ITEM 1. BUSINESS.
Inland Steel Industries, Inc. (the "Company"), a Delaware corporation, is the sole stockholder of Inland Steel Company and Inland Materials Distribution Group, Inc. ("Distribution"). Inland Steel Company is a fully integrated domestic steel company that produces and sells a wide range of steels, of which approximately 99% consists of carbon and high-strength low-alloy steel grades. It is also a participant in certain steel-finishing joint ventures. Distribution is the sole stockholder of Joseph T. Ryerson & Son, Inc. ("Ryerson") and J. M. Tull Metals Company, Inc. ("Tull"). Ryerson and Tull are leading steel service, distribution and materials processing organizations.
BUSINESS SEGMENTS
The business segments of the Company and its subsidiaries are Steel Manufacturing (including iron ore operations) and Materials Distribution. For the three years ended December 31, 1994, information relating to net sales, operating profit, identifiable assets, depreciation and capital expenditures for both business segments of the Company appears in Note 16 of Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994. Such information is hereby incorporated by reference herein.
Steel Manufacturing Operations
General
Inland Steel Company, a wholly owned subsidiary of the Company, is directly engaged in the production and sale of steel and related products and the transportation of iron ore, limestone and certain other commodities (primarily for its own use) on the Great Lakes. Certain subsidiaries and associated companies of Inland Steel Company are engaged in the mining and pelletizing of iron ore and in the operation of a cold-rolling mill and steel galvanizing lines. All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana, which also has facilities for converting the steel produced into semi-finished and finished steel products.
Inland Steel Company has two divisions -- the Inland Steel Flat Products Company division and the Inland Steel Bar Company division. The Flat Products division manages Inland Steel Company's iron ore operations, conducts its ironmaking operations, and produces the major portion of its raw steel. This division also manufactures and sells steel sheet, strip and plate and certain related semi-finished products for the automotive, appliance, office furniture, steel service center and electrical motor markets. The Bar division manufactures and sells special quality bars and certain related semi-finished products for forgers, steel service centers, heavy equipment manufacturers, cold finishers and the transportation industry. The Bar division closed its 28-inch structural mill in early 1991, completing Inland Steel Company's withdrawal from the structural steel manufacturing business.
Inland Steel Company and Nippon Steel Corporation ("NSC") are participants, through subsidiaries, in two joint ventures that operate steel-finishing facilities near New Carlisle, Indiana. The total cost of these two facilities was approximately $1.1 billion. I/N Tek, owned 60% by a wholly owned subsidiary of Inland Steel Company and 40% by an indirect wholly owned subsidiary of NSC, operates a cold-rolling mill that began shipping commercial product in 1990 and reached its design capability in 1992. I/N Kote, owned equally by wholly owned subsidiaries of Inland Steel Company and NSC (indirect in the case of NSC), operates two galvanizing lines which began start-up production in late 1991, became fully operational in the third quarter of 1992, and have operated near design capacity since August 1993. Inland Steel Company is also a participant, through a subsidiary, in another galvanizing joint venture located near Walbridge, Ohio.
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:
--------------- * Net tons of 2,000 pounds. ** Based on preliminary data from the American Iron and Steel Institute.
The annual raw steelmaking capacity of Inland Steel Company was reduced to 6.0 million net tons from 6.5 million net tons effective September 1, 1991, as Inland Steel Company ceased making ingots. The basic oxygen process accounted for 94% of raw steel production of Inland Steel Company in each of 1994 and 1993. The remainder of such production was accounted for by electric furnace.
The total tonnage of steel mill products shipped by Inland Steel Company for each of the five years 1990 through 1994 was 5.2 million tons in 1994; 4.8 million tons in 1993; 4.3 million tons in 1992; 4.2 million tons in 1991; and 4.7 million tons in 1990. In 1994, sheet, strip, plate and certain related semi-finished products accounted for 86% of the total tonnage of steel mill products shipped from the Indiana Harbor Works, and bar and certain related semi-finished products accounted for 14%.
In 1994 and 1993, approximately 95% and 93% respectively of the shipments of the Flat Products division and 93% and 92% respectively of the shipments of the Bar division were to customers in 20 mid-American states. Approximately 77% of the shipments of the Flat Products division and 84% of the shipments of the Bar division in 1994 were to customers in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and Wisconsin, compared to 75% and 83% in 1993. Both divisions compete in these geographical areas, principally on the basis of price, service and quality, with the nation's largest producers of raw steel as well as with foreign producers and with many smaller domestic mills.
According to data from the American Iron and Steel Institute, steel imports to the United States in 1994 totaled approximately 30.1 million tons, compared with 19.5 million tons imported in 1993. Steel imports constituted approximately 24.7% of apparent domestic supply in 1994, compared with approximately 18.7% of apparent domestic supply in 1993. During 1984, the previous peak year for steel imports into the U.S., such imports accounted for 26.4% of apparent domestic supply.
