19.8
Property, plant and equipment, at cost, less accumulated
depreciation (Note 2)....................................... 285.0 251.0
Prepaid pension costs (Note 9)............................... 14.9 1.3
Excess of cost over net assets acquired, net of accumulated
amortization................................................ 82.3 22.3
Deferred income taxes (Note 10).............................. 35.8 37.9
Other assets................................................. 9.6 13.7
-------- ------
Total assets........................................... $1,177.3 $932.2
======== ======
Liabilities
Current liabilities:
Accounts payable........................................... $ 149.8 $ 98.4
Note payable to related company............................ 121.4 --
Payables to related companies--trade and other............. 25.3 17.2
Accrued liabilities:
Salaries and wages....................................... 23.4 21.0
Taxes other than federal income taxes.................... 6.8 8.0
Interest on long-term debt............................... 10.2 10.9
Other.................................................... 2.8 3.0
Long-term debt due within one year (see details page 11 and
Note 4)................................................... 6.3 2.1
-------- ------
Total current liabilities.............................. 346.0 160.6
-------- ------
Long-term debt (see details page 11 and Note 4).............. 257.0 263.2
Deferred employee benefits and other liabilities (Note 9).... 146.8 144.0
-------- ------
Total liabilities...................................... 749.8 567.8
-------- ------
Stockholders' Equity
Preferred stock, $1.00 par value; authorized--16,000,000
shares; issued and outstanding--0 shares for 1997 and 1996.. -- --
Class A common stock, $1.00 par value; authorized--
100,000,000 shares; issued and outstanding--5,283,762 shares
for 1997 and 5,277,127 shares for 1996...................... 5.3 5.3
Class B common stock, $1.00 par value; authorized, issued and
outstanding--34,000,000 shares.............................. 34.0 34.0
Capital in excess of par value (Note 5)...................... 304.6 304.5
Reinvested earnings.......................................... 85.2 22.4
Unearned restricted stock award compensation................. (0.3) (0.5)
Cumulative translation adjustment............................ (1.3) (1.3)
Treasury stock, at cost--common stock of 2,031 shares in 1997
and 0 shares in 1996........................................ -- --
-------- ------
Total stockholders' equity............................... 427.5 364.4
-------- ------
Total liabilities and stockholders' equity............. $1,177.3 $932.2
======== ======
</TABLE>
See Notes to Consolidated Financial Statements on pages 15-25.
10
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AT DECEMBER
31
-------------
1997 1996
------ ------
DOLLARS IN
MILLIONS
<S> <C> <C>
Long-Term Debt
Ryerson Tull, Inc.
Notes, 8.50%, due July 15, 2001................................ $150.0 $150.0
Notes, 9.125%, due July 15, 2006............................... 100.0 100.0
------ ------
Total Ryerson Tull, Inc...................................... 250.0 250.0
------ ------
Joseph T. Ryerson & Son, Inc.
Industrial Revenue Bond, floating interest rate set weekly
based on 13-week Treasury bills, due November 1, 2007......... 7.0 7.0
Other long-term debt, 10.25%, due through November 30, 1997.... -- 1.4
------ ------
Total Joseph T. Ryerson & Son, Inc........................... 7.0 8.4
------ ------
J.M. Tull Metals Company, Inc.
Term Note, LIBOR plus 62.5 basis points per annum, due through
December 15, 1998............................................. 6.3 6.5
Industrial Revenue Bonds, interest rates ranging from 6.50% to
65% of the prime rate, due through January 1, 1997............ -- 0.4
------ ------
Total J.M. Tull Metals Company, Inc.......................... 6.3 6.9
------ ------
Subtotal..................................................... 263.3 265.3
Less: Maturities due within one year......................... 6.3 2.1
------ ------
Total long-term debt......................................... $257.0 $263.2
====== ======
</TABLE>
See Notes to Consolidated Financial Statements on pages 15-25.
