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 March 31, 2000
------------------------------------------------
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
March 31, 2000 (unaudited) and December 31, 1999 .....2
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2000 and 1999 ...........3
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2000 and 1999 ...........4
Notes to Consolidated Financial Statements
(unaudited).........................................5-7
FINANCIAL STATEMENTS - CF&I STEEL, L.P.
----------------
Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999 .....8
Statements of Operations (unaudited)
Three months ended March 31, 2000 and 1999 ...........9
Statements of Cash Flows (unaudited)
Three months ended March 31, 2000 and 1999...........10
Notes to Financial Statements (unaudited)............11-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............14-15
Item 3. Quantitative and Qualitative Disclosures about
Market Risk..........................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................16
Item 6. Exhibits and Reports on Form 8-K........................16
<PAGE>
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5 $ 5
Trade accounts receivable, net 25,092 27,214
Inventories 38,288 38,191
Deferred tax asset 4,010 4,013
Other 923 938
-------- --------
Total current assets 68,318 70,361
-------- --------
Property, plant and equipment:
Land and improvements 3,574 3,574
Buildings 18,525 18,525
Machinery and equipment 243,464 242,634
Construction in progress 1,224 1,416
-------- --------
266,787 266,149
Accumulated depreciation (65,370) (61,845)
-------- --------
201,417 204,304
-------- --------
Costs in excess of net assets acquired, net 33,648 33,903
Other assets 29,735 28,013
-------- --------
$333,118 $336,581
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 8,234 $ 7,861
Accounts payable 27,646 32,680
Accrued expenses 17,895 17,871
-------- --------
Total current liabilities 53,775 58,412
Long-term debt 18,949 23,162
Long-term debt - Oregon Steel Mills, Inc. 208,845 201,090
Environmental liability 30,850 30,850
Deferred employee benefits 7,164 7,099
-------- --------
319,583 320,613
-------- --------
Redeemable common stock 21,840 21,840
-------- --------
Contingencies (Note 3)
STOCKHOLDERS' DEFICIT
Common stock 1 1
Additional paid-in capital 16,603 16,603
Accumulated deficit (24,909) (22,476)
-------- --------
(8,305) (5,872)
-------- --------
$333,118 $336,581
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
<PAGE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
----------- ---------
Sales $ 65,696 $ 71,722
-------- --------
Costs and expenses:
Cost of sales 59,084 63,483
Selling, general and administrative
expenses 4,203 5,173
-------- --------
63,287 68,656
-------- --------
Operating income 2,409 3,066
Other income (expense):
Interest and dividend income 31 27
Interest expense, net (6,719) (6,352)
Minority interests 250 177
Other, net 37 93
-------- --------
Loss before income taxes (3,992) (2,989)
Provision for income tax benefit 1,559 953
-------- --------
Net loss $ (2,433) $ (2,036)
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,433) $ (2,036)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 3,820 3,796
Deferred income taxes (1,761) (969)
Minority interests (250) (177)
Other, net 13 43
Changes in operating assets and liabilities, net (2,655) (8,612)
-------- --------
NET CASH USED BY OPERATING ACTIVITIES (3,266) (7,955)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (651) (1,040)
Other, net 2 (5)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (649) (1,045)
-------- --------
Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 77,831 45,300
Payments to Oregon Steel Mills, Inc. (71,076) (32,800)
Payment of long-term debt (3,840) (3,499)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,915 9,001
-------- --------
Net increase in cash and cash equivalents -- 1
Cash and cash equivalents at beginning of period 5 3
-------- --------
Cash and cash equivalents at end of period $ 5 $ 4
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 7,372 $ 7,209
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<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"). Oregon Steel Mills, Inc.
("Oregon Steel") holds an 87 percent ownership interest in the 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 1999 Annual
Report on Form 10-K for additional disclosures including a summary of
significant accounting policies.
