10-K405 1 BASE 10-K405 1 1994 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 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 INLAND STEEL INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3425828 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 30 WEST MONROE STREET, CHICAGO, ILLINOIS 60603 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 346-0300 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------------------------------- ------------------------------------ COMMON STOCK ($1.00 PAR VALUE), INCLUDING NEW YORK STOCK EXCHANGE, INC. PREFERRED STOCK PURCHASE RIGHTS SERIES A $2.40 CUMULATIVE CONVERTIBLE CHICAGO STOCK EXCHANGE, INCORPORATED PREFERRED STOCK ($1.00 PAR VALUE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. /X/ AS OF MARCH 13, 1995 THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $1,130,033,222.(1) THE NUMBER OF SHARES OF COMMON STOCK ($1.00 PAR VALUE) OF THE REGISTRANT OUTSTANDING AS OF MARCH 13, 1995 WAS 44,639,183. (1)EXCLUDING STOCK HELD BY DIRECTORS AND OFFICERS OF REGISTRANT, WITHOUT ADMISSION OF AFFILIATE STATUS OF SUCH INDIVIDUALS FOR ANY OTHER PURPOSE; ALSO, EXCLUDING SERIES E ESOP CONVERTIBLE PREFERRED STOCK AND SERIES F EXCHANGEABLE PREFERRED STOCK OF THE REGISTRANT, NEITHER OF WHICH SERIES IS PUBLICLY TRADED. DOCUMENTS INCORPORATED BY REFERENCE PARTS I AND II OF THIS REPORT ON FORM 10-K INCORPORATE BY REFERENCE CERTAIN INFORMATION FROM THE ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994. PART III OF THIS REPORT ON FORM 10-K INCORPORATES BY REFERENCE CERTAIN INFORMATION FROM THE COMPANY'S DEFINITIVE PROXY STATEMENT WHICH WILL BE FURNISHED TO STOCKHOLDERS IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY SCHEDULED TO BE HELD ON MAY 24, 1995. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. Inland Steel Industries, Inc. (the "Company"), a Delaware corporation, is the sole stockholder of Inland Steel Company and Inland Materials Distribution Group, Inc. ("Distribution"). Inland Steel Company is a fully integrated domestic steel company that produces and sells a wide range of steels, of which approximately 99% consists of carbon and high-strength low-alloy steel grades. It is also a participant in certain steel-finishing joint ventures. Distribution is the sole stockholder of Joseph T. Ryerson & Son, Inc. ("Ryerson") and J. M. Tull Metals Company, Inc. ("Tull"). Ryerson and Tull are leading steel service, distribution and materials processing organizations. BUSINESS SEGMENTS The business segments of the Company and its subsidiaries are Steel Manufacturing (including iron ore operations) and Materials Distribution. For the three years ended December 31, 1994, information relating to net sales, operating profit, identifiable assets, depreciation and capital expenditures for both business segments of the Company appears in Note 16 of Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994. Such information is hereby incorporated by reference herein. Steel Manufacturing Operations General Inland Steel Company, a wholly owned subsidiary of the Company, is directly engaged in the production and sale of steel and related products and the transportation of iron ore, limestone and certain other commodities (primarily for its own use) on the Great Lakes. Certain subsidiaries and associated companies of Inland Steel Company are engaged in the mining and pelletizing of iron ore and in the operation of a cold-rolling mill and steel galvanizing lines. All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana, which also has facilities for converting the steel produced into semi-finished and finished steel products. Inland Steel Company has two divisions -- the Inland Steel Flat Products Company division and the Inland Steel Bar Company division. The Flat Products division manages Inland Steel Company's iron ore operations, conducts its ironmaking operations, and produces the major portion of its raw steel. This division also manufactures and sells steel sheet, strip and plate and certain related semi-finished products for the automotive, appliance, office furniture, steel service center and electrical motor markets. The Bar division manufactures and sells special quality bars and certain related semi-finished products for forgers, steel service centers, heavy equipment manufacturers, cold finishers and the transportation industry. The Bar division closed its 28-inch structural mill in early 1991, completing Inland Steel Company's withdrawal from the structural steel manufacturing business. Inland Steel Company and Nippon Steel Corporation ("NSC") are participants, through subsidiaries, in two joint ventures that operate steel-finishing facilities near New Carlisle, Indiana. The total cost of these two facilities was approximately $1.1 billion. I/N Tek, owned 60% by a wholly owned subsidiary of Inland Steel Company and 40% by an indirect wholly owned subsidiary of NSC, operates a cold-rolling mill that began shipping commercial product in 1990 and reached its design capability in 1992. I/N Kote, owned equally by wholly owned subsidiaries of Inland Steel Company and NSC (indirect in the case of NSC), operates two galvanizing lines which began start-up production in late 1991, became fully operational in the third quarter of 1992, and have operated near design capacity since August 1993. Inland Steel Company is also a participant, through a subsidiary, in another galvanizing joint venture located near Walbridge, Ohio. 1 3 Raw Steel Production and Mill Shipments The following table shows, for the five years indicated, Inland Steel Company's production of raw steel and, based upon American Iron and Steel Institute data, its share of total domestic raw steel production:
RAW STEEL PRODUCTION --------------------------------- INLAND STEEL INLAND STEEL COMPANY AS A % OF COMPANY U.S. STEEL (000 TONS*) INDUSTRY ------------ ----------------- 1994..................................................... 5,309 5.5%** 1993..................................................... 5,003 5.2 1992..................................................... 4,740 5.2 1991..................................................... 4,677 5.3 1990..................................................... 5,339 5.5
--------------- * Net tons of 2,000 pounds. ** Based on preliminary data from the American Iron and Steel Institute. The annual raw steelmaking capacity of Inland Steel Company was reduced to 6.0 million net tons from 6.5 million net tons effective September 1, 1991, as Inland Steel Company ceased making ingots. The basic oxygen process accounted for 94% of raw steel production of Inland Steel Company in each of 1994 and 1993. The remainder of such production was accounted for by electric furnace. The total tonnage of steel mill products shipped by Inland Steel Company for each of the five years 1990 through 1994 was 5.2 million tons in 1994; 4.8 million tons in 1993; 4.3 million tons in 1992; 4.2 million tons in 1991; and 4.7 million tons in 1990. In 1994, sheet, strip, plate and certain related semi-finished products accounted for 86% of the total tonnage of steel mill products shipped from the Indiana Harbor Works, and bar and certain related semi-finished products accounted for 14%. In 1994 and 1993, approximately 95% and 93% respectively of the shipments of the Flat Products division and 93% and 92% respectively of the shipments of the Bar division were to customers in 20 mid-American states. Approximately 77% of the shipments of the Flat Products division and 84% of the shipments of the Bar division in 1994 were to customers in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and Wisconsin, compared to 75% and 83% in 1993. Both divisions compete in these geographical areas, principally on the basis of price, service and quality, with the nation's largest producers of raw steel as well as with foreign producers and with many smaller domestic mills. According to data from the American Iron and Steel Institute, steel imports to the United States in 1994 totaled approximately 30.1 million tons, compared with 19.5 million tons imported in 1993. Steel imports constituted approximately 24.7% of apparent domestic supply in 1994, compared with approximately 18.7% of apparent domestic supply in 1993. During 1984, the previous peak year for steel imports into the U.S., such imports accounted for 26.4% of apparent domestic supply. Many foreign steel producers are owned, controlled or subsidized by their governments. In 1992, the Company and certain domestic steel producers filed unfair trade petitions against foreign producers of certain bar, rod and flat-rolled products. During 1993, the International Trade Commission ("ITC") upheld final subsidy and dumping margins on essentially all of the bar and rod products and about half of the flat-rolled products, in each case based on the tonnage of the products against which claims were brought. The Company and certain domestic producers have filed formal appeals of the adverse ITC decisions in the U.S. Court of International Trade ("CIT") or similar jurisdictional bodies, and foreign producers have appealed certain of the findings against them. The CIT sustained the ITC in the bar and rod product cases and in the cold-rolled and hot-rolled flat product cases. Appeals are pending regarding the corrosion-resistant flat products cases. It is not certain how the ITC actions and the appeals have impacted imports of steel products into the United States or the price of such steel products. On December 15, 1993, President Clinton notified the U.S. Congress of his intent to enter into agreements resulting from the Uruguay Round of multilateral trade negotiations under the General 2 4 Agreement on Tariffs and Trade. The key provisions applicable to domestic steel producers include an agreement to eliminate steel tariffs in major industrial markets, including the United States, and agreements regarding various subsidy and dumping practices as well as dispute settlement procedures. Legislation to implement the Uruguay Round agreement was enacted into federal law in December 1994. The agreement went into effect January 1, 1995. Primarily as a result of the influx of foreign steel imports and the depressed demand for domestic steel products that began in the early 1980s, certain facilities at the Indiana Harbor Works were permanently closed during the second half of the 1980s and the early 1990s and others were shut down for temporary periods. The 28-inch structural mill was closed in early 1991, reflecting a decision to withdraw from the structural steel markets. In late 1991 the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were closed either as part of a program to permanently reduce costs through the closure of uneconomic facilities or for environmental reasons. Provisions with respect to the shutdown of the structural mill were taken in 1987. Provisions for estimated costs incurred in connection with the closure of the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were made in 1991. Included in such provisions were costs associated with Inland Steel Company's closure of its No. 11 Coke Oven Battery in June 1992. All remaining coke batteries were closed by year-end 1993, a year earlier than previously anticipated. An additional provision was required with respect to those closures. (See "Environment" below.) For the five years indicated, shipments by market classification of steel mill products produced by Inland Steel Company at its Indiana Harbor Works, including shipments to affiliates of the Company, are set forth below. The table confirms that a substantial portion of shipments by the Flat Products division was to steel service centers and transportation-related markets. The Bar division shipped more than 53% of its products to the steel converters/processors market over the five-year period shown in the table.
PERCENTAGE OF TOTAL TONNAGE OF STEEL SHIPMENTS ------------------------------------ 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Steel Service Centers: Affiliates............................................ 9 % 9 % 7 % 8 % 8 % Non-Affiliates........................................ 20 22 22 24 20 ---- ---- ---- ---- ---- 29 31 29 32 28 Automotive.............................................. 32 30 28 25 26 Appliance............................................... 9 9 9 8 7 Industrial, Electrical and Farm Machinery............... 8 7 8 9 9 Construction and Contractors' Products.................. 2 3 3 4 8 Steel Converters/Processors............................. 12 13 18 12 15 Other................................................... 8 7 5 10 7 ---- ---- ---- ---- ---- 100 % 100 % 100 % 100 % 100 % ==== ==== ==== ==== ====
Some value-added steel processing operations that Inland Steel Company does not have the capability to perform are performed by outside processors, including joint ventures, prior to shipment of certain products to Inland Steel Company's customers. In 1994, approximately 23% of the products produced by Inland Steel Company were processed further through value-added services such as electrogalvanizing, painting and slitting, excluding products processed further by affiliates. Approximately 48% of the total tonnage of shipments by Inland Steel Company during 1994 from the Indiana Harbor Works was transported by truck, with the remainder transported primarily by rail. A wholly owned truck transport subsidiary of Inland Steel Company was responsible for shipment of approximately 10% of the total tonnage of products transported by truck from the Indiana Harbor Works in 1994. Substantially all of the steel mill products produced by the Flat Products division are marketed through its own selling organization, with offices located in Chicago; Southfield, Michigan; St. Louis; and Nashville, 3 5 Tennessee. Substantially all of the steel mill products produced by the Bar division are marketed through its sales office in East Chicago, Indiana. See "Product Classes" below for information relating to the percentage of consolidated net sales accounted for by certain classes of similar products of steel manufacturing operations. Raw Materials Inland Steel Company obtains iron ore pellets primarily from three iron ore properties, located in the United States and Canada, in which subsidiaries of Inland Steel Company have varying interests -- the Empire Mine in Michigan, the Minorca Mine in Minnesota and the Wabush Mine in Labrador and Quebec, Canada. In recent years Inland Steel Company has closed or terminated certain less cost-efficient iron ore mining operations. See "Properties Relating to Steel Manufacturing Segment -- Raw Materials Properties and Interests" in Item 2 below for further information relating to such iron ore properties. The following table shows (1) the iron ore pellets available to Inland Steel Company, as of December 31, 1994, from properties of its subsidiaries and through interests in raw materials ventures; (2) 1994 and 1993 iron ore pellet production or purchases from such sources; and (3) the percentage of Inland Steel Company's iron ore requirements represented by production or purchases from such sources in 1994 and 1993.
IRON ORE TONNAGES IN THOUSANDS (GROSS TONS OF PELLETS) --------------------------------- % OF AVAILABLE AS OF PRODUCTION REQUIREMENTS(1) DECEMBER 31, -------------- ------------- 1994(2) 1994 1993 1994 1993 --------------- ----- ----- ---- ---- INLAND STEEL MINING COMPANY PROPERTY Minorca -- Virginia, MN.............. 66,000 2,717 2,577 41% 41% IRON ORE VENTURES AND LONG-TERM PURCHASE CONTRACTS Empire (40% owned) -- Palmer, MI; Wabush (13.75% owned) -- Wabush, Labrador and Pointe Noire, Quebec, Canada............................ 112,000 3,625 3,513 55 55 --------------- ----- ----- ---- ---- Total Iron Ore.................... 178,000 6,342 6,090 96% 96% ========== ===== ===== ==== ====
--------------- (1) Production in excess of requirements was sold or added to stockpile. Requirements in excess of production were purchased or taken from stockpile. (2) Net interest in proven reserves. All of Inland Steel Company's coal requirements are satisfied from independent sources, with a portion of such requirements being met under a significant purchase contract. The contract requires Inland Steel Company to purchase (subject to force majeure provisions) a total of 1,270,000 tons of metallurgical and/or steam coal at prices (intended to approximate market) determined with respect to certain cost factors. The term of the contract has been extended through year-end 1995, with the extension covering solely steam coal due to the shutdown of Inland Steel Company's coke batteries in December 1993. During 1994, Inland Steel Company purchased 21% of its coal requirements under such contract, representing 54% of its steam coal requirements. Inland Steel Company's other coal requirements are for the PCI Associates joint venture, in which a subsidiary of Inland Steel Company holds a 50% interest. The PCI facility pulverizes coal for injection into Inland Steel Company's blast furnaces. Inland Steel Company had entered into a contract (subject to force majeure provisions) to purchase 95% of the PCI facility's requirements for injection-quality coal through the term of the contract (which currently extends through year-end 1995 and is subject to extension by mutual agreement of the parties) at prices determined by annual good-faith negotiations. Early in 1994, Inland Steel Company's obligation to purchase coal under this contract was suspended under the contract's force majeure 4 6 provisions. As a result, 75% of the PCI facility's coal requirements in 1994 were provided through two short-term contracts. The balance of Inland Steel Company's coal requirements was purchased from domestic sources under short-term purchase contracts. In December 1993, the last of Inland Steel Company's coke-making facilities was permanently shut down. Inland Steel Company entered into a long-term purchase contract extending through July 1999 which requires Inland Steel Company to purchase 1,400,000 tons of coke on an annualized basis through the term of the contract at prices negotiated annually based on certain market determinants. The purchase requirement is subject to force majeure provisions. The term of the contract may be extended by mutual agreement of the parties. During 1994, Inland Steel Company satisfied 72% of its total coke needs under such arrangement. The remainder of its purchased coke requirements was obtained through contracts with independent domestic and foreign sources. Inland Steel Company's Michigan limestone and dolomite properties were sold in September 1990. As part of such sale, Inland Steel Company agreed, subject to certain exceptions, to purchase, at prices which approximate market, the full amount of its annual limestone needs or one million gross tons, whichever is greater, through 1996, and the annual limestone needs of the Indiana Harbor Works from 1997 through 2002. Approximately 65% of the iron ore pellets and virtually all of the limestone received by Inland Steel Company at its Indiana Harbor Works in 1994 were transported by its Great Lakes carriers. Contracts are in effect for the transportation on the Great Lakes of the remainder of its iron ore pellet requirements. Approximately 17% of Inland Steel Company's coal requirements were transported in its hopper cars by unit train in 1994. The remainder of Inland Steel Company's coal requirements was transported in independent carrier-owned equipment or leased equipment. Approximately 20% of Inland Steel Company's coke requirements in 1994 were transported in its own hopper cars, 40% in leased hopper cars, 26% in independent carrier-owned hopper cars, and 14% in independent carrier-owned river barges. See "Energy" below for further information relating to the use of coal in the operations of Inland Steel Company. Materials Distribution Operations The Company's materials distribution operations in the United States are conducted by its wholly owned materials distribution subsidiary, Inland Materials Distribution Group, Inc., through its operating subsidiaries -- Joseph T. Ryerson & Son, Inc. and J. M. Tull Metals Company, Inc. In August 1990, Ryerson, Tull and Ryerson Coil Processing, a specialized processing unit, were organized into five business units along regional and product lines. Ryerson, on a nationwide basis, and Tull, in the southeastern and south-central United States, each compete with a large number of steel service centers, some of which are affiliated with foreign steelmakers. Competition is primarily on the basis of service, quality and price. The ability to meet just-in-time delivery requirements of customers depends on maintaining adequate inventories and processing capacity and highly trained personnel. Depending on location, the Company's materials distribution operations are engaged in the sale of carbon, alloy and stainless steel; aluminum and aluminum alloys; nickel and nickel alloys; copper; brass; specialty metals; and industrial plastics. The materials distribution centers sell products in various forms, including, again depending on location, plate, sheet, coil, wire, rod, bar, tubing, pipe, structural, and expanded metal and grating. During 1994, the Materials Distribution segment shipped approximately 36% of its product (by sales revenue) to machinery manufacturers, 25% to metal producers and fabricators, 10% to transportation equipment producers, 9% to electrical machinery producers, 3% to wholesale distributors, 4% to construction-related purchasers, 3% to metal mills and foundries, and 10% to other customers. Approximately 20% of the tons of product purchased in 1994 by the Materials Distribution segment were from affiliates. Joseph T. Ryerson & Son, Inc. Ryerson, with business unit headquarters in Philadelphia, Pennsylvania, Chicago, Illinois, and Seattle, Washington, is a leading materials distribution organization. With full-line service centers in 29 major cities, 5 7 Ryerson is engaged in the nationwide sale of its products through its own sales organization. Ryerson maintains heavy-duty shears, slitters, precision cut-to-length lines, high-speed saws, flame-cutting machines and other processing equipment for use in furnishing custom cutting and miscellaneous shapes in accordance with customer orders. The Ryerson Coil Processing Company division, headquartered in Chicago, performs processing through five facilities for customers who traditionally buy large quantities of sheet steel products. Ryerson also markets plant equipment products through a wholesale industrial catalog. J. M. Tull Metals Company, Inc. Tull is one of the largest distributors of metals in the southeastern United States. Tull and its wholly owned subsidiary, AFCO Metals, Inc., operate 19 service centers and two processing facilities located throughout the southeastern and south-central United States. Tull produces a variety of metal products with value-added processing, including welded steel tubing and roll-formed shapes. Tull's products are sold principally through its own sales staff. PRODUCT CLASSES The following table sets forth the percentage of consolidated net sales, for the five years indicated, contributed by each class of similar products in the Steel Manufacturing segment that accounted for 10% or more of consolidated net sales in such time period. The Materials Distribution segment of the Company did not have any class of similar products that accounted for 10% or more of such sales in any of such years.
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Steel Manufacturing Operations Sheet, Strip and Plate...................... 43 % 45 % 45 % 45 % 43 % Bar and Structural.......................... 8 7 6 6 10 ---- ---- ---- ---- ---- Total Steel Manufacturing Operations.......... 51 52 51 51 53 Materials Distribution Products............... 49 48 49 49 47 ---- ---- ---- ---- ---- 100 % 100 % 100 % 100 % 100 % ==== ==== ==== ==== ====
CAPITAL EXPENDITURES AND INVESTMENTS IN JOINT VENTURES In recent years, the Company and its subsidiaries have made substantial capital expenditures, principally at the Indiana Harbor Works, to improve quality and reduce costs, and for pollution control. Additions by the Company and its subsidiaries to property, plant and equipment, together with retirements and adjustments, for the five years ended December 31, 1994, are set forth below. Net capital additions during such period aggregated $393 million.
DOLLARS IN MILLIONS ------------------------------------------------------------ RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADJUSTMENTS ADDITIONS --------- ----------- ----------- ----------- 1994................................ $ 245.3 $ 61.9 $ 2.1 $ 185.5 1993................................ 105.6 143.4 (1.3) (39.1) 1992................................ 64.4 74.9 (7.4) (17.9) 1991................................ 140.2 95.3 (.6) 44.3 1990................................ 268.1 49.3 1.4 220.2
In recent years, the Company's largest capital improvement projects at the Indiana Harbor Works have emphasized reducing costs and improving quality in the steel-processing sequence of Inland Steel Company. Capital expenditures of $245 million in 1994 include $146 million related to the purchase of the No. 2 Basic Oxygen Furnace Shop caster facility which had previously been leased, including $83 million for the purchase of the equity interest plus assumption of $63 million of caster-related debt. The majority of the remaining capital expenditures was principally for new machinery and equipment related to maintaining or improving operations at the Steel Manufacturing segment. 6 8 In July 1987, a wholly owned subsidiary of Inland Steel Company formed a partnership, I/N Tek, with an indirect wholly owned subsidiary of NSC to construct, own, finance and operate a cold-rolling facility with an annual capacity of 1,500,000 tons, of which approximately one-third is cold-rolled substrate for I/N Kote. The I/N Tek facility, located near New Carlisle, Indiana, became operational in April 1990 and reached its design capability in March 1992. Inland Steel Company, which owns, through its subsidiary, a 60% interest in the I/N Tek partnership is, with certain limited exceptions, the sole supplier of hot band to be processed by the I/N Tek facility and generally has exclusive rights to the production capacity of the facility. In September 1989, a wholly owned subsidiary of Inland Steel Company formed a second partnership, I/N Kote, with an indirect wholly owned subsidiary of NSC to construct, own, finance and operate two sheet steel galvanizing lines adjacent to the I/N Tek facility. The subsidiary of Inland Steel Company owns a 50% interest in I/N Kote. The I/N Kote facility consists of a hot-dip galvanizing line and an electrogalvanizing line with a combined annual capacity of 900,000 tons. The electrogalvanizing line began start-up operations in September 1991 and the hot-dip galvanizing line began start-up operations in November 1991; the facility has been operating near design capability since August 1993. Inland Steel Company has guaranteed 50% of I/N Kote's permanent financing. I/N Kote has contracted to acquire its cold-rolled steel substrate from Inland Steel Company, which supplies the substrate from the I/N Tek facility and Inland Steel Company's Indiana Harbor Works. Further information regarding the I/N Tek and I/N Kote joint venture projects will be set forth under the caption "Certain Relationships and Related Transactions -- Joint Ventures" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting scheduled to be held on May 24, 1995, and is incorporated by reference into Item 13 of this Report. In 1994, the Company and its subsidiaries made capital expenditures of $245 million. Such expenditures principally related to the purchase of the caster facility discussed above, with the majority of the remaining capital expenditures for new machinery and equipment related to maintaining or improving Steel Manufacturing operations. Approximately $224 million was spent for Steel Manufacturing capital projects in 1994, including replacements and renewals. The amount budgeted for 1995 capital expenditures by the Company and its subsidiaries is approximately $190 million. It is anticipated that capital expenditures will be funded from cash generated by operations, cash on hand at year-end 1994, plus possible funding from third-party financing. (See "Environment" below for a discussion of capital expenditures for pollution control purposes.) EMPLOYEES The monthly average number of active employees of the Company and its subsidiaries receiving pay during 1994 was approximately 15,500, of whom approximately 10,200 were employed at Inland Steel Company. The majority of the remaining employees were employed at the Company's materials distribution operations. At year-end, approximately 8,300 of the Company's employees, including 7,800 at Inland Steel Company, were represented by the United Steelworkers of America, of whom approximately 740, including 730 at Inland Steel Company, were on furlough or indefinite layoff. Approximately 900 employees were represented by other unions during 1994. Total employment costs increased from $925 million in 1993 to $950 million in 1994, due primarily to profit-sharing provisions and increased pension expenses, offset in part by reduced health insurance costs. Beginning in 1991, the Company embarked upon a major turnaround strategy, with the assistance of an outside consulting firm, to significantly reduce costs, increase revenues and improve asset utilization at both the Company and Inland Steel Company. As a result, employment was reduced by approximately 20% by year-end 1994. The intended 25% reduction was not fully achieved by year-end 1994 principally because Inland Steel Company continued operation of its plate mill employing approximately 600 people. The plate mill will continue to operate as long as it remains economically viable. The current labor agreement between Inland Steel Company and the United Steelworkers of America, effective August 1, 1993, covers wages and benefits through July 31, 1999. Among other things, the agreement provides a wage increase of $.50 per hour in 1995, a $500 bonus in each of 1993 and 1994 (totalling in each case approximately $4 million) and a potential bonus of up to $1,000 per employee (approximately $8 million 7 9 in total) based on Inland Steel Company's achieving $150 million of pre-tax income in 1995 adjusted to exclude the incremental FASB Statement No. 106 costs and such bonus. In addition, all active employees receive an additional week of vacation in 1994 and in 1996. The agreement provides for a reopener on wages and certain benefits in 1996 with an arbitration provision to resolve unsettled issues, thereby precluding a work stoppage over the six-year term of the contract. The agreement also provides for election of a Union designee acceptable to the Company to the Company's Board of Directors (one director elected at the May 25, 1994 Annual Meeting of Stockholders is such Union designee), restrictions on the ability of Inland Steel Company to reduce the Union workforce (generally limited to attrition and major facilities shutdowns) while allowing greater flexibility to institute work rule changes, quarterly rather than annual payment of profit-sharing amounts, significant improvements in pension benefits for active employees, and the securing of retiree health care obligations through certain trust and second mortgage arrangements. "First dollar" health care coverage is eliminated under the agreement through the institution of co-payments and increased deductibles on medical benefits. As of December 31, 1994, the number of active employees at Ryerson was approximately 4,100, of whom approximately 1,100 were covered by collective bargaining agreements. Of those employees covered by collective bargaining agreements, approximately 500 production, maintenance, and transportation employees were represented by the United Steelworkers of America and approximately 330 such employees were represented by the International Brotherhood of Teamsters. The current agreement with the United Steelworkers will expire on July 31, 1996. During 1994, Ryerson reached agreement at eight separate plants (Cincinnati, Cleveland, Dallas, Denver, Detroit, Keelor/Minneapolis, Portland, Seattle) represented by various unions covering 364 employees. These agreements expire on various dates from March 31, 1997 through May 31, 1999. The agreements, as well as the current agreement with the United Steelworkers of America, provide for modest wage increases, lump sum bonuses, pension improvements, and increased employee sharing of health care costs. Ryerson maintains agreements with the Teamsters covering 11 facilities. Teamster agreements expire on various dates during the period beginning April 30, 1995, and ending April 30, 1999. In addition, Ryerson contracts with independent third parties to provide approximately 170 drivers on a leased basis to ten Ryerson facilities. These leased drivers are covered by agreements between the Teamsters and such independent third parties, which agreements expire on March 31, 1998. FOREIGN OPERATIONS In 1994, the Company formed a new subsidiary, Inland International, Inc., to provide materials management and technical services outside of the United States. Subsidiaries of Inland International, Inc. and a Mexican steel company formed Ryerson de Mexico, S.A. de C.V., a joint venture company, to provide services to the Mexican market through 17 service center locations throughout Mexico. Inland International, Inc. also formed a new subsidiary, Inland International Trading, Inc., which is responsible for international purchasing and exporting of materials and services for all of the Company's operations. At year-end 1994, Inland International, Inc. signed letters of understanding to study the feasibility of creating a joint venture in the People's Republic of China. In January 1995, Inland International Trading, Inc. formed I.M.F. Steel International Ltd., a joint venture, in which it holds a 50% interest, to market Company products and services around the world. Substantially all of the Company's operations are located in the United States, and foreign sales are not material. At year-end 1994, investments in foreign operations were not material. ENVIRONMENT The Company is subject to environmental laws and regulations concerning emissions into the air, discharges into ground water and waterways, and the generation, handling, labeling, storage, transportation, treatment and disposal of waste material. These include various federal statutes regulating the discharge or release of pollutants to the environment, including the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA," also known as "Superfund"), Safe Drinking Water Act, and Toxic Substances Control Act, as well as state and local requirements. Violations of these laws and regulations can give rise to a variety of civil, administrative, and, in some cases, criminal actions and could also result in substantial liabilities or 8 10 require substantial capital expenditures. In addition, under CERCLA the United States Environmental Protection Agency (the "EPA") has authority to impose liability for site remediation on waste generators, past and present site owners and operators, and transporters, regardless of fault or the legality of the original disposal activity. Liability under CERCLA is strict, joint and several. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by the lawsuit filed by the EPA in 1990. The consent decree includes a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in 1991 and 1992. After payment of the fine, the Company's reserve for environmental liabilities totalled $19 million. The consent decree also defines procedures for corrective action at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company is presently assessing the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another three to five years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. Insurance coverage with respect to such corrective actions is not significant. By year-end 1993, the last of Inland Steel Company's coke-making facilities was permanently shut down. All coke battery closures were necessitated by the inability of the facilities to meet environmental regulations and their deteriorating condition and performance. The Company had anticipated the closure of such remaining coke-making facilities at year-end 1994. The October 1993 decision to close these facilities early necessitated a fourth-quarter 1993 pre-tax charge of $22.3 million that included the write-off of property, plant and equipment costs which were to be depreciated in 1994 and additional costs related to the earlier-than-anticipated displacement of personnel. Inland Steel Company has entered into a long-term contract to satisfy the majority of its coke needs. (See "Raw Materials" above.) In addition, Inland Steel Company participates in a joint venture that has constructed and is operating a pulverized coal injection facility for blast furnace application, reducing Inland Steel Company's coke needs by approximately 25%. The facility achieved operation at its design capacity by year-end 1994. In addition, during 1994 Inland Steel Company paid stipulated penalties of $184,000 pursuant to the provisions of the EPA consent decree described above in connection with air emissions from the coke facilities. Capital spending for pollution control projects totaled $18 million in 1994, up from $7 million in 1993. Another $41 million was spent in 1994 to operate and maintain such equipment, versus $42 million a year earlier. During the five years ended December 31, 1994, the Company has spent $280 million to construct, operate and maintain environmental control equipment at its various locations. Environmental projects previously authorized and presently under consideration, including those designed to comply with the 1990 Clean Air Act Amendments, but excluding any amounts that would be required under the consent decree settling the 1990 EPA lawsuit, will require capital expenditures of approximately $24 million in 1995. It is anticipated that the Company will make annual capital expenditures of $5 million to $10 million in each of the four years thereafter. In addition, Inland Steel Company will 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. Due to the inability to predict the costs of corrective action that may be required under the Resource Conservation and Recovery Act and the consent decree in the 1990 EPA lawsuit, the Company cannot predict the amount of additional environmental expenditures that will be required. Such additional environmental expenditures, excluding amounts that may 9 11 be required in connection with the consent decree in the 1990 EPA lawsuit, however, are not expected to be material to the results of operations or financial position of Inland Steel Company. See Item 3 below for information concerning certain proceedings pertaining to environmental matters in which Inland Steel Company is involved. ENERGY Coal, together with coke, all of which are purchased from independent sources, accounted for approximately 69% of the energy consumed by Inland Steel Company at the Indiana Harbor Works in 1994. In recent years Inland Steel Company has purchased varying portions of its coke requirements from outside sources, purchasing approximately 100% in 1994 and 59% in 1993. See "Environment" above for a discussion of coke-making by Inland Steel Company. Natural gas and fuel oil supplied approximately 29% of the energy requirements of the Indiana Harbor Works in 1994 and are used extensively by the Company at other facilities that it owns or in which it has an interest. The Company anticipates that utilization of the pulverized coal injection facility (see "Environment" above) will substantially reduce natural gas and fuel oil consumption at the Indiana Harbor Works. The Company both purchases and, through Inland Steel Company, generates electricity to satisfy electrical energy requirements at the Indiana Harbor Works. In 1994, Inland Steel Company produced approximately 62% of its requirements at the Indiana Harbor Works. The purchase of electricity at the Indiana Harbor Works is subject to curtailment under rules of the local utility when necessary to maintain appropriate service for various classes of its customers. ITEM 2. PROPERTIES. PROPERTIES RELATING TO STEEL MANUFACTURING SEGMENT Steel Production All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana. The property on which this plant is located, consisting of approximately 1,900 acres, is held by Inland Steel Company in fee. The basic production facilities of Inland Steel Company at its Indiana Harbor Works consist of furnaces for making iron; basic oxygen and electric furnaces for making steel; a continuous billet caster, a continuous combination slab/bloom caster and two continuous slab casters; and a variety of rolling mills and processing lines which turn out finished steel mill products. Certain of these production facilities, including a continuous anneal line, are held by Inland Steel Company under leasing arrangements. Inland Steel Company purchased the equity interest of the lessor of the No. 2 BOF Shop caster facility and assumed caster-related debt in March 1994, which debt was repaid by year-end 1994. Substantially all of the remaining property, plant and equipment at the Indiana Harbor Works, other than such caster facility and the leased equipment, is subject to the lien of the First Mortgage of Inland Steel Company dated April 1, 1928, as amended and supplemented. See "Business Segments -- Steel Manufacturing Operations -- Raw Steel Production and Mill Shipments" in Item 1 above for further information relating to capacity and utilization of Inland Steel Company's properties. Inland Steel Company's properties are adequate to serve its present and anticipated needs, taking into account those issues discussed in "Capital Expenditures and Investments in Joint Ventures" in Item 1 above. I/N Tek, a partnership in which a subsidiary of Inland Steel Company owns a 60% interest, has constructed a 1,500,000-ton annual capacity cold-rolling mill on approximately 200 acres of land, which it owns in fee, located near New Carlisle, Indiana. Substantially all the property, plant and equipment owned by I/N Tek at this location is subject to a lien securing related indebtedness. The I/N Tek facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. I/N Kote, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a 900,000-ton annual capacity steel galvanizing facility on approximately 25 acres of land, which it owns in fee, located adjacent to the I/N Tek site. Substantially all the property, plant and equipment owned 10 12 by I/N Kote is subject to a lien securing related indebtedness. The I/N Kote facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. PCI Associates, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a pulverized coal injection facility on land located within the Indiana Harbor Works. Inland Steel Company leases PCI Associates the land upon which the facility is located. Substantially all the property, plant and equipment owned by PCI Associates is subject to a lien securing related indebtedness. The PCI facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. Inland Steel Company owns three vessels for the transportation of iron ore and limestone on the Great Lakes, and a subsidiary of Inland Steel Company owns a fleet of 404 coal hopper cars (100-ton capacity each) used in unit trains to move coal and coke to the Indiana Harbor Works. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to utilization of Inland Steel Company's transportation equipment. Such equipment is adequate, when combined with purchases of transportation services from independent sources, to meet Inland Steel Company's present and anticipated transportation needs. Inland Steel Company also owns and maintains research and development laboratories in East Chicago, Indiana, which facilities are adequate to serve its present and anticipated needs. Raw Materials Properties and Interests Certain information relating to raw materials properties and interests of Inland Steel Company and its subsidiaries is set forth below. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to capacity and utilization of such properties and interests. Iron Ore The operating iron ore properties of Inland Steel Company's subsidiaries and of the iron ore ventures in which Inland Steel Company has an interest are as follows:
