First Quarter - 1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from __________ to __________
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Commission file number 1-11767
I.R.S. Employer Identification Number 36-3431962
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,280,763 shares of the
Company's Class A Common Stock and 34,000,000 shares of the Company's Class B
Common Stock (each $1.00 par value per share) were outstanding as of May 8,
1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Statement of Operations (Unaudited)
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Dollars in Millions (except per share data)
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Three Months Ended
March 31
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1997 1996
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NET SALES $660.7 $625.3
Cost of materials sold 510.4 477.2
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GROSS PROFIT 150.3 148.1
Operating expenses 109.0 105.9
Depreciation and amortization 6.3 5.6
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OPERATING PROFIT 35.0 36.6
General corporate expense,
net of income items 0.9 (0.7)
Interest and other expense on debt 7.2 0.6
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INCOME BEFORE INCOME TAXES 26.9 36.7
PROVISION FOR INCOME TAXES 10.3 14.3
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NET INCOME $16.6 $22.4
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PRIMARY EARNINGS PER SHARE
OF COMMON STOCK (Note 5) $0.42 $0.57
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OPERATING DATA
SHIPMENTS (Tons in Thousands) 708.8 638.6
See notes to consolidated financial statements
- 1 -
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Statement of Cash Flows (Unaudited)
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Dollars in Millions
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Three Months Ended
March 31
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1997 1996
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OPERATING ACTIVITIES
Net income $ 16.6 $ 22.4
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Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization 6.3 5.6
Net gain on sales of assets (2.4) -
Deferred employee benefit cost 1.2 0.9
Deferred income taxes 1.2 1.7
Change in assets and liabilities, excluding effects of acquisitions:
Receivables (40.1) (30.8)
Inventories (34.8) (34.5)
Other assets (0.5) (0.6)
Accounts payable 53.4 21.4
Payables to related companies 9.2 0.9
Accrued liabilities (17.6) (7.3)
Other deferred items (0.4) -
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Net adjustments (24.5) (42.7)
Net cash used for operating activities (7.9) (20.3)
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INVESTING ACTIVITIES
Acquisitions (Note 3) (130.2) -
Capital expenditures (6.9) (3.0)
Proceeds from sales of assets 4.1 1.2
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Net cash used for investing activities (133.0) (1.8)
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FINANCING ACTIVITIES
Debt retirement (0.4) (0.5)
Reduction of debt assumed in acquisition (22.6) -
Borrowing from related company, net 132.0 14.4
Short-term borrowing under bank credit facility, net 8.0 -
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Net cash provided from financing activities 117.0 13.9
Net decrease in cash and cash equivalents (23.9) (8.2)
Cash and cash equivalents - beginning of year 23.9 53.6
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Cash and cash equivalents - end of period $ - $ 45.4
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 12.9 $ 0.6
Income taxes, net 10.4 12.5
Debt assumed in acquisition 22.6 -
See notes to consolidated financial statements
- 2 -
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned subsidiary of Inland Steel Industries, Inc.)
Consolidated Balance Sheet (Unaudited)
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Dollars in Millions
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March 31, 1997 December 31, 1996
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(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 23.9
Receivables 320.9 234.4
Inventories - principally at LIFO 423.7 314.3
Deferred income taxes 13.0 13.6
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Total current assets 757.6 586.2
INVESTMENTS AND ADVANCES 19.9 19.8
PROPERTY, PLANT AND EQUIPMENT
Valued on basis of cost $515.5 $494.4
Less accumulated depreciation 246.2 269.3 243.4 251.0
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DEFERRED INCOME TAXES 36.8 37.9
PREPAID PENSION COSTS 0.7 1.3
EXCESS OF COST OVER NET ASSETS ACQUIRED 67.4 22.3
OTHER ASSETS 15.0 13.7
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Total Assets $1,166.7 $932.2
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 176.9 $ 98.4
Note payable to related company 132.0 -
Payables to related companies - trade and other 26.4 17.2
Accrued liabilities 32.8 42.9
Long-term debt due within one year 1.7 2.1
Short-term note payable 8.0 -
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Total current liabilities 377.8 160.6
LONG-TERM DEBT 263.2 263.2
DEFERRED EMPLOYEE BENEFITS AND OTHER 144.6 144.0
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Total liabilities 785.6 567.8
STOCKHOLDERS' EQUITY (Schedule A) 381.1 364.4
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Total Liabilities and Stockholders' Equity $1,166.7 $932.2
======== ======
See notes to consolidated financial statements
- 3 -
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned subsidiary of Inland Steel Industries, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
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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, 1997 and for the three-month periods ended March 31, 1997 and 1996
are unaudited, but in the opinion of management include all 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, 1996.