2. INVENTORIES
-----------
Inventories consist of:
March 31, December 31,
2000 1999
--------- ------------
(In thousands)
Raw materials $ 8,584 $10,504
Semifinished product 5,848 6,439
Finished product 16,329 13,348
Stores and operating supplies 7,527 7,900
------- -------
Total inventory $38,288 $38,191
======= =======
3. CONTINGENCIES
-------------
ENVIRONMENTAL
All material environmental remediation liabilities, which are probable and
estimable, are recorded in the financial statements based on current
technologies and current environmental standards at the time of
evaluation. Adjustments are made when additional information is available
that suggests different remediation methods or periods may be required and
affect the total cost. The best estimate of the probable cost within a
range is recorded; however, if there is no best estimate, the low end of
the range is recorded and the range is disclosed.
The Company owns a 95.2 percent interest in CF&I Steel, L.P. ("CF&I")
which owns the Pueblo, Colorado steel mill ("Pueblo Mill"). In connection
with the 1993 acquisition of CF&I, the Company accrued a liability of
$36.7 million for environmental remediation at the Pueblo Mill. The
Company believed this amount was the best estimate from a range of $23.1
to $43.6 million. The Company's estimate of this liability was based on
two separate remediation investigations conducted by independent
environmental engineering consultants. The liability includes costs for
the Resource Conservation and Recovery Act facility investigation, a
corrective measures study, remedial action, and operation and maintenance
associated with the proposed remedial actions. In October 1995, CF&I and
the Colorado Department of Public Health and Environment ("CDPHE")
finalized a postclosure permit for hazardous waste units at the Pueblo
Mill. As part of the postclosure permit requirements, CF&I must conduct a
corrective action program for the 82 solid waste management units at the
facility and continue to address projects on a prioritized corrective
action schedule which is substantially reflective of a straight-line rate
of expenditure over 30 years. The State of Colorado mandated that the
schedule for corrective action could be accelerated if new data indicated
a greater threat to the environment than was presently believed to exist.
At March 31, 2000, the accrued liability was $33.3 million, of which $30.9
million was classified as non-current in the consolidated balance sheet.
-5-
<PAGE>
The CDPHE has inspected the Pueblo Mill for possible environmental
violations, and in the fourth quarter of 1999, issued a Compliance
Advisory indicating that air quality regulations had been violated. The
CDPHE has now filed a judicial enforcement action, which could result in
the levying of significant fines and penalties, requirements to alter
its operating procedures, requirements to accelerate or expand the capital
expenditure program or a combination of any of the above. It is not
presently possible to estimate the ultimate liability as a result of the
action.
On April 27, 2000, the United Steel Workers of America ("Union") filed
suit in U.S. District Court in Denver asserting that CF&I had violated the
Clean Air Act Amendments ("CAA") of 1990 at the Pueblo Mill for a period
extending over five years. The suit seeks to compel CF&I to incur
significant capital improvements or alter its operating procedures so that
the Pueblo Mill would be in compliance with more stringent environmental
standards than CF&I currently is operating under. The Company does not
believe as a matter of law that CF&I has an obligation to meet these
standards. It is not presently possible to estimate the ultimate liability
in the event of an adverse finding.
LABOR DISPUTE
The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on
October 3, 1997 the Union initiated a strike at CF&I for approximately
1,000 bargaining unit employees. The parties failed to reach final
agreement on a new labor contract due to differences on economic issues.
As a result of contingency planning, the Company was able to avoid
complete suspension of operations at the Pueblo Mill by utilizing a
combination of permanent replacement workers, striking employees who
returned to work and salaried employees.
On December 30, 1997 the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a
few vacancies existed at the Pueblo Mill. As of March 31, 2000, 161 former
striking employees had returned to work as a result of their unconditional
offer. Approximately 640 former striking workers remain unreinstated
("Unreinstated Employees").