11
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SUMMARY BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
-------------------------------- --------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q(1)
------ -------- ------- ------- ------- ------- -------- -------
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $625.3 $ 607.5 $ 592.3 $ 568.9 $ 660.7 $ 730.0 $ 715.8 $ 682.9
Cost of materials sold.. 477.3 465.7 457.3 435.6 510.4 569.9 562.8 526.9
------ -------- ------- ------- ------- ------- -------- -------
Gross profit............ 148.0 141.8 135.0 133.3 150.3 160.1 153.0 156.0
Operating expenses...... 105.8 103.6 103.0 103.6 111.0 117.7 115.9 121.9
Depreciation and
amortization........... 5.6 5.5 5.7 5.3 6.3 7.0 7.1 6.1
Pension curtailment
gain................... -- -- -- -- -- -- -- 8.9
Gain on sale of assets.. -- -- -- -- 2.0 6.9 -- --
------ -------- ------- ------- ------- ------- -------- -------
Operating profit........ 36.6 32.7 26.3 24.4 35.0 42.3 30.0 36.9
General corporate and
other expense, net of
income items........... (0.7) 0.1 1.6 1.2 1.0 2.1 2.0 1.1
Interest and other
expense on debt........ 0.6 1.1 6.4 6.2 7.1 8.4 8.7 8.4
------ -------- ------- ------- ------- ------- -------- -------
Income before income
taxes.................. 36.7 31.5 18.3 17.0 26.9 31.8 19.3 27.4
Provision for income
taxes.................. 14.3 12.6 6.9 6.4 10.3 12.8 7.9 11.6
------ -------- ------- ------- ------- ------- -------- -------
Net income.............. 22.4 18.9 11.4 10.6 16.6 19.0 11.4 15.8
====== ======== ======= ======= ======= ======= ======== =======
Earnings per share--
basic and diluted...... $ 0.66 $ 0.55 $ 0.29 $ 0.27 $ 0.42 $ 0.49 $ 0.29 $ 0.40
------ -------- ------- ------- ------- ------- -------- -------
Common stock prices:
High.................... -- $ 16 1/8 $16 1/8 $15 1/8 $15 5/8 $16 1/2 $17 3/16 $16 3/8
Low..................... -- 16 13 1/4 12 7/8 13 3/4 13 5/8 15 9/16 13 5/8
Close................... -- 16 1/8 13 7/8 13 1/2 13 7/8 16 1/2 16 3/16 13 7/8
</TABLE>
- --------
(1) Certain year-end and one-time adjustments in the fourth quarter of 1997
favorably impacted gross profit (including a favorable LIFO adjustment)
and unfavorably affected operating expenses.
12
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES AND BUSINESS DESCRIPTION
BUSINESS DESCRIPTION
The Company is organized along regional and product lines into five business
units that operate in one business segment and distribute a broad line of
steel products, nonferrous metals and industrial plastics to a wide range of
industrial users on a nationwide basis. Substantially all of the Company's
operations are located in the United States, and foreign sales are not
material. At year-end 1997, investments in foreign operations were not
material.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Joseph T. Ryerson & Son, Inc. ("Ryerson") and J. M. Tull Metals Company, Inc.
("Tull"), which are wholly-owned subsidiaries of RT. The accounts of Tull are
consolidated with its wholly-owned subsidiary, AFCO Metals, Inc.
ACCOUNTING FOR EQUITY INVESTMENT
The Company's investment in its 50 percent-owned joint venture Ryerson de
Mexico is accounted for under the equity method.
PER SHARE RESULTS
Financial Accounting Standards Board ("FASB") Statement No. 128 was adopted
in 1997. Historical per share results have been restated in accordance with
that Statement. See Note 5.
INVENTORY VALUATION
Inventories are valued at cost that is not in excess of market. Cost is
determined principally by the last-in, first-out ("LIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated, for financial reporting
purposes, using the straight-line method over the estimated useful lives of
the assets. Expenditures for normal repairs and maintenance are charged
against income in the period incurred.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over fair value of net assets of businesses acquired
(goodwill) is amortized on the straight-line method over a 25-year period.
Accumulated amortization of goodwill totaled $14.8 million at December 31,
1997 and $11.5 million at December 31, 1996.
CASH EQUIVALENTS
Cash equivalents are highly liquid, short-term investments with maturities
of three months or less.
GROSS PROFIT
Gross profit is calculated as net sales less the cost of materials sold.
Direct labor costs and overhead costs are included in operating expenses.
13
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such
estimates may affect amounts reported in future periods.
STOCK-BASED COMPENSATION
FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of RT's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Compensation cost for stock
appreciation rights and performance equity units is recorded annually based on
the quoted market price of RT's stock at the end of the period. See Note 6.
RECLASSIFICATION
Certain items previously reported in specific financial statement captions
on the Statement of Income have been reclassified to conform with the 1996 and
1997 presentation.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: INVENTORIES
The Company's inventories consist principally of finished steel, nonferrous
metals and industrial plastic products for sale at service center locations.
The difference between LIFO values and approximate replacement costs for the
LIFO inventories was $112.4 million at December 31, 1997 and $125.1 million at
December 31, 1996.
During 1995, various inventory quantities were reduced, resulting in
liquidations of LIFO inventory quantities carried at costs prevailing in prior
years that were different from current year costs. The effect on cost of
materials sold of LIFO liquidations in that year was not material.