NOTE 2/RECAPITALIZATION
In the second quarter of 1996, Industries undertook a recapitalization that
involved the company. As part of the recapitalization, the company exchanged
existing shares of company common stock, all of which were owned by Industries,
for 34.0 million shares of new-issue Class B common stock ($1.00 par value).
The company also sold 5.2 million shares of new-issue Class A common stock
($1.00 par value) in a public offering, the net proceeds of which approximated
$77.1 million.
Prior to the issuance of the Class A common stock, the company declared and paid
dividends of $445.9 million to Industries, of which $152.1 million was in cash
and $293.8 million was in the form of a note payable. Industries used $63.2
million of the cash dividend to repay intercompany borrowing from the company
and its subsidiaries. Of the $445.9 million of dividends paid to Industries,
$198.3 million eliminated the reinvested earnings balance that existed at June
26, 1996, while the remaining $247.6 million reduced capital in excess of par
value.
In July 1996, the company sold $150 million of 8.5 percent Notes due July 15,
2001 and $100 million of 9.125 percent Notes due July 15, 2006 (collectively,
the "Notes") in a public offering. The net proceeds of the offering along with
a portion of the company's cash on hand were used to pay the $293.8 million note
balance due Industries.
Effective June 1, 1996, as the result of a capital contribution from Industries
to the company, Inland Industries de Mexico and its 50 percent-owned Ryerson de
Mexico joint venture became part of the company. The contribution increased
both investments in joint ventures and capital in excess of par value by $18.9
million. The impact of Ryerson de Mexico on the company's results of operations
has not been material.
- 4 -
NOTE 3/ACQUISITIONS
During the first quarter of 1997, the Company, through its subsidiaries,
acquired Thypin Steel Co., Inc. and the assets of Cardinal Metals, Inc. for an
aggregate of $130.2 million in cash. Both acquisitions have been accounted for
by the purchase method of accounting and the purchase price has been allocated
to assets acquired and liabilities assumed. Results of operations since
acquisition for each company are included in the consolidated results. The pro
forma effect for 1997 and 1996 had these acquisitions occurred at the beginning
of each such year is not material.
NOTE 4/RELATED PARTY TRANSACTIONS
The Company has agreed to procedures established by Inland Steel Industries,
Inc. ("Industries") for charging Industries' administrative expenses to the
operating companies owned by it. Pursuant to these procedures, the Company was
charged $1.4 million and $1.7 million by Industries for the first quarters of
1997 and 1996, respectively, for management, financial and legal services
provided to the Company.
Prior to the recapitalization in the second quarter of 1996, procedures had been
established to charge interest on all intercompany loans within the Industries
group of companies. Such loans arose as part of a corporate-wide cash
management program and bore interest at the prime rate. In May 1996, after all
such intercompany loans were repaid, the Company ceased participation in such
programs and the Company's cash is not and will no longer be held in Industries'
accounts. In the first quarter of 1996, intercompany interest income was $1.3
million.
On March 27, 1997, the Company established the ability to borrow from Industries
through a five-year $250 million uncommitted line of credit. As of March 31,
1997, $132 million of borrowing was outstanding under this facility.
