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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 September 30, 1994
--------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- --------------
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
- - ----------------------------------------------------------------------
(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 Shares Outstanding
(as of October 31, 1994) <PAGE>
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OREGON STEEL MILLS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1994 (unaudited)
and December 31, 1993 . . . . . . . . . . . . .2
Consolidated Statements of Income (unaudited)
Three months and nine months ended
September 30, 1994 and 1993 . . . . . . . . . .3
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 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<PAGE>
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OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1994 1993
(Unaudited) (1)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,755 $ 9,623
Trade accounts receivable, net 80,831 71,649
Inventories 159,268 160,504
Other current assets 12,823 14,007
--------- ---------
Total current assets 256,677 255,783
--------- ---------
Property, plant and equipment:
Land and improvements 25,067 24,466
Buildings 36,064 35,821
Machinery and equipment 215,481 240,833
Construction in progress 122,133 34,605
-------- --------
398,745 335,725
Accumulated depreciation (93,024) (104,300)
-------- --------
305,721 231,425
-------- --------
Excess of cost over net assets acquired 38,873 39,474
Other assets 23,932 22,988
-------- --------
$625,203 $549,670
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 5,292 $ 4,680
Short-term debt 50,236 14,225
Accounts payable 68,239 75,419
Accrued expenses 29,156 21,998
-------- --------
Total current liabilities 152,923 116,322
Long-term debt 116,070 76,487
Other deferred liabilities 54,309 52,130
Deferred income taxes 9,075 16,514
-------- --------
332,377 261,453
-------- --------
Minority interests 18,508 12,975
-------- --------
STOCKHOLDERS' EQUITY
Common stock 194 193
Additional paid-in capital 150,090 149,340
Retained earnings 127,422 128,924
Minimum pension liability adjustment (297) (297)
-------- --------
277,409 278,160
Cumulative foreign currency translation
adjustment (3,091) (2,918)
-------- -------
274,318 275,242
-------- -------
$625,203 $549,670
======== ========
(1) Condensed from audited financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
2<PAGE>
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<TABLE>
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- ----------------------
1994 1993 1994 1993
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $193,053 $174,183 $646,721 $527,334
Costs and expenses:
Cost of sales 178,179 161,701 589,740 466,338
Provision for rolling mill closures 22,134 - 22,134 -
Selling, general and administrative expenses 12,185 10,555 38,094 29,257
Contribution to employee stock ownership plan - - 501 752
Profit participation 164 - 1,217 4,654
-------- -------- -------- --------
Operating income (loss) (19,609) 1,927 (4,965) 26,333
Other income (expense):
Interest and dividend income 109 306 357 725
Interest expense (663) (1,183) (3,106) (3,072)
Other income (expense), net 334 (29) 586 (529)
Settlement of litigation - - - 2,750
Gain on sale of subsidiary's common stock 12,323 - 12,323 -
Minority interests (843) (413) (2,050) (1,533)
--------- -------- --------- --------
Income (loss) before income taxes (8,349) 608 3,145 24,674
Provision for income taxes benefit (expense) 7,855 (588) 3,487 (8,634)
--------- -------- --------- --------
Net income (loss) $ (494) $ 20 $ 6,632 $ 16,040
========= ======== ========= ========
Primary and fully diluted net income (loss) per
common and common equivalent share ($.02) $.0 $.33 $.81
Dividends declared per common share $.14 $.14 $.42 $.42
Weighted average common shares
and common equivalents outstanding 19,976 19,946 19,972 19,781
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3<PAGE>
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<TABLE>
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(unaudited)
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,632 $ 16,040
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 16,901 15,828
Provision for rolling mill closures 22,134 -
Change in deferred income taxes (7,438) 3,761
Accruals for contribution of common stock
to employee stock ownership plan 500 750
Gain on sale of subsidiary's common stock (12,323) -
(Gain) loss on disposal of property, plant and equipment (82) 501
Change in post-retirement benefit obligation, net 2,210 731
Change in non-current pension cost (725) (86)
Minority's share of income 1,056 1,602
Other, net (179) (262)
Changes in current assets and liabilities related to operations (26,949) 30,352
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,737 69,217
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (92,588) (21,300)
Proceeds from disposal of property, plant and equipment 352 1,636
Increase in long-term investments - (1,510)
Investment in CF&I Steel, L.P. - (8,039)
Other, net (707) 79
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (92,943) (29,134)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under revolving
loan agreements 79,293 (7,011)
Other reductions of debt (3,105) (1,998)
Proceeds from sale of subsidiary's common stock 16,800 -
Dividends paid (8,134) (8,107)
Other, net 260 (31)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 85,114 (17,147)
-------- --------
Effects of foreign currency exchange rate changes on cash 224 (52)
-------- --------
Net increase (decrease) in cash and cash equivalents (5,868) 22,884
Cash and cash equivalents at beginning of period 9,623 5,177
-------- --------
Cash and cash equivalents at end of period $ 3,755 $ 28,061
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $7,392 $3,870
Income taxes $3,954 $2,704
NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1994, the Company acquired additional property, plant and equipment for
$16.2 million which was included in accounts payable at September 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.