ANNUAL PRODUCTION CAPACITY (IN THOUSANDS OF GROSS TONS OF PROPERTY LOCATION PELLETS) ------------------------------------------ ------------------------ ------------------- Empire Mine............................... Palmer, Michigan 8,100 Minorca Mine.............................. Virginia, Minnesota 2,700 Wabush Mine............................... Wabush, Labrador and 4,500 Pointe Noire, Quebec, Canada
The Empire Mine is operated by the Empire Iron Mining Partnership, in which Inland Steel Company has a 40% interest. Inland Steel Company, through a subsidiary, is the sole owner and operator of the Minorca Mine. The Wabush Mine is a taconite project in which Inland Steel Company owns a 13.75% interest. Inland Steel Company also owns a 38% interest in the Butler Taconite project (permanently closed in 1985) in Nashwauk, Minnesota. The reserves at the Empire Mine, the Minorca Mine and the Wabush Mine are held under leases expiring, or expected at current production rates to expire, between 2012 and 2040. Substantially all of the reserves at Butler Taconite are held under leases. Inland Steel Company's share of the production capacity of its interests in such iron ore properties is sufficient to provide the majority of its present and anticipated iron ore pellet requirements. Any remaining requirements have been and are expected to continue to be readily available from independent sources. During 1992, the Minorca Mine's original ore body was depleted and production shifted to a new major iron ore body, the Laurentian Reserve, acquired by lease in 1990. 11 13 Limestone and Dolomite The limestone and dolomite properties of Inland Steel Company located near the town of Gulliver in the Upper Peninsula of Michigan were permanently closed on December 29, 1989 and sold in 1990. Coal Inland Steel Company's sole remaining coal property, the Lancashire No. 25 Property, located near Barnesboro, Pennsylvania, is permanently closed. All Inland Steel Company coal requirements for the past several years have been and are expected to continue to be met through contract purchases and other purchases from independent sources. PROPERTIES OF MATERIALS DISTRIBUTION SEGMENT Joseph T. Ryerson & Son, Inc. Ryerson owns its regional business unit headquarters offices in Chicago and leases regional headquarters offices in West Chester (PA) and Renton (WA). Ryerson/East division maintains materials distribution centers at Buffalo, Carnegie (PA), Charlotte, Chattanooga, Cleveland, Jersey City, Philadelphia, and Wallingford (CT). Ryerson/Central's service centers are in Chicago, Cincinnati, Dallas, Detroit, Houston, Indianapolis, Kansas City, Milwaukee, Plymouth (MN), St. Louis, and Tulsa. Ryerson/West's service centers are in Commerce City (CO), Emeryville (CA), Los Angeles, Phoenix, Portland (OR), Renton (WA), Spokane, and Salt Lake City. Ryerson Coil Processing division's processing facilities are located in Chicago, Marshalltown (IA), Plymouth (MN) and New Hope (MN). All of Ryerson's operating facilities are held in fee with the exception of a portion of the property at St. Louis (held under long-term lease), a portion of the property in Portland (held under short-term lease), a satellite facility at Omaha (held under short-term lease), one facility in Chicago (held under short-term lease), two facilities in New Hope (MN) (one partly held in fee and partly under short-term lease, the other held under short-term lease), one facility in Marshalltown (IA) (held under an installment purchase contract) and one facility in Salt Lake City (held under short-term lease). In addition, Ryerson holds in fee approximately 44 acres of unimproved property in Powder Springs (GA), and the approximately 11-acre site of a former operating facility in Allston (MA). Ryerson's properties are adequate to serve its present and anticipated needs. J. M. Tull Metals Company, Inc. Tull maintains service centers in Birmingham, Columbia (SC), Jacksonville, Miami, Tampa, Baton Rouge, New Orleans, Charlotte, Greensboro (NC), Greenville (SC), Richmond, and Norcross (GA), where its headquarters is located. All of these facilities are owned by Tull in fee, except for the Columbia facility, which is held under short-term lease. Tull's AFCO Metals, Inc. subsidiary operates service centers in Fort Smith (AR), Oklahoma City, Shreveport, West Memphis (AR), Wichita, Jackson (MS) and Little Rock. AFCO's headquarters are located in Norcross (GA), where it leases space owned in fee by Tull. Each of AFCO's facilities is held in fee except the Wichita facility, which is held under a short-term lease. Tull's properties are adequate to serve its present and anticipated needs. OTHER PROPERTIES The Company and certain of its subsidiaries lease, under a long-term arrangement, approximately 63% of the space in the Inland Steel Building located at 30 West Monroe Street, Chicago, Illinois (where the Company's principal executive offices are located), which property interest is adequate to serve the Company's present and anticipated needs. Approximately 33% of such space is under sublease to other parties. Magnetics International, Inc., a subsidiary of the Company, owns approximately 63 acres in northern Indiana, on which site it has constructed an iron oxide plant that began operation in April 1991. Such facility is adequate to serve the present and anticipated needs of Magnetics International, Inc. Certain subsidiaries of the Company hold in fee at various locations an aggregate of approximately 355 acres of land, all of which is 12 14 for sale. Inland Steel Company also holds in fee approximately 300 acres of land adjacent to the I/N Tek and I/N Kote sites, which land is available for future development. Approximately 1,060 acres of rural land, which are held in fee at various locations in the north-central United States by various raw materials ventures, are also for sale. I R Construction Products Company, Inc. (formerly Inryco, Inc.), a subsidiary of Inland Steel Company and the Company's former Construction Products business segment, owns, in fee, a combination office building and warehouse in Hoffman Estates (IL), which is for sale. ITEM 3. LEGAL PROCEEDINGS. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by the lawsuit filed by the EPA in 1990. The consent decree includes a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in 1991 and 1992. After payment of the fine, the Company's reserve for environmental liabilities totalled $19 million. The consent decree also defines procedures for corrective action at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company is presently assessing the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another three to five years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. Insurance coverage with respect to such corrective actions is not significant. In addition, during 1994, Inland Steel Company paid stipulated penalties of $184,000 pursuant to the provisions of the consent decree in connection with air emissions from its coke facilities. On March 22, 1985, the EPA issued an administrative order to Inland Steel Company's former Inland Steel Container Company Division ("Division") naming the former Division and various other unrelated companies as responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") in connection with the cleanup of a waste disposal facility operated by Duane Marine Salvage Corporation at Perth Amboy, New Jersey. The administrative order alleged that certain of the former Division's wastes were transported to, and disposed of at, that facility and required Inland Steel Company to join with other named parties in taking certain actions relating to the facility. Inland Steel Company and the other administrative order recipients have completed the work required by the order. In unrelated matters, the EPA also advised the former Division and various other unrelated parties of other sites located in New Jersey at which the EPA expects to spend public funds on any investigative and corrective measures that may be necessary to control any releases or threatened releases of hazardous substances, pollutants and contaminants pursuant to the applicable provisions of CERCLA. The notice also indicated that the EPA believes Inland Steel Company may be a responsible party under CERCLA. The extent of Inland Steel Company's involvement and participation in these matters has not yet been determined. While it is not possible at this time to predict the amount of Inland Steel Company's potential liability, none of these matters is expected to materially affect Inland Steel Company's financial position. The EPA has adopted a national policy of seeking substantial civil penalties against owners and operators of sources for noncompliance with air and water pollution control statutes and regulations under certain circumstances. It is not possible to predict whether further proceedings will be instituted against the Company or any of its subsidiaries pursuant to such policy, nor is it possible to predict the amount of any such penalties that might be assessed in any such proceeding. 13 15 In 1994, Inland Steel Company entered into an Agreed Order with the Indiana Department of Environmental Management ("IDEM") which resolved all outstanding Notices of Violation and other air emission issues at the Indiana Harbor Works raised by IDEM. The Agreed Order covers air emissions from coke oven batteries, steelmaking facilities and fugitive road dust and required the payment of a $572,000 cash penalty. Inland Steel Company received a Notice of Violation from IDEM dated March 3, 1989 alleging violations of Inland Steel Company's National Pollution Discharge Elimination System permit regarding water discharges. Inland Steel Company is presently in discussions with the staff of IDEM with respect to these matters and cannot currently estimate the time period within which these matters will be resolved. While it is not possible at this time to predict the amount of Inland Steel Company's potential liability, this matter is not expected to materially affect Inland Steel Company's financial position. Inland Steel Company received a Special Notice of Potential Liability ("Special Notice") from IDEM on February 18, 1992 relating to the Four County Landfill Site, Fulton County, Indiana (the "Facility"). The Special Notice stated that IDEM has documented the release of hazardous substances, pollutants and contaminants at the Facility and was planning to spend public funds to undertake an investigation and control the release or threatened release at the Facility unless IDEM determined that a potentially responsible party ("PRP") will properly and promptly perform such action. The Special Notice further stated that Inland Steel Company may be a PRP and that Inland Steel Company, as a PRP, may have potential liability with respect to the Facility. In August 1993, Inland Steel Company, along with other PRPs, entered into an Agreed Order with IDEM, pursuant to which the PRPs agreed to perform a Remedial Investigation/Feasibility Study ("RI/FS") for the Facility and pay certain past and future IDEM costs. In addition, the PRPs agreed to provide funds for operation and maintenance necessary for stabilization of the Facility. Those costs which Inland Steel Company has agreed to assume under the Agreed Order are not currently anticipated to exceed $178,000. The cost of the final remedies which will be determined to be required with respect to the Facility cannot be reasonably estimated until, at a minimum, the RI/FS is completed. Inland Steel Company is therefore unable to determine the extent of its potential liability, if any, relating to the Facility or whether this matter could materially affect Inland Steel Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF REGISTRANT. Officers are elected by the Board of Directors of the Company to serve for a period ending with the next succeeding annual meeting of the Board of Directors held immediately after the annual meeting of stockholders. All executive officers of the Company, with the exception of H. William Howard, Earl L. Mason, Maurice S. Nelson, Jr., and Neil S. Novich, have been employed by the Company or a subsidiary of the Company throughout the past five years. 14 16 Set forth below are the executive officers of the Company as of March 1, 1995 and the age of each as of such date. Their principal occupations held presently and during the past five years, including positions and offices held with the Company or a significant subsidiary of the Company, are shown below.
NAME, AGE AND POSITIONS AND OFFICES HELD PRESENT POSITION WITH REGISTRANT DURING THE PAST FIVE YEARS ----------------------------------- -------------------------------------------------------- Robert J. Darnall, 56.............. Mr. Darnall has been Chairman, President and Chief Chairman, President, Chief Executive Officer of the Company since September 1, Executive Officer and Director 1992. A Director of the Company since April 23, 1986, he became Chairman of the Executive Committee on January 1, 1993. He was President and Chief Operating Officer of the Company from April 1986 to September 1992. He has been Chairman of Inland Steel Company since September 1992, was its Chief Executive Officer from September 1992 to January 1995, and was also its President from November 1987 to September 1992. Mr. Darnall has also been a Director of Inland Steel Company since April 1983. He was Chairman of Inland Materials Distribution Group, Inc. (and its predecessor company) from November 1990 to June 1994. Prior to November 1990, he had been Chairman of the Board of its subsidiaries Joseph T. Ryerson & Son, Inc. since May 1986 and J. M. Tull Metals Company, Inc. since July 1986. Maurice S. Nelson, Jr., 57......... Mr. Nelson has been Executive Vice President and Executive Vice President and Director of the Company and President and Chief Director Executive Officer of Inland Steel Company since January 25, 1995. He was Senior Vice President of the Company and President and Chief Operating Officer of Inland Steel Company from September 1992 to January 1995. He also holds the position of President of the Inland Steel Flat Products Company division of Inland Steel Company, which he assumed on joining the Company on November 1, 1991. Prior to joining Inland Steel Company, he was President, Sheet and Plate Division, Aluminum Company of America ("ALCOA"), from August 1991 to October 1991 and Vice President, Sheet and Plate Division, ALCOA, from October 1986 to July 1991. Neil S. Novich, 40................. Mr. Novich has been Senior Vice President of the Company Senior Vice President since January 25, 1995, and President and Chief Operating Officer of Inland Materials Distribution Group, Chairman and President of Joseph T. Ryerson & Son, Inc., and Chairman of J.M. Tull Metals Company, Inc. since June 15, 1994. He also was Vice President of the Company from June 15, 1994 to January 25, 1995. Prior to joining the Company, he led the Distribution and Logistics Practice at Bain & Company, an international management consulting firm, from 1987 and was employed by Bain since 1981.
15 17
NAME, AGE AND POSITIONS AND OFFICES HELD PRESENT POSITION WITH REGISTRANT DURING THE PAST FIVE YEARS ----------------------------------- -------------------------------------------------------- Earl L. Mason, 47.................. Mr. Mason has been Senior Vice President of the Company Senior Vice President and Chief since January 25, 1995, and has been its Chief Financial Financial Officer Officer and President of Inland International, Inc. since January 24, 1994. He was Vice President of the Company from January 1994 to January 25, 1995, and was Vice President -- Finance and Principal Financial Officer of the Company from June 1991 to January 1994. Prior to joining the Company, he was Group Executive -- Logistics and Asset Management of Digital Equipment Corporation (a manufacturer of data processing equipment) ("Digital") from July 1990 until joining the Company in June 1991, and Chief Financial Officer for the European operations of Digital from September 1987 to June 1990. David B. Anderson, 52.............. Mr. Anderson has been Secretary of the Company and of Vice President -- Corporate Inland Steel Company since January 1, 1994. He also has Development, General Counsel and been General Counsel of the Company since April 23, Secretary 1986, Vice President -- Corporate Development since January 25, 1995, and was Vice President -- Corporate Planning from April 1986 to January 1995. Judd R. Cool, 59................... Mr. Cool has been Vice President -- Human Resources of Vice-President -- Human Resources the Company since September 21, 1987 and Vice President -- Human Resources of Inland Steel Flat Products Company division since January 11, 1993. Jay E. Dittus, 62.................. Mr. Dittus has been Vice President -- Finance since Vice President -- Finance January 24, 1994. Prior to such appointment, he was Treasurer of the Company from April 1986 to January 1994, Treasurer of Inland Steel Company from May 1981 to January 1994, Treasurer of Joseph T. Ryerson & Son, Inc. from October 1990 to February 1994, Assistant Treasurer of Joseph T. Ryerson & Son, Inc. from April 1986 to October 1990, Treasurer of J.M. Tull Metals Company, Inc. from September 1988 to February 1994, and Assistant Treasurer of J.M. Tull Metals Company, Inc. from July 1986 to September 1988. He also has been Vice President of Inland Steel Company since November 1988. H. William Howard, 60.............. Mr. Howard has been Vice President -- Information Vice President -- Information Technology of the Company since September 1, 1990 and Technology Vice President -- Automation and Information Technology of Inland Steel Flat Products Company division since January 11, 1993. Prior to joining the Company, he was the Vice President of Information Technology of the Bechtel Group, Inc. (involved in engineering and construction) from May 1987 to September 1990.
16 18
NAME, AGE AND POSITIONS AND OFFICES HELD PRESENT POSITION WITH REGISTRANT DURING THE PAST FIVE YEARS ----------------------------------- -------------------------------------------------------- Vicki L. Avril, 40................. Ms. Avril has been Treasurer of the Company and of Treasurer and Director -- Inland Steel Company since January 24, 1994, and Corporate Planning Treasurer of Inland Materials Distribution Group, Inc., Joseph T. Ryerson & Son, Inc. and J.M. Tull Metals Company, Inc. since February 1994. She also has been Director -- Corporate Planning since January 25, 1995. In addition, she was Director of Pension Investments and Administration from June 1991 to January 1995, Assistant Treasurer of the Company from May 1993 to January 1994, and Manager of Distribution Business Development-Corporate Planning and Development from February 1990 to June 1991. James M. Hemphill, 51.............. Mr. Hemphill has been Controller of the Company since Controller September 15, 1994. He was Director of Financial Management of the Company from August 1992 to September 1994 and was Director of Taxes of the Company from March 1988 to August 1992.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The common stock of the Company is listed and traded on the New York Stock Exchange. As of March 13, 1995, the number of holders of record of common stock of the Company was 14,505. The remaining information called for by this Item 5 is set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and is hereby incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item 6 with respect to each of the last five years of the Company is set forth under the caption "Eleven-Year Summary of Selected Financial Data and Operating Results" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and is hereby incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Item 7 is set forth in the Financial Review section of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and, excluding the tables entitled "Inland Steel Company -- Steel Shipments by Market" and "Inland Materials Distribution Group -- Shipments by Market" and the bar charts entitled "Inland Steel Industries -- Earnings Before Interest, Taxes, and Depreciation," "Inland Steel Industries -- Debt to Total Capitalization," "Inland Steel Company -- Average Price Per Ton," and "Inland Materials Distribution Group -- Quarterly Improvement in Operating Profit" contained therein, is hereby incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company called for by this Item 8, together with the report thereon of the independent accountants dated February 20, 1995, are set forth under the captions "Report of Independent Accountants" and "Statement of Accounting and Financial Policies" as well as in all consolidated financial statements and schedules of the Company and the "Notes to Consolidated Financial 17 19 Statements" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are hereby incorporated by reference herein. The financial statement schedules listed under Item 14(a)2 of this Report on Form 10-K, together with the report thereon of the independent accountants dated February 20, 1995, should be read in conjunction with the consolidated financial statements. Financial statement schedules not included in this Report on Form 10-K have been omitted because they are not applicable or because the information called for is shown in the consolidated financial statements or notes thereto. Separate consolidated financial statements for Inland Steel Company are set forth in Inland Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Separate consolidated financial statements for Inland Materials Distribution Group, Inc. are set forth in Appendix A to this Report. Consolidated quarterly sales, earnings and per share common stock information for 1993 and 1994 are set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are hereby incorporated by reference herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this Item 10 with respect to directors of the Company will be set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein. The information called for with respect to executive officers of the Company is included in Part I of this Report on Form 10-K under the caption "Executive Officers of Registrant." ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 will be set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a) The information called for by this Item 12 with respect to security ownership of more than five percent of the Company's common stock, Series E ESOP Convertible Preferred Stock and Series F Exchangeable Preferred Stock will be set forth under the caption "Additional Information Relating to Voting Securities" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on May 24, 1995, and is hereby incorporated by reference herein. 18 20 The following beneficial owners of Series A $2.40 Cumulative Convertible Preferred Stock are the only persons known to the Company to be the beneficial owners (as defined by the Securities and Exchange Commission), as of March 13, 1995, of more than five percent of that class of the Company's voting securities:
NUMBER PERCENT NAME AND ADDRESS OF SHARES OF CLASS ------------------------------------------------------------------- --------- -------- Joseph H. Campbell................................................. 7,500 7.92 2003 Country Club Drive Midland, TX 79701 Janice F. McCollough............................................... 7,200 7.60 5778 Lake Breeze Court Sarasota, FL 34233 Donald F. Reinhardt................................................ 5,181 5.47 24638 Elmhurst Drive Elkhart, IN 46517
(b) The information called for by this Item 12 with respect to the security ownership of directors and of management will be set forth under the caption "Security Ownership of Directors and Management" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by this Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS A PART OF THIS REPORT. 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY. The consolidated financial statements listed below are set forth in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are incorporated by reference in Item 8 of this Annual Report on Form 10-K. Report of Independent Accountants dated February 20, 1995. Statement of Accounting and Financial Policies. Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1994. Consolidated Statement of Cash Flows for the three years ended December 31, 1994. Consolidated Balance Sheet at December 31, 1994 and 1993. Schedules to Consolidated Financial Statements at December 31, 1994 and 1993, relating to: Investments and Advances. Property, Plant and Equipment. Long-Term Debt. Notes to Consolidated Financial Statements. 19 21 2. FINANCIAL STATEMENT SCHEDULES OF THE COMPANY. Report of Independent Accountants on Financial Statement Schedules dated February 20, 1995. (Included on page 27 of this Report) Consent of Independent Accountants. (Included on page 27 of this Report) For the years ended December 31, 1994, 1993 and 1992: Schedule I -- Condensed Financial Information (Parent Company Only). (Included on pages 28 to 30, inclusive, of this Report) Schedule II -- Reserves. (Included on page 31 of this Report) 3. CONSOLIDATED FINANCIAL STATEMENTS OF INLAND MATERIALS DISTRIBUTION GROUP, INC. The consolidated financial statements listed below are set forth in Appendix A on pages A-1 to A-13 inclusive, of this Report. Report of Independent Accountants dated February 20, 1995. (Page A-2) Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1994. (Page A-3) Consolidated Statement of Cash Flows for the three years ended December 31, 1994. (Page A-4) Consolidated Balance Sheet at December 31, 1994 and 1993. (Page A-5) Statement of Accounting and Financial Policies. (Page A-6) Notes to Consolidated Financial Statements. (Pages A-7 to A-13, inclusive) 4. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation S-K are listed under the caption "Exhibits" below. (B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1994. (C) EXHIBITS. 3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as Exhibit 3.(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, and incorporated by reference herein.) 3.(ii) Copy of By-laws, as amended, of the Company. 4.A Copy of Certificate of Designations, Preferences and Rights of Series A $2.40 Cumulative Convertible Preferred Stock of the Company. (Filed as part of Exhibit B to the definitive Proxy Statement of Inland Steel Company dated March 21, 1986 that was furnished to stockholders in connection with the annual meeting held April 23, 1986, and incorporated by reference herein.) 4.B Copy of Certificate of Designation, Preferences and Rights of Series D Junior Participating Preferred Stock of the Company. (Filed as Exhibit 4-D to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 4.C Copy of Rights Agreement, dated as of November 25, 1987, as amended and restated as of May 24, 1989, between the Company and The First National Bank of Chicago, as Rights Agent (Harris Trust and Savings Bank, as successor Rights Agent). (Filed as
20 22 Exhibit 1 to the Company's Current Report on Form 8-K filed on May 24, 1989, and incorporated by reference herein.) 4.D Copy of Certificate of Designations, Preferences and Rights of Series E ESOP Convertible Preferred Stock of the Company. (Filed as Exhibit 4-F to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 4.E Copy of Certificate of Designations, Preferences and Rights of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) 4.F Copy of Indenture dated as of December 15, 1992, between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 12- 3/4% Notes due December 15, 2002. (Filed as Exhibit 4-G to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 4.G Copy of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company (the "Steel Company") and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, and of supplemental indentures thereto, to and including the Thirty-Second Supplemental Indenture, incorporated by reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e), filed with Steel Company's Registration Statement on Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h), filed with Steel Company's Current Report on Form 8-K dated January 18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed with Steel Company's Current Report on Form 8-K for the month of April, 1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's Current Report on Form 8-K for the month of January, 1945; (viii) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the months of July and August, 1948; (x) Exhibits B and C, filed with Steel Company's Current Report on Form 8-K for the month of March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1957; (xiii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1959; (xiv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of December, 1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the amendment on Form 8 to Steel Company's Current Report on Form 8-K for the month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K for the month of February, 1977; (xxi) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual Report on
21 23 Form 10-K for the fiscal year ended December 31, 1982; (xxv) Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the Steel Company's Registration Statement on Form S-2 (No. 33-43393); and (xxvii) Exhibit 4 filed with Steel Company's Current Report on form 8-K dated June 23, 1993. 4.H Copy of consolidated reprint of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, as amended and supplemented by all supplemental indentures thereto, to and including the Thirteenth Supplemental Indenture. (Filed as Exhibit 4-E to Form S-1 Registration Statement No. 2-9443, and incorporated by reference herein.) [The registrant hereby agrees to provide a copy of any other agreement relating to long-term debt at the request of the Commission.] 10.A* Copy of Inland Steel Industries, Inc. Annual Incentive Plan, as amended. (Filed as Exhibit 10.A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein). 10.B* Copy of Inland Steel Industries, Inc. Special Achievement Award Plan. (Filed as Exhibit 10-I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.C* Copy of Inland 1984 Incentive Stock Plan, as amended. 10.D* Copy of Inland 1988 Incentive Stock Plan, as amended. 10.E* Copy of Inland 1992 Incentive Stock Plan, as amended. 10.F* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10-H to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.G* Copy of Inland 1992 Stock Plan for Non-Employee Directors. (Filed as Exhibit B to the Company's definitive Proxy Statement dated March 16, 1992 that was furnished to stockholders in connection with the annual meeting held April 22, 1992, and incorporated by reference herein.) 10.H* Copy of Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.I* Copy of Inland Steel Industries Special Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.J* Copy of the Inland Steel Industries Deferred Compensation Plan for Certain Employees, as amended. 10.K* Copy of Inland Steel Industries Deferred Compensation Plan for Directors, as amended. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.L* Copy of Inland Steel Industries Director Retirement Plan. (Filed as Exhibit 10.M to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.)
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 22 24 10.M* Copy of Outside Directors Accident Insurance Policy. (Filed as Exhibit 10-F to Inland Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1983, and incorporated by reference herein.) 10.N.(1)* Copy of form of Severance Agreement dated June 28, 1989 between the Company and each of the seven executive officers of the Company identified on the exhibit relating to terms and conditions of termination of employment following a change in control of the Company. (Filed as Exhibit 10-O-(1) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.N.(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated June 28, 1989 in Exhibit 10.N.(1) hereof. 10.N.(3)* Copy of Severance Agreement dated June 28, 1989 between the Company and Judd R. Cool. (Filed as Exhibit 10-O-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.N.(4)* Copy of Severance Agreement dated September 4, 1990 between the Company and H. William Howard. (Filed as Exhibit 10-M-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.N.(5)* Copy of Severance Agreement dated June 26, 1991 between the Company and Earl L. Mason. (Filed as Exhibit 10-X to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) 10.N.(6)* Copy of Severance Agreement dated November 27, 1991 between the Company and Maurice S. Nelson, Jr. (Filed as Exhibit 10-O-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.N.(7)* Copy of Severance Agreement dated March 23, 1994 between the Company and Vicki L. Avril. (Filed as Exhibit 10.O.(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.N.(8)* Copy of Employment Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. 10.N.(9)* Copy of Severance Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. 10.O.(1)* Copy of letter to Judd R. Cool dated September 2, 1987 relating to terms and conditions of employment. (Filed as Exhibit 10-K to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.O.(2)* Copy of letter agreement dated November 23, 1987 between the Company and Judd R. Cool. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.O.(3)* Copy of letter agreement dated December 10, 1993 between the Company and Judd R. Cool restating certain provisions of the September 2, 1987 and November 23, 1987 letters in Exhibits 10.O.(1) and (2). (Filed as Exhibit 10.P.(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.)
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 23 25 10.P* Copy of letter to H. William Howard dated July 17, 1990 relating to terms and conditions of employment. (Filed as Exhibit 10-P to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.Q* Copy of letter to Earl L. Mason dated May 17, 1991 relating to terms and conditions of employment. (Filed as Exhibit 10-W to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) 10.R* Copy of letter to Maurice S. Nelson, Jr. dated March 26, 1993 relating to supplemental pension arrangement. (Filed as Exhibit 10-S to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.S* Copy of Letter of Credit with respect to the Supplemental and Special Retirement Benefit Plan obligations of the Company to W. Gordon Kay. (Filed as Exhibit 10.T to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.T Copy of Stock Purchase Agreement, dated as of July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 4-G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 10.U.(1) Copy of Letter Agreement dated December 18, 1989 among the Company, Nippon Steel Corporation and NS Finance III, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to sale to NS Finance III, Inc. of 185,000 shares of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) 10.U.(2) Copy of Steel Technology Agreement dated as of July 14, 1989 between Inland Steel Company and Nippon Steel Corporation relating to technology sharing between the signatories. (Filed as Exhibit 10-S-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(3) Copy of Basic Agreement dated as of July 21, 1987 between the Company and Nippon Steel Corporation relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(4) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(4) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(5) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.)
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 24 26 10.U.(6) Copy of Partnership Agreement dated as of September 12, 1989 between ISC Kote, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(7) Copy of Substrate Supply Agreement dated as of September 12, 1989 between Inland Steel Company and I/N Kote, an Indiana general partnership. (Filed as Exhibit 10-S-(7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(8) First Amendment to Substrate Supply Agreement dated as of May 1, 1990 between Inland Steel Company and I/N Kote relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(9) Letter Agreement dated as of May 1, 1990 among I/N Kote, the Company and Nippon Steel Corporation relating to partner loans. (Filed as Exhibit 10-R-(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(10) First Amendment to I/N Kote Basic Agreement dated as of May 1, 1990 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(10) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(11) Letter Agreement dated as of April 19, 1990 between the Company and Nippon Steel Corporation relating to capital contributions to I/N Tek. (Filed as Exhibit 10-R-(11) to Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(12) Letter Agreement dated April 20, 1990 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to amendment of the partnership agreement of I/N Tek. (Filed as Exhibit 10-R-(12) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(13) CCM Override Amendment dated as of April 20, 1990 among the Company; Nippon Steel Corporation; Inland Steel Company; ISC Tek, Inc.; I/N Tek; NS Sales, Inc.; and NS Tek, Inc. relating to I/N Tek. (Filed as Exhibit 10-R-(13) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.V Copy of ESOP Stock Purchase Agreement, dated May 30, 1990, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-T to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated by reference herein.) 10.W Copy of Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-P to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 10.X Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchangeable Preferred Stock. (Filed as Exhibit 10-U to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.)
25 27 10.Y Letter Agreement dated May 10, 1991 by and between Nippon Steel Corporation and Inland Steel Industries, Inc. relating to Letter Agreement dated December 18, 1989. (Filed as Exhibit 10-V to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, and incorporated by reference herein.) 11 Statement of Earnings per Share of Common Stock. 13 Information incorporated by reference from Annual Report to Stockholders for the fiscal year ended December 31, 1994. 21 List of certain subsidiaries of the Company. 23 Consent of Independent Accountants, appearing on page 27 of this Annual Report on Form 10-K. 24 Powers of attorney. 27 Financial Data Schedules. 99 Letter to stockholders of common stock of the Company dated December 22, 1987 explaining Stockholder Rights Plan adopted by Board of Directors on November 25, 1987. (Filed as Exhibit 3 to the Company's Current Report on Form 8-K filed on December 18, 1987, and incorporated by reference herein.)
