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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 June 30, 1994
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9887
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OREGON STEEL MILLS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-0506370
- - -----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Broadway Building, Suite 2200, Portland, Oregon 97205
- - -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 223-9228
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(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 19,377,343
----------------------------- ----------------------------
Class Number of Shares Outstanding
(as of July 31, 1994)
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OREGON STEEL MILLS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1994 (unaudited)
and December 31, 1993 . . . . . . . . . . . . . . 2
Consolidated Statements of Income (unaudited)
Three months and six months ended June 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 7 - 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1
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OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1994 1993
(Unaudited) (1)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,017 $ 9,623
Trade accounts receivable, net 104,402 71,649
Inventories 155,170 160,504
Other current assets 16,252 14,007
--------- ---------
Total current assets 282,841 255,783
--------- ---------
Property, plant and equipment:
Land and improvements 25,018 24,466
Buildings 36,132 35,821
Machinery and equipment 254,652 240,833
Construction in progress 87,691 34,605
-------- ---------
403,493 335,725
Accumulated depreciation (114,239) (104,300)
-------- ---------
289,254 231,425
-------- ---------
Excess of cost over net assets acquired 39,126 39,474
Other assets 23,474 22,988
-------- ---------
$634,695 $ 549,670
======== =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 5,137 $ 4,680
Short-term debt 50,327 14,225
Accounts payable 70,432 75,419
Accrued expenses 27,277 21,998
Total current liabilities 153,173 116,322
Long-term debt 117,338 76,487
Other deferred liabilities 54,075 52,130
Deferred income taxes 19,475 16,514
-------- ---------
344,061 261,453
-------- ---------
Minority interests 14,123 12,975
-------- ---------
STOCKHOLDERS' EQUITY
Common stock 194 193
Additional paid-in capital 150,090 149,340
Retained earnings 130,629 128,924
Minimum pension liability adjustment (297) (297)
-------- ---------
280,616 278,160
Cumulative foreign currency translation adjustment (4,105) (2,918)
-------- ---------
276,511 275,242
-------- ---------
$634,695 $ 549,670
======== =========
(1) Condensed from audited financial statements.
The accompanying notes are an integral part of the
consolidated financial statements.
2
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OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $230,093 $204,108 $444,866 $353,151
Costs and expenses:
Cost of sales 208,695 179,013 402,759 304,637
Selling, general and
administrative expenses 13,514 10,667 25,910 18,702
Contribution to employee
stock ownership plan 251 252 501 752
Profit participation 401 2,101 1,052 4,654
--------- -------- -------- -------
Operating income 7,232 12,075 14,644 24,406
Other income (expense):
Interest and dividend income 115 282 248 419
Interest expense, net (1,398) (1,338) (2,443) (1,889)
Other income (expense), net 206 (34) 252 (500)
Settlement of litigation - 2,750 - 2,750
Minority interests (609) (511) (1,207) (1,120)
--------- -------- -------- -------
Income before income taxes 5,546 13,224 11,494 24,066
Provision for income taxes 2,107 3,980 4,368 8,046
--------- -------- -------- -------
Net income $ 3,439 $ 9,244 $ 7,126 $16,020
========= ======== ======== =======
Primary and fully diluted net income per
common and common equivalent share $.17 $.46 $.36 $.81
Dividends declared per common share $.14 $.14 $.28 $.28
Weighted average common shares
and common equivalents outstanding 19,976 19,946 19,971 19,698
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3<PAGE>
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OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30
------------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,126 $ 16,020
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 11,265 10,221
Deferred income taxes 2,960 1,189
Accruals for contribution of common stock
to employee stock ownership plan 500 750
Loss on disposal of property, plant and equipment 46 260
Change in post-retirement benefit obligation, net 1,729 426
Change in non-current pension cost (751) (86)
Minority's share of income 1,148 1,189
Other, net (8) (213)
Changes in current assets and
liabilities related to operations (43,064) 33,646
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (19,049) 63,402
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (55,956) (11,790)
Proceeds from disposal of property, plant and equipment 50 1,388
Increase in long-term investments - (1,510)
Investment in CF&I Steel, L.P. - (7,558)
Other, net (70) 109
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (55,976) (19,361)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under revolving
loan agreements 79,655 (6)
Other reductions of debt (1,992) (987)
Dividends paid (5,421) (5,397)
-------- --------
Other, net 197 (21)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 72,439 (6,411)
-------- --------
Effects of foreign currency exchange rate changes on cash (20) 4
-------- --------
Net increase (decrease) in cash and cash equivalents (2,606) 37,634
Cash and cash equivalents at beginning of period 9,623 5,177
-------- --------
Cash and cash equivalents at end of period $ 7,017 $ 42,811
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $4,406 $2,280
Income taxes $3,940 $2,127
<FN>
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1994, the Company acquired additional property, plant and equipment for $13,400 which was
included in accounts payable at June 30, 1994.
