-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AZYRZ1MoP3eS89gmVybS+iqsBqSPXvpKbL3OLjbq9n6gp8AQAuPhUFspyxb5eEWE tRZ7o79Rw+CkJu303LLUqg== 0000950131-97-002216.txt : 19970401 0000950131-97-002216.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950131-97-002216 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND STEEL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000790528 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 363425828 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09117 FILM NUMBER: 97568445 BUSINESS ADDRESS: STREET 1: 30 W MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3123460300 MAIL ADDRESS: STREET 1: 30 WEST MONROE STREET STREET 2: 16TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60603 10-K 1 FORM 10-K DATED 12/31/96 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1996 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 NO. 1-9117 INLAND STEEL INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 36-3425828 DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.) (STATE OF INCORPORATION) 30 WEST MONROE STREET, CHICAGO, 60603 ILLINOIS (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) 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. [_] As of March 12, 1997 the aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant was approximately $992,500,000.(/1/) The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of March 12, 1997 was 48,907,952. (1) Excluding stock held by directors and executive officers of registrant, without admission of affiliate status of such individuals for any other purpose; also, excluding Series E ESOP Convertible Preferred Stock of the registrant, which Series is not 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, 1996. 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 28, 1997. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. Inland Steel Industries, Inc. (the "Company"), a Delaware corporation, is the sole stockholder of Inland Steel Company and the holder of stock representing approximately 87% of the economic interest in Ryerson Tull, Inc. ("RT"). Inland Steel Company is an 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 iron ore production and steel-finishing joint ventures. RT 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, 1996, information relating to net sales, operating profit, identifiable assets, depreciation and capital expenditures for both business segments of the Company appears in Note 17 of Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996. 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 the 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 certain related semi-finished products for the automotive, appliance, office furniture, steel service center and electrical motor markets. The Flat Products division closed its plate operations at year-end 1995. 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. 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 achieved operation at 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 that achieved operation at their design capacity in 1993. Inland Steel Company is also a participant, through a subsidiary, in another galvanizing joint venture located near Walbridge, Ohio. 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 (000 U.S. STEEL TONS*) INDUSTRY ------------ ----------------- 1996....................................... 5,519 5.3%** 1995....................................... 5,419 5.2 1994....................................... 5,309 5.3 1993....................................... 5,003 5.2 1992....................................... 4,740 5.2
- -------- * 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 92% and 91% of raw steel production of the Company in 1996 and 1995, respectively. 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 1992 through 1996 was 5.1 million tons in 1996; 5.1 million tons in 1995; 5.2 million tons in 1994; 4.8 million tons in 1993; and 4.3 million tons in 1992. In 1996, sheet, strip and certain related semi- finished products accounted for 83% of the total tonnage of steel mill products shipped from the Indiana Harbor Works, and bar and certain related semi-finished products accounted for 17%. In 1996 and 1995, approximately 94% and 93%, respectively, of the shipments of the Flat Products division and 92% and 93% respectively, of the shipments of the Bar division were to customers in 20 mid-American states. Approximately 74% of the shipments of the Flat Products division and 82% of the shipments of the Bar division in 1996 were to customers in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and Wisconsin, compared to 76% and 84% in 1995. 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. The steel market is highly competitive with major integrated producers, including Inland Steel Company, facing competition from a variety of sources. Many steel products compete with alternative materials such as plastics, aluminum, ceramics, glass and concrete. Domestic steel producers have also been adversely impacted by imports from foreign steel producers. Imports of steel mill products accounted for 23.3% of the domestic market in 1996, up from 21.4% in 1995 but below the 1984 peak of 26.4%. Many foreign producers are owned, controlled, or subsidized by their governments, allowing them to ship steel products into the domestic market despite decreased profit margins or losses on such sales. Mini-mills provide significant competition in certain product lines, primarily structural shapes, bars and rods. Mini-mills are relatively efficient, low-cost producers that manufacture steel principally from scrap in electric furnaces and, at this time, generally have lower capital, overhead, employment and environmental costs than the integrated steel producers, including Inland Steel Company. Mini-mills have been adding capacity and expanding their product lines in recent years to produce larger structural products and certain flat-rolled products, including coated products. A significant increase in modern mini-mill capacity is anticipated within the next two years. Certain facilities at the Indiana Harbor Works have been permanently closed and others have been shut down for temporary periods. The 28-inch structural mill was closed in early 1991, reflecting a decision to 2 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 shut- down 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.) At year-end 1995 the plate mill was closed. Provisions for such closure were taken prior to and in 1991. 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 Inland Steel Company, are set forth below. As shown in the table, 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 61% 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 ---------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Steel Service Centers: Affiliates.................................... 10% 9% 9% 9% 7% Non-Affiliates................................ 22 23 20 22 22 --- --- --- --- --- 32 32 29 31 29 Automotive...................................... 29 30 32 30 28 Steel Converters/Processors..................... 14 14 12 13 18 Appliance....................................... 9 8 9 9 9 Industrial, Electrical and Farm Machinery....... 8 7 8 7 8 Construction and Contractors' Products.......... 2 2 2 3 3 Other........................................... 6 7 8 7 5 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === ===
Some value-added steel processing operations for which Inland Steel Company does not have facilities are performed by outside processors, including joint ventures, prior to shipment of certain products to Inland Steel Company's customers. In 1996, approximately 44% of the products produced by Inland Steel Company were processed further through value-added services such as electrogalvanizing, painting and slitting. Approximately 73% of the total tonnage of shipments by Inland Steel Company during 1996 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 22% of the total tonnage of products transported by truck from the Indiana Harbor Works in 1996. 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; and Nashville, 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. Inland Steel 3 Company has entered into a contract to sell its interest in the Wabush mine. Inland Steel Company will purchase any ore requirements not met by its other sources from the purchasers of the Wabush interest. Such sale is anticipated to take place in the first half of 1997. Inland Steel Company has also 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, 1996, from properties of its subsidiaries and through interests in raw materials ventures; (2) 1996 and 1995 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 1996 and 1995.
IRON ORE TONNAGES IN THOUSANDS % OF (GROSS TONS OF PELLETS) REQUIREMENTS (1) --------------------------- ------------------- AVAILABLE AS OF PRODUCTION DECEMBER 31, ----------- 1996(2) 1996 1995 1996 1995 --------------- ----- ----- -------- -------- INLAND STEEL MINING COMPANY PROPERTY Minorca--Virginia, MN...... 60,000 2,735 2,769 38% 38% IRON ORE VENTURES AND LONG- TERM PURCHASE CONTRACTS Empire (40% owned)--Palmer, MI; Wabush (15.09% owned)-- Wabush, Labrador and Point Noire, Quebec, Canada..... 108,000 4,034 3,961 55 55 ------- ----- ----- -------- -------- Total Iron Ore........... 168,000 6,769 6,730 93% 93% ======= ===== ===== ======== ========
- -------- (1) Requirements in excess of production are purchased or taken from stockpile. (2) Net interest in proven reserves. All of Inland Steel Company's coal requirements are satisfied from independent sources. In April 1996, Inland Steel Company entered into a contract to purchase 1,000,000 tons of steam coal for the period of April 1, 1996 to December 31, 1997. Inland Steel Company purchased 29% of its 1996 coal requirements under such contract, representing 64% of its steam coal requirements. The balance of steam coal requirements is being met through a short-term contract. 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. In 1996, Inland Steel Company entered into two contracts to satisfy its PCI coal requirements. One covered 73% of 1996 PCI coal requirements while the other covered the remaining 27%. Currently, the 1997 PCI facility's coal needs are satisfied under one requirements contract subject to a force majeure provision. In December 1993, the last of Inland Steel Company's coke-making facilities was permanently shut down. Inland Steel Company has entered into two long-term purchase contracts, one of which requires the purchase of 1,400,000 tons of coke and extends through July 1999 subject to force majeure provisions and may be extended by mutual agreement of the parties. The second contract requires the purchase of 350,000 tons of coke for the period January 1, 1996 through December 31, 2000 on a take-or-pay basis, with a provision allowing Inland Steel Company to sell the coke to others. Both contract terms require purchases on an annualized basis at prices negotiated annually based on certain market determinants. During 1996, Inland Steel Company satisfied 74% of its total coke needs under such arrangements. The remainder of its purchased coke requirements was obtained through contracts with independent domestic and foreign sources. In November 1996, Inland Steel Company reached an agreement with Sun Coal and Coke Company ("Sun") and a unit of NIPSCO Industries, Inc. ("NIPSCO") for a heat recovery coke battery and an associated 4 energy recovery and flue-gas desulphurization facility, to be located on land leased from Inland Steel Company at its Indiana Harbor Works. Sun will design, build, finance and operate the coke-making portion of the project. A unit of NIPSCO will design, build, finance and operate the portion of the project which will clean the coke plant's flue gas and convert the heat into steam and electricity. Sun, the NIPSCO unit and other third parties will invest approximately $350 million in the project, which is expected to commence operations in 1998. Inland Steel Company will also advance approximately $30 million during construction of the project which will be credited against an energy tolling arrangement. Inland Steel Company has committed to purchase, for approximately 15 years, 1.2 million tons of coke annually from the facility on a take-or-pay basis at prices determined by certain cost factors, as well as energy produced by the facility through a tolling arrangement. Inland Steel Company sold all of its limestone and dolomite properties in September 1990. Inland Steel Company has entered into a long-term contract with the buyer of the properties to purchase, subject to certain exceptions and at prices which approximate market, the full amount of its annual limestone needs through 2002. Approximately 62% of the iron ore pellets and virtually all of the limestone received by Inland Steel Company at its Indiana Harbor Works in 1996 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 25% of Inland Steel Company's coal requirements were transported in its hopper cars by unit train in 1996. The remainder of Inland Steel Company's coal requirements was transported in independent carrier-owned equipment or leased equipment. Approximately 35% of Inland Steel Company's coke requirements in 1996 were transported in its own hopper cars, 45% in leased hopper cars, 10% in independent carrier-owned hopper cars, and 10% 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. Product Classes The following table sets forth the percentage of consolidated net sales of Inland Steel Company, for the five years indicated, contributed by each class of similar products of Inland Steel Company and accounted for 10% or more of consolidated net sales in such time period. The data includes sales to affiliates of Inland Steel Company.
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Sheet and Strip..................................... 81% 82% 85% 88% 88% Bar and Structural.................................. 19 18 15 12 12 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === ===
Sales to General Motors Corporation approximated less than 10% of consolidated net sales in 1996, 10% in 1995, and 12% in each of 1994, 1993 and 1992. No other customer accounted for more than 10% of the consolidated net sales of the Company during any of these years. Capital Expenditures and Investments in Joint Ventures In recent years, Inland Steel 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 Inland Steel Company and its subsidiaries to property, plant and equipment, together with retirements and adjustments, for the five years ended December 31, 1996, are set forth below. Net capital additions during such period aggregated $328.1 million.
DOLLARS IN MILLIONS --------------------------------------------- RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADJUSTMENTS ADDITIONS --------- ----------- ----------- ----------- 1996.............................. $155.8 $ 8.5 $ 5.6 $152.9 1995.............................. 113.9 36.7 1.5 78.7 1994.............................. 223.7 47.8 2.0 177.9 1993.............................. 86.1 140.2 (1.2) (55.3) 1992.............................. 54.4 73.0 (7.5) (26.1)
5 In recent years, Inland Steel 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. Inland Steel Company and its subsidiaries made capital expenditures of $156 million in 1996. Such expenditures principally related to the purchase of new machinery and equipment to maintain or improve operations at the Indiana Harbor Works. 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 40% is cold-rolled substrate for I/N Kote (described below). The I/N Tek facility, located near New Carlisle, Indiana, achieved operation at its design capacity in 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 facility achieved operation at its design capacity in 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 Industries' definitive Proxy Statement which will be furnished to stockholders of Industries in connection with its Annual Meeting scheduled to be held on May 28, 1997, and is incorporated by reference into Item 13 of this Report. The amount budgeted for 1997 capital expenditures by Inland Steel Company and its subsidiaries is approximately $100 million. It is anticipated that capital expenditures will be funded from cash generated by operations and advances from and capital contributions by the Company. (See "Environment" below for a discussion of capital expenditures for pollution control purposes.) Employees The monthly average number of active employees of Inland Steel Company and its subsidiaries receiving pay during 1996 was approximately 9,700. At year- end, approximately 7,000 employees were represented by the United Steelworkers of America, of whom approximately 650 were on furlough or indefinite layoff. Total employment costs decreased from $679 million in 1995 to $649 million in 1996, as lower direct compensation expense, including profit sharing provisions, was in part offset by higher employee benefit costs. Beginning in 1991, Inland Steel 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 Inland Steel Company. With the closure of the plate operations at year-end 1995, Inland Steel Company has completed the workforce reduction program which was part of the turnaround strategy, reducing employment by 25%. 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 provided a wage increase of $.50 per hour in 1995 and a $500 bonus in each of 1993 and 1994 (totalling in each case approximately $4 million). All active employees received an additional week of vacation in 1994 and in 1996. The agreement provided 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. On 6 September 17, 1996 an arbitrator issued a decision selecting Inland Steel Company's final offer of terms covering the second half of the six year agreement. The terms provided a wage increase of $.50 per hour retroactive to August 1, 1996 with increases of $.25 an hour in 1997 and 1998. A $1,000 lump sum would be paid to active employees in each of the three remaining years of the contract (totalling approximately $20 million). One additional holiday was provided and retirement benefits were increased for active employees. The agreement also provided for election of a union designee acceptable to Industries' Board of Directors (Dr. Robert B. McKersie 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. Environment Inland Steel 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 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 a lawsuit filed by the 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 1991 and 1992. After payment of the fine, Inland Steel Company's reserve for environmental liabilities totalled $19 million. In 1995 such reserve was increased to $26 million, with the increase primarily intended to cover the costs of assessing environmental contamination discussed below. 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. Inland Steel Company is presently assessing the extent of environmental contamination. Inland Steel Company anticipates that this assessment will cost approximately $2 million to $4 million over the next several years. 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, Inland Steel 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 financial position and results of operations of Inland Steel 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. Inland Steel Company had anticipated keeping such remaining 7 coke-making facilities operational through 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 two long-term contracts to satisfy the majority of its coke needs. Inland Steel Company has also reached an agreement with Sun Coal and Coke Company and a unit of NIPSCO for a heat recovery coke battery. (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 in 1994. Capital spending for pollution control projects totaled $19 million in each of 1996 and 1995. Another $44 million was spent in 1996 to operate and maintain such equipment, versus $39 million a year earlier. During the five years ended December 31, 1996, Inland Steel Company spent $282 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 $7 million in 1997. It is anticipated that Inland Steel 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 $35 million to $45 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, Inland Steel 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 financial position or results of operations 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 74% of the energy consumed by Inland Steel Company at the Indiana Harbor Works in 1996. Natural gas and fuel oil supplied approximately 24% of the energy requirements of the Indiana Harbor Works in 1996 and are used extensively by Inland Steel Company at other facilities that it owns or in which it has an interest. Utilization of the pulverized coal injection facility (see "Environment" above) has reduced natural gas and fuel oil consumption at the Indiana Harbor Works. Inland Steel Company both purchases and generates electricity to satisfy electrical energy requirements at the Indiana Harbor Works. In 1996, Inland Steel Company produced approximately 59% 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. A subsidiary of NIPSCO has leased land at the Indiana Harbor Works and built a 75 megawatt steam turbine on such land. Pursuant to a 15-year toll-charge contract between Inland Steel Company and the NIPSCO subsidiary, the turbine facility generates electricity for use by Inland Steel Company utilizing steam produced by burning waste blast furnace gas. The facility became operational in the first half of 1996 and it fulfills approximately 60% of the purchased electricity requirements of the Indiana Harbor Works at prices below those currently available to Inland Steel Company from other sources. 8 Materials Distribution Operations The Company's materials distribution operations in the United States are conducted by its majority-owned materials distribution subsidiary, RT, through its operating subsidiaries--Ryerson and Tull. RT has a single business segment, which is comprised of Ryerson and Tull, leading steel service, distribution and materials processing organizations. RT also owns 50% of Ryerson de Mexico, a joint venture general line metals service center and processor with facilities in Mexico. Ryerson, Tull and Ryerson Coil Processing Company ("Ryerson Coil"), a specialized processing unit of Ryerson, are organized into five business units along regional and product lines. RT believes that it is the largest metals service center in the United States based on sales revenue, with 1996 sales of $2.4 billion and a current U.S. market share of approximately 9%, based on RT's analysis of data prepared by the Steel Service Center Institute ("SSCI"). RT distributes and processes metals and other materials throughout the continental United States, and is among the largest purchasers of steel in the United States. Joseph T. Ryerson & Son, Inc. Ryerson, with business unit headquarters in Philadelphia, Pennsylvania (Ryerson East), Chicago, Illinois (Ryerson Central), and Seattle, Washington (Ryerson West) and including its wholly-owned subsidiary Thypin Steel Co., Inc. ("Thypin"), which was acquired by RT in February 1997 and is based in Long Island City, New York, is a leading materials distribution organization. With full-line service centers in 36 major cities, 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 unit, 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. ("AFCO"), operate 20 service centers and two processing facilities located throughout the southeastern and south-central United States. Tull produces a variety of metals products with value-added processing, including welded steel tubing and roll- formed shapes. Tull's products are sold principally through its own sales staff. Ryerson de Mexico RT also owns a 50% interest in Ryerson de Mexico, a joint venture with Altos Hornos de Mexico, S.A. de C.V., an integrated steel mill operating in Mexico. Ryerson de Mexico, which was formed in 1994, is a general line metals service center and processor with 12 facilities in Mexico. The impact of Ryerson de Mexico on RT's results of operations has not been material. Industry Overview Primary steel producers typically sell steel in the form of standard-sized coils, sheets, plate, structurals, bars and tubes and generally sell in large volumes with long lead times for production and delivery. Other primary metals producers, such as producers of stainless steel and aluminum, also typically sell their products in large volumes with long lead times for production and delivery. However, many customers seek to purchase metals with customized specifications, including value-added processing, in smaller volumes, on shorter lead times and with more reliable delivery than primary metals producers are able to provide. Metals service centers act as intermediaries between primary metals producers and customers by purchasing metals in a variety of shapes and sizes from primary metals producers in large volumes, allowing metals service centers to take advantage of 9 producer economies of scale resulting in lower costs of materials purchased, and engaging in a variety of distribution and value-added processing operations to meet the demands of specific customers. Because metals service centers purchase metals from a number of primary producers, they can maintain a consistent supply of various types of metal used by their customers. Most importantly, however, metals service centers generally have lower fixed costs than primary metals producers. By purchasing products from metals service centers, customers may be able to lower their inventory levels, decrease the time between the placement of an order and receipt of materials and reduce internal expenses, thereby lowering their total cost of raw materials. RT believes that the increased prevalence of just-in-time inventory needs of manufacturers and intermediate processors has made and will continue to make the value-added inventory, processing and delivery functions performed by metals service centers more important in the metals market. The industry is cyclical (with periods of strong demand and higher prices followed by periods of weaker demand and lower prices), principally due to the cyclical nature of the industries in which the largest consumers of metals operate. Any significant slowdown in one or more of those industries could have a material adverse effect on the demand for metals, resulting in lower prices for metals and reduced profitability for metals service centers, including RT. Metals prices and metals service center profitability improve as metal- consuming industries experience recoveries following economic downturns. The industry is comprised of many companies, the majority of which have operations limited as to product line and size of inventory, with customers located in a specific geographic area. Based on SSCI data, RT believes that the industry is comprised of between 750 and 1,000 service centers, operating out of approximately 2,000 locations and servicing approximately 300,000 customers. The industry is highly fragmented, consisting of a large number of small companies and a few relatively large companies. Based on RT's analysis of SSCI data, the industry handled approximately 27 million tons or approximately 23.2% of the metals distributed in the United States in 1996. The industry is divided into three major groups: general line service centers, specialized service centers and processing centers, each of which targets different market segments. General line service centers handle a broad line of metals products and tend to concentrate on distribution rather than processing. General line service centers range in size from one location to a nationwide network of locations. For general line service centers, individual order size in terms of dollars and tons tends to be small relative to processing centers, while the total number of orders is typically very high. Specialized service centers focus their activities on a narrower range of product and service offerings than general line companies. Such service centers provide a narrower range of services to their customers and emphasize product expertise and lower operating costs, while maintaining a moderate level of investment in processing equipment. Processing centers typically process large quantities of steel purchased from primary producers for resale to large industrial customers, such as the automotive industry. Because orders are typically large, operation of a processing center requires a significant investment in processing equipment. Products and Services RT carries a full line of carbon steel, stainless steel and aluminum, and a limited line of alloy steel, nickel, red metals and plastics. These materials are inventoried in a number of shapes, including coils, sheets, rounds, hexagons, square and flat bars, plate, structurals and tubing. The following table sets forth RT's shipments (by percentage of RT's sales revenue) for 1994, 1995 and 1996 for each of RT's product lines.