26 28 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Inland Steel Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 20, 1995 appearing on page 34 of the 1994 Annual Report to Stockholders of Inland Steel Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)2 of this Annual Report on Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Chicago, Illinois February 20, 1995 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. 33-48770), Registration Statement on Form S-8 (No. 33-22902); Registration Statement on Form S-8 (No. 33-32504); and Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 33-6627) of Inland Steel Industries, Inc. of our report dated February 20, 1995, appearing on page 34 of the 1994 Annual Report to Stockholders of Inland Steel Industries, Inc. which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears above. PRICE WATERHOUSE LLP Chicago, Illinois March 28, 1995 27 29 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
1994 1993 1992 ------ ------ ------- Income: Intercompany interest income................................... $ 10.0 $ 18.5 $ 15.9 Equity in income (losses) of subsidiaries...................... 109.6 (34.4) (868.9) Interest income and other revenue.............................. 4.4 1.2 2.0 ------ ------ ------- 124.0 (14.7) (851.0) Expenses: Interest and other expenses.................................... 22.9 22.6 10.1 Intercompany interest expense.................................. 2.1 2.4 1.6 ------ ------ ------- 25.0 25.0 11.7 Income (loss) before income taxes................................ 99.0 (39.7) (862.7) Provision for income taxes....................................... 8.4Cr. 2.1Cr. 6.5Cr. ------ ------ ------- Income (loss) before cumulative effect of changes in accounting principles..................................................... 107.4 (37.6) (856.2) Cumulative effect of changes in accounting principles: Adoption of FASB Statement No. 109 (Accounting for Income Taxes)...................................................... -- -- 47.2 Adoption of FASB Statement No. 106 (Employers' Accounting for Postretirement Benefits other than Pensions)................ -- -- (6.6) ------ ------ ------- Net income (loss)................................................ $107.4 $(37.6) $(815.6) ====== ====== =======
--------------- Cr. = Credit See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 28 30 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
1994 1993 1992 ------- ------- ------- OPERATING ACTIVITIES Net income (loss).............................................. $ 107.4 $ (37.6) $(815.6) Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities: Equity in undistributed earnings of subsidiaries.......... (109.6) 34.4 868.9 Depreciation.............................................. .6 .6 .7 Deferred income taxes..................................... 3.2 11.5 (45.2) Deferred employee benefit cost............................ 2.3 .1 .7 Stock issued for coverage of employee benefit plans....... 35.0 19.1 13.4 Change in: Intercompany accounts.......................... (7.8) 183.6 (73.0) Notes receivable.............................. (.3) .2 .4 Accounts payable.............................. (1.8) (1.9) .5 Accrued liabilities........................... (3.2) .3 7.2 Other deferred items...................................... (1.4) (3.0) (.9) ------- ------- ------- Net adjustments......................................... (83.0) 244.9 772.7 ------- ------- ------- Net cash provided from (used for) operating activities........................................... 24.4 207.3 (42.9) ------- ------- ------- INVESTING ACTIVITIES Net investments in subsidiaries................................ (120.5) (312.1) (76.0) Dividends received from subsidiaries........................... 25.8 25.8 24.4 Capital expenditures........................................... (.2) -- -- ------- ------- ------- Net cash used for investing activities.................. (94.9) (286.3) (51.6) ------- ------- ------- FINANCING ACTIVITIES Sale of common stock........................................... -- 178.7 97.9 Long-term debt issued.......................................... -- -- 145.4 Long-term debt retired......................................... (7.8) (7.1) (6.6) Dividends paid................................................. (32.2) (35.7) (35.8) Acquisition of treasury stock.................................. (4.0) (9.5) (3.5) ------- ------- ------- Net cash provided from (used for) financing activities........................................... (44.0) 126.4 197.4 ------- ------- ------- Net increase (decrease) in cash and cash equivalents........... (114.5) 47.4 102.9 Cash and cash equivalents -- beginning of year................. 204.8 157.4 54.5 ------- ------- ------- Cash and cash equivalents -- end of year....................... $ 90.3 $ 204.8 $ 157.4 ======= ======= =======
See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 29 31 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) BALANCE SHEET AT DECEMBER 31, 1994 AND 1993 (DOLLARS IN MILLIONS -- EXCEPT PER SHARE DATA) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
1994 1993 -------- ------- ASSETS Current Assets: Cash and cash equivalents.......................................... $ 90.3 $ 204.8 Receivables from subsidiary companies.............................. 107.1 99.3 Deferred income taxes.............................................. .3 .3 Notes receivable................................................... .3 -- -------- ------- Total current assets............................................. 198.0 304.4 Investment in subsidiary companies...................................... 817.7 614.2 Investment in Nippon Steel Corporation, net of valuation allowances of $3.5 and $5.1, respectively........................................... 11.1 9.5 Property, net of accumulated depreciation of $6.7 and $6.1, respectively.......................................................... 2.4 2.8 Deferred income taxes................................................... 15.8 16.3 Deferred charges and other assets....................................... 7.4 7.8 -------- ------- Total assets..................................................... $1,052.4 $ 955.0 ======= ======= LIABILITIES Current Liabilities: Accounts payable................................................... $ 7.2 $ 9.0 Accrued liabilities................................................ 14.6 17.8 Long-term debt due within one year................................. 8.3 7.7 -------- ------- Total current liabilities........................................ 30.1 34.5 Long-term debt.......................................................... 265.2 273.6 Deferred employee benefits.............................................. 18.6 16.3 Deferred income......................................................... 6.4 7.2 -------- ------- Total liabilities................................................ 320.3 331.6 -------- ------- TEMPORARY EQUITY Redeemable preferred stock, Series F, $1.00 par value, 185,000 shares issued and outstanding, redeemable at $1,000 per share................ 185.0 185.0 Common stock repurchase commitment...................................... 37.9 40.8 -------- ------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 15,000,000 shares authorized for all series including Series F, aggregate liquidation value $154.9 in 1994 and $230.6 in 1993.................................................... 3.2 4.7 Common stock, $1.00 par value; authorized -- 100,000,000 shares; issued -- 50,556,350 shares for 1994 and 47,854,208 shares for 1993.......... 50.6 47.9 Capital in excess of par value.......................................... 1,088.0 1,106.4 Accumulated deficit..................................................... (292.4) (371.9) Unearned compensation -- ESOP........................................... (100.5) (112.2) Common stock repurchase commitment...................................... (37.9) (40.8) Treasury stock at cost -- common stock of 6,006,122 shares in 1994 and 6,767,139 shares in 1993.............................................. (200.9) (236.5) Cumulative translation adjustment....................................... (.9) -- -------- ------- Total stockholders' equity....................................... 509.2 397.6 -------- ------- Total liabilities, temporary equity, and stockholders' equity.... $1,052.4 $ 955.0 ======= =======
Maturities of Long-Term Debt due within five years are: $8.3 million in 1995, $9.0 million in 1996, $9.7 million in 1997, $10.5 million in 1998, and $11.5 million in 1999. See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 30 32 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II--RESERVES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
PROVISIONS FOR ALLOWANCES CLAIMS AND DOUBTFUL ACCOUNTS ------------------------------------------------------ YEARS BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT ENDED BEGINNING CHARGED FROM END OF DECEMBER 31 OF YEAR TO INCOME RESERVES YEAR ----------- ---------- --------- ---------- ---------- 1994 $ 28.2 $ 5.8 $ (2.4)(A) $ 24.9 (6.7)(B) 1993 $ 23.2 $14.4 $ (3.7)(A) $ 28.2 (5.7)(B) 1992 $ 30.2 $ 6.9 $ (7.6)(A) $ 23.2 (6.3)(B)
--------------- NOTES: (A) Bad debts written off during year. (B) Allowances granted during year. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 31 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INLAND STEEL INDUSTRIES, INC. By: ROBERT J. DARNALL -------------------------------- Robert J. Darnall Chairman, President and Chief Executive Officer Date: March 28, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE ------------------------------------ -------------------------------------------------------- ROBERT J. DARNALL Chairman, President and Chief March 28, 1995 ------------------------------------ Executive Officer and Robert J. Darnall Director EARL L. MASON Senior Vice President and March 28, 1995 ------------------------------------ Chief Financial Officer Earl L. Mason (Principal Financial Officer) JAMES M. HEMPHILL Controller and Principal March 28, 1995 ------------------------------------ Accounting Officer James M. Hemphill A. Robert Abboud Director James W. Cozad Director James A. Henderson Director Robert B. McKersie Director By: DAVID B. ANDERSON Maurice S. Nelson, Jr. Director -------------------- Donald S. Perkins Director David B. Anderson Joshua I. Smith Director Attorney in-fact Nancy H. Teeters Director March 28, 1995 Raymond C. Tower Director Arnold R. Weber Director
32 34 APPENDIX A INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY-OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
ITEM PAGE ------------------------------------------------------------------------------------- ---- Report of Independent Accountants.................................................... A-2 Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1994............................................................ A-3 Consolidated Statement of Cash Flows for the three years ended December 31, 1994..... A-4 Consolidated Balance Sheet at December 31, 1994 and 1993............................. A-5 Statement of Accounting and Financial Policies....................................... A-6 Notes to Consolidated Financial Statements........................................... A-7
A-1 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Inland Materials Distribution Group, Inc. In our opinion, the consolidated financial statements listed in the index appearing on page A-1 present fairly, in all material respects, the financial position of Inland Materials Distribution Group, Inc. (a wholly-owned subsidiary of Inland Steel Industries, Inc.) and Subsidiary Companies at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, 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 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. As discussed in Notes 5 and 6 to the consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions and for income taxes. PRICE WATERHOUSE LLP Chicago, Illinois February 20, 1995 A-2 36 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 -------------------------------- 1994 1993 1992 -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS Net Sales.................................................... $2,197.5 $1,893.3 $1,716.6 -------- -------- -------- Operating costs and expenses: Cost of goods sold (excluding depreciation)............... 1,927.7 1,663.8 1,516.1 Selling, general and administrative expenses.............. 142.1 144.4 145.5 Depreciation and amortization............................. 21.2 20.6 20.1 State, local and miscellaneous taxes...................... 8.4 8.1 7.8 -------- -------- -------- Total................................................... 2,099.4 1,836.9 1,689.5 -------- -------- -------- Operating profit............................................. 98.1 56.4 27.1 Other expense: General corporate expense................................. 7.2 7.4 8.4 Interest expense, net of interest income.................. 2.6 10.9 12.8 -------- -------- -------- Income before income taxes................................ 88.3 38.1 5.9 Provision for income taxes (Note 6)....................... 35.0 11.4 2.6 -------- -------- -------- Income before cumulative effect of changes in accounting principles................................... 53.3 26.7 3.3 Cumulative effect of changes in accounting principles (Notes 5 and 6)......................................... -- -- (84.1) -------- -------- -------- Net income (loss)......................................... $ 53.3 $ 26.7 $ (80.8) ======= ======= ======= CONSOLIDATED STATEMENT OF REINVESTED EARNINGS Balance at beginning of year................................... $ 32.1 $ 5.4 $ 86.2 Net income (loss) for the year................................. 53.3 26.7 (80.8) -------- -------- -------- Reinvested earnings at end of year............................. $ 85.4 $ 32.1 $ 5.4 ======= ======= =======
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-3 37 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH YEARS ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ------ ------ ------ OPERATING ACTIVITIES Net income (loss)................................................. $ 53.3 $ 26.7 $(80.8) ------ ------ ------ Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities: Depreciation and amortization................................ 21.2 20.6 20.1 Net loss (gain) on sales of assets........................... (.5) (.1) .5 Deferred employee benefit cost, including cumulative effect of change in accounting principle........................... 3.9 3.9 121.5 Deferred income taxes, including cumulative effect of change in accounting principle..................................... .7 (8.3) (31.9) Change in: Receivables....................................... (31.1) (22.8) 2.7 Inventories............................................. 5.7 (18.2) (.1) Other assets............................................ (1.6) -- -- Accounts payable........................................ 22.6 (31.5) 10.0 Payable to related companies............................ 5.8 1.7 2.4 Accrued liabilities..................................... (.3) 2.7 1.7 ------ ------ ------ Net adjustments........................................... 26.4 (52.0) 126.9 ------ ------ ------ Net cash provided from (used for) operating activities.... 79.7 (25.3) 46.1 ------ ------ ------ INVESTING ACTIVITIES Capital expenditures.............................................. (20.4) (19.3) (9.3) Proceeds from the sales of assets................................. 5.8 .9 .5 ------ ------ ------ Net cash used for investing activities.................... (14.6) (18.4) (8.8) ------ ------ ------ FINANCING ACTIVITIES Long-term debt issued............................................. -- 7.5 -- Long-term debt retired............................................ (4.9) (5.3) (6.2) Capital contribution from Inland Steel Industries................. -- 150.0 -- Change in notes to and from related companies..................... (87.2) (79.0) (31.1) ------ ------ ------ Net cash provided from (used for) financing activities.... (92.1) 73.2 (37.3) ------ ------ ------ Net (decrease) increase in cash and cash equivalents.............. (27.0) 29.5 -- Cash and equivalents -- beginning of year......................... 29.5 -- -- ------ ------ ------ Cash and equivalents -- end of year............................... $ 2.5 $ 29.5 $ -- ====== ====== ====== SUPPLEMENTAL DISCLOSURES Cash paid (received) during the year for: Interest, net of amount capitalized............................ $ 2.9 $ 11.3 $ 13.5 Income taxes, net.............................................. 30.5 22.6 (4.6)
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-4 38 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED BALANCE SHEET (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
AT DECEMBER 31 ----------------- 1994 1993 ------ ------ ASSETS Current assets: Cash and cash equivalents............................................... $ 2.5 $ 29.5 Receivables less provision for allowances, claims and doubtful accounts of $6.3 and $5.5, respectively....................................... 227.1 196.0 Inventories (Note 1).................................................... 273.2 278.9 Notes receivable from related companies................................. 57.6 -- Deferred income taxes (Note 6).......................................... 13.0 11.8 ------ ------ Total current assets............................................... 573.4 516.2 ------ ------ Property, plant and equipment, at cost: Buildings, machinery and equipment...................................... 433.9 427.4 Land and land improvements.............................................. 27.7 27.8 ------ ------ 461.6 455.2 Less accumulated depreciation........................................... 209.1 198.0 ------ ------ 252.5 257.2 ------ ------ Excess of cost over net assets acquired................................... 25.0 26.4 Deferred income taxes (Note 6)............................................ 26.6 28.5 Other assets.............................................................. 1.6 -- ------ ------ Total assets....................................................... $879.1 $828.3 ====== ====== LIABILITIES Current liabilities: Accounts payable, including outstanding checks in excess of funds on deposit.............................................................. $ 99.8 $ 77.2 Payables to related companies: Notes................................................................ -- 29.6 Other................................................................ 14.8 9.0 Accrued Liabilities: Salaries and wages................................................... 17.6 17.1 Taxes other than Federal income taxes................................ 7.4 7.5 Other................................................................ 3.3 4.0 Long-term debt due within one year...................................... 4.7 5.0 ------ ------ Total current liabilities.......................................... 147.6 149.4 ------ ------ Long-term debt (Note 3)................................................... 23.6 28.2 Deferred employee benefits and other liabilities (Note 5)................. 127.9 124.0 ------ ------ Total liabilities.................................................. 299.1 301.6 ------ ------ STOCKHOLDER'S EQUITY Common stock, par value $1.00; 3,000 shares authorized; one share issued............................................................... -- -- Additional paid-in capital (Note 7)..................................... 494.6 494.6 Earnings reinvested in the business..................................... 85.4 32.1 ------ ------ Total stockholder's equity......................................... 580.0 526.7 ------ ------ Total liabilities and stockholder's equity......................... $879.1 $828.3 ====== ======
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-5 39 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following briefly describes the Company's principal accounting and financial policies. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Joseph T. Ryerson & Son, Inc., and J. M. Tull Metals Company, Inc., which are wholly owned subsidiaries of the Company. The accounts of J. M. Tull Metals Company, Inc. are consolidated with its wholly owned subsidiary, AFCO Metals, Inc. Inventory valuation Inventories are valued at cost which is not in excess of market. Cost is determined principally by the last-in, first-out (LIFO) method. Property, plant and equipment Property, plant and equipment is depreciated, for financial reporting purposes, on the straight-line method over the estimated useful lives of the assets. Expenditures for normal repair and maintenance are charged against income in the period incurred. Excess of cost over net assets acquired The excess of cost over fair value of net assets of businesses acquired (goodwill) is amortized on the straight-line method over a 25-year period. Accumulated amortization of goodwill totaled $8.8 million at December 31, 1994 and $7.5 million at December 31, 1993. Benefits for retired employees Pension benefits are provided by the Company to substantially all employees under a trusteed noncontributory plan of Inland Steel Industries, Inc. ("Industries"). Life insurance and certain medical benefits are provided for substantially all retired employees. The estimated costs of pension, medical, and life insurance benefits are determined annually by consulting actuaries. With the adoption of Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992, the cost of health care benefits for retirees, previously recognized as incurred, is now being accrued during their term of employment (see Note 5). Pensions are funded in accordance with ERISA requirements in a trust established under the plan. Costs for retired employee medical benefits and life insurance are funded when claims are submitted. Cash and cash equivalents Cash management activities are performed by the Company's parent, Inland Steel Industries, Inc., to which cash is periodically transferred. Cash equivalents are highly liquid, short-term investments with maturities of three months or less. Income taxes Effective January 1, 1992, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes" (see Note 6). -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-6 40 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTE 1. INVENTORIES The Company's inventories consist principally of finished steel, nonferrous metals and industrial plastic products for sale at service center locations. The difference between LIFO values and approximate replacement costs for the LIFO inventories was $132.6 million at December 31, 1994 and $106.0 million at December 31, 1993. NOTE 2. BORROWING ARRANGEMENTS At December 31, 1994 and 1993, the Company's subsidiaries had available two unused credit facilities totaling $125 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratio tests. The covenants also limit the amount of cash that the Company can transfer to Industries in the form of dividends and other advances. A $100 million unsecured credit agreement between Joseph T. Ryerson and Son, Inc. and a group of banks provides a revolving credit facility to March 31, 1995. A new agreement extending the maturity of this credit facility for five years and increasing the amount to $200 million has been approved by the banks, subject to final documentation. J. M. Tull Metals Company, Inc. has a $25 million unsecured revolving credit agreement with other banks, which extends to December 15, 1997. NOTE 3. LONG-TERM DEBT The Company's long-term debt is as follows:
DECEMBER 31 ----------------- 1994 1993 ----- ----- DOLLARS IN MILLIONS JOSEPH T. RYERSON & SON, INC. Industrial Revenue Bond, floating interest rate set weekly based on 13-week Treasury bills, due November 1, 2007.............. $ 7.0 $ 7.0 Other long-term debt, 10.25%, due through November 30, 1997..... 1.8 1.9 J. M. TULL METALS COMPANY, INC. Senior Notes, 9.43%, due through July 29, 1997.................. 10.7 14.3 Term note, LIBOR plus 62.5 basis points per annum, due through August 17, 1998.............................................. 7.1 7.4 Industrial Revenue Bonds, interest rates ranging from 6.5% to 9.875%, due through January 1, 1997.......................... 1.4 2.1 Other........................................................... .3 .5 ----- ----- 28.3 33.2 Less maturities due within one year............................. 4.7 5.0 ----- ----- Long-term debt............................................... $23.6 $28.2 ===== =====
Maturities of long-term debt are: $4.7 million in 1995, $4.7 million in 1996, $5.6 million in 1997, $6.3 million in 1998, and $7.0 million in 2007. Under the provisions of certain loan agreements, the Company is required to maintain specified amounts of working capital and net worth, as outlined in the agreements, and is restricted as to dividends that may be paid to Industries. Property with a net recorded carrying value of approximately $16.0 million at December 31, 1994 is pledged as collateral on the industrial revenue bonds and mortgage loans. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-7 41 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTE 4. 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. The Company has entered into an interest rate swap agreement to reduce the impact of changes in LIBOR on its $7.1 million term note. At December 31, 1994 the Company had outstanding an interest rate swap agreement with the bank having a notional principal amount equal to the outstanding principal of the related term note. This agreement effectively changes the Company's interest rate exposure on its term note to a fixed rate of 5.925%. The interest rate swap matures August 17, 1998. Gains and losses associated with this hedging transaction become part of the interest expense of the related debt. The Company is exposed to potential credit loss in the event of nonperformance by the bank; however, the Company does not anticipate such nonperformance. Cash and Cash Equivalents The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. Long-term Debt The estimated fair value of the Company's long-term debt (including current portions thereof) using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded was $27.4 million at December 31, 1994 and $33.9 million at December 31, 1993 as compared with the carrying value of $28.3 million and $33.2 million included in the balance sheet at year-end 1994 and 1993, respectively. NOTE 5. RETIREMENT BENEFITS Pensions The Inland Steel Industries Pension Plan and Pension Trust (the "Plan"), covers certain employees, retirees and their beneficiaries of Industries and its subsidiaries, including the Company. The Plan is a noncontributory defined benefit plan that provides benefits based on final pay and years of service for all salaried employees and certain wage employees, and years of service and a fixed rate (in most instances based on frozen pay level or on job class) for all other wage employees, including employees under collective bargaining agreements. Because the fair value of pension plan assets pertains to all participants in the Plan, no separate determination is made solely with respect to the Company. At year-end 1994 and 1993, the actuarial -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-8 42 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- present value of benefits for service rendered to date and the fair value of plan assets available for benefits for the Industries consolidated group were as follows:
DECEMBER 31 ----------------- 1994 1993 ------ ------ DOLLARS IN MILLIONS Fair value of plan assets......................................... $1,652 $1,794 ------ ------ Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date.... 1,641 1,960 Additional benefits based on estimated future compensation levels....................................................... 98 117 ------ ------ Projected Benefit Obligation.................................... 1,739 2,077 ------ ------ Plan asset shortfall to Projected Benefit Obligation.............. $ (87) $ (283) ====== ======
In 1993, Industries recorded an additional minimum pension liability of $122.1 million representing 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. Neither was required in 1994. A weighted average discount (settlement) rate of 8.80% in 1994 and 7.25% in 1993 was used in the determination of the actuarial present value of benefits. The Company recorded net pension charges of $1.9 million in 1994 and $.1 million in 1993, and a credit of $.4 million in 1992. The cost of other industry welfare and retirement funds, for bargaining unit employees, was $2.6 million in 1994, $2.9 million in 1993, and $2.5 million in 1992. 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. The Company has adopted FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. FASB Statement No. 106 requires accrual accounting for all postretirement benefits other than pensions. The Company must be fully accrued for these postretirement benefits by the date each employee attains full eligibility for such benefits. In conjunction with the adoption of FASB Statement No. 106, the Company elected to immediately recognize the accumulated postretirement benefit obligation for current and future retirees (the "transition obligation"). The amount of net periodic postretirement benefit cost for 1994, 1993 and 1992 is composed of the following:
1994 1993 1992 ----- ----- ----- DOLLARS IN MILLIONS Service cost................................................ $ 2.7 $ 3.2 $ 3.2 Interest cost............................................... 7.3 8.0 11.1 Net amortization and deferral............................... (2.0) (1.9) -- ----- ----- ----- Total net periodic postretirement benefit cost......... $ 8.0 $ 9.3 $14.3 ===== ===== =====
-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-9 43 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following table sets forth components of the accumulated postretirement benefit obligation:
DECEMBER 31 ----------------- 1994 1993 ------ ------ DOLLARS IN MILLIONS Accumulated postretirement benefit obligation attributable to: Retirees..................................................... $ 44.4 $ 51.0 Fully eligible plan participants............................. 15.9 19.5 Other active plan participants............................... 24.9 25.8 ------ ------ Accumulated postretirement benefit obligation................ 85.2 96.3 Unrecognized net gain............................................. 33.7 18.4 Unrecognized prior service credit................................. 20.3 22.2 ------ ------ Accrued postretirement benefit obligation......................... $139.2 $136.9 ====== ======
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 obligation are as follows:
DECEMBER 31 --------------- 1994 1993 ----- ----- Discount Rate..................................................... 8.8% 7.25% Rate of compensation increase..................................... 5.0% 5.0% Medical cost trend rate........................................... 6%-5% 7%-5% Year ultimate rate reached........................................ 1996 1996
A one percentage point increase in the assumed health care cost trend rates for each future year increases annual periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of December 31, 1994 by $1.3 million and $9.8 million, respectively. Postemployment Benefits In November 1992, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." Adoption of the new Standard in 1994 did not have a material impact on results of operations or the financial position of the Company. NOTE 6. TAXES ON INCOME The Company adopted FASB Statement No. 109, "Accounting for Income Taxes," effective January 1, 1992. As a result of adopting Statement No. 109, the Company recorded an $11.8 million charge reflecting the cumulative effect of the change on prior years. To comply with the provisions of FASB Statement No. 109, a new tax-sharing agreement was adopted in 1992 under which current and deferred income tax provisions are determined for each company in the Industries group on a stand-alone basis. Any current liability is paid to Industries. If the Company is unable to use all of its allocated tax attributes (net operating loss and tax credit carryforwards) in a given year but other companies in the consolidated group are able to utilize them, then the Company will be paid for the use of its attributes. NOL and tax credit carryforwards are allocated to each company in accordance with applicable tax regulations as if a company were to leave the consolidated group. Companies with taxable losses record current income tax credits not to exceed current income tax charges recorded by profitable companies. If Industries uses NOL carryforwards, the Company will use the appropriate portion of that year's carryforward previously allocated to it, if any. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-10 44 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The elements of the provision for income taxes for the three years indicated below are as follows:
1994 1993 1992 ----- ----- ---- DOLLARS IN MILLIONS Current income taxes: Federal.................................................... $30.4 $17.3 $5.5 State and local............................................ 3.9 2.6 .9 ----- ----- ---- 34.3 19.9 6.4 Deferred income taxes........................................ .7 8.5Cr. 3.8Cr. ----- ----- ---- Total provision for income taxes........................... $35.0 $11.4 $2.6 ===== ===== ====
------------------ Cr. = Credit In accordance with FASB No. 109, the Company adjusted its deferred tax assets and liabilities for the effect of the change in the corporate federal income tax rate from 34 percent to 35 percent, effective January 1, 1993. A credit to income of $.6 million, which includes the effect of the rate change on deferred tax asset and liability balances as of January 1, 1993 as well as the effect on 1993 tax benefits recorded by the Company prior to the enactment date of August 10, 1993, was recorded in the third quarter of 1993. The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
DECEMBER 31 ----------------- 1994 1993 ------ ------ DOLLARS IN MILLIONS Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss carryforwards................................ $ 15.1 $ 17.8 Other deductible temporary differences.......................... 26.7 23.6 ------ ------ 41.8 41.4 ------ ------ Deferred tax liabilities: Fixed asset basis difference.................................... 39.7 40.2 Other taxable temporary differences............................. 14.0 11.2 ------ ------ 53.7 51.4 ------ ------ Net deferred tax liability (excluding postretirement benefits other than pensions)............................................ (11.9) (10.0) FASB Statement No. 106 impact..................................... 51.5 50.3 ------ ------ Net deferred tax asset............................................ $ 39.6 $ 40.3 ====== ======
At December 31, 1994, the Company had approximately $43 million of net operating loss carryforwards available for regular Federal income tax purposes, expiring as follows: $8 million in the year 2005, $21 million in the year 2006, $8 million in the year 2007, and $6 million in the year 2008. The Company believes that it is more likely than not that all of the NOL carryforwards will be utilized prior to their expiration. This belief is based upon the factors discussed below. The NOL carryforwards and existing deductible temporary differences (excluding those relating to FASB Statement No. 106) are offset by existing taxable temporary differences reversing within the carryforward period. Furthermore, any such recorded tax benefits which would not be so offset are expected to be realized by continuing to achieve future profitable operations. Subsequent to the adoption of FASB Statement No. 109, the Company adopted FASB Statement No. 106 and recognized the entire transition obligation at January 1, 1992, as a cumulative effect charge in -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-11 45 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1992 (Note 5). At December 31, 1994, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $51.5 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 15-year carryforward period of that loss. Because of the extremely long period that is available to realize these future tax benefits, a valuation allowance for this deferred tax asset is not necessary. Total income taxes reflected in the Consolidated Statement of Operations differ from the amounts computed by applying the Federal tax rate as follows:
YEARS ENDED DECEMBER 31 ------------------------ 1994 1993 1992 ----- ----- ---- DOLLARS IN MILLIONS Federal income tax provision computed at statutory tax rate of 35% in 1994 and 1993, and 34% in 1992................... $30.9 $13.4 $2.0 Additional taxes or credits from: State and local income taxes, net of Federal income tax effect..................................................... 2.5 1.7 .6 Change in Federal statutory rate........................... -- .6Cr. -- All other, net............................................. 1.6 3.1Cr. -- ----- ----- ---- Total income tax provision.............................. $35.0 $11.4 $2.6 ===== ===== ====
--------------- Cr. = Credit A state tax sharing agreement, similar to the Federal agreement, also exists with Industries for those states in which the consolidated group is charged state taxes on a unitary or combined basis. NOTE 7. RELATED PARTY TRANSACTIONS The Company sells products to and purchases products from related companies primarily at prevailing market prices. These transactions were as follows:
YEARS ENDED DECEMBER 31 -------------------------- 1994 1993 1992 ------ ------ ------ DOLLARS IN MILLIONS Net product sales.......................................... $ 10.7 $ 10.7 $ 9.4 Net product purchases...................................... $219.1 $187.1 $132.5
Administrative expenses covering management, financial and legal services provided to the Company were charged to the Company by Industries. Such charges totaled $7.4 million in 1994 and 1993, and $8.4 million in 1992. Additionally, interest, at prevailing prime market rates, is charged on all intercompany loans within the Industries consolidated group. There was no net intercompany interest expense in 1994 compared with $7.7 million in 1993 and $8.9 million in 1992. In December 1993, Industries made a capital contribution of $150 million to the Company. The capital contribution has been recorded as "additional paid in capital". -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-12 46 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTE 8. COMMITMENTS AND CONTINGENCIES The Company has noncancellable operating leases for which future minimum rental commitments are estimated to total $32.3 million, including approximately $8.4 million in 1995, $6.0 million in 1996, $5.0 million in 1997, $4.3 million in 1998, $3.7 million in 1999, and $4.9 million thereafter. Rental expense under operating leases totaled $15.9 million in 1994, $16.8 million in 1993, and $18.6 million in 1992. Ryerson is the guarantor of $123.6 million of the Inland Steel Industries Thrift Plan ESOP notes. The notes are payable in installments through July, 2004. There are various claims and pending actions against the Company. The amount of liability, if any, for these claims and actions at December 31, 1994 is not determinable but, in the opinion of management, such liability, if any, will not have a material adverse effect on the Company's financial position or results of operations. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A-13 47 INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- 3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as Exhibit 3.(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, and incorporated by reference herein.) -- 3.(ii) Copy of By-laws, as amended, of the Company............................ 4.A Copy of Certificate of Designations, Preferences and Rights of Series A $2.40 Cumulative Convertible Preferred Stock of the Company. (Filed as part of Exhibit B to the definitive Proxy Statement of Inland Steel Company dated March 21, 1986 that was furnished to stockholders in connection with the annual meeting held April 23, 1986, and incorporated by reference herein.) -- 4.B Copy of Certificate of Designation, Preferences and Rights of Series D Junior Participating Preferred Stock of the Company. (Filed as Exhibit 4-D to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 4.C Copy of Rights Agreement, dated as of November 25, 1987, as amended and restated as of May 24, 1989, between the Company and The First National Bank of Chicago, as Rights Agent (Harris Trust and Savings Bank, as successor Rights Agent). (Filed as Exhibit 1 to the Company's Current Report on Form 8-K filed on May 24, 1989, and incorporated by reference herein.) -- 4.D Copy of Certificate of Designations, Preferences and Rights of Series E ESOP Convertible Preferred Stock of the Company. (Filed as Exhibit 4-F to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 4.E Copy of Certificate of Designations, Preferences and Rights of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) -- 4.F Copy of Indenture dated as of December 15, 1992, between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 12 3/4% Notes due December 15, 2002. (Filed as Exhibit 4-G to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 4.G Copy of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company (the "Steel Company") and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, and of supplemental indentures thereto, to and including the Thirty-Second Supplemental Indenture, incorporated by reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e), filed with Steel Company's Registration Statement on Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h), filed with Steel Company's Current Report on Form 8-K dated January 18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed with Steel Company's Current Report on Form 8-K for the month of April, 1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's Current Report on Form 8-K for the month of January, 1945; (viii) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed with Steel Company's Current
(i) 48
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- Report on Form 8-K for the months of July and August, 1948; (x) Exhibits B and C, filed with Steel Company's Current Report on Form 8-K for the month of March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1957; (xiii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1959; (xiv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of December, 1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the amendment on Form 8 to Steel Company's Current Report on Form 8-K for the month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K for the month of February, 1977; (xxi) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1982; (xxv) Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the Steel Company's Registration Statement on Form S-2 (No. 33-43393); and (xxvii) Exhibit 4 filed with Steel Company's Current Report on form 8-K dated June 23, 1993. -- 4.H Copy of consolidated reprint of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, as amended and supplemented by all supplemental indentures thereto, to and including the Thirteenth Supplemental Indenture. (Filed as Exhibit 4-E to Form S-1 Registration Statement No. 2-9443, and incorporated by reference herein.) -- [The registrant hereby agrees to provide a copy of any other agreement relating to long-term debt at the request of the Commission.] 10A* Copy of Inland Steel Industries, Inc. Annual Incentive Plan, as amended. (Filed as Exhibit 10.A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.B* Copy of Inland Steel Industries, Inc. Special Achievement Award Plan. (Filed as Exhibit 10-I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.C* Copy of Inland 1984 Incentive Stock Plan, as amended................... 10.D* Copy of Inland 1988 Incentive Stock Plan, as amended................... 10.E* Copy of Inland 1992 Incentive Stock Plan, as amended...................
