-----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, BcX7nIzcFdSzd2tFfREnKs5qjLtvE+MFN96jIHC3uwWZwLMti4iQ7cRoz8XI0/iB WASH6FkXXbPmwrP4VvR57w== 0000950131-98-002156.txt : 19980331 0000950131-98-002156.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950131-98-002156 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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-K405 SEC ACT: SEC FILE NUMBER: 001-09117 FILM NUMBER: 98578745 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-K405 1 FORM 10-K FOR INLAND STEEL INDUSTRIES 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1997 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) DELAWARE 36-3425828 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION 30 WEST MONROE STREET, CHICAGO, NO.) ILLINOIS 60603 (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: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock ($1.00 par value), New York Stock Exchange, Inc. including Preferred Stock Purchase Rights SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 2, 1998, the aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant was approximately $977,000,000.(/1/) The number of shares of Common Stock ($1.00 par value) of the registrant outstanding as of February 2, 1998 was 49,016,795. (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 set forth in Exhibit 99, "Financial Information (to be included in the Annual Report to Shareholders for 1997)," which is attached hereto, and is incorporated by reference herein. 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 27, 1998. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1997, information relating to net sales, operating profit, identifiable assets, depreciation and capital expenditures for both business segments of the Company appears in Note 19 of Notes to Consolidated Financial Statements included in Exhibit 99, "Financial Information, " which is attached hereto, and is 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. 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. 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 three years indicated, Inland Steel Company's production of raw steel and, based upon American Iron and Steel Institute data, its share by percentage of total domestic raw steel production:
RAW STEEL PRODUCTION -------------------------------- INLAND STEEL INLAND STEEL COMPANY COMPANY AS A % OF (000 TONS*) U.S. STEEL INDUSTRY ------------ ------------------- 1997..................................... 5,814 5.4%** 1996..................................... 5,519 5.3 1995..................................... 5,419 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 is 6.0 million net tons. The basic oxygen process accounted for 92% of raw steel production of the Company in both 1997 and 1996. 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 1993 through 1997 was 5.3 million tons in 1997; 5.1 million tons in 1996; 5.1 million tons in 1995; 5.2 million tons in 1994 and 4.8 million tons in 1993. In 1997, sheet, strip and certain related semi- finished products accounted for 82% of the total tonnage of steel mill products shipped from the Indiana Harbor Works, and bar and certain related semi-finished products accounted for 18%. In each of 1997 and 1996, approximately 94% of the shipments of the Flat Products division and 98% and 92%, respectively, of the shipments of the Bar division were to customers in 20 mid-American states. Approximately 76% of the shipments of the Flat Products division and 92% of the Bar division in 1997 were to customers in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and Wisconsin, compared to 74% and 82% in 1996. 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 24.1% of the domestic market in 1997, up from 23.3% in 1996 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 various product lines. 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. Thin-slab casting technologies have allowed mini-mills to enter certain sheet markets traditionally supplied by integrated producers. Several mini-mills using this advanced technology are in operation in the United States and 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. All coke batteries were closed by year-end 1993, a year earlier than previously 2 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 three 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.
PERCENTAGE OF TOTAL TONNAGE OF STEEL SHIPMENTS --------------------------------- 1997 1996 1995 --------- --------- --------- Steel Service Centers: Non-Affiliates......................... 25% 25% 25% Affiliates............................. 9 10 9 --------- --------- --------- 34 35 34 Automotive............................... 29 27 28 Steel Converters/Processors.............. 17 14 15 Appliance................................ 9 9 8 Industrial, Electrical and Farm Machinery............................... 7 8 8 Construction and Contractors' Products... 2 2 2 Other.................................... 2 5 5 --------- --------- --------- 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 1997, approximately 43% of the products produced by Inland Steel Company were processed further through value-added services such as electrogalvanizing, painting and slitting. Approximately 74% of the finished steel shipped to customers during 1997 was transported by truck, with the remainder transported primarily by rail. A wholly owned truck transport subsidiary of Inland Steel Company was responsible for shipment of approximately 10% of the total tonnage of products transported by truck in 1997. 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, Illinois; 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 two iron ore properties, located in the United States, in which subsidiaries of Inland Steel Company have varying interests--the Empire Mine in Michigan and the Minorca Mine in Minnesota. During the second quarter of 1997, Inland Steel Company completed the sale of its interest in the Wabush Mines located in Labrador and Quebec, Canada. Inland Steel Company entered into a contract with the purchaser of such interest, effective January 1, 1997 and expiring December 31, 2006, to sell to Inland Steel Company, at prices approximating market, any of Inland Steel Company's iron ore pellet requirements up to one million gross tons annually not met by Inland Steel Company's equity sources. 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. 3 The following table shows (1) the iron ore pellets available to Inland Steel Company, as of December 31, 1997, from properties of its subsidiaries, through interests in raw materials ventures; (2) 1997 and 1996 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 1997 and 1996.
IRON ORE TONNAGES IN THOUSANDS (GROSS TONS OF PELLETS) --------------------------- % OF AVAILABLE AS OF PRODUCTION REQUIREMENTS (1) DECEMBER 31, ----------- ---------------- 1997(2) 1997 1996 1997 1996 --------------- ----- ----- -------- -------- INLAND STEEL MINING COMPANY PROPERTY Minorca--Virginia, MN........ 57,000 2,583 2,735 35% 38% IRON ORE VENTURES Empire (40% owned)--Palmer, MI; Wabush (15.09% owned in 1996)--Wabush, Labrador and Point Noire, Quebec, Canada(3)................... 68,000 3,389 4,034 45 55 ------- ----- ----- -------- -------- Total Iron Ore............. 125,000 5,972 6,769 80% 93% ======= ===== ===== ======== ========
- -------- (1) Requirements in excess of production are purchased or taken from stockpile. (2) Net interest in proven reserves. (3) Wabush Mines interest was sold in the second quarter of 1997 and production is not included in 1997 amounts shown above. 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 one million tons of steam coal for the period of April 1, 1996 to December 31, 1997. Inland Steel Company purchased 39% of its 1997 coal requirements under such contract, representing 74% of its steam coal requirements. The balance of steam coal requirements have been met through a short-term contract. In connection with commencement of operation of the heat recovery coke battery and associated energy facility discussed below, Inland Steel Company's coal fired generating station will be temporarily idled in the second quarter of 1998, thereby eliminating steam coal requirements in the interim. 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. During 1997, the PCI facility's coal needs were satisfied under a requirements contract subject to a force majeure provision. This agreement continues in 1998. In December 1993, the last of Inland Steel Company's cokemaking facilities was permanently shut down. Inland Steel Company has entered into three long- term purchase contracts, one of which requires the purchase of approximately one million tons of coke between January 1, 1998 and December 31, 1999. The second contract requires the purchase of 350,000 tons of coke annually 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 1997, Inland Steel Company satisfied 80% of its total coke needs under such arrangements. The remainder of its purchased coke requirements was obtained through short-term contracts. Under the third contract, Inland Steel Company has committed to purchase, for approximately 15 years, beginning approximately June 1998 when the heat recovery coke battery (discussed below) is expected to reach full production, 1.2 million tons of coke annually on a take-or-pay basis at prices determined by certain cost factors, as well as energy produced by the facility through the tolling arrangement. 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 designed, built, financed, and will operate the cokemaking portion of the project. A unit of NIPSCO Industries designed, built, financed, and will operate the portion of the project which will clean the coke plant's 4 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. The facility is designed to be the primary coke source for the largest blast furnace at the Indiana Harbor Works and is expected to commence operations in the first quarter of 1998. Inland Steel Company also advanced $30 million during construction of the project, which is recorded as a deferred asset on the balance sheet and will be credited against required cash payments during the second half of the energy tolling arrangement. Inland Steel Company sold all of its limestone and dolomite properties in September 1990 and 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 the annual limestone needs of the Indiana Harbor Works through 2002. Approximately 80% of the iron ore pellets and all of the limestone received by Inland Steel Company at its Indiana Harbor Works in 1997 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 1997. The remainder of Inland Steel Company's coal requirements was transported in independent carrier-owned equipment or leased equipment. Approximately 25% of Inland Steel Company's coke requirements in 1997 were transported in its own hopper cars, 47% in leased hopper cars, 8% in independent carrier-owned hopper cars, and 20% 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 three 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.
1997 1996 1995 ---- ---- ---- Sheet and Strip........................................... 81% 81% 82% Bar....................................................... 19 19 18 --- --- --- 100% 100% 100% === === ===
Sales to General Motors Corporation approximated less than 10% of consolidated net sales in each of 1997 and 1996 and 10% in 1995. 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, 1997, are set forth below. Net capital additions during such period aggregated $417.9 million.
DOLLARS IN MILLIONS --------------------------------------------- RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADJUSTMENTS ADDITIONS --------- ----------- ----------- ----------- 1997........................ $ 98.4 $ 40.8 $ 6.1 $ 63.7 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)
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 $98 million in 1997. 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 is located near New Carlisle, Indiana. 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. Inland Steel Company has guaranteed 50% of I/N Kote's permanent financing. I/N Kote has contracted to acquire its cold-rolled steel substrate from Inland Steel Company, which supplies the substrate from the I/N Tek facility and Inland Steel Company's Indiana Harbor Works. Further information regarding the I/N Tek and I/N Kote joint venture projects will be set forth under the caption "Certain Relationships and Related Transactions--Joint Ventures" in the Company's definitive Proxy Statement which will be furnished to stockholders of the Company in connection with its Annual Meeting scheduled to be held on May 27, 1998, and is incorporated by reference into Item 13 of this Report. The amount budgeted for 1998 capital expenditures by Inland Steel Company and its subsidiaries is approximately $110 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 1997 was approximately 8,900. At year- end, approximately 6,900 employees were represented by the United Steelworkers of America, of whom approximately 470 were on furlough or indefinite layoff. Total employment costs decreased from $649 million in 1996 to $642 million in 1997, as lower employee benefit costs were in part offset by higher profit sharing provisions. 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 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 September 17, 1996 an arbitrator issued a decision selecting Inland Steel Company's final offer of terms covering 6 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 the Company's 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. By year-end 1993, the last of Inland Steel Company's cokemaking facilities was permanently shut down. Inland Steel Company has entered into three long- term contracts to satisfy the majority of its coke needs. In November 1996, Inland Steel Company 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%. Capital spending for pollution control projects totaled $7 million in 1997 and $19 million in 1996. Another $46 million was spent in 1997 to operate and maintain such equipment, versus $44 million a year earlier. During the five years ended December 31, 1997, Inland Steel Company spent $279 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 $4 million in 1998. It is anticipated that Inland Steel Company will make annual capital expenditures of $2 million to $5 million in each of the four years thereafter. In addition, Inland Steel Company will have ongoing annual expenditures of $40 million to $50 million for the operation of air and water pollution control facilities to comply with current federal, state and local laws and regulations. Due to the inability to predict the costs of corrective action that may be required under the Resource Conservation and Recovery Act and the consent decree in the 1990 EPA lawsuit, 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. 7 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 76% of the energy consumed by Inland Steel Company at the Indiana Harbor Works in 1997. Natural gas and fuel oil supplied approximately 22% of the energy requirements of the Indiana Harbor Works in 1997 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 1997, Inland Steel Company produced approximately 59% of its electrical energy 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. During 1997, this facility produced approximately 60% of the purchased electricity requirements of the Indiana Harbor Works. 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. On February 13, 1997, RT, through Ryerson, purchased all of the outstanding stock of Thypin Steel Co., Inc. ("Thypin") for $120 million in cash plus the assumption of $23 million of debt. Thypin was a privately held distributor of carbon and stainless steel products with seven locations in the eastern United States. On March 3, 1997, RT, through Tull, acquired substantially all the assets of Cardinal Metals, Inc. ("Cardinal"), a privately held distributor and processor of carbon steel products with a single facility located in Pounding Mill, VA. On August 22, 1997, RT, through Ryerson, purchased all of the outstanding stock of Omni Metals, Inc. ("Omni"), a privately held processor and distributor of flat-rolled carbon steel products with a facility in Knoxville, TN. Thypin and Omni have subsequently been merged into Ryerson. 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 1997 sales of $2.8 billion and a current U.S. market share of approximately 10%, 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. 8 Joseph T. Ryerson & Son, Inc. Ryerson, with business unit headquarters in Philadelphia, PA (Ryerson East), Chicago, IL (Ryerson Central), and Tukwila, WA (Ryerson West), is a leading materials distribution organization. With full-line service centers in 35 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, IL, 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, indirectly, 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 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. 9 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 29 million tons or approximately 24.4% of the metals distributed in the United States in 1997. 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 1995, 1996 and 1997 for each of RT's major product lines.
PERCENTAGE OF PRODUCT LINE SALES REVENUE ------------ ---------------- 1995 1996 1997 ---- ---- ---- Stainless and aluminum.................................. 27% 26% 27% Carbon flat rolled...................................... 24 27 27 Bars, tubing and structurals............................ 22 22 20 Fabrication and carbon plate............................ 20 20 20 Other................................................... 7 5 6 --- --- --- Total................................................. 100% 100% 100% === === ===
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 45 of its 63 facilities. 10 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 customers' 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 1997 and the top ten customers accounted for approximately 7% of RT's sales in 1997. 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 1995, 1996 and 1997 for each class of RT's customers were as set forth in the table below.
PERCENTAGE CLASS OF CUSTOMER OF SALES REVENUE ----------------- --------------------- 1995 1996 1997 ----- ----- ----- Machinery manufacturers........................... 38% 38% 37% Fabricated metals producers....................... 25 26 26 Transportation equipment producers................ 10 10 9 Electrical machinery producers.................... 9 8 8 Wholesale distributors............................ 3 3 4 Construction-related purchasers................... 3 4 5 Metals mills and foundries........................ 3 3 3 Other............................................. 9 8 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 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 600 customers are in the transportation, appliance, office furniture or cabinetry businesses. Suppliers In 1997, RT purchased in excess of 3.0 million tons of materials from many suppliers, including approximately 500,000 tons (or approximately 10.5% 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 38% of 1997 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. 11 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, for the five years ended December 31, 1997, excluding the initial purchase price of acquisitions, are set forth below. Net capital additions during such period aggregated $85.2 million.
DOLLARS IN MILLIONS --------------------------------- RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADDITIONS --------- ----------- ----------- 1997.................................... $40.3 $12.0 $28.3 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
RT anticipates that capital expenditures and investments in joint ventures, excluding acquisitions, will be in the range of $40 million to $50 million for 1998, which will be funded from cash generated by operations plus possible borrowing under RT's credit facility. Employees As of December 31, 1997, RT employed approximately 5,400 persons, of which approximately 2,550 were salaried employees and approximately 2,850 were hourly employees. Approximately 40% of the hourly employees were members of various unions, including the United Steelworkers and the Teamsters, and an additional approximately 29% of the hourly employees have voted for union certification in proceedings currently pending before the National Labor Relations Board. RT's 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 1998, labor contracts covering approximately 160 employees at five facilities will expire. During 1999, contracts covering approximately 740 employees at 17 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 March 31, 1998 through November 15, 2003. 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. 12 Effective January 1, 1998, RT froze the benefits accrued under the Ryerson Tull Pension Plan, a defined benefit pension plan for certain salaried employees and instituted a defined contribution plan. Salaried employees vested in their benefits accrued under the defined benefit plan at December 31, 1997 will be entitled to those benefits upon retirement. Certain transition rules have been established for those salaried employees meeting the specified age and service requirements. 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. Capital and operating expenses for pollution control projects were significantly below $1 million 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 13 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 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, Inland Industries de Mexico, S.A. de C.V. (a subsidiary of RT) and Altos Hornos de Mexico, S.A. de C.V., formed Ryerson de Mexico, S.A. de C.V. to provide materials management services in Mexico. In China, the Company has a joint venture with Baoshan Iron & Steel Corporation, Shanghai Ryerson Limited, which was organized to conduct steel service center operations. Such joint venture has begun construction of a steel service center in Shanghai and is expected to commence operations in the first half of 1998. In 1997, the Company and The Tata Iron and Steel Co. Ltd. (India) organized Tata Ryerson Limited to conduct steel service center operations in India. Tata Ryerson Limited currently conducts operations organized in Jamshedpur at an acquired facility and is developing another facility at Pune. Substantially all of the Company's operations are located in the United States. At year-end 1997, 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. 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. 14 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. See "Steel Manufacturing Operations--Raw Materials" in Item 1 above for information relating to the Sun and NIPSCO projects. Inland Steel Company owns three vessels for the transportation of iron ore and limestone on the Great Lakes, and a subsidiary of Inland Steel Company owns a fleet of 404 coal hopper cars (100-ton capacity each) used in unit trains to move coal and coke to the Indiana Harbor Works. See "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
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. Inland Steel Company also owns a 38% interest in the Butler Taconite project (permanently closed in 1985) in Nashwauk, Minnesota. During the second quarter 1997, Inland Steel Company completed the sale of its 15% interest in the Wabush Mines. The reserves at the Empire Mine and Minorca 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. 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. 15 PROPERTIES RELATING TO MATERIALS DISTRIBUTION SEGMENT JOSEPH T. RYERSON & SON, INC. Ryerson owns its regional business unit headquarters offices in Chicago (IL) and leases regional headquarters offices in West Chester (PA) and Tukwila (WA). Ryerson East's service centers are at Birmingham (AL), Buffalo (NY), Cambridge (MA), Carnegie (PA), Charlotte (NC) (two facilities), Chattanooga (TN), Cleveland (OH), Easton (PA), Fairless Hills (PA), Long Island City (NY), Philadelphia (PA), and Wallingford (CT). Ryerson Central's service centers are at Chicago (IL), Cincinnati (OH), Dallas (TX), Des Moines (IA), Detroit (MI), Holland (MI), Houston (TX), Indianapolis (IN), Kansas City (MO), Milwaukee (WI), Omaha (NE), Plymouth (MN), St. Louis (MO), Tulsa (OK), and Wausau (WI). Ryerson West's service centers are at Commerce City (CO), Emeryville (CA), Phoenix (AZ), Portland (OR), Renton (WA), Spokane (WA), Salt Lake City (UT) and Vernon (CA). Ryerson Coil's processing facilities are located in Canton (GA), Chicago (IL) (two facilities), Knoxville (TN), 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 long-term lease), two at Cambridge (MA) (both held under short-term lease), one at Charlotte (NC) (held under long-term lease), one at Chicago (IL) (held under short-term lease), one at Easton (PA) (held under long-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 New Hope (MN) (held under short-term lease), a satellite facility at Omaha (NE) (held under short-term lease), a portion of the property at Portland (OR) (held under short-term lease), a portion of the property at St. Louis (MO) (held under long-term lease), one facility at Salt Lake City (UT) (held under short-term lease), and one at Wausau (WI) (held under short-term lease). In addition, Ryerson holds under short-term lease a former operating facility at the Village of Blasdell (NY). 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 (FL), Miami (FL), New Orleans (LA), Pounding Mill (VA), Richmond (VA), Tampa (FL), 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 (OK), Shreveport (LA), 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. RYERSON DE MEXICO Ryerson de Mexico, a joint venture in which RT owns, indirectly, 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 66% 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 37% of such space is under sublease to other parties. Inland Engineered Materials Corporation, a subsidiary of the Company, owns, directly and indirectly, approximately 110 acres in northern Indiana and approximately 90 acres in Brockway, PA. 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 16 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. 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 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. The Company's reserve for environmental liabilities in connection with the consent decree totaled $25 million at year-end 1997. 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 (including stabilization measures), 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 per year 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 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. On December 17, 1997, the Court entered a consent decree that resolved all matters raised by this lawsuit. The consent decree includes a $150,000 cash fine and an environmentally beneficial project at the Indiana Harbor Works costing approximately $350,000. 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 17 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 $300,000. 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. 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 Neil S. Novich and 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 February 2, 1998 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, 59........ Mr. Darnall has been Chairman, President and Chairman, President, Chief Chief Executive Officer of the Company since Executive Officer and September 1992. He was elected President, Chief Director Operating Officer and a director of the Company in April 1986. He has also been Chairman of Inland Steel Company since September 1992, its Chief Executive Officer from September 1992 to January 1995 and since April 1996 and a director since 1983. He also served as its President for certain periods ending most recently in May 1996. He joined Inland Steel Company in 1962. He 18 NAME, AGE AND PRESENT POSITIONS AND OFFICES HELD DURING THE PAST FIVE POSITION WITH REGISTRANT YEARS has been Chairman of RT since April 1995, a position he also held from November 1990 to June 1994. Dale E. Wiersbe, 48.......... Mr. Wiersbe has been Senior Vice President of Senior 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, 43........... Mr. Novich has been President, Chief Executive President and Officer and Chief Operating Officer of RT, Chief Executive Officer President of Ryerson and Chairman of Tull since of Ryerson Tull, Inc. 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 and since June 1996. He was a Senior Vice President of the Company from January 1995 to May 1996 and served as a Vice President of the Company from June 1994 to January 1995. Prior to joining the Company in 1994, he led the Distribution and Logistics Practice at Bain & Company ("Bain"), an international management consulting firm. Jay M. Gratz, 45............. Mr. Gratz has been Vice President of the Vice President and Chief Company and of RT since May 1997; Chief Financial Officer Financial Officer of the Company since May 1996 and of RT since April 1996. He was Vice President--Finance of the Company from May 1996 to April 1997, and of RT from September 1994 to April 1997. He was also Vice President and Principal Financial Officer of Inland Steel Company from March 1993 to January 1995 and Vice President--Finance of Inland Steel Flat Products Company division of Inland Steel Company from December 1991 to February 1993. H. William Howard, 63........ Mr. Howard has been Vice President--Information Vice 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., 57.... 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, 43........... Treasurer and Director-- Ms. Avril has been Treasurer of the Company and Corporate Planning of Inland Steel Company since January 1994, and Treasurer of RT, Ryerson and Tull since February 1994. She also has been Director-- Corporate 19 NAME, AGE AND PRESENT POSITIONS AND OFFICES HELD DURING THE PAST FIVE POSITION WITH REGISTRANT YEARS 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, 54........ 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, 49...... Mr. Salowitz has been Secretary of the Company Secretary and Associate since September 1995 and Associate General General Counsel Counsel since January 1995, Secretary of Inland Steel Company since September 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 February 2, 1998, the number of holders of record of common stock of the Company was 13,383. The remaining information called for by this Item 5 is set forth under the caption "Summary by Quarter" in Exhibit 99, "Financial Information," which is attached hereto, and is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item 6 with respect to each of the last five years of the Company is set forth under the caption "Eleven-Year Summary of Selected Financial Data and Operating Results" in Exhibit 99, "Financial Information," which is attached hereto, and is 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 under the caption "Financial Review" in Exhibit 99, "Financial Information," which is attached hereto, and is 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 18, 1998, 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 Exhibit 99, "Financial Information," which is attached hereto, and are 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 18, 1998, 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. 20 Consolidated quarterly sales, earnings and per share common stock information for 1997 and 1996 are set forth under the caption "Summary by Quarter" in Exhibit 99, "Financial Information," which is attached hereto, and are 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 27, 1998, 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 27, 1998, and is hereby incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a) The information called for by this Item 12 with respect to security ownership of more than five percent of the Company's common stock. Series E ESOP Convertible Preferred Stock and 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 27, 1998, and is hereby incorporated by reference herein. (b) The following beneficial owner of Series A $2.40 Cumulative Convertible Preferred Stock, which owns shares of Series A Preferred Stock having less than one percent of the combined voting power of the Company's outstanding voting securities, is the only person known to the Company to be the beneficial owner (as defined by the Securities and Exchange Commission), as of February 17, 1998, of more than five percent of that class of the Company's voting securities:
NUMBER PERCENT NAME AND ADDRESS OF SHARES OF CLASS ---------------- --------- -------- Forest Investment Management LLC Founders Financial Group L.P. Michael A. Boyd, Inc................................... 11,383 12.1% Michael A. Boyd 53 Forest Avenue Old Greenwich, CT 06870
(c) 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 27, 1998, and is hereby incorporated by reference herein. 21 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 27, 1998, 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 Exhibit 99, "Financial Information," which is attached hereto, and are incorporated by reference in Item 8 of this Annual Report on Form 10- K. Report of Independent Accountants dated February 18, 1998. Statement of Accounting and Financial Policies. Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1997. Consolidated Statement of Cash Flows for the three years ended December 31, 1997. Consolidated Balance Sheet at December 31, 1997 and 1996. Schedules to Consolidated Financial Statements at December 31, 1997 and 1996, 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 18, 1998. (Included on page 23 of this Report) Consent of Independent Accountants. (Included on page 23 of this Report) For the years ended December 31, 1997, 1996 and 1995: Schedule I -- Condensed Financial Information (Parent Company Only). (Included on pages 24 to 26, inclusive, of this Report) Schedule II -- Reserves. (Included on page 27 of this Report) 3. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation S-K are listed in the "Exhibit Index," which is attached hereto and incorporated by reference herein. (B)REPORTS ON FORM 8-K. On November 28, 1997, the Company filed a Current Report on Form 8-K, reporting the adoption of the Stockholder Rights Plan by the Board of Directors on November 25, 1997. No financial statements were filed with that report. 22 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 18, 1998, except as to Note 20, which is as of March 17, 1998, appearing on page 11 of Exhibit 99, "Financial Information," (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 18, 1998, except as to Note 20, which is as of March 17, 1998 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Form S-8 (No. 33-59783), Registration Statement on Form S-8 (No. 33-48770), Registration Statement on Form S-8 (No. 33-22902), Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (No. 33-4046), Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 33-1329, Registration Statement on Form S-8 (No. 33-32504), Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 33-6627), Registration Statement on Form S-3 (No. 33-59161) and Registration Statement on Form S-3 (No. 33-62897) of Inland Steel Industries, Inc. (or, for registrations prior to 1986, Inland Steel Company) of our report dated February 18, 1998, except as to Note 20, which is as of March 17, 1998, appearing on page 11 of Exhibit 99, "Financial Information," which is attached hereto, and is incorporated by reference herein. 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 30, 1998 23 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN MILLIONS)
1997 1996 1995 ------ ------ ------ Income: Intercompany interest income........................ $ 25.1 $ 18.5 $ 16.3 Equity in income of subsidiaries.................... 107.9 41.4 157.8 Interest income and other revenue................... 8.5 11.9 1.6 Gain on sale of subsidiary stock.................... -- 31.4 -- ------ ------ ------ 141.5 103.2 175.7 Expenses: Interest and other expenses......................... 14.5 32.6 31.0 Intercompany interest expense....................... 3.6 2.4 5.7 ------ ------ ------ 18.1 35.0 36.7 Income before income taxes and extraordinary loss..... 123.4 68.2 139.0 Provision for income taxes............................ 4.1 8.0 7.8 Cr. ------ ------ ------ Income before extraordinary loss...................... 119.3 60.2 146.8 Extraordinary loss on early retirement of debt........ -- (14.5) -- ------ ------ ------ Net income............................................ $119.3 $ 45.7 $146.8 ====== ====== ======
- -------- Cr. = Credit See Notes to Consolidated Financial Statements in Item 8. 24 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN MILLIONS)
1997 1996 1995 ------- ------- ------- OPERATING ACTIVITIES Net income.......................................... $ 119.3 $ 45.7 $ 146.8 Adjustments to reconcile net income to net cash provided from (used for) operating activities: Equity in undistributed earnings of subsidiaries.. (107.9) (41.4) (157.8) Depreciation...................................... .5 .5 .6 Deferred income taxes............................. 2.0 11.7 4.5 Deferred employee benefit cost.................... (.7) 2.3 .3 Gain from issuance of subsidiary stock............ -- (31.4) -- Stock issued for coverage of employee benefit plans............................................ 21.8 22.6 23.9 Change in: Intercompany accounts.................. (85.3) (201.2) 16.0 Notes receivable.............................. (.6) (.1) (.3) Accounts payable.............................. (.5) .9 (2.9) Accrued liabilities........................... .7 (9.9) 4.9 Other deferred items.............................. (6.0) (5.4) 8.3 ------- ------- ------- Net adjustments................................. (176.0) (251.4) (102.5) ------- ------- ------- Net cash provided from (used for) operating activities..................................... (56.7) (205.7) 44.3 ------- ------- ------- INVESTING ACTIVITIES Net investments in subsidiaries..................... (4.9) (6.1) (10.2) Dividends received from subsidiaries................ 25.9 471.7 25.9 ------- ------- ------- Net cash provided from investing activities..... 21.0 465.6 15.7 ------- ------- ------- FINANCING ACTIVITIES Issuance of common stock............................ -- -- 99.1 Long-term debt retired.............................. (15.3) (238.4) (8.3) Dividends paid...................................... (20.8) (21.0) (31.6) Acquisition of treasury stock....................... (6.7) (3.7) (4.0) ------- ------- ------- Net cash provided from (used for) financing activities..................................... (42.8) (263.1) 55.2 ------- ------- ------- Net increase (decrease) in cash and cash equiva- lents.............................................. (78.5) (3.2) 115.2 Cash and cash equivalents--beginning of year........ 202.3 205.5 90.3 ------- ------- ------- Cash and cash equivalents--end of year.............. $ 123.8 $ 202.3 $ 205.5 ======= ======= =======
See Notes to Consolidated Financial Statements in Item 8. 25 INLAND STEEL INDUSTRIES, INC. SCHEDULE I--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) BALANCE SHEET AT DECEMBER 31, 1997 AND 1996 (DOLLARS IN MILLIONS)
1997 1996 -------- -------- ASSETS Current Assets: Cash and cash equivalents................................ $ 123.8 $ 202.3 Receivables from subsidiary companies.................... 377.6 292.3 Deferred income taxes.................................... .3 .3 Notes receivable......................................... 1.3 .7 -------- -------- Total current assets................................... 503.0 495.6 Investment in subsidiary companies......................... 645.5 558.6 Intangible pension asset................................... -- 76.3 Investment in Nippon Steel Corporation, net of valuation allowances of $7.1 and $4.8, respectively................. 7.5 9.8 Property, net of accumulated depreciation of $8.3 and $7.8, respectively.............................................. .8 1.3 Deferred income taxes...................................... .2 .3 Deferred charges and other assets.......................... 1.3 2.4 -------- -------- Total assets........................................... $1,158.3 $1,144.3 ======== ======== LIABILITIES Current Liabilities: Accounts payable......................................... $ 4.7 $ 5.2 Accrued liabilities...................................... 10.3 9.6 Long-term debt due within one year....................... 10.6 9.7 -------- -------- Total current liabilities.............................. 25.6 24.5 Long-term debt............................................. 185.9 202.1 Deferred employee benefits................................. 9.7 86.7 Deferred income and other deferred credits................. 8.9 9.9 -------- -------- Total liabilities...................................... 230.1 323.2 -------- -------- TEMPORARY EQUITY Common stock repurchase commitment......................... 28.1 32.1 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 15,000,000 shares authorized for all series, aggregate liquidation value $150.6 in 1997 and $153.9 in 1996......................... 3.1 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............................. 1,032.5 1,040.2 Accumulated deficit........................................ (45.6) (146.0) Unearned compensation--ESOP................................ (68.6) (79.4) Common stock repurchase commitment......................... (28.1) (32.1) Treasury stock at cost--common stock of 1,557,635 shares in 1997 and 1,647,954 shares in 1996......................... (40.5) (44.2) Cumulative translation adjustment.......................... (3.3) (3.3) -------- -------- Total stockholders' equity............................. 900.1 789.0 -------- -------- Total liabilities, temporary equity, and stockholders' equity................................................ $1,158.3 $1,144.3 ======== ========
Maturities of Long-Term Debt due within five years are: $10.5 million in 1998, $111.5 million in 1999, $12.5 million in 2000, $13.6 million in 2001, and $14.8 million in 2002. See Notes to Consolidated Financial Statements in Item 8. 26 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II--RESERVES FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (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 ----------- ---------- --------- ---------- ---------- 1997....................... $22.5 $ 7.1 $(1.3)(A) $23.5 (4.8)(B) 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)
NOTES: (A) Bad debts written off during year. (B) Allowances granted during year. 27 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 30, 1998 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 30, 1998 ____________________________________ Chief Executive Officer and Robert J. Darnall Director (Principal Executive Officer) Jay M. Gratz Vice President and March 30, 1998 ____________________________________ Chief Financial Officer Jay M. Gratz (Principal Financial Officer) James M. Hemphill Controller March 30, 1998 ____________________________________ (Principal Accounting James M. Hemphill Officer) A. Robert Abboud Director James A. Henderson Director Robert B. McKersie Director Jay M. Gratz Leo F. Mullin Director By: ___________________ Jay M. Gratz Attorney-in-fact Jean-Pierre Rosso Director March 30, 1998 Joshua I. Smith Director Nancy H. Teeters Director Arnold R. Weber Director
28 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............ 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 reference here- in.) 4.C Copy of Rights Agreement, dated as of November 25, 1997, between the Company and Harris Trust and Savings Bank, as Rights Agent. (Filed as Exhibit 4.1 to the Company's Current Report on Form 8-A filed on November 28, 1997, 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 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 Janu- ary 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 Cur- rent Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed with Steel Company's Cur- rent Report on Form 8-K for the months of July and Au- gust, 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
i
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 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 Ex- hibit filed with Steel Company's Current Report on Form 8-K for the month of December, 1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the amendment on Form 8 to Steel Company's Current Report on Form 8-K for the month of April, 1974; (xviii) Ex- hibit B, filed with Steel Company's Current Report on Form 8-K for the month of September, 1975; (xix) Ex- hibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8- K for the month of February, 1977; (xxi) Exhibit B, filed with Steel Company's Quarterly Report on Form 10- Q for the quarter ended June 30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1980; (xxiii) Ex- hibit 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) Exhibit 4.C filed with the Steel Company's Quarterly 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 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.G Copy of consolidated reprint of First Mortgage Inden- ture, 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 supple- mental indentures thereto, to and including the Thir- teenth Supplemental Indenture. (Filed as Exhibit 4-E to Form S-1 Registration Statement No. 2-9443, and incor- porated 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 quarter ended September 30, 1995, and incorporated by reference herein.) 10.B* Copy of Ryerson Tull Annual Performance Improvement In- centive Plan. (Filed as Exhibit 10.2 to the Ryerson Tull, Inc. Quarterly Report on Form 10-Q for the quar- ter year ended September 30, 1997, and incorporated by reference herein.) 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, as amended................................................ 10.E* Copy of Inland 1995 Incentive Stock Plan, as amended...