On February 27, 1998 the Regional Director of the National Labor Relations
Board ("NLRB") Denver office issued a complaint against CF&I, alleging
violations of several provisions of the National Labor Relations Act
("NLRA"). The Company not only denies the allegations, but rather believes
that both the facts and the law fully support its contention that the
strike was economic in nature and that it was not obligated to displace
the properly hired permanent replacement employees. On August 17, 1998, a
hearing on these allegations commenced before an Administrative Law Judge
("Judge"). Testimony and other evidence were presented at various sessions
in the latter part of 1998 and early 1999, concluding on February 25,
1999. The Judge will render a decision that is automatically subject to
appeal by either party to the NLRB in Washington, D.C. The ultimate
determination of the issues may require a ruling from the appropriate
United States appellate court.
Among the issues pending in the litigation is CF&I's motion asserting that
the Judge should consider the Union's alleged NLRA violations and that the
alleged misconduct should invalidate the Unreinstated Employees' right to
reinstatement. In the event there is an adverse determination of these
issues, Unreinstated Employees could be entitled to back pay, including
benefits, from the date of the Union's unconditional offer to return to
work through the date of the adverse determination. The number of
Unreinstated Employees entitled to back pay would probably be limited to
the number of past and present replacement workers; however, the Union
might assert that all Unreinstated Employees should be entitled to back
pay. Back pay is generally determined by the quarterly earnings of those
working less interim wages earned elsewhere by the Unreinstated Employees.
In addition to other considerations, each Unreinstated Employee has a duty
to take reasonable steps to mitigate the liability for back pay by seeking
employment elsewhere that has comparable demands and compensation. It is
not presently possible to estimate the ultimate liability in the event of
an adverse determination.
During the strike by the Union at CF&I, 39 bargaining unit employees of
the Colorado & Wyoming Railway Company ("C&W"), a wholly-owned subsidiary
of New CF&I, Inc. that provides rail service to the Pueblo Mill, refused
to report to work for an extended period of time. The bargaining unit
employees of C&W were not on strike. C&W considered these employees to
have quit their employment and, accordingly, C&W declined to allow those
individuals to return to work. The unions representing these individuals
have filed lawsuits in the U.S. District Court of Colorado against C&W
claiming their members had refused to cross the picket line
-6-
<PAGE>
because they were honoring the picket line of another organization or
because of safety concerns stemming from those picket lines. The unions
demand reinstatement of the former employees, back pay, benefits and other
damages. The Company believes it has substantial defenses against these
claims. However, it is possible that one or more of them will proceed to
arbitration before the National Railroad Adjustment Board or otherwise
initiate further judicial proceedings. The outcome of such proceedings is
inherently uncertain and it is not possible to estimate any potential
settlement amount that would result from an adverse legal or arbitration
decision.
GUARANTEES
Oregon Steel has $228.3 million principal amount of 11% First Mortgage
Notes ("Notes"), due 2003, payable to outside parties. The Company and
CF&I (collectively, "Guarantors") 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 Guarantors, excluding accounts receivable and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
syndicate of lenders that is collateralized, in part, by the Guarantors'
accounts receivable and inventory, and is guaranteed by the Guarantors.
-7-
<PAGE>
CF&I STEEL, L.P.
BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2 $ 2
Trade accounts receivable, net 23,655 26,167
Inventories 38,055 37,950
Other 531 747
-------- --------
Total current assets 62,243 64,866
-------- --------
Property, plant and equipment:
Land and improvements 3,569 3,569
Buildings 18,419 18,419
Machinery and equipment 240,961 240,131
Construction in progress 1,224 1,416
-------- --------
264,173 263,535
Accumulated depreciation (63,808) (60,342)
-------- --------
200,365 203,193
-------- --------
Costs in excess of net assets acquired, net 33,648 33,903
Other assets 12,924 12,966
-------- --------
$309,180 $314,928
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 8,234 $ 7,861
Accounts payable 36,234 40,834
Accrued expenses 18,737 18,649
-------- --------
Total current liabilities 63,205 67,344
Long-term debt 18,949 23,162
Long-term debt - Oregon Steel Mills, Inc. 208,845 201,090
Long-term debt - New CF&I, Inc. 21,756 21,756
Environmental liability 30,850 30,850
Deferred employee benefits 7,164 7,099
-------- --------
350,769 351,301
-------- --------
Contingencies (Note 3)
PARTNERS'
DEFICIT
General partner (41,589) (36,373)
-------- --------
$309,180 $314,928
======== ========
The accompanying notes are an integral part of
the financial statements.
