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, 1999
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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
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(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
----- -----
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 25,776,804
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Class Number of Shares Outstanding
(as of April 30, 1999)
<PAGE>
OREGON STEEL MILLS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 (unaudited)
and December 31, 1998...................................2
Consolidated Statements of Income (unaudited)
Three months ended March 31, 1999
and 1998 ...............................................3
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1999
and 1998 ...............................................4
Notes to Consolidated Financial
Statements (unaudited)..............................5 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................8 - 12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk......................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................13
Item 4. Submission of Matters to a
Vote of the Security Holders..............................13
Item 6. Exhibits and Reports on Form 8-K..........................13
SIGNATURES ...................................................................13
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<PAGE>
OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31,
1999 December 31,
(Unaudited) 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 8,214 $ 9,044
Trade accounts receivable, net 64,662 67,254
Inventories 175,518 196,279
Deferred tax asset 13,592 13,593
Other 7,388 6,595
----- -----
Total current assets 269,374 292,765
------- -------
Property, plant and equipment:
Land and improvements 28,861 28,811
Buildings 49,514 49,387
Machinery and equipment 754,283 749,597
Construction in progress 15,235 16,329
------ ------
847,893 844,124
Accumulated depreciation (216,340) (205,515)
-------- --------
631,553 638,609
------- -------
Excess of cost over net assets acquired, net 34,668 35,508
Other assets 29,376 27,088
------ ------
$ 964,971 $993,970
========= ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 7,505 $ 7,164
Short-term debt 78,700 93,700
Accounts payable 85,365 106,084
Accrued expenses 55,218 45,568
--------- --------
Total current liabilities 226,788 252,516
Long-term debt 262,798 270,440
Deferred employee benefits 20,586 20,427
Environmental liability 32,644 32,765
Deferred income taxes 39,520 36,415
------ ------
582,336 612,563
--------- ---------
Minority interests 32,141 36,290
--------- ---------
Contingencies (Note 6)
STOCKHOLDERS' EQUITY
Common stock 258 258
Additional paid-in capital 227,584 227,584
Retained earnings 130,281 125,479
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (7,629) (8,204)
--------- ---------
350,494 345,117
--------- ---------
$ 964,971 $ 993,970
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
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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,
----------------------------
1999 1998
----------- ---------
Sales $239,655 $223,003
Costs and expenses:
Cost of sales 198,317 195,284
Selling, general and
administrative expenses 14,030 13,949
Profit participation 3,044 140
-------- --------
Operating income 24,264 13,630
Other income (expense):
Interest and dividend income 78 101
Interest expense (9,613) (9,518)
Minority interests (1,093) (1,392)
Other, net 207 (21)
-------- --------
Income before income taxes 13,843 2,800
Income tax expense (5,432) (1,014)
-------- --------
Net income $ 8,411 $ 1,786
======== ========
Basic and diluted net income per share $.32 $.07
Dividends declared per common share $.14 $.14
Weighted average common shares
and common share equivalents
outstanding 26,375 26,347
Tonnage sold 457,900 409,700
The accompanying notes are an integral part of the consolidated
financial statements.
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OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 8,411 $ 1,786
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 10,970 10,747
Deferred income tax provision 3,105 1,751
Minority interests' share of income 1,093 2,871
Other, net (55) (109)
Changes in current assets and liabilities 11,651 9,441
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,175 26,487
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (3,696) (9,416)
Other, net (1,710) (291)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (5,406) (9,707)
-------- --------
Cash flows from financing activities:
Net payments under Canadian bank
revolving loan facility (3,883) (3,707)
Proceeds from long-term bank debt 52,900 80,500
Payments on long-term debt (71,399) (84,900)
Dividends paid (3,609) (3,609)
Minority portion of subsidiary's distribution (5,264) (1,479)
Other, net 81 (93)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (31,174) (13,288)
-------- --------
Effects of foreign currency exchange rate
changes on cash 575 34
-------- --------
Net increase (decrease) in cash and cash equivalents (830) 3,526
Cash and cash equivalents at beginning of period 9,044 570
-------- --------
Cash and cash equivalents at end of period $ 8,214 $ 4,096
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 4,100 $ 1,588
Income taxes $ 805 $ 60
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
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 subsidiaries ("Company"). All significant intercompany
balances and transactions have been eliminated.
The unaudited financial statements include all adjustments (consisting of
normal recurring accruals) which, in the opinion of management, are
necessary for a fair presentation of the interim periods. Results for an
interim period are not necessarily indicative of results for a full year.