- -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. ii
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 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 Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated by reference herein.) 10.I* 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 quarter ended June 30, 1995, and incorporated by reference herein.) 10.J* Copy of Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.B to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated by reference herein.) 10.K* Copy of Inland Steel Industries Special Retirement Ben- efit Plan for Covered Employees, as amended. (Filed as Exhibit 10.C to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and in- corporated by reference herein.) 10.L* Copy of Ryerson Tull, Inc. Supplemental Retirement Plan for Covered Employees, as amended. (Filed as Exhibit 10.1 to the Ryerson Tull, Inc. Form 10-Q for the quar- ter ended September 30, 1997, and incorporated by ref- erence herein.) 10.M* 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 in- corporated by reference herein.) 10.N* 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.O* 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.P* 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 in- corporated by reference herein.) 10.Q* 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.R* Copy of form of Severance Agreement, dated January 28, 1998, 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.. 10.S.(1)* Copy of Ryerson Tull Directors' Compensation Plan...... 10.S.(2)* Copy of Ryerson Tull Nonqualified Savings Plan, effec- tive January 1, 1998...................................
- -------- * 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.T.(1)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated January 28, 1998 referred to in Exhibit 10.R above.................................................. 10.T.(2)* 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.T.(3)* Amended Schedule to Change in Control Agreements re- ferred to in Exhibit 10.T.(2) above.................... 10.T.(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 10.10 to the Ryerson Tull, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated by reference herein.) 10.T.(5)* Amended Schedule to Change in Control Agreements re- ferred to in Exhibit 10.T.(4) above (filed as Exhibit 10.11 to the Ryerson Tull Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated by reference herein). 10.T.(6)* 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. Regis- tration Statement on Form S-1 (File No. 333-3235), and incorporated by reference herein.) 10.T.(7)* Copy of Change in Control Agreement dated as of March 27, 1996 between the Company and Neil S. Novich. (Filed as Exhibit 10.6 to the Ryerson Tull, Inc. Form S-1 Reg- istration Statement No. 333-3235, and incorporated by reference herein.) 10.U.* 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.V.* 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.W(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.W(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.) 10.X* Copy of Employment Agreement dated as of August 18, 1995 between the Company and George A. Ranney, Jr. .... 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 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.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 Exchange- able 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 Basic Agreement dated as of July 21, 1987 be- tween the Company and Nippon Steel Corporation relating to the I/N Tek joint venture. (Filed as Exhibit 10-S- (3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.Z.(3) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned sub- sidiary 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 Ex- hibit 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.(4) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation relat- ing 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 incor- porated by reference herein.) 10.Z.(5) 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 indi- rectly wholly owned subsidiary of Nippon Steel Corpora- tion) relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.Z.(6) 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 Exhibit 10-S- (7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.Z.(7) 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 Re- port on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.Z.(8) 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 fiscal year ended December 31, 1990, and incorporated by ref- erence herein.) 10.Z.(9) 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 herein.) 10.Z.(10) 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 incor- porated by reference herein.)
v
SEQUENTIAL EXHIBIT PAGE NUMBER DOCUMENT DESCRIPTION NUMBER ------- -------------------- ---------- 10.Z.(11) 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 Re- port on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.Z.(12) 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 Ex- hibit 10-P to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorpo- rated 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. (Filed as Exhibit 10.BB to the Company's Annual Re- port on Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.) 10.CC Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchangeable Preferred Stock. (Filed as Exhibit 10-U to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by ref- erence 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 Ex- hibit 10-V to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, and incorpo- rated by reference herein.) 21 List of certain subsidiaries of the Company............ 23 Consent of Independent Accountants, appearing on page 23 of this Annual Report on Form 10-K. 24 Powers of attorney..................................... 27 Financial Data Schedule. 99 Financial Information to be included in the Annual Re- port to Shareholders for 1997..........................
vi EX-3.(II) 2 COPY OF BY-LAWS Exhibit 3.(ii) BY-LAWS OF INLAND STEEL INDUSTRIES, INC. (as Amended to and Including January 28, 1998) ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, as shall be designated by the Board of Directors. Section 2. Annual Meetings; Nomination of Directors. An annual meeting of stockholders shall be held for the purpose of electing Directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these By-Laws. The date of the annual meeting shall be the fourth Wednesday of May each year or such other date as may be determined by the Board of Directors. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than ninety days nor more than one hundred fifteen days prior to the meeting; provided, however, that in the event that less than one hundred five days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the annual meeting was mailed or such - 2 - public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article II, Section 2, provided, however, that nothing in this Article II, Section 2 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, Section 2, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of the Corporation at the annual meeting may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article II, Section 2. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than one hundred fifteen days prior to the meeting; provided, however, that in the event that less than one hundred five days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person - 3 - that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as Director of the Corporation. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, may be called by the Chairman of the Board, Vice Chairman of the Board, the President or the Board of Directors and shall be called by the Secretary at the direction of the Chairman of the Board, Vice Chairman of the Board, the President or the Board of Directors. Section 4. Notice of Meetings. Written notice of each meeting of the stockholders stating the place, date and time of the meeting shall, unless otherwise required by law, be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice of any special meeting of stockholders shall state the purpose or purposes for which the meeting is called. If mailed, such notice shall be deemed to be delivered to a stockholder when deposited in the United States mail in a sealed envelope addressed to the stockholder at his or her address as it appears on the records of the Corporation with postage thereon paid. Section 5. Quorum. A majority of the votes of the voting securities entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. If a quorum is not present or represented, the holders of the voting securities present in person or represented by proxy at the meeting and entitled to vote thereat shall have power, by the affirmative vote of the holders of a majority of the votes of such voting securities, to adjourn the meeting to another time and/or place, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each holder of record entitled to vote at the meeting. Section 6. Voting. At all meetings of the stockholders, each holder of record on the record date for the meeting shall be entitled to vote as set forth in the Corporation's Certificate of Incorporation (including any Certificates of Designations) or as otherwise required by law, in person or by proxy, the voting securities owned of record by such holder on the record date. In all matters other than the election of directors, the affirmative vote of a majority of the votes of the voting securities present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the holders, unless the question is one upon which, by express provision of law or of the holders, unless the question is one upon which, by express provision of law or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Directors shall be elected by a plurality of the votes of the voting securities present in person or represented by proxy at the meeting and entitled to vote on the election of directors. - 4 - ARTICLE III DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed and controlled by or under the direction of a Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 2. Number, Qualification and Tenure. Prior to the first annual meeting of stockholders, the Board of Directors shall consist of not fewer than three (3) Directors nor more than eighteen (18) Directors. Thereafter, the Board of Directors shall consist of not fewer than ten (10) Directors nor more than eighteen (18) Directors. Within the limits above specified, the number of Directors shall be determined from time to time by resolution of the Board of Directors. The Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3 of this Article, and each Director elected shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Directors need not be stockholders. Except as provided in Article III, Section 3 of these By-laws, the Directors shall designate from among their number a Chairman of the Board, who shall preside at all meetings of the stockholders and of the Board of Directors of the Corporation and who, if he or she is an employee of the - 5 - Corporation, shall exercise all of the powers and duties conferred on the Chairman of the Board by the provisions of these By-Laws. If the person selected by the Directors as the Chairman of the Board is not, or ceases to be, an employee of the Corporation, then, notwithstanding any other provision of these By-Laws to the contrary, he or she shall exercise only such powers and duties conferred on the Chairman of the Board by these By-Laws as the Directors shall determine by resolution duly adopted and any other powers and duties, including those of chief executive officer of the Corporation, shall be exercised by the President of the Corporation. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by a majority of the Directors then in office (even if less than a quorum), and each Director so chosen shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. If there are no Directors in office, then an election of Directors may be held in the manner provided by law. Immediately upon the Chairman of the Board's death, physical or mental incapacity, or other inability to act (other than due to absence for a brief and identifiable period), the Chairman of the committee responsible for recommending candidates to fill vacancies on the Board of Directors of the Corporation (the "Nominating Committee Chairman") shall assume the position of Chairman of the Board and responsibility for performing all functions, authorities and duties thereof, and shall serve in such capacity until his or her successor is duly elected and qualified pursuant to Article III, Section 2 and any other applicable provision of these By-laws or until his or her earlier resignation or removal. The Nominating Committee Chairman shall have sole discretion to determine, at any time and from time to time, whether the Chairman of the Board is physically or mentally incapacitated, otherwise unable to act, or absent for other than a brief and identifiable period and shall, immediately upon making such a determination or learning of the death of the Chairman of the Board, notify each member of the Board of Directors and each officer of the Corporation of the relevant facts and circumstances. Section 4. Place of Meetings. The Board of Directors may hold meetings, whether regular or special, within or without the State of Delaware. Section 5. Regular Meetings. The Board of Directors shall hold a regular meeting, to be known as the annual meeting, immediately following each annual meeting of the stockholders. Other regular meetings of the Board of Directors shall be held at such time and place as shall from time to time be determined by the Board. No notice of regular meetings need be given. - 6 - Section 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, the Vice Chairman of the Board, any five Directors or the President. Special meetings shall be called by the Secretary on the written request of any Director. Notice of special meetings shall be given at least one day before any such meeting. Section 7. Quorum. At all meetings of the Board of Directors a majority of the total number of Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Organization. The Chairman of the Board, if elected, shall act as chairman at all meetings of the Board of Directors. If a Chairman of the Board is not elected or, if elected, is not present, the Vice Chairman of the Board, if any, or if the Vice Chairman of the Board is not present, the President or, in the absence of the President, a Director chosen by a majority of the Directors present, shall act as chairman at meetings of the Board of Directors. Section 9. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate not fewer than four (4) and not more than nine (9) Directors to constitute an Executive Committee, to serve as such, unless the resolution designating the Executive Committee is sooner amended or rescinded by the Board of Directors, until the next annual meeting of the Board or until their respective successors are designated. The Board of Directors, by resolution adopted by a majority of the whole Board, may also designate additional Directors as alternate members of the Executive Committee (so long as the aggregate number of members of the Executive Committee does not exceed nine (9)) to serve as members of the Executive Committee in the place and stead of any regular member or members thereof who may be unable to attend a meeting or otherwise unavailable to act as a member of the Executive Committee. In the absence or disqualification of a member and all alternate members who may serve in the place and stead of such member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member. Except as expressly limited by the General Corporation Law of the State of Delaware or the Certificate of Incorporation, the Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the - 7 - business and affairs of the Corporation between the meetings of the Board of Directors, but subject always to the final control of the Board of Directors except where rights of third parties have intervened. The Executive Committee shall keep a record of its acts and proceedings, which shall form a part of the records of the Corporation in the custody of the Secretary, and all actions of the Executive Committee shall be reported to the Board of Directors at the next meeting of the Board. Meetings of the Executive Committee may be called at any time by the Chairman of the Board, the Chairman of the Executive Committee or any two (2) members of the Executive Committee. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business and, except as expressly limited by this Section, the act of a majority of the members present at any meeting at which there is a quorum shall be the act of the Executive Committee. Except as expressly provided in this Section, the Executive Committee shall fix its own rules of procedure. Notice of Executive Committee meetings shall be given at least one day before such meetings. Section 10. Finance and Retirement Committee. The Board of Directors may, annually, by resolution passed by a majority of the whole Board of Directors, designate not fewer than four (4) and not more than eleven (11) Directors to constitute a Finance and Retire-ment Committee. Such designation may be made either at the first meeting of the Board of Directors held after each annual meeting of the stockholders of the Corporation, or at any subsequent regular or special meeting of the Board of Directors. Vacancies in the Finance and Retirement Committee may be filled, or additional members of the Finance and Retirement Committee (so long as the aggregate number of the Finance and Retirement Committee does not exceed eleven (11)) may be designated, at any meeting of the Board of Directors. Each member of the Finance and Retirement Committee shall hold office until his or her successor shall have been duly elected, or until his or her death, or until he or she shall resign or shall have been removed. Any member of the Finance and Retire-ment Committee may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby. The Finance and Retirement Committee, from time to time, shall consider the fiscal affairs of the Corporation and make recommendations with respect thereto to the Board of Directors and the Execu tive Committee. The Finance and Retirement Committee shall also administer and act with respect to pension or retirement plans and trusts of the Corporation and such other matters as shall from time to time be specified in resolutions passed by a majority of the whole Board of Directors, subject, however, to any conditions and provisions set forth in such resolutions. The Pension and Retirement Committee is designated as the Pension Plan Retirement Committee. - 8 - The Finance and Retirement Committee shall meet at the call of the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Finance and Retirement Committee, or any two (2) members of the Finance and Retirement Committee. Three (3) members of the Finance Committee shall constitute a quorum. The Finance and Retirement Committee shall keep a record of its acts and pro- ceedings and all actions of the Finance Committee shall be reported to the Board of Directors at its next regular meeting, and the minute books of the Finance and Retirement Committee shall be open to the inspection of any Directors. Section 11. Other Committees. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate one or more other committees, each such committee to consist of one or more Directors. Except as expressly limited by the General Corporation Law of the State of Delaware or the Certificate of Incorporation, any such committee shall have and may exercise such powers as the Board of Directors may determine and specify in the resolution designating such committee. The Board of Directors, by resolution adopted by a majority of the whole Board, also may designate one or more additional Directors as alternate members of any such committee to replace any absent or disqualified member at any meeting of the committee, and at any time may change the membership of any committee or amend or rescind the resolution designating the committee. In the absence or disqualification of a member or alternate member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any such absent or disqualified member, provided that the Director so appointed meets any qualifications stated in the resolution designating the committee. Each committee shall keep a record of proceedings and report the same to the Board of Directors to such extent and in such form as the Board of Directors may require. Unless otherwise provided in the resolution designating a committee, a majority of all of the members of any such committee may select its Chairman, fix its rules or procedure, fix the time and place of its meetings and specify what notice of meetings, if any, shall be given. Section 12. Action without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 13. Attendance by Telephone. Members of the Board of Directors, or of any committee, may participate in a meeting of the Board of Directors, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such - 9 - participation in a meeting shall constitute presence in person at the meeting. Section 14. Compensation. The Board of Directors shall have the authority to fix the compensation of Directors, which may include reimbursement of their expenses, if any, of attendance of each meeting of the Board of Directors or of a committee. Section 15. Honorary Directors. Any person who has at any time been chief executive officer of the Corporation (or of Inland Steel Company prior to May 1, 1986), may, after retirement or resignation from the Board of Directors (or having retired or resigned from the Board of Directors of Inland Steel Company), be appointed by the Board of Directors as an Honorary Director for one or more year terms. Honorary Directors shall serve in an advisory capacity to the Board of Directors, shall have no vote and shall not be considered as Directors for the purposes of determining a quorum. Honorary Directors shall be reimbursed for their expenses in attending meetings of the Board of Directors. Any Honorary Director who is not at the time otherwise regularly employed by the Corporation or any subsidiary shall receive such fees (which may include reimbursement of expenses, if any) for attendance at each meeting of the Board of Directors as may be fixed from time to time by the Board of Directors, but shall not receive any other director's fees or any other compensation for his or her services. ARTICLE IV OFFICERS Section 1. Enumeration. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary, a Treasurer, a General Counsel and a Controller. The Board of Directors may also elect a Chairman of the Board, a Vice Chairman, one or more Assistants to the Chairman, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it shall deem appropriate. Any number of offices may be held by the same person. Section 2. Term of Office. The officers of the Corporation shall be elected at the annual meeting of the Board of Directors and shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation required by this Article shall be filled by the Board of Directors, and any vacancy in any other office may be filled by the Board of Directors. Section 3. Chairman of the Board. Subject to the provisions of Article III, Section 2 of these By-Laws, the Chairman of the Board, when elected, shall be the Chief Executive Officer of the Corporation and, as such, shall have general supervision, direction - 10 - and control of the business and affairs of the Corporation, subject to the control of the Board of Directors, shall preside at meetings of stockholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board of Directors. Section 4. Vice Chairman of the Board. The Vice Chairman of the Board shall, in the case of absence of the Chairman of the Board for any brief and identifiable period, have and exercise the powers and duties of the Chairman of the Board. He or she shall have such other duties and powers as may be assigned to him by the Board of Directors, the Executive Committee or the Chairman of the Board. Section 5. President. During any period when there shall be a Chairman of the Board, the President shall be the Chief Operating Officer of the Corporation and shall have such functions, authority and duties as may be prescribed by the Board of Directors or the Chairman of the Board. During any period when there shall not be a Chairman of the Board or Vice Chairman of the Board, the President shall be the Chief Executive Officer of the Corporation and, as such, shall have the functions, authority and duties provided for the office of Chairman of the Board. Section 6. Executive and Senior Vice Presidents. Each Executive Vice President shall have such duties and powers as may be assigned to him or her by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman of the Board, or the President. An Executive Vice President, designated by the Board of Directors, shall (in the event of absence, death or other inability to act of the President) have and exercise the powers and duties of the President. Each Senior Vice President shall have such duties and powers as may be assigned to him or her by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman of the Board or the President. Section 7. Vice Presidents. Each Vice President shall perform such duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chairman of the Board or the President or the Executive Committee. Section 8. Secretary. The Secretary shall keep a record of all proceedings of the stockholders of the Corporation and of the Board of Directors, Finance Committee and Executive Committee, and shall perform like duties for any other standing committees when required. The Secretary shall give, or cause to be given, notice, if any, of all meetings of the stockholders and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Executive Committee. The Secretary shall have custody of the corporate seal of the - 11 - Corporation and the Secretary, or in the absence of the Secretary any Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the signature of the Secretary or an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest such affixing of the seal. Section 9. Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or failure to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Secretary. Section 10. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or the Executive Committee. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, keeping proper records of such disbursements, and shall render to the Chairman of the Board, Vice Chairman of the Board, the Chairman of the Executive Committee, the Chairman of the Finance Committee, the President, the officer designated by the Board of Directors as Chief Financial Officer, if any, and the Board of Directors, the Executive Committee and the Finance Committee at their regular meetings or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Chief Financial Officer. Section 11. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or the Treasurer. Section 12. Assistant to the Chairman. The Assistant to the Chairman of the Board shall have and exercise such powers and - 12 - duties as may be assigned to him or her by the Chairman of the Board. Section 13. General Counsel. The General Counsel shall be responsible for the legal affairs of the Corporation and shall have such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the Vice Chairman of the Board, the President, the Board of Directors or the Executive Committee. Section 14. Controller. The Controller shall be the chief accounting officer of the Corporation. He or she shall, when proper, approve all bills for purchases, payrolls, and similar instruments providing for disbursement of money by the Corporation, for payment by the Treasurer. He or she shall be in charge of and maintain books of account and accounting records of the Corporation. He or she shall perform such other acts as are usually performed by a Controller of a corporation. He or she shall render to the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Executive Committee, the Chairman of the Finance Committee, the President, the Chief Financial Officer, the Board of Directors, the Executive Committee and the Finance Committee, such reports as any thereof may require. Section 15. Other Officers. Any officer who is elected or appointed from time to time by the Board of Directors and whose duties are not specified in these By-Laws shall perform such duties and have such powers as may be prescribed from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, the President or the Executive Committee. Section 16. Surety Bonds. The Board of Directors or Executive Committee may by resolution, require any officers of the Corporation to give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors or Executive Committee shall determine, the expense of which shall be paid by the Corporation. ARTICLE V CERTIFICATES OF STOCK Section 1. Form. The shares of the Corporation shall be represented by certificates; provided, however, that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Certificates of stock in the Corporation, if any, shall be signed by or in the name of the Corporation by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation. The signatures of the Chairman of the Board, the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an - 13 - Assistant Secretary may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of its issue. Section 2. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Section 3. Replacement. In case of the loss, destruction or theft of a certificate for any stock of the Corporation, a new certificate of stock or uncertificated shares in place of any certificate therefor issued by the Corporation may be issued upon satisfactory proof of such loss, destruction or theft and upon such terms as the Board of Directors may prescribe. The Board of Directors may in its discretion require the owner of the lost, destroyed or stolen certificate, or his or her legal representative, to give the Corporation a bond, in such sum and in such form and with such surety or sureties as it may direct, to indemnify the Corporation against any claim that may be made against it with respect to a certificate alleged to have been lost, destroyed or stolen. ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is, was or had agreed to become a director of the Corporation or is, was or had agreed to become an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the General Corporation Law of the State of Delaware (the "DGCL"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent - 14 - that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, that except as explicitly provided herein, prior to a Change in Control, as defined herein, a person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person against the Corporation or any director, officer, employee or agent of the Corporation shall not be entitled thereto unless the Corporation has joined in or consented to such proceeding (or part thereof). For purposes of this Article, a "Change in Control of the Corporation" shall be deemed to have occurred if (i) any "Person" (as is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes (except in a transaction approved in advance by the Board of Directors of the Corporation) the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election of each director who was not a director at the beginning of the period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Any indemnification under this Section 1 (unless ordered by a court) shall be paid by the Corporation unless within 60 days of such request for indemnification a determination is made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding, (ii) if such quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion or (iii) by the stockholders, that indemnification of such person is not proper under the circumstances because such person has not met the necessary standard of conduct under Delaware law; provided, however, that following a Change in Control of the Corporation, with respect to all matters thereafter arising out of acts, omissions or events prior to the Change in Control of the Corporation concerning the rights of any person seeking indemnification under this Section 1, such determination shall be made by special independent counsel selected by such person and approved by the Corporation (which approval shall not be unreasonably withheld), which counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such - 15 - person or for the Corporation or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the Corporation (whether or not they were affiliates when services were so performed) ("Independent Counsel"). Unless such person has theretofore selected Independent Counsel pursuant to this Section 1 and such Independent Counsel has been approved by the Corporation, legal counsel approved by a resolution or resolutions of the Board of Directors prior to a Change in Control of the Corporation shall be deemed to have been approved by the Corporation as required. Such Independent Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the Corporation and such person to such effect. The Corporation agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Article or its engagement pursuant hereto. Section 2. Expenses. Expenses, including attorneys' fees, incurred by a person referred to in Section 1 of this Article in defending or otherwise being involved in a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Section 3. Right of Claimant to Bring Suit. If a claim under Section 1 hereof is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation or if expenses pursuant to Section 2 hereof have not been advanced within 10 days after a written request for such advancement accompanied by the Undertaking has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. (If the claimant is successful, in whole or in part, in such suit or any other suit to enforce a right for expenses or indemnification against the Corporation or any other party under any other agreement, such claimant shall also be entitled to be paid the reasonable expense of prosecuting such claim.) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed. After a Change in Control, the burden of proving such defense shall be on the Corporation, and any determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant - 16 - had not met the applicable standard of conduct required under the DGCL shall not be a defense to the action nor create a presumption that claimant had not met such applicable standard of conduct. Section 4. Non-Exclusivity of Rights. The rights conferred on any person by this Article shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such other indemnification of directors, officers, employees or agents as it shall deem appropriate. Section 5. Insurance. The Corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. Section 6. Enforceability. The provisions of this Article shall be applicable to all proceedings commenced after its adoption, whether such arise out of events, acts, omissions or circumstances which occurred or existed prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. This Article shall be deemed to grant each person who, at any time that this Article is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder rights against the Corporation to enforce the provisions of this Article, and any repeal or other modification of this Article or any repeal or modification of the DGCL or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions, circumstances occurring or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Article with regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification. Section 7. Severability. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not - 17 - have been invalidated and to the full extent permitted by applicable law. ARTICLE VII GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. Section 2. Corporate Seal. The corporate seal shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 3. Waiver of Notice. Whenever any notice is required to be given under law or the provisions of the Certificate of Incorporation or these By- Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VIII AMENDMENTS These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the Board of Directors. The fact that the power to amend, alter, repeal or adopt the By-Laws has been conferred upon the Board of Directors shall not divest the stockholders of the same powers. EX-10.D 3 COPY OF RYERSON TULL 1996 INCENTIVE Exhibit 10.D RYERSON TULL 1996 INCENTIVE STOCK PLAN (As Amended through January 28, 1998) 1. Purpose. The purpose of the Ryerson Tull 1996 Incentive Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of Ryerson Tull, Inc. (the "Company") and its subsidiaries, and to furnish incentives to such individuals through rewards based upon the ownership and performance of the Common Stock (as defined in Section 3). To this end, the Committee hereinafter designated and, in certain circumstances, the Chairman of the Board of the Company (the "Chairman") or the President of the Company, may grant stock options, stock appreciation rights, restricted stock awards, and performance awards, or combinations thereof, to officers and other key employees of the Company and its subsidiaries, on the terms and subject to the conditions set forth in this Plan. 2. Participants. Participants in the Plan shall consist of: (i) such officers and other key employees of the Company and its subsidiaries as the Committee in its sole discretion may select from time to time to receive stock options, stock appreciation rights, restricted stock awards or performance awards, either singly or in combination, as the Committee may determine in its sole discretion; and (ii) if the Committee authorizes the Chairman or the President to make grants or awards of stock options, stock appreciation rights, restricted stock or performance awards, such employees of the Company and its subsidiaries who are not subject to section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as the Chairman or the President shall determine in his or her sole discretion after consultation with the Vice President-Human Resources of the Company. Individuals who receive awards of Substitute Options and Substitute Restricted Stock pursuant to Section 14 shall also be Participants in the Plan. Any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries shall not be eligible to receive stock options, stock appreciation rights, restricted stock awards or performance awards under the Plan. As used in the Plan, the term "subsidiary" means (a) any corporation of which the Company owns or controls, directly or indirectly, 50% or more of the outstanding shares of capital stock entitled to vote for the election of directors or (b) any partnership, joint venture, or other business entity in respect of which the Company, directly or indirectly, has comparable ownership or control. 3. Shares Reserved under the Plan. Subject to adjustment pursuant to the provisions of Section 11 of the Plan, the maximum number of shares of Class A Common Stock, $1.00 par value per share, of the Company ("Common Stock") which may be issued pursuant to grants or awards made under the Plan shall not exceed 2,300,000. No more than 800,000 shares of Common Stock shall be issued pursuant to restricted stock awards and performance awards under the Plan. The following restrictions shall apply to all grants and awards under the Plan other than grants and awards which by their terms are not intended to comply with the "Performance-Based Exception" (defined below in this Section 3): (a) the maximum aggregate number of shares of Common Stock that may be granted or awarded under the Plan to any participant under the Plan during any three year period shall be 1,500,000; and (b) the maximum aggregate cash payout with respect to grants or awards under the Plan in any fiscal year of the Company to any Named Executive Officer (defined below in this Section 3) shall be $1,000,000. For purposes of the Plan, "Named Executive Officer" shall mean a participant who is one of the group of "covered employees" as defined in the regulations promulgated under section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") or any successor statute, and "Performance-Based Exception" shall mean the performance-based exception from the deductibility limitations as set forth in Section 162(m) of the Code. Except to the extent otherwise determined by the Committee, any shares of Common Stock subject to grants or awards under the Plan that terminate by expiration, cancellation or otherwise without the issuance of such shares (including shares underlying a stock appreciation right exercised for stock, to the extent that such underlying shares are not issued), that are settled in cash (to the extent so settled), or, in the case of restricted stock awards, that terminate without vesting, shall become available for future grants and awards under the Plan. Shares of Common Stock to be issued pursuant to grants or awards under the Plan may be authorized and unissued shares of Common Stock, treasury Common Stock, or any combination thereof. 