-----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, D8z6GZPqwtS/fFJLBLJjJ5MCnFm1YyVFBJwTueNvaK89s1Ewj5GmEIkeP/dfM/KQ zjvGPMpW2063Caq2eukVnQ== 0000950137-96-000396.txt : 19960401 0000950137-96-000396.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950137-96-000396 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND STEEL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000790528 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 363425828 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09117 FILM NUMBER: 96541068 BUSINESS ADDRESS: STREET 1: 30 W MONROE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3123460300 MAIL ADDRESS: STREET 1: 30 WEST MONROE STREET STREET 2: 16TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60603 10-K 1 FORM 10-K 1 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO _______________ COMMISSION FILE NUMBER 1-9117 INLAND STEEL INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3425828 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 30 WEST MONROE STREET, CHICAGO, ILLINOIS 60603 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 346-0300 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------- ------------------------------------ COMMON STOCK ($1.00 PAR VALUE), INCLUDING NEW YORK STOCK EXCHANGE, INC. PREFERRED STOCK PURCHASE RIGHTS SERIES A $2.40 CUMULATIVE CONVERTIBLE CHICAGO STOCK EXCHANGE, INCORPORATED PREFERRED STOCK ($1.00 PAR VALUE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X . NO . ----- ---- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. / / AS OF MARCH 12, 1996 THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $1,236,438,207.(1) THE NUMBER OF SHARES OF COMMON STOCK ($1.00 PAR VALUE) OF THE REGISTRANT OUTSTANDING AS OF MARCH 12, 1996 WAS 48,778,146. (1)EXCLUDING STOCK HELD BY DIRECTORS AND OFFICERS OF REGISTRANT, WITHOUT ADMISSION OF AFFILIATE STATUS OF SUCH INDIVIDUALS FOR ANY OTHER PURPOSE; ALSO, EXCLUDING SERIES E ESOP CONVERTIBLE PREFERRED STOCK OF THE REGISTRANT, WHICH SERIES IS NOT PUBLICLY TRADED. DOCUMENTS INCORPORATED BY REFERENCE PARTS I AND II OF THIS REPORT ON FORM 10-K INCORPORATE BY REFERENCE CERTAIN INFORMATION FROM THE ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995. 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 22, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. Inland Steel Industries, Inc. (the "Company"), a Delaware corporation, is the sole stockholder of Inland Steel Company and Inland Materials Distribution Group, Inc. ("Distribution"). Inland Steel Company is a fully integrated domestic steel company that produces and sells a wide range of steels, of which approximately 99% consists of carbon and high-strength low-alloy steel grades. It is also a participant in certain iron ore production and steel-finishing joint ventures. Distribution is the sole stockholder of Joseph T. Ryerson & Son, Inc. ("Ryerson") and J. M. Tull Metals Company, Inc. ("Tull"). Ryerson and Tull are leading steel service, distribution and materials processing organizations. BUSINESS SEGMENTS The business segments of the Company and its subsidiaries are Steel Manufacturing (including iron ore operations) and Materials Distribution. For the three years ended December 31, 1995, information relating to net sales, operating profit, identifiable assets, depreciation and capital expenditures for both business segments of the Company appears in Note 16 of Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995. Such information is hereby incorporated by reference herein. Steel Manufacturing Operations - ------------------------------ General Inland Steel Company, a wholly owned subsidiary of the Company, is directly engaged in the production and sale of steel and related products and the transportation of iron ore, limestone and certain other commodities (primarily for its own use) on the Great Lakes. Certain subsidiaries and associated companies of Inland Steel Company are engaged in the mining and pelletizing of iron ore and in the operation of a cold-rolling mill and steel galvanizing lines. All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana, which also has facilities for converting the steel produced into semi-finished and finished steel products. Inland Steel Company has two divisions -- the Inland Steel Flat Products Company division and the Inland Steel Bar Company division. The Flat Products division manages Inland Steel Company's iron ore operations, conducts its ironmaking operations, and produces the major portion of its raw steel. This division also manufactures and sells steel sheet and 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. The Bar division closed its 28-inch structural mill in early 1991, completing Inland Steel Company's withdrawal from the structural steel manufacturing business. Inland Steel Company and Nippon Steel Corporation ("NSC") are participants, through subsidiaries, in two joint ventures that operate steel-finishing facilities near New Carlisle, Indiana. The total cost of these two facilities was approximately $1.1 billion. I/N Tek, owned 60% by a wholly owned subsidiary of Inland Steel Company and 40% by an indirect wholly owned subsidiary of NSC, operates a cold-rolling mill that achieved operation at its design capacity in 1992. I/N Kote, owned equally by wholly owned subsidiaries of Inland Steel Company and NSC (indirect in the case of NSC), operates two galvanizing lines that achieved operation at their design capacity in 1993. Inland Steel Company is also a participant, through a subsidiary, in another galvanizing joint venture located near Walbridge, Ohio. 1 3 Raw Steel Production and Mill Shipments The following table shows, for the five years indicated, Inland Steel Company's production of raw steel and, based upon American Iron and Steel Institute data, its share of total domestic raw steel production:
RAW STEEL PRODUCTION --------------------------------- INLAND STEEL INLAND STEEL COMPANY AS A % OF COMPANY U.S STEEL (000 TONS*) INDUSTRY ------------ ----------------- 1995..................................................... 5,419 5.3 %** 1994..................................................... 5,309 5.3 1993..................................................... 5,003 5.2 1992..................................................... 4,740 5.2 1991..................................................... 4,677 5.3
- --------------- * Net tons of 2,000 pounds. ** Based on preliminary data from the American Iron and Steel Institute. The annual raw steelmaking capacity of Inland Steel Company was reduced to 6.0 million net tons from 6.5 million net tons effective September 1, 1991, as Inland Steel Company ceased making ingots. The basic oxygen process accounted for 91% and 94% of raw steel production of Inland Steel Company in 1995 and 1994, respectively. The remainder of such production was accounted for by electric furnace. The total tonnage of steel mill products shipped by Inland Steel Company for each of the five years 1991 through 1995 was 5.1 million tons in 1995; 5.2 million tons in 1994; 4.8 million tons in 1993; 4.3 million tons in 1992; and 4.2 million tons in 1991. In 1995, sheet, strip, plate and certain related semi-finished products accounted for 84% of the total tonnage of steel mill products shipped from the Indiana Harbor Works, and bar and certain related semi-finished products accounted for 16%. In 1995 and 1994, approximately 93% and 95% respectively of the shipments of the Flat Products division and 93% in both years 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 84% of the shipments of the Bar division in 1995 were to customers in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and Wisconsin, compared to 77% and 84% in 1994. 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 21.4% of the domestic market in 1995, below the 1984 peak of 26.4%, and 24.7% in 1994. Many foreign producers are owned, controlled, or subsidized by their governments, allowing them to ship steel products into the domestic market despite decreased profit margins or losses on such sales. Mini-mills provide significant competition in certain product lines, primarily structural shapes, bars and rods. Mini-mills are relatively efficient, low-cost producers that manufacture steel principally from scrap in electric furnaces and, at this time, generally have lower capital, overhead, employment and environmental costs than the integrated steel producers, including Inland Steel Company. Mini-mills have been adding capacity and expanding their product lines in recent years to produce larger structural products and certain flat-rolled products, including coated products. A significant increase in modern mini-mill capacity is anticipated within the next two years. Certain facilities at the Indiana Harbor Works have been permanently closed and others have been shut down for temporary periods. The 28-inch structural mill was closed in early 1991, reflecting a decision to withdraw from the structural steel markets. In late 1991 the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were closed either as part of a program to permanently reduce costs through the closure of uneconomic facilities or for environmental reasons. Provisions with respect to the shutdown of the 2 4 structural mill were taken in 1987. Provisions for estimated costs incurred in connection with the closure of the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were made in 1991. Included in such provisions were costs associated with Inland Steel Company's closure of its No. 11 Coke Oven Battery in June 1992. All remaining coke batteries were closed by year-end 1993, a year earlier than previously anticipated. An additional provision was required with respect to those closures. (See "Environment" below.) At year-end 1995 the plate mill was closed. Provisions for such closure were taken prior to and in 1991. For the five years indicated, shipments by market classification of steel mill products produced by Inland Steel Company at its Indiana Harbor Works, including shipments to affiliates of the Company, are set forth below. As shown in the table, a substantial portion of shipments by the Flat Products division was to steel service centers and transportation-related markets. The Bar division shipped more than 54% of its products to the steel converters/processors market over the five-year period shown in the table.
PERCENTAGE OF TOTAL TONNAGE OF STEEL SHIPMENTS ---------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Steel Service Centers: Affiliates....................................... 9% 9% 9% 7% 8% Non-Affiliates................................... 23 20 22 22 24 --- --- --- --- --- 32 29 31 29 32 Automotive......................................... 30 32 30 28 25 Steel Converters/Processors........................ 14 12 13 18 12 Appliance.......................................... 8 9 9 9 8 Industrial, Electrical and Farm Machinery.......... 7 8 7 8 9 Construction and Contractors' Products............. 2 2 3 3 4 Other.............................................. 7 8 7 5 10 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === ===
Some value-added steel processing operations for which Inland Steel Company does not have facilities are performed by outside processors, including joint ventures, prior to shipment of certain products to Inland Steel Company's customers. In 1995, approximately 32% of the products produced by Inland Steel Company were processed further through value-added services such as electrogalvanizing, painting and slitting, excluding products processed further by affiliates. Approximately 78% of the total tonnage of shipments by Inland Steel Company during 1995 from the Indiana Harbor Works was transported by truck, with the remainder transported primarily by rail. A wholly owned truck transport subsidiary of Inland Steel Company was responsible for shipment of approximately 15% of the total tonnage of products transported by truck from the Indiana Harbor Works in 1995. Substantially all of the steel mill products produced by the Flat Products division are marketed through its own selling organization, with offices located in Chicago; Southfield, Michigan; and Nashville, Tennessee. Substantially all of the steel mill products produced by the Bar division are marketed through its sales office in East Chicago, Indiana. See "Product Classes" below for information relating to the percentage of consolidated net sales accounted for by certain classes of similar products of steel manufacturing operations. Raw Materials Inland Steel Company obtains iron ore pellets primarily from three iron ore properties, located in the United States and Canada, in which subsidiaries of Inland Steel Company have varying interests -- the Empire Mine in Michigan, the Minorca Mine in Minnesota and the Wabush Mine in Labrador and Quebec, Canada. Inland Steel Company has closed or terminated certain less cost-efficient iron ore mining operations. 3 5 See "Properties Relating to Steel Manufacturing Segment -- Raw Materials Properties and Interests" in Item 2 below for further information relating to such iron ore properties. The following table shows (1) the iron ore pellets available to Inland Steel Company, as of December 31, 1995, from properties of its subsidiaries and through interests in raw materials ventures; (2) 1995 and 1994 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 1995 and 1994.
IRON ORE TONNAGES IN THOUSANDS (GROSS TONS OF PELLETS) --------------------------------- % OF AVAILABLE AS OF PRODUCTION REQUIREMENTS(1) DECEMBER 31, -------------- ------------- 1995(2) 1995 1994 1995 1994 --------------- ----- ----- ---- ---- INLAND STEEL MINING COMPANY PROPERTY Minorca -- Virginia, MN.............. 62,000 2,769 2,717 38% 39% IRON ORE VENTURES AND LONG-TERM PURCHASE CONTRACTS Empire (40% owned) -- Palmer, MI; Wabush (15.09% owned) -- Wabush, Labrador and Pointe Noire, Quebec, Canada............................ 124,000 3,961 3,625 55 52 ------- ----- ----- -- -- Total Iron Ore.................... 186,000 6,730 6,342 93% 91% ======= ===== ===== == ==
- --------------- (1) Requirements in excess of production are purchased or taken from stockpile. (2) Net interest in proven reserves. All of Inland Steel Company's coal requirements are satisfied from independent sources, with a portion of such requirements being met under a significant purchase contract. The contract requires Inland Steel Company to purchase (subject to force majeure provisions) a total of 1,270,000 tons of metallurgical and/or steam coal at prices (intended to approximate market) determined with respect to certain cost factors. The term of the contract has been extended through April 1996, with the extension covering solely steam coal due to the shutdown of Inland Steel Company's coke batteries in December 1993. During 1995, Inland Steel Company purchased 25% of its coal requirements under such contract, representing 66% of its steam coal requirements. It is anticipated that steam coal purchases will be made under short-term contracts and through spot-market purchases. Inland Steel Company's other coal requirements are for the PCI Associates joint venture, in which a subsidiary of Inland Steel Company holds a 50% interest. The PCI facility pulverizes coal for injection into Inland Steel Company's blast furnaces. Inland Steel Company had entered into a contract (subject to force majeure provisions) to purchase 95% of the PCI facility's requirements for injection-quality coal through the term of the contract (which expired at the end of 1995). Early in 1994, Inland Steel Company suspended its purchases under the contract's force majeure provisions and coal was not purchased under this contract during 1995. As a result, the PCI facility's coal requirements are satisfied under short-term purchase contracts. In December 1993, the last of Inland Steel Company's coke-making facilities was permanently shut down. Inland Steel Company has entered into two long-term purchase contracts, one of which requires the purchase of 1,400,000 tons of coke and extends through July 1999 subject to force majeure provisions and may be extended by mutual agreement of the parties. The second contract requires the purchase of 350,000 tons of coke for the period January 1, 1996 through December 31, 2000 on a take or pay basis, with a provision allowing Inland 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 1995, Inland Steel Company satisfied 70% of its total coke needs under such arrangements. The remainder of its purchased coke requirements was obtained through contracts with independent domestic and foreign sources. 4 6 Inland Steel Company sold all of its limestone and dolomite properties in September 1990. Inland Steel Company has entered into a long-term contract with the buyer of the properties to purchase, subject to certain exceptions and at prices which approximate market, the full amount of its annual limestone needs through 2002, with a required minimum annual purchase of one million gross tons through 1996. Approximately 80% of the iron ore pellets and all of the limestone received by Inland Steel Company at its Indiana Harbor Works in 1995 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 1995. The remainder of Inland Steel Company's coal requirements was transported in independent carrier-owned equipment or leased equipment. Approximately 23% of Inland Steel Company's coke requirements in 1995 were transported in its own hopper cars, 47% in leased hopper cars, 17% in independent carrier-owned hopper cars, and 13% in independent carrier-owned river barges. See "Energy" below for further information relating to the use of coal in the operations of Inland Steel Company. Materials Distribution Operations The Company's materials distribution operations in the United States are conducted by its wholly owned materials distribution subsidiary, Inland Materials Distribution Group, Inc., through its operating subsidiaries -- Joseph T. Ryerson & Son, Inc. and J. M. Tull Metals Company, Inc. Ryerson, Tull and Ryerson Coil Processing, a specialized processing unit, are organized into five business units along regional and product lines. Ryerson, on a nationwide basis, and Tull, in the southeastern and south-central United States, each compete with a large number of steel service centers, some of which are affiliated with foreign steelmakers. Competition is primarily on the basis of service, quality and price. The ability to meet just-in-time delivery requirements of customers depends on maintaining adequate inventories and processing capacity and highly trained personnel. Depending on location, the Company's materials distribution operations are engaged in the sale of carbon, alloy and stainless steel; aluminum and aluminum alloys; nickel and nickel alloys; copper; brass; specialty metals; and industrial plastics. The materials distribution centers sell products in various forms, including, again depending on location, plate, sheet, coil, wire, rod, bar, tubing, pipe, structural, and expanded metal and grating. During 1995, the Materials Distribution segment shipped approximately 38% of its product (by sales revenue) to machinery manufacturers, 25% to metal producers and fabricators, 10% to transportation equipment producers, 9% to electrical machinery producers, 3% to wholesale distributors, 3% to construction-related purchasers, 3% to metal mills and foundries, and 9% to other customers. Approximately 17% of the tons of product purchased in 1995 by the Materials Distribution segment were from affiliates. Joseph T. Ryerson & Son, Inc. Ryerson, with business unit headquarters in Philadelphia, Chicago, and Seattle is a leading materials distribution organization. With full-line service centers in 30 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 Processing Company division, headquartered in Chicago, performs processing through five facilities for customers who traditionally buy large quantities of sheet steel products. Ryerson also markets plant equipment products through a wholesale industrial catalog. J. M. Tull Metals Company, Inc. Tull is one of the largest distributors of metals in the southeastern United States. Tull and its wholly owned subsidiary, AFCO Metals, Inc., operate 19 service centers and two processing facilities located throughout the southeastern and south-central United States. Tull produces a variety of metal products with 5 7 value-added processing, including welded steel tubing and roll-formed shapes. Tull's products are sold principally through its own sales staff. PRODUCT CLASSES The following table sets forth the percentage of consolidated net sales, for the five years indicated, contributed by each class of similar products in the Steel Manufacturing segment that accounted for 10% or more of consolidated net sales in such time period. The Materials Distribution segment of the Company did not have any class of similar products that accounted for 10% or more of such sales in any of such years.
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Steel Manufacturing Operations Sheet, Strip and Plate...................... 40% 43% 45% 45% 45% Bar and Structural.......................... 9 8 7 6 6 --- --- --- --- --- Total Steel Manufacturing Operations.......... 49 51 52 51 51 Materials Distribution Products............... 51 49 48 49 49 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === ===
CAPITAL EXPENDITURES AND INVESTMENTS IN JOINT VENTURES In recent years, the Company and its subsidiaries have made substantial capital expenditures, principally at the Indiana Harbor Works, to improve quality and reduce costs, and for pollution control. Additions by the Company and its subsidiaries to property, plant and equipment, together with retirements and adjustments, for the five years ended December 31, 1995, are set forth below. Net capital additions during such period aggregated $267.6 million.
DOLLARS IN MILLIONS ------------------------------------------------------------ RETIREMENTS NET CAPITAL ADDITIONS OR SALES ADJUSTMENTS ADDITIONS --------- ----------- ----------- ----------- 1995................................ $ 134.6 $ 41.3 $ 1.5 $ 94.8 1994................................ 245.3 61.9 2.1 185.5 1993................................ 105.6 143.4 (1.3) (39.1) 1992................................ 64.4 74.9 (7.4) (17.9) 1991................................ 140.2 95.3 (.6) 44.3
In recent years, the Company's largest capital improvement projects at the Indiana Harbor Works have emphasized reducing costs and improving quality in the steel-processing sequence of Inland Steel Company. In 1995, the Company and its subsidiaries made capital expenditures of $135 million. Approximately $114 million was spent for Steel Manufacturing capital projects in 1995, including replacements and renewals. Capital expenditures of $245 million in 1994 included $146 million related to the purchase of the No. 2 Basic Oxygen Furnace Shop caster facility which had previously been leased, including $83 million for the purchase of the equity interest plus assumption of $63 million of caster-related debt. In July 1987, a wholly owned subsidiary of Inland Steel Company formed a partnership, I/N Tek, with an indirect wholly owned subsidiary of NSC to construct, own, finance and operate a cold-rolling facility with an annual capacity of 1,500,000 tons, of which approximately one-third is cold-rolled substrate for I/N Kote (described below). The I/N Tek facility, located near New Carlisle, Indiana, achieved operation at its design capacity in 1992. Inland Steel Company, which owns, through its subsidiary, a 60% interest in the I/N Tek partnership is, with certain limited exceptions, the sole supplier of hot band to be processed by the I/N Tek facility and generally has exclusive rights to the production capacity of the facility. In September 1989, a wholly owned subsidiary of Inland Steel Company formed a second partnership, I/N Kote, with an indirect wholly owned subsidiary of NSC to construct, own, finance and operate two sheet steel galvanizing lines adjacent to the I/N Tek facility. The subsidiary of Inland Steel Company owns a 50% 6 8 interest in I/N Kote. The I/N Kote facility consists of a hot-dip galvanizing line and an electrogalvanizing line with a combined annual capacity of 900,000 tons. The facility achieved operation at its design capacity in 1993. Inland Steel Company has guaranteed 50% of I/N Kote's permanent financing. I/N Kote has contracted to acquire its cold-rolled steel substrate from Inland Steel Company, which supplies the substrate from the I/N Tek facility and Inland Steel Company's Indiana Harbor Works. Further information regarding the I/N Tek and I/N Kote joint venture projects will be set forth under the caption "Certain Relationships and Related Transactions -- Joint Ventures" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting scheduled to be held on May 22, 1996, and is incorporated by reference into Item 13 of this Report. The amount budgeted for 1996 capital expenditures by the Company and its subsidiaries is approximately $200 million. It is anticipated that capital expenditures will be funded from cash generated by operations, cash on hand at year-end 1995, plus possible funding from third-party financing. (See "Environment" below for a discussion of capital expenditures for pollution control purposes.) EMPLOYEES The monthly average number of active employees of the Company and its subsidiaries receiving pay during 1995 was approximately 15,400, of whom approximately 10,200 were employed at Inland Steel Company. The majority of the remaining employees were employed at the Company's materials distribution operations. At year-end, approximately 7,900 of the Company's employees, including 7,400 at Inland Steel Company, were represented by the United Steelworkers of America, of whom approximately 600 at Inland Steel Company were on furlough or indefinite layoff. Approximately 1,100 employees were represented by other unions during 1995. Total employment costs decreased from $950 million in 1994 to $941 million in 1995, as lower costs for pensions and other postretirement benefits were almost entirely offset by higher direct compensation expense, including profit sharing provisions. Beginning in 1991, the Company embarked upon a major turnaround strategy, with the assistance of an outside consulting firm, to significantly reduce costs, increase revenues and improve asset utilization at both the Company and Inland Steel Company. With the closure of the plate operations at year-end 1995, the Company has completed the workforce reduction program which was part of the turnaround strategy, reducing employment by 25%. The current labor agreement between Inland Steel Company and the United Steelworkers of America, effective August 1, 1993, covers wages and benefits through July 31, 1999. Among other things, the agreement provided a wage increase of $.50 per hour in 1995 and a $500 bonus in each of 1993 and 1994 (totalling in each case approximately $4 million). All active employees receive an additional week of vacation in 1994 and in 1996. The agreement provides for a reopener on wages and certain benefits in 1996 with an arbitration provision to resolve unsettled issues, thereby precluding a work stoppage during the six-year term of the contract. The agreement also provides for election of a Union designee acceptable to the Company to the Company's Board of Directors (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. As of December 31, 1995, the number of active employees at Ryerson was approximately 4,000, of whom approximately 1,100 were covered by collective bargaining agreements. Of those employees covered by collective bargaining agreements, approximately 500 production, maintenance, and transportation employees were represented by the United Steelworkers of America and approximately 300 such employees were represented by the International Brotherhood of Teamsters. The current agreement with the United Steelworkers will expire on July 31, 1996. During 1995, Ryerson reached agreement at three separate plants (Los Angeles, Spokane and Seattle) represented by various unions covering 86 employees. These agreements 7 9 expire on various dates from April 30, 1997 through April 30, 1999. The agreements, as well as the current agreement with the United Steelworkers of America, provide for modest wage increases, lump sum bonuses, pension improvements, and increased employee sharing of health care costs. Ryerson maintains agreements with the Teamsters covering 10 facilities. Teamster agreements expire on various dates during the period beginning June 30, 1996, and ending May 15, 1999. In addition, Ryerson contracts with independent third parties to provide approximately 170 drivers on a leased basis to ten Ryerson facilities. These leased drivers are covered by agreements between the Teamsters and such independent third parties, which agreements expire on March 31, 1998. FOREIGN OPERATIONS In 1994, the Company formed Inland International, Inc. to conduct the Company's international operations, consisting of supporting its domestic strategic customers' foreign operations, providing materials management and technical services, selling products of the Company and its affiliates and purchasing certain of their requirements, in each instance, outside of the United States. In 1994, Inland International, Inc. organized Inland International Trading, Inc. to sell products and services of the Company and its affiliates and to purchase materials abroad. In order to implement such purposes, in 1995 Inland International Trading, Inc. entered into a joint venture to organize I.M.F. Steel International Limited, a Hong Kong company (in which it holds a 50% interest), with the Hong Kong-based trading company subsidiary of the MacSteel Group (South Africa) and Russel Metals, Inc. (Canada). In 1994, an Inland International, Inc. subsidiary and Altos Hornos de Mexico, S.A. de C.V., formed Ryerson de Mexico, S.A. de C.V. to provide materials management and technical services to the Mexican market through 19 distribution locations in Mexico. In the People's Republic of China, the Company has entered into a joint venture agreement with Baoshan Iron & Steel Corporation, which is subject to certain government approvals. Other foreign joint ventures are in the negotiation or planning stage. Substantially all of the Company's operations are located in the United States and at year-end 1995, investments in foreign operations and foreign sales were not material. ENVIRONMENT The Company is subject to environmental laws and regulations concerning emissions into the air, discharges into ground water and waterways, and the generation, handling, labeling, storage, transportation, treatment and disposal of waste material. These include various federal statutes regulating the discharge or release of pollutants to the environment, including the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA," also known as "Superfund"), Safe Drinking Water Act, and Toxic Substances Control Act, as well as state and local requirements. Violations of these laws and regulations can give rise to a variety of civil, administrative, and, in some cases, criminal actions and could also result in substantial liabilities or require substantial capital expenditures. In addition, under CERCLA the United States Environmental Protection Agency (the "EPA") has authority to impose liability for site remediation on waste generators, past and present site owners and operators, and transporters, regardless of fault or the legality of the original disposal activity. Liability under CERCLA is strict, joint and several. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by a lawsuit filed by the EPA in 1990. The consent decree included a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in 1991 and 1992. After payment of the fine, the Company's reserve for environmental liabilities totalled $19 million. In 1995 such reserve was increased to $26 million primarily to cover the costs of assessing environmental contamination, discussed below. The consent decree also defines procedures for corrective action at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the 8 10 agreed-upon procedures. The Company is presently assessing the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another two to four years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the financial position and results of operations of the Company. Insurance coverage with respect to such corrective actions is not significant. By year-end 1993, the last of Inland Steel Company's coke-making facilities was permanently shut down. All coke battery closures were necessitated by the inability of the facilities to meet environmental regulations and their deteriorating condition and performance. The Company had anticipated the closure of such remaining coke-making facilities at year-end 1994. The October 1993 decision to close these facilities early necessitated a fourth-quarter 1993 pre-tax charge of $22.3 million that included the write-off of property, plant and equipment costs which were to be depreciated in 1994 and additional costs related to the earlier-than-anticipated displacement of personnel. Inland Steel Company has entered into two long-term contracts to satisfy the majority of its coke needs. (See "Raw Materials" above.) In addition, Inland Steel Company participates in a joint venture that has constructed and is operating a pulverized coal injection facility for blast furnace application, reducing Inland Steel Company's coke needs by approximately 25%. The facility achieved operation at its design capacity in 1994. Capital spending for pollution control projects totaled $19 million in 1995, up from $18 million in 1994. Another $39 million was spent in 1995 to operate and maintain such equipment, versus $41 million a year earlier. During the five years ended December 31, 1995, the Company has spent $274 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 $23 million in 1996. It is anticipated that the Company will make annual capital expenditures of $10 million to $15 million in each of the four years thereafter. In addition, Inland Steel Company will have ongoing annual expenditures of $40 million to $50 million for the operation of air and water pollution control facilities to comply with current federal, state and local laws and regulations. Due to the inability to predict the costs of corrective action that may be required under the Resource Conservation and Recovery Act and the consent decree in the 1990 EPA lawsuit, the Company cannot predict the amount of additional environmental expenditures that will be required. Such additional environmental expenditures, excluding amounts that may be required in connection with the consent decree in the 1990 EPA lawsuit, however, are not expected to be material to the financial position or results of operations of Inland Steel Company. See Item 3 below for information concerning certain proceedings pertaining to environmental matters in which Inland Steel Company is involved. ENERGY Coal, together with coke, all of which are purchased from independent sources, accounted for approximately 71% of the energy consumed by Inland Steel Company at the Indiana Harbor Works in 1995. See "Environment" above for a discussion of coke-making by Inland Steel Company. Natural gas and fuel oil supplied approximately 26% of the energy requirements of the Indiana Harbor Works in 1995 and are used extensively by the 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. The Company both purchases and, through Inland Steel Company, generates electricity to satisfy electrical energy requirements at the Indiana Harbor Works. In 1995, Inland Steel Company produced approximately 58% of its requirements at the Indiana Harbor Works. The purchase of electricity at the 9 11 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 Industries, Inc. ("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 is expected to generate electricity for use by Inland Steel Company utilizing steam produced by burning waste blast furnace gas. It is anticipated that the facility will become operational in the first half of 1996 and that it will fulfill approximately 75% of the purchased electricity requirements of the Indiana Harbor Works at prices below those currently available to Inland Steel Company. ITEM 2. PROPERTIES. PROPERTIES RELATING TO STEEL MANUFACTURING SEGMENT Steel Production All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana. The property on which this plant is located, consisting of approximately 1,900 acres, is held by Inland Steel Company in fee. The basic production facilities of Inland Steel Company at its Indiana Harbor Works consist of furnaces for making iron; basic oxygen and electric furnaces for making steel; a continuous billet caster, a continuous combination slab/bloom caster and two continuous slab casters; and a variety of rolling mills and processing lines which turn out finished steel mill products. Certain of these production facilities, including a continuous anneal line, are held by Inland Steel Company under leasing arrangements. Inland Steel Company purchased the equity interest of the lessor of the No. 2 BOF Shop caster facility and assumed caster-related debt in March 1994, which debt was repaid by year-end 1994. Substantially all of the remaining property, plant and equipment at the Indiana Harbor Works, other than such caster facility and the leased equipment, is subject to the lien of the First Mortgage of Inland Steel Company dated April 1, 1928, as amended and supplemented. See "Business Segments -- Steel Manufacturing Operations -- Raw Steel Production and Mill Shipments" in Item 1 above for further information relating to capacity and utilization of Inland Steel Company's properties. Inland Steel Company's properties are adequate to serve its present and anticipated needs, taking into account those issues discussed in "Capital Expenditures and Investments in Joint Ventures" in Item 1 above. I/N Tek, a partnership in which a subsidiary of Inland Steel Company owns a 60% interest, has constructed a 1,500,000-ton annual capacity cold-rolling mill on approximately 200 acres of land, which it owns in fee, located near New Carlisle, Indiana. Substantially all the property, plant and equipment owned by I/N Tek is subject to a lien securing related indebtedness. The I/N Tek facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. I/N Kote, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a 900,000-ton annual capacity steel galvanizing facility on approximately 25 acres of land, which it owns in fee, located adjacent to the I/N Tek site. Substantially all the property, plant and equipment owned by I/N Kote is subject to a lien securing related indebtedness. The I/N Kote facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. PCI Associates, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a pulverized coal injection facility on land located within the Indiana Harbor Works. Inland Steel Company leases PCI Associates the land upon which the facility is located. Substantially all the property, plant and equipment owned by PCI Associates is subject to a lien securing related indebtedness. The PCI facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility. Inland Steel Company owns three vessels for the transportation of iron ore and limestone on the Great Lakes, and a subsidiary of Inland Steel Company owns a fleet of 404 coal hopper cars (100-ton capacity each) used in unit trains to move coal and coke to the Indiana Harbor Works. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to utilization of 10 12 Inland Steel Company's transportation equipment. Such equipment is adequate, when combined with purchases of transportation services from independent sources, to meet Inland Steel Company's present and anticipated transportation needs. Inland Steel Company also owns and maintains research and development laboratories in East Chicago, Indiana, which facilities are adequate to serve its present and anticipated needs. Raw Materials Properties and Interests Certain information relating to raw materials properties and interests of Inland Steel Company and its subsidiaries is set forth below. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to capacity and utilization of such properties and interests. Iron Ore The operating iron ore properties of Inland Steel Company's subsidiaries and of the iron ore ventures in which Inland Steel Company has an interest are as follows:
ANNUAL PRODUCTION CAPACITY (IN THOUSANDS OF GROSS TONS OF PROPERTY LOCATION PELLETS) - ------------------------------------------ ------------------------ ------------------- Empire Mine............................... Palmer, Michigan 8,100 Minorca Mine.............................. Virginia, Minnesota 2,700 Wabush Mine............................... Wabush, Labrador and 5,700 Pointe Noire, Quebec, Canada
The Empire Mine is operated by the Empire Iron Mining Partnership, in which Inland Steel Company has a 40% interest. Inland Steel Company, through a subsidiary, is the sole owner and operator of the Minorca Mine. The Wabush Mine is a taconite project in which Inland Steel Company owns an approximately 15% interest. Inland Steel Company also owns a 38% interest in the Butler Taconite project (permanently closed in 1985) in Nashwauk, Minnesota. The reserves at the Empire Mine, the Minorca Mine and the Wabush Mine are held under leases expiring, or expected at current production rates to expire, between 2012 and 2040. Substantially all of the reserves at Butler Taconite are held under leases. Inland Steel Company's share of the production capacity of its interests in such iron ore properties is sufficient to provide the majority of its present and anticipated iron ore pellet requirements. Any remaining requirements have been and are expected to continue to be readily available from independent sources. During 1992, the Minorca Mine's original ore body was depleted and production shifted to a new major iron ore body, the Laurentian Reserve, acquired by lease in 1990. Coal Inland Steel Company's sole remaining coal property, the Lancashire No. 25 Property, located near Barnesboro, Pennsylvania, is permanently closed. All Inland Steel Company coal requirements for the past several years have been and are expected to continue to be met through contract purchases and other purchases from independent sources. PROPERTIES OF MATERIALS DISTRIBUTION SEGMENT Joseph T. Ryerson & Son, Inc. Ryerson owns its regional business unit headquarters offices in Chicago and leases regional headquarters offices in West Chester (PA) and Renton (WA). Ryerson/East division maintains materials distribution centers at Buffalo, Carnegie (PA), Charlotte, Chattanooga, Cleveland, Philadelphia, and Wallingford (CT). 11 13 Ryerson/Central's service centers are in Chicago, Cincinnati, Dallas, Des Moines, Detroit, Houston, Indianapolis, Kansas City, Milwaukee, Omaha, Plymouth (MN), St. Louis, and Tulsa. Ryerson/West's service centers are in Commerce City (CO), Emeryville (CA), Los Angeles, Phoenix, Portland (OR), Renton (WA), Spokane, and Salt Lake City. Ryerson Coil Processing division's processing facilities are located in Chicago, Marshalltown (IA), Plymouth (MN) and New Hope (MN). All of Ryerson's operating facilities are held in fee with the exception of a portion of the property at St. Louis (held under long-term lease), a portion of the property in Portland (held under short-term lease), a satellite facility at Omaha (held under short-term lease), one facility in Chicago (held under short-term lease), two facilities in New Hope (MN) (one partly held in fee and partly under short-term lease, the other held under short-term lease), one facility in Marshalltown (IA) (held under an installment purchase contract) and one facility in Salt Lake City (held under short-term lease). In addition, Ryerson holds in fee approximately 44 acres of unimproved property in Powder Springs (GA), and the approximately 11-acre site of a former operating facility in Allston (MA). Ryerson's properties are adequate to serve its present and anticipated needs. J. M. Tull Metals Company, Inc. Tull maintains service centers in Birmingham, Columbia (SC), Jacksonville, Miami, Tampa, Baton Rouge, New Orleans, Charlotte, Greensboro (NC), Greenville (SC), Richmond, and Norcross (GA), where its headquarters is located. All of these facilities are owned by Tull in fee, except for the Columbia facility, which is held under short-term lease. Tull's AFCO Metals, Inc. subsidiary operates service centers in Fort Smith (AR), Oklahoma City, Shreveport, West Memphis (AR), Wichita, Jackson (MS) and Little Rock. AFCO's headquarters are located in Norcross (GA), where it leases space owned in fee by Tull. Each of AFCO's facilities is held in fee except the Wichita facility, which is held under a short-term lease. Tull's properties are adequate to serve its present and anticipated needs. OTHER PROPERTIES The Company and certain of its subsidiaries lease, under a long-term arrangement, approximately 63% of the space in the Inland Steel Building located at 30 West Monroe Street, Chicago, Illinois (where the Company's principal executive offices are located), which property interest is adequate to serve the Company's present and anticipated needs. Approximately 33% of such space is under sublease to other parties. Magnetics International, Inc., a subsidiary of the Company, owns approximately 63 acres in northern Indiana, on which site it has constructed an iron oxide plant that began operation in April 1991. Such facility is adequate to serve the present and anticipated needs of Magnetics International, Inc. Certain subsidiaries of the Company hold in fee at various locations an aggregate of approximately 355 acres of land, all of which is for sale. Inland Steel Company also holds in fee approximately 300 acres of land adjacent to the I/N Tek and I/N Kote sites, which land is available for future development. Approximately 1,060 acres of rural land, which are held in fee at various locations in the north-central United States by various raw materials ventures, are also for sale. I R Construction Products Company, Inc. (formerly Inryco, Inc.), a subsidiary of Inland Steel Company and the Company's former Construction Products business segment, owns, in fee, a combination office building and warehouse in Hoffman Estates (IL), which is for sale. ITEM 3. LEGAL PROCEEDINGS. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by the lawsuit filed by the EPA in 1990. The consent decree includes a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in 1991 and 1992. After payment of the fine, the Company's reserve for environmental liabilities totalled $19 million. In 1995 such reserve was increased to $26 million primarily to cover the costs of assessing environmental contamination discussed below. The consent decree 12 14 also defines procedures for corrective action at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company is presently assessing the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another two to four years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the financial position and results of operations of the 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. The EPA has adopted a national policy of seeking substantial civil penalties against owners and operators of sources for noncompliance with air and water pollution control statutes and regulations under certain circumstances. It is not possible to predict whether further proceedings will be instituted against the Company or any of its subsidiaries pursuant to such policy, nor is it possible to predict the amount of any such penalties that might be assessed in any such proceeding. Inland Steel Company received a Notice of Violation from the Indiana Department of Environmental Management ("IDEM") dated March 3, 1989 alleging violations of Inland Steel Company's National Pollutant Discharge Elimination System ("NPDES") permit regarding water discharges. IDEM advised Inland Steel Company by letter dated November 22, 1995 that this Notice of Violation was withdrawn inasmuch as the consent decree discussed in the first paragraph of this section adequately addressed all of the violations noted in said Notice of Violation. By letter dated March 12, 1996, Inland Steel Company was informed that, at the request of the EPA, the Department of Justice is preparing to bring civil claims against Inland Steel Company for alleged violations of effluent limits contained in its NPDES permit and for the alleged discharge of pollutants without the authorization of an NPDES permit. While it is not possible at this time to predict the amount of Inland Steel Company's potential liability, this matter is not expected to materially affect Inland Steel Company's financial position. Results of operations could be materially affected for the particular reporting periods in which expenses are incurred. Inland Steel Company received a Special Notice of Potential Liability ("Special Notice") from IDEM on February 18, 1992 relating to the Four County Landfill Site, Fulton County, Indiana (the "Facility"). The Special Notice stated that IDEM has documented the release of hazardous substances, pollutants and 13 15 contaminants at the Facility and was planning to spend public funds to undertake an investigation and control the release or threatened release at the Facility unless IDEM determined that a potentially responsible party ("PRP") will properly and promptly perform such action. The Special Notice further stated that Inland Steel Company may be a PRP and that Inland Steel Company, as a PRP, may have potential liability with respect to the Facility. In August 1993, Inland Steel Company, along with other PRPs, entered into an Agreed Order with IDEM, pursuant to which the PRPs agreed to perform a Remedial Investigation/Feasibility Study ("RI/FS") for the Facility and pay certain past and future IDEM costs. In addition, the PRPs agreed to provide funds for operation and maintenance necessary for stabilization of the Facility. Those costs which Inland Steel Company has agreed to assume under the Agreed Order are not currently anticipated to exceed $250,000. The cost of the final remedies which will be determined to be required with respect to the Facility cannot be reasonably estimated until, at a minimum, the RI/FS is completed. Inland Steel Company is therefore unable to determine the extent of its potential liability, if any, relating to the Facility or whether this matter could materially affect Inland Steel Company's financial position or results of operations. 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 Earl L. Mason, Maurice S. Nelson, Jr., 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. 14 16 Set forth below are the executive officers of the Company as of March 1, 1996 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 POSITIONS AND OFFICES HELD PRESENT POSITION WITH REGISTRANT DURING THE PAST FIVE YEARS - ----------------------------------- -------------------------------------------------------- Robert J. Darnall, 57.............. Mr. Darnall has been Chairman, President and Chief Chairman, President, Chief Executive Officer of the Company since September 1, Executive Officer and Director 1992. A Director of the Company since April 23, 1986, he became Chairman of the Executive Committee on January 1, 1993. He has been Chairman of Inland Materials Distribution Group, Inc. and Chairman and Chief Executive Officer of Joseph T. Ryerson & Son, Inc. since April 1995. He has also been Chairman of Inland Steel Company since September 1992 and a Director of Inland Steel Company since April 1983. He was President and Chief Operating Officer of the Company from April 1986 to September 1992. Mr. Darnall was also Chief Executive Officer of Inland Steel Company from September 1992 to January 1995, and was also its President from November 1987 to September 1992, and was Chairman of Inland Materials Distribution Group, Inc. from November 1990 to June 1994. Maurice S. Nelson, Jr., 58......... Mr. Nelson has been Executive Vice President and Executive Vice President and Director of the Company and President and Chief Director Executive Officer of Inland Steel Company since January 25, 1995. He was Senior Vice President of the Company and President and Chief Operating Officer of Inland Steel Company from September 1992 to January 1995. He also holds the position of President of the Inland Steel Flat Products Company division of Inland Steel Company, which he assumed on joining the Company on November 1, 1991. Prior to joining Inland Steel Company, he was President, Sheet and Plate Division, Aluminum Company of America ("ALCOA"), from August 1991 to October 1991 and Vice President, Sheet and Plate Division, ALCOA, from October 1986 to July 1991. Mr. Nelson has elected to retire April 1, 1996. Mr. Darnall will assume his responsibilities. Neil S. Novich, 41................. Mr. Novich has been Senior Vice President of the Company Senior Vice President since January 25, 1995, and President and Chief Operating Officer of Inland Materials Distribution Group, Inc., Chairman and President of Joseph T. Ryerson & Son, Inc., and Chairman of J.M. Tull Metals Company, Inc. since June 15, 1994. He also was Vice President of the Company from June 15, 1994 to January 25, 1995. Prior to joining the Company, he led the Distribution and Logistics Practice at Bain & Company, an international management consulting firm, from 1987 and was employed by Bain since 1981.
15 17
NAME, AGE AND POSITIONS AND OFFICES HELD PRESENT POSITION WITH REGISTRANT DURING THE PAST FIVE YEARS - ----------------------------------- -------------------------------------------------------- Earl L. Mason, 48.................. Mr. Mason has been Senior Vice President of the Company Senior Vice President and Chief since January 25, 1995, and has been its Chief Financial Financial Officer Officer and President of Inland International, Inc. since January 24, 1994. He was Vice President of the Company from January 1994 to January 25, 1995, and was Vice President -- Finance and Principal Financial Officer of the Company from June 1991 to January 1994. Prior to joining the Company, he was Group Executive -- Logistics and Asset Management of Digital Equipment Corporation (a manufacturer of data processing equipment) from July 1990 until joining the Company in June 1991. George A. Ranney, Jr., 55.......... Mr. Ranney has been Vice President and General Counsel Vice President and General of the Company since July 26, 1995. He is also a partner Counsel of the law firm of Mayer, Brown & Platt, counsel to the Company. He has been a partner with such firm since 1986. Judd R. Cool, 60................... Mr. Cool has been Vice President -- Human Resources of Vice President -- Human Resources the Company since September 21, 1987 and Vice President -- Human Resources of Inland Steel Company since May 24, 1995. He was Vice President-Human Resources of Inland Steel Flat Products Company division from January 1993 to May 1995. H. William Howard, 61.............. Mr. Howard has been Vice President -- Information Vice President -- Information Technology of the Company since September 1, 1990 and Technology Vice President -- Automation and Information Technology of Inland Steel Company since May 24, 1995. He was Vice President-Automation and Information Technology of Inland Steel Flat Products Company division from January 1993 to May 1995. Vicki L. Avril, 41................. Ms. Avril has been Treasurer of the Company and of Treasurer and Director -- Inland Steel Company since January 24, 1994, and Corporate Planning Treasurer of Inland Materials Distribution Group, Inc., Joseph T. Ryerson & Son, Inc. and J.M. Tull Metals Company, Inc. since February 1994. She also has been Director -- Corporate Planning since January 25, 1995. In addition, she was Director of Pension Investments and Administration from June 1991 to January 1995, Assistant Treasurer of the Company from May 1993 to January 1994, and Manager of Distribution Business Development-Corporate Planning and Development from February 1990 to June 1991. James M. Hemphill, 52.............. Mr. Hemphill has been Controller of the Company since Controller September 15, 1994. He was Director of Financial Management of the Company from August 1992 to September 1994 and was Director of Taxes of the Company from March 1988 to August 1992. Charles B. Salowitz, 47............ Mr. Salowitz has been Secretary of the Company since Secretary and Associate General September 27, 1995 and Associate General Counsel since Counsel January 22, 1995. 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.
16 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The common stock of the Company is listed and traded on the New York Stock Exchange. As of March 12, 1996, the number of holders of record of common stock of the Company was 14,843. The remaining information called for by this Item 5 is set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and is hereby incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item 6 with respect to each of the last five years of the Company is set forth under the caption "Eleven-Year Summary of Selected Financial Data and Operating Results" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and is hereby incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Item 7 is set forth in the Financial Review section of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and, excluding the tables entitled "Inland Steel Company -- Steel Shipments by Market" and "Inland Materials Distribution Group - -- Shipments by Market" and the bar charts entitled "Inland Steel Industries -- Earnings Before Interest, Taxes, and Depreciation," "Inland Steel Company Productivity," "Inland Materials Distribution Group -- Quarterly Improvement in Operating Profit," and "Inland Steel Industries -- Debt to Total Capitalization," contained therein, is hereby incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company called for by this Item 8, together with the report thereon of the independent accountants dated February 19, 1996, are set forth under the captions "Report of Independent Accountants" and "Statement of Accounting and Financial Policies" as well as in all consolidated financial statements and schedules of the Company and the "Notes to Consolidated Financial Statements" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and are hereby incorporated by reference herein. The financial statement schedules listed under Item 14(a)2 of this Report on Form 10-K, together with the report thereon of the independent accountants dated February 19, 1996, should be read in conjunction with the consolidated financial statements. Financial statement schedules not included in this Report on Form 10-K have been omitted because they are not applicable or because the information called for is shown in the consolidated financial statements or notes thereto. Separate consolidated financial statements for Inland Steel Company are set forth in Inland Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Separate consolidated financial statements for Inland Materials Distribution Group, Inc. are set forth in Appendix A to this Report. Consolidated quarterly sales, earnings and per share common stock information for 1994 and 1995 are set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and are hereby incorporated by reference herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 17 19 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 22, 1996, 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 22, 1996, 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 Note 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 22, 1996, and is hereby incorporated by reference herein. The following beneficial owners of Series A $2.40 Cumulative Convertible Preferred Stock, neither of whom owns shares of Series A Preferred Stock having more than one percent of the combined voting power of the Company's outstanding voting securities, are the only persons known to the Company to be the beneficial owners (as defined by the Securities and Exchange Commission), as of March 12, 1996, of more than five percent of that class of the Company's voting securities:
NUMBER PERCENT NAME AND ADDRESS OF SHARES OF CLASS ---------------- --------- -------- Janice F. McCollough.............................................. 7,200 7.65 5778 Lake Breeze Court Sarasota, FL 34233 Donald F. Reinhardt............................................... 5,181 5.50 24638 Elmhurst Drive Elkhart, IN 46517
(b) The information called for by this Item 12 with respect to the security ownership of directors and of management will be set forth under the caption "Security Ownership of Directors and Management" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 22, 1996, and is hereby incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by this Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 22, 1996, and is hereby incorporated by reference herein. 18 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS A PART OF THIS REPORT. 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY. The consolidated financial statements listed below are set forth in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, and are incorporated by reference in Item 8 of this Annual Report on Form 10-K. Report of Independent Accountants dated February 19, 1996. Statement of Accounting and Financial Policies. Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1995. Consolidated Statement of Cash Flows for the three years ended December 31, 1995. Consolidated Balance Sheet at December 31, 1995 and 1994. Schedules to Consolidated Financial Statements at December 31, 1995 and 1994, relating to: Investments and Advances. Property, Plant and Equipment. Long-Term Debt. Notes to Consolidated Financial Statements. 2. FINANCIAL STATEMENT SCHEDULES OF THE COMPANY. Report of Independent Accountants on Financial Statement Schedules dated February 19, 1996. (Included on page 26 of this Report) Consent of Independent Accountants. (Included on page 26 of this Report) For the years ended December 31, 1995, 1994 and 1993: Schedule I -- Condensed Financial Information (Parent Company Only). (Included on pages 27 to 29, inclusive, of this Report) Schedule II -- Reserves. (Included on page 30 of this Report) 3. CONSOLIDATED FINANCIAL STATEMENTS OF INLAND MATERIALS DISTRIBUTION GROUP, INC. The consolidated financial statements listed below are set forth in Appendix A on pages A-1 to A-14 inclusive, of this Report. Report of Independent Accountants dated February 19, 1996. (Page A-2) Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1995. (Page A-3) Consolidated Statement of Cash Flows for the three years ended December 31, 1995. (Page A-4) Consolidated Balance Sheet at December 31, 1995 and 1994. (Page A-5) Statement of Accounting and Financial Policies. (Pages A-6 to A-7) Notes to Consolidated Financial Statements. (Pages A-8 to A-14, inclusive) 19 21 4. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation S-K are listed under the caption "Exhibits" below. (B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1995. (C) EXHIBITS. 3.(i) Copy of Certificate of Incorporation, as amended, of the Company. 3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3.(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated by reference herein.) 4.A Copy of Certificate of Designations, Preferences and Rights of Series A $2.40 Cumulative Convertible Preferred Stock of the Company. (Filed as part of Exhibit B to the definitive Proxy Statement of Inland Steel Company dated March 21, 1986 that was furnished to stockholders in connection with the annual meeting held April 23, 1986, and incorporated by reference herein.) 4.B Copy of Certificate of Designation, Preferences and Rights of Series D Junior Participating Preferred Stock of the Company. (Filed as Exhibit 4-D to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 4.C Copy of Rights Agreement, dated as of November 25, 1987, as amended and restated as of May 24, 1989, between the Company and The First National Bank of Chicago, as Rights Agent (Harris Trust and Savings Bank, as successor Rights Agent). (Filed as Exhibit 1 to the Company's Current Report on Form 8-K filed on May 24, 1989, and incorporated by reference herein.) 4.D Copy of Certificate of Designations, Preferences and Rights of Series E ESOP Convertible Preferred Stock of the Company. (Filed as Exhibit 4-F to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 4.E Copy of Subordinated Voting Note due December 17, 1999 in the amount of $185,000,000 from the Company to NS Finance, III, Inc. (Filed as Exhibit 4.8 to Form S-3 Registration Statement No. 33-62897 and incorporated by reference herein.) 4.F Copy of Indenture dated as of December 15, 1992, between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 12 3/4% Notes due December 15, 2002. (Filed as Exhibit 4-G to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 4.G Copy of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company (the "Steel Company") and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, and of supplemental indentures thereto, to and including the Thirty-Fourth Supplemental Indenture, incorporated by reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e), filed with Steel Company's Registration Statement on Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h), filed with Steel Company's Current Report on Form 8-K dated January 18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed with Steel Company's Current Report on Form 8-K for the month of April, 1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's Current Report on
20 22 Form 8-K for the month of January, 1945; (viii) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the months of July and August, 1948; (x) Exhibits B and C, filed with Steel Company's Current Report on Form 8-K for the month of March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1957; (xiii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1959; (xiv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of December, 1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the amendment on Form 8 to Steel Company's Current Report on Form 8-K for the month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K for the month of February, 1977; (xxi) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual Report on 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.H filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995; and (xxix) Exhibit 4.H filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 4.H Copy of consolidated reprint of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, as amended and supplemented by all supplemental indentures thereto, to and including the Thirteenth Supplemental Indenture. (Filed as Exhibit 4-E to Form S-1 Registration Statement No. 2-9443, and incorporated by reference herein.) [The registrant hereby agrees to provide a copy of any other agreement relating to long-term debt at the request of the Commission.] 10.A* Copy of Inland Steel Industries, Inc. Annual Incentive Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated by reference herein). 10.B* Copy of Inland Steel Industries, Inc. Special Achievement Award Plan. (Filed as Exhibit 10-I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.C* Copy of Inland 1995 Incentive Stock Plan. (Filed as Exhibit A to the Company's definitive Proxy Statement dated April 17, 1995 that was furnished to stockholders in connection with the annual meeting held May 24, 1995, 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. 21 23 10.D* Copy of Inland 1984 Incentive Stock Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.E* Copy of Inland 1988 Incentive Stock Plan, as amended. (Filed as Exhibit 10.B to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.F* Copy of Inland 1992 Incentive Stock Plan, as amended. (Filed as Exhibit 10.C to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.G* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10.D to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) 10.H* Copy of Inland 1992 Stock Plan for Non-Employee Directors, 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.I* Copy of Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.J* Copy of Inland Steel Industries Special Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.K* Copy of the Inland Steel Industries Deferred Compensation Plan for Certain Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein.) 10.L* Copy of Inland Steel Industries Deferred Compensation Plan for Directors, as amended. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.M* Copy of Inland Steel Industries Terminated Retirement Plan for Non-Employee Directors. 10.N* Copy of Inland Steel Industries, Inc. Deferred Phantom Stock Unit Plan for Non-Employee Directors. 10.O* 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.P.(1)* Copy of form of Severance Agreement dated June 28, 1989 between the Company and each of the seven executive officers of the Company identified on the exhibit relating to terms and conditions of termination of employment following a change in control of the Company. (Filed as Exhibit 10-0-(1) to the Company's Annual Report or Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.P.(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated June 28, 1989 in Exhibit 10.P.(1) hereof. (Filed as Exhibit 10.N.(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.)
