<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 16, 1998
----------------
INLAND STEEL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 1-9117 36-3425828
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
30 WEST MONROE STREET CHICAGO, ILLINOIS 60603
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
----------------
Registrant's telephone number, including area code: (312) 346-0300
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 16, 1998, Inland Steel Company, a wholly owned subsidiary of Inland
Steel Industries, Inc. ("Inland") that constituted the steel manufacturing and
related operations segment of Inland's consolidated operations, merged with
Inland Merger Sub, Inc., a subsidiary of Ispat International N.V. ("Ispat"),
pursuant to an agreement and plan of merger dated May 27, 1998, as amended as
of July 16, 1998 (the "Merger Agreement"), among Inland, Inland Steel Company,
Ispat and Inland Merger Sub, Inc. (the "ISC/Ispat Transaction"). Inland Steel
Company was the surviving company in the merger. As a result of the ISC/Ispat
Transaction, Inland Steel Company became a wholly owned subsidiary of Ispat.
Pursuant to the merger, Inland received approximately $1.1 billion in cash in
exchange for the outstanding common stock and preferred stock of Inland Steel
Company and in connection with the repayment of intercompany debt of Inland
Steel Company held by Inland. Inland's primary business is currently metals
distribution and processing, conducted through its majority-owned subsidiary,
Ryerson Tull, Inc.
The foregoing summary is qualified in its entirety by reference to the
Merger Agreement, incorporated herein by reference as Exhibit 2.1, and the
amendment to the Merger Agreement, incorporated herein by reference as Exhibit
2.2.
ITEM 5. OTHER EVENTS.
This Current Report on Form 8-K is being filed, in part, for the purpose of
restating the Consolidated Financial Statements of the Registrant, previously
filed on the Registrant's Annual Report on Form 10-K and Quarterly Report on
Form 10-Q, to reflect Inland Steel Company as a discontinued operation. The
restated financial statements are incorporated herein by reference as Exhibit
99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not Applicable
(b) Pro Forma Financial Information: To be filed by the Registrant within 60
days.
(c) 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.
2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Dated: July 17, 1998 Inland Steel Industries, Inc.
/s/ James M. Hemphill
By: _________________________________
James M. Hemphill
Controller
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 27, 1998 between Ispat
International, N.V., Inland Steel Industries, Inc., Inland Merger Sub, Inc. and
Inland Steel Company (incorporated herein by reference to Exhibit 2.1 to the
Current Report on Form 8-K of Inland Steel Company, as filed with the Commission
on May 27, 1998).
2.2 Amendment to Agreement and Plan of Merger dated as of July 16, 1998 between Ispat
International, N.V., Inland Steel Industries, Inc., Inland Merger Sub, Inc. and
Inland Steel Company.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Restated Financial Data Schedule from 1995 10-K.
27.2 Restated Financial Data Schedule from 1996 10-K.
27.3 Restated Financial Data Schedule from 1997 10-K.
27.4 Restated Financial Data Schedule from 1997 1st Quarter 10-Q.
27.5 Restated Financial Data Schedule from 1998 1st Quarter 10-Q.
99.1 Restated Consolidated Financial Statements of Inland Steel Industries, Inc.
</TABLE>
Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules
referenced in the Agreement and Plan of Merger are omitted from this filing.
The Registrant hereby agrees to furnish supplementally a copy of any of the
omitted schedules upon the request of the Securities and Exchange Commission.
<PAGE>
Exhibit 2.2
AMENDMENT NO. 1, dated as of July 16, 1998 (this "Amendment"), to the
Agreement and Plan of Merger, dated as of May 27, 1998 (the "Merger Agreement"),
among Ispat International N.V., a company organized under the laws of The
Netherlands ("Ispat"), Inland Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Ispat ("Merger Sub"), Inland Steel Industries, Inc.,
a Delaware corporation ("ISI"), and Inland Steel Company, a Delaware corporation
and a wholly owned subsidiary of ISI ("ISC").
WITNESSETH:
WHEREAS, Ispat, Merger Sub, ISI and ISC have entered into the Merger
Agreement; and
WHEREAS, Ispat, Merger Sub, ISI and ISC desire to amend the Merger
Agreement in certain respects.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and understandings hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION 1. Amendments to the Merger Agreement. The Merger Agreement
is hereby amended as follows:
(a) The words "less $3,200,000" are hereby inserted after the word
"Date" in Section 2.08(a).
(b) The words "June 30, 1998" are hereby inserted in replacement for
the term "Effective Time" the second and third times such term appears
in Section 2.11(a).
(c) The following is hereby inserted after the end of Section 5. 01
(c):
"(d) ISI shall maintain, or cause to be maintained, for the
benefit of (and at the sole cost and risk of the Surviving Corporation
for a period of 90 days after the Closing Date, the letters of credit
in favor of Employers Insurance of Wausau ("Wausau"), as in place
immediately prior to the Effective Time for the benefit of ISC by
LEETS, a subsidiary of ISI, which letters of credit are required as
collateral supporting the ISC casualty insurance coverage provided by
Wausau.
(e) Prior to the Effective Time, ISI shall sell, assign,
transfer and deliver to ISC, or cause to be sold, assigned,
transferred and delivered to ISC, all of the common stock of Nippon
Steel Corporation owned by ISI and its subsidiaries. The aggregate
purchase price for such shares shall be an amount equal to the average
closing price for such shares on the Tokyo Stock Exchange over the
five trading days immediately preceding the transfer date multiplied
by the number of such shares. The purchase price for such shares shall
be paid by
<PAGE>
increasing the amount of Intercompany Indebtedness owing from ISC to
ISI payable by Ispat to ISI under Section 2.08(a) on the Closing Date.
(d) The following is hereby inserted after the end of Section 5.07:
"From and after 180 days after the Closing Date, neither ISI nor
its Affiliates will be permitted to use the "red diamond" logo;
provided that, prior to such time ISI and its Affiliates will be
permitted to use such "red diamond" logo in the same manner as such
logo is being used by such company as of the date hereof ; provided,
further, that Ispat will not unreasonably withhold its consent to a
reasonable extension of such 180-day period if promptly after the
Effective Time ISI commences action reasonably calculated to result in
such logo being changed or eliminated as promptly as practicable
thereafter."
(e) The following is hereby inserted after the end of Section 5.13:
"SECTION 5.14. PBGC. ISI shall prior to the Effective Time cause
Ryerson Tull, Inc. to execute a guaranty in favor of the PBGC in the
amount of $50,000,000 which shall be on terms acceptable to the PBGC
and Ryerson Tull, Inc. Ispat shall take all necessary action to cause
such guaranty to be terminated or replaced on or prior to the fifth
anniversary of the date hereof, as contemplated by the Term Sheet
dated July 15, 1998 among ISC, Ispat, ISI, Ryerson Tull, Inc. and the
PBGC. Ispat hereby confirms and agrees that Ryerson Tull, Inc. shall
be subrogated to the rights of the PBGC against Ispat and ISC to the
extent of any payment made by Ryerson Tull, Inc. under such guaranty.
Ispat further agrees that it shall reimburse Ryerson Tull, Inc. for
all reasonable expenses, including attorney's fees, incurred in
enforcing any such subrogation.
SECTION 5.15. Consents. (a) ISI and Ispat acknowledge that the
final consent required from Mitsui & Co., Ltd., Nissho Iwai
Corporation and Mitsubishi Corporation will not be obtained prior to
the Effective Time. If such consent is not received and the I/N Tek
indebtedness the subject of such consent (the "Existing Indebtedness")
is accelerated, ISI and Ispat shall each lend to I/N Tek or otherwise
fund 30% of such accelerated Existing Indebtedness, on terms and
conditions substantially identical to the Existing Indebtedness (the
"Temporary Indebtedness"). In addition, ISI and Ispat shall share
equally all penalties and other costs and expenses that are incurred
by ISC and its subsidiaries, and its post-Merger affiliates that are
providing financing with respect to the Merger and only with respect
to such financing, as a result, directly or indirectly, of the failure
to obtain such consent (including without limitation, those incurred
as a result of such acceleration).
(b) Ispat agrees to use all reasonable efforts to refinance the
Temporary Indebtedness and replace ISI with Ispat on the related
guaranty as
2
<PAGE>
promptly as practicable, but shall only be required to do so if the
new indebtedness that can be obtained to replace the Existing
Indebtedness (the "Replacement Indebtedness") is on substantially
similar or more favorable terms than the Existing Indebtedness. Ispat
shall keep ISI reasonably informed of the status of such refinancing.
(c) If the Existing Indebtedness is accelerated, and I/N Tek
incurs Replacement Indebtedness at an interest rate lower in the
aggregate than the interest rate applicable to the Existing
Indebtedness, Ispat shall pay to ISI 50% of the then net present value
(using a discount rate equal to the interest rate for the Replacement
Indebtedness) of the difference between 60% of the aggregate amount of
interest which will become payable on the Existing Indebtedness and
60% of the aggregate amount of interest which will become payable on
the Replacement Indebtedness.
(d) If the Existing Indebtedness is accelerated, and I/N Tek
incurs Replacement Indebtedness at an interest rate higher in the
aggregate than the interest rate applicable to the Existing
Indebtedness, ISI shall pay to Ispat 50% of the then net present value
(using a discount rate equal to the interest rate for the Replacement
Indebtedness) of the difference between 60% of the aggregate amount of
interest which will become payable on the Replacement Indebtedness and
60% of the aggregate amount of interest which will become payable on
the Existing Indebtedness."
(f) The following is hereby inserted at the end of clause (b) of
Section 9.03:
"; provided that unless and until the guaranty by Ryerson Tull, Inc.
in favor of the PBGC is terminated or replaced by Ispat as described
in the second sentence of Section 5.14, the amount of such Losses
payable under clauses (i) and (ii) of Section 9.02(a) shall not exceed
$90,000,000 less (x) the amount of such guaranty not terminated or
replaced or (y) if such guaranty has been drawn upon by the PBGC, the
amount not terminated or replaced of such guaranty which has not been
drawn upon plus the amount of such guaranty that has been drawn upon
and not repaid by Ispat as provided in Section 5.14 (such difference,
the "Indemnification Amount Payable");"
(g) New Section 9.06 is hereby inserted after the end of Section
9.05:
"SECTION 9.06. Additional Matters. (a) At or prior to the Effective
Time ISI shall purchase, or shall cause to be purchased, an insurance
policy in form and substance satisfactory to Ispat (the "Environmental
Insurance Policy") covering certain potential Losses with respect to
environmental matters, providing coverage for such Losses up to an
amount equal to $90,000,000 identifying as insured the Surviving
Corporation and all its subsidiaries and ventures making
3
<PAGE>
Ispat an additional insured with respect to the operations of the
Surviving Corporation and such subsidiaries and ventures and also
making ISI an additional insured.
(b) Indemnification for Losses under Section 9.02 shall be
payable by ISI only if, and to the extent that, such Losses are within
the scope of ISI's indemnification obligation under Section 9.02 and
are not recovered pursuant to the Environmental Insurance Policy
(whether by way of operation of a deductible, retention amount,
exclusions from coverage or similar limitations) after the exercise of
good faith commercial efforts by Ispat, the Surviving Corporation and
its subsidiaries and ventures as appropriate. Notwithstanding the
foregoing, no amount shall be payable under Section 9.02 with respect
to any Loss that would be covered under the Environmental Insurance
Policy but for the operation of the $90,000,000 limit on the policy
therein. Ispat shall not settle any claim under the Environmental
Insurance Policy unless it believes such settlement to be a reasonable
resolution of such insurance claim.
(c) Anything in Section 9.03 to the contrary notwithstanding,
ISI shall not be obligated to pay claims for indemnification by an
Ispat Indemnified Party during the five-year period after the
Effective Time in excess of $40,000,000 so long as the guaranty
described in Section 5.14 has not been terminated or replaced.