Many foreign steel producers are owned, controlled or subsidized by their governments. In 1992, the Company and certain domestic steel producers filed unfair trade petitions against foreign producers of certain bar, rod and flat-rolled products. During 1993, the International Trade Commission ("ITC") upheld final subsidy and dumping margins on essentially all of the bar and rod products and about half of the flat-rolled products, in each case based on the tonnage of the products against which claims were brought. The Company and certain domestic producers have filed formal appeals of the adverse ITC decisions in the U.S. Court of International Trade ("CIT") or similar jurisdictional bodies, and foreign producers have appealed certain of the findings against them. The CIT sustained the ITC in the bar and rod product cases and in the cold-rolled and hot-rolled flat product cases. Appeals are pending regarding the corrosion-resistant flat products cases. It is not certain how the ITC actions and the appeals have impacted imports of steel products into the United States or the price of such steel products.
On December 15, 1993, President Clinton notified the U.S. Congress of his intent to enter into agreements resulting from the Uruguay Round of multilateral trade negotiations under the General
Agreement on Tariffs and Trade. The key provisions applicable to domestic steel producers include an agreement to eliminate steel tariffs in major industrial markets, including the United States, and agreements regarding various subsidy and dumping practices as well as dispute settlement procedures. Legislation to implement the Uruguay Round agreement was enacted into federal law in December 1994. The agreement went into effect January 1, 1995.
Primarily as a result of the influx of foreign steel imports and the depressed demand for domestic steel products that began in the early 1980s, certain facilities at the Indiana Harbor Works were permanently closed during the second half of the 1980s and the early 1990s and others were shut down for temporary periods. The 28-inch structural mill was closed in early 1991, reflecting a decision to withdraw from the structural steel markets. In late 1991 the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were closed either as part of a program to permanently reduce costs through the closure of uneconomic facilities or for environmental reasons. Provisions with respect to the shutdown of the structural mill were taken in 1987. Provisions for estimated costs incurred in connection with the closure of the mold foundry, No. 8 Coke Oven Battery, and selected other facilities were made in 1991. Included in such provisions were costs associated with Inland Steel Company's closure of its No. 11 Coke Oven Battery in June 1992. All remaining coke batteries were closed by year-end 1993, a year earlier than previously anticipated. An additional provision was required with respect to those closures. (See "Environment" below.)
For the five years indicated, shipments by market classification of steel mill products produced by Inland Steel Company at its Indiana Harbor Works, including shipments to affiliates of the Company, are set forth below. The table confirms that a substantial portion of shipments by the Flat Products division was to steel service centers and transportation-related markets. The Bar division shipped more than 53% of its products to the steel converters/processors market over the five-year period shown in the table.
Some value-added steel processing operations that Inland Steel Company does not have the capability to perform are performed by outside processors, including joint ventures, prior to shipment of certain products to Inland Steel Company's customers. In 1994, approximately 23% of the products produced by Inland Steel Company were processed further through value-added services such as electrogalvanizing, painting and slitting, excluding products processed further by affiliates.
Approximately 48% of the total tonnage of shipments by Inland Steel Company during 1994 from the Indiana Harbor Works was transported by truck, with the remainder transported primarily by rail. A wholly owned truck transport subsidiary of Inland Steel Company was responsible for shipment of approximately 10% of the total tonnage of products transported by truck from the Indiana Harbor Works in 1994.
Substantially all of the steel mill products produced by the Flat Products division are marketed through its own selling organization, with offices located in Chicago; Southfield, Michigan; St. Louis; and Nashville,
Tennessee. Substantially all of the steel mill products produced by the Bar division are marketed through its sales office in East Chicago, Indiana.
See "Product Classes" below for information relating to the percentage of consolidated net sales accounted for by certain classes of similar products of steel manufacturing operations.
Raw Materials
Inland Steel Company obtains iron ore pellets primarily from three iron ore properties, located in the United States and Canada, in which subsidiaries of Inland Steel Company have varying interests -- the Empire Mine in Michigan, the Minorca Mine in Minnesota and the Wabush Mine in Labrador and Quebec, Canada. In recent years Inland Steel Company has closed or terminated certain less cost-efficient iron ore mining operations. See "Properties Relating to Steel Manufacturing Segment -- Raw Materials Properties and Interests" in Item 2
ITEM 2. PROPERTIES.
PROPERTIES RELATING TO STEEL MANUFACTURING SEGMENT
Steel Production
All raw steel made by Inland Steel Company is produced at its Indiana Harbor Works located in East Chicago, Indiana. The property on which this plant is located, consisting of approximately 1,900 acres, is held by Inland Steel Company in fee. The basic production facilities of Inland Steel Company at its Indiana Harbor Works consist of furnaces for making iron; basic oxygen and electric furnaces for making steel; a continuous billet caster, a continuous combination slab/bloom caster and two continuous slab casters; and a variety of rolling mills and processing lines which turn out finished steel mill products. Certain of these production facilities, including a continuous anneal line, are held by Inland Steel Company under leasing arrangements. Inland Steel Company purchased the equity interest of the lessor of the No. 2 BOF Shop caster facility and assumed caster-related debt in March 1994, which debt was repaid by year-end 1994. Substantially all of the remaining property, plant and equipment at the Indiana Harbor Works, other than such caster facility and the leased equipment, is subject to the lien of the First Mortgage of Inland Steel Company dated April 1, 1928, as amended and supplemented. See "Business Segments -- Steel Manufacturing Operations -- Raw Steel Production and Mill Shipments" in Item 1 above for further information relating to capacity and utilization of Inland Steel Company's properties. Inland Steel Company's properties are adequate to serve its present and anticipated needs, taking into account those issues discussed in "Capital Expenditures and Investments in Joint Ventures" in Item 1 above.