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K (ii) 49
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- 10.F* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10-H to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.G* Copy of Inland 1992 Stock Plan for Non-Employee Directors. (Filed as Exhibit B to the Company's definitive Proxy Statement dated March 16, 1992 that was furnished to stockholders in connection with the annual meeting held April 22, 1992, and incorporated by reference herein.) -- 10H* Copy of Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.I* Copy of Inland Steel Industries Special Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated by reference herein.) -- 10.J* Copy of the Inland Steel Industries Deferred Compensation Plan for Certain Employees, as amended.......................................... 10.K* Copy of Inland Steel Industries Deferred Compensation Plan for Directors, as amended. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 10.L* Copy of Inland Steel Industries Director Retirement Plan. (Filed as Exhibit 10.M to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.M* Copy of Outside Directors Accident Insurance Policy. (Filed as Exhibit 10-F to Inland Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1983, and incorporated by reference herein.) -- 10.N.(1)* Copy of form of Severance Agreement dated June 28, 1989 between the Company and each of the seven executive officers of the Company identified on the exhibit relating to terms and conditions of termination of employment following a change in control of the Company. (Filed as Exhibit 10-O-(1) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.N.(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated June 28, 1989 in Exhibit 10.N(1) hereof................................................................. 10.N.(3)* Copy of Severance Agreement dated June 28, 1989 between the Company and Judd R. Cool. (Filed as Exhibit 10-O-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.N.(4)* Copy of Severance Agreement dated September 4, 1990 between the Company and H. William Howard. (Filed as Exhibit 10-M-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) --
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K (iii) 50
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- 10.N.(5)* Copy of Severance Agreement dated June 26, 1991 between the Company and Earl L. Mason. (Filed as Exhibit 10-X to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) -- 10N.(6)* Copy of Severance Agreement dated November 27, 1991 between the Company and Maurice S. Nelson, Jr. (Filed as Exhibit 10-O-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 10.N.(7)* Copy of Severance Agreement dated March 23, 1994 between the Company and Vicki L. Avril. (Filed as Exhibit 10.O(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.N.(8)* Copy of Employment Agreement dated April 8, 1994 between the Company and Neil S. Novich..................................................... 10.N.(9)* Copy of Severance Agreement dated April 8, 1994 between the Company and Neil S. Novich......................................................... 10.O.(1)* Copy of letter to Judd R. Cool dated September 2, 1987 relating to terms and conditions of employment. (Filed as Exhibit 10-K to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.O.(2)* Copy of letter agreement dated November 23, 1987 between the Company and Judd R. Cool. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.O.(3)* Copy of letter agreement dated December 10, 1993 between the Company and Judd R. Cool restating certain provisions of the September 2, 1987 and November 23, 1987 letters in Exhibits 10.O.(1) and (2). (Filed as Exhibit 10.P.(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.P* Copy of letter to H. William Howard dated July 17, 1990 relating to terms and conditions of employment. (Filed as Exhibit 10-P to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.Q* Copy of letter to Earl L. Mason dated May 17, 1991 relating to terms and conditions of employment. (Filed as Exhibit 10-W to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) -- 10.R* Copy of letter to Maurice S. Nelson, Jr. dated March 26, 1993 relating to supplemental pension arrangement. (Filed as Exhibit 10-S to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 10.S* Copy of Letter of Credit with respect to the Supplemental and Special Retirement Benefit Plan obligations of the Company to W. Gordon Kay. (Filed as Exhibit 10.T to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) --
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K (iv) 51
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- 10.T Copy of Stock Purchase Agreement, dated as of July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 4-G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 10.U.(1) Copy of Letter Agreement dated December 18, 1989 among the Company, Nippon Steel Corporation and NS Finance III, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to sale to NS Finance III, Inc. of 185,000 shares of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) -- 10.U.(2) Copy of Steel Technology Agreement dated as of July 14, 1989 between Inland Steel Company and Nippon Steel Corporation relating to technology sharing between the signatories. (Filed as Exhibit 10-S-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(3) Copy of Basic Agreement dated as of July 21, 1987 between the Company and Nippon Steel Corporation relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(4) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(4) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(5) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(6) Copy of Partnership Agreement dated as of September 12, 1989 between ISC Kote, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(7) Copy of Substrate Supply Agreement dated as of September 12, 1989 between Inland Steel Company and I/N Kote, an Indiana general partnership. (Filed as Exhibit 10-S-(7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(8) First Amendment to Substrate Supply Agreement dated as of May 1, 1990 between Inland Steel Company and I/N Kote relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(9) Letter Agreement dated as of May 1, 1990 among I/N Kote, the Company and Nippon Steel Corporation relating to partner loans. (Filed as Exhibit 10-R-(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) --
(v) 52
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. ---------- ----------------------------------------------------------------------- ---------- 10.U.(10) First Amendment to I/N Kote Basic Agreement dated as of May 1, 1990 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(10) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(11) Letter Agreement dated as of April 19, 1990 between the Company and Nippon Steel Corporation relating to capital contributions to I/N Tek. (Filed as Exhibit 10-R-(11) to Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(12) Letter Agreement dated April 20, 1990 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to amendment of the partnership agreement of I/N Tek. (Filed as Exhibit 10-R-(12) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(13) CCM Override Amendment dated as of April 20, 1990 among the Company; Nippon Steel Corporation; Inland Steel Company; ISC Tek, Inc.; I/N Tek; NS Sales, Inc.; and NS Tek, Inc. relating to I/N Tek. (Filed as Exhibit 10-R-(13) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.V Copy of ESOP Stock Purchase Agreement, dated May 30, 1990, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-T to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated by reference herein.) -- 10.W Copy of Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-P to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 10.X Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchangeable Preferred Stock. (Filed as Exhibit 10-U to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.Y Letter Agreement dated May 10, 1991 by and between Nippon Steel Corporation and Inland Steel Industries, Inc. relating to Letter Agreement dated December 18, 1989. (Filed as Exhibit 10-V to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, and incorporated by reference herein.) -- 11 Statement of Earnings per Share of Common Stock........................ 13 Information incorporated by reference from Annual Report to Stockholders for the fiscal year ended December 31, 1994............... 21 List of certain subsidiaries of the Company............................ 23 Consent of Independent Accountants, appearing on page 27 of this Annual Report on Form 10-K. -- 24 Powers of attorney..................................................... 27 Financial Data Schedules............................................... 99 Letter to stockholders of common stock of the Company dated December 22, 1987 explaining Stockholder Rights Plan adopted by Board of Directors on November 25, 1987. (Filed as Exhibit 3 to the Company's Current Report on Form 8-K filed on December 18, 1987, and incorporated by reference herein.) --
(vi) EX-3.(II) 2 BY-LAWS AS AMENDED 1 EXHIBIT 3.(ii) BY-LAWS OF INLAND STEEL INDUSTRIES, INC. (as Amended to and Including November 22, 1994) ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, as shall be designated by the Board of Directors. Section 2. Annual Meetings; Nomination of Directors. An annual meeting of stockholders shall be held for the purpose of electing Directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these By-Laws. The date of the annual meeting shall be the fourth Wednesday of May each year or such other date as may be determined by the Board of Directors. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than fifty days nor more than seventy-five days prior to the meeting; provided, however, that in the event that less than sixty-five days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on 2 - 2 - the fifteenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article II, Section 2, provided, however, that nothing in this Article II, Section 2 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, Section 2, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of the Corporation at the annual meeting may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article II, Section 2. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty days nor more than seventy-five days prior to the meeting; provided, however, that in the event that less than sixty-five days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or 3 - 3 - employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as Director of the Corporation. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, may be called by the Chairman of the Board, Vice Chairman of the Board, the President or the Board of Directors and shall be called by the Secretary at the direction of the Chairman of the Board, Vice Chairman of the Board, the President or the Board of Directors. Section 4. Notice of Meetings. Written notice of each meeting of the stockholders stating the place, date and time of the meeting shall, unless otherwise required by law, be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice of any special meeting of stockholders shall state the purpose or purposes for which the meeting is called. If mailed, such notice shall be deemed to be delivered to a stockholder when deposited in the United States mail in a sealed envelope addressed to the stockholder at his or her address as it appears on the records of the Corporation with postage thereon paid. Section 5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders, except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws. If a quorum is not present or represented, the holders of the stock present in person or represented by proxy at the meeting and entitled to vote thereat shall have power, by the affirmative vote of the holders of a majority of such stock, to 4 - 4 - adjourn the meeting to another time and/or place, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 6. Voting. At all meetings of the stockholders, each holder of record on the record date for the meeting shall be entitled to vote as set forth in the Corporation's Certificate of Incorporation (including any Certificates of Designations) or as otherwise required by law, in person or by proxy, the shares of voting stock owned of record by such stockholder on the record date. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock entitled to be voted present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of law or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. If the Certificate of Incorporation provides for more or less than one vote for any share of stock, on any matter, every reference in the Certificate of Incorporation or these By-laws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. ARTICLE III DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed and controlled by or under the direction of a Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 2. Number, Qualification and Tenure. Prior to the first annual meeting of stockholders, the Board of Directors shall consist of not fewer than three (3) Directors nor more than eighteen (18) Directors. Thereafter, the Board of Directors shall consist of not fewer than ten (10) Directors nor more than eighteen (18) Directors. Within the limits above specified, the number of Directors shall be determined from time to time by resolution of the Board of Directors. The Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3 of this Article, and each Director elected shall hold office 5 - 5 - until his or her successor is elected and qualified or until his or her earlier resignation or removal. Directors need not be stockholders. Except as provided in Article III, Section 3 of these By-laws, the Directors shall designate from among their number a Chairman of the Board, who shall preside at all meetings of the stockholders and of the Board of Directors of the Corporation and who, if he or she is an employee of the Corporation, shall exercise all of the powers and duties conferred on the Chairman of the Board by the provisions of these By-Laws. If the person selected by the Directors as the Chairman of the Board is not, or ceases to be, an employee of the Corporation, then, notwithstanding any other provision of these By-Laws to the contrary, he or she shall exercise only such powers and duties conferred on the Chairman of the Board by these By-Laws as the Directors shall determine by resolution duly adopted and any other powers and duties, including those of chief executive officer of the Corporation, shall be exercised by the President of the Corporation. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by a majority of the Directors then in office (even if less than a quorum), and each Director so chosen shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. If there are no Directors in office, then an election of Directors may be held in the manner provided by law. Immediately upon the Chairman of the Board's death, physical or mental incapacity, or other inability to act (other than due to absence for a brief and identifiable period), the Chairman of the committee responsible for recommending candidates to fill vacancies on the Board of Directors of the Corporation (the "Nominating Committee Chairman") shall assume the position of Chairman of the Board and responsibility for performing all functions, authorities and duties thereof, and shall serve in such capacity until his or her successor is duly elected and qualified pursuant to Article III, Section 2 and any other applicable provision of these By-laws or until his or her earlier resignation or removal. The Nominating Committee Chairman shall have sole discretion to determine, at any time and from time to time, whether the Chairman of the Board is physically or mentally incapacitated, otherwise unable to act, or absent for other than a brief and identifiable period and shall, immediately upon making such a determination or learning of the death of the Chairman of the Board, notify each member of the Board of Directors and each officer of the Corporation of the relevant facts and circumstances. Section 4. Place of Meetings. The Board of Directors may hold meetings, whether regular or special, within or without the State of Delaware. 6 - 6 - Section 5. Regular Meetings. The Board of Directors shall hold a regular meeting, to be known as the annual meeting, immediately following each annual meeting of the stockholders. Other regular meetings of the Board of Directors shall be held at such time and place as shall from time to time be determined by the Board. No notice of regular meetings need be given. Section 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, the Vice Chairman of the Board, any five Directors or the President. Special meetings shall be called by the Secretary on the written request of any Director. Notice of special meetings shall be given at least one day before any such meeting. Section 7. Quorum. At all meetings of the Board of Directors a majority of the total number of Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Organization. The Chairman of the Board, if elected, shall act as chairman at all meetings of the Board of Directors. If a Chairman of the Board is not elected or, if elected, is not present, the Vice Chairman of the Board, if any, or if the Vice Chairman of the Board is not present, the President or, in the absence of the President, a Director chosen by a majority of the Directors present, shall act as chairman at meetings of the Board of Directors. Section 9. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate not fewer than five (5) and not more than nine (9) Directors to constitute an Executive Committee, to serve as such, unless the resolution designating the Executive Committee is sooner amended or rescinded by the Board of Directors, until the next annual meeting of the Board or until their respective successors are designated. The Board of Directors, by resolution adopted by a majority of the whole Board, may also designate additional Directors as alternate members of the Executive Committee (so long as the aggregate number of members of the Executive Committee does not exceed nine (9)) to serve as members of the Executive Committee in the place and stead of any regular member or members thereof who may be unable to attend a meeting or otherwise unavailable to act as a member of the Executive Committee. In the absence or disqualification of a member and all alternate members who may serve in the place and stead of such member, the member or members thereof present at any 7 - 7 - meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member. Except as expressly limited by the General Corporation Law of the State of Delaware or the Certificate of Incorporation, the Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation between the meetings of the Board of Directors, but subject always to the final control of the Board of Directors except where rights of third parties have intervened. The Executive Committee shall keep a record of its acts and proceedings, which shall form a part of the records of the Corporation in the custody of the Secretary, and all actions of the Executive Committee shall be reported to the Board of Directors at the next meeting of the Board. Meetings of the Executive Committee may be called at any time by the Chairman of the Board, the Chairman of the Executive Committee or any two (2) members of the Executive Committee. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business and, except as expressly limited by this Section, the act of a majority of the members present at any meeting at which there is a quorum shall be the act of the Executive Committee. Except as expressly provided in this Section, the Executive Committee shall fix its own rules of procedure. Notice of Executive Committee meetings shall be given at least one day before such meetings. Section 10. Finance and Retirement Committee. The Board of Directors may, annually, by resolution passed by a majority of the whole Board of Directors, designate not fewer than five (5) and not more than eleven (11) Directors to constitute a Finance and Retirement Committee. Such designation may be made either at the first meeting of the Board of Directors held after each annual meeting of the stockholders of the Corporation, or at any subsequent regular or special meeting of the Board of Directors. Vacancies in the Finance and Retirement Committee may be filled, or additional members of the Finance and Retirement Committee (so long as the aggregate number of the Finance and Retirement Committee does not exceed eleven (11)) may be designated, at any meeting of the Board of Directors. Each member of the Finance and Retirement Committee shall hold office until his or her successor shall have been duly elected, or until his or her death, or until he or she shall resign or shall have been removed. Any member of the Finance and Retirement Committee may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby. 8 - 8 - The Finance and Retirement Committee, from time to time, shall consider the fiscal affairs of the Corporation and make recommendations with respect thereto to the Board of Directors and the Executive Committee. The Finance and Retirement Committee shall also administer and act with respect to pension or retirement plans and trusts of the Corporation and such other matters as shall from time to time be specified in resolutions passed by a majority of the whole Board of Directors, subject, however, to any conditions and provisions set forth in such resolutions. The Pension and Retirement Committee is designated as the Pension Trust Retirement Committee. The Finance and Retirement Committee shall meet at the call of the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Finance and Retirement Committee, or any two (2) members of the Finance and Retirement Committee. Three (3) members of the Finance Committee shall constitute a quorum. The Finance and Retirement Committee shall keep a record of its acts and proceedings and all actions of the Finance Committee shall be reported to the Board of Directors at its next regular meeting, and the minute books of the Finance and Retirement Committee shall be open to the inspection of any Directors. Section 11. Other Committees. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate one or more other committees, each such committee to consist of one or more Directors. Except as expressly limited by the General Corporation Law of the State of Delaware or the Certificate of Incorporation, any such committee shall have and may exercise such powers as the Board of Directors may determine and specify in the resolution designating such committee. The Board of Directors, by resolution adopted by a majority of the whole Board, also may designate one or more additional Directors as alternate members of any such committee to replace any absent or disqualified member at any meeting of the committee, and at any time may change the membership of any committee or amend or rescind the resolution designating the committee. In the absence or disqualification of a member or alternate member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member, provided that the Director so appointed meets any qualifications stated in the resolution designating the committee. Each committee shall keep a record of proceedings and report the same to the Board of Directors to such extent and in such form as the Board of Directors may require. Unless otherwise provided in the resolution designating a committee, a majority of all of the members of any such committee may select its Chairman, fix its rules or procedure, fix the time and place of its meetings and specify what notice of meetings, if any, shall be given. 9 - 9 - Section 12. Action without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 13. Attendance by Telephone. Members of the Board of Directors, or of any committee, may participate in a meeting of the Board of Directors, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 14. Compensation. The Board of Directors shall have the authority to fix the compensation of Directors, which may include reimbursement of their expenses, if any, of attendance of each meeting of the Board of Directors or of a committee. Section 15. Honorary Directors. Any person who has at any time been chief executive officer of the Corporation (or of Inland Steel Company prior to May 1, 1986), may, after retirement or resignation from the Board of Directors (or having retired or resigned from the Board of Directors of Inland Steel Company), be appointed by the Board of Directors as an Honorary Director for one or more year terms. Honorary Directors shall serve in an advisory capacity to the Board of Directors, shall have no vote and shall not be considered as Directors for the purposes of determining a quorum. Honorary Directors shall be reimbursed for their expenses in attending meetings of the Board of Directors. Any Honorary Director who is not at the time otherwise regularly employed by the Corporation or any subsidiary shall receive such fees (which may include reimbursement of expenses, if any) for attendance at each meeting of the Board of Directors as may be fixed from time to time by the Board of Directors, but shall not receive any other director's fees or any other compensation for his or her services. ARTICLE IV OFFICERS Section 1. Enumeration. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary, a Treasurer, a General Counsel and a Controller. The Board of Directors may also elect a Chairman of the Board, a Vice Chairman, one or more Assistants to the Chairman, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it shall deem appropriate. Any number of offices may be held by the same person. 10 - 10 - Section 2. Term of Office. The officers of the Corporation shall be elected at the annual meeting of the Board of Directors and shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation required by this Article shall be filled by the Board of Directors, and any vacancy in any other office may be filled by the Board of Directors. Section 3. Chairman of the Board. Subject to the provisions of Article III, Section 2 of these By-Laws, the Chairman of the Board, when elected, shall be the Chief Executive Officer of the Corporation and, as such, shall have general supervision, direction and control of the business and affairs of the Corporation, subject to the control of the Board of Directors, shall preside at meetings of stockholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board of Directors. Section 4. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the case of absence of the Chairman of the Board for any brief and identifiable period, have and exercise the powers and duties of the Chairman of the Board. He or she shall have such other duties and powers as may be assigned to him by the Board of Directors, the Executive Committee or the Chairman of the Board. Section 5. President. During any period when there shall be a Chairman of the Board, the President shall be the Chief Operating Officer of the Corporation and shall have such functions, authority and duties as may be prescribed by the Board of Directors or the Chairman of the Board. During any period when there shall not be a Chairman of the Board or Vice Chairman of the Board, the President shall be the Chief Executive Officer of the Corporation and, as such, shall have the functions, authority and duties provided for the office of Chairman of the Board. Section 6. Executive and Senior Vice Presidents. Each Executive Vice President shall have such duties and powers as may be assigned to him or her by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman of the Board, or the President. An Executive Vice President, designated by the Board of Directors, shall (in the event of absence, death or other inability to act of the President) have and exercise the powers and duties of the President. Each Senior Vice President shall have such duties and powers as may be assigned to him or her by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman 11 - 11 - of the Board or the President. Section 7. Vice Presidents. Each Vice President shall perform such duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chairman of the Board or the President or the Executive Committee. Section 8. Secretary. The Secretary shall keep a record of all proceedings of the stockholders of the Corporation and of the Board of Directors, Finance Committee and Executive Committee, and shall perform like duties for any other standing committees when required. The Secretary shall give, or cause to be given, notice, if any, of all meetings of the stockholders and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Executive Committee. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or in the absence of the Secretary any Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the signature of the Secretary or an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest such affixing of the seal. Section 9. Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or failure to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Secretary. Section 10. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or the Executive Committee. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, keeping proper records of such disbursements, and shall render to the Chairman of the Board, Vice Chairman of the Board, the Chairman of the Executive Committee, the Chairman of the Finance Committee, the President, the officer designated by the Board of Directors as Chief Financial Officer, if any, and the Board of Directors, the Executive Committee and the Finance Committee at their regular meetings or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall perform such other duties as may 12 - 12 - from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Chief Financial Officer. Section 11. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Treasurer. Section 12. Assistant to the Chairman. The Assistant to the Chairman of the Board shall have and exercise such powers and duties as may be assigned to him or her by the Chairman of the Board. Section 13. General Counsel. The General Counsel shall be responsible for the legal affairs of the Corporation and shall have such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the Vice Chairman of the Board, the President, the Board of Directors or the Executive Committee. Section 14. Controller. The Controller shall be the chief accounting officer of the Corporation. He or she shall, when proper, approve all bills for purchases, payrolls, and similar instruments providing for disbursement of money by the Corporation, for payment by the Treasurer. He or she shall be in charge of and maintain books of account and accounting records of the Corporation. He or she shall perform such other acts as are usually performed by a Controller of a corporation. He or she shall render to the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Executive Committee, the Chairman of the Finance Committee, the President, the Chief Financial Officer, the Board of Directors, the Executive Committee and the Finance Committee, such reports as any thereof may require. Section 15. Other Officers. Any officer who is elected or appointed from time to time by the Board of Directors and whose duties are not specified in these By-Laws shall perform such duties and have such powers as may be prescribed from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, the President or the Executive Committee. Section 16. Surety Bonds. The Board of Directors or Executive Committee may by resolution, require any officers of the Corporation to give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of 13 - 13 - Directors or Executive Committee shall determine, the expense of which shall be paid by the Corporation. ARTICLE V CERTIFICATES OF STOCK Section 1. Form. The shares of the Corporation shall be represented by certificates; provided, however, that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Certificates of stock in the Corporation, if any, shall be signed by or in the name of the Corporation by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation. The signatures of the Chairman of the Board, the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of its issue. Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Section 3. Replacement. In case of the loss, destruction or theft of a certificate for any stock of the Corporation, a new certificate of stock or uncertificated shares in place of any certificate therefor issued by the Corporation may be issued upon satisfactory proof of such loss, destruction or theft and upon such terms as the Board of Directors may prescribe. The Board of Directors may in its discretion require the owner of the lost, destroyed or stolen certificate, or his or her legal representative, to give the Corporation a bond, in such sum and in such form and with such surety or sureties as it may direct, to indemnify the Corporation against any claim that may be made against it with respect to a certificate alleged to have been lost, destroyed or stolen. 14 - 14 - ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is, was or had agreed to become a director of the Corporation or is, was or had agreed to become an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the General Corporation Law of the State of Delaware (the "DGCL"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, that except as explicitly provided herein, prior to a Change in Control, as defined herein, a person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person against the Corporation or any director, officer, employee or agent of the Corporation shall not be entitled thereto unless the Corporation has joined in or consented to such proceeding (or part thereof). For purposes of this Article, a "Change in Control of the Corporation" shall be deemed to have occurred if (i) any "Person" (as is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes (except in a transaction approved in advance by the Board of Directors of the Corporation) the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election of each director who was not a director at the beginning of the period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Any indemnification under this Section 1 (unless ordered by a 15 - 15 - court) shall be paid by the Corporation unless within 60 days of such request for indemnification a determination is made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding, (ii) if such quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion or (iii) by the stockholders, that indemnification of such person is not proper under the circumstances because such person has not met the necessary standard of conduct under Delaware law; provided, however, that following a Change in Control of the Corporation, with respect to all matters thereafter arising out of acts, omissions or events prior to the Change in Control of the Corporation concerning the rights of any person seeking indemnification under this Section 1, such determination shall be made by special independent counsel selected by such person and approved by the Corporation (which approval shall not be unreasonably withheld), which counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such person or for the Corporation or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the Corporation (whether or not they were affiliates when services were so performed) ("Independent Counsel"). Unless such person has theretofore selected Independent Counsel pursuant to this Section 1 and such Independent Counsel has been approved by the Corporation, legal counsel approved by a resolution or resolutions of the Board of Directors prior to a Change in Control of the Corporation shall be deemed to have been approved by the Corporation as required. Such Independent Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the Corporation and such person to such effect. The Corporation agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Article or its engagement pursuant hereto. Section 2. Expenses. Expenses, including attorneys' fees, incurred by a person referred to in Section 1 of this Article in defending or otherwise being involved in a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Section 3. Right of Claimant to Bring Suit. If a claim under Section 1 hereof is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation or 16 - 16 - if expenses pursuant to Section 2 hereof have not been advanced within 10 days after a written request for such advancement accompanied by the Undertaking has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. (If the claimant is successful, in whole or in part, in such suit or any other suit to enforce a right for expenses or indemnification against the Corporation or any other party under any other agreement, such claimant shall also be entitled to be paid the reasonable expense of prosecuting such claim.) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed. After a Change in Control, the burden of proving such defense shall be on the Corporation, and any determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant had not met the applicable standard of conduct required under the DGCL shall not be a defense to the action nor create a presumption that claimant had not met such applicable standard of conduct. Section 4. Non-Exclusivity of Rights. The rights conferred on any person by this Article shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such other indemnification of directors, officers, employees or agents as it shall deem appropriate. Section 5. Insurance. The Corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. Section 6. Enforceability. The provisions of this Article shall be applicable to all proceedings commenced after its adoption, whether such arise out of events, acts, omissions or circumstances which occurred or existed prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. This Article shall be deemed to grant each person who, at any time that this Article is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder rights against the Corporation to 17 - 17 - enforce the provisions of this Article, and any repeal or other modification of this Article or any repeal or modification of the DGCL or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions, circumstances occurring or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Article with regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification. Section 7. Severability. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE VII GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. Section 2. Corporate Seal. The corporate seal shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 3. Waiver of Notice. Whenever any notice is required to be given under law or the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VIII AMENDMENTS These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the Board of Directors. The fact that the power to amend, alter, repeal or adopt the By-Laws has been conferred upon the Board of Directors shall not divest the stockholders of the same powers. EX-10.C 3 1984 INCENTIVE STOCK PLAN, AMENDED 1 EXHIBIT 10.C Inland Steel Industries INLAND 1984 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 2 INLAND 1984 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 1. Purpose. The purpose of the Inland 1984 Incentive Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of the "Company" (which, on and after May 1, 1986, shall be Inland Steel Industries, Inc., and prior to that date shall be Inland Steel Company) and its subsidiaries, and to furnish incentives to such individuals through rewards based upon the ownership and performance of the common stock of the Company. To this end, the Committee hereinafter designated may grant stock options, stock appreciation rights, restricted stock awards, and performance awards, or combinations thereof, to officers and other key employees of the Company and its subsidiaries, on the terms and subject to the conditions set forth in this Plan. 2. Participants. Participants in the Plan shall consist of such officers and other key employees of the Company and its subsidiaries as the Committee in its sole discretion may select from time to time to receive stock options, stock appreciation rights, restricted stock awards or performance awards, either singly or in combination, as the Committee may in its sole discretion determine. Any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries shall not be eligible to receive stock options, stock appreciation rights, restricted stock awards or performance awards under the Plan. 3. Shares Reserved under the Plan. The maximum number of shares of common stock, $1.00 par value, of the Company which may be issued pursuant to all grants made under the Plan shall not exceed 800,000, of which no more than 300,000 shares shall be issued pursuant to restricted stock awards and performance awards granted under the Plan. Any shares subject to any grant which terminates by expiration, cancellation or otherwise prior to the issuance of such shares or, in the case of a restricted stock award, prior to vesting shall again be available for future grants under the Plan. Shares of common stock to be issued pursuant to grants under the Plan may be authorized and unissued shares of common stock, treasury common stock, or any combination thereof. 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. No member of the Committee shall be eligible to receive any grant, or 3 shall have been eligible to receive any grant for at least one year prior to becoming a member, under the Plan or any other stock option, stock appreciation rights or other incentive stock plan of the Company or any subsidiary of the Company. Subject to the provisions of the Plan, the Committee shall have authority (i) to determine which employees of the Company and its subsidiaries shall be eligible for participation in the Plan; (ii) to select employees to receive grants under the Plan; (iii) to determine the form of the grant, whether as a stock option, stock appreciation right, restricted stock award, performance award or a combination thereof, the number of shares or units subject to the grant, the time and conditions of exercise or vesting, the fair market value of the common stock of the Company for purposes of the Plan, and all other terms and conditions of any grant; and (iv) to prescribe the form of agreement, certificate or other instrument evidencing the grant. The Committee shall also have authority to interpret the Plan and to establish, amend and rescind rules and regulations for the administration of the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on all persons. 5. Effective Date and Term of Plan. The Plan shall be submitted to the stockholders of the Company for approval at the annual meeting to be held on April 25, 1984, or any adjournment thereof, and, if approved by the affirmative vote of the holders of a majority of the shares of common stock and Series A $2.40 Cumulative Convertible Preferred Stock of the Company (voting together and not as separate classes) present in person or by proxy, shall become effective on the date of such approval. The Plan shall terminate five years after it becomes effective unless terminated sooner by action of the Board of Directors. No further grants may be made under the Plan after termination, but termination shall not affect the rights of any participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. 