Non-cash investing and financing activities related to the Company's investment in CF&I Steel, L.P. are described in Note 4 to
the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
4
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OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Oregon Steel
Mills, Inc. and its wholly-owned and majority-owned 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 results 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 1993 Annual
Report on Form 10-K for additional disclosures including a summary of
significant accounting policies.
2. Inventories
-----------
Inventories consist of:
June 30, December 31,
1994 1993
-------- ------------
(In thousands)
Raw materials $ 21,228 $ 26,242
Semi-finished product 49,131 51,759
Finished product 61,316 62,104
Stores and operating supplies 23,495 20,399
------- --------
$155,170 $160,504
======== ========
3. Common Stock
------------
In February 1994, the Company contributed approximately 29,600 shares of
common stock ("Common Stock") of the Company to the Employee Stock
Ownership Plan (the "ESOP") in payment of a $750,000 liability accrued in
1993. In February 1993, the Company contributed approximately 147,000
shares of Common Stock to the ESOP in payment of a $3.5 million liability
accrued in 1992.
On July 27, 1994, the Board of Directors declared a quarterly cash
dividend of 14 cents per share to be paid August 31, 1994, to stockholders
of record as of August 12, 1994.
4. Business Acquisition
--------------------
On March 3, 1993, New CF&I, Inc. ("General Partner"), a wholly-owned
subsidiary of the Company, acquired for $22.2 million a 95.2 percent
interest in a newly formed limited partnership, CF&I Steel, L.P.,
("CF&I"). The remaining 4.8 percent interest is owned by the Pension
Benefit Guaranty Corporation ("Limited Partner").
Concurrent with the formation of CF&I and the acquisition of the
partnership interest by the General Partner, CF&I purchased from CF&I
Steel Corporation substantially all of the assets of its steelmaking,
fabricating, metals and railroad businesses ("Business"). The purchase
price for the Business was $113.1 million paid by the General Partner's
capital contribution of $22.2 million (consisting of $7.3 million cash,
$3.1 million capitalized direct acquisition costs, 598,400 shares of
Company common stock valued at $11.2 million to be issued ten years from
March 3, 1993, and by the delivery of warrants to purchase 100,000 shares
of Company common stock at $35 per share for five years valued at
$556,000), by the Limited Partner's capital contribution of an asset
valued at $1.2 million, by installment payments to be paid by CF&I
totalling $67.5 million in principal plus interest at 9.5 percent over a
period of 10 years, and by the assumption of noncontingent liabilities of
CF&I Steel Corporation in the aggregate amount of $18.5 million, and by
the assumption of a liability for postretirement health care benefits of
$3.7 million. The Company has guaranteed the payment of the first 25
5
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OREGON STEEL MILLS, INC.
months of cash installment payments on the $67.5 million note (a total of
approximately $21.8 million of principal and interest at December 31,
1993), and the performance of certain capital expenditures for
improvements at the facilities being acquired in the aggregate amount of
$40 million.
As part of the acquisition, CF&I accrued a reserve of $36.7 million for
environmental remediation at CF&I's Pueblo, Colorado steel mill. CF&I
believes $36.7 million is the best estimate from a range of $23.1 to
$43.6 million. CF&I's estimate of this environmental reserve was based
on two separate remediation investigations and feasibility studies
conducted by independent environmental engineering consultants. The
estimated costs were based on current technologies and presently enacted
laws and regulations. The reserve includes costs for RCRA (Resource
Conservation and Recovery Act) facility investigation, a corrective
measures study, remedial action, and operation and maintenance of the
proposed remedial actions. The State of Colorado is reviewing a permit
application and will issue a permit to CF&I with a schedule for corrective
action specifying activities to be completed by certain dates. The State
of Colorado anticipated that the schedule would be reflective of a
straight line rate of expenditure over 30 years. The State of Colorado
stated the schedule for corrective action could be accelerated if new data
indicated a greater threat to the environment than is currently known to
exist. Any adjustment to the environmental liability as a result of new
technologies, new laws, or new facts after the purchase price allocation
period will be recognized as an element of income with certain limited
exceptions which meet generally accepted accounting principles' criteria
for capitalization.
