UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly 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
------------------------- --------------------
NEW CF&I, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-20781 93-1086900
- -------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification Number)
1000 Broadway Building, Suite 2200, Portland, Oregon 97205
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 223-9228
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
CF&I STEEL, L.P.
(Exact name of registrant as specified in its charter)
Delaware 02-20779 93-1103440
- -------------------------------------------------------------------------------
(State or other
jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification Number)
1000 Broadway Building, Suite 2200, Portland, Oregon 97205
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 223-9228
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
----- -----
<PAGE>
NEW CF&I, INC.
CF&I STEEL, L.P.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - New CF&I, Inc.
--------------
Consolidated Balance Sheets
September 30, 1997 (unaudited)
and December 31, 1996 .................................2
Consolidated Statements of Income (unaudited)
Three months and nine months ended
September 30, 1997 and 1996 ...........................3
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1997
and 1996 ..............................................4
Notes to Consolidated Financial
Statements (unaudited)...............................5-6
Financial Statements - CF&I Steel, L.P.
----------------
Balance Sheets
September 30, 1997 (unaudited)
and December 31, 1996 .................................7
Statements of Operations (unaudited)
Three months and nine months ended
September 30, 1997 and 1996 ...........................8
Statements of Cash Flows (unaudited)
Nine months ended September 30, 1997
and 1996 ............................................. 9
Notes to Financial
Statements (unaudited).............................10-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............12-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................15
SIGNATURES........................................................15
-1-
<PAGE>
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30,
1997 December 31,
(Unaudited) 1996
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3 $ 3
Trade accounts receivable, net 46,455 49,380
Inventories 47,121 50,577
Deferred tax asset 4,290 5,014
Other 3,081 2,045
--------- ---------
Total current assets 100,950 107,019
--------- ---------
Property, plant and equipment:
Land and improvements 3,612 3,530
Buildings 15,710 6,043
Machinery and equipment 229,115 236,566
Construction in progress 5,191 4,011
--------- ---------
253,628 250,150
Accumulated depreciation (31,466) (22,996
--------- ---------
222,162 227,154
--------- ---------
Excess of cost over net assets acquired 36,197 36,962
Other assets 13,263 16,927
--------- ---------
$ 372,572 $ 388,062
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 7,373 $ 6,574
Accounts payable 43,291 33,892
Accrued expenses 22,279 17,343
--------- ---------
Total current liabilities 72,943 57,809
Long-term debt 38,187 44,716
Long-term debt - Oregon Steel Mills, Inc 171,550 205,700
Environmental liability 32,941 33,243
Deferred employee benefits 6,574 6,069
Deferred income taxes 2,003 -
--------- ---------
324,198 347,537
--------- ---------
Minority interests 390 (10)
--------- ---------
Redeemable common stock 21,840 21,840
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 1 1
Additional paid-in capital 16,603 16,603
Retained earnings 9,540 2,091
--------- ---------
26,144 18,695
--------- ---------
$ 372,572 $ 388,062
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 118,099 $ 95,268 $ 348,867 $ 300,169
Costs and expenses:
Cost of sales 97,297 87,948 300,412 272,924
Selling, general and administrative
expenses 5,430 4,027 15,791 13,547
Profit participation 987 -- 1,330 275
--------- --------- --------- ---------
Operating income 14,385 3,293 31,334 13,423
Other income (expense):
Interest and dividend income 19 8 44 26
Interest expense (6,080) (6,386) (19,560) (15,579)
Minority interest (283) 204 (399) 260
Other, net 1,309 50 1,516 620
--------- --------- --------- ---------
Income (loss) before income taxes 9,350 (2,831) 12,935 (1,250)
Income tax benefit (expense) (3,738) 1,096 (5,486) 445
--------- --------- --------- ---------
Net income (loss) $ 5,612 $ (1,735) $ 7,449 $ (805)
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
</TABLE>
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,449 $ (805)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 10,212 9,721
Deferred income taxes 6,452 9,043
Minority interest 399 (268)
Other, net (3,209) (620)
Changes in current assets and liabilities, net 20,578 (5,396)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 41,881 11,675
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (8,398) (32,197)
Proceeds from disposal of property, plant and equipment 6,561 --
Other, net (164) (272)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (2,001) (32,469)
--------- ---------
Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 141,039 161,150
Payments to Oregon Steel Mills, Inc. (175,189) (136,400)
Payment of long-term debt (5,730) (3,953)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (39,880) 20,797
--------- ---------
Net increase in cash and cash equivalents -- 3
Cash and cash equivalents at beginning of period 3 --
--------- ---------
Cash and cash equivalents at end of period $ 3 $ 3
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 21,435 $ 16,949
Income taxes paid to parent company -- 338
NON-CASH INVESTING AND FINANCING ACTIVITIES:
At September 30, 1997 and 1996, the Company financed property, plant and
equipment with accounts payable of $615,000 and $1.8 million, respectively.
