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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 March 31, 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
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(Address of principal executive offices) (Zip Code)
(503) 223-9228
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(Registrant's telephone number, including area code)
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(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
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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
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Class Number of Shares Outstanding
(as of April 30, 1994)
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OREGON STEEL MILLS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1994 (unaudited)
and December 31, 1993 . . . . . . . . . . . 2
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1994
and 1993. . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements (unaudited) . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 6 - 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 10
1
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OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1994 1993
(Unaudited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,944 $ 9,623
Trade accounts receivable, net 80,357 71,649
Inventories 169,071 160,504
Other current assets 12,343 14,007
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Total current assets 270,715 255,783
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Property, plant and equipment:
Land and improvements 24,925 24,466
Buildings 35,784 35,821
Machinery and equipment 251,481 240,833
Construction in progress 57,990 34,605
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370,180 335,725
Accumulated depreciation (109,471) (104,300)
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260,709 231,425
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Excess of cost over net assets acquired 39,378 39,474
Other assets 22,699 22,988
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$ 593,501 $ 549,670
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 4,959 $ 4,680
Short-term debt 16,396 14,225
Accounts payable 82,294 75,419
Accrued expenses 26,329 21,998
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Total current liabilities 129,978 116,322
Long-term debt 103,577 76,487
Other deferred liabilities 52,698 52,130
Deferred income taxes 17,897 16,514
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304,150 261,453
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Minority interest 13,572 12,975
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STOCKHOLDERS' EQUITY
Common stock 194 193
Additional paid-in capital 150,090 149,340
Retained earnings 129,902 128,924
Minimum pension liability adjustment (297) (297)
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279,889 278,160
Cumulative foreign currency translation adjustment (4,110) (2,918)
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275,779 275,242
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$593,501 $549,670
========= =========
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 tonnage and per share amounts)
(Unaudited)
Three Months Ended March 31,
----------------------------
1994 1993
--------- --------
Sales $214,773 $149,043
Costs and expenses:
Cost of sales 194,064 125,624
Selling, general and administrative expenses 12,306 8,035
Contribution to employee stock ownership plan 250 500
Profit participation 651 2,553
-------- --------
Operating income 7,502 12,331
Other income (expense):
Interest and dividend income 133 136
Interest expense (1,045) (551)
Other income (expense), net (44) (466)
Minority interest (598) (608)
Income before income taxes 5,948 10,842
Provision for income taxes 2,261 4,066
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Net income $ 3,687 $ 6,776
======== ========
Primary and fully diluted net income per
common and common equivalent share $.18 $.35
Dividends declared per common share $.14 $.14
Weighted average common shares
and common equivalents outstanding 19,966 19,450
Tonnage sold 422,000 256,200
The accompanying notes are an integral part of the consolidated
financial statements.
3
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OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
1994 1993
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Cash flows from operating activities:
Net income $ 3,687 $ 6,776
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 5,692 4,783
Deferred income taxes 1,383 618
Accrual for contribution of common stock
to employee stock ownership plan 250 500
Loss on disposal of property, plant
and equipment 5 246
Minority interest share of income 598 608
Other, net 529 67
Changes in current assets and
liabilities related to operations (19,768) 25,922
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (7,624) 39,520
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (19,939) (5,602)
Proceeds from disposal of property, plant
and equipment 12 1,380
Investment in CF&I Steel, L.P. - (7,558)
Other, net (13) 133
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NET CASH USED IN INVESTING ACTIVITIES (19,940) (11,647)
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Cash flows from financing activities:
Net borrowings (payments) under revolving
loan agreements 30,535 (6,953)
Other reductions of debt (931) -
Dividends paid (2,709) (2,688)
Other, net (3) (9)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 26,892 (9,650)
-------- --------
Effects of foreign currency exchange rate
changes on cash (7) 52
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Net increase (decrease) in cash and cash
equivalents (679) 18,275
Cash and cash equivalents at beginning of period 9,623 5,177
-------- --------
Cash and cash equivalents at end of period $ 8,944 $ 23,452
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $2,011 $168
Income taxes $233 $11
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1994, the Company acquired additional
property, plant and equipment for $15,579 which was included in accounts payable
at March 31, 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
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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
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Inventories consist of:
March 31, December 31,
1994 1993
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(In thousands)
Raw materials $ 24,557 $ 26,242
Semi-finished product 54,959 51,759
Finished product 67,698 62,104
Stores and operating supplies 21,857 20,399
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$169,071 $160,504
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3. Common Stock
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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 April 28, 1994, the Board of Directors declared a quarterly cash
dividend of 14 cents per share to be paid May 31, 1994, to stockholders of
record as of May 13, 1994.
