<PAGE>
Third Quarter - 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
------- ------
---------
Commission file number 1-9117
I.R.S. Employer Identification Number 36-3425828
INLAND STEEL INDUSTRIES, INC.
(a Delaware Corporation)
30 West Monroe Street
Chicago, Illinois 60603
Telephone: (312) 346-0300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 21,774,303 shares of the
Company's Common Stock ($1.00 par value per share) were outstanding as of
November 6, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Operations (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions (except per share data)
-------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 688.5 $ 719.5 $ 2,154.3 $ 2,117.3
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of goods sold 608.5 635.6 1,887.1 1,862.0
Selling, general and
administrative expenses 50.3 48.0 148.0 139.7
Depreciation 7.6 6.5 22.4 18.9
Gain from sale of assets -- -- -- (8.9)
--------- --------- --------- ---------
Total 666.4 690.1 2,057.5 2,011.7
--------- --------- --------- ---------
OPERATING PROFIT 22.1 29.4 96.8 105.6
General corporate income, net of expense items 4.7 2.9 8.7 14.9
Interest and other expense on debt (8.2) (9.9) (27.4) (30.6)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 18.6 22.4 78.1 89.9
PROVISION FOR INCOME TAXES 7.9 8.8 31.1 34.9
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 10.7 13.6 47.0 55.0
MINORITY INTEREST IN RYERSON TULL, INC. .6 1.5 4.9 6.3
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 10.1 12.1 42.1 48.7
DISCONTINUED OPERATIONS - INLAND STEEL COMPANY
Income (loss) from operations (net of taxes of
$2.7 Cr., $9.6, $7.8, $33.0, respectively) (4.4) 18.2 13.8 52.9
Gain on sale (net of taxes of $98.7) 495.2 -- 495.2 --
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 500.9 30.3 551.1 101.6
Extraordinary loss on early retirement of debt
(net of taxes of $2.8 Cr.) (11.2) -- (11.2) --
--------- --------- --------- ---------
NET INCOME $ 489.7 $ 30.3 $ 539.9 $ 101.6
========= ========= ========= =========
EARNINGS PER SHARE OF COMMON STOCK:
Basic:
From continuing operations $ .22 $ .20 $ .79 $ .86
Inland Steel Company - discontinued operations (.11) .37 .31 1.08
- gain on sale 12.90 -- 10.91 --
Extraordinary loss on early retirement of debt (.29) -- (.25) --
--------- --------- --------- ---------
Net income $ 12.72 $ .57 $ 11.76 $ 1.94
========= ========= ========= =========
Diluted:
From continuing operations $ .21 $ .19 $ .75 $ .81
Inland Steel Company - discontinued operations (.11) .35 .29 1.02
- gain on sale 12.20 -- 10.26 --
Extraordinary loss on early retirement of debt (.28) -- (.23) --
--------- --------- --------- ---------
Net income $ 12.02 $ .54 $ 11.07 $ 1.83
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
-----------------------------
Nine Months Ended
September 30
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 539.9 $ 101.6
-------- --------
Adjustments to reconcile net income to net cash used for
operating activities of continuing operations:
Loss (income) from discontinued operations (13.8) (52.9)
Depreciation 22.7 19.4
Deferred employee benefit cost (2.0) (2.4)
Stock issued for coverage of employee benefit plans 40.5 12.1
Deferred income taxes 4.4 1.1
Gain from sale of assets net of taxes and related liabilities (495.2) (8.9)
Change in: Receivables (29.0) (55.9)
Inventories (68.5) (35.2)
Accounts payable (8.1) (11.2)
Accrued salaries and wages (4.4) (.1)
Other accrued liabilities (54.8) (9.9)
Other deferred items 5.9 (.9)
-------- --------
Net adjustments (602.3) (144.8)
-------- --------
Net cash used for operating
activities of continuing operations (62.4) (43.2)
-------- --------
INVESTING ACTIVITIES
Acquisitions (Note 2) (7.7) (139.5)
Capital expenditures (23.7) (26.5)
Investments in and advances to joint ventures, net (2.4) (4.2)
Proceeds from sale of assets 893.3 17.2
-------- --------
Net cash provided from (used for) investing
activities of continuing operations 859.5 (153.0)
-------- --------
FINANCING ACTIVITIES
Redemption of Series E Preferred Stock (56.3) --
Reduction of debt assumed in acquisitions -- (25.3)
Long-term debt retired (116.8) (11.8)