PERCENTAGE OF PRODUCT LINE SALES REVENUE - ------------ ---------------- 1994 1995 1996 ---- ---- ---- Stainless and aluminum........................................ 23% 27% 26% Carbon flat rolled............................................ 28 24 27 Bars, tubing and structurals.................................. 23 22 22 Fabrication and carbon plate.................................. 19 20 20 Other......................................................... 7 7 5 --- --- --- Total....................................................... 100% 100% 100% === === ===
10 More than one-half of the materials sold by RT is processed. RT uses techniques such as sawing, slitting, blanking, pickling, cutting to length, levelling, flame cutting, laser cutting, edge trimming, edge rolling, fabricating and grinding to process materials to specified thickness, length, width, shape and surface quality pursuant to specific customer orders. Among the most common processing techniques used by RT are pickling, a chemical process using an acidic solution to remove surface oxide, commonly called "scale," from steel which develops after the steel is hot rolled; slitting, which is cutting coiled metals to specified widths along the length of the coil; levelling, which is flattening metals and cutting them to exact lengths; and edge rolling, a process which imparts round or smooth edges. Although RT often uses third-party fabricators to outsource certain limited processes that RT is not able to perform internally, outsourcing these processes does not affect a significant part of RT's operations or constitute a significant part of RT's operating costs and expenses. The plate burning and fabrication processes are particularly important to RT. These processes require sophisticated and expensive processing equipment. As a result, rather than making investments in such equipment, manufacturers have increasingly outsourced these processes to metals service centers. RT has flame or laser cutting capacity in 41 of its 53 facilities. RT also provides services and technical advice to its customers as an integral part of providing products to its customers. RT does not charge customers separately for such services or advice, but rather includes the costs of such services and advice in the price of products sold to such customers. RT's services include: just-in-time delivery, production of kits containing multiple products for ease of assembly by the customer, the provision of company-owned materials to the customer and the placement of company employees at the customer's site for inventory management, production and technical assistance. RT also provides special stocking programs where products that would not otherwise be stocked by RT are held in inventory to meet certain customer's needs. The foregoing services are designed to reduce customers' costs by minimizing their investment in inventory and improving their production efficiency. Customer Base RT's customer base is diverse, numbering over 50,000. No customer accounted for more than 2% of RT's sales in 1996 and the top ten customers accounted for approximately 10% of RT's sales in 1996. RT's customer base includes most metal-consuming industries, most of which are cyclical. RT's shipments (by percentage of RT's sales revenue) for 1994, 1995 and 1996 for each class of RT's customers were as set forth in the table below.
PERCENTAGE OF CLASS OF CUSTOMER SALES REVENUE - ----------------- ---------------- 1994 1995 1996 ---- ---- ---- Machinery manufacturers....................................... 36% 38% 38% Fabricated metals producers................................... 25 25 26 Transportation equipment producers............................ 10 10 10 Electrical machinery producers................................ 9 9 8 Wholesale distributors........................................ 3 3 3 Construction-related purchasers............................... 4 3 4 Metals mills and foundries.................................... 3 3 3 Other......................................................... 10 9 8 --- --- --- Total....................................................... 100% 100% 100% === === ===
RT's flat-rolled processing business unit, Ryerson Coil, generally serves a customer base that differs from RT's general line service center business. A large portion of Ryerson Coil's customers have long-term supply contracts. These contracts are typically at fixed prices and are generally from three months to one year in duration, although Ryerson Coil has a small number of arrangements with large customers that extend beyond 11 one year. Ryerson Coil attempts to limit its financial exposure on these fixed- price sales arrangements by entering into fixed-price supply arrangements with one or more suppliers for comparable periods of time. Ryerson Coil's customers often seek large quantities of carbon sheet product that have undergone one or more of the following processes: pickling, cutting to length, slitting, tension levelling, texturing or blanking. Many of Ryerson Coil's approximately 625 customers are in the transportation, appliance, office furniture or cabinetry businesses. Suppliers In 1996, RT purchased in excess of 2.4 million tons of materials from many suppliers, including approximately 460,000 tons (or approximately 11% of the purchase dollars) from Inland Steel Company. RT expects to continue purchasing significant amounts of steel from Inland Steel Company in the future, although there can be no assurance that such purchases will continue. Excluding Inland Steel Company, RT's top 25 suppliers accounted for approximately 40% of 1996 purchases in dollars. RT purchases the majority of its inventories in the open market at prevailing market prices. However, occasionally RT enters into long-term, fixed-price supply contracts to offset its long-term, fixed-price sales contracts in order to minimize its financial exposure. Because RT uses many suppliers and because there is a substantial overlap of product offerings from these suppliers, RT believes it will be able to meet its materials requirements for the foreseeable future. RT works with and monitors its suppliers in order to obtain improvements in price, quality, service, delivery and performance. RT believes it has good relationships with most of its suppliers. Sales and Marketing Each of RT's business units maintains its own sales and marketing force. In addition to its office sales staff, RT markets and sells its products through the use of its field sales force that has extensive product and customer knowledge and through a comprehensive catalog of RT's products. RT's office and field sales staffs, which together consist of approximately 800 employees, include technical and metallurgical personnel. In addition, RT's technically- oriented marketing departments develop advertising materials and maintain product expertise for each of the various types of materials sold and industries serviced by RT. Capital Expenditures In recent years RT has made capital expenditures to maintain, improve and expand processing capabilities. Additions by RT to property, plant and equipment, together with retirements and adjustments, for the five years ended December 31, 1996, are set forth below. Net capital additions during such period aggregated $64.4 million.
DOLLARS IN MILLIONS --------------------------------------------- RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADJUSTMENTS ADDITIONS --------- ----------- ----------- ----------- 1996.............................. $24.1 $ 6.0 $-- $18.1 1995.............................. 19.3 4.7 -- 14.6 1994.............................. 20.4 12.4 -- 8.0 1993.............................. 19.3 3.1 -- 16.2 1992.............................. 9.3 1.8 -- 7.5
RT anticipates that capital expenditures and investments in joint ventures, excluding acquisitions, will be in the range of $40-50 million for 1997 which will be funded from cash generated by operations plus possible borrowing under RT's credit facility. Employees As of December 31, 1996, RT employed approximately 4,850 persons. Of these employees, approximately 2,250 were salaried employees and approximately 2,600 were hourly employees. Approximately 40% of the hourly employees were members of various unions, including the United Steelworkers and the Teamsters. RT's 12 relationship with the various unions generally has been good, but occasional work stoppages have occurred. Over the last five years, work stoppages have occurred at two facilities (approximately 4% of the total number of facilities), have involved an average of 43 employees and have lasted an average of six days. During 1997, labor contracts covering approximately 180 employees at six facilities will expire. During 1998 contracts covering approximately 160 employees at four facilities will expire. The current agreement with the United Steelworkers will expire on July 31, 1999, and agreements with the Teamsters expire on various dates during the period beginning March 31, 1997 and ending June 30, 1999. While management does not expect any unresolvable issues to arise in connection with the renewal of any of these contracts, no assurances can be given that any of these contracts will be extended prior to their expiration. Prior to April 30, 1996, certain of RT's employees were eligible to participate in the Inland Steel Industries, Inc. Pension Plan, a noncontributory defined benefit pension plan. Effective April 30, 1996, that portion of the Inland Steel Industries, Inc. Pension Plan covering RT's current and former employees was separated and became the Ryerson Tull Pension Plan. Almost all employees are covered by company-provided life insurance and a health benefits plan which provides broad health coverage for employees and their families. Premiums for this health coverage are shared among RT and its employees. RT believes that its salary and benefits structures are competitive in the industry. Competition RT is engaged in a highly fragmented and competitive industry. In general, competition is based on quality, service, price and geographic proximity. Based on SSCI data, RT believes that the industry is comprised of between 750 and 1,000 service centers, operating out of approximately 2,000 locations. RT competes with many other general line service centers, specialized service centers and processing centers on a regional and local basis, some of which may have greater financial resources and flexibility than RT. RT also competes to a lesser extent with primary steel producers. Primary steel producers typically sell to very large customers that require regular shipments of large volumes of steel. Although these large customers sometimes use metals service centers to supply a portion of their metals needs, metals service center customers typically are consumers of smaller volumes of metals than customers of primary steel producers. To the extent that some of RT's competitors purchase a higher percentage of metals than RT from foreign steelmakers, such competitors may benefit from favorable exchange rates or other economic or regulatory factors that may result in a competitive advantage. This competitive advantage may be offset somewhat by higher transportation costs associated with importing metals into the United States. Excess capacity of metals relative to demand in the industry since mid-1995 led to a weakening in prices. As a result, RT has been reducing its prices since mid-1995 to remain competitive. Environmental, Health and Safety Matters RT's operations are subject to many federal, state and local regulations relating to the protection of the environment and to workplace health and safety. In particular, RT's operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, environmental protection, remediation, workplace exposure and other matters. RT's management believes that RT is presently in substantial compliance with all such laws and does not currently anticipate that RT will be required to expend any substantial amounts in the foreseeable future in order to meet current environmental, workplace health or safety requirements. However, additional costs and liabilities may be incurred to comply with current and future requirements, which costs and liabilities could have a material adverse effect on RT's results of operations or financial condition. There are no known pending remedial actions or claims relating to environmental matters that are expected to have a material effect on RT's financial position or results of operations. Some of the properties owned or leased by RT, however, are located in industrial areas or have a history of heavy industrial use. These properties may potentially incur environmental liabilities in the future that could have a material adverse effect on RT's financial condition or results of operations. 13 Capital and operating expenses for pollution control projects were significantly below $1,000,000 per year for the past five years and are expected to remain at similar levels. Patents and Trademarks RT owns several U.S. patents and U.S. and foreign trademarks, service marks and copyrights. Certain of the trademarks are registered with the U.S. Patent and Trademark Office and, in certain circumstances, with the trademark offices of various foreign countries. The patents expire over various periods of time beginning in 2011. RT believes that the expiration of its patents will not materially adversely affect its business. RT considers certain other information owned by it to be trade secrets. RT protects its trade secrets by, among other things, entering into confidentiality agreements with its employees regarding such matters and implementing measures to restrict access to sensitive data and computer software source code on a need-to-know basis. RT believes that these safeguards adequately protect its proprietary rights and vigorously defends these rights. While RT considers all of its intellectual property rights as a whole to be important, RT does not consider any single right to be essential to its operations as a whole. OTHER FOREIGN OPERATIONS In 1994, the Company formed Inland International, Inc. to conduct the Company's international operations, and it organized Inland International Trading, Inc. to sell products and services of the Company and its affiliates and purchase materials for them abroad. In 1995, Inland International Trading, Inc. organized I.M.F. Steel International Limited, a Hong Kong company (in which it and a subsidiary of the MacSteel Holdings (PTe.), Ltd. (South Africa) each holds a 50% interest) to engage in the world-wide purchase and sale of steel and related products. In 1994, an Inland International, Inc. subsidiary, Inland Industries de Mexico, S.A. de C.V., and Altos Hornos de Mexico, S.A. de C.V., formed Ryerson de Mexico, S.A. de C.V. to provide materials management and technical services to the Mexican market. Inland Industries de Mexico, S.A. de C.V. was transferred to RT on June 1, 1996. In the People's Republic of China, the Company entered into a joint venture agreement with Baoshan Iron & Steel Corporation pursuant to which Shanghai Ryerson Limited was organized to conduct steel service center operations. In 1996, the Company entered into a memorandum of understanding with The Tata Iron and Steel Co. Ltd., to organize Tata Ryerson Limited in India to conduct steel service center operations there. Substantially all of the Company's operations are located in the United States. At year-end 1996, neither investments in foreign operations nor foreign sales were material. 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 in March 1994 and assumed caster-related debt, which was repaid by year-end 1994. Substantially all of the remaining property, plant and equipment at the Indiana Harbor Works, other than the Caster Facility and leased equipment, is subject to the lien of the First Mortgage of Inland Steel Company dated April 1, 1928, as amended and supplemented. See "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. 14 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 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 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 Associates facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. Inland Steel Company owns two vessels and leases one vessel 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 "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 "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 Pointe 5,700 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 an approximately 15% interest. Inland Steel Company has entered into a contract to sell its interest in the Wabush mine. Such sale is anticipated to take place in the first half of 1997. Inland Steel Company also owns a 38% interest in the Butler Taconite project (permanently closed in 1985) in Nashwauk, Minnesota. 15 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. 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 RELATING TO 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's service centers are at Buffalo, Carnegie (PA), Charlotte, Chattanooga, Cleveland, Pittsburgh, and Wallingford (CT). Thypin, which operates as a part of the Ryerson East business unit, maintains its headquarters at Long Island City (NY) and service centers at the Village of Blasdell (NY), Birmingham (AL), two at Cambridge (MA), one at Charlotte (NC) and one each at Easton and Fairless Hills (PA). Ryerson Central's service centers are at Chicago, Cincinnati, Dallas, Des Moines, one each at Detroit and Holland (MI), Houston, Indianapolis, Kansas City, Milwaukee, Omaha, Plymouth (MN), St. Louis, Tulsa, and Wausau (WI). Ryerson West's service centers are at Commerce City (CO), Emeryville (CA), Los Angeles, Phoenix, Portland (OR), Renton (WA), Spokane, and Salt Lake City. Ryerson Coil's processing facilities are located in Chicago (two facilities), Marshalltown (IA), Plymouth (MN) and New Hope (MN). All of Ryerson's operating facilities are held in fee with the exception of the facility at Birmingham (AL) (held under short-term lease), two at Cambridge (MA) (both held under short-term lease), one at Charlotte (NC) (held under short-term lease), one at Chicago (held under short-term lease), one at Easton (PA) (held under short-term lease), one at Fairless Hills (PA) (held under long-term lease), one at Holland (MI) (held under long-term lease), one at Long Island City (NY) (held under short-term lease), one at Marshalltown (IA) (held under an installment purchase contract), two at New Hope (MN) (one partly held in fee and partly under short-term lease, the other held under short-term lease), a satellite facility at Omaha (held under short-term lease), a portion of the property at Portland (held under short-term lease), a portion of the property at St. Louis (held under long-term lease), one facility at Salt Lake City (held under short-term lease), one at the Village of Blasdell (NY) (held under short-term lease), and one at Wausau (WI) (held under short-term lease). In addition, Ryerson holds in fee approximately 22 acres of unimproved property at Powder Springs (GA), and the approximately 11-acre site of a former operating facility at Allston (MA). The Allston (MA) property is currently under contract for sale. Ryerson's properties are adequate to serve its present and anticipated needs. J. M. Tull Metals Company, Inc. Tull maintains service centers at Baton Rouge (LA), Birmingham (AL), Charlotte (NC), Columbia (SC), Greensboro (NC), Greenville (SC), Jacksonville, Miami, New Orleans, Pounding Mill (VA), Richmond, Tampa, 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. AFCO operates service centers at Fort Smith (AR), Jackson (MS), Little Rock (AR), Oklahoma City, Shreveport, West Memphis (AR) and Wichita (KA). AFCO's headquarters are located at 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. 16 Ryerson de Mexico Ryerson de Mexico, a joint venture in which RT owns a 50% interest, owns twelve general line metals service centers and processing centers in Mexico. Ryerson de Mexico'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 110 acres in northern Indiana. Certain subsidiaries of the Company hold in fee at various locations an aggregate of approximately 355 acres of land, all of which is 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. In April 1996, Inland Steel Company's subsidiary, Inland Steel Mortgage Acceptance Corporation, sold the combination office building and warehouse in Hoffman Estates (IL) which was formerly owned by I R Construction Products Company, Inc. (Inland Steel Company's former construction products business). 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, Inland Steel Company's reserve for environmental liabilities totalled $19 million. In 1995 such reserve was increased to $26 million, with the increase primarily intended to cover the costs of assessing environmental contamination discussed below. 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. Inland Steel Company is presently assessing the extent of environmental contamination. Inland Steel Company anticipates that this assessment will cost approximately $2 million to $4 million over the next several years. 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, Inland Steel 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 financial position and results of operations of Inland Steel Company. Insurance coverage with respect to such corrective actions is not significant. 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 17 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. Results of operations could be materially affected for the particular reporting periods in which expenses are incurred. On March 29, 1996, the EPA filed a lawsuit against Inland Steel Company in the U.S. District Court for the Northern District of Indiana for alleged violations of effluent limits contained in its National Pollution Discharge Elimination System ("NPDES") permit and for the alleged discharge of pollutants without the authorization of an NPDES permit. 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. Results of operations could be materially affected for the particular reporting periods in which expenses are incurred. 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 Inland Steel 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. Inland Steel Company received a Special Notice of Potential Liability ("Special Notice") from Indiana Department of Environmental Management ("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. The costs which Inland Steel Company has agreed to assume under the Agreed Order are not currently anticipated to exceed $250,000. 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 or results of operations. In October 1996, Inland Steel Company received a notification from IDEM, as lead administrative trustee, that the natural resource trustees (which also include the Indiana Department of Natural Resources, the U.S. Department of the Interior, Fish and Wildlife Service and the National Park Service) intend to perform a natural resource damage assessment on the Grand Calumet River and Indiana Harbor Canal system. The notification further states that Inland Steel Company has been identified as a PRP in connection with the release of hazardous substances and oil and the subsequent damages resulting from natural resource injury. Because of the preliminary nature of this matter, it is not possible at this time to predict the amount of Inland Steel Company's potential liability or whether such potential liability could materially affect Inland Steel Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. Not applicable. 18 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 George A. Ranney, Jr., have been employed by the Company or a subsidiary of the Company throughout the past five years. Set forth below are the executive officers of the Company as of March 1, 1997 and the age of each as of such date. Their principal occupations at present 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 PRESENT POSITIONS AND OFFICES HELD DURING THE PAST FIVE POSITION WITH REGISTRANT YEARS Robert J. Darnall, 58........ Mr. Darnall has been Chairman, President and Chairman, President, Chief Chief Executive Officer of the Company since Executive Officer and September 1992, and Chairman of the Executive Director Committee since January 1993. He was elected President and Chief Operating Officer of the Company in April 1986. He is also Chairman and Chief Executive Officer of Inland Steel Company and has been Chairman of RT since April 1995. He was also Chairman of RT from November 1990 to June 1994. He joined Inland Steel Company in 1962, has served as its Chairman since 1992, as its Chief Executive Officer from 1992 to 1995 and since April 1996, and as its President from 1984 to 1986, 1987 to 1992, and April 1996 to May 1996. Dale E. Wiersbe, 47... Senior Mr. Wiersbe has been Senior Vice President of Vice President the Company and President and Chief Operating Officer of Inland Steel Company since May 1996. He was Senior Vice President of Operations of Inland Steel Flat Products Company ("ISFPCO") division of Inland Steel Company from December 1995 to May 1996. He was also Vice President-- Integrated Steelmaking and Hot Rolling of ISFPCO from May 1995 to December 1995, President of Inland Steel Bar Company division of Inland Steel Company from November 1993 to May 1995, Vice President--Planning of ISFPCO from January 1993 to November 1993, Vice President--Cold Rolling and Coating Operations of ISFPCO from May 1991 to January 1993. Neil S. Novich, 42........... Mr. Novich has been President and Chief President and Executive Officer and Chief Operating Officer ChiefExecutive Officer of RT and President of Ryerson and Chairman of ofRyerson Tull, Inc. Tull since June 1994. Mr. Novich was also appointed a Director of RT in June 1994. He served as Chairman of Ryerson from June 1994 to April 1995. He was a Senior Vice President of ISI from January 1995 to May 1996 and served as a Vice President of ISI from June 1994 to January 1995. Prior to joining ISI in 1994, he led the Distribution and Logistics Practice at Bain & Company ("Bain"), an international management consulting firm, from 1987 and was employed by Bain beginning in 1981. Jay M. Gratz, 44........ Vice Mr. Gratz has been Vice President, Finance and President, Finance and Chief Financial Officer of the Company since Chief Financial Officer May 1996 and has been Vice President, Finance of RT since September 1994 and is Chief Financial Officer of RT. He was Vice President, Finance of Inland Steel Company from March 1993 to September 1994, and Vice President, Finance of the Inland Steel Flat Products Company division of Inland Steel Company from November 1991 to March 1993. 19 NAME, AGE AND PRESENT POSITIONS AND OFFICES HELD DURING THE PAST FIVE POSITION WITH REGISTRANT YEARS Judd R. Cool, 61........ Vice Mr. Cool has been Vice President--Human President--Human Resources Resources of the Company since September 1987. He was Vice President--Human Resources of Inland Steel Company from May 1995 to July 1996. He was also Vice President--Human Resources of Inland Steel Flat Products Company division of Inland Steel Company from January 1993 to May 1995. H. William Howard, 62... Vice Mr. Howard has been Vice President--Information President--Information Technology of the Company since September 1990. Technology He was Vice President--Automation and Information Technology of Inland Steel Company from May 1995 to December 1996. He was also Vice President-- Automation and Information Technology of Inland Steel Flat Products Company division of Inland Steel Company from January 1993 to May 1995. George A. Ranney, Jr., 56 ... Mr. Ranney has been Vice President and General Vice President and General Counsel of the Company since July 1995. He is Counsel also a partner of the law firm of Mayer, Brown & Platt, counsel to the Company. He has been a partner with such firm since 1986. Vicki L. Avril, 42........... Ms. Avril has been Treasurer of the Company and Treasurer and Director-- of Inland Steel Company since January 1994, and Corporate Planning Treasurer of RT, Ryerson and Tull since February 1994. She also has been Director-- Corporate Planning since January 1995. In addition, she was Director of Pension Investments and Administration from June 1991 to January 1995, and Assistant Treasurer of the Company from May 1993 to January 1994. James M. Hemphill, 53........ Mr. Hemphill has been Controller of the Company Controller since September 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. Charles B. Salowitz, 48...... Mr. Salowitz has been Secretary of the Company Secretary and Associate since September 1995, its Associate General General Counsel Counsel since January 1995, and Corporate Secretary of RT since April 1996. He was an Assistant General Counsel of the Company from July 1989 to January 1995 and was Assistant Secretary from July 1989 to September 1995. 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 12, 1997, the number of holders of record of common stock of the Company was 13,873. 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, 1996, and is hereby incorporated by reference herein. 20 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, 1996, 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, 1996, and, excluding the tables entitled "Inland Steel Company--Steel Shipments by Market" and "Ryerson Tull, Inc.--Shipments by Market" and the bar charts entitled "Inland Steel Industries--Earnings Before Interest, Taxes, and Depreciation," "Inland Steel Company--Productivity," "Ryerson Tull, Inc.--Quarterly Operating Profit," and "Inland Steel Industries- - -Debt to Total Capitalization," 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 19, 1997, 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 Statements" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996, 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 19, 1997, 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. Consolidated quarterly sales, earnings and per share common stock information for 1995 and 1996 are set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996, 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 captions "Election of Directors" and "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 28, 1997, 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 28, 1997, and is hereby incorporated by reference herein. 21 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 its 10.23% Subordinated Voting Notes 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 28, 1997, and is hereby incorporated by reference herein. (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 28, 1997, 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 28, 1997, 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, 1996, and are incorporated by reference in Item 8 of this Annual Report on Form 10-K. Report of Independent Accountants dated February 19, 1997. Statement of Accounting and Financial Policies. Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1996. Consolidated Statement of Cash Flows for the three years ended December 31, 1996. Consolidated Balance Sheet at December 31, 1996 and 1995. Schedules to Consolidated Financial Statements at December 31, 1996 and 1995, relating to: Investments and Advances. Property, Plant and Equipment. Long-Term Debt. Notes to Consolidated Financial Statements. 2. FINANCIAL STATEMENT SCHEDULES OF THE COMPANY. Report of Independent Accountants on Financial Statement Schedules dated February 19, 1997. (Included on page 30 of this Report) Consent of Independent Accountants. (Included on page 30 of this Report) For the years ended December 31, 1996, 1995 and 1994: Schedule I -- Condensed Financial Information (Parent Company Only). (Included on pages 31 to 33, inclusive, of this Report) Schedule II -- Reserves. (Included on page 34 of this Report) 22 3. 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, 1996. (C)EXHIBITS.