4. Business Acquisition
--------------------
On March 3, 1993, New CF&I, Inc., 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. The remaining 4.8 percent
interest is owned by the Pension Benefit Guaranty Corporation. Concurrent
with the formation of the partnership, CF&I Steel, L.P., and the
acquisition of the partnership interest by New CF&I, Inc., CF&I Steel, L.P.
purchased from CF&I Steel Corporation substantially all of the assets of
its steelmaking, fabricating, metals and railroad business, ("CF&I
Acquisition"). New CF&I, Inc.'s capital contribution of $22.2 million
included (1) $7.3 million cash, (2) Common Stock to be issued on March 3,
2003 and warrants to purchase 100,000 shares of Common Stock exercisable
until March 3, 1998, together valued at $11.7 million, and (3) other assets
valued at $3.2 million.
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 was allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition (March 3, 1993). The operating results of this acquisition are
included in the Company's consolidated results of operations from the date
of acquisition.
5
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OREGON STEEL MILLS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
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The consolidated financial statements include the accounts of Oregon Steel
Mills, Inc. (the "Company") and its wholly-owned and majority-owned
subsidiaries, 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
March 31,
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1994 1993
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Oregon Steel Division (1):
Plate products 92,040 93,800
Pipe products 129,790 104,500
CF&I Steel Division 200,170 57,900(2)
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422,000 256,200
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Revenues (in thousands):
Oregon Steel Division $125,187 $124,125
CF&I Steel Division 89,586 24,918(2)
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Total $214,773 $149,043
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Average selling price per ton:
Oregon Steel Division $564 $626
CF&I Steel Division $448 $430(2)
Average $509 $582
(1) The Oregon Steel Division consists of the operations of Oregon Steel
Mills, Inc.; Napa Pipe Corporation; Oregon Steel Mills - Fontana
Division, Inc., and Camrose Pipe Company.
(2) The increase in shipments of the CF&I Steel Division primarily
reflects inclusion of a full quarter of results in 1994, while first
quarter 1993 results included only shipments from March 3, 1993, the
date of the CF&I Acquisition.
Selling prices for the three month period ended March 31, 1994 averaged $509 per
ton compared with $582 per ton for the corresponding period in 1993. Average
1994 selling prices decreased primarily due to significantly lower selling
prices for large diameter pipe produced at the Company's Napa pipe mill and a
larger percentage of CF&I's product mix in total sales. On average, CF&I
products have a lower average selling price than the steel plate and welded pipe
products produced by the Oregon Steel Division. As a result of the increased
shipments and lower average selling prices, sales were $214.8 million for the
three month period ended March 31, 1994 compared with $149 million for the
corresponding 1993 period.
6
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OREGON STEEL MILLS, INC.
Gross profit and gross profit as a percentage of sales declined $2.7 million and
6.1 percent of sales to $20.7 million and 9.6 percent of sales in the first
quarter 1994 compared to the first quarter 1993. The $2.7 million decline
resulted from a $17.8 million negative average price variance offset by a $15.1
million positive volume variance. Gross profit margin in the first quarter of
1994 was negatively impacted by lower large diameter pipe selling prices shipped
from the Company's Napa pipe mill and an increased percentage of CF&I's product
mix to total sales, which depressed prices, coupled with increased costs
associated with producing a higher quality grade of steel slab at the Company's
Portland steel mill to supply plate steel for low carbon pipe grades, and by
rising raw material costs (primarily scrap) which were not fully offset by
higher product selling prices.
Average scrap costs during the first quarter of 1994 were among the highest of
the last five years and were approximately $25 per ton higher than the
corresponding period in 1993. During the first quarter of 1994, the Company
signed a shareholders' agreement to purchase approximately 13 percent equity
interest for approximately $15 million in Complejo Siderurgico de Guayana C.A.,
a company incorporated under the laws of Venezuela ("Comsigua").
