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, 1998
------------------------------------------------
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, 1998 (unaudited)
and December 31, 1997 ..............................2
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1998
and 1997 ...........................................3
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1998
and 1997 ...........................................4
Notes to Consolidated Financial
Statements (unaudited)............................5-6
Financial Statements - CF&I Steel, L.P.
----------------
Balance Sheets
March 31, 1998 (unaudited)
and December 31, 1997 ..............................7
Statements of Operations (unaudited)
Three months ended March 31, 1998
and 1997 ...........................................8
Statements of Cash Flows (unaudited)
Three months ended March 31, 1998
and 1997 .......................................... 9
Notes to Financial
Statements (unaudited)..........................10-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...........12-14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................15
Item 6. Exhibits and Reports on Form 8-K......................15
SIGNATURES...........................................................15
-1-
<PAGE>
<TABLE>
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 118 $ 3
Trade accounts receivable, net 46,945 37,165
Inventories 38,224 41,842
Deferred tax asset 5,404 4,290
Other 2,837 2,500
-------- --------
Total current assets 93,528 85,800
-------- --------
Property, plant and equipment:
Land and improvements 3,635 3,635
Buildings 18,206 15,710
Machinery and equipment 232,462 231,159
Construction in progress 5,839 7,302
-------- --------
260,142 257,806
Accumulated depreciation (37,989) (34,485)
-------- --------
222,153 223,321
-------- --------
Excess of cost over net assets acquired, net 35,688 35,943
Other assets 18,318 19,023
-------- --------
$369,687 $364,087
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 10,872 $ 7,373
Accounts payable 45,338 36,728
Accrued expenses 28,534 26,793
-------- --------
Total current liabilities 84,744 70,894
Long-term debt 34,688 38,187
Long-term debt - Oregon Steel Mills, Inc. 178,100 182,200
Environmental liability 32,941 32,941
Deferred employee benefits 6,734 6,643
-------- --------
337,207 330,865
-------- --------
Minority interests 261 319
-------- --------
Redeemable common stock 21,840 21,840
-------- --------
Contingencies (Note 3)
STOCKHOLDERS' EQUITY
Common stock 1 1
Additional paid-in capital 16,603 16,603
Retained earnings (6,225) (5,541)
-------- --------
10,379 11,063
-------- --------
$369,687 $364,087
======== ========
</TABLE>
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,
-------------------------
1998 1997
------- --------
Sales $99,130 $111,220
Costs and expenses:
Cost of sales 87,909 98,871
Selling, general and administrative
expenses 5,553 4,979
------- --------
Operating income 5,668 7,370
Other income (expense):
Interest and dividend income 10 192
Interest expense (6,176) (7,018)
Minority interest 58 31
Other, net 99 (107)
------- --------
Income (loss) before income taxes (341) 468
Income tax expense (343) (403)
------- --------
Net income (loss) $ (684) $ 65
======= ========
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE>
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
----------- --------------
Cash flows from operating activities:
Net income (loss) $ (684) $ 65
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,813 3,374
Deferred income taxes (448) 3,663
Minority interest (58) (31)
Other, net 3 183
Changes in current assets and
liabilities, net 4,352 (736)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,978 6,518
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (2,766) (2,397)
Other, net 3 188
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (2,763) (2,209)
-------- --------
Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 52,800 53,100
Payments to Oregon Steel Mills, Inc. (56,900) (50,400)
Payment of long-term debt -- (2,798)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (4,100) (98)
-------- --------
Net increase in cash and cash equivalents 115 4,211
Cash and cash equivalents at beginning of period 3 3
-------- --------
Cash and cash equivalents at end of period $ 118 $ 4,214
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 5,314 $ 2,318
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"). 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 1997 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,
1998 1997
---------- ------------
(In thousands)
Raw materials $ 8,063 $ 15,051
Semifinished product 13,557 13,840
Finished product 5,697 3,868
Stores and operating supplies 10,907 9,083
------- --------
Total Inventory $38,224 $ 41,842
======= ========
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 March 31, 1998,
CF&I has a reserve of $34.9 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>
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 United Steel Workers of America ("Union"), initiated a
strike of approximately 1,060 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. By December 1997, CF&I had
sufficient permanent replacement employees to reach full production
capacity
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 the end of March 1998, 45
former striking employees had returned to work as a result of their
unconditional offer. Approximately 820 former striking workers remain
unreinstated ("Unreinstated Employees").