Reference should be made to the Company's 1998 Annual Report on Form 10-K
for additional disclosures including a summary of significant accounting
policies.
2. Inventories
-----------
Inventories consist of:
March 31, December 31,
1999 1998
----------- ------------
(In thousands)
Raw materials $ 17,677 $ 16,842
Semifinished product 81,805 93,747
Finished product 50,068 60,290
Stores and operating supplies 25,968 25,400
-------- --------
Total Inventory $175,518 $196,279
======== ========
3. Common Stock
------------
On April 29, 1999, the Board of Directors declared a quarterly cash
dividend of 14 cents per share to be paid May 29, 1999, to stockholders of
record as of May 15, 1999.
4. Net Income per Share
--------------------
Basic and diluted net income per share was as follows:
Three Months Ended March 31,
---------------------------
1999 1998
--------- --------
(In thousands, except per share amounts)
Weighted average number of common
shares outstanding 25,777 25,749
Shares of common stock to be
issued March 2003 598 598
------- -------
26,375 26,347
======= =======
Net income $ 8,411 $ 1,786
======= =======
Basic and diluted net income per share $ .32 $ .07
======= =======
5. Comprehensive Income
--------------------
Three Months Ended March 31,
----------------------------
1999 1998
------ ------
(In thousands)
Net income $8,411 $1,786
Foreign currency translation adjustment 575 276
------ ------
Comprehensive Income $8,986 $2,062
====== ======
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6. Contingencies
-------------
ENVIRONMENTAL.
All material environmental remediation liabilities, which are probable and
estimable, are recorded in the financial statements based on current
technologies and current environmental standards at the time of
evaluation. Adjustments are made when additional information is available
that may require different remediation methods or periods, and ultimately
affect the total cost. The best estimate of the probable cost within a
range is recorded. If there is no best estimate, the low end of the range
is recorded, and the range is disclosed.
The Company's 87-percent-owned New CF&I, Inc. subsidiary owns a majority
interest in CF&I Steel, L.P. ("CF&I") which owns a steel mill in Pueblo,\
Colorado "Pueblo Mill"). In connection with the 1993 acquisition of CF&I,
the Company accrued a liability of $36.7 million for environmental
remediation at the Pueblo Mill. The Company believed $36.7 million was the
best estimate from a range of $23.1 to $43.6 million. The Company estimate
of this liability was based on two separate remediation investigations
conducted by independent environmental engineering consultants. The
accrual includes costs for the Resource Conservation and Recovery Act
facility investigation, a corrective measures study, remedial action, and
operation and maintenance associated with the proposed remedial actions.
In October 1995, CF&I and the Colorado Department of Public Health and
Environment finalized a postclosure permit for historic hazardous waste
units at the Pueblo Mill. As part of the postclosure permit requirements,
CF&I must conduct a corrective action program for the 82 solid waste
management units at the facility and continue to address projects on a
prioritized corrective action schedule which is substantially reflective
of a straight-line rate of expenditure over 30 years. The State of
Colorado stated that the schedule for corrective action could be
accelerated if new data indicated a greater threat to the environment
than is currently known to exist. At March 31, 1999, the accrued
liability was $32.8 million, of which $30.9 million was classified as
noncurrent in the consolidated balance sheet.
LABOR DISPUTE.
The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on
October 3, 1997 the United Steel Workers of America ("Union") initiated a
strike at CF&I for approximately 1,000 bargaining unit employees. The
parties failed to reach final agreement on a new labor contract due to
differences on economic issues. As a result of contingency planning, the
Company was able to avoid complete suspension of operations at the Pueblo
Mill by utilizing a combination of permanent replacement workers, striking
employees who returned to work and salaried employees.
On December 30, 1997, the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a
few vacancies existed at the Pueblo Mill. As of the end of March 1999, 90
former striking employees had returned to work as a result of their
unconditional offer. Approximately 720 former striking workers remain
unreinstated ("Unreinstated Employees").
On February 27, 1998 the Regional Director of the National Labor Relations
Board ("NLRB") Denver office issued a complaint against CF&I, alleging
violations of several provisions of the National Labor Relations Act. The
Company not only denies the allegations, but rather believes that both the
facts and the law fully support its contention that the strike was
economic in nature and that it was not obligated to displace the properly
hired permanent replacement employees. On August 17, 1998, a hearing on
these allegations commenced before an Administrative Law Judge. Testimony
and other evidence was presented on various hearing dates in the latter
part of 1998 and early 1999. The hearing concluded on February 25, 1999.