Indemnification claims submitted by the Ispat Indemnified Parties
during such five-year period which in the aggregate exceed $40,000,000
shall be considered "Deferred Claims" for purposes of this Article IX.
Deferred Claims shall be made, processed and resolved on the same
terms and conditions as all other claims under this Article IX, and
shall be paid if and when the Indemnification Amount Payable is
sufficient to pay all or any portion of such claim.
(d) In the event coverage is denied under the existing business
interruption insurance policy for losses resulting from the shut down
of Blast Furnace No. 7 beginning on July 3, 1998, ISI shall indemnify
ISC for the amount of ISC's substantiated business interruption
losses. Such indemnification shall not otherwise be subject to any
limitations in this Article IX and shall not be applied to the amount
specified in clause (b) of Section 9.03."
SECTION 2. Effect of Amendments. Except as and to the extent
expressly modified by this Amendment, the Merger Agreement shall remain in full
force and effect in all respects.
SECTION 3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
4
<PAGE>
SECTION 4. Counterparts. This Amendment may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, Ispat, Merger Sub, ISI and ISC have caused this
Amendment to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ISPAT INTERNATIONAL N.V.
By: /s/ Richard Lablanc
------------------------------
Name: Richard Leblanc
Title:
By: /s/ T. N. Ramaswamy
------------------------------
Name: T. N. Ramaswamy
Title:
INLAND MERGER SUB, INC.
By: /s/ Richard Leblanc
------------------------------
Name: Richard Leblanc
Title: Secretary and Vice President
INLAND STEEL INDUSTRIES, INC.
By: /s/ Jay M. Gratz
------------------------------
Name: Jay M. Gratz
Title: Vice President and CFO
INLAND STEEL COMPANY
By: /s/ Vicki L. Avril
------------------------------
Name: Vicki L. Avril
Title: Treasurer
6
<PAGE>
Exhibit 23.1
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. 33-59783),
Registration Statement on Form S-8 (No. 33-48770). Registration Statement on
Form S-8 (No. 33-22902), Post-Effective Amendment No. 1 on Form S-8 to
Registration Statement on Form S-4 (No. 33-4046), Post-Effective Amendment No. 1
to Form S-8 Registration Statement No. 33-1329, Registration Statement on
Form S-8 (No. 33-32504), Post-Effective Amendment No. 2 to Form S-8 Registration
Statement (No. 33-6627). Registration Statement on Form S-3 (No. 33-59161) and
Registration Statement on Form S-3 (No. 33-62897) of Inland Steel Industries,
Inc. (or, for registrations prior to 1986, Inland Steel Company) of our report
dated February 18, 1998, except as to Note 1 which is as of July 16, 1998,
appearing on page F-2 of Exhibit 99.1, which is attached hereto, and is
incorporated by reference herein.
PricewaterhouseCoopers LLP
Chicago, Illinois
July 17, 1998
<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 8-K to
which this Exhibit is attached and is qualified in its entirety by reference to
such financial schedules.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 267,400
<SECURITIES> 0
<RECEIVABLES> 518,400
<ALLOWANCES> 29,900
<INVENTORY> 461,000
<CURRENT-ASSETS> 1,262,300
<PP&E> 4,364,000
<DEPRECIATION> 2,763,600
<TOTAL-ASSETS> 3,558,300
<CURRENT-LIABILITIES> 644,200
<BONDS> 784,500
<COMMON> 50,600
0
3,200
<OTHER-SE> 694,800
<TOTAL-LIABILITY-AND-EQUITY> 3,558,300
<SALES> 2,464,000
<TOTAL-REVENUES> 2,464,000
<CGS> 2,153,100
<TOTAL-COSTS> 2,153,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,700
<INCOME-PRETAX> 125,800
<INCOME-TAX> 48,100
<INCOME-CONTINUING> 77,700
<DISCONTINUED> 69,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,800
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.55
</TABLE>
<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 8-K to
which this Exhibit is attached and is qualified in its entirety by reference to
such financial schedules.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 238,000
<SECURITIES> 0
<RECEIVABLES> 487,200
<ALLOWANCES> 22,500
<INVENTORY> 494,600
<CURRENT-ASSETS> 1,227,800
<PP&E> 4,536,100
<DEPRECIATION> 2,899,100
<TOTAL-ASSETS> 3,541,600
<CURRENT-LIABILITIES> 536,800
<BONDS> 773,200
<COMMON> 50,600
0
3,200
<OTHER-SE> 735,200
<TOTAL-LIABILITY-AND-EQUITY> 3,541,600
<SALES> 2,407,900
<TOTAL-REVENUES> 2,407,900
<CGS> 2,121,800
<TOTAL-COSTS> 2,121,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,400
<INCOME-PRETAX> 128,500
<INCOME-TAX> 47,400
<INCOME-CONTINUING> 81,100
<DISCONTINUED> (17,900)
<EXTRAORDINARY> (14,500)
<CHANGES> 0
<NET-INCOME> 45,700
<EPS-PRIMARY> .75
<EPS-DILUTED> .72
</TABLE>
<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
8-K to which this Exhibit is attached and is qualified in its entirety by
reference to such financial schedules.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 97,000
<SECURITIES> 0
<RECEIVABLES> 546,800
<ALLOWANCES> 23,500
<INVENTORY> 624,100
<CURRENT-ASSETS> 1,275,100
<PP&E> 4,649,700
<DEPRECIATION> 3,007,900
<TOTAL-ASSETS> 3,646,500
<CURRENT-LIABILITIES> 614,900
<BONDS> 704,900
<COMMON> 50,600
0
3,100
<OTHER-SE> 846,400
<TOTAL-LIABILITY-AND-EQUITY> 3,646,500
<SALES> 2,804,000
<TOTAL-REVENUES> 2,804,000
<CGS> 2,481,400
<TOTAL-COSTS> 2,481,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,400
<INCOME-PRETAX> 119,500
<INCOME-TAX> 46,600
<INCOME-CONTINUING> 72,900
<DISCONTINUED> 54,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,300
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.13
</TABLE>
<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 THE STOCKHOLDERS' EQUITY CONTAINED IN THE QUARTERLY REPORT ON FORM
8-K TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL SCHEDULES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 89,700
<SECURITIES> 0
<RECEIVABLES> 572,600
<ALLOWANCES> 25,100
<INVENTORY> 598,600
<CURRENT-ASSETS> 1,267,600
<PP&E> 4,568,900
<DEPRECIATION> 2,935,500
<TOTAL-ASSETS> 3,597,500
<CURRENT-LIABILITIES> 569,000
<BONDS> 762,600
<COMMON> 50,600
0
3,200
<OTHER-SE> 765,800
<TOTAL-LIABILITY-AND-EQUITY> 3,597,500
<SALES> 664,200
<TOTAL-REVENUES> 664,200
<CGS> 585,300
<TOTAL-COSTS> 585,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,800
<INCOME-PRETAX> 31,900
<INCOME-TAX> 12,200
<INCOME-CONTINUING> 19,700
<DISCONTINUED> 13,700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,200
<EPS-PRIMARY> .59
<EPS-DILUTED> .56
</TABLE>
<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 THE STOCKHOLDERS' EQUITY CONTAINED IN THE QUARTERLY REPORT ON FORM
8-K TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL SCHEDULES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 92,800
<SECURITIES> 0
<RECEIVABLES> 359,400
<ALLOWANCES> 7,000
<INVENTORY> 453,000
<CURRENT-ASSETS> 903,900
<PP&E> 588,200
<DEPRECIATION> 280,200
<TOTAL-ASSETS> 1,847,600
<CURRENT-LIABILITIES> 238,400
<BONDS> 437,400
<COMMON> 50,600
0
3,100
<OTHER-SE> 867,200
<TOTAL-LIABILITY-AND-EQUITY> 1,847,600
<SALES> 740,800
<TOTAL-REVENUES> 740,800
<CGS> 654,900
<TOTAL-COSTS> 654,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,700
<INCOME-PRETAX> 30,400
<INCOME-TAX> 11,800
<INCOME-CONTINUING> 18,600
<DISCONTINUED> 5,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,800
<EPS-PRIMARY> .40
<EPS-DILUTED> .38
</TABLE>
<PAGE>
Exhibit 99.1
FINANCIAL RESPONSIBILITY
Senior management is responsible for the integrity and objectivity of the
financial data reported by Inland Steel Industries, 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 Inland 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 on-going 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.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Inland Steel Industries, Inc.
In our opinion, the consolidated financial statements on the following pages
present fairly, in all material respects, the financial position 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 financial 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.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 1998,
except as to Note 1,
which is as of July 16, 1998
F-2
<PAGE>
STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES
The following briefly describes the Company's principal accounting and
financial policies.
ACCOUNTING FOR EQUITY INVESTMENTS
The Company's investments in less than majority-owned companies, joint
ventures and partnerships, and the Company's majority interest in the I/N Tek
partnership, are accounted for under the equity method.
PER SHARE RESULTS
Basic per share results are based on the weighted average number of common
shares outstanding and take into account the dividend requirements of
preferred stock, net of tax benefits related to leveraged Employee Stock
Ownership Plan ("ESOP") shares.
Diluted per share results reflect the dilutive effect of outstanding stock
options, the further dilutive effect of the assumed conversion into common
stock of the outstanding shares of convertible preferred stock, and the
elimination of the related preferred stock dividends. Also reflected in
diluted earnings per common share is an adjustment for the additional ESOP
contribution, net of tax benefits, that would be necessary to meet debt
service requirements that would arise upon conversion of the leveraged Series
E ESOP Convertible Preferred Stock ("Series E Preferred Stock"), due to the
current excess of the preferred dividend over the common dividend.
INVENTORY VALUATION
Inventories are valued at cost which is not in excess of market. Cost is
determined by the last-in, first-out method except for supply inventories,
which are determined by the average cost or first-in, first-out methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated for financial reporting
purposes over the estimated useful lives of the assets. Steelmaking machinery
and equipment, a significant class of assets, is depreciated on a production-
variable method, which adjusts straight-line depreciation to reflect
production levels at the steel plant. The adjustment is limited to not more
than a 25 percent increase or decrease from straight-line depreciation. Blast
furnace relining expenditures are capitalized and amortized on a unit-of-
production method over the life of the lining. All other assets are
depreciated on a straight-line method.
Expenditures for normal repairs and maintenance are charged to income as
incurred.
Gains or losses from significant abnormal disposals or retirements of
properties are credited or charged to income. The cost of other retired assets
less any sales proceeds is charged to accumulated depreciation.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over fair value of net assets of businesses acquired is
being amortized over 25-year periods.
CASH EQUIVALENTS
Cash equivalents reflected in the Statement of Cash Flows are highly liquid,
short-term investments with maturities of three months or less that are an
integral part of the Company's cash management portfolio.
STOCK-BASED COMPENSATION
Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based
F-3
<PAGE>
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 the Company'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 the Company's stock at the end of the period.
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.
INTERIM FINANCIAL INFORMATION
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.
F-4
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
--------------- ----------------------------
1998 1997 1997 1996 1995
------ ------- -------- -------- --------
(UNAUDITED)
DOLLARS IN MILLIONS (EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales........... $740.8 $ 664.2 $2,804.0 $2,407.9 $2,464.0
------ ------- -------- -------- --------
Operating costs and
expenses:
Cost of goods sold
(excluding
depreciation).... 647.6 579.3 2,457.0 2,099.9 2,131.8
Selling, general
and
administrative
expenses......... 48.3 44.3 180.6 168.4 164.1
Depreciation...... 7.3 6.0 24.4 21.9 21.3
------ ------- -------- -------- --------
Total........... 703.2 629.6 2,662.0 2,290.2 2,317.2
------ ------- -------- -------- --------
Operating profit.... 37.6 34.6 142.0 117.7 146.8
------ ------- -------- -------- --------
Other expense:
General corporate
income, net of
expense items.... 2.5 8.1 17.9 25.8 12.7
Interest and other
expense on debt.. (9.7) (10.8) (40.4) (46.4) (33.7)
Gain from issuance
of subsidiary
stock (Note 2)... -- -- -- 31.4 --
------ ------- -------- -------- --------
Income before income
taxes, minority
interest,
discontinued
operations and
extraordinary loss. 30.4 31.9 119.5 128.5 125.8
Provision for income
taxes (Note 14).... 11.8 12.2 46.6 47.4 48.1
------ ------- -------- -------- --------
Income before
minority interest,
discontinued
operations and
extraordinary loss. 18.6 19.7 72.9 81.1 77.7
Minority interest in
Ryerson Tull, Inc.
