<PAGE> 1
SECOND QUARTER -- 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
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<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-2438
I.R.S. EMPLOYER IDENTIFICATION NUMBER 36-1262880
ISPAT INLAND INC.
(a Delaware Corporation)
3210 Watling Street
East Chicago, Indiana 46312
Telephone: (219) 399-1200
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: 100 shares of the Company's
Common Stock ($.01 par value per share) were outstanding as of August 4, 2000,
all of which were owned by Ispat Inland Holdings, Inc.
<PAGE> 2
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
INDEX
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PAGE NO.
--------
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999........... 2
Condensed Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended June 30, 2000 and 1999... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999......................... 3
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999....................................... 4
Notes to Condensed Consolidated Financial Statements........ 5 - 8
ITEM 2. Management's Narrative Analysis of Results of Operations.... 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 10
ITEM 6. Exhibits and Reports on Form 8-K............................ 10
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES.............................................. $609.5 $615.4 $1,226.9 $1,235.3
------ ------ -------- --------
OPERATING COSTS AND EXPENSES
Cost of goods sold................................... 545.0 536.6 1,091.8 1,102.5
Selling, general and administrative expenses......... 10.1 8.4 19.4 17.8
Depreciation......................................... 26.7 26.8 53.4 53.5
------ ------ -------- --------
Total............................................. 581.8 571.8 1,164.6 1,173.8
------ ------ -------- --------
OPERATING PROFIT....................................... 27.7 43.6 62.3 61.5
General corporate expense, net of income items......... -- 1.1 -- 1.4
Interest and other expense on debt..................... 23.9 21.3 46.6 43.1
------ ------ -------- --------
INCOME BEFORE TAXES.................................... 3.8 21.2 15.7 17.0
PROVISION FOR INCOME TAXES............................. 0.6 7.2 4.0 5.8
------ ------ -------- --------
INCOME BEFORE EXTRAORDINARY GAIN....................... 3.2 14.0 11.7 11.2
Extraordinary gain on early retirement of debt, net of
tax (Note 3)......................................... 0.7 0.7
------ ------ -------- --------
NET INCOME............................................. $ 3.9 $ 14.0 $ 12.4 $ 11.2
====== ====== ======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN MILLIONS)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income................................................ $ 3.9 $14.0 $12.4 $11.2
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities.................... (0.4) 0.4 (0.4) 0.8
----- ----- ----- -----
COMPREHENSIVE INCOME...................................... $ 3.5 $14.4 $12.0 $12.0
===== ===== ===== =====
</TABLE>
See notes to unaudited condensed consolidated financial statements
2
<PAGE> 4
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $12.4 $11.2
----- -----
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation.............................................. 53.4 53.5
Deferred employee benefit cost............................ (42.7) (35.2)
Amortization of debt premium.............................. (0.9) (0.7)
Undistributed earnings from joint ventures................ (1.6) (5.9)
Deferred income taxes..................................... 5.2 (9.1)
Change in:
Receivables, net....................................... 5.7 (1.8)
Inventories............................................ (1.1) 106.1
Prepaid expenses and other assets...................... (8.2) (12.6)
Accounts payable....................................... (14.2) 24.5
Bank overdrafts........................................ (34.5) (1.6)
Payables to/receivables from related companies......... 9.4 (27.5)
Accrued salaries and wages............................. (5.0) (6.0)
Other accrued liabilities.............................. (9.9) (1.8)
Other items............................................... (0.2) (12.5)
----- -----
Net adjustments........................................... (44.6) 69.4
----- -----
Net cash from operating activities................... (32.2) 80.6
INVESTING ACTIVITIES
Capital expenditures...................................... (23.8) (10.5)
Investments in and advances to joint ventures, net of
distributions.......................................... 2.0 6.3
----- -----
Net cash from investing activities................... (21.8) (4.2)
FINANCING ACTIVITIES
Payments on long-term debt................................ (17.1) (7.5)
Dividends paid............................................ (11.8) (6.9)
Proceeds from receivable from related company............. 1.6 0.8
Borrowings under revolving credit facilities, net......... 83.0 (53.0)
----- -----
Net cash from financing activities................... 55.7 (66.6)
----- -----
Net increase in cash and cash equivalents................... 1.7 9.8
Cash and cash equivalents -- beginning of period............ 13.1 15.7
----- -----
Cash and cash equivalents -- end of period.................. $14.8 $25.5
===== =====
</TABLE>
