First Quarter - 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______ to ______
--------------------
Commission file number 1-9117
I.R.S. Employer Identification Number 36-3425828
RYERSON TULL, INC.
(a Delaware Corporation)
2621 West 15th Place
Chicago, Illinois 60608
Telephone: (773) 762-2121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 24,808,036 shares of the
Company's Common Stock ($1.00 par value per share) were outstanding as of May 8,
2002.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Operations (Unaudited)
================================================================================
Dollars in Millions (except per share data)
-------------------------------------------
Three Months Ended
March 31
----------------------
2002 2001
-------- --------
NET SALES $ 516.9 $ 638.1
Cost of materials sold 410.6 501.8
-------- --------
GROSS PROFIT 106.3 136.3
Operating expenses 101.3 119.9
Depreciation 6.6 6.9
Goodwill amortization - 1.3
Gain on sale of assets - (1.3)
-------- --------
OPERATING PROFIT (LOSS) (1.6) 9.5
Other revenue and expense, net (1.1) 0.1
Shares received on demutualization of an insurance company 5.1 -
Interest and other expense on debt (3.1) (6.8)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (0.7) 2.8
PROVISION FOR INCOME TAXES 0.3 1.5
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1.0) 1.3
Cumulative effect of change in accounting
principle, net of tax of $8.9 (82.2) -
-------- --------
NET INCOME (LOSS) $ (83.2) $ 1.3
======== ========
See notes to consolidated financial statements
1
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Operations (Unaudited)
================================================================================
Dollars in Millions (except per share data)
-------------------------------------------
Three Months Ended
March 31
------------------------
2002 2001
-------- --------
EARNINGS PER SHARE
OF COMMON STOCK
- -------------------
Basic:
Before cumulative effect of change in accounting principle $ (0.04) $ 0.05
Cumulative effect of change in accounting principle (3.32) -
-------- -------
Net income (loss) $ (3.36) $ 0.05
======== =======
Diluted:
Before cumulative effect of change in accounting principle $ (0.04) $ 0.05
Cumulative effect of change in accounting principle (3.32) -
-------- -------
Net income (loss) $ (3.36) $ 0.05
======== =======
STATEMENT OF COMPREHENSIVE INCOME
- ---------------------------------
NET INCOME (LOSS) $ (83.2) $ 1.3
OTHER COMPREHENSIVE INCOME:
Unrealized gain on investments 0.1 -
Foreign currency translation adjustments - (1.4)
-------- -------
COMPREHENSIVE INCOME (LOSS) $ (83.1) $ (0.1)
======== =======
OPERATING DATA
- --------------
SHIPMENTS (Tons in Thousands) 669.8 770.5
See notes to consolidated financial statements
2
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows (Unaudited)
================================================================================
Dollars in Millions
-----------------------------
Three Months Ended
March 31
-----------------------------
2002 2001
-------- ---------
OPERATING ACTIVITIES
Net (loss) income $ (83.2) $ 1.3
-------- ---------
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 6.6 8.2
Deferred employee benefit cost 1.0 (2.2)
Deferred income taxes (7.1) 0.8
Shares received from demutualization of insurance company (5.1) -
Cumulative effect of change in accounting principle, net of tax 82.2 -
Gain from sale of assets - (1.3)
Change in assets and liabilities:
Receivables (56.2) (34.1)
Inventories 24.5 56.7
Other assets - (0.1)
Accounts payable 37.5 39.4
Accrued liabilities 2.3 (15.7)
Other deferred items (0.1) (0.8)
-------- ---------
Net adjustments 85.6 50.9
-------- ---------
Net cash provided from operating activities 2.4 52.2
-------- ---------
INVESTING ACTIVITIES
Capital expenditures (1.8) (4.3)
Proceeds from sales of assets 0.3 4.2
-------- ---------
Net cash used for investing activities (1.5) (0.1)
-------- ---------
FINANCING ACTIVITIES
Net change in short-term borrowing - (50.0)
Dividends paid (1.3) (1.3)
-------- ---------
Net cash used for financing activities (1.3) (51.3)
-------- ---------
Net (decrease) increase in cash and cash equivalents (0.4) 0.8
Cash and cash equivalents - beginning of year 20.5 23.8
-------- ---------
Cash and cash equivalents - end of period $ 20.1 $ 24.6
======== =========
SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the period for:
Interest $ 5.1 $ 12.2
Income taxes, net (1.0) (0.8)
See notes to consolidated financial statements
3
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
================================================================================
