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1995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2438
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
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FIRST MORTGAGE BONDS:
SERIES R, 7.90% DUE JANUARY 15, 2007 NEW YORK STOCK EXCHANGE, INC.
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 .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN ANY AMENDMENT TO THIS FORM 10-K. / /
THE NUMBER OF SHARES OF COMMON STOCK ($1.00 PAR VALUE) OF THE REGISTRANT
OUTSTANDING AS OF MARCH 12, 1996 WAS 980, ALL OF WHICH SHARES WERE OWNED BY
INLAND STEEL INDUSTRIES, INC.
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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 iron ore production
and 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 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.
The Company has two divisions -- the Inland Steel Flat Products Company
division and the Inland Steel Bar Company 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 Flat Products division closed its plate
operations at year-end 1995. The Bar division manufactures and sells special
quality bars and certain related semi-finished products for forgers, steel
service centers, heavy equipment manufacturers, cold finishers and the
transportation industry. The Bar division closed its 28-inch structural mill in
early 1991, completing 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 achieved operation at 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 that achieved operation at their
design capacity in 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 COMPANY AS A % OF
COMPANY U.S. STEEL
(000 TONS*) INDUSTRY
------------ -----------------
1995..................................................... 5,419 5.3%**
1994..................................................... 5,309 5.3
1993..................................................... 5,003 5.2
1992..................................................... 4,740 5.2
1991..................................................... 4,677 5.3
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* Net tons of 2,000 pounds.
** Based on preliminary data from the American Iron and Steel Institute.
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
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process accounted for 91% and 94% of raw steel production of the Company in 1995
and 1994, respectively. The remainder of such production was accounted for by
electric furnace.
The total tonnage of steel mill products shipped by the Company for each of
the five years 1991 through 1995 was 5.1 million tons in 1995; 5.2 million tons
in 1994; 4.8 million tons in 1993; 4.3 million tons in 1992; and 4.2 million
tons in 1991. In 1995, sheet, strip, plate and certain related semi-finished
products accounted for 84% of the total tonnage of steel mill products shipped
from the Indiana Harbor Works, and bar and certain related semi-finished
products accounted for 16%.
In 1995 and 1994, approximately 93% and 95%, respectively, of the shipments
of the Flat Products division and 93% in both years, of the shipments of the Bar
division were to customers in 20 mid-American states. Approximately 76% of the
shipments of the Flat Products division and 84% of the shipments of the Bar
division in 1995 were to customers in a five-state area comprised of Illinois,
Indiana, Ohio, Michigan and Wisconsin, compared to 77% and 84% in 1994. Both
divisions compete in these geographical areas, principally on the basis of
price, service and quality, with the nation's largest producers of raw steel as
well as with foreign producers and with many smaller domestic mills.
The steel market is highly competitive with major integrated producers,
including the Company, facing competition from a variety of sources. Many steel
products compete with alternative materials such as plastics, aluminum,
ceramics, glass and concrete. Domestic steel producers have also been adversely
impacted by imports from foreign steel producers. Imports of steel mill products
accounted for 21.4% of the domestic market in 1995, below the 1984 peak of
26.4%, and 24.7% in 1994. Many foreign producers are owned, controlled, or
subsidized by their governments allowing them to ship steel products into the
domestic market despite decreased profit margins or losses on such sales.
Mini-mills provide significant competition in certain product lines,
primarily structural shapes, bars and rods. Mini-mills are relatively efficient,
low-cost producers that manufacture steel principally from scrap in electric
furnaces and, at this time, generally have lower capital, overhead, employment
and environmental costs than the integrated steel producers, including the
Company. Mini-mills have been adding capacity and expanding their products lines
in recent years to produce larger structural products and certain flat-rolled
products, including coated products. A significant increase in modern mini-mill
capacity is anticipated within the next two years.
Certain facilities at the Indiana Harbor Works have been permanently closed
and others have been shut down for temporary periods. The 28-inch structural
mill was closed in early 1991, reflecting a decision to withdraw from the
structural steel markets. In late 1991 the mold foundry, No. 8 Coke Oven
Battery, and selected other facilities were closed either as part of a program
to permanently reduce costs through the closure of uneconomic facilities or for
environmental reasons. Provisions with respect to the shut-down of the
structural mill were taken in 1987. Provisions for estimated costs incurred in
connection with the closure of the mold foundry, No. 8 Coke Oven Battery, and
selected other facilities were made in 1991. Included in such provisions were
costs associated with the Company's closure of its No. 11 Coke Oven Battery in
June 1992. All remaining coke batteries were closed by year-end 1993, a year
earlier than previously anticipated. An additional provision was required with
respect to those closures. (See "Environment" below.) At year-end 1995 the plate
mill was closed. Provisions for such closure were taken prior to and in 1991.
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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. As shown in the
table, a substantial portion of shipments by the Flat Products division was to
steel service centers and transportation-related markets. The Bar division
shipped more than 54% of its products to the steel converters/processors market
over the five-year period shown in the table.
PERCENTAGE OF TOTAL TONNAGE
OF STEEL SHIPMENTS
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Steel Service Centers:
Affiliates............................................ 9 % 9 % 9 % 7 % 8 %
Non-Affiliates........................................ 23 20 22 22 24
---- ---- ---- ---- ----
32 29 31 29 32
Automotive.............................................. 30 32 30 28 25
Steel Converters/Processors............................. 14 12 13 18 12
Appliance............................................... 8 9 9 9 8
Industrial, Electrical and Farm Machinery............... 7 8 7 8 9
Construction and Contractors' Products.................. 2 2 3 3 4
Other................................................... 7 8 7 5 10
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
==== ==== ==== ==== ====
Some value-added steel processing operations for which the Company does not
have facilities are performed by outside processors, including joint ventures,
prior to shipment of certain products to the Company's customers. In 1995,
approximately 32% of the products produced by the Company were processed further
through value-added services such as electrogalvanizing, painting and slitting,
excluding products processed further by affiliates.
Approximately 78% of the total tonnage of shipments by the Company during
1995 from the Indiana Harbor Works was transported by truck, with the remainder
transported primarily by rail. A wholly owned truck transport subsidiary of the
Company was responsible for shipment of approximately 15% of the total tonnage
of products transported by truck from the Indiana Harbor Works in 1995.
Substantially all of the steel mill products produced by the Flat Products
division are marketed through its own selling organization, with offices located
in Chicago; Southfield, Michigan; and Nashville, Tennessee. Substantially all of
the steel mill products produced by the Bar division are marketed through its
sales office in East Chicago, Indiana.
See "Product Classes" below for information relating to the percentage of
consolidated net sales accounted for by certain classes of similar products of
steel manufacturing operations.
Raw Materials
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. The
Company has closed or terminated certain less cost-efficient iron ore mining
operations. See "Properties Relating to Operations -- Raw Materials Properties
and Interests" in Item 2 below for further information relating to such iron ore
properties.
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The following table shows (1) the iron ore pellets available to the
Company, as of December 31, 1995, from properties of its subsidiaries and
through interests in raw materials ventures; (2) 1995 and 1994 iron ore pellet
production or purchases from such sources; and (3) the percentage of the
Company's iron ore requirements represented by production or purchases from such
sources in 1995 and 1994.