EXHIBIT NUMBER ------- 3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as Exhibit 3.(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein.) 3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Ex- hibit 3.(ii) to the Company's Quarterly Report on Form 10- Q for the quarter ended September 30, 1995, and incorpo- rated by reference herein.) 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 con- nection 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 Re- port 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 Re- port 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 Subordinated Voting Note due December 17, 1999 in the amount of $100,000,000 from the Company to NS Finance III, Inc. (Filed as Exhibit 4.8 to Form S-3 Registration Statement No. 33-62897, 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 De- cember 31, 1992, and incorporated by reference herein.) 4.G Copy of Supplemental Indenture dated as of June 19, 1996 between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 12 3/4% Notes. (Filed as Exhibit 4.G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, and incorporated by reference herein.)
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EXHIBIT NUMBER ------- 4.H Copy of First Mortgage Indenture, dated April 1, 1928, be- tween 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-Fifth 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 Re- port on Form 8-K for the month of November, 1946; (ix) Ex- hibit 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 Ju- ly, 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 Re- port 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 Feb- ruary, 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 De- cember 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); (xxvii) Exhibit 4 filed with Steel Company's Current Report on Form 8-K dated June 23, 1993; (xxviii) Exhibit 4.C filed with the Steel Company's Quar- terly Report on Form 10-Q for the quarter ended June 30, 1995; (xxix) Exhibit 4.C filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended Sep- tember 30, 1995; and (xxx) Exhibit 4.C filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 4.I 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 Sup- plemental 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.]
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EXHIBIT NUMBER ------- 10.A* Copy of Inland Steel Industries, Inc. Annual Incentive Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended Sep- tember 30, 1995, and incorporated by reference herein.) 10.B* Copy of Ryerson Tull Annual Performance Improvement Incen- tive Plan. (Filed as Exhibit 10.23 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.) 10.C* 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.D* Copy of Ryerson Tull 1996 Incentive Stock Plan. (Filed as Exhibit 10.11 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.) 10.E* Copy of Inland 1995 Incentive Stock Plan. (Filed as Ex- hibit A to the Company's definitive Proxy Statement dated April 17, 1995 that was furnished to stockholders in con- nection with the annual meeting held May 24, 1995, and in- corporated by reference herein.) 10.F* Copy of Inland 1992 Incentive Stock Plan, as amended. (Filed as Exhibit 10.C to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and in- corporated by reference herein.) 10.G* Copy of Inland 1988 Incentive Stock Plan, as amended. (Filed as Exhibit 10.B to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and in- corporated by reference herein.) 10.H* Copy of Inland 1984 Incentive Stock Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and in- corporated by reference herein.) 10.I* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10.D to the Company's Quar- terly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.J* Copy of Inland 1992 Stock Plan for Non-Employee Directors, as amended. (Filed as Exhibit 10.E to the Company's Quar- terly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.K* 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 incorpo- rated by reference herein.) 10.L* 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.M* Copy of Ryerson Tull, Inc. Supplemental Retirement Plan for Covered Employees. (Filed as Exhibit 10.10 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333-3235), and incorporated by reference here- in.) 10.N* Copy of the Inland Steel Industries Deferred Compensation Plan for Certain 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, 1994, 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. 25
EXHIBIT NUMBER ------- 10.O* Copy of the 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 refer- ence herein.) 10.P* Copy of Inland Steel Industries Terminated Retirement Plan for Non-Employee Directors. (Filed as Exhibit 10.M to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference herein.) 10.Q* Copy of Inland Steel Industries, Inc. Deferred Phantom Stock Unit Plan for Non-Employee Directors. (Filed as Ex- hibit 10.N to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference herein.) 10.R* 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.S.(1)* Copy of form of Severance Agreement, dated March 27, 1996, between the Company and each of the four executive offi- cers of the Company identified on the exhibit relating to terms and conditions of termination of employment follow- ing a change in control of the Company. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and incorporated by ref- erence herein.) 10.S.(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated March 27, 1996 in Exhibit 10.S.(1) hereof. 10.S.(3)* Copy of form of Change in Control Agreements dated March 27, 1996 between the Company and the parties listed on the schedule thereto. (Filed as Exhibit 10.5 to the Ryerson Tull, Inc. Form S-1 Registration Statement No. 333-3235, and incorporated by reference herein.) 10.S.(4)* Copy of form of Change in Control Agreements dated as of June 10, 1996 between Ryerson Tull, Inc. and the parties listed on the Schedule thereto. (Filed as Exhibit 10.7 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333-3235), and incorporated by reference here- in.) 10.S.(5)* Copy of Change in Control Agreement dated as of June 10, 1996 between Ryerson Tull, Inc. and Neil S. Novich. (Filed as Exhibit 10.8 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333-3235), and incorpo- rated by reference herein.) 10.S.(6)* Copy of Change in Control Agreement dated as of March 27, 1996 between the Company and Neil S. Novich. (Filed as Ex- hibit 10.6 to the Ryerson Tull, Inc. Form S-1 Registration Statement No. 333-3235, and incorporated by reference herein.) 10.S.(7)* Copy of Severance Agreement dated June 28, 1989 between the Company and Judd R. Cool. (Filed as Exhibit 10-0-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by refer- ence herein.) 10.T.* Copy of Employment Agreement dated as of April 8, 1994 be- tween the Company and Neil S. Novich. (Filed as Exhibit 10.N.(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, 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. 26
EXHIBIT NUMBER ------- 10.U.* Copy of Assumption and Amendment Agreement dated July 24, 1996 by and among Inland Steel Industries, Inc., Ryerson Tull, Inc. and Neil S. Novich. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quar- ter ended September 30, 1996, and incorporated by refer- ence herein.) 10.V(1)* Copy of Employment Agreement between the Company and Carl G. Lusted, dated June 27, 1990 (Filed as Exhibit 10.4 to Ryerson Tull's Registration Statement on Form S-1 (File No. 333-3235), and incorporated by reference herein.) 10.V(2)* Copy of Assumption and Amendment Agreement dated January 22, 1997 by and among the Company, Ryerson Tull, Inc. and Carl G. Lusted. (Filed as Exhibit 10.6 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.) 10.W.(1)* Copy of letter to Judd R. Cool dated September 2, 1987 re- lating 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 incorpo- rated by reference herein.) 10.W.(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 refer- ence herein.) 10.W.(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.S.(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 refer- ence herein.) 10.X* 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 incorpo- rated by reference herein.) 10.Y 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 here- in.) 10.Z.(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 Cur- rent Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) 10.Z.(2) Copy of Steel Technology Agreement dated as of July 14, 1989 between Inland Steel Company and Nippon Steel Corpo- ration relating to technology sharing between the signato- ries. (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.Z.(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.)
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 27
EXHIBIT NUMBER ------- 10.Z.(4) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned subsidi- ary 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 refer- ence herein.) 10.Z.(5) Copy of Basic Agreement dated as of September 12, 1989 be- tween 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 refer- ence herein.) 10.Z.(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) re- lating 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.Z.(7) Copy of Substrate Supply Agreement dated as of September 12, 1989 between Inland Steel Company and I/N Kote, an In- diana 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 refer- ence herein.) 10.Z.(8) Copy of 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.Z.(9) Copy of 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 De- cember 31, 1990, and incorporated by reference herein.) 10.Z.(10) Copy of 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.Z.(11) Copy of Letter Agreement dated as of April 19, 1990 be- tween the Company and Nippon Steel Corporation relating to capital contributions to I/N Tek. (Filed as Exhibit 10-R- (11) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.Z.(12) Copy of 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 sub- sidiary 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.Z.(13) Copy of 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 refer- ence herein.)
28
EXHIBIT NUMBER ------- 10.AA 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.BB Copy of First Amendment dated July 1, 1996 between the Company and LaSalle National Trust, N.A. as Successor ESOP Trustee, to the Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. 10.CC Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchange- able 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.DD Letter Agreement dated May 10, 1991 by and between Nippon Steel Corporation and the Company 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 refer- ence 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, 1996 21 List of certain subsidiaries of the Company 23 Consent of Independent Accountants, appearing on page 30 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.)
29 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 19, 1997 appearing on page 30 of the 1996 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 19, 1997 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Form S-8 (No. 33-59783), Registration Statement on Form S-8 (No. 33-48770), Registration Statement on Form S-8 (No. 33-22902), Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (No. 33-4046), Registration Statement on Form S-8 (No. 33-32504), Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 33-6627), Registration Statement on Form S-3 (No. 33-59161) and Registration Statement on Form S-3 (No. 33-62897) of Inland Steel Industries, Inc. (or, for registrations prior to 1986, Inland Steel Company) of our report dated February 19, 1997, appearing on page 30 of the 1996 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 27, 1997 30 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN MILLIONS)
1996 1995 1994 ------- ------ ------ Income: Intercompany interest income................. $ 18.5 $ 16.3 $ 10.0 Equity in income of subsidiaries........... 41.4 157.8 109.6 Interest income and other revenue.......... 11.9 1.6 4.4 Gain on sale of subsidiary stock....... 31.4 -- -- ------- ------ ------ 103.2 175.7 124.0 Expenses: Interest and other expenses............... 32.6 31.0 22.9 Intercompany interest expense................ 2.4 5.7 2.1 ------- ------ ------ 35.0 36.7 25.0 Income before income taxes and extraordinary loss... 68.2 139.0 99.0 Provision for income taxes.................... 8.0 7.8Cr. 8.4Cr. ------- ------ ------ Income before extraordinary loss....... 60.2 146.8 107.4 Extraordinary loss on early retirement of debt. (14.5) -- -- ------- ------ ------ Net income................ $ 45.7 $146.8 $107.4 ======= ====== ======
- -------- Cr. = Credit See Notes to Consolidated Financial Statements in Item 8. 31 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN MILLIONS)
1996 1995 1994 ------- ------- ------- OPERATING ACTIVITIES Net income.......................................... $ 45.7 $ 146.8 $ 107.4 Adjustments to reconcile net income to net cash provided from operating activities: Equity in undistributed earnings of subsidiaries.. (41.4) (157.8) (109.6) Depreciation...................................... .5 .6 .6 Deferred income taxes............................. 11.7 4.5 3.2 Deferred employee benefit cost.................... 2.3 .3 2.3 Gain from issuance of subsidiary stock............ (31.4) -- -- Stock issued for coverage of employee benefit plans............................................ 22.6 23.9 35.0 Change in: Intercompany accounts.................. (201.2) 16.0 (7.8) Notes receivable.............................. (.1) (.3) (.3) Accounts payable.............................. .9 (2.9) (1.8) Accrued liabilities........................... (9.9) 4.9 (3.2) Other deferred items.............................. (5.4) 8.3 (1.4) ------- ------- ------- Net adjustments................................. (251.4) (102.5) (83.0) ------- ------- ------- Net cash provided from operating activities..... (205.7) 44.3 24.4 ------- ------- ------- INVESTING ACTIVITIES Net investments in subsidiaries..................... (6.1) (10.2) (120.5) Dividends received from subsidiaries................ 471.7 25.9 25.8 Capital expenditures................................ -- -- (.2) ------- ------- ------- Net cash provided from (used for) investing activities..................................... 465.6 15.7 (94.9) ------- ------- ------- FINANCING ACTIVITIES Issuance of common stock............................ -- 99.1 -- Long-term debt retired.............................. (238.4) (8.3) (7.8) Dividends paid...................................... (21.0) (31.6) (32.2) Acquisition of treasury stock....................... (3.7) (4.0) (4.0) ------- ------- ------- Net cash provided from (used for) financing activities..................................... (263.1) 55.2 (44.0) ------- ------- ------- Net increase (decrease) in cash and cash equivalents........................................ (3.2) 115.2 (114.5) Cash and cash equivalents--beginning of year........ 205.5 90.3 204.8 ------- ------- ------- Cash and cash equivalents--end of year.............. $ 202.3 $ 205.5 $ 90.3 ======= ======= =======
See Notes to Consolidated Financial Statements in Item 8. 32 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) BALANCE SHEET AT DECEMBER 31, 1996 AND 1995 (DOLLARS IN MILLIONS)
1996 1995 -------- -------- ASSETS Current Assets: Cash and cash equivalents................................ $ 202.3 $ 205.5 Receivables from subsidiary companies.................... 292.3 91.1 Deferred income taxes.................................... .3 .3 Notes receivable......................................... .7 .6 -------- -------- Total current assets................................... 495.6 297.5 Investment in subsidiary companies......................... 558.6 958.1 Intangible pension asset................................... 76.3 102.6 Investment in Nippon Steel Corporation, net of valuation allowances of $4.8 and $4.0, respectively................. 9.8 10.6 Property, net of accumulated depreciation of $7.8 and $7.3, respectively.............................................. 1.3 1.8 Deferred income taxes...................................... .3 13.7 Deferred charges and other assets.......................... 2.4 6.5 -------- -------- Total assets........................................... $1,144.3 $1,390.8 ======== ======== LIABILITIES Current Liabilities: Accounts payable......................................... $ 5.2 $ 4.3 Accrued liabilities...................................... 9.6 19.5 Long-term debt due within one year....................... 9.7 94.0 -------- -------- Total current liabilities.............................. 24.5 117.8 Long-term debt............................................. 202.1 356.2 Deferred employee benefits................................. 86.7 121.5 Deferred income and other deferred credits................. 9.9 12.2 -------- -------- Total liabilities...................................... 323.2 607.7 -------- -------- TEMPORARY EQUITY Common stock repurchase commitment......................... 32.1 34.5 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 15,000,000 shares authorized for all series, aggregate liquidation value $153.9 in 1996 and $155.7 in 1995......................... 3.2 3.2 Common stock, $1.00 par value; authorized--100,000,000 shares; issued--50,556,350 shares......................... 50.6 50.6 Capital in excess of par value............................. 1,040.2 1,045.7 Accumulated deficit........................................ (146.0) (172.8) Unearned compensation--ESOP................................ (79.4) (89.9) Common stock repurchase commitment......................... (32.1) (34.5) Treasury stock at cost--common stock of 1,647,954 shares in 1996 and 1,814,516 shares in 1995......................... (44.2) (51.1) Cumulative translation adjustment.......................... (3.3) (2.6) -------- -------- Total stockholders' equity............................. 789.0 748.6 -------- -------- Total liabilities, temporary equity, and stockholders' equity................................................ $1,144.3 $1,390.8 ======== ========
Maturities of Long-Term Debt due within five years are: $9.7 million in 1997, $10.5 million in 1998, $111.5 million in 1999, $12.5 million in 2000, and $13.6 million in 2001. See Notes to Consolidated Financial Statements in Item 8. 33 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II--RESERVES FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (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 - ----------- ---------- --------- ---------- ---------- 1996................................ $29.9 $ 1.7 $(2.5) (A) $22.5 (6.6) (B) 1995................................ $24.9 $11.8 $(1.1) (A) $29.9 (5.7) (B) 1994................................ $28.2 $ 5.8 $(2.4) (A) $24.9 (6.7) (B)
- -------- NOTES: (A) Bad debts written off during year. (B)Allowances granted during year. 34 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. Date: March 27, 1997 Robert J. Darnall By: _________________________________ Robert J. Darnall Chairman, President and Chief Executive Officer (Principal Executive Officer) 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 March 27, 1997 ____________________________________ Chief Executive Officer and Robert J. Darnall Director (Principal Executive Officer) Jay M. Gratz Vice President, Finance and March 27, 1997 ____________________________________ Chief Financial Officer Jay M. Gratz (Principal Financial Officer) James M. Hemphill Controller March 27, 1997 ____________________________________ (Principal Accounting James M. Hemphill Officer) A. Robert Abboud Director James W. Cozad Director James A. Henderson Director Robert B. McKersie Director Leo F. Mullin Director George A. Ranney, Jr. By: ___________________ George A. Ranney, Jr. Donald S. Perkins Director Attorney-in-fact March 27, 1997 Jean-Pierre Rosso Director Joshua I. Smith Director Nancy H. Teeters Director Arnold R. Weber Director
35 EXHIBIT INDEX
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as Exhibit 3.(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated by reference herein.) -- 3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3.(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated by reference herein.) -- 4.A Copy of Certificate of Designations, Preferences and Rights of Series A $2.40 Cumulative Convertible Pre- ferred 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 ref- erence herein.) -- 4.C Copy of Rights Agreement, dated as of November 25, 1987, as amended and restated as of May 24, 1989, be- tween the Company and The First National Bank of Chi- cago, 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 Subordinated Voting Note due December 17, 1999 in the amount of $100,000,000 from the Company to NS Finance III, Inc. (Filed as Exhibit 4.8 to Form S-3 Registration Statement No. 33-62897, and incorporated by reference herein.) -- 4.F Copy of Indenture dated as of December 15, 1992, be- tween 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 Supplemental Indenture dated as of June 19, 1996 between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 12 3/4% Notes. (Filed as Exhibit 4.G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, and incorporated by ref- erence herein.) -- 4.H 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-Fifth 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
i