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
</TABLE>
<PAGE>
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of New CF&I,
Inc. and its subsidiaries ("Company"). All significant intercompany
balances and transactions have been eliminated.
The unaudited financial statements include all adjustments (consisting of
normal recurring accruals) which, in the opinion of management, are
necessary for a fair presentation of the interim periods. Results for an
interim period are not necessarily indicative of results for a full year.
Reference should be made to the Company's 1996 Form 10-K for additional
disclosures including a summary of significant accounting policies.
2. Inventories
-----------
Inventories consist of:
September 30, December 31,
1997 1996
------------ ------------
(In thousands)
Raw materials $17,783 $16,246
Semifinished product 14,991 16,488
Finished product 5,107 8,245
Stores and operating supplies 9,240 9,598
------- -------
$47,121 $50,577
======= =======
3. Contingencies
-------------
ENVIRONMENTAL. The Company owns a 95.2 percent interest in CF&I Steel,
L.P. ("CF&I") which owns the Pueblo, Colorado steel mill. In connection
with CF&I's acquisition of certain assets from CF&I Steel Corporation in
1993, CF&I established a reserve of $36.7 million for environmental
remediation. The Colorado Department of Public Health and Environment
issued a 10-year post-closure permit with two ten-year renewals to CF&I
which became effective on October 30, 1995. The permit contains a schedule
for corrective actions to be completed which is substantially reflective
of a straight-line rate of expenditure over 30 years. At September 30,
1997, CF&I has a reserve of $35.0 million related to this remediation, of
which $32.9 million is classified as non-current in the consolidated
balance sheet.
GUARANTEES. Oregon Steel Mills, Inc. ("Oregon Steel") has outstanding
$235 million principal amount of 11% First Mortgage Notes ("Notes") due
2003. The Company guaranteed the obligations of Oregon Steel under the
Notes, and those guarantees are secured by a lien on substantially all
of the property, plant and equipment and certain other assets of the
Company, excluding accounts receivable and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
group of banks which is collateralized, in part, by the accounts
receivable and inventory of the Company, and also guaranteed by the
Company.
-5-
<PAGE>
4. Proceeds from Insurance Settlement
----------------------------------
Sales for the first nine months of 1997 include approximately $2.5 million
of insurance proceeds as reimbursement of lost profits resulting from lost
production during the third and fourth quarters of 1996 related to the
failure of one of the power transformers servicing the Company. In total,
the Company received $7 million in insurance proceeds from this claim of
which $4.5 million was recorded in the fourth quarter of 1996.
5. Subsequent Event
----------------
The labor contract between the United Steelworkers of America ("USWA")
and the Company expired on September 30, 1997. On October 3, 1997, the
USWA called a strike at the Company's steel mill in Pueblo, Colorado.
The Company is in the process of hiring replacement workers and has
partially resumed operations at the mill. Due to the strike in progress,
the Company expects the results of operations to be negatively impacted
during the fourth quarter of 1997. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
-6-
<PAGE>
CF&I STEEL, L.P.
