-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PGs3jYcWrwRf3OVZKV1pZ3YAWE5kvOTPzmMB9Ii+C+tye71Yc0cYbOvCch//beLi TQxTqvGtu1uQQDzMDGkzPA== 0000949111-00-000032.txt : 20000411 0000949111-00-000032.hdr.sgml : 20000411 ACCESSION NUMBER: 0000949111-00-000032 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OREGON STEEL MILLS INC CENTRAL INDEX KEY: 0000830260 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 940506370 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09887 FILM NUMBER: 581720 BUSINESS ADDRESS: STREET 1: 1000 BROADWAY BLDG STREET 2: 1000 S W BROADWAY, STE 2200 CITY: PORTLAND STATE: OR ZIP: 97205 BUSINESS PHONE: 5032239228 MAIL ADDRESS: STREET 1: 1000 SW BROADWAY STREET 2: PO BOX 5368 CITY: PORTLAND STATE: OR ZIP: 97205 10-K 1 OREGON STEEL MILLS, INC. - FORM 10-K (1999) March 27, 2000 OREGON STEEL MILLS, INC. A DELAWARE CORPORATION 1000 S.W. BROADWAY BLDG. SUITE 2200 1000 S.W. BROADWAY PORTLAND, OREGON 97205 Commission File No. 1-9887 Securities and Exchange Commission Document Control 450 Fifth Street NW Washington, D.C. 20549 Gentlemen: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10-K. Sincerely, OREGON STEEL MILLS, INC. /s/ Jeff S. Stewart - ------------------------------- Jeff S. Stewart Controller (Principal Accounting Officer) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-9887 OREGON STEEL MILLS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-0506370 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1000 S.W. BROADWAY SUITE 2200 PORTLAND, OREGON 97205 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 223-9228 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange on Title of each class which registered ------------------- --------------------------- Common Stock, $.01 par value per share New York Stock Exchange 11% First Mortgage Notes due 2003 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ----- ------ State the aggregate market value of the voting stock held by nonaffiliates of the registrant. BASED ON LAST SALE, JANUARY 31, 2000: $136,939,271 Indicate the number of shares outstanding of each of the registrant's classes of stock as of January 31, 2000: COMMON STOCK, $.01 PAR VALUE 25,776,804 ---------------------------- ----------------------------- (TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING) DOCUMENTS INCORPORATED BY REFERENCE: Proxy statement for the Registrant's Annual Meeting of Stockholders to be held April 27, 2000 is incorporated by reference into Part III of this report. OREGON STEEL MILLS, INC. TABLE OF CONTENTS PAGE PART I ITEM 1. BUSINESS...............................................1 General..........................................1 Products.........................................3 Raw Materials and Semifinished Slabs ............5 Marketing and Customers..........................6 Competition and Other Market Factors.............7 Environmental Matters............................9 Labor Dispute...................................11 Employees.......................................11 2. PROPERTIES............................................12 3. LEGAL PROCEEDINGS.....................................13 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...13 Executive Officers of the Registrant............14 PART II 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.....................15 6. SELECTED FINANCIAL DATA...............................15 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...16 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................22 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........23 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........40 PART III 10. and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION......................41 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................41 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........41 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................42 PART I ITEM 1. BUSINESS GENERAL Oregon Steel Mills, Inc. ("Company" or "Registrant") was founded in 1926 by William G. Gilmore and was incorporated in California in 1928. The Company reincorporated in Delaware in 1974. The Company changed its name in December 1987 from Gilmore Steel Corporation to Oregon Steel Mills, Inc. During 1999, the Company operated two steel minimills and four finishing facilities in the western United States and Canada. The Company manufactures and markets one of the broadest lines of specialty and commodity steel products of any domestic minimill company. The Company emphasizes the cost efficient production of higher margin specialty steel products targeted at a diverse customer base located primarily west of the Mississippi River, western Canada and the Pacific Rim. The Company's manufacturing flexibility allows it to manage actively its product mix in response to changes in customer demand and individual product cycles. In 1993, the Company organized into two business units known as the Oregon Steel Division and the CF&I Steel Division. In January 1998 the CF&I Steel Division was renamed the Rocky Mountain Steel Mills ("RMSM") Division. The Oregon Steel Division is centered on the Company's steel plate minimill in Portland, Oregon ("Portland Mill"), which supplies steel for the Company's steel plate and large diameter pipe finishing facilities. The Oregon Steel Division's steel pipe mill in Napa, California ("Napa Pipe Mill") is a large diameter steel pipe mill and fabrication facility. The Oregon Steel Division also produces large diameter pipe and electric resistance welded ("ERW") pipe at its 60 percent owned pipe mill in Camrose, Alberta, Canada ("Camrose Pipe Mill"). The RMSM Division consists of steelmaking and finishing facilities of CF&I Steel, L.P. ("CF&I") (dba Rocky Mountain Steel Mills) located in Pueblo, Colorado ("Pueblo Mill"). The Company owns 87 percent of New CF&I, Inc. ("New CF&I") which owns a 95.2 percent general partnership interest in CF&I. In addition, the Company owns directly a 4.3 percent interest in CF&I. The Pueblo Mill is a steel minimill which produces long-length and standard steel rails and wire rod and bar products. Due to adverse market conditions for tubular pipe products, the RMSM Division shut down operations at its seamless pipe mill in May 1999. There are no immediate plans to resume operations at the mill. The Company currently produces seven steel products which include most standard grades of steel plate, a wide range of higher margin specialty steel plate, coiled plate, large diameter steel pipe, ERW pipe, long-length and standard rails and wire rod and bar products. The steel industry, including the steel products manufactured by the Company, has been highly cyclical and is generally characterized by overcapacity, both domestically and internationally. On June 19, 1996, the Company completed public offerings of an additional 6,000,000 shares of common stock at $12.75 per share and $235 million principal amount of 11% First Mortgage Notes ("Notes") due 2003. On July 9, 1996, the Company issued an additional 271,857 shares of common stock at $12.75 per share pursuant to an underwriter's over-allotment option. The proceeds from these offerings were $302.3 million, net of expenses and underwriting discounts. The Notes are guaranteed by New CF&I and CF&I ("Guarantors"). The Notes and guarantees are secured by a lien on substantially all the property, plant and equipment and certain other assets of the Company and the Guarantors. The proceeds from the common stock and debt offerings were used to repay in full borrowing under the Company's bank credit agreement. The remaining proceeds were used for capital expenditures and general corporate purposes. OREGON STEEL DIVISION The Portland Mill is the only hot-rolled steel plate minimill in the eleven western states and one of only two steel plate production facilities operating in that region. The Portland Mill produces slab thicknesses of 6", 7" and 8" and finished steel plate in widths up to 136". -1- During 1997 the Company completed the construction of a Steckel Combination Mill ("Combination Mill") at its Portland Mill. The project included installation of a new reheat furnace, a 4-high rolling mill with coiling furnaces, a vertical edger, a down coiler, on-line accelerated cooling, hot leveling and shearing equipment, extended roll lines, and a fully automated hydraulic gauge control system. The annual rolling capacity of the Combination Mill, depending on product mix, is up to 1.2 million tons. The Combination Mill gives the Company the ability to produce wider steel plate than any similar mill in the world, increases its manufacturing flexibility and, as production increases, supplies substantially all the Company's plate requirements for large diameter line pipe as well as coiled plate for applications such as the smaller diameter ERW pipe manufactured at the Camrose Pipe Mill. The Combination Mill produces discrete steel plate in widths from 48" to 136" and in thicknesses from 3/16" to 8". Coiled plate can be produced in widths of 48" to 96", and in thicknesses that range from 0.09" to .75". With the Combination Mill, the Company is in a position to produce all grades of discrete steel plate and coiled plate for all of the Company's commodity and specialty plate markets, including heat-treated applications. The Napa Pipe Mill produces large diameter steel pipe of a quality suitable for use in high pressure oil and gas transmission pipelines. The Napa Pipe Mill can produce pipe with an outside diameter ranging from 16" to 42", with wall thicknesses of up to 1-1/16" and in lengths of up to 80 feet, and can process two different sizes of pipe simultaneously in its two finishing sections. Depending on product mix, the Napa Pipe Mill has an annual capacity in excess of 400,000 tons of pipe. Although the Portland Mill can supply substantially all of the Napa Pipe Mill's specialty plate requirements, due to market conditions and other considerations, the Napa Pipe Mill may purchase steel plate from third-party suppliers. The Company acquired a 60 percent interest in the Camrose Pipe Mill in June 1992 from Stelco, Inc. ("Stelco"), a large Canadian steel producer. The Camrose Pipe Mill has two pipe manufacturing mills. One is a large diameter pipe mill similar to the Napa Pipe Mill, and the other is an ERW pipe mill which produces steel pipe used by the oil and gas industry for drilling and distribution. The large diameter pipe mill produces pipe in lengths of up to 80 feet with a diameter ranging from 20" to 42" with maximum wall thickness of up to 3/4". Depending upon the product mix, the annual capacity for large diameter pipe is up to 184,000 tons. The ERW mill produces pipe in sizes ranging from 4.5" to 16" in diameter and has an annual capacity of up to 141,000 tons, depending upon product mix. RMSM DIVISION On March 3, 1993, New CF&I, a then wholly-owned subsidiary of the Company, acquired a 95.2 percent interest in a newly formed limited partnership, CF&I. The remaining 4.8 percent interest was owned by the Pension Benefit Guaranty Corporation ("PBGC"). CF&I then purchased substantially all of the steelmaking, fabricating, metals and railroad business assets of CF&I Steel Corporation. The Pueblo Mill has melting capacity of approximately 1.2 million tons of hot metal and a finished ton capacity of approximately 1.2 million tons. In August of 1994, New CF&I sold a 10 percent equity interest in New CF&I to subsidiaries of Nippon Steel Corporation ("Nippon"). In connection with that sale, Nippon agreed to license to the Company a proprietary technology for producing deep head-hardened ("DHH") rail products as well as to provide certain production equipment to produce DHH rail. In November 1995, the Company sold a 3 percent equity interest in New CF&I to two companies of the Nissho Iwai Group ("Nissho Iwai"), a large Japanese trading company. In 1997, the Company purchased the 4.8 percent interest in CF&I owned by the PBGC. In 1998, the Company sold a 0.5 percent interest in CF&I to a subsidiary of Nippon. As part of its strategy in acquiring the