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 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) Ex- hibit 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) Ex- hibits B and C, filed with Steel Company's Current Re- port 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 Re- port 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) Ex- hibit C, filed with Steel Company's Current Report on Form 8-K for the month of February, 1977; (xxi) Ex- hibit 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); (xxvii) Exhibit 4 filed with Steel Company's Current Report on Form 8-K dated June 23, 1993; (xxviii) Ex- hibit 4.C filed with the Steel Company's Quarterly Re- port on Form 10-Q for the quarter ended June 30, 1995; (xxix) Exhibit 4.C filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995; and (xxx) Exhibit 4.C filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. -- 4.I Copy of consolidated reprint of First Mortgage Inden- ture, dated April 1, 1928, between Inland Steel Com- pany 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 Ex- hibit 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 re- quest 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 Quarterly Report on Form 10-Q for the quar- ter ended September 30, 1995, and incorporated by ref- erence herein.) -- 10.B* Copy of Ryerson Tull Annual Performance Improvement Incentive Plan. (Filed as Exhibit 10.23 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by ref- erence 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. ii
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.C* Copy of Inland Steel Industries, Inc. Special Achieve- ment 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 ref- erence herein.) -- 10.D* Copy of Ryerson Tull 1996 Incentive Stock Plan. (Filed as Exhibit 10.11 to the Ryerson Tull, Inc. Annual Re- port on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.) -- 10.E* Copy of Inland 1995 Incentive Stock Plan. (Filed as Exhibit A to the Company's definitive Proxy Statement dated April 17, 1995 that was furnished to stockhold- ers in connection with the annual meeting held May 24, 1995, and incorporated by reference herein.) -- 10.F* Copy of Inland 1992 Incentive Stock Plan, as amended. (Filed as Exhibit 10.C to the Company's Quarterly Re- port on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.G* Copy of Inland 1988 Incentive Stock Plan, as amended. (Filed as Exhibit 10.B to the Company's Quarterly Re- port on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.H* Copy of Inland 1984 Incentive Stock Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Re- port on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.I* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10.D to the Company's Quarterly Report on Form 10-Q for the quar- ter ended June 30, 1995, and incorporated by reference herein.) -- 10.J* Copy of Inland 1992 Stock Plan for Non-Employee Direc- tors, as amended. (Filed as Exhibit 10.E to the Company's Quarterly Report on Form 10-Q for the quar- ter ended June 30, 1995, and incorporated by reference herein.) -- 10.K* Copy of Inland Steel Industries Supplemental Retire- ment 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.L* 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.M* Copy of Ryerson Tull, Inc. Supplemental Retirement Plan for Covered Employees. (Filed as Exhibit 10.10 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333-3235), and incorporated by reference herein.) -- 10.N* Copy of the Inland Steel Industries Deferred Compensa- tion Plan for Certain 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, 1994, and incorporated by reference herein.) -- 10.O* Copy of the Inland Steel Industries Deferred Compensa- tion 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 incorpo- rated by reference herein.) -- 10.P* Copy of Inland Steel Industries Terminated Retirement Plan for Non-Employee Directors. (Filed as Exhibit 10.M to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorpo- rated 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
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.Q* Copy of Inland Steel Industries, Inc. Deferred Phantom Stock Unit Plan for Non-Employee Directors. (Filed as Exhibit 10.N to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference herein.) -- 10.R* Copy of Outside Directors Accident Insurance Policy. (Filed as Exhibit 10-F to Inland Steel Company's An- nual Report on Form 10-K for the fiscal year ended De- cember 31, 1983, and incorporated by reference here- in.) -- 10.S.(1)* Copy of form of Severance Agreement, dated March 27, 1996, between the Company and each of the four execu- tive officers of the Company identified on the exhibit relating to terms and conditions of termination of em- ployment following a change in control of the Company. (Filed as Exhibit 10.A to the Company's Quarterly Re- port on Form 10-Q for the quarter ended March 31, 1996, and incorporated by reference herein.) -- 10.S(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated March 27, 1996 in Exhibit 10.S.(1) hereof....... 10.S.(3)* Copy of form of Change in Control Agreements dated March 27, 1996 between the Company and the parties listed on the schedule thereto. (Filed as Exhibit 10.5 to the Ryerson Tull, Inc. Form S-1 Registration State- ment No. 333-3235, and incorporated by reference here- in.) -- 10.S.(4)* Copy of Form of Change in Control Agreements dated as of June 10, 1996 between Ryerson Tull, Inc. and the parties listed on the Schedule thereto. (Filed as Ex- hibit 10.7 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333-3235), and incor- porated by reference herein.) -- 10.S.(5)* Copy of Change in Control Agreement dated as of June 10, 1996 between Ryerson Tull, Inc. and Neil S. Novich. (Filed as Exhibit 10.8 to the Ryerson Tull, Inc. Registration Statement on Form S-1 (File No. 333- 3235), and incorporated by reference herein.) -- 10.S.(6)* Change in Control Agreement dated as of March 27, 1996 between the Company and Neil S. Novich. (Filed as Ex- hibit 10.6 to the Ryerson Tull, Inc. Form S-1 Regis- tration Statement No. 333-3235, and incorporated by reference herein.) -- 10.S.(7)* Copy of Severance Agreement dated June 28, 1989 be- tween the Company and Judd R. Cool. (Filed as Exhibit 10-0-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and in- corporated by reference herein.) -- 10.T.* Copy of Employment Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. (Filed as Ex- hibit 10.N.(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.) -- 10.U.* Copy of Assumption and Amendment Agreement dated July 24, 1996 by and among Inland Steel Industries, Inc., Ryerson Tull, Inc. and Neil S. Novich. (Filed as Ex- hibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and in- corporated by reference herein.) -- 10.V.(1)* Copy of Employment Agreement between the Company and Carl G. Lusted, dated June 27, 1990. (Filed as Exhibit 10.4 to Ryerson Tull, Inc.'s Registration Statement on Form S-1 (File No. 333-3235), and incorporated by ref- erence herein.) -- 10.V.(2)* Copy of Assumption and Amendment Agreement dated Janu- ary 22, 1997 by and among the Company, Ryerson Tull, Inc. and Carl G. Lusted. (Filed as Exhibit 10.6 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1996, 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
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.W.(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.W.(2)* Copy of letter agreement dated November 23, 1987 be- tween 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 incorpo- rated by reference herein.) -- 10.W.(3)* Copy of letter agreement dated December 10, 1993 be- tween the Company and Judd R. Cool restating certain provisions of the September 2, 1987 and November 23, 1987 letters in Exhibits 10.S.(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.X* 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.Y 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 quar- ter ended June 30, 1989, and incorporated by reference herein.) -- 10.Z.(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 Fi- nance III, Inc. of 185,000 shares of Series F Ex- changeable 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.Z.(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 ref- erence herein.) -- 10.Z.(3) Copy of Basic Agreement dated as of July 21, 1987 be- tween the Company and Nippon Steel Corporation relat- ing 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 in- corporated by reference herein.) -- 10.Z.(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 indi- rectly wholly owned subsidiary of Nippon Steel Corpo- ration) 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.Z.(5) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation re- lating to the I/N Kote joint venture. (Filed as Ex- hibit 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. v
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.Z.(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 Re- port on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.Z.(7) Copy of Substrate Supply Agreement dated as of Septem- ber 12, 1989 between Inland Steel Company and I/N Kote, an Indiana general partnership. (Filed as Ex- hibit 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.Z.(8) Copy of 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 in- corporated by reference herein.) -- 10.Z.(9) Copy of Letter Agreement dated as of May 1, 1990 among I/N Kote, the Company and Nippon Steel Corporation re- lating to partner loans. (Filed as Exhibit 10-R-(9) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1990, and incorporated by reference herein.) -- 10.Z.(10) Copy of 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 ven- ture. (Filed as Exhibit 10-R-(10) to the Company's An- nual Report on Form 10-K for the fiscal year ended De- cember 31, 1990, and incorporated by reference here- in.) -- 10.Z.(11) Copy of Letter Agreement dated as of April 19, 1990 between the Company and Nippon Steel Corporation re- lating 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.Z.(12) Copy of 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.Z.(13) Copy of CCM Override Amendment dated as of April 20, 1990 among the Company; Nippon Steel Corporation; In- land 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.AA 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 in- corporated by reference herein.) -- 10.BB Copy of First Amendment dated July 1, 1996 between the Company and LaSalle National Trust, N.A. as Successor ESOP Trustee, to the Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Com- pany and Harris Trust and Savings Bank, as ESOP Trust- ee....................................................
vi
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.CC Copy of Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Se- ries 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 incorpo- rated by reference herein.) -- 10.DD Copy of Letter Agreement dated May 10, 1991 by and be- tween Nippon Steel Corporation and the Company relat- ing to Letter Agreement dated December 18, 1989. (Filed as Exhibit 10-V to the Company's Quarterly Re- port 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 Re- port to Stockholders for the fiscal year ended Decem- ber 31, 1996.......................................... 21 List of certain subsidiaries of the Company........... 23 Consent of Independent Accountants, appearing on page 30 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 Re- port on Form 8-K filed on December 18, 1987, and in- corporated by reference herein.) --
vii EX-10.S2 2 COPY OF FORM OF SEVERANCE AGREEMENT Exhibit 10.S.(2) AMENDED LISTING ONLY TO ----------------------- Copy of Form of Severance Agreement dated March 27, 1996 between Inland Steel Industries, Inc. and each of: Robert J. Darnall Judd R. Cool William H. Howard Dale E. Wiersbe EX-10.BB 3 FIRST AMENDMENT TO INLAND STEEL IND. THRIFT PLAN Exhibit 10.BB FIRST AMENDMENT TO THE INLAND STEEL INDUSTRIES THRIFT PLAN ESOP TRUST AGREEMENT THIS FIRST AMENDMENT to Inland Steel Industries Thrift Plan ESOP Trust Agreement dated July 7, 1989 is made and entered into as of July 1, 1996 (the "First Amendment") by Inland Steel Industries, Inc., a Delaware corporation, as sponsor of the plan referred to below (the "Company"). RECITALS A. The Company has established the Inland Steel Industries Thrift Plan (the "Plan") for the benefit of employees of the Company and its affiliates. B. Effective July 7, 1989, the Plan was amended to include a separate component intended to qualify as an employee stock ownership plan (hereinafter "ESOP Trust") within the meaning of Code Section 4975(e)(7). C. The Company had appointed Harris Trust and Savings Bank, an Illinois banking corporation ("Predecessor Trustee"), as trustee of the ESOP Trust effective July 7, 1989 pursuant to the terms of the Inland Steel Industries Thrift Plan ESOP Trust dated July 7, 1989 (the "ESOP Trust Agreement"). D. The ESOP Trust Agreement created a trust thereunder (the "ESOP Trust") that is primarily invested in shares of common stock and convertible preferred stock of the Company. E. Harris Trust and Savings Bank (the "Resigning ESOP Trustee") has delivered its written resignation effective July 1, 1996 as such trustee of the ESOP Trust. F. The Company has appointed LaSalle National Trust, N.A. (the "Successor ESOP Trustee") as trustee of the ESOP Trust effective July 1, 1996, and the Successor ESOP Trustee has agreed to act as such Successor ESOP Trustee pursuant to the terms of an Engagement Letter by and between the Company and the Successor ESOP Trustee dated June 26, 1996. G. Article VI of the ESOP Trust Agreement governs changes of the ESOP Trustee. H. Article VII of the ESOP Trust Agreement governs amendment of the ESOP Trust. AMENDMENT Section 1. Amendments. Pursuant to the authority granted under Section VII-I of the ESOP Trust Agreement to the Company to amend such Trust Agreement at any time by action of the Committee Trustees, the Company hereby amends the ESOP Trust Agreement as follows: (A) In the first paragraph of the ESOP Trust Agreement, the phrase "Harris Trust and Savings Bank, an Illinois banking corporation" is hereby deleted and the phrase "LaSalle National Trust, N.A., a national banking association" is substituted therefor. (B) In the recitals, the paragraph containing the third recital is hereby deleted and the following recitals substituted therefor: "WHEREAS, the Company had appointed Harris Trust and Savings Bank as trustee of the ESOP effective July 7, 1989; WHEREAS, Harris Trust and Savings Bank has resigned as such trustee effective July 1, 1996; WHEREAS, the Committee has appointed the LaSalle National Trust, N.A. as successor trustee of the ESOP effective July 1, 1996;" (C) In the recitals, the paragraphs containing the fifth and sixth recitals are hereby deleted and the following recitals substituted therefor: "WHEREAS, the ESOP Trust acquired shares of Company Stock with the proceeds of one or more loans which are exempt from the prohibited transaction rules under ERISA (the "ESOP Loan"); WHEREAS, the Inland Steel Industries Stock Fund is part of the ESOP Trust effective as of July 7, 1989." (D) All paragraphs of the ESOP Trust Agreement are hereby amended to delete the term "Committee Trustees" and to substitute the word "Committee" therefor. (E) Article III is hereby amended to insert the following new sentence following Paragraph III-3: "It is expressly agreed that any Short-Term Investments may be purchased by the Successor ESOP Trustee notwithstanding that an affiliate of the Successor ESOP Trustee has underwritten, privately placed or made a market for, any such Short-Term Investments, or may in the future underwrite, privately place or make a market in any such Short-Term Investments." (F) Article VI is hereby amended by insertion of the following new paragraph following Paragraph VI-3: "VI-4. Trust Estate. Any successor ESOP Trustee shall succeed to all the right, title and estate vested in its predecessor without the signing of any further documents. Each successor Trustee shall have all the powers, rights and duties conferred by this Trust Agreement as if originally named ESOP Trustee." EX-11 4 STATEMENT OF EARNINGS PER SHARE OF COMMON STOCK 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, -------------------------------- 1996 1995 1994 ---------- ---------- ---------- Primary Earnings Per Share of Common Stock Shares of common stock Average shares outstanding................ 48.8 47.3 43.1 Dilutive effect of stock options.......... -- .1 .4 --------- ---------- ---------- 48.8 47.4 43.5 ========= ========== ========== Income before extraordinary loss............ $ 69.0 $ 146.8 $ 107.4 Extraordinary loss on early retirement of debt....................................... (23.3) -- -- --------- ---------- ---------- Net income.................................. 45.7 146.8 107.4 Dividends on preferred stock, net of tax benefit on dividends applicable to leveraged Series E Preferred Stock held by the ESOP................................... 9.1 19.0 28.4 --------- ---------- ---------- Net income applicable....................... $ 36.6 $ 127.8 $ 79.0 ========= ========== ========== Per Share of Common Stock: Before extraordinary loss................. $ 1.23 $ 2.69 $ 1.81 Extraordinary loss on early retirement of debt..................................... (.48) -- -- --------- ---------- ---------- Net income................................ $ .75 $ 2.69 $ 1.81 ========= ========== ========== Fully Diluted Earnings Per Share of Common Stock Shares of common stock Average shares outstanding................ 48.8 47.3 43.1 Assumed conversion of Series A and leveraged Series E Preferred Stock....... 3.0 3.1 3.0 Dilutive effect of stock options.......... -- .1 .5 --------- ---------- ---------- 51.8 50.5 46.6 ========= ========== ========== Income before extraordinary loss............ $ 69.0 $ 146.8 $ 107.4 Extraordinary loss on early retirement of debt....................................... (23.3) -- -- --------- ---------- ---------- Net income.................................. 45.7 146.8 107.4 Dividends on antidilutive preferred stock... .6 10.6 20.5 Additional ESOP funding required on conversion of Series E Preferred Stock, net of tax..................................... 7.9 7.6 7.9 --------- ---------- ---------- Net income applicable....................... $ 37.2 $ 128.6 $ 79.0 ========= ========== ========== Per Share of Common Stock: Before extraordinary loss................... $ 1.17 $ 2.55 $ 1.70 Extraordinary loss on early retirement of debt....................................... (.45) -- -- --------- ---------- ---------- Net income.................................. $ .72 $ 2.55 $ 1.70 ========= ========== ==========
- -------- Note--Series G Exchangeable Preferred Stock was converted to common stock in 1994. The assumed conversion of non-leveraged Series E Preferred Stock was antidilutive in all three years. The assumed conversion of Series A Preferred Stock was antidilutive in 1996 and 1994. The assumed conversion of Series G Preferred Stock was antidilutive in 1994. EX-13 5 FINANCIAL REVIEW Exhibit 13 FINANCIAL REVIEW
RESULTS OF OPERATIONS - -------------------------------------------------------------------- Dollars and Shares in Millions (except per share data) 1996 1995 1994 - -------------------------------------------------------------------- Net sales $4,584.1 $4,781.5 $4,497.0 Operating profit $ 165.7 $ 328.5 $ 249.4 Net income $ 45.7 $ 146.8 $ 107.4 Net income per common share $ .75 $ 2.69 $ 1.81 Average shares outstanding 48.8 47.4 43.5 - --------------------------------------------------------------------
In 1996, the Company reported net income of $45.7 million compared with $146.8 million in 1995 and $107.4 million in 1994. This was the third consecutive yearly net income following losses in the prior four years. The consolidated net income for the year 1996 of $45.7 million, or $.75 per share, includes a net loss of $20.9 million, or $.43 per share, related to unusual items, which consisted of a gain from the issuance of subsidiary stock, a loss on the early extinguishment of debt, and a salaried workforce reduction provision. Operating profit declined at both business segments primarily as a result of lower average selling prices in 1996 compared with 1995. Net sales decreased 4 percent to $4.6 billion in 1996 primarily due to lower average selling price. Somewhat mitigating the erosion in average selling price was an increase in volume at the Materials Distribution Segment. Each of the Company's business segments was responsible for approximately half of the consolidated net sales. Net sales in 1995 increased 6 percent from 1994, primarily due to a higher average selling price. The Company undertook an aggressive recapitalization program in 1996 which included an initial public offering for approximately 13 percent of the interest in Ryerson Tull, Inc. ("RT"), formerly Inland Materials Distribution Group, Inc. ("IMDG"). The issuance of RT Class A common stock to unaffiliated third parties resulted in the creation of a minority interest in the materials distribution part of the business and the recognition of a $31.4 million pretax gain by the Company. Prior to the equity offering, the Company's interests in Inland Industries de Mexico and its 50 percent owned Ryerson de Mexico joint venture were transferred to RT. Also included in the recapitalization program was a $250 million public issuance of debt at RT and the subsequent tender for the Company's 12-3/4% Notes and Inland Steel Company's Series T 12% First Mortgage Bonds. As a result of the early redemption of a majority of the Industries Notes and Series T Bonds, as well as the early redemption of Pollution Control Project No. 9 Bonds associated with its refinancing, the Company recognized an extraordinary after-tax loss of $23.3 million, $36.9 million before tax. As a result of these changes, the average interest rate on long-term debt outstanding at year-end 1996 has been reduced to 8.4 percent as compared with 9.7 percent at December 31, 1995. On the international front, the Company formed a joint venture to build and operate steel service centers in China with Baoshan Iron and Steel Corporation of the Peoples' Republic of China and has signed a letter of intent to form a similar joint venture in India with The Tata Iron and Steel Co. Ltd. International activities were not material to the financial results of the Company in any of the years presented.
