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, 1996
------------------------------------------------
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, 1996 (unaudited)
and December 31, 1995 .............................2
Consolidated Statements of Income (unaudited)
Three months and nine months ended September, 1996
and 1995 ..........................................3
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1996
and 1995 ..........................................4
Notes to Consolidated Financial
Statements (unaudited).............................5
Financial Statements - CF&I Steel, L.P.
----------------
Balance Sheets
September 30, 1996 (unaudited)
and December 31, 1995 ..............................6
Statements of Operations (unaudited)
Three months and nine months ended
September 30, 1996 and 1995 .......................7
Statements of Cash Flows (unaudited)
Nine months ended September 30, 1996
and 1995 ......................................... 8
Notes to Financial
Statements (unaudited).............................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........10-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................13
SIGNATURES..................................................... 13
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3 $ -
Trade accounts receivable, net 52,695 45,904
Inventories 66,698 70,249
Deferred tax asset 5,007 5,007
Other 11,209 1,056
-------- ---------
Total current assets 135,612 122,216
-------- ---------
Property, plant and equipment:
Land and improvements 3,530 3,530
Buildings 6,043 5,867
Machinery and equipment 234,892 188,726
Construction in progress 3,384 31,586
-------- ---------
247,849 229,709
Accumulated depreciation (20,041) (11,124)
-------- ---------
227,808 218,585
-------- ---------
Excess of cost over net assets acquired 37,217 37,983
Other assets 13,241 13,484
-------- ---------
$413,878 $ 392,268
======== =========
LIABILITIES
Current liabilities:
Current portion of of long-term debt 6,574 $ 4,576
Accounts payable 37,978 53,867
Accrued expenses 26,524 16,269
-------- ---------
Total current liabilities 71,076 74,712
Long-term debt 44,716 50,666
Long-term debt - Oregon Steel Mills, Inc. 206,500 181,750
Other Deferred liabilities 33,270 34,157
Deferred employee benefits 5,919 5,388
Deferred income taxes 7,876 -
-------- ---------
369,357 346,673
-------- ---------
Minority interests 318 587
-------- ---------
Redeemable common stock 21,840 21,840
-------- ---------
STOCKHOLDERS' EQUITY
Common stock 1 1
Additional paid-in capital 16,603 16,603
Retained earnings 5,759 6,564
-------- ---------
22,363 23,168
-------- ---------
$413,878 $ 392,268
======== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1996 1995 1996 1995
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Sales $ 95,268 $70,919 $300,169 $220,743
Costs and expenses:
Cost of sales 87,948 65,430 272,924 197,677
Selling, general and administrative
expenses 4,027 4,562 13,547 13,367
Profit participation - - 275 449
-------- -------- -------- --------
Operating income 3,293 927 13,423 9,250
Other income (expense):
Interest and dividend income 8 8 26 39
Interest expense (6,386) (3,664) (15,579) (7,560)
Minority interest 204 198 260 81
Other, net 50 3 620 48
-------- -------- ------- --------
Income (loss) before income taxes (2,831) (2,528) (1,250) 1,858
Income tax benefit (expense) 1,096 868 445 (1,090)
-------- -------- ------- --------
Net income (loss) $ (1,735) $ (1,660) $ (805) $ 768
======== ======== ======= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ (805) $ 768
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,721 5,338
Deferred income taxes 9,043 5,970
Minority interest (268) (81)
Other, net (620) 527
Changes in current assets and liabilities, net (5,396) 4,193
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,675 16,715
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (32,197) (39,395)
Other, net (272) (328)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (32,469) (39,723)
--------- ---------
Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 161,150 112,150
Payments to Oregon Steel Mills, Inc. (136,400) (85,950)
Payment of long-term debt (3,953) (3,670)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,797 22,530
--------- ---------
Net increase (decrease) in cash and cash equivalents 3 (478)
Cash and cash equivalents at beginning of period - 481
--------- ---------
Cash and cash equivalents at end of period $ 3 $ 3
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 16,949 $ 12,019
Income taxes paid to parent company 338 10
NON-CASH INVESTING AND FINANCING ACTIVITIES:
At September 30, 1996 and 1995, the Company financed property, plant and
equipment with accounts payable of $1.8 million and $14.7 million, respectively.