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). To the extent necessary to comply -2- with the exemption provided by rule 16b-3 under the Exchange Act or any successor rule ("Rule 16b-3"), each member of the Committee shall be a "non- employee director" within the meaning of Rule 16b-3. Subject to the provisions of the Plan, the Committee shall have authority: (i) to determine which employees of the Company and its subsidiaries shall be eligible for participation in the Plan; (ii) to select employees to receive grants under the Plan; (iii) to determine the form of grant, whether as a stock option, stock appreciation right, restricted stock award, performance award or a combination thereof, the number of shares of Common Stock or units subject to the grant, the time and conditions of exercise or vesting, the fair market value of the Common Stock for purposes of the Plan, and all other terms and conditions of any grant and to amend such awards or accelerate the time of exercise or vesting thereof; and (iv) to prescribe the form of agreement, certificate or other instrument evidencing the grant. Notwithstanding the foregoing, the Committee, subject to the terms and conditions of the Plan, may delegate to the Chairman or the President of the Company, if such individual is then serving as a member of the Board, the authority to act as a subcommittee of the Committee for purposes of making grants or awards of stock options, stock appreciation rights, restricted stock or performance awards, not to exceed such number of shares as the Committee shall designate annually, to such employees of the Company and its subsidiaries who are not subject to section 16(a) of the Exchange Act as the Chairman or the President shall determine in his or her sole discretion after consultation with the Vice President-Human Resources of the Company, and the Chairman or the President, as applicable, shall have the authority and duties of the Committee with respect to such grants. The Committee shall also have authority to interpret the Plan and to establish, amend and rescind rules and regulations for the administration of the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on all persons. 5. Effective Date of Plan. The Plan shall be effective upon approval by the stockholder(s) of the Company. 6. Stock Options. (a) Grants. Subject to the terms of the Plan, options to purchase shares of Common Stock, including "incentive stock options" within the meaning of Section 422 of the Code, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. Each grant of an option under the Plan may designate whether the option is intended to be an incentive stock option or a "nonqualified" stock option. Any option not so designated shall be deemed to be a "nonqualified" stock option. (b) Terms of Options. An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee in its sole discretion, provided that no option shall be exercisable less than six months or more than -3- ten years after the date of grant (except in the case of death or physical or mental incapacity). The per share option price shall not be less than the greater of par value or 100% of the fair market value of a share of Common Stock on the date the option is granted. Upon exercise, the option price may be paid in cash, in shares of Common Stock having a fair market value equal to the option price which have been owned by the Participant for at least 6 months prior thereto, or in a combination thereof. The Committee may also allow the cashless exercise of options by holders thereof, as permitted under regulations promulgated by the Board of Governors of the Federal Reserve System, subject to any applicable restrictions necessary to comply with rules adopted by the Securities and Exchange Commission, and the exercise of options by holders thereof by any other means that the Committee determines to be consistent with the Plan's purpose and applicable law, including loans, with or without interest, made by the Company to the holder thereof. (c) Restrictions Relating to Incentive Stock Options. To the extent required by the Code, the aggregate fair market value (determined as of the time the option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under the Plan or any other plan of the Company or any of its subsidiaries) shall not exceed $100,000. (d) Termination of Employment. If an optionee ceases to be employed by the Company or any of its subsidiaries by reason of (i) death, (ii) physical or mental incapacity, (iii) retirement on or after the normal retirement date provided for in and pursuant to any pension plan of the Company or any subsidiary of the Company in effect at the time of such retirement, or (iv) early retirement (with the consent of the Committee) provided for in and pursuant to any such pension plan, any option held by such optionee may be exercised, with respect to all or any part of the Common Stock as to which such option was not theretofore exercised (whether or not such option was otherwise then exercisable), for such period from and after the date of such cessation of employment (not extending, however, beyond the date of expiration of such option) as the Committee may determine at the time of the grant or at any time thereafter. If an optionee ceases to be employed by the Company and any of its subsidiaries for any reason other than a reason set forth in the immediately preceding sentence, any option granted to such optionee may be exercised for a period ending on the 30th day following the date of such cessation of employment or the date of expiration of such option, whichever first occurs, but only with respect to that number of shares of Common Stock for which such option was exercisable immediately prior to the date of cessation of employment, except as otherwise determined by the Committee at the time of grant or any time thereafter. (e) Additional Terms and Conditions. The agreement or instrument evidencing the grant of a stock option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. -4- 7. Stock Appreciation Rights. (a) Grants. Subject to the terms of the Plan, rights entitling the grantee to receive cash or shares of Common Stock having a fair market value equal to the appreciation in market value of a stated number of shares of such Common Stock from the date of the grant to the date of exercise, or, in the case of rights granted in tandem with or by reference to a stock option granted prior to the grant of such rights, from the date of grant of such related stock option to the date of exercise, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. (b) Terms of Grant. Such rights may be granted in tandem with or by reference to a related stock option, in which event the grantee may elect to exercise either the stock option or the right, but not both, as to the shares subject to the stock option and the right, or the right may be granted independently of a stock option. Rights granted in tandem with or by reference to a related stock option shall, except as provided at the time of grant, be exercisable to the extent, and only to the extent, that the related option is exercisable, provided that no such right (except in the case of death or physical or mental incapacity) shall be exercisable prior to the expiration of six months following the date the right is granted. Rights granted independently of a stock option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee, provided that no right (except in the case of death or physical or mental incapacity) shall be exercisable less than six months or more than ten years after the date of grant. Further, in the event that any employee to whom rights are granted independently of a stock option ceases to be an employee of the Company and its subsidiaries, such rights shall be exercisable only to the extent and upon the conditions that stock options are exercisable in accordance with the provisions of paragraph (d) of Section 6 of the Plan. The Committee may at the time of the grant or at any time thereafter impose such additional terms and conditions on the exercise of stock appreciation rights as it deems necessary or desirable for any reason, including for compliance with Section 16(a) or Section 16(b) of the Exchange Act and the rules and regulations thereunder. (c) Payment on Exercise. Upon exercise of a stock appreciation right, the holder shall be paid the excess of the then fair market value of the number of shares of Common Stock to which the right relates over the fair market value of such number of shares at the date of grant of the right or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of Common Stock having a fair market value equal to such excess, or in such combination thereof, as may be provided in the grant of such right (which may permit the holder to elect between cash and Common Stock or to elect a combination thereof), or, if no such provision is made in the grant, as the Committee shall determine upon exercise of the right, provided, in any event, that the holder shall be paid cash in lieu of any fractional share of Common Stock to which such holder would otherwise be entitled. -5- (d) Additional Terms and Conditions. The agreement or instrument evidencing the grant of stock appreciation rights may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 8. Restricted Stock Awards. Subject to the terms of the Plan, restricted stock awards consisting of shares of Common Stock may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee, provided that any such employee (except an employee whose terms of employment include the granting of a restricted stock award) shall have been employed by the Company or any of its subsidiaries for at least six months. Such awards shall be contingent on the employee's continuing employment with the Company or its subsidiaries for a period to be specified in the award, which (except in the case of death or physical or mental incapacity) shall not be less than six months or more than ten years from the date of award, and shall be subject to such additional terms and conditions as the Committee in its sole discretion deems appropriate, including, but not by way of limitation, restrictions on the sale or other disposition of such shares during the restriction period. Except as otherwise determined by the Committee at the time of the award, the holder of a restricted stock award shall have the right to vote the restricted shares and to receive dividends thereon, unless and until such shares are forfeited. 9. Performance Awards. (a) Awards. Performance awards consisting of (i) shares of Common Stock, (ii) monetary units or (iii) units which are expressed in terms of shares of Common Stock may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee. Subject to the provisions of Section 12 below, such awards shall be contingent on the achievement over a period of not less than six months or more than ten years of such corporate, division, subsidiary, group or other measures and goals as shall be established by the Committee. Subject to the provisions of Section 12 below, such measures and goals may be revised by the Committee at any time from time to time during the performance period. Except as may otherwise be determined by the Committee at the time of the award or at any time thereafter, a performance award shall terminate if the grantee of the award does not remain continuously in the employ of the Company or its subsidiaries at all times during the applicable performance period. (b) Rights with Respect to Shares and Share Units. If a performance award consists of shares of Common Stock or units which are expressed in terms of shares of such Common Stock, amounts equal to dividends otherwise payable on a like number of shares may, if the award so provides, be converted into additional such shares (to the extent that shares are then available for issuance under the Plan) or credited as additional -6- units and paid to the participant if and when, and to the extent that, payment is made pursuant to such award. (c) Payment. Payment of a performance award following the end of the performance period, if such award consists of monetary units or units expressed in terms of shares of Common Stock, may be made in cash, shares of Common Stock, or a combination thereof, as determined by the Committee. Any payment made in Common Stock shall be based on the fair market value of such stock on the payment date. 10. Performance Measures Applicable to Awards to Named Executive Officers. Unless and until the Committee proposes for stockholder vote a change in the general performance measures set forth in this Section 10, the attainment of which may determine the degree of payout or vesting with respect to awards under the Plan which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such awards shall be chosen from among the following alternatives: safety (including total injury frequency, lost workday rates or cases, medical treatment cases and fatalities); quality control (including critical product characteristics and defects); cost control (including cost as a percentage of sales); capital structure (including debt and equity levels, debt-to-equity ratios, and debt-to total-capitalization ratios); inventory turnover; customer performance or satisfaction; revenue growth; net income; conformity to cash flow plans; return on investment; and operating profit to operating assets. The Committee shall have the discretion to establish performance goals based upon the foregoing performance measures and to adjust such goals and the methodology used to measure the determination of the degree of attainment of such goals; provided, however, that awards under the Plan that are intended to qualify for the Performance-Based Exception and that are issued to or held by Named Executive Officers may not be adjusted in a manner that increases such award. The Committee shall retain the discretion to adjust such awards in a manner that does not increase such awards. Furthermore, the Committee shall not make any adjustment to awards under the Plan issued to or held by Named Executive Officers that are intended to comply with the Performance-Based Exception if the result of such adjustment would be the disqualification of such award under the Performance-Based Exception. In the event that applicable laws change to permit the Committee greater discretion to amend or replace the foregoing performance measures applicable to awards to Named Executive Officers without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining such approval. In addition, in the event that the Committee determines that it is advisable to grant awards under the Plan to Named Executive Officers that may not qualify for the Performance-Based Exception, the Committee may make such grants upon any performance measures it deems appropriate with the understanding that they may not satisfy the requirements of Section 162(m) of the Code. -7- 11. Adjustments for Changes in Capitalization, Etc. Subject to the provisions of Section 12 herein, in the event of any change in corporate capitalization, such as a stock split, reverse stock split, stock dividend, or a corporate transaction, such as a merger, consolidation, or separation, including a spin-off, or other distribution of stock or property of the Company or its subsidiaries (other than normal cash dividends), any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company or its subsidiaries, such adjustment shall be made in the number and class of shares which may be delivered under Section 3 (including the number of shares referred to in the last sentence of the first paragraph of Section 3 and in subparagraph (a) of the second paragraph of Section 3), and in the number and class of and/or price of shares subject to outstanding grants or awards under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of shares subject to any grants or awards under the Plan shall always be a whole number. 12. Effect of Change in Control. (a) Acceleration of Benefits. Subject to the following sentence, in the event of a "Change in Control" as defined in paragraph (b) of this Section 12, (i) the value of all outstanding stock options, stock appreciation rights and restricted stock awards (whether or not then fully exercisable or vested) shall be cashed out on the basis of the "Change in Control Price" (as defined in paragraph (c) of this Section 12) as of the date the Change in Control occurs, provided, however, that any stock options or stock appreciation rights outstanding for less than six months shall not be cashed out until six months after the respective date of grant, and provided, further, that the Committee may provide for the immediate vesting instead of the cashing out of restricted stock awards in such circumstances as it deems appropriate; and (ii) all outstanding performance awards shall be cashed out in such manner and in such amount or amounts as determined by the Committee in its sole discretion. In the event of a transaction which is intended to be accounted for through the pooling-of-interest accounting method, (i) in lieu of cashing out all or any portion of the outstanding stock options, stock appreciation rights, restricted stock awards and performance awards, the Committee, in its discretion, may cause such grants or awards to vest, and may limit payment to shares of Common Stock, and (ii) the Committee, in its discretion, may extend the exercise period for stock options and stock appreciation rights, but not beyond the earlier of (A) 30 days after the end of the pooling period or (B) the original term of the stock option or stock appreciation right. (b) Change in Control. For purposes of this Section 12, a Change in Control means the happening of any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than (w) the Company and its affiliates (collectively referred to -8- herein as "RTI"), (x) a trustee or other fiduciary holding securities under an employee benefit plan of RTI, (y) an underwriter temporarily holding securities pursuant to an offering of such securities, or (z) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 40% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i), (ii) or (iv) of this Subsection) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of RTI, at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. A Change in Control shall also be deemed to occur with respect to any Participant for purposes of the Plan if there occurs: (1) a sale or disposition, directly or indirectly, other than to a person described in subclause (w), (x) or (z) of clause (i) next above, of securities of the Participant's employer, any direct or indirect parent company of the Participant's employer or any company that is a subsidiary of the Participant's employer and is also a significant subsidiary (as defined below) of the Company (the Participant's employer and such -9- a parent or subsidiary being a "Related Company"), representing 50% or more of the combined voting power of the securities of such Related Company then outstanding; (2) a merger or consolidation of a Related Company with any other corporation, other than a merger or consolidation which would result in 50% or more of the combined voting power of the surviving company being beneficially owned by a majority owned direct or indirect subsidiary of the Company; or (3) the sale or disposition of all or substantially all the assets of a Related Company to a person other than a majority owned direct or indirect subsidiary of the Company. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred with respect to a Participant for purposes of the Plan if (I) such transaction includes or involves a sale to the public or a distribution to the stockholders of the Company of more than 50% of the voting securities of the Participant's employer or a direct or indirect parent of the Participant's employer, and (II) the Participant's employer or a direct or indirect parent of the Participant's employer agrees to become a successor to the Company under an individual agreement between the Company and the Participant or the Participant is covered by an agreement providing for benefits upon a change in control of his or her employer following an event described in clauses (1), (2) or (3) next above. For purposes of the Plan, the term "significant subsidiary" has the meaning given to such term under Rule 405 of the Securities Act of 1933, as amended. (c) Change in Control Price. For purposes of this Section 12, Change in Control Price means: (i) with respect to a Change in Control by reason of a merger or consolidation of the Company described in paragraph (b)(iii) of this Section 12 in which the consideration per share of Common Stock to be paid for the acquisition of shares of Common Stock specified in the agreement of merger or consolidation is all in cash, the highest such consideration per share; (ii) with respect to a Change in Control by reason of an acquisition of securities described in paragraph (b)(i) of this Section 12, the highest price per share for any share of the Common Stock paid by any holder of any of the securities representing 40% or more of the combined voting power of the Company giving rise to the Change in Control; and (iii) with respect to a Change in Control by reason of a merger or consolidation of the Company (other than a merger or consolidation described in paragraph (b)(iii) of this Section or a change in the composition of the Board of Directors described in paragraph (b)(ii) of this Section 12), the highest price per share of Common Stock reported on the Composite Transactions (or, if such shares are not traded on the New -10- York Stock Exchange, such other principal market on which such shares are traded) during the sixty-day period ending on the date the Change in Control occurs, except that, in the case of incentive stock options and stock appreciation rights relating to incentive stock options, the holder may not receive an amount in excess of the maximum amount that will enable such option to continue to qualify as an incentive stock option. 13. Amendment and Termination of Plan. The Plan may be amended by the Board in any respect, provided that, without stockholder approval, no amendment (other than pursuant to Section 11 of the Plan) shall increase the maximum number of shares available for issuance under the Plan if such action would result in awards under the Plan no longer being exempt under Rule 16b-3 as then in effect. In addition, no amendment may impair the rights of a participant under any stock option, stock appreciation right, restricted stock award or performance award previously granted under the Plan without the consent of such participant, unless required by law. The Plan may also be terminated at any time by the Board. No further grants may be made under the Plan after termination, but termination shall not affect the rights of any participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. 14. Grant of Substitute Awards. (a) Substitute Options. In lieu of outstanding options to purchase Inland Steel Industries, Inc. ("ISI") common stock ("ISI Options") granted pursuant to the Inland 1995 Incentive Stock Plan, the Inland 1992 Incentive Stock Plan, the Inland 1988 Incentive Stock Plan or the Inland 1984 Incentive Stock Plan (collectively, the "ISI Incentive Plans") to officers and employees of ISI and its subsidiaries who are or who become officers or employees of the Company or any of its subsidiaries on or after the closing date of the initial public offering of Common Stock and prior to the date on which the Company and its subsidiaries cease to be treated as a single employer with ISI under section 414(b) or (c) of the Code ("Transferred Employees"), such Transferred Employees shall receive a grant of "Substitute Stock Options" under the Plan; provided that the Committee, in its sole discretion, may award Substitute Stock Options to any Transferred Employee with respect to less than all (including none) of his or her outstanding options under the ISI Incentive Plans, in which case the outstanding ISI Options for which no Substitute Stock Options have been granted will remain outstanding. The number of shares of Common Stock subject to any Substitute Stock Option shall bear the same ratio to the number of shares of ISI common stock subject to the corresponding ISI Option as the Average Value (as defined below) of a share of ISI common stock bears to the Average Value of a share of Common Stock. The per share option price of Common Stock subject to the Substitute Stock Option shall be equal to the amount which bears the same ratio to the Average Value of a share of Common Stock as the per share option price of ISI common stock under the ISI Option bears to the Average Value of a share of ISI common stock. Other than the option price and -11- number of shares, the Substitute Stock Options shall be subject to the same terms and conditions as the ISI Options. The term "Average Value" means the average closing price of Common Stock or ISI common stock, as applicable, as reported, in the case of Common Stock, on the New York Stock Exchange Composite Transactions (the "Composite Transactions") (or, if such shares are not traded on the New York Stock Exchange, such other principal market on which such shares are traded) for the first ten trading days after the date of the substitution. (b) Substitute Restricted Stock. In lieu of outstanding shares of restricted ISI common stock ("ISI Restricted Stock") granted pursuant to the ISI Incentive Plans to Transferred Employees, such Transferred Employees shall receive a grant of "Substitute Restricted Stock" under the Plan; provided that the Committee, in its sole discretion, may award Substitute Restricted Stock to any Transferred Employee with respect to less than all (including none) of his or her outstanding restricted stock under the ISI Incentive Plans, in which case the outstanding ISI Restricted Stock for which no Substitute Restricted Stock has been granted will remain outstanding. The number of shares of Substitute Restricted Stock shall bear the same ratio to the number of shares of ISI Restricted Stock as the Average Value of a share of ISI common stock bears to the Average Value of a share of Common Stock. Other than the number of shares, the Substitute Restricted Stock shall be subject to the same terms and conditions as the ISI Restricted Stock. 15. Miscellaneous. (a) No Right to a Grant. Neither the adoption of the Plan nor any action of the Board or of the Committee shall be deemed to give any employee any right to be selected as a participant or to be granted a stock option, stock appreciation right, restricted stock award or performance award. (b) Rights as Stockholders. No person shall have any rights as a stockholder of the Company with respect to any shares covered by a stock option, stock appreciation right, or performance award until the date of the issuance of a stock certificate to such person pursuant to such stock option, right or award. (c) Employment. Nothing contained in this Plan shall be deemed to confer upon any employee any right of continued employment with the Company or any of its subsidiaries or to limit or diminish in any way the right of the Company or any such subsidiary to terminate his or her employment at any time with or without cause. (d) Taxes. The Company shall be entitled to deduct from any payment under the Plan the amount of any tax required by law to be withheld with respect to such payment or may require any participant to pay such amount to the Company prior to and as a condition of making such payment. In addition, the Committee may, in its discretion and subject to such rules as it may adopt from time to time, permit a participant to elect to have the Company withhold from any payment under the Plan (or to have the Company accept from -12- the participant), for tax withholding purposes, shares of Common Stock, valued at their fair market value, but in no event shall the fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. Except as permitted by the Committee, no stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution, and, during the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. -13- the participant), for tax withholding purposes, shares of Common Stock, valued at their fair market value, but in no event shall the fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. Except as permitted by the Committee, no stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution, and, during the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. -14- EX-10.E 4 COPY OF INLAND 1995 INCENTIVE Exhibit 10.E INLAND 1995 INCENTIVE STOCK PLAN (as amended through January 28, 1998) 1. Purpose. The purpose of the Inland 1995 Incentive Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of Inland Steel Industries, Inc. (the "Company") and its subsidiaries, and to furnish incentives to such individuals through rewards based upon the ownership and performance of the common stock of the Company. To this end, the Committee hereinafter designated and, in certain circumstances, the Chairman of the Board of the Company (the "Chairman") may grant stock options, stock appreciation rights, restricted stock awards, and performance awards, or combinations thereof, to officers and other key employees of the Company and its subsidiaries, on the terms and subject to the conditions set forth in this Plan. 2. Participants. Participants in the Plan shall consist of: (i) such officers and other key employees of the Company and its subsidiaries as the Committee in its sole discretion may select from time to time to receive stock options, stock appreciation rights, restricted stock awards or performance awards, either singly or in combination, as the Committee may determine in its sole discretion; and (ii) if the Committee authorizes the Chairman to make grants or awards of stock options, stock appreciation rights, restricted stock or performance awards, such employees of the Company and its subsidiaries as the Chairman shall determine in his or her sole discretion. Any director of the Company or any of its subsidiaries who is not also an employee of the Company or any of its subsidiaries shall not be eligible to receive stock options, stock appreciation rights, restricted stock awards or performance awards under the Plan. As used in the Plan, the term "subsidiary" means (a) any corporation of which the Company owns or controls, directly or indirectly, 50% or more of the outstanding shares of capital stock entitled to vote for the election of directors or (b) any partnership, joint venture, or other business entity in respect of which the Company, directly or indirectly, has comparable ownership or control. 3. Shares Reserved under the Plan. Subject to adjustment pursuant to the provisions of Section 11 of the Plan, the maximum number of shares of common stock, $1.00 par value per share, of the Company which may be issued pursuant to grants or awards made under the Plan shall not exceed 2,000,000, plus such number of shares as shall have been authorized for issuance pursuant to the Inland 1992 Incentive Stock Plan (heretofore approved by stockholders) that shall not have been or be issued pursuant to such plan. No more than 700,000 shares (including those which have not been or are not issued pursuant to the Inland 1992 Incentive Stock Plan) shall be issued pursuant to restricted stock awards and performance awards under the Plan. The following restrictions shall apply to all grants and awards under the Plan other than grants and awards which by their terms are not intended to comply with the "Performance Based Exception" (defined below in this Section 3): (a) the maximum aggregate number of shares that may be granted or awarded under the Plan in any fiscal year of the Company to any participant under the Plan shall be three hundred thousand (300,000); and (b) the maximum aggregate cash payout with respect to grants or awards under the Plan in any fiscal year of the Company to any Named Executive Officer (defined below in this Section 3) shall be one million dollars ($1,000,000). For purposes of the Plan, "Named Executive Officer" shall mean a participant who is one of the group of "covered employees" as defined in the regulations promulgated under Internal Revenue Code Section 162(m) or any successor statute ("Section 162(m)"), and "Performance-Based Exception" shall mean the performance-based exception from the deductibility limitations as each is set forth in Section 162(m). Except to the extent otherwise determined by the Committee, any shares subject to grant or award under the Plan that terminate by expiration, cancellation or otherwise without the issuance of such shares (including shares underlying a stock appreciation right exercised for stock, to the extent that such underlying shares are not issued), that are settled in cash (to the extent so settled), or, in the case of restricted stock awards, that terminate without vesting, shall become available for future grants and awards under the Plan. Shares of common stock to be issued pursuant to grants or awards under the Plan may be authorized and unissued shares of common stock, treasury common stock, or any combination thereof. 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). To the extent necessary to comply with the exemption provided by rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule ("Rule 16b-3"), each member of the Committee shall be a "non- employee director" within the meaning of rule 16b-3. Subject to the provisions of the Plan, the Committee shall have authority (i) to determine which employees of the Company and its subsidiaries shall be eligible for participation in the Plan; (ii) to select employees to receive grants under the Plan; (iii) to determine the form of grant, whether as a stock option, stock appreciation right, restricted stock award, performance award or a combination thereof, the number of shares of common stock or units subject to the grant, the time and conditions of exercise or vesting, the fair market value of the common stock for purposes of the Plan, and all other terms and conditions of any grant and to amend such awards or accelerate the time of exercise or vesting thereof; and (iv) to prescribe the form of agreement, certificate or other instrument evidencing the grant. Notwithstanding the foregoing, the Committee, subject to the terms and conditions of the Plan, may delegate to the Chairman of the Company, if such individual is then serving as a member of the Board, the authority to act as a subcommittee of the Committee for purposes of making grants or awards of stock options, stock appreciation rights, restricted stock or performance awards, not to exceed such number of shares as the Committee shall designate periodically, to such employees of the Company and its subsidiaries as the Chairman shall determine in his or her sole discretion and the Chairman shall have the authority and duties of the Committee with respect to such grants. The Committee shall also have authority to interpret the Plan and to establish, amend and rescind rules and regulations for the administration of the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on all persons. 5. Effective Date of Plan. The Plan shall be submitted to the stockholders of the Company for approval at the annual meeting to be held on May 24, 1995, or any adjournment thereof, and, if approved by the stockholders, shall be deemed to have become effective on the date of such approval. 6. Stock Options. (a) Grants. Subject to the terms of the Plan, options to purchase shares of common stock of the Company, including "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted from time to time to such officers and other key employees -2- of the Company and its subsidiaries as may be selected by the Committee or the Chairman. Each grant of an option under the Plan may designate whether the option is intended to be an incentive stock option or a "nonqualified" stock option. Any option not so designated shall be deemed to be a "nonqualified" stock option. (b) Terms of Options. An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee in its sole discretion, provided that no option shall be exercisable less than six months or more than ten years after the date of grant. The per share option price shall not be less than the greater of par value or 100% of the fair market value of a share of common stock of the Company on the date the option is granted. Upon exercise, the option price may be paid in cash, in shares of common stock of the Company having a fair market value equal to the option price (provided that such shares have been held for at least six months prior to their tender to pay the option price), or in a combination thereof. The Committee may also allow the cashless exercise of options by holders thereof, as permitted under regulations promulgated by the Board of Governors of the Federal Reserve System, subject to any applicable restrictions necessary to comply with rules adopted by the Securities and Exchange Commission, and the exercise of options by holders thereof by any other means that the Committee determines to be consistent with the Plan's purpose and applicable law, including loans, with or without interest, made by the Company to the holder thereof. (c) Restrictions Relating to Incentive Stock Options. To the extent required by the Code, the aggregate fair market value (determined as of the time the option is granted) of the common stock of the Company with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under the Plan or any other plan of the Company or any of its subsidiaries) shall not exceed $100,000. (d) Termination of Employment. If an optionee ceases to be employed by the Company or any of its subsidiaries by reason of (i) death, (ii) physical or mental incapacity, (iii) retirement on or after the normal retirement date provided for in and pursuant to any pension plan of the Company or any subsidiary of the Company in effect at the time of such retirement, or (iv) early retirement (with the consent of the Committee) provided for in and pursuant to any such pension plan, any option held by such optionee may be exercised, with respect to all or any part of the common stock of the Company as to which such option was not theretofore exercised (whether or not such option was otherwise then exercisable), for such period from and after the date of such cessation of employment (not extending, however, beyond the date of expiration of such option) as the Committee may determine at the time of the grant or at any time thereafter. If an optionee ceases to be employed by the Company and any of its subsidiaries for any reason other than a reason set forth in the immediately preceding sentence, any option granted to such optionee may be exercised for a period ending on the 30th day following the date of such cessation of employment or the date of expiration of such option, whichever first occurs, but only with respect to that number of shares of common stock for which such option was exercisable immediately prior to the date of cessation of employment, except as otherwise determined by the Committee at the time of grant or at any time thereafter. (e) Additional Terms and Conditions. The agreement or instrument evidencing the grant of a stock option may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 7. Stock Appreciation Rights. (a) Grants. Subject to the terms of the Plan, rights entitling the grantee to receive cash or shares of common stock of the Company having a fair market value equal to the appreciation in market value of a stated number of shares of such common stock from the date of the grant to the date of exercise, or, in the case of rights granted in tandem with or by reference to a stock option granted prior to the grant of such rights, from the date of grant of such related stock option to the date of exercise, may be granted from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee -3- or the Chairman. (b) Terms of Grant. Such rights may be granted in tandem with or by reference to a related stock option, in which event the grantee may elect to exercise either the stock option or the right, but not both, as to the shares subject to the stock option and the right, or the right may be granted independently of a stock option. Rights granted in tandem with or by reference to a related stock option shall be exercisable to the extent, and only to the extent, that the related option is exercisable, provided that no such right (except in the case of death or physical or mental incapacity) shall be exercisable prior to the expiration of six months following the date the right is granted. Rights granted independently of a stock option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee, provided that no right shall be exercisable less than six months or more than ten years after the date of grant. Further, in the event that any employee to whom rights are granted independently of a stock option ceases to be an employee of the Company and its subsidiaries, such rights shall be exercisable only to the extent and upon the conditions that stock options are exercisable in accordance with the provisions of paragraph (d) of Section 6 of the Plan. The Committee may at the time of grant or at any time thereafter impose such additional terms and conditions on the exercise of stock appreciation rights as it deems necessary or desirable for any reason, including for compliance with Section 16(a) or Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. (c) Payment on Exercise. Upon exercise of a stock appreciation right, the holder shall be paid the excess of the then fair market value of the number of shares of common stock of the Company to which the right relates over the fair market value of such number of shares at the date of grant of the right or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of common stock having a fair market value equal to such excess, or in such combination thereof, as may be provided in the grant of such right (which may permit the holder to elect between cash and common stock or to elect a combination thereof), or, if no such provision is made in the grant, as the Committee shall determine upon exercise of the right, provided, in any event, that the holder shall be paid cash in lieu of any fractional share of common stock to which such holder would otherwise be entitled. (d) Additional Terms and Conditions. The agreement or instrument evidencing the grant of stock appreciation rights may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion. 8. Restricted Stock Awards. Subject to the terms of the Plan, restricted stock awards consisting of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee or the Chairman. Such awards shall be contingent on the employee's continuing employment with the Company or its subsidiaries for a period to be specified in the award, which shall not be less than six months or more than ten years from the date of award, and shall be subject to such additional terms and conditions as the Committee in its sole discretion deems appropriate, including, but not by way of limitation, restrictions on the sale or other disposition of such shares during the restriction period. Except as otherwise determined by the Committee at the time of the award, the holder of a restricted stock award shall have the right to vote the restricted shares and to receive dividends thereon, unless and until such shares are forfeited. 