I/N Tek, a partnership in which a subsidiary of Inland Steel Company owns a 60% interest, has constructed a 1,500,000-ton annual capacity cold-rolling mill on approximately 200 acres of land, which it owns in fee, located near New Carlisle, Indiana. Substantially all the property, plant and equipment owned by I/N Tek at this location is subject to a lien securing related indebtedness. The I/N Tek facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility.
I/N Kote, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a 900,000-ton annual capacity steel galvanizing facility on approximately 25 acres of land, which it owns in fee, located adjacent to the I/N Tek site. Substantially all the property, plant and equipment owned
by I/N Kote is subject to a lien securing related indebtedness. The I/N Kote facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility.
PCI Associates, a partnership in which a subsidiary of Inland Steel Company owns a 50% interest, has constructed a pulverized coal injection facility on land located within the Indiana Harbor Works. Inland Steel Company leases PCI Associates the land upon which the facility is located. Substantially all the property, plant and equipment owned by PCI Associates is subject to a lien securing related indebtedness. The PCI facility is adequate to serve the present and anticipated needs of Inland Steel Company planned for such facility.
Inland Steel Company owns three vessels for the transportation of iron ore and limestone on the Great Lakes, and a subsidiary of Inland Steel Company owns a fleet of 404 coal hopper cars (100-ton capacity each) used in unit trains to move coal and coke to the Indiana Harbor Works. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to utilization of Inland Steel Company's transportation equipment. Such equipment is adequate, when combined with purchases of transportation services from independent sources, to meet Inland Steel Company's present and anticipated transportation needs.
Inland Steel Company also owns and maintains research and development laboratories in East Chicago, Indiana, which facilities are adequate to serve its present and anticipated needs.
Raw Materials Properties and Interests
Certain information relating to raw materials properties and interests of Inland Steel Company and its subsidiaries is set forth below. See "Business Segments -- Steel Manufacturing Operations -- Raw Materials" in Item 1 above for further information relating to capacity and utilization of such properties and interests.
Iron Ore
The operating iron ore properties of Inland Steel Company's subsidiaries and of the iron ore ventures in which Inland Steel Company has an interest are as follows:
The Empire Mine is operated by the Empire Iron Mining Partnership, in which Inland Steel Company has a 40% interest. Inland Steel Company, through a subsidiary, is the sole owner and operator of the Minorca Mine. The Wabush Mine is a taconite project in which Inland Steel Company owns a 13.75% interest. Inland Steel Company also owns a 38% interest in the Butler Taconite project (permanently closed in 1985) in Nashwauk, Minnesota.
The reserves at the Empire Mine, the Minorca Mine and the Wabush Mine are held under leases expiring, or expected at current production rates to expire, between 2012 and 2040. Substantially all of the reserves at Butler Taconite are held under leases. Inland Steel Company's share of the production capacity of its interests in such iron ore properties is sufficient to provide the majority of its present and anticipated iron ore pellet requirements. Any remaining requirements have been and are expected to continue to be readily available from independent sources. During 1992, the Minorca Mine's original ore body was depleted and production shifted to a new major iron ore body, the Laurentian Reserve, acquired by lease in 1990.
Limestone and Dolomite
The limestone and dolomite properties of Inland Steel Company located near the town of Gulliver in the Upper Peninsula of Michigan were permanently closed on December 29, 1989 and sold in 1990.
Coal
Inland Steel Company's sole remaining coal property, the Lancashire No. 25 Property, located near Barnesboro, Pennsylvania, is permanently closed. All Inland Steel Company coal requirements for the past several years have been and are expected to continue to be met through contract purchases and other purchases from independent sources.
PROPERTIES OF MATERIALS DISTRIBUTION SEGMENT
Joseph T. Ryerson & Son, Inc.
Ryerson owns its regional business unit headquarters offices in Chicago and leases regional headquarters offices in West Chester (PA) and Renton (WA). Ryerson/East division maintains materials distribution centers at Buffalo, Carnegie (PA), Charlotte, Chattanooga, Cleveland, Jersey City, Philadelphia, and Wallingford (CT). Ryerson/Central's service centers are in Chicago, Cincinnati, Dallas, Detroit, Houston, Indianapolis, Kansas City, Milwaukee, Plymouth (MN), St. Louis, and Tulsa. Ryerson/West's service centers are in Commerce City (CO), Emeryville (CA), Los Angeles, Phoenix, Portland (OR), Renton (WA), Spokane, and Salt Lake City. Ryerson Coil Processing division's processing facilities are located in Chicago, Marshalltown (IA), Plymouth (MN) and New Hope (MN).
All of Ryerson's operating facilities are held in fee with the exception of a portion of the property at St. Louis (held under long-term lease), a portion of the property in Portland (held under short-term lease), a satellite facility at Omaha (held under short-term lease), one facility in Chicago (held under short-term lease), two facilities in New Hope (MN) (one partly held in fee and partly under short-term lease, the other held under short-term lease), one facility in Marshalltown (IA) (held under an installment purchase contract) and one facility in Salt Lake City (held under short-term lease). In addition, Ryerson holds in fee approximately 44 acres of unimproved property in Powder Springs (GA), and the approximately 11-acre site of a former operating facility in Allston (MA). Ryerson's properties are adequate to serve its present and anticipated needs.