As a result of the labor dispute, both CF&I and the Union have filed
unfair labor practice charges with the National Labor Relations Board
("NLRB"). On February 27, 1998 the Regional Director of the NLRB's Denver
office issued a complaint against CF&I alleging violations of several
provisions of the National Labor Relations Act. 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. Ultimate determination of the issue may well require action by
an appropriate United States Court of Appeals. In the event there is an
adverse determination of these issues, Unreinstated Employees could be
entitled to back pay from the date of the Union's unconditional offer to
return to work through the date of the adverse determination ("Backpay
Liability"). The number of Unreinstated Employees entitled to back pay
would probably be limited to the number of replacement workers, currently
approximately 600 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, each
Unreinstated Employee has a duty to take reasonable steps to mitigate the
Backpay Liability by seeking employment elsewhere that has comparable
demands and compensation. It is not presently possible to estimate the
extent to which interim earnings and failure to mitigate the Backpay
Liability would affect the cost of an adverse determination.
-6-
<PAGE>
<TABLE>
CF&I STEEL, L.P.
BALANCE SHEETS
(In thousands)
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115 $ -
Trade accounts receivable, net 46,200 36,652
Inventories 38,046 41,666
Other 2,542 2,350
-------- --------
Total current assets 86,903 80,668
-------- --------
Property, plant and equipment:
Land and improvements 3,629 3,629
Buildings 18,100 15,604
Machinery and equipment 229,960 228,656
Construction in progress 5,839 7,302
-------- --------
257,528 255,191
Accumulated depreciation (36,925) (33,488)
-------- --------
220,603 221,703
-------- --------
Excess of cost over net assets acquired, net 35,688 35,943
Other assets 13,183 13,223
-------- --------
$356,377 $351,537
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt 10,872 $ 7,373
Accounts payable 50,309 41,489
Accrued expenses 26,924 25,973
-------- --------
Total current liabilities 88,105 74,835
Long-term debt 34,688 38,187
Long-term debt - Oregon Steel Mills, Inc. 178,100 182,200
Long-term debt - New CF&I, Inc. 21,756 21,756
Environmental liability 32,941 32,941
Deferred employee benefits 6,734 6,643
-------- --------
362,324 356,562
-------- --------
Contingencies (Note 3)
PARTNERS' EQUITY
(DEFICIT)
Limited partner 261 319
General partner (6,208) (5,344)
-------- --------
(5,947) (5,025)
-------- --------
$356,377 $351,537
======== ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
-7-
<PAGE>
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1998 1997
------- --------
Sales $97,495 $109,753
Costs and expenses:
Cost of sales 86,442 97,651
Selling, general and administrative
expenses 5,421 4,845
------- --------
Operating income 5,632 7,257
Other income (expense):
Interest and dividend income 10 8
Interest expense (6,664) (7,441)
Other, net 99 (107)
------- ----------
Net loss $ (923) $ (283)
======= ==========
The accompanying notes are an integral part of the
financial statements.
-8-
<PAGE>
<TABLE>
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (923) $ (283)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,746 3,319
Other, net 3 50
Changes in current assets and liabilities, net 3,743 (809)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,569 2,277
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (2,357) (2,511)
Other, net 3 188
-------- -------
NET CASH USED BY INVESTING ACTIVITIES (2,354) (2,323)
-------- -------
Cash flows from financing activities:
Borrowings from related parties 52,800 57,456
Payments to related parties (56,900) (50,400)
Payment of long-term debt - (2,799)
-------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,100) 4,257
------- -------
Net increase in cash and cash equivalents 115 4,211
Cash and cash equivalents at beginning of year - -
-------- -------
Cash and cash equivalents at end of year $ 115 $ 4,211
======== =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 5,314 $ 8,208
</TABLE>
The accompanying notes are an integral part of the
financial statements.