6. Stock Options. (a) Grants. Options to purchase shares of common stock of the Company, including "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code of 1954, as amended (the "Code"), may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Options. An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee in its sole discretion, provided that no option shall be exercisable less than one or more than ten years after the date of grant. The per share option price shall not be less than 100% of the fair market value of a share of common stock of the Company on the date the option is granted. Upon exercise, the option price 2 4 may be paid in cash, in shares of common stock of the Company having a fair market value equal to the option price, or in a combination thereof. The Committee may also allow the cashless exercise of options by holders thereof, as permitted under regulations promulgated by the Board of Governors of the Federal Reserve System, subject to any applicable restrictions necessary to comply with rules adopted by the Securities and Exchange Commission, and the exercise of options by holders thereof by any other means that the Committee determines to be consistent with the Plan's purpose and applicable law, including loans, with or without interest, made by the Company to the holder thereof. (c) Restrictions Relating to Incentive Stock Options. No incentive stock option granted prior to January 1, 1987, may be exercised by an optionee while there is outstanding (within the meaning of Section 422A(c)(7) of the Code) any incentive stock option previously granted to such optionee to purchase stock in the Company or any subsidiary of the Company or in a corporation which is a predecessor to the Company or any subsidiary. The aggregate fair market value (determined as of the time the option is granted) of the common stock of the Company for which any employee may be granted incentive stock options in any calendar year (under this Plan or any other plan of the Company or any of its subsidiaries) shall not exceed $100,000 (or such other individual grant limit as may be in effect under the Code on the date of grant) plus any unused limit carryover to such year permitted under Section 422A of the Code. (d) Termination of Employment. If an optionee ceases to be employed by the Company or any of its subsidiaries by reason of (i) death, (ii) physical or mental incapacity, (iii) retirement on or after the normal retirement date provided for in and pursuant to any pension plan of the Company or any subsidiary of the Company in effect at the time of such retirement, or (iv) early retirement (with the consent of the Company) provided for in and pursuant to any such pension plan, any option held by such optionee may be exercised, with respect to all or any part of the common stock of the Company as to which such option was not theretofore exercised (whether or not such option was otherwise then exercisable), for a period ending on the first anniversary of the date of such cessation of employment or the date of expiration of such option, whichever first occurs. If an optionee ceases to be employed by the Company and any of its subsidiaries for any reason other than a reason set forth in the immediately preceding sentence, any option held by such optionee may be exercised for a period ending on the 30th day following the date of such cessation of employment or the date of expiration of such option, whichever first occurs, but only with respect to that number of shares of common stock for which such option was exercisable immediately prior to the date of cessation of employment. 3 5 (e) Additional Terms and Conditions. The agreement or instrument evidencing the grant of a stock option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 7. Stock Appreciation Rights. (a) Grants. Rights entitling the grantee to receive cash or shares of common stock of the Company having a fair market value equal to the appreciation in market value of a stated number of shares of such common stock from the date of the grant to the date of exercise, or, in the case of rights granted in tandem with or by reference to a stock option granted prior to the grant of such rights, from the date of grant of such related stock option to the date of exercise, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Grant. Such rights may be granted in tandem with or by reference to a related stock option, in which event the grantee may elect to exercise either the stock option or the rights, but not both, as to any of the same shares subject to the stock option and the rights, or the rights may be granted independently of a related stock option. Rights granted in tandem with or by reference to a related stock option shall be exercisable to the extent, and only to the extent, that the related option is exercisable, provided that no such right (except in the case of death, or physical or mental incapacity) shall be exercisable prior to the expiration of six months following the date the right is granted. Rights granted independently of a stock option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee, provided that no right shall be exercisable less than one or more than ten years after the date of grant. Further, in the event that any employee to whom rights are granted independently of a stock option ceases to be an employee of the Company and its subsidiaries, such rights shall be exercisable only to the extent and upon the conditions that stock options are exercisable in accordance with the provisions of paragraph 6(d) of the Plan. The Committee may at any time of grant or at any time thereafter impose such additional terms and conditions on the exercise of stock appreciation rights as it deems necessary or desirable for compliance with section 16(a) or 16(b) of the Securities Exchange Act of 1934 and the rules and regulations thereunder. (c) Payment on Exercise. Upon exercise of a stock appreciation right, the grantee shall be paid the excess of the then fair market value of the number of shares of common stock of the Company to which the right relates over the fair market value of such number of shares at the date of grant of the right or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of common stock having a fair market 4 6 value equal to such excess, or in such combination thereof, as may be provided in the grant of such right (which may permit the grantee to elect between cash and common stock or to elect a combination thereof), or, if no such provision is made in the grant, as the Committee shall determine upon exercise of the right, provided, in any event, that the grantee shall be paid cash in lieu of any fractional share of common stock to which such grantee would otherwise be entitled. The number of shares which may be issued pursuant to all grants under the Plan shall be reduced in connection with the exercise of any stock appreciation right by the number of shares paid out pursuant to such exercise. (d) Additional Terms and Conditions. The agreement or instrument evidencing the grant of stock appreciation rights may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 8. Restricted Stock Awards. Restricted stock awards consisting of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee, provided that any such employee (except an employee whose terms of employment include the granting of a restricted stock award) shall have been employed by the Company or any of its subsidiaries for at least six months. Such awards shall be contingent on the employee's continuing employment with the Company or its subsidiaries for a period to be specified in the award, which shall not be less than one or more than ten years from the date of award, and shall be subject to such additional terms and conditions as the Committee in its sole discretion deems appropriate, including, but not by way of limitation, restrictions on the sale or other disposition of such shares during the restriction period. The Committee may in its sole discretion at the time of the award or at any time thereafter provide for the early vesting of such award in the event of termination of employment by retirement, death, incapacity or otherwise prior to the end of the restriction period. The holder of a restricted stock award shall have the right to vote the restricted shares and to receive dividends thereon, unless and until such shares are forfeited. 9. Performance Awards. (a) Awards. Performance awards consisting of monetary units or units which are equivalent to shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. Such awards shall be contingent on the achievement over a period of not less than three or more than ten years of such corporate, division, subsidiary, group or other objectives as shall be established by the Committee. Such 5 7 objectives shall be established by the Committee prior to the beginning of the performance period, but may be revised by the Committee from time to time during the performance period to take into account significant unforeseen events or changes in circumstances. (b) Termination of Employment. Except as may otherwise be determined by the Committee at the time of the award or at any time thereafter, a performance award shall terminate if the holder of the award does not remain continuously in the employ of the Company and its subsidiaries at all time during the applicable performance period. (c) Payment. Following the end of the performance period, the holder of a performance award shall be entitled to receive payment of an amount, not exceeding the maximum value of the performance award established by the Committee, based on the level of achievement of the objectives for the performance period as determined by the Committee. Payment may be made in cash, shares of common stock, or a combination thereof, as determined by the Committee. Any payment to be made in common stock shall be based on the fair market value of such stock on the payment date. 10. Adjustments for Changes in Capitalization, Etc. Stock options, stock appreciation rights, restricted stock awards, and performance awards shall be subject to adjustment by the Committee in its sole discretion as to the number, kind and price of shares or other consideration subject to such grants in the event of changes in the outstanding common stock by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in corporate structure or capitalization occurring after the date of the grant of any stock option, stock appreciation right, restricted stock award or performance award. In the event of any such change in the outstanding common stock, the maximum number of shares which may be issued pursuant to all grants under the Plan and pursuant to restricted stock awards and performance awards may also be appropriately adjusted by the Committee. 11. Effect of Liquidation, Merger, Consolidation or Other Events. Unless otherwise determined by the Committee, and notwithstanding any other provisions of the Plan, each outstanding stock option and stock appreciation right and each restricted stock award and performance award shall automatically terminate upon the effective date of (i) the liquidation or dissolution of the Company, (ii) any merger or consolidation in which the Company is not the surviving corporation or pursuant to which the common stock of the Company does not remain outstanding, or (iii) the acquisition by another person of all or substantially all of the assets of the Company; provided, however, that the Committee in anticipation 6 8 of any such event or any similar event, or in the event of (a) the acquisition by any person of the beneficial ownership of 25% or more of the outstanding voting securities of the Company or (b) any offer by any person to acquire any voting securities of the Company which, if accepted, would result in the beneficial ownership by such person of 25% or more of the outstanding voting securities of the Company, may accelerate the time within which such stock options and stock appreciation rights may be exercised as well as the time for the vesting of restricted stock and performance awards. 12. Amendment and Termination of Plan. The Plan may be amended or terminated by the Board of Directors of the Company in any respect except that (other than pursuant to paragraph 10 of the Plan) no amendment may be made without stockholder approval if such amendment would increase the maximum number of shares available for issuance pursuant to all grants under the Plan or pursuant to restricted stock awards and performance awards. 13. Miscellaneous. (a) No Right to a Grant. Neither the adoption of the Plan nor any action of the Board of Directors or of the Committee shall be deemed to give any employee any right to be selected as a participant or to be granted a stock option, stock appreciation right, restricted stock award or performance award. (b) Rights as Stockholder. No person shall have any rights as a stockholder of the Company with respect to any shares covered by a stock option, stock appreciation right, or performance award until the date of the issuance of a stock certificate to such person pursuant to such stock option right or award. (c) Employment. Nothing contained in this Plan shall be deemed to confer upon any employee any right of continued employment with the Company or any of its subsidiaries or to limit or diminish in any way the right of the Company or any such subsidiary to terminate his or her employment at any time with or without cause. (d) Taxes. The Company shall be entitled to deduct from any payment under the Plan the amount of any tax required by law to be withheld with respect to such payment or may require any participant to pay such amount to the Company prior to and as a condition of making such payment. In addition, the Committee may, in its discretion and subject to such rules as it may adopt from time to time, permit a participant to elect to have the Company withhold from any payment under the Plan (or to have the Company accept from the participant), for tax withholding purposes, cash or shares of common stock of the Company, valued at their fair market value, but 7 9 in no event shall the cash or fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. No stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution. During the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. 8 EX-10.D 4 1988 INCENTIVE STOCK PLAN, AMENDED 1 EXHIBIT 10.D Inland Steel Industries INLAND 1988 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 2 INLAND 1988 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 1. Purpose. The purpose of the Inland 1988 Incentive Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of Inland Steel Industries, Inc. (the "Company") and its subsidiaries, and to furnish incentives to such individuals through rewards based upon the ownership and performance of the common stock of the Company. To this end, the Committee hereinafter designated may grant stock options, stock appreciation rights, restricted stock awards, and performance awards, or combinations thereof, to officers and other key employees of the Company and its subsidiaries, on the terms and subject to the conditions set forth in this Plan. 2. Participants. Participants in the Plan shall consist of such officers and other key employees of the Company and its subsidiaries as the Committee in its sole discretion may select from time to time to receive stock options, stock appreciation rights, restricted stock awards or performance awards, either singly or in combination, as the Committee may determine in its sole discretion. Any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries shall not be eligible to receive stock options, stock appreciation rights, restricted stock awards or performance awards under the Plan. As used in the Plan, the term "subsidiary" means (a) any corporation of which the Company owns or controls, directly or indirectly, 50% or more of the outstanding shares of capital stock entitled to vote for the election of directors or (b) any partnership, joint venture, or other business entity in respect of which the Company, directly or indirectly, has comparable ownership or control. 3. Shares Reserved under the Plan. The maximum number of shares of common stock, $1.00 par value per share, of the Company which may be issued pursuant to grants made under the Plan shall not exceed 1,700,000 plus such number of shares as shall have been authorized for issuance pursuant to the Inland 1984 Incentive Stock Plan (heretofore approved by stockholders) and shall not have been or be issued pursuant to such plan. Any shares subject to any grant (including any grant under the Inland 1984 Incentive Stock Plan) which terminates by expiration, cancellation or otherwise without the issuance of such shares or without payment thereunder, or in the case of a restricted stock award without vesting, shall again be available for future grants under the Plan. Shares of common stock to be issued pursuant to grants under the Plan may be authorized and unissued shares of common stock, treasury common stock, or any combination thereof. 3 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. No member of the Committee shall be eligible to receive any grant, or shall have been eligible to receive any grant for at least one year prior to becoming a member, under the Plan or any other stock option, stock appreciation rights or other incentive stock plan of the Company or any subsidiary of the Company. Subject to the provisions of the Plan, the Committee shall have authority (i) to determine which employees of the Company and its subsidiaries shall be eligible for participation in the Plan; (ii) to select employees to receive grants under the Plan; (iii) to determine the form of grant, whether as a stock option, stock appreciation right, restricted stock award, performance award or a combination thereof, the number of shares or units subject to the grant, the time and conditions of exercise or vesting, the fair market value of the common stock of the Company for purposes of the Plan, and all other terms and conditions of any grant; and (iv) to prescribe the form of agreement, certificate or other instrument evidencing the grant. The Committee shall also have authority to interpret the Plan and to establish, amend and rescind rules and regulations for the administration of the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on all persons. 5. Effective Date of Plan. The Plan shall be submitted to the stockholders of the Company for approval at the annual meeting to be held on April 27, 1988, or any adjournment thereof, and, if approved by the affirmative vote of the holders of a majority of the shares of common stock and Series A $2.40 Cumulative Convertible Preferred Stock of the Company, voting as a single class, represented in person or by proxy, shall be deemed to have become effective on the date of such approval. 6. Stock Options. (a) Grants. Options to purchase shares of common stock of the Company, including "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Options. An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee in its sole discretion, provided that no option shall be exercisable less than one or more than ten years after the date of grant. The per share option price shall not be less than 100% of the fair market value of a share of common stock of the Company on the date the option is granted. Upon exercise, the option price 2 4 may be paid in cash, in shares of common stock of the Company having a fair market value equal to the option price, or in a combination thereof. The Committee may also allow the cashless exercise of options by holders thereof, as permitted under regulations promulgated by the Board of Governors of the Federal Reserve System, subject to any applicable restrictions necessary to comply with rules adopted by the Securities and Exchange Commission, and the exercise of options by holders thereof by any other means that the Committee determines to be consistent with the Plan's purpose and applicable law, including loans, with or without interest, made by the Company to the holder thereof. (c) Restrictions Relating to Incentive Stock Options. To the extent required by the Code, the aggregate fair market value (determined as of the time the option is granted) of the common stock of the Company with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under this Plan or any other plan of the Company or any of its subsidiaries) shall not exceed $100,000. (d) Termination of Employment. If an optionee ceases to be employed by the Company or any of its subsidiaries by reason of (i) death, (ii) physical or mental incapacity, (iii) retirement on or after the normal retirement date provided for in and pursuant to any pension plan of the Company or any subsidiary of the Company in effect at the time of such retirement, or (iv) early retirement (with the consent of the Committee) provided for in and pursuant to any such pension plan, any option held by such optionee may be exercised, with respect to all or any part of the common stock of the Company as to which such option was not theretofore exercised (whether or not such option was otherwise then exercisable), for a period ending on the third anniversary of the date of such cessation of employment or the date of expiration of such option, whichever first occurs. If an optionee ceases to be employed by the Company and any of its subsidiaries for any reason other than a reason set forth in the immediately preceding sentence, any option held by such optionee may be exercised for a period ending on the 30th day following the date of such cessation of employment or the date of expiration of such option, whichever first occurs, but only with respect to that number of shares of common stock for which such option was exercisable immediately prior to the date of cessation of employment. (e) Additional Terms and Conditions. The agreement or instrument evidencing the grant of a stock option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 7. Stock Appreciation Rights. (a) Grants. Rights entitling the grantee to receive cash or shares of common stock of the Company having a fair market value 3 5 equal to the appreciation in market value of a stated number of shares of such common stock from the date of the grant to the date of exercise, or, in the case of rights granted in tandem with or by reference to a stock option granted prior to the grant of such rights, from the date of grant of such related stock option to the date of exercise, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Grant. Such rights may be granted in tandem with or by reference to a related stock option, in which event the grantee may elect to exercise either the stock option or the right, but not both, as to the shares subject to the stock option and the right, or the right may be granted independently of a stock option. Rights granted in tandem with or by reference to a related stock option shall be exercisable to the extent, and only to the extent, that the related option is exercisable, provided that no such right (except in the case of death or physical or mental incapacity) shall be exercisable prior to the expiration of six months following the date the right is granted. Rights granted independently of a stock option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee, provided that no right shall be exercisable less than one or more than ten years after the date of grant. Further, in the event that any employee to whom rights are granted independently of a stock option ceases to be an employee of the Company and its subsidiaries, such rights shall be exercisable only to the extent and upon the conditions that stock options are exercisable in accordance with the provisions of paragraph (d) of Section 6 of the Plan. The Committee may at the time of grant or at any time thereafter impose such additional terms and conditions on the exercise of stock appreciation rights as it deems necessary or desirable for compliance with Section 16(a) or Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. (c) Payment on Exercise. Upon exercise of a stock appreciation right, the grantee shall be paid the excess of the then fair market value of the number of shares of common stock of the Company to which the right relates over the fair market value of such number of shares at the date of grant of the right or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of common stock having a fair market value equal to such excess, or in such combination thereof, as may be provided in the grant of such right (which may permit the grantee to elect between cash and common stock or to elect a combination thereof) or, if no such provision is made in the grant, as the Committee shall determine upon exercise of the right, provided, in any event, that the grantee shall be paid cash in lieu of any fractional share of common stock to which such grantee would otherwise be entitled. The number of shares which may be issued pursuant to grants under the Plan shall be reduced in connection 4 6 with the exercise of any stock appreciation right by the number of shares with respect to which such right is exercised. (d) Additional Terms and Conditions. The agreement or instrument evidencing the grant of stock appreciation rights may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 8. Restricted Stock Awards. Restricted stock awards consisting of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee, provided that any such employee (except an employee whose terms of employment include the granting of a restricted stock award) shall have been employed by the Company or any of its subsidiaries for at least six months. Such awards shall be contingent on the employee's continuing employment with the Company or its subsidiaries for a period to be specified in the award, which shall not be less than one or more than ten years from the date of award, and shall be subject to such additional terms and conditions as the Committee in its sole discretion deems appropriate, including, but not by way of limitation, restrictions on the sale or other disposition of such shares during the restriction period. The Committee may in its sole discretion at the time of the award or at any time thereafter provide for the early vesting of such award in the event of termination of employment by retirement, death, incapacity or otherwise prior to the end of the restriction period. The holder of a restricted stock award shall have the right to vote the restricted shares and to receive dividends thereon, unless and until such shares are forfeited. 9. Performance Awards. (a) Awards. Performance awards consisting of (i) shares of common stock of the Company, (ii) monetary units or (iii) units which are expressed in terms of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. Such awards shall be contingent on the achievement over a period of not less than one or more than ten years of such corporate, division, subsidiary, group or other objectives as shall be established by the Committee. Such objectives may be revised by the Committee at any time and from time to time during the performance period to take into account significant unforeseen events or changes in circumstances. Except as may otherwise be determined by the Committee at the time of the award or at any time thereafter, a performance award shall terminate if the holder of the award does not remain continuously in the employ of the Company or its subsidiaries at all times during the 5 7 applicable performance period. (b) Rights with Respect to Shares and Share Units. If a performance award consists of shares of common stock of the Company or units which are expressed in terms of shares of such common stock, amounts equal to dividends otherwise payable on a like number of shares may, if the award so provides, be converted into additional such shares (to the extent that shares are then available for issuance under the Plan) or credited as additional units and paid to the participant if and when, and to the extent that, payment is made pursuant to such award. (c) Payment. Payment of a performance award following the end of the performance period, if such award consists of monetary units or units expressed in terms of shares of common stock of the Company, may be made in cash, shares of common stock, or a combination thereof, as determined by the Committee. Any payment made in common stock shall be based on the fair market value of such stock on the payment date. In the case of any payment made in whole or in part in cash (other than amounts attributable to dividend equivalents payable in cash), the number of shares of common stock which may be issued pursuant to grants under the Plan shall be reduced by that number of shares of such stock (including any fraction as a whole share) having a fair market value that is equal to the amount of such cash. 10. Adjustments for Changes in Capitalization, Etc. Subject to the provisions of Section 11 of the Plan, stock options, stock appreciation rights, restricted stock awards, and performance awards shall be appropriately adjusted by the Committee as to the number, kind and price of shares or other consideration subject to such grants in the event of changes in the outstanding common stock by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any stock option, stock appreciation right, restricted stock award or performance award. In the event of any such change in the outstanding common stock, the maximum number of shares which may be issued pursuant to grants under the Plan shall also be appropriately adjusted by the Committee. No adjustment to either (i) the number or price of shares of common stock subject to incentive stock options or (ii) the maximum number of shares which may be issued pursuant to incentive stock options shall be permitted hereunder to the extent that such adjustment would cause an incentive stock option to be considered as modified or the Plan to be treated as newly adopted under the Code. 6 8 11. Effect of Merger, Consolidation, Liquidation and Certain Other Events. (a) Acceleration of Benefits. In the event of a "Change of Control" as defined in paragraph (b) of this Section 11, (i) the value of all outstanding stock options, stock appreciation rights and restricted stock awards (whether or not then fully exercisable or vested) shall be cashed out on the basis of the "Change of Control Price" (as defined in paragraph (c) of this Section 11) as of the date the Change of Control occurs, provided, however, that any stock options or stock appreciation rights outstanding for less than six months shall not be cashed out until six months after the respective date of grant, and provided, further, that the Committee may provide for the immediate vesting instead of the cashing out of restricted stock awards in such circumstances as it deems appropriate; and (ii) all outstanding performance awards shall be cashed out in such manner and in such amount or amounts as determined by the Committee in its sole discretion at the time such awards are made. (b) Change of Control. For purposes of this Section 11, a Change of Control means the happening of any of the following: (i) the Company is merged into or consolidated with another corporation, or the stockholders of the Company approve a definitive agreement to sell or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation, provided, however, that a Change of Control shall not be deemed to have occurred by reason of a transaction, or a substantially concurrent or otherwise related series of transactions, upon the completion of which the beneficial ownership of the voting power of the Company, the surviving corporation or corporation directly or indirectly controlling the Company or the surviving corporation, as the case may be, is held only by the same persons (as defined below) (although not necessarily in the same proportion) as held the beneficial ownership of the voting power of the Company immediately prior to the transaction or the substantially concurrent or otherwise related series of transactions, except that upon the completion thereof, employees or employee benefit plans of the Company may be a new holder of such beneficial ownership; or (ii) the "beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing 30% or more of the combined voting power of the Company is acquired by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee or other fiduciary holding securities under an employee benefit or other similar stock plan of the Company); or (iii) at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Directors of the Company cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors still in office at the time 7 9 of such election or nomination who were directors at the beginning of such period). (c) Change of Control Price. For purposes of this Section 11, Change of Control Price means (i) with respect to a Change of Control by reason of a merger or consolidation of the Company described in paragraph (b)(i) of this Section 11 in which the consideration per share of the Company's common stock to be paid for the acquisition of shares of common stock specified in the agreement of merger or consolidation is all in cash, the highest such consideration per share, (ii) with respect to a Change of Control by reason of an acquisition of securities described in paragraph (b)(ii) of this Section 11, the highest price per share for any share of the Company's common stock paid by any holder of any of the securities representing 30% or more of the combined voting power of the Company giving rise to the Change of Control, and (iii) with respect to a Change of Control by reason of a merger or consolidation of the Company (other than a merger or consolidation described in paragraph (c)(i) of this Section 11), stockholder approval of an agreement or plan described in paragraph (b)(i) of this Section 11 or a change in the composition of the Board of Directors described in paragraph (b)(iii) of this Section 11, the highest price per share of common stock reported on the New York Stock Exchange Composite Tape (or, if such shares are not traded on the New York Stock Exchange, such other principal market on which such shares are traded) during the sixty-day period ending on the date the Change of Control occurs, except that, in the case of incentive stock options and stock appreciation rights relating to incentive stock options, the holder may not receive an amount in excess of the maximum amount that will enable such option to continue to qualify as an incentive stock option. 12. Amendment and Termination of Plan. The Plan may be amended by the Board of Directors of the Company in any respect, provided that, without stockholder approval, no amendment (other than pursuant to Section 10 of the Plan) shall increase the maximum number of shares available for issuance under the Plan. In addition, no amendment may impair the rights of a participant under any stock option, stock appreciation right, restricted stock award or performance award previously granted under the Plan without the consent of such participant, unless required by law. The Plan may also be terminated at any time by the Board of Directors. No further grants may be made under the Plan after termination, but termination shall not affect the rights of any participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. 13. Prior Plan. Upon the effectiveness of this Plan, no further grants shall 8 10 be made under the Inland 1984 Incentive Stock Plan. The discontinuance of the Inland 1984 Incentive Stock Plan shall not affect the rights of any participant under, or the authority of the Committee (therein referred to) with respect to, any grants or awards made thereunder prior to such discontinuance. 14. Miscellaneous. (a) No Right to a Grant. Neither the adoption of the Plan nor any action of the Board of Directors or of the Committee shall be deemed to give any employee any right to be selected as a participant or to be granted a stock option, stock appreciation right, restricted stock award or performance award. (b) Rights as Stockholders. No person shall have any rights as a stockholder of the Company with respect to any shares covered by a stock option, stock appreciation right, or performance award until the date of the issuance of a stock certificate to such person pursuant to such stock option, right or award. (c) Employment. Nothing contained in this Plan shall be deemed to confer upon any employee any right of continued employment with the Company or any of its subsidiaries or to limit or diminish in any way the right of the Company or any such subsidiary to terminate his or her employment at any time with or without cause. (d) Taxes. The Company shall be entitled to deduct from any payment under the Plan the amount of any tax required by law to be withheld with respect to such payment or may require any participant to pay such amount to the Company prior to and as a condition of making such payment. In addition, the Committee may, in its discretion and subject to such rules as it may adopt from time to time, permit a participant to elect to have the Company withhold from any payment under the Plan (or to have the Company accept from the participant), for tax withholding purposes, cash or shares of common stock of the Company, valued at their fair market value, but in no event shall the cash or the fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. No stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution. During the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. 9 EX-10.E 5 1992 INCENTIVE STOCK PLAN, AMENDED 1 EXHIBIT 10.E Inland Steel Industries INLAND 1992 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 2 INLAND 1992 INCENTIVE STOCK PLAN AS AMENDED THROUGH MARCH 22, 1995 1. Purpose. The purpose of the Inland 1992 Incentive Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of Inland Steel Industries, Inc. (the "Company") and its subsidiaries, and to furnish incentives to such individuals through rewards based upon the ownership and performance of the common stock of the Company. To this end, the Committee hereinafter designated may grant stock options, stock appreciation rights, restricted stock awards, and performance awards, or combinations thereof, to officers and other key employees of the Company and its subsidiaries, on the terms and subject to the conditions set forth in this Plan. 2. Participants. Participants in the Plan shall consist of such officers and other key employees of the Company and its subsidiaries as the Committee in its sole discretion may select from time to time to receive stock options, stock appreciation rights, restricted stock awards or performance awards, either singly or in combination, as the Committee may determine in its sole discretion. Any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries shall not be eligible to receive stock options, stock appreciation rights, restricted stock awards or performance awards under the Plan. As used in the Plan, the term "subsidiary" means (a) any corporation of which the Company owns or controls, directly or indirectly, 50% or more of the outstanding shares of capital stock entitled to vote for the election of directors or (b) any partnership, joint venture, or other business entity in respect of which the Company, directly or indirectly, has comparable ownership or control. 3. Shares Reserved under the Plan. The maximum number of shares of common stock, $1.00 par value per share, of the Company which may be issued pursuant to grants or awards made under the Plan shall not exceed 2,200,000, subject, however, to adjustment pursuant to the provisions of Section 10 of the Plan. Except to the extent otherwise determined by the Committee, any shares subject to any grant or award which terminates by expiration, cancellation or otherwise without the issuance of such shares or which is settled in cash (to the extent so settled), or in the case of a restricted stock award without vesting, shall again be available for future grants under the Plan. Shares of common stock to be issued pursuant to grants under the Plan may be authorized and unissued shares of common stock, treasury common stock, or any combination thereof. 3 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. No member of the Committee shall be eligible to receive any grant, or shall have been eligible to receive any grant for at least one year prior to becoming a member, under the Plan or any other stock option, stock appreciation rights or other incentive stock plan for employees of the Company or any subsidiary of the Company. Subject to the provisions of the Plan, the Committee shall have authority (i) to determine which employees of the Company and its subsidiaries shall be eligible for participation in the Plan; (ii) to select employees to receive grants under the Plan; (iii) to determine the form of grant, whether as a stock option, stock appreciation right, restricted stock award, performance award or a combination thereof, the number of shares or units subject to the grant, the time and conditions of exercise or vesting, the fair market value of the common stock of the Company for purposes of the Plan, and all other terms and conditions of any grant; and (iv) to prescribe the form of agreement, certificate or other instrument evidencing the grant. The Committee shall also have authority to interpret the Plan and to establish, amend and rescind rules and regulations for the administration of the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on all persons. 5. Effective Date of Plan. The Plan shall be submitted to the stockholders of the Company for approval at the annual meeting to be held on April 22, 1992, or any adjournment thereof, and, if approved by the stockholders, shall be deemed to have become effective on the date of such approval. 