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 22 24 10.P.(3)* Copy of Severance Agreement dated June 28, 1989 between the Company and Judd R. Cool. (Filed as Exhibit 10-O-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.P.(4)* Copy of Severance Agreement dated June 26, 1991 between the Company and Earl L. Mason. (Filed as Exhibit 10-X to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) 10.P.(5)* Copy of Severance Agreement dated November 27, 1991 between the Company and Maurice S. Nelson, Jr. (Filed as Exhibit 10-O-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.P.(6)* Copy of Employment Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. (Filed as Exhibit 10.N.(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein.) 10.P.(7)* Copy of Severance Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. (Filed as Exhibit 10.N.(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.) 10.Q.(1)* Copy of letter to Judd R. Cool dated September 2, 1987 relating to terms and conditions of employment. (Filed as Exhibit 10-K to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.Q.(2)* Copy of letter agreement dated November 23, 1987 between the Company and Judd R. Cool. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) 10.Q.(3)* Copy of letter agreement dated December 10, 1993 between the Company and Judd R. Cool restating certain provisions of the September 2, 1987 and November 23, 1987 letters in Exhibits 10.P.(1) and (2). (Filed as Exhibit 10.P.(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) 10.R* Copy of letter to Earl L. Mason dated May 17, 1991 relating to terms and conditions of employment. (Filed as Exhibit 10-W to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) 10.S* Copy of letter to Maurice S. Nelson, Jr. dated March 26, 1993 relating to supplemental pension arrangement. (Filed as Exhibit 10-S to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) 10.T Copy of Stock Purchase Agreement, dated as of July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 4-G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 10.U.(1) Copy of Letter Agreement dated December 18, 1989 among the Company, Nippon Steel Corporation and NS Finance III, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to sale to NS Finance III, Inc. of 185,000 shares of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.)
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. 23 25 10.U.(2) Copy of Steel Technology Agreement dated as of July 14, 1989 between Inland Steel Company and Nippon Steel Corporation relating to technology sharing between the signatories. (Filed as Exhibit 10-S-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(3) Copy of Basic Agreement dated as of July 21, 1987 between the Company and Nippon Steel Corporation relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(4) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(4) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(5) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(6) Copy of Partnership Agreement dated as of September 12, 1989 between ISC Kote, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(7) Copy of Substrate Supply Agreement dated as of September 12, 1989 between Inland Steel Company and I/N Kote, an Indiana general partnership. (Filed as Exhibit 10-S-(7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) 10.U.(8) First Amendment to Substrate Supply Agreement dated as of May 1, 1990 between Inland Steel Company and I/N Kote relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(9) Letter Agreement dated as of May 1, 1990 among I/N Kote, the Company and Nippon Steel Corporation relating to partner loans. (Filed as Exhibit 10-R-(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(10) First Amendment to I/N Kote Basic Agreement dated as of May 1, 1990 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(10) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(11) Letter Agreement dated as of April 19, 1990 between the Company and Nippon Steel Corporation relating to capital contributions to I/N Tek. (Filed as Exhibit 10-R-(11) to Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.U.(12) Letter Agreement dated April 20, 1990 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to amendment of the partnership agreement of I/N Tek. (Filed as Exhibit 10-R-(12) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.)
24 26 10.U.(13) CCM Override Amendment dated as of April 20, 1990 among the Company; Nippon Steel Corporation; Inland Steel Company; ISC Tek, Inc.; I/N Tek; NS Sales, Inc.; and NS Tek, Inc. relating to I/N Tek. (Filed as Exhibit 10-R-(13) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.V Copy of ESOP Stock Purchase Agreement, dated May 30, 1990, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-T to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated by reference herein. 10.W Copy of Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-P to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) 10.X Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchangeable Preferred Stock. (Filed as Exhibit 10-U to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) 10.Y Letter Agreement dated May 10, 1991 by and between Nippon Steel Corporation and Inland Steel Industries, Inc. relating to Letter Agreement dated December 18, 1989. (Filed as Exhibit 10-V to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, and incorporated by reference herein.) 11 Statement of Earnings per Share of Common Stock. 13 Information incorporated by reference from Annual Report to Stockholders for the fiscal year ended December 31, 1995. 21 List of certain subsidiaries of the Company. 23 Consent of Independent Accountants, appearing on page 26 of this Annual Report on Form 10-K. 24 Powers of attorney. 27 Financial Data Schedules. 99 Letter to stockholders of common stock of the Company dated December 22, 1987 explaining Stockholder Rights Plan adopted by Board of Directors on November 25, 1987. (Filed as Exhibit 3 to the Company's Current Report on Form 8-K filed on December 18, 1987, and incorporated by reference herein.)
25 27 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Inland Steel Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated February 19, 1996 appearing on page 32 of the 1995 Annual Report to Stockholders of Inland Steel Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)2 of this Annual Report on Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Chicago, Illinois February 19, 1996 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Form S-8 (No. 33-59783), Registration Statement on Form S-8 (No. 33-48770), Registration Statement on Form S-8 (No. 33-22902), Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (No. 33-4046), Registration Statement on Form S-8 (No. 33-32504), Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 33-6627), Registration Statement on Form S-3 (No. 33-59161) and Registration Statement on Form S-3 (No. 33-62897) of Inland Steel Industries, Inc. (or, for registrations prior to 1986, Inland Steel Company) of our report dated February 19, 1996, appearing on page 32 of the 1995 Annual Report to Stockholders of Inland Steel Industries, Inc. which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears above. PRICE WATERHOUSE LLP Chicago, Illinois March 28, 1996 26 28 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 ------- ------- ------- Income: Intercompany interest income................................ $ 16.3 $ 10.0 $ 18.5 Equity in income (losses) of subsidiaries................... 157.8 109.6 (34.4) Interest income and other revenue........................... 1.6 4.4 1.2 ------- ------- ------- 175.7 124.0 (14.7) Expenses: Interest and other expenses................................. 31.0 22.9 22.6 Intercompany interest expense............................... 5.7 2.1 2.4 ------- ------- ------- 36.7 25.0 25.0 Income (loss) before income taxes............................. 139.0 99.0 (39.7) Provision for income taxes.................................... 7.8Cr. 8.4Cr. 2.1Cr. ------- ------- ------- Net income (loss)............................................. $ 146.8 $ 107.4 $ (37.6) ======= ======= =======
- --------------- Cr. = Credit See Notes to Consolidated Financial Statements in Item 8. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 27 29 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 ------- ------- ------- OPERATING ACTIVITIES Net income (loss).............................................. $ 146.8 $ 107.4 $ (37.6) Adjustments to reconcile net income to net cash provided from operating activities: Equity in undistributed earnings of subsidiaries.......... (157.8) (109.6) 34.4 Depreciation.............................................. .6 .6 .6 Deferred income taxes..................................... 4.5 3.2 11.5 Deferred employee benefit cost............................ .3 2.3 .1 Stock issued for coverage of employee benefit plans....... 23.9 35.0 19.1 Change in: Intercompany accounts.......................... 16.0 (7.8) 183.6 Notes receivable............................... (.3) (.3) .2 Accounts payable............................... (2.9) (1.8) (1.9) Accrued liabilities............................ 4.9 (3.2) .3 Other deferred items...................................... 8.3 (1.4) (3.0) ------- ------- ------- Net adjustments......................................... (102.5) (83.0) 244.9 ------- ------- ------- Net cash provided from operating activities............. 44.3 24.4 207.3 ------- ------- ------- INVESTING ACTIVITIES Net investments in subsidiaries................................ (10.2) (120.5) (312.1) Dividends received from subsidiaries........................... 25.9 25.8 25.8 Capital expenditures........................................... -- (.2) -- ------- ------- ------- Net cash provided from (used for) investing activities......................................... 15.7 (94.9) (286.3) ------- ------- ------- FINANCING ACTIVITIES Issuance of common stock....................................... 99.1 -- 178.7 Long-term debt retired......................................... (8.3) (7.8) (7.1) Dividends paid................................................. (31.6) (32.2) (35.7) Acquisition of treasury stock.................................. (4.0) (4.0) (9.5) ------- ------- ------- Net cash provided from (used for) financing activities......................................... 55.2 (44.0) 126.4 ------- ------- ------- Net increase (decrease) in cash and cash equivalents........... 115.2 (114.5) 47.4 Cash and cash equivalents -- beginning of year................. 90.3 204.8 157.4 ------- ------- ------- Cash and cash equivalents -- end of year....................... $ 205.5 $ 90.3 $ 204.8 ======= ======= =======
See Notes to Consolidated Financial Statements in Item 8. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 28 30 INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only) BALANCE SHEET AT DECEMBER 31, 1995 AND 1994 (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 -------- -------- ASSETS Current Assets: Cash and cash equivalents.......................................... $ 205.5 $ 90.3 Receivables from subsidiary companies.............................. 91.1 107.1 Deferred income taxes.............................................. .3 .3 Notes receivable................................................... .6 .3 -------- -------- Total current assets............................................. 297.5 198.0 Investment in subsidiary companies...................................... 958.1 817.7 Intangible pension asset................................................ 102.6 -- Investment in Nippon Steel Corporation, net of valuation allowances of $4.0 and $3.5, respectively........................................... 10.6 11.1 Property, net of accumulated depreciation of $7.3 and $6.7, respectively.......................................................... 1.8 2.4 Deferred income taxes................................................... 13.7 15.8 Deferred charges and other assets....................................... 6.5 7.4 -------- -------- Total assets..................................................... $1,390.8 $1,052.4 ======= ======= LIABILITIES Current Liabilities: Accounts payable................................................... $ 4.3 $ 7.2 Accrued liabilities................................................ 19.5 14.6 Long-term debt due within one year................................. 94.0 8.3 -------- -------- Total current liabilities........................................ 117.8 30.1 Long-term debt.......................................................... 356.2 265.2 Deferred employee benefits.............................................. 121.5 18.6 Deferred income and other deferred credits.............................. 12.2 6.4 -------- -------- Total liabilities................................................ 607.7 320.3 -------- -------- TEMPORARY EQUITY Redeemable preferred stock, Series F, $1.00 par value, 185,000 shares issued and outstanding in 1994........................................ -- 185.0 Common stock repurchase commitment...................................... 34.5 37.9 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, $1.00 par value, 15,000,000 shares authorized for all series, aggregate liquidation value $155.7 in 1995 and $154.9 in 1994.................................................................. 3.2 3.2 Common stock, $1.00 par value; authorized -- 100,000,000 shares; issued -- 50,556,350 shares........................................... 50.6 50.6 Capital in excess of par value.......................................... 1,045.7 1,088.0 Accumulated deficit..................................................... (172.8) (292.4) Unearned compensation -- ESOP........................................... (89.9) (100.5) Common stock repurchase commitment...................................... (34.5) (37.9) Treasury stock at cost -- common stock of 1,814,516 shares in 1995 and 6,006,122 shares in 1994.............................................. (51.1) (200.9) Cumulative translation adjustment....................................... (2.6) (.9) -------- -------- Total stockholders' equity....................................... 748.6 509.2 -------- -------- Total liabilities, temporary equity, and stockholders' equity.... $1,390.8 $1,052.4 ======= =======
Maturities of Long-Term Debt due within five years are: $94.0 million in 1996, $9.7 million in 1997, $10.5 million in 1998, $111.5 million in 1999, and $12.5 million in 2000. See Notes to Consolidated Financial Statements in Item 8. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 29 31 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES SCHEDULE II -- RESERVES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (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 - ----------- ---------- --------- ---------- ---------- 1995 $ 24.9 $11.8 $ (1.1)(A) $ 29.9 (5.7)(B) 1994 $ 28.2 $ 5.8 $ (2.4)(A) $ 24.9 (6.7)(B) 1993 $ 23.2 $14.4 $ (3.7)(A) $ 28.2 (5.7)(B)
- --------------- NOTES: (A) Bad debts written off during year. (B) Allowances granted during year. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 30 32 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 28, 1996 By: ROBERT J. DARNALL ------------------------------- Robert J. Darnall Chairman, President and Chief 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 Chief March 28, 1996 - ---------------------------------- Executive Officer and Robert J. Darnall Director EARL L. MASON Senior Vice President and March 28, 1996 - ---------------------------------- Chief Financial Officer Earl L. Mason (Principal Financial Officer) JAMES M. HEMPHILL Controller and Principal March 28, 1996 - ---------------------------------- Accounting Officer James M. Hemphill Director A. Robert Abboud Director James W. Cozad Director James A. Henderson Director By: GEORGE A. RANNEY, JR. Robert B. McKersie Director --------------------------- Maurice S. Nelson, Jr. Director George A. Ranney, Jr. Donald S. Perkins Director Attorney-in-fact Jean-Pierre Rosso Director March 28, 1996 Joshua I. Smith Director Nancy H. Teeters Director Arnold R. Weber Director
31 33 APPENDIX A INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
ITEM PAGE - ------------------------------------------------------------------------------------- ---- Report of Independent Accountants.................................................... A-2 Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1995............................................................ A-3 Consolidated Statement of Cash Flows for the three years ended December 31, 1995..... A-4 Consolidated Balance Sheet at December 31, 1995 and 1994............................. A-5 Statement of Accounting and Financial Policies....................................... A-6 Notes to Consolidated Financial Statements........................................... A-8
A-1 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Inland Materials Distribution Group, Inc. In our opinion, the consolidated financial statements listed in the index appearing on page A-1 present fairly, in all material respects, the financial position of Inland Materials Distribution Group, Inc. (a wholly owned subsidiary of Inland Steel Industries, Inc.) and Subsidiary Companies at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Chicago, Illinois February 19, 1996 A-2 35 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS DOLLARS IN MILLIONS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 -------------------------------- 1995 1994 1993 -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS Net Sales.................................................... $2,450.1 $2,197.5 $1,893.3 -------- -------- -------- Operating costs and expenses: Cost of goods sold (excluding depreciation)............... 2,118.1 1,927.7 1,663.8 Selling, general and administrative expenses.............. 153.2 142.1 144.4 Depreciation and amortization............................. 21.8 21.2 20.6 State, local and miscellaneous taxes...................... 8.3 8.4 8.1 -------- -------- -------- Total................................................... 2,301.4 2,099.4 1,836.9 -------- -------- -------- Operating profit............................................. 148.7 98.1 56.4 Other expense: General corporate expense, net of income items............ .7 6.9 7.4 Interest and other expense on debt........................ 2.6 2.9 10.9 -------- -------- -------- Income before income taxes................................... 145.4 88.3 38.1 Provision for income taxes (Note 6).......................... 56.9 35.0 11.4 -------- -------- -------- Net income................................................... $ 88.5 $ 53.3 $ 26.7 ======== ======== ======== CONSOLIDATED STATEMENT OF REINVESTED EARNINGS Balance at beginning of year................................. $ 85.4 $ 32.1 $ 5.4 Net income for the year...................................... 88.5 53.3 26.7 -------- -------- -------- Reinvested earnings at end of year........................... $ 173.9 $ 85.4 $ 32.1 ======== ======== ========
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-3 36 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED STATEMENT OF CASH FLOWS DOLLARS IN MILLIONS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH YEARS ENDED DECEMBER 31 -------------------------- 1995 1994 1993 ------ ------ ------ OPERATING ACTIVITIES Net income........................................................ $ 88.5 $ 53.3 $ 26.7 ------ ------ ------ Adjustments to reconcile net income to net cash provided from (used for) operating activities: Depreciation and amortization................................ 21.8 21.2 20.6 Net gain on sales of assets.................................. (.2) (.5) (.1) Deferred employee benefit cost............................... (14.4) 3.9 3.9 Deferred income taxes........................................ .5 .7 (8.3) Change in: Receivables............................................... (16.7) (31.1) (22.8) Inventories............................................... 10.4 5.7 (18.2) Other assets.............................................. (2.3) (1.6) -- Accounts payable.......................................... (7.0) 22.6 (31.5) Payables to related companies............................. (.4) 5.8 1.7 Accrued liabilities....................................... 4.2 (.3) 2.7 ------ ------ ------ Net adjustments.............................................. (4.1) 26.4 (52.0) ------ ------ ------ Net cash provided from (used for) operating activities....... 84.4 79.7 (25.3) ------ ------ ------ INVESTING ACTIVITIES Capital expenditures.............................................. (19.3) (20.4) (19.3) Proceeds from sales of assets..................................... 1.9 5.8 .9 ------ ------ ------ Net cash used for investing activities.................... (17.4) (14.6) (18.4) ------ ------ ------ FINANCING ACTIVITIES Long-term debt issued............................................. -- -- 7.5 Long-term debt retired............................................ (4.7) (4.9) (5.3) Capital contribution from Inland Steel Industries................. -- -- 150.0 Change in notes to and from related companies..................... (11.2) (87.2) (79.0) ------ ------ ------ Net cash provided from (used for) financing activities.... (15.9) (92.1) 73.2 ------ ------ ------ Net increase (decrease) in cash and cash equivalents.............. 51.1 (27.0) 29.5 Cash and cash equivalents -- beginning of year.................... 2.5 29.5 -- ------ ------ ------ Cash and cash equivalents -- end of year.......................... $ 53.6 $ 2.5 $ 29.5 ====== ====== ====== SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest, net of amount capitalized............................ $ 3.0 $ 2.9 $ 11.3 Income taxes, net.............................................. 56.4 30.5 22.6
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-4 37 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) CONSOLIDATED BALANCE SHEET DOLLARS IN MILLIONS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
AT DECEMBER 31 ----------------- 1995 1994 ------ ------ ASSETS Current assets: Cash and cash equivalents............................................... $ 53.6 $ 2.5 Receivables less provision for allowances, claims and doubtful accounts of $6.4 and $6.3, respectively....................................... 243.8 227.1 Inventories (Note 1).................................................... 262.8 273.2 Notes receivable from related companies................................. 68.8 57.6 Deferred income taxes (Note 6).......................................... 15.6 13.0 ------ ------ Total current assets................................................. 644.6 573.4 ------ ------ Property, plant and equipment, at cost: Buildings, machinery and equipment...................................... 448.2 433.9 Land and land improvements.............................................. 28.0 27.7 ------ ------ 476.2 461.6 Less accumulated depreciation........................................... 226.5 209.1 ------ ------ 249.7 252.5 ------ ------ Prepaid pension costs (Note 5)............................................ 27.3 12.2 Excess of cost over net assets acquired, net of accumulated amortization............................................................ 23.6 25.0 Deferred income taxes (Note 6)............................................ 23.5 26.6 Other assets.............................................................. 3.9 1.6 ------ ------ Total assets......................................................... $972.6 $891.3 ====== ====== LIABILITIES Current liabilities: Accounts payable........................................................ $ 92.8 $ 99.8 Payables to related companies........................................... 14.4 14.8 Accrued Liabilities: Salaries and wages................................................... 20.0 17.6 Taxes other than federal income taxes................................ 8.9 7.4 Other................................................................ 3.6 3.3 Long-term debt due within one year...................................... 4.7 4.7 ------ ------ Total current liabilities....................................... 144.4 147.6 ------ ------ Long-term debt (Note 3)................................................... 18.9 23.6 Deferred employee benefits and other liabilities (Note 5)................. 140.8 140.1 ------ ------ Total liabilities............................................... 304.1 311.3 ------ ------ STOCKHOLDER'S EQUITY Common stock, par value $1.00; 3,000 shares authorized; one share issued............................................................... -- -- Additional paid-in capital (Note 7)..................................... 494.6 494.6 Earnings reinvested in the business..................................... 173.9 85.4 ------ ------ Total stockholder's equity........................................... 668.5 580.0 ------ ------ Total liabilities and stockholder's equity........................... $972.6 $891.3 ====== ======
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-5 38 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following briefly describes the Company's principal accounting and financial policies. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Joseph T. Ryerson & Son, Inc., and J. M. Tull Metals Company, Inc., which are wholly owned subsidiaries of the Company. The accounts of J. M. Tull Metals Company, Inc. are consolidated with its wholly owned subsidiary, AFCO Metals, Inc. Inventory valuation Inventories are valued at cost which is not in excess of market. Cost is determined principally by the last-in, first-out (LIFO) method. Property, plant and equipment Property, plant and equipment is depreciated, for financial reporting purposes, using the straight-line method over the estimated useful lives of the assets. Expenditures for normal repair and maintenance are charged against income in the period incurred. Excess of cost over net assets acquired The excess of cost over fair value of net assets of businesses acquired (goodwill) is amortized on the straight-line method over a 25-year period. Accumulated amortization of goodwill totaled $10.2 million at December 31, 1995 and $8.8 million at December 31, 1994. Benefits for retired employees Pension benefits are provided by the Company to substantially all employees under a trusteed noncontributory plan of Inland Steel Industries, Inc. ("Industries"). Life insurance and certain medical benefits are provided for substantially all retired employees. The estimated costs of pension, medical, and life insurance benefits are determined annually by consulting actuaries. The cost of these benefits for retirees is accrued during their term of employment (see Note 5). Pensions are funded in accordance with ERISA requirements in a trust established under the plan. Costs for retired employee medical benefits are funded when claims are submitted. Cash equivalents Cash equivalents are highly liquid, short-term investments with maturities of three months or less. 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-6 39 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Accounting for the Impairment of Long-lived Assets In 1995, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of this Statement had no material impact on the results of operations or financial position of the Company. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-7 40 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 1. INVENTORIES The Company's inventories consist principally of finished steel, nonferrous metals and industrial plastic products for sale at service center locations. The difference between LIFO values and approximate replacement costs for the LIFO inventories was $146.4 million at December 31, 1995 and $132.6 million at December 31, 1994. During 1995 and 1994, various inventory quantities were reduced resulting in liquidations of LIFO inventory quantities carried at costs prevailing in prior years that were different from current year costs. The effect on cost of goods sold of LIFO liquidations in 1995, 1994 and 1993 was not material. NOTE 2. BORROWING ARRANGEMENTS At December 31, 1995, the Company's subsidiaries had available two unused credit facilities totaling $225 million. Each facility, as well as the Inland Steel Industries Thrift Plan ESOP notes guarantee, requires compliance with various financial covenants including minimum net worth and leverage ratio tests. The covenants also limit the amount of cash that the subsidiaries can transfer to the Company and to Industries in the form of dividends and other advances. A $200 million unsecured credit agreement between Joseph T. Ryerson & Son, Inc. and a group of banks provides a revolving credit facility to March 31, 2000. J. M. Tull Metals Company, Inc. has a $25 million unsecured revolving credit agreement with other banks, which extends to December 15, 1997. NOTE 3. LONG-TERM DEBT The Company's long-term debt is as follows:
DECEMBER 31, ----------------- 1995 1994 ----- ----- DOLLARS IN MILLIONS JOSEPH T. RYERSON & SON, INC. Industrial Revenue Bond, floating interest rate set weekly based on 13-week Treasury bills, due November 1, 2007............... $ 7.0 $ 7.0 Other long-term debt, 10.25%, due through November 30, 1997...... 1.6 1.8 J. M. TULL METALS COMPANY, INC. Senior Notes, 9.43%, due through July 29, 1997................... 7.1 10.7 Term note, LIBOR plus 62.5 basis points per annum, due through August 17, 1998............................................... 6.8 7.1 Industrial Revenue Bonds, interest rates ranging from 6.5% to 65% of the prime rate, due through January 1, 1997................ .9 1.4 Other............................................................ .2 .3 ----- ----- 23.6 28.3 Less maturities due within one year.............................. 4.7 4.7 ----- ----- Long-term debt................................................ $18.9 $23.6 ===== =====
Maturities of long-term debt are: $4.7 million in 1996, $5.6 million in 1997, $6.3 million in 1998, and $7.0 million in 2007. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-8 41 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Under the provisions of certain loan agreements, the Company is required to maintain specified amounts of working capital and net worth, as outlined in the agreements, and is restricted as to dividends that may be paid to Industries. Property with a net recorded carrying value of approximately $13.5 million at December 31, 1995 is pledged as collateral on the industrial revenue bonds and mortgage loans. NOTE 4. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Derivatives The Company has only limited involvement with derivative financial instruments, none of which are used for trading purposes. The Company has entered into an interest rate swap agreement to reduce the impact of changes in LIBOR on its $6.8 million term note. At December 31, 1995 the Company had outstanding an interest rate swap agreement with the bank having a notional principal amount equal to the outstanding principal of the related term note. This agreement effectively changes the Company's interest rate exposure on its term note to a fixed rate of 5.925%. The interest rate swap matures August 17, 1998. Gains and losses associated with this hedging transaction become part of the interest expense of the related debt. The Company is exposed to potential credit loss in the event of nonperformance by the bank; however, the Company does not anticipate such nonperformance. Cash and Cash Equivalents The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. Long-term Debt The estimated fair value of the Company's long-term debt (including current portions thereof) using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded was $23.6 million at December 31, 1995 and $27.4 million at December 31, 1994 as compared with the carrying value of $23.6 million and $28.3 million included in the balance sheet at year-end 1995 and 1994, respectively. NOTE 5. RETIREMENT BENEFITS In 1995, the measurement date for pensions and benefits other than pensions was changed from December 31 to September 30 in order to provide for more timely information and to achieve administrative efficiencies in the collection of data. The change in the measurement date had no effect on 1995 expense and had an immaterial impact on the 1995 funded status of the pension plan. Pensions The Inland Steel Industries Pension Plan and Pension Trust (the "Plan") covers certain employees, retirees and their beneficiaries of Industries and its subsidiaries, including the Company. The Plan is a noncontributory defined benefit plan that provides benefits based on final pay and years of service for all salaried employees and certain wage employees, and years of service and a fixed rate (in most instances based - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-9 42 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- on frozen pay level or on job class) for all other wage employees, including employees under collective bargaining agreements. Because the fair value of pension plan assets pertains to all participants in the Plan, no separate determination of the fair value of such assets is made solely with respect to the Company. The actuarial present value of benefits for service rendered to date and the fair value of plan assets available for benefits for the Industries consolidated group were as follows:
SEPT. 30, DEC. 31, 1995 1994 --------- -------- DOLLARS IN MILLIONS Fair value of plan assets......................................... $ 1,919 $1,652 ------ ------ Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date.... 1,956 1,641 Additional benefits based on estimated future compensation levels....................................................... 90 98 ------ ------ Projected Benefit Obligation.................................... 2,046 1,739 ------ ------ Plan asset shortfall to Projected Benefit Obligation.............. $ (127) $ (87) ====== ======