See notes to unaudited condensed consolidated financial statements
3
<PAGE> 5
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 14.8 $ 13.1
Receivables, net....................................... 255.7 261.4
Inventories (Note 2)................................... 540.1 539.0
Prepaid expenses....................................... 2.0 9.0
Deferred income taxes.................................. 18.3 17.9
-------- --------
Total current assets.............................. 830.9 840.4
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES............. 239.3 240.2
PROPERTY, PLANT AND EQUIPMENT, NET........................ 1,876.9 1,906.5
RECEIVABLES FROM RELATED COMPANIES........................ 8.4 9.6
OTHER ASSETS.............................................. 81.9 66.7
-------- --------
Total Assets...................................... $3,037.4 $3,063.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................... $ 225.1 $ 239.3
Bank overdrafts........................................ 7.7 42.2
Borrowings under Revolving Credit Facilities (Note
3)................................................... 126.0 43.0
Payables to related companies.......................... 11.9 2.1
Accrued liabilities.................................... 145.1 160.0
Long-term debt due within one year
Related companies (Note 5)........................... 7.0 7.0
Other................................................ 1.0 1.0
-------- --------
Total current liabilities......................... 523.8 494.6
LONG-TERM DEBT
Related companies (Note 5)............................. 679.0 682.5
Other.................................................. 258.7 273.2
DEFERRED EMPLOYEE BENEFITS................................ 1,050.4 1,093.1
DEFERRED INCOME TAXES..................................... 28.6 23.0
OTHER CREDITS............................................. 48.5 48.7
COMMITMENTS AND CONTINGENCIES (NOTE 6)
-------- --------
Total liabilities................................. 2,589.0 2,615.1
STOCKHOLDERS' EQUITY
Preferred stock (Note 4)............................... 90.0 90.0
Common stock (Note 4).................................. 320.0 320.0
Retained earnings...................................... 38.3 37.8
Accumulated other comprehensive income................. 0.1 0.5
-------- --------
Total stockholders' equity........................ 448.4 448.3
-------- --------
Total Liabilities and Stockholders' Equity........ $3,037.4 $3,063.4
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE> 6
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements of Ispat Inland Inc. and
subsidiary companies (the "Company") are unaudited, but in the opinion of
management, contain all adjustments necessary to present fairly the financial
position and results of operations and cash flows for the periods presented. All
significant intercompany accounts and transactions have been eliminated. 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, 1999.
The results of operations for the interim periods shown in this report are
not necessarily indicative of the results to be expected for a full year.
Certain amounts on the 1999 Condensed Consolidated Financial Statements
have been reclassified to conform with current year presentation.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires recognition of all derivative instruments in the statement of financial
position as either assets or liabilities, measured at fair value. This statement
additionally requires changes in the fair value of derivatives to be recorded
each period in current earnings or comprehensive income depending on the
intended use of the derivatives. In June 1999, the FASB deferred the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company
must adopt SFAS No. 133 no later than the first quarter of fiscal year 2001. The
Company is currently assessing the impact of this statement on its results of
operations, cash flows and financial position.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
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In process and finished steel............................... $364.3 $329.9
Raw materials and supplies:
Iron ore.................................................. 78.6 101.2
Scrap and other raw materials............................. 60.7 70.6
Supplies.................................................. 36.5 37.3
------ ------
175.8 209.1
------ ------
Total.................................................. $540.1 $539.0
====== ======
</TABLE>
NOTE 3 -- BORROWING ARRANGEMENTS AND INDEBTEDNESS
Ispat Inland Administrative Service Company ("IIASC"), a wholly owned
subsidiary of the Company established to provide a supplemental source of
short-term funds to the Company, has a $125 revolving credit facility with a
group of banks. In July 1998, IIASC entered into an agreement with a bank to
provide another $25 revolving credit facility with terms essentially identical
to those of the existing facility. Both the facilities extend to November 30,
2000. The Company has agreed to sell substantially all of its receivables to
IIASC to secure these facilities. Provisions of the credit agreement limit or
prohibit the Company from merging, consolidating, or selling its assets and
require IIASC to meet minimum net worth and leverage ratio tests. At June 30,
2000 and December 31, 1999, $76 and $43, respectively, was borrowed under the
facilities.