-8-
<PAGE>
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
----------- -------------
Sales $63,892 $70,037
------- -------
Costs and expenses:
Cost of sales 57,895 61,947
Selling, general and administrative
expenses 4,055 5,040
------- -------
61,950 66,987
------- -------
Operating income 1,942 3,050
Other income (expense):
Interest expense, net (7,196) (6,773)
Other, net 38 94
------- -------
Net loss $(5,216) $(3,629)
======= =======
-9-
The accompanying notes are an integral part of the
financial statements.
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
----------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,216) $(3,629)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,761 3,733
Other, net 13 43
Changes in operating assets and liabilities, net (1,824) (8,102)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (3,266) (7,955)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (651) (1,040)
Other, net 2 (5)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (649) (1,045)
------- -------
Cash flows from financing activities:
Borrowings from related parties 78,831 45,300
Payments to related parties (71,076) (32,800)
Payment of long-term debt (3,840) (3,499)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,915 9,001
------- -------
Net increase in cash and cash equivalents -- 1
Cash and cash equivalents at beginning of year 2 --
------- -------
Cash and cash equivalents at end of year $ 2 $ 1
======= =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 7,372 $ 7,209
======= =======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
-10-
<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.
("CF&I"). Oregon Steel Mills, Inc. ("Oregon Steel") owns an 87 percent
interest in New CF&I, Inc. ("Company") which owns a 95.2 percent interest
in CF&I. Oregon Steel also owns directly an additional 4.3 percent
interest in CF&I. In January 1998, CF&I assumed the trade name of Rocky
Mountain Steel Mills.
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 CF&I's 1999 Annual Report on Form 10-K for
additional disclosures including a summary of significant accounting
policies.
2. INVENTORIES
-----------
Inventories consist of:
March 31, December 31,
2000 1999
--------- -------------
(In thousands)
Raw materials $ 8,584 $10,504
Semifinished product 5,848 6,439
Finished product 16,329 13,348
Stores and operating supplies 7,294 7,659
------- -------
Total inventory $38,055 $37,950
======= =======
3. CONTINGENCIES
-------------
ENVIRONMENTAL
All material environmental remediation liabilities, which are probable and
estimable, are recorded in the financial statements based on current
technologies and current environmental standards at the time of
evaluation. Adjustments are made when additional information is available
that suggests different remediation methods or periods may be required and
affect the total cost. The best estimate of the probable cost within a
range is recorded; however, if there is no best estimate, the low end of
the range is recorded and the range is disclosed.
The Company owns a 95.2 percent interest in CF&I which owns the Pueblo,
Colorado steel mill ("Pueblo Mill"). In connection with the 1993
acquisition of CF&I, the Company accrued a liability of $36.7 million for
environmental remediation at the Pueblo Mill. The Company believed this
amount was the best estimate from a range of $23.1 to $43.6 million. The
Company's estimate of this liability was based on two separate remediation
investigations conducted by independent environmental engineering
consultants. The liability includes costs for the Resource Conservation
and Recovery Act facility investigation, a corrective measures study,
remedial action, and operation and maintenance associated with the
proposed remedial actions. In October 1995, CF&I and the Colorado
Department of Public Health and Environment ("CDPHE") finalized a
postclosure permit for hazardous waste units at the Pueblo Mill. As part
of the postclosure permit requirements, CF&I must conduct a corrective
action program for the 82 solid waste management units at the facility and
continue to address projects on a prioritized corrective action schedule
which is substantially reflective of a straight-line rate of expenditure
over 30 years. The State of Colorado mandated that the schedule for
corrective action could be accelerated if new data indicated a greater
threat to the environment than was presently believed to
-11-
<PAGE>
exist. At March 31, 2000, the accrued liability was $33.3 million, of
which $30.9 million was classified as non-current in the consolidated
balance sheet.