For financial statement reporting purposes only, the acquisition has been
treated as a business combination using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values at the date of
acquisition.
5. Subsequent Event
----------------
The Company announced in July that it had reached an agreement with Nippon
Steel Corporation of Japan in which a Nippon Steel subsidiary will acquire
a 10 percent equity interest in New CF&I, Inc. which is the sole general
partner of CF&I. In addition, Nippon Steel has agreed to license to CF&I
its proprietary technology for producing deep head-hardened ("DHH") rail
products as well as providing certain production equipment to produce the
DHH rail products. The agreements are subject to appropriate regulatory
approvals.
6
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OREGON STEEL MILLS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- - -------
The consolidated financial statements include the accounts of Oregon Steel
Mills, Inc. and its wholly-owned and majority-owned subsidiaries, (the
"Company"), Napa Pipe Corporation ("Napa"), Oregon Steel Mills - Fontana
Division, Inc. ("Fontana"), Camrose Pipe Corporation ("CPC") which owns a 60
percent interest in Camrose Pipe Company ("Camrose"), New CF&I, Inc. which owns
a 95.2 percent interest in CF&I Steel, L.P. ("CF&I"), and certain other
insignificant subsidiaries. CF&I acquired substantially all of the steelmaking,
fabricating, metals and railroad business of CF&I Steel Corporation located in
Pueblo, Colorado on March 3, 1993.
Results of Operations
- - ---------------------
The following table sets forth, by division for the periods indicated, tonnage
sold, revenues and average selling price per ton:
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
Tons:
Oregon Steel Division (1):
Plate products 116,300 119,300 208,300 213,000
Pipe products 145,000 92,200 274,800 196,800
Semi-finished products 1,400 10,600 1,400 10,600
CF&I Steel Division 204,300 198,700 404,500(2) 256,600
------- ------- ------- -------
Total 467,000 420,800 889,000 677,000
======= ======= ======= =======
Revenues (in thousands):
Oregon Steel Division $140,167 $120,291 $265,353 $244,416
CF&I Steel Division 89,926 83,817 179,513(2) 108,735
-------- -------- -------- --------
Total $230,093 $204,108 $444,866 $353,151
======== ======== ======== ========
Average selling price per ton:
Oregon Steel Division $534 $542 $548 $581
CF&I Steel Division $440 $422 $444 $424
Average $493 $485 $500 $522
(1) The Oregon Steel Division consists of the operations of Oregon Steel
Mills, Inc.; Napa, Fontana and Camrose.
(2) The increase in shipments of the CF&I Steel Division primarily
reflects inclusion of a full six months of results in 1994, while
the six months of 1993 results included only shipments from March 3,
1993, the date of the CF&I Acquisition.
Consolidated selling prices for the three and six month periods ended June 30,
1994 averaged $493 and $500 per ton, respectively, compared with $485 and $522
per ton for the corresponding periods in 1993. Consolidated 1994 and 1993
average selling price is influenced by CF&I Steel Division's product mix to
total sales and shipments. On average the CF&I Steel Division's products have a
lower selling price than the Company's steel plate and welded pipe products.
Consolidated tonnage sold increased 46,200 tons to 467,000 tons in the second
quarter of 1994 compared to the second quarter of 1993 and increased 212,000
tons to 889,000 tons for the first half of 1994 compared to the first half of
1993. The additional tonnage increases for the three and six month periods are
primarily the result of additional steel pipe sold and shipped from the
Company's Napa facility and inclusion of CF&I sales for six months in 1994
compared to sales in the comparable period from March 3, 1993, the acquisition
date of CF&I. As a result of the increased sales volume and changes
7
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OREGON STEEL MILLS, INC.
in average selling prices, revenues were $230.1 million and $444.9 million,
respectively, for the three and six month periods ended June 30, 1994 compared
with $204.1 million and $353.2 million for the corresponding 1993 periods.