STEEL MANUFACTURING SEGMENT Dollars and Tons in Millions 1996 1995 1994 Net sales $2,397.3 $2,513.3 $2,487.9 Operating profit $ 48.0 $ 181.7 $ 149.3 Net tons shipped 5.1 5.1 5.2
Inland Steel Company reported $48 million of operating profit in 1996 compared with an operating profit of $182 million in 1995 and $149 million in 1994. Net sales decreased 5 percent in 1996 as compared with 1995 due primarily to a 5 percent decrease in average selling price. This decline in average selling price was the primary factor in the fall-off of operating profit in 1996. The volume of steel mill products shipped was unchanged from 1995 to 1996. Also contributing to the operating profit decline was a $26.3 million workforce reduction provision in 1996 that will ultimately reduce salaried employment by approximately 450. 21 Inland Steel Company continued to effect improvements in operations during 1996. Inland Steel Company had its safest year in history both in terms of the lowest number of injuries and lost time due to injury. At the same time, improvements were also produced in the shipment of prime products, product mix, raw steel tons produced, capability utilization, raw steel to prime product yield and productivity. The combined effect of these and other improvements resulted in both a lower level of purchased steel and a slight reduction in operating cost per ton. Net sales increased 1 percent in 1995 as compared with 1994 due to a 2 percent increase in average selling price which was offset in part by a 1 percent decrease in the volume of steel mill products shipped. After a strong first half, average realizing prices deteriorated due to softness in flat rolled contract business, particularly automotive, and a subsequent shift of business to a weakening spot market. In 1995, Inland Steel Company offered a voluntary retirement package which was accepted by approximately 300 salaried employees resulting in a charge of $35 million. Also in 1995, Inland Steel Company increased reserves by $7 million for additional benefit costs at a closed iron ore mining facility and by $2 million for a further writedown of non-operating assets of the former construction business. Reserves relating to environmental matters were increased by $7 million. With the completion of a workforce reduction program announced in 1991, a final computation of the employee benefit costs required for the 1991 program resulted in unused reserves due to differences between the actual makeup of the population leaving the Company under this program and the projections used in 1991. As a result, Inland Steel Company reversed $65 million of unused reserves from the balance sheet and recorded a corresponding credit to income in 1995. Inland Steel Company operated at 92 percent of its raw steelmaking capability in 1996, compared with 90 percent in 1995 and 89 percent in 1994. Inland Steel Company, under the I/N Kote partnership agreement, 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. Since 1993, Inland Steel Company's sales prices exceeded its costs of production but were less than the market prices for cold rolled steel products. Because 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. In the 1996 fourth quarter, Inland Steel Company reached an agreement with Sun Coal and Coke Company and a unit of NIPSCO Industries for a heat recovery coke battery and an associated energy recovery and flue-gas desulphurization facility, to be located on land leased from Inland Steel Company at its Indiana Harbor Works. Sun will design, build, finance and operate the cokemaking portion of the project. A unit of NIPSCO Industries will design, build, finance and operate the portion of the project which will clean the coke plant's flue gas and convert the heat into steam and electricity. Sun, the NIPSCO unit and other third parties will invest approximately $350 million in the project. Inland Steel Company has committed to purchase, for approximately 15 years, 1.2 million tons of coke annually from the facility on a take-or-pay basis, as well as energy produced by the facility through a tolling arrangement. The facility is designed to be the primary coke source for the largest blast furnace at the Indiana Harbor Works. It is anticipated that the per ton cost of coke supplied by the facility will be less than 22 that paid by the Company in 1996. Inland Steel Company will also advance approximately $30 million during construction of the project which will be credited against the energy tolling arrangement. Materials Distribution Segment
- ---------------------------------------------------------------------------- Dollars and Tons in Millions 1996 1995 1994 - ---------------------------------------------------------------------------- Net sales $2,394.0 $2,450.1 $2,197.5 Operating profit $ 120.0 $ 148.7 $ 98.1 Net tons shipped 2.51 2.35 2.33 - ----------------------------------------------------------------------------
RT, consisting of Joseph T. Ryerson & Son, Inc., including its Ryerson Coil Processing Company division, J. M. Tull Metals Company, Inc., and Inland Industries de Mexico, reported net sales of $2.4 billion, a 2 percent decrease from 1995. A 9 percent decline in average selling price was, in large part, offset by a 7 percent increase in volume. While operating costs, excluding the costs of materials sold, increased in total in 1996 from 1995, such costs on a per ton basis declined to $174 from $182. The impact of lower selling prices was the major factor in the $28.7 million decrease in operating profit from 1995 to 1996. In 1995, net sales increased 11 percent to $2.5 billion following double digit rates of increase in each of the previous two years. The improved sales were due to a 10 percent increase in average selling price per ton sold as volume increased only minimally. The increase in average selling price was the principal factor contributing to the $50.6 million operating profit improvement in 1995 compared with 1994. In each of the last three years, results in the Midwest and Southeast were the strongest. All four regions of the general line business, which supply a wide range of metals and industrial plastics, as well as the coil processing business, continued to operate profitably. On February 13, 1997, RT completed the purchase of all of the outstanding stock of Thypin Steel Co., Inc., a distributor and processor of carbon and stainless steel products for $120 million in cash and the assumption of $23 million in existing Thypin debt. Liquidity and Financing The Company finished 1996 with cash and cash equivalents of $238 million compared with $267 million at year-end 1995. There was no short-term bank borrowing at either year end. In the 1996 second quarter, as part of the Company's recapitalization program, RT exchanged existing shares of IMDG common stock, all of which were owned by the Company, for 34.0 million shares of new-issue RT Class B common stock. RT then sold 5.2 million shares of new-issue RT Class A common stock in a public offering, the net proceeds of which approximated $77.1 million. The Company recognized a pre-tax gain on the sale of the RT stock of approximately $31.4 million or $.40 per share. In July, RT also issued $250 million principal amount of Notes consisting of $150 million of 8 1/2% Notes due July 15, 2001 and $100 million of 9 1/8% Notes due July 15, 2006. In the second quarter of 1996, the Company tendered for the repurchase of all of its outstanding 12 3/4% Notes. Of the $150 million principal amount outstanding, $144.2 million was tendered. The Company recognized an extraordinary after-tax loss of $14.5 million or $.30 per share, $23.3 million before income taxes, as a result of this transaction. During the 1996 third quarter, Inland Steel Company made a tender offer for the repurchase of the entire $125 million principal amount of its Series T First Mortgage Bonds outstanding, of which $98.7 million was tendered. Inland Steel Company also refinanced 23 $38 million of 10 percent pollution control bonds with bonds bearing a rate of 7.25 percent. As a result of these redemptions, Inland Steel Company recognized an extraordinary after-tax loss of approximately $8.8 million or $.18 per share, $13.6 million before income taxes, in the third quarter of 1996. During the 1996 fourth quarter, Inland Steel Company issued $5.1 million of exempt facility revenue bonds bearing an interest rate of 6.7 percent and maturing in 2012. During the year, the Company's subsidiaries increased total committed credit facilities to $375 million. Ryerson Tull established a new four-year $250 million unsecured credit facility prior to the end of the second quarter. A previous $200 million Ryerson facility and a previous $25 million Tull facility were concurrently terminated. Inland Steel Company's special-purpose subsidiary revolving credit facility of $125 million extends to November 30, 2000. The credit facility is secured by receivables sold to the special-purpose subsidiary by Inland Steel Company. The interest rates on borrowing under such credit agreements are, at each company's option, based on Eurodollar, Certificate of Deposit, or the greater of federal funds plus 1/2 percent or prime rates. At year-end, the highest interest rate option for borrowings under any of these credit agreements was the applicable prime rate. Covenants in the RT credit facility limited the amount of cash that RT could transfer to the Company in the form of dividends and advances to approximately $45 million at year-end 1996. This amount is subject to change based on the financial performance of RT. Additionally, there are certain other limitations on advances. As part of the recapitalization, the Company and RT entered into an agreement to maintain the existence of the Company and RT as separate corporate entities. Included in this agreement is a requirement that any transactions between the entities, including loans or advances from RT to the Company, must be on an arms-length basis. In connection with the tender offers for the Company's 12-3/4% Notes and Inland Steel Company's Series T First Mortgage Bonds, the Company solicited and received consents from a majority of the holders to amendments to the indentures which effectively eliminated all material restrictions resulting from the previous covenants, thus increasing financial flexibility. The ratio of long-term debt (and redeemable preferred stock in 1994) to total capitalization was 47 percent at December 31, 1996, compared with 50 percent and 62 percent at year-end 1995 and 1994, respectively. In addition, Inland Steel Company guarantees a pulverized coal injection joint venture loan and its 50 percent share of I/N Kote borrowings amounting to $22 million and $208 million, respectively, at year-end 1996. As neither of these guarantees has been invoked since inception, the Company does not believe these guarantees will be called upon. The Company believes that its present cash position, augmented by its subsidiaries' credit facilities and the cash flow anticipated from operations, will provide sufficient liquidity to meet its scheduled debt retirements, pay preferred dividends, fund its capital program and meet any operating cash requirements that may arise for at least the next two years. Long-term debt due within one year decreased markedly at December 31, 1996 compared with year-end 1995 due to the $85 million principal payment made in December 1996 on the Subordinated Voting Note. The Company ended 1996 with long-term debt of $773 million compared with $785 million at year-end 1995. The Company's debt ratings at year-end 1996 and 1995 were:
- -------------------------------------------------------------------------------- Ratings at Year End 1996 1995 - -------------------------------------------------------------------------------- Inland Steel Industries Notes Moody's Ba3 Ba3 Standard & Poor's B+ B+ - -------------------------------------------------------------------------------- Inland Steel Company First Mortgage Bonds Moody's Ba3 Ba3 Standard & Poor's BB- BB- - -------------------------------------------------------------------------------- Ryerson Tull Notes Moody's Ba1 -- Standard & Poor's BB -- - --------------------------------------------------------------------------------
24
CAPITAL EXPENDITURES - ------------------------------------------------------------- Dollars in Millions 1996 1995 1994 Capital expenditures Steel Manufacturing $155.8 $113.9 $223.6 Materials Distribution 24.1 19.3 20.4 General corporate and other 1.0 1.4 1.3 - ------------------------------------------------------------- Total capital expenditures $180.9 $134.6 $245.3 =============================================================
Capital expenditures were $181 million in 1996. The majority of the capital expenditures was for new machinery and equipment related to maintaining or improving operations at the Steel Manufacturing Segment. Included in the $245 million of capital expenditures reported in 1994 was $146 million for the purchase of a caster facility which had previously been leased. The Company anticipates capital expenditures in 1997 will approximate $150 million. EMPLOYMENT MATTERS Inland Steel Company and the United Steelworkers of America entered into a six- year labor agreement, effective August 1, 1993. The 1993 agreement 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 required significant improvements in pension benefits for active employees. The agreement also provided for a reopener in 1996 which resulted in changes in wages and certain benefits. The reopener resulted in a $.50 per hour wage increase effective in August 1996 with $.25 per hour increases in both August 1997 and 1998; a $1,000 bonus per employee in each of 1996, 1997 and 1998 (totaling in each case approximately $7 million); one additional holiday per year, and an increase in pension benefits. Average employment declined 5 percent during 1996 after remaining virtually unchanged during 1995. Total employment cost decreased 3 percent as lower direct compensation expense, including profit sharing provisions, was in part offset by higher employee benefit costs. The table below summarizes categories of costs incurred by the Company over the last three years. Not included in the table is the effects of workforce reduction plans. In 1996, $26 million was excluded for the provision to reduce salaried employment by approximately 450 people. In 1995, the table excludes both the reversal of $65 million of unused provision booked in 1991 and the $35 million provision related to a voluntary retirement package which affected approximately 300 salaried employees.
- --------------------------------------------------------------------- EMPLOYEES - --------------------------------------------------------------------- (monthly average receiving pay) 1996 1995 1994 - --------------------------------------------------------------------- Steel Manufacturing 9,657 10,165 10,166 Materials Distribution 4,904 5,125 5,195 Headquarters and other 134 120 118 - --------------------------------------------------------------------- Total 14,695 15,410 15,479 =====================================================================
- --------------------------------------------------------------------- Consolidated Employment Costs - --------------------------------------------------------------------- Dollars in Millions (except averages) 1996 1995 1994 - --------------------------------------------------------------------- Direct compensation $ 678.7 $ 712.9 $ 681.1 - --------------------------------------------------------------------- Employee benefits Group insurance costs 65.3 60.9 63.5 Postretirement benefits other than pensions 72.6 64.5 79.5 Pension costs 5.9 7.5 28.2 Social security and unemployment compensation taxes 54.9 56.2 55.5 Workers' compensation expense 9.3 11.3 12.7 Thrift Plan costs 9.1 9.1 9.2 Cost of supplemental unem- ployment benefit plans 6.6 7.2 7.9 Industry welfare and retirement funds 3.6 3.6 2.9 All other 11.3 8.2 9.0 - --------------------------------------------------------------------- Total cost of employee benefits $ 238.6 $ 228.5 $ 268.4 - --------------------------------------------------------------------- Total employment costs $ 917.3 $ 941.4 $ 949.5 - --------------------------------------------------------------------- Average employment cost per employee $62,424 $61,092 $61,342 - ---------------------------------------------------------------------
PENSIONS Effective April 30, 1996, that portion of the Company's pension plan covering RT's current and former employees was separated and became the Ryerson Tull Pension Plan. Due to this separation, the Company remeasured each subsidiary's benefit obligation using plan data and actuarial assumptions as of the date of separation. An amount of assets proportional to the liabilities assumed by the Ryerson Tull Pension Plan was allocated to such plan. The Company's pension plans currently meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. The plans will continue to be funded in the future to at least meet these minimum funding standards. Although the Company is not expected to have any required pension plan contributions during 1997, the Company may elect to make voluntary contributions to improve the plans' funded status. 25 ACCOUNTING MATTERS At December 31, 1996, the Company had a net deferred tax asset of $318 million, which includes $442 million related to the temporary difference arising from the adoption of Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." 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 $406 million of additional taxable income as of year-end 1996 which would serve to offset approximately $140 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 $500 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 13 to the consolidated financial statements for further details regarding this net deferred tax asset.) In 1996, the Company adopted FASB Statement No. 123, "Accounting for Stock- Based Compensation." As allowed by the statement, the Company elected to continue to account for stock options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 and to provide disclosure of the pro forma effects of applying the new fair value method in the notes to financial statements. (See Note 8 to the consolidated financial statements for further details.) Accordingly, the adoption of this statement had no impact on the results of operations or financial position of the Company. 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. 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 and anticipates that this assessment will cost approximately $2 million to $4 million per year for the next several years. The Company's reserve for environmental liabilities including those in connection with the consent decree totaled $24 million at year-end 1996. Because neither the nature and extent of the contamination nor the corrective actions that may be required can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the eventual costs or 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 $19 million in 1996, the same amount as was spent in 1995. Another $45 million was spent in 1996 to operate and maintain such equipment, versus $39 million a year earlier. During the five years ended December 31, 1996, the Company has spent $284 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 $7 million 26 in 1997. 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 $35 million to $45 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 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. Competition The steel market is highly competitive with major integrated producers, including Inland Steel Company, facing competition from a variety of sources. Many steel products compete with alternative materials such as plastics, aluminum, ceramics, glass and concrete. Domestic steel producers have also been adversely impacted by imports from foreign steel producers. Preliminary data indicate that imports of steel mill products accounted for approximately 23.3 percent of the domestic market in 1996, up from 21.4 percent in 1995 but below the 1984 peak of 26.4 percent. Many foreign producers are still owned, controlled, or subsidized by their governments allowing them to ship steel products into the domestic market despite decreased profit margins or losses on such sales. Minimills provide significant competition in various product lines. Minimills are relatively efficient, low-cost producers that manufacture steel principally from scrap in electric furnaces and, at this time, generally have lower capital, overhead, employment and environmental costs than the integrated steel producers, including Inland Steel Company. Minimills have been adding capacity and expanding their product lines in recent years to produce larger structural products and certain flat rolled products. Thin-slab casting technologies have allowed minimills to enter certain sheet markets traditionally supplied by integrated producers. Several minimills using this advanced technology are in operation in the United States and a significant increase in modern minimill capacity is anticipated within the next two years. Summary by Quarter (Unaudited) Inland Steel Industries, Inc. and Subsidiary Companies
- --------------------------------------------------------------------------------------------------------------------- Dollars in Millions (except per share data) - --------------------------------------------------------------------------------------------------------------------- Per Common Share ------------------------------------------------- Net Gross Income Market Price ----------------------------------- Sales Profit Before Taxes Net Income Net Income High Low Close - --------------------------------------------------------------------------------------------------------------------- 1996 First Quarter $1,180.9 $103.7 $ 28.0 $ 17.2 $ .31 $29 $23 7/8 $24 3/4 Second Quarter 1,163.0 98.0 54.0 19.2 .35 27 19 1/8 19 5/8 Third Quarter 1,118.0 105.5 30.7 8.5 .13 19 7/8 16 3/4 17 7/8 Fourth Quarter 1,122.2 76.1 3.1* .8* (.03)* 20 1/4 16 20 - --------------------------------------------------------------------------------------------------------------------- Year $4,584.1 $383.3 $115.8 $ 45.7 $ .75** $29 $16 $20 ===================================================================================================================== - --------------------------------------------------------------------------------------------------------------------- 1995 First Quarter $1,257.7 $144.9 $ 71.9 $ 44.0 $ .84 $36 3/4 $23 1/2 $27 1/2 Second Quarter 1,273.5 166.5 94.3 57.9 1.08 30 1/2 25 30 1/2 Third Quarter 1,128.6 120.7 32.9 20.0 .33 35 1/2 22 5/8 22 3/4 Fourth Quarter 1,121.7 111.5 38.0 24.9 .47 27 1/2 21 1/4 25 1/8 - --------------------------------------------------------------------------------------------------------------------- Year $4,781.5 $543.6 $237.1 $146.8 $2.69** $36 3/4 $21 1/4 $25 1/8 =====================================================================================================================
