Back to GetFilings.com
1
1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1993 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 1-2438
INLAND STEEL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1262880
(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
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------------- --------------------------------------------
FIRST MORTGAGE BONDS:
SERIES R, 7.90% DUE JANUARY 15, 2007 NEW YORK STOCK EXCHANGE, INC.
SERIES T, 12% DUE DECEMBER 1, 1998 --
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X . NO .
THE NUMBER OF SHARES OF COMMON STOCK ($1.00 PAR VALUE) OF THE REGISTRANT
OUTSTANDING AS OF MARCH 15, 1994 WAS 980, ALL OF WHICH SHARES WERE OWNED BY
INLAND STEEL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART I
ITEM 1. BUSINESS.
Inland Steel Company (the "Company"), a Delaware corporation and a wholly
owned subsidiary of Inland Steel Industries, Inc. ("Industries"), is a fully
integrated domestic steel company. The Company 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.
The Company has a single business segment, which is comprised of the
operating companies and divisions involved in the manufacturing of basic steel
products and in related raw materials operations.
OPERATIONS
General
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 the Company are engaged in the mining and
pelletizing of iron ore and in the operation of a cold-rolling mill and two
steel galvanizing lines. All raw steel made by the 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.
In August 1988, the Company realigned its operations into two divisions --
the Inland Steel Flat Products Company division and the Inland Steel Bar Company
division. The purpose of the realignment was to allow management to better focus
on the distinctive competitive factors and customer requirements in the markets
for the products manufactured by each division. The Flat Products division
manages the 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 the Company's withdrawal from the structural steel
manufacturing business.
The 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 the 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 the 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 were operating near design capacity by August 1993. The 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, the 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
INLAND STEEL COMPANY AS A % OF
COMPANY U.S. STEEL
(000 TONS*) INDUSTRY
------------ -----------------
1993..................................................... 5,003 5.2%**
1992..................................................... 4,740 5.2
1991..................................................... 4,677 5.3
1990..................................................... 5,339 5.5
1989..................................................... 5,550 5.7
- ---------------
* Net tons of 2,000 pounds.
** Based on preliminary data from the American Iron and Steel Institute.
1
3
The annual raw steelmaking capacity of the Company was reduced to 6.0
million net tons from 6.5 million net tons effective September 1, 1991, as the
Company ceased making ingots. The basic oxygen process accounted for 94% of raw
steel production of the Company in 1993 and 1992. The remainder of such
production was accounted for by electric furnaces.
The total tonnage of steel mill products shipped by the Company for each of
the five years 1989 through 1993 was 4.8 million tons in 1993; 4.3 million tons
in 1992; 4.2 million tons in 1991; 4.7 million tons in 1990; and 4.9 million
tons in 1989. In 1993, sheet, strip, plate and certain related semi-finished
products accounted for 88% of the total tonnage of steel mill products shipped
from the Indiana Harbor Works, and bar and certain related semi-finished
products accounted for 12%.
In 1993 and 1992, approximately 93% of the shipments of the Flat Products
division and 92% of the shipments of the Bar division were to customers in 20
mid-American states. Approximately 75% of the shipments of the Flat Products
division and 83% of the shipments of the Bar division in 1993 were to customers
in a five-state area comprised of Illinois, Indiana, Ohio, Michigan and
Wisconsin, compared to 72% and 83% in 1992. 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 1993 totaled an estimated 19.5 million tons, compared
with 17.1 million tons imported in 1992. Steel imports constituted approximately
18.8% of apparent domestic supply in 1993, compared with approximately 17.9% of
apparent domestic supply in 1992. During 1984, the peak year for steel imports
into the U.S., such imports accounted for 26.4% of apparent domestic supply. In
addition to the importation of steel mill products, the U.S. steel industry has
faced indirect imports of steel. Data from the American Iron and Steel Institute
show that imports of steel contained in manufactured goods exceeded exports by
an estimated 16 million tons in 1993.
Many foreign steel producers are owned, controlled or subsidized by their
governments. In 1992, Industries 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. Industries and
certain domestic producers have filed formal appeals of the adverse ITC
decisions in the U.S. Court of International Trade or similar jurisdiction
bodies, and foreign producers have appealed certain of the findings against
them. These appeals are pending and decisions are not expected before September
1994 in the bar and rod product cases, and mid-1995 in the flat-rolled product
cases. It is not certain how the ITC actions and the appeals will impact imports
of steel products into the United States or the price of such steel products.
On December 15, 1993, President Clinton notified the U.S. Congress of his
intent to enter into agreements resulting from the Uruguay Round of multilateral
trade negotiations under the General Agreement on Tariffs and Trade. The key
provisions applicable to domestic steel producers include an agreement to
eliminate steel tariffs in major industrial markets, including the United
States, over a period of 10 years commencing July 1995, and agreements regarding
various subsidy and dumping practices as well as dispute settlement procedures.
Legislation must be enacted in order to implement the Uruguay Round agreements.
Until that process is completed, it will not be possible to assess the extent to
which existing U.S. laws against unfair trade practices may be weakened.
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 shut-down of the structural mill were taken in 1987. Provisions
for estimated costs incurred in connection with the closure of the mold foundry,
No. 8 Coke Oven
2
4
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 the 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 70% 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
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Steel Service Centers:
Affiliates............................................ 9 % 7 % 8 % 8 % 9 %
Non-Affiliates........................................ 21 22 24 20 20
---- ---- ---- ---- ----
30 29 32 28 29
Automotive.............................................. 37 28 25 26 27
Appliance............................................... 9 9 8 7 7
Industrial, Electrical and Farm Machinery............... 4 8 9 9 10
Construction and Contractors' Products.................. 3 3 4 8 10
Steel Converters/Processors............................. 10 18 12 15 11
Other................................................... 7 5 10 7 6
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
The increase in 1993 of sales to the automotive market and the decline in
sales to the steel converters/processors market are indicative of the Company's
efforts to maximize its sales of value-added and higher margin products.
Some value-added steel processing operations that the Company does not have
the capability to perform are performed by outside processors prior to shipment
of certain products to the Company's customers. In 1993, approximately 16% of
the products produced by the Company were processed further through value-added
services such as electrogalvanizing, painting and slitting.
Approximately 64% of the total tonnage of shipments by the Company during
1993 from the Indiana Harbor Works was transported by truck, with the remainder
transported primarily by rail. A wholly owned truck transport subsidiary of the
Company was responsible for shipment of approximately 15% of the total tonnage
of products transported by truck from the Indiana Harbor Works in 1993.
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
integrated steel operations.
Raw Materials
The Company obtains iron ore pellets primarily from three iron ore
properties, located in the United States and Canada, in which subsidiaries of
the 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 the Company has closed or terminated certain less cost-efficient iron ore
mining operations. See "Properties Relating to Integrated Steel Segment -- Raw
Materials Properties and Interests" in Item 2 below for further information
relating to such iron ore properties.
3
5
The following table shows (1) the iron ore pellets available to the
Company, as of December 31, 1993, from properties of its subsidiaries and
through interests in raw materials ventures; (2) 1993 and 1992 iron ore pellet
production or purchases from such sources; and (3) the percentage of the
Company's iron ore requirements represented by production or purchases from such
sources in 1993 and 1992.
IRON ORE
TONNAGES IN THOUSANDS % OF
(GROSS TONS OF PELLETS) REQUIREMENTS(1)
--------------------------------- ------------
AVAILABLE AS OF PRODUCTION
DECEMBER 31, --------------
1993(2) 1993 1992 1993 1992
--------------- ----- ----- ---- ----
INLAND STEEL MINING COMPANY PROPERTY
Minorca -- Virginia, MN.................... 68,000 2,577 2,265 41% 38 %
IRON ORE VENTURES AND LONG-TERM PURCHASE
CONTRACTS
Empire (40% owned) -- Palmer, MI;
Wabush (13.75% owned) -- Wabush, Labrador
and Pointe Noire, Quebec, Canada........ 116,000 3,513 3,804 55 63
--------------- ----- ----- ---- ----
Total Iron Ore........................ 184,000 6,090 6,069 96% 101 %
--------------- ----- ----- ---- ----
--------------- ----- ----- ---- ----
- ---------------
(1) Production in excess of requirements was sold or added to stockpile.
Production below requirements was purchased or taken from stockpile.
(2) Net interest in proven reserves.
All of the Company's coal requirements are satisfied from independent
sources, with a portion of such requirements being met under two significant
purchase contracts. The first such contract, extending through year-end 1994,
requires the Company to purchase (subject to force majeure provisions) a total
of 1,270,000 tons of metallurgical and/or steam coal during the term of the
contract at prices (intended to approximate market) determined with respect to
certain cost factors. The contract requires the parties to enter into good-faith
negotiations regarding extension of the arrangement at mutually agreeable terms
and conditions prior to the end of the term. The term of the contract is likely
to be extended covering solely steam coal, due to the shut-down of the Company's
coke batteries. During 1993, the Company purchased 15% of its coal requirements
under such contract, representing 8% of its metallurgical coal requirements and
33% of its steam coal requirements.
A second coal purchase contract extends through year-end 1995. Such
contract covers substantially all of the coal needs of the PCI Associates joint
venture, in which a subsidiary of the Company holds a 50% interest. The PCI
facility pulverizes coal for injection into the Company's blast furnaces. The
contract requires the Company to purchase (subject to force majeure provisions)
95% of the requirements of PCI Associates (100% in 1993) of injection-quality
coal through the term of the contract (currently estimated to be 1,520,000 tons)
at prices determined by annual good-faith negotiations between the parties. The
term of the agreement may be extended by mutual agreement of the parties. During
1993, the Company purchased 5% of its total coal requirements under such
contract, representing 100% of its injection coal requirements. The balance of
the Company's coal requirements was purchased from domestic sources under
short-term purchase contracts and from other sources.
In December 1993, the last of the Company's coke-making facilities was
permanently shut down. The Company entered into a long-term purchase contract
extending through July 1999 which required the Company to purchase approximately
800,000 tons of coke on an annualized basis through July 1993, and requires the
Company to purchase 1,400,000 tons of coke on an annualized basis thereafter
through the term of the contract at prices negotiated annually based on certain
market determinants. The purchase requirement is subject to force majeure
provisions. The term of the contract may be extended by mutual agreement of the
parties. During 1993, the Company satisfied 46% of its total coke needs under
such arrangement. The remainder of its purchased coke requirements was obtained
through contracts with independent domestic sources.
4
6
The Company's Michigan limestone and dolomite properties were sold in
September 1990. As part of such sale, the Company entered into a requirements
contract (subject to force majeure provisions) with the buyer of the properties
to purchase in each of the first five years of the contract term, beginning in
1992, the greater of its annual limestone needs or one million gross tons, with
certain exceptions, and its annual limestone needs, with certain exceptions, for
the remaining six years of the agreement. Prices (intended to approximate
market) are determined with respect to certain cost factors.