IRON ORE
TONNAGES IN THOUSANDS % OF
(GROSS TONS OF PELLETS) REQUIREMENTS(1)
--------------------------------- ------------
AVAILABLE AS OF PRODUCTION
DECEMBER 31, --------------
1995(2) 1995 1994 1995 1994
--------------- ----- ----- ---- ----
INLAND STEEL MINING COMPANY PROPERTY
Minorca -- Virginia, MN.................... 62,000 2,769 2,717 38% 39%
IRON ORE VENTURES AND LONG-TERM PURCHASE
CONTRACTS
Empire (40% owned) -- Palmer, MI;
Wabush (15.09% owned) -- Wabush, Labrador
and Pointe Noire, Quebec, Canada........ 124,000 3,961 3,625 55 52
---------- ----- ----- ---- ----
Total Iron Ore........................ 186,000 6,730 6,342 93% 91%
========== ===== ===== ==== ====
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(1) Requirements in excess of production are 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 a significant
purchase contract. The contract requires the Company to purchase (subject to
force majeure provisions) a total of 1,270,000 tons of metallurgical and/or
steam coal at prices (intended to approximate market) determined with respect to
certain cost factors. The term of the contract has been extended through April
1996, with the extension covering solely steam coal, due to the shutdown of the
Company's coke batteries in December 1993. During 1995, the Company purchased
25% of its total coal requirements under such contract, representing 66% of its
steam coal requirements. It is anticipated that steam coal purchases will be
made under short-term contracts and through spot-market purchases.
The Company's other coal requirements are for 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
Company had entered into a contract (subject to force majeure provisions) to
purchase 95% of the PCI facility's requirements for injection-quality coal
through the term of the contract (which expired at the end of 1995). Early in
1994, the Company suspended its purchases under the contract's force majeure
provisions and coal was not purchased under this contract during 1995. As a
result, the PCI facility's coal requirements are satisfied under short-term
purchase contracts.
In December 1993, the last of the Company's coke-making facilities was
permanently shut down. The Company has entered into two long-term purchase
contracts, one of which requires the purchase of 1,400,000 tons of coke and
extends through July 1999 subject to force majeure provisions and may be
extended by mutual agreement of the parties. The second contract requires the
purchase of 350,000 tons of coke for the period January 1, 1996 through December
31, 2000 on a take or pay basis, with a provision allowing the Company to sell
the coke to others. Both contract terms require purchases on an annualized basis
at prices negotiated annually based on certain market determinants. During 1995,
the Company satisfied 70% of its total coke needs under such arrangements. The
remainder of its purchased coke requirements was obtained through contracts with
independent domestic and foreign sources.
The Company sold all of its limestone and dolomite properties in September
1990. The Company has entered into a long-term contract with the buyer of the
properties to purchase, subject to certain exceptions and at prices which
approximate market, the full amount of its annual limestone needs through 2002,
with a required minimum annual purchase of one million gross tons through 1996.
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Approximately 80% of the iron ore pellets and virtually all of the
limestone received by the Company at its Indiana Harbor Works in 1995 were
transported by its Great Lakes carriers. Contracts are in effect for the
transportation on the Great Lakes of the remainder of its iron ore pellet
requirements. Approximately 25% of the Company's coal requirements were
transported in its hopper cars by unit train in 1995. The remainder of the
Company's coal requirements was transported in independent carrier-owned
equipment or leased equipment. Approximately 23% of the Company's coke
requirements in 1995 were transported in its own hopper cars, 47% in leased
hopper cars, 17% in independent carrier-owned hopper cars, and 13% in
independent carrier-owned river barges.
See "Energy" below for further information relating to the use of coal in
the operations of 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.
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Sheet, Strip and Plate.................................. 82 % 85 % 88 % 88 % 89 %
Bar and Structural...................................... 18 15 12 12 11
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
==== ==== ==== ==== ====
Sales to General Motors Corporation approximated 10% of consolidated net
sales in 1995, 12% in each of 1994, 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.
CAPITAL EXPENDITURES AND INVESTMENTS IN JOINT VENTURES
In recent years, the Company and its subsidiaries have made substantial
capital expenditures, principally at the Indiana Harbor Works, to improve
quality and reduce costs, and for pollution control. Additions by the Company
and its subsidiaries to property, plant and equipment, together with retirements
and adjustments, for the five years ended December 31, 1995, are set forth
below. Net capital additions during such period aggregated $205.0 million.
DOLLARS IN MILLIONS
--------------------------------------------------------
RETIREMENTS NET CAPITAL
ADDITIONS OR SALES ADJUSTMENTS ADDITIONS
---------- ----------- ------------ -----------
1995..................................... $113.9 $ 36.7 $ 1.5 $ 78.7
1994..................................... 223.7 47.8 2.0 177.9
1993..................................... 86.1 140.2 (1.2) (55.3)
1992..................................... 54.4 73.0 (7.5) (26.1)
1991..................................... 124.7 94.3 (.6) 29.8
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. In 1995, the Company and its
subsidiaries made capital expenditures of $114 million. Such expenditures
principally related to the purchase of new machinery and equipment to maintain
or improve operations at the Indiana Harbor Works. Capital expenditures of $224
million in 1994 included $146 million related to the purchase of the No. 2 Basic
Oxygen Furnace Shop caster facility which had previously been leased, including
$83 million for the purchase of the equity interest plus assumption of $63
million of caster-related debt.
In July 1987, a wholly owned subsidiary of 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 approximately one-third is cold-rolled
substrate for I/N Kote (described below). The I/N Tek facility, located near New
Carlisle, Indiana, achieved operation at its design capacity in 1992. The
Company, which owns, through its subsidiary, a 60% interest in the I/N Tek
partnership is, with
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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
facility achieved operation at its design capacity in 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 22, 1996, and is incorporated by reference
into Item 13 of this Report.
The amount budgeted for 1996 capital expenditures by the Company and its
subsidiaries is approximately $150 million. 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 1995 was approximately 10,200. At year-end,
approximately 7,400 employees were represented by the United Steelworkers of
America, of whom approximately 600 were on furlough or indefinite layoff. Total
employment costs decreased from $690 million in 1994 to $679 million in 1995,
due primarily to lower costs for pensions and other postretirement benefits
which were almost entirely offset by higher direct compensation expense,
including profit sharing provisions.
Beginning in 1991, the Company embarked upon a major turnaround strategy,
with the assistance of an outside consulting firm, to significantly reduce
costs, increase revenues and improve asset utilization at the Company. With the
closure of the plate operations at year-end 1995, the Company has completed the
workforce reduction program which was part of the turnaround strategy, reducing
employment by 25%.
The current labor agreement between 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 provided a wage increase of $.50 per
hour in 1995 and a $500 bonus in each of 1993 and 1994 (totalling in each case
approximately $4 million). All active employees receive an additional week of
vacation in 1994 and in 1996. The agreement provides for a reopener on wages and
certain benefits in 1996 with an arbitration provision to resolve unsettled
issues, thereby precluding a work stoppage over the six-year term of the
contract. The agreement also provides for election of a Union designee
acceptable to Industries' Board of Directors (Dr. Robert B. McKersie is such
Union designee), restrictions on the ability of 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
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release of pollutants to the environment, including the Clean Air Act, Clean
Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA," also known as
"Superfund"), Safe Drinking Water Act, and Toxic Substances Control Act, as well
as state and local requirements. Violations of these laws and regulations can
give rise to a variety of civil, administrative, and, in some cases, criminal
actions and could also result in substantial liabilities or require substantial
capital expenditures. In addition, under CERCLA the United States Environmental
Protection Agency (the "EPA") has authority to impose liability for site
remediation on waste generators, past and present site owners and operators, and
transporters, regardless of fault or the legality of the original disposal
activity. Liability under CERCLA is strict, joint and several.