(Note 2)........... 2.1 2.2 8.4 3.0 --
------ ------- -------- -------- --------
Income from
continuing
operations......... 16.5 17.5 64.5 78.1 77.7
Income from
discontinued
operations (Note
1)................. 5.3 13.7 54.8 (17.9) 69.1
------ ------- -------- -------- --------
Income before
extraordinary loss. 21.8 31.2 119.3 60.2 146.8
Extraordinary loss
on early retirement
of debt (Note 5)... -- -- -- (14.5) --
------ ------- -------- -------- --------
Net income.......... 21.8 31.2 119.3 45.7 146.8
Dividend
requirements for
preferred stock
(net of tax
benefits related to
leveraged ESOP
shares)............ 2.3 2.3 9.1 9.1 19.0
------ ------- -------- -------- --------
Net income
applicable to
common stock....... $ 19.5 $ 28.9 $ 110.2 $ 36.6 $ 127.8
====== ======= ======== ======== ========
Per share of common
stock
Basic:
Income from
continuing
operations....... $ .29 $ .31 $ 1.13 $ 1.42 $ 1.24
Income from
discontinued
operations....... .11 .28 1.12 (.37) 1.46
Extraordinary loss
on early
retirement of
debt............. -- -- -- (.30) --
------ ------- -------- -------- --------
Net income...... $ .40 $ .59 $ 2.25 $ .75 $ 2.70
====== ======= ======== ======== ========
Diluted:
Income from
continuing
operations....... $ .28 $ .30 $ 1.08 $ 1.34 $ 1.18
Income from
discontinued
operations....... .10 .26 1.05 (.34) 1.37
Extraordinary loss
on early
retirement of
debt............. -- -- -- (.28) --
------ ------- -------- -------- --------
Net income...... $ .38 $ .56 $ 2.13 $ .72 $ 2.55
====== ======= ======== ======== ========
CONSOLIDATED
STATEMENT OF
REINVESTED EARNINGS
Accumulated deficit
at beginning of
year............... $(45.6) $(146.0) $ (146.0) $ (172.8) $ (292.4)
Net income for the
period............. 21.8 31.2 119.3 45.7 146.8
Dividends declared:
Common ($.20 per
share)........... (2.4) (2.4) (9.8) (9.8) (9.6)
Preferred (Notes 6
and 8)........... (.1) (.1) (9.1) (9.1) (17.6)
------ ------- -------- -------- --------
Accumulated deficit
at end of period... $(26.3) $(117.3) $ (45.6) $ (146.0) $ (172.8)
====== ======= ======== ======== ========
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales...........
Operating costs and
expenses:
Cost of goods sold
(excluding
depreciation)....
Selling, general
and
administrative
expenses.........
Depreciation......
Total...........
Operating profit....
Other expense:
General corporate
income, net of
expense items....
Interest and other
expense on debt..
Gain from issuance
of subsidiary
stock (Note 2)...
Income before income
taxes, minority
interest,
discontinued
operations and
extraordinary loss.
Provision for income
taxes (Note 14)....
Income before
minority interest,
discontinued
operations and
extraordinary loss.
Minority interest in
Ryerson Tull, Inc.
(Note 2)...........
Income from
continuing
operations.........
Income from
discontinued
operations (Note
1).................
Income before
extraordinary loss.
Extraordinary loss
on early retirement
of debt (Note 5)...
Net income..........
Dividend
requirements for
preferred stock
(net of tax
benefits related to
leveraged ESOP
shares)............
Net income
applicable to
common stock.......
Per share of common
stock
Basic:
Income from
continuing
operations.......
Income from
discontinued
operations.......
Extraordinary loss
on early
retirement of
debt.............
Net income......
Diluted:
Income from
continuing
operations.......
Income from
discontinued
operations.......
Extraordinary loss
on early
retirement of
debt.............
Net income......
CONSOLIDATED
STATEMENT OF
REINVESTED EARNINGS
Accumulated deficit
at beginning of
year...............
Net income for the
period.............
Dividends declared:
Common ($.20 per
share)...........
Preferred (Notes 6
and 8)...........
Accumulated deficit
at end of period...
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTERS ENDED INCREASE (DECREASE) IN CASH
MARCH 31 YEARS ENDED DECEMBER 31
--------------- -------------------------------
1998 1997 1997 1996 1995
------ ------- --------- --------- ---------
(UNAUDITED)
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............ $ 21.8 $ 31.2 $ 119.3 $ 45.7 $ 146.8
------ ------- --------- --------- ---------
Adjustments to
reconcile net income
to net cash provided
from (used for)
operating activities
of continuing
operations:
Loss (income) from
discontinued
operations......... (5.3) (13.7) (54.8) 17.9 (69.1)
Depreciation........ 7.4 6.2 24.9 22.4 21.9
Deferred income
taxes.............. 5.0 .2 3.9 8.2 6.5
Deferred employee
benefit cost....... 1.4 1.3 (11.3) 6.1 (.1)
Stock issued for
coverage of
employee benefit
plans.............. 3.0 3.6 21.8 22.6 23.9
Gain from sale of
assets............. -- -- (8.9) -- --
Gain from issuance
of subsidiary
stock.............. -- -- -- (31.4) --
Change in:
Receivables........ (53.0) (39.7) (12.0) 8.1 (18.0)
Inventories..... (28.0) (34.8) (33.8) (50.2) 10.2
Accounts
payable........ 6.6 50.5 10.2 8.4 (7.2)
Accrued salaries
and wages...... (8.1) (12.0) 2.6 .3 2.9
Other accrued
liabilities.... (.4) .8 (9.0) 3.8 2.9
Other items......... .4 (1.9) 6.3 (6.8) 9.5
------ ------- --------- --------- ---------
Net adjustments... (71.0) (39.5) (60.1) 9.4 (16.6)
------ ------- --------- --------- ---------
Net cash provided
from (used for)
operating
activities of
continuing
operations....... (49.2) (8.3) 59.2 55.1 130.2
------ ------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures.. (8.0) (7.1) (41.3) (25.1) (20.7)
Acquisitions (Note
16).................. (7.7) (130.2) (139.9) -- --
Investments in and
advances to joint
ventures, net........ -- (3.7) (8.1) (5.2) (10.1)
Proceeds from sales of
assets............... .1 4.1 18.2 2.0 1.9
------ ------- --------- --------- ---------
Net cash used for
investing
activities of
continuing
operations....... (15.6) (136.9) (171.1) (28.3) (28.9)
------ ------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of subsidiary
stock................ -- -- -- 77.1 --
Long-term debt issued. -- -- -- 242.7 --
Long-term debt
retired.............. (5.2) (5.4) (17.3) (246.7) (13.0)
Reduction of debt
assumed in
acquisitions......... -- (22.6) (25.3) -- --
Short-term borrowing.. -- 8.0 -- -- --
Dividends paid........ (2.5) (2.5) (20.8) (21.0) (31.6)
Acquisition of
treasury stock....... (5.5) (1.3) (6.7) (3.7) (4.0)
------ ------- --------- --------- ---------
Net cash provided
from (used for)
financing
activities of
continuing
operations....... (13.2) (23.8) (70.1) 48.4 (48.6)
------ ------- --------- --------- ---------
Cash provided by (used
in) discontinued
operations........... 54.2 20.7 41.0 (104.6) 107.6
------ ------- --------- --------- ---------
Net increase
(decrease) in cash
and cash equivalents. (23.8) (148.3) (141.0) (29.4) 160.3
Cash and cash
equivalents--
beginning of period.. 97.0 238.0 238.0 267.4 107.1
------ ------- --------- --------- ---------
Cash and cash
equivalents--end of
period............... $ 73.2 $ 89.7 $ 97.0 $ 238.0 $ 267.4
====== ======= ========= ========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the
period, including
amounts related to
discontinued
operations, for:
Interest (net of
amount
capitalized)....... $ 17.1 $ 19.4 $ 64.7 $ 67.0 $ 65.4
Income taxes, net... .8 .9 27.5 8.6 9.4
Non-cash activities:
Reduction of
deferred employee
benefits resulting
from contribution
of common stock to
the Company's
Pension Trust...... -- -- -- -- 100.0
Series F Preferred
Stock exchanged for
Subordinated Voting
Note............... -- -- -- -- 185.0
<CAPTION>
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............
Adjustments to
reconcile net income
to net cash provided
from (used for)
operating activities
of continuing
operations:
Loss (income) from
discontinued
operations.........
Depreciation........
Deferred income
taxes..............
Deferred employee
benefit cost.......
Stock issued for
coverage of
employee benefit
plans..............
Gain from sale of
assets.............
Gain from issuance
of subsidiary
stock..............
Change in:
Receivables........
Inventories.....
Accounts
payable........
Accrued salaries
and wages......
Other accrued
liabilities....
Other items.........
Net adjustments...
Net cash provided
from (used for)
operating
activities of
continuing
operations.......
INVESTING ACTIVITIES
Capital expenditures..
Acquisitions (Note
16)..................
Investments in and
advances to joint
ventures, net........
Proceeds from sales of
assets...............
Net cash used for
investing
activities of
continuing
operations.......
FINANCING ACTIVITIES
Issuance of subsidiary
stock................
Long-term debt issued.
Long-term debt
retired..............
Reduction of debt
assumed in
acquisitions.........
Short-term borrowing..
Dividends paid........
Acquisition of
treasury stock.......
Net cash provided
from (used for)
financing
activities of
continuing
operations.......
Cash provided by (used
in) discontinued
operations...........
Net increase
(decrease) in cash
and cash equivalents.
Cash and cash
equivalents--
beginning of period..
Cash and cash
equivalents--end of
period...............
SUPPLEMENTAL DISCLOSURES
Cash paid during the
period, including
amounts related to
discontinued
operations, for:
Interest (net of
amount
capitalized).......
Income taxes, net...
Non-cash activities:
Reduction of
deferred employee
benefits resulting
from contribution
of common stock to
the Company's
Pension Trust......
Series F Preferred
Stock exchanged for
Subordinated Voting
Note...............
