<PAGE> 1
THIRD QUARTER - 2000
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 SEPTEMBER 30, 2000
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
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 November 7, 2000,
all of which were owned by Ispat Inland Holdings, Inc.
<PAGE> 2
ISPAT INLAND INC. AND SUBSIDIARY COMPANIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 2000
and 1999 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999 4
Notes to Condensed Consolidated Financial Statements 5 - 9
ITEM 2. Management's Narrative Analysis of Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 6. Exhibits and Reports on Form 8-K 12
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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 549.4 $ 576.9 $ 1,776.3 $ 1,812.2
-------- -------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of goods sold 501.4 504.6 1,593.2 1,607.1
Selling, general and
administrative expenses 10.7 11.9 30.1 29.7
Depreciation 26.7 26.8 80.1 80.2
-------- -------- ---------- ----------
Total 538.8 543.3 1,703.4 1,717.0
-------- -------- ---------- ----------
OPERATING PROFIT 10.6 33.6 72.9 95.2
General corporate expense,
net of income items 0.2 0.9 0.2 2.3
Interest and other expense on debt 25.3 21.2 71.9 64.4
-------- -------- ---------- ----------
(LOSS) INCOME BEFORE TAXES (14.9) 11.5 0.8 28.5
(BENEFIT) PROVISION FOR INCOME TAXES (4.7) 3.6 (0.7) 9.4
-------- -------- ---------- ----------
(LOSS) INCOME BEFORE EXTRAORDINARY
GAIN (10.2) 7.9 1.5 19.1
Extraordinary gain on early retirement
of debt, net of tax (Note 3) 0.7
-------- -------- ---------- ----------
NET (LOSS) INCOME $ (10.2) $ 7.9 $ 2.2 $ 19.1
======== ======== ========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------------------
Net (loss) income $ (10.2) $ 7.9 $ 2.2 $ 19.1
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities (0.5) 0.6 (0.9) 1.4
-------- --------- ---------- -----------
COMPREHENSIVE INCOME $ (10.7) $ 8.5 $ 1.3 $ 20.5
======== ========= ========== ===========
</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>
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2.2 $ 19.1
------------ ------------
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 80.1 80.2
Deferred employee benefit cost (47.4) (40.1)
Amortization of debt premium (1.3) (1.1)
Undistributed earnings from joint ventures (10.7) (16.0)
Deferred income taxes 0.7 (5.8)
Change in:
Receivables, net 22.3 (2.9)
Inventories (25.0) 105.1
Prepaid expenses and other assets (9.7) (9.7)
Accounts payable (16.7) 29.1
Bank overdrafts (33.9) 0.6
Payables to/receivables from related companies 5.6 (16.9)
Accrued salaries and wages (4.5) (1.0)
Other accrued liabilities 9.0 (0.2)
Other items (0.5) (16.2)
------------ ------------
Net adjustments (32.0) 105.1
------------ ------------
Net cash from operating activities (29.8) 124.2
INVESTING ACTIVITIES
Capital expenditures (52.4) (25.1)
Investments in and advances to joint ventures,
net of distributions 5.3 8.1
------------ ------------
Net cash from investing activities (47.1) (17.0)
FINANCING ACTIVITIES
Payments on long-term debt (18.7) (15.5)
Dividends paid (11.8) (8.7)
Proceeds from receivable from related company 2.8 2.1
Borrowings under revolving credit facilities, net 101.0 (70.0)
------------ ------------
Net cash from financing activities 73.3 (92.1)
------------ ------------
Net (decrease) increase in cash and cash equivalents (3.6) 15.1
Cash and cash equivalents - beginning of period 13.1 15.7
------------ ------------
Cash and cash equivalents - end of period $ 9.5 $ 30.8
============ ============
</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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9.5 $ 13.1
Receivables, net 239.1 261.4
Inventories (Note 2) 564.0 539.0
Prepaid expenses 2.0 9.0
Deferred income taxes 18.3 17.9
---------- ----------
Total current assets 832.9 840.4
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES 244.3 240.2
PROPERTY, PLANT AND EQUIPMENT, NET 1,878.7 1,906.5
RECEIVABLES FROM RELATED COMPANIES 8.1 9.6
OTHER ASSETS 83.4 66.7
---------- ----------
Total Assets $ 3,047.4 $ 3,063.4
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 222.6 $ 239.3
Bank overdrafts 8.3 42.2
Borrowings under Revolving Credit Facilities (Note 3) 144.0 43.0
Payables to related companies 9.0 2.1
Accrued liabilities 164.5 160.0
Long-term debt due within one year
Related companies (Note 5) 7.0 7.0
Other 1.0 1.0
---------- ----------
Total current liabilities 556.4 494.6
LONG-TERM DEBT
Related companies (Note 5) 677.3 682.5
Other 258.4 273.2
DEFERRED EMPLOYEE BENEFITS 1,045.7 1,093.1
DEFERRED INCOME TAXES 23.6 23.0
OTHER CREDITS 48.2 48.7
COMMITMENTS AND CONTINGENCIES (NOTE 6)
---------- ----------
Total liabilities 2,609.6 2,615.1
STOCKHOLDERS' EQUITY
Preferred stock (Note 4) 90.0 90.0
Common stock (Note 4) 320.0 320.0
Retained earnings 28.2 37.8
