Third Quarter - 1997
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 September 30, 1997
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 1-11767
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,277,732 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 November 6,
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)
================================================================================
Dollars in Millions (except per share data)
-----------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ----------------------
1997 1996 1997 1996
------ ------ -------- --------
NET SALES $715.8 $592.3 $2,106.4 $1,825.1
Cost of materials sold 562.8 457.3 1,643.1 1,400.3
------ ------ -------- --------
GROSS PROFIT 153.0 135.0 463.3 424.8
Operating expenses 115.9 103.0 344.6 312.4
Depreciation and amortization 7.1 5.7 20.4 16.8
(Gain) on sale of assets -- -- (8.9) --
------ ------ -------- --------
OPERATING PROFIT 30.0 26.3 107.2 95.6
General corporate and other expense,
net of income items 2.0 1.6 5.1 1.1
Interest and other expense on debt 8.7 6.4 24.1 8.0
------ ------ -------- --------
INCOME BEFORE INCOME TAXES 19.3 18.3 78.0 86.5
PROVISION FOR INCOME TAXES 7.9 6.9 31.0 33.8
------ ------ -------- --------
NET INCOME $ 11.4 $ 11.4 $ 47.0 $ 52.7
====== ====== ======== ========
PRIMARY EARNINGS PER SHARE
OF COMMON STOCK (Note 5) $ 0.29 $ 0.29 $ 1.20 $ 1.34
====== ====== ======== ========
OPERATING DATA
- --------------
SHIPMENTS (Tons in Thousands) 781.1 627.0 2,270.3 1,900.4
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)
================================================================================
Dollars in Millions
-------------------
Nine Months Ended
September 30
-------------------
1997 1996
------- -------
OPERATING ACTIVITIES
Net income $ 47.0 $ 52.7
------- -------
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 20.4 16.8
Gain on sale of assets (8.9) -
Deferred employee benefit cost (3.5) 1.9
Deferred income taxes (0.4) 0.2
Change in assets and liabilities, excluding effects of acquisitions:
Receivables (55.4) (16.1)
Inventories (35.2) (47.2)
Other assets 4.6 (5.9)
Accounts payable 54.6 10.1
Payables to related companies 0.2 10.9
Accrued liabilities (16.8) (0.3)
Other deferred items ( 6.4) -
------- ------
Net adjustments (46.8) (29.6)
------- ------
Net cash provided from operating activities 0.2 23.1
------- ------
INVESTING ACTIVITIES
Acquisitions (Note 3) (139.5) -
Capital expenditures (25.8) (12.5)
Investments in and advances to joint ventures, net (0.4) (1.2)
Proceeds from sales of assets 17.2 1.3
------- ------
Net cash used for investing activities (148.5) (12.4)
------- ------
FINANCING ACTIVITIES
Sale of Series A common stock - 77.1
Debt issued - 243.8
Debt retirement (2.0) (8.1)
Dividends paid - (445.9)
Reduction of debt assumed in acquisition (25.3) -
Borrowing from related company, net 151.7 68.8
------- ------
Net cash provided from (used for) financing activities 124.4 (64.3)
------- ------
Net decrease in cash and cash equivalents (23.9) (53.6)
Cash and cash equivalents - beginning of year 23.9 53.6
------- ------
Cash and cash equivalents - end of period $ - $ -
======= ======
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 28.5 $ 1.9
Income taxes, net 32.4 35.4
Debt assumed in acquisition 25.3 -
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)
================================================================================
Dollars in Millions
-------------------
ASSETS September 30, 1997 December 31, 1996
- ------ ------------------ -----------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ - $ 23.9
Receivables 336.7 234.4
Inventories - principally at LIFO 427.3 314.3
Deferred income taxes 13.2 13.6
-------- -------
Total current assets 777.2 586.2
INVESTMENTS AND ADVANCES 21.5 19.8
PROPERTY, PLANT AND EQUIPMENT
Valued on basis of cost $531.7 $494.4
Less accumulated depreciation 255.3 276.4 243.4 251.0
------ ------
DEFERRED INCOME TAXES 38.0 37.9
PREPAID PENSION COSTS 6.6 1.3
EXCESS OF COST OVER NET ASSETS ACQUIRED 75.5 22.3
OTHER ASSETS 9.9 13.7
-------- -------
Total Assets $1,205.1 $ 932.2
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $181.4 $98.4
Note payable to related company 151.7 -
Payables to related companies - trade and other 17.4 17.2
Accrued liabilities 33.9 42.9
Long-term debt due within one year 6.3 2.1
--------- -------
Total current liabilities 390.7 160.6
LONG-TERM DEBT 257.0 263.2
DEFERRED EMPLOYEE BENEFITS AND OTHER 145.8 144.0
--------- -------
Total liabilities 793.5 567.8
STOCKHOLDERS' EQUITY (Schedule A) 411.6 364.4
-------- -------
Total Liabilities and Stockholders' Equity $1,205.1 $ 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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
September 30, 1997 and for the three-month and nine-month periods ended
September 30, 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, Inland Steel Industries, Inc. ("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 nine months of 1997, the Company, through its subsidiaries,
acquired Thypin Steel Co., Inc., Omni Metals, Inc. and the assets of Cardinal
Metals, Inc. for an aggregate of $139.5 million in cash plus assumption of debt.
The 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 Industries for charging
Industries' administrative expenses to the operating companies owned by it.