On June 10, 1993, the U.S. District Court for the Northern District of
Indiana entered a consent decree that resolved all matters raised by a lawsuit
filed by the EPA in 1990. The consent decree included a $3.5 million cash fine,
environmentally beneficial projects at the Indiana Harbor Works through 1997
costing approximately $7 million, and sediment remediation of portions of the
Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost
approximately $19 million over the next several years. The fine and estimated
remediation costs were provided for in 1991 and 1992. After payment of the fine,
the Company's reserve for environmental liabilities totalled $19 million. In
1995 such reserve was increased to $26 million primarily to cover the costs of
assessing environmental contamination discussed below. The consent decree also
defines procedures for corrective action at 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 two to four years to complete. Because neither the nature and extent of
the contamination nor the corrective actions can be determined until the
assessment of environmental contamination and evaluation of corrective measures
is completed, the Company cannot presently reasonably estimate the costs of or
the time required to complete such corrective actions. Such corrective actions
may, however, require significant expenditures over the next several years that
may be material to the financial position and results of operations of the
Company. Insurance coverage with respect to such corrective actions is not
significant.
By year-end 1993, the last of 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 two long-term contracts 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, reducing the Company's coke needs by
approximately 25%. The facility achieved operation at its design capacity in
1994.
Capital spending for pollution control projects totaled $19 million in
1995, up from $17 million in 1994. Another $39 million was spent in 1995 to
operate and maintain such equipment, versus $41 million a year earlier. During
the five years ended December 31, 1995, the Company has spent $272 million to
construct, operate and maintain environmental control equipment at its various
locations.
Environmental projects previously authorized and presently under
consideration, including those designed to comply with the 1990 Clean Air Act
Amendments, but excluding any amounts that would be required under the consent
decree settling the 1990 EPA lawsuit, will require capital expenditures of
approximately $23 million in 1996. It is anticipated that the Company will make
annual capital expenditures of $10 million to $15 million in each of the four
years thereafter. In addition, 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
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corrective action that may be required under the Resource Conservation and
Recovery Act and the consent decree in the 1990 EPA lawsuit, the Company cannot
predict the amount of additional environmental expenditures that will be
required. Such additional environmental expenditures, excluding amounts that may
be required in connection with the consent decree in the 1990 EPA lawsuit,
however, are not expected to be material to the financial position or results of
operations of the Company.
See Item 3 below for information concerning certain proceedings pertaining
to environmental matters in which the Company is involved.
ENERGY
Coal, together with coke, all of which are purchased from independent
sources, accounted for approximately 71% of the energy consumed by the Company
at the Indiana Harbor Works in 1995. See "Environment" above for a discussion of
coke-making by the Company.
Natural gas and fuel oil supplied approximately 26% of the energy
requirements of the Indiana Harbor Works in 1995 and are used extensively by the
Company at other facilities that it owns or in which it has an interest.
Utilization of the pulverized coal injection facility (see "Environment" above)
has reduced natural gas and fuel oil consumption at the Indiana Harbor Works.
The Company both purchases and generates electricity to satisfy electrical
energy requirements at the Indiana Harbor Works. In 1995, the Company produced
approximately 58% of its requirements at the Indiana Harbor Works. The purchase
of electricity at the Indiana Harbor Works is subject to curtailment under rules
of the local utility when necessary to maintain appropriate service for various
classes of its customers.
A subsidiary of Nipsco Industries, Inc. ("Nipsco") has leased land at the
Indiana Harbor Works and built a 75 megawatt steam turbine on such land.
Pursuant to a 15-year toll-charge contract between the Company and the Nipsco
subsidiary, the turbine facility is expected to generate electricity for use by
the Company utilizing steam produced by burning waste blast furnace gas. It is
anticipated that the facility will become operational in the first half of 1996
and that it will fulfill approximately 75% of the purchased electricity
requirements of the Indiana Harbor Works at prices below those currently
available to the Company.
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, are held by the Company under
leasing arrangements. The Company purchased the equity interest of the lessor of
the No. 2 BOF Shop Caster Facility in March 1994 and assumed caster-related
debt, which was repaid by year-end 1994. Substantially all of the remaining
property, plant and equipment at the Indiana Harbor Works, other than the Caster
Facility and leased equipment, is subject to the lien of the First Mortgage of
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 is
8
10
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 Indiana 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. The PCI Associates facility is adequate to serve the present and
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
and coke 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 2,700
Wabush Mine............................ Wabush, Labrador and Pointe 5,700
Noire, Quebec, Canada
The Empire Mine is operated by the Empire Iron Mining Partnership, in which
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 an approximately 15% 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
9
11
available from independent sources. During 1992, the Minorca Mine's original ore
body was depleted and production shifted to a new major iron ore body, the
Laurentian Reserve, acquired by lease in 1990.
Coal
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 15% 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 June 10, 1993, the U.S. District Court for the Northern District of
Indiana entered a consent decree that resolved all matters raised by the lawsuit
filed by the EPA in 1990. The consent decree includes a $3.5 million cash fine,
environmentally beneficial projects at the Indiana Harbor Works through 1997
costing approximately $7 million, and sediment remediation of portions of the
Indiana Harbor Ship Canal and Indiana Harbor Turning Basin estimated to cost
approximately $19 million over the next several years. The fine and estimated
remediation costs were provided for in 1991 and 1992. After payment of the fine,
the Company's reserve for environmental liabilities totalled $19 million. In
1995 such reserve was increased to $26 million primarily to cover the costs of
assessing environmental contamination discussed below. The consent decree 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 two to four years to complete. Because neither the nature and extent of
the contamination nor the corrective actions can be determined until the
assessment of environmental contamination and evaluation of corrective measures
is completed, the Company cannot presently reasonably estimate the costs of or
the time required to complete such corrective actions. Such corrective actions
may, however, require significant expenditures over the next several years that
may be material to the financial position and results of operations of the
Company. Insurance coverage with respect to such corrective actions is not
significant.
On March 22, 1985, the EPA issued an administrative order to 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
10
12
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. Results of operations could be materially affected
for the particular reporting periods in which expenses are incurred.
The EPA has adopted a national policy of seeking substantial civil
penalties against owners and operators of sources for noncompliance with air and
water pollution control statutes and regulations under certain circumstances. It
is not possible to predict whether further proceedings will be instituted
against the Company or any of its subsidiaries pursuant to such policy, nor is
it possible to predict the amount of any such penalties that might be assessed
in any such proceeding.
The Company received a Notice of Violation from IDEM dated March 3, 1989
alleging violations of the Company's National Pollutant Discharge Elimination
System ("NPDES") permit regarding water discharges. IDEM advised the Company by
letter dated November 22, 1995 that this Notice of Violation was withdrawn
inasmuch as the consent decree discussed in the first paragraph of this section
adequately addressed all of the violations in said Notice of Violation.
By letter dated March 12, 1996, the Company was informed that, at the
request of the EPA, the Department of Justice is preparing to bring civil claims
against the Company for alleged violations of effluent limits contained in its
NPDES permit and for the alleged discharge of pollutants without the
authorization of an NPDES permit. While it is not possible at this time to
predict the amount of the Company's potential liability, this matter is not
expected to materially affect the Company's financial position. Results of
operations could be materially affected for the particular reporting periods in
which expenses are incurred.
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 $250,000. The
cost of the final remedies which will be determined to be required with respect
to the Facility cannot be reasonably estimated until, at a minimum, the RI/FS is
completed. 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 or results of
operations.
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.
11
13
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 reported net income of $69.1 million in 1995 as compared with
$53.9 million in 1994. This was the Company's second consecutive reported annual
net income and best operating profit performance since its 1988 record year.
The following table summarizes selected earnings and other data:
1995 1994
-------- --------
DOLLARS AND TONS
IN MILLIONS
Net sales.......................................... $2,513.3 $2,487.9
Operating profit................................... 181.7 149.3
Net income......................................... 69.1 53.9
Net tons shipped................................... 5.1 5.2
Net sales increased 1 percent in 1995 as compared with 1994 due to a 2
percent increase in average selling price which was offset in part by a 1
percent decrease in the volume of steel mill products shipped. After a strong
first half, average realizing prices deteriorated due to a softness in flat
rolled contract business, particularly automotive, and a subsequent shift of
business to a weakening spot market. Demand for bar products, however, continued
strong. The Company operated at 90 percent of its raw steelmaking capability in
1995, compared with 89 percent in 1994.