Pueblo Mill, the Company anticipated making significant capital additions. Shortly after its acquisition in 1993, the Company began a series of major capital improvements at the Pueblo Mill designed to increase yields, improve productivity and quality and expand the Company's ability to offer specialty rail, rod and bar products. The primary components of the capital improvements at the Pueblo Mill are outlined below. STEELMAKING. The Company installed a ladle refining furnace and a vacuum degassing facility and upgraded both continuous casters. During 1995, the Company eliminated ingot casting and replaced it with more efficient continuous casting methods which allow the Company to cast direct- -2- ly into blooms. These improvements expanded the Pueblo Mill steelmaking capacity to 1.2 million tons, its current level of capacity. ROD AND BAR MILL. At the time of its acquisition, the rod and bar mills at the Pueblo Mill were relatively old and located in separate facilities which resulted in significant inefficiencies as the Company shifted production between them in response to market conditions. In 1995, the Company commenced operation of a new combination rod and bar mill with a new reheat furnace and a high speed rod train, capable of producing commodity and specialty grades of rod and bar products. Depending on product mix, the new combined facility has a capacity of up to 600,000 tons per year. These improvements enable the Company to produce a wider range of high margin specialty products, such as high-carbon rod, merchant bar and other specialty bar products, and larger rod coil sizes, which the Company believes are preferred by many of its customers. RAIL MANUFACTURING. At the time of the Company's acquisition of the Pueblo Mill, rails were produced by ingot casting using energy-intensive processes with significant yield losses as the ingots were reheated, reduced to blooms and then rolled into rails. Continuous casting has increased rail yields and decreased rail manufacturing costs. In 1996, the Company invested in its railmaking capacity, entering into the agreement with Nippon for the license for the technology to produce DHH rail, and acquiring the production equipment necessary to produce the specialty rail. DHH rail is considered by the rail industry to be longer lasting and of higher quality than rail produced using conventional methods, and accordingly the DHH rail usually has a corresponding higher average selling price. The Company believes it is able to meet the needs of a broad array of rail customers with both traditional and DHH rail. PRODUCTS OVERVIEW The Company manufactures and markets one of the broadest lines of specialty and commodity steel products of any domestic minimill company. Through acquisitions and capital improvements, the Company has expanded its range of finished products from two in 1991, discrete plate and large diameter welded pipe, to seven currently by adding ERW pipe, rail, rod, bar, and coiled plate. It has also expanded its primary selling region from the western United States to national and international markets. (See Note 3 to the Consolidated Financial Statements.) The following chart identifies the Company's principal products and the primary markets for those products.
PRODUCTS MARKETS -------- ------- OREGON STEEL DIVISION Specialty steel plate Steel service centers Heavy equipment manufacturers Pressure vessel manufacturers Construction Welded pipe mills Commodity steel and coiled Steel service centers plate Railcar manufacturers Ship and barge manufacturers Heavy equipment manufacturers Large diameter steel pipe Oil and gas transmission pipelines Electric resistance welded Oil and natural gas line pipe (ERW)pipe RMSM DIVISION Rail Rail transportation Wire rod Durable goods Capital equipment Bar products Construction Durable goods Capital equipment
-3- The following table sets forth for the periods indicated the tonnage shipped and the Company's total shipments by product class: TONS SHIPPED ------------------------------------ PRODUCT CLASS 1999 1998 1997 ------------- -------- -------- ------- Oregon Steel Division: Specialty Steel Plate 300,200 282,500 163,100 Commodity Steel Plate 132,000 58,800 29,300 Coiled Plate 18,000 11,400 - Large Diameter Steel Pipe 491,200 400,000 216,600 Electric Resistance Welded Pipe 28,400 56,100 134,600 Semifinished - - 23,400 --------- --------- -------- Total Oregon Steel Division 969,800 808,800 567,000 --------- --------- -------- RMSM Division: Rail 299,000 401,400 350,200 Rod, Bar and Wire FN1 407,600 354,500 409,200 Seamless Pipe FN2 19,600 68,900 120,200 Semifinished 8,700 36,900 28,000 --------- --------- --------- Total RMSM Division 734,900 861,700 907,600 --------- --------- --------- Total Company 1,704,700 1,670,500 1,474,600 ========= ========= ========= - ---------- FN1 The Company sold its wire products production facility in June 1997. FN2 The Company suspended operation at the seamless pipe mill in May 1999. OREGON STEEL DIVISION STEEL PLATE. The Company's specialty grade and commodity steel plate is produced at the Portland Mill on the Combination Mill. The completion of the Combination Mill allows for the production of discrete plate widths up to 136" and coiled plate up to 96" wide. The majority of steel plate is commonly produced and consumed in standard widths and lengths, such as 96" x 240". Specialty steel plate consists of hot-rolled carbon, high-strength-low-alloy, alloy and heat-treated steel plate. Specialty steel plate has superior strength and performance characteristics as compared to commodity steel plate and is typically made to order for customers seeking specific properties, such as improved malleability, hardness or abrasion resistance, impact resistance or toughness, higher strength and ability to be more easily machined and welded. These improved properties are achieved by chemically refining the steel by either adding or removing specific elements, and by accurate temperature control while hot-rolling or heat-treating the plate. Specialty steel plate is used to manufacture railroad cars, mobile equipment, bridges and buildings, pressure vessels and machinery components. Commodity steel plate is used in a variety of applications such as the manufacture of storage tanks, machinery parts, ships and barges, and general load bearing structures. Coiled plate is the feed-stock for the manufacture of ERW pipe, welded tubing, spiral welded pipe, and for conversion into cut-to-length plate. In 1994 the Company completed expansion of the heat-treated plate production capacity at its Portland Mill by approximately 50 percent to 90,000 tons annually. The heat-treating process of quenching and tempering improves the strength, toughness, and hardness of the steel. Quenched and tempered steel is used extensively in the mining industry, the manufacture of heavy transportation equipment, construction and logging equipment, and armored vehicles for the military. In early 1994, the Company installed a hot leveler at the heat-treat facility which flattens the steel plate following heat-treatment and ensures that the steel plate will retain its desired shape after cooling. These additions enable the Company to manufacture a superior hardened plate product. LARGE DIAMETER STEEL PIPE. The Company manufactures large diameter, double submerged arc-welded ("DSAW") steel pipe at its Napa and Camrose Pipe Mills. Large diameter pipe is manufactured to demanding specifications and is produced in sizes ranging from 16" to 42" in outside -4- diameter with wall thickness of up to 1 1/16" and in lengths of up to 80 feet. At the Napa Pipe Mill the Company also offers customers several options, which include internal linings, external coatings, double end pipe joining and full body ultrasonic inspection. Ultrasonic inspection allows examination of the ends, long seam welds and the entire pipe body for steelmaking or pipemaking defects and records the results. The Company's large diameter pipe is used primarily in pressurized underground or underwater oil and gas transmission pipelines where high quality is absolutely necessary. The Company's ability to produce high-quality large diameter pipe was enhanced by the installation of the vacuum degassing facility at the Portland Mill in 1993. The vacuum degassing process reduces the hydrogen content of the final product, which increases its resistance to hydrogen-induced cracking. The vacuum degassing facility enables the Company to produce some of the highest quality steel plate and line pipe steels and has been key to the Company's ability to produce large diameter steel pipe for the international pipe market. ERW PIPE. The Company produces smaller diameter ERW pipe at the Camrose Pipe Mill. ERW pipe is produced in sizes ranging from approximately 4-1/2" to 16" outside diameter. The pipe is manufactured using coiled steel formed on a high frequency ERW mill. The principal customers for this product are oil and gas companies that use it for gathering lines to supply product to feed larger pipeline systems. RMSM DIVISION RAIL. The Company produces conventional, premium and head-hardened rail at its Pueblo Mill. The Pueblo Mill is the sole manufacturer of rail west of the Mississippi River and one of only two rail manufacturers in the United States. Rails are manufactured in the five most popular rail weights (115 lb/yard through 136 lb/yard), in 39 and 80-foot lengths. The primary customers for the Pueblo Mill's rail are the major western railroads. Rail is also sold directly to rail contractors, transit districts and short-line railroads. As part of its capital improvement program, the Company improved its rail manufacturing facilities to include the production of in-line head-hardened rail. In-line head-hardened rail is produced through a proprietary finishing technology, known as deep head-hardened or DHH technology, licensed from Nippon in connection with Nippon's investment in New CF&I. In 1999 the Company produced approximately 81,000 tons of head-hardened product using the DHH technology. The in-line DHH technology allows the Company to produce head-hardened product up to the capacity of the rail facility. Rail produced using the improved in-line technology is considered by many rail customers to be longer lasting and of higher quality than rail produced with traditional off-line techniques. During 1998 the Pueblo Mill completed a rail dock expansion project which increased rail mill annual shipping capacity from 450,000 tons to over 500,000 tons. ROD AND BAR PRODUCTS. The Company's rod and bar mill located at the Pueblo Mill is able to produce coils of up to 6,000 pounds. The improved steel quality and finishing capabilities allow the Company to manufacture rods up to 1" in diameter, and to manufacture a variety of high-carbon rod products such as those used for spring wire, wire rope, tire bead and tire cord. The Company produces several sizes of coiled rebar in the most popular grades for the reinforcement of concrete products. SEAMLESS PIPE. Until May 1999, the Company produced seamless casings, coupling stock and standard and line seamless pipe at the Pueblo Mill. The primary use of these products is in the transmission of oil and natural gas resources, through either above ground or subterranean pipelines. Although the seamless pipe mill has the capacity to produce both carbon and heat-treated tubular products, the division ceased production at its seamless mill during May 1999 due to adverse market conditions caused in large part by a lack of drilling activity and a decrease in U.S. rig counts. There are no immediate plans to resume operations at the mill. The Company continues to market a negligible quantity of semifinished seamless pipe, referred to as green tubes, to other tubular mills for processing and finishing. RAW MATERIALS AND SEMIFINISHED SLABS The Company's principal raw material for the Portland and Pueblo Mills is ferrous scrap metal derived from, among other sources, junked automobiles, railroad cars and railroad track materials and demolition scrap from obsolete structures, containers and