-9-
<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"
or "Partnership"). In January 1998, the Partnership 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 the Partnership's 1997 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,
1998 1997
--------- ------------
(In thousands)
Raw materials $ 8,063 $15,051
Semifinished product 13,557 13,840
Finished product 5,697 3,868
Stores and operating supplies 10,729 8,907
------- -------
Total Inventory $38,046 $41,666
======= =======
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 March 31, 1998, the Partnership has a reserve of $34.9
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 Partnership 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.
-10-
<PAGE>
LABOR DISPUTE
-------------
The Partnership's labor contract expired on September 30, 1997. After a
brief contract extension intended to help facilitate a possible
agreement, on October 3, 1997 the United Steel Workers of America
("Union"), initiated a strike for approximately 1,060 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 Partnership 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. By December 1997, the Partnership had sufficient
permanent replacement employees to reach full production capacity.
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 the end of March 1998, 45
former striking employees had returned to work as a result of their
unconditional offer. Approximately 820 former striking workers remain
unreinstated ("Unreinstated Employees").
As a result of the labor dispute, both the Partnership and the Union have
filed unfair labor practice charges with the National Labor Relations
Board ("NLRB"). On February 27, 1998, the Regional Director of the NLRB's
Denver office issued a complaint against the Partnership alleging
violations of several provisions of the National Labor Relations Act. The
Partnership 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. Ultimate determination of
the issue may well require action by an appropriate United States Court
of Appeals. In the event there is an adverse determination of these
issues, Unreinstated Employees could be entitled to back pay from the
date of the Union's unconditional offer to return to work through the
date of the adverse determination ("Backpay Liability"). The number of
Unreinstated Employees entitled to back pay would probably be limited to
the number of replacement workers, currently approximately 600 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, each Unreinstated Employee has a
duty to take reasonable steps to mitigate the Backpay Liability by
seeking employment elsewhere that has comparable demands and
compensation. It is not presently possible to estimate the extent to
which interim earnings and failure to mitigate the Backpay Liability
would affect the cost of an adverse determination.
-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, general business
and economic conditions; competitive products and pricing, as well as
fluctuations in demand, potential equipment malfunction, work stoppages, and
plant construction and repair delays.
The New CF&I, Inc. ("Company") consolidated financial statements include
the accounts of CF&I Steel, L.P. ("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 March 31, 1998
and 1997, sales of the Partnership were 98.4 percent and 98.7 percent,
respectively, of the consolidated sales of the Company. For the three months
ended March 31, 1998 and 1997, cost of sales of the Partnership were 98.3
percent and 98.7 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
--------------------------
1998 1997
------- --------
Tonnage sold:
Rail 98,200 94,800
Rod, Bar and Wire 96,400 112,500
Seamless Pipe 19,200 33,200
Semifinished 21,200 7,500
-------- --------
Total 235,000 248,000
======== ========
Sales (in thousands): $ 99,130 $111,220(1)
Consolidated average selling price per ton: $ 422 $ 438(2)
(1) 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.
(2) Excludes insurance proceeds referred to in Note (1) above.
- -----------------------
The Company's sales for the first quarter of 1998 of $99.1 million decreased
10.9 percent from sales of $111.2 million in the first quarter of 1997.
Shipments decreased 5.2 percent to 235,000 tons in the first quarter of 1998
from 248,000 tons in the first quarter of 1997. The decrease in sales and
shipments was primarily due to decreased shipments of seamless pipe and wire
products. Seamless pipe shipments were 19,200 tons in the first quarter of 1998,
compared to 33,200 tons in the first quarter of 1997, primarily due to the
continuing recovery of production capacity to pre-strike levels. The Company
sold its wire operations in June 1997.