5
<PAGE> 7
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements (Unaudited) -- (Continued)
(Dollars in Millions except per share data)
NOTE 3 -- BORROWING ARRANGEMENTS AND INDEBTEDNESS -- (CONT.)
In 1999, the Company established a five-year $120 revolving credit facility
with a group of banks. The Company has agreed to sell substantially all of its
raw material, in-process and finished goods inventory to Ispat Inland Inventory,
LLC ("III"), a wholly owned subsidiary of the Company, to secure this facility.
Provisions of the credit agreement require III to maintain a minimum net worth.
At June 30, 2000 and December 31, 1999, $50 and $0, respectively, was borrowed
under this facility.
In May 2000, the Company purchased $12.5 of its Series R Bonds at a
discount from face value. As a result of this early redemption, the Company
recognized an extraordinary after tax gain of $.7 ($1.0 before income tax
benefit).
NOTE 4 -- EQUITY
Common Stock
On June 30, 2000 and December 31, 1999, the Company had 1,000 shares
authorized of common stock, $.01 par value ("Common Stock"), of which 100 shares
were issued, outstanding and owned by a wholly owned subsidiary of Ispat
International N.V. ("Ispat").
Cumulative Preferred Stock
On June 30, 2000 and December 31, 1999, the Company had 100 shares
authorized, issued and outstanding of Series A 8% Cumulative Preferred Stock,
$.01 par value ("Preferred Stock"), which is owned by a wholly owned subsidiary
of Ispat. The Preferred Stock has liquidation preference over the Common Stock.
NOTE 5 -- RELATED PARTY TRANSACTIONS
The Company was charged $2.5 and $4.3 by Ispat and its subsidiaries for the
three and six months ended June 30, 2000 and $2.9 and $4.2 for the three and six
months ended June 30, 1999, respectively, for management, financial and legal
services provided to the Company.
The Company purchased $49.4 and $72.9 of inventory from subsidiaries of
Ispat during the three and six months ended June 30, 2000 and $14.6 and $21.9
during the three and six months ended June 30, 1999, respectively. The Company
sold $1.1 and $1.9 of inventory to subsidiaries of Ispat for the three and six
months ended June 30, 2000 and $.5 and $1.1 for the three and six months ended
June 30, 1999, respectively.
I/N Tek is a joint venture which owns and operates a cold-rolling facility
and is 60% owned by a wholly-owned subsidiary of the Company. Under a tolling
arrangement between the Company and I/N Tek, the Company was charged $36.9 and
$73.8 for such tolling services for the three and six months ended June 30, 2000
and $36.5 and $73.2 for the three and six months ended June 30, 1999,
respectively.
I/N Kote is a joint venture that owns and operates an electrogalvanizing
line and hot-dip galvanizing line which is 50% owned by a wholly-owned
subsidiary of the Company. Purchases of cold-rolled steel by I/N Kote from the
Company amounted to $81.5 and $174.5 for the three and six months ended June 30,
2000 and $101.2 and $189 for the three and six months ended June 30, 1999,
respectively.