9. Performance Awards. (a) Awards. Subject to the terms of the Plan, performance awards consisting of (i) shares of common stock of the Company, (ii) monetary units or (iii) units which are expressed in terms of shares of common stock of the Company may be made from time to time to such officers and other key employees of the Company and its subsidiaries as may be selected by the Committee or the Chairman. Subject to the -4- provisions of Section 10 below, such awards shall be contingent on the achievement over a period of not less than six months or more than ten years of such corporate, division, subsidiary, group or other measures and goals as shall be established by the Committee. Subject to the provisions of Section 10 below, such measures and goals may be revised by the Committee at any time and from time to time during the performance period. Except as may otherwise be determined by the Committee at the time of the award or at any time thereafter, a performance award shall terminate if the grantee of the award does not remain continuously in the employ of the Company or its subsidiaries at all times during the applicable performance period. (b) Rights with Respect to Shares and Share Units. If a performance award consists of shares of common stock of the Company or units which are expressed in terms of shares of such common stock, amounts equal to dividends otherwise payable on a like number of shares may, if the award so provides, be converted into additional such shares (to the extent that shares are then available for issuance under the Plan) or credited as additional units and paid to the participant if and when, and to the extent that, payment is made pursuant to such award. (c) Payment. Payment of a performance award following the end of the performance period, if such award consists of monetary units or units expressed in terms of shares of common stock of the Company, may be made in cash, shares of common stock, or a combination thereof, as determined by the Committee. Any payment made in common stock shall be based on the fair market value of such stock on the payment date. 10. Performance Measures Applicable to Awards to Named Executive Officers Unless and until the Committee proposes for stockholder vote a change in the general performance measures set forth in this Section 10 the attainment of which may determine the degree of payout or vesting with respect to awards under the Plan which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such awards shall be chosen from among the following alternatives: safety (including total injury frequency, lost workday rates or cases, medical treatment cases and fatalities); quality control (including critical product characteristics, yield and defects); cost control (including cost as a percentage of sales); capital structure (including debt and equity levels, debt-to-equity ratios, and debt-to-total capitalization ratios); inventory turnover; customer performance or satisfaction; revenue growth; net income; conformity to cash flow plans; return on investment; and operating profit to operating assets. The Committee shall have the discretion to establish performance goals based upon the foregoing performance measures and to adjust such goals and the methodology used to measure the determination of the degree of attainment of such goals; provided, however, that awards under the Plan that are intended to qualify for the Performance-Based Exception and that are issued to or held by Named Executive Officers may not be adjusted in a manner that increases such award. The Committee shall retain the discretion to adjust such awards in a manner that does not increase such awards. Furthermore, the Committee shall not make any adjustment to awards under the Plan issued to or held by Named Executive Officers that are intended to comply with the Performance-Based Exception if the result of such adjustment would be the disqualification of such award under the Performance-Based Exception. In the event that applicable laws change to permit the Committee greater discretion to amend or replace the foregoing performance measures applicable to awards to Named Executive Officers without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining such approval. In addition, in the event that the Committee determines that it is advisable to grant awards under the Plan to Named Executive Officers that may not qualify for the Performance-Based Exception, the Committee may make such grants upon any performance measures it deems appropriate with -5- the understanding that they may not satisfy the requirements of Section 162(m). 11. Adjustments for Changes in Capitalization, Etc. Subject to the provisions of Section 12 herein, in the event of any change in corporate capitalization, such as stock split, or a corporate transaction, such as a merger, consolidation, or separation, including a spin-off, or other distribution of stock or property of the Company or its subsidiaries (other than normal cash dividends), any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company or its subsidiaries, such adjustment shall be made in the number and class of shares which may be delivered under Section 3, and in the number and class of and/or price of shares subject to outstanding grants or awards under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of shares subject to any grants or awards under the Plan shall always be a whole number. 12. Effect of Change in Control. (a) Acceleration of Benefits. Subject to the following sentence, in the event of a "Change in Control" as defined in paragraph (b) of this Section 12, (i) the value of all outstanding stock options, stock appreciation rights and restricted stock awards (whether or not then fully exercisable or vested) shall be cashed out on the basis of the "Change in Control Price" (as defined in paragraph (c) of this Section 12) as of the date the Change in Control occurs, provided, however, that any stock options or stock appreciation rights outstanding for less than six months shall not be cashed out until six months after the respective date of grant, and provided, further, that the Committee may provide for the immediate vesting instead of the cashing out of restricted stock awards in such circumstances as it deems appropriate; and (ii) all outstanding performance awards shall be cashed out in such manner and in such amount or amounts as determined by the Committee in its sole discretion. In the event of a transaction which is intended to be accounted for through the pooling-of-interest accounting method, (i) in lieu of cashing out all or any portion of the outstanding stock options, stock appreciation rights, restricted stock awards and performance awards, the Committee, in its discretion, may cause such grants or awards to vest, and may limit payment to shares of common stock, and (ii) the Committee, in its discretion, may extend the exercise period for stock options and stock appreciation rights, but not beyond the earlier of 30 days after the end of the pooling period or the original term of the stock option or stock appreciation right. (b) Change in Control. For purposes of this Section 12, a Change in Control means the happening of any of the following: (i) the Company is merged into or consolidated with another corporation, or the stockholders of the Company approve a definitive agreement to sell or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation, provided, however, that a Change in Control shall not be deemed to have occurred by reason of a transaction, or a substantially concurrent or otherwise related series of transactions, upon the completion of which the beneficial ownership of a majority of the voting power of the Company, the surviving corporation, or a corporation directly or indirectly controlling the Company or the surviving corporation, as the case may be, is held by the same persons (as defined below) (in substantially the same proportion) as held the beneficial ownership of the voting power of the Company immediately prior to the transaction or the substantially concurrent or otherwise related series of transactions, except that upon the completion thereof, employees or employee benefit plans of the Company may be a new holder of such beneficial ownership or (ii) the "beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing 40% or more of the combined voting power of the Company is acquired by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee or other fiduciary holding securities under an employee benefit or other similar stock plan of the Company); or (iii) at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Directors of the Company cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company's -6- stockholders, of each new director was approved by a vote of at least two-thirds of the directors still in office at the time of such election or nomination who were directors at the beginning of such period). (c) Change in Control Price. For purposes of this Section 12, Change in Control Price means (i) with respect to a Change in Control by reason of a merger or consolidation of the Company described in paragraph (b)(i) of this Section 12 in which the consideration per share of the Company's common stock to be paid for the acquisition of shares of common stock specified in the agreement of merger or consolidation is all in cash, the highest such consideration per share, (ii) with respect to a Change in Control by reason of an acquisition of securities described in paragraph (b)(ii) of this Section 12, the highest price per share for any share of the Company's common stock paid by any holder of any of the securities representing 40% or more of the combined voting power of the Company giving rise to the Change in Control, and (iii) with respect to a Change in Control by reason of a merger or consolidation of the Company (other than a merger or consolidation described in paragraph (c)(i) of this Section 12), stockholder approval of an agreement or plan described in paragraph (b)(i) of this Section 12 or a change in the composition of the Board of Directors described in paragraph (b)(iii) of this Section 12, the highest price per share of common stock reported on the New York Stock Exchange Composite Tape (or, if such shares are not traded on the New York Stock Exchange, such other principal market on which such shares are traded) during the sixty-day period ending on the date the Change in Control occurs, except that, in the case of incentive stock options and stock appreciation rights relating to incentive stock options, the holder may not receive an amount in excess of the maximum amount that will enable such option to continue to qualify as an incentive stock option. 13. Amendment and Termination of Plan. The Plan may be amended by the Board of Directors of the Company in any respect, provided that, without stockholder approval, no amendment (other than pursuant to Section 11 of the Plan) shall increase the maximum number of shares available for issuance under the Plan. In addition, no amendment may impair the rights of a participant under any stock option, stock appreciation right, restricted stock award or performance award previously granted under the Plan without the consent of such participant, unless required by law. The Plan may also be terminated at any time by the Board of Directors. No further grants may be made under the Plan after termination, but termination shall not affect the rights of any participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. 14. Prior Plan. Upon the effectiveness of this Plan, no further grants shall be made under the Inland 1992 Incentive Stock Plan. The discontinuance of the Inland 1992 Incentive Stock Plan shall not affect the rights of any participant under, or the authority of the Committee (therein referred to) with respect to, any grants or awards made thereunder prior to such discontinuance. 15. Miscellaneous. (a) No Right to a Grant. Neither the adoption of the Plan nor any action of the Board of Directors or of the Committee shall be deemed to give any employee any right to be selected as a participant or to be granted a stock option, stock appreciation right, restricted stock award or performance award. (b) Rights as Stockholders. No person shall have any rights as a stockholder of the Company with respect to any shares covered by a stock option, stock appreciation right, or performance award until the date of the issuance of a stock certificate to such person pursuant to such stock option, right or award. (c) Employment. Nothing contained in this Plan shall be deemed to confer upon any employee any right of continued employment with the Company or any of its subsidiaries or to limit or diminish in any way the right of the Company or any such subsidiary to terminate his or her employment at any time with or without cause. -7- (d) Taxes. The Company shall be entitled to deduct from any payment under the Plan the amount of any tax required by law to be withheld with respect to such payment or may require any participant to pay such amount to the Company prior to and as a condition of making such payment. In addition, the Committee may, in its discretion and subject to such rules as it may adopt from time to time, permit a participant to elect to have the Company withhold from any payment under the Plan (or to have the Company accept from the participant), for tax withholding purposes, shares of common stock of the Company, valued at their fair market value, but in no event shall the fair market value of the number of shares so withheld (or accepted) exceed the amount necessary to meet the maximum Federal, state and local marginal tax rates then in effect that are applicable to the participant and to the particular transaction. (e) Nontransferability. Except as permitted by the Committee, no stock option, stock appreciation right, restricted stock award or performance award shall be transferable except by will or the laws of descent and distribution, and, during the holder's lifetime, stock options and stock appreciation rights shall be exercisable only by, and shares subject to restricted stock awards and payments pursuant to performance awards shall be delivered or made only to, such holder or such holder's duly appointed legal representative. -8- EX-10.R 5 COPY OF FORM OF SEVERANCE AGREEMENT EXHIBIT 10.R January 28, 1998 Dear: Inland Steel Industries, Inc. ("ISI") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel of ISI and its subsidiaries (collectively, the "Company"). In this connection, the Board of Directors of ISI (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of ISI and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, ISI agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) or in connection with a "potential change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. This Agreement shall constitute an amendment and restatement of and shall supersede any prior agreement entered into between you and ISI with respect to these matters. In the event that you receive severance benefits hereunder, such benefits shall be in lieu of, and you shall not be entitled to receive, any benefits or payments under any other severance plan, policy or agreement of or with the Company. In addition, if you are or become entitled to benefits from the Company pursuant to another agreement providing for benefits on account of a change in control or the law of a jurisdiction other than the United States or any state or territory thereof as a result of an event for which benefits are payable to you pursuant to this Agreement, the benefits paid to you pursuant to this Agreement shall be reduced by the amount paid to you pursuant to such other agreement or law. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for Page 2 one additional year unless, during the preceding year but not later than June 30 of such preceding year, ISI shall have given notice that it does not wish to extend this Agreement. Notwithstanding the preceding sentence: (i) if your employer is a direct or indirect subsidiary of ISI, this Agreement shall terminate on the date on which ISI ceases to own, directly or indirectly, at least 80 percent of your employer for any reason which does not constitute a change in control of the Company, and (ii) if a change in control of the Company or a potential change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of twenty-four (24) months beyond the month in which such change in control or potential change in control of the Company occurred unless earlier terminated under clause (i) next above. 2. Change in Control; Potential Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a potential change in control or a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if: (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than (w) the Company, (x) a trustee or other fiduciary holding voting securities under an employee benefit plan of the Company, (y) an underwriter temporarily holding voting securities pursuant to an offering of such securities, or (z) a corporation owned, directly or indirectly, by the securityholders of ISI in substantially the same proportions as their ownership of voting securities of ISI, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities of ISI (not including in the voting securities beneficially owned by such person any voting securities acquired directly from ISI or its affiliates) representing 40% or more of the combined voting power of ISI's then outstanding voting securities; (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with ISI to effect a transaction described in clauses (A), (C) or (D) of this Subsection 2(i)) whose election by the Board or nomination for election by ISI's securityholders was approved by a vote of at least two- thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved ("Continuing Directors"), cease for any reason to constitute a majority thereof; (C) the holders of voting securities of ISI approve a merger or consolidation of ISI with any other corporation, other than a merger or consolidation which would result in the voting securities of ISI outstanding immediately prior thereto continuing to represent (either Page 3 by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding voting securities under an employee benefit plan of the Company, at least 60% of the combined voting power of the voting securities of ISI or such surviving entity outstanding immediately after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of ISI (or similar transaction) in which no person acquires more than 50% of the combined voting power of ISI's then outstanding voting securities; (D) the holders of voting securities of ISI approve a plan of complete liquidation of ISI or an agreement for the sale or disposition by ISI of all or substantially all of ISI's assets; or (E) there occurs: (x) a sale or disposition, directly or indirectly, other than to a person described in subclause (w), (x) or (z) of clause (A) of this Subsection 2(i), of voting securities of your employer, any direct or indirect parent company of your employer or any company that is a subsidiary of your employer and is also a significant subsidiary (as defined below) of ISI (your employer and such a parent or subsidiary being a "Related Company"), representing 50% or more of the combined voting power of the securities of such Related Company then outstanding; (y) a merger or consolidation of a Related Company with any other corporation, other than: (1) a merger or consolidation which would result in the voting securities of the Related Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding voting securities under an employee benefit plan of the Company, at least 60% of the combined voting power of the voting securities of the Related Company or such surviving entity outstanding immediately after such merger or consolidation; (2) a merger or consolidation effected to implement a recapitalization of the Related Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Related Company's then outstanding voting securities; or Page 4 (3) a merger or consolidation which would result in 50% or more of the combined voting power of the surviving company being beneficially owned by ISI or by a majority owned direct or indirect subsidiary of ISI; or (z) the sale or disposition of all or substantially all the assets of a Related Company to a person other than ISI or a majority owned direct or indirect subsidiary of ISI. Notwithstanding any other provision of this Agreement, no change in control of the Company shall be deemed to have occurred under this Subsection 2(i) if (I) such transaction includes or involves a sale to the public or a distribution to the stockholders of ISI of more than 50% of the voting securities of your employer or a direct or indirect parent of your employer, and (II) your employer or a direct or indirect parent of your employer agrees to become a successor to ISI under this Agreement or you are covered by an agreement providing for benefits upon a change in control of your employer following an event described in clause (E). For purposes of this Agreement, the term "significant subsidiary" has the meaning given to such term under Rule 405 of the Securities Act of 1933, as amended. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if: (A) ISI enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; (B) any person (including ISI) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than (w) the Company, (x) a trustee or other fiduciary holding voting securities under an employee benefit plan of the Company, (y) an underwriter temporarily holding voting securities pursuant to an offering of such securities, or (z) a corporation owned, directly or indirectly, by the securityholders of ISI in substantially the same proportions as their ownership of voting securities of ISI, who is or becomes the beneficial owner, directly or indirectly, of voting securities of ISI representing 9.5% or more of the combined voting power of ISI's then outstanding voting securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. Page 5 You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential change in control of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement, as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. If your employment is terminated by the Company without Cause (as defined in Subsection 3(ii) below) coincident with or prior to a change in control of the Company and within twelve (12) months after the occurrence of a potential change in control of the Company and a change in control of the Company occurs within six (6) months after such termination, you shall be entitled to the compensation and benefits hereunder as if your termination of employment without Cause followed a change in control of the Company; provided, however, that no benefits shall be payable under this sentence if prior to the change in control of the Company, ISI ceased to own, directly or indirectly, at least 80% of the voting securities of your employer. (iii) The foregoing to the contrary notwithstanding, a change in control of the Company shall not be deemed to have occurred with respect to you if: (A) the event first giving rise to the potential change in control of the Company involves a publicly announced transaction or publicly announced proposed transaction which at the time of the announcement has not been previously approved by the Board and you are "part of a purchasing group" (as defined below) proposing the transaction; (B) you are part of a purchasing group which consummates the change in control transaction; or (C) the change in control of the Company would otherwise occur under Subsection 2(i)(D) due to the sale of a significant subsidiary, which significant subsidiary constitutes all or substantially all of the assets of ISI and you are not employed by ISI or the significant subsidiary which is the subject of the transaction. For purposes of this Agreement, you shall be deemed "part of a purchasing group" if you are an equity participant or have agreed to become an equity participant in the purchasing company or group (except for (A) passive ownership of less than 1% of the stock of the purchasing company or (B) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the change in control of the Company by a majority of the non-employee Continuing Directors). 3. Termination Following Change in Control. If a change in control of the Company, as defined in Section 2 hereof, shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Page 6 Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination on or after your normal retirement age in accordance with the Company's retirement policy generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection 3(ii), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection 3(ii) and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as an executive officer of the Company or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company Page 7 other than any such alteration primarily attributable to the fact that the Company may no longer be a public company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time; (C) the Company's requiring that your principal place of business be at an office located more than 50 miles from where your principal place of business is located immediately prior to the change in control of the Company, except for required travel on the Company's business to an extent substantially consistent with your business travel obligations immediately prior to the change in control of the Company; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any compensation plan in which you participate immediately prior to the change in control of the Company which is material to your total compensation, including but not limited to the Inland Annual Incentive Plan (the "Annual Incentive Plan"), Inland Special Achievement Award Plan, Inland 1986 Employee Stock Purchase Plan, Inland 1995 Incentive Stock Plan, Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees (the "Supplemental Plan"), Inland Steel Industries Special Retirement Benefit Plan for Covered Employees (the "Special Benefit Plan"), Inland Steel Industries Nonqualified Thrift Plan (the "Nonqualified Thrift Plan"), Inland Steel Industries Pension Plan (the "Pension Plan") and Inland Steel Industries Thrift Plan (the "Thrift Plan") or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, flexible spending or disability plans or programs in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in Page 8 accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of ISI to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) below (and, if applicable, the requirements of Subsection 3(ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Section 3 shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection 3(ii) or 3(iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection 3(iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected) but shall be deemed to be within the twenty-four (24) month period following a change in control of the Company; provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full Page 9 compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans and programs in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection 3(v). Amounts paid under this Subsection 3(v) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under the Pension Plan, Supplemental Plan, Special Benefit Plan, Annual Incentive Plan, Thrift Plan and Nonqualified Thrift Plan (or, if and to the extent applicable, the Ryerson Tull Pension Plan (the "RT Pension Plan"), the Ryerson Tull Inc. Supplemental Retirement Benefit Plan for Covered Employees (the "RT Supplemental Plan") and the Ryerson Tull Nonqualified Savings Plan (the "RT Nonqualified Plan")) during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, in the event your employment shall be terminated, your benefits shall be determined under the Company's retirement, insurance and other compensation plans and programs then in effect in accordance with the terms of such plans and programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement or Disability, or (b) by you for Good Reason, then you shall be entitled to the compensation and benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan or program of the Company, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance Page 10 payment (together with the payments provided in paragraphs C, D and E below, the "Severance Payments") equal to three times the sum of (x) your annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (y) the average annual amount of the Award paid to you pursuant to the Annual Incentive Plan or similar successor plan with respect to the five years immediately preceding that in which the Date of Termination occurs, such average annual amount being calculated by aggregating all such Awards paid with respect to such five years and dividing such aggregate amount by the number of years for which such an Award was actually paid to you. (C) Notwithstanding any provision of the Annual Incentive Plan and the Inland Special Achievement Award Plan, the Company shall pay to you a lump sum amount equal to the sum of (x) any incentive compensation which has been allocated or awarded to you for a completed fiscal year or other measuring period preceding the Date of Termination but has not yet been paid, and (y) a pro rata portion to the Date of Termination for the current fiscal year or other measuring period of the amount equal to the Target Award percentage applicable to you under the Annual Incentive Plan or similar successor plan on the Date of Termination times your annual base salary then in effect. (D) In lieu of shares of common stock of ISI ("ISI Shares") issuable upon exercise of outstanding stock options ("Options") granted to you under ISI's stock option plans (which Options shall be cancelled upon the making of the payment referred to below), you shall receive an amount in cash equal to the product of (i) the excess of (x) in the case of incentive stock options (as defined in section 422A of the Internal Revenue Code of 1986, as amended (the "Code")) ("ISOs") granted after March 27, 1996, the closing price of ISI's shares as reported on the New York Stock Exchange Composite Transactions on or nearest the Date of Termination, or, in the case of all other Options, the Change in Control Price (as defined below), over (y) the per share exercise price of each Option then held by you (whether or not then fully exercisable), times (ii) the number of ISI Shares covered by each such Option. For purposes of this Agreement, the "Change in Control Price" means: (1) with respect to a merger or consolidation of ISI described in Subsection 2(i)(C) in which the consideration per share of ISI's common stock to be paid for the acquisition of shares of common stock specified in the agreement of merger or consolidation is all in cash, the highest such consideration per share; (2) with respect to a change in control of the Company by reason of an acquisition of voting securities described in Subsection 2(i)(A), the highest price per share for any share of ISI's common stock paid by any holder of any of the securities representing 40% or more of the combined voting power of ISI giving rise to the change in control of the Company; and (3) with respect to a change in control of the Company by reason of a merger or consolidation of ISI (other than a merger or consolidation described in Clause (1) next above), stockholder approval of an agreement or plan described in Subsection 2(i)(D), a change in the composition of the Board described in Subsection 2(i)(B) or a change in control Page 11 of the Company pursuant to Subsection 2(i)(E) (relating to mergers, consolidations and sales of securities or assets of a Related Company), the highest price per share of common stock reported on the New York Stock Exchange Composite Transactions (or, if such shares are not traded on the New York Stock Exchange, such other principal market on which such shares are traded) during the sixty (60) day period ending on the date the change in control of the Company occurs. (E) To the extent not otherwise vested in accordance with the terms and conditions of the Inland 1995 Incentive Stock Plan, you shall be fully vested in any restricted shares issued thereunder and be fully vested in any performance shares that you would have earned under the 1995 Incentive Stock Plan for the calendar year in which the change in control of the Company occurs had the applicable performance targets for such calendar year been satisfied with respect to such shares. (F) The Company shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made at the later of the times specified in paragraph (J) below, or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (G) In the event that you become entitled to any payments provided for hereinabove (the "Contract Payments"), if the Contract Payments or other portion of the Total Payments (as defined below) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to you, no later than the fifth day following the Date of Termination, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payments and such other Total Payments and any federal and state and local income and other payroll taxes and Excise Tax upon the payment provided for by this paragraph (G), shall be equal to the Contract Payments and such other Total Payments. (H) For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Company or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control or any person affiliated with the Company or such person) payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control or any person affiliated with Page 12 the Company or such person (together with the Contract Payments, the "Total Payments"), shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code and all "excess parachute payments" within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless in the opinion of tax counsel selected by ISI's independent auditors and reasonably acceptable to you, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code in excess of the base amount allocable to such reasonable compensation within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(l) of the Code (after applying clause (i) above), and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by ISI's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (I) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (J) The payments provided for in paragraphs (B), (C), (D) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Page 13 Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall arrange to provide you with: (1) life, disability, accident and health insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination, (2) financial advisory services similar to those provided currently to executives of the Company by Ayco Corporation, and (3) outplacement services. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you during the thirty-six (36) month period following your termination, and any such benefits actually received by you shall be reported to the Company. Any rights that you have to continuation of life, disability, accident or health coverage under applicable state or federal law shall be in addition to those provided under this Agreement. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Pension Plan, Supplemental Plan or Special Benefit Plan (and, if and to the extent applicable, the RT Pension Plan and the RT Supplemental Plan) or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (J) of Subsection 4(iii), a lump sum equal to the excess of (x) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidy associated therewith and determined as a straight life annuity commencing at age sixty-five (65) or any earlier date, but in no event earlier than the second anniversary of the Date of Termination whichever annuity yields a greater benefit) which you would have accrued under the terms of the Pension Plan, Supplemental Plan or Special Benefit Plan, without regard to any amendments to any such plans made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of age and service credit thereunder at the higher of the rate of average compensation during the twelve (12) months prior to the change in control of the Company or the rate of average compensation used to calculate your benefits under such plans immediately preceding the Date of Termination, over (y) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidy associated therewith and determined as a straight life annuity commencing at age sixty-five (65) or any earlier date, but in no event earlier than the Date of Termination whichever annuity yields a Page 14 greater benefit) which you had then accrued pursuant to the provisions of the Pension Plan, the Supplemental Plan and the Special Benefit Plan. For purposes of this Subsection 4(v), "actuarial equivalent" shall be determined using the same assumptions utilized under the Pension Plan for purposes of determining alternative forms of benefits immediately prior to the change in control of the Company. (vi) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise, except as provided in Subsection 4(iv). (vii) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the Pension Plan, the Thrift Plan, Supplemental Plan, Special Benefit Plan, Nonqualified Thrift Plan and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) ISI will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of ISI to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ISI or the Company would be required to perform it if no such succession had taken place. Failure of ISI to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. In the event a successor of ISI assumes and agrees to perform this Agreement, by operation of law or otherwise, the term "ISI", as used in this Agreement, shall mean such successor and the term "Company" shall mean, collectively, such successor and the affiliates of such successor. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Page 15 Company shall be directed to the attention of the Board with a copy to the Secretary of ISI, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of ISI and the Company under Section 4 shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Settlement of Disputes; Arbitration. All claims by you for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to you in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to you for a review of the decision denying a claim and shall further allow you to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that your claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Page 16 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to ISI the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, INLAND STEEL INDUSTRIES, INC. By ____________________________________________ Vice President Agreed to this ________ day of ________________________, 1998. ________________________________________ (Signature) EX-10.S.1 6 COPY OF RYERSON TULL DIRECTORS Exhibit 10.S.(1) RYERSON TULL DIRECTORS' COMPENSATION PLAN ---------------------------- SECTION 1 --------- General ------- 1.1 Purpose and Effective Date. The Ryerson Tull Directors' Compensation Plan (the "Plan") has been established by Ryerson Tull, Inc. (the "Company") to provide an alternative method of compensating those directors of the Company who do not otherwise receive compensation as employees of the Company or its affiliates in order to aid the Company in attracting and retaining as directors persons whose abilities, experience and judgment can contribute to the continued progress of the Company and to facilitate the directors' ability to acquire a proprietary interest in the Company. The Plan shall be effective upon the consummation of the initial public offering of Class A Common Stock, $1.00 par value per share, of the Company ("Stock"), which date shall be the "Effective Date" of the Plan as set forth herein. 1.2 Participation. Only Non-Employee Directors of the Company shall be eligible to participate in the Plan. As of any applicable date, a "Non-Employee Director" is a person who is serving as a director of the Company who is not an employee of the Company or any affiliate of the Company as of that date. 1.3 Administration. The authority to manage and control the operation and administration of the Plan shall be vested in a committee of the Board of Directors of the Company (the "Board") which committee (the "Committee") shall have such authorities as delegated to it from time to time by the Board. Subject to the limitations of the Plan and any limitations on authorities imposed on the Committee by the Board, the Committee shall have the sole and complete authority to: (a) interpret the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; (b) correct any defect or omission and reconcile any inconsistency in the Plan or in any payment made hereunder; and (c) to make all other determinations and take all other actions necessary or advisable for the implementation and administration of the Plan. The Committee's determinations on matters within its control shall be conclusive and binding on the Company and all other persons. Notwithstanding the foregoing, no member of the Committee shall act with respect to the administration of the Plan in a manner inconsistent with the exempt status of the Plan under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-3") as then in effect. 1.4 Shares Subject to the Plan. The shares of Stock which shall be available for distribution pursuant to the Plan shall be either authorized and unissued shares or treasury shares (including, in the discretion of the Company, shares purchased in the open market). The number of shares of Stock to be distributed pursuant to Non-Employee Directors' elections to receive shares of Stock in lieu of Cash Retainers (as described in subsection 2.1) shall be determined in accordance with Section 2. The number of shares of Stock to be distributed pursuant to Non-Employee Directors' Deferral Elections (as described in Section 3) shall be determined in accordance with Section 3. The aggregate number of shares of Stock which are available for issuance under the Plan shall be 100,000; provided, however, that: (a) in the event of any merger, consolidation, reorganization, recapitalization, spinoff, stock dividend, stock split, reverse stock split, rights offering, exchange or other change in the corporate structure or capitalization of the Company affecting the Stock, the number and kind of shares of Stock available for awards under the Plan shall be equitably -2- adjusted in such manner as the Committee shall determine in its sole judgment; (b) in determining what adjustment, if any, is appropriate pursuant to paragraph (a), the Committee may rely on the advice of such experts as it deems appropriate, including counsel, investment bankers and the accountants of the Company; and (c) no fractional shares shall be granted or authorized pursuant to any adjustment pursuant to paragraph (a), although cash payments may be authorized in lieu of fractional shares that may otherwise result from such an equitable adjustment. Except to the extent otherwise determined by the Committee, any shares of Stock issued pursuant to subsection 2.1 that terminate without vesting, shall become available for future awards of Stock under the Plan. 1.5 Compliance with Applicable Laws. Notwithstanding any other provision of the Plan, the Company shall have no obligation to deliver any shares of Stock under the Plan unless such delivery would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the delivery of any shares of Stock under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. If the redistribution of shares is restricted pursuant to this subsection 1.5, the certificates representing such shares may bear a legend referring to such restrictions. 1.6 Director and Shareholder Status. The Plan will not give any person the right to continue as a director of the Company, or any right or claim to any benefits under the Plan unless such right or claim to any benefits has specifically accrued under the terms of the Plan. Participation in the Plan and any right to accrued benefits shall not create any rights in a director (or any other person) as a shareholder of the Company until shares of Stock are registered in the name of the director (or such other person). -3- 1.7 Definition of Fair Market Value. The "Fair Market Value" of a share of Stock on any date shall be equal to the average of the high and low prices of a share of Stock reported on the New York Stock Exchange Composite Transactions for the applicable date or, if there are no such reported trades for such date, for the last previous date for which trades were reported. 1.8 Source of Payments. Except for Stock actually delivered pursuant to the Plan, the Plan constitutes only an unfunded, unsecured promise of the Company to make payments or awards to directors (or other persons) or deliver Stock in the future in accordance with the terms of the Plan. 1.9 Nonassignment. Neither a director's nor any other person's rights to payments or awards under the Plan are subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the director. 1.10. Elections. Any notice or document required to be filed with the Committee under the Plan will be properly filed if delivered or mailed by registered mail, postage prepaid, to the Committee, in care of the Company, at the Company's principal executive offices. The Committee may, by advance written notice to affected persons, revise such notice procedure from time to time. Any notice required under the Plan may be waived by the person entitled thereto. SECTION 2 --------- Payment of Retainer; Election to Receive Stock in Lieu of Retainer ------------------------------------ 2.1 Payment of Retainer. Subject to the terms and conditions of the Plan, for each Award Year (as defined below), each individual who is a Non-Employee Director during such Award Year shall be paid a retainer in an amount determined from time to time by the Board (the "Retainer") in accordance with and subject to the following: -4- (a) For each Award Year, a "Cash Retainer" shall be payable to each individual who is a Non-Employee Director during such Award Year, subject to the following: (i) The amount of the Cash Retainer payable to a Non-Employee Director for any Award Year shall be one-half of the Retainer for the Award Year and shall be paid in quarterly installments on the last day of each Fiscal Quarter (as defined below), beginning with the last day of the Fiscal Quarter in which the first day of the Award Year occurs and ending with the earlier of (A) the last day of the Fiscal Quarter in which the Non-Employee Director's service as a Non-Employee Director terminates for any reason, or (B) the last day of the first Fiscal Quarter ending after the last day of the Award Year. (ii) The amount of each quarterly installment of the Cash Retainer for an Award Year payable to a Non-Employee Director shall be equal to the product of (A) the Cash Retainer, multiplied by (B) a fraction, the numerator of which is the number of months, or any portion thereof, during such Fiscal Quarter during which the individual served as a Non-Employee Director, and the denominator of which is twelve. (b) For each Award Year, a "Stock Retainer" shall be payable to each individual who is a Non-Employee Director during such Award Year, subject to the following: (i) The amount of the Stock Retainer payable to a Non-Employee Director for an Award Year shall be equal to the product of (A) one-half of the Retainer for the Award Year, multiplied by (B) a fraction, the numerator of which is the number of months or any portion thereof remaining in the Award Year as of the Issue -5- Date (as defined below) and denominator of which is 12. (ii) The Stock Retainer payable to a Non-Employee Director for any Award Year shall be paid as of the Issue Date in the form of shares of Class A Common Stock of the Company having a Fair Market Value (determined as of the Issue Date) equal to the amount of the Stock Retainer payable to the Non-Employee Director for the Award Year, which shares shall be subject to forfeiture and transfer restrictions until earned as described in this paragraph (b) ("Restricted Stock"). (iii) The shares of Restricted Stock awarded to a Non-Employee Director for an Award Year pursuant to this paragraph (b) shall be earned by him or her and the restrictions on such shares shall lapse in quarterly installments on the last day of each Fiscal Quarter, beginning with the last day of the Fiscal Quarter in which the first day of the Award Year occurs and ending with the earlier of (A) the last day of the Fiscal Quarter in which the Non-Employee Director's service as a Non- Employee Director terminates for any reason, or (B) the last day of the first Fiscal Quarter ending after the last day of the Award Year. Any shares of Restricted Stock which are not earned by a Non-Employee Director as of the last day of the Fiscal Quarter in which his or her service as a Non-Employee Director terminates shall be forfeited. (iv) The number of shares of Restricted Stock for any Award Year which are earned by a Non-Employee Director for any Fiscal Quarter shall be equal to the product of (A) the total number of shares of Restricted Stock awarded to him or her for the Award Year, multiplied by (B) a fraction, the numerator of which is the number -6- of months, or any portion thereof, during such Fiscal Quarter during which the individual served as a Non-Employee Director, and the denominator of which is twelve. In the event that this subparagraph (iv) results in a fractional share of Restricted Stock being earned as of the last day of a Fiscal Quarter, the Fair Market Value of any such fractional share shall be paid in cash as soon as practicable after the last day of the Fiscal Quarter. For purposes of the Plan: (1) The term "Fiscal Quarter" shall mean each calendar quarter ending after the regular annual meeting of shareholders of the Company (an "Annual Meeting") occurring in 1997. (2) The term "Award Year" shall mean the 12-consecutive-month period commencing as of the first day of the first calendar month following the date of the Annual Meeting occurring in 1997 and each 12- consecutive-month period commencing as of the first day of the first calendar month following each Annual Meeting thereafter. (3) The term "Issue Date" shall mean (A) in the case of an individual who was a Non-Employee as of the first day of the Award Year, the first day of the Award Year, or (B) in the case of an individual who becomes a Non-Employee Director during the Award Year but after the first day thereof, the first day of the month coincident with or next following the date on which such individual first becomes a Non-Employee Director. Notwithstanding the foregoing, the Board, in its sole discretion, may determine that an Award Year of less than 12 months is appropriate, in which case, the amount of the Retainer for such Award Year and the period over which such Retainer is paid or earned shall be equitably adjusted as determined by the Board. -7- 2.2 Election to Receive Stock. Subject to the terms and conditions of the Plan, each Non-Employee Director may elect to forego receipt of all or any portion of the Cash Retainer otherwise payable to him or her following the Effective Date and instead to receive whole shares of Stock of equivalent value to the Retainer so foregone (determined in accordance with subsection 2.4). A Non-Employee Director's election under this subsection 2.2 to have all or any portion of his or her Cash Retainer paid in shares of Stock shall be valid only if it is in writing, signed by the Non-Employee Director, and filed with the Committee in accordance with uniform and nondiscriminatory rules adopted by the Committee. 2.3 Revocation of Election to Receive Stock. Once effective, a Non- Employee Director's election pursuant to subsection 2.2 to receive Stock in lieu of his or her Cash Retainer shall remain in effect for successive calendar years until it is revised or revoked. Any such revision or revocation shall be in writing, signed by the Non-Employee Director and filed with the Committee and shall be effective for the calendar year next following the date on which it is received by the Committee, or such later date specified in such notice. 2.4 Equivalent Amount of Stock. The number of whole shares of Stock to be distributed to any Non-Employee Director by reason of his or her election pursuant to subsection 2.2 to receive Stock in lieu of his or her Cash Retainer shall be equal to: (a) the dollar amount of the Cash Retainer which the Non-Employee Director has elected to have paid to him or her in shares of Stock; DIVIDED BY (b) the Fair Market Value of a share of Stock as of the date on which such Cash Retainer (or portion thereof) would otherwise have been payable to the Non-Employee Director. The Fair Market Value of any fractional share shall be paid to the Non-Employee Director in cash. -8- SECTION 3 --------- Deferral Elections ------------------ 3.1 Deferrals. Subject to the terms and conditions of the Plan, each Non- Employee Director may elect to defer the receipt of all or any portion of the Retainer and Eligible Fees (as defined below) otherwise payable to or, in the case of the Stock Retainer, earned by him or her, for periods on or after the Effective Date. A Non-Employee Director may elect the deferral described in the preceding sentence by filing a written "Deferral Election" with the Committee in accordance with uniform and nondiscriminatory rules adopted by the Committee. A Non-Employee Director's Deferral Election shall specify the portion of his or her Retainer and Eligible Fees (including any portion of his or her Stock Retainer or any portion of his or her Cash Retainer that he or she has elected to receive in Stock pursuant to subsection 2.2) to be deferred and the future date as of which distribution of the deferred amounts is to be made in accordance with the terms and conditions of the Plan (the "Distribution Date"). If no Distribution Date is specified in a Non-Employee Director's Deferral Election, the Distribution Date shall be deemed to be the first business day in January of the year following the date on which the Non-Employee Director ceases to be a director of the Company for any reason. A Non-Employee Director's Deferral Election shall be effective with respect to the portion of his or her Retainer and Eligible Fees otherwise payable to or, in the case of the Stock Retainer, earned by him or her for services rendered after the last day of the calendar year in which such election is filed with the Committee; provided, however, that: (a) a Deferral Election which is filed within 30 days of the date on which a director first becomes a Non-Employee Director shall be effective with respect to all Eligible Fees and Retainer otherwise payable to or, in the case of the Stock Retainer, earned by him or her after the date of the Deferral Election; and (b) by notice filed with the Committee in accordance with uniform and nondiscriminatory rules established by it, -9- a Non-Employee Director may terminate or modify any Deferral Election as to his or her Retainer and Eligible Fees payable to or, with respect to the Stock Retainer, earned by him or her for services rendered after the last day of the calendar year in which such notice is filed with the Committee; provided, however, that no modification may be made to the Distribution Date unless the Non-Employee Director shall file such notice with the Committee at least one year prior to the Distribution Date. Notwithstanding the provisions of paragraph (b) next above, the Committee may, in its sole discretion, after considering all of the pertinent facts and circumstances, approve a change to the Distribution Date which is requested by a Non-Employee Director less than one year prior thereto. For purposes of the Plan, the term "Eligible Fees" means the meeting fees, committee fees and committee chair fees (and does not include any portion of the Retainer) that would otherwise be payable to the Non-Employee Director by the Company as established, from time to time, by the Board or any committee thereof. 3.2 Crediting and Adjustment of Deferred Amounts. The amount of any Retainer and Eligible Fees deferred pursuant to subsection 3.1 ("Deferred Compensation") shall be credited to a bookkeeping account maintained by the Company in the name of the Non-Employee Director (the "Deferred Compensation Account"), which account shall consist of two subaccounts, the "Company Stock Subaccount" and the "Cash Subaccount." The amount, if any, of the Stock Retainer or the Cash Retainer that the Non-Employee Director has elected to receive in Stock pursuant to subsection 2.2 and with respect to which he or she has filed a Deferral Election pursuant to subsection 3.1 shall be credited to his or her Company Stock Subaccount. Any other Deferred Compensation shall be credited to his or her Cash Subaccount. A Non-Employee Director's Deferred Compensation Account shall be adjusted as follows: (a) As of the first day of each calendar quarter (which dates are referred to herein as "Accounting Dates"), the Non-Employee Director's Cash Subaccount shall be adjusted as follows: -10- (i) first, the amount of any distributions made since the last preceding Accounting Date and attributable to the Cash Subaccount shall be charged to the Cash Subaccount; (ii) next, the balance of the Cash Subaccount after adjustment in accordance with subparagraph (i) next above shall be credited with interest since the last preceding Accounting Date computed at the prime rate as reported by The First National Bank of Chicago (or its successor) for such date or, if such date is not a business day, for the next preceding business day; (iii) finally, after adjustment in accordance with the foregoing provisions of this paragraph (a), the Cash Subaccount shall be credited with the portion of the Deferred Compensation otherwise payable to the Non-Employee Director since the last preceding Accounting Date which is to be credited to the Cash Subaccount. (b) The Non-Employee Director's Company Stock Subaccount shall be adjusted as follows: (i) as of any date on or after the Effective Date on which any portion of a Non-Employee Director's Retainer would have been payable to the Non-Employee Director in Stock but for his or her Deferral Election, the Company Stock Subaccount shall be credited with a number of "Stock Units" equal to the number of shares of Stock (including any fractional shares) to which he or she would have been entitled pursuant to Section 2; (ii) as of the date on which shares of Stock are distributed to the Non-Employee Director in accordance with subsection 3.3 below, an equal number of Stock Units will be subtracted from the Company Stock Subaccount; and -11- (iii) as of the record date for any dividend paid on Stock, the Company Stock Subaccount shall be credited with that number of additional Stock Units which is equal to the number obtained by multiplying the number of Stock Units then credited to the Company Stock Subaccount by the amount of the cash dividend or the fair market value (as determined by the Board) of any dividend in kind payable on a share of Stock, and dividing that product by the then Fair Market Value of a share of Stock. In the event of any merger, consolidation, reorganization, recapitalization, spinoff, stock split, reverse stock split, rights offering, exchange or other change in the corporate structure or capitalization of the Company affecting the Stock, each Non-Employee Director's Company Stock Subaccount shall be equitably adjusted in such manner as the Committee shall determine in its sole judgment. 3.3 Payment of Deferred Compensation Account. Except as otherwise provided in this subsection 3.3 or subsection 3.4, the balances credited to the Cash Subaccount and Company Stock Subaccount of a Non-Employee Director's Deferred Compensation Account shall each be payable to the Non-Employee Director in a lump sum or quarterly installments (over a period not exceeding ten years) as elected by the Non-Employee Director in his or her Deferral Election; provided, however, that if no distribution form was elected by the Non-Employee Director in his or her Deferral Election, payment shall be made in a lump sum. Installment distributions shall commence as of the first day of the first calendar quarter after the Distribution Date and shall continue as of the first day of each calendar quarter thereafter for the applicable period. Notwithstanding the foregoing, a Non-Employee Director, by filing a notice with the Committee at least one year prior to the Distribution Date, may elect to change the number of payments to a single payment or to any number of quarterly payments not in excess of forty. Each installment payment shall include a cash portion, if applicable, and a Stock portion, if applicable, as follows: -12- (a) The cash portion to be paid as of any date determined under the foregoing provisions of this Section 3.3 and charged to the Cash Subaccount shall be equal to the balance of the Cash Subaccount multiplied by a fraction, the numerator of which is one and the denominator of which is the number of remaining payments to be made, including such payment. (b) The Stock portion to be paid as of any date determined under the foregoing provisions of this Section 3.3 and charged to the Company Stock Subaccount shall be distributed in whole shares of Stock, the number of shares of which shall be determined by rounding to the next lower integer the product obtained by multiplying the number of Stock Units then credited to the Non-Employee Director's Company Stock Subaccount by a fraction, the numerator of which is one and the denominator of which is the number of remaining payments to be made, including such payment. The Fair Market Value of any fractional share of Stock remaining after all installment Stock distributions have been made to the Non-Employee Director pursuant to this paragraph (b) shall be paid to the Non-Employee Director in cash. Notwithstanding the foregoing, the Committee, in its sole discretion, may distribute all balances in any Deferred Compensation Account to a Non-Employee Director (or former Non-Employee Director) in a lump sum as of any date. 3.4 Payments in the Event of Death. If a Non-Employee Director dies before payment of his or her Deferred Compensation Account commences, all amounts then credited to his or her Deferred Compensation Account shall be distributed to his or her Beneficiary (as described below), as soon as practicable after his or her death, in a lump sum. If a Non-Employee Director dies after payment of his or her Deferred Compensation Account has commenced but before the entire balance of such account has been distributed, the remaining balance thereof shall be distributed to his or her Beneficiary, as soon as practicable after his or her death, in a lump sum. Any amounts in the Cash Subaccount shall be distributed in cash and any amounts in the Stock -13- Subaccount shall be distributed in whole shares of Stock determined in accordance with paragraph 3.3(b), and the Fair Market Value of any fractional share of Stock shall be distributed in cash. For purposes of the Plan, the Non- Employee Director's "Beneficiary" is the person or persons the Non-Employee Director designates, which designation shall be in writing, signed by the Non- Employee Director and filed with the Committee prior to the Non-Employee Director's death. A Beneficiary designation shall be effective when filed with the Committee in accordance with the preceding sentence. If more than one Beneficiary has been designated, the balance in the Non-Employee Director's Deferred Compensation Account shall be distributed to each such Beneficiary per capita (with cash distributed in lieu of any fractional share of Stock). In the absence of a Beneficiary designation or if no Beneficiary survives the Non- Employee Director, the Beneficiary shall be the Non-Employee Director's estate. SECTION 4 --------- Amendment and Termination ------------------------- While the Company expects and intends to continue the Plan, the Board reserves the right to, at any time and in any way, amend, suspend or terminate the Plan; provided, however, that no amendment, suspension or termination shall: (a) be made without shareholder approval to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Stock is listed or quoted; (b) except as provided in subsection 3.3 (relating to lump sum payments of amounts held in a Non-Employee Director's Deferred Compensation Account) or this Section 4, materially alter or impair the rights of a Non-Employee Director under the Plan without the consent of the Non- Employee Director with respect to rights already accrued hereunder; or (c) make any change that would disqualify the Plan or any other plan of the Company intended to be so qualified -14- from the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934, as amended. -15- EX-10.S.2 7 COPY OF RYERSON TULL NONQUALIFIED SAVINGS Exhibit ------- 10.S.(2) RYERSON TULL NONQUALIFIED SAVINGS PLAN ------------------------- (Effective January 1, 1998) Ryerson Tull, Inc. hereby establishes this Ryerson Tull Nonqualified Savings Plan, effective as of January 1, 1998, in order to continue to enable employees of the Company and the other Employers to obtain the same level of benefits they would have been able to receive under the Ryerson Tull Savings Plan but for the limits imposed by Sections 401(a)(17) or 415 of the Internal Revenue Code of 1986, as amended, on the amounts that can be contributed to the Savings Plan. The Plan is intended to be an "excess benefit plan" described in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended; provided, however, that, to the extent, if any, that the Plan provides benefits which cannot be provided by an excess benefit plan, the Plan shall constitute an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. ARTICLE I DEFINITIONS ----------- 1.01 "Account" means the record of a Participant's interest in the Plan attributable to Company Contributions and Participant Contributions made on behalf of such Participant. 1.02 "Base Compensation" means Base Compensation as defined in the Savings Plan. 1.03 "Beneficiary" means, with respect to a Participant, the Participant's Beneficiary under the Savings Plan. 1.04 "Board" means the Board of Directors of the Company. 1.05 "Code" means the Internal Revenue Code of 1986, as from time to time amended. 1.06 "Company" means Ryerson Tull, Inc. 1.07 "Distributable Event" means a Distributable Event as defined in the Savings Plan. 1.08 "Effective Date" means January 1, 1998. 1.09 "Eligible Employee" means an employee of an Employer who is eligible to participate in the Savings Plan and whose Base Compensation exceeds the limits set forth in Section 401(a)(17) of the Code or whose contributions under the Savings Plan are limited by Section 415 of the Code. 1.10 "Employer" means an Employer as defined in the Savings Plan. 1.11 "Employer Contributions" means the contributions to the Plan by the Employers pursuant to Section 3.03. 1.12 "Enrollment Date" means the Effective Date and the first day of each month thereafter. 1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. 1.14 "Nonqualified Thrift Plan" means the Inland Steel Industries, Inc. Nonqualified Thrift Plan. -2- 1.15 "Participant" means each Eligible Employee who has met the requirements of Article II for participation in the Plan. 1.16 "Participant Contributions" means the contributions to the Plan by the Employers on behalf of a Participant pursuant to Section 3.01. 1.17 "Permanent Incapacity" means Permanent Incapacity as defined in the Savings Plan. 1.18 "Plan" means the Ryerson Tull Inc. Nonqualified Savings Plan, as from time to time amended. 1.19 "Plan Administrator" means the Plan Administrator appointed under the Savings Plan or any other individual as may be appointed by the Chairman of the Board, the President, the Vice President-Human Resources or the Treasurer of the Company to administer the Plan. To the extent consistent with the purposes of the Plan and the authority delegated to the Assistant Plan Administrator pursuant to Section 6.03(h), the term Plan Administrator shall include the Assistant Plan Administrator. 1.20 "Plan Year" means the calendar year. 1.21 "Related Company" means a Related Company as defined in the Savings Plan. 1.22 "Retirement" means Retirement as defined in the Savings Plan. 1.23 "Savings Plan" means the Ryerson Tull Savings Plan, as from time to time amended. 1.24 "Valuation Date" means the last day of each month. -3- 1.25 "Years of Vesting Service" means Years of Vesting Service as defined in the Savings Plan. ARTICLE II PARTICIPATION ------------- 2.01 Eligibility. An Eligible Employee shall become a Participant on the Enrollment Date next following the filing with the Plan Administrator of an instrument in a form prescribed by the Plan Administrator evidencing his or her acceptance of the provisions of the Plan. Notwithstanding the foregoing, any person who is an Eligible Employee and who, immediately prior to becoming an Eligible Employee, was a participant in the Nonqualified Thrift Plan shall automatically become a Participant in the Plan as of the date on which he or she becomes an Eligible Employee. 2.02 Restricted Participation. Notwithstanding any other provision of the Plan to the contrary, if the Plan Administrator determines that participation by one or more Participants or Beneficiaries shall cause the Plan as applied to any Employer to be subject to Part 2, 3 or 4 of Title I of ERISA, the entire interest of such Participant or Beneficiary under the Plan shall, in the discretion of the Plan Administrator, be immediately paid to such Participant or Beneficiary, as applicable, by the applicable Employer or Employers, or shall otherwise be segregated from the Plan, and such Participant(s) or Beneficiary(ies) shall cease to have any interest under the Plan. -4- ARTICLE III CONTRIBUTIONS ------------- 3.01 Participant Contributions. For any payroll period, each Participant who is an Eligible Employee for such payroll period may elect for his or her Employer to make contributions ("Participant Contributions") under the Plan equal to not less than one (1) percent (1%) and not more than ten percent (10%) of the Participant's Base Compensation. Contributions made to the Plan on a Participant's behalf for any payroll period shall be treated as a salary reduction and shall reduce the amount of current cash compensation otherwise payable to such Participant for such payroll period. 3.02 Designation of Participant Contributions. Each Participant shall designate the percentage of his or her Base Compensation to be deferred as a contribution under the Plan in the same instrument by which he or she evidences his or her acceptance of the provisions of the Plan pursuant to Article II. Thereafter (but not retroactively), a Participant may, on a form prescribed by the Plan Administrator, change the percentage of his or her Base Compensation to be deferred as a contribution under the Plan, subject to the limitations of this Article III. Notwithstanding the foregoing, in the case of any person who becomes a Participant and who immediately prior thereto was a participant in the Nonqualified Thrift Plan, any election made by such individual under the Nonqualified Thrift Plan that was effective immediately prior to the date on which he or she becomes a Participant shall be considered an election under the foregoing provisions of this Article III effective as of the date on which he or she becomes a Participant without any other action being required on the part of the individual. -5- 3.03 Employer Contributions. For each payroll period, each Employer shall make a contribution to the Plan ("Employer Contributions") in respect of each Participant who is employed by such Employer as of the last day of the payroll period in an amount equal to 100% of the amount of the Participant Contributions made on behalf of such Participant during such payroll period pursuant to Section 3.01 that do not exceed four percent (4%) of the Participant's Base Compensation for such payroll period. 3.04 Nature of Contributions. Any amounts contributed to the Plan pursuant to this Article III shall be retained by the Employers as general assets of the Employers, and contributions shall be reflected on the books of the Employers solely for the purpose of computing Participants' benefits from the Plan. ARTICLE IV ACCOUNTS -------- 4.01 Maintenance of Accounts. The Plan Administrator shall establish and maintain in the records of the Plan an Account for each Participant reflecting each Participant's interest in the Plan attributable to Participant Contributions and Employer Contributions made on his or her behalf, increased by earnings attributable thereto. 4.02 Valuation of Accounts. As of each Valuation Date, the Account of each Participant shall be (a) credited with earnings for the period since the next preceding Valuation Date as set forth in Section 4.03, and (b) increased by Participant Contributions and Employer Contributions to the Plan with respect to such Participant relating to payroll periods since the next preceding Valuation Date. -6- 4.03 Earnings. During a Plan Year, Participants' Accounts shall be credited with earnings at a rate of interest earned by assets in the Stable Value Fixed Income Fund established under the Savings Plan for the relevant period. ARTICLE V DISTRIBUTION OF BENEFITS ------------------------ 5.01 Distribution Upon Termination of Employment. (a) Upon termination of a Participant's employment with the Employers and Related Companies other than by reason of a Distributable Event and prior to (i) the completion of 5 Years of Vesting Service, (ii) the date on which he or she has a fully vested and nonforfeitable interest in his or her account balance under the Savings Plan, or (iii) the date on which his or her benefits under the Plan would otherwise be fully vested and nonforfeitable, the Participant shall be entitled to distribution of his or her entire vested Account balance, payable to the Participant in a single lump sum payment no later than 60 days after the first anniversary of the Participant's termination of employment. (b) Upon termination of a Participant's employment with the Employers and Related Companies by reason of a Distributable Event or after (i) the completion of 5 Years of Vesting Service, (ii) the date on which he or she has a fully vested and nonforfeitable interest in his or her account balance under the Savings Plan, or (iii) the date on which his or her benefits under the Plan would otherwise be fully vested and nonforfeitable, the Participant shall be entitled to distribution of his or her entire Account balance, payable to the Participant in a single lump sum -7- payment no later than 60 days after the first anniversary of the Participant's termination of employment. (c) Upon termination of a Participant's employment with the Employers and Related Companies by reason of Permanent Incapacity or Retirement, and where the amount payable to the Participant is at least $10,000, the Participant shall be entitled to a distribution of his or her entire Account balance, payable to the Participant in either of the following ways, as irrevocably elected by the Participant in accordance with rules established by the Plan Administrator: (1) In a single lump sum payment representing the full amount distributable to the Participant, payable on a date elected by the Participant which is not later than the end of the calendar year in which the Participant attains age 75; or (2) In substantially equal installments, payable annually, over a period not extending beyond the end of the calendar year in which the Participant attains age 75. Each installment payment shall be equal to that amount determined by multiplying the then remaining balance in the Participant's Account as of the Valuation Date used for purposes of calculating the payment by a fraction having a numerator of one and a denominator equal to the number of installments remaining to be paid. 5.02 Distribution Upon Death. Upon the death of a Participant, the total value of the Participant's Account as of the Valuation Date preceding the date of death shall be distributed to the Participant's Beneficiary in a single lump sum payment as soon as practicable after satisfactory proof of death shall have been submitted to the Plan Administrator. 5.03 Hardship Distributions. Upon a showing of hardship by a Participant, such Participant shall be entitled to a distribution of such portion (or all) of his or her Account balance as shall be necessary to meet such hardship. This Section 5.03 shall be administered in a manner -8- consistent with the hardship withdrawal provisions of the Savings Plan. The Plan Administrator's determination of a Participant's hardship hereunder shall be final. 5.04 Liability for Benefit Payments. The amount of any benefit payable under the Plan shall be paid from the general revenues of the Employer that last employs the Participant. An Employer's obligation under the Plan shall be reduced to the extent that any amounts due under the Plan are paid from one or more trusts, the assets of which are subject to the claims of general creditors of the Employer or any affiliate thereof; provided, however, that nothing in the Plan shall require the Company or any Employer to establish any trust to provide benefits under the Plan. ARTICLE VI PLAN ADMINISTRATION ------------------- 6.01 Administration of Plan. The Employers shall have the sole responsibility for making salary reductions and contributions hereunder as provided under Article III and the Company shall have the sole authority to amend or terminate, in whole or in part, this Plan at any time. The Plan Administrator shall have the sole responsibility for the administration of the Plan. The Employers do not guarantee to any Participant in any manner the effect under any tax law or Federal or state statute of the Participant's participation in this Plan. 6.02 Claims Procedure. The Plan Administrator shall make all determinations as to the right of any person to a benefit under this Plan. Any denial by the Plan Administrator of a claim for benefits under the Plan by a Participant shall be stated in writing by the Plan Administrator and shall set forth the specific reasons for the denial. In addition, the Plan Administrator shall -9- afford a reasonable opportunity to any Participant whose claim for benefits has been denied for a review of the decision denying the claim. 