Approximately 75% of the iron ore pellets and virtually all of the
limestone received by the Company at its Indiana Harbor Works in 1993 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 26% of the Company's coal requirements were
transported in its hopper cars by unit train in 1993. The remainder of the
Company's coal requirements was transported in independent carrier-owned
equipment.
See "Energy" below for further information relating to the use of coal in
the operations of the Company.
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 of
the Company that accounted for 10% or more of consolidated net sales in such
time period. The data includes sales to affiliates of the Company.
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Sheet, Strip and Plate.................................. 88 % 88 % 89 % 82 % 83 %
Bar and Structural...................................... 12 12 11 18 17
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Sales to General Motors Corporation approximated 12% of consolidated net
sales in each of 1993 and 1992, 11% in 1991, 12% in 1990, and 13% in 1989. No
other customer accounted for more than 10% of the consolidated net sales of the
Company during any of these years.
CAPITAL EXPENDITURES AND INVESTMENTS IN JOINT VENTURES
In recent years, 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, 1993, are set forth
below. Net capital additions during such period aggregated $241.4 million.
DOLLARS IN MILLIONS
--------------------------------------------------------
RETIREMENTS NET CAPITAL
ADDITIONS* OR SALES* ADJUSTMENTS* ADDITIONS
---------- ----------- ------------ -----------
1993..................................... $ 86.1 $ 140.2 $ (1.2) $ (55.3)
1992..................................... 54.4 73.0 (7.5) (26.1)
1991..................................... 124.7 94.3 (.6) 29.8
1990..................................... 219.1 46.3 1.4 174.2
1989..................................... 141.1 23.7 1.4 118.8
- ---------------
* See detail in Schedule V -- Property, Plant and Equipment, of Financial
Statement Schedules attached hereto and incorporated by reference herein.
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 the Company. Approximately $10 million was spent in
1993 to complete upgrade projects begun in 1990 at the 80-inch Hot Strip Mill
and at the 12-inch Bar Mill. The total cost of the 80-inch Hot Strip Mill and
the 12-inch Bar Mill projects was approximately $214 million. The only major
project undertaken and completed in 1993 was a mini-reline of the No. 7 Blast
Furnace at a cost of $27 million. No major projects are planned for 1994.
5
7
In July 1987, a wholly owned subsidiary of the 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 one-third is cold-rolled substrate for I/N
Kote. The I/N Tek facility, located near New Carlisle, Indiana, became
operational in April 1990 and reached its design capability in March 1992. The
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 the 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 the Company owns a 50% interest in
I/N Kote. The I/N Kote facility consists of a hot-dip galvanizing line and an
electrogalvanizing line with a combined annual capacity of 900,000 tons. The
electrogalvanizing line began start-up operations in September 1991 and the
hot-dip galvanizing line began start-up operations in November 1991. Both lines
were operating near design capability by August 1993. The Company has guaranteed
50% of I/N Kote's permanent financing. I/N Kote has contracted to acquire its
cold-rolled steel substrate from the Company, which supplies the substrate from
the I/N Tek facility and the Company's Indiana Harbor Works.
Further information regarding the I/N Tek and I/N Kote joint venture
projects will be set forth under the caption "Certain Relationships and Related
Transactions -- Joint Ventures" in Industries' definitive Proxy Statement which
will be furnished to stockholders of Industries in connection with its Annual
Meeting scheduled to be held on May 25, 1994, and is incorporated by reference
into Item 13 of this Report.
The Company sold half of its 25% ownership interest in the Walbridge, Ohio
electrogalvanizing joint venture in the second quarter of 1992.
In 1993, the Company and its subsidiaries made capital expenditures of $86
million. Such expenditures principally focused on new machinery and equipment
related to maintaining or improving operations at the Indiana Harbor Works.
Excluding amounts related to the purchase of the equity interest in the
Company's No. 2 BOF Shop Caster facility, the amount budgeted for 1994 capital
expenditures and investments in joint ventures by the Company and its
subsidiaries is approximately $90 million. In March 1994, the Company purchased
the equity interest of the lessor of the Caster for $83 million. In addition, in
connection with such purchase, the Company recorded $63 million of debt. It is
anticipated that capital expenditures will be funded from cash generated by
operations and advances from and capital contributions by Industries. (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 1993 was approximately 10,900. At year-end,
approximately 8,400 employees were represented by the United Steelworkers of
America, of whom approximately 1,400 were on furlough or indefinite layoff. The
decline at the Company in average employment from 12,100 in 1992 is attributable
to improvements in productivity, the shut-down of older facilities, and
workforce reductions. Excluding the costs attributable to future workforce
reductions, total employment costs decreased from $696 million in 1992 to $671
million in 1993.
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 the Company. As a
result, employment was reduced by 2,300 positions by year-end 1993. Another
1,200 positions are expected to be eliminated by the end of 1994.
The current labor agreement between the Company and the United Steelworkers
of America, effective August 1, 1993, covers wages and benefits through July 31,
1999. Among other things, the agreement provides a wage increase of $.50 per
hour in 1995, a $500 bonus in each of 1993 and 1994 (totalling in each case
approximately $4 million) and a potential bonus of up to $1,000 per employee
(approximately $8 million in total) based on the Company's achieving $150
million of pre-tax income in 1995 adjusted to exclude the
6
8
incremental FASB Statement No. 106 costs and such bonus. In addition, all active
employees receive an additional week of vacation in 1994 and in 1996. The
agreement provides for a reopener on wages and certain benefits in 1996 with an
arbitration provision to resolve unsettled issues, thereby precluding a work
stoppage over the six-year term of the contract. The agreement also provides for
election of a Union designee acceptable to Industries' Board of Directors,
restrictions on the ability of the Company to reduce the Union workforce
(generally limited to attrition and major facilities shutdowns) while allowing
greater flexibility to institute work rule changes, quarterly rather than annual
payment of profit sharing amounts, significant improvements in pension benefits
for active employees, and the securing of retiree health care obligations
through certain trust and second mortgage arrangements. "First dollar" health
care coverage is eliminated under the agreement through the institution of
co-payments and increased deductibles on medical benefits.
ENVIRONMENT
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.
By year-end 1993, the last of the 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. The Company
has entered into a long-term contract to satisfy the majority of its coke needs.
(See "Raw Materials" above). In addition, the Company participates in a joint
venture that has constructed and is operating a pulverized coal injection
facility for blast furnace application, which process is anticipated to replace
up to 30% of the Company's coke needs. The facility is anticipated to
substantially achieve operation at its design capacity by year-end 1994.
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 the 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
7
9
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.
Capital spending for pollution control projects totaled $7 million in 1993,
down from $11 million in 1992. Another $44 million was spent in 1993 to operate
and maintain such equipment, versus $46 million a year earlier. During the five
years ended December 31, 1993, the Company has spent $302 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 $20 million in 1994 and $13 million in 1995. It is anticipated
that the Company will make annual capital expenditures of $5 million to $10
million in each of the three years thereafter. In addition, the 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 results of operations or
financial position of the Company.
See Item 3 below for information concerning certain proceedings pertaining
to environmental matters in which the Company is involved.
ENERGY
Coal, all of which is purchased from independent sources, together with
coke, accounted for approximately 67.8% of the energy consumed by the Company at
the Indiana Harbor Works in 1993. In recent years the Company has purchased
varying portions of its coke requirements from outside sources, purchasing
approximately 59% in 1993 and approximately 46% in 1992. See "Environment" above
for a discussion of coke-making by the Company and alternatives for obtaining
coke.
Natural gas and fuel oil supplied approximately 30% of the energy
requirements of the Indiana Harbor Works in 1993 and are used extensively by the
Company at other facilities that it owns or in which it has an interest. The
Company anticipates that utilization of the pulverized coal injection facility
(see "Environment" above) will substantially reduce natural gas and fuel oil
consumption at the Indiana Harbor Works.
The Company both purchases and generates electricity to satisfy electrical
energy requirements at the Indiana Harbor Works. In 1993, the Company produced
approximately 61% of its requirements at the Indiana Harbor Works. The purchase
of electricity at the Indiana Harbor Works is subject to curtailment under rules
of the local utility when necessary to maintain appropriate service for various
classes of its customers.
ITEM 2. PROPERTIES.
PROPERTIES RELATING TO OPERATIONS
Steel Production
All raw steel made by the 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 the Company in fee. The
basic production facilities of the 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 and the No. 2 BOF Shop Caster
Facility ("Caster"), are held by the Company under leasing arrangements. The
Company purchased the equity interest of the lessor of the Caster in March 1994
8
10
and currently intends to terminate the lease and prepay or formally assume the
applicable debt in the first half of 1994. Substantially all of the remaining
property, plant and equipment at the Indiana Harbor Works is subject to the lien
of the First Mortgage of the Company dated April 1, 1928, as amended and
supplemented. See "Operations -- Raw Steel Production and Mill Shipments" in
Item 1 above for further information relating to capacity and utilization of the
Company's properties. The 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 the 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 the
Company planned for such facility.
I/N Kote, a partnership in which a subsidiary of the 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
the Company planned for such facility.
PCI Associates, a partnership in which a subsidiary of the Company owns a
50% interest, has constructed a pulverized coal injection facility on land
located within the Inland Harbor Works. The 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. Upon achieving operation at design capacity, the PCI Associates
facility will be adequate to serve the anticipated needs of the Company planned
for such facility.
The Company owns three vessels for the transportation of iron ore and
limestone on the Great Lakes, and a subsidiary of the Company owns a fleet of
404 coal hopper cars (100-ton capacity each) used in unit trains to move coal to
the Indiana Harbor Works. See "Operations -- Raw Materials" in Item 1 above for
further information relating to utilization of the Company's transportation
equipment. Such equipment is adequate, when combined with purchases of
transportation services from independent sources, to meet the Company's present
and anticipated transportation needs.
The 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
the Company and its subsidiaries is set forth below. See "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 the Company's subsidiaries and of the
iron ore ventures in which the 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 2,500
Wabush Mine............................ Wabush, Labrador and Pointe 4,500
Noire, Quebec, Canada
9
11
The Empire Mine is operated by the Empire Iron Mining Partnership, in which
the Company has a 40% interest. The Company, through a subsidiary, is the sole
owner and operator of the Minorca Mine. The Wabush Mine is a taconite project in
which the Company owns a 13.75% interest. The 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. The 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 the 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
The Company's sole remaining coal property, the Lancashire No. 25 Property,
located near Barnesboro, Pennsylvania, is permanently closed. All 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.
OTHER PROPERTIES
The Company and certain of its subsidiaries lease, under a long-term
arrangement, approximately 12% 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.