The Company's debt due to a related company of $686.0 and $689.5 as of June
30, 2000 and December 31, 1999, respectively, is payable to Ispat Inland Finance
LLC, a wholly owned subsidiary of Ispat. This debt arose in connection with the
financing of the acquisition of the Company by Ispat. The Company's receivable
from related companies of $8.4 and $9.6 at June 30, 2000 and December 31, 1999,
respectively, consists of $7.2 and $8.9 from Ispat Inland, L.P., a wholly owned
subsidiary of Ispat, that arose in connection with the financing of the
acquisition of the Company by Ispat and payment is due on July 16, 2006 unless
6
<PAGE> 8
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements (Unaudited) -- (Continued)
(Dollars in Millions except per share data)
NOTE 5 -- RELATED PARTY TRANSACTIONS -- (CONT.)
Ispat Inland, L.P. chooses to prepay. The remaining $1.2 and $.7, respectively,
is from other related companies for trade and other intercompany expenses. The
Company's payable to related companies of $11.9 and $2.1 at June 30, 2000 and
December 31, 1999, respectively, consists of trade, management fees, and other
intercompany expenses.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Company guaranteed $8.6 and $116.6 of long-term debt
attributable to PCI Associates and I/N Kote, two of its equity investments,
respectively. The Company owns a 50% interest in the PCI Associates joint
venture which is a pulverized coal injection facility located at the Indiana
Harbor Works.
The Company has an agreement with the Pension Benefit Guaranty Company (the
"PBGC") to provide certain financial assurances with respect to the Company's
Pension Plan. In accordance with this agreement, the Company provided the PBGC a
letter of credit in the amount of $160. The Company also committed to fund at
least normal costs of the Pension Plan and certain other costs plus an
additional $5 per year for five years. Accordingly, the Company made a cash
contribution of $32.1 in 2000 and $23.7 in 1999 to the Pension Trust. In
addition, the Company granted to the PBGC a first priority lien on selected
assets. The Agreement has a term of at least five years or until certain
financial tests are met, whichever is later; however, the agreement could
terminate within five years if certain other financial tests are met.
The Company has an agreement with a third party to purchase 1.2 million
tons of coke annually for approximately 15 years on a take-or-pay basis at
prices determined by certain cost factors from a heat recovery coke battery
facility located on land leased from the Company. Under a separate tolling
agreement with another third party, the Company has committed to pay tolling
charges over approximately 15 years to desulphurize flue gas from the coke
battery and to convert the heat output from the coke battery to electrical power
and steam. As of June 30, 2000 and December 31, 1999, respectively, the
estimated minimum tolling charges remaining over the life of this agreement were
approximately $228 and $242.4.
As part of the agreement covering the 1990 sale of the Inland Lime & Stone
Company division assets, the Company agreed, subject to certain exceptions, to
purchase, at prices which approximate market, the annual limestone needs of the
Indiana Harbor Works through 2002.
It is anticipated that the Company will make capital expenditures of $2 to
$5 annually in each of the next five years for the construction, and have
ongoing annual expenditures of $40 to $50 for the operation of air and water
pollution control facilities to comply with current federal, state and local
laws and regulations. The Company is involved in various environmental and other
administrative or judicial actions initiated by governmental agencies. While it
is not possible to predict the results of these matters, the Company does not
expect environmental expenditures, excluding amounts that may be required in
connection with the consent decree in the 1990 EPA lawsuit, to materially affect
the Company's results of operations or financial position. Corrective actions
relating to the EPA consent decree may require significant expenditures over the
next several years that may be material to the results of operations or
financial position of the Company. At June 30, 2000 and December 31, 1999, the
Company's reserves for environmental liabilities totaled $28 and $27,
respectively, of which $22 and $21, respectively, is related to the sediment
remediation under the 1993 EPA consent decree.
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 $37.6 and $24.4 at June 30, 2000 and December 31, 1999,
respectively.