During the 1995 third quarter, the Company offered a voluntary retirement
package to approximately 1,000 salaried employees. Approximately 300 salaried
employees accepted the package resulting in a charge of $35 million being
recorded in the quarter for provisions related to pensions, health care, and
severance costs.
At the end of the third quarter, due to economic reasons, the Company
announced the closure of its plate operation to take place at the end of 1995.
Provisions for pensions and other employee benefits related to the shutdown of
this operation had been previously accrued. With the closure of the plate
operation at year-end 1995, the Company has completed the workforce reduction
program announced in 1991, reducing employment by 25 percent. A final
computation of the employee benefit costs required for the 1991 program resulted
in unused reserves due to differences between the actual makeup of the
population leaving the Company under this program and the projections used in
1991. As a result, the Company reversed $65 million of unused reserves from the
balance sheet and recorded a corresponding credit to income.
During the 1995 third quarter, the Company also increased reserves by $7
million for additional benefit costs at a closed iron ore mining facility and by
$2 million for a further writedown of non-operating assets of the former
construction business. Reserves relating to environmental matters were increased
by $7 million.
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. In 1995 and 1994, the Company's sales prices exceeded its costs of
production but were less than the market prices for cold-rolled steel products.
As I/N Kote expenditures
12
14
include principal payments and provisions for return on equity to the partners,
the Company's ability to realize higher prices on its sales to I/N Kote depends
on the facility continuing near-capacity operations and obtaining appropriate
pricing for its products.
At December 31, 1995, the Company had a net deferred tax asset of $291
million, which includes $387 million related to the temporary difference arising
from the adoption of Financial Accounting Standards Board ("FASB") Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
While the Company believes it is more likely than not that it will generate
sufficient taxable income from operations to realize all deferred tax assets, a
secondary source of future taxable income could result from tax planning
strategies. Possible strategies include the Company's option of changing from
the LIFO method of accounting for inventories to the FIFO method (such change
would have resulted in approximately $260 million of additional taxable income
as of year-end 1995 which would serve to offset approximately $90 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 $570 million of taxable income over the 15-year net
operating loss carryforward period and the period in which the temporary
difference related to the FASB Statement No. 106 obligation will reverse, in
order to fully realize its net deferred tax asset. The Company believes that it
is more likely than not that it will achieve such taxable income level. (See
Note 8 to the consolidated financial statements for further details regarding
this net deferred tax asset.)
In 1995, the Company adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Adoption of this Statement did not have a material effect on the financial
position or results of operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements (including the financial statement
schedules listed under Item 14(a)1 of this report) of the Company called for by
this Item, together with the Report of Independent Accountants dated February
19, 1996, are set forth on pages F-2 to F-21, 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 1995 and 1994 is
set forth in Note 14 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.
PART III
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.
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.
13
15
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-21, 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, 1995.
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995.
Consolidated Balance Sheet at December 31, 1995 and 1994.
Schedules to Consolidated Financial Statements at December 31, 1995
and 1994, relating to:
Property, Plant and Equipment.
Long-Term Debt.
Statement of Accounting and Financial Policies.
Notes to Consolidated Financial Statements.
Financial Statement Schedule II (Reserves) for the three years ended
December 31, 1995.
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, 1995.
(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.(ii) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994,
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-Fourth Supplemental Indenture, incorporated by reference from the
following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c), B-1(d) and B-1(e),
filed with Steel Company's Registration Statement on
14
16
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); (xxvii) Exhibit 4 filed
with Steel Company's Current Report on Form 8-K dated June
23, 1993; (xxviii) Exhibit 4.H filed with the Steel Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995; and (xxix) Exhibit 4.H filed with the Steel Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
4.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.
27 Financial Data Schedules.
15
17
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
Date: March 28, 1996 By: ROBERT J. DARNALL
----------------------------------
Robert J. Darnall
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- ----------------------- -----------------
ROBERT J. DARNALL Chairman and Director March 28, 1996
- -------------------------
Robert J. Darnall
LILY L. MAY Vice President - Finance March 28, 1996
- ------------------------- and Purchasing, Principal
Lily L. May Financial Officer and
Controller
A. Robert Abboud Director
James W. Cozad Director
James A. Henderson Director By: GEORGE A. RANNEY, JR.
Robert B. McKersie Director
Maurice S. Nelson, Jr. Director --------------------------
Donald S. Perkins Director George A. Ranney, Jr.
Jean-Pierre Rosso Director Attorney-in-fact
Joshua I. Smith Director March 28, 1996
Nancy H. Teeters Director
Arnold R. Weber Director
16
18
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, 1995............................................................ F-3
Consolidated Statement of Cash Flows for the three years ended December 31, 1995..... F-4
Consolidated Balance Sheet at December 31, 1995 and 1994............................. F-5
Schedules to Consolidated Financial Statements at December 31, 1995 and 1994,
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-9
Financial Statement Schedule II (Reserves) for the three years ended December 31,
1995............................................................................... F-21
F-1
19
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, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 19, 1996
F-2
20
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
------------------------------------
1995 1994 1993
-------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS
NET SALES................................................ $2,513.3 $ 2,487.9 $ 2,174.9
-------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of goods sold (excluding depreciation)........... 2,112.9 2,127.6 1,975.5
Selling, general and administrative expenses.......... 42.9 43.4 42.1
Depreciation.......................................... 121.2 117.4 111.1
State, local and miscellaneous taxes.................. 54.6 50.2 52.1
Facility shutdown provision (Note 6).................. -- -- 22.3
-------- --------- ---------
Total............................................ 2,331.6 2,338.6 2,203.1
-------- --------- ---------
OPERATING PROFIT (LOSS).................................. 181.7 149.3 (28.2)
OTHER EXPENSE:
General corporate expense, net of income items........ 17.8 6.8 16.4
Interest and other expense on debt.................... 52.6 53.3 60.4
-------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES........................ 111.3 89.2 (105.0)
PROVISION FOR INCOME TAXES (Note 8)...................... 42.2 35.3 45.3Cr.