-12-
<PAGE>
Although the average selling prices for rail, seamless pipe, rod and
semifinished products were higher in the first quarter 1998 compared to the
first quarter 1997, the Company's consolidated average selling prices decreased
$16 per ton to $422 per ton in the first quarter of 1998, compared to the first
quarter of 1997. The consolidated average selling price decreased in the first
quarter of 1998, due to decreased shipments of seamless pipe and wire products
and increased shipments of the lower priced semifinished products. Of the $12.1
million sales decrease, $3.9 million was the result of lower average selling
prices, $5.7 million was from volume decreases, and $2.5 million was from the
non-recurring insurance proceeds received in the first quarter of 1997 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's steel mill.
The Company's gross profit for the first quarter of 1998 was $11.2 million
or 11.3 percent compared to $9.8 million or 9.1 percent (excluding insurance
proceeds) for the corresponding 1997 period. First quarter 1997 gross profit was
negatively impacted by higher rail and seamless pipe manufacturing costs,
primarily due to the 1996 power transformer outage which increased semifinished
inventory costs that flowed through to cost of sales in the first quarter of
1997, and planned maintenance downtimes at the seamless pipe mill. The increase
in gross profit in 1998 compared to 1997 (excluding the insurance recovery) is
due primarily to the higher average selling prices noted above and increased
shipments of rail and semifinished products, offset by lower seamless pipe
shipments. While the gross profit margin was higher in the first quarter of 1998
than the first quarter of 1997 (excluding the insurance recovery), the Company
continued to incur higher than normal manufacturing costs and reduced production
and shipments as a result of the strike by the Union (see Note 3 to the
Consolidated Financial Statements).
The Company's selling, general and administrative ("SG&A") for the first
quarter of 1998 increased $574,000 from the corresponding 1997 period and
increased as a percentage of sales to 5.6 percent in the first quarter of 1998,
from 4.5 percent for the corresponding 1997 period. The increase was due to
costs specifically related to the labor dispute with the Union.
The Company's total interest cost for the first quarter of 1998 was $6.3
million compared to $7.0 million for the corresponding 1997 period. The lower
interest cost is the result of reduced long-term debt.
The Company's effective income tax rates were 101 percent and 86 percent for
the three month period ended March 31, 1998 and 1997, respectively. The
effective tax rate for the first quarters of 1998 and 1997 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 from operations for the first quarter of 1998 was
$7.0 million compared to $6.5 million in the first quarter of 1997. The major
items affecting this $500,000 increase were a larger decrease in inventories
($3.1 million), a larger increase in accounts payable ($2.0 million), and an
increase in accrued expenses versus a decrease in 1997 ($2.4 million). These
increases were partially offset by decreased deferred income taxes versus an
increase in 1997 ($4.1 million) and a larger increase in accounts receivable
($2.8 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 a loan from Oregon Steel. As of March 31, 1998, $178.1 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
-13-
<PAGE>
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
1998, 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 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 without
stated collateral and is payable over 10 years with interest at 9.5 percent. As
of March 31, 1998, the outstanding balance on the debt was $45.6 million, of
which $34.7 million was classified as long-term.
Oregon Steel has outstanding $235 million principal amount of 11% First
Mortgage 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 and capital
expenditures will be met from funds generated from operations and
available borrowings from Oregon Steel.
CAPITAL EXPENDITURES. During the first quarter of 1998, the Company
expended approximately $2.6 million, excluding capitalized interest, on
capital projects.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
-14-
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See discussion of labor dispute in Note 3 to the Company's
Consolidated Financial Statements 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 14, 1998 /s/ Christopher D. Cassard
----------------------------------
Christopher D. Cassard
Corporate Controller
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
Date: May 14, 1998 /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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