The Company and an independent, unaffiliated producer of raw materials are
parties to a long-term supply agreement under which the Company is obligated to
fund an escrow account to indemnify said
7
<PAGE> 9
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements (Unaudited) -- (Continued)
(Dollars in Millions except per share data)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONT.)
producer of raw materials against a specific contingency. Contributions to the
escrow are determined by the agreement and the funds are restricted from Company
use while in escrow. The escrow will terminate not later than 2004. At June 30,
2000 and December 31, 1999, the escrowed funds amounted to $27.8 and $20.0,
respectively, and are included in "Other assets" on the condensed consolidated
balance sheets. The Company anticipates full recovery of the escrowed amount.
The Office of the United States Attorney for the Middle District of
Louisiana ("the U.S. Attorney") has informed the Company that it is a target of
a federal criminal grand jury investigation and one of several defendants in a
civil qui tam lawsuit filed by a private individual on behalf of the government,
alleging violations of the False Claims Act, 31 U.S.C. Section 3729, et seq. The
investigation and the lawsuit relate to the sale of polymer coated steel by the
Company to a culvert fabricator for use in federal and state highway
construction projects in Louisiana. The Company has not seen or been served with
a copy of the complaint in the qui tam lawsuit, and is not required formally to
respond to it until the seal is lifted and the complaint is served on the
Company. With respect to the criminal investigation, the Company has agreed to
extend the statute of limitations for the filing of any potential criminal
charges against the Company through September 30, 2000.
If a potential claim by the U.S. Attorney were successfully proved with
respect to such matter and the damages asserted were established, it would be
material to the financial position and results of operations of the Company.
However, the Company is investigating the factual basis of such a claim; whether
any of the coated culvert is defective and, if so, the extent of such defects
and the remedial options; the method by which damages would be calculated if the
claims were established; and the relative responsibilities of other corporate
defendants to satisfy such a claim. In cooperation with the U.S. Attorney and
federal and state highway officials, the Company has conducted field inspections
and analysis of many of the coated culverts at issue. The Company is holding
discussions with the U.S. Attorney and co-defendants. At this stage, the Company
is unable to determine the outcome and resulting liability, if any, relating to
this matter, and whether this matter could materially affect the Company's
financial position or results of operations.
All the allegations by the U.S. Attorney appear to relate to events that
occurred prior to the May 27, 1998 execution of the Merger Agreement among
Ispat, the Company, Inland Merger Sub, Inc. and Inland Steel Industries, Inc.
(the predecessor company to Ryerson Tull, Inc.), as amended. Ispat and the
Company have notified Ryerson Tull, Inc. of their intention to seek
indemnification and other remedies, under the Merger Agreement and on other
grounds, for any losses in connection with this matter.
In addition to the foregoing, the Company is a party to a number of legal
proceedings arising in the ordinary course of our business. The Company does not
believe that the adverse determination of any such pending routine litigation,
either individually or in the aggregate, will have a material adverse effect on
our business, financial condition, results of operations, cash flows or
prospects.
8
<PAGE> 10
ITEM 2.
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Comparison of Second Quarter 2000 to Second Quarter 1999
Net sales of $609.5 for the second quarter of 2000 decreased by 1.0 percent
from $615.4 in the year-ago quarter as shipments decreased by 1.7 percent offset
by a 0.7 percent increase in the average selling price per ton. Steel shipments
were 1,454,800 net tons for the second quarter of 2000 compared to 1,479,700 net
tons for the second quarter of 1999.
Cost of goods sold of $545.0 increased 1.6 percent over $536.6 in the
year-ago quarter due to increased spending.
Depreciation expense of $26.7 for the current quarter was slightly lower
than $26.8 in the year-ago quarter.
Operating profit decreased to $27.7 for the current quarter compared to
$43.6 in the year-ago quarter as a result of the items noted above.
Selling, general and administrative expenses of $10.1 increased 20.2
percent from $8.4 in the year-ago quarter due to increased spending during the
current quarter including an increase in legal fees.
General corporate expense, net of income items decreased 100.0 percent from
$1.1 in the year-ago quarter due to decreased spending.