The Company sells to and purchases products from related companies at prevailing
market prices. These transactions are summarized as follows:
Dollars in Millions
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Three Months
Ended March 31
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1997 1996
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Net Product Sales $ 3.2 $ 5.2
Net Product Purchases 59.1 57.5
NOTE 5/EARNINGS PER SHARE
Pro forma earnings per share presented for the first three months of 1996
assumes 39,220,000 average shares outstanding. For the first quarter of 1997,
39,277,127 shares, the actual average common shares outstanding during the
quarter, was used in the calculation of earnings per share.
The Company is required to adopt Financial Accounting Standards Board Statement
No. 128, "Earnings per Share," at year-end 1997. Basic Earning per Share as
defined in that Statement is not materially different from the Primary Earnings
per Share amount presented.
- 5 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations-Comparison of First Quarter 1997 to First Quarter 1996
The Company reported consolidated net income of $16.6 million, or $.42 per
common share in the first quarter of 1997, as compared with $22.4 million, or
$.57 per common share pro forma in the year-ago quarter. First quarter 1997
earnings benefited from a $2 million pre-tax gain (three cents per common share)
on the sale of the Company's property in Jersey City, New Jersey. Reduced
quarter-to-quarter earnings resulted primarily from lower selling prices which
pressured gross margins, and from significantly higher interest expense and
lower interest income resulting from the recapitalization. Partially offsetting
these impacts were strong tonnage volumes and good expense control.
Consolidated net sales of $660.7 million were 6% higher than the
year-earlier period due to acquisitions. Volume increased 11% to 709,000 tons
from 639,000 tons, as a result of market share gains assisted by the
acquisitions of Thypin Steel and Cardinal Metals during the quarter, as well as
strong service center industry shipment levels. Average selling price declined
5% to $932 per ton from $979 per ton.
Gross profit per ton decreased to $212 from $232 in the year-ago quarter
due to continued pressure from declining industrywide metals prices. Expenses,
defined as operating expenses, depreciation and amortization, were reduced to
$165 per ton (excluding the gain on the Jersey City sale reflected in operating
expenses) from $175 per ton in first quarter 1996.
Operating profit of $35.0 million was 4% less than the $36.6 million
recorded in the year-earlier period, mainly due to weaker gross margins.
Recent Developments
On February 13, 1997, the Company, through its wholly-owned subsidiary
Joseph T. Ryerson & Son, Inc., acquired 100% of the outstanding capital stock of
Thypin Steel Co., Inc. ("Thypin"), a privately held company, for $120 million in
cash. The Company also assumed and simultaneously retired $22.6 million in
existing Thypin debt. Thypin is a distributor and processor of carbon and
stainless steel products located in the eastern United States, with 1996 sales
of $320 million. The Company believes the acquisition of Thypin will
significantly strengthen Ryerson Tull's presence in the eastern United States.
On March 3, 1997, the Company, through its wholly-owned subsidiary J.M.
Tull Metals Company, Inc., acquired substantially all of the assets of Cardinal
Metals, Inc. ("Cardinal"), a privately held distributor and processor of carbon
steel products with a single facility in Pounding Mill, Virginia. Cardinal, with
1996 sales of $23 million, fills a geographic gap for the Company and provides
expertise and added capacity in carbon plate processing.
-6-
Liquidity and Financing
As part of the recapitalization that took place in 1996, the Company issued
$250 million of long term debt ("Notes") and established a committed four-year
$250 million bank revolving credit facility. Restrictions contained in the bank
facility and the Notes indenture prohibit the Company from, among other things,
declaring or paying dividends on Company common stock under certain conditions.
At March 31, 1997, up to $53 million of common dividends could have been paid.
In order to provide additional borrowing flexibility, the Company
established a five-year $250 million uncommitted line of credit with its
parent, Inland Steel Industries, Inc. ("Industries") on March 27, 1997. Interest
under this credit line is at market rates. Under terms of the agreement,
Industries may, at its sole option, demand repayment of any or all amounts
outstanding at any time.