Accumulated other comprehensive (loss) income (0.4) 0.5
---------- ----------
Total stockholders' equity 437.8 448.3
---------- ----------
Total Liabilities and Stockholders' Equity $ 3,047.4 $ 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:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
In process and finished steel $ 396.8 $ 329.9
Raw materials and supplies:
Iron ore 78.1 101.2
Scrap and other raw materials 53.0 70.6
Supplies 36.1 37.3
------- -------
167.2 209.1
------- -------
Total $ 564.0 $ 539.0
======= =======
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
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 September 30, 2000 and December
31, 1999, $94 and $43, respectively, was borrowed under the facilities. The
Company has commitments of $165, subject to satisfactory final documentation,
to extend the current $125 revolving credit facility for a five year period. At
the same time the $25 revolving credit facility will be terminated.
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 September 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 taxes).
NOTE 4 - EQUITY
Common Stock
On September 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 September 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 $2.4 and $6.6 by Ispat and its subsidiaries for the
three and nine months ended September 30, 2000 and $2.1 and $6.3 for the three
and nine months ended September 30, 1999, respectively, for management,
financial and legal services provided to the Company.
The Company purchased $23.1 and $102.5 of inventory from subsidiaries of Ispat
during the three and nine months ended September 30, 2000 and $31.3 and $60.9
during the three and nine months ended September 30, 1999, respectively. The
Company sold $.2 and $2.1 of inventory to subsidiaries of Ispat for the three
and nine months ended September 30, 2000 and $.6 and $1.7 for the three and nine
months ended September 30, 1999, respectively.
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.)
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 $36.7 and
$110.5 for such tolling services for the three and nine months ended September
30, 2000 and $35.3 and $108.5 for the three and nine months ended September 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 $85.6 and $260.1 for the three and nine months ended September 30,
2000 and $94.7 and $283.7 for the three and nine months ended September 30,
1999, respectively.
The Company's debt due to a related company of $684.3 and $689.5 as of September
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 $8.1 and $9.6 at September 30, 2000 and December 31,
1999, respectively, consists of $6.1 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
Ispat Inland, L.P. chooses to prepay. The remaining $2.0 and $.7, respectively,
is from other related companies for trade and other intercompany expenses. The
Company's payable to related companies of $9.0 and $2.1 at September 30, 2000
and December 31, 1999, respectively, consists of trade, management fees, and
other intercompany expenses.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company guaranteed $7.6 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.
In 1998, in connection with Ispat's acquisition of the Company, the Company
entered into 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
$32.4 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 September 30, 2000 and December 31, 1999, respectively, the estimated minimum
tolling charges remaining over the life of this agreement were approximately
$220.8 and $242.4.
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.)
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 September 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.
In October 1996, the Indiana Department of Environmental Management, as lead
administrative trustee, notified the Company and other potentially responsible
parties that the natural resource trustees (which also include the Indiana
Department of Natural Resources, the U.S. Department of the Interior, the Fish
and Wildlife Service and the National Park Service) intend to perform a natural
resource damage assessment on the Grand Calumet River and Indiana Harbor Canal
System. The notice states that the Company has been identified as a potentially
responsible party due to alleged releases of hazardous substances from its
Indiana Harbor Works facility. Ispat and the Company have notified Ryerson Tull,
Inc. of their intention to seek indemnification under the agreement among Ispat,
the Company, Inland Merger Sub, Inc. and Inland Steel Industries, Inc. (the
predecessor company to Ryerson Tull, Inc.), as amended (the "Merger Agreement"),
for any losses in connection with this matter. At this stage, it is not possible
to accurately predict the amount of the Company's potential liability or whether
this potential liability could materially affect our financial position.