Comsigua was formed to design, construct and operate an industrial plant for the
processing of iron oxides into hot briquetted iron ("HBI"), an enhanced form of
directly reduced iron. The plant will have a rated design capacity of one
million metric tons per year and will be located at Ciudad Guayana, Venezuela
("Project"). The Company will be required to purchase 200,000 metric tons of
HBI per year from the Project. The shareholders' agreement will not become
effective until agreements to provide financing to Comsigua have been obtained
from the International Finance Corporation ("IFC"), U.S. Eximbank and
international commercial banks and certain other conditions precedent have been
satisfied.
In addition to the Company, major investors in Comsigua are Kobe Steel Ltd. of
Japan ("Kobe") and Ferrominera del Orinoco ("FMO"), a subsidiary of Corporacion
Venezolana de Guayana, the Venezuela government-owned holding company
responsible for developing basic industry in the Guayana Region of Venezuela.
Kobe will be responsible for engineering, procurement and construction of the
HBI plant under a turn-key guaranteed date contract. FMO will supply iron
oxides to the plant on a long-term basis. In addition, FMO will be responsible
for the supply of land and infrastructure for the plant. Like other
participants in the venture, the Company will be responsible for paying a pro
rata share of cost overruns or financial shortfalls associated with the
construction or operation of the facility. Plant construction is expected to
start in the first half of 1994 and plant operation is expected to commence
thirty months thereafter, in the second half of 1996, absent unforeseen delays
or difficulties.
Selling, general and administrative expenses ("SG&A") for the three month period
ended March 31, 1994 increased $4.3 million from the corresponding period in
1993. The first quarter of 1993 included the SG&A of CF&I for less than one
month versus three months for the corresponding period in 1994. In the first
quarter of 1994, CF&I accounted for $3.2 million of the total $4.3 million SG&A
increase. The remaining $1.1 million increase 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 month period ended March
31, 1994 was 5.7 percent compared with 5.4 percent for the corresponding period
in 1993.
The contribution to the employee stock ownership plan and the profit
participation expense for the three month period ended March 31, 1994 decreased
compared to the corresponding 1993 period reflecting the decreased profitability
of the Company in 1994 versus 1993.
Other Income (Expense)
- - ----------------------
Interest expense for the three month period ended March 31, 1994 increased
$500,000 from the corresponding period in 1993 to $1 million. This increase was
primarily the result of interest incurred on debt issued by CF&I in its purchase
of the assets of CF&I Steel Corporation and borrowings under revolving term loan
agreements.
7
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OREGON STEEL MILLS, INC.
Income Taxes
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The Company's effective income tax rate was 38 percent and 37 percent for the
three month periods ending March 31, 1994 and 1993, respectively.
Liquidity and Capital Resources
- - -------------------------------
Cash flow in first quarter 1994 operations was a negative of $7.6 million
compared to a positive cash flow of $39.5 million in the corresponding 1993
period. The major items affecting this $47.1 million decrease were reduced
income ($3.1 million), more funds required for inventories ($33.4 million), more
payments made on accounts payable and accrued expenses ($16.8 million), less
funds available from refundable income taxes ($2 million), and increased
payments of other taxes payable ($1.9 million). The negative cash flows were
offset by the positive effects of increased depreciation and amortization
($900,000) and additional collections of trade accounts receivable ($9.2
million).
Net working capital at March 31, 1994 increased $1.3 million from December 31,
1993 due to a $14.9 million increase in current assets offset by a $13.6 million
increase in current liabilities. Trade accounts receivable increased from $71.6
million at the end of 1993 to $80.4 million at March 31, 1994. This increase
was mainly due to increased sales in the first quarter of 1994 compared to the
fourth quarter of 1993 from the Oregon Steel Division. Inventories increased
from $160.5 million from December 31, 1993 to $169.1 million at March 31, 1994.
This increase consisted of additional inventories at both the Oregon Steel
Division and CF&I Steel Division to support a higher level of shipments. Other
current assets, including cash, decreased $2.4 million from December 31, 1993.