BALANCE SHEETS
(In thousands)
September 30,
1997 December 31,
(Unaudited) 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net 45,790 48,918
Inventories 46,973 50,414
Other 2,888 1,610
--------- ---------
Total current assets 95,651 100,942
--------- ---------
Property, plant and equipment:
Land and improvements 3,607 3,525
Buildings 15,604 5,936
Machinery and equipment 226,951 234,441
Construction in progress 4,876 4,011
--------- ---------
251,038 247,913
Accumulated depreciation (30,531) (22,225)
--------- ---------
220,507 225,688
--------- ---------
Excess of cost over net assets acquired 36,197 36,963
Other assets 13,264 13,202
--------- ---------
$ 365,619 $ 376,795
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 7,373 $ 6,574
Accounts payable 45,271 37,193
Accrued expenses 21,516 16,647
--------- ---------
Total current liabilities 74,160 60,414
Long-term debt 38,187 44,716
Long-term debt - Oregon Steel Mills, Inc. 171,550 205,700
Long-term debt - New CF&I, Inc. 21,756 17,400
Environmental liability 32,942 33,243
Deferred employee benefits 6,574 6,069
--------- ---------
345,169 367,542
--------- ---------
PARTNERS' EQUITY
Limited partner 390 (10)
General partner 20,060 9,263
--------- ---------
20,450 9,253
--------- ---------
$ 365,619 $ 376,795
========= =========
The accompanying notes are an integral part of the
financial statements.
-7-
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Sales $ 116,690 $ 94,009 $ 344,192 $ 296,529
Costs and expenses:
Cost of sales 96,303 87,013 296,686 270,264
Selling, general and administrative
expenses 5,292 3,896 15,387 13,148
Profit participation 987 -- 1,330 275
--------- --------- --------- ---------
Operating income 14,108 3,100 30,789 $ 12,842
Other income (expense):
Interest and dividend income 19 7 44 26
Interest expense (6,573) (6,781) (21,153) (16,742)
Other, net 1,309 50 1,517 620
--------- --------- --------- ---------
Net income (loss) $ 8,863 $ (3,624) $ 11,197 $ (3,254)
========= ========= ========= =========
The accompanying notes are an integral part of the
financial statements.
-8-
</TABLE>
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
--------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 11,197 $ (3,254)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,047 9,558
Other, net (3,007) (620)
Changes in current assets and liabilities, net 18,934 5,361
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 37,171 11,045
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (8,044) (32,171)
Proceeds from disposal of property, plant and equipment 6,561 654
Other, net (164) (926)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,647) (32,443)
--------- ---------
Cash flows from financing activities:
Borrowings from related parties 145,395 161,750
Payments to related parties (175,189) (136,400)
Payment of long-term debt (5,730) (3,952)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (35,524) 21,398
--------- ---------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents at beginning of year -- --
--------- ---------
Cash and cash equivalents at end of year $ -- $ --
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 21,435 $ 16,949
NON-CASH INVESTING AND FINANCING ACTIVITIES:
At September 30, 1997 and 1996, the Company financed property, plant and
equipment with accounts payable of $615,000 and $1.8 million, respectively.
The accompanying notes are an integral part of the
financial statements.
-9-
</TABLE>
<PAGE>
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The financial statements include the accounts of CF&I Steel, L.P.
("Partnership"). The unaudited financial statements include all
adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the
interim periods. Results for an interim period are not necessarily
indicative of results for a full year. Reference should be made to the
Partnership's 1996 Form 10-K for additional disclosures including a
summary of significant accounting policies.