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31
AT MARCH 31 ------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
DOLLARS IN MILLIONS
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 92.8 $ 97.0 $ 238.0
Receivables less provision for allowances,
claims and doubtful accounts of $7.0, $23.5
and $22.5, respectively.................... 352.4 523.3 464.7
Inventories (Note 3)........................ 453.0 624.1 494.6
Deferred income taxes (Note 14)............. 5.7 30.7 30.5
-------- -------- --------
Total current assets...................... 903.9 1,275.1 1,227.8
Investments and advances (see details next
page)........................................ 37.4 271.6 252.1
Investment in Inland Steel Company (Note 1)... 454.0 -- --
Property, plant and equipment, at cost, less
accumulated depreciation (see details next
page)........................................ 308.0 1,641.8 1,637.0
Deferred income taxes (Note 14)............... 31.8 231.4 287.5
Prepaid pension cost.......................... 16.6 77.4 --
Intangible pension asset (Note 13)............ -- -- 76.3
Excess of cost over net assets acquired....... 81.2 82.3 22.3
Deferred charges and other assets............. 14.7 66.9 38.6
-------- -------- --------
Total assets.............................. $1,847.6 $3,646.5 $3,541.6
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable............................ $ 173.9 $ 354.9 $ 321.4
Accrued liabilities:
Salaries, wages and commissions........... 18.3 79.1 76.0
Taxes..................................... 13.7 84.0 78.3
Interest on debt.......................... 7.2 17.1 17.9
Terminated facilities costs and other
(Note 12)................................ 8.1 17.1 23.6
Long-term debt due within one year (Note 5). 17.2 62.7 19.6
-------- -------- --------
Total current liabilities..................... 238.4 614.9 536.8
Long-term debt (see details next page and Note
5)........................................... 437.4 704.9 773.2
Allowance for terminated facilities costs and
other (Note 12).............................. 6.0 56.0 48.8
Deferred employee benefits (Note 13).......... 160.9 1,275.6 1,301.6
Deferred income............................... 1.6 9.4 11.1
-------- -------- --------
Total liabilities......................... 844.3 2,660.8 2,671.5
-------- -------- --------
Minority interest in Ryerson Tull, Inc........ 59.7 57.5 49.0
Common stock repurchase commitment (Note 6)... 22.7 28.1 32.1
-------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 15,000,000
shares authorized for all series, aggregate
liquidation value of $150.6 in 1997 and
$153.9 in 1996 (Notes 7 and 8)............... 3.1 3.1 3.2
Common stock, $1.00 par value; authorized--
100,000,000 shares; issued--50,556,350 shares
(Notes 8 through 10)......................... 50.6 50.6 50.6
Capital in excess of par value (Note 8)....... 1,029.9 1,032.5 1,040.2
Accumulated deficit........................... (26.3) (45.6) (146.0)
Unearned compensation--ESOP (Note 7).......... (67.3) (68.6) (79.4)
Common stock repurchase commitment (Note 6)... (22.7) (28.1) (32.1)
Treasury stock at cost--Common stock of
1,659,884 shares in 1998, 1,557,635 shares in
1997 and 1,647,954 shares in 1996............ (43.1) (40.5) (44.2)
Cumulative translation adjustment............. (3.3) (3.3) (3.3)
-------- -------- --------
Total stockholders' equity................ 920.9 900.1 789.0
-------- -------- --------
Total liabilities, minority interest,
temporary equity, and stockholders'
equity................................... $1,847.6 $3,646.5 $3,541.6
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AT MARCH 31 AT DECEMBER 31
----------- -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
DOLLARS IN MILLIONS
<S> <C> <C> <C>
INVESTMENTS AND ADVANCES
Steel processing joint ventures.................. $ -- $ 167.3 $ 153.3
Raw material joint ventures...................... -- 47.4 52.2
Common stock of Nippon Steel Corporation held for
investment, net of valuation allowances of $7.0,
$7.1 and $4.8, respectively..................... 7.6 7.5 9.8
Other investments and advances................... 29.8 49.4 36.8
------ -------- --------
Total investments and advances............... $ 37.4 $ 271.6 $ 252.1
====== ======== ========
PROPERTY, PLANT AND EQUIPMENT
Land, land improvements and mineral properties... $ 32.6 $ 156.5 $ 156.2
Buildings, machinery and equipment............... 548.5 4,311.3 4,197.9
Transportation equipment......................... 6.8 144.9 145.0
Property under capital leases--primarily
machinery and equipment......................... .3 37.0 37.0
------ -------- --------
Total........................................ 588.2 4,649.7 4,536.1
Less--
Accumulated depreciation....................... 279.9 2,871.5 2,763.0
Accumulated depreciation--capital leases....... .3 35.7 35.4
Allowance for retirements and terminated
facilities (Note 12).......................... -- 100.7 100.7
------ -------- --------
Net property, plant and equipment............ $308.0 $1,641.8 $1,637.0
====== ======== ========
LONG-TERM DEBT
Inland Steel Industries, Inc.
Guaranteed ESOP notes, 8.43% and 8.80%, due
through July 2, 2004.......................... $ 80.4 $ 85.9 $ 96.5
Notes, 12 3/4%................................. -- -- 5.6
Subordinated Voting Note, 10.23% due December
17, 1999...................................... 100.0 100.0 100.0
------ -------- --------
Total Inland Steel Industries, Inc........... 180.4 185.9 202.1
====== ======== ========
Inland Steel Company
First Mortgage Bonds:
Series R, 7.9% due January 15, 2007............ -- 61.4 72.0
Series T, 12% due December 1, 1998............. -- -- 26.3
Pollution Control Series 1977, 5 3/4% due
February 1, 2007.............................. -- 25.5 26.5
Pollution Control Series 1978, 6 1/2%.......... -- -- 52.0
Pollution Control Series 1993, 6.8% due June 1,
2013.......................................... -- 40.0 40.0
Pollution Control Series 1995, 6.85% due
December 1, 2012.............................. -- 17.0 17.0
------ -------- --------
Total First Mortgage Bonds................... -- 143.9 233.8
Obligations for Industrial Development Revenue
Bonds: --
Pollution Control Project No. 2, 5.9% due
August 1, 1998................................ -- -- 5.0
Pollution Control Project No. 3, 6 1/4% due
April 1, 1999................................. -- 3.0 6.0
Pollution Control Project No. 11, 7 1/8% due
June 1, 2007.................................. -- 20.0 20.0
Pollution Control Project No. 13, 7 1/4% due
November 1, 2011.............................. -- 38.0 38.0
Exempt Facilities Project No. 14, 6.7% due
November 1, 2012.............................. -- 5.1 5.1
Exempt Facilities Project No. 15, 5 3/4% due
October 1, 2011............................... -- 52.0 --
------ -------- --------
Total Inland Steel Company................... -- 262.0 307.9
Ryerson Tull, Inc.
Notes, 8 1/2% due July 15, 2001................ 150.0 150.0 150.0
Notes, 9 1/8% due July 15, 2006................ 100.0 100.0 100.0
Joseph T. Ryerson & Son, Inc.
Obligation for Industrial Revenue Bond with
floating rate, set weekly based on 13-week
Treasury bills, due November 1, 2007.......... 7.0 7.0 7.0
J. M. Tull Metals Company, Inc.
Obligations for Industrial Revenue Bonds and
other long-term debt with variable rates and
fixed rates to 9 7/8%, due through August 17,
1998.......................................... -- -- 6.2
------ -------- --------
Total long-term debt......................... $437.4 $ 704.9 $ 773.2
====== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1/SALE OF INLAND STEEL COMPANY
On July 16, 1998, the Company disposed of Inland Steel Company ("ISC"), its
wholly owned subsidiary that constituted the steel manufacturing and related
operations segment of the Company's consolidated operations, to Ispat
International N.V. ("Ispat") pursuant to an agreement and plan of merger dated
May 27, 1998 (the "Merger Agreement"), among the Company, ISC, Ispat and
Inland Merger Sub, Inc. (an Ispat subsidiary). The Merger Agreement provided
for the merger of Merger Sub into ISC with ISC being the surviving company in
the merger (the "ISC/Ispat Transaction"). As a result of the ISC/Ispat
Transaction, ISC became a wholly owned subsidiary of Ispat. Pursuant to the
merger, the Company received $1.1 billion in cash in exchange for the
outstanding common stock and preferred stock of ISC and repayment of
intercompany debt of ISC held by the Company. The Company intends to
distribute a significant portion of the net proceeds from the sale to its
stockholders through a stock repurchase program. The Company's primary
business is currently metals distribution and processing, conducted through
its majority owned subsidiary, Ryerson Tull, Inc. The Company currently
intends to merge with RT. Accordingly, the results of operations of ISC have
been segregated from the results of continuing operations and reported as a
separate item on the statement of operations for the three years ended
December 31, 1997 and the quarters ended March 31, 1998 and 1997. The assets
and liabilities of ISC at March 31, 1998 have been aggregated and reflected as
a net noncurrent asset.
ISC's revenues, including intercompany sales, were $2,467.5 million,
$2,397.3 million and $2,513.3 million for the years ended December 31, 1997,
1996 and 1995, respectively, and, unaudited, $606.1 million and $606.6 million
for the quarters ended March 31, 1998 and 1997, respectively. The investment
in Inland Steel Company on the consolidated balance sheet at March 31, 1998,
includes the net assets of discontinued operations below, and notes and other
receivables of $215.4 million. Summarized balance sheet information for ISC
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Current assets................................... $ 424.0 $ 450.4 $ 426.2
Total assets..................................... 2,254.7 2,333.1 2,322.8
Current liabilities.............................. 579.1 657.8 644.3
Total liabilities................................ 2,016.1 2,093.4 2,112.0
Net assets of discontinued operations............ 238.6 239.7 210.8
</TABLE>
NOTE 2/RECAPITALIZATION
In the 1996 second quarter, the Company undertook a recapitalization that
involved the Company and both its Inland Steel Company and Ryerson Tull, Inc.
("RT") subsidiaries. As part of the restructuring, RT, formerly Inland
Materials Distribution Group, Inc. ("IMDG"), exchanged existing shares of IMDG
common stock, all of which were owned by the Company, for 34.0 million shares
of new-issue RT Class B common stock, $1.00 par value per share. RT also sold
5.2 million shares of new-issue Class A common stock, $1.00 par value per
share, in a public offering, the net proceeds of which approximated $77.1
million. The Company recognized a $31.4 million gain on the sale of the RT
Class A common stock. At year-end 1997 and 1996, the Company's ownership of RT
approximated 87 percent.
Prior to the issuance of the Class A common stock, RT declared and paid
dividends of $445.9 million to the Company, of which $152.1 million was in
cash and $293.8 million was in the form of a note payable. The Company used
$63.2 million of the cash dividends to repay intercompany borrowing from RT
and its subsidiaries. In July, RT sold $250 million of Notes, the net proceeds
of which, along with a portion of RT's cash on hand, was used to pay the
$293.8 million note balance due the Company.
F-9
<PAGE>
NOTE 3/INVENTORIES
Inventories were classified on December 31 as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
DOLLARS IN MILLIONS
<S> <C> <C>
In process and finished products:
Steel Manufacturing Operations........................ $ 120.9 $ 106.5
Materials Distribution Operations..................... 422.9 311.9
--------- ---------
543.8 418.4
--------- ---------
Raw materials and supplies:
Iron ore.............................................. 39.7 42.4
Scrap and other raw materials......................... 23.7 16.7
Supplies.............................................. 16.9 17.1
--------- ---------
80.3 76.2
--------- ---------
Total............................................... $ 624.1 $ 494.6
========= =========
</TABLE>
Replacement costs for the LIFO inventories exceeded LIFO values by
approximately $389 million and $406 million on December 31, 1997 and 1996,
respectively. The effect on cost of goods sold of LIFO liquidations in each of
the three years ended December 31, 1997 was not material.
NOTE 4/BORROWING ARRANGEMENTS
On December 31, 1997, the Company's subsidiaries had available unused credit
facilities totaling $375 million. Each facility requires compliance with
various financial covenants including minimum net worth and leverage ratios.
In the 1997 third quarter, RT extended the term of its $250 million bank
credit facility to September 2002. Both the interest rates and commitment fee
related to the facility were reduced.
A special-purpose subsidiary of Inland Steel Company has a $125 million
revolving credit facility, which extends to November 30, 2000. Inland Steel
Company has agreed to sell substantially all of its receivables to this
special-purpose subsidiary and these receivables are used to secure this
facility.
With the recapitalization that occurred in 1996, the ability of RT and its
subsidiaries to transfer cash to the Company has been more tightly restricted.
Covenants in the RT credit facility limited the amount of cash that RT could
transfer to the Company in the form of dividends and advances to approximately
$76 million at year-end 1997. This amount is subject to change based on the
financial performance of RT. Additionally, there are certain other limitations
on advances. As part of the recapitalization, the Company and RT entered into
an agreement to maintain the existence of the Company and RT as separate
corporate entities. Included in this agreement is a requirement that any
transactions between the entities, including loans or advances from RT to the
Company, must be on an arms-length basis.