Pursuant to these procedures, the Company was charged $4.7 million and $5.2
million by Industries for the first nine months 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. Net intercompany interest income for the first nine months of 1996 was
$1.5 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 September 30,
1997, $151.7 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
--------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1997 1996 1997 1996
----- ----- ------ ------
Net Product Sales $ 2.2 $ 3.0 $ 8.0 $ 12.1
Net Product Purchases 46.5 48.8 158.3 154.9
-5-
NOTE 5/EARNINGS PER SHARE
Pro forma earnings per share presented for the first nine months of 1996 assumes
39,220,000 average shares outstanding. For the third quarter of 1997, 39,321,723
shares, which reflects the actual average common shares outstanding during the
quarter of 39,280,763 shares and the dilutive effect of stock options of 40,960
shares, 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 Earnings per Share as
defined in that Statement is not materially different from the Primary Earnings
per Share amount presented.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Comparison of Third Quarter 1997 to Third Quarter 1996
- ------------------------------------------------------------------------------
The Company reported consolidated net income of $11.4 million, or $.29 per
common share, in the third quarter of 1997 as compared with $11.4 million, or
$.29 per common share in the year-ago quarter. Quarter-to-quarter earnings were
negatively impacted by lower selling prices which pressured gross margins, and
from a 36% increase in interest expense and a lack of interest income resulting
from the recapitalization and spending for acquisitions. Offsetting these
factors were increased tonnage volumes and reduced expenses per ton, leaving
quarter-to-quarter earnings unchanged.
Consolidated net sales of $715.8 million were 21% higher than the year-
earlier period. Volume increased 25% to 781,100 tons from 627,000 tons, as a
result of market share gains in part due to acquisitions in 1997, as well as
increased service center industry shipment levels. Average selling price
declined 3% to $916 per ton from $945 per ton a year ago.
Gross profit per ton decreased to $196 from $215 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
$158 per ton from $173 per ton in the third quarter of 1996.
Operating profit of $30.0 million was 14% higher than the $26.3 million
recorded in the year-ago quarter.
Comparison of First Nine Months of 1997 to First Nine Months of 1996
- --------------------------------------------------------------------
For the first nine months of 1997, the Company reported net income of $47.0
million, or $1.20 per common share, compared to $52.7 million or $1.34 per
common share on a pro forma basis, for the same period a year ago.
Net sales of $2.11 billion were up 15% from the year-ago level due to
market share gains in part due to acquisitions, as well as increased service
center industry shipment levels.
Operating profit increased 12% to $107.2 million in the first nine months
of 1997 from $95.6 million in the same period a year ago. The increase is mainly
attributable to the gains on the sale of the Boston and Jersey City facilities.
-7-
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. During the third quarter of 1997,
the Company extended its $250 million credit facility to September 5, 2002,
while reducing both the commitment fee and interest rate related to the
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 September 30, 1997, up to $69
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 September 30, 1997, the Company had outstanding borrowing under the
Industries line of credit of $151.7 million. The short-term borrowings were used
entirely for the acquisition of Thypin Steel and Cardinal Metals during the
first quarter and Omni Metals during the third quarter of 1997, including the
repayment of debt assumed in the Thypin and Omni acquisitions. On a combined
basis, the Company had committed and uncommitted lines of credit of $348.3
million unused as of September 30, 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 restricts the amount of additional debt, including
additional borrowings under the credit lines that the Company can incur, to $209
million as of September 30, 1997.
-8-
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. (Filed 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.)
10.1* Ryerson Tull, Inc. Supplemental Retirement Plan for Covered Employees,
as amended September 24, 1997.
10.2* Ryerson Tull, Inc. Annual Performance Improvement Incentive Plan, as
approved July 23, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of 1997.
- -----------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Company's Quarterly Report on Form 10-Q.
- 9 -
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 Lily L. May
-----------------------------
Lily L. May
Controller and
Principal Accounting Officer
Date: November 12, 1997
-10-
Part I -- Schedule A
RYERSON TULL, INC.
AND SUBSIDIARY COMPANIES
(A majority-owned company of Inland Steel Industries, Inc.)
SUMMARY OF STOCKHOLDERS' EQUITY
================================================================================
Dollars in Millions
------------------------------------
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
STOCKHOLDERS' EQUITY
- --------------------
Series A common stock ($1 par value) -
5,280,763 shares and 5,277,127 shares issued
as of September 30, 1997 and
December 31, 1996, respectively $ 5.3 $ 5.3
Series B common stock ($1 par value) -
34,000,000 shares issued and outstanding
as of September 30, 1997 and December 31, 1996 34.0 34.0
Capital in excess of par value (1) (2) 304.6 304.5
Retained earnings
Balance beginning of year $22.4 $173.9
Net income 47.0 63.3
Retained earnings impact of Pension Plan split - (16.5)
Dividends on common stock (2) - 69.4 (198.3) 22.4
----- -------
Cumulative translation adjustment (1.3) (1.3)
Restricted stock awards (0.3) (0.5)
Treasury stock, at cost -
2,673 shares as of September 30, 1997 (0.1) -
------ ------
Total Stockholders' Equity $411.6 $364.4
====== ======
(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.
-11-
INDEX TO EXHIBITS
-----------------
Sequential
Number Description Page No.
- ------ ----------- ----------
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. (Filed 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.)
10.1* Ryerson Tull, Inc. Supplemental Retirement Plan for Covered Employees,
as amended September 24, 1997..............................................
10.2* Ryerson Tull, Inc. Annual Performance Improvement Incentive Plan, as
approved July 23, 1997.....................................................
27 Financial Data Schedule....................................................
- ---------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to the Company's Quarterly Report on Form 10-Q.
- 12 -