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER
31
-------------
1997 1996
------ ------
DOLLARS IN
MILLIONS
<S> <C> <C>
Buildings, machinery and equipment......................... $513.3 $464.1
Land and land improvements................................. 30.0 30.3
------ ------
Total.................................................. 543.3 494.4
Less--
Accumulated depreciation................................. 258.3 243.4
------ ------
Net.................................................... $285.0 $251.0
====== ======
</TABLE>
NOTE 3: BORROWING ARRANGEMENTS
At December 31, 1997, RT had available an unused credit facility totaling
$250 million that extends to September 5, 2002. The facility requires
compliance with various financial covenants, including minimum net worth,
fixed charge coverage and leverage ratio tests, and also limits the amount of
cash dividends that RT may pay. At year-end 1997, up to $76 million of common
dividends could have been paid under terms of the credit facility.
In order to provide additional borrowing flexibility, RT established a five-
year, $250 million uncommitted line of credit with its parent, Inland Steel
Industries, Inc. ("ISI"), on March 27, 1997. Interest under this credit line
is at market rates. Under terms of the agreement, ISI may, at its sole option,
demand repayment of any or all amounts outstanding at any time.
At December 31, 1997, RT had outstanding borrowing under the ISI line of
credit of $121.4 million. The short-term borrowings were used entirely for the
acquisition of Thypin Steel and Cardinal Metals during the first quarter and
Omni Metals during the third quarter of 1997, including the repayment of debt
assumed in the Thypin and Omni acquisitions. On a combined basis, RT had
committed and uncommitted lines of credit of $378.6 million unused as of
December 31, 1997. However, there can be no assurance that ISI will continue
to make the $250 million credit line available to RT in the future.
Additionally, a covenant contained in the bank credit facility restricts the
amount of additional debt, including additional borrowings under the credit
lines that RT can incur, to $264 million as of December 31, 1997.
NOTE 4: LONG-TERM DEBT
In July 1996, RT sold $150 million of 8.5 percent Notes due July 15, 2001
and $100 million of 9.125 percent Notes due July 15, 2006 in a public
offering. The indenture under which the Notes were issued contains
15
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
covenants limiting, among other things, the creation of secured indebtedness,
sale and leaseback transactions, the repurchase of capital stock, transactions
with affiliates, and mergers, consolidations and certain sales of assets.
Under the provisions of certain loan agreements, as well as the Inland Steel
Industries Thrift Plan ESOP Notes Guarantee (the "ESOP Guarantee") (see Note
13 regarding commitments and contingencies for further description), RT's
subsidiaries are required to maintain specified amounts of working capital and
net worth and to meet leverage tests, as outlined in the agreements, and
Ryerson is restricted as to loans or dividends that may be paid to RT. At
December 31, 1997, approximately $196 million was available for Ryerson to
make loans or pay dividends to RT under these loan agreements and the ESOP
Guarantee.
Maturities of long-term debt due within five years are $6.3 million in 1998,
and $150.0 million in 2001. See Note 13 regarding commitments and
contingencies for other scheduled payments.
Property with a net recorded carrying value of approximately $7.5 million at
December 31, 1997 is pledged as collateral on the Industrial Revenue Bonds and
mortgage loans. See Long-Term Debt Schedule on page 11.
NOTE 5: CAPITAL STOCK
On December 31, 1997, 879,491 shares of Class A common stock remained
reserved for issuance under RT's incentive stock plan. No shares of preferred
stock have been issued. Under RT's Restated Certificate of Incorporation,
effective June 1996, the authorized capital stock of the company consists of
100,000,000 shares of Class A common stock, 34,000,000 shares of Class B
common stock and 16,000,000 shares of preferred stock.
In June 1996, RT exchanged existing shares of RT common stock, all of which
were owned by ISI, for 34.0 million shares of new-issue Class B common stock.
RT also sold 5.2 million shares of new-issue Class A common stock in a public
offering, the net proceeds of which approximated $77.1 million. There were no
changes in capital accounts during 1995.
The following table details changes in capital accounts during 1996 and
1997:
<TABLE>
<CAPTION>
CAPITAL IN
CLASS A CLASS B EXCESS OF
COMMON STOCK COMMON STOCK TREASURY STOCK PAR VALUE
-------------- -------------- -------------- ----------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS DOLLARS
------ ------- ------ ------- ------ ------- ----------
SHARES IN THOUSANDS; DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... -- $-- -- $ -- -- $ -- $ 494.6
Issuance of Class A
common stock........... 5,220 5.2 -- -- -- -- 71.9
Exchange of common stock
for Class B common
stock.................. -- -- 34,000 34.0 -- -- (34.0)
Dividends on common
stock.................. -- -- -- -- -- -- (247.6)
Capital contribution.... -- -- -- -- -- -- 18.9
Issuance under employee
stock plans............ 57 0.1 -- -- -- -- 0.7
----- ---- ------ ----- --- ----- -------
Balance at December 31,
1996................... 5,277 $5.3 34,000 $34.0 -- $ -- $ 304.5
----- ---- ------ ----- --- ----- -------
Acquisition of treasury
stock.................. -- -- -- -- (8) (0.1) --
Issuance of Class A
common stock........... 7 -- -- -- -- -- 0.1
Issuance under employee
stock plans............ -- -- -- -- 6 0.1 --
----- ---- ------ ----- --- ----- -------
Balance at December 31,
1997................... 5,284 $5.3 34,000 $34.0 (2) $ -- $ 304.6
===== ==== ====== ===== === ===== =======
</TABLE>
Each share of Class A common stock is entitled to one vote, while each share
of Class B common stock is entitled to four votes. At such time as the number
of shares of Class B common stock outstanding represents less
16
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
than 50 percent of the total number of shares of Class A common stock and
Class B common stock outstanding, the outstanding Class B common stock will
convert into an equal number of shares of Class A common stock.