At March 31, 1997, the Company had outstanding borrowing of $132 million
under the Industries line and $8 million under the bank credit facility. The
short term borrowings were used entirely for the acquisitions and the repayment
of debt assumed in the acquisitions. On a combined basis, the Company had
committed and uncommitted lines of credit of $360 million unused as of March 31,
1997. However, the Company currently intends to have outstanding at any time
under the Industries line no more than is available under the bank credit
facility. Additionally, a covenant contained in the bank credit facility
restricting the Company's leverage limited the amount of additional debt,
including additional borrowings under the credit lines, to $160 million as of
March 31, 1997.
-7-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation of the Company (Filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 (File No. 333-
3235), and incorporated by reference herein.)
3.2 By-Laws of the Company. (File as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated
by reference herein.)
4.1 Indenture, dated as of July 1, 1996, between the Company and The Bank of
New York. (Filed as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and incorporated by reference
herein.)
4.2 Specimen of 8 1/2% Note due July 15, 2001. (Filed as Exhibit 4.2 to the
Company's Quarterly report on Form 10-Q for the quarter ended June 30,
1996 and incorporated by reference herein.)
4.3 Specimen of 9 1/8% Note due July 15, 2006. (Filed as Exhibit 4.3 to the
Company's Quarterly report on Form 10-Q for the quarter ended June 30,
1996 and incorporated by reference herein.)
4.4 Rights Agreement between the Company and Harris Trust and Savings Bank,
as Rights Agent, dated as of June 10, 1996. (Filed as Exhibit 4.4 to the
Company's Quarterly report on Form 10-Q for the quarter ended June 30,
1996 and incorporated by reference herein.)
4.5 Form of Class A Common Stock Certificate. (Filed as Exhibit 4.5 to the
Company's Quarterly report on Form 10-Q for the quarter ended June 30,
1996 and incorporated by reference herein.)
10.1 Ryerson Tull 1996 Incentive Stock Plan
10.2 Ryerson Tull, Inc. Annual Performance Improvement Incentive Plan
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of 1997.
-8-
SIGNATURE
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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
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Lily L. May
Controller and
Principal Accounting Officer
Date: May 13, 1997
-9-
Part I -- Schedule A
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RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned subsidiary of Inland Steel Industries, Inc.)
SUMMARY OF STOCKHOLDERS' EQUITY
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Dollars in Millions
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March 31, 1997 December 31, 1996
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(unaudited)
STOCKHOLDERS' EQUITY
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Series A common stock ($1 par value)
- 5,277,127 shares issued and outstanding
as of March 31, 1997 $ 5.3 $ 5.3
Series B common stock ($1 par value)
- 34,000,000 shares issued and outstanding
as of March 31, 1997 34.0 34.0
Capital in excess of par value (1) (2) 304.5 304.5
Retained earnings
Balance beginning of year $22.4 $ 173.9
Net income 16.6 63.3
Retained earnings impact of Pension Plan split - (16.5)
Dividends on common stock (2) - 39.0 (198.3) 22.4
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Cumulative translation adjustment (1.3) (1.3)
Restricted stock awards (0.4) (0.5)
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Total Stockholders' Equity $381.1 $364.4
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(1) Capital in excess of par at December 31, 1996 was increased from December
31, 1995 by $71.9 million due to the issuance of Series A common stock and
$18.9 million as a result of the contribution of Inland Industries de
Mexico to Ryerson Tull. It was decreased by $34.0 million for the issuance
of Series B common stock as part of the recapitalization of Ryerson Tull.
(2) Of the $445.9 million of dividends paid in the 1996 second quarter, $198.3
million eliminated the balance in retained earnings at June 26, 1996 while
the remaining $247.6 million reduced capital in excess of par.