6. Stock Options. (a) Grants. Options to purchase shares of common stock of the Company, including "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Options. An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee in its sole discretion, provided that no option shall be exercisable less than one or more than ten years after the date of grant. The per share option price shall not be less than 100% of the fair market value of a share of common stock of the Company on the date the option is granted. Upon exercise, the option price may be paid in cash, in shares of common stock of the Company having a fair market value equal to the option price, or in a 2 4 combination thereof. The Committee may also allow the cashless exercise of options by holders thereof, as permitted under regulations promulgated by the Board of Governors of the Federal Reserve System, subject to any applicable restrictions necessary to comply with rules adopted by the Securities and Exchange Commission, and the exercise of options by holders thereof by any other means that the Committee determines to be consistent with the Plan's purpose and applicable law, including loans, with or without interest, made by the Company to the holder thereof. (c) Restrictions Relating to Incentive Stock Options. To the extent required by the Code, the aggregate fair market value (determined as of the time the option is granted) of the common stock of the Company with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under the Plan or any other plan of the Company or any of its subsidiaries) shall not exceed $100,000. (d) Termination of Employment. If an optionee ceases to be employed by the Company or any of its subsidiaries by reason of (i) death, (ii) physical or mental incapacity, (iii) retirement on or after the normal retirement date provided for in and pursuant to any pension plan of the Company or any subsidiary of the Company in effect at the time of such retirement, or (iv) early retirement (with the consent of the Committee) provided for in and pursuant to any such pension plan, any option held by such optionee may be exercised, with respect to all or any part of the common stock of the Company as to which such option was not theretofore exercised (whether or not such option was otherwise then exercisable), for such period from and after the date of such cessation of employment (not extending, however, beyond the date of expiration of such option) as the Committee may determine at the time of the grant. If an optionee ceases to be employed by the Company and any of its subsidiaries for any reason other than a reason set forth in the immediately preceding sentence, any option held by such optionee may be exercised for a period ending on the 30th day following the date of such cessation of employment or the date of expiration of such option, whichever first occurs, but only with respect to that number of shares of common stock for which such option was exercisable immediately prior to the date of cessation of employment. (e) Additional Terms and Conditions. The agreement or instrument evidencing the grant of a stock option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 7. Stock Appreciation Rights. (a) Grants. Rights entitling the grantee to receive cash or shares of common stock of the Company having a fair market value equal to the appreciation in market value of a stated number of 3 5 shares of such common stock from the date of the grant to the date of exercise, or, in the case of rights granted in tandem with or by reference to a stock option granted prior to the grant of such rights, from the date of grant of such related stock option to the date of exercise, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Grant. Such rights may be granted in tandem with or by reference to a related stock option, in which event the grantee may elect to exercise either the stock option or the right, but not both, as to the shares subject to the stock option and the right, or the right may be granted independently of a stock option. Rights granted in tandem with or by reference to a related stock option shall be exercisable to the extent, and only to the extent, that the related option is exercisable, provided that no such right (except in the case of death or physical or mental incapacity) shall be exercisable prior to the expiration of six months following the date the right is granted. Rights granted independently of a stock option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee, provided that no right shall be exercisable less than one or more than ten years after the date of grant. Further, in the event that any employee to whom rights are granted independently of a stock option ceases to be an employee of the Company and its subsidiaries, such rights shall be exercisable only to the extent and upon the conditions that stock options are exercisable in accordance with the provisions of paragraph (d) of Section 6 of the Plan. The Committee may at the time of grant or at any time thereafter impose such additional terms and conditions on the exercise of stock appreciation rights as it deems necessary or desirable for compliance with Section 16(a) or Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. (c) Payment on Exercise. Upon exercise of a stock appreciation right, the grantee shall be paid the excess of the then fair market value of the number of shares of common stock of the Company to which the right relates over the fair market value of such number of shares at the date of grant of the right or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of common stock having a fair market value equal to such excess, or in such combination thereof, as may be provided in the grant of such right (which may permit the grantee to elect between cash and common stock or to elect a combination thereof), or, if no such provision is made in the grant, as the Committee shall determine upon exercise of the right, provided, in any event, that the grantee shall be paid cash in lieu of any fractional share of common stock to which such grantee would otherwise be entitled. The number of shares which may be issued pursuant to grants under the Plan shall be reduced in connection with the exercise of any stock appreciation right by the number of 4 6 shares issued pursuant to such exercise. (d) Additional Terms and Conditions. The agreement or instrument evidencing the grant of stock appreciation rights may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 8. Restricted Stock Awards. Restricted stock awards consisting of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee, provided that any such employee (except an employee whose terms of employment include the granting of a restricted stock award) shall have been employed by the Company or any of its subsidiaries for at least six months. Such awards shall be contingent on the employee's continuing employment with the Company or its subsidiaries for a period to be specified in the award, which shall not be less than one or more than ten years from the date of award, and shall be subject to such additional terms and conditions as the Committee in its sole discretion deems appropriate, including, but not by way of limitation, restrictions on the sale or other disposition of such shares during the restriction period. The Committee may in its sole discretion at the time of the award or at any time thereafter provide for the early vesting of such award in the event of termination of employment by retirement, death, incapacity or otherwise prior to the end of the restriction period. Except as otherwise determined by the Committee at the time of the award, the holder of a restricted stock award shall have the right to vote the restricted shares and to receive dividends thereon, unless and until such shares are forfeited. 9. Performance Awards. (a) Awards. Performance awards consisting of (i) shares of common stock of the Company, (ii) monetary units or (iii) units which are expressed in terms of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. Such awards shall be contingent on the achievement over a period of not less than one or more than ten years of such corporate, division, subsidiary, group or other objectives as shall be established by the Committee. Such objectives may be revised by the Committee at any time and from time to time during the performance period to take into account significant unforeseen events or changes in circumstances. Except as may otherwise be determined by the Committee at the time of the award or at any time thereafter, a performance award shall terminate if the holder of the award does not remain continuously in the employ of the Company or its subsidiaries at all times 5 7 during the applicable performance period. (b) Rights with Respect to Shares and Share Units. If a performance award consists of shares of common stock of the Company or units which are expressed in terms of shares of such common stock, amounts equal to dividends otherwise payable on a like number of shares may, if the award so provides, be converted into additional such shares (to the extent that shares are then available for issuance under the Plan) or credited as additional units and paid to the participant if and when, and to the extent that, payment is made pursuant to such award. (c) Payment. Payment of a performance award following the end of the performance period, if such award consists of monetary units or units expressed in terms of shares of common stock of the Company, may be made in cash, shares of common stock, or a combination thereof, as determined by the Committee. Any payment made in common stock shall be based on the fair market value of such stock on the payment date. 10. Adjustments for Changes in Capitalization, Etc. Subject to the provisions of Section 11 of the Plan, stock options, stock appreciation rights, restricted stock awards, and performance awards may be appropriately adjusted by the Committee as to the number, kind and price of shares or other consideration subject to such grants in the event of stock dividends, stock splits, spinoffs or other distributions of assets (other than normal cash dividends), recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in corporate structure or capitalization occurring after the date of the grant of any stock option, stock appreciation right, restricted stock award or performance award. In any such event, the maximum number of shares which may be issued pursuant to grants under the Plan may also be appropriately adjusted by the Committee. 11. Effect of Merger, Consolidation, Liquidation and Certain Other Events. (a) Acceleration of Benefits. In the event of a "Change in Control" as defined in paragraph (b) of this Section 11, (i) the value of all outstanding stock options, stock appreciation rights and restricted stock awards (whether or not then fully exercisable or vested) shall be cashed out on the basis of the "Change in Control Price" (as defined in paragraph (c) of this Section 11) as of the date the Change in Control occurs, provided, however, that any stock options or stock appreciation rights outstanding for less than six months shall not be cashed out until six months after the respective date of grant, and provided, further, that the Committee may provide for the immediate vesting instead of the cashing out of restricted stock awards in such circumstances as it deems 6 8 appropriate; and (ii) all outstanding performance awards shall be cashed out in such manner and in such amount or amounts as determined by the Committee in its sole discretion at the time such awards are made. (b) Change in Control. For purposes of this Section 11, a Change in Control means the happening of any of the following: (i) the Company is merged into or consolidated with another corporation, or the stockholders of the Company approve a definitive agreement to sell or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation, provided, however, that a Change in Control shall not be deemed to have occurred by reason of a transaction, or a substantially concurrent or otherwise related series of transactions, upon the completion of which the beneficial ownership of the voting power of the Company, the surviving corporation or corporation directly or indirectly controlling the Company or the surviving corporation, as the case may be, is held only by the same persons (as defined below) (although not necessarily in the same proportion) as held the beneficial ownership of the voting power of the Company immediately prior to the transaction or the substantially concurrent or otherwise related series of transactions, except that upon the completion thereof, employees or employee benefit plans of the Company may be a new holder of such beneficial ownership or (ii) the "beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing 40% or more of the combined voting power of the Company is acquired by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee or other fiduciary holding securities under an employee benefit or other similar stock plan of the Company); or (iii) at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Directors of the Company cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors still in office at the time of such election or nomination who were directors at the beginning of such period). (c) Change in Control Price. For purposes of this Section 11, Change in Control Price means (i) with respect to a Change in Control by reason of a merger or consolidation of the Company described in paragraph (b)(i) of this Section 11 in which the consideration per share of the Company's common stock to be paid for the acquisition of shares of common stock specified in the agreement of merger or consolidation is all in cash, the highest such consideration per share, (ii) with respect to a Change in Control by reason of an acquisition of securities described in paragraph (b)(ii) of this Section 11, the highest price per share for any share of the Company's common stock paid by any holder of any of the securities representing 40% or more of the combined 7 9 voting power of the Company giving rise to the Change in Control, and (iii) with respect to a Change in Control by reason of a merger or consolidation of the Company (other than a merger or consolidation described in paragraph (c)(i) of this Section 11), stockholder approval of an agreement or plan described in paragraph (b)(i) of this Section 11 or a change in the composition of the Board of Directors described in paragraph (b)(iii) of this Section 11, the highest price per share of common stock reported on the New York Stock Exchange Composite Tape (or, if such shares are not traded on the New York Stock Exchange, such other principal market on which such shares are traded) during the sixty-day period ending on the date the Change in Control occurs, except that, in the case of incentive stock options and stock appreciation rights relating to incentive stock options, the holder may not receive an amount in excess of the maximum amount that will enable such option to continue to qualify as an incentive stock option. 12. Amendment and Termination of Plan. The Plan may be amended by the Board of Directors of the Company in any respect, provided that, without stockholder approval, no amendment (other than pursuant to Section 10 of the Plan) shall increase the maximum number of shares available for issuance under the Plan. In addition, no amendment may impair the rights of a participant under any stock option, stock appreciation right, restricted stock award or performance award previously granted under the Plan without the consent of such participant, unless required by law. The Plan may also be terminated at any time by the Board of Directors. No further grants may be made under the Plan after termination, but termination shall not affect the rights of any participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. 13. Prior Plan. Upon the effectiveness of this Plan, no further grants shall be made under the Inland 1988 Incentive Stock Plan. The discontinuance of the Inland 1988 Incentive Stock Plan shall not affect the rights of any participant under, or the authority of the Committee (therein referred to) with respect to, any grants or awards made thereunder prior to such discontinuance. 14. Miscellaneous. (a) No Right to a Grant. Neither the adoption of the Plan nor any action of the Board of Directors or of the Committee shall be deemed to give any employee any right to be selected as a participant or to be granted a stock option, stock appreciation right, restricted stock award or performance award. 8 10 (b) Rights as Stockholders. No person shall have any rights as a stockholder of the Company with respect to any shares covered by a stock option, stock appreciation right, or performance award until the date of the issuance of a stock certificate to such person pursuant to such stock option, right or award. (c) Employment. Nothing contained in this Plan shall be deemed to confer upon any employee any right of continued employment with the Company or any of its subsidiaries or to limit or diminish in any way the right of the Company or any such subsidiary to terminate his or her employment at any time with or without cause. (d) Taxes. The Company shall be entitled to deduct from any payment under the Plan the amount of any tax required by law to be withheld with respect to such payment or may require any participant to pay such amount to the Company prior to and as a condition of making such payment. In addition, the Committee may, in its discretion and subject to such rules as it may adopt from time to time, permit a participant to elect to have the Company withhold from any payment under the Plan (or to have the Company accept from the participant), for tax withholding purposes, shares of common stock of the Company, valued at their fair market value, but in no event shall the fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. No stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution. During the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. 9 EX-10.J 6 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.J INLAND STEEL INDUSTRIES DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES (AS AMENDED EFFECTIVE NOVEMBER 22, 1994) Inland Steel Industries, Inc. hereby establishes this Inland Steel Industries Deferred Compensation Plan for Certain Employees, effective as of November 22, 1994, in order to enable eligible employees of Inland Steel Industries, Inc. and its Affiliates to defer all or a portion of their Inland Steel Industries, Inc. Annual Incentive Plan (the "Annual Incentive Plan") payments and to be credited with earnings on a tax favored basis until retirement or termination. ARTICLE I DEFINITIONS 1.01 "ACCOUNT" means the record of a Participant's interest in the Plan attributable to Participant Contributions made on behalf of such Participant and earnings thereon. 1.02 "AFFILIATE" means (a) a member of a controlled group of corporations of which the Company is a member or (b) an unincorporated trade or business which is under common control with the Company as determined in accordance with Code Section 414(c). For purposes hereof, a "controlled group of corporations" means a controlled group of corporations as defined in Code Section 1563(a), determined without regard to Code Sections 1563(a)(4) and 1563(e)(3)(C). 1.03 "BENEFICIARY" means the person or persons, natural or otherwise, designated by a Participant to receive any benefit payable under the Plan in the event of his death. To be effective, any such designation and any alteration or revocation thereof shall be in writing, in such form as the Plan Administrator may prescribe and shall be filed with the Plan Administrator prior to the Participant's death. If at the time a death benefit becomes payable no designation of Beneficiary is on file with the Plan Administrator, or if the designated Beneficiary does not survive the Participant, the Beneficiary shall be the person or persons surviving the Participant in the first of the following classes in which there is a survivor, share and share alike: (a) his spouse; (b) his children, except that if any of his children pre-decease him but leave issue surviving him, such issue shall take by right of representation the share their parent would have taken if living; 2 (c) his parents; (d) his brothers and sisters; (e) his personal representative or representatives (executors or administrators). Determination of who the Beneficiary is in each case shall be made by the Plan Administrator. 1.04 "CODE" means the Internal Revenue Code of 1986, as from time to time amended. 1.05 "COMMITTEE" means the Compensation Committee of the Board of Directors of the Company. 1.06 "COMPANY" means Inland Steel Industries, Inc. 1.07 "DISABILITY" means a physical or mental condition, or both, which in the opinion of the Plan Administrator, based on such medical evidence as the Plan Administrator deems relevant, renders a Participant incapable of meeting the requirements of the position he occupied at the onset of the condition and which also disqualifies him for transfer to other available and suitable employment with an Affiliate. The Plan Administrator shall administer this provision in a consistent and nondiscriminatory manner. 1.08 "ELECTION DATE" means December 1 of a Plan Year; provided, however, that no Election Dates shall occur under the Plan in Plan Years occurring on or after January 1, 1994. 1.09 "ELIGIBLE EMPLOYEE" means an employee of the Company or an Affiliate who is eligible to participate in the Inland 1988 Incentive Stock Plan or who is designated as eligible to participate in the Plan by the Committee. 1.10 "PARTICIPANT" means each Eligible Employee who has elected to participate in the Plan. 1.11 "PARTICIPANT CONTRIBUTIONS" means the contributions to the Plan by the Company on behalf of a Participant pursuant to Section 3.01. 1.12 "PLAN" means the Inland Steel Industries Deferred Compensation Plan for Certain Employees. 1.13 "PLAN ADMINISTRATOR" means the Director - Human Resources of the Company or such other person or persons as may be designated by the Chairman, President or Vice President - Human Resources of the Company to administer the Plan. 1.14 "PLAN YEAR" means the calendar year. - 2 - 3 1.15 "TRUST" means the Inland Steel Industries Deferred Compensation Trust for Certain Employees. 1.16 "TRUSTEE" means Harris Trust and Savings Bank, or any successor Trustee of the Trust. 1.17 "VALUATION DATE" means the last day of each quarter. ARTICLE II PARTICIPATION An Eligible Employee shall become a Participant by electing, in accordance with procedures established by the Plan Administrator, to have the Company make contributions on his behalf pursuant to Section 3.01 hereof. Notwithstanding any other provision of the Plan, no person shall become a Participant in the Plan for any Plan Year commencing in or after 1994. ARTICLE III CONTRIBUTIONS 3.01 PARTICIPANT CONTRIBUTIONS. Each Eligible Employee may elect, in accordance with procedures established by the Plan Administrator, on or before the Election Date for a Plan Year, for the Company to make contributions under the Plan equal to any whole percentage (from 1% to 100%) of the Participant's Annual Incentive Plan payment for such Plan Year, but not less than $1,000. Contributions made to the Plan on a Participant's behalf shall reduce the amount of the Annual Incentive Plan payment for the Plan Year which would otherwise be payable to such Participant in January of the following Plan Year. Notwithstanding any other provision of the Plan, no contributions shall be made to the Plan for periods after December 31, 1994. 3.02 NATURE OF CONTRIBUTIONS. Any amounts contributed to the Plan pursuant to this Article III shall be held by the Trustee subject to the provisions of the Trust, but shall be subject to the claims of the creditors of the Company as provided in the Trust. Notwithstanding the transfer of contributions to the Trust, however, such deferred amounts shall remain obligations of the Company to the Participants and be reflected on the Company's books by separate accounting entries and credited with earnings at such rate as the Plan Administrator shall have designated and disclosed to Eligible Employees prior to their election to participate (which rate may be specified or may instead be set by reference to a specified prime or other fixed rate or by reference to the rate earned by any pooled fixed income or money market fund), but without regard to the earnings or investment results of the Trust. Nothing in the foregoing provisions of this Section 3.02 shall require the Company to continue to maintain the Trust or to continue to hold amounts deferred pursuant to the Plan under the Trust or any other trust and, upon termination of the Trust, all amounts payable pursuant to the terms of the Plan shall be payable from the company's general assets. - 3 - 4 ARTICLE IV ACCOUNTS AND INVESTMENTS 4.01 VALUATION OF ACCOUNTS. As of each Valuation Date, the Account of each Participant shall be adjusted to reflect (a) the earnings (or losses) described in Section 3.02, and (b) Participant Contributions to, and distributions from, the Plan; in both cases since the next preceding Valuation Date. 4.02 INVESTMENT OF FUNDS. In the event amounts under the Plan are to be invested under the Trust, amounts equivalent to Participant's Contributions shall be transmitted by the Company to the Trustee and invested in such manner as the Company determines for the purpose of paying benefits under the Plan; provided, however, that Trust investments need not reflect the rate chosen under Section 3.02 for the crediting of earnings to the Accounts of Participants, and the earnings or investment results of the Trust shall not affect the earnings credited to Participants' Accounts under the Plan. Nothing in the foregoing provisions of this Section 4.02 shall require the Company to continue to maintain the Trust, to make contributions to the Trust or to continue to hold amounts deferred pursuant to the Plan under the Trust or any other trust and, upon termination of the Trust, all amounts payable pursuant to the terms of the Plan shall be payable from the company's general assets. ARTICLE V DISTRIBUTION OF BENEFITS Upon a Participant's Disability, retirement, death or termination of employment with the Company and its Affiliates, the Participant (or his Beneficiary if he is deceased) shall be paid his entire Account balance as of the Valuation Date preceding the date of such Disability, retirement, death or termination of employment as soon as practicable after such date; provided, however, that, if permitted by the Company, prior to the date on which he is entitled to be paid his Account balance, a Participant may irrevocably elect, in accordance with rules and procedures established by the Plan Administrator, to defer the payment of his Account balance to a later date specified by the Participant or to be paid his Account balance in monthly installments over a period of time specified by the Participant. Notwithstanding the foregoing provisions of this Article V, a Participant (or his Beneficiary if he is deceased) may, at any time prior to the date on which the Participant's Account balance would otherwise be paid pursuant to the foregoing provisions of this Article V, elect to receive payment of the entire Account balance as of any Valuation Date; provided, however, that no election pursuant to this sentence shall be effective unless the Committee approves such election. - 4 - 5 ARTICLE VI PLAN ADMINISTRATION 6.01 ADMINISTRATION OF PLAN. The Company shall have the sole responsibility for making contributions hereunder as provided under ARTICLE III and shall have the sole authority to amend or terminate, in whole or in part, this Plan at any time. The Plan Administrator shall have the sole responsibility for the administration of the Plan. The Company does not guarantee to any Participant in any manner the effect under any tax law or Federal or state statute of the Participant's participation in this Plan. 6.02 CLAIMS PROCEDURE. The Plan Administrator shall make all determinations as to the right of any person to a benefit under this Plan. Any denial by the Plan Administrator of a claim for benefits under the Plan by a Participant shall be stated in writing by the Plan Administrator and shall set forth the specific reasons for the denial. In addition, the Plan Administrator shall afford a reasonable opportunity to any Participant whose claim for benefits has been denied for a review of the decision denying the claim. 6.03 POWERS AND DUTIES OF PLAN ADMINISTRATOR. The Plan Administrator shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants in filing elections or revo- cations thereof; (c) to prepare and distribute, in such manner as the Plan Administrator determines to be appropriate, information explaining the Plan; (d) to receive from the Company and from Par- ticipants such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Company, upon request, such reports with respect to the administration of the Plan as are reasonable and appro- priate; - 5 - 6 (f) to receive, review and keep on file (as it deems convenient and proper) reports of benefit payments by the Company and re- ports of disbursements for expenses di- rected by the Plan Administrator; and (g) to appoint individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal counsel. The Plan Administrator shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 6.04 RULES AND DECISIONS. The Plan Administrator may adopt such rules as it deems necessary, desirable or appropriate. All rules and decisions of the Plan Administrator shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation, the Plan Administrator shall be entitled to rely upon information furnished by a Participant, the Company or the legal counsel of the Company. 6.05 AUTHORIZATION OF BENEFIT PAYMENTS. The Plan Administrator shall issue directions to the Company concerning all benefits which are to be paid from the Company's general assets pursuant to the provisions of the Plan. 6.06 INDEMNIFICATION OF PLAN ADMINISTRATOR. The Plan Administrator shall be indemnified by the Company against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. ARTICLE VII MISCELLANEOUS 7.01 NO RIGHT TO EMPLOYMENT, ETC.. Neither the creation of this Plan nor anything contained herein shall be construed as giving any Participant hereunder or other employees of the Company or any subsidiary any right to remain in the employ of the Company or any subsidiary. 7.02 SUCCESSORS AND ASSIGNS. All rights and obligations of this Plan shall inure to, and be binding upon the successors and assigns of the Company. 7.03 INALIENABILITY. Except so far as may be contrary to the laws of any state having jurisdiction in the premises, a Participant or Beneficiary shall have no right to assign, transfer, hypothecate, encumber, commute or anticipate his interest in any - 6 - 7 payments under this Plan and such payments shall not in any way be subject to any legal process to levy upon or attach the same for payment of any claim against any Participant or Beneficiary. 7.04 INCOMPETENCY. If any Participant or Beneficiary is, in the opinion of the Plan Administrator, legally incapable of giving a valid receipt and discharge for any payment, the Plan Administrator may, at its option, direct that such payment or any part thereof be made to such person or persons who in the opinion of the Plan Administrator are caring for and supporting such Participant or Beneficiary, unless it has received due notice of claim from a duly appointed guardian or conservator of the estate of the Participant or Beneficiary. A payment so made will be a complete discharge of the obligations under this Plan to the extent of and as to that payment, and neither the Plan Administrator nor the Company will have any obligation regarding the application of the payment. 7.05 CONTROLLING LAW. To the extent not preempted by the laws of the United States of America, the laws of the State of Illinois shall be the controlling state law in all matters relating to this Plan. 7.06 SEVERABILITY. If any provisions of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, but this Plan shall be construed and enforced as if the illegal and invalid provisions never had been included herein. 7.07 GENDER AND NUMBER. Whenever the context requires or permits, the gender and number of words shall be interchangeable. ARTICLE VIII AMENDMENT AND TERMINATION 8.01 AMENDMENT TO CONFORM WITH LAW. The Company may by amendment make such changes in, additions to, and substitutions in the provisions of this Plan, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming this Plan to any present or future law relating to plans of this or a similar nature, and to the administrative regulations and rulings promulgated thereunder. 8.02 OTHER AMENDMENTS AND TERMINATION. The Company may amend or terminate this Plan at any time, without the consent of any Participant or Beneficiary. Notwithstanding the foregoing, this Plan shall not be amended or terminated so as to reduce or cancel the benefits which have accrued to a Participant or Beneficiary prior to the later of the date of adoption of the amendment or termination or the effective date thereof, and in the event of such amendment or termination, any such accrued benefit hereunder shall not be reduced or cancelled. - 7 - 8 8.03 EFFECT OF CHANGE IN CONTROL. (a) In the event of a Change in Control (as defined below), the Trustee shall, at the direction of the Committee, either (i) pay over all amounts then standing to the Account of a Participant (or Beneficiary) in a cash lump sum, or (ii) continue to hold, in trust, the assets of the Plan pending future distribution to Partici- pants (and Beneficiaries) in accordance with the provisions hereof as in effect on the day immediately preceding the date of such Change in Control. (b) For purposes of this Section 8.03, a "Change in Control" shall be deemed to have occurred if: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Ex- change Act of 1934, as amended (the "Exchange Act")), other than (A) the Company or any of its subsidiaries, (B) a trustee or other fidu- ciary holding securities under an employee benefit plan of the Company or any of its sub- sidiaries, (C) an underwriter temporarily hold- ing securities pursuant to an offering of such securities, or (D) a corporation owned, direct- ly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such persons any securities acquired directly from the Company or its affiliates) representing 40% or more of the combined voting power of the Company's then outstanding securi- ties; (ii) during any period of two consecutive years (not including any period prior to Novem- ber 22, 1989), individuals who at the beginning of such period constitute the Board of Direc- tors of the Company and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i), (iii) or (iv) of this paragraph (b)), whose election by the Board or nomination for elec- tion by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was - 8 - 9 previously so approved, cease for any reason to constitute a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immedi- ately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviv- ing entity) in combination with the ownership of any trustee or other fiduciary holding secu- rities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediate- ly after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) The provisions of this Section 8.03 may not be amended after the date of a Change in Control without the written consent of a majority in both number and interest of the Participants in this Plan, other than those Participants who are both (i) not employed by the Company or a sub- sidiary as of the date of the Change in Control and (ii) not receiving nor could have commenced receiving benefits under the Plan as of the date of the Change in Control, both immediately prior to the Change in Control and at the date of such amendment. 8.04 MANNER AND FORM OF AMENDMENT OR TERMINATION. Any amendment or termination of this Plan by the Company shall be made only by action of the Board of Directors of the Company or any officer of the Company duly authorized by the Board of Directors. Certification of any amendment or termination of this Plan shall be furnished to the Plan Administrator by the Company. 8.05 NOTICE OF AMENDMENT OR TERMINATION. The Plan Administrator shall notify Participants or Beneficiaries who are affected by any amendment or termination of this Plan within a reasonable time thereof. - 9 - EX-10.N(2) 7 AMENDED LISTING OF EXEC. OFFICERS 1 EXHIBIT 10.N(2) Robert J. Darnall David B. Anderson EX-10.N(8) 8 NEIL S. NOVICH EMPLOYMENT AGREE. 1 EXHIBIT 10.N(8) April 8, 1994 Mr. Neil S. Novich 21 Barnstable Rd. West Newton Hill, MA 02165 Dear Neil: This will confirm our discussions regarding the terms of our offer for you to join Inland Steel Industries, Inc. ("the Company"). (1) Your titles would be Vice President, Inland Steel Industries, Inc. and Chief Operating Officer Distribution and President, Ryerson. (2) Your employment date would be on or about June 1, 1994 unless otherwise mutually agreed by you and the Company. (3) Your minimum base annualized salary for calendar year 1994 would be $330,000. You would be entitled to participate in the Company's Annual Incentive Plan on the same basis as other participants in the Plan, with your Target Award for purposes of the Plan for 1994 being not less than 50%. You will be guaranteed a minimum bonus of $165,000 prorated for 1994 - paid in first quarter of 1995. When you join Inland Steel Industries, you will also be paid a signing bonus of $100,000. (4) You would be granted a three-year restricted stock award of 5,000 shares of common stock of the Company, subject to the usual conditions regarding your continued employment with the Company. In addition, you will be granted a stock option grant of 20,000 shares under the Inland Steel Industries Stock Option Program. Both of these grants will be made when you join the Company. (5) The Company will, in the absence of any malfeasance on your part, guarantee you three (3) years of salary and benefits. After three years, this guarantee will convert to our standard change of control agreement, on terms and conditions consistent with those incorporated in existing agreements. In addition, you would be entitled to participate in the Company's medical, life insurance, pension, thrift and other benefit plans and programs in accordance with the terms and conditions of such plans and programs (however, we will waive the six month service requirement for LTD eligibility, making you eligible for LTD when you join the Company) and would also be entitled to such additional benefits as are normally provided to officers of the Company, including Company car and appropriate memberships. (6) The Company will reimburse you for all reasonable expenses incurred by you in moving yourself and your family from West Newton Hill, Massachusetts to the Chicago area, including purchase of your primary residence at a price not less than, your purchase price plus the cost of capital improvements as defined by the IRS and an amount sufficient to pay all taxes on the reimbursement such that you have no net after tax cost or loss. We would anticipate hearing from you regarding this proposal at your earliest convenience. In the meantime, if you have any questions regarding any of the above items, please feel free to telephone me in that regard. Sincerely, /s/ Robert J. Darnall Chairman, President and Chief Executive Officer EX-10.N(9) 9 NEIL S. NOVICH SEVERANCE AGREE. 1 EXHIBIT 10.N(9) April 8, 1994 Mr. Neil S. Novich 21 Barnstable Road West Newton Hill, MA 02165 Dear Neil: In the event that your employment is terminated by Inland Steel Industries, Inc. (together with its subsidiaries, the "Company") prior to the third year anniversary of your employment for any reason other than malfeasance on your part ("termination by the Company"), the Company shall pay you an amount equal to the sum of the following: (i) the present value of an amount equal to the product of (a) thirty six (36) less the number of months you have been employed by the Company at the time of your termination by the Company times (b) your monthly base salary at the rate in effect at that time, plus; (ii) the present value of an amount equal to the product of (a) thirty six (36) less the number of months you have been employed by the Company at the time of your termination by the Company times (b) one-twelfth (1/12) of the average annual Award bonus paid to you under the Company's Annual Incentive Plan or similar successor plan ("Bonus Plan") in the years prior to the date of the termination of your employment by the Company (for any year which any such Award bonus was prorated, the amount will be annualized in making such calculation). The Company will also cause all options to become immediately exercisable and all restricted stock to be fully vested. In addition, the Company will provide you with insurance on your life and continuation of disability insurance and will pay your dental and health care costs and those of your spouse and dependent children for three years of continuous coverage from your date of hire, on a basis consistent with the terms and conditions of its life insurance and dental and health care coverage for active employees. You will receive such payment promptly after the termination of your employment by the Company. The payment and the benefits provided herein will be in lieu of any other amounts that may be payable to you by the Company (including pursuant to any Bonus Plan) or any other Company-sponsored benefit plan. Further, nothing contained herein precludes the Company from changing your duties while you are employed by the Company, so long as the level of your responsibility is not substantially diminished. If the Company fails to make such payment promptly, the Company will pay you interest at the prime rate at the Company's principal bank and any reasonable legal fees and expenses which you may incur in your efforts to collect such payment. Sincerely, /s/ Robert J. Darnall Chairman, President and Chief Executive Officer EX-11 10 STATEMENT OF EARNINGS 1 EXHIBIT 11 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES Statement of Earnings Per Share of Common Stock
Dollars and Shares in Millions (except per share data) ------------------------------------- Years Ended December 31, ------------------------------------- 1994 1993 1992 ---- ---- ---- PRIMARY EARNINGS PER SHARE OF COMMON STOCK Shares of common stock Average shares outstanding 43.1 35.5 32.8 Dilutive effect of stock options .4 - - ------- -------- -------- 43.5 35.5 32.8 ======= ======= ======= Income (loss) before cumulative effect of change in accounting principle $ 107.4 $ (37.6) $(159.4) Cumulative effect of change in accounting principle - - (656.2) -------- -------- ------- Net income (loss) 107.4 (37.6) (815.6) Dividends on preferred stock 28.4 32.0 32.1 -------- -------- ------- Net income (loss) applicable $ 79.0 $ (69.6) $(847.7) ======== ======== ======= Per Share of Common Stock: Before cumulative effect of change in accounting principle $ 1.81 $ (1.96) $ (5.83) Cumulative effect of change in accounting principle - - (19.99) -------- -------- ------- Net income (loss) $ 1.81 $ (1.96) $(25.82) ======== ======== ======= FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK Shares of common stock Average shares outstanding 43.1 35.5 32.8 Assumed conversion of leveraged Series E Preferred Stock 3.0 - - Dilutive effect of stock options .5 - - ------- -------- -------- 46.6 35.5 32.8 ==== ==== ==== Income (loss) before cumulative effect of change in accounting principle $ 107.4 $ (37.6) $(159.4) Cumulative effect of change in accounting principle - - (656.2) -------- -------- ------- Net income (loss) $ 107.4 $ (37.6) $(815.6) Dividends on antidilutive preferred stock 20.5 32.0 32.1 Additional ESOP funding required on conversion of Series E Preferred Stock 7.9 - - --------- -------- -------- Net income (loss) applicable $ 79.0 $ (69.6) $(847.7) ======= ======= ======= Per Share of Common Stock: Before cumulative effect of change in accounting principle $ 1.70 $ (1.96) $ (5.83) Cumulative effect of change in accounting principle - - (19.99) --------- --------- ------- Net income (loss) $ 1.70 $ (1.96) $(25.82) ======== ======== =======
Note - Series G Exchangeable Preferred Stock was converted to common stock in 1994. The assumed conversion of Series A, non-leveraged Series E and Series G Preferred Stock was antidilutive in all three years. The assumed conversion of leveraged Series E Preferred Stock was antidilutive in 1993 and 1992. EX-13 11 ANNUAL REPORT MATERIAL 1 EXHIBIT 13 Financial Review RESULTS OF OPERATIONS
Dollars in Millions (except per share data) 1994 1993 1992 ------ ------- ------ Net sales $4,497.0 $3,888.2 $3,494.3 Operating profit (loss) $ 249.4 $ 26.6 $ (173.4) Net income (loss) $ 107.4 $ (37.6) $ (815.6) Net income (loss) per common share $ 1.81 $ (1.96) $ (25.82)
In 1994, the Company achieved its best performance since 1989, reporting net income of $107.4 million, or $1.81 per common share. Net losses for 1993 and 1992 were $37.6 million, or $1.96 per common share, and $815.6 million, or $25.82 per common share, respectively. The 1992 loss included $656.2 million, or $19.99 per common share, related to a one-time charge to recognize the cumulative effect of adopting Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Net sales of $4.5 billion in 1994 were 16 percent higher than 1993 net sales due to a 9 percent increase in volume and a 7 percent increase resulting from improved selling prices and a richer mix of products sold. The 1993 sales increase of 11 percent over 1992 was due primarily to an increase in volume as average selling prices remained virtually unchanged at both of the Company's business segments. The demand for Company products and services increased in 1994 as both business segments benefited from strong consumer demand for durable goods. In addition to benefiting from increased volume, both segments realized an improvement in average selling price with the greatest improvement realized at the Steel Manufacturing Segment. The current year increases in average selling prices and volume were the primary factors in the Company's reporting an operating profit of $249 million, a $223 million increase from 1993. Continued reductions per ton sold of non-materials costs at the Materials Distribution Segment further contributed to the year-to-year improvement in operating profit. In 1993, despite two factors that adversely impacted results at the Company's Steel Manufacturing Segment, significant improvements in volume and continued cost reductions resulted in the Company posting a $27 million operating profit, a $200 million improvement compared with 1992. In 1992, the Company experienced the largest net loss in its history due primarily to the adoption of FASB Statement No. 106 on retiree health care costs and the election to recognize immediately, rather than amortize over 20 years, a $656 million after-tax transition obligation reflecting the aggregate amount that would have been accrued had the standard been in effect in prior years. This charge was reported on a separate line as a change in accounting principle on the Statement of Operations. See Financial Review--Accounting Matters for further details. In the 1994 first quarter, in an effort to better support customers with foreign operations and expand other off-shore opportunities, the Company formed a new subsidiary, Inland International, Inc., to provide materials management and technical services outside the United States. Subsequently, Inland International and AHMSA, Mexico's largest steel company, formed a joint-venture company, Ryerson de Mexico, to distribute materials and provide services to the Mexican market through 17 service center locations located throughout Mexico. The impact on the Company of the major currency devaluation experienced in Mexico at the end of 1994 was not material. Inland International also formed Inland International Trading, Inc., which is responsible for international purchasing and exporting of materials and services for all of the Company's operations. At year-end 1994, Inland International signed letters of understanding to study the feasibility of creating a joint venture in the People's Republic of China. In addition, in January 1995, Inland International Trading, Inc., The Macsteel Group and Federal Industries Ltd. formed I.M.F. Steel International Ltd., a joint venture in which Inland holds a 50 percent interest, to sell the Company's products and services around the world. In 1994 these international activities were not material to the financial results of the Company. Average shares outstanding were 44 million in 1994, 36 million in 1993, and 33 million in 1992. Results per common share are reported after preferred stock dividends. STEEL MANUFACTURING SEGMENT