Dividends paid (12.8) (12.9)
Acquisition of treasury stock (829.6) (6.1)
-------- --------
Net cash used for financing activities of
continuing operations (1,015.5) (56.1)
-------- --------
Cash provided by discontinued operations 279.4 147.1
-------- --------
Net increase (decrease) in cash and cash equivalents 61.0 (105.2)
Cash and cash equivalents - beginning of year 97.0 238.0
-------- --------
Cash and cash equivalents - end of period $ 158.0 $ 132.8
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest (net of amount capitalized) $ 32.7 $ 35.5
Income taxes, net 47.8 24.5
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
---------------------------------
September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS (unaudited)
- ------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 158.0 $ 97.0
Receivables 342.8 523.3
Inventories - principally at LIFO
In process and finished products $ 491.1 $ 543.8
Raw materials and supplies 2.3 493.4 80.3 624.1
-------- --------
Deferred income taxes 5.2 30.7
-------- --------
Total current assets 999.4 1,275.1
INVESTMENTS AND ADVANCES 33.1 271.6
PROPERTY, PLANT AND EQUIPMENT
Valued on basis of cost 601.3 4,649.7
Less: Reserve for depreciation,
amortization and depletion 293.1 2,907.2
Allowance for terminated facilities -- 308.2 100.7 1,641.8
-------- --------
EXCESS OF COST OVER NET ASSETS ACQUIRED 79.3 82.3
DEFERRED INCOME TAXES 31.3 231.4
PREPAID PENSION COSTS 21.2 77.4
OTHER ASSETS 16.2 66.9
-------- --------
Total Assets $1,488.7 $3,646.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 160.3 $ 354.9
Accrued liabilities 141.7 197.3
Long-term debt due within one year 11.5 62.7
-------- --------
Total current liabilities 313.5 614.9
LONG-TERM DEBT 331.5 704.9
DEFERRED EMPLOYEE BENEFITS 162.1 1,275.6
OTHER CREDITS -- 65.4
-------- --------
Total liabilities 807.1 2,660.8
MINORITY INTEREST IN RYERSON TULL, INC 63.1 57.5
COMMON STOCK REPURCHASE COMMITMENT -- 28.1
STOCKHOLDERS' EQUITY (Schedule A) 618.5 900.1
-------- --------
Total Liabilities, Minority Interest, Temporary Equity,
and Stockholders' Equity $1,488.7 $3,646.5
======== ========
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
NOTE 1/FINANCIAL STATEMENTS
Results of operations for any interim period are not necessarily indicative of
results of any other periods or for the year. The financial statements as of
September 30, 1998 and for the three-month and nine-month periods ended
September 30, 1998 and 1997 are unaudited, but in the opinion of management
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of results for such periods. These financial
statements should be read in conjunction with the financial statements and
related notes contained in the Current Report on Form 8-K filed July 20, 1998,
for the year ended December 31, 1997.
NOTE 2/ACQUISITIONS
During the 1998 first quarter a subsidiary of the Company acquired Brockway
Pressed Metals, Inc., a powder metallurgy company.
NOTE 3/COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board Statement No. 130,
"Reporting Comprehensive Income," in the first quarter of 1998. Due to the
immateriality of the one item covered by the Statement, the Company has elected,
as allowed by the Statement, to not apply provisions of the Statement.
NOTE 4/ISC/ISPAT TRANSACTION
On July 16, 1998, Ispat International N.V. ("Ispat") acquired Inland Steel
Company ("ISC"), the Company's wholly owned subsidiary that constituted the
steel manufacturing and related operations segment of the Company's consolidated
operations, pursuant to an agreement and plan of merger dated May 27, 1998, as
amended as of July 16, 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. Although a post-closing adjustment
of the sale consideration is currently being negotiated with Ispat, it is not
anticipated that resolution of this matter will materially impact the Company's
gain on the transaction. The Company's primary business is currently metals
distribution and processing, conducted through its majority owned subsidiary,
Ryerson Tull, Inc. ("RT"), with which the Company currently intends to merge.
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.