machines. In addition, -5- direct-reduction iron ("DRI"), hot-briquetted iron ("HBI") and pig iron (collectively "alternate metallics") can substitute for a limited portion of the scrap used in minimill steel production, although the sources and availability of alternate metallics are substantially more limited than those of scrap. The purchase prices for scrap and alternate metallics are subject to market forces largely beyond the control of the Company including demand by domestic and foreign steel producers, freight costs, speculation by scrap brokers and other conditions. The cost of scrap and alternate metallics to the Company can vary significantly, and the Company's product prices often cannot be adjusted, especially in the short-term, to recover the costs of increases in scrap and alternate metallics prices. The long-term demand for steel scrap and its importance to the domestic steel industry may be expected to increase as steelmakers continue to expand scrap-based electric arc furnace capacity. For the foreseeable future, however, the Company believes that supplies of steel scrap will continue to be available in sufficient quantities at competitive prices. In addition, while alternative metallics may not be cost competitive with steel scrap at present, a sustained increase in the price of steel scrap could result in increased implementation of these alternative materials. To reduce the effects of scrap price volatility and improve access to high-quality raw materials, the Company is seeking to decrease its dependence on steel scrap as an input for the production process by utilizing alternate metallics. The Company has successfully integrated alternate metallics into the production process as a low residual scrap substitute. The Company typically purchases alternate metallics on a contract basis (whereas scrap is typically purchased on the spot market), which limits the effects of price fluctuations experienced in the scrap market. To date, the Company has purchased substantially all of the HBI it has used from a single source, but it has no long-term contracts for material amounts of HBI, and there is no assurance that it will be able to obtain significant quantities of HBI in the future. Pig iron is purchased from a variety of international producers. Since 1998, approximately 8 million tons of new HBI or DRI capacity has come on-line. During the steel market downturn in late 1998, it became evident to alternate metallics producers that they must be competitive. The Company expects that alternate metallics will be readily available over the next five years. Due to the increased capacity and present availability of alternate metallics, the Company intends to purchase on the spot market. With the expanded plate finishing capability available to the Company due to the Combination Mill beginning in 1998, the production of finished plate has exceeded the steelmaking capacity of the Portland Mill. In 1999, the Company purchased material quantities of semifinished steel slabs on the open market to offset the disparity. Such purchases are made on the spot market, and are dependent upon slab availability. While prices on the international slab market have been generally favorable and slab availability has not been restricted, the slab market and pricing are subject to significant volatility, and there is no assurance that slabs will be available at reasonable prices in the future. The Company expects semifinished slab purchases to represent approximately one-half of its production needs for finished plate in 2000. MARKETING AND CUSTOMERS Steel products are sold by the Company principally through its own sales organizations, which have sales offices at various locations in the United States and Canada and, as appropriate, through foreign sales agents. In addition to selling to customers who consume steel products directly, the Company also sells to steel service centers, distributors, processors and converters. The sales force is organized both geographically and by product line. The Company has separate sales forces for plate, coiled plate, DSAW and ERW pipe, and for rod, bar, and rail products. Most of the Company's sales are initiated by contacts between sales representatives and customers. Accordingly, the Company does not incur substantial advertising or other promotional expenses for the sale of its products. Except for contracts entered into from time to time to supply rail and large diameter DSAW pipe to significant projects, see Part II "Management's Discussion and Analysis of Financial Conditions and Results of Operation", the Company does not have any significant ongoing contracts with customers and orders placed with the Company generally are cancelable by the customer prior to production. For 1999, the Company had sales to a single customer, Alliance Pipeline L.P., which accounted for nearly one-third of its total revenue for the year. It is not expected that sales to one customer in 2000 will represent more than 10 percent of total sales. -6- The Company does not have a general policy permitting return of purchased steel products except for product defects. The Company does not routinely offer extended payment terms to its customers. Except for rail products, the business is generally not subject to significant seasonal trends. The Company does not have material contracts with the United States government and does not have any major supply contracts subject to renegotiation. OREGON STEEL DIVISION Customers for specialty steel are located throughout the United States, but the Company is most competitive west of the Mississippi River, where transportation costs are less of a factor. Typical customers include steel service centers and equipment manufacturers. Typical end uses include pressure vessels, construction and mining equipment, machine parts and military armor. Most of the customers for the Company's commodity steel plate are located in the western United States, primarily in the Pacific Northwest. The Company's commodity steel plate is typically sold to steel service centers, fabricators and equipment manufacturers. Service centers typically resell to other users with or without additional processing such as cutting to a specific shape. Frequent end uses of commodity grade steel plate include the manufacture of rail cars, storage tanks, machinery parts, bridges, barges and ships. Large diameter steel pipe is marketed on a global basis, and sales generally consist of a small number of large orders from natural gas pipeline companies, public utilities and oil and gas producing companies. The Company believes that the quality of its pipe enables it to compete effectively in international as well as domestic markets. Domestically, the Company has historically been most competitive in the steel pipe market west of the Mississippi River. The Camrose Pipe Mill is most competitive in western Canada. Sales of large diameter pipe generally involve the Company responding to requests to submit bids. The principal customers for ERW pipe produced at the Camrose Pipe Mill are in the provinces of Alberta and British Columbia, where most of Canada's natural gas and oil reserves are located. The Company believes its proximity to these gas fields gives the Company a competitive advantage. Demand for ERW pipe produced at the Camrose Pipe Mill is largely dependent on the level of exploration and drilling activity in the gas fields of western Canada. RMSM DIVISION The primary customers for the Pueblo Mill's rail are the major western railroads. Rail is also sold directly to rail distributors, transit districts and short-line railroads. The Company believes its proximity to western rail markets benefits the Company's marketing efforts. The Company sells its bar products (primarily reinforcing bar) to fabricators and distributors. The majority of these customers are located within the western U.S. The Company's wire rod products are sold primarily to wire drawers ranging in location from the Midwest to the West Coast. The demand for wire rod is dependent upon a wide variety of markets, including agricultural, construction, capital equipment and the durable goods segments. The Company entered the high carbon rod market during 1995 as a direct result of the investment in the new rolling facility. Since that time, the Company's participation in the higher margin, high carbon rod market has steadily increased, to the point where it now represents nearly two-thirds of total rod product shipments. Typical end uses of high carbon rod and spring wire, wire rope, tire bead and tire cord. COMPETITION AND OTHER MARKET FACTORS The steel industry is cyclical in nature, and high levels of steel imports, worldwide production overcapacity and other factors have adversely affected the domestic steel industry in recent years. The Company also is subject to industry trends and conditions, such as the presence or absence of sustained economic growth and construction activity, currency exchange rates and other factors. The Company is particularly sensitive to trends in the oil and gas, construction, capital equipment, rail transportation and durable goods segments, because these industries are significant markets for the Company's products. Competition within the steel industry is intense. The Company competes primarily on the basis of product quality, price and responsiveness to customer needs. Many of the Company's com- -7- petitors are larger and have substantially greater capital resources, more modern technology and lower labor and raw material costs than the Company. Moreover, U.S. steel producers have historically faced significant competition from foreign producers. The highly competitive nature of the industry, combined with excess production capacity in some products, results in significant sales pricing pressure for certain of the Company's products. OREGON STEEL DIVISION The principal domestic competitor in the specialty steel plate market is Bethlehem Lukens Plate ("Bethlehem"), the largest plate producer in North America. Bethlehem's considerable share of this market was created when Bethlehem Steel acquired Lukens Steel in 1998. Bethlehem operates five plate mills located in Indiana and Pennsylvania, with an estimated annual capacity in excess of 2 million tons. Bethlehem aggressively markets to major national accounts in fabrication and heavy-duty manufacturers as a single source supplier. Although not a major competitor in the western states, U.S. Steel, located in Indiana, is the second largest domestic specialty plate producer and does represent a significant competitor in the Midwest. U.S. Steel recently constructed a third heat-treating line to increase its production of normalized plate. The principal domestic commodity plate competitor is Geneva Steel ("Geneva"). Geneva operates an integrated steelmaking facility in Utah, the only one west of the Mississippi, and produces approximately 1.1 million tons of commodity plate per year. Geneva, even though operating under a Chapter 11 bankruptcy filing, has made significant capital improvements to its plate-making equipment, including its melt shop, a variable caster and direct hot-rolling machinery. IPSCO brought into production a green field 120" Steckel mill in Iowa at about the same time the Company brought the Combination Mill into production, with IPSCO's mill operating to nearly the same specifications. IPSCO also operates a smaller Steckel mill in Saskatchewan Canada, and is expected to complete construction of another Steckel mill in Mobile, Alabama in the near future. IPSCO is competing effectively in the Midwest commodity plate market, in other selected target markets and in the coiled plate market throughout the U.S. The domestic steel plate market continued to suffer from unprecedented import tonnage levels combined with severe downward price pressure from foreign steel producers located in Korea, Japan, Brazil, Canada, Russia, other former Soviet-bloc countries, and others. Tonnage of imported commodity steel plate for 1999 represented the second highest reported year, down from the record year reported in 