<PAGE>
First Quarter - 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1998
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 1-2438
I.R.S. Employer Identification Number 36-1262880
INLAND STEEL COMPANY
(a Delaware Corporation)
30 West Monroe Street
Chicago, Illinois 60603
Telephone: (312) 346-0300
Registrant meets the conditions set forth in General Instruction H(1)(a) and (b)
of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 980 shares of the Company's
Common Stock ($1.00 par value per share) were outstanding as of May 4, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A wholly owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Statement of Operations (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
-------------------
Three Months Ended
March 31
-------------------
1998 1997
------ ------
<S> <C> <C>
NET SALES $606.1 $606.6
------ ------
OPERATING COSTS AND EXPENSES
Cost of goods sold 539.6 523.8
Selling, general and administrative expenses 10.1 11.4
Depreciation 34.6 33.1
------ ------
Total 584.3 568.3
------ ------
OPERATING PROFIT 21.8 38.3
General corporate expense, net of income items 3.0 3.7
Interest and other expense on debt 10.2 11.3
------ ------
INCOME BEFORE INCOME TAXES 8.6 23.3
PROVISION FOR INCOME TAXES 3.3 9.6
------ ------
NET INCOME $ 5.3 $ 13.7
====== ======
</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A wholly owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Statement of Cash Flows (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
-------------------
Three Months Ended
March 31
-------------------
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5.3 $ 13.7
------ ------
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation 34.6 33.1
Deferred employee benefit cost 2.5 2.0
Deferred income taxes 4.1 13.3
Change in: Receivables .8 3.2
Inventories 19.7 5.4
Accounts payable (58.9) (55.8)
Receivables from related companies 5.8 -
Payables to related companies 7.8 (3.9)
Accrued salaries and wages 2.9 4.5
Other accrued liabilities 14.4 11.3
Other deferred items 8.3 9.8
------ ------
Net adjustments 42.0 22.9
------ ------
Net cash provided from operating activities 47.3 36.6
------ ------
INVESTING ACTIVITIES
Capital expenditures (14.7) (12.7)
Investments in and advances to joint ventures, net 20.0 5.9
------ ------
Net cash provided from (used for) investing activities 5.3 (6.8)
------ ------
FINANCING ACTIVITIES
Long-term debt retired (11.9) (.8)
Change in notes payable to related companies (34.3) (22.5)
Dividends paid (6.4) (6.5)
------ ------
Net cash used for financing activities (52.6) (29.8)
------ ------
Net change in cash and cash equivalents - -
Cash and cash equivalents - beginning of year - -
------ ------
Cash and cash equivalents - end of period $ - $ -
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 3.3 $ 3.5
Income taxes, net 1.8 (3.6)
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A wholly owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Balance Sheet
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
--------------------------------------------------
ASSETS March 31, 1998 December 31, 1997
- ------ --------------------- ---------------------
(unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ -
Receivables 218.4 219.2
Receivables from related companies - 5.8
Inventories - principally at LIFO
In process and finished products $ 119.8 $ 120.9
Raw materials and supplies 61.0 180.8 79.6 200.5
-------- --------
Deferred income taxes 24.8 24.9
-------- --------
Total current assets 424.0 450.4
INVESTMENTS IN AND ADVANCES
TO JOINT VENTURES 213.7 234.0
PROPERTY, PLANT AND EQUIPMENT
Valued on basis of cost 4,088.1 4,075.1
Less: Reserve for depreciation,
amortization and depletion 2,668.8 2,634.0
Allowance for terminated facilities 100.7 1,318.6 100.7 1,340.4
-------- --------
PREPAID PENSION COSTS 60.6 60.5
DEFERRED INCOME TAXES 190.9 194.9
OTHER ASSETS 46.9 52.9
-------- --------
Total Assets $2,254.7 $2,333.1
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 180.0 $ 238.9
Payables to related companies
Notes 196.4 230.7
Trade & other 7.8 -
Accrued liabilities 159.6 142.3
Long-term debt due within one year 35.3 45.9
-------- --------
Total current liabilities 579.1 657.8
LONG-TERM DEBT 260.7 262.0
DEFERRED EMPLOYEE BENEFITS 1,118.9 1,116.3
OTHER CREDITS 57.4 57.3
-------- --------
Total liabilities 2,016.1 2,093.4
STOCKHOLDER'S EQUITY (Schedule A) 238.6 239.7
-------- --------
Total Liabilities and Stockholder's Equity $2,254.7 $2,333.1
======== ========
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A wholly owned subsidiary of Inland Steel Industries, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
NOTE 1/FINANCIAL STATEMENTS
Results of operations for any interim period are not necessarily indicative of
results of any other periods or for the year. The financial statements as of
March 31, 1998 and for the three-month periods ended March 31, 1998 and 1997 are
unaudited, but in the opinion of management include all adjustments necessary
for a fair presentation of results for such periods. These financial statements
should be read in conjunction with the financial statements and related notes
contained in the Annual Report on Form 10-K for the year ended December 31,
1997.
NOTE 2/RELATED PARTY TRANSACTIONS
The Company has agreed to procedures established by Inland Steel Industries,
Inc. ("Industries") for charging Industries' administrative expenses to the
operating companies owned by it. Pursuant to these procedures, the Company was
charged $3.6 million and $4.2 million by Industries for the first quarters of
1998 and 1997, respectively, for management, financial and legal services
provided to the Company.