NOTE 5/LONG-TERM DEBT
Each series of First Mortgage Bonds issued by Inland Steel Company is
limited to the principal amount outstanding, with the Pollution Control Series
1977 Bonds and the Series R First Mortgage Bonds subject to a sinking fund. A
substantial portion of the property, plant and equipment owned by Inland Steel
Company at its Indiana Harbor Works is subject to the lien of the First
Mortgage. This property had a net book value of approximately $1.0 billion on
December 31, 1997.
Inland Steel Company refinanced $52 million of 6 1/2 percent pollution
control revenue bonds with 5 3/4 percent tax-exempt refunding bonds during the
1997 fourth quarter. Also during the quarter, the Company redeemed the
remaining $5.6 million principal amount outstanding of the Company's 12 3/4%
Notes.
F-10
<PAGE>
As part of the restructuring undertaken by the Company in 1996, RT issued
$150 million of 8 1/2 percent debt due July 15, 2001, and $100 million of 9
1/8 percent debt due July 15, 2006.
During 1996, the Company and Inland Steel Company respectively tendered for
the repurchase of all outstanding 12 3/4% Notes and Series T 12% First
Mortgage Bonds. Of the $150 million principal amount of Notes outstanding and
the $125 million principal amount of Series T Bonds outstanding, $144.2
million and $98.7 million, respectively, were tendered. Inland Steel Company
also called $38 million of 10 percent Pollution Control Project No. 9 Bonds
for early redemption, which were refinanced at an interest rate of 7.25
percent. As a result of the tenders and early redemption, the Company
recognized an extraordinary after-tax loss of $23.3 million, $36.9 million
before income taxes.
During the third quarter of 1995, Inland Steel Company refinanced $17
million of 10.75 percent pollution control revenue bonds with bonds bearing an
interest rate of 6.85 percent. Also during the third quarter, the Company
exchanged its Series F Exchangeable Preferred Stock for a $185 million 10.23%
Subordinated Voting Note. On December 18, 1996, $85 million of the
Subordinated Voting Note was repaid, with the remaining $100 million required
to be redeemed on December 17, 1999, plus, in each instance, accrued and
unpaid interest thereon. See Note 6 for additional information on the
Subordinated Voting Note.
The outstanding borrowing of the Company's ESOP is recorded as a liability
of the Company because the Company has committed to make payments (dividends
and supplemental contributions) to the ESOP Trust sufficient to service the
ESOP debt. The ESOP notes are payable in semi-annual installments through July
2004 and are guaranteed by Joseph T. Ryerson & Son, Inc., a majority owned
subsidiary of the Company. See Note 6 for additional information on the ESOP
debt.
Maturities of long-term debt and capitalized lease obligations due within
five years are: $62.7 million in 1998, $115.5 million in 1999, $18.8 million
in 2000, $169.9 million in 2001, and $21.1 million in 2002. Of the maturities
due within five years listed, $45.9 million in 1998, $4.0 million in 1999, and
$6.3 million in 2000 through 2002 relate to Inland Steel Company. See Note 19
regarding commitments and contingencies for other scheduled payments.
NOTE 6/SUBORDINATED VOTING NOTE
In December 1989, the Company sold 185,000 shares of the Company's Series F
Exchangeable Preferred Stock, $1.00 par value per share ("Series F Preferred
Stock"), for $185 million to NS Finance III, Inc., an indirect wholly owned
subsidiary of Nippon Steel Corporation ("NSC"). The preferred stock was
exchanged in the third quarter of 1995 for the Company's 10.23% Subordinated
Voting Note (see Note 4). The preferred stock entitled the holder to 30.604
votes per share and the Subordinated Voting Note entitles the holder to 30.604
votes per $1,000 of principal amount outstanding, which number may be adjusted
from time to time upon the occurrence of certain events. The voting power was
based on the equivalent number of common shares represented by a market value
of $185 million at the time the preferred stock was issued. In the event of a
change in control or certain other events, the holder may require the Company
to redeem the Subordinated Voting Note at a 10 percent premium. In the event
of an early redemption, the Company may be required to reimburse the holder
for certain costs incurred as a result of such redemption.
In connection with the sale of the Series F Preferred Stock, the Company
agreed to repurchase $185 million of the Company's common stock, of which $157
million (amounting to 5.1 million shares) has been repurchased. As of December
31, 1997, the amount representing the remaining repurchase commitment of $28
million has been classified as temporary equity with a corresponding reduction
of stockholders' equity. In December 1990, the Company suspended open-market
stock purchases and agreed to maintain cash, certain securities, a surety bond
or letter of credit, or some combination thereof, currently equal to $9
million to meet its obligation under the Series F Preferred Stock sale
agreement.
F-11
<PAGE>
The terms of a letter agreement between the Company and NSC which provided
for the purchase of the Series F Preferred Stock generally restrict the
acquisition by NSC of additional securities of the Company and the disposition
of the Subordinated Voting Note. Under certain circumstances related to a
potential change in control of the Company, NSC may seek to acquire voting
securities of the Company on terms and conditions no less favorable to the
Company's stockholders than the terms and conditions offered in connection
with the potential change in control.
So long as the purchaser and permitted transferees beneficially own at least
$100 million aggregate principal amount of the Subordinated Voting Note, the
Company has agreed with NSC to nominate a mutually acceptable individual for
election to the Company's Board of Directors. No such individual has been
nominated.
NOTE 7/EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a savings plan through which eligible salaried
employees may elect to save a portion of their salary, of which the Company
matches the first five percent of each participant's salary contributed,
subject to certain IRS limitations. In July 1989, the Board of Directors
amended the savings plan to include a leveraged ESOP. The ESOP Trust purchased
3.1 million newly issued shares of Series E Preferred Stock from the Company
with the proceeds of loans totaling $150 million. As a result, effective
January 1, 1990, the matching in the savings plan is in shares of Series E
Preferred Stock provided principally by the Company's ESOP, supplemented as
needed by newly issued shares. The Company accounts for its ESOP in accordance
with AICPA Statement of Position 76-3.
Effective January 1, 1998, salaried employees at RT will no longer
participate in the above described savings plan and will no longer receive
ESOP shares, except for dividend replacement shares, in their savings plan
accounts. Shares allocated to such employees prior to year-end 1997 will
remain in their accounts and dividend replacement shares will continue to be
allocated to their accounts consistent with plan provisions. Future matching
will be provided in cash consistent with provisions of a new savings plan
established by RT. Compensation expense recognized at RT will not be
materially impacted as a result of the change in savings plans.
The Company makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends on leveraged shares (shares purchased by the ESOP Trust
in July 1989) received by the ESOP Trust. All dividends received by the ESOP
are used to pay debt service. Dividends on Series E Preferred Stock are
recorded as declared as reductions to retained earnings, net of applicable tax
benefits on unallocated shares. Dividends on allocated leveraged shares are
replaced with additional ESOP shares. Dividends on unallocated leveraged
shares serve to reduce interest expense recognized by the Company.
In each of 1997, 1996 and 1995, the ESOP Trust received $10.6 million in
dividends and $8.1 million in contributions from the Company to make required
principal and interest payments.
As principal and interest payments are made, ESOP shares are made available
for allocation based on the proportion of current payments to the total of
current plus future payments. As shares are allocated, the Company records
compensation expense equal to the original stated value of the shares of
Series E Preferred Stock allocated to the participants during the period.
Compensation expense related to the ESOP recognized by the Company totaled
$8.4 million in 1997, $9.1 million in 1996, and $8.9 million in 1995. Of the
preceding ESOP compensation expense, $5.4 million in 1997, $5.9 million in
1996 and $6.1 million in 1995 was for matching at Inland Steel Company. ESOP
shares remaining unallocated are reported as unearned compensation on the
Company's consolidated balance sheet.
Interest expense is recognized as it is incurred by the ESOP Trust. Interest
expense incurred by the ESOP Trust totaled $8.6 million, $9.3 million, and
$10.0 million in 1997, 1996 and 1995, respectively.
F-12
<PAGE>
The ESOP shares as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Allocated shares............................... 1,603,623 1,447,642 1,268,126
Unreleased shares.............................. 1,410,925 1,633,148 1,850,475
--------- --------- ---------
Total ESOP shares............................ 3,014,548 3,080,790 3,118,601
========= ========= =========
</TABLE>
NOTE 8/CAPITAL STOCK
On December 31, 1997, 7,972,744 shares of common stock remained reserved for
issuance under the Company's various employee stock plans and upon conversion
of shares of preferred stock.
In the second quarter of 1995, the Company contributed 3.9 million shares of
its common stock with an aggregate value of $100 million to the Company's
Pension Trust.
The Series A $2.40 Cumulative Convertible Preferred Stock, $1.00 par value
per share ("Series A Preferred Stock"), is convertible into common stock at
the rate of one share of common stock for each share of Series A Preferred
Stock and is redeemable, at the Company's option, at $44 per share plus any
accrued and unpaid dividends. Each such share is entitled to one vote and
generally votes together with holders of common stock as one class.
Shares of Series E Preferred Stock, $1.00 par value per share, entitle the
holder to cumulative annual dividends of $3.523 per share, payable semi-
annually, and to 1.25 votes per share. Shares of Series E Preferred Stock are
convertible into the Company's common stock on a one-for-one basis. From time
to time, the Company elects to provide additional shares of Series E Preferred
Stock to the ESOP Trust to cover employee matching requirements not covered by
the release of shares through scheduled principal and interest payments by the
ESOP Trust on its outstanding notes (see Note 7).
The following table details changes in capital accounts:
<TABLE>
<CAPTION>
PREFERRED STOCK CAPITAL
------------------------------ IN EXCESS OF
COMMON STOCK TREASURY STOCK SERIES A SERIES E PAR VALUE
-------------- --------------- -------------- --------------- ------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS DOLLARS
------ ------- ------ ------- ------ ------- ------ ------- ------------
SHARES IN THOUSANDS AND DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 50,556 $50.6 (6,006) $(200.9) 95 $ .1 3,103 $3.1 $1,088.0
Acquisition of treasury
stock................. -- -- (138) (4.0) -- -- -- -- --
Issued under employee
benefit plans......... -- -- 415 15.6 -- -- 44 -- (3.1)
Redemption of Series E
Preferred Stock....... -- -- -- -- -- -- (28) -- (1.3)
Conversion of Series A
Preferred Stock....... -- -- 1 -- (1) -- -- -- --
Issuance of Common
Stock to Pension
Trust................. -- -- 3,946 139.0 -- -- -- -- (39.0)
Other changes.......... -- -- (33) (.8) -- -- -- -- 1.1
------ ----- ------ ------- --- ---- ----- ---- --------
Balance at December 31,
1995................... 50,556 50.6 (1,815) (51.1) 94 .1 3,119 3.1 1,045.7
Acquisition of treasury
stock................. -- -- (164) (3.7) -- -- -- -- --
Issued under employee
benefit plans......... -- -- 401 12.5 -- -- 67 .1 (1.6)
Redemption of Series E
Preferred Stock....... -- -- -- -- -- -- (105) (.1) (5.0)
Other changes.......... -- -- (70) (1.9) -- -- -- -- 1.1
------ ----- ------ ------- --- ---- ----- ---- --------
Balance at December 31,
1996................... 50,556 50.6 (1,648) (44.2) 94 .1 3,081 3.1 1,040.2
Acquisition of treasury
stock................. -- -- (299) (6.7) -- -- -- -- --
Issued under employee
benefit plans......... -- -- 415 11.0 -- -- 58 -- --
Redemption of Series E
Preferred Stock....... -- -- -- -- -- -- (124) (.1) (6.0)
Other changes.......... -- -- (26) (.6) -- -- -- -- (1.7)
------ ----- ------ ------- --- ---- ----- ---- --------
Balance at December 31,
1997................... 50,556 $50.6 (1,558) $ (40.5) 94 $ .1 3,015 $3.0 $1,032.5
====== ===== ====== ======= === ==== ===== ==== ========
</TABLE>
F-13
<PAGE>
NOTE 9/STOCK OPTION PLANS
The Company has adopted the disclosure-only provisions of FASB Statement 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, 1996 and 1995 consistent with the provisions of FASB Statement
No. 123, the Company's net income 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 income--as reported.................................... $119.3 $45.7 $146.8
Net income--pro forma...................................... $116.0 $42.4 $145.9
Earnings per share--as reported............................ $ 2.25 $ .75 $ 2.70
Earnings per share--pro forma.............................. $ 2.18 $ .68 $ 2.68
</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: dividend yield of 1.00%; expected
volatility of 32.67%; risk-free interest rate of 6.63%; and expected term of 5
years.