During the nine months ended September 30, 1994, the Company incurred a non-cash after tax charge of $12.9 million to reduce the
carrying value of various pieces of property, plant and equipment, inventories, and other operating supplies relating to the
closure of the Fontana rolling mill and for those assets unlikely to be used following the construction of the Combination Mill
at the Portland steel mill.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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:
September 30, December 31,
1994 1993
------------- ------------
(In thousands)
Raw materials $ 23,621 $ 26,242
Semi-finished product 59,571 51,759
Finished product 55,663 62,104
Stores and operating supplies 20,413 20,399
-------- --------
$159,268 $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 October 26, 1994, the Board of Directors declared a quarterly
cash dividend of 14 cents per share to be paid November 30,
1994, to stockholders of record as of November 11, 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 post-
5
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OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
retirement health care benefits of $3.7 million. The Company
has guaranteed the payment of the first 25 months of cash
installment payments on the $67.5 million note (a total of
approximately $6.7 million of principal and interest remains at
September 30, 1994), 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. Minority Investment in New CF&I, Inc.
-------------------------------------
In August 1994, the Company sold a 10 percent equity interest in
its subsidiary, New CF&I, Inc., to a wholly-owned subsidiary of
Nippon Steel Corporation (together with its subsidiaries,
"Nippon"). In connection with that sale, Nippon agreed to
license to the Company its proprietary technology for producing
deep head-hardened ("DHH") rail products, as well as to provide
certain production equipment to produce DHH rail. The cost of
that equipment is included in the capital expenditure program.
New CF&I, Inc. received a cash payment of $16.8 million in
connection with the transaction. The sale resulted in a gain of
approximately $12.3 million for the Company. The gain is not
subject to federal or state income taxes.
6. Provision for Rolling Mill Closure
----------------------------------
The Board of Directors of the Company have approved the
construction at the Company's Portland, Oregon steel mill of a
new steckel combination mill ("Combination Mill") subject to the
securing of financing. A commitment for financing for this
project was secured by the Company in October of 1994. The
Company anticipates the startup of the Combination Mill to be
during the second quarter of 1996. In the third quarter of
1994, the Company recorded a non-cash charge of $5.5 million,
net of taxes of $3.4 million, to reduce the carrying value of
various pieces of plant and equipment and inventories located at
the Company's Portland, Oregon steel mill which are unlikely to
be used following the completion of the Combination Mill.
The Company also announced the permanent closure of its Fontana
plate mill ("Fontana Facility"). It is anticipated that the
Fontana Facility will cease plate production in the fourth
quarter of 1994 and close permanently in the second quarter of
1995. As a result of the closure, the Company recognized a net
loss on the disposal of property, plant and equipment, and exit
costs of $8.2 million, net of taxes of $5 million. Of this net
amount, approximately $7.4 million is a non-cash charge relating
to the write-off of production supplies and property, plant and
equipment.
6<PAGE>
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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"), 90 percent owned 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 Nine Months Ended
September 30 September 30 (2)
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Tons:
Oregon Steel Division (1):
Plate products 109,900 123,500 318,300 336,500
Welded pipe products 101,800 65,700 376,600 262,500
Semi-finished products 2,800 7,300 4.200 17,900
CF&I Steel Division 176,600 192,500 581,000 449,100
------- ------- --------- ---------
Total 391,100 389,000 1,280,100 1,066,000
======= ======= ========= =========
Revenues (in thousands):
Oregon Steel Division (1) $115,130 $ 92,560 $389,285 $336,977
CF&I Steel Division 77,923 81,623 257,436 190,357
-------- --------- -------- --------
Total $193,053 $174,183 $646,721 $527,334
======== ======== ======== ========
Average selling price per ton:
Oregon Steel Division (1) $537 $471 $557 $546
CF&I Steel Division $441 $424 $443 $424
Average $494 $448 $505 $495
(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 nine months of
results in 1994, while the nine months of 1993 results
included only shipments from March 3, 1993, the date of the
CF&I acquisition.