2. Inventories
-----------
Inventories consist of:
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
Raw materials $17,783 $16,246
Semifinished product 14,991 16,488
Finished product 5,107 8,245
Stores and operating supplies 9,092 9,435
------- -------
$46,973 $50,414
======= =======
3. Contingencies
-------------
ENVIRONMENTAL. The Partnership acquired certain assets from CF&I Steel
Corporation in 1993 and established a reserve of $36.7 million for
environmental remediation. The Colorado Department of Public Health and
Environment issued a 10-year post-closure permit with two ten-year
renewals to the Partnership which became effective on October 30, 1995.
The permit contains a schedule for corrective actions to be completed
which is substantially reflective of a straight-line rate of expenditure
over 30 years. At September 30, 1997, the Partnership has a reserve of
$35.0 million related to this remediation, of which $32.9 million is
classified as non-current in the balance sheet.
GUARANTEES. Oregon Steel Mills, Inc. ("Oregon Steel") has outstanding
$235 million principal amount of 11% First Mortgage Notes ("Notes") due
2003. The Partnership has guaranteed the obligations of Oregon Steel
under the Notes, and those guarantees are secured by a lien on
substantially all of the property, plant and equipment and certain other
assets of the Partnership, excluding accounts receivable and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
group of banks which is collateralized, in part, by the accounts
receivable and inventory of the Partnership, and also guaranteed by the
Partnership.
4. Proceeds from Insurance Settlement
----------------------------------
Sales for the first nine month of 1997 include approximately $2.5 million
of insurance proceeds as reimbursement of lost profits resulting from lost
production during the third and fourth quarters of 1996 related to the
failure of one of the power transformers servicing the Partnership. In
total, the Partnership received $7 million in insurance proceeds from this
claim of which $4.5 million was recorded in the fourth quarter of 1996.
-10-
<PAGE>
5. Subsequent Event
----------------
The labor contract between the USWA and the Partnership expired on
September 30, 1997. On October 3, 1997, the USWA called a strike at the
Partnership's steel mill in Pueblo, Colorado. The Partnership is in the
process of hiring replacement workers and has partially resumed operations
at the mill. Due to the strike in progress, the Partnership expects the
results of operations to be negatively impacted during the fourth quarter
of 1997. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.
-11-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The following information contains forward-looking statements which are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties and actual results could differ materially from those projected.
Such risks and uncertainties include, but are not limited to, competitive
products and pricing, as well as fluctuations in demand; potential equipment
malfunction, plant construction and start-up difficulties, repair delays, work
stoppages, and general business and economic conditions.
The New CF&I, Inc. ("Company") consolidated financial statements include
the accounts of CF&I Steel, L.P. ("Partnership"), a 95.2 percent owned
subsidiary and the Colorado & Wyoming Railway Company, a wholly-owned short-line
railroad, serving principally the Pueblo mill. For the three months ended
September 30, 1997 and 1996 and the nine months ended September 30, 1997 and
1996, sales of the Partnership were 98.8 percent, 98.7 percent, 98.7 percent and
98.8 percent, respectively, of the consolidated sales of the Company. For the
three months ended September 30, 1997 and 1996 and the nine months ended
September 30, 1997 and 1996, cost of sales of the Partnership were 99.0 percent,
98.9 percent, 98.8 percent, and 99.0 percent, respectively, of the consolidated
cost of sales of the Company.
Results of Operations
- ---------------------
The following table sets forth for the Company tonnage sold, sales and average
selling price per ton:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
-------- --------- ---------- ---------
Tonnage sold:
Rail 100,900 43,400 299,900 200,200
Rod/Bar/Wire 119,200 107,700 355,200 324,600
Seamless Pipe 39,100 39,100 107,000 113,600
Semifinished 1,900 31,900 21,600 53,000
------- ------- ------- -------
Total 261,100 222,100 783,700 691,400
======= ======= ======= =======
Sales (in thousands): $118,099 $ 95,268 $348,867 (F1) $300,169
Average selling price
per ton: $ 452 $ 429 $ 442 (F2) $ 434
(F1) Includes insurance proceeds of approximately $2.5 million as reimbursement
of lost profits resulting from lost production during the third and fourth
quarters of 1996 related to the failure of one of the power transformers
servicing the Company.