ISC's revenues, including intercompany sales, were $84.0 million and $615.7
million for the quarters ended September 30, 1998 and 1997, respectively, and
$1,310.0 million and $1,866.1 million for the first nine months of each such
year, respectively. In 1998, third quarter and year-to-date sales of ISC
included above were through July 16, 1998, the date of the ISC/Ispat
transaction.
NOTE 5/CAPITAL STOCK
Pursuant to stock repurchase programs, the Company used approximately $800
million to acquire approximately 27.9 million shares of the Company's common
stock during the 1998 third quarter. An additional .4 million shares were
repurchased in the fourth quarter prior to the termination of the repurchase
programs. The Company also redeemed approximately 1.1 million shares of Series E
preferred stock held by ISC employees subsequent to the ISC/Ispat transaction.
-4-
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
<TABLE>
<CAPTION>
NOTE 6/EARNINGS PER SHARE
Dollars and Shares in Millions
(except per share data)
------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------- ----------------
BASIC EARNINGS PER SHARE 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income from continuing operations $ 10.1 $ 12.1 $ 42.1 $ 48.7
Less preferred stock dividends 1.7 2.3 6.2 6.8
------- ------- ------- -------
Income from continuing operations
available to common stockholders 8.4 9.8 35.9 41.9
Inland Steel Company - discontinued operations (4.4) 18.2 13.8 52.9
- gain on sale 495.2 -- 495.2 --
Extraordinary loss on early retirement of debt (11.2) -- (11.2) --
------- ------- ------- -------
Net income available to common stockholders $ 488.0 $ 28.0 $ 533.7 $ 94.8
======= ======= ======= =======
Average shares of common stock outstanding 38.4 48.8 45.4 48.9
======= ======= ======= =======
Basic earnings per share
From continuing operations $ .22 $ .20 $ .79 $ .86
Inland Steel Company - discontinued operations (.11) .37 .31 1.08
- gain on sale 12.90 -- 10.91 --
Extraordinary loss on early retirement of debt (.29) -- (.25) --
------- ------- ------- -------
Net income $ 12.72 $ .57 $ 11.76 $ 1.94
======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Income from continuing operations
available to common stockholders $ 8.4 $ 9.8 $ 35.9 $ 41.9
Effect of dilutive securities
Series A preferred stock .1 .1 .2 .2
Series E leveraged preferred stock 1.6 2.2 6.0 6.6
Additional ESOP funding required on conversion of
Series E leveraged preferred stock, net of tax (1.5) (2.1) (5.7) (6.2)
------- ------- ------- -------
Income available to common stockholders and
assumed conversions before discontinued operations 8.6 10.0 36.4 42.5
Inland Steel Company - discontinued operations (4.4) 18.2 13.8 52.9
- gain on sale 495.2 -- 495.2 --
Extraordinary loss on early retirement of debt (11.2) -- (11.2) --
------- ------- ------- -------
Net income available to
common stockholders and
assumed conversions $ 488.2 $ 28.2 $ 534.2 $ 95.4
======= ======= ======= =======
Average shares of common
stock outstanding 38.4 48.8 45.4 48.9
Assumed conversion of
Series A preferred stock .1 -- .1 --
Series E leverage preferred stock 2.0 3.0 2.7 3.1
Dilutive effect of stock options .1 .1 .1 .1
------- ------- ------- -------
Shares outstanding for diluted earnings per
share calculation 40.6 51.9 48.3 52.1
======= ======= ======= =======
Diluted earnings per share
From continuing operations $ .21 $ .19 $ .75 $ .81
Inland Steel Company - discontinued operations (.11) .35 .29 1.02
- gain on sale 12.20 -- 10.26 --
Extraordinary loss on early retirement of debt (.28) -- (.23) --
------- ------- ------- -------
Net income $ 12.02 $ .54 $ 11.07 $ 1.83
======= ======= ======= =======
</TABLE>
-5-
<PAGE>
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
NOTE 7/CONTINGENCIES
Pursuant to the ISC/Ispat Merger Agreement, the Company agreed to indemnify
Ispat for losses exceeding certain minimum amounts arising out of breaches of
representations and warranties contained in the ISC/Ispat Merger Agreement and
for expenditures relating to certain environmental liabilities subject in
certain cases to losses exceeding certain minimum amounts, up to a maximum of
$90 million in the aggregate, and for breaches of contracts and agreements
contained in the ISC/Ispat Merger Agreement, which obligation is not subject to
a maximum amount. In general, Ispat must make indemnification claims with
respect to breaches of representations and warranties prior to March 31, 2000;
however, claims relating to breaches of representations and warranties related
to tax matters and certain organizational matters must be made within 90 days
after the expiration of the applicable statute of limitations and claims with
respect to breaches of representations and warranties related to environmental
matters must be made prior to July 16, 2003. The Company has purchased
environmental insurance payable directly to Ispat and ISC, which is expected to
cover many of the environmental matters for which the Company has indemnified
Ispat.