* Includes $26.3 million workforce reduction provision, $17.1 million after tax or $.35 per common share. ** 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. 27 Eleven-Year Summary of Selected Financial Data and Operating Results Inland Steel Industries, Inc. and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Dollars in Millions Results Net sales $4,584.1 $4,781.5 $4,497.0 of Operations Depreciation 147.0 143.1 138.7 Interest expense 77.1 71.9 71.4 Rent expense 50.6 51.2 54.5 Continuing business segments Income (loss) before income taxes 115.8 237.1 169.5 Income taxes 43.8 90.3 62.1 Income (loss) 69.0 146.8 107.4 Net income (loss) 45.7 146.8 107.4 - ------------------------------------------------------------------------------------------------------------------------------- Shares in Thousands Data Applicable Average number of shares 48,828 47,419 43,545 to Common Stock Income (loss) per share Continuing business segments $ 1.23 $ 2.69 $ 1.81 Net income (loss) .75 2.69 1.81 Dividends per share .20 .20 - Stockholders' equity per share 15.27 14.72 11.06 Stockholders of record 14,000 15,000 16,000 Shares traded (average daily volume) 189.1 228.2 206.3 - ------------------------------------------------------------------------------------------------------------------------------- Dollars in Millions Changes in Cash provided from (used for) operations $ 181.3 $ 330.2 $ 265.5 Financial Position Capital expenditures 180.9 134.6 245.3 Investments in and advances to joint ventures, net (18.2) (16.4) (13.7) Acquisitions - - - Dividends declared on common stock 9.8 9.6 - Dividends declared on preferred stock 9.1 17.6 27.9 Financing Long-term debt (net of retirements) (11.3) 78.6 (71.2) Preferred stock - - - Common stock - 100.0 - Net change in liquidity (29.4) 160.3 (143.4) - ------------------------------------------------------------------------------------------------------------------------------- Dollars in Millions Financial Position Working capital $ 691.0 $ 618.1 $ 516.7 at Year End Property (net) 1,637.0 1,600.4 1,610.3 Total assets 3,541.6 3,558.3 3,353.4 Long-term debt 773.2 784.5 705.9 Redeemable preferred stock - - 185.0 Minority interest 49.0 - - Temporary equity 32.1 34.5 37.9 Stockholders' equity 789.0 748.6 509.2 Unused credit facilities 375 350 225 - ------------------------------------------------------------------------------------------------------------------------------- Financial Ratios Net income (loss) as a percent of sales 1.0% 3.1% 2.4% Long-term debt to total capitalization 47.1% 50.0% 49.1% Long-term debt and redeemable preferred to total capitalization 47.1% 50.0% 62.0% Return on stockholders' equity 5.8% 19.6% 21.1% - ------------------------------------------------------------------------------------------------------------------------------- Dollars and Tons in Millions Production Tons of raw steel produced 5.5 5.4 5.3 and Employment Tons of steel mill shipments 5.1 5.1 5.2 Statistics Average number of employees 14,695 15,410 15,479 Total employment costs $ 917.3 $ 941.4 $ 949.5 - ------------------------------------------------------------------------------------------------------------------------------- Cr. = Credit
28
- ------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------ $3,888.2 $3,494.3 $3,404.5 $3,870.4 $4,146.7 $4,068.0 $3,453.2 $3,173.2 131.8 129.6 118.2 119.7 131.2 134.8 123.4 124.0 78.0 54.9 46.8 38.7 38.4 46.2 62.8 71.6 73.7 75.5 81.8 85.5 79.9 72.3 68.9 55.2 (73.6) (258.6) (381.1) (36.7) 175.6 364.6 97.5 36.7 36.0Cr. 99.2Cr. 106.0Cr. 16.1Cr. 55.9 115.8 14.2Cr. 1.9 (37.6) (159.4) (275.1) (20.6) 119.7 248.8 111.7 34.8 (37.6) (815.6) (275.1) (20.6) 119.7 262.1 145.0 19.3 - ------------------------------------------------------------------------------------------ 35,540 32,828 30,943 32,195 35,581 33,623 31,854 28,479 $ (1.96) $ (5.83) $ (9.88) $ (1.41) $ 3.15 $ 6.99 $ 3.09 $ .95 (1.96) (25.82) (9.88) (1.41) 3.15 7.39 4.14 .40 - - .15 1.40 1.40 .75 - - 7.79 6.01 31.10 41.27 43.00 42.50 36.15 32.85 16,000 18,000 18,000 19,000 23,000 24,000 26,000 29,000 134.2 97.3 89.3 95.7 199.5 170.0 178.9 78.6 - ------------------------------------------------------------------------------------------ $ 112.0 $ (21.4) $ 25.0 $ 189.1 $ 240.2 $ 531.8 $ 169.1 $ 129.1 105.6 64.4 140.2 268.1 197.2 136.5 128.0 124.8 1.9 6.3 24.9 49.8 15.5 73.6 10.5 9.0 - - - - 28.2 50.2 - 96.4 - - 4.6 45.3 50.1 25.2 - - 32.0 32.1 31.1 27.1 6.9 13.8 13.9 7.8 (96.6) 108.9 73.1 114.0 (17.8) (43.2) (160.9) (122.5) - - 72.8 - 185.0 - 96.6 - 178.7 97.9 - - - - 83.7 85.2 112.8 90.6 (11.2) (179.1) (67.9) 124.2 71.7 157.2 - ------------------------------------------------------------------------------------------ $ 496.4 $ 441.0 $ 322.8 $ 395.9 $ 703.0 $ 719.8 $ 625.0 $ 428.0 1,507.7 1,548.8 1,635.0 1,708.3 1,569.8 1,493.9 1,488.1 1,552.4 3,435.8 3,146.5 2,697.8 2,934.8 3,008.5 2,925.0 2,651.4 2,526.6 777.1 873.7 764.8 691.7 577.7 595.5 638.7 799.6 185.0 185.0 185.0 185.0 185.0 - - - - - - - - - - - 40.8 49.9 53.0 54.9 181.3 - - - 397.6 271.4 1,009.4 1,234.0 1,313.8 1,559.4 1,391.5 1,067.7 225 225 225 325 325 225 225 150 - ------------------------------------------------------------------------------------------ (1.0)% (23.3)% (8.1)% (.5)% 2.9% 6.4% 4.2% .6% 55.5% 63.3% 38.0% 31.9% 25.6% 27.6% 31.5% 42.8% 68.7% 76.7% 47.2% 40.5% 33.8% 27.6% 31.5% 42.8% loss loss loss loss 9.1% 16.8% 10.4% 1.8% - ------------------------------------------------------------------------------------------ 5.0 4.7 4.7 5.3 5.6 6.1 5.5 5.7 4.8 4.3 4.2 4.7 4.9 5.0 4.9 4.9 16,152 17,181 18,600 20,154 20,715 20,639 20,740 22,668 $ 924.9 $ 940.7 $ 907.4 $ 979.0 $ 964.3 $ 945.8 $ 878.4 $ 918.6 - ------------------------------------------------------------------------------------------
29 Financial Responsibility Senior management is responsible for the integrity and objectivity of the financial data reported by Inland Steel Industries, Inc. and its subsidiaries. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, and in management's judgment reflect fairly the consolidated financial position, cash flows and results of operations of Inland and its subsidiary companies. The Company maintains systems of internal accounting controls and procedures to provide reasonable assurance of the safeguarding and accountability of Company assets, and to ensure that its financial records provide a reliable basis for the preparation of financial statements and other data. Internal accounting control is maintained through: . The on-going activities of corporate staff, line officers and accounting management to monitor the adequacy of internal accounting control systems throughout the Company . The selection and proper training of qualified personnel . The appropriate separation of duties in organizational arrangements . The establishment and communication of accounting and business policies together with detailed procedures for their implementation . The use of an intensive ongoing program of internal auditing . The use of a detailed budgeting system to assure that expenditures are properly approved and charged. Stockholders annually elect a firm of independent accountants to audit the annual financial statements (their current report appears below). The principal role of the Audit Committee of the Board of Directors (consisting entirely of non-management Directors) is to review the conclusions reached by management in its evaluation of internal accounting controls, approve the scope of audit programs and evaluate audit results of both independent accountants and internal auditors. Both groups have unrestricted access to the Audit Committee, without the presence of management. - -------------------------------------------------------------------------------- Report of Independent Accountants [LOGO OF PRICE WATERHOUSE LLP] To the Board of Directors and Stockholders of Inland Steel Industries, Inc. In our opinion, the consolidated financial statements on pages 31 through 47 present fairly, in all material respects, the financial position of Inland Steel Industries, Inc. and Subsidiary Companies at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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. [SIG CUT Price Waterhouse LLP] Chicago, Illinois February 19, 1997 30 Statement of Accounting and Financial Policies The following briefly describes the Company's principal accounting and financial policies. Accounting for Equity Investments The Company's investments in less than majority-owned companies, joint ventures and partnerships, and the Company's majority interest in the I/N Tek partnership, are accounted for under the equity method. Per Share Results 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 trusteed non-contributory plans. 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. The cost of these benefits for retirees is being accrued during their term of employment. Pensions are funded in accordance with ERISA requirements in trusts established under the plan. Costs for retired employee medical benefits 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. Stock-Based Compensation Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for stock appreciation rights and performance equity units is recorded annually based on the quoted market price of the Company's stock at the end of the period. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Changes in such estimates may affect amounts reported in future periods. 31 Consolidated Statements of Operations and Reinvested Earnings Inland Steel Industries, Inc. and Subsidiary Companies
- ---------------------------------------------------------------------------------------------------------------------------------- Dollars in Millions (except per share data) Years Ended December 31 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Net sales $4,584.1 $4,781.5 $4,497.0 Statement of ---------------------------------------------------------------------------------------------------- Operations Operating costs and expenses: Cost of goods sold (excluding depreciation) 3,979.1 4,043.2 3,853.1 Selling, general and administrative expenses 208.3 204.1 197.6 Depreciation 146.5 142.6 138.1 State, local and miscellaneous taxes 58.2 63.1 58.8 Workforce reduction provision (Note 11) 26.3 - - ---------------------------------------------------------------------------------------------------- Total 4,418.4 4,453.0 4,247.6 ---------------------------------------------------------------------------------------------------- Operating profit 165.7 328.5 249.4 ---------------------------------------------------------------------------------------------------- Other expense: General corporate expense, net of income items 4.2 19.5 8.5 Interest and other expense on debt 77.1 71.9 71.4 Gain from issuance of subsidiary stock (Note 1) (31.4) - - ---------------------------------------------------------------------------------------------------- Income before income taxes, minority interest and extraordinary loss 115.8 237.1 169.5 ---------------------------------------------------------------------------------------------------- Provision for income taxes (Note 13): Current taxes 2.7 11.1 9.2 Deferred taxes 41.1 79.2 52.9 ---------------------------------------------------------------------------------------------------- Total 43.8 90.3 62.1 ---------------------------------------------------------------------------------------------------- Income before minority interest and extraordinary loss 72.0 146.8 107.4 Minority interest in Ryerson Tull, Inc. (Note 1) 3.0 - - ---------------------------------------------------------------------------------------------------- Income before extraordinary loss 69.0 146.8 107.4 Extraordinary loss on early retirement of debt (Note 4) (23.3) - - ---------------------------------------------------------------------------------------------------- Net income 45.7 146.8 107.4 Dividend requirements for preferred stock (net of tax benefits related to leveraged ESOP shares) 9.1 19.0 28.4 ---------------------------------------------------------------------------------------------------- Net income applicable to common stock $ 36.6 $ 127.8 $ 79.0 ==================================================================================================== Per share of common stock Primary: Before extraordinary loss $ 1.23 $ 2.69 $ 1.81 Extraordinary loss on early retirement of debt (.48) - - ---------------------------------------------------------------------------------------------------- Net income $ .75 $ 2.69 $ 1.81 ==================================================================================================== Fully Diluted: Before extraordinary loss $ 1.17 $ 2.55 $ 1.70 Extraordinary loss on early retirement of debt (.45) - - ---------------------------------------------------------------------------------------------------- Net income $ .72 $ 2.55 $ 1.70 ==================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Accumulated deficit at beginning of year $ (172.8) $ (292.4) $ (371.9) Statement Net income for the year 45.7 146.8 107.4 of Reinvested Dividends declared: Earnings Common ($.20 per share in 1996 and 1995) (9.8) (9.6) - Preferred (Notes 5 and 7) (9.1) (17.6) (27.9) ---------------------------------------------------------------------------------------------------- Accumulated deficit at end of year $ (146.0) $ (172.8) $ (292.4) ==================================================================================================================================
See Notes to Consolidated Financial Statements on pages 36-47. 32 Consolidated Statement of Cash Flows Inland Steel Industries, Inc. and Subsidiary Companies
Increase (Decrease) in Cash Dollars in Millions Years Ended December 31 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 45.7 $ 146.8 $ 107.4 ------------------------------------------------------------------------------------------ Adjustments to reconcile net income to net cash provided from operating activities: Depreciation 147.0 143.1 138.7 Deferred income taxes 27.5 79.2 52.9 Deferred employee benefit cost 24.2 (23.5) 52.2 Stock issued for coverage of employee benefit plans 22.6 23.9 35.0 Gain from issuance of subsidiary stock (31.4) - - Workforce reduction provision 26.3 - - Change in: Receivables 23.8 15.1 (76.3) Inventories (33.6) (31.5) (52.6) Accounts payable 7.0 (34.8) 52.0 Accrued salaries and wages (11.4) (.4) 12.1 Other accrued liabilities (18.9) 29.6 (20.8) Other items (47.5) (17.3) (35.1) ------------------------------------------------------------------------------------------ Net adjustments 135.6 183.4 158.1 ------------------------------------------------------------------------------------------ Net cash provided from operating activities 181.3 330.2 265.5 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities Capital expenditures (180.9) (134.6) (182.0) Investments in and advances to joint ventures, net 18.2 16.4 13.7 Proceeds from sales of assets 5.9 3.6 8.4 ------------------------------------------------------------------------------------------ Net cash used for investing activities (156.8) (114.6) (159.9) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities Issuance of subsidiary stock 77.1 - - Long-term debt issued 284.9 16.8 19.7 Long-term debt retired (391.2) (36.5) (232.5) Dividends paid (21.0) (31.6) (32.2) Acquisition of treasury stock (3.7) (4.0) (4.0) ------------------------------------------------------------------------------------------ Net cash used for financing activities (53.9) (55.3) (249.0) ------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (29.4) 160.3 (143.4) Cash and cash equivalents--beginning of year 267.4 107.1 250.5 ------------------------------------------------------------------------------------------ Cash and cash equivalents--end of year $ 238.0 $ 267.4 $ 107.1 =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Cash paid during the year for: Disclosures Interest (net of amount capitalized) $ 67.0 $ 65.4 $ 73.5 Income taxes, net 8.6 9.4 8.3 Non-cash activities: Reduction of deferred employee benefits resulting from contribution of common stock to the Company's Pension - 100.0 - Trust Series F Preferred Stock exchanged for Subordinated Voting Note - 185.0 - Long-term debt acquired in purchase of assets - - 63.3 - ----------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements on pages 36-47.
33 Consolidated Balance Sheet Inland Steel Industries, Inc. and Subsidiary Companies
Dollars in Millions At December 31 1996 1995 - --------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 238.0 $ 267.4 Receivables less provision for allowances, claims and doubtful accounts of $22.5 and $29.9, respectively 464.7 488.5 Inventories (Note 2) 494.6 461.0 Deferred income taxes (Note 13) 30.5 45.4 -------------------------------------------------------------------------- Total current assets 1,227.8 1,262.3 Investments and advances (see details page 35) 252.1 241.0 Property, plant and equipment, at cost, less accumulated depreciation (see details page 35) 1,637.0 1,600.4 Deferred income taxes (Note 13) 287.5 295.0 Intangible pension asset (Note 12) 76.3 102.6 Excess of cost over net assets acquired 22.3 23.6 Deferred charges and other assets 38.6 33.4 -------------------------------------------------------------------------- Total assets $3,541.6 $3,558.3 ========================================================================== - --------------------------------------------------------------------------------------------- Liabilities Current liabilities: Accounts payable $ 321.4 $ 314.4 Accrued liabilities: Salaries, wages and commissions 76.0 87.4 Taxes 78.3 85.1 Interest on debt 17.9 10.8 Terminated facilities costs and other (Note 11) 23.6 40.0 Long-term debt due within one year (Note 4) 19.6 106.5 -------------------------------------------------------------------------- Total current liabilities 536.8 644.2 Long-term debt (see details page 35 and Note 4) 773.2 784.5 Allowance for terminated facilities costs and other (Note 11) 48.8 54.2 Deferred employee benefits (Note 12) 1,301.6 1,280.3 Deferred income 11.1 12.0 -------------------------------------------------------------------------- Total liabilities 2,671.5 2,775.2 - --------------------------------------------------------------------------------------------- Minority interest in Ryerson Tull, Inc. 49.0 - Common store repurchase commitment (Note 5) 32.1 34.5 - --------------------------------------------------------------------------------------------- Stockholders' Preferred stock, $1.00 par value, Equity 15,000,000 shares authorized for all series, aggregate liquidation value of $153.9 in 1996 and $155.7 in 1995 (Notes 6 and 7) 3.2 3.2 Common stock, $1.00 par value; authorized--100,000,000 shares; issued--50,556,350 shares (Notes 7 through 9) 50.6 50.6 Capital in excess of par value (Note 7) 1,040.2 1,045.7 Accumulated deficit (146.0) (172.8) Unearned compensation--ESOP (Note 6) (79.4) (89.9) Common stock repurchase commitment (Note 5) (32.1) (34.5) Treasury stock at cost--Common stock of 1,647,954 shares in 1996 and 1,814,516 shares in 1995 (44.2) (51.1) Cumulative translation adjustment (3.3) (2.6) -------------------------------------------------------------------------- Total stockholders' equity 789.0 748.6 -------------------------------------------------------------------------- Total liabilities, minority interest, temporary equity, and stockholders' equity $3,541.6 $3,558.3 ============================================================================================= See Notes to Consolidated Financial Statements on pages 36-47.
34 Schedules to Consolidated Financial Statements Inland Steel Industries, Inc. and Subsidiary Companies
- ------------------------------------------------------------------------------------------------------------------- Dollars in Millions At December 31 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Investments Steel processing joint ventures $ 153.3 $ 152.2 and Advances Raw material joint ventures 52.2 48.4 Common stock of Nippon Steel Corporation held for investment, net of valuation allowances of $4.8 and $4.0, respectively 9.8 10.6 Other investments and advances 36.8 29.8 -------------------------------------------------------------------------------------------- Total $ 252.1 $ 241.0 ============================================================================================ - ------------------------------------------------------------------------------------------------------------------- Property, Plant Land, land improvements and mineral properties $ 156.2 $ 155.7 and Equipment Buildings, machinery and equipment 4,197.9 4,033.5 Transportation equipment 145.0 137.8 Property under capital leases--primarily machinery and equipment 37.0 37.0 -------------------------------------------------------------------------------------------- Total 4,536.1 4,364.0 Less-- Accumulated depreciation 2,763.0 2,629.3 Accumulated depreciation--capital leases 35.4 33.6 Allowance for retirements and terminated facilities (Note 11) 100.7 100.7 -------------------------------------------------------------------------------------------- Net $1,637.0 $1,600.4 ============================================================================================ - ------------------------------------------------------------------------------------------------------------------- Long-Term Debt Inland Steel Industries, Inc. Guaranteed ESOP notes, 8.43% and 8.80%, due through July 2, 2004 $ 96.5 $ 106.2 Notes, 12 3/4% due December 15, 2002 5.6 150.0 Subordinated Voting Note, 10.23% due December 17, 1999 100.0 100.0 -------------------------------------------------------------------------------------------- Total Inland Steel Industries, Inc. 202.1 356.2 Inland Steel Company First Mortgage Bonds: Series R, 7.9% due January 15, 2007 72.0 72.5 Series T, 12% due December 1, 1998 26.3 125.0 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 1993, 6.8% due June 1, 2013 40.0 40.0 Pollution Control Series 1995, 6.85% due December 1, 2012 17.0 17.0 -------------------------------------------------------------------------------------------- Total First Mortgage Bonds 233.8 333.0 Obligations for Industrial Development Revenue Bonds: Pollution Control Project No. 3, 6 1/4% due April 1, 1999 6.0 8.0 Pollution Control Project No. 9, 10% due November 1, 2011 -- 38.0 Pollution Control Project No. 11, 7 1/8% due June 1, 2007 20.0 20.0 Pollution Control Project No. 13, 7 1/4% due November 1, 2011 38.0 -- Pollution Control Project No. 14, 6.7% due November 1, 2012 5.1 -- 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 5.0 10.4 -------------------------------------------------------------------------------------------- Total Inland Steel Company 307.9 409.4 Ryerson Tull, Inc. Notes, 8 1/2% due July 15, 2001 150.0 -- Notes, 9 1/8% due July 15, 2006 100.0 -- Joseph T. Ryerson & Son, Inc. Obligation for Industrial Revenue Bond with floating rate, set weekly based on 13-week Treasury bills, due November 1, 2007 7.0 7.0 Other long-term debt, 10 1/4% due through November 30, 1997 -- 1.4 J. M. Tull Metals Company, Inc. Obligations for Industrial Revenue Bonds and other long-term debt with variable rates and fixed rates to 9 7/8%, due through August 17, 1998 6.2 6.9 Senior Notes, 9.43% due through July 29, 1997 -- 3.6 -------------------------------------------------------------------------------------------- Total long-term debt $ 773.2 $ 784.5 =================================================================================================================== See Notes to Consolidated Financial Statements on pages 36-47.