The third quarter consolidated average selling price increased from
$448 per ton in 1993 to $494 per ton in 1994. The increase was
primarily due to price increases in most of the Company's products and
product mix changes. Higher selling prices at both Napa and Camrose
pipe mills in the third quarter of 1994 versus 1993, along with a
higher percentage of welded pipe tons sold to total tons sold had the
largest impact on the third quarter consolidated selling price per
ton. The ratio of both steel plate and CF&I steel product shipments
to total tons shipped in the third quarter of 1994 decreased from the
third quarter of 1993. On average, the price for welded pipe commands
the highest price for the Company followed by average prices for steel
plate, and lastly CF&I's steel products.
The year-to-date consolidated average selling price increased from
$495 per ton in 1993 to $505 per ton in 1994. The increase was
primarily due to price increases in most of the Company's products and
product mix changes. The Company realized price increases for
substantially all products except welded pipe shipped from the Napa
pipe
7
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OREGON STEEL MILLS, INC.
mill. The negative impact of lower selling prices for welded pipe
from the Napa pipe mill was offset by increased selling prices for
welded pipe shipped from the Company's Camrose pipe mill and by CF&I's
higher selling prices for CF&I steel products.
Consolidated tonnage sold increased 2,100 tons to 391,100 tons in the
third quarter of 1994 compared to the third quarter of 1993 and
increased 214,100 tons to 1.3 million tons for the first nine months
of 1994 compared to the first nine months of 1993. The additional
tonnage increase for the nine month period is primarily the result of
additional welded pipe sold and shipped from the Company's Napa pipe
mill and inclusion of CF&I sales for nine 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 average
selling prices, revenues were $193.1 million and $646.7 million,
respectively, for the three and nine month periods ended September 30,
1994 compared with $174.2 million and $527.3 million for the
corresponding 1993 periods.
Gross profit for the three and nine month periods ended September 30,
1994, increased $2.4 million and decreased $4 million from the
corresponding 1993 period to $14.9 million and $57 million,
respectively. Gross profit as a percentage of sales for the three and
nine month periods ended September 30, 1994, increased .5 percent and
decreased 2.8 percent, respectively, to 7.7 percent and 8.8 percent.
The majority of the $2.4 million quarterly increase resulted from a
$2.3 million positive average margin variance. The $4 million year-to-
date decrease resulted from a $16.3 million negative average margin
variance offset by a $12.3 million positive volume variance. Gross
profit margins for the first nine months of 1994 were negatively
impacted by significantly lower selling prices for welded pipe shipped
from the Company's Napa pipe mill 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 shipments from the
Napa pipe mill.
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 and
higher costs and lower volumes associated with a three week outage at
CF&I's bar mill which was caused by a minor explosion. As the capital
improvement program is completed at CF&I, the Company expects that
gross margins for the last three months of 1994 will be negatively
impacted with additional start-up costs and reduced production.
During the third quarter of 1994, the Company recognized the loss
associated with the closure of its Fontana plate mill and the
provision for loss on the shutdown of the existing Portland rolling
mill at completion of the construction of the steckel combination mill
("Combination Mill"). Of the $13.7 million after-tax charge,
approximately $13 million is a non-cash charge relating to the write-
off of production supplies and property, plant and equipment. The
decision to permanently close the Company's Fontana plate mill was
based upon the high operating costs of the facility and the current
depressed pricing in the international welded pipe market and the lack
of domestic pipeline activity.
Selling, general and administrative expenses ("SG&A") for the three
and nine month periods ended September 30, 1994 increased $1.6 million
and $8.8 million, respectively, from the corresponding periods in
1993. The SG&A increase for the third quarter of 1994 was due
primarily to increased welded pipe shipments from the Company's Oregon
Steel Division. Generally, shipping costs per ton for welded pipe are
more than other Company products. For the first nine months of 1994,
CF&I accounted for $4 million of the total $8.8 million SG&A increase
reflecting the inclusion of a full nine months of results in 1994,
versus seven months in 1993. The remaining $4.8 million SG&A increase
for the nine months was due primarily to additional shipping expenses
due to increased shipments. SG&A as a percent of sales for the three
and nine month periods ended September 30, 1994 was 6.3 and 5.9
percent, respectively, compared with 6.1 and 5.5 percent for the
corresponding periods in 1993.