-6-
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
On July 16, 1998, Ispat International N.V. ("Ispat") acquired Inland Steel
Company ("ISC"), the Company's wholly owned subsidiary that constituted the
steel manufacturing and related operations segment of the Company's consolidated
operations, pursuant to an agreement and plan of merger dated May 27, 1998, as
amended as of July 16, 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. Although a post-closing adjustment
of the sale consideration is currently being negotiated with Ispat, it is not
anticipated that resolution of this matter will materially impact the Company's
gain on the transaction. The Company's primary business is currently metals
distribution and processing, conducted through its majority owned subsidiary,
Ryerson Tull, Inc. ("RT"), with which it currently intends to merge.
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.
ISC's revenues, including intercompany sales, were $84.0 million and $615.7
million for the quarters ended September 30, 1998 and 1997, respectively, and
$1,310.0 million and $1,866.1 million for the first nine months of each such
year, respectively. In 1998, third quarter and year-to-date sales of ISC
included above were through July 16, 1998, the date of the ISC/Ispat
transaction.
Results of Operations - Comparison of Third Quarter 1998 to Third Quarter 1997
- ------------------------------------------------------------------------------
The Company reported consolidated net income of $489.7 million, $12.72 per
share, in the third quarter of 1998 compared with $30.3 million, $.57 per share,
in the year-earlier period. Included in the 1998 quarter was a $495.2 million
after-tax gain on the sale of ISC and an extraordinary after-tax loss of $11.2
million on the early retirement of debt. Income from continuing operations in
the current year quarter was $10.1 million, $.22 per share, compared with $12.1
million, $.20 per share, in the comparable year-earlier quarter. The average
number of shares outstanding in the current quarter declined to 38.4 million
from 48.8 million in the year-ago period as a result of the share repurchase
programs during the current quarter.
Consolidated net sales from continuing operations declined 4 percent to $689
million in the 1998 third quarter from $719 million in the comparable 1997
quarter. Consolidated net sales primarily reflect the net sales of RT which
decreased 5 percent to $679 million in the 1998 quarter due to a 4 percent
decline in average selling price and a 1 percent decrease in volume.
At RT, lower gross margins and higher operating expenses, including
depreciation and amortization, negatively impacted operating profit. These
factors resulted in a decrease in operating profit at RT of $9.9 million.
The 1998 third quarter loss of $4.4 million from discontinued operations
reflect the first 16 days of July and include the negative effects of a blast
furnace outage in the first half of the month. The comparable year earlier
quarter's net income of $18.2 million included the results from the entire
quarter.
-7-
<PAGE>
Comparison of First Nine Months of 1998 to First Nine Months of 1997
- --------------------------------------------------------------------
For the first nine months of 1998, the Company reported consolidated net
income of $539.9 million, $11.76 per share, as compared with $101.6 million,
$1.94 per share, in the year-earlier period. Income from continuing operations
for the first nine months of 1998 was $42.1 million, $.79 per share, as compared
with $48.7 million, $.86 per share, in the comparable 1997 period. The
consolidated 1997 first nine months continuing operations benefited from an
after-tax gain of $4.6 million, $.09 per share, from the sale of assets.
Excluding the gain, income from continuing operations declined by approximately
$2.0 million from the comparable prior-year period.
Consolidated net sales from continuing operations increased 2 percent to
$2.15 billion for the first nine months of 1998 from $2.12 billion in the
prior-year period. Net sales at RT improved 1 percent due to the inclusion of a
full nine months of net sales from acquisitions made by RT during 1997.
Operating profit decreased 3 percent to $95.6 million in the first nine months
of 1998 at RT from $98.3 million in the same period a year ago excluding the
gain from the sale of assets totaling $8.9 million.
Income from discontinued operations at ISC of $13.8 million for 1998 were
through July 16 and included the negative effects of the blast furnace outage in
early July. Income from discontinued operations at ISC of $52.9 million for 1997
included a full nine months of activity.