Prior to the issuance of the Class A common stock, RT declared and paid
dividends of $445.9 million to ISI, of which $152.1 million was in cash and
$293.8 million was in the form of a note payable. The net proceeds of the $250
million Note offering, along with a portion of RT's cash on hand, were used to
pay the note balance due ISI. ISI used $63.2 million of the cash dividend to
repay intercompany borrowing from the Company. Of the $445.9 million of
dividends paid, $198.3 million eliminated the reinvested earnings balance that
existed at June 26, 1996, while the remaining $247.6 million reduced capital
in excess of par value. See Note 3 regarding borrowing arrangements and long-
term debt for restrictions on payment of dividends by RT.
NOTE 6: STOCK OPTION PLAN
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the option plans been determined
based on the fair value at the grant date for awards in 1997 consistent with
the provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
DOLLARS IN MILLIONS, EXCEPT
PER SHARE DATA
<S> <C> <C> <C>
Net earnings--as reported.................. $ 62.8 $ 63.3 $ 88.5
Net earnings--pro forma.................... 61.4 62.0 88.2
Earnings per share--as reported............ $ 1.60 $ 1.72 $ 2.60
Earnings per share--pro forma.............. 1.56 1.69 2.59
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: no dividend yield; expected volatility of
32.5%; risk-free interest rate of 6.74%; and expected term of seven years.
In July 1996, after the initial public offering of RT's Class A common
stock, the compensation committee of RT elected to allow the substitution of
certain ISI common stock options into RT Class A common stock options. As the
exercise price of options substituted exceeded the then current market price
and all other terms of the options remained unchanged, there was no material
increase in value to the employees resulting from the substitution and no
material increase in cost to the Company. 1,041,949 RT Class A common stock
options were substituted for 855,494 ISI stock options. Options substituted
retain their original granted vesting schedules. No new options were granted
under the Ryerson Tull 1996 Incentive Stock Plan (the "Plan") during 1996.
The Plan, approved by the stockholder on June 10, 1996, provides for the
issuance, pursuant to options and other awards, of 2.3 million shares of Class
A common stock to officers and other key employees. Under the Plan, the per
share option exercise price may not be less than the fair market value per
share on the date of grant. During 1997, options were granted to 102
executives under the Plan and a total of 879,491 shares was available for
future grants under the Plan as of December 31, 1997.
The Plan also provides for the granting of restricted stock and performance
awards to officers and other key employees. During 1997, restricted stock
awards totaling 5,500 shares were granted to three executives and 94
performance awards totaling 90,900 shares were granted. Shares totaling 63,885
were forfeited when
17
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
performance hurdles were not met. Also during 1997, 23,050 shares of
previously granted restricted stock awards vested while 1,218 shares of
restricted stock were forfeited.
During 1996, 31,424 shares of previously granted ISI restricted stock were
converted to 38,273 shares of RT Class A common stock. During 1996, restricted
stock awards totaling 18,854 shares were granted to 10 executives and no
performance awards were granted.
The Company's employees participate in the ISI employee stock purchase plan
where employees have the opportunity to sign up twice a year to purchase ISI
stock at the end of each six-month period at a price that is 90 percent of the
fair market value on the last day of the period. Employees received ISI stock
with a total value that was $20,000 and $30,000 greater than the amount paid
for the stock issued in the years 1997 and 1996, respectively.