In 1995, Industries recorded an additional minimum pension liability of $102.6 million representing the excess of the unfunded Accumulated Benefit Obligation over previously accrued pension costs. A corresponding intangible asset was recorded as an offset to this additional liability as prescribed. Neither was required in 1994. The calculation of benefit obligations was based on a discount (settlement) rate of 7.75% in 1995 and 8.8% in 1994; a rate of compensation increase of 4.0% in 1995 and 5.0% in 1994; and a rate of return on plan assets of 9.5% in both 1995 and 1994. The Company recorded a pension credit of $2.3 million in 1995, and a charge of $1.8 million in 1994 and $.1 million in 1993. In 1995, the Company paid $13.1 million to Industries for its share of a contribution to the Industries Plan trust. The cost of other industry welfare and retirement funds, for bargaining unit employees, was $3.3 million in 1995, $2.6 million in 1994, and $2.9 million in 1993. Benefits Other Than Pensions Substantially all of the Company's employees are covered under postretirement life insurance and medical benefit plans that involve deductible and co-insurance requirements. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on applicable annual earnings at retirement for salaried employees and specific amounts for hourly employees. The Company does not prefund any of these postretirement benefits. The amount of net periodic postretirement benefit cost for 1995, 1994 and 1993 is composed of the following:
1995 1994 1993 ----- ----- ----- DOLLARS IN MILLIONS Service cost................................................ $ 2.2 $ 2.7 $ 3.2 Interest cost............................................... 8.4 7.3 8.0 Net amortization and deferral............................... (3.4) (2.0) (1.9) ----- ----- ----- Total net periodic postretirement benefit cost......... $ 7.2 $ 8.0 $ 9.3 ===== ===== =====
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-10 43 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following table sets forth components of the accumulated postretirement benefit obligation:
SEPT. 30, DEC. 31, 1995 1994 --------- -------- DOLLARS IN MILLIONS Accumulated postretirement benefit obligation attributable to: Retirees........................................................ $ 59.5 $ 44.4 Fully eligible plan participants................................ 17.6 15.9 Other active plan participants.................................. 28.2 24.9 ------ ------ Accumulated postretirement benefit obligation..................... 105.3 85.2 Unrecognized net gain........................................... 16.7 33.7 Unrecognized prior service credit............................... 18.9 20.3 ------ ------ Accrued postretirement benefit obligation......................... 140.9 $139.2 ====== Expense net of benefits provided, October through December 1995... .2 ------ Accrued postretirement benefit obligation at December 31, 1995.... $ 141.1 ======
Any net gain or loss in excess of 10 percent of the accumulated postretirement benefit obligation is amortized over the remaining service period of active plan participants. The assumptions used to determine the plan's accumulated postretirement obligation are as follows:
SEPT. 30, DEC. 31, 1995 1994 --------- -------- Discount Rate.................................................... 7.75% 8.8% Rate of compensation increase.................................... 4.0% 5.0% Medical cost trend rate.......................................... 4.5% 6%-5% Year ultimate rate reached....................................... 1996 1996
A one percentage point increase in the assumed health care cost trend rates for each future year increases annual periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of September 30, 1995 by $2.7 million and $12.2 million, respectively. NOTE 6. TAXES ON INCOME The Company participates in a tax-sharing agreement under which current and deferred income tax provisions are determined for each company in the Industries group on a stand-alone basis. Any current liability is paid to Industries. If the Company is unable to use all of its allocated tax attributes (net operating loss and tax credit carryforwards) in a given year but other companies in the consolidated group are able to utilize them, then the Company will be paid for the use of its attributes. NOL and tax credit carryforwards are allocated to each company in accordance with applicable tax regulations as if a company were to leave the consolidated group. Companies with taxable losses record current income tax credits not to exceed current income tax charges recorded by profitable companies. If Industries uses NOL carryforwards, the Company will use the appropriate portion of that year's carryforward previously allocated to it, if any. A state tax sharing agreement, similar to the federal agreement, also exists with Industries for those states in which the consolidated group is charged state taxes on a unitary or combined basis. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-11 44 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The elements of the provision for income taxes for the three years indicated below are as follows:
1995 1994 1993 ----- ----- ----- DOLLARS IN MILLIONS Current income taxes: Federal................................................... $49.7 $30.4 $17.3 State and local........................................... 6.7 3.9 2.6 ----- ----- ----- 56.4 34.3 19.9 Deferred income taxes....................................... .5 .7 8.5Cr. ----- ----- ----- Total provision for income taxes.......................... $56.9 $35.0 $11.4 ===== ===== =====
- ------------------ Cr. = Credit In accordance with FASB Statement No. 109, the Company adjusted its deferred tax assets and liabilities for the effect of the change in the corporate federal income tax rate from 34 percent to 35 percent, effective January 1, 1993. A credit to income of $.6 million, which includes the effect of the rate change on deferred tax asset and liability balances as of January 1, 1993 as well as the effect on 1993 tax benefits recorded by the Company prior to the enactment date of August 10, 1993, was recorded in the third quarter of 1993. The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
DECEMBER 31 ----------------- 1995 1994 ------ ------ DOLLARS IN MILLIONS Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss and tax credit carryforwards................. $ 16.2 $ 15.1 Other deductible temporary differences.......................... 27.9 29.0 ------ ------ 44.1 44.1 ------ ------ Deferred tax liabilities: Fixed asset basis difference.................................... 37.2 39.7 Other taxable temporary differences............................. 17.2 14.0 ------ ------ 54.4 53.7 ------ ------ Net deferred tax liability (excluding postretirement benefits other than pensions)............................................ (10.3) (9.6) FASB Statement No. 106 impact (post retirement benefits other than pensions)....................................................... 49.4 49.2 ------ ------ Net deferred tax asset............................................ $ 39.1 $ 39.6 ====== ======
For tax purposes, the Company had available, at December 31, 1995, approximately $43 million of net operating loss ("NOL") carryforwards available for regular federal income tax purposes, expiring as follows: $8 million in 2005, $21 million in 2006, $7 million in 2007, $6 million in 2008, and $1 million in 2009. Additionally, in conjunction with the Alternative Minimum Tax ("AMT") rules, the Company had available AMT credit carryforwards for tax purposes of approximately $1.1 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. The NOL carryforwards and existing deductible temporary differences (excluding those relating to FASB Statement No. 106) are offset by existing taxable temporary differences reversing within the - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-12 45 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1995, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $49.4 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 15-year carryforward period of that loss. Because of the extremely long period that is available to realize these future tax benefits, a valuation allowance for this deferred tax asset is not necessary. Total income taxes reflected in the Consolidated Statement of Operations differ from the amounts computed by applying the federal tax rate as follows:
YEARS ENDED DECEMBER 31 ------------------------- 1995 1994 1993 ----- ----- ----- DOLLARS IN MILLIONS Federal income tax provision computed at statutory tax rate of 35%.................................................... $50.9 $30.9 $13.4 Additional taxes or credits from: State and local income taxes, net of federal income tax effect................................................. 4.5 2.5 1.7 Change in federal statutory rate.......................... -- -- .6Cr. All other, net............................................ 1.5 1.6 3.1Cr. ----- ----- ----- Total income tax provision............................. $56.9 $35.0 $11.4 ===== ===== =====
- --------------- Cr. = Credit NOTE 7. RELATED PARTY TRANSACTIONS The Company sells products to and purchases products from related companies at prevailing market prices. These transactions were as follows:
YEARS ENDED DECEMBER 31 -------------------------- 1995 1994 1993 ------ ------ ------ DOLLARS IN MILLIONS Net product sales.......................................... $ 15.7 $ 10.7 $ 10.7 Net product purchases...................................... $176.6 $184.1 $174.2
Administrative expenses covering management, financial and legal services provided to the Company were charged to the Company by Industries. Such charges totaled $6.8 million in 1995 and $7.4 million in 1994 and 1993. Cash management activities are performed by Industries and cash is periodically transferred to Industries. Funds transferred to Industries are supported by interest-bearing notes receivable. Interest, at prevailing prime market rates, is charged on all intercompany loans within the Industries consolidated group. There was $3.9 million of net intercompany interest income in 1995, no net intercompany interest expense in 1994 and $7.7 million of net intercompany interest expense in 1993. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-13 46 INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- In December 1993, Industries made a capital contribution of $150 million to the Company. The capital contribution has been recorded as "additional paid-in capital." NOTE 8. COMMITMENTS AND CONTINGENCIES The Company has noncancellable operating leases for which future minimum rental commitments are estimated to total $38.3 million, including approximately $8.6 million in 1996, $8.0 million in 1997, $7.0 million in 1998, $6.1 million in 1999, $4.8 million in 2000, and $3.8 million thereafter. Rental expense under operating leases totaled $15.9 million in 1995 and 1994, and $16.8 million in 1993. Ryerson is the guarantor of $115.2 million of the Inland Steel Industries Thrift Plan ESOP notes. The notes are payable in installments through July 2004. There are various claims and pending actions against the Company. The amount of liability, if any, for these claims and actions at December 31, 1995 is not determinable but, in the opinion of management, such liability, if any, will not have a materially adverse effect on the Company's financial position or results of operations. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-14 47 INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- 3.(i) Copy of Certificate of Incorporation, as amended, of the Company........ 3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3.(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated by reference herein.) -- 4.A Copy of Certificate of Designations, Preferences and Rights of Series A $2.40 Cumulative Convertible Preferred Stock of the Company. (Filed as part of Exhibit B to the definitive Proxy Statement of Inland Steel Company dated March 21, 1986 that was furnished to stockholders in connection with the annual meeting held April 23, 1986, and incorporated by reference herein.) -- 4.B Copy of Certificate of Designation, Preferences and Rights of Series D Junior Participating Preferred Stock of the Company. (Filed as Exhibit 4-D to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 4.C Copy of Rights Agreement, dated as of November 25, 1987, as amended and restated as of May 24, 1989, between the Company and The First National Bank of Chicago, as Rights Agent (Harris Trust and Savings Bank, as successor Rights Agent). (Filed as Exhibit 1 to the Company's Current Report on Form 8-K filed on May 24, 1989, and incorporated by reference herein.) -- 4.D Copy of Certificate of Designations, Preferences and Rights of Series E ESOP Convertible Preferred Stock of the Company. (Filed as Exhibit 4-F to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 4.E Copy of Subordinated Voting Note due December 17, 1999 in the amount of $185,000,000 from the Company to NS Finance, III, Inc. (Filed as Exhibit 4.8 to Form S-3 Registration Statement No. 33-62897 and incorporated by reference herein.) -- 4.F Copy of Indenture dated as of December 15, 1992, between the Company and Harris Trust and Savings Bank, as Trustee, respecting the Company's $150,000,000 121- 3/4% Notes due December 15, 2002. (Filed as Exhibit 4-G to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 4.G Copy of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company (the "Steel Company") and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, and of supplemental indentures thereto, to and including the Thirty-Fourth Supplemental Indenture, incorporated by reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e), filed with Steel Company's Registration Statement on Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h), filed with Steel Company's Current Report on Form 8-K dated January 18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed with Steel Company's Current Report on Form 8-K for the month of April, 1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's Current Report on Form 8-K for the month of January, 1945; (viii) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed with Steel Company's Current Report on Form 8-K for the
(i) 48
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- months of July and August, 1948; (x) Exhibits B and C, filed with Steel Company's Current Report on Form 8-K for the month of March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel Company's Current Report on Form 8-K for the month of July, 1957; (xiii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1959; (xiv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of December, 1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the amendment on Form 8 to Steel Company's Current Report on Form 8-K for the month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed with Steel Company's Current Report on Form 8-K for the month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K for the month of February, 1977; (xxi) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1982; (xxv) Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the Steel Company's Registration Statement on Form S-2 (No. 33-43393); (xxvii) Exhibit 4 filed with Steel Company's Current Report on Form 8-K dated June 23, 1993; (xxviii) Exhibit 4.H filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995; and (xxix) Exhibit 4.H filed with the Steel Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. -- 4.H Copy of consolidated reprint of First Mortgage Indenture, dated April 1, 1928, between Inland Steel Company and First Trust and Savings Bank and Melvin A. Traylor, as Trustees, as amended and supplemented by all supplemental indentures thereto, to and including the Thirteenth Supplemental Indenture. (Filed as Exhibit 4-E to Form S-1 Registration Statement No. 2-9443, and incorporated by reference herein.) -- [The registrant hereby agrees to provide a copy of any other agreement relating to long-term debt at the request of the Commission.] 10A* Copy of Inland Steel Industries, Inc. Annual Incentive Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated by reference herein.) -- 10.B* Copy of Inland Steel Industries, Inc. Special Achievement Award Plan. (Filed as Exhibit 10-I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.C* Copy of Inland 1995 Incentive Stock Plan. (Filed as Exhibit A to the Company's definitive Proxy Statement dated April 17, 1995 that was furnished to stockholders in connection with the annual meeting held May 24, 1995, 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. (ii) 49
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- 10D* Copy of Inland 1984 Incentive Stock Plan, as amended. (Filed as Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.E* Copy of Inland 1988 Incentive Stock Plan, as amended. (Filed as Exhibit 10.B to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.F* Copy of Inland 1992 Incentive Stock Plan, as amended. (Filed as Exhibit 10.C to the Company's Quarterly Report Form on 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.G* Copy of Inland Steel Industries Non-Qualified Thrift Plan, as amended. (Filed as Exhibit 10.D to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated by reference herein.) -- 10.H* Copy of Inland 1992 Stock Plan for Non-Employee Directors, 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.I* Copy of Inland Steel Industries Supplemental Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.I to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.J* Copy of Inland Steel Industries Special Retirement Benefit Plan for Covered Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.K* Copy of the Inland Steel Industries Deferred Compensation Plan for Certain Employees, as amended. (Filed as Exhibit 10.J to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein.) -- 10.L* Copy of Inland Steel Industries Deferred Compensation Plan for Directors, as amended. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 10.M* Copy of Inland Steel Industries Terminated Retirement Plan for Non-Employee Directors.................................................. 10.N* Copy of Inland Steel Industries, Inc. Deferred Phantom Stock Unit Plan for Non-Employee Directors.............................................. 10.O* 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.P.(1)* Copy of form of Severance Agreement dated June 28, 1989 between the Company and each of the seven executive officers of the Company identified on the exhibit relating to terms and conditions of termination of employment following a change in control of the Company. (Filed as Exhibit 10-0-(1) to the Company's Annual Report or Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) --
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. (iii) 50
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- 10.P.(2)* Amended listing of executive officers of the Company who are parties to the form of Severance Agreement dated June 28, 1989 in Exhibit 10.P.(1) hereof. (Filed as Exhibit 10.N.(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.) -- 10.P.(3)* Copy of Severance Agreement dated June 28, 1989 between the Company and Judd R. Cool. (Filed as Exhibit 10-O-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10P.(4)* Copy of Severance Agreement dated June 26, 1991 between the Company and Earl L. Mason. (Filed as Exhibit 10-X to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) -- 10.P.(5)* Copy of Severance Agreement dated November 27, 1991 between the Company and Maurice S. Nelson, Jr. (Filed as Exhibit 10-O-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) -- 10.P.(6)* Copy of Employment Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. (Filed as Exhibit 10.N.(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein.) -- 10.P.(7)* Copy of Severance Agreement dated as of April 8, 1994 between the Company and Neil S. Novich. (Filed as Exhibit 10.N.(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.) -- 10.Q.(1)* Copy of letter to Judd R. Cool dated September 2, 1987 relating to terms and conditions of employment. (Filed as Exhibit 10-K to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.Q.(2)* Copy of letter agreement dated November 23, 1987 between the Company and Judd R. Cool. (Filed as Exhibit 10-L to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated by reference herein.) -- 10.Q.(3)* Copy of letter agreement dated December 10, 1993 between the Company and Judd R. Cool restating certain provisions of the September 2, 1987 and November 23, 1987 letters in Exhibits 10.P.(1) and (2). (Filed as Exhibit 10.P.(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated by reference herein.) -- 10.R* Copy of letter to Earl L. Mason dated May 17, 1991 relating to terms and conditions of employment. (Filed as Exhibit 10-W to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated by reference herein.) -- 10.S* Copy of letter to Maurice S. Nelson, Jr. dated March 26, 1993 relating to supplemental pension arrangement. (Filed as Exhibit 10-S to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated by reference herein.) --
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. (iv) 51
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- 10.T Copy of Stock Purchase Agreement, dated as of July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 4-G to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 10.U.(1) Copy of Letter Agreement dated December 18, 1989 among the Company, Nippon Steel Corporation and NS Finance III, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to sale to NS Finance III, Inc. of 185,000 shares of Series F Exchangeable Preferred Stock of the Company. (Filed as Exhibit 4(b) to the Company's Current Report on Form 8-K filed on December 18, 1989, and incorporated by reference herein.) -- 10.U.(2) Copy of Steel Technology Agreement dated as of July 14, 1989 between Inland Steel Company and Nippon Steel Corporation relating to technology sharing between the signatories. (Filed as Exhibit 10-S-(2) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(3) Copy of Basic Agreement dated as of July 21, 1987 between the Company and Nippon Steel Corporation relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(3) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(4) Copy of Partnership Agreement dated as of July 21, 1987 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Tek joint venture. (Filed as Exhibit 10-S-(4) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(5) Copy of Basic Agreement dated as of September 12, 1989 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(5) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(6) Copy of Partnership Agreement dated as of September 12, 1989 between ISC Kote, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to the I/N Kote joint venture. (Filed as Exhibit 10-S-(6) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(7) Copy of Substrate Supply Agreement dated as of September 12, 1989 between Inland Steel Company and I/N Kote, an Indiana general partnership. (Filed as Exhibit 10-S-(7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated by reference herein.) -- 10.U.(8) First Amendment to Substrate Supply Agreement dated as of May 1, 1990 between Inland Steel Company and I/N Kote relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(8) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(9) Letter Agreement dated as of May 1, 1990 among I/N Kote, the Company and Nippon Steel Corporation relating to partner loans. (Filed as Exhibit 10-R-(9) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) --
(v) 52
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - --------- ------------------------------------------------------------------------ ---------- 10.U.(10) First Amendment to I/N Kote Basic Agreement dated as of May 1, 1990 between the Company and Nippon Steel Corporation relating to the I/N Kote joint venture. (Filed as Exhibit 10-R-(10) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(11) Letter Agreement dated as of April 19, 1990 between the Company and Nippon Steel Corporation relating to capital contributions to I/N Tek. (Filed as Exhibit 10-R-(11) to Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(12) Letter Agreement dated April 20, 1990 between ISC Tek, Inc. (an indirectly wholly owned subsidiary of the Company) and NS Tek, Inc. (an indirectly wholly owned subsidiary of Nippon Steel Corporation) relating to amendment of the partnership agreement of I/N Tek. (Filed as Exhibit 10-R-(12) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.U.(13) CCM Override Amendment dated as of April 20, 1990 among the Company; Nippon Steel Corporation; Inland Steel Company; ISC Tek, Inc.; I/N Tek; NS Sales, Inc.; and NS Tek, Inc. relating to I/N Tek. (Filed as Exhibit 10-R-(13) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.V Copy of ESOP Stock Purchase Agreement, dated May 30, 1990, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-T to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated by reference herein.) -- 10.W Copy of Inland Steel Industries Thrift Plan ESOP Trust, dated July 7, 1989, between the Company and Harris Trust and Savings Bank, as ESOP Trustee. (Filed as Exhibit 10-P to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated by reference herein.) -- 10.X Letter Agreement dated March 1, 1991 between Nippon Steel Corporation and the Company regarding Series F Exchangeable Preferred Stock. (Filed as Exhibit 10-U to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated by reference herein.) -- 10.Y Letter Agreement dated May 10, 1991 by and between Nippon Steel Corporation and Inland Steel Industries, Inc. relating to Letter Agreement dated December 18, 1989. (Filed as Exhibit 10-V to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, and incorporated by reference herein.) -- 11 Statement of Earnings per Share of Common Stock......................... 13 Information incorporated by reference from Annual Report to Stockholders for the fiscal year ended December 31, 1995. ........................... 21 List of certain subsidiaries of the Company............................. 23. Consent of Independent Accountants, appearing on page 26 of this Annual Report on Form 10-K. -- 24 Powers of attorney...................................................... 27 Financial Data Schedules................................................ 99 Letter to stockholders of common stock of the Company dated December 22, 1987 explaining Stockholder Rights Plan adopted by Board of Directors on November 25, 1987. (Filed as Exhibit 3 to the Company's Current Report on Form 8-K filed on December 18, 1987, and incorporated by reference herein.) --
(vi) EX-3.I 2 CERT. OF INCORP. 1 EXHIBIT 3.(i) CERTIFICATE OF INCORPORATION of INLAND STEEL INDUSTRIES, INC. as Amended to and Including November 13, 1995 _________________________________________________________________ First: The name of this Corporation is INLAND STEEL INDUSTRIES, INC. Second: The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. Third: The nature of the business or purpose to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. Fourth: The total number of shares of stock which this Corporation shall have authority to issue is 115,000,000, of which 15,000,000 shares shall be Preferred Stock, $1.00 par value per share (hereinafter sometimes referred to as "Preferred Stock"), and 100,000,000 shares shall be Common Stock, $1.00 par value per share (hereinafter sometimes referred to as "Common Stock"). The shares of stock of this Corporation may be issued from time to time for such consideration as may be fixed from time to time by the Board of Directors. PART I PREFERRED STOCK The Board of Directors is expressly authorized to adopt, from time to time, a resolution or resolutions providing for the issue of Preferred Stock in one or more series, to fix the number of shares in each such series and to fix the designations and the powers, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof, of each such series. The authority of the Board of Directors with respect to each such series shall include a determination of the following, which may vary as between the different series of Preferred Stock: 2 -2- (a) The number of shares constituting the series and the distinctive designation of the series; (b) The dividend rate on the shares of the series, the conditions and dates upon which dividends thereon shall be payable, the extent, if any, to which dividends thereon shall be cumulative, and the relative rights of preference, if any, of payment of dividends thereon; (c) Whether or not the shares of the series are redeemable and, if redeemable, the time or times during which they shall be redeemable and the amount per share payable on redemption thereof, which amount may, but need not, vary according to the time and circumstances of such redemption; (d) The amount payable in respect of the shares of the series, in the event of any liquidation, dissolution or winding up of this Corporation, which amount may, but need not, vary according to the time or circumstances of such action, and the relative rights of preference, if any, of payment of such amount; (e) Any requirement as to a sinking fund for the shares of the series, or any requirement as to the redemption, purchase or other retirement by this Corporation of the shares of the series; (f) The right, if any, to exchange or convert shares of the series into other securities or property, and the rate or basis, time, manner and condition of exchange or conversion; (g) The voting rights, if any, to which the holders of shares of the series shall be entitled in addition to the voting rights provided by law; and (h) Any other terms, conditions or provisions with respect to the series not inconsistent with the provisions of this Article Fourth or any resolution adopted by the Board of Directors pursuant hereto. The number of authorized shares of Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of this Corporation entitled to vote at a meeting of stockholders. No holder of shares of Preferred Stock of this Corporation shall, by reason of such holding, have any preemptive right to subscribe to any additional issue of stock of any class or series nor to any security convertible into such stock. 3 -3- PART II COMMON STOCK (a) Dividends. Subject to any prior rights to receive dividends to which the holders of shares of any series of the Preferred Stock may be entitled, the holders of shares of Common Stock shall be entitled to receive dividends, if and when declared payable from time to time by the Board of Directors, from funds legally available therefor. (b) Liquidation. In the event of any dissolution, liquidation or winding up of this Corporation, whether voluntary or involuntary, after there shall have been paid to the holders of shares of Preferred Stock the full amounts to which they shall be entitled, the holders of the then outstanding shares of Common Stock shall be entitled to receive, pro rata, any remaining assets of this Corporation available for distribution to its stockholders. The Board of Directors may distribute in kind to the holders of the shares of Common Stock such remaining assets of this Corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or entity or any combination thereof, and may sell all or any part of the consideration so received, and may distribute the consideration received or any balance or proceeds thereof to holders of the shares of Common Stock. The voluntary sale, conveyance, lease, exchange or transfer of all or substantially all the property or assets of this Corporation (unless in connection therewith the dissolution, liquidation or winding up of this Corporation is specifically approved), or the merger or consolidation of this Corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of this Corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of this Corporation for the purpose of this paragraph (b). (c) Voting. Except as provided by law or this Certificate of Incorporation with respect to voting by class or series, each outstanding share of Common Stock of this Corporation shall entitle the holder thereof to one vote on each matter submitted to a vote at a meeting of stockholders. (d) Reservation of Common Stock. Such numbers of shares of Common Stock as may from time to time be required for such purpose shall be reserved for issuance (i) upon conversion of any shares of Preferred Stock or any obligation of this Corporation convertible into shares of Common Stock and (ii) upon exercise of any options or warrants to purchase shares of Common Stock. 4 -4- (e) Preemptive Rights. No holder of shares of Common Stock of this Corporation shall, by reason of such holding, have any preemptive right to subscribe to any additional issue of stock of any class or series nor to any security convertible into such stock. PART III VOTING NOTES The holders of the Corporation's 10.23% Subordinated Voting Notes (the "Exchange Notes"), which may be issued from time to time in exchange for the Corporation's Series F Exchangeable Preferred Stock, shall be entitled to vote on all matters submitted to a vote of the stockholders of the Corporation, voting together with the holders of Common Stock (and of any other shares of capital stock of the Corporation entitled to vote at a meeting of stockholders) as one class. Each $1,000 aggregate principal amount of Exchange Notes shall be entitled to a number of votes equal to the number of votes to which each share of Series F Exchangeable Preferred Stock was entitled on the effective date of the exchange of such share of Series F Exchangeable Preferred Stock for an Exchange Note, subject to adjustment as provided in paragraph 3 of the Exchange Notes. Holders of the Exchange Notes shall be deemed to be stockholders of the Corporation, and the Exchange Notes shall be deemed to be shares of stock for the purpose of any provision of the Delaware General Corporation Law that requires the vote of stockholders as a prerequisite to any corporate action. Fifth: Any action required or permitted to be taken by the stockholders of the Corporation, whether voting as a class or otherwise, must be taken at a duly called annual or special meeting of the stockholders of the Corporation and may not be taken by consent in writing of such stockholders, except that the Board of Directors at any time may by resolution provide that the holders of Preferred Stock, or any series thereof, may take any action required or permitted to be taken by such holders by consent in writing without a meeting. Sixth. The name and mailing address of the incorporator is as follows: Mr. Clark L. Wagner c/o Inland Steel Industries, Inc. 30 West Monroe Street Chicago, Illinois 60603 Seventh: The Corporation is to have perpetual existence. 