The accompanying notes are an integral part of the consolidated financial statements.
</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 (the "Company"). All significant
intercompany balances and transactions have been eliminated upon
consolidation. Certain previously reported amounts have been
reclassified to conform with current period presentation.
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
Registration Statement on Form S-1 (No. 333-02355) for additional
disclosures including a summary of significant accounting policies.
2. Inventories
-----------
Inventories consist of:
September 30, December 31,
1996 1995
------------- -------------
(In thousands)
Raw materials $23,692 $16,480
Semi-finished product 13,861 25,816
Finished product 20,404 20,012
Stores and operating supplies 8,741 7,941
------- -------
$66,698 $70,249
======= =======
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, 1996, CF&I has a
reserve of $ 35.2 million related to this remediation, of which
$33.3 million is classified as non-current in other deferred
liabilities in the consolidated balance sheet.
GUARANTEES. On June 19, 1996, Oregon Steel Mills, Inc. ("Oregon
Steel") completed a public offering of $235 million principal amount
of 11% First Mortgage Notes due 2003 (the "Notes"). The Company has
guaranteed the obligations of Oregon Steel under the Notes, and
those guarantees are secured by a lien on substantially all the
property, plant and equipment and certain other assets of the
Company.
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.
4. Commitments
-----------
During 1996 the Company continued construction of various capital
improvement projects at its Pueblo, Colorado steel mill. Commitments for
expenditures related to the completion of these projects were $2.2 million
at September 30, 1996.
<PAGE>
<TABLE>
CF&I STEEL, L.P.
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30,
1996 December 31,
(Unaudited) 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ -
Trade accounts receivable, net 52,179 45,533
Inventories 66,546 70,087
Other 1,506 971
--------- ---------
Total current assets 120,231 116,591
--------- ---------
Property, plant and equipment:
Land and improvements 3,525 3,525
Buildings 5,937 5,760
Machinery and equipment 232,766 186,626
Construction in progress 3,384 31,586
--------- ---------
245,612 227,497
Accumulated depreciation (19,324) (10,569)
--------- ---------
226,288 216,928
--------- ---------
Excess of cost over net assets acquired 37,217 37,983
Other assets 13,241 12,317
--------- ---------
$ 396,977 $ 383,819
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 6,574 $ 4,576
Accounts payable 40,798 55,601
Accrued expenses 25,833 15,652
--------- ---------
Total current liabilities 73,205 75,829
Long-term debt 44,716 50,666
Long-term debt - Oregon Steel Mills, Inc. 206,500 181,750
Long-term debt - New CF&I, Inc. 17,400 16,800
Other deferred liabilities 33,270 34,157
Deferred employee benefits 5,919 5,388
--------- ---------
381,010 364,590
--------- ---------
PARTNERS' EQUITY
Limited partner 319 587
General partner 15,648 18,642
--------- ---------
15,967 19,229
--------- ---------
$ 396,977 $ 383,819
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1996 1995 1996 1995
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 94,009 $ 69,965 $ 296,529 $ 218,720
Costs and expenses:
Cost of sales 87,013 64,865 270,264 196,567
Selling, general and administrative
expenses 3,896 4,447 13,148 13,008
Profit participation - - 275 449
-------- -------- --------- ---------
$ 3,100 $ 653 $ 12,842 $ 8,696
Operating income
Other income (expense):
Interest and dividend income 7 9 26 26
Interest expense (6,781) (4,062) (16,742) (8,756)
Other, net 50 3 620 48
Net income (loss) -------- -------- --------- ---------
$ (3,624) $ (3,397) $ (3,254) $ 14
======== ======== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (3,254) $ 14
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,558 5,120
Other, net (620) 527
Changes in current assets and liabilities, net 5,361 11,051
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,045 16,712
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (32,171) (39,394)
Other, net (272) (328)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (32,443) (39,722)
-------- --------
Cash flows from financing activities:
Borrowings from related parties 161,750 112,150
Payments to related parties (136,400) (85,950)
Payment of long-term debt (3,952) (3,671)
Partner distributions - -
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,398 22,529
-------- --------
Net increase (decrease) in cash and cash equivalents - (481)
Cash and cash equivalents at beginning of year - 481
-------- --------
Cash and cash equivalents at end of year $ - $ -
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 16,949 $ 12,019
NON-CASH INVESTING AND FINANCING ACTIVITIES:
At September 30, 1996 and 1995, the Company financed property, plant and
equipment with accounts payable of $1.8 million and $14.7 million, respectively.