The table below summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$30.987 to 32.6287...... 64,968 1 yr. $32.08 64,968 $32.08
17.5456 to 27.7036...... 65,723 3 yrs. 25.15 65,723 25.15
20.9316................. 58,462 4 yrs. 20.93 58,462 20.93
21.4446................. 89,360 5 yrs. 21.44 89,360 21.44
25.3436 to 29.5505...... 147,245 6 yrs. 26.04 147,245 26.04
23.3941................. 142,489 7 yrs. 23.39 142,489 23.39
20.2647................. 440,338 8 yrs. 20.26 145,267 20.26
14.0625................. 313,500 9 yrs. 14.06 0 N/A
14.75 to 15.75.......... 10,000 10 yrs. 15.30 0 N/A
</TABLE>
The following table summarizes the status of options under the Plan for the
periods indicated:
<TABLE>
<CAPTION>
OPTION EXERCISE WEIGHTED-
NUMBER PRICE OR RANGE AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Options (granted and unexercised)
at December 31, 1995............. -- -- --
Converted from ISI.............. 1,041,949 $17.55-32.63 $22.79
Granted......................... 0 N/A N/A
Exercised....................... 0 N/A N/A
Canceled or expired............. (8,768) 20.26-25.34 21.50
Options (granted and unexercised)
at December 31, 1996 (511,359
exercisable)..................... 1,033,181 17.55-32.63 22.80
Granted......................... 324,500 14.06-15.75 14.10
Exercised....................... 0 N/A N/A
Expired......................... (4,625) 25.50 25.50
Forfeited....................... (20,971) 14.06-32.63 23.15
Options (granted and unexercised)
at December 31, 1997 (713,514
exercisable)..................... 1,332,085 14.06-32.63 20.67
</TABLE>
The weighted-average fair value of options granted during the year was
$6.97.
18
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: STOCKHOLDER RIGHTS PLAN
Pursuant to a stockholder rights plan, on June 10, 1996, the Board of
Directors declared a dividend distribution of one right (a "Right") for each
outstanding share of common stock payable to stockholders of record on June
13, 1996 and authorized the issuance of one Right for each share of common
stock that becomes outstanding prior to the June 13, 2006 expiration of the
rights plan. Except as described below, each Right, when exercisable, entitles
its holder to purchase from RT one one-hundredth of a share of Series A Junior
Participating Preferred Stock, at a price of $95.00, subject to adjustment.
The Rights become exercisable only if a person or group acquires, or commences
a tender or exchange offer to acquire, beneficial ownership of capital stock
representing 10 percent or more of the voting power of RT; provided that in no
event will the Rights become exercisable prior to the first date that ISI and
its affiliates and associates, in the aggregate, collectively beneficially own
capital stock representing less than 50 percent of the voting power of RT. The
Rights will not become exercisable if a person obtains 10 percent or more of
the voting power of RT through a sale by ISI of Class B common stock unless
such person thereafter acquires additional shares of common stock from persons
other than ISI.
In the event that any person or group acquires beneficial ownership of
capital stock representing 10 percent or more of the voting power of RT, each
holder of a Right will thereafter have the right to receive, upon exercise at
the then current exercise price of the Right, Class A common stock (or, in
certain circumstances, cash, property or other securities of RT) having a
value equal to two times the exercise price of the Right. In the event that,
at any time following such a 10 percent acquisition, RT is acquired by the 10
percent acquiror in a merger or other business combination transaction or 50
percent or more of RT's assets or earning power are sold to the 10 percent
acquiror, each holder of a Right will thereafter have the right to receive,
upon exercise at the then current exercise price of the Right, common stock of
the acquiring or surviving company having a value equal to two times the
exercise price of the Right. In addition, if a person or group makes such a 10
percent acquisition but does not acquire 50 percent or more of the voting
power of RT, the Board of Directors may exchange the Rights at an exchange
ratio of one share of Class A common stock per Right (subject to adjustment).
Any Rights that are beneficially owned by the 10 percent acquiror would then
become null and void.
The Board of Directors may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right (subject to adjustment) prior to the time someone
acquires beneficial ownership of capital stock representing 10 percent or more
of the voting power of RT.
NOTE 8: DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Derivatives
The Company has only limited involvement with derivative financial
instruments and does not use them for speculative or trading purposes. Tull
has entered into an interest rate swap agreement to reduce the effects of
changes in interest rates on the Tull Term Note. At December 31, 1997, Tull
had outstanding an interest rate swap agreement with a bank having a notional
principal amount equal to the outstanding principal of the Tull Term Note.
This agreement effectively changes Tull's interest rate exposure on the Tull
Term Note from LIBOR plus 0.625 percent (a floating rate) to a fixed rate of
5.925 percent. This interest rate swap matures on August 17, 1998. Gains and
losses associated with this hedging transaction will be reported as part of
the interest expense of the Tull Term Note. Tull is exposed to potential
credit loss in the event of nonperformance by the bank;
19
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
however, Tull does not anticipate such nonperformance. This interest rate swap
has not had a material impact on the results of operations or financial
position of the Company.
Cash and Cash Equivalents
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments.
Long-Term Debt
The estimated fair value of the Company's long-term debt (including current
portions thereof) using quoted market prices of Company debt securities
recently traded and market-based prices of similar securities for those
securities not recently traded was $279.0 million at December 31, 1997 and
$276.0 million at December 31, 1996, as compared with the carrying value of
$263.3 million and $265.3 million at year-end 1997 and 1996, respectively.