Dollars in Millions
------------------------------------
ASSETS March 31, 2002 December 31, 2001
- ------ -------------- -----------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 20.1 $ 20.5
Short-term investments 6.5 -
Receivables less provision for allowances, claims and
doubtful accounts of $11.0 and $10.7, respectively 175.0 119.6
Inventories, net of LIFO reserve of $12.2 and
$9.7, respectively 375.8 399.5
Deferred income taxes 25.3 0.7
------- ---------
Total current assets 602.7 540.3
INVESTMENTS AND ADVANCES 6.1 6.0
PROPERTY, PLANT AND EQUIPMENT
Valued on basis of cost $597.1 $595.1
Less accumulated depreciation 352.6 244.5 345.4 249.7
------ ------
DEFERRED INCOME TAXES 96.1 104.7
INTANGIBLE PENSION ASSET 8.4 8.4
EXCESS OF COST OVER NET ASSETS ACQUIRED - 91.1
OTHER ASSETS 9.7 9.7
------- ---------
Total Assets $ 967.5 $ 1,009.9
======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 132.2 $ 93.5
Accrued liabilities 52.5 50.2
--------- ---------
Total current liabilities 184.7 143.7
LONG-TERM DEBT 100.6 100.6
DEFERRED EMPLOYEE BENEFITS AND OTHER 214.9 213.9
-------- ---------
Total liabilities 500.2 458.2
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY (Schedule A) 467.3 551.7
--------- ---------
Total Liabilities and Stockholders' Equity $ 967.5 $ 1,009.9
========= =========
See notes to consolidated financial statements
4
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements (Unaudited)
================================================================================
NOTE 1/FINANCIAL STATEMENTS
Results of operations for any interim period are not necessarily indicative
of results of any other periods or for the year. The financial statements as of
March 31, 2002 and for the three-month period ended March 31, 2002 and 2001 are
unaudited, but in the opinion of management include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of results
for such periods. These financial statements should be read in conjunction with
the financial statements and related notes contained in the Annual Report on
Form 10-K for the year ended December 31, 2001.
NOTE 2/EARNINGS PER SHARE
Dollars and Shares
In Millions
(except per share data)
-----------------------
Three Months Ended
March 31
-----------------------
2002 2001
------- ------
Basic earnings (loss) per share
- -------------------------------
Net income (loss) $ (1.0) $ 1.3
Less preferred stock dividends - -
------- ------
Income (loss) available to common stockholders (1.0) 1.3
Cumulative effect of change in accounting principle (82.2) -
------- ------
Net income (loss) available to common stockholders $ (83.2) $ 1.3
======= ======
Average shares of common stock outstanding 24.8 24.8
======= ======
Basic earnings (loss) per share
Before cumulative effect of change in accounting principle $ (0.04) $ 0.05
Cumulative effect of change in accounting principle (3.32) -
------- ------
Net income (loss) $ (3.36) $ 0.05
======= ======
Diluted earnings per share
- --------------------------
Income (loss) available to stockholders $ (1.0) $ 1.3
Cumulative effect of change in accounting principle (82.2) -
------- ------
Net income (loss) available to stockholders $ (83.2) $ 1.3
======= ======
Average shares of common stock outstanding 24.8 24.8
Dilutive effect of stock options .3 .2
------- ------
Shares outstanding for diluted
earnings per share calculation 25.1 25.0
======= ======
Basic earnings (loss) per share
Before cumulative effect of change in accounting principle $ (0.04) $ 0.05
Cumulative effect of change in accounting principle (3.32) -
------- ------
Net income (loss) $ (3.36) $ 0.05
======= ======
5
NOTE 3/RESTRUCTURING CHARGE
In the fourth quarter of 2001, the Company recorded a restructuring charge of
$19.4 million as a result of workforce reductions and plant consolidation. As
part of the restructuring, certain facilities in Detroit and Holland, Michigan
will be closed and the Company plans to consolidate two facilities into one
location in Chicago. Included in the charge is severance for 178 employees. As
of March 31, 2002, 98 employees have been separated from the Company as a result
of the restructuring initiative. Details of the restructuring charge are as
follows:
Restructuring Balance at
(In millions) Charge Utilized March 31, 2002
- ---------------------------------------------------------------------------------
Write-down of long-lived assets $ 10.3 $ 10.3 $ -
Employee costs 6.4 4.7 1.7
Tenancy costs and other 2.7 - 2.7
- ---------------------------------------------------------------------------------
$ 19.4 $ 15.0 $ 4.4
It is expected that the restructuring actions will be completed by year-end
2002.