Interest and other expense on debt of $23.9 in the current quarter
increased 12.2 percent from $21.3 in the year ago quarter due to interest rate
changes and changes in borrowing levels.
Comparison of First Six Months of 2000 to First Six Months of 1999
Net sales of $1,226.9 for the first six months of 2000 decreased by 0.7
percent from $1,235.3 in the year-ago period as shipments decreased by 1.3
percent offset by a 0.6 percent increase in the average selling price per ton.
Steel shipments were 2,917,900 net tons for the first six months of 2000
compared to 2,957,000 net tons for the first six months of 1999
Cost of goods sold of $1,091.8 decreased 1.0 percent from $1,102.5 in the
year-ago period due to decreased volume.
Depreciation expense of $53.4 for the current period was slightly lower
than $53.5 in the year-ago period.
Operating profit increased to $62.3 for the current period compared to
$61.5 in the year-ago period as a result of the items noted above.
Selling, general and administrative expenses of $19.4 increased 9.0 percent
from $17.8 in the year-ago period due to increased spending during the current
period including an increase in legal fees.
General corporate expense, net of income items decreased 100.0 percent from
$1.4 in the year-ago period due to decreased spending.
Interest and other expense on debt of $46.6 in the current period increased
8.1 percent from $43.1 in the year ago period due to interest rate changes and
changes in borrowing levels.
9
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Office of the United States Attorney for the Middle District of
Louisiana ("the U.S. Attorney") has informed the Company that it is a target of
a federal criminal grand jury investigation and one of several defendants in a
civil qui tam lawsuit filed by a private individual on behalf of the government,
alleging violations of the False Claims Act, 31 U.S.C. Section 3729, et seq. The
investigation and the lawsuit relate to the sale of polymer coated steel by the
Company to a culvert fabricator for use in federal and state highway
construction projects in Louisiana. The Company has not seen or been served with
a copy of the complaint in the qui tam lawsuit, and is not required formally to
respond to it until the seal is lifted and the complaint is served on the
Company. With respect to the criminal investigation, the Company has agreed to
extend the statute of limitations for the filing of any potential criminal
charges against the Company through September 30, 2000.
If a potential claim by the U.S. Attorney were successfully proved with
respect to such matter and the damages asserted were established, it would be
material to the financial position and results of operations of the Company.
However, the Company is investigating the factual basis of such a claim; whether
any of the coated culvert is defective and, if so, the extent of such defects
and the remedial options; the method by which damages would be calculated if the
claims were established; and the relative responsibilities of other corporate
defendants to satisfy such a claim. In cooperation with the U.S. Attorney and
federal and state highway officials, the Company has conducted field inspections
and analysis of many of the coated culverts at issue. The Company is holding
discussions with the U.S. Attorney and co-defendants. At this stage, the Company
is unable to determine the outcome and resulting liability, if any, relating to
this matter, and whether this matter could materially affect the Company's
financial position or results of operations.
All the allegations by the U.S. Attorney appear to relate to events that
occurred prior to the May 27, 1998 execution of the Merger Agreement among
Ispat, the Company, Inland Merger Sub, Inc. and Inland Steel Industries, Inc.
(the predecessor company to Ryerson Tull, Inc.), as amended. Ispat and the
Company have notified Ryerson Tull, Inc. of their intention to seek
indemnification and other remedies, under the Merger Agreement and on other
grounds, for any losses in connection with this matter.
In addition to the foregoing, the Company is a party to a number of legal
proceedings arising in the ordinary course of our business. The Company does not
believe that the adverse determination of any such pending routine litigation,
either individually or in the aggregate, will have a material adverse effect on
our business, financial condition, results of operations, cash flows or
prospects.
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 June 30, 2000.
10
<PAGE> 12
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ISPAT INLAND INC.
By /s/ MICHAEL G. RIPPEY
-------------------------------
Michael G. Rippey
Vice President -
Finance and CFO
Principal Financial Officer
Date: August 4, 2000
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
27 Financial Data Schedule.....................................
</TABLE>
12