In July 1996, after the initial public offering of RT common stock, the
compensation committee of RT elected to allow the substitution of RT common
stock options for Company common stock options. As the exercise price of
substituted options exceeded the then current market price of RT stock 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 RT. 1,041,949 RT stock options were substituted for
855,494 Company stock options. Options substituted retain their originally
granted vesting schedules. During 1997, RT granted options to employees. 87
percent of the compensation cost for these options, had they been determined
on the fair value at the grant date consistent with the provisions of FASB
Statement No. 123, is included in the above pro forma numbers.
Options granted under each of the plans vest in not less than one year.
Options granted in 1995 vested over a two year period, one-half after one year
and one-half after two years. Options granted in 1996 vest over a three year
period with one-third becoming fully vested at the end of each year. Options
granted in 1997 vest over a two year period, one-half after one year and one-
half after two years.
F-14
<PAGE>
COMPANY PLAN
The Inland 1995 Incentive Stock Plan, approved by stockholders on May 24,
1995, provides for the issuance, pursuant to options and other awards, of 2.0
million shares of common stock to officers and other key employees. Options
remain outstanding and exercisable under the Inland 1992 and 1988 Incentive
Stock Plans; however, no further options may be granted under these plans.
Under the various plans, the per share option exercise price may not be less
than 100 percent of the fair market value per share on the date of grant.
During 1997, options were granted to 19 executives under the 1995 Plan and a
total of 1,179,665 shares was available for future grants under that Plan as
of December 31, 1997.
The following summarizes the status of options under the plans for the
periods indicated:
<TABLE>
<CAPTION>
OPTION EXERCISE WEIGHTED
NUMBER OF PRICE OR RANGE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Options (granted and unexercised) at
December 31, 1994................... 2,244,007 $15.31-$39.75 $30.03
Granted............................ 469,600 23.19- 28.50 28.36
Exercised.......................... (138,117) 15.31- 31.06 23.87
Forfeited.......................... (104,600) 22.31- 39.75 31.17
Expired............................ (96,300) 21.38- 39.75 36.78
--------- ------------- ------
Options (granted and unexercised) at
December 31, 1995 (1,615,826
exercisable)........................ 2,374,590 15.31- 39.75 29.73
Granted............................ 1,416,900 22.69- 24.69 24.57
Exercised.......................... (1,800) 15.31- 26.13 20.12
Forfeited.......................... (136,200) 21.38- 33.75 26.09
Expired............................ (94,050) 21.38- 39.75 33.34
Substituted by RT.................. (855,494) 21.38- 39.75 27.76
--------- ------------- ------
Options (granted and unexercised) at
December 31, 1996 (1,610,246
exercisable)........................ 2,703,946 21.38- 39.75 27.72
Granted............................ 34,300 24.38 24.38
Exercised.......................... (17,400) 21.38- 26.13 21.78
Forfeited.......................... (97,500) 22.69- 39.75 27.46
Expired............................ (38,110) 25.50- 39.75 32.65
--------- ------------- ------
Options (granted and unexercised) at
December 31, 1997 (1,978,823
exercisable)........................ 2,585,236 21.38- 39.75 27.72
--------- ------------- ------
</TABLE>
The weighted-average fair value of options granted during 1997 was $9.05.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE
XERCISE PRICESE SHARES LIFE PRICE SHARES PRICE
- --------------- ------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$37.75 to $39.75........... 243,350 1 year $38.81 243,350 $ 38.81
21.38 to 33.75........... 219,877 3 years 28.76 219,877 28.76
25.50..................... 229,385 4 years 25.50 229,385 25.50
26.13..................... 320,324 5 years 26.13 320,324 26.13
30.88..................... 276,500 6 years 30.88 276,500 30.88
28.50..................... 303,000 7 years 28.50 303,000 28.50
22.69 to 24.69........... 958,500 8 years 24.50 386,387 24.51
24.38..................... 34,300 9 years 24.38 -- N/A
</TABLE>
F-15
<PAGE>
Stock appreciation rights ("SARs") may also be granted with respect to
shares subject to outstanding options. No SAR has been granted since 1990. SAR
compensation expense recorded by the Company was not material for any of the
three years.
The 1995 Plan also provides, as did the 1992 and 1988 Plans, for the
granting of restricted stock and performance awards to officers and other key
employees. During 1997, 139 performance awards were granted totaling 571,560
shares of stock and the equivalent of an additional 294,440 shares of stock
payable in either stock or cash. None of these performance awards were paid in
1997 and 285,780 shares were forfeited when performance goals were not
achieved. Also during 1997, no restricted stock awards were granted, however,
59,500 shares of previously granted restricted stock awards vested while 5,600
shares of restricted stock were forfeited. Of the performance awards granted
prior to 1997, 6,618 shares (including dividend-equivalent shares) were issued
to recipients while no shares were forfeited. During 1996, restricted stock
awards totaling 16,100 shares were granted to 11 executives and no performance
awards were granted. Also during 1996, 82,200 shares of previously granted
restricted stock awards vested while 28,300 shares of restricted stock were
forfeited, 31,424 shares of restricted stock were substituted by RT restricted
stock, and 4,941 shares (including dividend-equivalent shares) were issued to
recipients of performance awards previously granted while 28,079 shares
(including dividend-equivalent shares) subject to performance awards were
forfeited. During 1995, restricted stock awards totaling 28,524 shares were
granted to 17 executives and one performance award totaling 2,000 shares was
granted. Also during 1995, 16,105 shares of previously granted restricted
stock awards vested while 18,405 shares of restricted stock were forfeited,
and 16,841 shares (including dividend-equivalent shares) were issued to
recipients of performance awards previously granted while 19,532 shares
(including dividend-equivalent shares) subject to performance awards were
forfeited.
The Company also sponsors an employee stock purchase plan where employees
have the opportunity to sign up twice a year to purchase stock at the end of
each six month period at a price that is 90 percent of the fair market value
price on the last day of the period. In 1997, 1996 and 1995, employees
received stock with a total value that was approximately $100,000, $120,000
and $120,000, respectively, greater than the price paid for the stock issued.
A significant portion of the amounts related to the employee stock purchase
plan were at Inland Steel Company.
RT PLAN
The Ryerson Tull 1996 Incentive Stock Plan provides for the issuance,
pursuant to options and other awards, of 2.3 million shares of RT common stock
to officers and other key employees. Under this plan, the per share option
exercise price may not be less than 100 percent of the fair market value per
share on the date of grant. A total of 879,491 shares was available for future
grants under that Plan as of December 31, 1997.
The following summarizes the status of RT options under the plan for the
periods indicated:
<TABLE>
<CAPTION>
OPTION EXERCISE WEIGHTED
NUMBER OF PRICE OR RANGE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Substituted for Company options. 1,041,949 $17.55-$32.63 $22.79
Forfeited....................... (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
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 1997 was $6.97.
F-16
<PAGE>
The following table summarizes information about RT fixed-price stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE
EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
--------------- ------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$30.99 to $32.63........ 64,968 1 year $32.08 64,968 $ 32.08
17.55 to 27.70........ 65,723 3 years 25.15 65,723 25.15
20.93.................. 58,462 4 years 20.93 58,462 20.93
21.44.................. 89,360 5 years 21.44 89,360 21.44
25.34 to 29.55........ 147,245 6 years 26.04 147,245 26.04
23.39.................. 142,489 7 years 23.39 142,489 23.39
20.26.................. 440,338 8 years 20.26 145,267 20.26
14.06.................. 313,500 9 years 14.06 -- N/A
14.75 to 15.75........ 10,000 10 years 15.30 -- N/A
</TABLE>
The Plan provides that SARs may be granted with the same terms as the
Company Plan. No SARs have been granted.
The Plan 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 3 executives and 94 performance
awards totaling 90,900 shares were granted. Shares totaling 63,885 were
forfeited when 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 Company restricted stock were substituted by 38,273 shares of RT
stock. Also during 1996, restricted stock awards totaling 18,854 were granted
to 10 executives and no performance awards were granted.
RT employees participate in the Company employee stock purchase plan where
employees have the opportunity to sign up twice a year to purchase stock at
the end of each six month period at a price that is 90 percent of the fair
market value price on the last day of the period. In 1997, 1996 and 1995, RT
employees received Company stock with a total value that was approximately
$20,000, $30,000 and $30,000, respectively, greater than the price paid for
the stock issued.
NOTE 10/STOCKHOLDER RIGHTS PLAN
Pursuant to a stockholder rights plan, on November 25, 1997, the Board of
Directors declared a dividend distribution, payable to stockholders of record
on December 17, 1997, of one preferred stock purchase right (a "Right") for
each outstanding share of the Company's common stock. The Rights will expire
December 17, 2007, and will become exercisable only if a person or group
becomes the beneficial owner of 20 percent or more of the common stock (a "20
percent holder"), commences a tender or exchange offer which would result in
the offeror beneficially owning 20 percent or more of the common stock, or is
determined by the Board to beneficially own at least 10 percent of the common
stock and either intends to cause the Company to take certain actions not in
the best long-term interests of the Company and its stockholders or is
reasonably likely, through such beneficial ownership, to cause a material
adverse impact on the business or prospects of the Company and its
stockholders (an "Adverse Person"). Each Right will entitle stockholders to
buy one newly issued unit of one one-hundredth of a share of Series D Junior
Participating Preferred Stock at an exercise price of $80, subject to certain
antidilution adjustments. The Company (with the concurrence of the independent
continuing directors) will generally be entitled to redeem the Rights at $.01
per Right at any time prior to 15 days after a public announcement of the
existence of a 20 percent holder.
If a person or group accumulates 20 percent or more of the common stock
(except pursuant to an offer for all outstanding shares of common stock which
the independent continuing directors determine to be fair to and otherwise in
the best interests of the Company and its stockholders) or the Board
determines that a person or
F-17
<PAGE>
group is an Adverse Person, each Right (other than Rights held by such 20
percent holder and certain related parties which become void) will represent
the right to purchase, at the exercise price, common stock (or, in certain
circumstances, a combination of securities and/or assets) having a current
market value equal to twice the exercise price. In addition, if, following the
public announcement of the existence of a 20 percent holder, the Company is
acquired in a merger or other business combination transaction, except a
merger or other business combination transaction that takes place after the
consummation of an offer for all outstanding shares of common stock that the
independent continuing directors have determined to be fair, or a sale of 50
percent or more of the Company's assets or earning power is made to a third
party, each Right (unless previously voided) will represent the right to
purchase, at the exercise price, common stock of the acquiring entity having a
value of twice the exercise price at the time. The Company believes that the
transaction with Ispat concerning the sale of Inland Steel Company will not
cause the Rights to become exercisable. However, should it subsequently be
determined that the Rights may become exercisable, the Board of Directors has
the ability to specifically exclude the transaction from the criteria that
would make the Rights exercisable.