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. The
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 the 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 August 12, 1992, Inland Steel Administrative Service Company ("ISAS"), a
wholly owned subsidiary of the Company, filed a lawsuit in the Court of Common
Pleas in Lorain County, Ohio against Western Steel Group, Inc. ("Western") to
collect the unpaid balance of its account for steel products sold to Western by
the Company in the amount of $5.7 million. On October 15, 1992, Western filed a
counterclaim against ISAS and a third-party complaint against the Company for
$40 million actual damages and $100 million punitive damages, alleging, among
other things, breach of contract and wrongful interference with contractual
relations in connection with a refusal by the Company to continue selling steel
products to Western and defamation of Western and a patent held by Western in
connection with discussions with third parties. All claims were settled between
the parties in February 1994 and the settlement was approved by the court. Under
the terms of the settlement, ISAS has received $3.4 million and all
counterclaims against the Company and ISAS have been released.
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
10
12
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 the 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.
On March 22, 1985, the EPA issued an administrative order to the 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 the Company to join with other named
parties in taking certain actions relating to the facility. The 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 the
Company may be a responsible party under CERCLA. The extent of the 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 the Company's
potential liability, none of these matters is expected to materially affect the
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.
The Indiana Department of Environmental Management ("IDEM") from time to
time advises various parties of alleged violations of air pollution regulations
by issuing Notices of Violation so as to initiate discussions concerning
corrective measures. The Company has three currently outstanding unresolved
Notices of Violation at its Indiana Harbor Works. The 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 the Company's
potential liability, none of these matters is expected to materially affect the
Company's financial position.
The Company received a Notice of Violation from IDEM dated March 3, 1989
alleging violations of the Company's National Pollution Discharge Elimination
System permit regarding water discharges. The 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 the Company's
potential liability, this matter is not expected to materially affect the
Company's financial position.
11
13
The 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 the Company may be a PRP and that the Company, as a PRP, may have potential
liability with respect to the Facility. In August 1993, the Company, along with
other PRPs, entered into an Agreed Order with IDEM pursuant to which the PRPs
agreed to perform a Remedial Investigation/Feasibility Study ("RI/FS") for the
Facility and pay certain past and future IDEM costs. In addition, the PRPs
agreed to provide funds for operation and maintenance necessary for
stabilization of the Facility. The costs which the Company has agreed to assume
under the Agreed Order are not currently anticipated to exceed $154,000. 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. The 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 the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Company meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company is a wholly owned subsidiary of Inland Steel Industries, Inc.
thus, market, stockholder and dividend information otherwise called for by this
Item is omitted.
ITEM 6. SELECTED FINANCIAL DATA.
The Company meets the conditions set forth in General Instruction J(2)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS.
The Company's 1993 net loss of $59.7 million was significantly less than
the 1992 net loss of $781.3 million. Included in the 1992 loss is $609.6 million
related to one-time charges to recognize the cumulative effect of adopting the
following new accounting standards: Financial Accounting Standards Board
("FASB") Statement No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and FASB Statement No. 109, "Accounting for Income Taxes."
Even excluding the one-time 1992 charges, 1993 results were significantly
improved from the 1992 loss of $171.7 million.
The following table summarizes selected earnings and other data:
1993 1992
-------- --------
DOLLARS AND TONS
IN MILLIONS
Net sales.......................................... $2,174.9 $1,901.1
Operating loss..................................... (28.2) (201.1)
Net loss........................................... (59.7) (781.3)
Net tons shipped................................... 4.8 4.3
With I/N Tek and I/N Kote having reached the end of their learning curves
and completion of major upgrades at the steelmaking operations, the Company's
modernization program is complete. In addition, a new
12
14
six-year labor contract at the Company is in place. These factors, coupled with
the Company's turnaround strategy launched in 1991 to improve performance by
increasing revenues, reducing costs and enhancing asset utilization, are
anticipated to provide the basis for continued improvement in 1994 operating
results.
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.
Net sales increased 14 percent in 1993 to $2.17 billion due almost entirely
to an increase in shipments to 4.8 million tons. The average selling price for
1993 was virtually unchanged from 1992. The Company operated at 83 percent of
its raw steelmaking capability in 1993, compared with 79 percent in 1992.
In 1992, a slower-than-expected shift in galvanized products to I/N Kote,
as well as the initial recognition of interest and depreciation expense
associated with the I/N Kote facility, added approximately $40 million to
operating losses. Also, an outage of the No. 7 Blast Furnace reduced production
by 140,000 tons, which increased the operating loss by nearly $30 million. These
1992 problems, coupled with an addition of $12 million to a reserve for
environmental matters, more than offset the benefits of reduced costs and a $23
million gain on the sale of half of Inland's 25 percent interest in Walbridge
Coatings.
The Company embarked in 1991 on a three-year turnaround program to
significantly reduce its underlying cost base by year-end 1994. The 1991
restructuring charge of $205 million provided for the write-off of facilities,
an environmental reserve and the cost of an estimated 25 percent reduction in
the workforce. Employment has been reduced by approximately 2,300 people from
the end of 1991 through year-end 1993, and an additional 1,200 jobs are expected
to be eliminated by the end of 1994. The 1993 effect of this program represents
a savings of approximately $140 million in employment costs and $10 million in
decreased depreciation expense. However, the savings from reduced employment was
partially offset by increased wages under the Company's labor agreements and
increased medical benefit costs as the Company began to accrue in 1992 for
postretirement medical benefits.
By year-end 1992 and throughout 1993, I/N Tek was operating near capacity
and producing consistently high-quality steels. In August 1993, I/N Kote was
operating near design capacity and, by year-end 1993, had achieved product
qualification at all major customers. Under the I/N Kote partnership agreement,
the Company supplies all of the steel for the joint venture and, with certain
limited exceptions, is required to set the price of that steel to assure that
I/N Kote's expenditures do not exceed its revenues. During 1993, the Company's
sales price approximated its cost of production, but was still significantly
less than the market value for cold-rolled steel. Beginning in 1993, I/N Kote
expenditures included principal payments and provision for return on equity to
the partners. Therefore, the Company's ability to realize a satisfactory price
on its sales to I/N Kote depends on the facility achieving near capacity
operations and obtaining appropriate pricing for its products.
The Company's remaining cokemaking facilities were closed by year-end 1993.
The Company determined that it was uneconomical to repair the coke batteries
sufficiently to continue cost-effective operations that would comply with
current environmental laws. To replace the Company-produced coke, the Company
entered into a long-term contract and other arrangements to purchase coke. In
addition, the Company and NIPSCO, a local utility, formed a joint venture which
constructed and is operating a pulverized coal injection facility at the Indiana
Harbor Works. This facility injects coal directly into the blast furnaces and is
expected to reduce coke requirements by approximately 30 percent, or 600,000
tons a year, when fully operational. The joint venture commenced operations in
the third quarter of 1993.
FASB Statement No. 106 requires that the cost of retiree medical and life
insurance benefits be accrued during the working years of each employee.
Previously, retiree medical benefits were expensed as incurred after an
employee's retirement. Adoption of this standard in 1992 did not and will not
affect cash flow as liabilities for health care and life insurance benefits are
not pre-funded and cash payments will continue to be
13
15
made as claims are submitted. The net present value of the unfunded benefits
liability as of December 31, 1993, calculated in accordance with that Statement
was approximately $943 million. The expense provision for these benefits for
1993 was $86 million, which was $39 million more than the cash benefit payments
for the year. The unfunded liability will continue to grow, since accrual-basis
costs are expected to exceed cash benefit payments for several more years. The
reported year-end benefits liability and postretirement benefits cost for the
year reflect changes made during the year incorporating the favorable effects of
the new United Steelworkers of America labor contract and revised actuarial
assumptions incorporating more current information regarding claim costs and
census data, partially offset by a reduction in the discount rate used to
calculate the benefits liability. (See Note 6 to the consolidated financial
statements for further details.)
FASB Statement No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Without the
change, the Company would not have been able to reduce its 1993 and 1992 losses
by credits for deferred tax benefits of $30 million and $418 million,
respectively. At December 31, 1993, the Company had a net deferred tax asset of
$417 million of which $396 million relates to the temporary difference arising
from the adoption of FASB Statement No. 106. While the Company believes it is
more likely than not that taxable income generated through future profitable
operations will be sufficient to realize all deferred tax assets, a secondary
source of future taxable income could result from tax planning strategies,
including 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 $240 million of additional taxable income as of year-end 1993
which would serve to offset approximately $85 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
$900 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. Additionally, in accordance with the Industries tax sharing
agreement, if the Company is unable to use all of its allocated tax attributes
(net operating loss carryforwards and tax credit carryforwards) in a given year
but other companies in the Industries group are able to utilize them, then the
Company will be paid for the use of its attributes. The Company believes that it
is more likely than not that it will achieve such taxable income level. (See
Note 7 to the consolidated financial statements for further details regarding
this net deferred tax asset.)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements (including the financial statement
schedules listed under Item 14(a)2 of this report) of the Company called for by
this Item, together with the Report of Independent Accountants dated February
23, 1994, are set forth on pages F-2 to F-24, inclusive, of this Report on Form
10-K, and are hereby incorporated by reference into this Item. Financial
statement schedules not included in this Report on Form 10-K have been omitted
because they are not applicable or because the information called for is shown
in the consolidated financial statements or notes thereto.
Consolidated quarterly sales and earnings information for 1993 and 1992 is
set forth in Note 13 of Notes to Consolidated Financial Statements (contained
herein), which is hereby incorporated by reference into this Item.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
14
16
ITEM 11. EXECUTIVE COMPENSATION.
The Company meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore omitting, pursuant to General Instruction
J(2), the information called for by this Item.
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. The consolidated financial
statements listed below are set forth on pages F-2 to F-24, inclusive,
of this Report and are incorporated by reference in Item 8 of this
Annual Report on Form 10-K.
Report of Independent Accountants.
Consolidated Statements of Operations and Reinvested Earnings for the
three years ended December 31, 1993.
Consolidated Statement of Cash Flows for the three years ended
December 31, 1993.
Consolidated Balance Sheet at December 31, 1993 and 1992.
Schedules to Consolidated Financial Statements at December 31, 1993
and 1992, relating to:
Property, Plant and Equipment.
Long-Term Debt.
Statement of Accounting and Financial Policies.
Notes to Consolidated Financial Statements.
Financial Statement Schedules for the years ended December 31, 1993,
1992 and 1991:
Schedule V -- Property, Plant and Equipment.
Schedule VI -- Reserve for Depreciation, Amortization and
Depletion of Property, Plant and Equipment.
Schedule VIII -- Reserves.
Schedule IX -- Short-Term Borrowings.
Schedule X -- Supplementary Profit and Loss Information.
2. 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, 1993.
15
17
(C) EXHIBITS.
3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as
Exhibit 3-A to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated by reference herein.)