In the second quarter of 2000, the Company recorded a restructuring charge of
$23.3 million. The charge is the result of realigning geographic divisions to
improve responsiveness to local markets, exiting non-core businesses and
centralizing administrative services to achieve economies of scale. Included in
the charge is severance for 319 employees. There are no employees remaining to
be separated from the Company as a result of that restructuring initiative. The
balance related to employee costs at March 31, 2002 will be paid through
mid-2002 pursuant to severance agreements with certain former employees. Details
of the 2000 restructuring charge are as follows:
Restructuring Balance at
(In millions) Charge Utilized March 31, 2002
- ---------------------------------------------------------------------------------
Write-down of long-lived assets $ 9.3 $ 9.3 $ -
Employee costs 7.4 7.3 0.1
Tenancy costs and other 6.6 2.3 4.3
- ---------------------------------------------------------------------------------
$ 23.3 $ 18.9 $ 4.4
The restructuring actions were completed by December 31, 2000.
6
NOTE 4/TRADE RECEIVABLES SECURITIZATION
On March 29, 2001, the Company and certain of its subsidiaries completed
arrangements for a $250 million 364-day trade receivables securitization
facility with a group of financial institutions. The Company formed a
special-purpose, wholly-owned, bankruptcy-remote subsidiary (Ryerson Tull
Receivables LLC) for the sole purpose of buying receivables of certain
subsidiaries of the Company and selling an undivided interest in all eligible
trade accounts receivable to certain commercial paper conduits. This
securitization facility includes substantially all of the Company's accounts
receivable. On March 15, 2002, the facility was renewed for a 364-day period
ending March 14, 2003, reducing the facility from $250 million to $200 million,
and modifying certain termination events and covenants including, among other
things, eliminating the termination of the facility if the Company fails to
maintain specified debt ratings on its long-term unsecured debt. Fundings under
the facility are limited to the lesser of a funding base, comprised of eligible
receivables, and $200 million.
Sales of accounts receivable are reflected as a reduction of "receivables less
provisions for allowances, claims and doubtful accounts" in the Consolidated
Balance Sheet and the proceeds received are included in cash flows from
operating activities in the Consolidated Statement of Cash Flows. Proceeds from
the sales of receivables are less than the face amount of accounts receivable
sold by an amount equal to a discount on sale that approximates the conduits'
financing cost of issuing their own commercial paper, which is backed by their
ownership interests in the accounts receivable sold by the special purpose
subsidiary, plus an agreed-upon margin. These costs, totaling $1.1 million in
the first quarter of 2002, are charged to "other revenue and expense, net" in
the Consolidated Statement of Operations.
Generally, the facility provides that as payments are collected from the sold
accounts receivable, the special purpose subsidiary may elect to have the
commercial paper conduits reinvest the proceeds in interests in new accounts
receivable. The commercial paper conduits, in addition to their rights to
collect payments from that portion of the interests in the accounts receivable
owned by them, also have rights to collect payments from that portion of the
ownership interest in the accounts receivable that is owned by the special
purpose subsidiary. In calculating the fair market value of the Company's
retained interest in the receivables, the book value of the receivables
represented the best estimate of the fair market value due to the current nature
of these receivables. The amended facility, which expires March 14, 2003,
requires the Company to comply with various affirmative and negative covenants
and certain financial covenants, including covenants on net worth and the
Company's debt-to-capital ratio. The Company was in compliance with these
covenants at March 31, 2002. The amended facility requires early amortization if
the special-purpose subsidiary does not maintain a minimum equity requirement.
Additionally, the facility terminates on the occurrence and failure to cure
certain events, including, among other things, any failure of the
special-purpose subsidiary to maintain certain ratios related to the
collectability of the receivables and failure of the Company to meet the
debt-to-capital ratio and net worth covenants.
The table below summarizes certain cash flows from and paid to securitization
trusts ($ in millions):
Three Months Ended
March 31, 2002
------------------
Proceeds from collections reinvested $201
7
NOTE 5/GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The
Company estimated the fair value of its reporting units using a present value
method that discounted future cash flows. The cash flow estimates incorporate
assumptions on future cash flow growth, terminal values and discount rates. Any
such valuation is sensitive to these assumptions. Because the fair value of each
reporting unit was below its carrying value (including goodwill), application of
SFAS 142 required the Company to complete the second step of the goodwill
impairment test and compare the implied fair value of each reporting unit's
goodwill with the carrying value of that goodwill. As a result, the Company
recorded an impairment charge of $91.1 million ($82.2 million after tax) to
write-off the entire goodwill amount as a cumulative effect of a change in
accounting principle.
The Financial Accounting Standards Board also issued Statement of Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations," which requires all
business combinations after June 30, 2001 to be accounted for under the purchase
method.