6.03 Powers and Duties of Plan Administrator. The Plan Administrator shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to conclusively construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants in filing elections or revocations thereof; (c) to prepare and distribute, in such manner as the Plan Administrator determines to be appropriate, information explaining the Plan; (d) to receive from the Employers and from Participants such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Employers, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; (f) to receive, review and keep on file (as it deems convenient and proper) reports of benefit payments by the Employers and reports of disbursements for expenses directed by the Plan Administrator; (g) to appoint individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal counsel; and (h) to name as an Assistant Plan Administrator any individual or individuals and to delegate such authority and duties to such individual as the Plan Administrator in its discretion deems advisable. Each Assistant Plan Administrator, if any, named pursuant to this paragraph shall have such authority to act with respect to the administration of the Plan as the Plan Administrator may prescribe. The incumbency of any Assistant Plan Administrator may be terminated by action of the Plan Administrator at any time, with or without cause. Notwithstanding the foregoing, in the absence of a formal designation of any Assistant Plan Administrator by the Plan Administrator, no provision of this paragraph shall -10- prevent the Plan Administrator from delegating authority to employees or other agents of the Employers in executing the duties of administering the Plan. The Plan Administrator shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 6.04 Rules and Decisions. The Plan Administrator may adopt such rules as it deems necessary, desirable or appropriate. All rules and decisions of the Plan Administrator shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation, the Plan Administrator shall be entitled to rely upon information furnished by a Participant, the Employers or the legal counsel of the Employers. 6.05 Authorization of Benefit Payments. The Plan Administrator shall issue directions to the Employers concerning all benefits which are to be paid from the Company's general assets pursuant to the provisions of the Plan. 6.06 Indemnification of Plan Administrator. The Plan Administrator shall be indemnified by the Employers against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. ARTICLE VII MISCELLANEOUS ------------- 7.01 No Right to Employment, etc. Neither the creation of this Plan nor anything contained herein shall be construed as giving any Participant hereunder or other employees of the -11- Employers or any Related Company any right to remain in the employ of the Employers or any Related Company. 7.02 Successors and Assigns. All rights and obligations of this Plan shall inure to, and be binding upon the successors and assigns of the Employers. 7.03 Inalienability. Except so far as may be contrary to the laws of any state having jurisdiction in the premises, a Participant or Beneficiary shall have no right to assign, transfer, hypothecate, encumber, commute or anticipate his or her interest in any payments under this Plan and such payments shall not in any way be subject to any legal process to levy upon or attach the same for payment of any claim against any Participant or Beneficiary. 7.04 Incompetency. If any Participant or Beneficiary is, in the opinion of the Plan Administrator, legally incapable of giving a valid receipt and discharge for any payment, the Plan Administrator may, at its option, direct that such payment or any part thereof be made to such person or persons who in the opinion of the Plan Administrator are caring for and supporting such Participant or Beneficiary, unless it has received due notice of claim from a duly appointed guardian or conservator of the estate of the Participant or Beneficiary. A payment so made will be a complete discharge of the obligations under this Plan to the extent of and as to that payment, and neither the Plan Administrator nor the Employers will have any obligation regarding the application of payment. 7.05 Controlling Law. To the extent not preempted by the laws of the United States of America, the laws of the State of Illinois shall be the controlling state law in all matters relating to this Plan. -12- 7.06 Severability. If any provisions of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, but this Plan shall be construed and enforced as if the illegal and invalid provisions never had been included herein. 7.07 Limitations on Provisions. The provisions of this Plan and any benefits hereunder shall be limited as described herein. Any benefit payable under the Savings Plan shall be paid solely in accordance with the terms and provisions of the Savings Plan, as appropriate, and nothing in this Plan shall operate or be construed in any way to modify, amend, or affect the terms and provisions of the Savings Plan. 7.08 Gender and Number. Whenever the context requires or permits, the gender and number of words shall be interchangeable. ARTICLE VIII AMENDMENT AND TERMINATION ------------------------- 8.01 Amendment to Conform with Law. The Plan may be amended to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan to any present or future law relating to plans of this or a similar nature, and to the administrative regulations and rulings promulgated thereunder. 8.02 Other Amendments and Termination. The Plan may be amended at any time, without the consent of any Participant or Beneficiary. Notwithstanding the foregoing, the Plan shall not be amended or terminated so as to reduce or cancel the benefits which have accrued to a Participant or Beneficiary prior to the later of the date of adoption of the amendment or -13- termination or the effective date thereof, and in the event of such amendment or termination, any such accrued benefit hereunder shall not be reduced or canceled. 8.03 Effect of Change in Control. (a) In the event of a Change in Control (as defined below), all benefits accrued as of the date of such Change in Control hereunder shall become fully (i.e., 100%) and irrevocably vested, and shall become distributable to Participants (and Beneficiaries) at such time and in such manner provided herein pursuant to the provisions of the Plan as in effect on the day immediately preceding the date of such Change in Control. The Plan Administrator shall, in its sole discretion, determine whether assets equal in value to the aggregate of all accrued benefits under the Plan as of the date of such Change in Control shall be deposited by the Employers with a bank trustee pursuant to one or more "rabbi trusts". (b) For purposes of this Section 8.03, a "Change in Control" means the happening of any of the following: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than (w) the Company and its affiliates (collectively referred to herein as "RTI"), (x) a trustee or other fiduciary holding security under an employee benefit plan of RTI, (y) an underwriter temporarily holding security pursuant to an offering of such securities, or (z) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of security of the Company (not including in the securities beneficially owned by such person any security acquired directly from the Company or its affiliates) representing 40% or more of the combined voting power of the Company's then outstanding securities; -14- (2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (1), (3) or (4) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (3) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting security of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of RTI, at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. A Change in Control shall also be deemed to occur with respect to any Participant for purposes of the Plan if there occurs: (I) a sale or disposition, directly or indirectly, other than to a person described in subclause (w), (x) or (z) of clause (b) (1) above, of securities of the Participant's employer, any direct or indirect parent company of the Participant's employer or any company that is a subsidiary of the Participant's employer and is also a -15- significant subsidiary (as defined below) of the Company (the Participant's employer and such a parent or subsidiary being an "Affiliated Company"), representing 50% or more of the combined voting power of the securities of such Affiliated Company then outstanding; (II) a merger or consolidation of an Affiliated Company with any other corporation, other than a merger or consolidation which would result in 50% or more of the combined voting power of the surviving company being beneficially owned by the Company or by majority owned direct or indirect subsidiary of the Company; or (III) the sale or disposition of all or substantially all the assets of an Affiliated Company to a person other than the Company or a majority owned direct or indirect subsidiary of the Company. (c) The provisions of this Section 8.03 may not be amended after the date of a Change in Control without the written consent of a majority in both number and interest of the Participants in this Plan, other than those Participants who are both (i) not employed by the Company or a subsidiary as of the date of the Change in Control, and (ii) not receiving nor could have commenced receiving benefits under the Plan as of the date of the Change in Control, both immediately prior to the Change in Control and at the date of such amendment. 8.04 Manner and Form of Amendment or Termination. Any amendment or termination of this Plan shall be made by action of the Board; provided, however, that the Vice President-Human Resources of the Company and the Treasurer of the Company (or such other person as designated by the Chairman of the Board) are jointly authorized, by written action signed by both such individuals: (a) to adopt and place in effect such amendments to the Plan and any related documents as they jointly deem necessary or advisable; -16- (a) to maintain the Plan and any related documents in compliance with applicable law; (b) to relieve administrative burdens with respect to those documents; or (c) to provide for other changes in the best interests of Plan Participants and Beneficiaries without the necessity for further action by the Board or subsequent ratification; provided, however, that any action or amendment that would have the effect of: (i) terminating the Plan; (ii) materially changing the benefits under the Plan; or (iii) increasing anticipated costs associated with the Plan by more than $5 million, except for changes to comply with applicable law; may not be made without approval or ratification by the Board. 8.05 Notice of Amendment or Termination. The Plan Administrator shall notify Participants or Beneficiaries who are affected by any amendment or termination of this Plan within a reasonable time thereof. By ---------------------------------- William C. Korda Vice President-Human Resources By ---------------------------------- Vicki L. Avril Treasurer -17- EX-10.T.1 8 COPY OF FORM OF SEVERANCE AGREEMENT Exhibit 10.T.(1) AMENDED LISTING ONLY TO ----------------------- Copy of Form of Severance Agreement dated January 28, 1998 between Inland Steel Industries, Inc. and each of: Robert J. Darnall Jay M. Gratz George A. Ranney, Jr. Dale E. Wiersbe EX-10.T.3 9 AMENDED SCHEDULE TO FORM OF CHANGE EXHIBIT 10.T.(3) Amended Schedule to Form of Change in Control Agreement, dated as of March 27, 1996, by and among Inland Steel Industries,Inc. and the parties listed on the Schedule thereto. Carl G. Lusted Stephen E. Makarewicz Gary J. Niederpruem EX-10.X 10 COPY OF EMPLOYMENT AGREEMENT EXHIBIT 10.X [LETTERHEAD OF INLAND STEEL INDUSTRIES APPEARS HERE] - -------------------------------------------------------------------------------- August 18, 1995 Mr. George A. Ranney, Jr. 4915 South Woodlawn Chicago, Illinois 60615 Dear George, This will confirm our discussions regarding the terms of your compensation package with Inland Steel Industries, Inc. (1) Your title will be Vice President and General Counsel, Inland Steel Industries, Inc. (2) Your employment date will be July 23, 1995. (3) Your base annualized salary for calendar year 1995 will be $300,000. You will be entitled to participate in the Company's Annual Incentive Plan on the same basis as other participants in the Plan, with your Target Award for purposes of the Plan for 1995 being 40%. (4) You will be granted a three-year restricted stock award of 2,400 shares of common stock of the Company, subject to the usual conditions regarding your continued employment with the Company. In addition, you will be granted a stock option grant of 12,000 shares under the Inland Steel Industries Stock Option Program. Both of these grants will be made after you join the Company at the date determined by the Compensation Committee. (5) The Company will, in the absence of any malfeasance on your part, guarantee you three (3) years of salary and benefits. You will also be entitled to the standard change of control agreement the Company has entered into with its principal officers, on terms and conditions consistent with those incorporated in existing agreements (but reduced by any payments under its three-year guarantee). In addition, you will be entitled to participate in the Company's medical, life insurance, pension, thrift and other benefit plans and programs in accordance with the terms and conditions of such plans and Mr. George A. Ranney, Jr. August 18, 1995 Page 2 programs and will also be entitled to such additional benefits as are normally provided to officers of the Company. (6) The aggregate pension benefits to which you are entitled shall be calculated as if you had been continuously employed by Inland since February 26, 1973, but shall be reduced by the actuarial equivalent of the pension benefit, if any, payable to you for such period by Mayer, Brown and Platt; these additional benefits will not by payable if you choose to leave Inland or are discharged for cause within five years of your rehiring date of July 23, 1995. The amount payable pursuant to this letter agreement will be paid in the same form as benefits payable under the Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees. (7) You will retain your partnership at the Mayer, Brown & Platt law firm, with the understanding that you will receive no financial benefit from the firm for your work with Inland and that the appropriate information to confirm this understanding will be made available to Inland upon request. If the foregoing accurately states our understanding and agreement with respect to the matters covered by this letter, would you kindly sign and return to me the enclosed copy of this letter. Sincerely, INLAND STEEL INDUSTRIES, INC. By /s/ R.J. Darnell --------------------------- Chairman, President and Chief Executive Officer Agreed to this 30 day of September, 1995 /s/ George A. Ranney, Jr. - ---------------------------- George A. Ranney, Jr. EX-21 11 LIST OF CERTAIN SUBSIDIARIES 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 12 POWERS OF ATTORNEY 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, 1997, 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 21st day of January, 1998. ------------------------------ 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, 1997, 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 22nd day of January, 1998. ------------------------------ 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, 1997, 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 20th day of January, 1998. ------------------------------ 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, 1997, 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 23rd day of January, 1998. ------------------------------ 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, 1997, 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 21st day of January, 1998. ------------------------------ 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, 1997, 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 21st day of January, 1998. ------------------------------ 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, 1997, 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 21st day of January, 1998. ------------------------------ 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, 1997, 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 21st day of January, 1998. ------------------------------ Arnold R. Weber EX-27 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET, AND THE SUMMARY OF STOCKHOLDERS' EQUITY CONTAINED IN THE QUARTERLY REPORT ON FORM 10-Q TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 DEC-31-1997 97,000 0 546,800 23,500 624,100 1,275,100 4,649,700 3,007,900 3,646,500 614,900 704,900 0 3,100 50,600 846,400 3,646,500 5,045,100 5,046,800 4,554,100 4,555,600 0 0 62,600 208,000 80,300 127,700 0 0 0 119,300 2.25 2.13
EX-99 14 FINANCIAL INFORMATION FROM ANNUAL REPORT EXHIBIT 99 FINANCIAL INFORMATION (TO BE INCLUDED IN THE ANNUAL REPORT TO SHAREHOLDERS FOR 1997) FINANCIAL REVIEW RESULTS OF OPERATIONS
1997 1996 1995 -------- -------- -------- DOLLARS AND SHARES IN MILLIONS (EXCEPT PER SHARE DATA) Net sales........................................... $5,046.8 $4,584.1 $4,781.5 Operating profit.................................... $ 285.8 $ 165.7 $ 328.5 Net income.......................................... $ 119.3 $ 45.7 $ 146.8 Net income per common share......................... $ 2.25 $ .75 $ 2.70 Average shares outstanding.......................... 48.9 48.8 47.3
The Company reported consolidated net income of $119.3 million, or $2.25 per share, in 1997, a substantial improvement over the $45.7 million net income, or $.75 per share, earned in 1996. The major factors in this improved performance were higher operating profit at the Steel Manufacturing Segment and lower interest expense resulting from the Company's recapitalization program. The 1997 consolidated net income includes net income of $8.4 million, or $.17 per share, related to unusual items, which consisted of gains from asset sales, a pension curtailment gain at the Materials Distribution Segment, and a partial offset from additional restructuring provisions at the Steel Manufacturing Segment. Net income for 1996 included a net loss of $20.9 million, or $.43 per share, related to unusual items, which consisted of losses on the early extinguishment of debt and a salaried workforce reduction provision, offset in part by a gain from the issuance of subsidiary stock. In 1995, the Company experienced its second-best year for operating profit performance, reporting net income of $146.8 million, or $2.70 per share, second only to the Company's 1988 record year. Net sales increased 10 percent in 1997 to $5.0 billion. The major factor in this improvement was increased sales in the Materials Distribution Segment reflecting primarily the impact of acquisitions completed during 1997. In 1996, net sales decreased 4 percent from 1995 due primarily to lower average selling price. The Company undertook a recapitalization program in 1996 which included an initial public offering for approximately 13 percent of the interest in Ryerson Tull, Inc. ("RT"). 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. Also included in the 1996 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 their refinancing, the Company recognized an extraordinary after-tax loss of $23.3 million, $36.9 million before tax, in 1996. On the international front, the Company formed a joint venture in 1997 with The Tata Iron and Steel Company, Ltd. to operate steel service centers in India. The joint venture commenced operations in the fourth quarter of 1997 at an acquired facility. The Company has a similar joint venture in China with Baoshan Iron and Steel Corporation, with construction currently under way for a steel service center facility in Shanghai. International activities were not material to the financial results of the Company in any of the years presented. STEEL MANUFACTURING SEGMENT
1997 1996 1995 -------- -------- -------- DOLLARS AND TONS IN MILLIONS Net sales............................................ $2,467.5 $2,397.3 $2,513.3 Operating profit..................................... $ 143.8 $ 48.0 $ 181.7 Net tons shipped..................................... 5.3 5.1 5.1
Inland Steel Company reported markedly improved operating profit of $143.8 million in 1997 as compared with $48 million in 1996. The major factors in the year-to-year improvement were an improved cost structure and higher volume. Net sales increased 3 percent due entirely to an increase in the volume of steel mill products shipped as average selling price remained virtually unchanged. Operating profit was negatively impacted in 1997 by $1 million, representing the net effect of a $10 million adjustment to provisions for previously discontinued raw material operations primarily related to retiree health care and other benefit costs, which was offset in part by a $9 million gain on the sale of Inland Steel Company's interest in the Wabush iron ore property. Inland Steel Company continued to effect improvements in operations during 1997 as it did during 1996. Raw steel tons produced increased to 5.8 million tons in 1997 from 5.5 million tons in 1996 reflecting the 4.9 percentage point year-over-year improvement in capability utilization. Inland Steel Company operated at 97 percent of its raw steelmaking capability in 1997, compared with 92 percent in 1996 and 90 percent in 1995. Increases were also achieved in both the percentage of raw steel that was produced into prime product and in prime product shipments. The combined effect of these improvements, as well as productivity and other cost improvements, resulted in the enhanced operating performance compared with 1996. In 1996, Inland Steel Company reported $48 million of operating profit compared with an operating profit of $182 million in 1995. 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 in 1996 was a $26.3 million workforce reduction provision related to a downsizing of the salaried workforce. 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 reversed $65 million of unused reserves from the balance sheet and recorded a corresponding credit to income. This reversal resulted from the completion of a workforce reduction program announced in 1991. The final computation of the employee benefit costs required for the 1991 program resulted in unused reserves, due to differences between the 1991 projections and the actual makeup of the population leaving the Company. Inland Steel Company also increased other reserves by $16 million in 1995, primarily related to employee benefits at previously discontinued raw material operations and environmental matters. 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 designed, built, financed and will operate the cokemaking portion of the project. A unit of NIPSCO Industries designed, built, financed and will 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 and is expected to commence operations in the first quarter of 1998. Inland Steel Company also advanced $30 million during construction of the project, which is recorded as a deferred asset on the balance sheet and will be credited against required cash payments during the second half of the energy tolling arrangement. 2 MATERIALS DISTRIBUTION SEGMENT
1997 1996 1995 -------- -------- -------- DOLLARS AND TONS IN MILLIONS Net sales............................................ $2,789.4 $2,394.0 $2,450.1 Operating profit..................................... $ 144.2 $ 120.0 $ 148.7 Net tons shipped..................................... 3.02 2.51 2.35
RT, consisting of Joseph T. Ryerson & Son, Inc., including its Ryerson Coil Processing Company division, J. M. Tull Metals Company, Inc., and a 50 percent interest in the Ryerson de Mexico joint venture, reported 1997 net sales of $2.8 billion, a 17 percent increase from 1996. Included in 1997 results are sales from facilities acquired during the year and discussed below. Sales from these facilities since their acquisitions accounted for approximately three- fourths of the sales increase over the prior year. Also contributing to higher sales were increases in sales volumes at facilities owned prior to the acquisitions, partially offset by lower average selling prices. Volumes at facilities owned prior to the acquisitions increased 9 percent from the prior year while average selling prices declined 4 percent. During 1997, RT acquired Thypin Steel Co. ("Thypin"), Inc., Omni Metals, Inc. ("Omni") and the assets of Cardinal Metals, Inc. ("Cardinal") for an aggregate of $139.9 million in cash and the assumption of existing debt. RT acquired Thypin and Cardinal during the first quarter and Omni in the third quarter. During 1997, RT continued its strong focus on cost control, lowering operating costs, excluding the costs of materials sold, to $163 per ton from $174 per ton in 1996. Year-to-year productivity improvements were realized as tons shipped per employee increased 11 percent. Benefits derived from these and other cost improvements, along with an $8.9 million gain from the sale of plant facilities in Boston and Jersey City and an $8.9 million pension curtailment gain, served to more than offset lower selling prices and resulted in RT reporting operating profit of $144.2 million in 1997 compared with $120.0 million in 1996. Effective January 1, 1998, RT froze its defined benefit pension plan for certain salaried employees and instituted a defined contribution plan. The change to the plan resulted in the pension curtailment gain of $8.9 million recorded by RT in 1997. In 1996, net sales decreased 2 percent compared with 1995 to $2.4 billion. A 9 percent decline in average selling price was, in large part, offset by a 7 percent increase in volume. While total operating costs, excluding the costs of materials sold, increased in 1996 from 1995, such costs on a per ton basis declined to $174 in 1996 from $182 in 1995. The impact of lower selling prices was the major factor in the $28.7 million decrease in operating profit from 1995 to 1996. LIQUIDITY AND FINANCING The Company finished 1997 with cash and cash equivalents of $97 million compared with $238 million at year-end 1996. The decrease in cash was primarily due to the acquisitions at the Materials Distribution Segment and the repayment of debt assumed in the acquisitions. There was no short-term bank borrowing at either year end. During the third quarter of 1997, the Company elected to fund its pension plans with $36.9 million in cash, $30.0 million for the Industries pension plan and $6.9 million for the RT pension plan. Also during that quarter, RT extended the term of its $250 million bank credit facility to September 2002 while reducing both the commitment fee and interest rates related to the facility. During the fourth quarter of 1997, Inland Steel Company refinanced $52 million of 6 1/2 percent pollution control revenue bonds with 5 3/4 percent tax-exempt refunding revenue bonds. In addition to the lower interest rate, the term of the new bonds was extended more than three years. Also during the fourth quarter, the Company redeemed the remaining $5.6 million principal amount outstanding of the Company's 12 3/4% Notes. 3 The Company's subsidiaries ended the year with committed credit facilities of $375 million. In addition to the $250 million RT facility discussed above, Inland Steel Company's special-purpose subsidiary maintained its $125 million revolving credit facility which extends through November 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 $76 million at year-end 1997. This amount is subject to change based on the financial performance of RT. Additionally, there are certain other limitations on advances. The ratio of the Company's long-term debt to total capitalization was 42 percent at December 31, 1997, compared with 47 percent and 50 percent at year- end 1996 and 1995, respectively. Inland Steel Company guarantees a pulverized coal injection joint venture loan and its 50 percent share of I/N Kote borrowings amounting to $18 million and $188 million, respectively, at year-end 1997. The Company guaranteed $116 million of the long-term financing of I/N Tek at December 31, 1997. As none of these guarantees has been invoked since inception, the Company does not believe these guarantees will be called upon. At year-end 1997, the Company had substantial tax carryforwards available which will serve to reduce federal income tax payments in future years. The Company had net operating loss carryforwards for regular federal income tax purposes of $745 million which expire during the years 2006 through 2011. The Company also had Alternative Minimum Tax credit carryforwards of $48 million which can be carried forward indefinitely. 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. The Company's debt ratings at year-end 1997 and 1996 were:
RATINGS AT YEAR END 1997 1996 - ------------------- ---- ---- Inland Steel Company First Mortgage Bonds Moody's............................................................. Ba3 Ba3 Standard & Poor's................................................... BB- BB- Ryerson Tull Notes Moody's............................................................. Ba1 Ba1 Standard & Poor's................................................... BB BB
CAPITAL EXPENDITURES
1997 1996 1995 ------ ------ ------ DOLLARS IN MILLIONS Capital expenditures Steel Manufacturing..................................... $ 98.4 $155.8 $113.9 Materials Distribution.................................. 40.4 24.1 19.3 General corporate and other............................. .9 1.0 1.4 ------ ------ ------ Total capital expenditures................................ $139.7 $180.9 $134.6 ====== ====== ======
Capital expenditures were $140 million in 1997. The majority of the capital expenditures was for new machinery and equipment related to maintaining or improving operations at the Steel Manufacturing Segment. The Company anticipates capital expenditures in 1998 will approximate $150 million. 4 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 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 3 percent during 1997 in spite of personnel increases related to the RT acquisitions. Total employment cost increased 2 percent from 1996 as higher direct compensation, including higher profit sharing provisions, was in part offset by lower 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 $8.9 million pension curtailment gain at RT in 1997 and the effects of workforce reduction plans in 1996 and 1995 at Inland Steel Company. In 1996, a $26 million charge for the provision to reduce salaried employment was excluded from the table. In 1995, the table excluded 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.
1997 1996 1995 ------- ------- ------- EMPLOYEES (monthly average receiving pay) Steel Manufacturing................................... 8,876 9,657 10,165 Materials Distribution................................ 5,314 4,904 5,125 Headquarters and other................................ 128 134 120 ------- ------- ------- Total................................................... 14,318 14,695 15,410 ======= ======= ======= CONSOLIDATED EMPLOYMENT COSTS DOLLARS IN MILLIONS (EXCEPT AVERAGES) Direct compensation..................................... $707.3 $678.7 $712.9 ------- ------- ------- Employee benefits Group insurance costs................................. 62.3 65.3 60.9 Postretirement benefits other than pensions........... 65.4 72.6 64.5 Pension costs......................................... 9.5 5.9 7.5 Social security and unemployment compensation taxes... 55.8 54.9 56.2 Workers' compensation expense......................... 11.8 9.3 11.3 Thrift Plan costs..................................... 8.9 9.1 9.1 Cost of supplemental unemployment benefit plans....... 5.1 6.6 7.2 Industry welfare and retirement funds................. 3.2 3.6 3.6 All other............................................. 6.6 11.3 8.2 ------- ------- ------- Total cost of employee benefits......................... $ 228.6 $ 238.6 $ 228.5 ------- ------- ------- Total employment costs.................................. $ 935.9 $ 917.3 $ 941.4 ======= ======= ======= Average employment cost per employee.................... $65,363 $62,424 $61,092 ======= ======= =======
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. 5 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 (including stabilization measures), 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 in connection with the consent decree totaled $25 million at year-end 1997. 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 $7 million in 1997, down from $19 million in 1996. Another $47 million was spent in 1997 to operate and maintain such equipment, versus $45 million a year earlier. During the five years ended December 31, 1997, the Company has 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 $4 million in 1998. It is anticipated that the Company will make annual capital expenditures of $2 million to $5 million in each of the next four years thereafter for the construction, and have ongoing annual expenditures of $40 million to $50 million for the operation, of air 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 24.1 percent of the domestic market in 1997, up from 23.3 percent in 1996. 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. Mini-mills provide significant competition in various product lines. 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. Thin-slab casting technologies have allowed 6 mini-mills to enter certain sheet markets traditionally supplied by integrated producers. Several mini-mills using this advanced technology are in operation in the United States and a significant increase in modern mini-mill capacity is anticipated within the next two years. YEAR 2000 COMPLIANCE PROGRAMS The Company's subsidiaries rely to a significant degree on computer- supported procedures in various operations, including order processing, manufacturing, delivery, distribution and accounting. Company personnel from Information Technology and other departments have been identifying and correcting, for several years, and continue to identify and correct, date- sensitive hardware, software and procedures that could disrupt operations approaching and after the start of the next millennium ("Year 2000 issues"). Inland Steel Company's recently-completed Order Fulfillment System presented a significant opportunity to resolve several major Year 2000 issues. The Company's operating subsidiaries are continuing to dedicate significant internal resources in a range of disciplines to address Year 2000 issues, as well as to receive assistance from several consulting groups. It is expected that the Company's operating subsidiaries will expend approximately $12 million (excluding internal personnel costs) in bringing the Company's subsidiaries into Year 2000 compliance. A substantial percentage of the effort has already been undertaken and it is anticipated that needed modifications to the Company's systems will be completed well in advance of year-end 1999. During the process of addressing Year 2000 issues, Company personnel have been issuing, and continue to issue, surveys and questionnaires to significant customers and suppliers inquiring regarding the extent of the Year 2000 compliance programs of such customers and suppliers. The Company's subsidiaries also have received similar inquiries from many of their customers and suppliers. In addition, Company personnel are working with many customers and suppliers to assure that potential Year 2000 issues are remedied in systems interfaces with customers and suppliers. Those customers and suppliers that have shared the results of their Year 2000 compliance surveys have ranked highly the progress, aggressiveness and thoroughness of the Company's Year 2000 compliance efforts. The Company generally perceives similar levels of resource dedication by its subsidiaries' major customers and suppliers. The Company, however, cannot be assured that all entities with which it transacts significant business will finalize their Year 2000 system upgrades in a timely or complete manner. Although unlikely, it is possible that, as a result of such a potential failure by major customers or suppliers, or a delay or oversight in the Company's efforts to address Year 2000 issues, the Company could experience an adverse impact, which could be material, on the results of operations or financial position of one or more of the Company's subsidiaries. RECENT DEVELOPMENTS On March 17, 1998, the Company announced it had signed a binding letter agreement with Ispat International N.V. ("Ispat") whereby Ispat will acquire Inland Steel Company ("ISC") for a total transaction value of approximately $1.43 billion. The agreement has been approved by the Boards of Directors of both companies. As part of the $1.43 billion transaction, Ispat will: i) pay $650 million in cash for the common stock of ISC held by the Company; ii) pay $238.2 million for the preferred stock of ISC held by the Company; iii) repay the intercompany debt of ISC owed to the Company, which at December 31, 1997, was $230.7 million; and iv) assume debt owed to third parties of approximately $307.9 million. The Company intends to distribute a significant portion of the net proceeds from the sale to its stockholders through stock repurchases, dividends or a combination thereof. The sale is subject to a definitive agreement, antitrust clearance, other closing conditions, and the need to give the United Steelworkers of America the opportunity to make an offer to purchase ISC. It is anticipated that the transaction will close in the third quarter of 1998. Following the sale, the Company's primary business will be metals distribution, presently conducted by RT. The Company is currently considering a plan to combine with RT into one entity subsequent to the closing of the sale. 7 SUMMARY BY QUARTER (UNAUDITED)
PER COMMON SHARE ------------------------------------------ NET INCOME MARKET PRICE NET GROSS INCOME ----------------- ---------------------- SALES PROFIT BEFORE TAXES NET INCOME BASIC DILUTED HIGH LOW CLOSE -------- ------ ------------ ---------- ------ ------- ---- ---- ----- DOLLARS IN MILLIONS (EXCEPT PER SHARE DATA) 1997 First Quarter........... $1,207.3 $128.3 $ 55.1 $ 31.2 $ .59 $ .56 $ 21 $18 1/8 $19 1/2 Second Quarter.......... 1,321.2 134.7 70.4 40.1 .77 .73 27 1/2 18 1/8 26 1/8 Third Quarter........... 1,285.1 128.5 50.2 30.3 .57 .54 27 3/8 20 21 7/8 Fourth Quarter.......... 1,233.2 107.0 32.2 17.7 .31 .30 22 1/16 15 7/8 17 1/8 -------- ------ ------ ------ ------ ----- ---- ---- ---- Year.................... $5,046.8 $498.5 $208.0* $119.3 $ 2.25* $2.13 $27 1/2 $15 7/8 $17 1/8 ======== ====== ====== ====== ====== ===== ==== ==== ==== 1996 First Quarter........... $1,180.9 $103.7 $ 28.0 $ 17.2 $ .31 $ .29 $ 29 $23 7/8 $24 3/4 Second Quarter.......... 1,163.0 98.0 54.0 19.2 .35 .33 27 19 1/8 19 5/8 Third Quarter........... 1,118.0 105.5 30.7 8.5 .13 .12 19 7/8 16 3/4 17 7/8 Fourth Quarter.......... 1,122.2 76.1** 3.1** .8** (.03)** (.03)** 20 1/4 16 20 -------- ------ ------ ------ ------ ----- ---- ---- ---- Year.................... $4,584.1 $383.3 $115.8 $ 45.7 $ .75* $ .72* $ 29 $ 16 $ 20 ======== ====== ====== ====== ====== ===== ==== ==== ====