J. M. Tull Metals Company, Inc.
Tull maintains service centers in Birmingham, Columbia (SC), Jacksonville, Miami, Tampa, Baton Rouge, New Orleans, Charlotte, Greensboro (NC), Greenville (SC), Richmond, and Norcross (GA), where its headquarters is located. All of these facilities are owned by Tull in fee, except for the Columbia facility, which is held under short-term lease. Tull's AFCO Metals, Inc. subsidiary operates service centers in Fort Smith (AR), Oklahoma City, Shreveport, West Memphis (AR), Wichita, Jackson (MS) and Little Rock. AFCO's headquarters are located in Norcross (GA), where it leases space owned in fee by Tull. Each of AFCO's facilities is held in fee except the Wichita facility, which is held under a short-term lease. Tull's properties are adequate to serve its present and anticipated needs.
OTHER PROPERTIES
The Company and certain of its subsidiaries lease, under a long-term arrangement, approximately 63% of the space in the Inland Steel Building located at 30 West Monroe Street, Chicago, Illinois (where the Company's principal executive offices are located), which property interest is adequate to serve the Company's present and anticipated needs. Approximately 33% of such space is under sublease to other parties.
Magnetics International, Inc., a subsidiary of the Company, owns approximately 63 acres in northern Indiana, on which site it has constructed an iron oxide plant that began operation in April 1991. Such facility is adequate to serve the present and anticipated needs of Magnetics International, Inc. Certain subsidiaries of the Company hold in fee at various locations an aggregate of approximately 355 acres of land, all of which is
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.
ITEM 3. LEGAL PROCEEDINGS.
On June 10, 1993, the U.S. District Court for the Northern District of Indiana entered a consent decree that resolved all matters raised by the lawsuit filed by the EPA in 1990. The consent decree includes a $3.5 million cash fine, environmentally beneficial projects at the Indiana Harbor Works through 1997 costing approximately $7 million, and sediment remediation of portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost approximately $19 million over the next several years. The fine and estimated remediation costs were provided for in 1991 and 1992. After payment of the fine, the Company's reserve for environmental liabilities totalled $19 million. The consent decree also defines procedures for corrective action at Inland Steel Company's Indiana Harbor Works. The procedures defined establish essentially a three-step process, each step of which requires agreement of the EPA before progressing to the next step in the process, consisting of: assessment of the site, evaluation of corrective measures for remediating the site, and implementation of the remediation plan according to the agreed-upon procedures. The Company is presently assessing the extent of environmental contamination. The Company anticipates that this assessment will cost approximately $1 million to $2 million per year and take another three to five years to complete. Because neither the nature and extent of the contamination nor the corrective actions can be determined until the assessment of environmental contamination and evaluation of corrective measures is completed, the Company cannot presently reasonably estimate the costs of or the time required to complete such corrective actions. Such corrective actions may, however, require significant expenditures over the next several years that may be material to the results of operations or financial position of the Company. Insurance coverage with respect to such corrective actions is not significant. In addition, during 1994, Inland Steel Company paid stipulated penalties of $184,000 pursuant to the provisions of the consent decree in connection with air emissions from its coke facilities.
On March 22, 1985, the EPA issued an administrative order to Inland Steel Company's former Inland Steel Container Company Division ("Division") naming the former Division and various other unrelated companies as responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") in connection with the cleanup of a waste disposal facility operated by Duane Marine Salvage Corporation at Perth Amboy, New Jersey. The administrative order alleged that certain of the former Division's wastes were transported to, and disposed of at, that facility and required Inland Steel Company to join with other named parties in taking certain actions relating to the facility. Inland Steel Company and the other administrative order recipients have completed the work required by the order. In unrelated matters, the EPA also advised the former Division and various other unrelated parties of other sites located in New Jersey at which the EPA expects to spend public funds on any investigative and corrective measures that may be necessary to control any releases or threatened releases of hazardous substances, pollutants and contaminants pursuant to the applicable provisions of CERCLA. The notice also indicated that the EPA believes Inland Steel Company may be a responsible party under CERCLA. The extent of Inland Steel Company's involvement and participation in these matters has not yet been determined. While it is not possible at this time to predict the amount of Inland Steel Company's potential liability, none of these matters is expected to materially affect Inland Steel Company's financial position.
The EPA has adopted a national policy of seeking substantial civil penalties against owners and operators of sources for noncompliance with air and water pollution control statutes and regulations under certain circumstances. It is not possible to predict whether further proceedings will be instituted against the Company or any of its subsidiaries pursuant to such policy, nor is it possible to predict the amount of any such penalties that might be assessed in any such proceeding.
In 1994, Inland Steel Company entered into an Agreed Order with the Indiana Department of Environmental Management ("IDEM") which resolved all outstanding Notices of Violation and other air emission issues at the Indiana Harbor Works raised by IDEM. The Agreed Order covers air emissions from coke oven batteries, steelmaking facilities and fugitive road dust and required the payment of a $572,000 cash penalty.
Inland Steel Company received a Notice of Violation from IDEM dated March 3, 1989 alleging violations of Inland Steel Company's National Pollution Discharge Elimination System permit regarding water discharges. Inland Steel Company is presently in discussions with the staff of IDEM with respect to these matters and cannot currently estimate the time period within which these matters will be resolved. While it is not possible at this time to predict the amount of Inland Steel Company's potential liability, this matter is not expected to materially affect Inland Steel Company's financial position.