3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3-B to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992, and incorporated by reference herein.)
4.A Copy of First Mortgage Indenture, dated April 1, 1928, between the Company
(the "Steel Company") and First Trust and Savings Bank and Melvin A. Traylor,
as Trustees, and of supplemental indentures thereto, to and including the
Thirty-Second Supplemental Indenture, incorporated by reference from the
following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e),
filed with Steel Company's Registration Statement on Form A-2 (No. 2-1855);
(ii) Exhibits D-1(f) and D-1(g), filed with Steel Company's Registration
Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h), filed with Steel
Company's Current Report on Form 8-K dated January 18, 1937; (iv) Exhibit
B-1(i), filed with Steel Company's Current Report on Form 8-K, dated February
8, 1937; (v) Exhibits B-1(j) and B-1(k), filed with Steel Company's Current
Report on Form 8-K for the month of April, 1940; (vi) Exhibit B-2, filed with
Steel Company's Registration Statement on Form A-2 (No. 2-4357); (vii)
Exhibit B-1(l), filed with Steel Company's Current Report on Form 8-K for the
month of January, 1945; (viii) Exhibit 1, filed with Steel Company's Current
Report on Form 8-K for the month of November, 1946; (ix) Exhibit 1, filed
with Steel Company's Current Report on Form 8-K for the months of July and
August, 1948; (x) Exhibits B and C, filed with Steel Company's Current Report
on Form 8-K for the month of March, 1952; (xi) Exhibit A, filed with Steel
Company's Current Report on Form 8-K for the month of July, 1956; (xii)
Exhibit A, filed with Steel Company's Current Report on Form 8-K for the
month of July, 1957; (xiii) Exhibit B, filed with Steel Company's Current
Report on Form 8-K for the month of January, 1959; (xiv) the Exhibit filed
with Steel Company's Current Report on Form 8-K for the month of December,
1967; (xv) the Exhibit filed with Steel Company's Current Report on Form 8-K
for the month of April, 1969; (xvi) the Exhibit filed with Steel Company's
Current Report on Form 8-K for the month of July, 1970; (xvii) the Exhibit
filed with the amendment on Form 8 to Steel Company's Current Report on Form
8-K for the month of April, 1974; (xviii) Exhibit B, filed with Steel
Company's Current Report on Form 8-K for the month of September, 1975; (xix)
Exhibit B, filed with Steel Company's Current Report on Form 8-K for the
month of January, 1977; (xx) Exhibit C, filed with Steel Company's Current
Report on Form 8-K for the month of February, 1977; (xxi) Exhibit B, filed
with Steel Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed
with Steel Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1982; (xxv)
Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the Steel
Company's Registration Statement on Form S-2 (No. 33-43393); and (xxvii)
Exhibit 4 filed with Steel Company's Current Report on Form 8-K dated June
23, 1993.
4.B Copy of consolidated reprint of First Mortgage Indenture, dated April 1,
1928, between the 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.)
24 Powers of attorney.
16
18
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 COMPANY
By: /S/ ROBERT J. DARNALL
Robert J. Darnall
Chairman and Chief Executive
Officer
Date: March 30, 1994
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
- ------------------------------------ --------------------------------------------------------
/S/ ROBERT J. DARNALL Chairman, Chief March 30, 1994
Robert J. Darnall Executive Officer and Director
/S/ JAY M. GRATZ Vice President - Finance March 30, 1994
Jay M. Gratz (Principal Financial Officer)
/S/ OLIVIA M. THOMPSON Controller and Principal March 30, 1994
Olivia M. Thompson Accounting Officer
A. Robert Abboud Director
James W. Cozad Director
James A. Henderson Director
Emerson Kampen Director
Robert B. McKersie Director By: /S/ DAVID B. ANDERSON
Donald S. Perkins Director David B. Anderson
Joshua I. Smith Director Attorney in-fact
Nancy H. Teeters Director March 30, 1994
Raymond C. Tower Director
Arnold R. Weber Director
17
19
INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
OF
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
ITEM PAGE
----- ----
Report of Independent Accountants.................................................... F-2
Consolidated Statements of Operations and Reinvested Earnings for the three years
ended December 31, 1993............................................................ F-3
Consolidated Statement of Cash Flows for the three years ended December 31, 1993..... F-4
Consolidated Balance Sheet at December 31, 1993 and 1992............................. F-5
Schedules to Consolidated Financial Statements at December 31, 1993 and 1992,
relating to Property, Plant and Equipment, and Long-Term Debt...................... F-6
Statement of Accounting and Financial Policies....................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
Financial Statement Schedules for the years ended December 31, 1993, 1992 and 1991:
Schedule V--Property, Plant and Equipment.......................................... F-20
Schedule VI--Reserve for Depreciation, Amortization and Depletion of Property,
Plant and Equipment............................................................. F-21
Schedule VIII--Reserves............................................................ F-22
Schedule IX--Short-Term Borrowings................................................. F-23
Schedule X--Supplementary Profit and Loss Information.............................. F-24
F-1
20
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
INLAND STEEL COMPANY
In our opinion, the consolidated financial statements listed in the index
appearing on page F-1 present fairly, in all material respects, the financial
position of Inland Steel Company (a wholly owned subsidiary of Inland Steel
Industries, Inc.) and Subsidiary Companies at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1993, 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 6 and 7 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
Chicago, Illinois
February 23, 1994
F-2
21
INLAND STEEL COMPANY 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
-----------------------------------
1993 1992 1991
--------- -------- --------
CONSOLIDATED STATEMENT OF OPERATIONS
NET SALES................................................. $ 2,174.9 $1,901.0 $1,895.4
--------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of goods sold (excluding depreciation)............ 1,975.5 1,916.0 1,804.5
Selling, general and administrative expenses........... 42.1 45.7 50.8
Depreciation........................................... 111.1 109.2 98.7
State, local and miscellaneous taxes................... 52.1 53.7 49.6
Facility shutdown and restructuring provisions (Note
5)................................................... 22.3 -- 205.0
Gain on sale of partial interest in joint venture (Note
9)................................................... -- (22.5) --
--------- -------- --------
Total................................................ 2,203.1 2,102.1 2,208.6
--------- -------- --------
OPERATING LOSS............................................ (28.2) (201.1) (313.2)
OTHER EXPENSE:
General corporate expense, net of income items......... 16.4 17.7 15.3
Interest and other expense on debt..................... 60.4 53.2 58.0
--------- -------- --------
LOSS BEFORE INCOME TAXES.................................. (105.0) (272.0) (386.5)
PROVISION FOR INCOME TAXES (Note 7)....................... 45.3Cr. 100.3Cr. 1.2Cr.
--------- -------- --------
Loss before cumulative effect of changes in accounting
principles............................................. (59.7) (171.7) (385.3)
Cumulative effect of changes in accounting principles
Adoption of FASB 109 (Accounting for Income Taxes)..... -- (31.3) --
Adoption of FASB 106 (Employers' Accounting for
Postretirement Benefits Other Than Pensions)......... -- (578.3) --
--------- -------- --------
NET LOSS.................................................. $ (59.7) $ (781.3) $ (385.3)
--------- -------- --------
--------- -------- --------
CONSOLIDATED STATEMENT OF REINVESTED EARNINGS
Balance at beginning of year.............................. $ (935.3) $ (128.1) $ 268.0
Net loss for the year..................................... (59.7) (781.3) (385.3)
Preferred dividends declared.............................. (25.8) (25.9) (10.8)
--------- -------- --------
Accumulated deficit at end of year........................ $(1,020.8) $ (935.3) $ (128.1)
--------- -------- --------
--------- -------- --------
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-3
22
INLAND STEEL COMPANY 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
-------------------------------
1993 1992 1991
------- ------- -------
OPERATING ACTIVITIES
Net loss..................................................... $ (59.7) $(781.3) $(385.3)
------- ------- -------
Adjustments to reconcile net loss to net cash provided from
(used for) operating activities:
Depreciation.............................................. 111.1 109.2 98.7
Deferred employee benefit cost, including cumulative
effect of change in accounting principle................ 33.9 944.3 (15.5)
Deferred income taxes..................................... (29.9) (386.7) --
Gain on sale of partial interest in joint venture......... -- (22.5) --
Facility shutdown and restructuring provisions............ 18.9 -- 204.5
Raw material joint venture costs.......................... (3.3) (2.9) (3.2)
Change in:
Receivables............................................. (24.9) (29.9) 27.6
Inventories............................................. 12.8 5.9 42.5
Accounts payable........................................ 30.7 26.5 (75.5)
Payables to related companies (other)................... 1.4 (1.2) 2.7
Accrued salaries and wages.............................. (.2) (1.8) (2.5)
Other accrued liabilities............................... 5.2 20.6 5.5
Other deferred items...................................... (4.4) 35.0 12.3
------- ------- -------
Net adjustments......................................... 151.3 696.5 297.1
------- ------- -------
Net cash provided from (used for) operating
activities........................................... 91.6 (84.8) (88.2)
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures......................................... (86.1) (54.4) (124.7)
Investments in and advances to joint ventures, net........... (1.9) (6.3) (24.9)
Proceeds from sales of assets................................ 5.7 27.5 13.7
------- ------- -------
Net cash used for investing activities.................. (82.3) (33.2) (135.9)
------- ------- -------
FINANCING ACTIVITIES
Additional paid-in capital--Inland Steel Industries.......... 150.0 60.0 200.0
Issuance of Series C Preferred Stock......................... -- -- 150.0
Long-term debt issued........................................ 39.3 -- 121.4
Long-term debt retired....................................... (66.1) (36.7) (31.0)
Change in notes payable to related companies................. (106.7) 119.1 (208.5)
Dividends paid............................................... (25.8) (24.4) (7.8)
------- ------- -------
Net cash provided from (used for) financing
activities........................................... (9.3) 118.0 224.1
------- ------- -------
Net decrease in cash and cash equivalents.................... -- -- --
Cash and cash equivalents--beginning of year................. -- -- --
------- ------- -------
Cash and cash equivalents--end of year....................... $ -- $ -- $ --
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the year for:
Interest (net of amount capitalized)...................... $ 51.6 $ 47.4 $ 34.6
Income taxes, net......................................... -- (2.5) (1.5)
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-4
23
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEET
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AT DECEMBER 31
----------------------
1993 1992
--------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ -- $ --
Receivables less provision for allowances, claims and doubtful
accounts of $22.9 and $18.4, respectively......................... 230.2 205.3
Inventories (Note 1)................................................. 99.6 112.4
Deferred income taxes (Note 7)....................................... 32.0 26.2
--------- --------
Total current assets............................................ 361.8 343.9
Investments in and advances to joint ventures.......................... 211.5 203.8
Property, plant and equipment, at cost, less accumulated depreciation
(see details page F-6)............................................... 1,232.2 1,271.2
Deferred income taxes (Note 7)......................................... 384.6 360.5
Deferred charges and other assets...................................... 20.6 24.2
--------- --------
Total assets.................................................... $ 2,210.7 $2,203.6
--------- --------
--------- --------
LIABILITIES
Current liabilities:
Accounts payable..................................................... $ 207.8 $ 177.1
Payables to related companies:
Notes............................................................. 47.9 154.6
Other............................................................. 9.0 7.6
Accrued liabilities:
Salaries, wages and commissions................................... 57.6 57.8
Taxes, other than Federal income taxes............................ 64.1 57.7
Interest on debt.................................................. 10.1 11.5
Terminated facilities costs and other (Note 5).................... 26.2 14.7
Long-term debt due within one year................................... 86.2 21.1
--------- --------
Total current liabilities....................................... 508.9 502.1
Long-term debt (see details page F-6 and Note 3)....................... 475.3 566.7
Allowance for terminated facilities costs and other (Note 5)........... 36.1 42.6
Deferred employee benefits (Note 6).................................... 1,108.3 1,074.4
Deferred income and other.............................................. 18.4 18.6
--------- --------
Total liabilities............................................... 2,147.0 2,204.4
--------- --------
STOCKHOLDER'S EQUITY
Preferred stock, all series, 500 shares, $1.00 par value, authorized,
aggregate liquidation value $238.2 in 1993 and 1992 (Note 4)......... -- --
Common stock, 2,000 shares, $1 par value, authorized, 980 shares issued
and outstanding in 1993 and 1992 (Note 4)............................ -- --
Additional paid-in capital (Note 4).................................... 1,084.5 934.5
Accumulated deficit.................................................... (1,020.8) (935.3)
--------- --------
Total stockholder's equity...................................... 63.7 (.8)
--------- --------
Total liabilities and stockholder's equity...................... $ 2,210.7 $2,203.6
--------- --------
--------- --------
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-5
24
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AT DECEMBER 31
---------------------
1993 1992
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land, land improvements and mineral properties........................ $ 122.0 $ 122.4
Buildings, machinery and equipment.................................... 3,307.8 3,361.1
Transportation equipment.............................................. 129.3 130.9
Property under capital leases--primarily machinery and equipment...... 42.8 42.8
-------- --------
Total............................................................ 3,601.9 3,657.2
Less--
Accumulated depreciation.............................................. 2,226.0 2,246.1
Accumulated depreciation - capital leases............................. 35.3 33.7
Allowance for retirements and terminated facilities................... 108.4 106.2
-------- --------
Net.............................................................. $1,232.2 $1,271.2
-------- --------
-------- --------
LONG-TERM DEBT:
First Mortgage Bonds:
Series O, 8 3/4% due July 15, 1995................................. $ -- $ 10.0
Series P, 8 7/8% due April 15, 1999................................ -- 22.5
Series Q, 9 1/2% due September 1, 2000............................. -- 42.8
Series R, 7.9% due January 15, 2007................................ 87.9 93.1
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 1980B, 9 3/4% due October 1, 2000......... -- 25.0
Pollution Control Series 1980C, 10% due October 1, 2010............ -- 5.0
Pollution Control Series 1982A, 10% due December 1, 2012........... -- 10.0
Pollution Control Series 1982B, 10 3/4% due December 1, 2012....... 17.0 17.0
Pollution Control Series 1993, 6.8% due June 1, 2013............... 40.0 --
-------- --------
Total First Mortgage Bonds....................................... 348.4 428.9
Obligations for Industrial Development Revenue Bonds:
Pollution Control Projects No. 3 and No. 4 at rates ranging from
6 1/4% to 8 1/8% due through June 1, 2005......................... 32.0 34.0
Pollution Control Project No. 9, 10% due November 1, 2011.......... 38.0 38.0
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..................................................... 20.7 26.0
No. 2 BOF Shop Caster Project Debt, 9.4% and 11 1/4%, due through
May 7, 2001........................................................ 36.2 39.8
-------- --------
Total long-term debt............................................. $ 475.3 $ 566.7
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-6
25
INLAND STEEL COMPANY 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.
ACCOUNTING FOR EQUITY INVESTMENTS
The Company's investments in 20% or more but less than majority-owned
companies, joint ventures and partnerships, and the Company's majority interest
in the I/N Tek partnership, are accounted for under the equity method.
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% 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.
BENEFITS FOR RETIRED EMPLOYEES
Pension benefits are provided by the Company to substantially all employees
under a trusteed non-contributory plan of Inland Steel Industries, Inc. Life
insurance and certain medical benefits are provided for 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 6). Pensions are
funded in accordance with ERISA requirements in a trust established under the
plan. Costs for retired employee medical benefits and life insurance are funded
when claims are submitted.
CASH EQUIVALENTS
Cash equivalents reflected in the Statement of Cash Flows are highly
liquid, short-term investments with maturities of three months or less. Cash
management activities are performed by the Company's parent, Inland Steel
Industries, Inc., and periodic cash transfers are made, thereby minimizing the
level of cash maintained by the Company.
INCOME TAXES
Effective January 1, 1992, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes" (see Note 7).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-7
26
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1/INVENTORIES
Inventories were classified on December 31 as follows:
DECEMBER 31
-----------------
1993 1992
----- ------
DOLLARS IN
MILLIONS
In process and finished steel.............................. $55.6 $ 67.0
----- ------
Raw materials and supplies:
Iron ore................................................. 25.3 23.4
Scrap and other raw materials............................ 7.3 9.0
Supplies................................................. 11.4 13.0
----- ------
44.0 45.4
----- ------
Total............................................... $99.6 $112.4
----- ------
----- ------
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
million in 1993. The effect on cost of goods sold of LIFO liquidations in 1992
and 1991 was not material.
Replacement costs for the LIFO inventories exceeded LIFO values by
approximately $241 million and $280 million on December 31, 1993 and 1992,
respectively.
NOTE 2/BORROWING ARRANGEMENTS
Inland Steel Administrative Service Company, a wholly owned subsidiary of
the Company established to provide a supplemental source of short-term funds to
the Company, has a $100 million revolving credit facility with a group of banks
which extends to November 30, 1995. Under this arrangement the Company has
agreed to sell substantially all of its receivables to Inland Steel
Administrative Service Company to secure this facility. The facility requires
the maintenance of various financial ratios including minimum net worth and
leverage ratios.
NOTE 3/LONG-TERM DEBT
The outstanding First Mortgage Bonds of Inland Steel Company are the
obligation solely of the Company and have not been guaranteed or assumed by, or
otherwise become the obligation of, Inland Steel Industries, Inc. ("Industries")
or any of its other subsidiaries. Each series of First Mortgage Bonds issued by
the Company is limited to the principal amount outstanding and, with the
exception of the Pollution Control Series 1982 Bonds, the Pollution Control
Series 1993 Bonds, and the Series T First Mortgage Bonds described below, is
subject to a sinking fund. Substantially all the property, plant and equipment
owned by the 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, 1993.
In June 1993, the Company refinanced $40 million of pollution control
revenue bonds at an interest rate of 6.8 percent. The weighted average
percentage rate of the refunded bonds was 9.9 percent. At year-end 1993 all
remaining outstanding Series O, P, and Q First Mortgage Bonds were called to be
redeemed on January 28, 1994. Accordingly, the outstanding principal amount of
$75.1 million at December 31, 1993 has been classified as a current liability.
Prior to the redemption of the Series O, P and Q First Mortgage Bonds, under
terms of the First Mortgage, the Company was prohibited, when its reinvested
earnings were less than
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-8
27
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$187.1 million, from paying dividends on its common stock (other than stock
dividends). At year-end 1993, the accumulated deficit of the Company was $1.0
billion.
In December 1991, the Company issued $125 million principal amount of First
Mortgage 12% Bonds, Series T, due December 1, 1998. Net proceeds of the offering
were added to the general funds of the Company and used for general corporate
purposes, allowing its special-purpose subsidiary to repay its short-term bank
borrowing. The amended and supplemented Mortgage under which the Series T Bonds
were issued contains covenants limiting, among other things, the creation of
additional indebtedness; the declaration and payment of dividends and
distributions on the Company's capital stock; and the acquisition or retirement
of any debt of the Company that is subordinate to the Series T Bonds.
Maturities of long-term debt and capitalized lease obligations due within
five years are: $86.2 million in 1994, $15.9 million in 1995, $18.1 million in
1996, $18.2 million in 1997, and $145.4 million in 1998. See Note 10 regarding
commitments and contingencies for other scheduled payments.
Interest cost incurred by the Company totaled $63.3 million in 1993, $63.4
million in 1992, and $71.1 million in 1991. Included in these totals is
capitalized interest of $2.9 million in 1993, $10.2 million in 1992, and $13.1
million in 1991.
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 $583 million, as compared with the carrying value of $562
million included in the balance sheet, at year-end 1993.
NOTE 4/CAPITAL STOCK
In December 1991, the Company sold 1,500,000 shares of Series C Preferred
Stock to Industries for $150 million. Aside from this issuance, there were no
changes in the Company's preferred or common stock during the year ended
December 31, 1991. The Company's other preferred stock consisted of 295,094
shares of Series A Preferred Stock with a stated value of $.6 million and
1,497,500 shares of Series B Preferred Stock with a stated value of $74.9
million.
In the fourth quarter of 1992, the Board of Directors authorized: (i) a
reduction in the number of Company shares authorized, issued and outstanding and
(ii) a change from no par to $1.00 par value stock. One share of $1.00 par value
stock was issued for each 30,000 shares of the no par stock, rounded to the
nearest whole share. As a result, capital in excess of par increased and
corresponding capital accounts decreased by $674.5 million. Summarized below is
the effect of these actions on the shares of Company stock:
BEFORE AFTER
---------- ---------
Authorized shares..................................... No Par $1.00 Par
Preferred stock..................................... 15,000,000 500
Common stock........................................ 60,000,000 2,000
Issued and outstanding shares......................... No Par $1.00 Par
Series A Preferred stock............................ 295,094 10
Series B Preferred stock............................ 1,497,500 50
Series C Preferred stock............................ 1,500,000 50
Common stock........................................ 29,399,207 980
Information provided below for each preferred issue is presented on an
after-change basis, which reflects the current status of each such issue.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-9
28
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash dividends on Series A Preferred Stock are cumulative and payable
quarterly at an annual rate of $72,000 per share. The shares are convertible
into common stock at the rate of one share of common stock for each share of
Series A Preferred Stock and are redeemable, at the Company's option, for
$1,320,000 per share plus any accrued and unpaid dividends.
Cash dividends on Series B Preferred Stock are cumulative and payable
quarterly at an annual rate of $142,500 per share. The shares are convertible
into common stock at a conversion price of $1,128,750 per share, or 1.33 common
shares for each preferred share, and have a liquidation value of $1,500,000 per
share plus any accrued and unpaid dividends. The shares are redeemable at the
Company's option, for $1,500,000 per share plus any accrued and unpaid
dividends.