The Oregon Steel Division average selling price decreased to $534 per ton in the
second quarter 1994 from $542 per ton in the second quarter 1993. Year-to-date
average selling prices also decreased to $548 per ton in 1994 from $581 per ton
in 1993. These decreases were primarily due to significantly lower average
selling prices for large diameter steel pipe produced at the division's Napa
facility, partially offset by higher average steel plate selling prices.
The CF&I Steel Division average selling prices increased to $440 per ton in the
second quarter 1994 from $422 per ton in the second quarter 1993. Year-to-date
average selling prices increased to $444 per ton in 1994 from $424 per ton in
1993. These increases were largely due to price increases announced in the
fourth quarter of 1993 for the majority of CF&I's steel products.
Gross profit for the three and six month periods ended June 30, 1994, declined
$3.7 million and $6.4 million, respectively, to $21.4 million and $42.1
million. Gross profit as a percentage of sales for the three and six month
periods ended June 30, 1994, also declined 3 percent and 4.2 percent,
respectively, to 9.3 percent and 9.5 percent. The $3.7 million quarterly
decline resulted from a $6.5 million negative average price variance offset by
a $2.8 million positive volume variance. The $6.4 million year-to-date decline
resulted from a $21.6 million negative average price variance offset by a $15.2
million positive volume variance. Gross profit margins in 1994 were negatively
impacted by significantly lower selling prices for large diameter steel pipe
shipped from the Company's Napa facility and the associated higher costs of
producing a higher quality grade of steel slab at the Company's Portland steel
mill to supply the plate products that were needed for producing low carbon
pipe grades for international pipe shipments from the Napa facility.
Gross profit margins were also negatively affected by start-up costs relating to
the completion and start-up of a portion of the equipment upgrades which are
part of the capital improvement program at CF&I. As the capital improvement
program is completed at CF&I, the Company expects that gross margins for the
last six months of 1994 will be negatively impacted with additional start-up
costs and reduced production.
The Company expects that gross margins for the last six months of 1994 will also
be negatively impacted by lower sales of large diameter steel pipe from the Napa
facility, which the Company currently expects will be substantially lower than
the 215,700 tons shipped in the first six months of 1994.
Selling, general and administrative expenses ("SG&A") for the three and six
month periods ended June 30, 1994 increased $2.8 million and $7.2 million,
respectively, from the corresponding periods in 1993. In the first half of
1994, CF&I accounted for $3.5 million of the total $7.2 million SG&A increase
reflecting the inclusion of a full six months of results in 1994, versus four
months in 1993. The SG&A increase for the second quarter and the remaining $3.7
million of the increase for the six months was due primarily to additional
shipping expenses at the Company's Oregon Steel Division due to increased pipe
shipments. SG&A as a percent of sales for the three and six month periods ended
June 30, 1994 was 5.9 and 5.8 percent, respectively, compared with 5.2 and 5.3
percent for the corresponding periods in 1993.
The contribution to the employee stock ownership plan and the profit
participation expense for the six month period ended June 30, 1994 decreased
compared to the corresponding 1993 period reflecting the decreased profitability
of the Company in 1994 versus 1993.
Other Income (Expense)
- - ----------------------
Total interest costs for the three and six month periods ended June 30, 1994
were $2.9 million and $5 million, respectively, compared to $1.4 million and $2
million, respectively, for the three and six month periods ended June 30, 1993.
These increases were primarily the result of interest costs incurred on debt
issued by CF&I in its purchase of the assets of CF&I Steel Corporation and
increased bank borrowings to fund higher net working capital requirements and
the CF&I capital expenditure program. Capitalized interest for the three and
six month periods ended June 30, 1994 were $1.5 million and $2.6 million,
8
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OREGON STEEL MILLS, INC.
respectively, compared to $20,000 and $129,000 for the corresponding 1993
periods.
The $2.7 million recovery from settlement of litigation received from the
Company's excess liability insurance carrier in the second quarter 1993 related
to a former employee lawsuit which was settled in the fourth quarter 1992.
Income Taxes
- - ------------
The Company's effective income tax rate was 38 percent for the three and six
month periods ending June 30, 1994 and 30 percent and 33 percent, respectively,
for the corresponding 1993 periods. The lower 1993 effective tax rate resulted
from the inclusion of the $2.7 million insurance recovery, discussed above,
which is not subject to income taxes.