- -------- * Amounts for the quarters do not total to the amount reported for the year due to rounding. ** Includes $26.3 million workforce reduction provision, $17.1 million after tax or $.35 per common share. 8 ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA AND OPERATING RESULTS INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- DOLLARS AND TONS IN MILLIONS, SHARES IN THOUSANDS RESULTS OF OPERATIONS Net sales........ $5,046.8 $4,584.1 $4,781.5 $4,497.0 $3,888.2 $3,494.3 $3,404.5 $3,870.4 $4,146.7 $4,068.0 Depreciation..... 157.9 147.0 143.1 138.7 131.8 129.6 118.2 119.7 131.2 134.8 Interest expense. 62.6 77.1 71.9 71.4 78.0 54.9 46.8 38.7 38.4 46.2 Rent expense..... 57.4 50.6 51.2 54.5 73.7 75.5 81.8 85.5 79.9 72.3 Continuing business segments: Income (loss) before income taxes.......... 208.0 115.8 237.1 169.5 (73.6) (258.6) (381.1) (36.7) 175.6 364.6 Income taxes.... 80.3 43.8 90.3 62.1 36.0Cr. 99.2Cr. 106.0Cr. 16.1Cr. 55.9 115.8 Income (loss)... 119.3 69.0 146.8 107.4 (37.6) (159.4) (275.1) (20.6) 119.7 248.8 Net income (loss).......... 119.3 45.7 146.8 107.4 (37.6) (815.6) (275.1) (20.6) 119.7 262.1 ----------------------------------------------------------------------------------------------------------- DATA APPLICABLE TO COMMON STOCK Average number of shares.......... 48,887 48,816 47,333 43,107 35,540 32,828 30,941 32,179 35,491 33,571 Income (loss) per share--basic Continuing business segments....... $ 2.25 $ 1.23 $ 2.70 $ 1.83 $ (1.96) $ (5.83) $ (9.88) $ (1.41) $ 3.16 $ 7.00 Net income (loss)......... 2.25 .75 2.70 1.83 (1.96) (25.82) (9.88) (1.41) 3.16 7.40 Income (loss) per share--diluted Continuing business segments....... 2.13 1.17 2.55 1.70 (1.96) (5.83) (9.88) (1.41) 3.06 6.37 Net income (loss)......... 2.13 .72 2.55 1.70 (1.96) (25.82) (9.88) (1.41) 3.06 6.71 Dividends per share........... .20 .20 .20 -- -- -- .15 1.40 1.40 .75 Stockholders' equity per share........... 17.27 15.27 14.72 11.06 7.79 6.01 31.10 41.27 43.00 42.50 Stockholders of record.......... 13,000 14,000 15,000 16,000 16,000 18,000 18,000 19,000 23,000 24,000 Shares traded (average daily volume)......... 249.6 189.1 228.2 206.3 134.2 97.3 89.3 95.7 199.5 170.0 ----------------------------------------------------------------------------------------------------------- CHANGES IN FINANCIAL POSITION Cash provided from (used for) operations...... $ 167.6 $ 181.3 $ 330.2 $ 265.5 $ 112.0 $ (21.4) $ 25.0 $ 189.1 $ 240.2 $ 531.8 Capital expenditures.... 139.7 180.9 134.6 245.3 105.6 64.4 140.2 268.1 197.2 136.5 Investments in and advances to joint ventures, net............. (15.3) (18.2) (16.4) (13.7) 1.9 6.3 24.9 49.8 15.5 73.6 Acquisitions..... 139.9 -- -- -- -- -- -- -- 28.2 50.2 Dividends declared on common stock.... 9.8 9.8 9.6 -- -- -- 4.6 45.3 50.1 25.2 Dividends declared on preferred stock. 9.1 9.1 17.6 27.9 32.0 32.1 31.1 27.1 6.9 13.8 Financing Long-term debt (net of retirements)... (68.3) (11.3) 78.6 (71.2) (96.6) 108.9 73.1 114.0 (17.8) (43.2) Preferred stock. -- -- -- -- -- -- 72.8 -- 185.0 -- Common stock.... -- -- 100.0 -- 178.7 97.9 -- -- -- -- Net change in liquidity....... (141.0) (29.4) 160.3 (143.4) 112.8 90.6 (11.2) (179.1) (67.9) 124.2 ----------------------------------------------------------------------------------------------------------- FINANCIAL POSITION AT YEAR END Working capital.. $ 660.2 $ 691.0 $ 618.1 $ 516.7 $ 496.4 $ 441.0 $ 322.8 $ 395.9 $ 703.0 $ 719.8 Property (net)... 1,641.8 1,637.0 1,600.4 1,610.3 1,507.7 1,548.8 1,635.0 1,708.3 1,569.8 1,493.9 Total assets..... 3,646.5 3,541.6 3,558.3 3,353.4 3,435.8 3,146.5 2,697.8 2,934.8 3,008.5 2,925.0 Long-term debt... 704.9 773.2 784.5 705.9 777.1 873.7 764.8 691.7 577.7 595.5 Redeemable preferred stock. -- -- -- 185.0 185.0 185.0 185.0 185.0 185.0 -- Minority interest........ 57.5 49.0 -- -- -- -- -- -- -- -- Temporary equity. 28.1 32.1 34.5 37.9 40.8 49.9 53.0 54.9 181.3 -- Stockholders' equity.......... 900.1 789.0 748.6 509.2 397.6 271.4 1,009.4 1,234.0 1,313.8 1,559.4 Unused credit facilities...... 375 375 350 225 225 225 225 325 325 225 ----------------------------------------------------------------------------------------------------------- FINANCIAL RATIOS Net income (loss) as a percent of sales........... 2.4% 1.0% 3.1% 2.4% (1.0)% (23.3)% (8.1)% (.5)% 2.9% 6.4% Long-term debt to total capitalization.. 41.7% 47.1% 50.0% 49.1% 55.5% 63.3% 38.0% 31.9% 25.6% 27.6% Long-term debt and redeemable preferred to total capitalization.. 41.7% 47.1% 50.0% 62.0% 68.7% 76.7% 47.2% 40.5% 33.8% 27.6% Return on stockholders' equity.......... 13.3% 5.8% 19.6% 21.1% loss loss loss loss 9.1% 16.8% ----------------------------------------------------------------------------------------------------------- PRODUCTION AND EMPLOYMENT STATISTICS Tons of raw steel produced........ 5.8 5.5 5.4 5.3 5.0 4.7 4.7 5.3 5.6 6.1 Tons of steel mill shipments.. 5.3 5.1 5.1 5.2 4.8 4.3 4.2 4.7 4.9 5.0 Average number of employees....... 14,318 14,695 15,410 15,479 16,152 17,181 18,600 20,154 20,715 20,639 Total employment costs........... $ 935.9 $ 917.3 $ 941.4 $ 949.5 $ 924.9 $ 940.7 $ 907.4 $ 979.0 $ 964.3 $ 945.8 ----------------------------------------------------------------------------------------------------------- 1987 ----------- RESULTS OF OPERATIONS Net sales........ $3,453.2 Depreciation..... 123.4 Interest expense. 62.8 Rent expense..... 68.9 Continuing business segments: Income (loss) before income taxes.......... 97.5 Income taxes.... 14.2Cr. Income (loss)... 111.7 Net income (loss).......... 145.0 DATA APPLICABLE TO COMMON STOCK Average number of shares.......... 31,815 Income (loss) per share--basic Continuing business segments....... $ 3.09 Net income (loss)......... 4.14 Income (loss) per share--diluted Continuing business segments....... 3.05 Net income (loss)......... 3.96 Dividends per share........... -- Stockholders' equity per share........... 36.15 Stockholders of record.......... 26,000 Shares traded (average daily volume)......... 178.9 CHANGES IN FINANCIAL POSITION Cash provided from (used for) operations...... $ 169.1 Capital expenditures.... 128.0 Investments in and advances to joint ventures, net............. 10.5 Acquisitions..... -- Dividends declared on common stock.... -- Dividends declared on preferred stock. 13.9 Financing Long-term debt (net of retirements)... (160.9) Preferred stock. 96.6 Common stock.... 83.7 Net change in liquidity....... 71.7 FINANCIAL POSITION AT YEAR END Working capital.. $ 625.0 Property (net)... 1,488.1 Total assets..... 2,651.4 Long-term debt... 638.7 Redeemable preferred stock. -- Minority interest........ -- Temporary equity. -- Stockholders' equity.......... 1,391.5 Unused credit facilities...... 225 FINANCIAL RATIOS Net income (loss) as a percent of sales........... 4.2% Long-term debt to total capitalization.. 31.5% Long-term debt and redeemable preferred to total capitalization.. 31.5% Return on stockholders' equity.......... 10.4% PRODUCTION AND EMPLOYMENT STATISTICS Tons of raw steel produced........ 5.5 Tons of steel mill shipments.. 4.9 Average number of employees....... 20,740 Total employment costs........... $ 878.4
Cr.=Credit 9 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. 10 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Inland Steel Industries, Inc. In our opinion, the consolidated financial statements on pages 12 through 36 present fairly, in all material respects, the financial position of Inland Steel Industries, Inc. and Subsidiary Companies at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Chicago, Illinois February 18, 1998, except as to Note 20, which is as of March 17, 1998 11 STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES The following briefly describes the Company's principal accounting and financial policies. ACCOUNTING FOR EQUITY INVESTMENTS The Company's investments in less than majority-owned companies, joint ventures and partnerships, and the Company's majority interest in the I/N Tek partnership, are accounted for under the equity method. PER SHARE RESULTS Basic per share results are based on the weighted average number of common shares outstanding and take into account the dividend requirements of preferred stock, net of tax benefits related to leveraged Employee Stock Ownership Plan ("ESOP") shares. Diluted per share results reflect the dilutive effect of outstanding stock options, the further dilutive effect of the assumed conversion into common stock of the outstanding shares of convertible preferred stock, and the elimination of the related preferred stock dividends. Also reflected in diluted earnings per common share is an adjustment for the additional ESOP contribution, net of tax benefits, that would be necessary to meet debt service requirements that would arise upon conversion of the leveraged Series E ESOP Convertible Preferred Stock ("Series E Preferred Stock"), due to the current excess of the preferred dividend over the common dividend. INVENTORY VALUATION Inventories are valued at cost which is not in excess of market. Cost is determined by the last-in, first-out method except for supply inventories, which are determined by the average cost or first-in, first-out methods. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is depreciated for financial reporting purposes over the estimated useful lives of the assets. Steelmaking machinery and equipment, a significant class of assets, is depreciated on a production- variable method, which adjusts straight-line depreciation to reflect production levels at the steel plant. The adjustment is limited to not more than a 25 percent increase or decrease from straight-line depreciation. Blast furnace relining expenditures are capitalized and amortized on a unit-of- production method over the life of the lining. All other assets are depreciated on a straight-line method. Expenditures for normal repairs and maintenance are charged to income as incurred. Gains or losses from significant abnormal disposals or retirements of properties are credited or charged to income. The cost of other retired assets less any sales proceeds is charged to accumulated depreciation. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over fair value of net assets of businesses acquired is being amortized over 25-year periods. CASH EQUIVALENTS Cash equivalents reflected in the Statement of Cash Flows are highly liquid, short-term investments with maturities of three months or less that are an integral part of the Company's cash management portfolio. STOCK-BASED COMPENSATION Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based 12 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. 13 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS
YEARS ENDED DECEMBER 31 ---------------------------- 1997 1996 1995 -------- -------- -------- DOLLARS IN MILLIONS (EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS Net sales........................................ $5,046.8 $4,584.1 $4,781.5 -------- -------- -------- Operating costs and expenses: Cost of goods sold (excluding depreciation).... 4,315.8 3,979.1 4,043.2 Selling, general and administrative expenses... 218.5 208.3 204.1 Depreciation................................... 157.4 146.5 142.6 State, local and miscellaneous taxes........... 69.3 58.2 63.1 Workforce reduction provision (Note 11)........ -- 26.3 -- -------- -------- -------- Total........................................ 4,761.0 4,418.4 4,453.0 -------- -------- -------- Operating profit................................. 285.8 165.7 328.5 -------- -------- -------- Other expense: General corporate expense, net of income items. 15.2 4.2 19.5 Interest and other expense on debt............. 62.6 77.1 71.9 Gain from issuance of subsidiary stock (Note 1)............................................ -- (31.4) -- -------- -------- -------- Income before income taxes, minority interest and extraordinary loss.............................. 208.0 115.8 237.1 -------- -------- -------- Provision for income taxes (Note 13): Current taxes.................................. 29.2 2.7 11.1 Deferred taxes................................. 51.1 41.1 79.2 -------- -------- -------- Total........................................ 80.3 43.8 90.3 -------- -------- -------- Income before minority interest and extraordinary loss............................................ 127.7 72.0 146.8 Minority interest in Ryerson Tull, Inc. (Note 1). 8.4 3.0 -- -------- -------- -------- Income before extraordinary loss................. 119.3 69.0 146.8 Extraordinary loss on early retirement of debt (Note 4)........................................ -- (23.3) -- -------- -------- -------- Net income....................................... 119.3 45.7 146.8 Dividend requirements for preferred stock (net of tax benefits related to leveraged ESOP shares).. 9.1 9.1 19.0 -------- -------- -------- Net income applicable to common stock............ $ 110.2 $ 36.6 $ 127.8 ======== ======== ======== Per share of common stock Basic: Before extraordinary loss...................... $ 2.25 $ 1.23 $ 2.70 Extraordinary loss on early retirement of debt. -- (.48) -- -------- -------- -------- Net income................................... $ 2.25 $ .75 $ 2.70 ======== ======== ======== Diluted: Before extraordinary loss...................... $ 2.13 $ 1.17 $ 2.55 Extraordinary loss on early retirement of debt. -- (.45) -- -------- -------- -------- Net income................................... $ 2.13 $ .72 $ 2.55 ======== ======== ======== CONSOLIDATED STATEMENT OF REINVESTED EARNINGS Accumulated deficit at beginning of year......... $ (146.0) $ (172.8) $ (292.4) Net income for the year.......................... 119.3 45.7 146.8 Dividends declared: Common ($.20 per share)........................ (9.8) (9.8) (9.6) Preferred (Notes 5 and 7)...................... (9.1) (9.1) (17.6) -------- -------- -------- Accumulated deficit at end of year............... $ (45.6) $ (146.0) $ (172.8) ======== ======== ========
See Notes to Consolidated Financial Statements on pages 18-36. 14 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH YEARS ENDED DECEMBER 31 ------------------------------ 1997 1996 1995 --------- --------- --------- DOLLARS IN MILLIONS OPERATING ACTIVITIES Net income..................................... $ 119.3 $ 45.7 $ 146.8 -------- --------- --------- Adjustments to reconcile net income to net cash provided from operating activities: Depreciation................................. 157.9 147.0 143.1 Deferred income taxes........................ 51.1 27.5 79.2 Deferred employee benefit cost............... (27.1) 24.2 (23.5) Stock issued for coverage of employee benefit plans....................................... 21.8 22.6 23.9 Gain from sale of assets..................... (17.9) -- -- Gain from issuance of subsidiary stock....... -- (31.4) -- Workforce reduction provision................ -- 26.3 -- Cokemaking project advance................... (30.0) -- -- Change in: Receivables....................... (11.4) 23.8 15.1 Inventories.............................. (52.3) (33.6) (31.5) Accounts payable......................... .8 7.0 (34.8) Accrued salaries and wages............... 3.1 (11.4) (.4) Other accrued liabilities................ (9.7) (18.9) 29.6 Other items.................................. (38.0) (47.5) (17.3) -------- --------- --------- Net adjustments............................ 48.3 135.6 183.4 -------- --------- --------- Net cash provided from operating activities................................ 167.6 181.3 330.2 -------- --------- --------- INVESTING ACTIVITIES Capital expenditures........................... (139.7) (180.9) (134.6) Acquisitions (Note 16)......................... (139.9) -- -- Investments in and advances to joint ventures, net........................................... 15.3 18.2 16.4 Proceeds from sales of assets.................. 34.3 5.9 3.6 -------- --------- --------- Net cash used for investing activities..... (230.0) (156.8) (114.6) -------- --------- --------- FINANCING ACTIVITIES Issuance of subsidiary stock................... -- 77.1 -- Long-term debt issued.......................... 51.3 284.9 16.8 Long-term debt retired......................... (77.1) (391.2) (36.5) Reduction of debt assumed in acquisitions...... (25.3) -- -- Dividends paid................................. (20.8) (21.0) (31.6) Acquisition of treasury stock.................. (6.7) (3.7) (4.0) -------- --------- --------- Net cash used for financing activities..... (78.6) (53.9) (55.3) -------- --------- --------- Net increase (decrease) in cash and cash equivalents................................... (141.0) (29.4) 160.3 Cash and cash equivalents--beginning of year... 238.0 267.4 107.1 -------- --------- --------- Cash and cash equivalents--end of year......... $ 97.0 $ 238.0 $ 267.4 ======== ========= ========= SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest (net of amount capitalized)......... $ 64.7 $ 67.0 $ 65.4 Income taxes, net............................ 27.5 8.6 9.4 Non-cash activities: Reduction of deferred employee benefits resulting from contribution of common stock to the Company's Pension Trust.............. -- -- 100.0 Series F Preferred Stock exchanged for Subordinated Voting Note.................... -- -- 185.0
See Notes to Consolidated Financial Statements on pages 18-36. 15 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET
AT DECEMBER 31 -------------------- 1997 1996 --------- --------- DOLLARS IN MILLIONS ASSETS Current assets: Cash and cash equivalents............................. $ 97.0 $ 238.0 Receivables less provision for allowances, claims and doubtful accounts of $23.5 and $22.5, respectively... 523.3 464.7 Inventories (Note 2).................................. 624.1 494.6 Deferred income taxes (Note 13)....................... 30.7 30.5 --------- --------- Total current assets................................ 1,275.1 1,227.8 Investments and advances (see details page 17).......... 271.6 252.1 Property, plant and equipment, at cost, less accumulated depreciation (see details page 17)..................... 1,641.8 1,637.0 Deferred income taxes (Note 13)......................... 231.4 287.5 Prepaid pension cost.................................... 77.4 -- Intangible pension asset (Note 12)...................... -- 76.3 Excess of cost over net assets acquired................. 82.3 22.3 Deferred charges and other assets....................... 66.9 38.6 --------- --------- Total assets........................................ $ 3,646.5 $ 3,541.6 ========= ========= LIABILITIES Current liabilities: Accounts payable...................................... $ 354.9 $ 321.4 Accrued liabilities: Salaries, wages and commissions..................... 79.1 76.0 Taxes............................................... 84.0 78.3 Interest on debt.................................... 17.1 17.9 Terminated facilities costs and other (Note 11)..... 17.1 23.6 Long-term debt due within one year (Note 4)........... 62.7 19.6 --------- --------- Total current liabilities............................... 614.9 536.8 Long-term debt (see details page 17 and Note 4)......... 704.9 773.2 Allowance for terminated facilities costs and other (Note 11).............................................. 56.0 48.8 Deferred employee benefits (Note 12).................... 1,275.6 1,301.6 Deferred income......................................... 9.4 11.1 --------- --------- Total liabilities................................... 2,660.8 2,671.5 --------- --------- Minority interest in Ryerson Tull, Inc.................. 57.5 49.0 Common stock repurchase commitment (Note 5)............. 28.1 32.1 --------- --------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 15,000,000 shares authorized for all series, aggregate liquidation value of $150.6 in 1997 and $153.9 in 1996 (Notes 6 and 7)... 3.1 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)................. 1,032.5 1,040.2 Accumulated deficit..................................... (45.6) (146.0) Unearned compensation--ESOP (Note 6).................... (68.6) (79.4) Common stock repurchase commitment (Note 5)............. (28.1) (32.1) Treasury stock at cost--Common stock of 1,557,635 shares in 1997 and 1,647,954 shares in 1996................... (40.5) (44.2) Cumulative translation adjustment....................... (3.3) (3.3) --------- --------- Total stockholders' equity.......................... 900.1 789.0 --------- --------- Total liabilities, minority interest, temporary equity, and stockholders' equity................... $ 3,646.5 $ 3,541.6 ========= =========
See Notes to Consolidated Financial Statements on pages 18-36. 16 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31 ------------------- 1997 1996 --------- --------- DOLLARS IN MILLIONS INVESTMENTS AND ADVANCES Steel processing joint ventures............................ $ 167.3 $ 153.3 Raw material joint ventures................................ 47.4 52.2 Common stock of Nippon Steel Corporation held for investment, net of valuation allowances of $7.1 and $4.8, respectively.............................................. 7.5 9.8 Other investments and advances............................. 49.4 36.8 --------- --------- Total investments and advances......................... $ 271.6 $ 252.1 ========= ========= PROPERTY, PLANT AND EQUIPMENT Land, land improvements and mineral properties............. $ 156.5 $ 156.2 Buildings, machinery and equipment......................... 4,311.3 4,197.9 Transportation equipment................................... 144.9 145.0 Property under capital leases--primarily machinery and equipment................................................. 37.0 37.0 --------- --------- Total.................................................. 4,649.7 4,536.1 Less-- Accumulated depreciation................................. 2,871.5 2,763.0 Accumulated depreciation--capital leases................. 35.7 35.4 Allowance for retirements and terminated facilities (Note 11)..................................................... 100.7 100.7 --------- --------- Net property, plant and equipment...................... $ 1,641.8 $ 1,637.0 ========= ========= LONG-TERM DEBT Inland Steel Industries, Inc. Guaranteed ESOP notes, 8.43% and 8.80%, due through July 2, 2004................................................. $ 85.9 $ 96.5 Notes, 12 3/4%........................................... -- 5.6 Subordinated Voting Note, 10.23% due December 17, 1999... 100.0 100.0 --------- --------- Total Inland Steel Industries, Inc..................... 185.9 202.1 Inland Steel Company First Mortgage Bonds: Series R, 7.9% due January 15, 2007...................... 61.4 72.0 Series T, 12% due December 1, 1998....................... -- 26.3 Pollution Control Series 1977, 5 3/4% due February 1, 2007.................................................... 25.5 26.5 Pollution Control Series 1978, 6 1/2%.................... -- 52.0 Pollution Control Series 1993, 6.8% due June 1, 2013..... 40.0 40.0 Pollution Control Series 1995, 6.85% due December 1, 2012.................................................... 17.0 17.0 --------- --------- Total First Mortgage Bonds............................. 143.9 233.8 Obligations for Industrial Development Revenue Bonds: Pollution Control Project No. 2, 5.9% due August 1, 1998. -- 5.0 Pollution Control Project No. 3, 6 1/4% due April 1, 1999.................................................... 3.0 6.0 Pollution Control Project No. 11, 7 1/8% due June 1, 2007.................................................... 20.0 20.0 Pollution Control Project No. 13, 7 1/4% due November 1, 2011.................................................... 38.0 38.0 Exempt Facilities Project No. 14, 6.7% due November 1, 2012.................................................... 5.1 5.1 Exempt Facilities Project No. 15, 5 3/4% due October 1, 2011.................................................... 52.0 -- --------- --------- Total Inland Steel Company............................. 262.0 307.9 Ryerson Tull, Inc. Notes, 8 1/2% due July 15, 2001.......................... 150.0 150.0 Notes, 9 1/8% due July 15, 2006.......................... 100.0 100.0 Joseph T. Ryerson & Son, Inc. Obligation for Industrial Revenue Bond with floating rate, set weekly based on 13-week Treasury bills, due November 1, 2007........................................ 7.0 7.0 J. M. Tull Metals Company, Inc. Obligations for Industrial Revenue Bonds and other long- term debt with variable rates and fixed rates to 9 7/8%, due through August 17, 1998............................. -- 6.2 --------- --------- Total long-term debt................................... $ 704.9 $ 773.2 ========= =========
See Notes to Consolidated Financial Statements on pages 18-36. 17 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 1997 and 1996, the Company's ownership of RT approximated 87 percent. Prior to the issuance of the Class A common stock, RT declared and paid dividends of $445.9 million to the Company, of which $152.1 million was in cash and $293.8 million was in the form of a note payable. The Company used $63.2 million of the cash dividends to repay intercompany borrowing from RT and its subsidiaries. In July, RT sold $250 million of Notes, the net proceeds of which, along with a portion of RT's cash on hand, was used to pay the $293.8 million note balance due the Company. NOTE 2/INVENTORIES Inventories were classified on December 31 as follows:
1997 1996 --------- --------- DOLLARS IN MILLIONS In process and finished products: Steel Manufacturing Operations........................ $ 120.9 $ 106.5 Materials Distribution Operations..................... 422.9 311.9 --------- --------- 543.8 418.4 --------- --------- Raw materials and supplies: Iron ore.............................................. 39.7 42.4 Scrap and other raw materials......................... 23.7 16.7 Supplies.............................................. 16.9 17.1 --------- --------- 80.3 76.2 --------- --------- Total............................................... $ 624.1 $ 494.6 ========= =========
Replacement costs for the LIFO inventories exceeded LIFO values by approximately $389 million and $406 million on December 31, 1997 and 1996, respectively. The effect on cost of goods sold of LIFO liquidations in each of the three years ended December 31, 1997 was not material. NOTE 3/BORROWING ARRANGEMENTS On December 31, 1997, the Company's subsidiaries had available unused credit facilities totaling $375 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratios. In the 1997 third quarter, RT extended the term of its $250 million bank credit facility to September 2002. Both the interest rates and commitment fee related to the facility were reduced. A special-purpose subsidiary of Inland Steel Company has a $125 million revolving credit facility, which extends to November 30, 2000. Inland Steel Company has agreed to sell substantially all of its receivables to this special-purpose subsidiary and these receivables are used to secure this facility. With the recapitalization that occurred in 1996, the ability of RT and its subsidiaries to transfer cash to the Company has been more tightly restricted. Covenants in the RT credit facility limited the amount of cash that 18 RT could transfer to the Company in the form of dividends and advances to approximately $76 million at year-end 1997. This amount is subject to change based on the financial performance of RT. Additionally, there are certain other limitations on advances. As part of the recapitalization, the Company and RT entered into an agreement to maintain the existence of the Company and RT as separate corporate entities. Included in this agreement is a requirement that any transactions between the entities, including loans or advances from RT to the Company, must be on an arms-length basis. NOTE 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 and the Series R First Mortgage Bonds subject to a sinking fund. A substantial portion of the property, plant and equipment owned by Inland Steel Company at its Indiana Harbor Works is subject to the lien of the First Mortgage. This property had a net book value of approximately $1.0 billion on December 31, 1997. Inland Steel Company refinanced $52 million of 6 1/2 percent pollution control revenue bonds with 5 3/4 percent tax-exempt refunding bonds during the 1997 fourth quarter. Also during the quarter, the Company redeemed the remaining $5.6 million principal amount outstanding of the Company's 12 3/4% Notes. As part of the restructuring undertaken by the Company in 1996, RT issued $150 million of 8 1/2 percent debt due July 15, 2001, and $100 million of 9 1/8 percent debt due July 15, 2006. During 1996, the Company and Inland Steel Company respectively tendered for the repurchase of all outstanding 12 3/4% Notes and Series T 12% First Mortgage Bonds. Of the $150 million principal amount of Notes outstanding and the $125 million principal amount of Series T Bonds outstanding, $144.2 million and $98.7 million, respectively, were tendered. Inland Steel Company also called $38 million of 10 percent Pollution Control Project No. 9 Bonds for early redemption, which were refinanced at an interest rate of 7.25 percent. As a result of the tenders and early redemption, the Company recognized an extraordinary after-tax loss of $23.3 million, $36.9 million before income taxes. During the third quarter of 1995, Inland Steel Company refinanced $17 million of 10.75 percent pollution control revenue bonds with bonds bearing an interest rate of 6.85 percent. Also during the third quarter, the Company exchanged its Series F Exchangeable Preferred Stock for a $185 million 10.23% Subordinated Voting Note. On December 18, 1996, $85 million of the Subordinated Voting Note was repaid, with the remaining $100 million required to be redeemed on December 17, 1999, plus, in each instance, accrued and unpaid interest thereon. See Note 5 for additional information on the Subordinated Voting Note. The outstanding borrowing of the Company's ESOP is recorded as a liability of the Company because the Company has committed to make payments (dividends and supplemental contributions) to the ESOP Trust sufficient to service the ESOP debt. The ESOP notes are payable in semi-annual installments through July 2004 and are guaranteed by Joseph T. Ryerson & Son, Inc., a majority owned subsidiary of the Company. See Note 6 for additional information on the ESOP debt. Maturities of long-term debt and capitalized lease obligations due within five years are: $62.7 million in 1998, $115.5 million in 1999, $18.8 million in 2000, $169.9 million in 2001, and $21.1 million in 2002. See Note 18 regarding commitments and contingencies for other scheduled payments. Interest cost incurred by the Company totaled $64.3 million in 1997, $79.6 million in 1996, and $73.7 million in 1995. Included in these totals is capitalized interest of $1.7 million in 1997, $2.5 million in 1996, and $1.8 million in 1995. 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 19 indirect wholly owned subsidiary of Nippon Steel Corporation ("NSC"). The preferred stock was exchanged in the third quarter of 1995 for the Company's 10.23% Subordinated Voting Note (see Note 4). The preferred stock entitled the holder to 30.604 votes per share and the Subordinated Voting Note entitles the holder to 30.604 votes per $1,000 of principal amount outstanding, which number may be adjusted from time to time upon the occurrence of certain events. The voting power was based on the equivalent number of common shares represented by a market value of $185 million at the time the preferred stock was issued. In the event of a change in control or certain other events, the holder may require the Company to redeem the Subordinated Voting Note at a 10 percent premium. In the event of an early redemption, the Company may be required to reimburse the holder for certain costs incurred as a result of such redemption. In connection with the sale of the Series F Preferred Stock, the Company agreed to repurchase $185 million of the Company's common stock, of which $157 million (amounting to 5.1 million shares) has been repurchased. As of December 31, 1997, the amount representing the remaining repurchase commitment of $28 million has been classified as temporary equity with a corresponding reduction of stockholders' equity. In December 1990, the Company suspended open-market stock purchases and agreed to maintain cash, certain securities, a surety bond or letter of credit, or some combination thereof, currently equal to $9 million to meet its obligation under the Series F Preferred Stock sale agreement. The terms of a letter agreement between the Company and NSC which provided for the purchase of the Series F Preferred Stock generally restrict the acquisition by NSC of additional securities of the Company and the disposition of the Subordinated Voting Note. Under certain circumstances related to a potential change in control of the Company, NSC may seek to acquire voting securities of the Company on terms and conditions no less favorable to the Company's stockholders than the terms and conditions offered in connection with the potential change in control. So long as the purchaser and permitted transferees beneficially own at least $100 million aggregate principal amount of the Subordinated Voting Note, the Company has agreed with NSC to nominate a mutually acceptable individual for election to the Company's Board of Directors. No such individual has been nominated. NOTE 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. Effective January 1, 1998, salaried employees at RT will no longer participate in the above described savings plan and will no longer receive ESOP shares, except for dividend replacement shares, in their savings plan accounts. Shares allocated to such employees prior to year-end 1997 will remain in their accounts and dividend replacement shares will continue to be allocated to their accounts consistent with plan provisions. Future matching will be provided in cash consistent with provisions of a new savings plan established by RT. Compensation expense recognized at RT will not be materially impacted as a result of the change in savings plans. The Company makes annual contributions to the ESOP equal to the ESOP's debt service less dividends on leveraged shares (shares purchased by the ESOP Trust in July 1989) received by the ESOP Trust. All dividends received by the ESOP are used to pay debt service. Dividends on Series E Preferred Stock are recorded as declared as reductions to retained earnings, net of applicable tax benefits on unallocated shares. Dividends on allocated leveraged shares are replaced with additional ESOP shares. Dividends on unallocated leveraged shares serve to reduce interest expense recognized by the Company. 20 In each of 1997, 1996 and 1995, the ESOP Trust received $10.6 million in dividends and $8.1 million in contributions from the Company to make required principal and interest payments. As principal and interest payments are made, ESOP shares are made available for allocation based on the proportion of current payments to the total of current plus future payments. As shares are allocated, the Company records compensation expense equal to the original stated value of the shares of Series E Preferred Stock allocated to the participants during the period. Compensation expense related to the ESOP recognized by the Company totaled $8.4 million in 1997, $9.1 million in 1996, and $8.9 million in 1995. ESOP shares remaining unallocated are reported as unearned compensation on the Company's consolidated balance sheet. Interest expense is recognized as it is incurred by the ESOP Trust. Interest expense incurred by the ESOP Trust totaled $8.6 million, $9.3 million, and $10.0 million in 1997, 1996 and 1995, respectively. The ESOP shares as of December 31 were as follows:
1997 1996 1995 --------- --------- --------- Allocated shares............................... 1,603,623 1,447,642 1,268,126 Unreleased shares.............................. 1,410,925 1,633,148 1,850,475 --------- --------- --------- Total ESOP shares............................ 3,014,548 3,080,790 3,118,601 ========= ========= =========
NOTE 7/CAPITAL STOCK On December 31, 1997, 7,972,744 shares of common stock remained reserved for issuance under the Company's various employee stock plans and upon conversion of shares of preferred stock. In the second quarter of 1995, the Company contributed 3.9 million shares of its common stock with an aggregate value of $100 million to the Company's Pension Trust. The Series A $2.40 Cumulative Convertible Preferred Stock, $1.00 par value per share ("Series A Preferred Stock"), is convertible into common stock at the rate of one share of common stock for each share of Series A Preferred Stock and is redeemable, at the Company's option, at $44 per share plus any accrued and unpaid dividends. Each such share is entitled to one vote and generally votes together with holders of common stock as one class. Shares of Series E Preferred Stock, $1.00 par value per share, entitle the holder to cumulative annual dividends of $3.523 per share, payable semi- annually, and to 1.25 votes per share. Shares of Series E Preferred Stock are convertible into the Company's common stock on a one-for-one basis. From time to time, the Company elects to provide additional shares of Series E Preferred Stock to the ESOP Trust to cover employee matching requirements not covered by the release of shares through scheduled principal and interest payments by the ESOP Trust on its outstanding notes (see Note 6). 21 The following table details changes in capital accounts:
PREFERRED STOCK CAPITAL ------------------------------ IN EXCESS OF COMMON STOCK TREASURY STOCK SERIES A SERIES E PAR VALUE -------------- --------------- -------------- --------------- ------------ SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS DOLLARS ------ ------- ------ ------- ------ ------- ------ ------- ------------ SHARES IN THOUSANDS AND DOLLARS IN MILLIONS Balance at January 1, 1995................... 50,556 $50.6 (6,006) $(200.9) 95 $ .1 3,103 $3.1 $1,088.0 Acquisition of treasury stock................. -- -- (138) (4.0) -- -- -- -- -- Issued under employee benefit plans......... -- -- 415 15.6 -- -- 44 -- (3.1) Redemption of Series E Preferred Stock....... -- -- -- -- -- -- (28) -- (1.3) Conversion of Series A Preferred Stock....... -- -- 1 -- (1) -- -- -- -- Issuance of Common Stock to Pension Trust................. -- -- 3,946 139.0 -- -- -- -- (39.0) Other changes.......... -- -- (33) (.8) -- -- -- -- 1.1 ------ ----- ------ ------- --- ---- ----- ---- -------- Balance at December 31, 1995................... 50,556 50.6 (1,815) (51.1) 94 .1 3,119 3.1 1,045.7 Acquisition of treasury stock................. -- -- (164) (3.7) -- -- -- -- -- Issued under employee benefit plans......... -- -- 401 12.5 -- -- 67 .1 (1.6) Redemption of Series E Preferred Stock....... -- -- -- -- -- -- (105) (.1) (5.0) Other changes.......... -- -- (70) (1.9) -- -- -- -- 1.1 ------ ----- ------ ------- --- ---- ----- ---- -------- Balance at December 31, 1996................... 50,556 50.6 (1,648) (44.2) 94 .1 3,081 3.1 1,040.2 Acquisition of treasury stock................. -- -- (299) (6.7) -- -- -- -- -- Issued under employee benefit plans......... -- -- 415 11.0 -- -- 58 -- -- Redemption of Series E Preferred Stock....... -- -- -- -- -- -- (124) (.1) (6.0) Other changes.......... -- -- (26) (.6) -- -- -- -- (1.7) ------ ----- ------ ------- --- ---- ----- ---- -------- Balance at December 31, 1997................... 50,556 $50.6 (1,558) $ (40.5) 94 $ .1 3,015 $3.0 $1,032.5 ====== ===== ====== ======= === ==== ===== ==== ========
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 1997, 1996 and 1995 consistent with the provisions of FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------ ----- ------ DOLLARS IN MILLIONS (EXCEPT PER SHARE DATA) Net income--as reported.................................... $119.3 $45.7 $146.8 Net income--pro forma...................................... $116.0 $42.4 $145.9 Earnings per share--as reported............................ $ 2.25 $ .75 $ 2.70 Earnings per share--pro forma.............................. $ 2.18 $ .68 $ 2.68
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997: dividend yield of 1.00%; expected volatility of 32.67%; risk-free interest rate of 6.63%; and expected term of 5 years. In July 1996, after the initial public offering of RT common stock, the compensation committee of RT elected to allow the substitution of RT common stock options for Company common stock options. As the exercise price of substituted options exceeded the then current market price of RT stock and all other terms of the options remained unchanged, there was no material increase in value to the employees resulting from the substitution and no material increase in cost to RT. 1,041,949 RT stock options were substituted for 855,494 Company stock options. Options substituted retain their originally granted vesting schedules. During 1997, RT granted options to employees. 87 percent of the compensation cost for these options, had they been determined on the fair value at the grant date consistent with the provisions of FASB Statement No. 123, is included in the above pro forma numbers. 22 Options granted under each of the plans vest in not less than one year. Options granted in 1995 vested over a two year period, one-half after one year and one-half after two years. Options granted in 1996 vest over a three year period with one-third becoming fully vested at the end of each year. Options granted in 1997 vest over a two year period, one-half after one year and one- half after two years. COMPANY PLAN The Inland 1995 Incentive Stock Plan, approved by stockholders on May 24, 1995, provides for the issuance, pursuant to options and other awards, of 2.0 million shares of common stock to officers and other key employees. Options remain outstanding and exercisable under the Inland 1992 and 1988 Incentive Stock Plans; however, no further options may be granted under these plans. Under the various plans, the per share option exercise price may not be less than 100 percent of the fair market value per share on the date of grant. During 1997, options were granted to 19 executives under the 1995 Plan and a total of 1,179,665 shares was available for future grants under that Plan as of December 31, 1997. The following summarizes the status of options under the plans for the periods indicated:
OPTION EXERCISE WEIGHTED NUMBER OF PRICE OR RANGE AVERAGE SHARES PER SHARE EXERCISE PRICE --------- --------------- -------------- Options (granted and unexercised) at December 31, 1994................... 2,244,007 $15.31-$39.75 $30.03 Granted............................ 469,600 23.19- 28.50 28.36 Exercised.......................... (138,117) 15.31- 31.06 23.87 Forfeited.......................... (104,600) 22.31- 39.75 31.17 Expired............................ (96,300) 21.38- 39.75 36.78 --------- ------------- ------ Options (granted and unexercised) at December 31, 1995 (1,615,826 exercisable)........................ 2,374,590 15.31- 39.75 29.73 Granted............................ 1,416,900 22.69- 24.69 24.57 Exercised.......................... (1,800) 15.31- 26.13 20.12 Forfeited.......................... (136,200) 21.38- 33.75 26.09 Expired............................ (94,050) 21.38- 39.75 33.34 Substituted by RT.................. (855,494) 21.38- 39.75 27.76 --------- ------------- ------ Options (granted and unexercised) at December 31, 1996 (1,610,246 exercisable)........................ 2,703,946 21.38- 39.75 27.72 Granted............................ 34,300 24.38 24.38 Exercised.......................... (17,400) 21.38- 26.13 21.78 Forfeited.......................... (97,500) 22.69- 39.75 27.46 Expired............................ (38,110) 25.50- 39.75 32.65 --------- ------------- ------ Options (granted and unexercised) at December 31, 1997 (1,978,823 exercisable)........................ 2,585,236 21.38- 39.75 27.72 --------- ------------- ------
The weighted-average fair value of options granted during 1997 was $9.05. 23 The following table summarizes information about fixed-price stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------- ---------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- NUMBER REMAINING AVERAGE NUMBER AVERAGE RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE XERCISE PRICESE SHARES LIFE PRICE SHARES PRICE - --------------- ------- ----------- --------- ---------- ----------- $37.75 to $39.75........... 243,350 1 year $38.81 243,350 $ 38.81 21.38 to 33.75........... 219,877 3 years 28.76 219,877 28.76 25.50..................... 229,385 4 years 25.50 229,385 25.50 26.13..................... 320,324 5 years 26.13 320,324 26.13 30.88..................... 276,500 6 years 30.88 276,500 30.88 28.50..................... 303,000 7 years 28.50 303,000 28.50 22.69 to 24.69........... 958,500 8 years 24.50 386,387 24.51 24.38..................... 34,300 9 years 24.38 -- N/A
Stock appreciation rights ("SARs") may also be granted with respect to shares subject to outstanding options. No SAR has been granted since 1990. SAR compensation expense recorded by the Company was not material for any of the three years. The 1995 Plan also provides, as did the 1992 and 1988 Plans, for the granting of restricted stock and performance awards to officers and other key employees. During 1997, 139 performance awards were granted totaling 571,560 shares of stock and the equivalent of an additional 294,440 shares of stock payable in either stock or cash. None of these performance awards were paid in 1997 and 285,780 shares were forfeited when performance goals were not achieved. Also during 1997, no restricted stock awards were granted, however, 59,500 shares of previously granted restricted stock awards vested while 5,600 shares of restricted stock were forfeited. Of the performance awards granted prior to 1997, 6,618 shares (including dividend-equivalent shares) were issued to recipients while no shares were forfeited. During 1996, restricted stock awards totaling 16,100 shares were granted to 11 executives and no performance awards were granted. Also during 1996, 82,200 shares of previously granted restricted stock awards vested while 28,300 shares of restricted stock were forfeited, 31,424 shares of restricted stock were substituted by RT restricted stock, and 4,941 shares (including dividend-equivalent shares) were issued to recipients of performance awards previously granted while 28,079 shares (including dividend-equivalent shares) subject to performance awards were forfeited. During 1995, restricted stock awards totaling 28,524 shares were granted to 17 executives and one performance award totaling 2,000 shares was granted. Also during 1995, 16,105 shares of previously granted restricted stock awards vested while 18,405 shares of restricted stock were forfeited, and 16,841 shares (including dividend-equivalent shares) were issued to recipients of performance awards previously granted while 19,532 shares (including dividend-equivalent shares) subject to performance awards were forfeited. The Company also sponsors an employee stock purchase plan where employees have the opportunity to sign up twice a year to purchase stock at the end of each six month period at a price that is 90 percent of the fair market value price on the last day of the period. In 1997, 1996 and 1995, employees received stock with a total value that was approximately $100,000, $120,000 and $120,000, respectively, greater than the price paid for the stock issued. RT PLAN The Ryerson Tull 1996 Incentive Stock Plan provides for the issuance, pursuant to options and other awards, of 2.3 million shares of RT common stock to officers and other key employees. Under this plan, the per share option exercise price may not be less than 100 percent of the fair market value per share on the date of grant. A total of 879,491 shares was available for future grants under that Plan as of December 31, 1997. 24 The following summarizes the status of RT options under the plan for the periods indicated:
OPTION EXERCISE WEIGHTED NUMBER OF PRICE OR RANGE AVERAGE SHARES PER SHARE EXERCISE 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 Granted......................... 324,500 14.06- 15.75 14.10 Expired......................... (4,625) 25.50 25.50 Forfeited....................... (20,971) 14.06- 32.63 23.15 --------- ------------- ------ Options (granted and unexercised) at December 31, 1997 (713,514 exercisable)..................... 1,332,085 14.06- 32.63 20.67 --------- ------------- ------
The weighted-average fair value of options granted during 1997 was $6.97. The following table summarizes information about RT fixed-price stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------- ---------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- NUMBER REMAINING AVERAGE NUMBER AVERAGE RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE --------------- ------- ----------- --------- ---------- ----------- $30.99 to $32.63........ 64,968 1 year $32.08 64,968 $ 32.08 17.55 to 27.70........ 65,723 3 years 25.15 65,723 25.15 20.93.................. 58,462 4 years 20.93 58,462 20.93 21.44.................. 89,360 5 years 21.44 89,360 21.44 25.34 to 29.55........ 147,245 6 years 26.04 147,245 26.04 23.39.................. 142,489 7 years 23.39 142,489 23.39 20.26.................. 440,338 8 years 20.26 145,267 20.26 14.06.................. 313,500 9 years 14.06 -- N/A 14.75 to 15.75........ 10,000 10 years 15.30 -- N/A
The Plan provides that SARs may be granted with the same terms as the Company Plan. No SARs have been granted. The Plan provides for the granting of restricted stock and performance awards to officers and other key employees. During 1997, restricted stock awards totaling 5,500 shares were granted to 3 executives and 94 performance awards totaling 90,900 shares were granted. Shares totaling 63,885 were forfeited when performance hurdles were not met. Also during 1997, 23,050 shares of previously granted restricted stock awards vested while 1,218 shares of restricted stock were forfeited. During 1996, 31,424 shares of previously granted Company restricted stock were substituted by 38,273 shares of RT stock. Also during 1996, restricted stock awards totaling 18,854 were granted to 10 executives and no performance awards were granted. RT employees participate in the Company employee stock purchase plan where employees have the opportunity to sign up twice a year to purchase stock at the end of each six month period at a price that is 90 percent of the fair market value price on the last day of the period. In 1997, 1996 and 1995, RT employees received Company stock with a total value that was approximately $20,000, $30,000 and $30,000, respectively, greater than the price paid for the stock issued. 25 NOTE 9/STOCKHOLDER RIGHTS PLAN Pursuant to a stockholder rights plan, on November 25, 1997, the Board of Directors declared a dividend distribution, payable to stockholders of record on December 17, 1997, of one preferred stock purchase right (a "Right") for each outstanding share of the Company's common stock. The Rights will expire December 17, 2007, and will become exercisable only if a person or group becomes the beneficial owner of 20 percent or more of the common stock (a "20 percent holder"), commences a tender or exchange offer which would result in the offeror beneficially owning 20 percent or more of the common stock, or is determined by the Board to beneficially own at least 10 percent of the common stock and either intends to cause the Company to take certain actions not in the best long-term interests of the Company and its stockholders or is reasonably likely, through such beneficial ownership, to cause a material adverse impact on the business or prospects of the Company and its stockholders (an "Adverse Person"). Each Right will entitle stockholders to buy one newly issued unit of one one-hundredth of a share of Series D Junior Participating Preferred Stock at an exercise price of $80, subject to certain antidilution adjustments. The Company (with the concurrence of the independent continuing directors) will generally be entitled to redeem the Rights at $.01 per Right at any time prior to 15 days after a public announcement of the existence of a 20 percent holder. If a person or group accumulates 20 percent or more of the common stock (except pursuant to an offer for all outstanding shares of common stock which the independent continuing directors determine to be fair to and otherwise in the best interests of the Company and its stockholders) or the Board determines that a person or group is an Adverse Person, each Right (other than Rights held by such 20 percent holder and certain related parties which become void) will represent the right to purchase, at the exercise price, common stock (or, in certain circumstances, a combination of securities and/or assets) having a current market value equal to twice the exercise price. In addition, if, following the public announcement of the existence of a 20 percent holder, the Company is acquired in a merger or other business combination transaction, except a merger or other business combination transaction that takes place after the consummation of an offer for all outstanding shares of common stock that the independent continuing directors have determined to be fair, or a sale of 50 percent or more of the Company's assets or earning power is made to a third party, each Right (unless previously voided) will represent the right to purchase, at the exercise price, common stock of the acquiring entity having a value of twice the exercise price at the time. The Board of Directors has the option at any time after a person or group becomes a 20 percent holder or an Adverse Person to exchange all or part of the Rights (other than Rights held by such 20 percent holder or Adverse Person) for shares of the Company's common stock provided that the Company may not make such an exchange after any person becomes the beneficial owner of 50 percent or more of the Company's outstanding common stock. NOTE 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. Gains and losses associated with these hedging transactions become part of the cost of the item being hedged. At no time during 1997, 1996 or 1995 were such hedging transactions material. Cash and cash equivalents The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. 26 Long-term investment In 1989, the Company and NSC, through a subsidiary, each purchased in the open market approximately $15 million of the other company's common stock. The estimated fair value of the NSC common stock at year-end 1997 and 1996, based on the quoted market price and exchange rate at each year end, was $3.6 million and $7.2 million, respectively, as compared with the carrying value of $7.5 million and $9.8 million included in the balance sheet at December 31, 1997 and 1996, respectively. Long-term debt The estimated fair value of the Company's long-term debt and the current portions thereof (excluding the Subordinated Voting Note), using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded, was $712 million at December 31, 1997 and $720 million at December 31, 1996 as compared with the carrying value of $668 million and $693 million included in the balance sheet at year-end 1997 and 1996, respectively. 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 In the fourth quarter of 1997, the Company recorded a charge of $10 million relating to additional restructuring provisions for previously discontinued raw material operations primarily related to retiree health care and other benefit costs. At year-end 1996, the Company recorded a charge of $26 million for provisions related to pensions, health care, and severance costs resulting from a salaried workforce reduction plan. In the 1995 third quarter, the Company recorded a charge of $35 million for provisions related to pensions, health care, and severance costs resulting from the acceptance by approximately 300 salaried Inland Steel Company employees of a voluntary retirement package offered during the quarter. In addition, Inland Steel Company announced the closure of its plate operation. Provisions for pensions and other employee benefits related to the shutdown of this operation had been previously accrued. With the closure of the plate operation, the Company completed the workforce reduction program announced in 1991. A final computation of the employee benefit costs required for the 1991 program resulted in unused reserves due to differences between the actual makeup of the population leaving the Company under this program and the projections used in 1991. The Company, therefore, reversed $65 million of unused reserves from the balance sheet and recorded a corresponding credit to income in the third quarter of 1995. During the 1995 third quarter, the Company also increased reserves for previously discontinued or reduced operations related to the Company's restructuring efforts by $18 million, approximately half of which related to benefit costs, primarily at a closed iron ore mining facility, and half related to impairment of assets beyond amounts previously recognized. In addition, the Company increased its environmental reserves by $7 million. Inland Steel Company has taken initiatives to reduce its production costs by the shutdown of certain Indiana Harbor Works facilities and raw materials operations. Reserve balances related to provisions recorded for these shutdowns, which include long-term liabilities for mine reclamation costs and employee benefits, totaled $129.5 million, $131.6 million and $135.9 million at December 31, 1997, 1996 and 1995, respectively. 27 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. Effective April 30, 1996, that portion of the Company's pension plan covering RT's current and former employees was separated and became the Ryerson Tull Pension Plan. Due to this separation, the Company remeasured each subsidiary's benefit obligation using plan data and actuarial assumptions as of the date of separation. An amount of assets proportional to the liabilities assumed by the Ryerson Tull Pension Plan was allocated to such plan. Effective January 1, 1998, RT froze its defined benefit pension plan for certain salaried employees and instituted a defined contribution plan. Salaried participants vested in their accrued benefits under the pension plan at December 31, 1997 and will be entitled to those benefits on retirement. Certain employees that meet specified age and service requirements will continue to accrue benefits for an additional five years under the pension plan. The changes to the retirement plan for affected salaried employees resulted in a $8.9 million curtailment gain recorded by RT in 1997. While funding was not required under ERISA funding standards, the Company elected to fund its Pension Trust in the 1995 second quarter, its first funding since 1984, with 3.9 million shares of Company common stock with an aggregate value of $100 million. In 1997, the Company elected to fund its pension plans with cash, contributing $30.0 million to the Company's plan and $6.9 million to RT's plan. The assumptions used to determine the plans' funded status at September 30 were as follows:
1997 1996 ---- ---- Discount (settlement) rate......................................... 7.5% 8.0% Rate of compensation increase...................................... 4.0% 4.0% Rate of return on plan assets...................................... 9.5% 9.5%
The funded status of the Industries Pension Plan (excluding Ryerson Tull) and the Ryerson Tull Pension Plan as of September 30, 1997 and 1996 were as follows:
SEPTEMBER 30 ------------------------------------- 1997 1996 ------------------ ------------------ RYERSON RYERSON INDUSTRIES TULL INDUSTRIES TULL ---------- ------- ---------- ------- DOLLARS IN MILLIONS Fair value of plan assets Equities............................... $1,381 $203 $1,081 $157 Bonds.................................. 461 68 501 73 Real estate............................ 113 17 112 16 Cash equivalents and accrued interest.. 36 5 35 5 ------ ---- ------ ---- 1,991 293 1,729 251 ------ ---- ------ ---- Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date, including vested benefits of $1,765 and $1,620 for Industries, and $256 and $211 for Ryerson Tull in 1997 and 1996, respectively.......................... 1,894 274 1,746 225 Additional benefits based on estimated future compensation levels............ 73 29 105 27 ------ ---- ------ ---- Projected Benefit Obligation........... 1,967 303 1,851 252 ------ ---- ------ ---- Plan assets in excess of (shortfall to) Projected Benefit Obligation............ $ 24 $(10) $ (122) $ (1) ====== ==== ====== ====
28 The Projected Benefit Obligation is the full measure of the Company's "going concern" liability for pensions accrued to date based on current interest rates. It includes the effect of future compensation increases for benefits based on final pay. It does not, however, take into consideration contingent benefits that are not expected to be paid but that would require funding in any plan termination. The accrued pension cost reflected in the balance sheet can be reconciled to the excess of or shortfall to plan assets as shown below:
SEPTEMBER 30 ------------------------------------- 1997 1996 ------------------ ------------------ RYERSON RYERSON INDUSTRIES TULL INDUSTRIES TULL ---------- ------- ---------- ------- DOLLARS IN MILLIONS Plan assets in excess of (shortfall to) Projected Benefit Obligation............. $24 $(10) $(122) $(1) Unrecognized transition asset............. (47) (5) (67) (8) Unrecognized net loss (gain).............. (18) 14 131 3 Unrecognized prior service cost........... 105 8 117 8 Adjustment required to recognize additional minimum liability............. -- -- (76) -- --- ---- ----- --- Prepaid (accrued) pension cost............ 64 7 (17) 2 Expense, October through December......... (2) (1) -- (1) Pension curtailment gain.................. -- 9 -- -- Workforce reduction provision............. -- -- (19) -- --- ---- ----- --- Prepaid (accrued) pension cost at December 31............................ $62 $ 15 $ (36) $ 1 === ==== ===== ===
The additional minimum pension liability in 1996 represented the excess of the unfunded Accumulated Benefit Obligation over previously accrued pension costs. A corresponding intangible asset was recorded as an offset to this additional liability as prescribed. The unrecognized transition asset is being recognized in income by reducing pension expense in equal annual installments of $23.1 million through 1999. Any subsequent unrecognized net gain or loss in excess of 10 percent of the greater of the Projected Benefit Obligation or the fair value of plan assets will be amortized over the remaining service period of active employees. Pension cost for 1997, 1996 and 1995 is composed of the components set forth in the table below:
1997 1996 1995 ------ ------ ------ DOLLARS IN MILLIONS Service cost--present value of benefits earned during year....................................... $ 28 $ 29 $ 28 Interest on service cost and Projected Benefit Obligation........................................ 164 155 153 Actual return on plan assets....................... (433) (213) (290) Net amortization and deferral...................... 250 35 117 ------ ------ ------ Total pension cost................................. $ 9 $ 6 $ 8 ====== ====== ======
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. 29 The amount of net periodic postretirement benefit cost for 1997, 1996 and 1995 is composed of the following:
1997 1996 1995 ------ ------ ------ DOLLARS IN MILLIONS Service cost.......................................... $ 12 $ 13 $ 12 Interest cost......................................... 71 74 74 Net amortization and deferral......................... (18) (14) (21) ------ ------ ------ Total net periodic postretirement benefit cost...... $ 65 $ 73 $ 65 ====== ====== ======
The following table sets forth components of the accumulated postretirement benefit obligation:
SEPTEMBER 30 ------------- 1997 1996 ------ ------ DOLLARS IN MILLIONS Accumulated postretirement benefit obligation attributable to: Retirees.................................................. $ 605 $ 542 Fully eligible plan participants.......................... 100 88 Other active plan participants............................ 295 273 ------ ------ Accumulated postretirement benefit obligation............... 1,000 903 Unrecognized net gain..................................... 194 277 Unrecognized prior service credit......................... 64 60 ------ ------ Accrued postretirement benefit obligation................... 1,258 1,240 Expense, net of benefits provided, October through December. 4 8 Workforce reduction provision............................... -- 4 ------ ------ Accrued postretirement benefit obligation at December 31.. $1,262 $1,252 ====== ======
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 ------------- 1997 1996 ------ ------ Discount rate.................................................. 7.5% 8.0% Rate of compensation increase.................................. 4.0% 4.0% Medical cost trend rate........................................ 4.5% 4.5%
A one percentage point increase in the assumed health care cost trend rates for each future year increases the sum of the service cost and interest cost components of the annual net periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of September 30, 1997 by $10 million and $113 million, respectively. 30 NOTE 13/INCOME TAXES The elements of the provisions for income taxes for each of the three years indicated below were as follows:
YEARS ENDED DECEMBER 31 -------------------- 1997 1996 1995 ----- ----- ----- DOLLARS IN MILLIONS Current income taxes: Federal.................................................. $23.0 $ 2.3Cr. $ 4.8 State and foreign........................................ 6.2 5.0 6.3 ----- ----- ----- 29.2 2.7 11.1 Deferred income taxes...................................... 51.1 41.1 79.2 ----- ----- ----- Total tax expense........................................ $80.3 $43.8 $90.3 ===== ===== =====
- -------- Cr. = Credit The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
DECEMBER 31 ------------ 1997 1996 ----- ----- DOLLARS IN MILLIONS Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss and tax credit carryforwards................ $ 315 $ 314 Restructuring and termination reserves......................... 28 28 Other deductible temporary differences......................... 52 105 Less valuation allowances...................................... (3) (3) ----- ----- 392 444 ----- ----- Deferred tax liabilities: Fixed asset basis difference................................... 499 482 Other taxable temporary differences............................ 82 86 ----- ----- 581 568 ----- ----- Net deferred liability (excluding postretirement benefits other than pensions).................................................. (189) (124) FASB Statement No. 106 impact (postretirement benefits other than pensions)....................................................... 451 442 ----- ----- Net deferred asset............................................... $ 262 $ 318 ===== =====
For tax purposes, the Company had available, at December 31, 1997, net operating loss ("NOL") carryforwards for regular federal income tax purposes of approximately $745 million which will expire as follows: $232 million in the year 2006, $287 million in the year 2007, $132 million in the year 2008, $14 million in the year 2009, and $80 million in the year 2011. The Company also had investment tax credit and other general business credit carryforwards for tax purposes of approximately $6 million, which expire during the years 1998 through 2006. A valuation allowance has been established for those tax credits which are not expected to be realized. Additionally, in conjunction with the Alternative Minimum Tax ("AMT") rules, the Company had available AMT credit carryforwards for tax purposes of approximately $48 million, which may be used indefinitely to reduce regular federal income taxes. 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. 31 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, 1997, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $451 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 20-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 for the years 1995 and 1997 in total utilized approximately $283 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:
YEARS ENDED DECEMBER 31 ----------------------- 1997 1996 1995 ----- ----- ----- DOLLARS IN MILLIONS Federal income tax expense computed at statutory tax rate of 35%........................................ $72.8 $40.5 $83.0 Additional taxes or credits from: State and local income taxes, net of federal income tax effect................................ 9.7 5.4 9.4 Percentage depletion.............................. 3.0Cr. 2.8Cr. 2.9Cr. All other, net.................................... .8 .7 .8 ----- ----- ----- Total income tax expense........................ $80.3 $43.8 $90.3 ===== ===== =====
- -------- Cr. = Credit 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 $149.2 million, $144.8 million and $147.5 million in 1997, 1996 and 1995, respectively, for such tolling services. The Company and NSC each have guaranteed a portion of the long-term financing of I/N Tek. At December 31, 1997, the Company's share of such guaranty amounted to $116 million. The Company and NSC also own and operate another joint venture which consists of a 400,000 ton electrogalvanizing line and a 500,000 ton hot-dip galvanizing line adjacent to the I/N Tek facility. I/N Kote, the general partnership formed for this joint venture, is owned 50 percent by a wholly owned subsidiary of Inland Steel Company and 50 percent by an indirect wholly owned subsidiary of NSC. Inland Steel Company and NSC each have guaranteed the share of long-term financing attributable to their respective subsidiary's interest in the partnership. I/N Kote had $376 million outstanding under its long-term financing agreement at December 31, 1997. I/N Kote is required to buy all of its cold rolled steel from Inland Steel Company, which is required to furnish such cold rolled steel at a price that results in an annual return on equity to the partners of I/N Kote, depending upon operating levels, of up to 10 percent after operating and financing costs; this price is subject to 32 an adjustment if Inland Steel Company's return on sales differs from I/N Kote's return on sales. Purchases of Inland Steel Company cold rolled steel by I/N Kote aggregated $320.6 million in 1997, $314.9 million in 1996 and $303.7 million in 1995. At year-end 1997 and 1996, I/N Kote owed the Company $12.8 million and $18.4 million, respectively, related to these purchases. Prices of cold rolled steel sold by Inland Steel Company to I/N Kote are determined pursuant to the terms of the joint venture agreement and are based, in part, on operating costs of the partnership. In 1997, 1996 and 1995, Inland Steel Company sold cold rolled steel to I/N Kote at prices that exceeded production costs but were less than the market prices for cold rolled steel products. I/N Kote also provides tolling services to Inland Steel Company for which it was charged $22.1 million in 1997, $24.5 million in 1996 and $32.6 million in 1995. Inland Steel Company sells all I/N Kote products that are distributed in North America. NOTE 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 in Wabush Mines in 1996 and 1995, 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 markets Company products and services abroad and purchases certain raw materials. Empire is an iron ore mining and pelletizing venture owned in various percentages primarily by U.S. steel companies. In 1997, the Company, through its Inland Steel Company subsidiary, sold its interest in Wabush Mines, resulting in a $9 million pretax gain. Walbridge is a venture that coats cold rolled steel in which Inland has the right to 25 percent of the productive capacity. Following is a summary of combined financial information of the Company's unconsolidated joint ventures:
1997 1996 1995 -------- -------- -------- DOLLARS IN MILLIONS Results of Operations for the years ended December 31: Gross revenue................................ $1,282.8 $1,355.5 $1,282.2 Costs and expenses........................... 1,163.8 1,277.2 1,203.2 -------- -------- -------- Net income................................... $ 119.0 $ 78.3 $ 79.0 ======== ======== ======== Financial Position at December 31: Current assets............................... $ 281.8 $ 306.3 $ 313.6 Total assets................................. 1,477.3 1,857.2 1,897.3 Current liabilities.......................... 244.7 249.3 282.2 Total liabilities............................ 1,034.6 1,421.7 1,487.8 Net assets................................... 442.7 435.5 409.5
NOTE 16/ACQUISITIONS During 1997, the Company, through its majority-owned subsidiary Ryerson Tull, Inc., acquired Thypin Steel Co., Inc., Omni Metals, Inc. and the assets of Cardinal Metals, Inc. for an aggregate of $139.9 million in cash plus assumption of debt. The acquisitions have been accounted for by the purchase method of accounting and the purchase price has been allocated to assets acquired and liabilities assumed. Results of operations since acquisition for each company are included in the consolidated results. The pro forma effect for 1997 and 1996 had these acquisitions occurred at the beginning of each such year is not material. 33 NOTE 17/EARNINGS PER SHARE BASIC EARNINGS PER SHARE
1997 1996 1995 ------ ----- ------ DOLLARS AND SHARES IN MILLIONS (EXCEPT PER SHARE DATA) Income before extraordinary items......................... $119.3 $69.0 $146.8 Less preferred stock dividends............................ 9.1 9.1 19.0 ------ ----- ------ Income available to common stockholders................... 110.2 59.9 127.8 Extraordinary items....................................... -- (23.3) -- ------ ----- ------ Net income available to common stockholders............... $110.2 $36.6 $127.8 ====== ===== ====== Average shares of common stock outstanding................ 48.9 48.8 47.3 ====== ===== ====== Basic earnings per share Before extraordinary items.............................. $ 2.25 $1.23 $ 2.70 Extraordinary items..................................... -- (.48) -- ------ ----- ------ Net income.............................................. $ 2.25 $ .75 $ 2.70 ====== ===== ======
DILUTED EARNINGS PER SHARE
1997 1996 1995 ------ ------ ------ DOLLARS AND SHARES IN MILLIONS (EXCEPT PER SHARE DATA) Income available to common stockholders................ $110.2 $ 59.9 $127.8 Effect of dilutive securities Series A preferred stock............................. -- -- .2 Series E leveraged preferred stock................... 8.7 8.5 8.2 Additional ESOP funding required on conversion of Series E leveraged preferred stock, net of tax...... (8.1) (7.9) (7.6) ------ ------ ------ Income available to common stockholders and assumed conversions before extraordinary items................ 110.8 60.5 128.6 Extraordinary items.................................... -- (23.3) -- ------ ------ ------ Net income available to common stockholders and assumed conversions........................................... $110.8 $ 37.2 $128.6 ====== ====== ====== Average shares of common stock outstanding............. 48.9 48.8 47.3 Assumed conversion of Series A preferred stock............................. -- -- .1 Series E leverage preferred stock.................... 3.0 3.0 3.0 Dilutive effect of stock options....................... -- -- .1 ------ ------ ------ Shares outstanding for diluted earnings per share calculation........................................... 51.9 51.8 50.5 ====== ====== ====== Diluted earnings per share Before extraordinary items........................... $ 2.13 $ 1.17 $ 2.55 Extraordinary items.................................. -- (.45) -- ------ ------ ------ Net income........................................... $ 2.13 $ .72 $ 2.55 ====== ====== ======
NOTE 18/COMMITMENTS AND CONTINGENCIES At year-end 1997, Inland Steel Company guaranteed $18.3 million of long-term debt attributable to a subsidiary's interest in PCI Associates. 34 As part of the agreement covering the 1990 sale of the Inland Lime & Stone Company division assets, Inland Steel Company agreed, subject to certain exceptions, to purchase, at prices which approximate market, the annual limestone needs of the Indiana Harbor Works through 2002. The Company and its subsidiaries have various operating leases for which future minimum lease payments are estimated to total $155.8 million through 2022, including approximately $36.6 million in 1998, $31.9 million in 1999, $26.5 million in 2000, $20.8 million in 2001, and $12.7 million in 2002. It is anticipated that the Company will make capital expenditures of $2 million to $5 million annually in each of the next five years for the construction, and have ongoing annual expenditures of $40 million to $50 million for the operation, of air and water pollution control facilities to comply with current federal, state and local laws and regulations. The Company is involved in various environmental and other administrative or judicial actions initiated by governmental agencies. While it is not possible to predict the results of these matters, the Company does not expect environmental expenditures, excluding amounts that may be required in connection with the consent decree in the 1990 EPA lawsuit, to materially affect the Company's results of operations or financial position. Corrective actions relating to the EPA consent decree may require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. At December 31, 1997, the Company's reserves for environmental liabilities totaled $25 million, $19 million of which related to the sediment remediation under the 1993 EPA consent decree. The total amount of firm commitments of the Company and its subsidiaries to contractors and suppliers, primarily in connection with additions to property, plant and equipment, approximated $35 million at year-end 1997. NOTE 19/BUSINESS SEGMENTS AND CONCENTRATION OF CREDIT RISK The Company operates in two business segments, Steel Manufacturing and Materials Distribution. Steel Manufacturing operations include the manufacture of steel mill products and the mining and processing of iron ore. Steel Manufacturing produces and sells a wide range of steels, of which approximately 99 percent consists of carbon and high-strength low-alloy steel grades. Approximately 78 percent of this segment's sales were to customers in five mid-American states, and 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 1997, investments in foreign operations were not material. 35 INFORMATION ABOUT BUSINESS SEGMENTS
YEARS ENDED DECEMBER 31 ---------------------------- 1997 1996 1995 -------- -------- -------- DOLLARS IN MILLIONS NET SALES Steel Manufacturing Operations: Sales to unaffiliated customers................... $2,259.1 $2,195.2 $2,337.4 Intersegment sales................................ 208.4 202.1 175.9 -------- -------- -------- 2,467.5 2,397.3 2,513.3 -------- -------- -------- Materials Distribution Operations: Sales to unaffiliated customers................... 2,780.5 2,382.7 2,437.8 Intersegment sales................................ 8.9 11.3 12.3 -------- -------- -------- 2,789.4 2,394.0 2,450.1 -------- -------- -------- Eliminations and adjustments...................... (210.1) (207.2) (181.9) -------- -------- -------- Total net sales................................. $5,046.8 $4,584.1 $4,781.5 ======== ======== ======== OPERATING PROFIT Steel Manufacturing Operations.................... $ 143.8 $ 48.0 $ 181.7 Materials Distribution Operations................. 144.2 120.0 148.7 Eliminations and adjustments...................... (2.2) (2.3) (1.9) -------- -------- -------- Total operating profit.......................... $ 285.8 $ 165.7 $ 328.5 ======== ======== ======== IDENTIFIABLE ASSETS Steel Manufacturing Operations.................... $2,323.9 $2,280.4 $2,291.5 Materials Distribution Operations................. 1,164.1 929.1 821.2 -------- -------- -------- 3,488.0 3,209.5 3,112.7 General corporate and other....................... 158.5 332.1 445.6 -------- -------- -------- Total assets on December 31..................... $3,646.5 $3,541.6 $3,558.3 ======== ======== ======== DEPRECIATION Steel Manufacturing Operations.................... $ 133.0 $ 124.6 $ 121.2 Materials Distribution Operations................. 23.2 20.8 20.4 -------- -------- -------- 156.2 145.4 141.6 General corporate and other....................... 1.7 1.6 1.5 -------- -------- -------- Total depreciation.............................. $ 157.9 $ 147.0 $ 143.1 ======== ======== ======== CAPITAL EXPENDITURES Steel Manufacturing Operations.................... $ 98.4 $ 155.8 $ 113.9 Materials Distribution Operations................. 40.4 24.1 19.3 -------- -------- -------- 138.8 179.9 133.2 General corporate and other....................... .9 1.0 1.4 -------- -------- -------- Total capital expenditures...................... $ 139.7 $ 180.9 $ 134.6 ======== ======== ========
NOTE 20/RECENT DEVELOPMENTS On March 17, 1998, the Company announced it had signed a binding letter agreement with Ispat International N.V. ("Ispat") whereby Ispat will acquire Inland Steel Company ("ISC") for a total transaction value of approximately $1.43 billion. The agreement has been approved by the Boards of Directors of both companies. As part of the $1.43 billion transaction, Ispat will: i) pay $650 million in cash for the common stock of ISC held by the Company; ii) pay $238.2 million for the preferred stock of ISC held by the Company; iii) repay the intercompany debt of ISC owed to the Company, which at December 31, 1997, was $230.7 million; and iv) assume debt owed to third parties of approximately $307.9 million. The Company intends to distribute a significant portion of the net proceeds from the sale to its stockholders through stock repurchases, dividends or a combination thereof. The sale is subject to a definitive agreement, antitrust clearance, other closing conditions, and the need to give the United Steelworkers of America the opportunity to make an offer to purchase ISC. It is anticipated that the transaction will close in the third quarter of 1998. Following the sale, the Company's primary business will be metals distribution, presently conducted by RT. The Company is currently considering a plan to combine with RT into one entity subsequent to the closing of the sale. 36 -----END PRIVACY-ENHANCED MESSAGE-----