The accompanying notes are an integral part of the consolidated financial statements.
</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.
(the "Partnership"). Certain previously reported amounts have been
reclassified to conform with current period presentation.
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
Registration Statement on Form S-1 (No. 333-02355-1) for additional
disclosures including a summary of significant accounting policies.
2. Inventories
-----------
Inventories consist of:
September 30, December 31,
1996 1995
------------- -----------
(In thousands)
Raw materials $23,692 $16,480
Semi-finished product 13,861 25,816
Finished product 20,405 20,012
Stores and operating supplies 8,588 7,779
------- -------
$66,546 $70,087
======= =======
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, 1996, the Partnership has a reserve of
$35.2 million related to this remediation, of which $33.3 million is
classified as non-current in other deferred liabilities in the balance
sheet.
GUARANTEES. On June 19, 1996, Oregon Steel Mills, Inc. ("Oregon Steel")
completed a public offering of $235 million principal amount of 11% First
Mortgage Notes due 2003 (the "Notes"). The Partnership has guaranteed the
obligations of Oregon Steel under the Notes, and those guarantees are
secured by substantially all the property, plant and equipment and certain
other assets of the Partnership.
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. Commitments
-----------
During 1996 the Partnership continued construction of various capital
improvement projects at its Pueblo, Colorado steel mill. Commitments
for expenditures related to the completion of these projects were $2.2
million at September 30, 1996.
<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; potential equipment malfunction, and plant construction
and repair delays.
The New CF&I, Inc. (the "Company") consolidated financial statements
include the accounts of CF&I Steel, L.P. (the "Partnership"), a 95.2% 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, 1996 and 1995 and the nine months ended September 30, 1996
and 1995, sales of the Partnership were 98.7 percent, 98.7 percent, 98.8
percent, and 99.1 percent, respectively, of the consolidated sales of the
Company. For the three months ended September 30, 1996 and 1995 and the nine
months ended September 30, 1996 and 1995, cost of sales of the Partnership were
98.9 percent, 99.1 percent, 99.0 percent, and 99.4 percent, respectively, of the
consolidated cost of sales of the Company.
Results of Operations
- ---------------------
<TABLE>
The following table sets forth for the Company tonnage sold, sales and average
selling price per ton:
<CAPTION>
Three Months Ended, Nine Months Ended,
September 30 September 30
------------------------ ----------------------
1996 1995 1996 1995
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Tonnage sold:
Rail 43,400 47,500 200,200 190,300
Rod/Bar/Wire 107,700 64,900 324,600 166,300
Seamless Pipe 39,100 29,900 113,600 84,100
Semi-finished 31,900 11,100 53,000 11,700
------- -------- -------- ---------
Total 222,100 153,400 691,400 452,400
======= ======== ======== =========
Sales (in thousands): $ 95,268 $ 70,919 $300,169 $ 220,743
Average selling price per ton: $ 429 $ 462 $ 434 $ 479(1)
<FN>
(1) Excludes insurance proceeds of approximately $4 million received in the
second quarter of 1995 as reimbursement of lost profits resulting from lost
production and start-up delays caused by an explosion that occurred during the
third quarter of 1994.