35 Notes to Consolidated Financial Statements Note 1: Recapitalization In the 1996 second quarter, the Company undertook a recapitalization that involved the Company and both its Inland Steel Company and Ryerson Tull, Inc. ("RT") subsidiaries. As part of the restructuring, RT, formerly Inland Materials Distribution Group, Inc. ("IMDG"), exchanged existing shares of IMDG common stock, all of which were owned by the Company, for 34.0 million shares of new- issue RT Class B common stock, $1.00 par value per share. RT also sold 5.2 million shares of new-issue Class A common stock, $1.00 par value per share, in a public offering, the net proceeds of which approximated $77.1 million. The Company recognized a $31.4 million gain on the sale of the RT Class A common stock. At year-end 1996, the Company's ownership of RT approximated 87 percent. Prior to the issuance of the Class A common stock, RT declared and paid dividends of $445.9 million to the Company, of which $152.1 million was in cash and $293.8 million was in the form of a note payable. The Company used $63.2 million of the cash dividends to repay intercompany borrowing from RT and its subsidiaries. In July, RT sold $250 million of Notes, the net proceeds of which, along with a portion of RT's cash on hand, was used to pay the $293.8 million note balance due the Company. Note 2: Inventories Inventories were classified on December 31 as follows:
- ------------------------------------------------------------------------------- Dollars in Millions 1996 1995 - ------------------------------------------------------------------------------- In process and finished products: Steel Manufacturing Operations $106.5 $124.5 Materials Distribution Operations 311.9 261.5 - ------------------------------------------------------------------------------- 418.4 386.0 - ------------------------------------------------------------------------------- Raw materials and supplies: Iron ore 42.4 39.7 Scrap and other raw materials 16.7 18.4 Supplies 17.1 16.9 - ------------------------------------------------------------------------------- 76.2 75.0 - ------------------------------------------------------------------------------- Total $494.6 $461.0 ===============================================================================
Replacement costs for the LIFO inventories exceeded LIFO values by approximately $406 million on both December 31, 1996 and 1995. The effect on cost of goods sold of LIFO liquidations in each of the three years ended December 31, 1996 was not material. Note 3: Borrowing Arrangements On December 31, 1996, the Company's subsidiaries had available unused credit facilities totaling $375 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratios. In the 1996 second quarter, RT established a new four-year $250 million credit facility which extends to June 28, 2000. A previous $200 million Ryerson facility and a previous $25 million Tull facility were concurrently terminated. A special-purpose subsidiary of Inland Steel Company has a $125 million revolving credit facility, which extends to November 30, 2000. Inland Steel Company has agreed to sell substantially all of its receivables to this special- purpose subsidiary and these receivables are used to secure this facility. With the recapitalization that occurred in 1996, the ability of RT and its subsidiaries to transfer cash to the Company has been more tightly restricted. Covenants in the RT credit facility limited the amount of cash that RT could transfer to the Company in the form of dividends and advances to approximately $45 million at year-end 1996. This amount is subject to change based on the financial performance of RT. Additionally, there are certain other limitations on advances. As part of the recapitalization, the Company and RT entered into an agreement to maintain the existence of the Company and RT as separate corporate entities. Included in this agreement is a requirement that any transactions between the entities, including loans or advances from RT to the Company, must be on an arms-length basis. Note 4: 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. A substantial portion of the property, plant and equipment owned by Inland Steel Company at its Indiana Harbor Works is subject to the lien of the First Mortgage. This property had a net book value of approximately $1.0 billion on December 31, 1996. As part of the restructuring undertaken by the Company in 1996, RT issued $150 million of 8-1/2 percent debt due July 15, 2001, and $100 million of 9-1/8 percent debt due July 15, 2006. During 1996, the Company and Inland Steel Company respectively tendered for the repurchase of all outstanding 12-3/4% Notes and Series T 12% First Mortgage Bonds. Of the $150 million principal amount of Notes outstanding and the $125 million principal amount of Series T Bonds outstanding, $144.2 million and $98.7 million, respectively, were tendered. Inland Steel Company also called $38 million of 10 percent Pollution Control Project No. 9 bonds for early redemption, which were refinanced at an interest rate of 7.25 percent. As a result of the tenders and early redemption, the Company recognized an extraordinary after-tax loss of $23.3 million, $36.9 million before income taxes. Both the First Mortgage Indenture under which the Series T Bonds were issued and the indenture under which the Industries 36 12 3/4% Notes were issued contained 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. In connection with the tender offers related to the above issuances, the Company received consents from a majority of the holders to amend the indentures to eliminate all material restrictions resulting from the previous covenants, thus increasing financial flexibility. During the third quarter of 1995, the Company exchanged its Series F Exchangeable Preferred Stock for a $185 million 10.23% Subordinated Voting Note. The Subordinated Voting Note is being liquidated in two stages, $85 million of which was repaid on December 18, 1996, with the remaining $100 million required to be redeemed on December 17, 1999, plus, in each instance, accrued and unpaid interest thereon. See Note 5 for additional information on the Subordinated Voting Note. During the third quarter of 1995, Inland Steel Company refinanced $17 million of 10.75 percent pollution control revenue bonds with bonds bearing an interest rate of 6.85 percent. In addition, in the 1994 second quarter, Inland Steel Company refinanced $20 million of pollution control revenue bonds at an interest rate of 7.125 percent. 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. 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. The outstanding borrowing of the Company's ESOP is recorded as a liability of the Company because the Company has committed to make payments (dividends and supplemental contributions) to the ESOP Trust sufficient to service the ESOP debt. The ESOP notes are payable in semi-annual installments through July 2004 and are guaranteed by Joseph T. Ryerson & Son, Inc., a majority owned subsidiary of the Company. See Note 6 for additional information on the ESOP debt. Maturities of long-term debt and capitalized lease obligations due within five years are: $19.6 million in 1997, $57.4 million in 1998, $122.3 million in 1999, $20.3 million in 2000, and $171.4 million in 2001. See Note 16 regarding commitments and contingencies for other scheduled payments. Interest cost incurred by the Company totaled $79.6 million in 1996, $73.7 million in 1995, and $72.5 million in 1994. Included in these totals is capitalized interest of $2.5 million in 1996, $1.8 million in 1995, and $1.1 million in 1994. Note 5: Subordinated Voting Note In December 1989, the Company sold 185,000 shares of the Company's Series F Exchangeable Preferred Stock, $1.00 par value per share ("Series F Preferred Stock"), for $185 million to NS Finance III, Inc., an indirect wholly owned subsidiary of Nippon Steel Corporation ("NSC"). The preferred stock was exchanged in the third quarter of 1995 for the Company's 10.23% Subordinated Voting Note (see Note 4). The preferred stock entitled the holder to 30.604 votes per share and the Subordinated Voting Note entitles the holder to 30.604 votes per $1,000 of principal amount outstanding, which number may be adjusted from time to time upon the occurrence of certain events. The voting power was based on the equivalent number of common shares represented by a market value of $185 million at the time the preferred stock was issued. In the event of a change in control or certain other events, the holder may require the Company to redeem the Subordinated Voting Note at a 10 percent premium. In the event of an early redemption, the Company may be required to reimburse the holder for certain costs incurred as a result of such redemption. In connection with the sale of the Series F Preferred Stock, the Company agreed to repurchase $185 million of the Company's common stock, of which $153 million (amounting to 4.9 million shares) has been repurchased. As of December 31, 1996, the amount representing the remaining repurchase commitment of $32 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 $13 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 Subordinated Voting Note. Under certain circumstances related to a potential change in control of the Company, NSC may seek to acquire voting securities of the Company on terms and conditions no less favorable to the Company's stockholders than the terms and conditions offered in connection with the potential change in control. 37 So long as the purchaser and permitted transferees beneficially own at least $100 million aggregate principal amount of the Subordinated Voting Note, the Company has agreed with NSC to nominate a mutually acceptable individual for election to the Company's Board of Directors. No such individual has been nominated. NOTE 6: 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 1996, the ESOP Trust received $10.6 million in dividends and $8.1 million in contributions from the Company to make required principal and interest payments. For 1995, the ESOP Trust received $10.6 million in dividends and $8.1 million in contributions from the Company to make such required payments. In 1994, the Company paid $10.6 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 $9.1 million in 1996, $8.9 million in 1995, and $8.8 million in 1994. 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 $9.3 million, $10.0 million, and $10.7 million in 1996, 1995 and 1994, respectively. The ESOP shares as of December 31 were as follows:
1996 1995 1994 Allocated shares 1,447,642 1,268,126 1,034,800 Unreleased shares 1,633,148 1,850,475 2,067,753 Total ESOP shares 3,080,790 3,118,601 3,102,553
NOTE 7: CAPITAL STOCK - --------------------- On December 31, 1996, 8,494,768 shares of common stock remained reserved for issuance under the Company's various employee stock plans and upon conversion of shares of preferred stock. In the second quarter of 1995, the Company contributed 3.9 million shares of its common stock with an aggregate value of $100 million to the Company's Pension Trust. 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, $1.00 par value per share. The indenture relating to the Industries 12 3/4% Notes which prohibited the Company from declaring or paying cash dividends on Company common stock under certain conditions, was amended in the 1996 second quarter to eliminate such restrictions. See Note 4 for additional information. 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 6). 38 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 ---------------------------------------------------------------- Dollars in Millions Shares Dollars Shares Dollars Shares Dollars Shares Dollars Shares Dollars Dollars - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1994 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) Redemption 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 Acquisition of treasury stock - - (138) (4.0) - - - - - - - Issued under employee benefit plans - - 415 15.6 - - 44 - - - (3.1) Redemption of Series E Preferred Stock - - - - - - (28) - - - (1.3) Conversion of Series A Preferred Stock - - 1 - (1) - - - - - - Issuance of Common Stock to Pension Trust - - 3,946 139.0 - - - - - - (39.0) Other changes - - (33) (.8) - - - - - - 1.1 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 50,556 50.6 (1,815) (51.1) 94 .1 3,119 3.1 - - 1,045.7 Acquisition of treasury stock - - (164) (3.7) - - - - - - - Issued under employee benefit plans - - 401 12.5 - - 67 .1 - - (1.6) Redemption of Series E Preferred Stock - - - - - - (105) (.1) - - (5.0) Other changes - - (70) (1.9) - - - - - - 1.1 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 50,556 $50.6 (1,648) $ (44.2) 94 $.1 3,081 $3.1 - $ - $1,040.2 ====================================================================================================================================
NOTE 8: STOCK OPTION PLANS - -------------------------- The Company has adopted the disclosure-only provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the option plans been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
- ------------------------------------------------------- Dollars in Millions 1996 1995 - ------------------------------------------------------- Net income--as reported $45.7 $146.8 Net income--pro forma $42.4 $145.9 Earnings per share--as reported $ .75 $ 2.69 Earnings per share--pro forma $ .68 $ 2.67 - -------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996: dividend yield of 1.08%; expected volatility of 31.82%; risk-free interest rate of 6.15%; and expected term of 5 years. In July 1996, after the initial public offering of RT common stock, the compensation committee of RT elected to allow the substitution of RT common stock options for Company common stock options. As the exercise price of substituted options exceeded the then current market price of RT stock and all other terms of the options remained unchanged, there was no material increase in value to the employees resulting from the substitution and no material increase in cost to RT. 1,041,949 RT stock options were substituted for 855,494 Company stock options. Options substituted retain their originally granted vesting schedules. Options granted under each of the plans vest in not less than one year. Options granted in 1995 vest over a two year period, one-half after one year and one-half after two years. Options granted in 1996 vest over a three year period with one-third becoming fully vested at the end of each year. COMPANY PLAN The Inland 1995 Incentive Stock Plan, approved by stockholders on May 24, 1995, provides for the issuance, pursuant to options and other awards, of 2.0 million shares of common stock to officers and other key employees. Options remain outstanding and exercisable under the Inland 1992, 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 39 100 percent of the fair market value per share on the date of grant. During 1996, options were granted to 249 executives under the 1995 Plan and a total of 1,405,663 shares was available for future grants under that Plan as of December 31, 1996. The following summarizes the status of options under the plans for the periods indicated:
Weighted Option Exercise Average Number of Price or Range Exercise Shares Per Share Price - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1993 2,469,156 $15.31-$39.75 $28.97 Granted 463,800 30.88- 36.00 31.10 Exercised (598,799) 15.31- 39.75 25.70 Forfeited (12,600) 25.50- 39.75 32.95 Expired (55,400) 15.31- 39.75 37.67 Surrendered (SAR Exercise) (22,150) 25.38- 33.75 31.61 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1994 (1,286,980 exercisable) 2,244,007 15.31- 39.75 30.03 Granted 469,600 23.19- 28.50 28.36 Exercised (138,117) 15.31- 31.06 23.87 Forfeited (104,600) 22.31- 39.75 31.17 Expired (96,300) 21.38- 39.75 36.78 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1995 (1,615,826 exercisable) 2,374,590 15.31- 39.75 29.73 Granted 1,416,900 22.69- 24.69 24.57 Exercised (1,800) 15.31- 26.13 20.12 Forfeited (136,200) 21.38- 33.75 26.09 Expired (94,050) 21.38- 39.75 33.34 Substituted by RT (855,494) 21.38- 39.75 27.76 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1996 (1,610,246 exercisable) 2,703,946 21.38- 39.75 27.72 - -------------------------------------------------------------------
Stock appreciation rights ("SARs") may also be granted with respect to shares subject to outstanding options. No SAR has been granted since 1990. SAR compensation expense recorded by the Company was not material for any of the three years. The 1995 Plan also provides, as did the 1992, 1988 and 1984 Plans, for the granting of restricted stock and performance awards to officers and other key employees. During 1996, restricted stock awards totaling 16,100 shares were granted to 11 executives and no performance awards were granted. Also during 1996, 82,200 shares of previously granted restricted stock awards vested while 28,300 shares of restricted stock were forfeited, 31,424 shares of restricted stock were substituted by RT restricted stock, and 4,941 shares (including dividend-equivalent shares) were issued to recipients of performance awards previously granted, while 28,079 shares (including dividend-equivalent shares) subject to performance awards were forfeited. During 1995, restricted stock awards totaling 28,524 shares were granted to 17 executives and one performance award totaling 2,000 shares was granted. Also during 1995, 16,105 shares of previously granted restricted stock awards vested while 18,405 shares of restricted stock were forfeited, and 16,841 shares (including dividend- equivalent shares) were issued to recipients of performance awards previously granted, while 19,532 shares (including dividend-equivalent shares) subject to performance awards were forfeited. 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. The Company also sponsors an employee stock purchase plan where employees have the opportunity to sign up twice a year to purchase stock at the end of each six month period at a price that is 90 percent of the fair market value price on the last day of the period. In each of 1996 and 1995, employees received stock with a total value that was approximately $120,000 greater than the price paid for the stock issued. The following table summarizes information about fixed-price stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ------------------------------------------------- --------------------------- Weighted- Weighted- Weighted- Range of Number of Average Remaining Average Number of Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - ---------------------------------------------------------------------------------------------------- $31.06 to $33.69 19,410 1 year $31.47 19,410 $31.47 37.75 to 39.75 261,250 2 years 38.80 261,250 38.80 21.38 to 33.75 245,477 4 years 28.49 245,477 28.49 25.50 242,035 5 years 25.50 242,035 25.50 26.13 329,374 6 years 26.13 329,374 26.13 30.88 281,800 7 years 30.88 281,800 30.88 28.50 316,600 8 years 28.50 185,900 28.50 22.69 to 24.69 1,008,000 9 years 24.51 45,000 24.49 - ----------------------------------------------------------------------------------------------------
40 RT Plan The Ryerson Tull 1996 Incentive Stock Plan provides for the issuance, pursuant to options and other awards, of 2.3 million shares of common stock to officers and other key employees. Under this plan, the per share option exercise price may not be less than 100 percent of the fair market value per share on the date of grant. A total of 1,209,692 shares was available for future grants under that Plan as of December 31, 1996. The following summarizes the status of RT options under the plan for 1996:
- ----------------------------------------------------------------------------- Weighted Option Exercise Average Number of Price or Range Exercise Shares Per Share Price - ----------------------------------------------------------------------------- Substituted for Company options 1,041,949 $17.55--$32.63 $22.79 Forfeited (8,768) 20.26-- 25.34 21.50 - ----------------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1996 (511,359 exercisable) 1,033,181 17.55-- 32.63 22.80 - -----------------------------------------------------------------------------
The Plan provides that SARs may be granted with the same terms as the Company Plan. No SARs have been granted. The Plan provides for the granting of restricted stock and performance awards to officers and other key employees. During 1996, 31,424 shares of previously granted Company restricted stock were converted to 38,273 shares of RT stock. During 1996, restricted stock awards totaling 18,854 were granted to 10 executives and no performance awards were granted. RT employees participate in the Company employee stock purchase plan where employees have the opportunity to sign up twice a year to purchase stock at the end of each six month period at a price that is 90 percent of the fair market value price on the last day of the period. In each of 1996 and 1995, RT employees received Company stock with a total value that was approximately $30,000 greater than the price paid for the stock issued. The following table summarizes information about RT fixed-price stock options outstanding at December 31, 1996:
- --------------------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable - --------------------------------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Range of Number of Average Remaining Average Number of Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - --------------------------------------------------------------------------------------------------------------------------------- $25.50 5,112 1 year $ 25.50 5,112 $25.50 30.99 to 32.63 67,404 2 years 32.07 67,404 32.07 17.55 to 27.70 67,184 4 years 25.20 67,184 25.20 20.93 58,462 5 years 20.93 58,462 20.93 21.44 90,334 6 years 21.44 90,334 21.44 25.34 to 29.55 150,167 7 years 26.03 150,167 26.03 23.39 145,411 8 years 23.39 72,696 23.39 20.26 449,107 9 years 20.26 0 N/A - ---------------------------------------------------------------------------------------------------------------------------------