Inland Steel Company received a Special Notice of Potential Liability ("Special Notice") from IDEM on February 18, 1992 relating to the Four County Landfill Site, Fulton County, Indiana (the "Facility"). The Special Notice stated that IDEM has documented the release of hazardous substances, pollutants and contaminants at the Facility and was planning to spend public funds to undertake an investigation and control the release or threatened release at the Facility unless IDEM determined that a potentially responsible party ("PRP") will properly and promptly perform such action. The Special Notice further stated that Inland Steel Company may be a PRP and that Inland Steel Company, as a PRP, may have potential liability with respect to the Facility. In August 1993, Inland Steel Company, along with other PRPs, entered into an Agreed Order with IDEM, pursuant to which the PRPs agreed to perform a Remedial Investigation/Feasibility Study ("RI/FS") for the Facility and pay certain past and future IDEM costs. In addition, the PRPs agreed to provide funds for operation and maintenance necessary for stabilization of the Facility. Those costs which Inland Steel Company has agreed to assume under the Agreed Order are not currently anticipated to exceed $178,000. The cost of the final remedies which will be determined to be required with respect to the Facility cannot be reasonably estimated until, at a minimum, the RI/FS is completed. Inland Steel Company is therefore unable to determine the extent of its potential liability, if any, relating to the Facility or whether this matter could materially affect Inland Steel Company's financial position.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT.
Officers are elected by the Board of Directors of the Company to serve for a period ending with the next succeeding annual meeting of the Board of Directors held immediately after the annual meeting of stockholders. All executive officers of the Company, with the exception of H. William Howard, Earl L. Mason, Maurice S. Nelson, Jr., and Neil S. Novich, have been employed by the Company or a subsidiary of the Company throughout the past five years.
Set forth below are the executive officers of the Company as of March 1, 1995 and the age of each as of such date. Their principal occupations held presently and during the past five years, including positions and offices held with the Company or a significant subsidiary of the Company, are shown below.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company is listed and traded on the New York Stock Exchange. As of March 13, 1995, the number of holders of record of common stock of the Company was 14,505.
The remaining information called for by this Item 5 is set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and is hereby incorporated by reference herein.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item 6 with respect to each of the last five years of the Company is set forth under the caption "Eleven-Year Summary of Selected Financial Data and Operating Results" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and is hereby incorporated by reference herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information called for by this Item 7 is set forth in the Financial Review section of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and, excluding the tables entitled "Inland Steel Company -- Steel Shipments by Market" and "Inland Materials Distribution Group -- Shipments by Market" and the bar charts entitled "Inland Steel Industries -- Earnings Before Interest, Taxes, and Depreciation," "Inland Steel Industries -- Debt to Total Capitalization," "Inland Steel Company -- Average Price Per Ton," and "Inland Materials Distribution Group -- Quarterly Improvement in Operating Profit" contained therein, is hereby incorporated by reference herein.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company called for by this Item 8, together with the report thereon of the independent accountants dated February 20, 1995, are set forth under the captions "Report of Independent Accountants" and "Statement of Accounting and Financial Policies" as well as in all consolidated financial statements and schedules of the Company and the "Notes to Consolidated Financial
Statements" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are hereby incorporated by reference herein. The financial statement schedules listed under Item 14(a)2 of this Report on Form 10-K, together with the report thereon of the independent accountants dated February 20, 1995, should be read in conjunction with the consolidated financial statements. Financial statement schedules not included in this Report on Form 10-K have been omitted because they are not applicable or because the information called for is shown in the consolidated financial statements or notes thereto. Separate consolidated financial statements for Inland Steel Company are set forth in Inland Steel Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Separate consolidated financial statements for Inland Materials Distribution Group, Inc. are set forth in Appendix A to this Report.
Consolidated quarterly sales, earnings and per share common stock information for 1993 and 1994 are set forth under the caption "Summary by Quarter" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are hereby incorporated by reference herein.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item 10 with respect to directors of the Company will be set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein. The information called for with respect to executive officers of the Company is included in Part I of this Report on Form 10-K under the caption "Executive Officers of Registrant."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 will be set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The information called for by this Item 12 with respect to security ownership of more than five percent of the Company's common stock, Series E ESOP Convertible Preferred Stock and Series F Exchangeable Preferred Stock will be set forth under the caption "Additional Information Relating to Voting Securities" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on May 24, 1995, and is hereby incorporated by reference herein.
The following beneficial owners of Series A $2.40 Cumulative Convertible Preferred Stock are the only persons known to the Company to be the beneficial owners (as defined by the Securities and Exchange Commission), as of March 13, 1995, of more than five percent of that class of the Company's voting securities:
(b) The information called for by this Item 12 with respect to the security ownership of directors and of management will be set forth under the caption "Security Ownership of Directors and Management" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement which will be furnished to stockholders in connection with the Annual Meeting of Stockholders to be held on May 24, 1995, and is hereby incorporated by reference herein.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS A PART OF THIS REPORT.
1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY. The consolidated financial statements listed below are set forth in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994, and are incorporated by reference in Item 8 of this Annual Report on Form 10-K.