</FN>
</TABLE>
- -------------------
Sales increased 34.3 percent to $95.3 million in the third quarter of
1996 and increased 36.0 percent to $300.2 million for the first nine months of
1996. Shipments increased 44.8 percent to 222,100 tons in the third quarter of
1996 and increased 52.8 percent to 691,400 tons in the first nine months of
1996. The increase in sales and shipments was primarily due to increased
shipments of seamless pipe, rod, bar and semi-finished products in 1996. Rod and
bar shipments were 92,200 and 278,500 tons during the three and nine month
periods ended September 30, 1996, respectively, compared to 48,900 and 118,900
tons in the corresponding 1995 periods. Rod and bar sales of $6.7 million and
$26.0 million and shipments of 20,600 and 78,700 tons were capitalized during
the three and nine month periods ending September 30, 1995, when the rod and bar
mill was in its pre-operational phase which ended July 31, 1995. Semi-finished
product shipments were 31,900 and 53,000 tons during the three and nine month
periods ended September 30, 1996, respectively, compared to 11,100 and 11,700
tons in the corresponding 1995 periods.
Selling prices decreased $33 to $429 per ton for the third quarter of
1996 and decreased $45 to $434 per ton for the first nine months of 1996
compared to the corresponding periods in 1995. The decrease in
<PAGE>
average selling price was due to the increased sales of rod and bar and
semi-finished products in 1996. Rod and bar and semi-finished products have
significantly lower selling prices than other products. Of the $24.3 million
sales increase in the third quarter of 1996 compared to 1995, $31.7
million was the result of volume increases offset by $7.4 million resulting
from lower average selling prices. Of the $79.4 million sales increase for
the first nine months of 1996 compared to 1995, $114.5 million was the result
of volume increases offset by $31.1 million resulting from lower average
selling prices and $4 million from the 1995 insurance settlement not
recurring in 1996.
Gross profit for the three month and nine month periods ended September
30, 1996 was 7.7 and 9.1 percent, respectively, compared to 7.7 and 10.4 percent
for the corresponding 1995 periods. The gross profit decline in 1996 compared to
1995 was due to the non-recurring 1995 insurance proceeds of $4 million. Without
the $4 million insurance proceeds, the gross profit margin would have been 8.8
percent for the first nine months of 1995. Gross profit was also negatively
impacted by higher costs and reduced shipments due to an outage of the ladle
refining furnace during June 1996 as a result of a mechanical failure.
During September 1996, the Company lost the use of one of the two main
transformers that supply electricity to its melt shop. Full electrical power is
expected to be restored by early December 1996. Steel production has been
reduced to approximately 65 percent of normal production capability. The Company
will use its remaining steelmaking capabilities for its rail, seamless pipe and
semi-finished products and will purchase billets for rod and bar products. As a
result of the lack of feedstock, the rod and bar mill ceased operations on
October 12 and is scheduled to resume production in mid-November when sufficient
purchased billets are expected to be received. The Company expects that the
reduced production levels will adversely affect the results of operations of the
Company for the fourth quarter of 1996. However, the affects of the outage will
be partially mitigated by reimbursement of lost profits by the business
interruption insurance carrier.
Selling, general and administrative ("SG&A") expenses for the three and
nine month periods ended September 30, 1996, decreased $535,000 and increased
$180,000, respectively, from the corresponding 1995 periods. SG&A expenses
decreased as a percentage of sales to 4.2 and 4.5 percent in the three and nine
month periods ended September 30, 1996, respectively, compared to 6.4 and 6.1
percent for the corresponding 1995 periods. The percentage decreases are
primarily due to increased sales volume in 1996.
There was no profit participation expense for the third quarters of 1996
and 1995. Profit participation expense for the nine months ended September 30,
1996 and 1995 was $275,000 and $449,000, respectively. The decreased expense is
a result of decreased profits in 1996 versus 1995.