The Administrative Law Judge will render a decision which is automatically
appealable by either party to the NLRB in Washington, D.C. Ultimate
determination of the issue may well require action by an appropriate
United States Court of Appeals. In the event there is an adverse
determination of these issues, Unreinstated Employees could be entitled to
back pay from the date of the Union's unconditional offer to return to
work through the date of the adverse determination ("Backpay Liability").
The number of Unreinstated Employees entitled to back
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<PAGE>
pay would probably be limited to the number of replacement workers,
currently approximately 430 workers. However, the Union might assert that
all unreinstated employees could be entitled to back pay. Back pay is
generally measured by the quarterly earnings of those working less
interim wages earned elsewhere by the Unreinstated Employees. In addition,
each Unreinstated Employee has a duty to take reasonable steps to mitigate
the Backpay Liability by seeking employment elsewhere that has comparable
demands and compensation. It is not presently possible to estimate the
extent to which interim earnings and failure to mitigate the Backpay
Liability would affect the cost of an adverse determination.
In addition, during the union strike 39 bargaining unit employees of the
Colorado & Wyoming Railway Company ("C&W"), a wholly-owned subsidiary of
New CF&I, Inc. which provides rail service to the Pueblo Mill, refused to
report to work for an extended period of time. The bargaining unit
employees of C&W were not on strike. C&W determined that these employees
to have quit their employment and, accordingly, C&W declined to allow
those individuals to return to work. The Brotherhood of Maintenance of
Way Employees, the National Conference of Firemen and Oilers, the United
Transportation Union, and certain members of those organizations
individually (jointly "Plaintiffs") filed in 1998 various lawsuits in the
U.S. District Court of Colorado against C&W claiming union members had
refused to cross the picket line because they were honoring the picket
line of another organization or because of safety concerns stemming from
those picket lines. The Plaintiffs demand reinstatement of the former
employees, back pay and other damages. The Company believes it has
substantial defenses against these claims. However, it is possible that
one or more of them will proceed to arbitration before the National
Railroad Adjustment Board or otherwise. The outcome of such proceedings
is inherently uncertain and it is not possible to estimate any potential
settlement amount which would result from an adverse legal or
arbitration decision.
7. Subsequent Event
----------------
Due to the continuing adverse market conditions, effective May 7, 1999,
the Company began a temporary indefinite shutdown of its seamless tube
mill at RMSM. The shutdown is expected to result in a charge for employee
severance costs in the second quarter of 1999 of approximately $870,000
after taxes.
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<PAGE>
OREGON STEEL MILLS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
The following information contains forward-looking statements which are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties and actual results could differ materially from those projected.
Such risks and uncertainties include, but are not limited to, general business
and economic conditions; competitive products and pricing, as well as
fluctuations in demand; potential equipment malfunction, work stoppages, and
plant construction and repair delays, and failure of the Company to accurately
predict the costs to address the year 2000 issues or the lost revenues related
to interruption in the Company's or its customers' business.
The consolidated financial statements include the accounts of Oregon Steel
Mills, Inc. and its subsidiaries ("Company"), wholly-owned Camrose Pipe
Corporation ("CPC") which owns a 60 percent interest in Camrose Pipe Company
("Camrose"), 87 percent owned New CF&I, Inc. ("New CF&I") which owns a 95.2
percent interest in CF&I Steel, L.P. ("CF&I") (dba Rocky Mountain Steel Mills).
The Company also owns a 4.3 percent limited partner interest in CF& I.
The Company is organized into two business units known as the Oregon Steel
Division and the Rocky Mountain Steel Mills Division ("RMSM"). The Oregon Steel
Division is centered on the Company's steel plate minimill in Portland, Oregon.
In addition to the Portland steel mill, the Oregon Steel Division includes the
Company's large diameter pipe finishing facility in Napa, California and the
large diameter and electric resistance welded pipe facility in Camrose, Alberta.
The RMSM Division consists of the steelmaking and finishing facilities of CF&I
located in Pueblo, Colorado, as well as certain related operations.