5 -5- Eighth: The Corporation may indemnify, in accordance with and to the full extent now or hereafter permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the Corporation), by reason of his acting as a director, officer, employee or agent of, or his acting in any other capacity for, on behalf of, or at the request of, the Corporation, against any liability or expense actually and reasonably incurred by such person in respect thereof. Ninth: No director of this Corporation shall be personally liable to this Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director, except for liability (i) for any breach of the director's duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of any of the provisions of this Article Ninth shall apply to or have any effect on the liability or alleged liability of any director of this Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. Tenth: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the Corporation. Eleventh: Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Twelfth: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Thirteenth: The Board of Directors is authorized to sell, assign, transfer, convey and otherwise dispose of a part of the property, assets and effects of this Corporation, less than the whole or substantially the whole thereof, on such terms and conditions as they shall 6 -6- deem advisable, without the assent of the stockholders in writing or otherwise; and also to sell, assign, transfer, convey and otherwise dispose of the whole, or substantially the whole, of the property, assets, effects, franchises and good will of the Corporation on such terms and conditions as they shall deem advisable but only with the assent in writing, or pursuant to the vote, of the holders of not less than two-thirds in interest of all the stock of this Corporation, but in any event not less than the amount required by law. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 26th day of February, 1986. /s/ Clark L. Wagner ---------------------------------- Clark L. Wagner EX-10.M 3 TERMINATED DIRECTOR RETIREMENT PLAN 1 EXHIBIT 10.M INLAND STEEL INDUSTRIES, INC. TERMINATED RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS TERMINATED AS OF JANUARY 1, 1996 1. PURPOSE. The purpose of the Director Retirement Plan (the "Plan") of Inland Steel Industries, Inc. (the "Company") is to provide retirement income to members of the Board of Directors of the Company who serve as non-employee Directors for a specified number of years. 2. ELIGIBILITY. Each present and future member of the Board of Directors of the Company (other than any Director who was previously an officer or other employee of the Company or any subsidiary of the Company and who is receiving or has received or is eligible to receive any benefit or benefits under any pension plan of the Company or any of its subsidiaries) who (a) completes at least ten years of continuous service as a non-employee Director or (b) completes at least five years of continuous service as a non-employee Director and remains on the Board of Directors until age 70 shall be eligible to participate in the Plan. 3. BENEFITS. Benefits shall be paid to an eligible Director in quarterly installments equal to one-fourth of the annual retainer for services as a member of the Board of Directors in effect at the time of the last Board meeting attended by such Director. The payment of benefits shall begin in the calendar quarter following the date on which an eligible Director ceases to be a member of the Board of Directors, provided, however, that if such Director has not then attained the age of 65, the payment of benefits shall begin in the calendar quarter following the attainment of age 65 by such Director. The payment of benefits shall continue for the number of full years of non-employee service by such eligible Director up to a maximum of ten years. Except as otherwise provided in paragraph 4 hereof, such payments shall terminate on the death of such Director. 4. SURVIVOR BENEFIT. In the event of the death of a former Director who is receiving benefits under the Plan or who would be entitled to receive benefits upon his or her attainment of age 65 or in the event of the death of any Director who would be entitled to receive benefits thereunder if he or she had ceased to be a Director on or prior to the date of his or her death, any benefits that would otherwise have been payable thereafter to such Director shall be paid to such legal or natural person as is designated by the Director as his or her beneficiary in a writing filed prior to the Director's death with the Secretary of the Company. If a Director fails to so designate a beneficiary, the Director's surviving spouse, 2 - 2 - if any, will be deemed to have been designated as the beneficiary. Any beneficiary designation filed with the Secretary of the Company may provide that, in lieu of the payments to which the beneficiary would otherwise be entitled, the beneficiary shall be paid a lump sum amount which is equal to the present value of such payments. In the event that any retirement benefits otherwise payable to a Director are not paid prior to the last to die of the Director and the Director's beneficiary, the present value of the remaining payments shall be paid in a lump sum to the estate of the Director or the Director's beneficiary, whichever is the last to die. For purposes of the Plan, present value shall be determined by using a discount factor equal to the interest rate applied by the Pension Benefit Guaranty Corporation for purposes of valuing immediate annuities on the date of death of the Director or beneficiary, as the case may be. 5. BENEFITS NOT TRANSFERABLE. The interest of a Director or surviving spouse in benefits under the Plan is personal to such Director or surviving spouse and may not be assigned or otherwise transferred by him or her. Any payment to which a Director or surviving spouse may be entitled under the Plan shall be free from the control or interference of any creditor of such Director or surviving spouse and shall not be subject to attachment or susceptible of anticipation or alienation. 6. FUNDING NOT REQUIRED. The Company shall not be required to establish any fund or segregate or set aside any moneys for the payment of benefits under the Plan. 7. PAST SERVICE. Past service as a Director of the Company on the effective date of the Plan and past service as a Director of Inland Steel Company prior to May 1, 1986 shall be considered service for purposes of the Plan. 8. EFFECTIVE DATE. The effective date of the Plan is May 1, 1988. 3 Appendix A to Inland Steel Industries, Inc. Terminated Retirement Plan for Non-Employee Directors RESOLVED, that the Inland Steel Industries, Inc. Director Retirement Plan, as amended and restated through and including January 26, 1994, is hereby renamed to be the "Inland Steel Industries, Inc. Terminated Retirement Plan for Non-Employee Directors" (the "Plan") and that the Plan is hereby terminated as of January 1, 1996; PROVIDED, HOWEVER, that to fulfill outstanding contractual obligations incurred by the Corporation under the Plan and to address certain Plan termination issues: (1) the benefits for which any Director was eligible under the Plan immediately prior to the termination thereof and the benefits to which any person was entitled under the Plan immediately prior to the termination thereof or would become entitled under the Plan due to a Director then being eligible to participate in the Plan shall not be adversely affected by such termination; and (2) every Director elected to the Board of Directors on or before October 1, 1995 who was not eligible to participate in the Plan before January 1, 1996 pursuant to the requirements of Paragraph 2 of the Plan and who thereafter satisfies either of the eligibility requirements set forth in said Paragraph 2, shall then become entitled to receive benefits in accordance with the same terms and conditions as provided in the Plan, EXCEPT THAT, the number of quarterly installments of benefit payments under the Plan shall continue only for the number of calendar quarters, up to a maximum of twenty (20) calendar quarters, during which such Director has provided service as a non-employee Director prior to May 22, 1996. EX-10.N 4 DEFERRED PHANTOM STOCK UNIT PLAN 1 EXHIBIT 10.N INLAND STEEL INDUSTRIES, INC. DEFERRED PHANTOM STOCK UNIT PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSES. The purposes of this compensation plan (the "Plan") are to attract and retain as Directors of Inland Steel Industries, Inc. (the "Company") persons whose abilities, experience and judgment can contribute to the continued progress of the Company and to assure alignment of the economic interests of the Company's Directors with stockholders by linking a portion of their compensation to the value of the common stock of the Company (the "Common Stock"). 2. EFFECTIVE DATE AND DURATION. The effective date of the Plan is January 1, 1996 (the "Effective Date") and the Plan shall remain in effect until terminated by the Board of Directors of the Company. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. The Committee shall have authority to interpret the Plan and to establish, amend, waive and rescind rules and regulations for the administration of the Plan. All interpretations, rules and regulations made or established by the Committee shall be conclusive and binding on all persons. 4. ELIGIBILITY. Each present and future member of the Board of Directors of the Company (other than any Director who is or was previously an officer or other employee of the Company or any subsidiary of the Company and who is receiving or has received or is eligible to receive any benefit or benefits under any pension plan for employees of the Company or any of its subsidiaries) who has been a Director for less than ten years as of the Effective Date or who first becomes a Director after the Effective Date (a "Participant") shall be eligible to participate in the Plan. 5. CREDITING OF PHANTOM STOCK UNITS. One thousand (1,000) Phantom Stock Units shall be credited to the Phantom Stock Unit Account (the "Account") for each Participant as of the date of each of the first ten annual meetings of stockholders of the Company at which such Participant is elected as a Director, commencing with the first annual meeting of stockholders after the Effective Date and continuing until, and including, the tenth consecutive annual meeting of stockholders at which such Participant is elected as a Director; provided, however, that each Participant who was a Director on and before October 1, 1995 will be credited with 2 -2- Phantom Stock Units ("Units") on annual meeting dates only until such Participant reaches his or her ninth anniversary as a Director. As of each date on which a dividend is paid on the Common Stock, there shall be computed with respect to the Account of each Participant an amount of Units equal to: (a) the number of Units then credited to such Account, multiplied by (b) the dividend then paid per share of Common Stock, and divided by (c) the Fair Market Value of a share of Common Stock on the dividend payment date. The amount of Units so determined with respect to each Account shall be credited to and become part of the balance of such Account as of the dividend payment date. The "Fair Market Value" of a share of Common Stock on any day shall be the average of the highest and lowest selling prices of such stock on the New York Stock Exchange Composite Transactions on such day or, if such stock is not traded on that day, then on the next preceding day on which such stock was traded. 6. VESTING. Subject to Section 9 of this Plan, all Units credited to the Account of a Participant shall become fully vested on the earlier of: (a) the tenth consecutive annual meeting of stockholders at which such Participant is elected as a Director; or (b) the last date of such Participant's service as a Director, PROVIDED such Participant remains on the Board of Directors (i) until at least the fifth consecutive annual meeting of stockholders after which such Participant is first elected as a Director and (ii) either until such Participant attains age 70 or until his or her death at age 65 or older. All Units credited to the Account of a Participant who ceases to be a Director before such Units become vested shall be forfeited by the Participant. After the Units in the Account of a Participant are vested, all Units credited to the Account of such Participant with respect to any dividend on the Common Stock shall be vested when credited. 7. DISTRIBUTION DATE, PAYOUT METHODS AND VALUE. (a) Distribution Date. The value of all vested Units credited to the Account of a Participant shall become payable on the date (the "Distribution Date") which is the later to occur of: (a) the date the Participant ceases to serve on the Board of Directors of the Company; or (b) the date the Participant attains age 65. (b) Primary Payout Method. Unless otherwise elected by a Participant at least one year prior to the Distribution Date in accordance with Section 7(c) below, the value of all vested Units credited to the Account of a Participant shall be paid in cash in a lump sum as of the Distribution Date. The Company will issue a check to the Participant promptly after the Distribution Date in an amount equal to the number of vested Units then credited to the Participant's Account multiplied by the Fair Market Value of a share of Common Stock on the Distribution Date. The Company shall then reduce the number of Units credited to the Account of the Participant to zero and have no further obligation to the Participant with respect thereto. 3 -3- (c) Election of Alternative Payout Method. Any Participant may elect, no later than one year prior to the Distribution Date, to have the value of all vested Units credited to the Account of such Participant on the Distribution Date paid in any number of successive quarterly installments over a period not extending beyond the end of the fortieth (40th) calendar quarter immediately following the Distribution Date. An installment shall be paid as of the first day of each such calendar quarter. The amount of each quarterly installment will be determined by dividing (a) the number of vested Units then credited to the Account, by (b) the number of installments then remaining unpaid, and multiplying by (c) the Fair Market Value of a share of Common Stock on such payment date. The Company will issue a check to the Participant promptly after the quarterly installment date and will reduce the number of Units credited to the Account of the Participant by the number of Units with respect to which payment is made. Each election must be made on forms provided by the Secretary of the Company for this purpose and shall specify the calendar quarter in which payments under this Plan shall begin and the period over which such payments shall be made, and the name, address and social security number of the person to whom any unpaid balance in the Participant's Account shall be paid in the event of the death of the Participant, in accordance with Section 8 below. An election for payment by quarterly installments filed hereunder shall become irrevocable one year prior to such Participant's Distribution Date. 8. SURVIVOR BENEFIT. In the event of the death of any Participant whose Account is vested, any payments that would otherwise have been payable thereafter to such Participant shall be paid to such legal or natural person as is designated by the Participant as his or her beneficiary in a writing filed prior to the Participant's death with the Secretary of the Company. If a Participant fails to so designate a beneficiary, the Participant's surviving spouse, if any, will be deemed to have been designated as the beneficiary. Any beneficiary designation filed with the Secretary of the Company may provide that, in lieu of the payments to which the beneficiary would otherwise be entitled, the beneficiary shall be paid in a lump sum amount. In the event that any payments otherwise due to a Participant are not paid prior to the later to die of the Participant and the Participant's beneficiary, the balance of the Units credited to such Participant's Account shall be paid in a lump sum to the estate of the Participant or the Participant's beneficiary, whichever is the later to die. The Company shall issue a check for the appropriate amount promptly after being notified of the event resulting in the lump sum payment, reduce the number of Units credited to the Account of the Participant to zero and have no further obligation with respect thereto. The lump sum amount shall be equal to the number of Units then credited to such Participant's Account multiplied by the Fair Market Value of one share of Common Stock on the date of death of the person resulting in the payment of the lump sum. 4 -4- 9. EFFECT OF CHANGE IN CONTROL. Notwithstanding any other provision in this Plan to the contrary, in the event of a Change in Control of the Company as defined in this Section 9, all Units then credited to the Account of each Participant shall become immediately vested as of the date of the Change in Control. The value of each Unit shall be equal to the value of a share of Common Stock on the date of the Change in Control and the aggregate value of all vested Units in each Participant's Account shall be paid to such Participant in cash promptly after, but in no event later than thirty (30) days following, the date of the Change in Control. A "Change in Control" of the Company shall be deemed to occur on the first of any of the following events: (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; (ii) the "beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing 40% or more of the combined voting power of the Company is acquired by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee or other fiduciary holding securities under an employee benefit or other similar stock plan of the Company); or (iii) at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Directors of the Company cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors still in office at the time of such election or nomination who were directors at the beginning of such period). However, in no event shall a Change in Control be deemed to have occurred with respect to a Participant if such Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if such Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors, not including the Participant). 5 -5- 10. ANTI-DILUTION PROVISION. The Committee shall adjust the number of Units credited to a Participant's Account from time to time in the event of any change or changes in the outstanding Common Stock by reason of any one or more stock dividends, stock splits, spinoffs or other distributions of assets (other than a normal cash dividend), recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in corporate structure or capitalization, so as to prevent dilution or enlargement of rights and to maintain the relationship of the value of each Unit to the value of a share of Common Stock. 11. RESTRICTIONS ON TRANSFER. The interest of a Participant, surviving spouse or beneficiary in Units and amounts payable with respect thereto under this Plan is personal to such Participant, surviving spouse or beneficiary and may not be voluntarily or involuntarily sold, assigned or otherwise transferred or disposed of by him or her, except pursuant to Section 8 above. Any payment to which a Participant, surviving spouse or beneficiary may be entitled under the Plan shall be free from the control or interference of any creditor of such Participant, surviving spouse or beneficiary and shall not be subject to attachment, levy or garnishment, or susceptible of anticipation or alienation. 12. AMENDMENT AND TERMINATION OF THE PLAN. This Plan may be amended by the Board of Directors of the Company in any and all respects at any time, or from time to time, and may be terminated by the Board of Directors at any time; provided, however, that no such amendment or termination may materially adversely affect the rights of any Participant with respect to any Unit or Units previously credited to such Participant's account without written consent of the Participant or his or her duly appointed legal representative or, in the event of a Participant's death, the rights of such Participant's surviving spouse or beneficiary with respect thereto without written consent of such person or his or her duly appointed legal representative. To the extent necessary to qualify Units granted under the Plan as "formula awards" under Rule 16b-3(c)(2)(ii)(A) or any successor thereto under the Exchange Act, the provisions regarding the amount, price and timing of Units to be credited to the Account of any Participant may not be amended more than once within any six month period, other then to comport with changes in the Internal Revenue Code of 1986, as amended from time to time, or the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder. 13. MISCELLANEOUS. (a) No Rights as a Stockholder. The Units do not represent ownership of any portion of the equity of the Company and no person shall have any rights as a stockholder of the Company by virtue of his or her rights with respect to any Units. 6 -6- (b) No Right to Continue as a Director. Nothing contained in this Plan shall be deemed to confer upon any person any right to continue as a Director of, to be nominated for re-election or re-elected to the Board of Directors of, or to be associated in any other way with, the Company. (c) Accounting; Funding Not Required. The Company shall establish on its accounting books, in the name of each Participant, a Phantom Stock Unit Account. The Company shall not be required to establish any fund or segregate or set aside any moneys with respect to any such Account or for the discharge or payment of its obligations hereunder. (d) Severability. In the event that any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. EX-11 5 STATEMENT OF EARNINGS 1 Exhibit 11 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES Statement of Earnings Per Share of Common Stock
Dollars and Shares in Millions (except per share data) ------------------------------------- Years Ended December 31, ------------------------------------- 1995 1994 1993 ---- ---- ---- PRIMARY EARNINGS PER SHARE OF COMMON STOCK Shares of common stock Average shares outstanding 47.3 43.1 35.5 Dilutive effect of stock options .1 .4 - ------- ------ ------- 47.4 43.5 35.5 ======= ====== ======= Net income (loss) $ 146.8 $ 107.4 $ (37.6) Dividends on preferred stock, net of tax benefit on dividends applicable to leveraged Series E Preferred Stock held by the ESOP 19.0 28.4 32.0 ------- ------ ------- Net income (loss) applicable $ 127.8 $ 79.0 $(69.6) ======== ======= ====== Net income (loss) per share of common stock $ 2.69 $ 1.81 $(1.96) ======== ======= ====== FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK Shares of common stock Average shares outstanding 47.3 43.1 35.5 Assumed conversion of Series A and leveraged Series E Preferred Stock 3.1 3.0 - Dilutive effect of stock options .1 .5 - ------- ------- ------ 50.5 46.6 35.5 ======= ======= ====== Net income (loss) $ 146.8 $ 107.4 $(37.6) Dividends on antidilutive preferred stock 10.6 20.5 32.0 Additional ESOP funding required on conversion of Series E Preferred Stock, net of tax 7.6 7.9 - ------- ------- ------ Net income (loss) applicable $ 128.6 $ 79.0 $(69.6) ======= ======= ====== Net income (loss) per share of common stock $ 2.55 $ 1.70 $(1.96) ======= ======= ======
Note - Series G Exchangeable Preferred Stock was converted to common stock in 1994. The assumed conversion of non-leveraged Series E was antidilutive in all three years. The assumed conversion of Series A and Series G Preferred Stock was antidilutive in 1994 and 1993. The assumed conversion of leveraged Series E Preferred Stock was antidilutive in 1993. EX-13 6 ANNUAL REPORT 1 EXHIBIT 13 FINANCIAL REVIEW RESULTS OF OPERATIONS
Dollars and Shares in Millions (except per share data) 1995 1994 1993 - -------------------------------------------------------------------- Net sales $4,781.5 $4,497.0 $3,888.2 Operating profit $ 328.5 $ 249.4 $ 26.6 Net income (loss) $ 146.8 $ 107.4 $ (37.6) Net income (loss) per common share $ 2.69 $ 1.81 $ (1.96) Average shares outstanding 47.4 43.5 35.5
In 1995, the Company achieved its second best year for operating profit performance, second only to the Company's 1988 record year. Net income increased to $146.8 million in 1995 compared with $107.4 million in 1994 and a net loss of $37.6 million in 1993. Operating profit increased $79 million in 1995 compared with 1994 following improvements of $200 million or more in each of the two prior years. Record net sales of $4.8 billion were 6 percent higher than 1994 due primarily to higher average selling price. Each of the Company's business segments was responsible for approximately half of the consolidated net sales. Demand for Company products and services remained strong through the first half of 1995. However, the second half was negatively impacted by lower sales to automotive contract customers and increased spot market sales resulting in a less profitable mix of products sold and lower prices. In 1994, net sales increased 16 percent from 1993 due to a 9 percent increase in volume and a 7 percent increase in average selling price resulting from an improved mix of products sold. STEEL MANUFACTURING SEGMENT
Dollars and Tons in Millions 1995 1994 1993 - -------------------------------------------------------------------- Net sales $2,513.3 $2,487.9 $2,174.9 Operating profit (loss) $ 181.7 $ 149.3 $ (28.2) Net tons shipped 5.1 5.2 4.8
Inland Steel Company reported $182 million of operating profit in 1995, its best performance since its 1988 record year, compared with an operating profit of $149 million in 1994 and an operating loss of $28 million in 1993. Net sales increased 1 percent in 1995 as compared with 1994 due to a 2 percent increase in average selling price which was offset in part by a 1 percent decrease in the volume of steel mill products shipped. After a strong first half, average realizing prices deteriorated due to softness in flat rolled contract business, particularly automotive, and a subsequent shift of business to a weakening spot market. Demand for bar products, however, continued strong. Net sales increased 14 percent in 1994 from 1993, 7 percent due to an increase in the volume of steel mill products shipped and 7 percent due to an improved average selling price and mix. The recovering economy in 1994 provided strong demand for products containing steel and this demand was the principal factor leading to both increased volume and price. The 1993 financial results were negatively affected by approximately $30 million due to the unfavorable impact on steel operations of the scheduled outage of the largest blast furnace at the Indiana Harbor Works for a mini-reline. In addition, there was a $22.3 million charge taken for the early closure of the Company's remaining cokemaking facilities due to their inability to meet environmental regulations and deteriorating operating performance. Partially offsetting these unfavorable items was a $24 million LIFO profit recognition due to inventory reductions. 2 During the 1995 third quarter, Inland Steel Company offered a voluntary retirement package to approximately 1,000 salaried employees. Approximately 300 salaried employees accepted the package, resulting in a charge of $35 million being recorded in the quarter for provisions related to pensions, health care, and severance costs. At the end of the third quarter, due to economic reasons, Inland Steel Company announced the closure of its plate operation to take place at the end of 1995. 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 at year-end 1995, the Company has completed the workforce reduction program announced in 1991, reducing employment by 25 percent. A final computation of the employee benefit costs required for the 1991 program resulted in unused reserves due to differences between the actual makeup of the population leaving the Company under this program and the projections used in 1991. As a result, Inland Steel Company reversed $65 million of unused reserves from the balance sheet and recorded a corresponding credit to income. Also in the 1995 third quarter, Inland Steel Company increased reserves by $7 million for additional benefit costs at a closed iron ore mining facility and by $2 million for a further writedown of non-operating assets of the former construction business. Reserves relating to environmental matters were increased by $7 million. Inland Steel Company operated at 90 percent of its raw steelmaking capability in 1995, compared with 89 percent in 1994 and 83 percent in 1993. 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. In 1995 and 1994, Inland Steel Company's sales prices exceeded its costs of production but were less than the market prices for cold rolled steel products. As I/N Kote expenditures include principal payments and a provision for return on equity to the partners, Inland Steel Company's ability to realize higher prices on its sales to I/N Kote depends on the facility continuing near-capacity operations and obtaining appropriate pricing for its products. MATERIALS DISTRIBUTION SEGMENT
Dollars and Tons in Millions 1995 1994 1993 - ---------------------------------------------------------------- Net sales $2,450.1 $2,197.5 $1,893.3 Operating profit $ 148.7 $ 98.1 $ 56.4 Net tons shipped 2.35 2.33 2.08
3 Inland Materials Distribution Group ("IMDG"), consisting of Joseph T. Ryerson & Son, Inc., including its Ryerson Coil Processing Company division, and J. M. Tull Metals Company, Inc., reported record net sales, shipments and operating profit in 1995, its fourth consecutive year of improved sales and operating results. Through year-end 1995, IMDG's operating profit has increased over the comparable year-earlier quarter for 18 consecutive quarters. Net sales increased 11 percent to $2.5 billion in 1995 following double digit rates of increase in each of the previous two years. The improved sales were due to a 10 percent increase in average selling price per ton sold as volume increased only minimally. In 1995, as in 1994, results in the Midwest and Southeast were the strongest. All four regions of the general line business, which supply a wide range of metals and industrial plastics, as well as the coil processing business, continued to improve operating profits. Operating costs, excluding the costs of materials sold, continued to be tightly controlled and in 1995 reached their lowest level in recent history as a percent of sales. In 1994, net sales increased 16 percent to $2.2 billion due to a 12 percent increase in volume and a 4 percent increase in average selling price per ton sold reflecting, in part, a better mix of products sold. Lower operating costs as a percent of sales in addition to the higher sales resulted in IMDG recording an operating profit of $98.1 million in 1994. INTERNATIONAL ACTIVITIES In an on-going effort to better support customers with foreign operations and expand other off-shore opportunities, the Company, through its Inland International subsidiary, continued to pursue joint-venture opportunities world-wide. Previously formed joint ventures with international partners, as well as other joint ventures being considered, offer prospects for increased international sales for both Company segments. International sales by the Steel Manufacturing Segment and Materials Distribution Segment totaled $84 million in 1995 and $43 million in 1994. The 1995 amount includes sales to I.M.F. Steel International Ltd., a joint venture in which the Company holds a 50 percent interest and which was formed to sell the Company's products and services around the world. Ryerson de Mexico, the joint venture materials distribution company formed in 1994 by the Company and Altos Hornos de Mexico SA de CV ("AHMSA"), Mexico's largest steel company, continues to expand and attract the interest of new customers with its extensive variety of materials and services. The Company made investments in this joint venture of $9 million in 1995 and $10 million in 1994. Efforts to obtain approval to form a joint venture with Baoshan Iron and Steel Corporation continue with the People's Republic of China. The Company is also pursuing joint-venture opportunities in India. In 1995 and 1994, international activities were not material to the financial results of the Company. LIQUIDITY AND FINANCING The Company finished 1995 with cash and cash equivalents of $267 million compared with $107 million at year-end 1994. There was no short-term bank borrowing at either year-end. In the first quarter of 1995 the Company declared a 5 cent per share quarterly dividend on its common stock. This represented the first such declaration since the payment of dividends was suspended in the 1991 second quarter. 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, held entirely by a wholly-owned subsidiary of Nippon Steel Corporation, for a 10.23% Subordinated Voting Note. The exchange, which will have a favorable impact on earnings per share, increases tax-deductible interest expense recognized by the Company while reducing preferred dividends. The Company remains obligated under the repurchase agreement which was part of the sale of the Series F Preferred Stock to repurchase $185 million of its common stock. By year-end 1995, $150 million had been spent to purchase 4.8 million shares. The Company suspended open-market stock purchases under this agreement at year-end 1990. Cash availability, as well as various covenants in subsidiary borrowing arrangements, limited the cash that subsidiaries could transfer to the Company in the form of dividends and advances to approximately $350 million at year-end 1995. This amount is subject to change based on the financial performance of each subsidiary. The Company's subsidiary borrowing arrangements, as well as both the Inland Steel Company Series T First Mortgage Indenture and the indenture under which the Company's 12.75% Notes were issued, contain covenants limiting financial flexibility and the Company's ability to issue additional debt. Certain covenants in the indenture relating to the 12.75% Notes also limit the amount of cash dividends the Company may declare or pay. At year-end 1995, up to $275 million of common dividends could have been paid under terms of the indenture. The 12.75% Notes are not subject to redemption prior to December 15, 1997. 4 During the year, the Company's subsidiaries increased total committed credit facilities to $350 million. The $100 million Ryerson unsecured revolving credit facility was increased to $200 million and the term was extended to March 31, 2000. Inland Steel Company's special-purpose subsidiary increased its $100 million revolving credit facility to $125 million and extended the term of the agreement to November 30, 2000. The special-purpose subsidiary credit facility is secured by receivables sold to this subsidiary by Inland Steel Company. The $25 million Tull unsecured credit facility extends to December 15, 1997. The interest rates on borrowing under such credit agreements are, at the Company's option, based on Eurodollar, Certificate of Deposit, or the greater of federal funds or prime rates. At year-end, the highest interest rate option for borrowings under any of these credit agreements was the applicable prime rate. 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 ended 1995 with long-term debt of $785 million, including $100 million of long-term debt related to the Subordinated Voting Note, compared with $706 million at year-end 1994. Long-term debt due within one year increased markedly at December 31, 1995 compared with year-end 1994 due to the $85 million principal payment due December 1996 on the Subordinated Voting Note. The average interest rate on long-term debt is approximately 10 percent. The ratio of long-term debt (and redeemable preferred stock in 1994 and 1993) to total capitalization was 50 percent at December 31, 1995 compared with 62 percent and 69 percent at year-end 1994 and 1993, respectively. In addition, Inland Steel Company guarantees its 50 percent share of I/N Kote borrowings, a pulverized coal injection joint venture loan, and a portion of the debt of the Empire Iron Mining partnership amounting to $226 million, $27 million, and $7 million, respectively, at year-end 1995. As none of these guarantees have been invoked since their inception, the Company does not believe these guarantees will be called upon. The Company's debt ratings at year-end 1995 were unchanged from 1994 and were:
Ratings at Year End 1995 - -------------------------------------------------------------- Inland Steel Industries Notes Moody's Ba3 Standard & Poor's B+ - -------------------------------------------------------------- Inland Steel Company First Mortgage Bonds Moody's Ba3 Standard & Poor's BB-
CAPITAL EXPENDITURES Dollars in Millions 1995 1994 1993 - ------------------------------------------------------------------- Capital expenditures Steel Manufacturing $113.9 $223.6 $ 86.1 Materials Distribution 19.3 20.4 19.3 General corporate and other 1.4 1.3 .2 - ------------------------------------------------------------------- Total capital expenditures $134.6 $245.3 $105.6
Capital expenditures were $135 million in 1995. The majority of the capital expenditures was for new machinery and equipment related to maintaining or improving operations at the Steel Manufacturing Segment. Included in the $245 million of capital expenditures reported in 1994 was $146 million for the purchase of a caster facility which had previously been leased. The Company anticipates capital expenditures in 1996 will approximate $200 million. Employment Matters Inland Steel Company and the United Steelworkers of America entered into a six-year labor agreement, effective August 1, 1993. The agreement expires on July 31, 1999 but provides for a reopener in 1996 on wages and certain benefits with an arbitration provision to resolve unsettled issues, thereby precluding a work stoppage during the six-year contract term. The agreement also provides for election 5 to the Company's Board of Directors of a union designee acceptable to the Board (such union designee was elected in 1994), restricts Inland Steel Company's ability to reduce the union workforce (generally limited to attrition and major facilities shutdowns), allows greater flexibility to institute work rule changes, and requires quarterly 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 was eliminated under the agreement through the institution of co-payments and increased deductibles for medical benefits. Average employment remained virtually unchanged during 1995 after declining 4 percent in 1994 and 6 percent in 1993. Total employment cost decreased 1 percent as lower costs for pensions and other postretirement benefits were almost entirely offset by higher direct compensation expense, including profit sharing provisions. EMPLOYEES
(monthly average receiving pay) 1995 1994 1993 - ---------------------------------------------------------------- Steel Manufacturing 10,165 10,166 10,857 Materials Distribution 5,125 5,195 5,157 Headquarters and other 120 118 138 - ---------------------------------------------------------------- Total 15,410 15,479 16,152
CONSOLIDATED EMPLOYMENT COSTS*
Dollars in Millions (except averages) 1995 1994 1993 - ------------------------------------------------------------------------- Direct compensation $ 712.9 $ 681.1 $ 665.0 - ------------------------------------------------------------------------- Employee benefits Group insurance costs 60.9 63.5 77.1 Postretirement benefits other than pensions 64.5 79.5 95.7 Pension costs (credits) 7.5 28.2 (4.6) Social security and unemploy- ment compensation taxes 56.2 55.5 54.6 Workers' compensation expense 11.3 12.7 10.8 Thrift Plan costs 9.1 9.2 9.7 Cost of supplemental unem- ployment benefit plans 7.2 7.9 6.5 Industry welfare and retirement funds 3.6 2.9 3.2 All other 8.2 9.0 6.9 - ------------------------------------------------------------------------- Total cost of employee benefits $ 228.5 $ 268.4 $ 259.9 - ------------------------------------------------------------------------- Total employment costs $ 941.4 $ 949.5 $ 924.9 - ------------------------------------------------------------------------- Average employment cost per employee $61,092 $61,342 $57,265
* This table does not include the effect of workforce reduction plans. PENSIONS In 1995, the Company elected to change the measurement date for pension plan assets and liabilities from December 31 to September 30 in order to provide for more timely information and to achieve administrative efficiencies in the collection of data. The change in the measurement date had no effect on 1995 pension expense and had an immaterial impact on the 1995 funded status. At September 30, 1995 the market value of the Inland Steel Industries Pension Plan assets totaled $1.92 billion. For financial reporting purposes, the funded status of the Pension Plan has appeared very volatile over the past few years due to the significant changes in the interest rate on high-grade fixed-income obligations that must be used for valuing pension liabilities. This rate moved from 7.25 percent in 1993, a twenty year low, to 8.8 percent in 1994 and back to 7.75 percent in 1995. The Company was required to record a $103 million additional pension liability, offset by an intangible pension asset, on the 1995 balance sheet. However, under ERISA funding guidelines, which take a longer term view in determining the interest rate to use in valuing liabilities, the Pension Plan was adequately funded. In May 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 contribution, the Company's first contribution to the Trust since 1984, strengthened the plan's funded status. The Pension Plan's diversified portfolio of investments earned over 20 percent during 1995 compared to less than 1 percent in 1994. While individual year returns are volatile, the annualized return earned by the plan for the past ten years exceeds 11 percent. A total of $151 million in pension benefits was paid in both 1995 and 1994. At year-end 1995, pension benefits were being paid to 16,263 retirees and their beneficiaries compared with 16,235 at year-end 1994. ACCOUNTING MATTERS At December 31, 1995, the Company had a net deferred tax asset of $340 million, which includes $440 million related to the temporary difference arising from the adoption of Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." While the Company believes it is more likely than not that it will generate sufficient taxable income from operations to realize all deferred tax assets, a secondary source of future taxable income could result from tax planning strategies. Possible strategies include the Company's option of changing from the LIFO method of accounting for inventories to the FIFO method (such change would have resulted in approximately $410 million of additional taxable income as of year-end 1995 6 which would serve to offset approximately $140 million of deferred tax assets) and selection of different tax depreciation methods. After assuming such change in accounting for inventories, the Company would need to recognize approximately $560 million of taxable income over the 15-year net operating loss carryforward period and the period in which the temporary difference related to the FASB Statement No. 106 obligation will reverse, in order to fully realize its net deferred tax asset. The Company believes that it is more likely than not that it will achieve such taxable income level. (See Note 12 to the consolidated financial statements for further details regarding this net deferred tax asset.) In 1995, the Company adopted FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets. Adoption of this Statement did not have a material effect on the financial position or results of operations of the Company. ENVIRONMENTAL ISSUES Inland Steel Company has significantly reduced discharges of air and water pollutants at its Indiana Harbor Works complex in East Chicago, Indiana in recent years and is committed to operating its facilities in an environmentally acceptable manner. On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by a lawsuit filed by the United States Environmental Protection Agency ("EPA") in 1990. The consent decree included a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in earlier years. The consent decree also defines procedures for remediation at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company continues to assess the extent of environmental contamination and anticipates that this assessment will cost approximately $1 million to $2 million per year and take another two to four years to complete. The Company's reserve for environmental liabilities including those in connection with the consent decree totaled $26 million at year-end 1995. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. Insurance coverage with respect to such corrective action is not significant. Capital spending for pollution control projects totaled $19 million in 1995, up from $18 million in 1994. Another $39 million was spent in 1995 to operate and maintain such equipment, versus $41 million a year earlier. During the five years ended December 31, 1995, the Company has spent $274 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 $23 million in 1996. It is anticipated that the Company will make annual capital expenditures of $10 million to $15 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 7 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 21 percent of the domestic market in 1995, below both the 1984 peak of 26.4 percent, and 24.7 percent in 1994. Many foreign producers are still owned, controlled, or subsidized by their governments allowing them to ship steel products into the domestic market despite decreased profit margins or losses on such sales. Minimills provide significant competition in various product lines. Minimills are relatively efficient, low-cost producers that manufacture steel principally from scrap in electric furnaces and, at this time, generally have lower capital, overhead, employment and environmental costs than the integrated steel producers, including Inland Steel Company. Minimills have been adding capacity and expanding their product lines in recent years to produce larger structural products and certain flat rolled products. Thin-slab casting technologies have allowed minimills to enter certain sheet markets traditionally supplied by integrated producers. Several minimills using this advanced technology are in operation in the United States and a significant increase in modern minimill capacity is anticipated within the next two years.
SUMMARY BY QUARTER (Unaudited) Inland Steel Industries, Inc. and Subsidiary Companies Dollars in Millions (except per share data) Per Common Share ---------------------------------------------- Market Price --------------------------------- Net Gross Income Sales Profit Before Taxes Net Income Net Income High Low Close - --------------------------------------------------------------------------------------------------------------------- 1995 First Quarter $ 1,257.7 $ 144.9 $ 71.9 $ 44.0 $ .84 $36 3/4 $23 1/2 $27 1/2 Second Quarter 1,273.5 166.5 94.3 57.9 1.08 30 1/2 25 30 1/2 Third Quarter 1,128.6 120.7 32.9 20.0 .33 35 1/2 22 5/8 22 3/4 Fourth Quarter 1,121.7 111.5 38.0 24.9 .47 27 1/2 21 1/4 25 1/8 - --------------------------------------------------------------------------------------------------------------------- YEAR $ 4,781.5 $ 543.6 $237.1 $146.8 $ 2.69* $36 3/4 $21 1/4 $25 1/8 ===================================================================================================================== - --------------------------------------------------------------------------------------------------------------------- 1994 First Quarter $ 1,075.7 $ 85.8 $ 14.6 $ 9.2 $ .03 $37 1/8 $29 7/8 $30 1/8 Second Quarter 1,135.6 123.5 50.2 31.6 .57 36 5/8 29 3/8 34 7/8 Third Quarter 1,129.5 120.3 47.5 30.7 .54 42 34 39 3/8 Fourth Quarter 1,156.2 126.9 57.2 35.9 .66 39 1/2 29 7/8 35 1/8 - --------------------------------------------------------------------------------------------------------------------- YEAR $ 4,497.0 $ 456.5 $169.5 $107.4 $ 1.81* $42 $29 3/8 $35 1/8 =====================================================================================================================
* Per share amounts for the quarters do not total to the amount reported for the year, as per share amounts are computed independently for each quarter and the year based on respective weighted average common shares outstanding. 8 ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA AND OPERATING RESULTS
1995 1994 1993 - ------------------------------------------------------------------------------------------------------ Dollars in Millions RESULTS Net sales $4,781.5 $4,497.0 $3,888.2 OF OPERATIONS Depreciation 143.1 138.7 131.8 Interest expense 71.9 71.4 78.0 Rent expense 51.2 54.5 73.7 Continuing business segments Income (loss) before income taxes 237.1 169.5 (73.6) Income taxes 90.3 62.1 36.0Cr. Income (loss) 146.8 107.4 (37.6) Net income (loss) 146.8 107.4 (37.6) - ------------------------------------------------------------------------------------------------------ Shares in Thousands DATA APPLICABLE Average number of shares 47,419 43,545 35,540 TO COMMON STOCK Income (loss) per share Continuing business segments $ 2.69 $ 1.81 $ (1.96) Net income (loss) 2.69 1.81 (1.96) Dividends per share .20 -- -- Stockholders' equity per share 14.72 11.06 7.79 Stockholders of record 15,000 16,000 16,000 Shares traded (average daily volume) 228.2 206.3 134.2 - ------------------------------------------------------------------------------------------------------ Dollars in Millions CHANGES IN Cash provided from (used for) operations $ 330.2 $ 265.5 $ 112.0 FINANCIAL POSITION Capital expenditures 134.6 245.3 105.6 Investments in and advances to joint ventures, net (16.4) (13.7) 1.9 Acquisitions -- -- -- Dividends declared on common stock 9.6 -- -- Dividends declared on preferred stock 17.6 27.9 32.0 Financing Long-term debt (net of retirements) 78.6 (71.2) (96.6) Preferred stock -- -- -- Common stock 100.0 -- 178.7 Net change in liquidity 160.3 (143.4) 112.8 - ------------------------------------------------------------------------------------------------------ Dollars in Millions FINANCIAL POSITION Working capital $ 618.1 $ 516.7 $ 496.4 AT YEAR END Property (net) 1,600.4 1,610.3 1,507.7 Total assets 3,558.3 3,353.4 3,435.8 Long-term debt 784.5 705.9 777.1 Redeemable preferred stock -- 185.0 185.0 Other temporary equity 34.5 37.9 40.8 Stockholders' equity 748.6 509.2 397.6 Unused credit facilities 350 225 225 - ------------------------------------------------------------------------------------------------------ FINANCIAL RATIOS Net income (loss) as a percent of sales 3.1% 2.4% (1.0)% Long-term debt to total capitalization 50.0% 49.1% 55.5% Long-term debt and redeemable preferred to total capitalization 50.0% 62.0% 68.7% Return on stockholders' equity 19.6% 21.1% loss - ------------------------------------------------------------------------------------------------------ Dollars and Tons in Millions PRODUCTION Tons of raw steel produced 5.4 5.3 5.0 AND EMPLOYMENT Tons of steel mill shipments 5.1 5.2 4.8 STATISTICS Average number of employees 15,410 15,479 16,152 Total employment costs $ 941.4 $ 949.5 $ 924.9 --------------------------------------------------------------------------------- Cr. = Credit
9 INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
1992 1991 1990 1989 1988 1987 1986 1985 - --------------------------------------------------------------------------------------------------- $3,494.3 $3,404.5 $3,870.4 $4,146.7 $4,068.0 $3,453.2 $3,173.2 $2,999.4 129.6 118.2 119.7 131.2 134.8 123.4 124.0 119.7 54.9 46.8 38.7 38.4 46.2 62.8 71.6 64.9 75.5 81.8 85.5 79.9 72.3 68.9 55.2 33.7 (258.6) (381.1) (36.7) 175.6 364.6 97.5 36.7 (147.5) 99.2Cr. 106.0Cr. 16.1Cr. 55.9 115.8 14.2Cr. 1.9 .1Cr. (159.4) (275.1) (20.6) 119.7 248.8 111.7 34.8 (147.4) (815.6) (275.1) (20.6) 119.7 262.1 145.0 19.3 (178.4) - --------------------------------------------------------------------------------------------------- 32,828 30,943 32,195 35,581 33,623 31,854 28,479 25,266 $ (5.83) $ (9.88) $ (1.41) $ 3.15 $ 6.99 $ 3.09 $ .95 $ (6.14) (25.82) (9.88) (1.41) 3.15 7.39 4.14 .40 (7.37) -- .15 1.40 1.40 .75 -- -- .375 6.01 31.10 41.27 43.00 42.50 36.15 32.85 34.20 18,000 18,000 19,000 23,000 24,000 26,000 29,000 33,000 97.3 89.3 95.7 199.5 170.0 178.9 78.6 55.2 - --------------------------------------------------------------------------------------------------- $ (21.4) $ 25.0 $ 189.1 $ 240.2 $ 531.8 $ 169.1 $ 129.1 N/A 64.4 140.2 268.1 197.2 136.5 128.0 124.8 $ 174.8 6.3 24.9 49.8 15.5 73.6 10.5 9.0 7.8 -- -- -- 28.2 50.2 -- 96.4 -- -- 4.6 45.3 50.1 25.2 -- -- 9.5 32.1 31.1 27.1 6.9 13.8 13.9 7.8 7.8 108.9 73.1 114.0 (17.8) (43.2) (160.9) (122.5) 87.8 -- 72.8 -- 185.0 -- 96.6 -- -- 97.9 -- -- -- -- 83.7 85.2 -- 90.6 (11.2) (179.1) (67.9) 124.2 71.7 157.2 (70.1) - --------------------------------------------------------------------------------------------------- $ 441.0 $ 322.8 $ 395.9 $ 703.0 $ 719.8 $ 625.0 $ 428.0 $ 268.0 1,548.8 1,635.0 1,708.3 1,569.8 1,493.9 1,488.1 1,552.4 1,745.2 3,146.5 2,697.8 2,934.8 3,008.5 2,925.0 2,651.4 2,526.6 2,631.5 873.7 764.8 691.7 577.7 595.5 638.7 799.6 922.1 185.0 185.0 185.0 185.0 -- -- -- -- 49.9 53.0 54.9 181.3 -- -- -- -- 271.4 1,009.4 1,234.0 1,313.8 1,559.4 1,391.5 1,067.7 958.4 225 225 325 325 225 225 150 135 - --------------------------------------------------------------------------------------------------- (23.3)% (8.1)% (.5)% 2.9% 6.4% 4.2% .6% (5.9)% 63.3% 38.0% 31.9% 25.6% 27.6% 31.5% 42.8% 49.0% 76.7% 47.2% 40.5% 33.8% 27.6% 31.5% 42.8% 49.0% loss loss loss 9.1% 16.8% 10.4% 1.8% loss - --------------------------------------------------------------------------------------------------- 4.7 4.7 5.3 5.6 6.1 5.5 5.7 6.1 4.3 4.2 4.7 4.9 5.0 4.9 4.9 4.7 17,181 18,600 20,154 20,715 20,639 20,740 22,668 24,413 $ 940.7 $ 907.4 $ 979.0 $ 964.3 $ 945.8 $ 878.4 $ 918.6 $ 988.5 - ---------------------------------------------------------------------------------------------------
10 FINANCIAL RESPONSIBILITY Senior management is responsible for the integrity and objectivity of the financial data reported by Inland Steel Industries, Inc. and its subsidiaries. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, and in management's judgment reflect fairly the consolidated financial position, cash flows and results of operations of Inland and its subsidiary companies. The Company maintains systems of internal accounting controls and procedures to provide reasonable assurance of the safeguarding and accountability of Company assets, and to ensure that its financial records provide a reliable basis for the preparation of financial statements and other data. Internal accounting control is maintained through: - The on-going activities of corporate staff, line officers and accounting management to monitor the adequacy of internal accounting control systems throughout the Company - The selection and proper training of qualified personnel - The appropriate separation of duties in organizational arrangements - The establishment and communication of accounting and business policies together with detailed procedures for their implementation - The use of an intensive ongoing program of internal auditing - The use of a detailed budgeting system to assure that expenditures are properly approved and charged. Stockholders annually elect a firm of independent accountants to audit the annual financial statements (their current report appears below). The principal role of the Audit Committee of the Board of Directors (consisting entirely of non-management Directors) is to review the conclusions reached by management in its evaluation of internal accounting controls, approve the scope of audit programs and evaluate audit results of both independent accountants and internal auditors. Both groups have unrestricted access to the Audit Committee, without the presence of management. REPORT OF INDEPENDENT ACCOUNTANTS [PRICE WATERHOUSE LLP LOGO] TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INLAND STEEL INDUSTRIES, INC. In our opinion, the consolidated financial statements on pages 33 through 47 present fairly, in all material respects, the financial position of Inland Steel Industries, Inc. and Subsidiary Companies at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, 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. Chicago, Illinois February 19, 1996 PRICE WATERHOUSE LLP 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 Primary per share results are based on the weighted average number of common shares outstanding and take into account the dividend requirements of preferred stock, net of tax benefits related to leveraged Employee Stock Ownership Plan ("ESOP") shares, and the dilutive effect of outstanding stock options. Fully diluted earnings per common share reflect the further dilutive effect of the assumed conversion into common stock of the outstanding shares of convertible preferred stock, and the elimination of the related preferred stock dividends. Also reflected in the fully diluted earnings per common share is an adjustment for the additional ESOP contribution, net of tax benefits, that would be necessary to meet debt service requirements that would arise upon conversion of the leveraged Series E ESOP Convertible Preferred Stock ("Series E Preferred Stock"), due to the current excess of the preferred dividend over the common dividend. INVENTORY VALUATION Inventories are valued at cost which is not in excess of market. Cost is determined by the last-in, first-out method except for supply inventories, which are determined by the average cost or first-in, first-out methods. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is depreciated for financial reporting purposes over the estimated useful lives of the assets. Steelmaking machinery and equipment, a significant class of assets, is depreciated on a production-variable method, which adjusts straight-line depreciation to reflect production levels at the steel plant. The adjustment is limited to not more than a 25 percent increase or decrease from straight-line depreciation. Blast furnace relining expenditures are capitalized and amortized on a unit-of-production method over the life of the lining. All other assets are depreciated on a straight-line method. Expenditures for normal repairs and maintenance are charged to income as incurred. Gains or losses from significant abnormal disposals or retirements of properties are credited or charged to income. The cost of other retired assets less any sales proceeds is charged to accumulated depreciation. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over fair value of net assets of businesses acquired is being amortized over 25-year periods. BENEFITS FOR RETIRED EMPLOYEES Pension benefits are provided by the Company to substantially all employees under a trusteed non-contributory plan. Life insurance and certain medical benefits are provided for substantially all retired employees. The estimated costs of pension, medical, and life insurance benefits are determined annually by consulting actuaries. The cost of these benefits for retirees is being accrued during their term of employment. Pensions are funded in accordance with ERISA requirements in a trust established under the plan. Costs for retired employee medical benefits are funded when claims are submitted. CASH EQUIVALENTS Cash equivalents reflected in the Statement of Cash Flows are highly liquid, short-term investments with maturities of three months or less that are an integral part of the Company's cash management portfolio. 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. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS In 1995, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of this Statement did not have a material effect on results of operations or the financial position of the Company. 12 CONSOLIDATED STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------------------------------------------------- Dollars in Millions (except per share data) Years Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED NET SALES $4,781.5 $4,497.0 $3,888.2 STATEMENT OF --------------------------------------------------------------------------------------------------------- OPERATIONS OPERATING COSTS AND EXPENSES: Cost of goods sold (excluding depreciation) 4,043.2 3,853.1 3,457.8 Selling, general and administrative expenses 204.1 197.6 190.0 Depreciation 142.6 138.1 131.2 State, local and miscellaneous taxes 63.1 58.8 60.3 Facility shutdown provision (Note 10) -- -- 22.3 --------------------------------------------------------------------------------------------------------- Total 4,453.0 4,247.6 3,861.6 --------------------------------------------------------------------------------------------------------- OPERATING PROFIT 328.5 249.4 26.6 --------------------------------------------------------------------------------------------------------- OTHER EXPENSE: General corporate expense, net of income items 19.5 8.5 22.2 Interest and other expense on debt 71.9 71.4 78.0 --------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES 237.1 169.5 (73.6) --------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES (Note 12): Current taxes 11.1 9.2 2.8 Deferred taxes 79.2 52.9 38.8Cr. --------------------------------------------------------------------------------------------------------- Total 90.3 62.1 36.0Cr. --------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) 146.8 107.4 (37.6) Dividend requirements for preferred stock (net of tax benefits related to leveraged ESOP shares) 19.0 28.4 32.0 --------------------------------------------------------------------------------------------------------- Net income (loss) applicable to common stock $ 127.8 $ 79.0 $ (69.6) ========================================================================================================= PER SHARE OF COMMON STOCK: Primary $ 2.69 $ 1.81 $ (1.96) ========================================================================================================= Fully Diluted $ 2.55 $ 1.70 $ (1.96) ========================================================================================================= Cr.=Credit - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Accumulated deficit at beginning of year $ (292.4) $(371.9) $(302.3) STATEMENT Net income (loss) for the year 146.8 107.4 (37.6) OF REINVESTED Dividends declared: EARNINGS Common ($.20 per share in 1995) (9.6) -- -- Preferred (Notes 4 and 6) (17.6) (27.9) (32.0) --------------------------------------------------------------------------------------------------------- Accumulated deficit at end of year $ (172.8) $ (292.4) $ (371.9) =========================================================================================================
See Notes to Consolidated Financial Statements on pages 38-47. 13 CONSOLIDATED STATEMENT OF CASH FLOWS INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Increase (Decrease) in Cash Dollars in Millions Years Ended December 31 1995 1994 1993 ------------------- --------------------------- ---- ---- ---- OPERATING ACTIVITIES NET INCOME (LOSS) $ 146.8 $ 107.4 $ (37.6) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED FROM OPERATING ACTIVITIES: Depreciation 143.1 138.7 131.8 Deferred income taxes 79.2 52.9 (36.8) Deferred employee benefit cost (23.5) 52.2 38.1 Stock issued for coverage of employee benefit plans 23.9 35.0 19.1 Facility shutdown provision -- -- 18.9 Change in: Receivables 15.1 (76.3) (46.4) Inventories (31.5) (52.6) (4.2) Accounts payable (34.8) 52.0 34.0 Accrued salaries and wages (.4) 12.1 1.6 Other accrued liabilities 29.6 (20.8) 4.9 Other deferred items (17.3) (35.1) (11.4) -------- -------- -------- NET ADJUSTMENTS 183.4 158.1 149.6 -------- -------- -------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 330.2 265.5 112.0 -------- -------- -------- INVESTING ACTIVITIES Capital expenditures (134.6) (182.0) (105.6) Investments in and advances to joint ventures, net 16.4 13.7 (1.9) Proceeds from sales of assets 3.6 8.4 6.5 -------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES (114.6) (159.9) (101.0) -------- -------- -------- FINANCING ACTIVITIES Sale of common stock -- -- 178.7 Long-term debt issued 16.8 19.7 46.8 Long-term debt retired (36.5) (232.5) (78.5) Dividends paid (31.6) (32.2) (35.7) Acquisition of treasury stock (4.0) (4.0) (9.5) -------- -------- -------- NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (55.3) (249.0) 101.8 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 160.3 (143.4) 112.8 Cash and cash equivalents--beginning of year 107.1 250.5 137.7 -------- -------- -------- Cash and cash equivalents--end of year $ 267.4 $ 107.1 $ 250.5 ======== ======== ======== SUPPLEMENTAL Cash paid during the year for: DISCLOSURES Interest (net of amount capitalized) $ 65.4 $ 73.5 $ 76.0 Income taxes, net 9.4 8.3 1.9 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 -- -- Long-term debt acquired in purchase of assets -- 63.3 --
See Notes to Consolidated Financial Statements on pages 38-47. 14 CONSOLIDATED BALANCE SHEET INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------------------------------------------------- Dollars in Millions At December 31 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 267.4 $ 107.1 Receivables less provision for allowances, claims and doubtful accounts of $29.9 and $24.9, respectively 488.5 503.6 Inventories (Note 1) 461.0 429.5 Deferred income taxes (Note 12) 45.4 41.3 ------------------------------------------------------------------------------------------------- Total current assets 1,262.3 1,081.5 INVESTMENTS AND ADVANCES (SEE DETAILS PAGE 37) 241.0 225.1 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION (SEE DETAILS PAGE 37) 1,600.4 1,610.3 DEFERRED INCOME TAXES (NOTE 12) 295.0 379.0 INTANGIBLE PENSION ASSET (NOTE 11) 102.6 -- EXCESS OF COST OVER NET ASSETS ACQUIRED 23.6 25.0 DEFERRED CHARGES AND OTHER ASSETS 33.4 32.5 ------------------------------------------------------------------------------------------------- Total assets $3,558.3 $3,353.4 ================================================================================================= - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES CURRENT LIABILITIES: Accounts payable $ 314.4 $ 351.2 Accrued liabilities: Salaries, wages and commissions 87.4 87.8 Taxes 85.1 72.5 Interest on debt 10.8 7.9 Terminated facilities costs and other (Note 10) 40.0 25.9 Long-term debt due within one year (Note 3) 106.5 19.5 ------------------------------------------------------------------------------------------------- Total current liabilities 644.2 564.8 LONG-TERM DEBT (SEE DETAILS PAGE 37 AND NOTE 3) 784.5 705.9 ALLOWANCE FOR TERMINATED FACILITIES COSTS AND OTHER (NOTE 10) 54.2 34.1 DEFERRED EMPLOYEE BENEFITS (NOTE 11) 1,280.3 1,301.2 DEFERRED INCOME 12.0 15.3 ------------------------------------------------------------------------------------------------- Total liabilities 2,775.2 2,621.3 - ---------------------------------------------------------------------------------------------------------------------- TEMPORARY EQUITY REDEEMABLE PREFERRED STOCK, Series F, $1.00 par value, 185,000 shares issued and outstanding in 1994 (Note 4) -- 185.0 COMMON STOCK REPURCHASE COMMITMENT (Note 4) 34.5 37.9 - ---------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY PREFERRED STOCK, $1.00 par value, 15,000,000 shares authorized for all series, aggregate liquidation value of $155.7 in 1995 and $154.9 in 1994 (Notes 5 and 6) 3.2 3.2 COMMON STOCK, $1.00 par value; authorized--100,000,000 shares; issued--50,556,350 shares (Notes 6 through 8) 50.6 50.6 CAPITAL IN EXCESS OF PAR VALUE (Note 6) 1,045.7 1,088.0 ACCUMULATED DEFICIT (172.8) (292.4) UNEARNED COMPENSATION--ESOP (Note 5) (89.9) (100.5) COMMON STOCK REPURCHASE COMMITMENT (Note 4) (34.5) (37.9) TREASURY STOCK AT COST--Common stock of 1,814,516 shares in 1995 and 6,006,122 shares in 1994 (51.1) (200.9) CUMULATIVE TRANSLATION ADJUSTMENT (2.6) (.9) ------------------------------------------------------------------------------------------------- Total stockholders' equity 748.6 509.2 ------------------------------------------------------------------------------------------------- Total liabilities, temporary equity, and stockholders' equity $ 3,558.3 $3,353.4 ================================================================================================= See Notes to Consolidated Financial Statements on pages 38-47.