(F2) Excludes insurance proceeds referred to in Note (1) above.
- ------------
The Company's sales increased 24.0 percent to $118.1 million in the third
quarter of 1997 and increased 16.2 percent to $348.9 million for the first nine
months of 1997, compared to the corresponding 1996 periods. Shipments increased
17.6 percent to 261,100 tons in the third quarter of 1997 and increased 13.3
percent to 783,700 tons in the first nine months of 1997, compared to the
corresponding 1996 periods. The increase in sales and shipments was primarily
due to increased shipments of rail and rod and bar products. Rail shipments were
100,900 and 299,900 tons during the
-12-
<PAGE>
three and nine month periods ended September 30, 1997, compared to 43,400 and
200,200 tons in the corresponding 1996 periods. Rod and bar shipments were
119,200 and 331,400 tons for the three and nine month periods ended
September 30, 1997, compared to 92,200 and 278,500 tons for the corresponding
1996 periods.
The Company's average selling prices increased $23 to $452 per ton for the
third quarter of 1997 and increased $8 to $442 per ton for the first nine months
of 1997, compared to the corresponding 1996 periods. Selling prices increased in
the three and nine month periods ended September 30, 1997 due to increased rail
shipments, decreased semifinished product shipments, and higher seamless pipe,
and rod and bar product prices. These increases were partially offset by
increased shipments of the lower priced rod and bar products in the first nine
months of 1997. Of the $22.8 million sales increase in the third quarter of
1997, $15.8 million was the result of volume increases and $7.0 million resulted
from higher average selling prices. Of the $48.7 million sales increase for the
first nine months of 1997, $39.1 million was the result of volume increases,
$7.1 million was the result of higher average selling prices, and $2.5 million
from the proceeds of an insurance settlement. (See Note 4 to the consolidated
financial statements.)
The Company's gross profit for the three and nine month periods ended
September 30, 1997 was 17.6 and 13.3 percent (excluding insurance proceeds),
respectively, compared to 7.7 and 9.1 percent for the corresponding 1996
periods. The gross profit improvement in 1997 compared to 1996 was due to
increased rail shipments and higher seamless pipe, and rod and bar product
prices. Gross profit was also positively impacted by reduced costs due to
increased steel production and improved operating efficiencies. In addition,
1996 gross profit was negatively impacted by approximately $1.6 million due to
higher costs and reduced shipments as a result of the June 1996 outage of a
ladle refining furnace.
The labor contract between the United Steelworkers of America ("USWA") and
the Company expired on September 30, 1997. On October 3, 1997, the USWA called
a strike at the Company's steel mill.The Company is in the process of hiring
replacement workers and has partially resumed operations at the mill. Due to
the strike in progress, the Company expects results to be negatively impacted
by reduced operations which are currently anticipated to result in operating
losses during the fourth quarter of 1997.
The Company's selling, general and administrative expenses for the three and
nine month periods ended September 30, 1997 increased $1.4 million and $2.2
million, respectively, from the corresponding 1996 periods, and changed as a
percentage of sales to 4.6 and 4.5 percent for the three and nine month periods
ended September 30, 1997, respectively, from 4.2 and 4.5 percent for the
corresponding 1996 periods. The dollar amount increases were primarily due to
increased shipping expenses resulting from increased tons shipped in 1997.
The Company's profit participation expense was $987,000 and $1.3 million for
the three and nine month periods ended September 30, 1997, compared to none and
$275,000 for the corresponding 1996 periods. The increase was due to increased
profitability of the Company in 1997.
The Company's total interest cost for the three and nine month periods ended
September 30, 1997 was $6.2 million and $19.8 million, respectively, compared to
$7.1 million and $17.7 million for the corresponding periods in 1996. Total
interest cost for the first nine months of 1997 increased compared to the
corresponding 1996 period due to higher interest rates. Capitalized interest
for the three and nine month periods ended September 30, 1997 was $112,000 and
$250,000, respectively, compared to $691,000 and $2.1 million for the
corresponding 1996 periods.