Total interest cost for the three months and nine months ended
September 30, 1996 was $7.1 million and $17.7 million, respectively, compared to
$4.3 million and $12.5 million for the corresponding periods in 1995. The higher
interest cost primarily is the result of additional debt incurred to fund the
capital expenditure programs, combined with increased interest rates related to
the parent company's issuance of First Mortgage Notes. Capitalized interest for
the three and nine month periods ended September 30, 1996 was $691,000 and $2.1
million, respectively, compared to $651,000 and 4.9 million for the
corresponding 1995 periods.
The Company's effective income tax rate was a benefit of 39 percent for
the quarter ended September 30, 1996 and a benefit of 36 percent for the nine
months ended September 30, 1996. The effective income tax rates for the same
periods in 1995 were a benefit of 34 percent and an expense of 59 percent. The
effective tax rates in 1996 and 1995 varied from the combined state and federal
statutory rates due to differences in the deductibility of certain miscellaneous
business expenses. Also affecting the effective tax rate for the nine month
period ended September 30, 1995 was the non-deductibility of amortization on
intangible assets for income tax purposes.
Liquidity and Capital Resources
- -------------------------------
Cash flow from operations for the nine months ended September 30, 1996
was $11.7 million compared to $16.7 million in the corresponding 1995 period.
The major items affecting this $5.0 million decrease were a lower net income
($1.6 million), a larger increase in refundable income taxes ($4.9 million), an
increase in accounts receivable versus
<PAGE>
a prior year decrease ($8.5 million), and a decrease in accounts payable versus
an increase in 1995 ($10.1 million). These cash uses were partially offset by
increased depreciation and amortization ($4.4 million), a decrease in
inventories versus an increase in 1995 ($8.5 million), and a larger increase
in accrued expenses ($4.1 million).
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 loans from Oregon Steel. As of September 30, 1996, $206.5 million of
aggregate principal amount of these loans was outstanding, all of which was
classified as long-term. The loans are in the form of notes which are due on
demand or, if no demand is made, due in the years 2002 through 2004. Interest on
the principal amount of the loans is based on Oregon Steel's long-term bond rate
and payable monthly. Because these loans from Oregon Steel are 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 no repayments are expected in 1996, it
may in any event demand repayment of these loans at any time. If Oregon Steel
were to demand repayment of these loans, it is unlikely that the Company would
be able to obtain from external sources financing necessary to repay these loans
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 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
uncollateralized and is payable over 10 years with interest at 9.5 percent.
As of September 30, 1996, the outstanding balance on the debt was $51.3
million, of which $44.7 million was classified as long-term debt.
On June 19, 1996, Oregon Steel completed a public offering of $235
million principal amount of 11% First Mortgage Notes due 2003 (the "Notes"). 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.
The Company expects that anticipated needs for working capital and the
capital expenditure program will be met from funds generated from operations and
available borrowings from Oregon Steel.
CAPITAL EXPENDITURES. During the first nine months of 1996, the Company
expended approximately $16.1 million, excluding capitalized interest, on its
capital program.
<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
On July 26, 1996, the Company and the Partnership filed
Form 8-Ks in which the Company and the Partnership dismissed
their independent accountants, Coopers & Lybrand LLP, as of
July 1996. On July 31, 1996, Form 8-K/As were filed with
the response letters of Coopers & Lybrand LLP.
On August 1, 1996, the Company and the Partnership filed
Form 8-Ks in which the Company and the Partnership engaged
Price Waterhouse LLP as independent accountants as of July 25,
1996.
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 11, 1996 /s/ L. Ray Adams
----------------------------
L. Ray Adams
Vice President of Finance and
Chief Financial Officer
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
Date: November 11, 1996 /s/ L. Ray Adams
----------------------------
L. Ray Adams
Vice President of Finance and
Chief Financial Officer
New CF&I, Inc.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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