15 SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Dollars in Millions At December 31 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENTS Steel processing joint ventures $ 152.2 $ 154.9 AND ADVANCES Raw material joint ventures 48.4 41.8 Common stock of Nippon Steel Corporation held for investment, net of valuation allowances of $4.0 and $3.5, respectively 10.6 11.1 Other investments and advances 29.8 17.3 --------------------------------------------------------------------------------------------------------------- Total $ 241.0 $ 225.1 =============================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT Land, land improvements and mineral properties $ 155.7 $ 155.1 AND EQUIPMENT Buildings, machinery and equipment 4,033.5 3,936.7 Transportation equipment 137.8 134.4 Property under capital leases--primarily machinery and equipment 37.0 43.0 --------------------------------------------------------------------------------------------------------------- Total 4,364.0 4,269.2 Less-- Accumulated depreciation 2,629.3 2,520.6 Accumulated depreciation--capital leases 33.6 37.6 Allowance for retirements and terminated facilities (Note 10) 100.7 100.7 --------------------------------------------------------------------------------------------------------------- Net $1,600.4 $1,610.3 =============================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT INLAND STEEL INDUSTRIES, INC. Guaranteed ESOP notes, 7.96%, 8.43% and 8.80%, due through July 2, 2004 $ 106.2 $ 115.2 Notes, 12 3/4% due December 15, 2002 150.0 150.0 Subordinated Voting Note, 10.23% due December 17, 1999 100.0 -- --------------------------------------------------------------------------------------------------------------- Total Inland Steel Industries, Inc. 356.2 265.2 INLAND STEEL COMPANY First Mortgage Bonds: Series R, 7.9% due January 15, 2007 72.5 72.5 Series T, 12% due December 1, 1998 125.0 125.0 Pollution Control Series 1977, 5 3/4% due February 1, 2007 26.5 26.5 Pollution Control Series 1978, 6 1/2% due May 15, 2008 52.0 52.0 Pollution Control Series 1982B, 10 3/4% -- 17.0 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 -- --------------------------------------------------------------------------------------------------------------- Total First Mortgage Bonds 333.0 333.0 Obligations for Industrial Development Revenue Bonds: Pollution Control Project No. 3, 6 1/4% due April 1, 1999 8.0 10.0 Pollution Control Project No. 9, 10% due November 1, 2011 38.0 38.0 Pollution Control Project No.11, 7 1/8% due June 1, 2007 20.0 20.0 Obligations under capital leases including Pollution Control Projects No. 1 and No. 2--primarily at rates ranging from 5.9% to 12.6%, due through August 1, 1998 10.4 16.1 --------------------------------------------------------------------------------------------------------------- Total Inland Steel Company 409.4 417.1 JOSEPH T. RYERSON & SON, INC. Obligation for Industrial Revenue Bond with floating rate, set weekly based on 13-week Treasury bills, due November 1, 2007 7.0 7.0 Other long-term debt, 10 1/4% due through November 30, 1997 1.4 1.6 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 6.9 7.9 Senior Notes, 9.43% due through July 29, 1997 3.6 7.1 --------------------------------------------------------------------------------------------------------------- Total long-term debt $ 784.5 $ 705.9 ===============================================================================================================
See Notes to Consolidated Financial Statements on pages 38-47. 16 NOTES TO CONSOLIDATED FINANCIAL NOTE 1:INVENTORIES Inventories were classified on December 31 as follows:
- ------------------------------------------------------------------- Dollars in Millions 1995 1994 - ------------------------------------------------------------------- In process and finished products: Steel Manufacturing Operations $124.5 $ 92.1 Materials Distribution Operations 261.5 271.7 - ------------------------------------------------------------------- 386.0 363.8 - ------------------------------------------------------------------- Raw materials and supplies: Iron ore 39.7 34.7 Scrap and other raw materials 18.4 18.0 Supplies 16.9 13.0 - ------------------------------------------------------------------- 75.0 65.7 - ------------------------------------------------------------------- Total $461.0 $429.5 ===================================================================
During 1993, various inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current year costs. The effect of these liquidations on continuing operations was to decrease cost of goods sold by $24.1 million in 1993. The effect on cost of goods sold of LIFO liquidations in 1995 and 1994 was not material. Replacement costs for the LIFO inventories exceeded LIFO values by approximately $406 million and $381 million on December 31, 1995 and 1994, respectively. NOTE 2:BORROWING ARRANGEMENTS On December 31, 1995, the Company's subsidiaries had available unused credit facilities totaling $350 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratios. A $200 million unsecured credit agreement between Joseph T. Ryerson & Son, Inc. and a group of banks provides a revolving credit facility to March 31, 2000. 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. J. M. Tull Metals Company, Inc. has a $25 million unsecured revolving credit agreement, which extends to December 15, 1997. Cash availability, as well as various covenants in subsidiary borrowing arrangements, limited the cash that subsidiaries could transfer to the Company in the form of dividends and advances to $350 million at year-end 1995. This amount is subject to change based on the financial performance of each subsidiary. NOTE 3:LONG-TERM DEBT Each series of First Mortgage Bonds issued by Inland Steel Company is limited to the principal amount outstanding, with the Pollution Control Series 1977 Bonds, the Pollution Control Series 1978 Bonds, and the Series R First Mortgage Bonds subject to a sinking fund. 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, 1995. In 1994, the Company, through its Inland Steel Company subsidiary, redeemed all $75 million of its outstanding Series O, P and Q First Mortgage Bonds. Inland Steel Company also acquired the equity interest in the operating lease of the No. 2 Basic Oxygen Furnace Shop continuous casters, assuming $63 million of debt. By year-end 1994, the assumed debt and approximately $40 million of other caster-related debt was repaid by the Company. During the third quarter of 1995, Inland Steel Company refinanced $17 million of 10.75 percent pollution control revenue bonds with bonds bearing an interest rate of 6.85 percent. In addition, in the 1994 second quarter, Inland Steel Company refinanced $20 million of pollution control revenue bonds at an interest rate of 7.125 percent. During the third quarter of 1995, the Company exchanged its Series F Exchangeable Preferred Stock for a $185 million Subordinated Voting Note bearing an interest rate of 10.23%. The Subordinated Voting Note is required to be redeemed in two stages, consisting of $85 million on December 18, 1996, and the remaining $100 million on December 17, 1999, plus, in each instance, accrued and unpaid interest thereon. See Note 4 for additional information on the Subordinated Voting Note. Both the First Mortgage Indenture under which the Series T Bonds were issued and the indenture under which the Industries 12 3/4% Notes were issued contain covenants limiting, among other things, the creation of additional indebtedness; the declaration and payment of dividends and distributions on the Company's capital stock; as well as mergers, consolidations, retirement of certain debt, and the sales or purchases of certain assets. The outstanding borrowing of the Company's ESOP is recorded as a liability of the Company because the Company has committed to make payments (dividends and supplemental contributions) to the ESOP Trust sufficient to service the ESOP debt. The ESOP notes are payable in semi-annual installments through July 2004 and are guaranteed by Joseph T. Ryerson & Son, Inc., a wholly owned subsidiary of the Company. See Note 5 for additional information on the ESOP debt. Maturities of long-term debt and capitalized lease obligations due within five years are: $106.5 million in 1996, $23.2 million in 1997, $156.1 million in 1998, $122.3 million in 1999, and $20.3 million in 2000. See Note 15 regarding commitments and contingencies for other scheduled payments. Interest cost incurred by the Company totaled $73.7 million in 1995, $72.5 million in 1994, and $80.9 million in 1993. Included in these totals is capitalized interest of $1.8 million in 1995, $1.1 million in 1994, and $2.9 million in 1993. 17 NOTE 4:SUBORDINATED VOTING NOTE In December 1989, the Company sold 185,000 shares of the Company's Series F Exchangeable Preferred Stock, $1.00 par value per share ("Series F Preferred Stock"), for $185 million to NS Finance III, Inc., an indirect wholly owned subsidiary of Nippon Steel Corporation ("NSC"). The preferred stock was exchanged in the third quarter of 1995 for the Company's 10.23% Subordinated Voting Note. 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 $150 million (amounting to 4.8 million shares) has been repurchased. As of December 31, 1995, the amount representing the remaining repurchase commitment of $35 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 $16 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. See Note 13 regarding other related party transactions. NOTE 5:EMPLOYEE STOCK OWNERSHIP PLAN The Company sponsors a savings plan through which eligible salaried employees may elect to save a portion of their salary, of which the Company matches the first five percent of each participant's salary contributed, subject to certain IRS limitations. In July 1989, the Board of Directors amended the savings plan to include a leveraged ESOP. The ESOP Trust purchased 3.1 million newly issued shares of Series E Preferred Stock from the Company with the proceeds of loans totaling $150 million. As a result, effective January 1, 1990, the matching in the savings plan is in shares of Series E Preferred Stock provided principally by the Company's ESOP, supplemented as needed by newly issued shares. The Company accounts for its ESOP in accordance with AICPA Statement of Position 76-3. The Company makes annual contributions to the ESOP equal to the ESOP's debt service less dividends on leveraged shares (shares purchased by the ESOP Trust in July 1989) received by the ESOP Trust. All dividends received by the ESOP are used to pay debt service. Dividends on Series E Preferred Stock are recorded as declared as reductions to retained earnings, net of applicable tax benefits on unallocated shares. Dividends on allocated leveraged shares are replaced with additional ESOP shares. Dividends on unallocated leveraged shares serve to reduce interest expense recognized by the Company. In 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. For 1994, the ESOP Trust received $10.6 million in dividends and $8.0 million in contributions from the Company to make such required payments. In 1993, the Company paid $10.6 million in dividends and provided $8.1 million in contributions. As principal and interest payments are made, ESOP shares are made available for allocation based on the proportion of current payments to the total of current plus future payments. As shares are allocated, the Company records compensation expense equal to the original stated value of the shares of Series E Preferred Stock allocated to the participants during the period. Compensation expense related to the ESOP recognized by the Company totaled $8.9 million in 1995, $8.8 million in 1994, and $9.0 million in 1993. ESOP shares remaining unallocated are reported as unearned compensation on the Company's consolidated balance sheet. Interest expense is recognized as it is incurred by the ESOP Trust. Interest expense incurred by the ESOP Trust totaled $10.0 million, $10.7 million, and $11.3 million in 1995, 1994 and 1993, respectively. The ESOP shares as of December 31 were as follows:
- --------------------------------------- 1995 1994 - --------------------------------------- Allocated shares 1,268,126 1,034,800 Unreleased shares 1,850,475 2,067,753 - --------------------------------------- Total ESOP shares 3,118,601 3,102,553 - ---------------------------------------
NOTE 6:CAPITAL STOCK On December 31, 1995, 9,125,200 shares of common stock remained reserved for issuance under the Company's various employee stock plans and upon conversion of shares of preferred stock. 18 The following table details changes in capital accounts:
Common Stock Treasury Stock ------------ -------------- Shares in Thousands and Dollars in Millions Shares Dollars Shares Dollars - ------------------------------------------------------------------------------------------------- Balance at January 1, 1993 42,104 $42.1 (6,857) $(246.0) Acquisition of treasury stock -- -- (341) (9.5) Issued under employee benefit plans -- -- 440 19.3 Redemption of Series E Preferred Stock -- -- -- -- Issuance of Common Stock 5,750 5.8 -- -- Other changes -- -- (9) (.3) - ------------------------------------------------------------------------------------------------- Balance at December 31, 1993 47,854 47.9 (6,767) (236.5) Acquisition of treasury stock -- -- (106) (4.0) Issued under employee benefit plans -- -- 879 39.9 Redemption of Series E Preferred Stock -- -- -- -- Conversion of Series G Preferred Stock 2,702 2.7 -- -- Conversion of Series A Preferred Stock -- -- 2 .1 Other changes -- -- (14) (.4) - ------------------------------------------------------------------------------------------------- Balance at December 31, 1994 50,556 50.6 (6,006) (200.9) Acquisition of treasury stock -- -- (138) (4.0) Issued under employee benefit plans -- -- 415 15.6 Redemption of Series E Preferred Stock -- -- -- -- Conversion of Series A Preferred Stock -- -- 1 -- Issuance of Common Stock to Pension Trust -- -- 3,946 139.0 Other changes -- -- (33) (.8) - ------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 50,556 $50.6 (1,815) $ (51.1) - ------------------------------------------------------------------------------------------------- Preferred Stock Capital in ------------------------------------------------------ Excess of Series A Series E Series G Par Value -------- -------- -------- --------- Shares in Thousands and Dollars in Millions Shares Dollars Shares Dollars Shares Dollars Dollars - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1993 97 $ .1 3,135 $3.1 1,500 $ 1.5 $ 945.0 Acquisition of treasury stock -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 39 -- -- -- (7.5) Redemption of Series E Preferred Stock -- -- (59) -- -- -- (2.8) Issuance of Common Stock -- -- -- -- -- -- 172.9 Other changes -- -- -- -- -- -- (1.2) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 97 .1 3,115 3.1 1,500 1.5 1,106.4 Acquisition of treasury stock -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 27 -- -- -- (14.0) Redemption of Series E Preferred Stock -- -- (39) -- -- -- (1.9) Conversion of Series G Preferred Stock -- -- -- -- (1,500) (1.5) (2.2) Conversion of Series A Preferred Stock (2) -- -- -- -- -- -- Other changes -- -- -- -- -- -- (.3) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 95 .1 3,103 3.1 -- -- 1,088.0 Acquisition of treasury stock -- -- -- -- -- -- -- Issued under employee benefit plans -- -- 44 -- -- -- (3.1) Redemption of Series E Preferred Stock -- -- (28) -- -- -- (1.3) Conversion of Series A Preferred Stock (1) -- -- -- -- -- -- Issuance of Common Stock to Pension Trust -- -- -- -- -- -- (39.0) Other changes -- -- -- -- -- -- 1.1 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 94 $.1 3,119 $3.1 -- $ -- $1,045.7 - -----------------------------------------------------------------------------------------------------------------------------------
In the second quarter of 1995, the Company contributed 3.9 million shares of its common stock with an aggregate value of $100 million to the Company's Pension Trust. In the second quarter of 1994, as a result of the Company's call for redemption, 1.5 million shares of Series G $4.625 Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value per share, were converted into 2.7 million new-issue shares of the Company's common stock, $1.00 par value per share. In the fourth quarter of 1993, the Company sold 5.75 million shares of new-issue common stock in a public offering. The net proceeds of the offering totaled approximately $179 million. The indenture relating to the Industries 12 3/4% Notes prohibits the Company from declaring or paying cash dividends on Company common stock under certain conditions. At year-end 1995, up to $275 million of common dividends could have been paid under terms of the indenture. The Series A $2.40 Cumulative Convertible Preferred Stock, $1.00 par value per share ("Series A Preferred Stock"), is convertible into common stock at the rate of one share of common stock for each share of Series A Preferred Stock and is redeemable, at the Company's option, at $44 per share plus any accrued and unpaid dividends. Each such share is entitled to one vote and generally votes together with holders of common stock as one class. Shares of Series E Preferred Stock, $1.00 par value per share, entitle the holder to cumulative annual dividends of $3.523 per share, payable semi-annually, and to 1.25 votes per share. Shares of Series E Preferred Stock are convertible into the Company's common stock on a one-for-one basis. From time to time, the Company elects to provide additional shares of Series E Preferred Stock to the ESOP Trust to cover employee matching requirements not covered by the release of shares through scheduled principal and interest payments by the ESOP Trust on its outstanding notes (see Note 5). NOTE 7:STOCK OPTION PLANS The Inland 1995 Incentive Stock Plan, approved by stockholders on May 24, 1995, provides for the issuance, pursuant to options and other awards, of 2.0 million shares of common stock to officers and other key employees. Options remain outstanding and exercisable under the Inland 1992, 1988 and 1984 Incentive Stock Plans; however, no further options may be granted under these plans. Under the various plans, the per share option exercise price may not be less than 100 percent of the fair market value per share on the date of grant. During 1995, options were granted to 257 executives under the 1995 Plan and a total of 1,861,369 shares was available for future grants 19 under that Plan as of December 31, 1995. The following summarizes the status of options under the plans for the periods indicated:
Option Exercise Number of Price or Range Shares Per Share - -------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1992 2,345,495 $15.31-$39.75 Granted 575,200 26.13 Exercised (231,953) 21.38- 33.75 Cancelled or expired (198,911) 21.38- 39.75 Surrendered (SAR Exercise) (20,675) 15.31- 25.38 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1993 (1,425,909 exercisable) 2,469,156 15.31- 39.75 Granted 463,800 30.88- 36.00 Exercised (598,799) 15.31- 39.75 Cancelled or expired (68,000) 15.31- 39.75 Surrendered (SAR Exercise) (22,150) 25.38- 33.75 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1994 (1,286,980 exercisable) 2,244,007 15.31- 39.75 Granted 469,600 23.19- 28.50 Exercised (138,117) 15.31- 31.06 Cancelled or expired (200,900) 21.38- 39.75 - ------------------------------------------------------------------- Options (granted and unexercised) at December 31, 1995 (1,615,826 exercisable) 2,374,590 $15.31-$39.75
Options outstanding on December 31, 1995, under the 1984 Plan have expiration dates ranging from July 22, 1996 to September 22, 1997, with a weighted average exercise price per share of $30.79. Options outstanding under the 1988 Plan have expiration dates ranging from July 26, 1998 to June 25, 2001, with a weighted average exercise price per share of $33.99. Options outstanding under the 1992 Plan have expiration dates ranging from June 23, 2002 to June 14, 2004, with a weighted average exercise price per share of $27.75. Options outstanding under the 1995 Plan have expiration dates ranging from May 23, 2005 to September 26, 2005, with a weighted average exercise price per share of $28.36. On December 31, 1995, there were 42 holders of options granted under the 1984 Plan, 164 holders of options granted under the 1988 Plan, 254 holders of options granted under the 1992 Plan, and 256 holders of options granted under the 1995 Plan. Stock appreciation rights have also been granted with respect to 67,500 shares subject to outstanding options under the plans at the rate of one stock appreciation right ("SAR") for each share subject to option. Upon exercise of an SAR, the holder is entitled to receive the excess of the fair market value of the shares for which the SAR is exercised over the related option exercise price. The holder may elect to receive payment in stock, or in a combination of stock and cash. An SAR is exercisable only upon surrender of the related option and only to the extent that the related option is exercisable. No SAR has been granted since 1990. SAR compensation expense recorded by the Company was not material for any of the three years. The 1995 Plan also provides, as did the 1992, 1988 and 1984 Plans, for the granting of restricted stock and performance awards to officers and other key employees. During 1995, restricted stock awards totaling 28,524 shares were granted to 17 executives and one performance award totaling 2,000 shares was granted. Also during 1995, 16,105 shares of previously granted restricted stock awards vested while 18,405 shares of restricted stock were forfeited, and 16,841 shares (including dividend-equivalent shares) were issued to recipients of performance awards previously granted while 19,532 shares (including dividend-equivalent shares) subject to performance awards were forfeited. During 1994, restricted stock awards totaling 106,100 shares were granted to 47 executives, and 14 performance awards totaling 73,500 shares were granted. Also during 1994, 11,433 shares of previously granted restricted stock awards vested, while no shares were forfeited. During 1993, restricted stock awards totaling 122,000 shares were granted to 33 executives, and no performance awards were granted. Also during 1993, 7,052 shares of previously granted restricted stock awards vested, while 4,000 shares were forfeited. NOTE 8:STOCKHOLDER RIGHTS PLAN Pursuant to a stockholder rights plan, on November 25, 1987, the Board of Directors declared a dividend distribution, payable to stockholders of record on December 18, 1987, of one preferred stock purchase right (a "Right") for each outstanding share of the Company's common stock. The rights plan was amended by the Board on May 24, 1989. The Rights will expire 10 years after issuance, and will become exercisable only if a person or group becomes the beneficial owner of 20 percent or more of the common stock (a "20 percent holder"), commences a tender or exchange offer which would result in the offeror beneficially owning 20 percent or more of the common stock, or is determined by the Board to beneficially own at least 10 percent of the common stock and either intends to cause the Company to take certain actions not in the best long-term interests of the Company and its stockholders or is reasonably likely, through such beneficial ownership, to cause a material adverse impact on the business or prospects of the Company and its stockholders (an "Adverse Person"). Each Right will entitle stockholders to buy one newly issued unit of one one-hundredth of a share of Series D Junior Participating Preferred Stock at an exercise price of $90, subject to certain antidilution adjustments. The Company will generally be entitled to redeem the Rights at $.05 per Right at any time prior to 15 days after a public announcement of the existence of a 20 percent holder. If a person or group accumulates 20 percent or more of the common stock (except pursuant to an offer for all outstanding shares of common stock which the independent Continuing Directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), or a merger takes place with a 20 percent holder where the Company is the surviving corporation and its common 20 stock is unchanged, or a 20 percent holder engages in certain self-dealing transactions, or the Board determines that a person or group is an Adverse Person, each Right (other than Rights held by such 20 percent holder and certain related parties which become void) will represent the right to purchase, at the exercise price, common stock (or, in certain circumstances, a combination of securities and/or assets) having a value of twice the exercise price. In addition, if, following the public announcement of the existence of a 20 percent holder, the Company is acquired in a merger or other business combination transaction, except a merger or other business combination transaction that takes place after the consummation of an offer for all outstanding shares of common stock that the independent Continuing Directors have determined to be fair, or a sale of 50 percent or more of the Company's assets or earning power is made to a third party, each Right (unless previously voided) will represent the right to purchase, at the exercise price, common stock of the acquiring entity having a value of twice the exercise price at the time. NOTE 9:DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. DERIVATIVES The Company has only limited involvement with derivative financial instruments, none of which are used for trading purposes. Derivatives are used to hedge exposure to fluctuations in costs caused by the price volatility of certain metal commodities and natural gas supplies, and in foreign currency exchange rates related to firm commitments regarding a Canadian raw material joint venture. Gains and losses associated with these hedging transactions become part of the cost of the item being hedged. At no time during 1995, 1994 or 1993 were such hedging transactions material. CASH AND CASH EQUIVALENTS The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. LONG-TERM INVESTMENT In 1989, the Company and NSC, through a subsidiary, each purchased in the open market approximately $15 million of the other company's common stock. The estimated fair value of the NSC common stock at year-end 1995 and 1994, based on the quoted market price and exchange rate at each year end, was $8.4 million and $9.2 million, respectively, as compared with the carrying value of $10.6 million and $11.1 million included in the balance sheet at December 31, 1995 and 1994, 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 $753 million at December 31, 1995 and $733 million at December 31, 1994 as compared with the carrying value of $706 million and $725 million included in the balance sheet at year-end 1995 and 1994, 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 $185 million as the security was sold to a joint venture partner and has numerous features unique to this security including, but not limited to, the right to appoint a director, the 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 10:PROVISIONS FOR RESTRUCTURING 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. 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. In 1993, the Company recorded a facility shutdown provision of $22.3 million which covered costs associated with the earlier than planned closure of Inland Steel Company's cokemaking facilities. Of the amount provided, $7.7 million related to the write-off of assets with the remainder provided for various expenditures associated with the shutdown of the facility, including personnel costs. Inland Steel Company has taken initiatives to reduce its production costs by 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 21 liabilities for mine reclamation costs and employee benefits, totaled $135.9 million, $133.8 million and $149.7 million at December 31, 1995, 1994 and 1993, respectively. NOTE 11:RETIREMENT BENEFITS In 1995, the Company elected to change the measurement date for pensions and benefits other than pensions from December 31 to September 30 in order to provide for more timely information and to achieve administrative efficiencies in the collection of data. The change in the measurement date had no effect on 1995 expense and had an immaterial impact on the 1995 funded status of the pension plan. PENSIONS The Company has a non-contributory defined benefit pension plan which covers substantially all Company employees, retirees and their beneficiaries. Benefits provided participants of the plan are based on final pay and years of service for all salaried employees and certain wage employees, and years of service and a fixed rate for all other wage employees, including members of the United Steelworkers union. 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. The assumptions used to determine the plan's funded status are as follows:
- --------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------- Discount (settlement) rate 7.75% 8.8% Rate of compensation increase 4.0% 5.0% Rate of return on plan assets 9.5% 9.5% - ---------------------------------------------------------------------------
The funded status of the plan as of September 30, 1995 and December 31, 1994 was as follows:
- ---------------------------------------------------------------------------- September 30 December 31 --------------------------- Dollars in Millions 1995 1994 - ---------------------------------------------------------------------------- Fair value of plan assets Equities $1,151 $ 909 Bonds 17 506 Real estate 122 136 Cash equivalents and accrued interest 629 101 - ---------------------------------------------------------------------------- 1,919 1,652 - ---------------------------------------------------------------------------- Actuarial present value of benefits for service rendered to date: Accumulated Benefit Obligation based on compensation to date, including vested benefits of $1,822 and $1,529 for 1995 and 1994, respectively 1,956 1,641 Additional benefits based on estimated future compensation levels 90 98 - ---------------------------------------------------------------------------- Projected Benefit Obligation 2,046 1,739 - ---------------------------------------------------------------------------- Plan asset shortfall to Projected Benefit Obligation $(127) $ (87) - ----------------------------------------------------------------------------
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 Company's balance sheet can be reconciled to the shortfall of plan assets as shown below:
- ---------------------------------------------------------------------------- September 30 December 31 --------------------------- Dollars in Millions 1995 1994 - ---------------------------------------------------------------------------- Plan asset shortfall to Projected Benefit Obligation $ (127) $ (87) Unrecognized transition asset (98) (115) Unrecognized net loss 172 1 Unrecognized prior service cost 120 129 Adjustment required to recognize additional minimum liability (103) - - ---------------------------------------------------------------------------- Accrued pension cost (36) $ (72) Expense, October through December 1995 (2) ---------- - --------------------------------------------------------------- Accrued pension cost at December 31, 1995 $ (38) - ---------------------------------------------------------------
The additional minimum pension liability in 1995 represented the excess of the unfunded Accumulated Benefit Obligation over previously accrued pension costs. A corresponding intangible asset was recorded as an offset to this additional liability as prescribed. The unrecognized transition asset is being recognized in income by reducing pension expense in equal annual installments of $23.1 million through 1999. Any subsequent unrecognized net gain or loss in excess of 10 percent of the greater of the Projected Benefit Obligation or the fair value of plan assets will be amortized over the remaining service period of active employees. Pension cost or credit for 1995, 1994 and 1993 is composed of the components set forth in the table below:
- ---------------------------------------------------------------------------- Dollars in Millions 1995 1994 1993 - ---------------------------------------------------------------------------- Service cost-present value of benefits earned during year $ 28 $ 34 $ 27 Interest on service cost and Projected Benefit Obligation 153 147 139 Actual return on plan assets (290) (9) (256) Net amortization and deferral 117 (144) 85 - ---------------------------------------------------------------------------- Total pension cost (credit) $ 8 $ 28 $ (5) - ----------------------------------------------------------------------------
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 22 hourly employees. The Company does not prefund any of these postretirement benefits. Effective January 1, 1994, a Voluntary Employee Benefit Association Trust was established for payment of health care benefits made to Inland Steel Company United Steelworkers of America ("USWA") retirees. Funding of the Trust is made as claims are submitted for payment. The amount of net periodic postretirement benefit cost for 1995, 1994 and 1993 is composed of the following:
- ---------------------------------------------------------------------- Dollars in Millions 1995 1994 1993 - ---------------------------------------------------------------------- Service cost $ 12 $ 15 $ 15 Interest cost 74 72 85 Net amortization and deferral (21) (8) (4) - ---------------------------------------------------------------------- Total net periodic postretirement benefit cost $ 65 $ 79 $ 96 - ----------------------------------------------------------------------
The following table sets forth components of the accumulated postretirement benefit obligation:
- ---------------------------------------------------------------------------------- September 30 December 31 Dollars in Millions 1995 1994 - ---------------------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $ 532 $ 469 Fully eligible plan participants 172 152 Other active plan participants 259 228 - ---------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 963 849 Unrecognized net gain 198 298 Unrecognized prior service credit 66 70 - ---------------------------------------------------------------------------------- Accrued postretirement benefit obligation 1,227 $1,217 --------- Expense, net of benefits provided, October through December 1995 2 - ----------------------------------------------------------------- Accrued postretirement benefit obligation at December 31, 1995 $1,229 - -----------------------------------------------------------------
Any net gain or loss in excess of 10 percent of the accumulated postretirement benefit obligation is amortized over the remaining service period of active plan participants. The assumptions used to determine the plan's accumulated postretirement benefit obligation are as follows:
- ------------------------------------------------------------------------- September 30 December 31 1995 1994 - ------------------------------------------------------------------------- Discount rate 7.75% 8.8% Rate of compensation increase 4.0% 5.0% Medical cost trend rate 4.5% 6%-5% Year ultimate rate reached 1996 1996 - -------------------------------------------------------------------------
A one percentage point increase in the assumed health care cost trend rates for each future year increases annual net periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of September 30, 1995 by $20 million and $112 million, respectively. Note 12:Income Taxes The elements of the provisions for income taxes for each of the three years indicated below were as follows:
- ---------------------------------------------------------------- Dollars in Millions Years Ended December 31 1995 1994 1993 - ---------------------------------------------------------------- Current income taxes: Federal $ 4.8 $ 4.9 $ -- State and foreign 6.3 4.3 2.8 - ---------------------------------------------------------------- 11.1 9.2 2.8 Deferred income taxes 79.2 52.9 38.8Cr. - ---------------------------------------------------------------- Total tax expense or benefit $90.3 $62.1 $36.0Cr. - ----------------------------------------------------------------
Cr.=Credit In accordance with FASB Statement No. 109, "Accounting for Income Taxes," the Company adjusted its deferred tax assets and liabilities for the effect of the change in the corporate federal income tax rate from 34 percent to 35 percent, effective January 1, 1993. A credit to income of $11 million, which includes the effect of the rate change on deferred tax asset and liability balances as of January 1, 1993 as well as the effect on 1993 tax benefits recorded by the Company prior to the enactment date of August 10, 1993, was recorded in the third quarter of 1993. The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
- ---------------------------------------------------------------------- December 31 Dollars in Millions 1995 1994 - ---------------------------------------------------------------------- Deferred tax assets (excluding postretirement benefits other than pensions): Net operating loss and tax credit carryforwards $310 $309 Restructuring and termination reserves 92 87 Other deductible temporary differences 92 118 Less valuation allowances (2) (5) - ---------------------------------------------------------------------- 492 509 - ---------------------------------------------------------------------- Deferred tax liabilities: Fixed asset basis difference 478 443 Other taxable temporary differences 114 84 - ---------------------------------------------------------------------- 592 527 - ---------------------------------------------------------------------- Net deferred liability (excluding post- retirement benefits other than pensions) (100) (18) FASB Statement No. 106 impact (postretirement benefits other than pensions) 440 438 - ---------------------------------------------------------------------- Net deferred asset $340 $420 - ----------------------------------------------------------------------
For tax purposes, the Company had available, at December 31, 1995, net operating loss ("NOL") carryforwards for regular federal income tax purposes of approximately $800 million which will expire as follows: $67 million in the year 2005, $313 million in the year 2006, $280 million in the year 2007, $132 million in the year 23 2008, and $8 million in the year 2009. The Company also had investment tax credit and other general business credit carryforwards for tax purposes of approximately $11 million, which expire during the years 1996 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 $19 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. 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, 1995, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $440 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 15-year carryforward period of that loss. Because of the extremely long period that is available to realize these future tax benefits, a valuation allowance for this deferred tax asset is not necessary. The Company operates in a highly cyclical industry and consequently has had a history of generating and then fully utilizing significant amounts of NOL carryforwards. During the years 1986 through 1989, the Company utilized approximately $600 million of NOL carryforwards and in 1995 utilized $135 million of NOL carryforwards. While not affecting the determination of deferred income taxes for financial reporting purposes, at December 31, 1995, the Company had available for AMT purposes approximately $53 million of NOL carryforwards which will expire as follows: $9 million in 2007 and $44 million in 2008. Total income taxes reflected in the Consolidated Statement of Operations differ from the amounts computed by applying the federal corporate rate as follows:
- ----------------------------------------------------------------------------- Dollars in Millions Years Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------- Federal income tax expense or benefit computed at statutory tax rate of 35% $83.0 $59.3 $25.8Cr. Additional taxes or credits from: State and local income taxes, net of federal income tax effect 9.4 7.2 3.6 Percentage depletion 2.9Cr. 2.8Cr. 2.2Cr. Adjustment of taxes of prior years -- 2.0Cr. -- Change in federal statutory rate -- -- 10.6Cr. All other, net .8 .4 1.0Cr. - ----------------------------------------------------------------------------- Total income tax expense or benefit $90.3 $62.1 $36.0Cr. - -----------------------------------------------------------------------------
Cr.=Credit NOTE 13:RELATED PARTY TRANSACTIONS - NIPPON STEEL CORPORATION Following is a summary of the Company's relationships ith NSC, whose indirect wholly owned subsidiary is the holder of the Company's Subordinated Voting Note (see Note 4). I/N Tek, a general partnership formed for a joint venture between the Company and NSC, owns and operates a cold-rolling facility. 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 $147.5 million, $131.1 million and $141.2 million in 1995, 1994 and 1993, respectively, for such tolling services. NSC has the right to purchase up to 400,000 tons of cold rolled steel from Inland Steel Company in each year at market-based negotiated prices, up to half of which may be steel processed by I/N Tek. Purchases of Inland Steel Company products by a subsidiary of NSC aggregated $132.8 million, $172.8 million and $157.8 million during 1995, 1994 and 1993, respectively. At year-end 1995 and 1994, a subsidiary of NSC owed the Company $6.1 million and $10.6 million, respectively, related to these purchases. The Company and NSC also own and operate another joint venture which consists of a 400,000 ton electrogalvanizing line and 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 $452 million out- 24 standing under its long-term financing agreement at December 31, 1995. I/N Kote is required to buy all of its cold rolled steel from Inland Steel Company, which is required to furnish such cold rolled steel at a price that results in an annual return on equity to the partners of I/N Kote, depending upon operating levels, of up to 10 percent after operating and financing costs; this price is subject to an adjustment if Inland Steel Company's return on sales differs from I/N Kote's return on sales. Purchases of Inland Steel Company cold rolled steel by I/N Kote aggregated $303.7 million in 1995, $275.6 million in 1994 and $191.7 million in 1993. At year-end 1995 and 1994, I/N Kote owed the Company $4.8 million and $26.0 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 1995 and 1994, 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 $32.6 million in 1995, $36.0 million in 1994 and $29.1 million in 1993. Inland Steel Company sells all I/N Kote products that are distributed in North America. The Company and NSC have entered into various agreements pursuant to which NSC has provided technical services and licenses of proprietary steel technology with respect to specific Company research and engineering projects. Pursuant to such agreements, Inland Steel Company incurred costs of $1.9 million, $1.6 million and $3.7 million for technical services and related administrative costs for services provided during 1995, 1994 and 1993, respectively. NOTE 14:INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES The Company's investments in unconsolidated joint ventures accounted for by the equity method consist primarily of its 60 percent interest in I/N Tek, 50 percent interest in I/N Kote, 50 percent interest in PCI Associates, 50 percent interest in Ryerson de Mexico, 50 percent interest in I.M.F. Steel International Ltd., 40 percent interest in the Empire Iron Mining Partnership, 15 percent interest (13 3/4 percent interest in 1994 and 1993) in Wabush Mines and 12 1/2 percent interest in Walbridge Electrogalvanizing Company. I/N Tek and I/N Kote are joint ventures with NSC (see Note 13). The Company does not exercise control over I/N Tek, as all significant management decisions of the joint venture require agreement by both of the partners. Due to this lack of control by the Company, the Company accounts for its investment in I/N Tek under the equity method. PCI Associates is a joint venture which operates a pulverized coal injection facility at the Indiana Harbor Works. Ryerson de Mexico is a materials distribution joint venture operated in Mexico. The I.M.F. joint venture was formed to market Company products and services abroad. Empire and Wabush are iron ore mining and pelletizing ventures owned in various percentages primarily by U.S. and Canadian steel companies. Walbridge is a venture that coats cold rolled steel in which Inland has the has the right to 25 percent of the productive capacity. Following is a summary of combined financial information of the Company's unconsolidated joint ventures:
Dollars in Millions 1995 1994 1993 Results of Operations for the years ended December 31: Gross revenue $1,282.2 $1,121.0 $956.7 Costs and expenses 1,203.2 1,092.9 945.1 ---------------------------------------- Net income $ 79.0 $ 28.1 $ 11.6 ======================================== Financial Position at December 31: Current assets $ 313.6 $ 316.2 $279.7 Total assets 1,897.3 1,931.8 1,925.9 Current liabilities 282.2 282.1 241.6 Total liabilities 1,487.8 1,537.6 1,545.5 Net assets 409.5 394.2 380.4
NOTE 15:COMMITMENTS AND CONTINGENCIES Inland Steel Company guarantees payment of principal and interest on its 40 percent share of the long-term debt of Empire Iron Mining Partnership requiring a principal payment of $7.0 million in 1996. At year-end 1995, Inland Steel Company also guaranteed $27.4 million of long-term debt attributable to a subsidiary's interest in PCI Associates. As part of the agreement covering the 1990 sale of the Inland Lime & Stone Company division assets, Inland Steel Company agreed, subject to certain exceptions, to purchase, at prices which approximate market, the full amount of its annual limestone needs or one million gross tons, whichever is greater, through 1996, and the annual limestone needs of the Indiana Harbor Works from 1997 through 2002. The Company and its subsidiaries have various operating leases for which future minimum lease payments are estimated to total $181.7 million through 2020, including approximately $36.3 million in 1996, $31.5 million in 1997, $26.4 million in 1998, $22.3 million in 1999, and $19.7 million in 2000. It is anticipated that the Company will make capital expenditures of $23 million in 1996 and $10 million to $15 million annually in each of the four years thereafter for the construction, and have ongoing annual expenditures of $40 million to $50 million for the operation, of air and water pollution control facilities to comply with current federal, state and local laws and regulations. The Company is involved in various environmental and other administrative or judicial actions initiated by governmental agencies. While it is not possible to predict the results of these matters, the Company does not expect 25 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, 1995, the Company's reserves for environmental liabilities totaled $26 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 $61 million at year-end 1995. NOTE 16:BUSINESS SEGMENTS AND CONCENTRATION OF CREDIT RISK The Company operates in two business segments, Steel Manufacturing and Materials Distribution. Steel Manufacturing operations include the manufacture of steel mill products and the mining and processing of iron ore. Steel Manufacturing produces and sells a wide range of steels, of which approximately 99 percent consists of carbon and high-strength low-alloy steel grades. Approximately 77 percent of this segment's sales were to customers in five mid-American states, and 93 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 nation-wide basis. This segment includes Joseph T. Ryerson & Son, Inc. and J. M. Tull Metals Company, Inc. Substantially all sales between segments are recorded at current market prices. Operating profit consists of total sales less operating expenses. Operating expenses of segments do not include any allocation of general corporate income and expense, other non-operating income or expense, interest income or expense, or income taxes. Identifiable assets are those that are associated with each business segment. Corporate assets are principally investments in cash equivalents, the intangible pension asset in 1995 and 1993, and the assets of discontinued segments. Substantially all of the Company's operations are located in the United States, and foreign sales are not material. During 1994, the Company formed a subsidiary to expand the Company's foreign presence. At year-end 1995, investments in foreign operations were not material.
INFORMATION ABOUT BUSINESS SEGMENTS - --------------------------------------------------------------------------------------------------------------- Dollars in Millions Years Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- NET SALES Steel Manufacturing Operations: Sales to unaffiliated customers $2,337.4 $2,304.5 $2,001.3 Intersegment sales 175.9 183.4 173.6 - --------------------------------------------------------------------------------------------------------------- 2,513.3 2,487.9 2,174.9 - --------------------------------------------------------------------------------------------------------------- Materials Distribution Operations: Sales to unaffiliated customers 2,437.8 2,186.6 1,882.5 Intersegment sales 12.3 10.9 10.8 - --------------------------------------------------------------------------------------------------------------- 2,450.1 2,197.5 1,893.3 - --------------------------------------------------------------------------------------------------------------- Eliminations and adjustments (181.9) (188.4) (180.0) - --------------------------------------------------------------------------------------------------------------- Total net sales $4,781.5 $4,497.0 $3,888.2 - --------------------------------------------------------------------------------------------------------------- OPERATING PROFIT (LOSS) Steel Manufacturing Operations $ 181.7 $ 149.3 $ (28.2) Materials Distribution Operations 148.7 98.1 56.4 Eliminations and adjustments (1.9) 2.0 (1.6) - --------------------------------------------------------------------------------------------------------------- Total operating profit $ 328.5 $ 249.4 $ 26.6 - --------------------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS Steel Manufacturing Operations $2,291.5 $2,352.8 $2,201.2 Materials Distribution Operations 821.2 819.0 788.3 - --------------------------------------------------------------------------------------------------------------- 3,112.7 3,171.8 2,989.5 General corporate and other 445.6 181.6 446.3 - --------------------------------------------------------------------------------------------------------------- Total assets on December 31 $3,558.3 $3,353.4 $3,435.8 - --------------------------------------------------------------------------------------------------------------- DEPRECIATION Steel Manufacturing Operations $ 121.2 $ 117.4 $ 111.1 Materials Distribution Operations 20.4 19.8 19.2 - --------------------------------------------------------------------------------------------------------------- 141.6 137.2 130.3 General corporate and other 1.5 1.5 1.5 - --------------------------------------------------------------------------------------------------------------- Total depreciation $ 143.1 $ 138.7 $ 131.8 - --------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES Steel Manufacturing Operations $ 113.9 $ 223.6 $ 86.1 Materials Distribution Operations 19.3 20.4 19.3 - --------------------------------------------------------------------------------------------------------------- 133.2 244.0 105.4 General corporate and other 1.4 1.3 .2 - --------------------------------------------------------------------------------------------------------------- Total capital expenditures $ 134.6 $ 245.3 $ 105.6 - ---------------------------------------------------------------------------------------------------------------
EX-21 7 LIST OF CERTAIN SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF INLAND STEEL INDUSTRIES, INC. The subsidiaries of Inland Steel Industries, Inc. (other than certain subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary), each of which is incorporated in the State of Delaware (except as noted below) and each of which is wholly owned, either by Inland Steel Industries, Inc. or by one of its wholly owned subsidiaries, are as follows: Inland Steel Company Inland Steel Mining Company Inland Steel Administrative Service Company (formerly known as Inland Steel Finance Company) Inland Materials Distribution Group, Inc. (formerly known as Inland Steel Services Holding, Inc.) Joseph T. Ryerson & Son, Inc. J. M. Tull Metals Company, Inc. (a Georgia corporation) EX-24 8 POWERS OF ATTORNEY 1 Exhibit 24 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ A. Robert Abboud --------------------- 2 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 27th day of January, 1996. /s/ James W. Cozad -------------------- 3 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ Robert J. Darnall ---------------------- 4 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ James A. Henderson ----------------------- 5 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 27th day of January, 1996. /s/ Robert B. McKersie ----------------------- 6 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 25th day of January, 1996. /s/ Maurice S. Nelson ---------------------- 7 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ Donald S. Perkins ---------------------- 8 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ Jean-Pierre Rosso ---------------------- 9 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 30th day of January, 1996. /s/ Joshua I. Smith -------------------- 10 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 25th day of January, 1996. /s/ Nancy H. Teeters --------------------- 11 INLAND STEEL INDUSTRIES, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, as a director and(or) officer of Inland Steel Industries, Inc., a Delaware corporation, do hereby nominate, constitute and appoint Robert J. Darnall, Earl L. Mason, Vicki L. Avril and George A. Ranney, Jr., 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, 1995, 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 26th day of January, 1996. /s/ Arnold R. Weber -------------------- EX-27 9 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET, AND THE SUMMARY OF STOCKHOLDERS' EQUITY CONTAINED IN THE ANNUAL REPORT ON FORM 10-K TO WHICH THIS EXHIBIT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL SCHEDULES. YEAR DEC-31-1995 DEC-31-1995 267,400 0 518,400 29,900 461,000 1,262,300 4,364,000 2,763,600 3,558,300 644,200 784,500 0 3,200 50,600 694,800 3,558,300 4,778,900 4,781,500 4,241,600 4,243,900 0 0 71,900 237,100 90,300 146,800 0 0 0 146,800 2.69 2.55
-----END PRIVACY-ENHANCED MESSAGE-----