The current liability increase was due primarily to increases at the CF&I Steel
Division to support increased commitments for CF&I's capital improvement
program.
The Company maintains an unsecured revolving credit and term loan agreement (the
"Credit Agreement") with two banks which enables the Company to borrow up to $75
million. The use of the proceeds from borrowings under this Credit Agreement is
restricted to (1) investing in businesses and related equipment in the steel
industry and certain other industries, and (2) working capital and general
corporate purposes. On July 1, 1996, the outstanding principal balance will be
converted, unless prepaid, to a term loan payable in sixteen equal quarterly
installments through June 30, 2000. At March 31, 1994, the Company had $45
million outstanding under this credit facility and classified as noncurrent.
The Company also has a $20 million unsecured revolving line of credit facility
with a bank which matures May 31, 1994. At March 31, 1994, the Company had $1
million (classified as short-term debt) outstanding under this credit facility,
and $9.2 million was restricted under outstanding letters of credit. In
addition, the Company has a $5 million unsecured revolving credit line with a
bank which is restricted to use for letter of credit obligations and cash
advances for up to 90 days. At March 31, 1994, $3 million was restricted under
outstanding standby letters of credit, and there were no loan amounts
outstanding.
Camrose (a 60 percent owned subsidiary) maintains a $15 million revolving credit
facility with a bank, the proceeds of which may be used for working capital and
general corporate purposes. The facility is collateralized by the assets of
Camrose and expires on October 31, 1994. As of March 31, 1994, Camrose had
$400,000 (classified as short-term debt) outstanding under the facility.
CF&I maintains a $15 million revolving credit facility with a bank, the proceeds
of which may be used for working capital and general corporate purposes. The
facility is collateralized by the accounts receivable of CF&I and expires on May
24, 1994. As of March 31, 1994, CF&I had $15 million (classified as short-term
debt) outstanding under the facility.
8
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OREGON STEEL MILLS, INC.
CF&I issued a $67.5 million term note 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 percent. The Company
has agreed to guarantee the payment of the first 25 months' installment cash
payments of $21.8 million. At March 31, 1994, the Company's remaining
commitment under this guarantee is $11.4 million. As of March 31, 1994, the
outstanding balance on this debt was $63.5 million, of which $58.6 million was
classified as noncurrent.
Capital Expenditures
- - --------------------
The Company has budgeted $127 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 1994
through 1998. 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 March 31, 1994, $32.5 million of the $111 million 1994 budget was expended.
The Company has also planned $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 $12.4 million, and budgeted expenditures for the plate mills are $11.6
million. Approximately $16 million of the $24 million capital budget is planned
to be expended in 1994 of which $3 million was expended in the first quarter
1994.
9
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PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
April 28, 1994.
At the meeting, the following candidates were approved by the
stockholders as Class C directors. The corresponding number of votes
set opposite their respective names were:
Name of Candidate Yes Votes Withheld Authority to Vote
----------------- --------- --------------------------
Thomas B. Boklund 15,401,684 145,540
Richard G. Landis 15,377,993 169,231
James A. Maggetti 15,404,095 143,129
The terms of office for the following directors continued after the
meeting: C. Lee Emerson, V. Neil Fulton, Edward C. Gendron, Robert W.
Keener, and John A. Sproul.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended March 31, 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: May 13, 1994 -------------------------------
Jackie L. Williams
Corporate Controller
(Principal Accounting Officer)
10
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PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
April 28, 1994.
At the meeting, the following candidates were approved by the
stockholders as Class C directors. The corresponding number of votes
set opposite their respective names were:
Name of Candidate Yes Votes Withheld Authority to Vote
----------------- --------- --------------------------
Thomas B. Boklund 15,401,684 145,540
Richard G. Landis 15,377,993 169,231
James A. Maggetti 15,404,095 143,129
The terms of office for the following directors continued after the
meeting: C. Lee Emerson, V. Neil Fulton, Edward C. Gendron, Robert W.
Keener, and John A. Sproul.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended March 31, 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: May 13, 1994 /s/ Jackie L. Williams
-------------------------------
Jackie L. Williams
Corporate Controller
(Principal Accounting Officer)
10
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