NOTE 9: RETIREMENT BENEFITS
Pensions
Prior to April 30, 1996, certain employees of the Company were eligible to
participate in the ISI Pension Plan. Because the fair value of the ISI Pension
Plan assets pertains to all participants in the ISI Pension Plan, no separate
determination of the fair value of such assets was made solely with respect to
the Company. The Company recorded a pension credit of $2.3 million in 1995.
Effective April 30, 1996, that portion of the ISI Pension Plan covering the
Company's current and former employees was separated and became the Ryerson
Tull Pension Plan, a new and separate plan sponsored by the Company, which
covers certain employees, retirees and their beneficiaries of the Company and
its subsidiaries. The Ryerson Tull Pension Plan is a noncontributory defined
benefit plan that provides benefits based on pay and years of service for
salaried employees, and years of service and a fixed rate or a rate determined
by job grade for all wage employees, including employees under collective
bargaining agreements.
Due to this separation, the Company's benefit obligation was remeasured
using plan data and actuarial assumptions as of April 30, 1996. An amount of
assets proportional to the liabilities assumed by the Ryerson Tull Pension
Plan was allocated to this new plan. As a result, the Company recognized a
$25.4 million decrease in its prepaid pension cost, a $16.5 million reduction
in reinvested earnings and an $8.9 million deferred tax asset increase in
1996.
Effective January 1, 1998, the Company froze the benefits accrued under its
defined benefit pension plan for certain salaried employees, and instituted a
defined contribution plan. Salaried employees vested in their benefits accrued
under the defined benefit plan at December 31, 1997 will be entitled to those
benefits upon retirement. Certain transition rules have been established for
those salaried employees meeting the specified age and service requirements.
The change in pension plan for salaried employees resulted in a one-time
pretax curtailment gain of $8.9 million in 1997.
The assumptions used to determine the plan's funded status for 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount (settlement) rate...................................... 7.5% 8.0%
Rate of compensation increase................................... 4.0% 4.0%
Rate of return on plan assets................................... 9.5% 9.5%
</TABLE>
20
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plan as of September 30, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
DOLLARS
IN
MILLIONS
<S> <C> <C>
Fair value of plan assets.................................... $293 $251
---- ----
Actuarial present value of benefits for services rendered to
date:
Accumulated Benefit Obligation based on compensation to
date, including vested benefits of $256 in 1997 and $211
in 1996................................................... 274 225
Additional benefits based on estimated future compensation
levels.................................................... 29 27
---- ----
Projected Benefit Obligation............................... 303 252
---- ----
Plan asset shortfall to Projected Benefit Obligation......... $(10) $ (1)
==== ====
</TABLE>
The Projected Benefit Obligation is the full measure of the Company's "going
concern" liability for pensions accrued to date based on current interest
rates. It includes the effect of future compensation increases for benefits
based on final pay. It does not, however, take into consideration contingent
benefits that are not expected to be paid but that would require funding in
any plan termination.
The prepaid pension cost reflected in the Company's balance sheet at
December 31, 1997 and 1996, can be reconciled to the shortfall of plan assets
as shown below:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
DOLLARS IN MILLIONS
<S> <C> <C>
Plan asset shortfall to Projected Benefit
Obligation...................................... $ (10) $ (1)
Unrecognized transition asset.................... (5) (8)
Unrecognized net loss............................ 14 3
Unrecognized prior service cost.................. 8 8
---------- ---------
Prepaid pension cost at September 30............. 7 2
Expense, October through December................ (1) (1)
Pension curtailment gain, December 31............ 9 --
---------- ---------
Prepaid pension cost at December 31.............. $ 15 $ 1
========== =========
</TABLE>
The unrecognized transition asset is being recognized in income by reducing
pension expense in equal annual installments of $2.4 million through 1999. Any
subsequent unrecognized net gain or loss in excess of 10 percent of the
greater of the Projected Benefit Obligation or the fair value of plan assets
will be amortized over the remaining service period of active employees.
Pension cost for 1997 and 1996 is composed of the components set forth in
the table below:
<TABLE>
<CAPTION>
1997 1996
------ ------
DOLLARS IN
MILLIONS
<S> <C> <C>
Service cost--present value of benefits earned during
the year............................................... $ 5.9 $ 5.5
Interest on service cost and Projected Benefit
Obligation............................................. 20.0 20.4
Actual return on plan assets............................ (55.0) (24.8)
Net amortization and deferral........................... 31.2 0.5
------ ------
Total pension cost...................................... $ 2.1 $ 1.6
====== ======
</TABLE>
The cost of other industry welfare and retirement funds, for salaried and
bargaining unit employees, was $2.9 million in 1997 and $3.3 million in 1996
and 1995.
21
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Benefits Other Than Pensions
Substantially all of the Company's employees are covered under
postretirement life insurance and medical benefit plans that involve
deductible and co-insurance requirements. The postretirement life insurance
benefit formula used in the determination of postretirement benefit cost is
primarily based on applicable annual earnings at retirement for salaried
employees and specific amounts for hourly employees. The Company does not
prefund any of these postretirement benefits.