1998. Foreign competition also exists for specialty grades with imports from Sweden, European Economic Community, Brazil, Canada, Australia, and former Soviet-bloc countries. At the end of 1997 the U.S. International Trade Commission ("USITC"), under petition from two U.S. commodity plate producers, determined that the U.S. plate industry was "threatened with material injury by reason of imports from China, Russia, South Africa, and/or Ukraine of cut-to-length carbon steel plate found by the U.S. Department of Commerce to be sold in the United States at less than fair market value." In addition to this decision, suspension agreements have been signed allowing the named countries to export certain maximum amounts of cut-to-length plate to the United States at minimum prices. Despite the USITC decision on carbon cut-to-length plate, significant imports continue to flow into the United States, both in commodity and specialty plate products, and continue to have an impact on the Company's participation in the domestic plate market. As a result of an investigation into anti-dumping practices in the hot-rolled steel market that commenced in October 1998, the USITC found that hot-rolled steel plate imported from Brazil, Japan and Russian and cut-to-length steel plate imported from France, India, Indonesia, Italy, Japan and Korea had significantly injured the U.S. market. The USITC directed the U.S. Customs Service to uphold suspension agreements or to impose anti-dumping or counter-vailing duties against these products when imported from the identified country. The effect of these actions was delayed; however, as most of the tariffs, where applicable, were not levied against steel shipped in either 1999 or 1998, applying rather to shipments made in 2000. The Company believes that competition in the market for large diameter steel pipe is based primarily on quality, price and responsiveness to customer needs. Principal domestic competitors in the large diameter steel pipe market at this time are Berg Steel Pipe Corporation, located in Florida, Bethlehem Steel Corporation (the parent company for Bethlehem) and SAW Pipe, located in Texas. International competitors consist primarily of Japanese and European pipe producers. -8- The principal Canadian competitor is IPSCO from the mill in Regina, Saskatchewan. Demand for the Company's pipe in recent years is primarily a function of new construction of oil and gas transportation pipelines and to a lesser extent maintenance and replacement of existing pipelines. Construction of new pipelines domestically depends to some degree on the level of oil and gas exploration and drilling activity. The competition in the market for ERW pipe is based on price, product quality and responsiveness to customers. The need for this product has a direct correlation to the drilling rig count in the United States and Canada. Principal competitors in the ERW product in western Canada are IPSCO and Prudential Steel Ltd. located in Calgary, Alberta. RMSM DIVISION The majority of current rail requirements in the United States are replacement rails for existing rail lines. However, some new lines are being constructed in heavy traffic areas of the United States. Imports have been a significant factor in the domestic premium rail market in recent years. The Company's capital expenditure program at the Pueblo Mill provided the rail production facilities with continuous cast steel capability and in-line head-hardening rail capabilities necessary to compete with other producers. Pennsylvania Steel Technologies is the only other domestic rail producer. The competition in bar products include a group of minimills that have a geographical location close to the markets in or around the Rocky Mountains. The Company's market for wire rod encompasses the western United States. Domestic rod competitors include GS Technologies, North Star Steel, Cascade Steel Rolling Mills, Keystone Steel and Wire and Northwestern Steel & Wire. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local environmental laws and regulations concerning, among other things, wastewater, air emissions, toxic use reduction and hazardous materials disposal. The Portland and Pueblo Mills are classified in the same manner as other similar steel mills in the industry as generating hazardous waste materials because the melting operation produces dust that contains heavy metals ("EAF" dust). This dust, which constitutes the largest waste stream generated at these facilities, must be managed in accordance with applicable laws and regulations. The Clean Air Act Amendments ("CAA")of 1990 imposed responsibilities on many industrial sources of air emissions, including plants owned by the Company. In addition, the monitoring and reporting requirements of the law have subjected and will subject all companies with significant air emissions to increased regulatory scrutiny. The Company submitted applications in 1995 to the Oregon Department of Environmental Quality ("DEQ") and the Colorado Department of Public Health and Environment ("CDPHE") for permits under Title V of the CAA for the Portland and Pueblo Mills, respectively. Title V permits have been issued for portions of the Pueblo Mill. Permits for the remainder of the Pueblo Mill and the Portland Mill are pending. The permits may be issued under conditions that would require the Company to incur substantial future capital expenditures directed at reducing air emissions. PORTLAND MILL. Certain refractory solid waste materials from the steelmaking process in prior years have been collected on-site at the Portland Mill. The Company is currently evaluating various alternatives for reusing this material but so far has not identified a method that is commercially viable. The ultimate success of these alternatives is not known. Other disposal means are available, although typically at an increased cost, including both on-site and off-site land fills. The eventual financial impact is not determinable at this time, but such reuse or disposal is not expected to have a significant effect on the consolidated financial condition of the Company. The Company is voluntarily implementing and expects to complete the first phase of a proposed compliance schedule with the State of Oregon in the second quarter of 2000, at a total cost estimated to be $500,000. Significant work towards completion of this phase was conducted during 1999. The Company will assess the necessity of the second phase dependent on the successfulness of the first phase in reducing emissions. If the second phase were to be implemented, the financial impact of associated corrective designs, engineering and construction can not presently be estimated, and would be completed subsequent to 2000. -9- 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, Colorado steel mill ("Pueblo Mill"). The Company believed this amount was the best estimate from a range of $23.1 to $43.6 million. The Company's estimate of this liability was based on two separate remediation investigations conducted by independent environmental engineering consultants. The liability 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 CDPHE 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. As of December 31, 1999, 11 solid waste management units have closed with no further action needed. The CDPHE stated that the schedule for corrective action could be accelerated if new data indicated a greater threat existed to the environment than was presently known to exist. At December 31, 1999, the accrued liability was $33.4 million, of which $30.9 million was classified as noncurrent in the consolidated balance sheet. The CDPHE has inspected the Pueblo Mill for possible environmental violations, and in the fourth quarter of 1999, issued a Compliance Advisory indicating that air quality regulations had been violated. The CDPHE has now filed a judicial enforcement action, which could result in the levying of significant fines and penalties, requirements to make remediation expenditures, accelerate or expand the capital expenditure program or a combination of any of the above. Although the amount can not presently be determined, it is likely that the Company will be required to make potentially material expenditures as a result of the action. The Environmental Protection Agency ("EPA") has communicated to the CDPHE that its interpretation of the CAA would be to require the Pueblo Mill to comply with New Source Performance Standards ("NSPS") of the CAA. The CDPHE had previously issued permits to the Pueblo Mill that did not require it to comply with NSPS. If the Pueblo Mill is required to implement NSPS, it will likely have to incur material capital expenditures to meet the new standards. It is unknown at present what the ultimate cost of adhering to the CAA will be, as Congress continues to modity it. The cost will depend on a number of site-specific factors, including but not limited to the quality of the air in the area where a plant is located. Regardless of the outcome of the matters discussed above, the Company anticipates that it will be required to make additional expenditures, and may potentially be required to pay higher fees to governmental agencies, as a result of the law and future laws regulating air emissions. The Company's future expenditures for installation of and improvements to environmental control facilities, remediation of environmental conditions and other similar matters are difficult to predict accurately. Environmental legislation, regulation and related administrative policy have changed rapidly in recent years shifting the burden to the Industry. It is likely that the Company will be subject to increasingly stringent environmental standards including those under the CAA, the Clean Water Act Amendments of 1990, the storm water permit program and toxic use reduction programs. It is also likely that the Company will be required to make potentially significant expenditures relating to environmental matters on an ongoing basis. Even though the Company has established certain reserves for environmental remediation as described above, there is no assurance regarding the remedial measures that might eventually be required by environmental authorities or that additional environmental hazards, necessitating further remedial expenditures, might not be asserted by such authorities or private parties. Accordingly, the costs of remedial measures may exceed the amounts reserved. There is no assurance that expenditures of the nature described above, or that liabilities resulting from hazardous substances located on the Company's property or used or generated in the conduct of its business, or resulting from circumstances, actions, proceedings or claims relating to environmental matters, will not have a material adverse effect on the Company's consolidated financial condition, consolidated earnings or consolidated cash flows. -10- LABOR DISPUTE The labor contract at the RMSM 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 RMSM 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 December 1999, 152 former striking employees had returned to work as a result of their unconditional offer. Approximately 660 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 RMSM, alleging violations of several provisions of the National Labor Relations Act ("NLRA"). 