The Board of Directors has the option at any time after a person or group
becomes a 20 percent holder or an Adverse Person to exchange all or part of
the Rights (other than Rights held by such 20 percent holder or Adverse
Person) for shares of the Company's common stock provided that the Company may
not make such an exchange after any person becomes the beneficial owner of 50
percent or more of the Company's outstanding common stock.
NOTE 11/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, none of which are used for trading purposes. Derivatives are used
to hedge exposure to fluctuations in costs caused by the price volatility of
certain metal commodities and natural gas supplies. Gains and losses
associated with these hedging transactions become part of the cost of the item
being hedged. At no time during 1997, 1996 or 1995 were such hedging
transactions material.
Cash and cash equivalents
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments.
Long-term investment
In 1989, the Company and NSC, through a subsidiary, each purchased in the
open market approximately $15 million of the other company's common stock. The
estimated fair value of the NSC common stock at year-end 1997 and 1996, based
on the quoted market price and exchange rate at each year end, was $3.6
million and $7.2 million, respectively, as compared with the carrying value of
$7.5 million and $9.8 million included in the balance sheet at December 31,
1997 and 1996, respectively.
Long-term debt
The estimated fair value of the Company's long-term debt and the current
portions thereof (excluding the Subordinated Voting Note), using quoted market
prices of Company debt securities recently traded and market-based prices of
similar securities for those securities not recently traded, was $712 million
at December 31, 1997 and $720 million at December 31, 1996 as compared with
the carrying value of $668 million and $693 million included in the balance
sheet at year-end 1997 and 1996, respectively. The estimated fair value and
carrying value of Inland Steel Company debt included in the above was $328
million and $322 million for the estimated fair value, and $308 million and
$316 million for the carrying value, each at December 31, 1997 and 1996,
respectively.
F-18
<PAGE>
Subordinated voting note
The Company believes that it is not practical to estimate a fair market
value different from this security's carrying value of $100 million as the
security was sold to a joint venture partner and has numerous features unique
to this security including, but not limited to, the right to appoint a
director, the right of first refusal in change in control situations, a
limitation on the acquisition of additional Company stock, and the agreement
by the Company to buy back $185 million of the Company's common stock.
NOTE 12/PROVISIONS FOR RESTRUCTURING
In the fourth quarter of 1997, the Company recorded a charge of $10 million
relating to additional restructuring provisions for previously discontinued
raw material operations primarily related to retiree health care and other
benefit costs.
At year-end 1996, the Company recorded a charge of $26 million for
provisions related to pensions, health care, and severance costs resulting
from a salaried workforce reduction plan.
In the 1995 third quarter, the Company recorded a charge of $35 million for
provisions related to pensions, health care, and severance costs resulting
from the acceptance by approximately 300 salaried Inland Steel Company
employees of a voluntary retirement package offered during the quarter. In
addition, Inland Steel Company announced the closure of its plate operation.
Provisions for pensions and other employee benefits related to the shutdown of
this operation had been previously accrued.
With the closure of the plate operation, the Company completed the workforce
reduction program announced in 1991. A final computation of the employee
benefit costs required for the 1991 program resulted in unused reserves due to
differences between the actual makeup of the population leaving the Company
under this program and the projections used in 1991. The Company, therefore,
reversed $65 million of unused reserves from the balance sheet and recorded a
corresponding credit to income in the third quarter of 1995.
During the 1995 third quarter, the Company also increased reserves for
previously discontinued or reduced operations related to the Company's
restructuring efforts by $18 million, approximately half of which related to
benefit costs, primarily at a closed iron ore mining facility, and half
related to impairment of assets beyond amounts previously recognized. In
addition, the Company increased its environmental reserves by $7 million.
Inland Steel Company has taken initiatives to reduce its production costs by
the shutdown of certain Indiana Harbor Works facilities and raw materials
operations. Reserve balances related to provisions recorded for these
shutdowns, which include long-term liabilities for mine reclamation costs and
employee benefits, totaled $129.5 million, $131.6 million and $135.9 million
at December 31, 1997, 1996 and 1995, respectively.
NOTE 13/RETIREMENT BENEFITS
Pensions
The Company's non-contributory defined benefit pension plans cover
substantially all Company employees, retirees and their beneficiaries.
Benefits provided participants of the plans are based on final pay and years
of service for all salaried employees and certain wage employees, and years of
service and a fixed rate for all other wage employees, including members of
the United Steelworkers of America.
Effective April 30, 1996, that portion of the Company's pension plan
covering RT's current and former employees was separated and became the
Ryerson Tull Pension Plan. Due to this separation, the Company remeasured each
subsidiary's benefit obligation using plan data and actuarial assumptions as
of the date of separation. An amount of assets proportional to the liabilities
assumed by the Ryerson Tull Pension Plan was allocated to such plan.
Effective January 1, 1998, RT froze its defined benefit pension plan for
certain salaried employees and instituted a defined contribution plan.
Salaried participants vested in their accrued benefits under the pension plan
F-19
<PAGE>
at December 31, 1997 and will be entitled to those benefits on retirement.
Certain employees that meet specified age and service requirements will
continue to accrue benefits for an additional five years under the pension
plan. The changes to the retirement plan for affected salaried employees
resulted in a $8.9 million curtailment gain recorded by RT in 1997.
While funding was not required under ERISA funding standards, the Company
elected to fund its Pension Trust in the 1995 second quarter, its first
funding since 1984, with 3.9 million shares of Company common stock with an
aggregate value of $100 million. In 1997, the Company elected to fund its
pension plans with cash, contributing $30.0 million to the Company's plan and
$6.9 million to RT's plan.
The assumptions used to determine the plans' funded status at September 30
were 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>
The funded status of the Industries Pension Plan (excluding Ryerson Tull)
and the Ryerson Tull Pension Plan as of September 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------
1997 1996
------------------ ------------------
RYERSON RYERSON
INDUSTRIES TULL INDUSTRIES TULL
---------- ------- ---------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
Fair value of plan assets
Equities............................... $1,381 $203 $1,081 $157
Bonds.................................. 461 68 501 73
Real estate............................ 113 17 112 16
Cash equivalents and accrued interest.. 36 5 35 5
------ ---- ------ ----
1,991 293 1,729 251
------ ---- ------ ----
Actuarial present value of benefits for
service rendered to date:
Accumulated Benefit Obligation based on
compensation to date, including vested
benefits of $1,765 and $1,620 for
Industries, and $256 and $211 for
Ryerson Tull in 1997 and 1996,
respectively.......................... 1,894 274 1,746 225
Additional benefits based on estimated
future compensation levels............ 73 29 105 27
------ ---- ------ ----
Projected Benefit Obligation........... 1,967 303 1,851 252
------ ---- ------ ----
Plan assets in excess of (shortfall to)
Projected Benefit Obligation............ $ 24 $(10) $ (122) $ (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.
F-20
<PAGE>
The accrued pension cost reflected in the balance sheet can be reconciled to
the excess of or shortfall to plan assets as shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------
1997 1996
------------------ ------------------
RYERSON RYERSON
INDUSTRIES TULL INDUSTRIES TULL
---------- ------- ---------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
Plan assets in excess of (shortfall to)
Projected Benefit Obligation............. $24 $(10) $(122) $(1)
Unrecognized transition asset............. (47) (5) (67) (8)
Unrecognized net loss (gain).............. (18) 14 131 3
Unrecognized prior service cost........... 105 8 117 8
Adjustment required to recognize
additional minimum liability............. -- -- (76) --
--- ---- ----- ---
Prepaid (accrued) pension cost............ 64 7 (17) 2
Expense, October through December......... (2) (1) -- (1)
Pension curtailment gain.................. -- 9 -- --
Workforce reduction provision............. -- -- (19) --
--- ---- ----- ---
Prepaid (accrued) pension cost at
December 31............................ $62 $ 15 $ (36) $ 1
=== ==== ===== ===
</TABLE>
The additional minimum pension liability in 1996 represented the excess of
the unfunded Accumulated Benefit Obligation over previously accrued pension
costs. A corresponding intangible asset was recorded as an offset to this
additional liability as prescribed.
The unrecognized transition asset is being recognized in income by reducing
pension expense in equal annual installments of $23.1 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, 1996 and 1995 is composed of the components set forth
in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Service cost--present value of benefits earned
during year....................................... $ 28 $ 29 $ 28
Interest on service cost and Projected Benefit
Obligation........................................ 164 155 153
Actual return on plan assets....................... (433) (213) (290)
Net amortization and deferral...................... 250 35 117
------ ------ ------
Total pension cost................................. $ 9 $ 6 $ 8
====== ====== ======
</TABLE>
Virtually all of the pension costs detailed above related to costs at Inland
Steel Company.
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. Effective January 1, 1994, a
Voluntary Employee Benefit Association Trust was established for payment of
health care benefits made to Inland Steel Company United Steelworkers of
America retirees. Funding of the Trust is made as claims are submitted for
payment.
F-21
<PAGE>
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.......................................... $ 12 $ 13 $ 12
Interest cost......................................... 71 74 74
Net amortization and deferral......................... (18) (14) (21)
------ ------ ------
Total net periodic postretirement benefit cost...... $ 65 $ 73 $ 65
====== ====== ======
</TABLE>
Of the total net periodic postretirement benefit costs listed above, $57
million in 1997, $65 million in 1996, and $57 million in 1995 related to
Inland Steel Company.
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.................................................. $ 605 $ 542
Fully eligible plan participants.......................... 100 88
Other active plan participants............................ 295 273
------ ------
Accumulated postretirement benefit obligation............... 1,000 903
Unrecognized net gain..................................... 194 277
Unrecognized prior service credit......................... 64 60
------ ------
Accrued postretirement benefit obligation................... 1,258 1,240
Expense, net of benefits provided, October through December. 4 8
Workforce reduction provision............................... -- 4
------ ------
Accrued postretirement benefit obligation at December 31.. $1,262 $1,252
====== ======
</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 net periodic postretirement benefit cost and the
accumulated postretirement benefit obligation as of September 30, 1997 by $10
million and $113 million, respectively.
F-22
<PAGE>
NOTE 14/INCOME TAXES
The elements of the provisions for income taxes for each of the three years
indicated below were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------
1997 1996 1995
----- ----- -----
DOLLARS IN
MILLIONS
<S> <C> <C> <C>
Current income taxes:
Federal..................................................... $36.8 $25.5 $35.5
State and foreign........................................... 5.9 4.8 6.2
----- ----- -----
42.7 30.3 41.7
Deferred income taxes......................................... 3.9 17.1 6.4
----- ----- -----
Total tax expense........................................... $46.6 $47.4 $48.1
===== ===== =====
</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):
Net operating loss and tax credit carryforwards................ $ 315 $ 314
Restructuring and termination reserves......................... 28 28
Other deductible temporary differences......................... 52 105
Less valuation allowances...................................... (3) (3)
----- -----
392 444
----- -----
Deferred tax liabilities:
Fixed asset basis difference................................... 499 482
Other taxable temporary differences............................ 82 86
----- -----
581 568
----- -----
Net deferred liability (excluding postretirement benefits other
than pensions).................................................. (189) (124)
FASB Statement No. 106 impact (postretirement benefits other than
pensions)....................................................... 451 442
----- -----
Net deferred asset............................................... $ 262 $ 318
===== =====
</TABLE>
For tax purposes, the Company had available, at December 31, 1997, net
operating loss ("NOL") carryforwards for regular federal income tax purposes
of approximately $745 million which will expire as follows: $232 million in
the year 2006, $287 million in the year 2007, $132 million in the year 2008,
$14 million in the year 2009, and $80 million in the year 2011. The Company
also had investment tax credit and other general business credit carryforwards
for tax purposes of approximately $6 million, which expire during the years
1998 through 2006. A valuation allowance has been established for those tax
credits which are not expected to be realized. Additionally, in conjunction
with the Alternative Minimum Tax ("AMT") rules, the Company had available AMT
credit carryforwards for tax purposes of approximately $48 million, which may
be used indefinitely to reduce regular federal income taxes.