Results of Operations
The following table sets forth, by division, tonnage sold, sales and average
selling price per ton:
Three Months Ended March 31,
----------------------------
1999 1998
----------- ------------
Total tonnage sold:
Oregon Steel Division:
Plate 99,500 58,000
Welded pipe 159,700 116,700
-------- --------
Total Oregon Steel Division 259,200 174,700
-------- --------
RMSM Division:
Rail 95,000 98,200
Rod, Bar and Wire 93,100 96,400
Seamless Pipe 8,500 19,200
Semifinished 2,100 21,200
-------- --------
Total RMSM Division 198,700 235,000
-------- --------
Total 457,900 409,700
======== ========
Sales (in thousands):
Oregon Steel Division $167,933 $123,873
RMSM Division 71,722 99,130
-------- --------
Total $239,655 $223,003
======== ========
Average selling price per ton:
Oregon Steel Division $648 $709
RMSM Division $361 $422
Average $523 $544
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<PAGE>
OREGON STEEL MILLS, INC.
Sales increased 7.5 percent to $239.7 million for the first quarter of
1999, compared to the first quarter of 1998. Shipments increased 11.8 percent to
457,900 tons in the first quarter of 1999, compared to the first quarter of
1998. The increase in sales and shipments was primarily the result of increased
shipments of plate and welded pipe products by the Oregon Steel Division, offset
in part by reduced seamless pipe and semifinished shipments by the RMSM
Division.
The consolidated average selling price decreased to $523 per ton for the
first quarter of 1999 from $544 per ton in the first quarter of 1998. The lower
average selling price is primarily due to depressed pricing in the Company's
plate, rod and seamless pipe products, partially offset by increased
large-diameter pipe pricing and shipments.
The Oregon Steel Division shipped 259,200 tons of plate, coil and welded
pipe products at an average selling price of $648 per ton during the first
quarter of 1999, compared to 174,700 tons of product at an average selling price
of $709 per ton for the first quarter of 1998. The decrease in average selling
price is due to increased shipments of commodity plate products and lower plate
prices, which were negatively impacted by the high levels of imported plate.
Welded pipe shipments during the first quarter of 1999 were 159,700 tons
compared to 116,700 during the comparable 1998 quarter. Increased pipe shipments
were primarily a result of production at the Napa Pipe Mill of Phase I of the
Alliance Pipeline project, which began in the fourth quarter of 1998. Phase II
production on Alliance originally scheduled for 2000 has been moved forward into
the second half of 1999. In total, the Company expects to produce and ship
approximately 330,000 tons of welded pipe for the Alliance project in 1999.
During the first quarter of 1999, due to the improved performance of the
Portland, Oregon plate mill, the Oregon Steel Division produced 203,800 tons of
plate and coil compared to 155,000 tons in the first quarter of 1998. Shipments
to plate and coil customers during the first quarter of 1999 were 99,500 tons
compared to 58,000 tons during the comparable 1998 quarter.
The RMSM Division shipped 198,700 tons of rail, rod, seamless tube and
semifinished products at an average selling price of $361 per ton during the
first quarter of 1999, compared to 235,000 tons of product at an average selling
price of $422 per ton for the first quarter of 1998. The decrease in shipments
and average selling price are a result of depressed seamless pipe and
semifinished markets and reduced rail and rod pricing. Pricing for the seamless
pipe product has decreased an average of $200 a ton since the first quarter of
1998. Seamless pipe markets continue to be affected by lack of drilling activity
and falling rig counts. The U.S. rig count has fallen to 500 operating units
compared to 875 a year ago. Shipments of the division's seamless products were
8,500 tons, a decrease of more than 50 percent from the 19,200 tons shipped
during the comparable 1998 quarter. Rod prices have been severely impacted by
the levels of imported rod into the United States. Average rod pricing has
fallen $70 a ton compared to the first quarter of 1998. Rod shipments during the
first quarter of 1999 were 93,100 tons compared to 96,400 tons during the first
quarter of 1998. The division shipped 95,000 tons of rail during the first
quarter of 1999 compared to 98,200 tons in the first quarter of 1998.
Gross profit for the first quarter of 1999 was $41.3 million or 17.3
percent compared to $27.7 million or 12.4 percent for the first quarter of 1998.
The increase in gross profit in 1998 compared to 1997 is due, in part, to lower
manufacturing costs for plate and welded pipe products as a result of improved
production and cost performance of the Portland, Oregon plate mill and increased
capacity utilization at the Oregon Steel Division pipe mills, offset in part by
the lower pricing for the steel products noted above.
Selling, general and administrative expenses ("SG&A") for the first
quarter of 1999 increased $81,000 from the corresponding 1998 period and
decreased as a percentage of sales to 5.9 percent in the first quarter of 1999,
from 6.3 percent for the corresponding 1998 period. The increase in dollar cost
is due to increased shipping costs at the Oregon Steel Division as a result of
increased tons shipped in the first quarter of 1999 compared to the first
quarter of 1998, offset by decreased costs associated with the labor dispute at
RMSM.