The Company's effective tax rate was 40 percent and 42 percent for the three
and nine month periods ended September 30, 1997, respectively, compared to 39
percent and 36 percent for the corresponding 1996 periods. The effective tax
rates in 1996 varied from the combined state and federal statutory rates due to
the deductibility of certain miscellaneous business expenses.
-13-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash flow from operations for the nine months ended
September 30, 1997 was $41.9 million compared to $11.7 million in the
corresponding 1996 period. The major items affecting this $30.2 million
increase were increased net income ($8.3 million), increased depreciation and
amortization ($490,000), a decrease in deferred income taxes ($7.0 million), a
decrease in accounts receivable versus an increase in 1996 ($9.7 million), and
an increase in accounts payable versus a decrease in 1996 ($9.6 million). These
cash increases were partially offset by decreased accrued expenses and deferred
employee benefits ($4.7 million).
Since its acquisition by Oregon Steel Mills, Inc. ("Oregon Steel") in March
1993, the Partnership has required substantial amounts of cash to fund its
operations and capital expenditures. Borrowing requirements for capital
expenditures and other cash needs, both short-term and long-term, are provided
through a loan from Oregon Steel. As of September 30, 1997, $171.6 million of
aggregate principal amount of the loan was outstanding, all of which was
classified as long-term. The principal is due on demand or, if no demand is
made, December 31, 2002. Interest on the principal amount of the loan is payable
monthly. Because the loan from Oregon Steel is due on demand, the applicable
interest rate is effectively subject to renegotiation at any time, and there is
no assurance the interest rate will not be materially increased in the future.
In addition, Oregon Steel is not required to provide financing to the
Partnership and, although demand for repayment is not expected in 1997, it may
in any event demand repayment of the loan at any time. If Oregon Steel were to
demand repayment of the loan, it is unlikely that the Partnership would be able
to obtain from external sources financing necessary to repay the loan or to fund
its capital expenditures and other cash needs. Failure to obtain alternative
financing would have a material adverse effect on the Company and the
Partnership. If the Partnership were able to obtain the necessary financing, it
is likely that such financing would be at interest rates and on terms
substantially less favorable to the Partnership than those provided by Oregon
Steel.
Term debt of $67.5 million was incurred by the Partnership as part of the
purchase price of the Pueblo Mill on March 3, 1993. This debt is
uncollateralized and is payable over 10 years with interest at 9.5 percent. As
of September 30, 1997, the outstanding balance on the debt was $45.6 million, of
which $38.2 million was classified as long-term debt.
Oregon Steel has outstanding $235 million principal amount of 11% First
Mortgage Notes ("Notes") due 2003. The Company and the Partnership have
guaranteed the obligations of Oregon Steel under the Notes, and those guarantees
are secured by a lien on substantially all of the property, plant and equipment
and certain other assets of the Company and the Partnership, excluding accounts
receivable and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
group of banks which is collateralized, in part, by the accounts receivable and
inventory of the Company and the Partnership, and also guaranteed by the Company
and the Partnership.
The Company expects that anticipated needs for working capital will be met
from funds generated from operations and available borrowings from Oregon Steel.
CAPITAL EXPENDITURES. During the first nine months of 1997, the Company
expended approximately $8.1 million, excluding capitalized interest, on
capital projects.
-14-
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.1 Financial Data Schedule - New CF&I, Inc.
27.2 Financial Data Schedule - CF&I Steel, L.P.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW CF&I, INC.
Date: November 12, 1997 /s/ Christopher D. Cassard
------------------------------
Christopher D. Cassard
Corporate Controller
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
Date: November 12, 1997 /s/ Christopher D. Cassard
-------------------------------
Christopher D. Cassard
Corporate Controller
New CF&I, Inc.
-15-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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