Cash dividends on Series C Preferred Stock are cumulative and payable
quarterly at an annual rate of $360,000 per share. The shares have a liquidation
value of $3,000,000 per share plus any accrued and unpaid dividends. The shares
are redeemable at the Company's option at a price (plus accrued and unpaid
dividends) declining from $3,324,000 for the one-year period commencing December
1, 1993 to $3,000,000 beginning December 1, 2011. The Series C Preferred Stock
is also exchangeable at the Company's option on any dividend payment date for
the Company's 12% subordinated debentures due December 1, 2016, at a rate of
$3,000,000 principal amount of debentures for each share of Series C Preferred
Stock.
NOTE 5/PROVISIONS FOR FACILITIES SHUTDOWN
In 1993, the Company recorded a facility shutdown provision of $22.3
million which covered costs associated with the earlier than planned closure of
the Company's cokemaking facilities. Of the amount provided, $7.7 million
relates to the write-off of assets with the remainder provided for various
expenditures associated with the shutdown of the facility, including personnel
costs.
In 1991, the Company recorded restructuring provisions aggregating $205
million which pertained to the Indiana Harbor steelmaking complex. The
provisions cover writedowns of uneconomic facilities, principally cokemaking
batteries, the ingot mold foundry, and selected older facilities expected to be
shut down, as well as provisions for environmental matters and workforce
reductions (consisting principally of added pension and other employee benefit
costs).
In 1992, as the specific identification of the continuing status of pension
liabilities associated with the shutdown provisions is not feasible, these
liabilities were transferred from the restructuring reserve to the general
pension liabilities of the Company. At December 31, 1993, the Company had
restructuring reserves, excluding pension-related liabilities, totaling $149.7
million. Comparable reserves at December 31, 1992 and 1991 were $140.7 million
and $134.3 million, respectively.
NOTE 6/RETIREMENT BENEFITS
Pensions
The Inland Steel Industries Pension Plan and Pension Trust, which covers
certain employees of the Company, also covers certain employees of Industries
and of certain of Industries' other subsidiaries. The plan is a non-contributory
defined benefit plan with pensions 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 or on job class) for all other
wage employees, including members of the United Steelworkers union. 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. At year-end 1993 and 1992, the
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-10
29
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
DECEMBER 31
------------------
1993 1992
------ ------
DOLLARS IN
MILLIONS
Fair value of plan assets................................. $1,794 $1,686
------ ------
Actuarial present value of benefits for service rendered
to date:
Accumulated Benefit Obligation based on compensation to
date................................................. 1,960 1,534
Additional benefits based on estimated future
compensation levels.................................. 117 82
------ ------
Projected Benefit Obligation............................ 2,077 1,616
------ ------
Plan assets in excess (shortfall) of Projected Benefit
Obligation.............................................. $ (283) $ 70
------ ------
------ ------
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.
A weighted average discount (settlement) rate of 7.25% in 1993 and 8.6% in
1992 was used in the determination of the actuarial present value of benefits.
Pension cost for the Company for 1993 was a credit of $5.6 million compared
with a credit of $9.5 million in 1992 and an expense of $87.9 million in 1991.
Included in the 1991 pension cost is a pension provision for workforce
reductions of $106.3 million.
Benefits Other Than Pension
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 did not prefund any of these
postretirement benefits in 1993. Effective January 1, 1994, a Voluntary Employee
Benefit Association Trust was established for payment of health care benefits
made to United Steelworkers of America ("USWA") retirees. Funding of the Trust
will be made as claims are submitted for payment.
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").
Prior to the adoption of FASB Statement No. 106, the cost of medical
benefits for retired employees was expensed as incurred. For 1993 and 1992, the
accrued expense for benefits other than pensions recorded in accordance with
FASB Statement No. 106 exceeded the expense that would have been recorded under
the prior accounting methods by $39 million ($25 million after tax) and $53
million ($33 million after tax), respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-11
30
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amount of net periodic postretirement benefit cost for 1993 and 1992 is
composed of the following:
1993 1992
---- ----
DOLLARS IN
MILLIONS
Service cost................................................ $12 $11
Interest cost............................................... 76 85
Net amortization and deferral............................... (2) --
---- ----
Total net periodic postretirement benefit cost.............. $86 $96
---- ----
---- ----
The following table sets forth components of the accumulated postretirement
benefit obligation:
DECEMBER 31
------------------
1993 1992
------ ------
DOLLARS IN
MILLIONS
Accumulated postretirement benefit obligation attributable
to:
Retirees................................................ $ 500 $ 525
Fully eligible plan participants........................ 191 208
Other active plan participants.......................... 252 279
------ ------
Accumulated postretirement benefit obligation............. 943 1,012
Unrecognized net gain................................... 53 --
Unrecognized prior service credit....................... 54 --
------ ------
Accrued postretirement benefit obligation................. $1,050 $1,012
------ ------
------ ------
Any net gain or loss in excess of 10 percent of the accumulated post
retirement benefit obligation will be amortized over the remaining service
period of active plan participants.
In 1993, in connection with the Company's new labor agreement with the
USWA, the postretirement medical benefit plan covering union employees was
amended, effective August 1, 1993, to provide for employee co-payments and
increased deductibles. As a result of these plan amendments, the Company
remeasured its postretirement benefit obligation under FASB Statement No. 106,
as of August 1, 1993. This remeasurement incorporated the effect of the union
contract changes as well as the effects of changes in actuarial assumptions to
reflect more current information regarding claim costs, census data and interest
rate factors.
The assumptions used to determine the plan's accumulated postretirement
benefit obligation are as follows:
1992 1993
------------ --------------------------
DECEMBER 31 AUGUST 1 DECEMBER 31
------------ --------- ------------
Discount rate............................. 9.0% 7.35% 7.25%
Rate of compensation increase............. 5.0% 5.0% 5.0%
Medical cost trend rate................... 9%-5% 7%-5% 7%-5%
Year ultimate rate reached................ 1997 1996 1996
A one percentage point increase in the assumed health care cost trend rates
for each future year increases annual net periodic postretirement benefit cost
and the accumulated postretirement benefit obligation as of December 31, 1993 by
$12 million and $118 million, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
31
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Postemployment Benefits
In November 1992, the FASB issued Statement No. 112, "Employers' Accounting
for Postemployment Benefits." Adoption of the new Standard, which is required by
the first quarter of 1994, is not anticipated to have a material impact on
results of operations or the financial position of the Company.
NOTE 7/INCOME TAXES
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 a $31.3 million charge reflecting the cumulative effect of the
change on prior years. The Company is now required to record deferred tax assets
and liabilities on its balance sheet as compared with the Company's past
practice under APB Opinion No. 11 and Industries' former tax-sharing agreement
under which no such recording was required. Pursuant to the former tax-sharing
agreement with Industries, the Company paid Industries a charge in lieu of
Federal income taxes only in those years in which the Company had regular
taxable income or alternative minimum taxable income and the Industries group
incurred a current Federal income tax liability. In addition, for purposes of
determining the charge in lieu of Federal income taxes to the Company, the
tax-sharing agreement recognized that the Company was entitled to utilize the
full benefits of the NOL carryforwards and general business and other credit
carryforwards that existed as of May 1, 1986 (the date of formation of
Industries as a holding company for the Company and its subsidiaries). In 1991,
the Company was credited $.3 million due entirely to its share of Industries'
AMT liability.
To comply with the provisions of FASB Statement No. 109, a new tax-sharing
agreement was adopted under which current and deferred income tax provisions are
determined for each company in the Industries group on a stand-alone basis.
Companies with taxable losses record current income tax credits not to exceed
current income tax charges recorded by profitable companies. 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.
The elements of the provisions for income taxes for each of the three years
indicated below were as follows:
1993 1992 1991
----- ------ ----
DOLLARS IN MILLIONS
Current income taxes:
Federal........................................... $15.5Cr. $ 6.3Cr. $ .3Cr.
State and foreign................................. .1 -- .9Cr.
----- ------ ----
15.4Cr. 6.3Cr. 1.2Cr.
Deferred income taxes............................... 29.9Cr. 94.0Cr. --
----- ------ ----
Total tax benefit............................ $45.3Cr. $100.3Cr. $1.2Cr.
----- ------ ----
----- ------ ----
- ---------------
Cr. = Credit
In accordance with FASB Statement No. 109, the Company adjusted its
deferred tax assets and liabilities for the effect of the change in the
corporate Federal income tax rate from 34 to 35 percent, effective January 1,
1993. A credit to income of $9 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-13
32
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The components of the deferred income tax assets and liabilities arising
under FASB Statement No. 109 were as follows:
DECEMBER 31
---------------
1993 1992
---- ----
DOLLARS IN
MILLIONS
Deferred tax assets (excluding postretirement benefits other
than pensions):
Net operating loss and tax credit carryforwards......... $324 $289
Restructuring and termination reserves.................. 92 81
Other deductible temporary differences.................. 78 73
Less: Valuation allowances.............................. (9) (13)
---- ----
485 430
---- ----
Deferred tax liabilities:
Fixed asset basis difference............................... 388 345
Other taxable temporary differences........................ 76 64
---- ----
464 409
---- ----
Net deferred asset excluding postretirement benefits
other than pensions................................... 21 21
FASB Statement No. 106 impact (postretirement benefits other
than pensions)............................................. 396 366
---- ----
Net deferred asset...................................... $417 $387
---- ----
---- ----
For tax purposes, the Company had available, at December 31, 1993, net
operating loss ("NOL") carryforwards for regular Federal income tax purposes of
approximately $837 million which will expire as follows: $72 million in year
2000, $114 million in year 2005, $288 million in year 2006, $258 million in year
2007, and $105 million in 2008. The Company also had investment tax credit and
other general business credit carryforwards for tax purposes of approximately
$18 million, which expire during the years 1994 through 2006. A valuation
allowance of $9 million has been established for those tax credits which are not
expected to be realized. Additionally, in conjunction with the Alternative
Minimum Tax ("AMT") rules, the Company had available minimum tax credit
carryforwards for tax purposes of approximately $13 million, which may be used
indefinitely to reduce regular Federal income taxes.
The Company believes that it is more likely than not that the $837 million
of NOL carryforwards will be utilized prior to their expiration. This belief is
based upon the factors discussed below.
The NOL carryforwards and existing deductible temporary differences
(excluding those relating to FASB Statement No. 106) are substantially offset by
existing taxable temporary differences reversing within the carryforward period.
Furthermore, any such recorded tax benefits which would not be so offset are
expected to be realized by achieving future profitable operations based on the
following:
First, the Company launched a turnaround strategy to improve performance by
implementing a cost reduction program and enhancing asset utilization. This
resulted in a $205 million restructuring provision in 1991 to write off
uneconomic facilities and provide for future workforce reductions at the
Company.