As a result of adopting SFAS 142 and SFAS 141, the accounting policy for excess
of cost over net assets acquired is as follows, effective January 1, 2002:
Excess of Cost Over Net Assets Acquired: The Company recognizes the excess of
the cost of an acquired entity over the net amount assigned to assets acquired
and liabilities assumed as goodwill. Goodwill is tested for impairment on an
annual basis and between annual tests in certain circumstances. Impairment loss
is recognized whenever the implied fair value of goodwill is less than its
carrying value. Prior to January 1, 2002, goodwill was amortized over a 25-year
period. Beginning January 1, 2002, goodwill is no longer amortized.
8
The following table presents a comparison of first quarter 2002 results to first
quarter 2001 adjusted to exclude goodwill amortization expense:
In Millions
(except per share data)
--------------------------
Three Months Ended
March 31
--------------------------
2002 2001
-------- --------
Income (loss) before cumulative effect of change in accounting principle $ (1.0) $ 1.3
Cumulative effect of change in accounting principle (82.2) -
-------- --------
Reported net income (loss) (83.2) 1.3
Addback: goodwill amortization, net of tax - 1.1
--------- --------
Adjusted net income (loss) $ (83.2) $ 2.4
========= ========
Basic earnings (loss) per share:
Reported net income (loss) $ (3.36) $ 0.05
Addback: goodwill amortization, net of tax - 0.04
-------- --------
Adjusted net income (loss) $ (3.36) $ 0.09
======== ========
Diluted earnings (loss) per share:
Reported net income (loss) $ (3.36) $ 0.05
Addback: goodwill amortization, net of tax - 0.04
-------- --------
Adjusted net income (loss) $ (3.36) $ 0.09
======== ========
NOTE 6/SHORT-TERM INVESTMENTS
The Company's accounting policy for short-term investments is as follows:
Short-term Investments: The carrying amounts reported in the consolidated
balance sheets for marketable debt and equity securities are based on quoted
market prices and approximate fair value. Investment securities classified as
available-for-sale are reported at fair value based on current market quotes
with unrealized gains and losses, net of any tax effect, recorded as a separate
component of comprehensive income in stockholders' equity until realized. Gains
and losses on investment securities sold are determined based on the specific
identification method and are included in "other revenue and expense, net." No
securities are held for speculative or trading purposes.
NOTE 7/ISC/ISPAT TRANSACTION
Pursuant to the ISC/Ispat Merger Agreement, the Company agreed to indemnify
Ispat for losses, if they should arise, exceeding certain minimum amounts in
connection with breaches of representations and warranties contained in the
ISC/Ispat Merger Agreement and for expenditures and losses, if they should
arise, relating to certain environmental liabilities exceeding, in most
instances, minimum amounts. The maximum liability for which the Company can be
responsible with respect to such obligations is $90 million in the aggregate.
There are also certain other covenant commitments made by the Company
9
contained in the ISC/Ispat Merger Agreement which are not subject to a maximum
amount. In general, Ispat must have made indemnification claims with respect to
breaches of representations and warranties prior to March 31, 2000; however,
claims relating to breaches of representations and warranties related to tax
matters and certain organizational matters must be made within 90 days after the
expiration of the applicable statute of limitations, and claims with respect to
breaches of representations and warranties related to environmental matters must
be made prior to July 16, 2003.
On May 29, 2001, the Company entered into a settlement agreement with Ispat that
settled certain claims by each party for breaches of representations and
warranties and other matters contained in the ISC/Ispat Merger Agreement,
excluding claims with respect to breaches of representations and warranties
related to environmental matters and expenditures and losses relating to
environmental liabilities. The Company paid $7.5 million to Ispat in connection
with the settlement agreement, which amount applies against the $90 million cap
described above.
The Company has purchased environmental insurance payable directly to Ispat and
ISC with coverage up to $90 million covering claims made during the term of the
policy for certain environmental matters. The policy has an initial term of five
years, and can be renewed at the Company's option for up to an additional three
years upon payment of an additional premium. Ispat has notified the Company of
certain environmental matters and of certain environmental expenses that Ispat
has incurred. Based on the current status of these matters and except for
matters which are immaterial to the Company, the Company is unable to determine
whether any such environmental matters and expenses will result in
indemnification payments to Ispat.