The CDPHE has inspected the Pueblo Mill for possible environmental
violations, and in the fourth quarter of 1999, issued a Compliance
Advisory indicating that air quality regulations had been violated. The
CDPHE has now filed a judicial enforcement action, which could result in
the levying of significant fines and penalties, requirements to alter
its operating procedures, requirements to accelerate or expand the capital
expenditure program or a combination of any of the above. It is not
presently possible to estimate the ultimate liability as a result of the
action.
On April 27, 2000, the United Steel Workers of America ("Union") filed
suit in U.S. District Court in Denver asserting that CF&I had violated the
Clean Air Act Amendments ("CAA") of 1990 at the Pueblo Mill for a period
extending over five years. The suit seeks to compel CF&I to incur
significant capital improvements or alter its operating procedures so that
the Pueblo Mill would be in compliance with more stringent environmental
standards than CF&I currently is operating under. CF&I does not believe as
a matter of law that it has an obligation to meet these standards. It is
not presently possible to estimate the ultimate liability as a result of
such a finding in the event of an adverse finding.
LABOR DISPUTE
The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on
October 3, 1997 the Union initiated a strike for approximately 1,000
bargaining unit employees. The parties failed to reach final agreement on
a new labor contract due to differences on economic issues. As a result of
contingency planning, CF&I was able to avoid complete suspension of
operations at the Pueblo Mill by utilizing a combination of permanent
replacement workers, striking employees who returned to work and salaried
employees.
On December 30, 1997 the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a
few vacancies existed at the Pueblo Mill. As of March 31, 2000, 161 former
striking employees had returned to work as a result of their unconditional
offer. Approximately 640 former striking workers remain unreinstated
("Unreinstated Employees").
On February 27, 1998 the Regional Director of the National Labor Relations
Board ("NLRB") Denver office issued a complaint against CF&I, alleging
violations of several provisions of the National Labor Relations Act
("NLRA"). CF&I not only denies the allegations, but rather believes that
both the facts and the law fully support its contention that the strike
was economic in nature and that it was not obligated to displace the
properly hired permanent replacement employees. On August 17, 1998, a
hearing on these allegations commenced before an Administrative Law Judge
("Judge"). Testimony and other evidence were presented at various sessions
in the latter part of 1998 and early 1999, concluding on February 25,
1999. The Judge will render a decision that is automatically subject to
appeal by either party to the NLRB in Washington, D.C. The ultimate
determination of the issues may well require action by an appropriate
United States appellate court.
Among the issues pending in the litigation is CF&I's motion asserting that
the Judge should consider the Union's alleged NLRA violations and that the
alleged misconduct should invalidate the Unreinstated Employees' right to
reinstatement. In the event there is an adverse determination of the
issues, Unreinstated Employees could be entitled to back pay, including
benefits, from the date of the Union's unconditional offer to return to
work through the date of the adverse determination. The number of
Unreinstated Employees entitled to back pay would probably be limited to
the number of replacement workers; however, the Union might assert that
all Unreinstated Employees could be entitled to back pay. Back pay is
generally measured by the quarterly earnings of those working less interim
wages earned elsewhere by the Unreinstated Employees. In addition to other
considerations, each Unreinstated Employee has a duty to take reasonable
steps to mitigate the liability for back pay by seeking employment
elsewhere that has comparable demands and compensation. It is not
presently possible to estimate the ultimate liability in the event of an
adverse determination.