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 $29.7 and $24.4 at September 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 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 no later than 2004. At September 30, 2000 and December 31,
1999, the escrowed funds amounted to $31.8 and $20.0, respectively, and are
included in "Other assets" on the unaudited condensed consolidated balance
sheets. The Company anticipates full recovery of the escrowed amount.
8
<PAGE> 10
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.)
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 December 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 has been 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. 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 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
the business, financial condition, results of operations, cash flows or
prospects.
9
<PAGE> 11
ITEM 2.
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Comparison of Third Quarter 2000 to Third Quarter 1999
Net sales of $549.4 for the third quarter of 2000 decreased by 4.8 percent from
$576.9 in the year-ago quarter as shipments decreased by 4.9 percent offset by a
0.1 percent increase in the average selling price per ton. Steel shipments were
1,347,000 net tons for the third quarter of 2000 compared to 1,415,900 net tons
for the third quarter of 1999.
Cost of goods sold of $501.4 decreased 0.6 percent over $504.6 in the year-ago
quarter due to decreased shipments offset by price increases on purchased
commodities.
Depreciation expense of $26.7 for the current quarter was slightly lower than
$26.8 in the year-ago quarter.
Selling, general and administrative expenses of $10.7 decreased 10.1 percent
from $11.9 in the year-ago quarter due to decreased spending.
Operating profit decreased to $10.6 for the current quarter compared to $33.6 in
the year-ago quarter as a result of the items noted above.
General corporate expense, net of income items of $0.2 decreased 77.8 percent
from $0.9 in the year-ago quarter due to decreased spending.
Interest and other expense on debt of $25.3 in the current quarter increased
19.3 percent from $21.2 in the year ago quarter due to interest rate changes and
changes in borrowing levels.
Comparison of First Nine Months of 2000 to First Nine Months of 1999
Net sales of $1,776.3 for the first nine months of 2000 decreased by 2.0 percent
from $1,812.2 in the year-ago period as shipments decreased by 2.5 percent
offset by a 0.5 percent increase in the average selling price per ton. Steel
shipments were 4,264,900 net tons for the first nine months of 2000 compared to
4,372,900 net tons for the first nine months of 1999.
Cost of goods sold of $1,593.2 decreased 0.9 percent from $1,607.1 in the
year-ago period due to decreased shipments.
Depreciation expense of $80.1 for the current period was slightly lower than
$80.2 in the year-ago period.
Selling, general and administrative expenses of $30.1 increased 1.3 percent from
$29.7 in the year-ago period due to increased spending.
Operating profit decreased to $72.9 for the current period compared to $95.2 in
the year-ago period as a result of the items noted above.
General corporate expense, net of income items or $0.2 decreased 91.3 percent
from $2.3 in the year-ago period due to decreased spending.
Interest and other expense on debt of $71.9 in the current period increased 11.6
percent from $64.4 in the year ago period due to interest rate changes and
changes in borrowing levels.
10
<PAGE> 12
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 December 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 has investigated 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 agreement among Ispat,
the Company, Inland Merger Sub, Inc. and Inland Steel Industries, Inc. (the
predecessor company to Ryerson Tull, Inc.), as amended (the "Merger Agreement").
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 October 1996, the Indiana Department of Environmental Management, as
lead administrative trustee, notified the Company and other potentially
responsible parties that the natural resource trustees (which also include the
Indiana Department of Natural Resources, the U.S. Department of the Interior,
the Fish and Wildlife Service and the National Park Service) intend to perform a
natural resource damage assessment on the Grand Calumet River and Indiana Harbor
Canal System. The notice states that the Company has been identified as a
potentially responsible party due to alleged releases of hazardous substances
from its Indiana Harbor Works facility. Ispat and the Company have notified
Ryerson Tull, Inc. of their intention to seek indemnification under the Merger
Agreement for any losses in connection with this matter. At this stage, it is
not possible to accurately predict the amount of the Company's potential
liability or whether this potential liability could materially affect our
financial position.
In addition to the foregoing, the Company is a party to a number of
legal proceedings arising in the ordinary course of 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 the business, financial condition, results of operations, cash
flows or prospects.
11
<PAGE> 13
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 September 30, 2000.
12
<PAGE> 14
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: November 7, 2000
13
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
------- ----------
NUMBER PAGE NO.
------ --------
DESCRIPTION
----------------------------------------------------
<S> <C> <C>
27 Financial Data Schedule...................................................
</TABLE>