The amount of net periodic postretirement benefit cost for 1997, 1996 and
1995 is composed of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
DOLLARS IN
MILLIONS
<S> <C> <C> <C>
Service cost............................................. $2.6 $2.4 $2.2
Interest cost............................................ 8.4 8.2 8.4
Net amortization and deferral............................ (2.8) (2.0) (3.4)
---- ---- ----
Total net periodic postretirement benefit cost......... $8.2 $8.6 $7.2
==== ==== ====
</TABLE>
The following table sets forth components of the accumulated postretirement
benefit obligation:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------
1997 1996
------ ------
DOLLARS IN
MILLIONS
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retirees............................................... $ 63.6 $ 60.3
Fully eligible plan participants....................... 11.8 10.0
Other active plan participants......................... 28.6 35.8
------ ------
Accumulated postretirement benefit obligation.......... 104.0 106.1
Unrecognized net gain.................................... 14.3 19.9
Unrecognized prior service credit........................ 27.9 17.6
------ ------
Accrued postretirement benefit obligation................ 146.2 143.6
Expense net of benefits provided, October through
December................................................ 0.3 0.4
------ ------
Accrued postretirement benefit obligation at December 31. $146.5 $144.0
====== ======
</TABLE>
Any net gain or loss in excess of 10 percent of the accumulated
postretirement benefit obligation is amortized over the remaining service
period of active plan participants.
The assumptions used to determine the plan's accumulated postretirement
benefit obligation are as follows:
<TABLE>
<CAPTION>
SEPTEMBER
30
---------
1997 1996
---- ----
<S> <C> <C>
Discount rate................................................... 7.5% 8.0%
Rate of compensation increase................................... 4.0% 4.0%
Medical cost trend rate......................................... 4.5% 4.5%
</TABLE>
A one percentage point increase in the assumed health care cost trend rates
for each future year increases the sum of the service cost and interest cost
components of the annual periodic postretirement benefit cost and the
accumulated postretirement benefit obligation as of September 30, 1997 by $0.6
million and $5.8 million, respectively.
22
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: TAXES ON INCOME
The Company participates in a tax-sharing arrangement under which current
and deferred federal income tax provisions are determined for each company in
the ISI group on a stand-alone basis. Any current liability is paid to ISI. If
the Company is unable to use all of its allocated tax attributes (net
operating loss and tax credit carryforwards) in a given year but other
companies in the consolidated group are able to utilize them, then the Company
will be paid by ISI for the use of its attributes. Net operating loss ("NOL")
and tax credit carryforwards are allocated to each company in accordance with
applicable tax regulations as if a company were to leave the consolidated
group. Companies with taxable losses record current income tax credits not to
exceed current income tax charges recorded by profitable companies. If ISI
uses NOL carryforwards, the Company will use the appropriate portion of that
year's carryforward previously allocated to it, if any.
A state tax-sharing arrangement, similar to the arrangement described above
with respect to federal taxes, also exists with ISI for those states in which
the consolidated group is charged state taxes on a unitary or combined basis.
The elements of the provision for income taxes for the periods indicated
below are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1997 1996 1995
----- ----- -----
DOLLARS IN
MILLIONS
<S> <C> <C> <C>
Current income taxes
Federal........................................... $35.3 $38.9 $49.7
State and local................................... 5.9 4.8 6.7
----- ----- -----
41.2 43.7 56.4
Deferred income taxes............................... 1.4 3.5Cr. 0.5
----- ----- -----
Total provision for income taxes.................... $42.6 $40.2 $56.9
===== ===== =====
</TABLE>
- --------
Cr. = Credit
The components of the deferred income tax assets and liabilities arising
under FASB Statement No. 109 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------
1997 1996
----- -----
DOLLARS IN
MILLIONS
<S> <C> <C>
Deferred tax assets, excluding postretirement benefits other
than pensions:
NOL and tax credit carryforwards.......................... $19.6 $16.1
Other deductible temporary differences.................... 20.1 25.3
----- -----
Deferred tax assets......................................... 39.7 41.4
----- -----
Deferred tax liabilities:
Fixed asset basis difference.............................. 37.9 37.6
Other taxable temporary differences....................... 12.5 2.7
----- -----
Deferred tax liabilities.................................... 50.4 40.3
----- -----
Net deferred tax asset (liability), excluding postretirement
benefits other than pensions............................... (10.7) 1.1
FASB Statement No. 106 impact (postretirement benefits other
than pensions)............................................. 52.1 50.4
----- -----
Net deferred tax asset...................................... $41.4 $51.5
===== =====
</TABLE>
23
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For tax purposes, the Company had, at December 31, 1997, approximately $40
million of NOL carryforwards available for regular federal income tax
purposes, expiring as follows: $15 million in 2006, $8 million in 2007, $6
million in 2008, $5 million in 2009, and $6 million in 2011. Additionally, in
conjunction with the Alternative Minimum Tax ("AMT") rules, the Company had
available AMT credit carryforwards for tax purposes of approximately $6
million, which may be used indefinitely to reduce regular federal income
taxes.