As part of the ISC/Ispat Transaction, the Inland Steel Industries Pension Plan
(the "ISC Pension Plan"), in which employees of both ISC and the Company
participated, was transferred to ISC. The Company's remaining employees that
formerly had participated in the ISC Pension Plan became participants in Ryerson
Tull's pension plan. The ISC Pension Plan has unfunded benefit liabilities on a
termination basis, as determined by the Pension Benefit Guaranty Corporation
("PBGC"), an agency of the U.S. government. As a condition to completing the
ISC/Ispat Transaction, Ispat, ISC, RT and the Company entered into an agreement
with the PBGC to provide certain financial commitments to reduce the
underfunding of the ISC Pension Plan and to secure ISC Pension Plan unfunded
benefit liabilities on a termination basis. These requirements include a RT
guaranty of $50 million, for five years, of the obligations of Ispat and ISC to
the PBGC in the event of a distress or involuntary termination of the ISC
Pension Plan. In July 2001, the Company provided a $50 million letter of credit
to the PBGC. The guaranty is included in the $90 million limit on the Company's
indemnification obligations.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Comparison of First Quarter 2002 to First Quarter 2001
- ------------------------------------------------------------------------------
For the first quarter of 2002, the Company reported a consolidated net loss of
$83.2 million, or $3.36 per diluted share, as compared with net income of $1.3
million, or 5 cents per diluted share, in the year-ago quarter.
Included in the first quarter 2002 results is an after tax charge of $82.2
million, or $3.32 per share, from the Company's adoption of Financial Accounting
Standards Board Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." SFAS 142 requires an annual assessment of goodwill impairment by
applying a fair-value-based test. As a result of this assessment, the Company
wrote off the entire goodwill amount as of January 1, 2002 as a cumulative
effect of change in accounting principle. Excluding the goodwill charge, the
Company had a loss per share of 4 cents in the first quarter of 2002.
Sales for the first quarter of 2002 decreased 19 percent to $516.9 million from
the same period a year ago, reflecting a continuation of the depressed market in
the second half of 2001. Volume decreased 13 percent while average selling price
decreased 7 percent from the same period a year ago.
Gross profit per ton declined to $159 in the first quarter of 2002 from $177 in
the year-ago quarter largely due to the decline in average selling price. Gross
profit margin decreased from 21.4% a year ago to 20.6% in the current quarter.
Despite the 13% decline in volume, expenses (defined as operating expenses plus
depreciation) decreased to $161 per ton in the first quarter of 2002 from $165
per ton a year ago, reflecting an improved cost structure. The net result of the
above is an operating loss of $2 per ton this quarter versus an operating profit
of $12 per ton a year ago.
For the quarter, the Company reported an operating loss of $1.6 million, a
decrease of $11.1 million from an operating profit of $9.5 million in the year
ago period. SFAS 142 discontinues amortization of goodwill. As a result, no
goodwill amortization expense was recognized in the first quarter of 2002, while
the year ago period included a $1.3 million charge.
In the first quarter of 2002, the Company recorded a $5.1 million pretax gain
for the receipt of shares as a result of the demutualization of one of its
insurance carriers, Prudential. This gain represents a portion of the total of
$6.3 million of shares received. The remaining shares are attributable to
participants of the life insurance plan and therefore the liability has been
recorded as a benefit payable. The shares were initially recorded at their fair
market value and are accounted for as Available-for-Sale per Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
Included in the first quarter 2001 results was a pretax gain of $1.3 million on
the sale of a facility in Minneapolis, Minnesota.
Liquidity and Financing
- -----------------------
The Company had cash and cash equivalents at March 31, 2002 of $20.1 million,
compared to $20.5 million at December 31, 2001. At March 31, 2002, the Company
had $90 million outstanding fundings under its trade receivables securitization
facility, no short-term funded borrowing under its revolving
11
credit facility and $63 million of letters of credit issued under the credit
facility. At March 31, 2002, the Company had total short-term funding sources
available of $155 million comprised of $83 million from the trade receivables
securitization facility and $72 million from the revolving credit facility,
compared to 2001 year-end availability of $116 million.
The Company has a committed bank revolving credit facility of $175 million that
extends until July 19, 2004. The facility is secured by inventory. The revolving
credit agreement contains covenants that, among other things, restrict the
payment of dividends, the amount of capital stock repurchases, the creation of
certain kinds of secured indebtedness and of certain kinds of subsidiary debt,
take or pay contracts, transactions with affiliates, mergers and consolidations,
and sales of assets. The facility also contains certain financial covenants,
including covenants regarding net worth and the Company's debt-to-capital ratio,
with which the Company is in compliance at March 31, 2002.
At March 31, 2002, $40 million of the $175 million revolving credit facility was
not available for borrowing. Of that $40 million, $15 million will become
available if the Company meets certain financial ratios and the remainder will
become available upon consent of all the lenders. Letters of credit issued under
the facility reduce the amount available for borrowing. At March 31, 2002, the
Company had $63 million of letters of credit outstanding, primarily related to
the PBGC guaranty discussed below, and no short-term borrowings under the credit
facility. Therefore, the Company has $72 million available under its credit
facility. When availability of funds under the credit facility is less than $25
million, the Company is limited to a maximum payment of $10 million in dividends
in any calendar year and $3 million in stock purchases in any twelve-month
period.