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<PAGE>
OREGON STEEL MILLS, INC.
Profit participation expense was $3.0 million for the first quarter of
1999 compared to $140,000 in the corresponding 1998 period reflecting the
increased profitability in 1999 versus 1998.
Total interest cost for the first quarter of 1999 was $9.9 million
compared to $9.8 million for the corresponding 1998 period. Capitalized interest
for the first quarter of 1999 was $294,000 compared to $295,000 for the
corresponding 1998 period.
The Company's effective income tax rates were 39 and 36 percent for the
three month period ended March 31, 1999 and 1998, respectively. The rate is
higher in 1999 due to expected reductions in foreign and state tax credits.
Liquidity and Capital Resources
- -------------------------------
Cash flow from operations for the three month period ended March 31, 1999,
was $35.2 million compared to $26.5 million in the first quarter of 1998. The
major items affecting this $8.7 million increase were increased net income ($6.6
million), decreased accounts receivable ($10.2 million) and inventories ($18.1
million) offset by a reduction in accounts payable ($19.1 million) and increases
in deferred taxes and other assets ($6 million).
Net working capital at March 31, 1999 increased $2.3 million compared to
December 31, 1998 reflecting a $25.7 million decrease in current liabilities and
by a $23.4 million decrease in current assets. The decrease in current assets
was primarily due to decreased inventories of plate and welded pipe products
that were built up to provide material for the Alliance project. The decrease
in current liabilities was due to reduced accounts payable related to the lower
inventory and net repayments of short-term debt with cash generated from
operations.
The Company has outstanding $235 million principal amount 11% First
Mortgage Notes ("Notes") due 2003. The Notes are guaranteed by New CF&I and CF&I
("Guarantors"). The Notes and the guarantees are secured by a lien on
substantially all the property, plant and equipment and certain other assets of
the Company (exclusive of Camrose) and the Guarantors. The collateral for the
Notes and the guarantees do not include, among other things, inventory and
accounts receivable. The indenture under which the Notes were issued contains
potential restrictions on new indebtedness and various types of disbursements,
including dividends, based on the Company's net income in relation to its fixed
charges, as defined.
The Company maintains a $125 million revolving credit facility ("Amended
Credit Agreement") which expires June 11, 1999, and may be drawn upon based on
the Company's accounts receivable and inventory balances. The Amended Credit
Agreement is collateralized by substantially all of the Company's consolidated
inventory and accounts receivable, except those of Camrose. Amounts outstanding
under the Amended Credit Agreement are guaranteed by the Guarantors. The Amended
Credit Agreement contains various restrictive covenants including a minimum
tangible net worth, minimum interest coverage ratio, and a maximum debt to total
capitalization ratio. As of March 31, 1999, $78.7 million was outstanding under
the Amended Credit Agreement.
Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo steel mill on March 3, 1993. This debt is without stated
collateral and is payable over ten years with interest at 9.5 percent. As of
March 31, 1999, the outstanding balance on the debt was $34.7 million, of which
$27.2 million was classified as long-term.
The Company has uncollateralized and uncommitted revolving lines of credit
with two banks which may be used to support issuance of letters of credit,
foreign exchange contracts and interest rate hedges. At March 31, 1999, $5.8
million was restricted under outstanding letters of credit.
Camrose maintains a $15 million (Canadian dollars) 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 substantially all
of the assets of Camrose and borrowings under this facility are limited to an
amount equal to specified percentages of Camrose's eligible trade accounts
receivable and inventories. The facility expires on December 30, 1999. As of
March 31, 1999, Camrose had no outstanding balance under the facility.
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<PAGE>
OREGON STEEL MILLS, INC.
The Company believes that its anticipated needs for working capital and
capital expenditures through 1999 will be met from funds generated by
operations, borrowings pursuant to the Company's Amended Credit Agreement,
which expires on June 11, 1999, or an extension thereof, and future lending
agreements. The Company expects to seek additional financing, which may include
additional bank financing. There is no assurance that such sources of funding
will be available if required or, if available, will be on terms satisfactory
to the Company. Failure to obtain required funds would delay or prevent some
planned capital expenditure projects from being initiated or completed or could
necessitate changes in production to reduce working capital requirements, which
could have a material adverse effect on the Company. In addition, the Company's
level of indebtedness presents other risks to investors, including the
possibility that the Company and its subsidiaries may be unable to generate
cash sufficient to pay the principal and interest on their indebtedness when
due. In the event of a default under the Amended Credit Agreement or the Notes,
or if the Company or its subsidiaries are unable to comply with covenants
contained in other debt instruments or to pay their indebtedness when due, the
holders of such indebtedness generally will be able to declare all indebtedness
owing to them to be due and payable immediately and, in the case of
collateralized indebtedness, to proceed against their collateral, which would
likely have a material adverse effect on the Company.