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 ("Judge"). Testimony and other evidence were presented at various sessions in the latter part of 1998 and early 1999, concluding on February 25, 1999. The Judge will render a decision which is automatically subject to appeal by either party to the NLRB in Washington, D.C. The ultimate determination of the issues may well require a ruling by an appropriate United States appellate court. Among the issues pending in the litigation is RMSM's motion asserting that the Judge should consider the Union's alleged NLRA violations and that the alleged misconduct should invalidate the Unreinstated Employees' right to reinstatement. In the event there is an adverse determination of the issues, Unreinstated Employees could be entitled to back pay, including benefits, from the date of the Union's unconditional offer to return to work through the date of the adverse determination. The number of Unreinstated Employees entitled to back pay would probably be limited to the number of past and present replacement workers; however, the Union might assert that all Unreinstated Employees should be entitled to back pay. Back pay is generally determined by the quarterly earnings of those working less interim wages earned elsewhere by the Unreinstated Employees. In addition to other considerations, each Unreinstated Employee has a duty to take reasonable steps to mitigate the liability for back pay by seeking employment elsewhere that has comparable demands and compensation. It is not presently possible to estimate the ultimate liability in the event of an adverse determination. During the strike by the Union, certain bargaining unit employees of the Colorado & Wyoming Railway Company ("C&W"), a wholly-owned subsidiary of New CF&I that 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 considered these employees to have quit their employment and accordingly, C&W declined to allow those individuals to return to work. The unions representing these individuals have filed lawsuits or claims against C&W claiming their 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 unions demand reinstatement of the former employees, back pay, benefits 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 initiate further judicial proceedings. 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. EMPLOYEES As of December 31, 1999, the Company had approximately 1,700 full-time employees. None of the employees of the Portland Mill, the Napa Pipe Mill or the corporate headquarters are repre- -11- sented by a union. At the RMSM division, approximately 580 employees work under collective bargaining agreements with several unions, including the United Steelworkers of America. The Company and the Union have been unable to agree on terms for a new labor agreement. See "Business-Labor Dispute". At the Camrose Pipe Mill, approximately 120 employees are members of the Canadian Autoworkers Union ("CAU"). The Company is currently renegotiating a new collective bargaining agreement with the CAU, as the prior contract expired on January 31, 2000. While negotiating the new contract, the Company and the CAU are working under the terms of the expired contract. The domestic employees of the Oregon Steel Division participate in the Employee Stock Ownership Plan ("ESOP"). As of December 31, 1999 the ESOP owned approximately 6 percent of the Company's outstanding common stock. Common stock is contributed to the ESOP as decided annually by the Board of Directors. The Company also has a profit participation plan for its domestic employees of both the Oregon Steel Division and the RMSM Division and the non-bargaining unit employees of Camrose that permits eligible employees to share in the pretax profits of their division. ITEM 2. PROPERTIES OREGON STEEL DIVISION The Portland Mill is located on approximately 143 acres owned by the Company in the Rivergate Industrial Park in Portland, Oregon, near the confluence of the Columbia and Willamette rivers. The operating facilities principally consist of an electric arc furnace, ladle metallurgy station, vacuum degasser, slab casting equipment and the Combination Mill. The Company's 24,500 square-foot office building and its steel mill facilities occupy approximately 86 acres of the site. The remaining 57 acres consist of two waterfront sites. The Company's heat-treating facilities are located near its principal facilities on a 5-acre site owned by the Company. The Company owns approximately 152 acres in Napa, California. The Company's large diameter pipe mill occupies approximately 92 of these acres. The Company also owns a steel fabricating facility located adjacent to the pipe mill on this site. The fabricating facility is not currently used by the Company and consists of approximately 325,000 square feet of industrial buildings containing equipment for the production and assembly of large steel products or components and is periodically leased on a short-term basis. Camrose Pipe Company ("Camrose") owns the Camrose Pipe Mill, located on approximately 67 acres in Camrose, Alberta, Canada. The large diameter pipe mill occupies approximately 4 acres and the ERW pipe mill occupies approximately 3 acres of the site. In addition, there is a 3,600 square foot office building on the site. The sales staff is located in Calgary, Alberta in leased space. Camrose is 60 percent owned by the Company. The assets of Camrose, including all property, plant and equipment are collateral for the Camrose (CDN) $25 million revolving credit facility (see Note 7 to the Consolidated Financial Statements). RMSM DIVISION The Pueblo Mill is located in Pueblo, Colorado on approximately 570 acres. The operating facilities principally consist of two electric arc furnaces, a ladle refining furnace and vacuum degassing system, two 6-strand continuous round casters for producing semifinished steel, and three finishing mills for conversion of semifinished steel to a finished steel product. These finishing mills consist of a rail mill, seamless tube mill, and a rod and bar mill. In May 1999, the Company shut down production at the seamless tube mill and does not have immediate plans to reopen the facility. -12- At December 31, 1999, the Company had the following nominal capacities, which are affected by product mix: PRODUCTION PRODUCTION CAPACITY 1999 (TONS) (TONS) ---------- ---------- Portland Mill: Melting 840,000 442,900 Finishing 1,200,000 796,100 Napa Pipe Mill: Steel pipe 400,000 358,000 Camrose Pipe Mill: Steel pipe 325,000 116,100 Pueblo Mill: Melting 1,200,000 753,100 Finishing mills FN1 1,050,000 741,800 - -------------- FN1 Excludes the production capacity of the seamless tube mill. The Notes and guarantees are secured by a lien on substantially all of the property, plant and equipment of the Company and the Guarantors, exclusive of Camrose. (See Note 7 to the Consolidated Financial Statements.) ITEM 3. LEGAL PROCEEDINGS See Part I, "Business - Environmental Matters", for discussion of enforcement actions being proposed by the State of Colorado's Department of Public Health and Environment against RMSM. See Part I, "Business - Labor Dispute", for the status of the labor dispute at RMSM. The Company is party to various claims, disputes, legal actions and other proceedings involving contracts, employment and various other matters. In the opinion of management, the outcome of these matters should not have a material adverse effect on the consolidated financial condition of the Company. The Company maintains insurance against various risks, including certain types of product liability. The Company does not maintain insurance against liability arising out of waste disposal, other environmental matters or earthquake damage because of the high cost of such insurance. There is no assurance that insurance currently carried by the Company, including products liability insurance, will be available in the future at reasonable rates or at all. During March 2000, the Occupational Safety and Health Association (OSHA) began an investigation of operating practices and procedures at RMSM. Management does not expect the outcome of this investigation to have a material adverse effect on the consolidated financial condition, consolidated earnings or consolidated cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were voted upon during the fourth quarter of 1999. -13- EXECUTIVE OFFICERS OF THE REGISTRANT Officers are elected by the Board of Directors of the Company to serve for a period ending with the next succeeding annual meeting of the Board of Directors held immediately after the annual meeting of stockholders. The name of each executive officer of the Company, age as of February 1, 2000 and position(s) and office(s) and all other positions and offices held by each executive officer are as follows: ASSUMED PRESENT EXECUTIVE NAME AGE POSITIONS POSITION - ---- --- --------- --------- Joe E. Corvin 55 President and January 2000 Chief Executive Officer L. Ray Adams 49 Vice President, Finance and March 1991 Chief Financial Officer LaNelle F. Lee 62 Vice President, April 1996 Administration and Secretary Steven M. Rowan 54 Vice President, February 1992 Materials and Transportation Jeff S. Stewart 38 Corporate Controller January 2000 Each of the executive officers named above has been employed by the Company in an executive or managerial role for at least five years. -14- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange. At December 31, 1999, the number of common stockholders of record was 865. Information on quarterly dividends and common stock prices is shown on page 23 and incorporated herein by reference. The indenture under which the Company's 11% First Mortgage Notes due 2003 were issued contains restrictions on the payment of common stock dividends. (See Note 7 to the Consolidated Financial Statements and "Liquidity and Capital Resource" under Item 7.) At December 31, 1999, $8.4 million was available for the payment of common stock dividends under these restrictions. ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE, TON AND PER TON AMOUNTS) INCOME STATEMENT DATA: Sales $ 821,984 $ 892,583 $ 768,558 $ 772,815 $ 710,971 Cost of sales 693,796 781,789 681,398 670,819 638,413 Settlement of litigation (7,027) (7,037) -- -- -- Loss (gain) on sale of assets 501 (4,746) (2,228) -- -- Selling, general and administrative expenses 55,992 56,189 51,749 44,857 43,121 Profit participation and ESOP contribution 10,540 2,890 7,157 7,844 5,418 ----------- ----------- ----------- ----------- ----------- Operating income 68,182 63,498 30,482 49,295 24,019 Other expense, net (33,737) (38,969) (5,967) (12,937) (8,685) Minority interests (1,475) (4,213) (5,898) (1,204) 862 Income tax expense (13,056) (8,387) (6,662) (11,407) (3,762) ----------- ----------- ----------- ----------- ----------- Net income $ 19,914 $ 11,929 $ 11,955 $ 23,747 $ 12,434 =========== =========== =========== =========== =========== COMMON STOCK INFORMATION: Basic and diluted net income per share $.76 $.45 $.45 $1.02 $.62 Cash dividends declared per share $.56 $.56 $.56 $.56 $.56 Weighted average common shares and common equivalents outstanding 26,375 26,368 26,292 23,333 20,016 BALANCE SHEET DATA (AT DECEMBER 31): Working capital $ 106,545 $ 40,249 $ 115,322 $ 120,996 $ 115,453 Total assets 877,254 993,970 986,620 913,355 805,266 Current liabilities 101,660 252,516 147,496 114,729 121,327 Long-term debt 298,329 270,440 367,473 330,993 312,679 Total stockholders' equity 352,402 345,117 349,007 353,041 266,790 OTHER DATA: Depreciation and amortization $ 43,415 $ 42,909 $ 28,642 $ 29,025 $ 24,964 Capital expenditures $ 12,365 $ 25,993 $ 81,670 $ 156,538 $ 176,885 Total tonnage sold: Oregon Steel Division 969,800 808,800 567,000 607,600 763,500 RMSM Division 734,900 861,700 907,600 893,200 640,200 ----------- ----------- ----------- ----------- ----------- Total tonnage sold 1,704,700 1,670,500 1,474,600 1,500,800 1,403,700 =========== =========== =========== =========== =========== Operating margin FN1 7.5% 5.8% 3.7% 6.4% 3.4% Operating income per ton sold FN1 $36 $31 $19 $33 $17