As a condition of completing the ISC/Ispat Transaction, Ispat, ISC and the
Company entered into an agreement with the Pension Benefit Guaranty Corporation
("PBGC") to provide certain financial commitments to reduce the underfunding of
the ISC Pension Plan on a termination basis. These obligations include a
guaranty of $50 million to the PBGC in the event of a distress or involuntary
termination of the ISC Pension Plan (now the Ispat Inland, Inc. Pension Plan).
The agreement also required the Company to provide collateral for its guarantee
in the event of a downgrade of the Company's unsecured debt rating below
specified levels. On May 1, 2001, Moody's Investors Services reduced its rating
on such unsecured debt to below the specified levels and in July 2001, the
Company provided a letter of credit in the amount of $50 million to the PBGC
under the revolving credit facility discussed above. The guaranty is included in
the $90 million limit on the Company's indemnification obligations.
The Company has a 364-day trade receivables securitization facility, in
connection with which the Company formed a special-purpose, wholly-owned,
bankruptcy-remote subsidiary for the sole purpose of buying receivables of
certain subsidiaries of the Company and selling an undivided interest in all
eligible receivables to certain commercial paper conduits. The facility, which
was scheduled to expire March 28, 2002, was renewed on March 15, 2002 for a
364-day period ending March 14, 2003. The facility was amended to reduce maximum
availability from $250 million to $200 million and to modify certain termination
events and covenants including, among other things, eliminating the termination
of the facility if the Company fails to maintain specified debt rating on its
long-term unsecured debt. Fundings under the renewed facility are limited to the
lesser of a funding base, comprised of eligible receivables, and $200 million.
The availability of funds under this facility is based on the level of the
Company's receivables, which would have allowed $83 million of additional
funding at March 31, 2002. The amended facility requires the Company to comply
with various affirmative and negative covenants and certain financial covenants,
including covenants on net worth and the Company's debt-to-capital ratio. The
Company was in compliance with these covenants at March 31, 2002. The amended
12
facility requires early amortization if the special-purpose subsidiary does not
maintain a minimum equity requirement. Additionally, the facility terminates on
the occurrence and failure to cure certain events, including, among other
things, any failure of the special-purpose subsidiary to maintain certain ratios
related to the collectability of the receivables and to meet the debt-to-capital
ratio and net worth covenants. This subsidiary is part of the Company's
consolidated financial statements.
At March 31, 2002, $100 million of the Company's 9-1/8% Notes due July 15, 2006
remain outstanding. The indenture under which the Notes were issued in 1996
contains covenants limiting, among other things, the creation of certain types
of secured indebtedness, sale and leaseback transactions, the repurchase of
capital stock, transactions with affiliates and mergers, consolidations and
certain sales of assets. In addition, the Notes restrict the payment of
dividends, although to a lesser extent than the facilities described above. The
Notes also include a cross-default provision in the event of a default in the
revolving credit facility.
ISC/Ispat Transaction
- ---------------------
Pursuant to the ISC/Ispat Merger Agreement, the Company agreed to indemnify
Ispat for losses, if they should arise, exceeding certain minimum amounts in
connection with breaches of representations and warranties contained in the
ISC/Ispat Merger Agreement and for expenditures and losses, if they should
arise, relating to certain environmental liabilities exceeding, in most
instances, minimum amounts. The maximum liability for which the Company can be
responsible with respect to such obligations is $90 million in the aggregate.
There are also certain other covenant commitments made by the Company contained
in the ISC/Ispat Merger Agreement which are not subject to a maximum amount. In
general, Ispat must have made indemnification claims with respect to breaches of
representations and warranties prior to March 31, 2000; however, claims relating
to breaches of representations and warranties related to tax matters and certain
organizational matters must be made within 90 days after the expiration of the
applicable statute of limitations, and claims with respect to breaches of
representations and warranties related to environmental matters must be made
prior to July 16, 2003.
On May 29, 2001, the Company entered into a settlement agreement with Ispat that
settled certain claims by each party for breaches of representations and
warranties and other matters contained in the ISC/Ispat Merger Agreement,
excluding claims with respect to breaches of representations and warranties
related to environmental matters and expenditures and losses relating to
environmental liabilities. The Company paid $7.5 million to Ispat in connection
with the settlement agreement, which amount applies against the $90 million cap
described above.