Liquidity and Financing
- -----------------------
The Company's cash and cash equivalents were $158.0 million at September 30,
1998 compared with $97.0 million at December 31, 1997. There was no short-term
borrowing at either date.
During the third quarter, the Company received $1.1 billion in connection
with the ISC/Ispat transaction discussed above. During the quarter, the Company
used approximately $800 million of the proceeds to reacquire approximately 27.9
million shares of common stock in buyback programs.
On July 17, 1998, the Company used $56 million to redeem 1.1 million shares
of its Series E ESOP Convertible Preferred Stock ("Series E Stock") including
unpaid dividends.
On August 3, 1998, the Company retired the remaining outstanding $100
million principal amount of its Subordinated Voting Note for $114 million, which
included $14 million of breakage and other related costs.
Year 2000
- ---------
The Company's State of Readiness
The Company's primary business is metals distribution and processing
conducted through RT. RT began planning how to address its Year 2000 issues in
1996. As part of this process, RT established a Year 2000 panel with
representatives from all business units. This panel monitors the progress of RT
in its Year 2000 compliance. This panel has met regularly throughout 1998 and
will continue to meet until Year 2000 compliance is completed. In addition,
Company personnel and outside Year 2000 consultants have been identifying and
correcting problems that may interfere with Year 2000 readiness. The primary
focus has been on RT's internal computer systems.
An assessment of the majority of RT's hardware, software and procedures was
completed in 1997. This assessment identified 40 major systems areas. These were
further broken down into upgrade units. Each of the units was corrected to be
Year 2000 compliant, tested and installed. It is anticipated that all unit
testing will be completed by the end of 1998. RT plans to conduct integrated
testing during the second quarter of 1999.
RT has also done an assessment of microprocessors embedded in its
equipment, distribution facilities and corporate offices. Based on vendor
representations and internal testing, RT believes that it has no Year 2000
compliance issues in this area.
RT plans to have addressed all Year 2000 issues which are critical to its
operations by the end of 1998, with two exceptions - payroll and accounts
receivable. Both operations are handled through software packages and RT expects
to have complete Year 2000 software releases installed and tested by mid-1999.
RT has identified a number of suppliers whose Year 2000 compliance may be
critical to RT. These suppliers include metal suppliers, outside processing
facilities and contract carriers. RT intends to survey these suppliers as to
their Year 2000 compliance. RT will use the results of these surveys to aid in
contingency planning.
The Costs to Address the Company's Year 2000 Issues
RT has estimated that through the end of 1998, total expenses of
approximately $5.5 million will have been incurred since it began its Year 2000
compliance program. This amount has been funded through the general operating
budget of RT's Management Information Systems. Currently, it is expected that RT
will spend an additional $1.5 million to bring its systems into Year 2000
compliance. This estimate is based on information currently available and may
need to be increased as more information becomes available and as compliance
implementation and contingency planning proceed.
The Risks of the Company's Year 2000 Issues
Although RT believes it is unlikely, it is possible that, as a result of
potential failure by major customers or suppliers, or a delay or oversight in
RT's effort to address Year 2000 issues, RT could experience an adverse impact,
which could be material, on the results of operations or financial position of
RT.
In addition, if the suppliers of necessary telecommunications, energy and
transportation needs fail to provide such services needed to sell and deliver
its products, or to provide electrical power or other utilities, such failure
could also have an adverse impact on the results of operations or the financial
position of RT.
The Company's Contingency Plan
RT has not yet established contingency plans if all systems have not been
made Year 2000 compliant, but it expects to develop such plans during 1999.
-8-
<PAGE>
Subsequent Event
- ----------------
On October 27, 1998, the Company entered into an Agreement and Plan of
Merger, (the "Merger Agreement"), by and among the Company, RT Merger Sub, Inc.,
a wholly owned subsidiary of the Company ("RT Merger Sub"), and RT. The Merger
Agreement provides that, at the effective time of the merger (the "Effective
Time"), RT Merger Sub will merge with and into RT, with RT continuing in
existence as the surviving corporation. Each share of RT Class A common stock,
par value $1.00 per share ("RT Class A Common Stock") (including the associated
preferred stock purchase rights issued pursuant to the Rights Agreement, dated
as of June 10, 1996, between RT and Harris Trust and Savings Bank, as the Rights
Agent) issued and outstanding at the Effective Time (other than shares owned by
the Company or any direct or indirect subsidiary of the Company , which will be
canceled in the merger) will be converted into 0.61 shares of the Company's
common stock, par value $1.00 per share (including the associated preferred
stock purchase rights issued pursuant to the Rights Agreement, dated as of
November 25, 1997, between the Company and Harris Trust and Savings Bank, as the
Rights Agent). All of the outstanding shares of RT Class B common stock, par
value $1.00 per share ("RT Class B Common Stock") will also be canceled in the
merger.