- ------------- FN1 Excluding settlement of litigation in 1998 and 1999 and gains and losses on sale of assets in 1997, 1998 and 1999. -15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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; the supply of imported steel and subsidies provided by foreign governments to support steel companies domiciled in their countries; potential equipment malfunction; work stoppages; plant construction and repair delays; and failure of the Company to accurately predict the impact of lost revenues associated with interruption of the Company's, its customers' or suppliers' operations. 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"), and 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"). The Company also directly owns an additional 4.3 percent interest in CF&I. In January 1998, CF&I assumed the trade name Rocky Mountain Steel Mills. The Company is organized into two business units known as the Oregon Steel Division and the Rocky Mountain Steel Mills ("RMSM") Division. The Oregon Steel Division is centered on the Company's steel plate minimill in Portland, Oregon ("Portland Mill"). In addition to the Portland 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. The following table sets forth, for the periods indicated, the percentage of sales represented by selected income statement items and information regarding selected balance sheet data: YEAR ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------- ------ ------ INCOME STATEMENT DATA: Sales 100.0% 100.0% 100.0% Cost of sales 84.4 87.6 88.7 Settlement of litigation (.9) (.8) - Gain on sale of assets - (.5) (.3) Selling, general and administrative expenses 6.8 6.3 6.7 Profit participation and ESOP contribution 1.3 .3 .9 ------ ------ ------ Operating income 8.4 7.1 4.0 Interest expense (4.3) (4.3) (1.3) Other, net .1 (.1) .5 Minority interests (.2) (.5) (.8) ------ ------ ------ Pretax income 4.0 2.2 2.4 Income tax expense (1.6) (.9) (.8) ------ ------ ------ Net income 2.4% 1.3% 1.6% ====== ====== ====== BALANCE SHEET DATA (AT DECEMBER 31): Current ratio 2.0:1 1.2:1 1.8:1 Total debt as a percent of capitalization 46.6% 51.8% 51.9% Net book value per share $13.67 $13.39 $13.58 -16- The following table sets forth by division, for the periods indicated, tonnage sold, revenues and average selling price per ton: YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 --------- --------- -------- TOTAL TONNAGE SOLD: Oregon Steel Division: Plate and Coil 450,200 352,700 192,400 Welded Pipe 519,600 456,100 351,200 Semifinished - - 23,400 --------- --------- --------- Total Oregon Steel Division 969,800 808,800 567,000 --------- --------- --------- RMSM Division: Rail 299,000 401,400 350,200 Rod, Bar and Wire 407,600 354,500 409,200FN1 Seamless Pipe 19,600FN2 68,900 120,200 Semifinished 8,700 36,900 28,000 --------- --------- --------- Total RMSM Division 734,900 861,700 907,600 ---of---- --------- --------- Total Company 1,704,700 1,670,500 1,474,600 ========= ========= ========= REVENUES (IN THOUSANDS): Oregon Steel Division $ 569,822 $ 536,947 $ 366,263 RMSM Division 252,162 355,636 402,295FN3 --------- --------- --------- Total Company $ 821,984 $ 892,583 $ 768,558FN3 ========= ========= ========= AVERAGE SELLING PRICE PER TON: Oregon Steel Division $588 $664 $646 RMSM Division $343 $413 $440FN4 Company Average $482 $534 $520FN4 - ----------------------- FN1 The Company sold the wire products production facility in June 1997. FN2 The Company suspended operation of the seamless pipe mill in May 1999. FN3 Includes insurance proceeds of approximately $2.5 million as reimbursement of lost profits resulting from lost production that occurred during the third and fourth quarters of 1996. FN4 Excludes insurance proceeds referenced in Note (3) above. The Company's long range strategic plan emphasizes the commitment to become the primary low cost producer of specialty plate products, while diversifying its other core businesses to minimize the impact of individual product cycles on the Company's financial performance. In pursuing these goals, the Company has sought alternatives to its reliance on the domestic market for large diameter pipe, the demand for which is particularly volatile, and the market for commodity plate, which is dictated to a large degree by price considerations only. In an effort to decrease the Company's reliance on the domestic large diameter pipe market and provide additional end use for its steel plate, the Company acquired a 60 percent interest in the Camrose Pipe Mill in June 1992 from Stelco, a large Canadian steel producer, which owns the remaining interest in the Camrose Pipe Mill. In 1997, 1998 and 1999, Camrose shipped 188,600, 233,800, and 133,000 tons, respectively, of steel pipe and generated revenues of $132.6 million, $183.3 million and $92.1 million, respectively. During those years Stelco was a major supplier of steel plate and coil for the Camrose Pipe Mill. To expand the Company's steel product lines and enter new geographic areas, CF&I purchased the Pueblo Mill and related assets in March 1993. In 1997, 1998 and 1999, the Pueblo Mill shipped 907,600, 861,700 and 734,900 tons, respectively, and generated revenues of $402.3 million, $355.6 million and $252.2 million, respectively. In August 1994, New CF&I sold a 10 percent equity interest in New CF&I to a subsidiary of Nippon. In connection with that sale, Nippon agreed to license to the Company its proprietary technology for producing DHH rail under a separate equipment supply agreement. In November 1995 the Company sold a 3 percent equity interest in New CF&I to two companies of Nissho Iwai, a large Japanese trading company. The labor contract at the RMSM Division expired on September 30, 1997. After a brief contract extension intended to help facilitate a possible contract, on October 3, 1997 the Union initiated a strike at the RMSM Division. See Part I "Business - Labor Dispute." By the end of 1997, the RMSM Division had ramped its operating back to pre-strike levels with management and replacement workers. Ship- -17- ment levels and cost of operations were negatively impacted by reduced production effort and costs specifically related to the strike. RMSM shipments for the fourth quarter 1997, the period directly affected by the strike, were 123,900 tons compared to shipments of 201,800 tons in the fourth quarter of 1996. Company sales in the fourth quarter of 1999 of $187.1 million increased 1.2 percent from sales of $184.8 million in the fourth quarter of 1998. Company shipments increased 9.4 percent to 413,200 tons in the fourth quarter of 1999 from 377,800 tons in the fourth quarter of 1998. The Company's average selling price in the fourth quarter of 1999 was $453 per ton versus $489 per ton in the fourth quarter of 1998. The increase in sales and shipments for the fourth quarter of 1999 was primarily due to an increase in plate and welded pipe sales for the Oregon Steel Division. The lower average selling price in the fourth quarter of 1999 is primarily due to lower average selling prices for rod, commodity plate, and Canadian welded pipe products, reduced shipments of rail and seamless pipe, and a shift in product mix to a greater percentage of lower-priced rod products. The Oregon Steel Division shipped 250,000 tons with an average selling price of $527 per ton during the fourth quarter of 1999, compared to 185,300 tons with an average selling price per ton of $610 during the fourth quarter of 1998. Increased fourth quarter 1999 shipment levels are the result of increased welded pipe shipped compared to the fourth quarter of 1998. The reduced average selling price is primarily due to substantially lower market prices for steel plate and a higher percentage of commodity plate to total plate shipped during the fourth quarter of 1999 compared to the corresponding 1998 period. During the fourth quarter of 1999, the RMSM Division shipped 163,200 tons with an average selling price of $340 per ton compared to 192,500 tons with an average selling price of $373 per ton during the fourth quarter of 1998. Decreased fourth quarter 1999 shipment levels are the result of decreased rail shipments partially offset by increased rod and bar shipments compared to the fourth quarter of 1998. Rail, and rod and bar shipments were 59,000 tons and 101,800 tons, respectively, in the fourth quarter of 1999 compared to 97,000 tons of rail and 87,300 tons of rod and bar products in the fourth quarter of 1998. The reduced average selling price compared to 1998 is the result of the shift in product mix as rod and bar have a significantly lower selling price than that of rail. Rod and bar shipments represented 62.4 percent of total fourth quarter shipments for the division as compared to 45.4 percent for the corresponding period in 1998. Gross profits as a percentage of sales for the fourth quarter of 1999 were 11.8 percent compared to 10.3 percent for the fourth quarter of 1998. Gross profit for the fourth quarter of 1999 was impacted by improvement in the operating performance of the Camrose Mills, partially offset by a decline in profitability for RMSM for the quarter ended December 31, 1999. Although both Canadian pipe mills ran more profitably for the quarter than for the corresponding period in 1998, Camrose's large diameter pipe mill was significantly more profitable because of a decrease in unit-conversion and finishing costs as compared to the fourth quarter of 1998. The Company expects to ship approximately 1.8 million tons of product during 2000. The Oregon Steel Division anticipates that it will ship 155,000 tons of welded pipe shipments and over 826,000 tons of plate and coil products during 2000. The RMSM Division anticipates that it will ship more than 300,000 tons of rail, and more than 500,000 tons of rod, bar, and semifinished products. If these levels are realized, welded pipe shipments will have decreased 365,000 tons from the 520,000 tons shipped in 1999 due to the completion in 1999 of a major sales contract for the Company and weaker market conditions for large diameter welded pipe. As a consequence, in order for the Company to continue to operate its Combination Mill at capacity, the Company will seek to sell more plate and coil products to outside customers than it has historically done. In the current plate and coil pricing environment, the margins on plate and coil are, on average, lower and in some cases significantly lower, than the margins realized on large diameter welded pipe products. Although the average selling prices on plate is expected to increase during 2000, it is expected to still be below pre-1997 price levels. As a result of reduced pipe shipments, the higher shipments of commodity plate and rod products and continued depressed pricing in plate and rod products, the Company anticipates that the net income for 2000 will be substantially below the net income realized in 1999. These results are subject to risks and uncertainties, and actual results could differ materially. -18- COMPARISON OF 1999 TO 1998 SALES. Sales in 1999 of $822.0 million decreased 7.9 percent from sales of $892.6 million in 1998. Shipments were up slightly in 1999 at 1,704,700 tons as compared to 1,670,500 tons in 1998. The average selling price in 1999 was $482 per ton versus $534 per ton in 1998. The decrease in consolidated average selling price was a result of reduced average selling prices for plate, coil, rod and rail, and decreased shipments of rail and seamless pipe as a percentage of total shipments. The Oregon Steel Division shipped 969,800 tons of plate, coil and welded pipe products at an average selling price per ton of $588 compared to 808,800 tons with an average selling price per ton of $664 in 1998. The increased shipments were the result of a 27.6 percent increase in plate and coil shipments and a 13.9 percent increase in pipe shipments. The decline in average selling price of 11.4 percent results primarily from the decline in prices for plate products, the decrease in the percentage of higher priced welded pipe products and a decrease in the Canadian welded pipe products' average selling price. The average selling price for plate declined 21 percent for the year ended December 31, 1999 primarily due to the high levels of imported steel plate. See Part I "Business - Competition and Other Market Factors". The division's plate mill produced 796,100 tons of plate and coil products during 1999 compared to 630,500 in 1998. The RMSM Division shipped 734,900 tons at an average selling price per ton of $343 compared to 861,700 tons with an average selling price per ton of $413. The 14.7 percent decline in total shipments in 1999 is the result of reduced rail, seamless pipe and semi-finished product shipments partially offset by increased rod and bar shipments. In May of 1999, the division suspended its seamless pipe operations due to poor market conditions. See Part I "Business - Products". Lower rail shipments in 1999 were the result of reduced domestic demand for rail products. GROSS PROFITS. Gross profit for 1999 was 15.6 percent compared to 12.4 percent for 1998. Gross profit was favorably affected by higher shipments of welded pipe and lower manufacturing costs for plate and welded pipe products, due in part to improved production from the Combination Mill. The favorable costs for plate and welded pipe were partially offset by the lower average selling prices noted previously, by losses in the seamless pipe business in 1999, and by the subsequent shutdown and severance costs incurred in the temporary closure of the seamless pipe mill. SETTLEMENT OF LITIGATION. The Company recorded a $7.0 million gain for 1999 from litigation settlements with various graphite electrode suppliers. A settlement of similar claims totaled $7.0 million in 1998. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administative ("SG&A") expenses at $56.0 million for 1999 remained essentially unchanged from $56.2 million for 1998, but increased as a percentage of sales to 6.8 percent in 1999 from 6.3 percent in 1998. The percentage increase was primarily due to the decrease in sales revenue exceeding the corresponding declines in volume of product shipped. PROFIT PARTICIPATION. Profit participation plan expense was $10.5 million in 1999 compared to $2.9 million in 1998. The increase in 1999 reflects the increased operating profitability of the Oregon Steel Division in 1999. INTEREST EXPENSE. Total interest cost for 1999 was $36.0 million compared to $39.7 million in 1998. The lower interest cost is primarily the result of a net reduction in debt principal. Capitalized interest was $1.0 million in 1999 compared to $1.2 million in 1998. INCOME TAX EXPENSE. The Company's effective income tax rate for state and federal taxes was 39.6 percent for 1999 compared to 41.3 percent for 1998. COMPARISON OF 1998 TO 1997 SALES. Sales in 1998 of $892.6 million increased 16.1 percent from sales of $768.6 million in 1997. Shipments increased 13.2 percent to 1.7 million tons in 1998 from 1.5 million tons in 1997. The average selling price in 1998 was $534 per ton versus $520 per ton in 1997. Of the $124.0 million sales increase, $101.8 million was the result of volume increases and $24.7 million resulted from higher average selling prices offset by $2.5 million of 1997 insurance proceeds. The increase in sales and shipments was primarily due to increased shipments of plate, coil and welded pipe products by the Oregon Steel Division and increased shipments of rail products by -19- the RMSM Division, offset in part by decreased shipments of seamless pipe and rod and bar products by the RMSM Division. The increased shipments include a 30 percent increase in welded pipe shipments, 456,100 in 1998 compared to 351,200 tons in 1997 and increased plate and coil shipments due to increased production from the Combination Mill. The increased average selling price for 1998 was due to increased shipments of welded pipe products as a percent of total products shipped, partially offset by reduced pricing for seamless pipe, rod and commodity plate products. The markets for the Company's plate products were negatively affected by high levels of imports. The Company's commodity plate pricing declined approximately $80 a ton since the beginning of 1998 as a result of import activity. Reduced seamless pipe prices were due to the low level of oil prices which reached a 20-year low and reduced U.S. rig counts which fell to near all-time lows. Rod product is being severely impacted by the high level of imported rod shipments entering the United States. Average rod pricing has declined over $60 a ton since the beginning of 1998. GROSS PROFITS. Gross profits as a percentage of sales for 1998 were 12.4 percent compared to 11.3 percent for 1997. Gross profit margins were positively impacted by increased margins on shipments of welded pipe and rail, offset by lower margins on rod and seamless pipe resulting from the adverse market conditions described above. Also, 1997 production costs and gross margins were negatively impacted by the startup of the Combination Mill and by the labor dispute at the RMSM Division as discussed above. SELLING, GENERAL AND ADMINISTRATIVE. SG&A" expenses for 1998 increased $4.4 million or 8.6 percent compared to 1997 and decreased as a percent of revenues from 6.7 percent in 1997 to 6.3 percent in 1998. The dollar amount increase was primarily due to increased shipping costs due to increased tons shipped in 1998 compared to 1997 and costs specifically related to the labor dispute with the Union at RMSM. CONTRIBUTION TO ESOP AND PROFIT PARTICIPATION. There was a $1.5 million contribution to the ESOP in 1997 compared to no contribution in 1998. Profit participation plan expense was $2.9 million in 1998 compared to $5.7 million in 1997. The decrease in 1998 profit participation reflects the decreased profitability in the first three quarters of 1998 compared to those quarters of 1997. INTEREST EXPENSE. Total interest cost for 1998 was $39.7 million, an increase of $1.7 million compared to 1997. The higher interest cost is primarily the result of higher average debt during 1998 versus 1997. Of the $39.7 million of interest cost in 1998, $1.2 million was capitalized as part of construction in progress versus $27.8 million capitalized in 1997. INCOME TAX EXPENSE. The Company's effective income tax rate for state and federal taxes was 41.3 percent for 1998 compared to 35.8 percent for 1997. The effective income tax rate for 1998 varied from the combined state and federal statutory rate due to the expiration of certain state tax credits and an establishment of a $3.1 million valuation allowance for state tax credit carryforwards. LIQUIDITY AND CAPITAL RESOURCES Cash flow from 1999 operations was $95.0 million compared to $51.9 million in 1998. The major items affecting the $43.1 million increase were increased net income ($8.0 million), and a decrease in inventories in 1999 versus an increase in 1998 ($123.0 million). The increase in cash provided by these changes was partially offset by an increase in accounts payable and accrued expenses in 1998 versus a decrease in 1999 ($71.0 million), a smaller decrease in accounts receivable in 1999 compared to 1998 ($10.1 million) and a realization of income tax deposits in 1998 that exceeded the amount realized in 1999 ($4.0 million). Net working capital at December 31, 1999 increased $66.3 million compared to December 31, 1998 reflecting a $150.9 million decrease in current liabilities offset by an $84.6 million decrease in current assets. The decrease in current liabilities was primarily due to the refinancing of the Company's operating credit facility which resulted in the amounts outstanding under the facility being classified as long-term debt, and a decreased accounts payable balance related to decreased inventory levels. The decrease in current assets was primarily due to decreased accounts receivable and inventories related to the lower sales and improved production efficiency in 1999 versus 1998. The Company has outstanding $235 million principal amount of 11% First Mortgage Notes ("Notes") due 2003. New CF&I and CF&I ("Guarantors") guarantee the Notes. The Notes and the guarantees are secured by a lien on substantially all the property, plant and equipment and certain -20- other assets of the Company (exclusive of Camrose) and the Guarantors. The collateral for the Notes and the guarantees does 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 bank credit facility ("Credit Agreement"), which expires June 11, 2002, and may be drawn upon based on the Company's accounts receivable and inventory balances, except those of Camrose. At December 31, 1999, $40 million was outstanding under the Credit Agreement. At the Company's election, interest on the Credit Agreement is based either on the London Interbank Offering Rate ("LIBOR"), the prime rate, or the federal funds rate, plus a margin determined by the Company's leverage ratio. The annual commitment fees are .5 percent of the unused portion of the Credit Agreement. The Credit Agreement is collateralized by substantially all of the Company's consolidated domestic inventory and accounts receivable. Amounts outstanding under the Credit Agreement are guaranteed by the Guarantors. The Credit Agreement contains various restrictive covenants including a minimum tangible net worth, minimum interest coverage ratio, and a maximum debt to total capitalization ratio. CF&I incurred $67.5 million in term debt in 1993 as part of the purchase price of the Pueblo Mill. This debt is without stated collateral and is payable over ten years with interest at 9.5 percent. As of December 31, 1999, the outstanding balance on the debt was $31.0 million, of which $23.2 million was classified as long-term. Camrose maintains a (CDN) $25 million revolving credit facility with a Canadian 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 is comprised of two credit lines, a (CDN) $10.0 million line that expires September 12, 2000 and a (CDN) $15.0 million line that expires September 12, 2002. At the Company's election, interest is payable based on either the bank's Canadian dollar prime rate, the bank's U.S. dollar prime rate, or LIBOR. Annual commitment fees are .15 and .25 percent of the unused portion of the (CDN) $10.0 million and (CDN) $15.0 million credit lines, respectively. As of December 31, 1999, Camrose had $147,000 outstanding under the facility. The Company is able to draw up to $25 million of the borrowings available under the Credit Agreement to support issuance of letters of credit and similar agreements. The Company also maintains a uncollateralized and uncommitted line of credit with another bank to support letters of credit, foreign exchange contracts and interest rate hedges. At December 31, 1999, $3.0 million was restricted under outstanding letters of credit. During 1999 the Company expended approximately $3.4 million (exclusive of capitalized interest) on the capital projects at the RMSM Division, and $9.0 million (exclusive of capitalized interest) on capital projects at the Oregon Steel Division. For 2000, the RMSM Division and the Oregon Steel Division have budgeted (exclusive of capitalized interest) approximately $8.4 million and $14.7 million, respectively, for capital projects at the manufacturing facilities. The Company believes that its anticipated needs for working capital and capital expenditures through 2000 will be met from funds generated by operations and borrowings pursuant to the Company's Credit Agreement. There is no assurance, however, that the amounts from these sources will be sufficient for such purposes. In that event, or for other reasons, the Company may be required to seek additional financing, which may include additional bank financing. There is no assurance that such source of funding will be available if required or, if available, will be on terms satisfactory to the Company. 