CAPITAL EXPENDITURES. During the first three months of 1999 the Company
expended approximately $986,000 million (exclusive of capitalized interest) on
capital projects at the RMSM Division and $2.4 million (exclusive of capitalized
interest) on capital projects at the Oregon Steel Division.
YEAR 2000 ISSUES. As the year 2000 approaches, the Company recognizes the
need to ensure its operations will not be adversely impacted by year 2000
software failures. The Company's approach to the year 2000 issue is discussed
below. The Company necessarily makes certain forward looking statements. There
can be no assurance that actual results will not differ materially from the
projections contained in the forward looking statements. Factors which may cause
actual results to differ materially include, but are not limited to: failure of
Company personnel and outside consultants to properly assess and address the
Company's year 2000 issues; inaccurate or incomplete responses to questionnaires
sent to third parties or inaccurate disclosure to third parties regarding the
year 2000 issue; failure to address the year 2000 issue with all vendors,
including utility vendors; infrastructure failures such as disruptions in the
supply of electricity, gas, water or communications services, or major
institutions, such as the government and banking systems; and failure of the
Company to accurately predict the costs to address the year 2000 issues or the
lost revenues related to interruption in the Company's or its customers'
businesses.
The Company has identified risks from, among other causes, failure of
internally-developed or purchased software and hardware in its information
technology ("IT") systems, failure of process logic controller (PLC") components
of manufacturing equipment, and business or service interruptions of certain key
customers and suppliers. In mid-1997, the Company began to inventory critical
systems, assess the exposure to year 2000 failures, and replace or remediate IT
and PLC systems as necessary. As of December 31, 1998, the inventory and
assessment of IT and PLC systems was substantially complete, and investments had
been made to replace or remediate critical IT systems and PLCs where there was
an apparent risk of failure at the year 2000. The remaining remediation effort
and testing is expected to continue through the third quarter of 1999. The most
critical business systems have been recently functionally upgraded, or are in
process of upgrade, and concurrently are becoming year 2000 compliant. The
Company is soliciting written confirmations from key suppliers confirming that
they are addressing their year 2000 issues.
Although the potential effects of IT and PLC systems failures due to the
year 2000 change are not predictable or quantifiable with any certainty, the
Company expects that if a PLC failure occurred, the Company would still be able
to continue its core production processes, although at a reduced rate and
possibly at a substantially increased cost. Similarly, it is anticipated that
any affected IT business systems which failed could be supplemented with manual
and other procedures sufficient to continue operations, although at a reduced
efficiency. In general, the Company's customers and sources of supply are
sufficiently diverse to mitigate the effect on the Company of a supplier or
customer experiencing year 2000 related failures. However, there would be a
material adverse impact on the Company if any of its utility providers were
significantly interrupted. The total cost of preparation for the year 2000 is
expected to be approximately $2 million, of which more than half has been spent
or commited to date. No reserve has been established. The Company's preparations
have not included a specific contingency plan in the event of
-11-
<PAGE>
OREGON STEEL MILLS, INC.
systems or supplier failures; however, it is anticipated that by mid 1999 all
critical systems will be remediated and under test internally or by independent
outside verification.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes.
-12-
<PAGE>
OREGON STEEL MILLS, INC.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See discussion of labor dispute in Note 6 to the Consolidated
Financial Statements and incorporated by reference herein.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
April 29, 1999.
At the meeting, the following nominees were approved by the
stockholders as Class A directors. The corresponding number of
votes set opposite their respective names were:
Withheld Authority Percent
Name of Nominee Yes Votes to Vote Voted Yes
--------------- --------- ----------------- ---------
Stephen P. Reynolds 23,257,921 291,693 98.76
George J. Stathakis 23,132,306 417,308 98.23
William Swindells 23,137,802 411,812 98.25
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OREGON STEEL MILLS, INC.
Date: May 13, 1999 /s/ Christopher D. Cassard
------------------------------
Christopher D. Cassard
Corporate Controller
(Principal Accounting Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's report on Form 10-Q for the period ended March 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> Oregon Steel Mills, Inc.
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