Under Delaware law and RT's Restated Certificate of Incorporation, the
merger must be approved by at least a majority of the votes entitled to be cast
by the holders of the outstanding shares of the RT Class A Common Stock and RT
Class B Common Stock, voting together as a single class. The Company owns 100
percent of the RT Class B Common Stock, which represents approximately 87
percent of the economic interest, and approximately 96 percent of the voting
power, in RT. The Company has advised that it intends to vote in favor of the
Merger Agreement and the merger, and therefore RT stockholder approval is
assured. A notice of and proxy solicitation for a special meeting at which such
a vote will take place will be mailed to RT stockholders in advance of the
meeting. As of the date of this Quarterly Report, RT has selected neither a
record date for determining who will be entitled to notice of and to vote at the
special meeting nor a date on which the special meeting will occur.
Upon consummation of the merger, RT will be a wholly owned subsidiary of the
Company, market trading of RT Class A Common Stock will cease and RT will take
steps to terminate the registration of RT Class A
-9-
<PAGE>
Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). After such termination, RT will no longer be subject to the
reporting requirements of the Exchange Act.
On November 1, 1998, Robert J. Darnall, the Company's Chairman, President
and Chief Executive Officer, resigned the positions of President and Chief
Executive Officer. It is expected that Mr. Darnall will resign the position of
Chairman on or about the Effective Time and will assume responsibility for Ispat
International N.V.'s North American steel operations thereafter.
At some time after the Effective Time, RT and the Company will merge. The
Company expects to change its name to "Ryerson Tull, Inc." at that time. The
Company has not determined the date on which such a merger between RT and the
Company will take place.
On November 9, 1998, the Company redeemed all remaining outstanding shares
of Series E Stock. On November 10, 1998 the Company, through the ESOP trust,
repaid the outstanding ESOP notes and related breakage fees. Total cash used by
the Company to complete these transactions was approximately $131 million.
-10-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits required to be filed by Item 601 of
Regulation S-K are listed in the "Exhibit Index," which is
attached hereto and incorporated by reference herein.
(b) Reports on Form 8-K.
On July 20, 1998 the Company filed a Current Report on
Form 8-K, reporting under Item 2 - Acquisition or
Disposition of Assets, Item 5 - Other Events and Item 7 -
Financial Statements and Exhibits that, on July 16, 1998,
Inland Steel Company ("ISC"), a wholly owned subsidiary of
the Company that constituted the steel manufacturing and
related operations segment of the Company'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
the Company, ISC Ispat and Inland Merger Sub, Inc. (The
"ISC/Ispat Transaction"). ISC was the surviving company in
the merger. As a result of the ISC/Ispat Transaction, ISC
became a wholly owned subsidiary of Ispat. The following
financial statements were filed with that report: Restated
Financial Data Schedule from each of the 1995 10-K, 1996 10-
K, 1997 10-K, Restated Financial Data Schedule from each of
the 1997 and 1998 First Quarter Form 10-Q, and Restated
Consolidated Financial Statements of the Company.
On July 31, 1998 the Company filed a Current Report on
Form 8-K/A reporting under Item 7 - Financial Statements and
Exhibits an amendment to the Current Report on Form 8-K
filed July 20, 1998. The following Pro forma financial
statements were filed with that report: Pro forma
Consolidated Balance Sheet at March 31, 1998, Pro forma
Consolidated Income Statement for the Quarter Ended March
31, 1998 and Pro forma Consolidated Income Statement for the
Year Ended December 31, 1997.