-12-
<PAGE>
GUARANTEES
Oregon Steel has $228.3 million principal amount of 11% First Mortgage
Notes ("Notes"), due 2003, payable to outside parties. CF&I 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 CF&I, excluding accounts receivable
and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
syndicate of lenders that is collateralized, in part, by CF&I's accounts
receivable and inventory, and is guaranteed by CF&I.
-13-
<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, general business
and economic conditions; competitive products and pricing, as well as
fluctuations in demand; the supply of imported steel and subsidies provided by
foreign governments to support steel companies domiciled in their countries;
potential equipment malfunction; work stoppages, and plant construction and
repair delays, and failure of the Company to accurately predict the impact of
lost revenues associated with interruption of the Company's, its customers' or
suppliers' operations.
The New CF&I, Inc. ("Company") consolidated financial statements include
the accounts of CF&I Steel, L.P. ("CF&I"), a 95.2 percent owned subsidiary and
the Colorado & Wyoming Railway Company, a wholly-owned short-line railroad,
serving principally the Pueblo, Colorado steel mill ("Pueblo Mill"). For the
three months ended March 31, 2000 and 1999, sales of CF&I were 97.3 percent and
97.7 percent, respectively, of the consolidated sales of the Company. For the
three months ended March 31, 2000 and 1999, cost of sales of CF&I were 98.0
percent and 97.6 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 March 31,
----------------------------
2000 1999
--------- --------
Tonnage sold:
Rail 75,000 95,000
Rod and Bar 94,600 93,100
Seamless Pipe - 8,500
Semifinished 16,500 2,100
-------- --------
Total 186,100 198,700
======== ========
Sales (in thousands): $ 65,696 $ 71,722
Average selling price per ton: $ 353 $ 361
- -------------------------
The Company's sales for the first quarter of 2000 of $65.7 million decreased
8.4 percent from sales of $71.7 million in the first quarter of 1999. Shipments
decreased 6.3 percent to 186,100 tons in the first quarter of 2000 from 198,700
tons in the first quarter of 1999. The decrease in shipments is a result of
reduced rail shipments and a lack of seamless pipe shipments, partially offset
by increased rod and bar and semifinished product shipments. The decrease in
average selling price is a result of the shift in product mix as rod and bar and
semifinished products have a significantly lower average selling price than that
of rail and seamless pipe. However, increases in average rod and bar selling
prices have partially offset the impact of this shift on overall average selling
prices. Rod shipments during the first quarter of 2000 were 94,600 tons compared
to 93,100 tons during the first quarter of 1999. The Company shipped 75,000 tons
of rail during the first quarter of 2000 compared to 95,000 tons in the first
quarter of 1999.
The Company's gross profit for the first quarter of 2000 was $6.6 million or
10.1 percent compared to $8.2 million or 11.5 percent for the corresponding 1999
period. Gross profit was unfavorably affected by decreased profitability for
rail products. This was partially offset by improvements in the profitability of
rod and bar products, and the financial impact of shutting down the seamless
mill, which had operated unprofitably for the first quarter in 1999, and was
subsequently closed in May 1999.
-14-
<PAGE>
The Company's selling, general and administrative expenses for the first
quarter of 2000 decreased $970,000 from the corresponding 1999 period and
decreased as a percentage of sales to 6.4 percent in the first quarter of 2000
from 7.2 percent for the corresponding 1999 period. The decrease in cost is due
to lower volume of shipments and reduced shipping expenses as compared to the
prior year.
The Company's total interest cost was $6.7 million for the first quarter of
2000 compared to $6.4 million for the corresponding 1999 period.
The Company's effective income tax rates were 39.1 percent and 31.9 percent
for the three month period ended March 31, 2000 and 1999, respectively. The
effective tax rate for the first quarters of 2000 and 1999 varied from the
combined state and federal statutory rates due to miscellaneous adjustments to
the Company's tax accounts.