Report of Independent Accountants dated February 20, 1995.
Statement of Accounting and Financial Policies.
Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1994.
Consolidated Statement of Cash Flows for the three years ended December 31, 1994.
Consolidated Balance Sheet at December 31, 1994 and 1993.
Schedules to Consolidated Financial Statements at December 31, 1994 and 1993, relating to:
Investments and Advances.
Property, Plant and Equipment.
Long-Term Debt.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES OF THE COMPANY.
Report of Independent Accountants on Financial Statement Schedules dated February 20, 1995. (Included on page 27 of this Report)
Consent of Independent Accountants. (Included on page 27 of this Report)
For the years ended December 31, 1994, 1993 and 1992:
Schedule I -- Condensed Financial Information (Parent Company Only). (Included on pages 28 to 30, inclusive, of this Report)
Schedule II -- Reserves. (Included on page 31 of this Report)
3. CONSOLIDATED FINANCIAL STATEMENTS OF INLAND MATERIALS DISTRIBUTION GROUP, INC.
The consolidated financial statements listed below are set forth in Appendix A on pages A-1 to A-13 inclusive, of this Report.
Report of Independent Accountants dated February 20, 1995. (Page A-2)
Consolidated Statements of Operations and Reinvested Earnings for the three years ended December 31, 1994. (Page A-3)
Consolidated Statement of Cash Flows for the three years ended December 31, 1994. (Page A-4)
Consolidated Balance Sheet at December 31, 1994 and 1993. (Page A-5)
Statement of Accounting and Financial Policies. (Page A-6)
Notes to Consolidated Financial Statements. (Pages A-7 to A-13, inclusive)
4. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation S-K are listed under the caption "Exhibits" below.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1994.
(C) EXHIBITS.
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K.
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K.
--------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Inland Steel Industries, Inc.
Our audits of the consolidated financial statements referred to in our report dated February 20, 1995 appearing on page 34 of the 1994 Annual Report to Stockholders of Inland Steel Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)2 of this Annual Report on Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois February 20, 1995
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Form S-8 (No. 33-48770), Registration Statement on Form S-8 (No. 33-22902); Registration Statement on Form S-8 (No. 33-32504); and Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 33-6627) of Inland Steel Industries, Inc. of our report dated February 20, 1995, appearing on page 34 of the 1994 Annual Report to Stockholders of Inland Steel Industries, Inc. which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears above.
PRICE WATERHOUSE LLP
Chicago, Illinois March 28, 1995
INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only)
STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
--------------- Cr. = Credit
See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only)
STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
INLAND STEEL INDUSTRIES, INC. Schedule I -- Condensed Financial Information (Parent Company Only)
BALANCE SHEET AT DECEMBER 31, 1994 AND 1993 (DOLLARS IN MILLIONS -- EXCEPT PER SHARE DATA) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Maturities of Long-Term Debt due within five years are: $8.3 million in 1995, $9.0 million in 1996, $9.7 million in 1997, $10.5 million in 1998, and $11.5 million in 1999. See Notes to Consolidated Financial Statements in Item 8. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
INLAND STEEL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II--RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
--------------- NOTES: (A) Bad debts written off during year. (B) Allowances granted during year.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INLAND STEEL INDUSTRIES, INC.
By: ROBERT J. DARNALL -------------------------------- Robert J. Darnall Chairman, President and Chief Executive Officer
Date: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
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.)
A-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Inland Materials Distribution Group, Inc.
In our opinion, the consolidated financial statements listed in the index appearing on page A-1 present fairly, in all material respects, the financial position of Inland Materials Distribution Group, Inc. (a wholly-owned subsidiary of Inland Steel Industries, Inc.) and Subsidiary Companies at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 5 and 6 to the consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions and for income taxes.
PRICE WATERHOUSE LLP
Chicago, Illinois February 20, 1995
A-2
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) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
A-3
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) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
A-4
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
A-5
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following briefly describes the Company's principal accounting and financial policies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Joseph T. Ryerson & Son, Inc., and J. M. Tull Metals Company, Inc., which are wholly owned subsidiaries of the Company. The accounts of J. M. Tull Metals Company, Inc. are consolidated with its wholly owned subsidiary, AFCO Metals, Inc.
Inventory valuation
Inventories are valued at cost which is not in excess of market. Cost is determined principally by the last-in, first-out (LIFO) method.
Property, plant and equipment
Property, plant and equipment is depreciated, for financial reporting purposes, on the straight-line method over the estimated useful lives of the assets. Expenditures for normal repair and maintenance are charged against income in the period incurred.
Excess of cost over net assets acquired
The excess of cost over fair value of net assets of businesses acquired (goodwill) is amortized on the straight-line method over a 25-year period. Accumulated amortization of goodwill totaled $8.8 million at December 31, 1994 and $7.5 million at December 31, 1993.
Benefits for retired employees
Pension benefits are provided by the Company to substantially all employees under a trusteed noncontributory plan of Inland Steel Industries, Inc. ("Industries"). Life insurance and certain medical benefits are provided for substantially all retired employees.
The estimated costs of pension, medical, and life insurance benefits are determined annually by consulting actuaries. With the adoption of Financial Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992, the cost of health care benefits for retirees, previously recognized as incurred, is now being accrued during their term of employment (see Note 5). Pensions are funded in accordance with ERISA requirements in a trust established under the plan. Costs for retired employee medical benefits and life insurance are funded when claims are submitted.