-------- --------- ---------
NET INCOME (LOSS)........................................ $ 69.1 $ 53.9 $ (59.7)
======== ========= =========
CONSOLIDATED STATEMENT OF
REINVESTED EARNINGS
Accumulated deficit at beginning of year................. $ (992.7) $(1,020.8) $ (935.3)
Net income (loss) for the year........................... 69.1 53.9 (59.7)
Preferred dividends declared............................. (25.9) (25.8) (25.8)
-------- --------- ---------
Accumulated deficit at end of year....................... $ (949.5) $ (992.7) $(1,020.8)
======== ========= =========
- ---------------
Cr. = Credit
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-3
21
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
-------------------------------
1995 1994 1993
------- ------- -------
OPERATING ACTIVITIES
Net income (loss)............................................ $ 69.1 $ 53.9 $ (59.7)
------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided
from operating activities:
Depreciation.............................................. 121.2 117.4 111.1
Deferred employee benefit cost............................ (109.4) 45.9 33.9
Deferred income taxes..................................... 72.7 52.5 (29.9)
Facility shutdown provision............................... -- -- 18.9
Raw material joint venture costs.......................... (6.6) (4.3) (3.3)
Change in:
Receivables............................................. 33.1 (44.2) (24.9)
Inventories............................................. (41.7) (57.3) 12.8
Accounts payable........................................ (18.1) 33.7 30.7
Payables to related companies (other)................... (3.6) (1.1) 1.4
Accrued salaries and wages.............................. (3.3) 10.1 (.2)
Other accrued liabilities............................... 26.7 (17.5) 5.2
Other deferred items...................................... (20.2) (30.1) (4.4)
------- ------- -------
Net adjustments......................................... 50.8 105.1 151.3
------- ------- -------
Net cash provided from operating activities............. 119.9 159.0 91.6
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures......................................... (113.9) (160.3) (86.1)
Investments in and advances to joint ventures, net........... 26.5 23.7 (1.9)
Proceeds from sales of assets................................ 1.7 2.6 5.7
------- ------- -------
Net cash used for investing activities.................. (85.7) (134.0) (82.3)
------- ------- -------
FINANCING ACTIVITIES
Additional paid-in capital -- Inland Steel Industries.......... -- 110.0 150.0
Long-term debt issued........................................ 16.8 19.7 39.3
Long-term debt retired....................................... (23.5) (219.9) (66.1)
Change in notes payable to related companies................. (1.6) 91.0 (106.7)
Dividends paid............................................... (25.9) (25.8) (25.8)
------- ------- -------
Net cash used for financing activities.................. (34.2) (25.0) (9.3)
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)...................... $ 50.7 $ 54.4 $ 59.9
Income taxes, net......................................... (30.4) (14.5) (21.1)
Non-cash investing and financing activities:
Long-term debt acquired in purchase of assets............. -- 63.3 --
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-4
22
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEET
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AT DECEMBER 31
----------------------
1995 1994
--------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ -- $ --
Receivables less provision for allowances, claims and doubtful
accounts of $24.3 and $19.3, respectively......................... 241.3 274.4
Inventories (Note 1)................................................. 198.6 156.9
Deferred income taxes (Note 8)....................................... 29.9 28.0
--------- --------
Total current assets............................................ 469.8 459.3
Investments in and advances to joint ventures.......................... 214.3 204.9
Property, plant and equipment, at cost, less accumulated depreciation
(see details page F-6)............................................... 1,332.8 1,339.8
Prepaid pension costs.................................................. 44.2 --
Deferred income taxes (Note 8)......................................... 261.5 336.1
Deferred charges and other assets...................................... 21.9 21.8
--------- --------
Total assets.................................................... $ 2,344.5 $2,361.9
======== =======
LIABILITIES
Current liabilities:
Accounts payable..................................................... $ 223.4 $ 241.5
Payables to related companies:
Notes............................................................. 137.4 139.0
Other............................................................. 4.3 7.9
Accrued liabilities:
Salaries, wages and commissions................................... 64.4 67.7
Taxes, other than federal income taxes............................ 72.4 59.3
Interest on debt.................................................. 6.5 6.6
Terminated facilities costs and other (Note 6).................... 30.7 17.0
Long-term debt due within one year................................... 7.7 6.6
--------- --------
Total current liabilities....................................... 546.8 545.6
Long-term debt (see details page F-6 and Note 3)....................... 409.4 417.1
Allowance for terminated facilities costs and other (Note 6)........... 44.8 34.0
Deferred employee benefits (Note 7).................................... 1,089.0 1,154.2
Deferred income and other.............................................. 9.5 9.2
--------- --------
Total liabilities............................................... 2,099.5 2,160.1
--------- --------
STOCKHOLDER'S EQUITY
Preferred stock, $1.00 par value, 500 shares authorized for all
series,110 shares issued and outstanding, aggregate liquidation value
$238.2 (Note 4)...................................................... -- --
Common stock, 2,000 shares, $1.00 par value, authorized,
980 shares issued and outstanding.................................... -- --
Additional paid-in capital............................................. 1,194.5 1,194.5
Accumulated deficit.................................................... (949.5) (992.7)
--------- --------
Total stockholder's equity...................................... 245.0 201.8
--------- --------
Total liabilities and stockholder's equity...................... $ 2,344.5 $2,361.9
======== =======
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-5
23
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
---------------------
1995 1994
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land, land improvements and mineral properties........................ $ 122.9 $ 122.8
Buildings, machinery and equipment.................................... 3,568.3 3,486.6
Transportation equipment.............................................. 130.6 127.7
Property under capital leases -- primarily machinery and equipment.... 36.7 42.7
-------- --------
Total............................................................ 3,858.5 3,779.8
Less --
Accumulated depreciation.............................................. 2,391.7 2,302.0
Accumulated depreciation -- capital leases............................ 33.3 37.3
Allowance for retirements and terminated facilities................... 100.7 100.7
-------- --------
Net.............................................................. $1,332.8 $1,339.8
======= =======
LONG-TERM DEBT:
First Mortgage Bonds:
Series R, 7.9% due January 15, 2007................................ $ 72.5 $ 72.5
Series T, 12% due December 1, 1998................................. 125.0 125.0
Pollution Control Series 1977, 5 3/4% due February 1, 2007......... 26.5 26.5
Pollution Control Series 1978, 6 1/2% due May 15, 2008............. 52.0 52.0
Pollution Control Series 1982B, 10 3/4%............................ -- 17.0
Pollution Control Series 1993, 6.8% due June 1, 2013............... 40.0 40.0
Pollution Control Series 1995, 6.85% due December 1, 2012.......... 17.0 --
-------- --------
Total First Mortgage Bonds....................................... 333.0 333.0
Obligations for Industrial Development Revenue Bonds:
Pollution Control Project No. 3, 6 1/4% due April 1, 1999.......... 8.0 10.0
Pollution Control Project No. 9, 10% due November 1, 2011.......... 38.0 38.0
Pollution Control Project No. 11, 7 1/8% due June 1, 2007.......... 20.0 20.0
Obligations under capital leases including Pollution Control Projects
No. 1
and No. 2 -- primarily at rates ranging from 5.9% to 12.6%, due
through August 1, 1998............................................. 10.4 16.1
-------- --------
Total long-term debt............................................. $ 409.4 $ 417.1
======= =======
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-6
24
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 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. The cost of these benefits for
retirees is being accrued during their term of employment. Pensions are funded
in accordance with ERISA requirements in a trust established under the plan.
Costs for retired employee medical benefits are funded when claims are
submitted.
CASH EQUIVALENTS
Cash equivalents reflected in the Statement of Cash Flows are highly
liquid, short-term investments with maturities of three months or less. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-7
25
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
STATEMENT OF ACCOUNTING AND FINANCIAL POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, the Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of this Statement did not have a
material effect on results of operations or the financial position of the
Company.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-8
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
------------------
1995 1994
------ ------
DOLLARS IN
MILLIONS
In process and finished steel............................. $124.5 $ 92.1
------ ------
Raw materials and supplies:
Iron ore................................................ 39.7 34.7
Scrap and other raw materials........................... 18.3 17.8
Supplies................................................ 16.1 12.3
------ ------
74.1 64.8
------ ------
Total................................................ $198.6 $156.9
====== ======
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.
Replacement costs for the LIFO inventories exceeded LIFO values by
approximately $260 million and $248 million on December 31, 1995 and 1994,
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 $125 million revolving credit facility with a group of banks
which extends to November 30, 2000. 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, with the Pollution
Control Series 1977 Bonds, the Pollution Control Series 1978 Bonds, and the
Series R First Mortgage Bonds subject to a sinking fund. A substantial portion
of the property, plant and equipment owned by 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, 1995.
During the third quarter of 1995, the Company refinanced $17 million of
10.75% pollution control revenue bonds with bonds bearing an interest rate of
6.85%. In addition, in the 1994 second quarter, the Company refinanced $20
million of pollution control revenue bonds at an interest rate of 7.125%.
In 1994, the Company redeemed all $75 million of its outstanding Series O,
P, and Q First Mortgage Bonds. The Company also acquired the equity interest in
the operating lease of the No. 2 Basic Oxygen
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-9
27
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Furnace Shop continuous casters, assuming $63 million of debt. By year-end 1994,
the assumed debt and approximately $40 million of other caster-related debt was
repaid by the Company.