Procedures also have been established to charge interest on all intercompany
loans within the Industries group of companies. Such loans currently bear
interest at the prime rate. The Company's net intercompany interest expense for
the first three months of 1998 totaled $5.0 million as compared with $5.6
million for the first quarter of 1997.
The Company sells to and purchases products from other companies within the
Industries group of companies. Such transactions are made at prevailing market
prices. These transactions are summarized as follows:
<TABLE>
<CAPTION>
Dollars in Millions
-------------------
Three Months
Ended March 31
--------------
1998 1997
----- -----
<S> <C> <C>
Net Product Sales $49.6 $59.1
Net Product Purchases 4.1 4.4
</TABLE>
NOTE 3/COMMITMENTS
The total amount of firm commitments of the Company and its subsidiaries to
contractors and suppliers, primarily in connection with additions to property,
plant and equipment, was $24 million at March 31, 1998 compared with $22 million
at December 31, 1997.
NOTE 4/INLAND-ISPAT LETTER AGREEMENT
On March 17, 1998, Industries announced it had signed a binding letter agreement
with Ispat International N.V. ("Ispat") whereby Ispat will acquire the Company
for a total transaction value of approximately $1.43 billion. The agreement has
been approved by the Boards of Directors of both companies. As part of the
transaction, Ispat will: i) pay $650 million in cash for the common stock of the
Company held by Industries; ii) pay $238.2 million for the preferred stock of
the Company held by Industries; iii) repay the intercompany debt of the Company
owed to Industries, which at December 31, 1997, was $230.7 million; and iv)
assume debt owed to third parties of approximately $307.9 million. The
transaction is subject to a definitive agreement, antitrust clearance, other
closing conditions, and the need to give the United Steelworkers of America
("USWA") the opportunity to make an offer to purchase the Company. In early
May, Industries was informed that the USWA decided not to pursue its right to
submit an offer for the Company.
-4-
<PAGE>
Item 2.
Management's Narrative Analysis of
Results of Operations
RESULTS OF OPERATIONS - Comparison of First Quarter 1998 to First Quarter 1997
- ------------------------------------------------------------------------------
The Company reported consolidated net income of $5.3 million for the first
quarter of 1998 as compared with net income of $13.7 million in the comparable
year-earlier period. Decreased operating profit was the major factor for the
decline.
The Company's net sales of $606.1 million were virtually unchanged from the
1997 first quarter as a 4 percent increase in the volume of steel mill products
shipped was offset by a comparable decrease in average selling price per ton. As
a result of the lower average selling price per ton, operating profit declined
to $21.8 million from $38.3 million reported for the first three months of 1997.
Operating profit in the 1998 first quarter was also negatively impacted by the
effects of a severe winter storm and scheduled outages on several major
facilities, partially offset by a $5 million property tax reduction relating to
prior years.
-5-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) 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.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1998.
- 6 -
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INLAND STEEL COMPANY
By Cynthia C. Heath
--------------------------
Cynthia C. Heath
Vice President -
Finance and Purchasing,
Principal Financial Officer
and Controller
Date: May 11, 1998
- 7 -
<PAGE>
Part I -- Schedule A
--------------------
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A wholly owned subsidiary of Inland Steel Industries, Inc.)
Summary of Stockholder's Equity
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
-----------------------------------------
<S> <C> <C>
March 31, 1998 December 31, 1997
------------------ -----------------------
(unaudited)
STOCKHOLDER'S EQUITY
- ------------------------------------------
Series A preferred stock ($1 par value)
- 10 shares issued and outstanding $ - $ -
Series B preferred stock ($1 par value)
- 50 shares issued and outstanding - -
Series C preferred stock ($1 par value)
- 50 shares issued and outstanding - -
Common stock ($1 par value)
- 980 shares issued and outstanding - -
Additional paid-in capital 1,194.5 1,194.5
Accumulated deficit
Balance beginning of year $(954.8) $(983.7)
Net income 5.3 54.8
Dividends (6.4) (955.9) (25.9) (954.8)
------- -------- ------- --------
Total Stockholder's Equity $ 238.6 $ 239.7
======== ========
</TABLE>
-8-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
2. Copy of Letter of Agreement between Inland Steel
Industries, Inc. and Ispat International N.V. ("Ispat")
for the acquisition of Inland Steel Company by Ispat,
dated March 16, 1998. (Filed as Exhibit 2. to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated by reference
herein.) --
3.(i) Copy of Restated Certificate of Incorporation of the
Company. (Filed as Exhibit 3-A to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
and incorporated by reference herein.) --
3.(ii) Copy of By-laws, as amended, of the Company. (Filed as
Exhibit 3.(ii) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994, and
incorporated by reference herein.) --
27 Financial Data Schedule.................................
</TABLE>
-i-
<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 QUARTERLY REPORT ON FORM
10-Q 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 235,300
<ALLOWANCES> 16,900
<INVENTORY> 180,800
<CURRENT-ASSETS> 424,000
<PP&E> 4,088,100
<DEPRECIATION> 2,769,500
<TOTAL-ASSETS> 2,254,700
<CURRENT-LIABILITIES> 579,100
<BONDS> 260,700
0
0
<COMMON> 0
<OTHER-SE> 238,600
<TOTAL-LIABILITY-AND-EQUITY> 2,254,700
<SALES> 605,400
<TOTAL-REVENUES> 606,100
<CGS> 573,600
<TOTAL-COSTS> 574,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,200
<INCOME-PRETAX> 8,600
<INCOME-TAX> 3,300
<INCOME-CONTINUING> 5,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