Cash and cash equivalents
Cash management activities are performed by the Company's parent, Inland Steel Industries, Inc., to which cash is periodically transferred. Cash equivalents are highly liquid, short-term investments with maturities of three months or less.
Income taxes
Effective January 1, 1992, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes" (see Note 6).
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A-6
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTE 1. INVENTORIES
The Company's inventories consist principally of finished steel, nonferrous metals and industrial plastic products for sale at service center locations.
The difference between LIFO values and approximate replacement costs for the LIFO inventories was $132.6 million at December 31, 1994 and $106.0 million at December 31, 1993.
NOTE 2. BORROWING ARRANGEMENTS
At December 31, 1994 and 1993, the Company's subsidiaries had available two unused credit facilities totaling $125 million. Each facility requires compliance with various financial covenants including minimum net worth and leverage ratio tests. The covenants also limit the amount of cash that the Company can transfer to Industries in the form of dividends and other advances.
A $100 million unsecured credit agreement between Joseph T. Ryerson and Son, Inc. and a group of banks provides a revolving credit facility to March 31, 1995. A new agreement extending the maturity of this credit facility for five years and increasing the amount to $200 million has been approved by the banks, subject to final documentation.
J. M. Tull Metals Company, Inc. has a $25 million unsecured revolving credit agreement with other banks, which extends to December 15, 1997.
NOTE 3. LONG-TERM DEBT
The Company's long-term debt is as follows:
Maturities of long-term debt are: $4.7 million in 1995, $4.7 million in 1996, $5.6 million in 1997, $6.3 million in 1998, and $7.0 million in 2007.
Under the provisions of certain loan agreements, the Company is required to maintain specified amounts of working capital and net worth, as outlined in the agreements, and is restricted as to dividends that may be paid to Industries.
Property with a net recorded carrying value of approximately $16.0 million at December 31, 1994 is pledged as collateral on the industrial revenue bonds and mortgage loans.
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A-7
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
NOTE 4. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Derivatives
The Company has only limited involvement with derivative financial instruments, none of which are used for trading purposes. The Company has entered into an interest rate swap agreement to reduce the impact of changes in LIBOR on its $7.1 million term note. At December 31, 1994 the Company had outstanding an interest rate swap agreement with the bank having a notional principal amount equal to the outstanding principal of the related term note. This agreement effectively changes the Company's interest rate exposure on its term note to a fixed rate of 5.925%. The interest rate swap matures August 17, 1998. Gains and losses associated with this hedging transaction become part of the interest expense of the related debt. The Company is exposed to potential credit loss in the event of nonperformance by the bank; however, the Company does not anticipate such nonperformance.
Cash and Cash Equivalents
The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments.
Long-term Debt
The estimated fair value of the Company's long-term debt (including current portions thereof) using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded was $27.4 million at December 31, 1994 and $33.9 million at December 31, 1993 as compared with the carrying value of $28.3 million and $33.2 million included in the balance sheet at year-end 1994 and 1993, respectively.
NOTE 5. RETIREMENT BENEFITS
Pensions
The Inland Steel Industries Pension Plan and Pension Trust (the "Plan"), covers certain employees, retirees and their beneficiaries of Industries and its subsidiaries, including the Company. The Plan is a noncontributory defined benefit plan that provides benefits based on final pay and years of service for all salaried employees and certain wage employees, and years of service and a fixed rate (in most instances based on frozen pay level or on job class) for all other wage employees, including employees under collective bargaining agreements. Because the fair value of pension plan assets pertains to all participants in the Plan, no separate determination is made solely with respect to the Company. At year-end 1994 and 1993, the actuarial
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A-8
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
present value of benefits for service rendered to date and the fair value of plan assets available for benefits for the Industries consolidated group were as follows:
In 1993, Industries recorded an additional minimum pension liability of $122.1 million representing the excess of the unfunded Accumulated Benefit Obligation over previously accrued pension costs. A corresponding intangible asset was recorded as an offset to this additional liability as prescribed. Neither was required in 1994.
A weighted average discount (settlement) rate of 8.80% in 1994 and 7.25% in 1993 was used in the determination of the actuarial present value of benefits.
The Company recorded net pension charges of $1.9 million in 1994 and $.1 million in 1993, and a credit of $.4 million in 1992.
The cost of other industry welfare and retirement funds, for bargaining unit employees, was $2.6 million in 1994, $2.9 million in 1993, and $2.5 million in 1992.
Benefits Other Than Pensions
Substantially all of the Company's employees are covered under postretirement life insurance and medical benefit plans that involve deductible and co-insurance requirements. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on applicable annual earnings at retirement for salaried employees and specific amounts for hourly employees. The Company does not prefund any of these postretirement benefits.
The Company has adopted FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. FASB Statement No. 106 requires accrual accounting for all postretirement benefits other than pensions. The Company must be fully accrued for these postretirement benefits by the date each employee attains full eligibility for such benefits. In conjunction with the adoption of FASB Statement No. 106, the Company elected to immediately recognize the accumulated postretirement benefit obligation for current and future retirees (the "transition obligation").