Second, in 1992 the Company completed a major plant and equipment
investment program that amounted to approximately $1.3 billion since 1988. This
included the joint ventures of I/N Tek and I/N Kote and major upgrades to
facilities in the flat products and bar business. As expected, these facility
upgrades
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-14
33
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
resulted in significant start-up costs and disruptions to operations that
negatively impacted financial results. By year-end 1993, all facilities except
the 12-inch Bar Mill reached their design capabilities. This major investment
program also shifts the product mix to higher value-added products which
historically have not experienced significant price volatility. Consequently,
the Company is now positioned with modern facilities that will enhance its
ability to generate taxable profits.
Finally, the Company operates in a highly cyclical industry and
consequently has had a history of generating and then fully utilizing
significant amounts of NOL carryforwards.
Subsequent to the adoption of FASB Statement No. 109, the Company adopted
FASB Statement No. 106 and recognized the entire transition obligation at
January 1, 1992 as a cumulative effect charge in 1992 (Note 6). This adoption
resulted in a $366 million deferred tax asset at December 31, 1992, and future
annual charges under FASB Statement No. 106 are expected to continue to exceed
deductible amounts for many years. Thereafter, even if the Company should have a
tax loss in any year in which the deductible amount would exceed the financial
statement expense, the tax law provides for a 15-year carryforward period of
that loss. Because of the extremely long period that is available to realize
these future tax benefits, a valuation allowance for this deferred tax asset is
not necessary.
While not affecting the determination of deferred income taxes for
financial reporting purposes, at December 31, 1993, the Company had available
for AMT purposes approximately $270 million of NOL carryforwards which will
expire as follows: $113 million in 2006 and $157 million in 2007.
Total income taxes reflected in the Consolidated Statement of Operations
differ from the amounts computed by applying the Federal corporate tax rate as
follows:
YEARS ENDED DECEMBER
31
--------------------
1993 1992
----- ------
DOLLARS IN MILLIONS
Federal income tax benefit computed at statutory tax rate
of 35% in 1993 and 34% in 1992.......................... $36.8Cr. $ 92.5Cr.
Additional taxes or credits from:
State and local income taxes, net of Federal income tax
effect............................................... .8 2.0Cr.
Percentage depletion.................................... 2.2Cr. 4.1Cr.
Change in Federal statutory rate........................ 9.3Cr. --
All other, net.......................................... 2.2 1.7Cr.
----- ------
Total income tax benefit........................... $45.3Cr. $100.3Cr.
----- ------
----- ------
- ---------------
Cr. = Credit
Due to the existence of the former tax-sharing agreement, such
reconciliation does not provide meaningful information for 1991 and has
therefore been omitted.
NOTE 8/TRANSACTIONS WITH NIPPON STEEL CORPORATION
On December 18, 1989, Industries sold 185,000 shares of its Series F
Exchangeable Preferred Stock to NS Finance III, Inc., an indirectly wholly owned
subsidiary of Nippon Steel Corporation ("NSC"), for $1,000 per share. With
respect to Industries stockholder voting, such preferred stock entitles the
holder to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-15
34
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
30.604 votes per share, which number may be adjusted from time to time upon the
occurrence of certain events. The following is a summary of the Company's
relationships with NSC.
I/N Tek, a general partnership formed for a joint venture between the
Company and NSC, owns and operates a cold-rolling facility that commenced
operations in early 1990. I/N Tek is 60% owned by a wholly owned subsidiary of
the Company and 40% owned by an indirect wholly owned subsidiary of NSC. The
cost of the facility was $525 million, of which $111.6 million was contributed
by the subsidiary of the Company and $74.4 million by the subsidiary of NSC,
with the balance borrowed by I/N Tek from three Japanese trading companies. The
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, the Company was charged $141.2 million, $122.6
million and $95.0 million in 1993, 1992 and 1991, respectively, for such tolling
services. NSC has the right to purchase up to 400,000 tons of cold-rolled steel
from the Company in each year at market-based negotiated prices, up to half of
which may be steel processed by I/N Tek. Purchases of Company products by a
subsidiary of NSC aggregated $157.8 million, $123.0 million and $100.6 million
during 1993, 1992 and 1991, respectively. At year-end 1993 and 1992, a
subsidiary of NSC owed the Company $8.2 million and $7.1 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% by a wholly owned
subsidiary of the Company and 50% by an indirect wholly owned subsidiary of NSC.
The facility commenced operations in the fourth quarter of 1991 and became fully
operational in the third quarter of 1992, with the cost of the project being
$554 million. Permanent financing for the project, as well as for capitalized
interest and a portion of the working capital, was provided by third-party
long-term financing, by capital contributions of the two partners of $60 million
each and by subordinated partner loans of $30 million each. The 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 $516 million
outstanding under its long-term financing agreement at December 31, 1993.
Additional working capital requirements were met by partner loans and by
third-party credit arrangements. I/N Kote is required to buy all of its
cold-rolled steel from the 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 upward adjustment if
the Company's return on sales is less than I/N Kote's return on sales. Purchases
of Company cold-rolled steel by I/N Kote aggregated $191.7 million in 1993 and
$99.3 million in 1992. At year-end 1993, I/N Kote owed the Company $35.5 million
related to these purchases. Prices of cold-rolled steel sold by the Company to
I/N Kote are determined pursuant to the terms of the joint venture agreement and
are based, in part, on operating costs of the partnership. During 1993, the
Company sold cold-rolled steel to I/N Kote at a price that approximated its cost
of production compared with 1992 when such sales were at less than its cost of
production. I/N Kote also provides tolling services to the Company for which it
was charged $29.1 million in 1993. The 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, the Company incurred costs of $3.7 million, $4.1 million and
$7.0 million for technical services and related administrative costs for
services provided during 1993, 1992 and 1991, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-16
35
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9/INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company's investments in unconsolidated joint ventures accounted for by
the equity method consist primarily of its 60% interest in I/N Tek, 50% interest
in I/N Kote, 50% interest in PCI Associates, 40% interest in the Empire Iron
Mining Partnership, 12 1/2% interest (25% interest in 1991) in Walbridge
Electrogalvanizing Company and 13 3/4% interest in Wabush Mines. I/N Tek and I/N
Kote are joint ventures with NSC (see Note 8). 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. Empire and Wabush are iron
ore mining and pelletizing ventures owned in various percentages primarily by
U.S. and Canadian steel companies. On June 30, 1992, the Company sold one-half
of its interest in Walbridge, resulting in a $22.5 million pre-tax gain.
Walbridge is a venture that coats cold-rolled steel in which Inland has the
right to 25% of the productive capacity (50% at year-end 1991). Following is a
summary of combined financial information of the Company's unconsolidated joint
ventures:
1993 1992 1991
-------- -------- --------
DOLLARS IN MILLIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31:
Gross revenue.................................. $956.7 $740.8 $595.4
Costs and expenses............................. 945.1 748.3 586.8
------ ------ ------
Net income (loss).............................. $ 11.6 $ (7.5) $ 8.6
------ ------ ------
------ ------ ------
FINANCIAL POSITION AT DECEMBER 31:
Current assets................................. $ 279.7 $ 203.2 $ 137.3
Total assets................................... 1,925.9 1,949.9 1,875.8
Current liabilities............................ 241.6 174.0 145.0
Total liabilities.............................. 1,545.5 1,511.7 1,428.4
Net assets..................................... 380.4 438.2 447.4
NOTE 10/COMMITMENTS AND CONTINGENCIES
The Company guarantees payment of principal and interest on its 40% share
of the long-term debt of Empire Iron Mining Partnership requiring principal
payments of approximately $7.6 million annually through 1996. At year-end 1993,
the Company also guaranteed $34.5 million of long-term debt attributable to a
subsidiary's interest in PCI Associates.
As part of the agreement covering the 1990 sale of the Inland Lime & Stone
Company division assets, the 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 minimum, whichever is greater, through
2002.
The Company and its subsidiaries have various operating leases for which
minimum lease payments are estimated to total $288.3 million through 2018,
including approximately $45.0 million in 1994, $40.5 million in 1995, $37.4
million in 1996, $36.0 million in 1997, and $32.7 million in 1998. Included in
the above amounts is a total of $154 million, approximately $20 million per
year, related to the lease of a caster facility that the Company plans to
buy-out in 1994. Upon completion of the transaction, the total and five year
estimates provided should be reduced accordingly. The Company will also record
additional long-term debt of
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-17
36
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
approximately $63 million as part of the transaction, the interest and principal
of which will be paid on through 2001.
It is anticipated that the Company will make expenditures of $20 million in
1994, $13 million in 1995, and $5 million to $10 million annually in each of the
three years thereafter for the construction, and have ongoing annual
expenditures of $40 million to $50 million for the operation, of air and water
pollution control facilities to comply with current Federal, state and local
laws and regulations. The Company is involved in various environmental and other
administrative or judicial actions initiated by governmental agencies. While it
is not possible to predict the results of these matters, the Company does not
expect environmental expenditures, excluding amounts that may be required in
connection with the consent decree in the 1990 EPA lawsuit, to materially affect
the Company's results of operations or financial position. Corrective actions
relating to the EPA consent decree may require significant expenditures over the
next several years that may be material to the results of operations or
financial position of the Company. At December 31, 1993, the Company's reserves
for environmental liabilities totaled $19 million related to the sediment
remediation under the 1993 EPA consent decree.
The total amount of firm commitments of the Company and its subsidiaries to
contractors and suppliers, primarily in connection with additions to property,
plant and equipment, approximated $12 million at year-end 1993.
NOTE 11/RELATED PARTY TRANSACTIONS
Industries has established procedures for charging its administrative
expenses to the operating companies owned by it. These charges are for
management, financial and legal services provided to those companies. Charges
from Industries for 1993, 1992 and 1991 totaled $24.2 million, $25.4 million and
$25.2 million, respectively.
There are also established procedures to charge interest on all
intercompany loans within the Industries group of companies. Such loans
currently bear interest at the prime rate. For 1993, 1992 and 1991, the
Company's net interest expense to companies within the Industries group totaled
$8.0 million, $5.1 million and $18.6 million, respectively.
The Company sells to and purchases products from other companies within the
Industries group of companies at prevailing market prices. These transactions
for the indicated years are summarized as follows:
1993 1992 1991
------ ------ ------
DOLLARS IN MILLIONS
Net product sales..................................... $173.6 $116.8 $137.5
Net product purchases................................. 16.3 14.5 11.9
NOTE 12/CONCENTRATION OF CREDIT RISK
The Company produces and sells a wide range of steels, of which
approximately 99% consists of carbon and high-strength low-alloy steel grades.