The contribution to the employee stock ownership plan and the profit
participation expense for the nine month period ended September 30,
1994 decreased compared to the corresponding 1993 period reflecting
the decreased profitability of the Company in 1994 versus 1993.
8
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OREGON STEEL MILLS, INC.
Other Income (Expense)
- - ----------------------
Total interest costs for the three and nine month periods ended
September 30, 1994 were $2.9 million and $7.9 million, respectively,
compared to $1.2 million and $3.2 million, respectively, for the three
and nine month periods ended September 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 working capital requirements and the CF&I
capital expenditure program. Capitalized interest costs for the three
and nine month periods ended September 30, 1994 were $2.2 million and
$4.8 million, respectively, compared to $35,000 and $164,000 for the
corresponding 1993 periods.
The $2.8 million recovery from settlement of litigation received from
the Company's excess liability insurance carrier in the second quarter
of 1993 related to former employee lawsuits which were settled in the
fourth quarter of 1992.
The $12.3 million gain on sale of a subsidiary's common stock in the
third quarter of 1994 was realized from the sale of a 10 percent
equity interest in New CF&I, Inc. to a subsidiary of Nippon Steel
Corporation.
Income Taxes
- - ------------
The Company's effective income tax rate was 94 and 111 percent for the
three and nine month periods ended September 30, 1994 compared to 97
percent and 35 percent, respectively, for the corresponding 1993
periods. The three and nine months ended September 30, 1993 included
$357,000 additional tax expense to reflect the tax affect of the
Omnibus Budget Reconciliation Act of 1993, signed into law on August
10, 1993. Income before income taxes for the nine months ended
September 30, 1993 also included the $2.8 million insurance recovery,
discussed above, which is not subject to income taxes. The three and
nine months ended September 30, 1994 income before income taxes
included the $12.3 million gain on the sale of a 10 percent equity
interest in New CF&I, Inc. which was not subject to income tax.
Liquidity and Capital Resources
- - -------------------------------
The Company's cash flow from operations for the nine month period
ended September 30, 1994 was a positive $1.7 million compared to a
positive cash flow of $69.2 million in the corresponding 1993 period.
The major items causing this $67.5 million decrease were reduced
operating income ($9.2 million net of $22.1 million non-cash charge
for the provision for loss due to rolling mill closures), a lower
reduction of inventories in 1994 than in 1993 ($31.2 million), reduced
accounts payable and accrued expenses ($23 million), less funds
available from refundable income taxes ($2.3 million), and increased
payments of other taxes payable ($2.7 million).
Net working capital at September 30, 1994 decreased $35.7 million from
December 31, 1993 due to a $36.6 million increase in current
liabilities. The current liability increase was due primarily to
increases in short-term debt to support the Company's capital spending
programs.
The Company has received a commitment letter (the "Letter") from its
lending banks expressing the banks' intention to provide a $100
million revolving credit facility, and a $200 million term loan
facility (the "Senior Credit Facilities"). The Senior Credit
Facilities are 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 Senior Credit Facilities. The Senior Credit
Facilities will be collateralized by the combined inventory, accounts
receivable, and general intangible assets
9
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OREGON STEEL MILLS, INC.
of the Company and certain subsidiaries, as well as the Company's
pledge of its common stock of certain major subsidiaries. Maximum
borrowing available under the revolving credit facility will be
dependent on the value of the combined inventory and accounts
receivable of the Company and its various subsidiaries.
The revolving credit facility expires in December of 1997. By mutual
agreement between the Company and its lending banks, the maturity may
be extended two additional years to December 1999. The term loan
facility will require quarterly installment payments of principal
commencing June 30, 1997, and continuing until the final maturity date
of December 31, 1999. Interest on both facilities will be paid
quarterly.
The Letter contemplates that borrowings under the Senior Credit
Facilities will be guaranteed by the Company's subsidiaries (the
"Guarantor Subsidiaries") through which the Company holds its
interests in Napa, Camrose and CF&I. The Letter provides that
borrowings under the Senior Credit Facilities will bear interest at a
floating rate based on either the banks' base rate, or LIBOR, plus a
margin based on the Company's earnings and total debt, and provides
for payment of certain commitment and other fees to the banks. The
availability of the Senior Credit Facilities is subject to several
conditions, including negotiation and execution of definitive
agreements, which are expected to be completed during the fourth
quarter of 1994.
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
September 30, 1994, $80.3 million was outstanding under these credit
facilities of which $60 million was classified as noncurrent. An
additional $9.9 million was reserved to cover the Company's
obligations under outstanding letters of credit. The Company
anticipates that these facilities will be replaced by the Senior
Credit Facilities.