The amended and supplemented Mortgage under which the First Mortgage 12%
Bonds, Series T, 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: $7.7 million in 1996, $7.9 million in 1997, $139.3 million in
1998, $10.8 million in 1999, and $7.8 million in 2000. See Note 11 regarding
commitments and contingencies for other scheduled payments.
Interest cost incurred by the Company totaled $54.4 million in each of 1995
and 1994, and $63.3 million in 1993. Included in these totals is capitalized
interest of $1.8 million in 1995, $1.1 million in 1994, and $2.9 million in
1993.
NOTE 4/CAPITAL STOCK
Cash dividends on Series A Preferred Stock, 10 shares issued and
outstanding, 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 preferred share, and have a liquidation value of
$1,320,000 per share plus any accrued and unpaid dividend. The shares 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, 50 shares issued and
outstanding, 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, 50 shares issued and
outstanding, 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 $3,288,000 for the
one-year period commencing December 1, 1995 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/DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Derivatives
The Company has only limited involvement with derivative financial
instruments, none of which are used for trading purposes. Derivatives are used
to hedge exposure to fluctuations in costs caused by the price volatility of
certain metal commodities and natural gas supplies, and in foreign currency
exchange rates related to firm commitments regarding a Canadian raw material
joint venture. Gains and losses associated with these
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-10
28
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hedging transactions become part of the cost of the item being hedged. At no
time during 1995, 1994 or 1993 were such hedging transactions material.
Long-term debt
The estimated fair value of the Company's long-term debt (including current
portions thereof), using quoted market prices of Company debt securities
recently traded and market-based prices of similar securities for those
securities not recently traded, was $433 million at December 31, 1995 and $420
million at December 31, 1994 as compared with the carrying value of $417 million
and $424 million included in the balance sheet at year-end 1995 and 1994,
respectively.
NOTE 6/PROVISIONS FOR RESTRUCTURING
In the 1995 third quarter, the Company recorded a charge of $35 million for
provisions related to pensions, health care, and severance costs resulting from
the acceptance by approximately 300 salaried Company employees of a voluntary
retirement package offered during the quarter. In addition, the Company
announced the closure of its plate operation. Provisions for pensions and other
employee benefits related to the shutdown of this operation had been previously
accrued.
With the closure of the plate operation, the Company completed the
workforce reduction program announced in 1991. A final computation of the
employee benefit costs required for the 1991 program resulted in unused reserves
due to differences between the actual makeup of the population leaving the
Company under this program and the projections used in 1991. The Company,
therefore, reversed $65 million of unused reserves from the balance sheet and
recorded a corresponding credit to income.
During the 1995 third quarter, the Company also increased reserves by $7
million for additional benefit costs at a closed iron ore mining facility and by
$2 million for a further writedown of non-operating assets of the former
construction business. Reserves relating to environmental matters were increased
by $7 million.
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
related to the write-off of assets with the remainder provided for various
expenditures associated with the shutdown of the facility, including personnel
costs.
The Company has taken initiatives to reduce its production costs by
shutdown of certain Indiana Harbor Works facilities and raw materials
operations. Reserve balances related to provisions for these shutdowns, which
include long-term liabilities for mine reclamation costs and employee benefits,
totaled $135.9 million, $133.8 million and $149.7 million at December 31, 1995,
1994 and 1993, respectively.
NOTE 7/RETIREMENT BENEFITS
In 1995, the measurement date for pensions and benefits other than pensions
was changed from December 31 to September 30 in order to provide for more timely
information and to achieve administrative efficiencies in the collection of
data. The change in the measurement date had no effect on 1995 expense and had
an immaterial impact on the 1995 funded status of the pension plan.
Pensions
The Inland Steel Industries Pension Plan and Pension Trust, 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-11
29
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. The actuarial present value of benefits for service
rendered to date and the fair value of plan assets available for benefits for
the Industries consolidated group were as follows:
SEPT. 30 DEC. 31
1995 1994
-------- -------
DOLLARS IN MILLIONS
Fair value of plan assets................................. $1,919 $ 1,652
------ ------
Actuarial present value of benefits for service rendered
to date:
Accumulated Benefit Obligation based on compensation
to date.............................................. 1,956 1,641
Additional benefits based on estimated future
compensation levels.................................. 90 98
------ ------
Projected Benefit Obligation............................ 2,046 1,739
------ ------
Plan assets shortfall to Projected Benefit Obligation..... $ (127) $ (87)
====== ======
In 1995, Industries recorded an additional minimum pension liability of
$102.6 million representing the excess of the unfunded Accumulated Benefit
Obligation over previously accrued pension costs. A corresponding intangible
asset was recorded as an offset to this additional liability as prescribed.
Neither was required in 1994.
The calculation of benefit obligations was based on a discount (settlement)
rate of 7.75% in 1995 and 8.8% in 1994; a rate of compensation increase of 4.0%
in 1995 and 5.0% in 1994; and a rate of return on plan assets of 9.5% in both
1995 and 1994.
Pension cost for the Company for 1995 and 1994 was $9.3 million and $25.2
million, respectively, compared with a credit of $5.6 million in 1993. In 1995,
the Company paid $86.0 million to Industries for its share of a contribution to
the Industries Pension Trust.
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 does not prefund any of these
postretirement benefits. Effective January 1, 1994, a Voluntary Employee Benefit
Association Trust was established for payment of health care benefits made to
United Steelworkers of America retirees. Funding of the Trust is made as claims
are submitted for payment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
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 1995, 1994 and
1993 is composed of the following:
1995 1994 1993
---- ---- ----
DOLLARS IN MILLIONS
Service cost........................................ $ 9 $12 $12
Interest cost....................................... 68 64 76
Net amortization and deferral....................... (20) (5 ) (2 )
---- --- ---
Total net periodic postretirement benefit cost...... $ 57 $71 $86
==== === ===
The following table sets forth components of the accumulated postretirement
benefit obligation:
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
DOLLARS IN MILLIONS
Accumulated postretirement benefit obligation
attributable to:
Retirees......................................... $ 499 $ 422
Fully eligible plan participants................. 142 135
Other active plan participants................... 212 202
------ ------
Accumulated postretirement benefit obligation...... 853 759
Unrecognized net gain............................ 179 262
Unrecognized prior service credit................ 47 50
------ ------
Accrued postretirement benefit obligation.......... 1,079 $ 1,071
======
Expense, net of benefits provided, October through
December 1995.................................... 2
------
Accrued postretirement benefit obligations at
December 31, 1995................................ $1,081
======
Any net gain or loss in excess of 10 percent of the accumulated
postretirement benefit obligation is amortized over the remaining service period
of active plan participants.
The assumptions used to determine the plan's accumulated postretirement
benefit obligation are as follows:
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
Discount rate...................................... 7.75% 8.8%
Rate of compensation increase...................... 4.0% 5.0%
Medical cost trend rate............................ 4.5% 6%-5%
Year ultimate rate reached......................... 1996 1996
A one percentage point increase in the assumed health care cost trend rates
for each future year increases annual net periodic postretirement benefit cost
and the accumulated postretirement benefit obligation as of September 30, 1995
by $17 million and $99 million, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-13
31
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8/INCOME TAXES
The Company participates in a tax-sharing agreement under which current and
deferred income tax provisions are determined for each company in the Industries
group on a stand-alone basis. Any current liability is paid to Industries. If
the Company is unable to use all of its allocated tax attributes (net operating
loss and tax credit carryforwards) in a given year but other companies in the
consolidated group are able to utilize them, then the Company will be paid for
the use of its attributes. NOL and tax credit carryforwards are allocated to
each company in accordance with applicable tax regulations as if a company were
to leave the consolidated group. Companies with taxable losses record current
income tax credits not to exceed current income tax charges recorded by
profitable companies. If Industries uses NOL carryforwards, the Company will use
the appropriate portion of that year's carryforward previously allocated to it,
if any.