The amount of net periodic postretirement benefit cost for 1994, 1993 and 1992 is composed of the following:
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A-9
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:
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:
A one percentage point increase in the assumed health care cost trend rates for each future year increases annual periodic postretirement benefit cost and the accumulated postretirement benefit obligation as of December 31, 1994 by $1.3 million and $9.8 million, respectively.
Postemployment Benefits
In November 1992, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits." Adoption of the new Standard in 1994 did not have a material impact on results of operations or the financial position of the Company.
NOTE 6. TAXES ON INCOME
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes," effective January 1, 1992. As a result of adopting Statement No. 109, the Company recorded an $11.8 million charge reflecting the cumulative effect of the change on prior years. To comply with the provisions of FASB Statement No. 109, a new tax-sharing agreement was adopted in 1992 under which current and deferred income tax provisions are determined for each company in the Industries group on a stand-alone basis. Any current liability is paid to Industries. If the Company is unable to use all of its allocated tax attributes (net operating loss and tax credit carryforwards) in a given year but other companies in the consolidated group are able to utilize them, then the Company will be paid for the use of its attributes. NOL and tax credit carryforwards are allocated to each company in accordance with applicable tax regulations as if a company were to leave the consolidated group. Companies with taxable losses record current income tax credits not to exceed current income tax charges recorded by profitable companies. If Industries uses NOL carryforwards, the Company will use the appropriate portion of that year's carryforward previously allocated to it, if any.
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A-10
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:
------------------ Cr. = Credit
In accordance with FASB No. 109, the Company adjusted its deferred tax assets and liabilities for the effect of the change in the corporate federal income tax rate from 34 percent to 35 percent, effective January 1, 1993. A credit to income of $.6 million, which includes the effect of the rate change on deferred tax asset and liability balances as of January 1, 1993 as well as the effect on 1993 tax benefits recorded by the Company prior to the enactment date of August 10, 1993, was recorded in the third quarter of 1993.
The components of the deferred income tax assets and liabilities arising under FASB Statement No. 109 were as follows:
At December 31, 1994, the Company had approximately $43 million of net operating loss carryforwards available for regular Federal income tax purposes, expiring as follows: $8 million in the year 2005, $21 million in the year 2006, $8 million in the year 2007, and $6 million in the year 2008.
The Company believes that it is more likely than not that all of the NOL carryforwards will be utilized prior to their expiration. This belief is based upon the factors discussed below.
The NOL carryforwards and existing deductible temporary differences (excluding those relating to FASB Statement No. 106) are offset by existing taxable temporary differences reversing within the carryforward period. Furthermore, any such recorded tax benefits which would not be so offset are expected to be realized by continuing to achieve future profitable operations.
Subsequent to the adoption of FASB Statement No. 109, the Company adopted FASB Statement No. 106 and recognized the entire transition obligation at January 1, 1992, as a cumulative effect charge in
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A-11
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
1992 (Note 5). At December 31, 1994, the deferred tax asset related to the Company's FASB Statement No. 106 obligation was $51.5 million. To the extent that future annual charges under FASB Statement No. 106 continue to exceed deductible amounts, this deferred tax asset will continue to grow. Thereafter, even if the Company should have a tax loss in any year in which the deductible amount would exceed the financial statement expense, the tax law provides for a 15-year carryforward period of that loss. Because of the extremely long period that is available to realize these future tax benefits, a valuation allowance for this deferred tax asset is not necessary.
Total income taxes reflected in the Consolidated Statement of Operations differ from the amounts computed by applying the Federal tax rate as follows:
--------------- Cr. = Credit
A state tax sharing agreement, similar to the Federal agreement, also exists with Industries for those states in which the consolidated group is charged state taxes on a unitary or combined basis.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company sells products to and purchases products from related companies primarily at prevailing market prices. These transactions were as follows:
Administrative expenses covering management, financial and legal services provided to the Company were charged to the Company by Industries. Such charges totaled $7.4 million in 1994 and 1993, and $8.4 million in 1992. Additionally, interest, at prevailing prime market rates, is charged on all intercompany loans within the Industries consolidated group. There was no net intercompany interest expense in 1994 compared with $7.7 million in 1993 and $8.9 million in 1992.
In December 1993, Industries made a capital contribution of $150 million to the Company. The capital contribution has been recorded as "additional paid in capital".
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A-12
INLAND MATERIALS DISTRIBUTION GROUP, INC. AND SUBSIDIARY COMPANIES (A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company has noncancellable operating leases for which future minimum rental commitments are estimated to total $32.3 million, including approximately $8.4 million in 1995, $6.0 million in 1996, $5.0 million in 1997, $4.3 million in 1998, $3.7 million in 1999, and $4.9 million thereafter.
Rental expense under operating leases totaled $15.9 million in 1994, $16.8 million in 1993, and $18.6 million in 1992.
Ryerson is the guarantor of $123.6 million of the Inland Steel Industries Thrift Plan ESOP notes. The notes are payable in installments through July, 2004.
There are various claims and pending actions against the Company. The amount of liability, if any, for these claims and actions at December 31, 1994 is not determinable but, in the opinion of management, such liability, if any, will not have a material adverse effect on the Company's financial position or results of operations.
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A-13
INDEX TO EXHIBITS
(i)
---------------
* 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)
---------------
* 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)
---------------
* 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)
(v)
(vi)