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 September 30, 1994, approximately $3.2 million
of this credit line was reserved to cover obligations under
outstanding letters of credit.
Camrose (a 60 percent-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
receivables and inventories. As of September 30, 1994, Camrose had
$8.9 million outstanding under this facility. The Company and the
lending bank have agreed to a two-year renewal of this facility on
substantially the same terms as are currently in effect. Such renewal
is subject to several conditions, including negotiation and execution
of definitive agreements.
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 accounts receivables. The facility is
collateralized by the accounts receivables of CF&I and expires on
December 31, 1994. As of September 30, 1994, CF&I had $21 million
outstanding under this facility. The Company anticipates that this
facility will be replaced by the Senior Credit Facilities.
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 percent. 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 September 30, 1994, the Company's
remaining commitment under this guarantee was $6.7 million, and the
outstanding balance was $61.4 million, of which $56.1 million was
classified as noncurrent.
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
10
<PAGE>
<PAGE>
OREGON STEEL MILLS, INC.
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 Senior Credit Facilities
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
Senior Credit 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 remaining balance of the
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 percent limited
partnership interest in CF&I, first priority with respect to certain
distributions by CF&I to its partners.
Capital Expenditures
- - --------------------
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 $115 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 September 30, 1994, $90 million of
the 1994 budgeted amount was expended.
The Company has also budgeted $17 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 $7 million, and budgeted
expenditures for the Portland steel mill are $10 million.
Approximately $11 million of the $17 million capital budget is planned
to be expended in 1994 of which $8 million was expended as of
September 30, 1994.
The Company has budgeted approximately $190 million through 1996 for
the Combination Mill of which $9 million is expected to be expended in
1994. As of September 30, 1994, $6 million has been expended. The
Combination Mill budget includes the installation of a new reheat
furnace, a 4-high rolling mill with coiling furnaces, a vertical
edging mill, a down coiler, on-line accelerated cooling, hot leveling
and plate shearing equipment. The new mill will be capable of
producing wider steel plate than any such combination mill currently
operating in the world. It is expected to provide considerable
manufacturing flexibility and supply all of the Company's trade plate
requirements (both commodity and specialty), skelp for large diameter
line pipe, plus hot-rolled coils for such applications as electric
resistance welded (ERW) pipe. The Combination Mill, as currently
planned, would be capable of producing widths from 48" to 136" with a
discrete plate thickness range of 3/16" to 8". Coiled products would
range from 48" to 120" wide and from .090" through .75" thickness.
The Company has budgeted $15 million for an approximate 13 percent
equity interest in a planned Venezuelan Hot Briquetted Iron ("HBI")
plant. No expenditures on this project are expected in 1994.
The Company believes that anticipated needs for working capital and
the capital expenditure program noted above will be met from existing
cash balances, funds generated from operations and borrowings pursuant
to the Senior Credit Facilities.
11
<PAGE>
<PAGE>
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 September 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: November 11, 1994 /s/ Jackie L. Williams
-----------------------------
Jackie L. Williams
Corporate Controller
(Principal Accounting Officer)
12
<PAGE>
<PAGE>
<TABLE>
OREGON STEEL MILLS, INC.
EXHIBIT 11.0
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands, except per share data amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 19,378 19,348 19,374 19,183
Common stock equivalents arising
from 598 shares of stock to be
issued March 2003. 598 598 598 598
------ ------ ------ ------
19,976 19,946 19,972 19,781
====== ====== ====== ======
Net income $ (494) $ 20 $ 6,632 $16,040
======= ======= ======= =======
Primary and fully diluted
net income per common and
common equivalent shares $(.02) $.0 $.33 $.81
===== === ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 3755
<SECURITIES> 0
<RECEIVABLES> 82915
<ALLOWANCES> 2084
<INVENTORY> 159268
<CURRENT-ASSETS> 256677
<PP&E> 398745
<DEPRECIATION> 93024
<TOTAL-ASSETS> 625203
<CURRENT-LIABILITIES> 152923
<BONDS> 0
<COMMON> 194
0
0
<OTHER-SE> 274124
<TOTAL-LIABILITY-AND-EQUITY> 625203
<SALES> 646721
<TOTAL-REVENUES> 646721
<CGS> 598740
<TOTAL-COSTS> 598740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 381
<INTEREST-EXPENSE> 3106
<INCOME-PRETAX> 3145
<INCOME-TAX> (3487)
<INCOME-CONTINUING> 6632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6632
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