Dollars and Tons in Millions 1994 1993 1992 ------ ------ ------ Net sales $2,487.9 $2,174.9 $1,909.4 Operating profit (loss) $ 149.3 $ (28.2) $ (200.6) Net tons shipped 5.2 4.8 4.3
Inland Steel Company reported an operating profit of $149 million for 1994, the best performance since 1989, following operating losses of $28 million in 1993 and $201 million in 1992. Net sales increased 14 percent, 7 percent due to an increase in the vol- 25 2 ume of steel mill products shipped and 7 percent due to improved selling prices and mix. The recovering economy continued to provide strong demand for products containing steel and this demand was the principal factor leading to both increased volume and price. Net sales increased 14 percent in 1993 from 1992 due almost entirely to an increase in shipments to 4.8 million tons. The average selling price for 1993 was virtually unchanged from 1992. The 1993 financial results were negatively affected by approximately $30 million due to the unfavorable impact on steel operations of the scheduled outage of the largest blast furnace at the Indiana Harbor Works for a mini-reline. In addition, there was a $22.3 million charge taken for the early closure of the Company's remaining cokemaking facilities due to their inability to meet environmental regulations and deteriorating operating performance. Partially offsetting these unfavorable items was a $24 million LIFO profit recognition due to inventory reductions. Inland Steel Company operated at 89 percent of its raw steelmaking capability in 1994, compared with 83 percent in 1993 and 79 percent in 1992. Inland Steel Company embarked in 1991 on a turnaround program to increase revenues and asset utilization, and significantly reduce its underlying cost base by year-end 1994. A restructuring charge in 1991 of $205 million provided for the write-off of facilities, an environmental reserve and the cost of an estimated 25 percent reduction in the workforce. Primarily due to the continued operation of its plate mill, the closure of which was anticipated in arriving at the targeted workforce reduction, the Company achieved only a 20 percent reduction in the workforce by year-end 1994. The 1994 effect of this program represents a savings of approximately $200 million in employment costs and $10 million in decreased depreciation expense. However, the savings from reduced employment was partially offset by increased wage and benefit costs. I/N Tek continued to operate near capacity and produce consistently high-quality steel. In August 1993, I/N Kote achieved near design capacity operations and, by year-end 1993, had achieved product qualification at all major customers. Under the I/N Kote partnership agreement, Inland Steel Company supplies all of the steel for the joint venture and, with certain limited exceptions, is required to set the price of that steel to assure that I/N Kote's expenditures do not exceed its revenues. During 1993, Inland Steel Company's sales prices approximated its costs of production, and in 1994, the prices exceeded production costs but were still less than the market prices for cold-rolled steel products. As I/N Kote expenditures include principal payments and a provision for return on equity to the partners, Inland Steel Company's ability to realize higher prices on its sales to I/N Kote depends on the facility continuing near-capacity operations and obtaining appropriate pricing for its products. The Company's remaining cokemaking facilities were closed by year-end 1993. The Company determined that it was uneconomical to repair the coke batteries sufficiently to continue cost-effective operations that would comply with current environmental laws. To replace the Company-produced coke, Inland Steel Company entered into a long-term supply contract and other arrangements to purchase coke. In addition, Inland Steel Company and NIPSCO, a local utility, formed a joint venture which constructed and is operating a pulverized coal injection facility at the Indiana Harbor Works. This facility injects coal directly into the blast furnaces thereby reducing coke requirements. The joint venture commenced operations in the third quarter of 1993 and achieved design capacity by year-end 1994, reducing coke requirements by approximately 25 percent. 26 3 MATERIALS DISTRIBUTION SEGMENT
Dollars and Tons in Millions 1994 1993 1992 -------- -------- -------- Net sales $2,197.5 $1,893.3 $1,716.6 Operating profit $ 98.1 $ 56.4 $ 27.1 Net tons shipped 2.33 2.08 1.87
Inland Materials Distribution Group ("IMDG"), consisting of Joseph T. Ryerson & Son, Inc., including its Ryerson Coil Processing Company division, and J. M. Tull Metals Company, Inc., reported its third consecutive year of improved net sales and operating profit. Net sales increased 16 percent to $2.2 billion due to a 12 percent increase in volume and a 4 percent increase in average selling price per ton sold reflecting, in part, a better mix of products sold. Lower operating costs as a percent of sales in addition to the higher sales resulted in IMDG recording an operating profit of $98.1 million in 1994, its highest yearly level since 1988. All four regions of the general line business, which supplies a wide range of metals and industrial plastics, as well as the coil processing business were again profitable in 1994 with the strongest results in the Midwest and Southeast. In the third quarter of 1991, and in every quarter since (or 14 consecutive quarters), IMDG's operating profit has increased over the comparable year-earlier quarter. In 1993, net sales increased 10 percent to $1.89 billion due almost entirely to an increase in volume, as the average selling price per ton increased minimally. Operating profit of $56.4 million in 1993 was more than double that reported in 1992 due primarily to IMDG being able to increase sales at a faster rate than associated costs. LIQUIDITY AND FINANCING The Company finished 1994 with cash and cash equivalents of $107 million compared with $251 million at year-end 1993 and $138 million on December 31, 1992. There was no short-term bank borrowing at year-end 1994, 1993 or 1992. Improved operating results, in addition to the proceeds from its December 1993 common stock offering, allowed the Company to actively pursue a major deleveraging program in 1994. During 1994, Inland Steel Company purchased the equity interest in the operating lease of the No. 2 Basic Oxygen Furnace Shop caster facility for $83 million and assumed $63 million of lease-related caster debt. By year-end this $63 million debt and $40 million of other caster debt was repaid. In the first quarter of 1994, Inland Steel Company redeemed the remaining $75 million principal amount of outstanding Series O, P, and Q First Mortgage Bonds. In the 1994 second quarter, the Company called for redemption all outstanding shares of Series G $4.625 Cumulative Convertible Exchangeable Preferred Stock. The call resulted in conversion of the 1.5 million shares of Series G Preferred Stock outstanding into 2.7 million shares of common stock, reducing annual preferred dividends by $6.9 million. Also during the second quarter, Inland Steel Company refinanced $20 million of 8.125 percent pollution control revenue bonds with bonds bearing an interest rate of 7.125 percent. Cash availability as well as various covenants in subsidiary borrowing arrangements limited the cash that subsidiaries could transfer to the Company in the form of dividends and advances to approximately $225 million at year-end 1994. This amount is subject to change based on the financial performance of each subsidiary. The Company's subsidiary borrowing arrangements, as well as both the Inland Steel Company Series T First Mortgage Indenture and the indenture under which the Company's 12.75% Notes were issued, contain covenants limiting financial flexibility and the Company's ability to issue additional debt. Certain covenants in the indenture relating to the 12.75% Notes also limit the amount of cash dividends the Company may declare or pay. At year-end 1994, up to $114 million of common dividends could have been paid under terms of the indenture. The 12.75% Notes are not subject to redemption prior to December 15, 1997. 27 4 In 1989, the Company sold $185 million of its Series F Exchangeable Preferred Stock and agreed to repurchase an identical amount of Company common stock. By year-end 1994, $147 million had been spent to purchase 4.7 million shares. The Company suspended open-market stock purchases under this agreement in December 1990. The Company's subsidiaries continue to maintain committed credit facilities totaling $225 million. A special-purpose subsidiary of Inland Steel Company has a $100 million revolving credit facility which extends to November 30, 1995. The credit facility, which is expected to be extended, is secured by receivables sold to this subsidiary by Inland Steel Company. The $100 million Ryerson unsecured revolving credit facility extends to March 31, 1995. A new agreement extending the maturity of this credit facility for five years and increasing the amount to $200 million has been approved by the banks involved, subject to final documentation. The $25 million Tull unsecured credit facility was extended in 1994 to December 15, 1997. The interest rates on borrowing under such credit agreements are, at the Company's option, based on Eurodollar, Certificate of Deposit, or the greater of federal funds or prime rates. At year-end, the highest interest rate option for borrowings under any of these credit agreements was the applicable prime rate plus .75 of a percentage point. The Company believes that its present cash position, augmented by its subsidiaries' credit facilities and the anticipated cash flow from operations provided by continued strong demand for its products, will provide sufficient liquidity to meet its scheduled debt and redeemable preferred stock retirements, pay preferred dividends, fund its capital program and meet any operating cash requirements that may arise for at least the next two years. The Company ended 1994 with long-term debt of $706 million compared with $777 million at year-end 1993. The average interest rate on this debt is approximately 10 percent. Due to a substantial decrease in stockholders' equity in 1992 primarily resulting from the adoption of FASB Statement No. 106, the ratio of long-term debt to total capitalization of 49 percent, 55 percent and 63 percent reported at year-end 1994, 1993 and 1992, respectively, was substantially higher than that reported in prior years. Including Series F Preferred Stock, the ratio of long-term debt and redeemable preferred stock to total capitalization was 62 percent at December 31, 1994 compared with 69 percent and 77 percent at year-end 1993 and 1992, respectively. In addition, Inland Steel Company guarantees its 50 percent share of I/N Kote borrowings, a PCI joint venture loan, and a portion of the debt of the Empire Iron Mining partnership amounting to $243 million, $32 million, and $15 million, respectively, at year-end 1994. Because none of these guarantees have been invoked since their inception and because of the current strong demand for steel products, the Company does not believe these guarantees will be called upon. The Company's debt ratings at year-end 1994 were unchanged from 1993 and were:
Ratings at Year End 1994 ------------------- ------ Inland Steel Industries Notes Moody's Ba3 Standard & Poor's B+ Inland Steel Company First Mortgage Bonds Moody's Ba3 Standard & Poor's BB-
CAPITAL EXPENDITURES
Dollars in Millions 1994 1993 1992 ------------------- ------ ------ ------ Capital expenditures Steel Manufacturing $223.6 $ 86.1 $55.1 Materials Distribution 20.4 19.3 9.3 General corporate and other 1.3 .2 -- ------ ------ ----- Total capital expenditures $245.3 $105.6 $64.4 ====== ====== =====
Capital expenditures of $245 million in 1994 include $146 million related to the purchase of a caster facility which had previously been leased. The majority of the remaining capital expenditures was principally for new machinery and equipment related to maintaining or improving operations at the Steel Manufacturing Segment. The Company anticipates capital expenditures in 1995 will approximate $190 million. These projects are expected to be funded by cash generated from operations and cash on hand at year-end 1994, plus possible funding from third-party financing. 28 5 EMPLOYMENT MATTERS Inland Steel Company and the United Steelworkers of America entered into a new labor agreement, effective August 1, 1993, covering wages and benefits. Among other things, the agreement provides a wage increase of $.50 per hour on August 1, 1995, a $500 bonus in each of 1993 and 1994 (totaling in each case approximately $4 million) and a potential bonus of up to $1,000 per employee (approximately $8 million in total) based on Inland Steel Company's achieving $150 million of pre-tax income in 1995 (adjusted to exclude the incremental FASB Statement No. 106 costs and such bonus). In addition, all active employees received an additional week of vacation in 1994 and will receive an additional week in 1996. The agreement expires on July 31, 1999 but provides for a reopener on wages and certain benefits in 1996 with an arbitration provision to resolve unsettled issues, thereby precluding a work stoppage over the six-year contract term. The agreement also provides for election to the Company's Board of Directors of a union designee acceptable to the Board, restricts Inland Steel Company's ability to reduce the union workforce (generally limited to attrition and major facilities shutdowns), allows greater flexibility to institute work rule changes, and requires quarterly rather than annual payment of profit sharing amounts, significant improvements in pension benefits for active employees, and the securing of retiree health care obligations through certain trust and second mortgage arrangements. "First dollar" health care coverage is eliminated under the agreement through the institution of co-payments and increased deductibles for medical benefits. Despite increased shipments, average employment declined 4 percent during 1994 after declining 6 percent in 1993 and 8 percent during each of the prior two years, reflecting continuing efforts by the Company to implement its cost-reduction program. As announced in 1991, the Company planned to reduce employment at its corporate headquarters and at Inland Steel Company by 25 percent from year-end 1991 to year-end 1994. The 25 percent reduction was not fully achieved by the end of 1994 principally because of Inland Steel Company's continued operation of its plate mill, employing approximately 600 people. The plate mill will continue to operate as long as it remains economically viable. Despite the reduction in employment in 1994, total employment costs and average employment cost per employee increased 3 percent and 7 percent, respectively, from 1993. Direct compensation increased in 1994, in spite of reduced salary and wage costs, due solely to increases in profit sharing provisions. Employee benefits also increased as a result of higher pension expense, offset in part by reduced health care insurance costs. EMPLOYEES
(monthly average receiving pay) 1994 1993 1992 ------ ------- ------- Steel Manufacturing 10,166 10,857 11,847 Materials Distribution 5,195 5,157 5,168 Headquarters and other 118 138 166 ------ ------ ------ Total 15,479 16,152 17,181 ====== ====== ======
CONSOLIDATED EMPLOYMENT COSTS
Dollars in Millions (except averages) 1994 1993 1992 ------ -------- --------- Direct compensation $ 681.1 $ 665.0 $ 682.3 Employee benefits Group insurance costs 63.5 77.1 64.4 Postretirement benefits other than pensions 79.5 95.7 111.0 Pension costs (credits) 28.2 (4.6) (9.2) Social security and unemploy- ment compensation taxes 55.5 54.6 53.9 Workers' compensation expense 12.7 10.8 12.0 Thrift Plan costs 9.2 9.7 10.5 Cost of supplemental unem- ployment benefit plans 7.9 6.5 8.5 Industry welfare and retirement funds 2.9 3.2 2.5 All other 9.0 6.9 4.8 ---------- --------- --------- Total cost of employee benefits 268.4 259.9 258.4 ---------- --------- --------- Total employment costs $ 949.5 $ 924.9 $ 940.7 ========== ========= ========= Average employment cost per employee $ 61,342 $ 57,265 $ 54,750 ========== ========= =========
PENSIONS At year-end 1994, the market value of Inland Steel Industries Pension Plan assets totaled $1,652 million, a $142 million decrease during the year. For financial reporting purposes, the funded status of the Pension Plan has appeared very volatile over the last three years due to the significant changes in the interest rate on high-grade fixed-income obligations that must be used for valuing pension liabilities. This rate moved from 8.6 percent in 1992 to 7.25 percent in 1993, a twenty year low, and back to 8.8 percent in 1994. This caused the Company to record a $122 million additional pension liability on the balance sheet in 1993, which was eliminated in 1994. In 1993, this additional minimum liability was offset by an intangible pension asset. Future reductions in interest rates could result in a similar situation requiring the Company to book an additional minimum pension liability. However, under ERISA funding guidelines, which take a longer term view in determining the interest rate to use in valuing liabilities, the Pension Plan was adequately funded in 1993 and continued to be so in 1994. Under pension reform legislation contained in the recently passed General Agreement on Tariffs and Trade ("GATT"), the Pension Plan may have a funding requirement related to 1995 which would require funding in 1996. 29 6 The annualized return earned in the Pension Plan's diversified portfolio for the past ten years approximated 12 percent annually, however, individual year returns have been volatile. In 1994 the Plan earned less than 1 percent compared with a 16 percent return in 1993. A total of $151 million in pension benefits was paid in 1994, compared with $146 million in 1993. At year-end 1994, pension benefits were being paid to 16,235 retirees and their beneficiaries compared with 15,748 at year-end 1993. ACCOUNTING MATTERS FASB Statement No. 106 requires that the cost of retiree medical and life insurance benefits be accrued during the working years of each employee. Previously, retiree medical benefits were expensed as incurred after an employee's retirement. Adoption of this standard in 1992 has not and will not affect cash flow as liabilities for health care and life insurance benefits will continue to be paid as claims are submitted. The unfunded benefits liability reflected on the balance sheet as of December 31, 1994, was approximately $1.2 billion. The unfunded liability will continue to grow as long as accrual-basis costs exceed cash benefit payments. (See Note 11 to the consolidated financial statements for further details.) In 1992, the Company also adopted FASB Statement No. 109, "Accounting for Income Taxes," which, at the time of adoption, had no material impact on results of operations or the financial position of the Company. FASB Statement No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. At December 31, 1994, the Company had a net deferred tax asset of $420 million, which includes $451 million related to the temporary difference arising from the adoption of FASB Statement No. 106. While the Company believes it is more likely than not that it will generate sufficient taxable income from operations to realize all deferred tax assets, a secondary source of future taxable income could result from tax planning strategies. Possible strategies include the Company's option of changing from the LIFO method of accounting for inventories to the FIFO method (such change would have resulted in approximately $380 million of additional taxable income as of year-end 1994 which would serve to offset approximately $135 million of deferred tax assets) and selection of different tax depreciation methods. After assuming such change in accounting for inventories, the Company would need to recognize approximately $800 million of taxable income over the 15-year net operating loss carryforward period and the period in which the temporary difference related to the FASB Statement No. 106 obligation will reverse, in order to fully realize its net deferred tax asset. The Company believes that it is more likely than not that it will achieve such taxable income level. (See Note 12 to the consolidated financial statements for further details regarding this net deferred tax asset.) ENVIRONMENTAL ISSUES Inland Steel Company has significantly reduced discharges of air and water pollutants at its Indiana Harbor Works complex in East Chicago, Indiana in recent years and is committed to operating its facilities in an environmentally acceptable manner. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by a lawsuit filed by the United States Environmental Protection Agency ("EPA") in 1990. The consent decree included a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in earlier years. After payment of the fine, the Company's reserve for environmental liabilities, including those in connection with the consent decree, totaled $19 million. The consent decree also defines procedures for remediation at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company continues to assess the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another three to five years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. Insurance coverage with respect to such corrective action is not significant. Capital spending for pollution control projects totaled $18 million in 1994, up from $7 million in 1993. Another $41 million was spent in 1994 to operate and maintain such equipment, versus $42 million a year earlier. During the five years ended December 31, 1994, the Company has spent $280 million to construct, operate and maintain environmental control equipment at its various locations. Environmental projects previously authorized and presently under consideration, including those designed to comply with the 1990 Clean Air Act Amendments, but excluding any amounts that would be required under the consent decree settling the 1990 EPA lawsuit, will require capital expenditures of approximately $24 million in 1995. It is anticipated that the Company will make annual capital expenditures of $5 million to $10 million in each of the next four years thereafter for the construction, and have ongoing annual expenditures of $40 million to $50 million for the operation, of air 30 7 and water pollution control facilities to comply with current Federal, state and local laws and regulations. Due to the inability to predict the costs of corrective action that may be required under the Resource Conservation and Recovery Act and the consent decree in the 1990 EPA lawsuit, the Company cannot predict the amount of additional environmental expenditures that will be required. Such additional environmental expenditures, excluding amounts that may be required in connection with the consent decree in the 1990 EPA lawsuit, however, are not expected to be material to the results of operations or financial position of Inland Steel Company. INTERNATIONAL TRADE ISSUES Domestic steel producers face significant competition from foreign producers and have been injured by unfairly traded imports. Many foreign steel producers are owned, controlled or subsidized by their governments. In 1992, the Company and certain domestic steel producers filed unfair trade petitions against foreign producers of certain bar, rod and flat-rolled steel products. During 1993, the International Trade Commission ("ITC") upheld final subsidy and dumping margins on essentially all of the bar and rod products and about half of the flat-rolled products, in each case based on the tonnage of the products against which claims were brought. Appeals of the adverse ITC decisions have been filed in the U.S. Court of International Trade ("CIT") or similar jurisdictional bodies, and foreign producers have appealed certain of the findings against them. The CIT sustained the ITC in the bar and rod cases and in the cold-rolled and hot-rolled flat products cases. Appeals are pending regarding corrosion-resistant flat products. It is not certain how the ITC actions and the appeals have impacted imports of steel products into the United States or the price of such steel products. On December 15, 1993, President Clinton notified the U.S. Congress of his intent to enter into agreements resulting from the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade. The key provisions applicable to domestic steel producers include an agreement to eliminate steel tariffs in major industrial markets, including the United States, over a period of 10 years and agreements regarding various subsidy and dumping practices as well as dispute settlement procedures. Legislation to implement the Uruguay Round agreement was enacted into Federal law in December 1994. The agreement went into effect January 1, 1995. Company management supported passage of the legislation, believing that the market opening benefits offered by the agreement would be beneficial to the Company. Summary by Quarter (Unaudited) Inland Steel Industries, Inc. and Subsidiary Companies
Dollars in Millions (except per share data) Per Common Share -------------------------------------------- Market Price Net Gross Income (Loss) Net Income Net Income --------------------------- Sales Profit Before Taxes (Loss) (Loss) High Low Close ------- -------- ------------ --------- --------- ------- -------- -------- 1994 First Quarter $1,075.7 $ 85.8 $ 14.6 $ 9.2 $ .03 $ 37 1/8 $29 7/8 $30 1/8 Second Quarter 1,135.6 123.5 50.2 31.6 .57 36 5/8 29 3/8 34 7/8 Third Quarter 1,129.5 120.3 47.5 30.7 .54 42 34 39 3/8 Fourth Quarter 1,156.2 126.9 57.2 35.9 .66 39 1/2 29 7/8 35 1/8 -------- -------- ------- -------- ------ -------- ------- ------- Year $4,497.0 $ 456.5 $ 169.5 $ 107.4 $ 1.81* $ 42 $29 3/8 $35 1/8 ======== ======== ======= ======== ====== ======== ======= ======= 1993 First Quarter $ 941.5 $ 27.5 $(47.5) $ (31.4) $(1.12) $24 3/4 $20 $22 Second Quarter 996.4 72.8 (3.8) (2.5) (.30) 29 1/8 21 1/2 28 3/4 Third Quarter 972.0 84.0 9.0 17.0 .25 30 1/4 24 3/4 28 1/8 Fourth Quarter 978.3 63.3 (31.3)** (20.7)** (.79)** 35 28 33 1/8 -------- -------- ------- -------- ------ -------- ------- ------- Year $3,888.2 $ 247.6 $(73.6) $ (37.6) $(1.96) $35 $20 $33 1/8 ========= ======== ====== ========= ====== ======== ======= =======
* Per share amounts for the quarters do not total to the amount reported for the year, as per share amounts are computed independently for each quarter and the year based on respective weighted average common shares outstanding. ** Includes facility shutdown provision of $22.3 million, $14.7 million after tax or $.41 per share. 31 8 Eleven-Year Summary of Selected Financial Data and Operating Results
1994 1993 1992 -------- ------- -------- Dollars in Millions RESULTS Net sales $ 4,497.0 $ 3,888.2 $ 3,494.3 OF OPERATIONS Depreciation 138.7 131.8 129.6 Interest expense 71.4 78.0 54.9 Rent expense 54.5 73.7 75.5 Continuing business segments Income (loss) before income taxes 169.5 (73.6) (258.6) Income taxes 62.1 36.0Cr. 99.2Cr. Income (loss) 107.4 (37.6) (159.4) Net income (loss) 107.4 (37.6) (815.6) Shares in Thousands DATA APPLICABLE Average number of shares 43,545 35,540 32,828 TO COMMON STOCK Income (loss) per share Continuing business segments $ 1.81 $ (1.96) $ (5.83) Net income (loss) 1.81 (1.96) (25.82) Dividends per share -- -- -- Stockholders' equity per share 11.06 7.79 6.01 Stockholders of record 16,000 16,000 18,000 Shares traded (average daily volume) 206.3 134.2 97.3 Dollars in Millions CHANGES IN Cash provided from (used for) operations $ 265.5 $ 112.0 $ (21.4) FINANCIAL POSITION Capital expenditures 245.3 105.6 64.4 Investments in and advances to joint ventures, net (13.7) 1.9 6.3 Acquisitions -- -- -- Dividends declared on common stock -- -- -- Dividends declared on preferred stock 27.9 32.0 32.1 Financing Long-term debt (net of retirements) (71.2) (96.6) 108.9 Preferred stock sold -- -- -- Common stock sold -- 178.7 97.9 Net change in liquidity (143.4) 112.8 90.6 Dollars in Millions FINANCIAL POSITION Working capital $ 516.7 $ 496.4 $ 441.0 AT YEAR END Property (net) 1,610.3 1,507.7 1,548.8 Total assets 3,353.4 3,435.8 3,146.5 Long-term debt 705.9 777.1 873.7 Redeemable preferred stock 185.0 185.0 185.0 Other temporary equity 37.9 40.8 49.9 Stockholders' equity 509.2 397.6 271.4 Unused credit facilities 225 225 225 FINANCIAL RATIOS Net income (loss) as a percent of sales 2.4% (1.0)% (23.3)% Long-term debt to total capitalization 49.1% 55.5% 63.3% Long-term debt and redeemable preferred to total capitalization 62.0% 68.7% 76.7% Return on stockholders' equity 21.1% loss loss Dollars and Tons in Millions PRODUCTION Tons of raw steel produced 5.3 5.0 4.7 AND EMPLOYMENT Tons of steel mill shipments 5.2 4.8 4.3 STATISTICS Average number of employees 15,479 16,152 17,181 Total employment costs $ 949.5 $ 924.9 $ 940.7
Cr. = Credit 32 9 Inland Steel Industries, Inc. and Subsidiary Companies
1991 1990 1989 1988 1987 1986 1985 1984 --------- -------- ------- -------- ------- -------- ------- -------- $ 3,404.5 $ 3,870.4 $ 4,146.7 $ 4,068.0 $ 3,453.2 $ 3,173.2 $ 2,999.4 $ 3,135.0 118.2 119.7 131.2 134.8 123.4 124.0 119.7 124.5 46.8 38.7 38.4 46.2 62.8 71.6 64.9 62.3 81.8 85.5 79.9 72.3 68.9 55.2 33.7 28.2 (381.1) (36.7) 175.6 364.6 97.5 36.7 (147.5) (36.5) 106.0Cr. 16.1Cr. 55.9 115.8 14.2Cr. 1.9 .1Cr. 6.1 (275.1) (20.6) 119.7 248.8 111.7 34.8 (147.4) (42.6) (275.1) (20.6) 119.7 262.1 145.0 19.3 (178.4) (41.4) 30,943 32,195 35,581 33,623 31,854 28,479 25,266 25,054 $ (9.88) $ (1.41) $ 3.15 $ 6.99 $ 3.09 $ .95 $ (6.14) $ (2.02) (9.88) (1.41) 3.15 7.39 4.14 .40 (7.37) (1.97) .15 1.40 1.40 .75 -- -- .375 .50 31.10 41.27 43.00 42.50 36.15 32.85 34.20 42.14 18,000 19,000 23,000 24,000 26,000 29,000 33,000 38,000 89.3 95.7 199.5 170.0 178.9 78.6 55.2 61.1 $ 25.0 $ 189.1 $ 240.2 $ 531.8 $ 169.1 $ 129.1 N/A N/A 140.2 268.1 197.2 136.5 128.0 124.8 $ 174.8 $ 185.1 24.9 49.8 15.5 73.6 10.5 9.0 7.8 2.3 -- -- 28.2 50.2 -- 96.4 -- -- 4.6 45.3 50.1 25.2 -- -- 9.5 12.5 31.1 27.1 6.9 13.8 13.9 7.8 7.8 8.1 73.1 114.0 (17.8) (43.2) (160.9) (122.5) 87.8 46.6 72.8 -- 185.0 -- 96.6 -- -- 72.8 -- -- -- -- 83.7 85.2 -- -- (11.2) (179.1) (67.9) 124.2 71.7 157.2 (70.1) 24.0 $ 322.8 $ 395.9 $ 703.0 $ 719.8 $ 625.0 $ 428.0 $ 268.0 $ 339.5 1,635.0 1,708.3 1,569.8 1,493.9 1,488.1 1,552.4 1,745.2 1,730.8 2,697.8 2,934.8 3,008.5 2,925.0 2,651.4 2,526.6 2,631.5 2,607.7 764.8 691.7 577.7 595.5 638.7 799.6 922.1 834.3 185.0 185.0 185.0 -- -- -- -- -- 53.0 54.9 181.3 -- -- -- -- -- 1,009.4 1,234.0 1,313.8 1,559.4 1,391.5 1,067.7 958.4 1,147.2 225 325 325 225 225 150 135 228 (8.1)% (.5)% 2.9% 6.4% 4.2% .6% (5.9)% (1.3)% 38.0% 31.9% 25.6% 27.6% 31.5% 42.8% 49.0% 42.1% 47.2% 40.5% 33.8% 27.6% 31.5% 42.8% 49.0% 42.1% loss loss 9.1% 16.8% 10.4% 1.8% loss loss 4.7 5.3 5.6 6.1 5.5 5.7 6.1 6.5 4.2 4.7 4.9 5.0 4.9 4.9 4.7 5.0 18,600 20,154 20,715 20,639 20,740 22,668 24,413 26,921 $ 907.4 $ 979.0 $ 964.3 $ 945.8 $ 878.4 $ 918.6 $ 988.5 $1,006.7
33 10 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 and line officers and a task force of accounting management which monitors 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. Report of Independent Accountants Price Waterhouse LLP TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INLAND STEEL INDUSTRIES, INC. In our opinion, the consolidated financial statements on pages 35 through 49 present fairly, in all material respects, the financial position of Inland Steel Industries, Inc. and Subsidiary Companies at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, 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. As discussed in Notes 11 and 12 to the consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions and for income taxes. Chicago, Illinois February 20, 1995 /s/ Price Waterhouse LLP 34 11 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 20 percent or more but 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 Primary 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, and the dilutive effect of outstanding stock options. Fully diluted earnings per common share reflect 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 the fully 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. BENEFITS FOR RETIRED EMPLOYEES Pension benefits are provided by the Company to substantially all employees under a trusteed non-contributory plan. Life insurance and certain medical benefits are provided for substantially all retired employees. The estimated costs of pension, medical, and life insurance benefits are determined annually by consulting actuaries. With the adoption of Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992, the cost of health care benefits for retirees, previously recognized as incurred, is being accrued during their term of employment (see Note 11). Pensions are funded in accordance with ERISA requirements in a trust established under the plan. Costs for retired employee medical benefits and life insurance are funded when claims are submitted. 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. INCOME TAXES Effective January 1, 1992, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes." 35 12
Consolidated Statements of Operations and Reinvested Earnings Inland Steel Industries, Inc. and Subsidiary Companies Dollars in Millions (except per share data) Years Ended December 1994 1993 1992 Consolidated Net sales $4,497.0 $3,888.2 $3,494.3 Statement of -------------------------------------------------------------------------------------------------------------------- Operations Operating costs and expenses: Cost of goods sold (excluding depreciation) 3,853.1 3,457.8 3,305.8 Selling, general and administrative expenses 197.6 190.0 193.9 Depreciation 138.1 131.2 128.9 State, local and miscellaneous taxes 58.8 60.3 61.6 Facility shutdown provision (Note 10) -- 22.3 -- Gain on sale of partial interest in joint venture (Note 14) -- -- (22.5) Total 4,247.6 3,861.6 3,667.7 Operating profit (loss) 249.4 26.6 (173.4) Other expense: General corporate expense, net of income items 8.5 22.2 30.3 Interest and other expense on debt 71.4 78.0 54.9 Income (loss) before income taxes 169.5 (73.6) (258.6) Provision for income taxes (Note 12): Current taxes 9.2 2.8 .9 Deferred taxes 52.9 38.8Cr. 100.1Cr. Total 62.1 36.0Cr. 99.2Cr. Income (loss) before cumulative effect of change in accounting principle 107.4 (37.6) (159.4) Cumulative effect of change in accounting principle (Note 11) -- -- (656.2) Net income (loss) 107.4 (37.6) (815.6) Dividend requirements for preferred stock (net of tax benefits related to leveraged ESOP shares) 28.4 32.0 32.1 Net income (loss) applicable to common stock $79.0 $(69.6) $(847.7) Per share of common stock: Primary: Before cumulative effect of change in accounting principle $1.81 $(1.96) $(5.83) Cumulative effect of change in accounting principle -- -- (19.99) Net income (loss) $1.81 $(1.96) $(25.82) Fully Diluted: Before cumulative effect of change in accounting principle $1.70 $(1.96) $(5.83) Cumulative effect of change in accounting principle -- -- (19.99) Net income (loss) $1.70 $(1.96) $(25.82)
Cr.=Credit
1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------- Consolidated Earnings reinvested in the business (accumulated deficit) Statement at beginning of year $(371.9) $(302.3) $545.4 of Reinvested Net income (loss) for the year 107.4 (37.6) (815.6) Earnings Preferred dividends declared (Notes 4 and 6) (27.9) (32.0) (32.1) ---------------------------------------------------------------------------------------------------------------------- Accumulated deficit at end of year $(292.4) $(371.9) $(302.3) ----------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements on pages 40-49. 36 13
Consolidated Statement of Cash Flows Inland Steel Industries, Inc. and Subsidiary Companies Increase (Decrease) in Cash Dollars in Millions Years Ended December 31 1994 1993 1992 ------------------- ----------------------- -------- --------- -------- OPERATING ACTIVITIES NET INCOME (LOSS) $107.4 $ (37.6) $ (815.6) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES: Depreciation 138.7 131.8 129.6 Facility shutdown provision -- 18.9 -- Deferred income taxes 52.9 (36.8) (455.7) Deferred employee benefit cost, including cumulative effect of change in accounting principle 52.2 38.1 1,066.7 Stock issued for coverage of employee benefit plans 35.0 19.1 13.4 Gain on sale of partial interest in joint venture -- -- (22.5) Change in: Receivables (76.3) (46.4) (27.1) Inventories (52.6) (4.2) 5.6 Accounts payable 52.0 34.0 22.8 Accrued salaries and wages 12.1 1.6 (1.8) Other accrued liabilities (20.8) 4.9 30.0 Other deferred items (35.1) (11.4) 33.2 NET ADJUSTMENTS 158.1 149.6 794.2 NET CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES 265.5 112.0 (21.4) INVESTING ACTIVITIES Capital expenditures (182.0) (105.6) (64.4) Investments in and advances to joint ventures, net 13.7 (1.9) (6.3) Proceeds from sales of assets 8.4 6.5 28.1 NET CASH USED FOR INVESTING ACTIVITIES (159.9) (101.0) (42.6) FINANCING ACTIVITIES Sale of common stock -- 178.7 97.9 Long-term debt issued 19.7 46.8 145.4 Long-term debt retired (232.5) (78.5) (49.4) Dividends paid (32.2) (35.7) (35.8) Acquisition of treasury stock (4.0) (9.5) (3.5) NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (249.0) 101.8 154.6 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (143.4) 112.8 90.6 Cash and cash equivalents--beginning of year 250.5 137.7 47.1 Cash and cash equivalents--end of year $ 107.1 $ 250.5 $ 137.7 SUPPLEMENTAL Cash paid (received) during the year for: DISCLOSURES Interest (net of amount capitalized) $ 73.5 $ 76.0 $ 53.1 Income taxes, net 8.3 1.9 (12.3) Non-cash investing and financing activities: Long-term debt acquired in purchase of assets 63.3 -- --
See Notes to Consolidated Financial Statements on pages 40-49. 37 14
Consolidated Balance Sheet Inland Steel Industries, Inc. and Subsidiary Companies Dollars in Millions At December 31 1994 1993 ------------------- -------------- -------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 107.1 $ 250.5 Receivables less provision for allowances, claims and doubtful accounts of $24.9 and $28.2, respectively 503.6 427.3 Inventories (Note 1) 429.5 376.9 Deferred income taxes (Note 12) 41.3 44.2 ------------- ----------- Total current assets 1,081.5 1,098.9 INVESTMENTS AND ADVANCES (see details page 39) 225.1 221.0 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION (see details page 39) 1,610.3 1,507.7 DEFERRED INCOME TAXES (Note 12) 379.0 428.4 INTANGIBLE PENSION ASSET (Note 11) -- 122.1 EXCESS OF COST OVER NET ASSETS ACQUIRED 25.0 26.4 DEFERRED CHARGES AND OTHER ASSETS 32.5 31.3 ------------- ----------- Total assets $ 3,353.4 $ 3,435.8 ============= =========== LIABILITIES CURRENT LIABILITIES: Accounts payable $ 351.2 $ 300.9 Accrued liabilities: Salaries, wages and commissions 87.8 75.7 Federal income taxes 1.3 2.7 Taxes, other than Federal income taxes 71.2 75.6 Interest on debt 7.9 13.0 Terminated facilities costs and other (Note 10) 25.9 35.8 Long-term debt due within one year (Note 3) 19.5 98.8 ------------- ----------- Total current liabilities 564.8 602.5 LONG-TERM DEBT (see details page 39 and Note 3) 705.9 777.1 ALLOWANCE FOR TERMINATED FACILITIES COSTS AND OTHER (Note 10) 34.1 36.1 DEFERRED EMPLOYEE BENEFITS (Note 11) 1,301.2 1,371.1 DEFERRED INCOME 15.3 25.6 ------------- ----------- Total liabilities 2,621.3 2,812.4 ------------- ----------- TEMPORARY EQUITY REDEEMABLE PREFERRED STOCK, Series F, $1.00 par value, 185,000 shares issued and outstanding, redeemable at $1,000 per share (Note 4) 185.0 185.0 COMMON STOCK REPURCHASE COMMITMENT (Note 4) 37.9 40.8 ------------- ----------- STOCKHOLDERS' EQUITY PREFERRED STOCK, $1.00 par value, 15,000,000 shares authorized for all series including Series F, aggregate liquidation value of $154.9 in 1994 and $230.6 in 1993 (Notes 5 and 6) 3.2 4.7 COMMON STOCK, $1.00 par value; authorized--100,000,000 shares; issued--50,556,350 shares for 1994 and 47,854,208 shares for 1993 (Notes 6 through 8) 50.6 47.9 CAPITAL IN EXCESS OF PAR VALUE (Note 6) 1,088.0 1,106.4 ACCUMULATED DEFICIT (292.4) (371.9) UNEARNED COMPENSATION--ESOP (Note 5) (100.5) (112.2) COMMON STOCK REPURCHASE COMMITMENT (Note 4) (37.9) (40.8) TREASURY STOCK AT COST--Common stock of 6,006,122 shares in 1994 and 6,767,139 shares in 1993 (200.9) (236.5) CUMULATIVE TRANSLATION ADJUSTMENT (.9) -- ------------- ----------- Total stockholders' equity 509.2 397.6 ------------- ----------- Total liabilities, temporary equity, and stockholders' equity $ 3,353.4 $ 3,435.8 ============== ============
See Notes to Consolidated Financial Statements on pages 40-49. 38 15
Schedules to Consolidated Financial Statements Inland Steel Industries, Inc. and Subsidiary Companies Dollars in Millions At December 31 1994 1993 ------------------- --------------- ------- ------ INVESTMENTS Steel processing joint ventures $ 154.9 $ 168.2 AND ADVANCES Raw material joint ventures 41.8 37.5 Common stock of Nippon Steel Corporation held for investment, net of valuation allowances of $3.5 and $5.1, respectively 11.1 9.5 Other investments and advances 17.3 5.8 -------- -------- Total $ 225.1 $ 221.0 ======== ======== PROPERTY, PLANT Land, land improvements and mineral properties $ 155.1 $ 156.5 AND EQUIPMENT Buildings, machinery and equipment 3,936.7 3,749.0 Transportation equipment 134.4 135.1 Property under capital leases--primarily machinery and equipment 43.0 43.1 -------- -------- Total 4,269.2 4,083.7 Less-- Accumulated depreciation 2,520.6 2,432.1 Accumulated depreciation--capital leases 37.6 35.5 Allowance for retirements and terminated facilities (Note 10) 100.7 108.4 -------- -------- Net $1,610.3 $1,507.7 ======== ======== LONG-TERM DEBT INLAND STEEL INDUSTRIES, INC. Guaranteed ESOP notes, 7.96%, 8.43% and 8.80%, due through July 2, 2004 $ 115.2 $ 123.6 Notes, 12 3/4% due December 15, 2002 150.0 150.0 -------- -------- Total Inland Steel Industries, Inc. 265.2 273.6 INLAND STEEL COMPANY First Mortgage Bonds: Series R, 7.9% due January 15, 2007 72.5 87.9 Series T, 12% due December 1, 1998 125.0 125.0 Pollution Control Series 1977, 5 3/4% due February 1, 2007 26.5 26.5 Pollution Control Series 1978, 6 1/2% due May 15, 2008 52.0 52.0 Pollution Control Series 1982B, 10 3/4% due December 1, 2012 17.0 17.0 Pollution Control Series 1993, 6.8% due June 1, 2013 40.0 40.0 -------- -------- Total First Mortgage Bonds 333.0 348.4 Obligations for Industrial Development Revenue Bonds: Pollution Control Project No. 3, 6 1/4% due April 1, 1999 10.0 12.0 Pollution Control Project No. 4, 8 1/8% -- 20.0 Pollution Control Project No. 9, 10% due November 1, 2011 38.0 38.0 Pollution Control Project No. 11, 7 1/8% due June 1, 2007 20.0 -- Obligations under capital leases including Pollution Control Projects No. 1 and No. 2--primarily at rates ranging from 5.9% to 12.6%, due through August 1, 1998 16.1 20.7 No. 2 BOF Shop Caster Project Debt, 9.4% and 11 1/4% -- 36.2 -------- -------- Total Inland Steel Company 417.1 475.3 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 Other long-term debt 10 1/4% due through November 30, 1997 1.6 1.7 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 7.9 8.8 Senior Notes, 9.43% due through July 29, 1997 7.1 10.7 -------- -------- Total long-term debt $ 705.9 $ 777.1 ======== ========