The Company has purchased environmental insurance payable directly to Ispat and
ISC with coverage up to $90 million covering claims made during the term of the
policy for certain environmental matters. The policy has an initial term of five
years, and can be renewed at the Company's option for up to an additional three
years upon payment of an additional premium. Ispat has notified the Company of
certain environmental matters and of certain environmental expenses that Ispat
has incurred. Based on the current status of these matters and except for
matters which are immaterial to the Company, the Company is unable to determine
whether any such environmental matters and expenses will result in
indemnification payments to Ispat.
As part of the ISC/Ispat Transaction, the Inland Steel Industries Pension Plan
(the "ISC Pension Plan"), in which employees of both ISC and the Company
participated, was transferred to ISC. The Company's remaining employees that
formerly had participated in the ISC Pension Plan became participants in Ryerson
Tull's pension plan. The ISC Pension Plan has unfunded benefit liabilities on a
termination
13
basis, as determined by the Pension Benefit Guaranty Corporation ("PBGC"), an
agency of the U.S. government. As a condition to completing the ISC/Ispat
Transaction, Ispat, ISC, RT and the Company entered into an agreement with the
PBGC to provide certain financial commitments to reduce the underfunding of the
ISC Pension Plan and to secure ISC Pension Plan unfunded benefit liabilities on
a termination basis. These requirements include a RT guaranty of $50 million,
for five years, of the obligations of Ispat and ISC to the PBGC in the event of
a distress or involuntary termination of the ISC Pension Plan. In July 2001, the
Company provided a $50 million letter of credit to the PBGC. The guaranty is
included in the $90 million limit on the Company's indemnification obligations.
14
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits. The exhibits required to be filed by Item 601 of
Regulation S-K are listed in the "Exhibit Index," which is
attached hereto and incorporated by reference herein.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the first quarter of 2002.
15
SIGNATURE
---------
Pursuant to the requirements 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.
RYERSON TULL, INC.
By: /s/ Lily L. May
------------------------
Lily L. May
Controller and
Chief Accounting Officer
Date: May 14, 2002
16
Part I -- Schedule A
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
SUMMARY OF STOCKHOLDERS' EQUITY
================================================================================
Dollars in Millions
-------------------
March 31, 2002 December 31, 2001
-------------------------- ----------------------
(unaudited)
STOCKHOLDERS' EQUITY
- --------------------
Series A preferred stock ($1 par value)
- 80,230 shares issued and outstanding
as of March 31, 2002 and December 31, 2001 $ 0.1 $ 0.1
Common stock ($1 par value)
- 50,556,350 shares issued
as of March 31, 2002 and December 31, 2001 50.6 50.6
Capital in excess of par value 861.9 862.5
Retained earnings
Balance beginning of year $ 441.4 $ 506.8
Net income (83.2) (60.2)
Dividends
Series A preferred stock -
$0.60 per share in 2002 and
$2.40 per share in 2001 - (0.2)
Common Stock -
$ .05 per share in 2002 and
$ .20 per share in 2001 (1.3) 356.9 (5.0) 441.4
------- -------
Restricted stock awards (0.3) (0.1)
Treasury stock, at cost
- 25,749,433 as of March 31, 2002 and
25,767,918 as of December 31, 2001 (752.8) (753.6)
Accumulated other comprehensive income (49.1) (49.2)
-------- --------
Total Stockholders' Equity $ 467.3 $ 551.7
======== ========
17
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Copy of Certificate of Incorporation, as amended, of Ryerson
Tull. (Filed as Exhibit 3.(I) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-9117),
and incorporated by reference herein.)
3.2 By-Laws, as amended. (Filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 1-9117), and incorporated by reference herein.)
4.1 Certificate of Designations, Preferences and Rights of Series A
$2.40 Cumulative Convertible Preferred Stock of Ryerson Tull.
(Filed as part of Exhibit B to the definitive Proxy Statement of
Inland Steel Company dated March 21, 1986 that was furnished to
stockholders in connection with the annual meeting held April 23,
1986 (File No. 1-2438), and incorporated by reference herein.)
4.2 Certificate of Designation, Preferences and Rights of Series D
Junior Participating Preferred Stock of Ryerson Tull. (Filed as
Exhibit 4-D to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 (File No. 1-9117), and
incorporated by reference herein.)
4.3 Rights Agreement, dated as of November 25, 1997, as amended and
restated as of September 22, 1999, between Ryerson Tull and
Harris Trust and Savings Bank, as Rights Agent. (Filed as Exhibit
4.1 to the Company's amended Registration Statement on Form
8-A/A-2 filed on October 6, 1999 (File No. 1-9117), and
incorporated by reference herein.)