A state tax sharing agreement, similar to the federal agreement, also
exists with Industries for those states in which the consolidated group is
charged state taxes on a unitary or combined basis.
The elements of the provisions for income taxes for each of the three years
indicated below were as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
----- ----- -----
DOLLARS IN MILLIONS
Current income taxes:
Federal........................................... $30.7Cr. $17.5Cr. $15.5Cr.
State and foreign................................. .1 .3 .1
----- ----- -----
30.6Cr. 17.2Cr. 15.4Cr.
Deferred income taxes............................... 72.8 52.5 29.9Cr.
----- ----- -----
Total tax expense or benefit.............. $42.2 $35.3 $45.3Cr.
===== ===== =====
- ---------------
Cr. = Credit
In accordance with FASB Statement No. 109, the Company adjusted its
deferred tax assets and liabilities for the effect of the change in the
corporate federal income tax rate from 34 percent to 35 percent, effective
January 1, 1993. A credit to income of $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-14
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
-------------------
1995 1994
---- ----
DOLLARS IN MILLIONS
Deferred tax assets (excluding postretirement benefits
other than pensions):
Net operating loss and tax credit carryforwards... $280 $280
Restructuring and termination reserves............ 90 85
Other deductible temporary differences............ 89 92
Less: Valuation allowances........................ (2) (5)
---- ----
457 452
---- ----
Deferred tax liabilities:
Fixed asset basis difference......................... 438 402
Other taxable temporary differences.................. 115 72
---- ----
553 474
---- ----
Net deferred liability excluding postretirement
benefits other than pensions.................... (96) (22)
FASB Statement No. 106 impact (postretirement benefits
other than pensions)................................. 387 386
---- ----
Net deferred asset................................ $291 $364
==== ====
For tax purposes, the Company had available, at December 31, 1995, net
operating loss ("NOL") carryforwards for regular federal income tax purposes of
approximately $721 million which will expire as follows: $60 million in 2005,
$288 million in 2006, $258 million in 2007, $109 million in 2008, and $6 million
in 2009. The Company also had investment tax credit and other general business
credit carryforwards for tax purposes of approximately $11 million, which expire
during the years 1996 through 2006. A valuation allowance of $2 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 AMT credit carryforwards for tax purposes of approximately
$17 million, which may be used indefinitely to reduce regular federal income
taxes.
The Company believes that it is more likely than not that all of the NOL
carryforwards will be utilized prior to their expiration. This belief is based
upon the factors discussed below.
The NOL carryforwards and existing deductible temporary differences
(excluding those relating to FASB Statement No. 106) are substantially offset by
existing taxable temporary differences reversing within the carryforward period.
Furthermore, any such recorded tax benefits which would not be so offset are
expected to be realized by continuing to achieve future profitable operations.
Subsequent to the adoption of FASB Statement No. 109, the Company adopted
FASB Statement No. 106 and recognized the entire transition obligation at
January 1, 1992 as a cumulative effect charge in 1992. At December 31, 1995, the
deferred tax asset related to the Company's FASB Statement No. 106 obligation
was $387 million. To the extent that future annual charges under FASB Statement
No. 106 continue to exceed deductible amounts, this deferred tax asset will
continue to grow. Thereafter, even if the Company should have a tax loss in any
year in which the deductible amount would exceed the financial
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F-15
33
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
statement expense, the tax law provides for a 15-year carryforward period of
that loss. Because of the extremely long period that is available to realize
these future tax benefits, a valuation allowance for this deferred tax asset is
not necessary.
The Company operates in a highly cyclical industry and consequentially has
had a history of generating and then fully utilizing significant amounts of NOL
carryforwards. During the years 1986 through 1989, the Company utilized
approximately $600 million of NOL carryforwards and in 1995 utilized $128
million of NOL carryforwards.
While not affecting the determination of deferred income taxes for
financial reporting purposes, at December 31, 1995, the Company had available
for AMT purposes approximately $42 million of NOL carryforwards which will
expire as follows: $8 million in 2007 and $34 million in 2008.
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
---------------------------------
1995 1994 1993
----- ----- -----
DOLLARS IN MILLIONS
Federal income tax expense or benefit computed
at statutory tax rate of 35%................. $38.9 $31.2 $36.8Cr.
Additional taxes or credits from:
State and local income taxes, net of federal
income tax effect......................... 5.3 4.5 .8
Percentage depletion......................... 2.9Cr. 2.8Cr. 2.2Cr.
Change in federal statutory rate............. -- -- 9.3Cr.
All other, net............................... .9 2.4 2.2
----- ----- -----
Total income tax expense or
benefit............................ $42.2 $35.3 $45.3Cr.
===== ===== =====
- ---------------
Cr. = Credit
NOTE 9/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. The
preferred stock was exchanged in the third quarter of 1995 for Industries'
10.23% Subordinated Voting Note. With respect to Industries stockholder voting,
such preferred stock entitled the holder to 30.604 votes per share and the
Subordinated Voting Note entitles the holder to 30.604 votes per $1,000 of
principal amount outstanding, which number may be adjusted from time to time
upon the occurrence of certain events. The 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. 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 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 $147.5 million, $131.1 million and $141.2 million in 1995, 1994 and
1993, respectively, for such tolling services. NSC has the right to purchase up
to 400,000 tons of cold-rolled steel from the Company in each year at
market-based negotiated prices, up to half of which may be steel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-16
34
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
processed by I/N Tek. Purchases of Company products by a subsidiary of NSC
aggregated $132.8 million, $172.8 million and $157.8 million during 1995, 1994
and 1993, respectively. At year-end 1995 and 1994, a subsidiary of NSC owed the
Company $6.1 million and $10.6 million, respectively, related to these
purchases.
The Company and NSC also own and operate another joint venture which
consists of a 400,000 ton electrogalvanizing line and a 500,000 ton hot-dip
galvanizing line adjacent to the I/N Tek facility. I/N Kote, the general
partnership formed for this joint venture, is owned 50% by a wholly owned
subsidiary of the Company and 50% by an indirect wholly owned subsidiary of NSC.
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 $452 million outstanding under its long-term financing agreement at
December 31, 1995. 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% after operating and financing costs; this
price may be subject to an adjustment if the Company's return on sales differs
from I/N Kote's return on sales. Purchases of Company cold-rolled steel by I/N
Kote aggregated $303.7 million in 1995, $275.6 million in 1994 and $191.7
million in 1993. At year-end 1995 and 1994, I/N Kote owed the Company $4.8
million and $26.0 million, respectively, related to these purchases. Prices of
cold-rolled steel sold by 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. In 1995 and 1994, the Company sold cold-rolled steel to I/N
Kote at prices that exceeded the Company's production costs but were less than
the market prices for cold-rolled steel products. I/N Kote also provides tolling
services to the Company for which it was charged $32.6 million in 1995, $36.0
million in 1994 and $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 $1.9 million, $1.6 million and
$3.7 million for technical services and related administrative costs for
services provided during 1995, 1994 and 1993, respectively.