On August 10, 1998 the Company filed Current Report on
Form 8-K reporting under Item 5 - Other Events that, on
August 6, 1998 Greenway Partners, L.P. and related parties
had filed a complaint in the Delaware Chancery Court seeking
to enjoin the Company from consummating its cash tender to
purchase up to 25,500,000 shares of its common stock at a
purchase price of not greater than $34.00 nor less than
$30.00 per share.
On October 1, 1998 the Company filed a Current Report on
Form 8-K reporting under Item 5 - Other Events and Item 7
Exhibits that, on September 23, 1998, the Company announced
that its Board of Directors had approved an offer to acquire
all of the outstanding publicly held shares of RT.
-11-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INLAND STEEL INDUSTRIES, INC.
By J. M. Gratz
--------------------------------
J. M. Gratz
Vice President and
Chief Financial Officer
Date: November 12, 1998
-12-
<PAGE>
Part I -- Schedule A
--------------------
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SUMMARY OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Dollars in Millions
---------------------------------------------------------------
September 30, 1998 December 31, 1997
----------------------- ------------------------
(unaudited)
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
Series A preferred stock ($1 par value)
- 78,341 shares and 94,101 shares issued and
outstanding as of September 30, 1998
and December 31, 1997, respectively $ .1 $ .1
Series E preferred stock ($1 par value)
- 1,819,172 shares and 3,014,548 shares
issued and outstanding as of September 30,
1998 and December 31, 1997, respectively 1.8 3.0
Common stock ($1 par value)
- 50,556,350 shares issued as of September 30,
1998 and December 31, 1997 50.6 50.6
Capital in excess of par value 984.3 1,039.8
Accumulated deficit
Balance beginning of year $(45.6) $(146.0)
Net income 539.9 119.3
Dividends
Series A preferred stock -
$1.80 per share in 1998 and
$2.40 per share in 1997 (.2) (.2)
Series E preferred stock -
$1.7615 per share in 1998 and
$3.523 per share in 1997 (5.3) (10.8)
Income tax benefit - Series E dividend .8 1.9
Common stock -
$.15 per share in 1998 and
$.20 per share in 1997 (6.0) 483.6 (9.8) (45.6)
----- -----
Unearned compensation related to ESOP (63.3) (68.6)
Common stock repurchase commitment -- (28.1)
Investment valuation allowance -- (7.1)
Unearned restricted stock award compensation -- (.2)
Treasury stock, at cost
- 28,356,164 shares and 1,557,635
shares as of September 30, 1998 and
December 31, 1997, respectively (835.3) (40.5)
Cumulative translation adjustment (3.3) (3.3)
------ ------
Total Stockholders' Equity $618.5 $900.1
====== ======
</TABLE>
-13-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
2. 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. (Filed as Exhibit 2.1 to Inland Steel Company's Current Report on
Form 8-K filed on June 9, 1998, and incorporated by reference herein.) --
2.1 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. (Filed as Exhibit 2.2 to the Company's Current Report on
Form 8-K filed on July 20, 1998, and incorporated by reference herein.) --
3.(I) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as Exhibit
3.(I) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated by reference herein.) --
3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3.(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and incorporated by reference herein.) --
27 Financial Data Schedule.......................................................................
</TABLE>
- i -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET, AND THE
SUMMARY OF STOCKHOLDERS' EQUITY CONTAINED IN THE QUARTERLY REPORT ON FORM 10-Q
TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL SCHEDULES
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 158,000
<SECURITIES> 0
<RECEIVABLES> 351,900
<ALLOWANCES> 9,100
<INVENTORY> 493,400
<CURRENT-ASSETS> 999,400
<PP&E> 601,300
<DEPRECIATION> 293,100
<TOTAL-ASSETS> 1,488,700
<CURRENT-LIABILITIES> 313,500
<BONDS> 331,500
0
1,900
<COMMON> 50,600
<OTHER-SE> 566,000
<TOTAL-LIABILITY-AND-EQUITY> 1,488,700
<SALES> 2,154,300
<TOTAL-REVENUES> 2,154,300
<CGS> 1,909,500
<TOTAL-COSTS> 1,909,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,400
<INCOME-PRETAX> 78,100
<INCOME-TAX> 31,100
<INCOME-CONTINUING> 42,100
<DISCONTINUED> 509,000
<EXTRAORDINARY> (11,200)
<CHANGES> 0
<NET-INCOME> 539,900
<EPS-PRIMARY> 11.76
<EPS-DILUTED> 11.07
</TABLE>