Liquidity and Capital Resources
- -------------------------------
The Company's cash flow used by operations for the first quarter of 2000 was
$3.3 million compared to $8.0 million in the first quarter of 1999. The major
items affecting this $4.7 million decrease in cash used were a smaller increase
in inventory for 2000 than for 1999 ($8.8 million), a larger decrease in
accounts receivable for 2000 than for 1999 ($2.0 million), offset partially by a
smaller increase in accrued expenses for 2000 than for 1999 ($3.4 million) and a
larger decrease in accounts payable for 2000 than for 1999 ($2.0 million).
During the first quarter of 2000, the Company expended approximately
$651,000, excluding capitalized interest, on capital projects.
Since its acquisition by Oregon Steel Mills, Inc. ("Oregon Steel") in March
1993, the Company 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 March 31, 2000, $208.8 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 Company
and, although demand for repayment is not expected in 2000, 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 Company 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 CF&I. If the
Company 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 Company than those provided by Oregon Steel.
Term debt of $67.5 million was incurred by the Company as part of the
purchase price of the Pueblo Mill on March 3, 1993. This debt is without stated
collateral and is payable over 10 years with interest at 9.5 percent. As of
March 31, 2000, the outstanding balance on the debt was $27.2 million, of which
$18.9 million was classified as long-term.
Oregon Steel has $228.3 million principal amount of 11% First Mortgage Notes
("Notes"), due 2003, payable to outside parties. The Company and CF&I
(collectively, "Guarantors") have guaranteed the obligations of Oregon Steel
under the Notes, and those guarantees are secured by a lien on substantially all
of the Guarantors' property, plant and equipment and certain other assets,
excluding accounts receivable and inventory.
In addition, Oregon Steel maintains a $125 million credit agreement with a
syndicate of lenders that is collateralized, in part, by the Guarantors'
accounts receivable and inventory, and also guaranteed by the Guarantors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes.
-15-
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part 1, "Consolidated Financial Statements - Note 3,
Contingencies" for discussion of litigation brought by the United
Steel Workers of America alleging violations of the Clean Air Act
Amendments of 1990 and incorporated by reference herein.
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: May 12, 2000 /s/ Jeff S. Stewart
--------------------------
Jeff S. Stewart
Corporate Controller
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
Date: May 12, 2000 /s/ Jeff S. Stewart
---------------------------
Jeff S. Stewart
Corporate Controller
New CF&I, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001008915
<NAME> New CF&I, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 25730
<ALLOWANCES> (638)
<INVENTORY> 38288
<CURRENT-ASSETS> 68318
<PP&E> 266787
<DEPRECIATION> (65370)
<TOTAL-ASSETS> 333118
<CURRENT-LIABILITIES> 53775
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (8305)
<TOTAL-LIABILITY-AND-EQUITY> 333118
<SALES> 65696
<TOTAL-REVENUES> 65696
<CGS> 59084
<TOTAL-COSTS> 59084
<OTHER-EXPENSES> 4203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6719
<INCOME-PRETAX> (3992)
<INCOME-TAX> (1559)
<INCOME-CONTINUING> (2433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2433)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001008914
<NAME> CF&I, L.P.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-1999
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 24293
<ALLOWANCES> (638)
<INVENTORY> 38055
<CURRENT-ASSETS> 62243
<PP&E> 264173
<DEPRECIATION> (63808)
<TOTAL-ASSETS> 309180
<CURRENT-LIABILITIES> 63205
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (41589)
<TOTAL-LIABILITY-AND-EQUITY> 309180
<SALES> 63892
<TOTAL-REVENUES> 63892
<CGS> 57895
<TOTAL-COSTS> 57895
<OTHER-EXPENSES> 4055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7196
<INCOME-PRETAX> (5216)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5216)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