Approximately 76% of the sales were to customers in five mid-American states,
and 93% were to customers in 20 mid-American states. Over half the sales are to
the steel service center and transportation (including automotive) markets.
Sales to General Motors Corporation approximated 12% of consolidated net
sales in 1993 and 1992, and 11% in 1991. No other customer accounted for more
than 10% of the consolidated net sales of the Company during any of these years.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-18
37
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 13/CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED)
1993
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
DOLLARS IN MILLIONS
Net sales.......................... $ 520.7 $ 566.2 $ 539.9 $ 548.1
Gross profit or (loss)............. (26.2) 19.3 33.8 13.2
Net income or (loss)............... (34.4) (7.5) 9.9 (27.7)*
1992
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
DOLLARS IN MILLIONS
Net sales.......................... $ 492.9 $ 506.5 $ 455.1 $ 446.5
Gross profit or (loss)............. (31.3) (8.9) (42.3) (91.7)
Net loss........................... (648.4)** (10.6) (47.3) (75.0)
- ---------------
* Includes facility shutdown provision of $22.3 million, $14.7 million after
tax.
** Includes cumulative effect of changes in accounting principles of $(609.6)
million.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-19
38
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER
CHANGES
BALANCE AT ---------- BALANCE
BEGINNING ADDITIONS RETIREMENTS INCREASE AT END
CLASSIFICATION OF YEAR AT COST OR SALES (DECREASE) OF YEAR
- -------------- ---------- --------- ----------- ---------- --------
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land, land improvements and mineral
properties........................... $ 122.4 $ .3 $ .7 $ -- $ 122.0
Buildings, machinery and equipment...... 3,361.1 85.5 137.6 (1.6)(A) 3,307.8
.4 (B)
Transportation equipment................ 130.9 .3 1.9 -- 129.3
Property under capital leases--primarily
machinery and equipment.............. 42.8 -- -- -- 42.8
---------- --------- ----------- ---------- --------
Total.............................. $3,657.2 $ 86.1 $ 140.2 $ (1.2) $3,601.9
---------- --------- ----------- ---------- --------
---------- --------- ----------- ---------- --------
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land, land improvements and mineral
properties........................... $ 121.3 $ 1.2 $ .1 $ -- $ 122.4
Buildings, machinery and equipment...... 3,380.5 53.1 65.0 (2.6)(A) 3,361.1
(4.9)(B)
Transportation equipment................ 138.7 .1 7.9 -- 130.9
Property under capital leases--primarily
machinery and equipment.............. 42.8 -- -- -- 42.8
---------- --------- ----------- ---------- --------
Total.............................. $3,683.3 $ 54.4 $ 73.0 $ (7.5) $3,657.2
---------- --------- ----------- ---------- --------
---------- --------- ----------- ---------- --------
YEAR ENDED DECEMBER 31, 1991
-----------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land, land improvements and mineral
properties........................... $ 118.5 $ 3.3 $ .5 $ -- $ 121.3
Buildings, machinery and equipment...... 3,349.3 119.2 86.7 (1.3)(A) 3,380.5
Transportation equipment................ 143.7 2.1 7.1 -- 138.7
Property under capital leases--primarily
machinery and equipment.............. 42.0 .1 -- .7 (B) 42.8
---------- --------- ----------- ---------- --------
Total.............................. $3,653.5 $ 124.7 $ 94.3 $ (.6) $3,683.3
---------- --------- ----------- ---------- --------
---------- --------- ----------- ---------- --------
NOTES:
(A) Reflects the change in book value of rolls, annealing covers and convector
plates.
(B) Transfer between property, plant and equipment and other assets and other
miscellaneous adjustments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-20
39
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE VI - RESERVE FOR DEPRECIATION, AMORTIZATION AND DEPLETION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER
CHANGES
BALANCE AT ---------- BALANCE AT
BEGINNING ADDITIONS RETIREMENTS INCREASE END OF
CLASSIFICATION OF YEAR AT COST OR SALES (DECREASE) YEAR
- -------------- ---------- --------- ----------- ---------- ----------
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------------------
DEPRECIATION, AMORTIZATION, DEPLETION:
Land improvements and mineral
properties........................... $ 63.0 $ 2.1 $ .3 $ -- $ 64.8
Buildings, machinery and equipment...... 2,064.2 103.2 126.6 (1.3)(A) 2,039.5
Transportation equipment................ 118.9 4.1 1.3 -- 121.7
Property under capital leases--primarily
machinery and equipment.............. 33.7 1.6 -- -- 35.3
---------- --------- ----------- ---------- ----------
2,279.8 111.0 128.2 (1.3) 2,261.3
Allowance for terminated facilities
costs................................ 106.2 7.7 6.8 1.3 (A) 108.4
---------- --------- ----------- ---------- ----------
Total................................ $2,386.0 $ 118.7 $ 135.0 $ -- $2,369.7
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
YEAR ENDED DECEMBER 31, 1992
-------------------------------------------------------------------
DEPRECIATION, AMORTIZATION, DEPLETION:
Land improvements and mineral
properties........................... $ 60.9 $ 2.1 $ -- $ -- $ 63.0
Buildings, machinery and equipment...... 2,026.2 99.9 62.0 .1 (A) 2,064.2
Transportation equipment................ 121.2 5.2 7.3 (.2)(A) 118.9
Property under capital leases--primarily
machinery and equipment.............. 31.7 2.1 -- (.1)(A) 33.7
---------- --------- ----------- ---------- ----------
2,240.0 109.3 69.3 (.2) 2,279.8
Allowance for terminated facilities
costs................................ 97.3 11.6 2.7 -- 106.2
---------- --------- ----------- ---------- ----------
Total................................ $2,337.3 $ 120.9 $ 72.0 $ (.2) $2,386.0
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
YEAR ENDED DECEMBER 31, 1991
-------------------------------------------------------------------
DEPRECIATION, AMORTIZATION, DEPLETION:
Land improvements and mineral
properties........................... $ 58.9 $ 2.0 $ -- $ -- $ 60.9
Buildings, machinery and equipment...... 2,016.4 87.3 75.0 (2.5)(A) 2,026.2
Transportation equipment................ 120.6 5.6 5.2 .2 (A) 121.2
Property under capital leases--primarily
machinery and equipment.............. 27.6 3.8 -- .3 (A) 31.7
---------- --------- ----------- ---------- ----------
2,223.5 98.7 80.2 (2.0) 2,240.0
Allowance for terminated facilities
costs................................ 15.0 85.0 2.7 -- 97.3
---------- --------- ----------- ---------- ----------
Total................................ $2,238.5 $ 183.7 $ 82.9 $ (2.0) $2,337.3
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
NOTES:
(A) Reclassification among indicated reserve accounts and other miscellaneous
adjustments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-21
40
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE VIII--RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
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
- ----------- ---------- --------- ---------- ----------
1993 $ 18.4 $12.3 $1.8(A) $ 22.9
$6.0(B)
1992 $ 25.0 $ 4.0 $4.5(A) $ 18.4
$6.1(B)
1991 $ 24.5 $11.0 $2.1(A) $ 25.0
$8.4(B)
NOTES:
(A) Bad debts written off during year.
(B) Allowances granted during year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-22
41
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE IX--SHORT-TERM BORROWINGS
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
AMOUNT AMOUNT INTEREST
YEARS CATEGORY OF BALANCE OUTSTANDING OUTSTANDING RATE
ENDED SHORT-TERM AT END DURING THE DURING THE DURING THE
DECEMBER 31 BORROWINGS OF YEAR YEAR YEAR (A) YEAR (B)
- ----------- ----------- ------- ----------- ----------- ----------
1993 -- -- -- --
1992 Bank -- $ 40.0 $13.4 4.9%
1991 Bank -- $ 100.0 $64.0 6.3%
NOTES:
(A) The average outstanding amount was computed by aggregating the daily
balances of short-term debt outstanding and dividing the aggregate by the
number of days in the year.
(B) The weighted average interest rate during the year was computed by dividing
interest expense on short-term debt by the average short-term debt
outstanding during the year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-23
42
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE X--SUPPLEMENTARY PROFIT AND LOSS INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1993 1992 1991
------ ------ ------
Maintenance and repairs............................................. $157.3 $162.9 $159.9
------ ------ ------
------ ------ ------
Taxes, other than payroll and income taxes:
Real estate and personal property................................. $ 42.1 $ 43.7 $ 39.3
Excise, sales and use, and other.................................. 10.0 10.0 10.3
------ ------ ------
$ 52.1 $ 53.7 $ 49.6
------ ------ ------
------ ------ ------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-24
43
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------------------------- ----------
3.(i) Copy of Certificate of Incorporation, as amended, of the Company. (Filed as
Exhibit 3-A to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated by reference herein.) --
3.(ii) Copy of By-laws, as amended, of the Company. (Filed as Exhibit 3-B to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992, and incorporated by reference herein.) --
4.A Copy of First Mortgage Indenture, dated April 1, 1928, between the Company
(the "Steel Company") and First Trust and Savings Bank and Melvin A.
Traylor, as Trustees, and of supplemental indentures thereto, to and
including the Thirty-Second Supplemental Indenture, incorporated by
reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c),
B-1(d) and B-1(e), filed with Steel Company's Registration Statement on
Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel
Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit
B-1(h), filed with Steel Company's Current Report on Form 8-K dated January
18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on
Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed
with Steel Company's Current Report on Form 8-K for the month of April,
1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement
on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's
Current Report on Form 8-K for the month of January, 1945; (viii) Exhibit
1, filed with Steel Company's Current Report on Form 8-K for the month of
November, 1946; (ix) Exhibit 1, filed with Steel Company's Current Report
on Form 8-K for the months of July and August, 1948; (x) Exhibits B and C,
filed with Steel Company's Current Report on Form 8-K for the month of
March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on
Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel
Company's Current Report on Form 8-K for the month of July, 1957; (xiii)
Exhibit B, filed with Steel Company's Current Report on Form 8-K for the
month of January, 1959; (xiv) the Exhibit filed with Steel Company's
Current Report on Form 8-K for the month of December, 1967; (xv) the
Exhibit filed with Steel Company's Current Report on Form 8-K for the month
of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report
on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the
amendment on Form 8 to Steel Company's Current Report on Form 8-K for the
month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current
Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed
with Steel Company's Current Report on Form 8-K for the month of January,
1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K
for the month of February, 1977; (xxi) Exhibit B, filed with Steel
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with
Steel Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1982; (xxv)
Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the
Steel Company's Registration Statement on Form S-2 (No. 33-43393); and
(xxvii) Exhibit 4 filed with Steel Company's Current Report on Form 8-K
dated June 23, 1993. --
4.B Copy of consolidated reprint of First Mortgage Indenture, dated April 1,
1928, between the 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.) --
24 Powers of attorney.........................................................