Note 9: 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 December 18, 1997, and will become exercisable only if a person or group becomes the beneficial owner of 20 percent or more of the common stock (a "20 percent holder"), commences a tender or exchange offer which would result in the offeror beneficially owning 20 percent or more of the common stock, or is determined by the Board to beneficially own at least 10 percent of the common stock and either intends to cause the Company to take certain actions not in the best long-term interests of the Company and its stockholders or is reasonably likely, through such beneficial ownership, to cause a material adverse impact on the business or prospects of the Company and its stockholders (an "Adverse Person"). Each Right will entitle stockholders to buy one newly issued unit of one one-hundredth of a share of Series D Junior Participating 41 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 10: 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 1996, 1995 or 1994 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 1996 and 1995, based on the quoted market price and exchange rate at each year end, was $7.2 million and $8.4 million, respectively, as compared with the carrying value of $9.8 million and $10.6 million included in the balance sheet at December 31, 1996 and 1995, respectively. Long-term debt The estimated fair value of the Company's long-term debt and the current portions thereof (excluding the Subordinated Voting Note), using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded, was $720 million at December 31, 1996 and $753 million at December 31, 1995 as compared with the carrying value of $693 million and $706 million included in the balance sheet at year-end 1996 and 1995, respectively. Subordinated voting note The Company believes that it is not practical to estimate a fair market value different from this security's carrying value of $100 million as the security was sold to a joint venture partner and has numerous features unique to this security including, but not limited to, the right to appoint a director, the right of first refusal in change in control situations, a limitation on the acquisition of additional Company stock, and the agreement by the Company to buy back $185 million of the Company's common stock. Note 11: Provisions for Restructuring - ------------------------------------- At year-end 1996, the Company recorded a charge of $26 million for provisions related to pensions, health care, and severance costs resulting from a salaried workforce reduction plan to affect approximately 450 people, a majority of whom were displaced in the first quarter of 1997. In the 1995 third quarter, the Company recorded a charge of $35 million for provisions related to pensions, health care, and severance costs resulting from the acceptance by approximately 300 salaried Inland Steel Company employees of a voluntary retirement package offered during the quarter. In addition, Inland Steel Company announced the closure of its plate operation. Provisions 42 for pensions and other employee benefits related to the shutdown of this operation had been previously accrued. With the closure of the plate operation, the Company completed the workforce reduction program announced in 1991. A final computation of the employee benefit costs required for the 1991 program resulted in unused reserves due to differences between the actual makeup of the population leaving the Company under this program and the projections used in 1991. The Company, therefore, reversed $65 million of unused reserves from the balance sheet and recorded a corresponding credit to income in the third quarter of 1995. During the 1995 third quarter, the Company also increased reserves for previously discontinued or reduced operations related to the Company's restructuring efforts by $18 million, approximately half of which related to benefit costs, primarily at a closed iron ore mining facility, and half related to impairment of assets beyond amounts previously recognized. In addition, the Company increased its environmental reserves by $7 million. Inland Steel Company has taken initiatives to reduce its production costs by the shutdown of certain Indiana Harbor Works facilities and raw materials operations. Reserve balances related to provisions recorded for these shutdowns, which include long-term liabilities for mine reclamation costs and employee benefits, totaled $131.6 million, $135.9 million and $133.8 million at December 31, 1996, 1995 and 1994, respectively. Note 12: Retirement Benefits - ---------------------------- Pensions The Company's non-contributory defined benefit pension plans cover substantially all Company employees, retirees and their beneficiaries. Benefits provided participants of the plans are based on final pay and years of service for all salaried employees and certain wage employees, and years of service and a fixed rate for all other wage employees, including members of the United Steelworkers of America. While funding was not required under ERISA funding standards, the Company elected to fund its Pension Trust in the 1995 second quarter, its first funding since 1984, with 3.9 million shares of Company common stock with an aggregate value of $100 million. Effective April 30, 1996, that portion of the Company's pension plan covering RT's current and former employees was separated and became the Ryerson Tull Pension Plan. Due to this separation, the Company remeasured each subsidiary's benefit obligation using plan data and actuarial assumptions as of the date of separation. An amount of assets proportional to the liabilities assumed by the Ryerson Tull Pension Plan was allocated to such plan. The assumptions used to determine the plans' funded status at September 30 were as follows:
- ----------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------- Discount (settlement) rate 8.0% 7.75% Rate of compensation increase 4.0% 4.0% Rate of return on plan assets 9.5% 9.5% - -----------------------------------------------------------------------------
The funded status of the Industries Pension Plan (excluding Ryerson Tull) and the Ryerson Tull Pension Plan, as of September 30, 1996 and the Industries consolidated Plan as of September 30, 1995 were as follows:
- ----------------------------------------------------------------------------- September 30 - ----------------------------------------------------------------------------- Dollars in Millions 1996 1995 - ----------------------------------------------------------------------------- Industries Ryerson Tull Consolidated - ----------------------------------------------------------------------------- Fair value of plan assets Equities $1,081 $157 $1,151 Bonds 501 73 17 Real estate 112 16 122 Cash equivalents and accrued interest 35 5 629 - ----------------------------------------------------------------------------- 1,729 251 1,919 - ----------------------------------------------------------------------------- Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date, including vested benefits of $1,620 for Industries and $211 for Ryerson Tull in 1996, and $1,822 for 1995 1,746 225 1,956 Additional benefits based on estimated future compensation levels 105 27 90 - ----------------------------------------------------------------------------- Projected Benefit Obligation 1,851 252 2,046 - ----------------------------------------------------------------------------- Plan asset shortfall to Projected Benefit Obligation $ (122) $ (1) $ (127) =============================================================================
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. 43 The accrued pension cost reflected in the balance sheet can be reconciled to the shortfall of plan assets as shown below:
- -------------------------------------------------------------------------------- September 30 - -------------------------------------------------------------------------------- Dollars in Millions 1996 1995 - -------------------------------------------------------------------------------- Industries Ryerson Tull Consolidated - -------------------------------------------------------------------------------- Plan asset shortfall to Projected Benefit Obligation $(122) $(1) $(127) Unrecognized transition asset (67) (8) (98) Unrecognized net loss 131 3 172 Unrecognized prior service cost 117 8 120 Adjustment required to recognize additional minimum liability (76) -- (103) - -------------------------------------------------------------------------------- Prepaid (accrued) pension cost (17) 2 (36) Expense, October through December -- (1) (2) Workforce reduction provision (19) -- -- - -------------------------------------------------------------------------------- Prepaid (accrued) pension cost at December 31 $ (36) $ 1 $ (38) ================================================================================
The additional minimum pension liability in 1996 and 1995 represented the excess of the unfunded Accumulated Benefit Obligation over previously accrued pension costs. A corresponding intangible asset was recorded as an offset to this additional liability as prescribed. The unrecognized transition asset is being recognized in income by reducing pension expense in equal annual installments of $23.1 million through 1999. Any subsequent unrecognized net gain or loss in excess of 10 percent of the greater of the Projected Benefit Obligation or the fair value of plan assets will be amortized over the remaining service period of active employees. Pension cost for 1996, 1995 and 1994 is composed of the components set forth in the table below:
- ------------------------------------------------------------ Dollars in Millions 1996 1995 1994 - ------------------------------------------------------------ Service cost--present value of benefits earned during year $ 29 $ 28 $ 34 Interest on service cost and Projected Benefit Obligation 155 153 147 Actual return on plan assets (213) (290) (9) Net amortization and deferral 35 117 (144) - ------------------------------------------------------------ Total pension cost $ 6 $ 8 $ 28 ============================================================
BENEFITS OTHER THAN PENSIONS Substantially all of the Company's employees are covered under postretirement life insurance and medical benefit plans that involve deductible and co- insurance requirements. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on applicable annual earnings at retirement for salaried employees and specific amounts for hourly employees. The Company does not prefund any of these postretirement benefits. Effective January 1, 1994, a Voluntary Employee Benefit Association Trust was established for payment of health care benefits made to Inland Steel Company United Steelworkers of America retirees. Funding of the Trust is made as claims are submitted for payment. The amount of net periodic postretirement benefit cost for 1996, 1995 and 1994 is composed of the following:
- ------------------------------------------------------------ Dollars in Millions 1996 1995 1994 - ------------------------------------------------------------ Service cost $ 13 $ 12 $ 15 Interest cost 74 74 72 Net amortization and deferral (14) (21) (8) - ------------------------------------------------------------ Total net periodic postretirement benefit cost $ 73 $ 65 $ 79 ============================================================
The following table sets forth components of the accumulated postretirement benefit obligation: - -------------------------------------------------------------------------------- September 30 ---------------------------------- Dollars in Millions 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $ 542 $ 532 Fully eligible plan participants 88 172 Other active plan participants 273 259 - -------------------------------------------------------------------------------- Accrued postretirement benefit obligation 903 963 Unrecognized net gain 277 198 Unrecognized prior service credit 60 66 - -------------------------------------------------------------------------------- Accrued postretirement benefit obligation 1,240 1,227 Expense, net of benefits provided, October through December 8 2 Workforce reduction provision 4 -- - -------------------------------------------------------------------------------- Accrued postretirement benefit obligation at December 31 $1,252 $1,229 ================================================================================
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:
- ----------------------------------------------------------- September 30 --------------- 1996 1995 - ----------------------------------------------------------- Discount rate 8.0% 7.75% Rate of compensation increase 4.0% 4.0% Medical cost trend rate 4.5% 4.5% 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 September 30, 1996 by $20 million and $116 million, respectively. 44 Note 13: Income Taxes - --------------------- 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 1996 1995 1994 - ------------------------------------------------------------- Current income taxes: Federal $ 2.3 Cr. $ 4.8 $ 4.9 State and foreign 5.0 6.3 4.3 - ------------------------------------------------------------- 2.7 11.1 9.2 Deferred income taxes 41.1 79.2 52.9 - ------------------------------------------------------------- Total tax expense or benefit $43.8 $90.3 $62.1 ============================================================= Cr.=Credit
The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
December 31 ------------------ Dollars in Millions 1996 1995 - -------------------------------------------------------------------- Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss and tax credit carryforwards $ 314 $ 310 Restructuring and termination reserves 28 28 Other deductible temporary differences 105 92 Less valuation allowances (3) (2) - -------------------------------------------------------------------- 444 428 - -------------------------------------------------------------------- Deferred tax liabilities: Fixed asset basis difference 482 478 Other taxable temporary differences 86 50 - -------------------------------------------------------------------- 568 528 - -------------------------------------------------------------------- Net deferred liability (excluding post- retirement benefits other than pensions) (124) (100) FASB Statement No. 106 impact (post- retirement benefits other than pensions) 442 440 - -------------------------------------------------------------------- Net deferred asset $ 318 $ 340 ====================================================================
For tax purposes, the Company had available, at December 31, 1996, net operating loss ("NOL") carryforwards for regular federal income tax purposes of approximately $812 million which will expire as follows: $66 million in the year 2005, $313 million in the year 2006, $286 million in the year 2007, $132 million in the year 2008, $9 million in the year 2009, and $6 million in the year 2011. The Company also had investment tax credit and other general business credit carryforwards for tax purposes of approximately $9 million, which expire during the years 1997 through 2006. A valuation allowance has been established for those tax credits which are not expected to be realized. Additionally, in conjunction with the Alternative Minimum Tax ("AMT") rules, the Company had available AMT credit carryforwards for tax purposes of approximately $21 million, which may be used indefinite ly to reduce regular federal income taxes. 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 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 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 1992. At December 31, 1996, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $442 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. 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 through 1989, the Company utilized approximately $600 million of NOL carryforwards and in 1995 utilized $137 million of NOL carryforwards. 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 1996 1995 1994 - -------------------------------------------------------------------------- Federal income tax expense computed at statutory tax rate of 35% $40.5 $83.0 $59.3 Additional taxes or credits from: State and local income taxes, net of federal income tax effect 5.4 9.4 7.2 Percentage depletion 2.8 Cr. 2.9 Cr. 2.8 Cr. Adjustment of taxes of prior years -- -- 2.0 Cr. All other, net .7 .8 .4 - -------------------------------------------------------------------------- Total income tax expense $43.8 $90.3 $62.1 ========================================================================== Cr.=Credit
45 Note 14: I/N Tek and I/N Kote Joint Ventures - --------------------------------------------- I/N Tek, a general partnership formed for a joint venture between the Company and NSC, owns and operates a cold-rolling facility. I/N Tek is 60 percent owned by a wholly owned subsidiary of Inland Steel Company and 40 percent owned by an indirect wholly owned subsidiary of NSC. Inland Steel Company has exclusive rights to the productive capacity of the facility, except in certain limited circumstances, and, under a tolling arrangement with I/N Tek, has an obligation to use the facility for the production of cold rolled steel. Under the tolling arrangement, Inland Steel Company was charged $144.8 million, $147.5 million and $131.1 million in 1996, 1995 and 1994, respectively, for such tolling services. The Company and NSC also own and operate another joint venture which consists of a 400,000 ton electrogalvanizing line and a 500,000 ton hot-dip galvanizing line adjacent to the I/N Tek facility. I/N Kote, the general partnership formed for this joint venture, is owned 50 percent by a wholly owned subsidiary of Inland Steel Company and 50 percent by an indirect wholly owned subsidiary of NSC. Inland Steel Company and NSC each have guaranteed the share of long-term financing attributable to their respective subsidiary's interest in the partnership. I/N Kote had $416 million outstanding under its long-term financing agreement at December 31, 1996. I/N Kote is required to buy all of its cold rolled steel from Inland Steel Company, which is required to furnish such cold rolled steel at a price that results in an annual return on equity to the partners of I/N Kote, depending upon operating levels, of up to 10 percent after operating and financing costs; this price is subject to an adjustment if Inland Steel Company's return on sales differs from I/N Kote's return on sales. Purchases of Inland Steel Company cold rolled steel by I/N Kote aggregated $314.9 million in 1996, $303.7 million in 1995 and $275.6 million in 1994. At year-end 1996 and 1995, I/N Kote owed the Company $18.4 million and $4.8 million, respectively, related to these purchases. Prices of cold rolled steel sold by Inland Steel Company to I/N Kote are determined pursuant to the terms of the joint venture agreement and are based, in part, on operating costs of the partnership. In 1996 and 1995, Inland Steel Company sold cold rolled steel to I/N Kote at prices that exceeded production costs but were less than the market prices for cold rolled steel products. I/N Kote also provides tolling services to Inland Steel Company for which it was charged $24.5 million in 1996, $32.6 million in 1995 and $36.0 million in 1994. Inland Steel Company sells all I/N Kote products that are distributed in North America. Note 15: Investments in Unconsolidated Joint Ventures - ------------------------------------------------------ The Company's investments in unconsolidated joint ventures accounted for by the equity method consist primarily of its 60 percent interest in I/N Tek, 50 percent interest in I/N Kote, 50 percent interest in PCI Associates, 50 percent interest in Ryerson de Mexico, 50 percent interest in I.M.F. Steel International Ltd., 40 percent interest in the Empire Iron Mining Partnership, 15 percent interest (13-3/4 percent interest in 1994) in Wabush Mines and 12-1/2 percent interest in Walbridge Electrogalvanizing Company. I/N Tek and I/N Kote are joint ventures with NSC (see Note 14). The Company does not exercise control over I/N Tek, as all significant management decisions of the joint venture require agreement by both of the partners. Due to this lack of control by the Company, the Company accounts for its investment in I/N Tek under the equity method. PCI Associates is a joint venture which operates a pulverized coal injection facility at the Indiana Harbor Works. Ryerson de Mexico is a materials distribution joint venture operated in Mexico. The I.M.F. joint venture was formed to market Company products and services abroad. Empire and Wabush are iron ore mining and pelletizing ventures owned in various percentages primarily by U.S. and Canadian steel companies. 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 1996 1995 1994 - -------------------------------------------------------------------------------- Results of Operations for the years ended December 31: Gross revenue $1,355.5 $1,282.2 $1,121.0 Costs and expenses 1,277.2 1,203.2 1,092.9 - -------------------------------------------------------------------------------- Net income $ 78.3 $ 79.0 $ 28.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Position at December 31: Current assets $ 306.3 $ 313.6 $ 316.2 Total assets 1,857.2 1,897.3 1,931.8 Current liabilities 249.3 282.2 282.1 Total liabilities 1,421.7 1,487.8 1,537.6 Net assets 435.5 409.5 394.2 ================================================================================
Note 16: Commitments and Contingencies - -------------------------------------- At year-end 1996, Inland Steel Company guaranteed $22.3 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 $171.2 million through 2021, including approximately $38.3 million in 1997, $31.9 million in 1998, $27.1 million in 1999, $21.6 million in 2000, and $18.4 million in 2001. 46 It is anticipated that the Company will make capital expenditures of $5 million to $10 million annually in each of the next five years for the construction, and have ongoing annual expenditures of $35 million to $45 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, 1996, the Company's reserves for environmental liabilities totaled $24 million, $19 million of which 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 $53 million at year-end 1996. Note 17: 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 76 percent of this segment's sales were to customers in five mid-American states, and 94 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, except those at RT, the intangible pension asset in 1996 and 1995, 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. At year-end 1996, investments in foreign operations were not material. Information About Business Segments
Dollars in Millions Years Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------ Net Sales Steel Manufacturing Operations: Sales to unaffiliated customers $2,195.2 $2,337.4 $2,304.5 Intersegment sales 202.1 175.9 183.4 - ------------------------------------------------------------------------------ 2,397.3 2,513.3 2,487.9 - ------------------------------------------------------------------------------ Materials Distribution Operations: Sales to unaffiliated customers 2,382.7 2,437.8 2,186.6 Intersegment sales 11.3 12.3 10.9 - ------------------------------------------------------------------------------ 2,394.0 2,450.1 2,197.5 - ------------------------------------------------------------------------------ Eliminations and adjustments (207.2) (181.9) (188.4) - ------------------------------------------------------------------------------ Total net sales $4,584.1 $4,781.5 $4,497.0 - ------------------------------------------------------------------------------ Operating Profit Steel Manufacturing Operations $ 48.0 $ 181.7 $ 149.3 Materials Distribution Operations 120.0 148.7 98.1 Eliminations and adjustments (2.3) (1.9) 2.0 - ------------------------------------------------------------------------------ Total operating profit $ 165.7 $ 328.5 $ 249.4 - ------------------------------------------------------------------------------ Identifiable Assets Steel Manufacturing Operations $2,280.4 $2,291.5 $2,352.8 Materials Distribution Operations 929.1 821.2 819.0 - ------------------------------------------------------------------------------ 3,209.5 3,112.7 3,171.8 General corporate and other 332.1 445.6 181.6 - ------------------------------------------------------------------------------ Total assets on December 31 $3,541.6 $3,558.3 $3,353.4 - ------------------------------------------------------------------------------ Depreciation Steel Manufacturing Operations $ 124.6 $ 121.2 $ 117.4 Materials Distribution Operations 20.8 20.4 19.8 - ------------------------------------------------------------------------------ 145.4 141.6 137.2 General corporate and other 1.6 1.5 1.5 - ------------------------------------------------------------------------------ Total depreciation $ 147.0 $ 143.1 $ 138.7 - ------------------------------------------------------------------------------ Capital Expenditures Steel Manufacturing Operations $ 155.8 $ 113.9 $ 223.6 Materials Distribution Operations 24.1 19.3 20.4 - ------------------------------------------------------------------------------ 179.9 133.2 244.0 General corporate and other 1.0 1.4 1.3 - ------------------------------------------------------------------------------ Total capital expenditures $ 180.9 $ 134.6 $ 245.3 - ------------------------------------------------------------------------------
47 EX-21 6 SUBSIDIARIES OF INLAND STEEL INDUSTRIES, INC 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 (except as noted below), 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) Ryerson Tull, Inc. (majority owned by Inland Steel Industries, Inc.) (formerly known as Inland Materials Distribution Group, Inc.) Joseph T. Ryerson & Son, Inc. J. M. Tull Metals Company, Inc. (a Georgia corporation) EX-24 7 POWER OF ATTORNEYS 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 6th day of ------- February, 1997. A. Robert Abboud ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 -------- February, 1997. James W. Cozad ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 4th day of ------- February, 1997. Robert J. Darnall ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 ------ February, 1997. James A. Henderson ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 5th day of ----- February, 1997. Robert B. McKersie ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 7th day of ----- February, 1997. Leo F. Mullin ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 5th day of ----- February, 1997. Donald S. Perkins ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 ------ February, 1997. Jean-Pierre Rosso ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 13th day of ------ February, 1997. Joshua I. Smith ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 6th day of ----- February, 1997. Nancy H. Teeters ------------------------------ 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, Jay M. Gratz, Vicki L. Avril and Charles B. Salowitz, 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, 1996, 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 ----- February, 1997. Arnold R. Weber ------------------------------ EX-27 8 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 ANNUAL REPORT ON FORM 10-K TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 238,000 0 487,200 22,500 494,600 1,227,800 4,536,100 2,899,100 3,541,600 536,800 773,200 0 3,200 50,600 735,200 3,541,600 4,582,200 4,584,100 4,179,500 4,181,000 0 0 77,100 115,800 43,800 72,000 0 (23,300) 0 45,700 .75 .72
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