Liquidity and Capital Resources
- - -------------------------------
The Company's cash flow from operations for the six month period ended June 30,
1994 was a negative $19 million compared to a positive cash flow of $63.4
million in the corresponding 1993 period. The major items causing this $82.4
million decrease were reduced net income ($8.9 million), higher trade accounts
receivable ($13.7 million), increased inventories ($29.4 million), reduced
accounts payable and accrued expenses ($22.9 million), less funds available from
refundable income taxes ($6.6 million), and increased payments of other taxes
payable ($3 million). The negative operating cash flows were offset in part by
the positive effects of increased depreciation and amortization ($1.1 million),
and increases in other miscellaneous items ($1 million).
Net working capital at June 30, 1994 decreased $9.8 million from December 31,
1993 due to a $27 million increase in current assets offset by a $36.8 million
increase in current liabilities. Trade accounts receivable increased $32.7
million from the end of 1993 to $104.4 million at June 30, 1994. This increase
was mainly due to increased sales of welded pipe products in the second quarter
of 1994 compared to the fourth quarter of 1993. The current liability increase
was due primarily to increases in short-term debt to support the increased trade
accounts receivables and the Company's capital spending program.
The Company has received a commitment letter (the "Letter") from its lending
banks expressing the banks' intention to provide a $160 million reducing
revolving credit facility (the "New Facility"). The New Facility is expected to
replace the Company's existing $75 million, $40 million and $20 million credit
facilities and CF&I's existing $30 million credit facility described below. It
is anticipated that outstanding borrowings under these existing facilities will
be repaid from borrowings under the New Facility. As described in the Letter,
the New Facility is expected to provide that borrowings of up to $160 million
will be available until 1997. The maximum amount of the New Facility will be
reduced to $130 million in 1997 and to $100 million in 1998. The New Facility
will mature in 1999. The parties may, by mutual agreement, extend the maturity
date by up to two years, and any such extension will also extend the scheduled
revolver reduction dates described above. The Letter contemplates that
borrowings under the New Facility will be guaranteed by the Company's
subsidiaries (the "Guarantor Subsidiaries") through which the Company holds its
interests in the Napa facility, the Fontana plate mill, the Camrose facility and
CF&I. The Letter provides that borrowings under the New Facility will bear
interest at a floating rate based on either the banks' base rate, CD rate, the
federal funds rate, or LIBOR, plus in certain cases, a margin based on the
Company's credit rating, and provides for payment of certain commitment and
other fees to the banks. The availability of the New Facility is subject to
several conditions, including negotiation and execution of definitive
agreements.
The Company maintains a $75 million revolving credit and term loan facility and
$40 million revolving credit facility with certain banks. Borrowings under both
agreements are guaranteed by the Guarantor Subsidiaries. Borrowings under the
$75 million facility will be converted to a term loan on July 1, 1996 and
payable in quarterly installments through June 30, 2000. Borrowings under the
$40 million facility mature on May 31, 1995. The Company also has a $20 million
credit line which provides for borrowings with interest rates and maturity dates
as may be agreed with the bank from time to time and which may not be drawn upon
without the lending bank's agreement. At June 30, 1994, $76.5 million was
outstanding under these credit facilities and an additional $11 million was
reserved to cover the Company's obligations under outstanding letters of credit.
9
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OREGON STEEL MILLS, INC.
The Company anticipates that these facilities will be replaced by the New
Facility.
The Company also maintains a $5 million credit line which is restricted to use
for letter of credit obligations and cash advances for up to 90 days and which
may not be drawn upon without the lending bank's agreement. At June 30, 1994,
approximately $3.2 million of this credit line was reserved to cover obligations
under outstanding letters of credit.
Camrose (a 60% owned subsidiary) maintains a Canadian $15 million revolving
credit facility with a bank. The facility is collateralized by all of the
assets of Camrose and expires on October 31, 1994. Borrowings under this
facility are limited to an amount equal to specified percentages of Camrose's
eligible trade accounts receivable and inventories. As of June 30, 1994,
Camrose had $8.8 million outstanding under this facility.
CF&I maintains a $30 million revolving credit facility with a bank. Borrowings
under this facility are limited to a specified percentage of CF&I's eligible
trade account receivables. The facility is collateralized by the accounts
receivable of CF&I and expires on December 31, 1994. As of June 30, 1994, CF&I
had $25 million outstanding under this facility.