NOTE 10/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, 15% interest (13-3/4% interest in 1994 and 1993) in Wabush
Mines and 12-1/2% interest in Walbridge Electrogalvanizing Company. I/N Tek and
I/N Kote are joint ventures with NSC (see Note 9). 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. Walbridge is a venture that coats cold-rolled
steel in which Inland has the
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F-17
35
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
right to 25% of the productive capacity. Following is a summary of combined
financial information of the Company's unconsolidated joint ventures:
1995 1994 1993
-------- -------- --------
DOLLARS IN MILLIONS
RESULTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31:
Gross revenue.................................. $1,183.1 $1,098.3 $ 956.7
Costs and expenses............................. 1,100.8 1,070.2 945.1
-------- -------- --------
Net income..................................... $ 82.3 $ 28.1 $ 11.6
======= ======= =======
FINANCIAL POSITION AT DECEMBER 31:
Current assets................................. $ 269.1 $ 265.2 $ 279.7
Total assets................................... 1,838.5 1,868.3 1,925.9
Current liabilities............................ 253.5 246.5 241.6
Total liabilities.............................. 1,457.9 1,499.9 1,545.5
Net assets..................................... 380.6 368.4 380.4
NOTE 11/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 a principal
payment of $7.0 million in 1996. At year-end 1995, the Company also guaranteed
$27.4 million of long-term debt attributable to a subsidiary's interest in PCI
Associates.
The Company sold all of its limestone and dolomite properties in September
1990. The Company has entered into a long-term contract with the buyer of the
properties to purchase, subject to certain exceptions and at prices which
approximate market, the full amount of its annual limestone needs through 2002,
with a required minimum annual purchase of one million gross tons through 1996.
The Company and its subsidiaries have various operating leases for which
future minimum lease payments are estimated to total $107.5 million through
2020, including approximately $21.9 million in 1996, $17.7 million in 1997,
$13.5 million in 1998, $10.1 million in 1999, and $8.7 million in 2000.
It is anticipated that the Company will make capital expenditures of $23
million in 1996 and $10 million to $15 million annually in each of the four
years thereafter for the construction, and have ongoing annual expenditures of
$40 million to $50 million for the operation, of air and water pollution control
facilities to comply with current federal, state and local laws and regulations.
The Company is involved in various environmental and other administrative or
judicial actions initiated by governmental agencies. While it is not possible to
predict the results of these matters, the Company does not expect environmental
expenditures, excluding amounts that may be required in connection with the
consent decree in the 1990 EPA lawsuit, to materially affect the Company's
results of operations or financial position. Corrective actions relating to the
EPA consent decree may require significant expenditures over the next several
years that may be material to the results of operations or financial position of
the Company. At December 31, 1995, the Company's reserves for environmental
liabilities totaled $26 million, $19 million of which related to the sediment
remediation under the 1993 EPA consent decree.
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F-18
36
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 $55 million at year-end 1995.
NOTE 12/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 1995, 1994 and 1993 totaled $17.6 million, $18.6 million and
$24.2 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 1995, 1994 and 1993, the
Company's net interest expense to companies within the Industries group totaled
$14.4 million, $7.7 million and $8.0 million, respectively.
The Company sells to and purchases products from related companies at
prevailing market prices. These transactions for the indicated years, except
those with I/N Kote (see Note 9), are summarized as follows:
1995 1994 1993
------ ------ ------
DOLLARS IN MILLIONS
Net product sales..................................... $196.5 $183.4 $173.6
Net product purchases................................. 19.9 18.7 16.3
NOTE 13/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 77% 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 10% of consolidated net
sales in 1995 and 12% in each of 1994 and 1993. No other customer, except I/N
Kote (see Note 9), accounted for more than 10% of the consolidated net sales of
the Company during any of these years.
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F-19
37
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 14/CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED)
1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
DOLLARS IN MILLIONS
Net sales............................ $ 651.7 $ 685.4 $ 574.3 $ 601.9
Gross profit......................... 62.5 81.9 51.5 34.0
Net income........................... 21.2 33.4 10.4 4.1
1994
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
DOLLARS IN MILLIONS
Net sales............................ $ 590.9 $ 643.2 $ 613.5 $ 640.3
Gross profit......................... 23.5 58.5 53.6 61.5
Net income or (loss)................. (1.9) 20.1 16.7 19.0
- --------------------------------------------------------------------------------
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F-20
38
INLAND STEEL COMPANY AND SUBSIDIARY COMPANIES
(A WHOLLY OWNED SUBSIDIARY OF INLAND STEEL INDUSTRIES, INC.)
SCHEDULE II--RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
DOLLARS IN MILLIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROVISIONS FOR ALLOWANCES
CLAIMS AND DOUBTFUL ACCOUNTS
------------------------------------------------------
YEARS BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
ENDED BEGINNING CHARGED FROM END OF
DECEMBER 31 OF YEAR TO INCOME RESERVES YEAR
- ----------- ---------- --------- ---------- ----------
1995 $ 19.3 $10.6 $5.6(A) $ 24.3
1994 $ 22.9 $ 4.4 $6.3(A) $ 19.3
$1.7(B)
1993 $ 18.4 $12.3 $6.0(A) $ 22.9
$1.8(B)
NOTES:
(A) Allowances granted during year.
(B) Bad debts written off during year.
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F-21
39
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.(ii) to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994, 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-Fourth Supplemental Indenture, incorporated by
reference from the following Exhibits: (i) Exhibits B-1(a), B-1(b), B-1(c),
B-1(d) and B-1(e), filed with Steel Company's Registration Statement on
Form A-2 (No. 2-1855); (ii) Exhibits D-1(f) and D-1(g), filed with Steel
Company's Registration Statement on Form E-1 (No. 2-2182); (iii) Exhibit
B-1(h), filed with Steel Company's Current Report on Form 8-K dated January
18, 1937; (iv) Exhibit B-1(i), filed with Steel Company's Current Report on
Form 8-K, dated February 8, 1937; (v) Exhibits B-1(j) and B-1(k), filed
with Steel Company's Current Report on Form 8-K for the month of April,
1940; (vi) Exhibit B-2, filed with Steel Company's Registration Statement
on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with Steel Company's
Current Report on Form 8-K for the month of January, 1945; (viii) Exhibit
1, filed with Steel Company's Current Report on Form 8-K for the month of
November, 1946; (ix) Exhibit 1, filed with Steel Company's Current Report
on Form 8-K for the months of July and August, 1948; (x) Exhibits B and C,
filed with Steel Company's Current Report on Form 8-K for the month of
March, 1952; (xi) Exhibit A, filed with Steel Company's Current Report on
Form 8-K for the month of July, 1956; (xii) Exhibit A, filed with Steel
Company's Current Report on Form 8-K for the month of July, 1957; (xiii)
Exhibit B, filed with Steel Company's Current Report on Form 8-K for the
month of January, 1959; (xiv) the Exhibit filed with Steel Company's
Current Report on Form 8-K for the month of December, 1967; (xv) the
Exhibit filed with Steel Company's Current Report on Form 8-K for the month
of April, 1969; (xvi) the Exhibit filed with Steel Company's Current Report
on Form 8-K for the month of July, 1970; (xvii) the Exhibit filed with the
amendment on Form 8 to Steel Company's Current Report on Form 8-K for the
month of April, 1974; (xviii) Exhibit B, filed with Steel Company's Current
Report on Form 8-K for the month of September, 1975; (xix) Exhibit B, filed
with Steel Company's Current Report on Form 8-K for the month of January,
1977; (xx) Exhibit C, filed with Steel Company's Current Report on Form 8-K
for the month of February, 1977; (xxi) Exhibit B, filed with Steel
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1978; (xxii) Exhibit B, filed with Steel Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed with
Steel Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1980; (xxiv) Exhibit 4-D, filed with Steel Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1982; (xxv)
Exhibit 4-E, filed with Steel Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983; (xxvi) Exhibit 4(i) filed with the
Steel Company's Registration Statement on Form S-2 (No. 33-43393); (xxvii)
Exhibit 4 filed with Steel Company's Current Report on Form 8-K dated June
23, 1993; (xxviii) Exhibit 4.H filed with the Steel Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; and (xxix) Exhibit
4.H filed with the Steel Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995. --
(i)
40
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------------------------- ----------
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.........................................................
27 Financial Data Schedules...................................................
(ii)