With the sale of Inland Steel Company to Ispat, the Company anticipates that
it will be able to fully utilize all of the NOLs that existed at the time of
the sale.
F-23
<PAGE>
Total income taxes reflected in the Consolidated Statement of Operations
differ from the amounts computed by applying the federal corporate rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------
1997 1996 1995
----- ----- -----
DOLLARS IN
MILLIONS
<S> <C> <C> <C>
Federal income tax expense computed at statutory tax rate of
35%........................................................ $41.8 $45.0 $44.0
Additional taxes or credits from:
State and local income taxes, net of federal income tax
effect................................................... 4.1 4.1 4.1
All other, net............................................ .7 (1.7) --
----- ----- -----
Total income tax expense................................ $46.6 $47.4 $48.1
===== ===== =====
</TABLE>
NOTE 15/I/N TEK AND I/N KOTE JOINT VENTURES
I/N Tek, a general partnership formed for a joint venture between the
Company and NSC, owns and operates a cold-rolling facility. I/N Tek is 60
percent owned by a wholly owned subsidiary of Inland Steel Company and 40
percent owned by an indirect wholly owned subsidiary of NSC. Inland Steel
Company has exclusive rights to the productive capacity of the facility,
except in certain limited circumstances, and, under a tolling arrangement with
I/N Tek, has an obligation to use the facility for the production of cold
rolled steel. Under the tolling arrangement, Inland Steel Company was charged
$149.2 million, $144.8 million and $147.5 million in 1997, 1996 and 1995,
respectively, for such tolling services. The Company and NSC each have
guaranteed a portion of the long-term financing of I/N Tek. At December 31,
1997, the Company's share of such guaranty amounted to $116 million.
The Company and NSC also own and operate another joint venture which
consists of a 400,000 ton electrogalvanizing line and a 500,000 ton hot-dip
galvanizing line adjacent to the I/N Tek facility. I/N Kote, the general
partnership formed for this joint venture, is owned 50 percent by a wholly
owned subsidiary of Inland Steel Company and 50 percent by an indirect wholly
owned subsidiary of NSC. Inland Steel Company and NSC each have guaranteed the
share of long-term financing attributable to their respective subsidiary's
interest in the partnership. I/N Kote had $376 million outstanding under its
long-term financing agreement at December 31, 1997. I/N Kote is required to
buy all of its cold rolled steel from Inland Steel Company, which is required
to furnish such cold rolled steel at a price that results in an annual return
on equity to the partners of I/N Kote, depending upon operating levels, of up
to 10 percent after operating and financing costs; this price is subject to an
adjustment if Inland Steel Company's return on sales differs from I/N Kote's
return on sales. Purchases of Inland Steel Company cold rolled steel by I/N
Kote aggregated $320.6 million in 1997, $314.9 million in 1996 and $303.7
million in 1995. At year-end 1997 and 1996, I/N Kote owed the Company $12.8
million and $18.4 million, respectively, related to these purchases. Prices of
cold rolled steel sold by Inland Steel Company to I/N Kote are determined
pursuant to the terms of the joint venture agreement and are based, in part,
on operating costs of the partnership. In 1997, 1996 and 1995, Inland Steel
Company sold cold rolled steel to I/N Kote at prices that exceeded production
costs but were less than the market prices for cold rolled steel products. I/N
Kote also provides tolling services to Inland Steel Company for which it was
charged $22.1 million in 1997, $24.5 million in 1996 and $32.6 million in
1995. Inland Steel Company sells all I/N Kote products that are distributed in
North America.
NOTE 16/INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company's investments in unconsolidated joint ventures accounted for by
the equity method consist primarily of its 60 percent interest in I/N Tek, 50
percent interest in I/N Kote, 50 percent interest in PCI Associates, 50
percent interest in Ryerson de Mexico, 50 percent interest in I.M.F. Steel
International Ltd., 40 percent interest in the Empire Iron Mining Partnership,
15 percent interest in Wabush Mines in 1996 and 1995, and 12 1/2 percent
interest in Walbridge Electrogalvanizing Company. Only the Ryerson de Mexico
and I.M.F.
F-24
<PAGE>
Steel International Ltd. joint ventures remain a part of the Company after the
sale of Inland Steel Company (Note 1), neither of which, individually or taken
together, are material to any of the data presented in the following table.
I/N Tek and I/N Kote are joint ventures with NSC (see Note 15). The Company
does not exercise control over I/N Tek, as all significant management
decisions of the joint venture require agreement by both of the partners. Due
to this lack of control by the Company, the Company accounts for its
investment in I/N Tek under the equity method. PCI Associates is a joint
venture which operates a pulverized coal injection facility at the Indiana
Harbor Works. Ryerson de Mexico is a materials distribution joint venture
operated in Mexico. The I.M.F. joint venture markets Company products and
services abroad and purchases certain raw materials. Empire is an iron ore
mining and pelletizing venture owned in various percentages primarily by U.S.
steel companies. In 1997, the Company, through its Inland Steel Company
subsidiary, sold its interest in Wabush Mines, resulting in a $9 million
pretax gain. Walbridge is a venture that coats cold rolled steel in which
Inland has the right to 25 percent of the productive capacity. Following is a
summary of combined financial information of the Company's unconsolidated
joint ventures:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Results of Operations for the years ended
December 31:
Gross revenue................................ $1,282.8 $1,355.5 $1,282.2
Costs and expenses........................... 1,163.8 1,277.2 1,203.2
-------- -------- --------
Net income................................... $ 119.0 $ 78.3 $ 79.0
======== ======== ========
Financial Position at December 31:
Current assets............................... $ 281.8 $ 306.3 $ 313.6
Total assets................................. 1,477.3 1,857.2 1,897.3
Current liabilities.......................... 244.7 249.3 282.2
Total liabilities............................ 1,034.6 1,421.7 1,487.8
Net assets................................... 442.7 435.5 409.5
</TABLE>
NOTE 17/ACQUISITIONS
During 1997, the Company, through its majority-owned subsidiary Ryerson
Tull, Inc., acquired Thypin Steel Co., Inc., Omni Metals, Inc. and the assets
of Cardinal Metals, Inc. for an aggregate of $139.9 million in cash plus
assumption of debt. The acquisitions have been accounted for by the purchase
method of accounting and the purchase price has been allocated to assets
acquired and liabilities assumed. Results of operations since acquisition for
each company are included in the consolidated results. The pro forma effect
for 1997 and 1996 had these acquisitions occurred at the beginning of each
such year is not material.
F-25
<PAGE>
NOTE 18/EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTERS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------- ----------------------
1998 1997 1997 1996 1995
------- ------- ------ ------ ------
(UNAUDITED)
DOLLARS AND SHARES IN MILLIONS
(EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
discontinued operations and
extraordinary items......... $ 16.5 $17.5 $ 64.5 $ 78.1 $ 77.7
Less preferred stock
dividends................... 2.3 2.3 9.1 9.1 19.0
------- ------- ------ ------ ------
Income from continuing
operations available to
common stockholders......... 14.2 15.2 55.4 69.0 58.7
Discontinued operations...... 5.3 13.7 54.8 (17.9) 69.1
Extraordinary items.......... -- -- -- (14.5) --
------- ------- ------ ------ ------
Net income available to
common stockholders......... $ 19.5 $ 28.9 $110.2 $ 36.6 $127.8
======= ======= ====== ====== ======
Average shares of common
stock outstanding........... 49.0 48.9 48.9 48.8 47.3
======= ======= ====== ====== ======
Basic earnings per share
From continuing operations. $ .29 $ .31 $ 1.13 $ 1.42 $ 1.24
Discontinued operations.... .11 .28 1.12 (.37) 1.46
Extraordinary items........ -- -- -- (.30) --
------- ------- ------ ------ ------
Net income................. $ .40 $ .59 $ 2.25 $ .75 $ 2.70
======= ======= ====== ====== ======
DILUTED EARNINGS PER SHARE
<CAPTION>
1997 1996 1995
------ ------ ------
DOLLARS AND SHARES IN MILLIONS
(EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations available to
common stockholders......... $ 14.2 $ 15.2 $ 55.4 $ 69.0 $ 58.7
Effect of dilutive securities
Series A preferred stock... -- -- -- -- .2
Series E leveraged
preferred stock........... 2.2 2.2 8.7 8.5 8.2
Additional ESOP funding
required on conversion of
Series E leveraged
preferred stock, net of
tax....................... (2.1) (2.0) (8.1) (7.9) (7.6)
------- ------- ------ ------ ------
Income available to common
stockholders and assumed
conversions before
discontinued operations and
extraordinary items......... 14.3 15.4 56.0 69.6 59.5
Discontinued operations...... 5.3 13.7 54.8 (17.9) 69.1
Extraordinary items.......... -- -- -- (14.5) --
------- ------- ------ ------ ------
Net income available to
common stockholders and
assumed conversions......... $ 19.6 $ 29.1 $110.8 $ 37.2 $128.6
======= ======= ====== ====== ======
Average shares of common
stock outstanding........... 49.0 48.9 48.9 48.8 47.3
Assumed conversion of
Series A preferred stock... -- -- -- -- .1
Series E leverage preferred
stock..................... 3.0 3.0 3.0 3.0 3.0
Dilutive effect of stock
options..................... -- -- -- -- .1
------- ------- ------ ------ ------
Shares outstanding for
diluted earnings per share
calculation................. 52.0 51.9 51.9 51.8 50.5
======= ======= ====== ====== ======
Diluted earnings per share
From continuing operations. $ .28 $ .30 $ 1.08 $ 1.34 $ 1.18
Discontinued operations.... .10 .26 1.05 (.34) 1.37
Extraordinary items........ -- -- -- (.28) --
------- ------- ------ ------ ------
Net income................. $ .38 $ .56 $ 2.13 $ .72 $ 2.55
======= ======= ====== ====== ======
</TABLE>
NOTE 19/COMMITMENTS AND CONTINGENCIES
At year-end 1997, Inland Steel Company guaranteed $18.3 million of long-term
debt attributable to a subsidiary's interest in PCI Associates.
F-26
<PAGE>
As part of the agreement covering the 1990 sale of the Inland Lime & Stone
Company division assets, Inland Steel Company agreed, subject to certain
exceptions, to purchase, at prices which approximate market, the annual
limestone needs of the Indiana Harbor Works through 2002.
The Company and its subsidiaries have various operating leases for which
future minimum lease payments are estimated to total $155.8 million through
2022, including approximately $36.6 million in 1998, $31.9 million in 1999,
$26.5 million in 2000, $20.8 million in 2001, and $12.7 million in 2002.
Included in the aforementioned minimum lease payments, Inland Steel Company
accounted for $80.1 million in total, $16.1 million in 1998, $12.6 million in
1999, $10.1 million in 2000, $9.1 million in 2001, and $8.7 million in 2002.
It is anticipated that the Company will make capital expenditures of $2
million to $5 million annually in each of the next five years for the
construction, and have ongoing annual expenditures of $40 million to $50
million 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 December 31, 1997, the
Company's reserves for environmental liabilities totaled $25 million, $19
million of which related to the sediment remediation under the 1993 EPA
consent decree. Virtually all of the ongoing spending and capital requirements
relate to Inland Steel Company. Future liability of the Company involving
existing but as of yet unidentified environmental issues requiring future
expenditures is limited under terms set forth in the purchase agreement
between the Company and Ispat.
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, approximated $35 million at year-end 1997, of which $22
million was related to the discontinued operations.
NOTE 20/CONCENTRATION OF CREDIT RISK
The Materials Distribution business segment processes and distributes a
broad line of steel products, non-ferrous metals and industrial plastics to a
wide range of industrial users on a nationwide basis. This segment includes
Joseph T. Ryerson & Son, Inc. and J. M. Tull Metals Company, Inc.
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.
F-27