See Notes to Consolidated Financial Statements on pages 40-49. 39 16 Notes to Consolidated Financial Statements NOTE 1: INVENTORIES Inventories were classified on December 31 as follows:
Dollars in Millions 1994 1993 ------------------- -------- ------- In process and finished products: Steel Manufacturing Operations $ 92.1 $ 55.6 Materials Distribution Operations 271.7 276.3 --------- --------- 363.8 331.9 --------- --------- Raw materials and supplies: Iron ore 34.7 25.3 Scrap and other raw materials 18.0 7.8 Supplies 13.0 11.9 --------- --------- 65.7 45.0 --------- --------- Total $ 429.5 $ 376.9 ========= =========
During 1993, various inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current year costs. The effect of these liquidations on continuing operations was to decrease cost of goods sold by $24.1 million in 1993. The effect on cost of goods sold of LIFO liquidations in 1994 and 1992 was not material. Replacement costs for the LIFO inventories exceeded LIFO values by approximately $381 million and $348 million on December 31, 1994 and 1993, respectively. NOTE 2: BORROWING ARRANGEMENTS On December 31, 1994, the Company's subsidiaries had available unused credit facilities totaling $225 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratios. A $100 million unsecured credit agreement between Joseph T. Ryerson & Son, Inc. and a group of banks provides a revolving credit facility to March 31, 1995. A new agreement extending the maturity of this credit facility for five years and increasing the amount to $200 million has been approved by the banks, subject to final documentation. A special-purpose subsidiary of Inland Steel Company has a $100 million revolving credit facility, which extends to November 30, 1995, with the same banks as the Ryerson agreement. 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. J. M. Tull Metals Company, Inc. has a $25 million unsecured revolving credit agreement with other banks, which extends to December 15, 1997. Cash availability, as well as various covenants in subsidiary borrowing arrangements, limited the cash that subsidiaries could transfer to the Company in the form of dividends and advances to $225 million at year-end 1994. This amount is subject to change during 1995 based on the financial performance of each subsidiary. NOTE 3: 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, the Pollution Control Series 1978 Bonds, and the Series R First Mortgage Bonds subject to a sinking fund. Substantially all 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, 1994. In 1994, the Company, through its Inland Steel Company subsidiary, redeemed all $75 million of its outstanding Series O, P and Q First Mortgage Bonds. At year-end 1993, all such remaining Bonds had been called for redemption and, accordingly, the outstanding principal amount was classified as a current liability. Inland Steel Company also acquired the equity interest in the operating lease of the No. 2 Basic Oxygen Furnace Shop continuous casters, assuming $63 million of debt. By year-end 1994, the assumed debt and approximately $40 million of other caster-related debt was repaid by the Company. During the second quarter of 1994, Inland Steel Company refinanced $20 million of 8.125 percent pollution control revenue bonds with bonds bearing an interest rate of 7.125 percent. In addition, in the 1993 second quarter, Inland Steel Company refinanced $40 million of pollution control revenue bonds at an interest rate of 6.8 percent. The weighted average percentage rate of the refunded bonds was 9.9 percent. In December 1992, Inland Steel Industries issued $150 million principal amount of unsecured 12 3/4% Notes due December 15, 2002. The Notes are obligations solely of the Company and not of any of its subsidiaries. Net proceeds of the offering were added to the general funds of the Company for general corporate purposes. The Notes, which are not entitled to the benefit of any sinking fund, are not subject to redemption prior to December 15, 1997. Both the First Mortgage Indenture under which the Series T Bonds were issued and the Indenture under which the Notes were issued contain covenants limiting, among other things, the creation of additional indebtedness; the declaration and payment of dividends and distributions on the Company's capital stock; as well as mergers, consolidations, retirement of certain debt, and the sales or purchases of certain assets. 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 wholly owned subsidiary of the Company. See Note 5 for additional information on the ESOP debt. Maturities of long-term debt and capitalized lease obligations due within five years are: $19.5 million in 1995, $21.4 million in 1996, $23.2 million in 1997, $156.1 million in 1998, and $22.3 million in 1999. See Note 15 regarding commitments and contingencies for other scheduled payments. Interest cost incurred by the Company totaled $72.5 million in 1994, $80.9 million in 1993, and $65.1 million in 1992. Included in these totals is capitalized interest of $1.1 million in 1994, $2.9 million in 1993, and $10.2 million in 1992. 40 17 NOTE 4: REDEEMABLE PREFERRED STOCK 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 entitles the holder to cumulative annual dividends of 9.48 percent (based on the purchase price of the stock) payable quarterly; to certain preferences including preference in the payment of dividends and in liquidation over holders of the Company's Series E Preferred Stock and common stock; and to 30.604 votes per share, which number may be adjusted from time to time upon the occurrence of certain events. The voting power is 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 Series F Preferred Stock 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. Any accrued but unpaid dividends bear interest at the annual rate of 11.48 percent, compounded quarterly. The preferred stock is exchangeable at the option of the Company and with the consent of NSC for the Company's 10.23% Subordinated Voting Note. The Series F Preferred Stock or the Subordinated Voting Note is required to be redeemed in two stages, consisting of $85 million on December 18, 1996, and the remaining $100 million on December 17, 1999, plus, in each instance, accrued and unpaid dividends thereon. 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 $147 million (amounting to 4.7 million shares) has been repurchased. As of December 31, 1994, the amount representing the remaining repurchase commitment of $38 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 $19 million to meet its obligation under the Series F Preferred Stock sale agreement. 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 preferred stock. 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. The Company has agreed not to create issues of stock senior to the Series F Preferred Stock. So long as the purchaser and permitted transferees beneficially own at least $100 million of preferred stock or $100 million aggregate principal amount of the subordinated notes, 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. See Note 13 regarding other related party transactions. NOTE 5: 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. 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 1994, the ESOP Trust received $10.6 million in dividends and $8.0 million in contributions from the Company to make required principal and interest payments. For 1993, the ESOP Trust received $10.6 million in dividends and $8.1 million in contributions from the Company to make such required payments. In 1992, the Company paid $10.7 million in dividends and provided $8.0 million in contributions. 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 $8.8 million in 1994, $9.0 million in 1993, and $10.0 million in 1992. 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 $10.7 million, $11.3 million and $11.9 million in 1994, 1993 and 1992, respectively. The ESOP shares as of December 31 were as follows:
1994 1993 ------ ------ Allocated shares 1,034,800 804,829 Unreleased shares 2,067,753 2,309,739 --------- --------- Total ESOP shares 3,102,553 3,114,568 ========= =========
41 18 NOTE 6: CAPITAL STOCK On December 31, 1994, 7,642,600 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 1994, as a result of the Company's call for redemption, 1.5 million shares of Series G $4.625 Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value per share, were converted into 2.7 million new-issue shares of the Company's common stock, $1 par value per share. In the fourth quarter of 1993, the Company sold 5.75 million shares of new-issue common stock in a public offering. The net proceeds of the offering totaled approximately $179 million. In the 1992 third quarter, the Company sold 4.3 million shares of new-issue common stock in a public offering. The net proceeds of the offering totaled approximately $98 million. The indenture relating to the Industries 12 3/4% Notes prohibits the Company from declaring or paying cash dividends on the Company common stock under certain conditions. At year-end 1994, up to $114 million of common dividends could have been paid under terms of the indenture. 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 5). The following table details changes in capital accounts:
Common Stock Treasury Stock Preferred Stock Capital in ------------ -------------- ---------------------------------- Excess of Series A Series E Series G Par Value -------- -------- -------- --------- Shares in Thousands and Shares Dollars Shares Dollars Shares Dollars Shares Dollars Shares Dollars Dollars Dollars in Millions ------------------------ ------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------- Balance at January 1, 1992 37,804 $37.8 (6,847) $(248.7) 97 $.1 3,147 $3.1 1,500 $1.5 $ 855.9 Acquisition of treasury stock -- -- (150) (3.5) -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 144 6.1 -- -- 19 -- -- -- (2.1) Redemption of Series E Preferred Stock -- -- -- -- -- -- (31) -- -- -- (1.5) Issuance of Common Stock 4,300 4.3 -- -- -- -- -- -- -- -- 93.4 Other changes -- -- (4) .1 -- -- -- -- -- -- (.7) ------ ---- ----- ----- --- --- ----- --- ------ --- ------- Balance at December 31, 1992 42,104 42.1 (6,857) (246.0) 97 .1 3,135 3.1 1,500 1.5 945.0 Acquisition of treasury stock -- -- (341) (9.5) -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 440 19.3 -- -- 39 -- -- -- (7.5) Redemption of Series E Preferred Stock -- -- -- -- -- -- (59) -- -- -- (2.8) Issuance of Common Stock 5,750 5.8 -- -- -- -- -- -- -- -- 172.9 Other changes -- -- (9) (.3) -- -- -- -- -- -- (1.2) ------ ---- ----- ----- --- --- ----- --- ------ --- ------- Balance at December 31, 1993 47,854 47.9 (6,767) (236.5) 97 .1 3,115 3.1 1,500 1.5 1,106.4 Acquisition of treasury stock -- -- (106) (4.0) -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 879 39.9 -- -- 27 -- -- -- (14.0) Redemption of Series E Preferred Stock -- -- -- -- -- -- (39) -- -- -- (1.9) Conversion of Series G Preferred Stock 2,702 2.7 -- -- -- -- -- -- (1,500) (1.5) (2.2) Conversion of Series A Preferred Stock -- -- 2 .1 (2) -- -- -- -- -- -- Other changes -- -- (14) (.4) -- -- -- -- -- -- (.3) ------ ----- ----- ----- --- --- ----- --- ------ --- ------- Balance at December 31, 1994 50,556 $50.6 (6,006) $(200.9) 95 $.1 3,103 $3.1 -- $ -- $1,088.0
42 19 NOTE 7: STOCK OPTION PLANS The Inland 1992 Incentive Stock Plan, approved by stockholders on April 22, 1992, provides for the issuance, pursuant to options and other awards, of 2.2 million shares of common stock to officers and other key employees. Options remain outstanding and exercisable under the Inland 1988 and 1984 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 1994, options were granted to 237 executives under the 1992 Plan and a total of 255,024 shares was available for future grants under that Plan as of December 31, 1994. The following summarizes the status of options under the plans for the periods indicated:
Option Exercise Number of Price or Range Shares Per Share ----------- ---------------- Options (granted and unexercised) at December 31, 1991 1,747,095 $15.31-$39.75 Granted 655,450 22.31- 25.50 Exercised (600) 18.75 Cancelled or expired (48,450) 18.75- 39.75 Surrendered (SAR Exercise) (8,000) 15.31- 25.38 Options (granted and unexercised) at December 31, 1992 (1,316,530 exercisable) 2,345,495 15.31- 39.75 Granted 575,200 26.13 Exercised (231,953) 21.38- 33.75 Cancelled or expired (198,911) 21.38- 39.75 Surrendered (SAR Exercise) (20,675) 15.31- 25.38 Options (granted and unexercised) at December 31, 1993 (1,425,909 exercisable) 2,469,156 15.31- 39.75 Granted 463,800 30.88- 36.00 Exercised (598,799) 15.31- 39.75 Cancelled or expired (68,000) 15.31- 39.75 Surrendered (SAR Exercise) (22,150) 25.38- 33.75 Options (granted and unexercised) at December 31, 1994 (1,286,980 exercisable) 2,244,007 15.31- 39.75
Options outstanding on December 31, 1994, under the 1984 Plan have expiration dates ranging from July 22, 1996 to September 22, 1997, with a weighted average exercise price per share of $30.08. Options outstanding under the 1988 Plan have expiration dates ranging from July 26, 1998 to June 25, 2001, with a weighted average exercise price per share of $33.66. Options outstanding under the 1992 Plan have expiration dates ranging from June 23, 2002 to June 14, 2004, with a weighted average exercise price per share of $27.65. On December 31, 1994, there were 45 holders of options granted under the 1984 Plan, 186 holders of options granted under the 1988 Plan, and 265 holders of options granted under the 1992 Plan. Stock appreciation rights have also been granted with respect to 139,000 shares subject to outstanding options under the plans at the rate of one stock appreciation right ("SAR") for each share subject to option. Upon exercise of an SAR, the holder is entitled to receive the excess of the fair market value of the shares for which the SAR is exercised over the related option exercise price. The holder may elect to receive payment in stock, or in a combination of stock and cash. An SAR is exercisable only upon surrender of the related option and only to the extent that the related option is exercisable. No SAR has been granted since 1990. Following is a summary of SAR activity:
Number Shares Average of Rights of Stock Exercise Exercised Issued Price Cash Paid --------- ------- -------- --------- 1992 8,000 1,070 $23.66 $ 4,000 1993 20,675 2,794 $29.47 $84,000 1994 22,150 3,692 $39.00 $15,000
SAR compensation expense recorded by the Company was not material for any of the three years. The 1992 Plan also provides, as did the 1988 and 1984 Plans, for the granting of restricted stock and performance awards to officers and other key employees. During 1994, restricted stock awards totaling 106,100 shares were granted to 47 executives, and 14 performance awards totaling 73,500 shares were granted. Also during 1994, 11,433 shares of previously granted restricted stock awards vested, while no shares were forfeited. During 1993, restricted stock awards totaling 122,000 shares were granted to 33 executives, and no performance awards were granted. Also during 1993, 7,052 shares of previously granted restricted stock awards vested, while 4,000 shares were forfeited. During 1992, restricted stock awards totaling 3,810 shares were granted to one executive, and no performance awards were granted. The final performance period for awards granted prior to 1992 ended December 31, 1992. As the performance criteria for such performance period were not met, the remaining 95,436 shares subject to performance awards were cancelled. Also during 1992, 75,657 shares of previously granted restricted awards vested, while 1,143 shares were forfeited. NOTE 8: STOCKHOLDER RIGHTS PLAN Pursuant to a stockholder rights plan, on November 25, 1987, the Board of Directors declared a dividend distribution, payable to stockholders of record on December 18, 1987, of one preferred stock purchase right (a "Right") for each outstanding share of the Company's common stock. The rights plan was amended by the Board on May 24, 1989. The Rights will expire 10 years after issuance, 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 43 20 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 $90, subject to certain antidilution adjustments. The Company will generally be entitled to redeem the Rights at $.05 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 a merger takes place with a 20 percent holder where the Company is the surviving corporation and its common stock is unchanged, or a 20 percent holder engages in certain self-dealing transactions, or the Board determines that a person or 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 value of 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. NOTE 9: 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, and in foreign currency exchange rates related to firm commitments regarding a Canadian raw material joint venture. Gains and losses associated with these hedging transactions become part of the cost of the item being hedged. At no time during 1994 or 1993 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 1994 and 1993, based on the quoted market price and exchange rate at each year end, was $9.2 million and $6.7 million, respectively, as compared with the carrying value of $11.1 million and $9.5 million included in the balance sheet at December 31, 1994 and 1993, respectively. LONG-TERM DEBT The estimated fair value of the Company's long-term debt (including current portions thereof), using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded, was $733 million at December 31, 1994 and $929 million at December 31, 1993 as compared with the carrying value of $725 million and $876 million included in the balance sheet at year-end 1994 and 1993, respectively. REDEEMABLE PREFERRED STOCK The Company believes that it is not practical to estimate a fair market value different from this security's carrying value of $185 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 ability to convert to voting debt, 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 (see Note 4). NOTE 10: PROVISIONS FOR RESTRUCTURING In 1993, the Company recorded a facility shutdown provision of $22.3 million which covered costs associated with the earlier than planned closure of Inland Steel Company's cokemaking facilities. Of the amount provided, $7.7 million related to the write-off of assets with the remainder provided for various expenditures associated with the shutdown of the facility, including personnel costs. Inland Steel Company has taken initiatives to reduce its production costs by shutdown of certain Indiana Harbor Works facilities and raw materials operations. Reserve balances related to provisions recorded in prior years for these shutdowns, which include long-term liabilities for mine reclamation costs and employee benefits, totaled $133.8 million, $149.7 million and $141.3 million at December 31, 1994, 1993 and 1992, respectively. NOTE 11: RETIREMENT BENEFITS PENSIONS The Company has a non-contributory defined benefit pension plan which covers substantially all Company employees, retirees and their beneficiaries. Benefits provided participants of the plan 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 union. 44 21 The Company's funding policy is to contribute annually the amount necessary to satisfy the ERISA funding standards. No funding has been required since 1984. The assumptions used to determine the plan's funded status are as follows:
1994 1993 ------ ----- Discount (settlement) rate 8.8% 7.25% Rate of compensation increase 5.0% 5.0% Rate of return on plan assets 9.5% 9.5%
The funded status of the plan as of December 31, 1994 and 1993 was as follows:
December 31 Dollars in Millions 1994 1993 ------------------- ------ ------ Fair value of plan assets Equities $ 909 $1,011 Bonds 506 354 Real estate 136 136 Cash equivalents and accrued interest 101 293 ----- ------ 1,652 1,794 Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date, including vested benefits of $1,529 and $1,808 for 1994 and 1993, respectively 1,641 1,960 Additional benefits based on estimated future compensation levels 98 117 Projected Benefit Obligation 1,739 2,077 Plan asset shortfall to Projected Benefit Obligation $ (87) $ (283)
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. The pension cost reflected in the Company's balance sheet on December 31, 1994 and 1993, can be reconciled to the shortfall of plan assets as shown below:
December 31 --------------------------- Dollars in Millions 1994 1993 ------------------- ------ ------ Accrued pension cost $ (72) $(166) Unrecognized transition asset 115 139 Unrecognized net loss (1) (237) Unrecognized prior service cost (129) (141) Adjustment required to recognize minimum liability -- 122 Plan asset shortfall to Projected Benefit Obligation $ (87) $(283)
The additional minimum pension liability at December 31, 1993 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 or credit for 1994, 1993 and 1992 is composed of the components set forth in the table below:
Dollars in Millions 1994 1993 1992 ------------------- -------- -------- -------- Service cost--present value of benefits earned during year $ 34 $ 27 $ 27 Interest on service cost and Projected Benefit Obligation 147 139 134 Actual return on plan assets (9) (256) (151) Net amortization and deferral (144) 85 (19) Total pension cost (credit) $ 28 $ (5) $ (9)
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 ("USWA") retirees. Funding of the Trust is made as claims are submitted for payment. The Company adopted FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. FASB Statement No. 106 requires accrual accounting for all postretirement benefits other than pensions. The Company must be fully accrued for these postretirement benefits by the date each employee attains full eligibility for such benefits. In conjunction with the adoption of FASB Statement No. 106, the Company elected to immediately recognize the accumulated postretirement benefit obligation for current and future retirees (the "transition obligation"). In 1993, in connection with Inland Steel Company's new labor agreement with the USWA, the postretirement medical benefit plan covering union employees was amended, effective August 1, 1993, to provide for employee co-payments and increased deductibles. As a result of these plan amendments, the Company remeasured its postretirement benefit obligation under FASB Statement No. 106, as of August 1, 1993. This remeasurement incor- 45 22 porated the effect of the union contract changes as well as the effects of changes in actuarial assumptions to reflect more current information regarding claim costs, census data and interest rate factors. The amount of net periodic postretirement benefit cost for 1994, 1993 and 1992 is composed of the following:
Dollars in Millions 1994 1993 1992 -------------------- ------ ------ ------- Service cost $15 $15 $ 15 Interest cost 72 85 96 Net amortization and deferral (8) (4) -- Total net periodic postretirement benefit cost $79 $96 $111
The following table sets forth components of the accumulated postretirement benefit obligation:
December 31 ---------------------- Dollars in Millions 1994 1993 ------------------- ----- ------ Accumulated postretirement benefit obligation attributable to: Retirees $ 469 $ 552 Fully eligible plan participants 152 212 Other active plan participants 228 280 Accumulated postretirement benefit obligation 849 1,044 Unrecognized net gain 298 73 Unrecognized prior service credit 70 76 Accrued postretirement benefit obligation $1,217 $1,193
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:
December 31 ------------------------ 1994 1993 ------ ------ Discount rate 8.8% 7.25% Rate of compensation increase 5.0% 5.0% Medical cost trend rate 6%-5% 7%-5% Year ultimate rate reached 1996 1996
A one percentage point increase in the assumed health care cost trend rates for each future year increases annual net periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of December 31, 1994 by $12 million and $98 million, respectively. POSTEMPLOYMENT BENEFITS In November 1992, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." Adoption of the new Standard in 1994 did not have a material impact on the results of operations or the financial position of the Company. NOTE 12: INCOME TAXES The Company adopted FASB Statement No. 109, "Accounting for Income Taxes," effective January 1, 1992. The cumulative effect of prior years at the date of adoption was not material to the results of operations or the financial position of the Company. The elements of the provisions for income taxes for each of the three years indicated below were as follows
Dollars in Millions Years Ended December 31 1994 1993 1992 ----------------------- ---- ---- ---- Current income taxes: Federal $ 4.9 $ -- $ -- State and foreign 4.3 2.8 .9 9.2 2.8 .9 Deferred income taxes 52.9 38.8Cr. 100.1Cr. Total tax expense or benefit $62.1 $36.0Cr. $ 99.2Cr.
Cr.=Credit In accordance with FASB Statement No. 109, the Company adjusted its deferred tax assets and liabilities for the effect of the change in the corporate Federal income tax rate from 34 percent to 35 percent, effective January 1, 1993. A credit to income of $11 million, which includes the effect of the rate change on deferred tax asset and liability balances as of January 1, 1993 as well as the effect on 1993 tax benefits recorded by the Company prior to the enactment date of August 10, 1993, was recorded in the third quarter of 1993. The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
December 31 ---------------------- Dollars in Millions 1994 1993 ------------------- ------ ------- Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss and tax credit carryforwards $309 $354 Restructuring and termination reserves 87 95 Other deductible temporary differences 105 104 Less valuation allowances (5) (9) 496 544 Deferred tax liabilities: Fixed asset basis difference 443 430 Other taxable temporary differences 84 86 527 516 Net deferred asset (liability) (excluding post- retirement benefits other than pensions) (31) 28 FASB Statement No. 106 impact (postretirement benefits other than pensions) 451 445 Net deferred asset $420 $473
For tax purposes, the Company had available, at December 31, 1994, net operating loss ("NOL") carryforwards for regular Federal income tax purposes of approximately $793 million which will expire as follows: $68 million in year 2005, $313 million in year 2006, $280 million in year 2007, and $132 million in the year 2008. The Company also had investment tax credit and other general business credit carryforwards for tax purposes of approximately 46 23 $14 million, which expire during the years 1995 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 minimum tax credit carryforwards for tax purposes of approximately $18 million, which may be used indefinitely to reduce regular Federal income taxes. The Company believes that it is more likely than not that the $793 million of NOL carryforwards will be utilized prior to their expiration. This belief is based upon the factors discussed below. The NOL carryforwards and existing deductible temporary differences (excluding those relating to FASB Statement No. 106) are substantially offset by existing taxable temporary differences reversing within the carryforward period. Furthermore, any such recorded tax benefits which would not be so offset are expected to be realized by achieving future profitable operations based on the following: First, the Company launched a turnaround strategy to improve performance by implementing a cost reduction program and enhancing asset utilization. This resulted in a $215 million restructuring provision in 1991 to write off uneconomic facilities and provide for workforce reductions at the Inland Steel Company and the Company. Second, in 1992 Inland Steel Company completed a major plant and equipment investment program that amounted to approximately $1.3 billion since 1988. This included the joint ventures of I/N Tek and I/N Kote and major upgrades to facilities in the flat products and bar business. As expected, these facility upgrades resulted in significant start-up costs and disruptions to operations that negatively impacted financial results. By early 1994, all facilities reached their design capabilities. This major investment program also shifted the product mix to higher value-added products which historically have not experienced significant price volatility. Consequently, the Company is now positioned with modern facilities that will enhance its ability to generate taxable profits. Finally, the Company operates in a highly cyclical industry and consequently has had a history of generating and then fully utilizing significant amounts of NOL carryforwards (during the years 1986-1989 the Company utilized approximately $600 million of NOL carryforwards, and in 1994 utilized $134 million of NOL carryforwards.) Subsequent to the adoption of FASB Statement No. 109, the Company adopted FASB Statement No. 106 and recognized the entire transition obligation at January 1, 1992, as a cumulative effect charge in 1992 (Note 11). At December 31, 1994, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $451 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 15-year carryforward period of that loss. Because of the extremely long period that is available to realize these future tax benefits, a valuation allowance for this deferred tax asset is not necessary. While not affecting the determination of deferred income taxes for financial reporting purposes, at December 31, 1994, the Company had available for AMT purposes approximately $123 million of NOL carryforwards which will expire as follows: $79 million in 2007 and $44 million in 2008. Total income taxes reflected in the Consolidated Statement of Operations differ from the amounts computed by applying the Federal corporate rate as follows:
Dollars in Millions Years Ended December 31 1994 1993 1992 ----------------------- ------ ------ ------ Federal income tax expense or benefit computed at statutory tax rate of 35% in 1994 and 1993, and 34% in 1992 $59.3 $25.8Cr. $87.9Cr. Additional taxes or credits from: State and local income taxes, net of Federal income tax effect 7.2 3.6 1.7Cr. Percentage depletion 2.8Cr. 2.2Cr. 4.1Cr. Adjustment of taxes of prior years 2.0Cr. -- 7.2Cr. Change in Federal statutory rate -- 10.6Cr. -- All other, net .4 1.0Cr. 1.7 ----- ----- ----- Total income tax expense or benefit $62.1 $36.0Cr. $99.2Cr.
Cr.=Credit NOTE 13: RELATED PARTY TRANSACTIONS--NIPPON STEEL CORPORATION Following is a summary of the Company's relationships with NSC, whose indirect wholly owned subsidiary became the holder of all of the Company's outstanding Series F Preferred Stock on December 18, 1989 (see Note 4). I/N Tek, a general partnership formed for a joint venture between the Company and NSC, owns and operates a cold-rolling facility that commenced operations in early 1990. 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. The cost of the facility was $525 million, of which $111.6 million was contributed by the subsidiary of Inland Steel Company and $74.4 million by the subsidiary of NSC, with the balance borrowed by I/N Tek from three Japanese trading companies. 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 $131.1 million, $141.2 million and $122.6 million in 1994, 1993 and 1992, respectively, for such tolling services. NSC has the right to purchase up to 400,000 tons of cold-rolled steel from Inland Steel Company in each year at market-based negotiated prices, up to half of which may be steel processed by I/N Tek. Purchases of Inland Steel Company products by a subsidiary of NSC aggregated $172.8 million, $157.8 million and $123.0 million during 1994, 1993 and 1992, respectively. At year-end 1994 and 1993, a subsidiary of NSC owed the Company $10.6 million and $8.2 million, respectively, related to these purchases. The Company and NSC also own and operate another joint venture which consists of a 400,000 ton electrogalvanizing line and 47 24 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. The facility commenced operations in the fourth quarter of 1991 and became fully operational in the third quarter of 1992, with the total cost of the project being $554 million. Permanent financing for the project, as well as for capitalized interest and a portion of the working capital, was provided by third-party long-term financing, by capital contributions of the two partners of $60 million each and by subordinated partner loans of $30 million each. 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 $485 million outstanding under its long-term financing agreement at December 31, 1994. Additional working capital requirements were met by partner loans and by third-party credit arrangements. 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 may be 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 $275.6 million in 1994, $191.7 million in 1993 and $99.3 million in 1992. At year-end 1994 and 1993, I/N Kote owed the Company $26.0 million and $35.5 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. During 1993, Inland Steel Company sold cold-rolled steel to I/N Kote at prices that approximated its costs of production and in 1994 the prices exceeded production costs but were still 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 $36.0 million in 1994 and $29.1 million in 1993. Inland Steel Company sells all I/N Kote products that are distributed in North America. The Company and NSC have entered into various agreements pursuant to which NSC has provided technical services and licenses of proprietary steel technology with respect to specific Company research and engineering projects. Pursuant to such agreements, Inland Steel Company incurred costs of $1.6 million, $3.7 million and $4.1 million for technical services and related administrative costs for services provided during 1994, 1993 and 1992, respectively. NOTE 14: 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, 40 percent interest in the Empire Iron Mining Partnership, 12 1/2 percent interest in Walbridge Electrogalvanizing Company, and 13 3/4 percent interest in Wabush Mines. I/N Tek and I/N Kote are joint ventures with NSC (see Note 13). 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 management services joint venture operated in Mexico providing service center access to materials in that market. Empire and Wabush are iron ore mining and pelletizing ventures owned in various percentages primarily by U.S. and Canadian steel companies. On June 30, 1992, the Company, through subsidiaries, sold one-half of its interest in Walbridge, resulting in a $22.5 million pre-tax 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:
Dollars in Millions 1994 1993 1992 ------------------- -------- -------- -------- Results of Operations for the years ended December 31: Gross revenue $1,121.0 $ 956.7 $ 740.8 Costs and expenses 1,092.9 945.1 748.3 Net income (loss) $ 28.1 $ 11.6 $ (7.5) Financial Position at December 31: Current assets $ 316.2 $ 279.7 $ 203.2 Total assets 1,931.8 1,925.9 1,949.9 Current liabilities 282.1 241.6 174.0 Total liabilities 1,537.6 1,545.5 1,511.7 Net assets 394.2 380.4 438.2
NOTE 15: COMMITMENTS AND CONTINGENCIES Inland Steel Company guarantees payment of principal and interest on its 40 percent share of the long-term debt of Empire Iron Mining Partnership requiring principal payments of approximately $7.6 million annually through 1996. At year-end 1994, Inland Steel Company also guaranteed $32.5 million of long-term debt attributable to a subsidiary's interest in PCI Associates. 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 full amount of its annual limestone needs or one million gross tons, whichever is greater, through 1996, and the annual limestone needs of the Indiana Harbor Works from 1997 through 2002. The Company and its subsidiaries have various operating leases for which future minimum lease payments are estimated to total $199.7 million through 2019, including approximately $39.9 million in 1995, $32.4 million in 1996, $27.5 million in 1997, $23.6 million in 1998, and $19.4 million in 1999. 48 25 It is anticipated that the Company will make annual expenditures of $24 million in 1995 and $5 million to $10 million annually in each of the four years thereafter 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, 1994, the Company's reserves for environmental liabilities totaled $19 million related to the sediment remediation under the 1993 EPA consent decree. The total amount of firm commitments of the Company and its subsidiaries to contractors and suppliers, primarily in connection with additions to property, plant and equipment, approximated $42 million at year-end 1994. NOTE 16: BUSINESS SEGMENTS AND CONCENTRATION OF CREDIT RISK The Company operates in two business segments, Steel Manufacturing and Materials Distribution. Steel Manufacturing operations include the manufacture of steel mill products and the mining and processing of iron ore. Steel Manufacturing produces and sells a wide range of steels, of which approximately 99 percent consists of carbon and high-strength low-alloy steel grades. Approximately 78 percent of this segment's sales were to customers in five mid-American states, and 95 percent were to customers in 20 mid-American states. Over half the sales are to the steel service center and transportation (including automotive) markets. 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 sales between segments are recorded at current market prices. Operating profit consists of total sales less operating expenses. Operating expenses of segments do not include any allocation of general corporate income and expense, other non-operating income or expense, interest income or expense, or income taxes. Identifiable assets are those that are associated with each business segment. Corporate assets are principally investments in cash equivalents, the intangible pension asset in 1993, and the assets of discontinued segments. Substantially all of the Company's operations are located in the United States, and foreign sales are not material. During 1994, the Company formed a subsidiary to expand the Company's foreign presence. At year-end 1994, investments in foreign operations were not material. INFORMATION ABOUT BUSINESS SEGMENTS
Dollars in Millions Years Ended December 31 1994 1993 1992 ----------------------- ----------- ----------- ---------- NET SALES Steel Manufacturing Operations: Sales to unaffiliated customers $ 2,304.5 $ 2,001.3 $ 1,787.3 Intersegment sales 183.4 173.6 122.1 2,487.9 2,174.9 1,909.4 Materials Distribution Operations: Sales to unaffiliated customers 2,186.6 1,882.5 1,707.0 Intersegment sales 10.9 10.8 9.6 2,197.5 1,893.3 1,716.6 Eliminations and adjustments (188.4) (180.0) (131.7) Total net sales $ 4,497.0 $ 3,888.2 $ 3,494.3 OPERATING PROFIT (LOSS) Steel Manufacturing Operations $ 149.3 $ (28.2) $ (200.6) Materials Distribution Operations 98.1 56.4 27.1 Eliminations and adjustments 2.0 (1.6) .1 Total operating profit (loss) $ 249.4 $ 26.6 $ (173.4) IDENTIFIABLE ASSETS Steel Manufacturing Operations $ 2,352.8 $ 2,201.2 $ 2,212.3 Materials Distribution Operations 819.0 788.3 742.9 3,171.8 2,989.5 2,955.2 General corporate and other 181.6 446.3 191.3 Total assets on December 31 $ 3,353.4 $ 3,435.8 $ 3,146.5 DEPRECIATION Steel Manufacturing Operations $ 117.4 $ 111.1 $ 110.2 Materials Distribution Operations 19.8 19.2 18.7 137.2 130.3 128.9 General corporate and other 1.5 1.5 .7 Total depreciation $ 138.7 $ 131.8 $ 129.6 CAPITAL EXPENDITURES Steel Manufacturing Operations $ 223.6 $ 86.1 $ 55.1 Materials Distribution Operations 20.4 19.3 9.3 244.0 105.4 64.4 General corporate and other 1.3 .2 -- Total capital expenditures $ 245.3 $ 105.6 $ 64.4
49 EX-21 12 LIST OF CERTAIN SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF INLAND STEEL INDUSTRIES, INC. THE SUBSIDIARIES OF INLAND STEEL INDUSTRIES, INC. (OTHER THAN CERTAIN SUBSIDIARIES WHICH, CONSIDERED IN THE AGGREGATE AS A SINGLE SUBSIDIARY, DO NOT CONSTITUTE A SIGNIFICANT SUBSIDIARY), EACH OF WHICH IS INCORPORATED IN THE STATE OF DELAWARE (EXCEPT AS NOTED BELOW) AND EACH OF WHICH IS WHOLLY OWNED, EITHER BY INLAND STEEL INDUSTRIES, INC. OR BY ONE OF ITS WHOLLY OWNED SUBSIDIARIES, ARE AS FOLLOWS: INLAND STEEL COMPANY INLAND STEEL MINING COMPANY INLAND STEEL ADMINISTRATIVE SERVICE COMPANY (FORMERLY KNOWN AS INLAND STEEL FINANCE COMPANY) INLAND MATERIALS DISTRIBUTION GROUP, INC. (FORMERLY KNOWN AS INLAND STEEL SERVICES HOLDING, INC.) JOSEPH T. RYERSON & SON, INC. J. M. TULL METALS COMPANY, INC. (A GEORGIA CORPORATION) EX-24 13 POWERS OF ATTORNEY 1 EXHIBIT 24 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of January, 1995. /s/ A. ROBERT ABBOUD --------------------- A. Robert Abboud 2 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of January, 1995. /s/ JAMES W. COZAD ------------------ James W. Cozad 3 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of January, 1995. /s/ JAMES A. HENDERSON ---------------------- James A. Henderson 4 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of January, 1995. /s/ ROBERT B. MCKERSIE ---------------------- Robert B. McKersie 5 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of January, 1995. /s/ MAURICE S. NELSON, JR. -------------------------- Maurice S. Nelson, Jr. 6 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of January, 1995. /s/ DONALD S. PERKINS --------------------- Donald S. Perkins 7 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of January, 1995. /s/ JOSHUA I. SMITH ------------------- Joshua I. Smith 8 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of January, 1995. /s/ NANCY H. TEETERS -------------------- Nancy H. Teeters 9 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifing and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of January, 1995. /s/ RAYMOND C. TOWER \ -------------------- Raymond C. Tower 10 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and David B. Anderson, or any one or more of them, my true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Inland Steel Industries, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the preparation and filing of the Annual Report on Form 10-K of said Inland Steel Industries, Inc. for the fiscal year ended December 31, 1994, including specifically, but without limitation thereof, full power and authority to sign my name as a director and(or) officer of said Inland Steel Industries, Inc. to said Annual Report on Form 10-K and any amendment thereto, hereby ratifying and confirming all that said attorneys and agents, or any of them, shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of January, 1995. /s/ ARNOLD R. WEBER ------------------- Arnold R. Weber EX-27 14 FINANCIAL DATA SCHEDULE
5 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 1,000 YEAR DEC-31-1994 DEC-31-1994 107,100 0 528,500 24,900 429,500 1,081,500 4,269,200 2,658,900 3,353,400 564,800 705,900 50,600 185,000 3,200 455,400 3,353,400 4,493,100 4,497,000 4,042,500 4,045,900 0 0 71,400 169,500 62,100 107,400 0 0 0 107,400 1.81 1.70