The Company believes that it is more likely than not that all of the NOL
carryforwards will be utilized prior to their expiration. This belief is based
upon the factors discussed below.
The NOL carryforwards and existing deductible temporary differences
(excluding those relating to FASB Statement No. 106) are substantially offset
by existing taxable temporary differences reversing within the carryforward
period. Furthermore, any such recorded tax benefits that would not be so
offset are expected to be realized by continuing to achieve future profitable
operations.
Subsequent to the adoption of FASB Statement No. 109, the Company adopted
FASB Statement No. 106 and recognized the entire transition obligation at
January 1, 1992 as a cumulative effect charge in 1992. At December 31, 1997,
the deferred tax asset related to the Company's FASB Statement No. 106
obligation was $52.1 million. To the extent that future annual charges under
FASB Statement No. 106 continue to exceed deductible amounts, this deferred
tax asset will continue to grow. Thereafter, even if the Company should have a
tax loss in any year in which the deductible amount would exceed the financial
statement expense, the tax law provides for a 20-year carryforward period of
that loss. Because of the extremely long period that is available to realize
these future tax benefits, a valuation allowance for this deferred tax asset
is not necessary.
Total income taxes reflected in the Consolidated Statement of Income differ
from the amounts computed by applying the federal tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1997 1996 1995
----- ----- -----
DOLLARS IN
MILLIONS
<S> <C> <C> <C>
Federal income tax provision computed at statutory tax
rate of 35%.......................................... $36.8 $36.2 $50.9
Additional taxes or credits from:
State and local income taxes, net of federal
income tax effect................................ 3.9 3.0 4.5
All other, net.................................... 1.9 1.0 1.5
----- ----- -----
Total income tax provision............................ $42.6 $40.2 $56.9
===== ===== =====
</TABLE>
NOTE 11: RELATED PARTY TRANSACTIONS
The Company sells products to and purchases products from related companies
at prevailing market prices. These transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996 1995
------ ------ ------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Net product sales.................................... $ 10.5 $ 15.2 $ 15.7
Net product purchases................................ 209.1 202.2 176.6
</TABLE>
Administrative expenses covering management, financial and legal services
provided to the Company were charged to the Company by ISI. Such charges
totaled $5.5 million in 1997, $6.4 million in 1996 and $6.8 million in 1995.
24
<PAGE>
RYERSON TULL, INC. AND SUBSIDIARY COMPANIES
(A MAJORITY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to June 1996, the Company's cash was periodically transferred to ISI
under a corporatewide cash management program. Funds transferred to ISI were
supported by interest-bearing notes receivable. Interest, at prevailing prime
market rates, was charged on all intercompany loans between the Company and
ISI. There was $1.5 million of net intercompany interest income in 1996 and
$3.9 million of net intercompany interest income in 1995.
Effective June 1996, while ISI continues to perform cash management
activities on behalf of the Company, the Company's cash is no longer
transferred to ISI and is maintained and invested separately from ISI's cash.
On March 27, 1997, RT established the ability to borrow from ISI through a
five-year, $250 million uncommitted line of credit. As of December 31, 1997,
$121.4 million of borrowing was outstanding under this facility. There was
$6.7 million of intercompany interest expense in 1997.
NOTE 12: INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Effective June 1, 1996, as a result of a capital contribution from ISI to
RT, Inland Industries de Mexico and its 50 percent-owned Ryerson de Mexico
joint venture became part of the Company. The contribution increased both
investments in joint ventures and capital in excess of par value by $18.9
million. Ryerson de Mexico is a materials distribution joint venture operated
in Mexico and is accounted for under the equity method.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company has noncancellable operating leases for which future minimum
rental commitments are estimated to total $51.5 million, including
approximately $14.7 million in 1998, $13.2 million in 1999, $10.2 million in
2000, $5.5 million in 2001, $4.0 million in 2002 and $3.9 million thereafter.
Rental expense under operating leases totaled $19.3 million in 1997, $15.7
million in 1996 and $15.9 million in 1995.
Ryerson is the guarantor of $96.5 million at year-end 1997 of the ISI Thrift
Plan ESOP Notes. The notes are payable in installments through July 2004.
There are various claims and pending actions against the Company. The amount
of liability, if any, for these claims and actions at December 31, 1997 is not
determinable but, in the opinion of management, such liability, if any, will
not have a materially adverse effect on the Company's financial position or
results of operations.
25