The Company's $75 million and $40 million credit agreements contain various
restrictive covenants which include, among other things, a minimum current
assets to current liability ratio, a minimum interest coverage ratio, a minimum
ratio of cash flow to scheduled maturities of long-term debt, a minimum tangible
net worth, a maximum ratio of long-term debt to total capitalization, and
restrictions on liens, mortgages and additional indebtedness. The Company
expects that the New Facility will contain restrictive covenants similar to the
foregoing. In addition, Camrose's credit facility contains covenants which,
among other things, require that it maintain a specified minimum tangible net
worth and which limit liens and mortgages, and CF&I's credit facility contains
covenants which, among other things, require that it maintain a specified
minimum tangible net worth. In that regard, the Company has entered into a
keepwell agreement with CF&I's lending bank (which the Company expects will
terminate upon effectiveness of the New Facility) wherein the Company has
agreed, among other things, to maintain CF&I's tangible net worth at the level
required by the credit facility and has further agreed to guarantee that CF&I
will have the cash flow to service the $67.5 million of indebtedness referred to
below. Furthermore, agreements relating to the CF&I acquisition prohibit CF&I
from making any dividends or distributions prior to May 31, 1995 (except to
enable its partners to pay certain taxes) or upon the occurrence of certain
specified events of default, and grant the PBGC, which holds a 4.8% limited
partnership interest in CF&I, first priority with respect to certain
distributions by CF&I to its partners.
CF&I incurred indebtedness in an original principal amount of $67.5 million as
part of the purchase price of the assets of CF&I Steel Corporation on March 3,
1993. This debt, which is unsecured, is payable over ten years, plus interest
at 9.5%. The Company has agreed to guarantee the payment of the first 25
months' installment cash payments of $21.8 million in addition to its
obligations under the keepwell referred to above. At June 30, 1994, the
Company's remaining commitment under this guarantee was $8.7 million, and the
outstanding balance was $62.5 million, of which $57.4 million was classified as
noncurrent.
Capital Expenditures
- - --------------------
The Company has budgeted $129 million of capital expenditures at its
manufacturing facilities in 1994 as follows:
The Company started a capital spending program at its CF&I Steel Division in
1993. The program includes expenditures of approximately $183 million in 1993
through 1996 of which $111 million is budgeted for 1994. Major components of
the project include the installation of a new bar mill reheat furnace, new rod
mill, a continuous caster, and the upgrading of the steelmaking facilities with
a new ladle furnace and vacuum degassing system. At June 30, 1994, $63 million
of the 1994 budgeted amount was expended.
The Company has also budgeted $24 million of capital expenditures at its Oregon
Steel Division for several recurring upgrade projects to the present
manufacturing facilities and equipment. Budgeted expenditures for the pipe
mills are $12 million, and budgeted expenditures for the plate mills are $12
million. Approximately $18 million of the $24 million capital budget is planned
to be expended in 1994 of which $6 million was expended as of June 30, 1994.
10
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OREGON STEEL MILLS, INC.
The Company has budgeted $15 million for an approximate 13 percent equity
interest in a planned Venezuelan Hot Briquetted Iron ("HBI") plant. The Company
expects a $4 million cash outlay during the second half of 1994 for the project.
The Company is currently completing a feasibility study on the merits of
installing a new combination rolling mill at the Portland steel mill which will
employ Steckel and conventional technology. The Company is also investigating
alternative methods of financing in order to fund the project.
11
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OREGON STEEL MILLS, INC.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.0 Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
During the quarter ended June 30, 1994, no reports on Form 8-K
were filed by the Company.
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.
OREGON STEEL MILLS, INC.
Date: August 10, 1994 /s/ Jackie L. Williams
-------------------------
Jackie L. Williams
Corporate Controller
(Principal Accounting Officer)
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OREGON STEEL MILLS, INC.
EXHIBIT 11.0
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands, except per share data amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
----- ---- ----- ----
Weighted average number of common
shares outstanding 19,378 19,348 19,373 19,100
Common stock equivalents arising
from 598 shares of stock to be
issued March 2003. 598 598 598 598
------- ------- ------- -------
19,976 19,946 19,971 19,698
======= ======= ======= =======
Net income $ 3,439 $ 9,244 $ 7,126 $16,020
======= ======= ======= =======
Primary and fully diluted
net income per common and
common equivalent shares
$.17 $.46 $.36 $.81
==== ==== ==== ====
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