4.4 Indenture, dated as of July 1, 1996, between Pre-merger Ryerson
Tull and The Bank of New York. (Filed as Exhibit 4.1 to
Pre-merger Ryerson Tull's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (File No. 1-11767), and incorporated
by reference herein.)
4.5 First Supplemental Indenture, dated as of February 25, 1999,
between Ryerson Tull and The Bank of New York. (Filed as Exhibit
4.5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-9117), and incorporated by
reference herein.)
4.6 Specimen of 9 1/8% Notes due July 15, 2006. (Filed as Exhibit 4.7
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-9117), and incorporated by
reference herein.)
[The registrant hereby agrees to provide a copy of any other
agreement relating to long-term debt at the request of the
Commission.]
10.1* Ryerson Tull Annual Incentive Plan, as amended (Filed as Exhibit
10.1 to Company's Annual Report on Form 10-K for the year ended
December 31, 2001 (File No. 1-11767), and incorporated by
reference herein.)
10.2* Ryerson Tull 1999 Incentive Stock Plan, as amended (Filed as
Exhibit 10.2 to Company's Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 1-11767), and incorporated by
reference herein.)
10.3* Ryerson Tull 1996 Incentive Stock Plan, as amended. (Filed as
Exhibit 10.D to Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-11767), and incorporated by
reference herein.)
10.4* Ryerson Tull 1995 Incentive Stock Plan, as amended. (Filed as
Exhibit 10.E to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-9117), and incorporated
by reference herein.)
10.5* Ryerson Tull 1992 Incentive Stock Plan, as amended. (Filed as
Exhibit 10.C to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 (File No. 1-9117), and
incorporated by reference herein.)
10.6* Ryerson Tull Supplemental Retirement Plan for Covered Employees,
as amended (Filed as Exhibit 10.6 to Company's Annual Report on
Form 10-K for the year ended December 31, 2001 (File No.
1-11767), and incorporated by reference herein.)
10.7* Ryerson Tull Nonqualified Savings Plan, as amended (Filed as
Exhibit 10.7 to Company's Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 1-11767), and incorporated by
reference herein.)
10.8* Outside Directors Accident Insurance Policy, with endorsement
(Filed as Exhibit 10.8 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 (File No. 1-9117),
and incorporated by reference herein.)
- ---------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Annual Report on Form 10-K.
18
Exhibit
Number Description
------ -----------
10.9* Ryerson Tull Directors' 1999 Stock Option Plan. (Filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-9117), and incorporated by
reference herein.)
10.10* Ryerson Tull Directors' Compensation Plan, as amended. (Filed as
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (File No. 1-9117), and incorporated
by reference herein.)
10.11* Severance Agreement, dated January 28, 1998, between the Company
and Jay. M. Gratz................................................
10.12* Amendment dated November 6, 1998 to the Severance Agreement dated
January 28, 1998 referred to in Exhibit 10.11 above between the
Company and Jay M. Gratz. (Filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1998 (File No. 1-9117), and incorporated by reference
herein.)
10.13* Amendment dated June 30, 2000 to the Severance Agreement dated
January 28, 1998 referred to in Exhibit 10.11 between the Company
and Jay M. Gratz. (Filed as Exhibit 10.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(File No. 1-9117), and incorporated by reference herein.)
10.14* Form of Change in Control Agreement dated March 11, 2001 between
the Company and the parties listed on the schedule thereto.......
10.15 Schedule to Form of Change in Control Agreement dated March 11,
2001 as referred to in Exhibit 10.14.............................
10.16* Form of Change in Control Agreement dated March 11, 2001 between
the Company and the parties listed on the schedule thereto.......
10.17* Schedule to Form of Change in Control Agreement dated March 11,
2001 as referred to in Exhibit 10.16.............................
10.18* Employment Agreement dated September 1, 1999 between the Company
and Jay M. Gratz. (Filed as Exhibit 10.22 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 (File No. 1-9117), and incorporated by reference herein.)
10.19* Employment Agreement dated September 1, 1999 between the Company
and Gary J. Niederpruem. (Filed as Exhibit 10.23 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 (File No. 1-9117), and incorporated by reference herein.)
10.20* Employment Agreement dated December 1, 1999 between the Company
and Neil S. Novich. (Filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 1-9117), and incorporated by reference herein.)
10.21* Confidentiality and Non-Competition Agreement dated June 1, 2000
between the Company and Stephen E. Makarewicz....................
10.22* Employment Agreement dated as of May 29, 2000 between the Company
and Thomas S. Cygan. (Filed as Exhibit 10.25 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(File No. 1-9117), and incorporated by reference herein.)
- -----------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Annual Report on Form 10-K.
19