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 of and interest on their indebtedness when due. The Company is currently in compliance with the restrictive debt covenants applicable to its loan agreements; however, the Company anticipates that the net income for 2000 will be substantially below the net income realized in 1999, increasing the likelihood that the Company may not be in compliance with one or more of its covenants during 2000. The Company is currently in discussions with its lenders to amend the Credit Agreement to provide additional operating and finan- -21- cial flexibility. Management expects to conclude modification of the current Credit Agreement by the end of the first quarter of 2000. YEAR 2000 ISSUES. In response to year 2000 compliance issues, the Company developed and executed a systematic approach to identifying and assessing potential year 2000 issues. The approach consisted of modifying or replacing equipment and software and performing testing to ensure that all information technology ("IT") systems and process logic controller ("PLC") components of manufacturing equipment were year 2000 compliant as modified, or that any failure to be year 2000 compliant would not have a material adverse impact on the Company. These procedures were completed in 1999. With the passage of most critical dates, including the commencement of the Company's 2000 fiscal year, and January 1, 2000, the Company has not experienced a significant disruption due to a failure of any IT or PLC system. The Company has not experienced a significant service interruption as a result of one of the Company's major suppliers or customers experiencing a serious disruption due to the year 2000 issue. Based on this experience, the Company does not expect a significant disruption in the future as a result of the year 2000 issue or the fact that 2000 is a leap year. Accordingly, the year 2000 issue has not had, nor is currently expected to have, a material adverse effect on the Company's consolidated financial conditions, consolidated earnings or consolidated cash flows. While management believes that the risk is low, it is early in the year 2000 and there is a possibility that a year 2000 compliance failure related to the Company's hardware or software systems may occur. The Company will continue to monitor its systems for such an occurrence. The Company incurred approximately $1.8 million associated with the year 2000 effort. The cost of the year 2000 effort has been funded through normal operating cash flows. IMPACT OF INFLATION. Inflation can be expected to have an effect on many of the Company's operating costs and expenses. Due to worldwide competition in the steel industry, the Company may not be able to pass through such increased costs to its customers. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has entered into certain market-risk-sensitive financial instruments for other than trading purposes, principally short-term debt and long-term debt. The following discussion of market risks necessarily makes forward looking statements. There can be no assurance that actual changes in market conditions and rates and fair values will not differ materially from those used in the sensitivity and fair value calculations discussed. Factors which may cause actual results to differ materially include, but are not limited to: greater than 10 percent changes in interest rates or foreign currency exchange rates, changes in income or cash flows requiring significant changes in the use of debt instruments or the cash flows associated with them, or changes in commodity market conditions affecting availability of materials in ways not predicted by the Company. INTEREST RATE RISK Sensitivity analysis was used to determine the potential impact that market risk exposure may have on the fair values of the Company's financial instruments, including debt and cash equivalents. The Company has assessed the potential risk of loss in fair values from hypothetical changes in interest rates by determining the effect on the present value of the future cash flows related to those market sensitive instruments. The discount rates used for such present value computations were selected based on market interest rates in effect at December 31, 1999, plus or minus 10 percent. A 10 percent decrease in interest rates with all other variables held constant would result in a increase in the fair value of the Company's financial instruments by $9.2 million. A 10 percent increase in interest rates with all other variables held constant would result in a decrease in the fair value of the Company's financial instruments by $8.8 million. There would not be a material effect on consolidated earnings or consolidated cash flows from those changes alone. FOREIGN CURRENCY RISK In general, the Company uses a single functional currency for all receipts, payments and other settlements at its facilities. Occasionally, transactions will be denominated in another currency and a foreign currency forward exchange contract used to hedge currency gains and losses; however, at December 31, 1999, the Company did not have any open forward contracts. -22- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA - UNAUDITED 1999 1998 -------------------------------------- ------------------------------------ 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST --- --- --- --- --- --- ---- --- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) Sales $187.1 $205.9 $189.3 $239.7 $184.8 $255.2 $229.6 $223.0 Operating income 6.6 21.4 15.9 24.3 4.2 27.8 17.9 13.6 Net income (loss) (2.0) 8.3 5.2 8.4 (4.5) 10.0 4.7 1.8 Basic and diluted net income (loss)per share $(.07) $.31 $.20 $.32 $(.17) $.38 $.18 $.07 Dividends declared per common share $ .14 $.14 $.14 $.14 $.14 $.14 $.14 $.14 Common stock price per share range: High $11-1/8 $ 14-1/4 $ 17 $14-1/2 $15-1/8 $19-1/4 $26-1/2 $24-3/8 Low $ 6-1/4 $10-5/16 $10-3/8 $ 9-1/8 $10-13/16 $9-7/16 $18-1/4 $18-1/8 Average shares and equivalents outstanding 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.3
-23- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Oregon Steel Mills, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(ii) on page 42 present fairly, in all material respects, the financial position of Oregon Steel Mills, Inc. and its subsidiaries at December 31, 1999, 1998, and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(iii) on page 42 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers lLP Portland, Oregon January 26, 2000 -24-
OREGON STEEL MILLS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) DECEMBER 31, ------------------------------------- 1999 1998 1997 -------- ------- ------- ASSETS Current assets: Cash and cash equivalents $ 9,270 $ 9,044 $ 570 Trade accounts receivable, less allowance for doubtful accounts of $1,994, $1,148 and $1,374 62,547 67,254 83,219 Inventories 122,683 196,279 148,548 Deferred tax asset 9,245 13,593 17,262 Other 4,460 6,595 13,219 -------- -------- -------- Total current assets 208,205 292,765 262,818 -------- -------- -------- Property, plant and equipment: Land and improvements 29,383 28,811 28,782 Buildings 50,426 49,387 46,805 Machinery and equipment 756,897 749,597 422,179 Construction in progress 18,817 16,329 329,198 -------- -------- -------- 855,523 844,124 826,964 Accumulated depreciation (247,528) (205,515) (166,485) -------- -------- -------- 607,995 638,609 660,479 -------- -------- -------- Cost in excess of net assets acquired, net 34,636 35,508 36,590 Other assets 26,418 27,088 26,733 -------- -------- -------- $877,254 $993,970 $986,620 ======== ======== ======== LIABILITIES Current liabilities: Current portion of long-term debt $ 7,861 $ 7,164 $ 7,373 Short-term debt - 93,700 - Accounts payable 58,451 106,084 97,860 Accrued expenses 35,348 45,568 42,263 -------- -------- -------- Total current liabilities 101,660 252,516 147,496 Long-term debt 298,329 270,440 367,473 Deferred employee benefits 21,530 20,427 21,018 Environmental liability 32,645 32,765 34,801 Deferred income taxes 38,186 36,415 31,641 -------- -------- -------- 492,350 612,563 602,429 -------- -------- -------- Minority interests 32,502 36,290 35,184 -------- -------- -------- Contingencies (Note 13) STOCKHOLDERS' EQUITY Capital stock: Preferred stock, par value $.01 per share; 1,000 shares authorized; none issued Common stock, par value $.01 per share; 30,000 shares authorized; 25,777, 25,777, and 25,693 shares issued and outstanding 258 258 257 Additional paid-in capital 227,584 227,584 226,085 Retained earnings 130,958 125,479 127,984 Accumulated other comprehensive income: Cumulative foreign currency translation adjustment (6,398) (8,204) (5,319) -------- --------- -------- 352,402 345,117 349,007 -------- -------- -------- $877,254 $993,970 $986,620 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. -25-
OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- Sales $ 821,984 $ 892,583 $ 768,558 --------- --------- --------- Costs and expenses: Cost of sales 693,796 781,789 681,398 Settlement of litigation (7,027) (7,037) -- Loss (gain) on sale of assets 501 (4,746) (2,228) Selling, general and administrative 55,992 56,189 51,749 Contribution to employee stock ownership plan -- -- 1,501 Profit participation 10,540 2,890 5,656 --------- --------- --------- 753,802 829,085 738,076 --------- --------- --------- Operating income 68,182 63,498 30,482 Other income (expense): Interest and dividend income 210 361 406 Interest expense (35,027) (38,485) (10,216) Minority interests (1,475) (4,213) (5,898) Other, net 1,080 (845) 3,843 --------- --------- --------- Income before income taxes 32,970 20,316 18,617 Income tax expense (13,056) (8,387) (6,662) --------- --------- --------- NET INCOME $ 19,914 $ 11,929 $ 11,955 ========= ========= ========= BASIC AND DILUTED NET INCOME PER SHARE $.76 $.45 $.45 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. -26- OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ACCUMULATED ADDITIONAL OTHER COMMON STOCK -------------------- PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL ------- ------ ---------- --------- ------------- -------- BALANCES, DECEMBER 31, 1996 25,693 $257 $226,085 $130,417 $ (3,718) $353,041 -------- Net income 11,955 11,955 Foreign currency translation adjustment (1,601) (1,601) -------- Comprehensive income 10,354 Dividends paid ($.56 per share) (14,388) (14,388) ------ ---- -------- -------- --------- -------- BALANCES, DECEMBER 31, 1997 25,693 257 226,085 127,984 (5,319) 349,007 -------- Net income 11,929 11,929 Foreign currency translation adjustment (2,885) (2,885) -------- Comprehensive income 9,044 Issuance to employee stock ownership plan 84 1 1,499 1,500 Dividends paid ($.56 per share) (14,434) (14,434) ------ ---- -------- -------- ------- -------- BALANCES, DECEMBER 31, 1998 25,777 258 227,584 125,479 (8,204) $345,117 ------ ---- -------- -------- ------- -------- Net income 19,914 19,914 Foreign currency translation adjustment 1,806 1,806 -------- Comprehensive income 21,720 Dividends paid ($.56 per share) (14,435) (14,435) ------ ---- -------- -------- ------- -------- BALANCES, DECEMBER 31, 1999 25,777 $258 $227,584 $130,958 $(6,398) $352,402 ====== ==== ======== ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. -27- OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net income $ 19,914 $ 11,929 $ 11,955 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 43,415 42,909 28,642 Deferred income taxes 6,119 5,156 7,099 Accruals for contribution of common stock to employee stock ownership plan -- -- 1,501 Loss (gain) on sale of assets and investments 501 (3,344) (7,833) Minority interests' share of income 1,475 4,213 5,898 Other, net (120) 4,774 8,480 Changes in current assets and liabilities: Trade accounts receivable 4,707 14,821 7,404 Inventories 73,595 (49,362) (28,723) Income taxes 1,087 5,674 (7,919) Accounts payable and accrued expenses (56,782) 14,190 26,307 Other 1,125 947 (707) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 95,036 51,907 52,104 --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (12,365) (25,993) (81,670) Proceeds from disposal of property, plant and equipment -- 5,022 14,913 Other, net 561 (597) (1,514) --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES (11,804) (21,568) (68,271) --------- --------- --------- Cash flows from financing activities: Net repayments under Canadian bank revolving loan facility (4,431) (707) (291) Proceeds from bank debt 382,520 408,500 424,877 Payments on bank and long-term debt (443,364) (410,973) (387,307) Dividends paid (14,435) (14,434) (14,388) Minority share of subsidiary's distribution (5,263) (3,107) (7,187) Other, net 161 (472) 449 --------- --------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (84,812) (21,193) 16,153 --------- --------- --------- Effects of foreign currency exchange rate changes on cash 1,806 (672) (155) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 226 8,474 (169) Cash and cash equivalents at beginning of year 9,044 570 739 --------- --------- --------- Cash and cash equivalents at end of year $ 9,270 $ 9,044 $ 570 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 36,091 $ 37,905 $ 35,399 Income taxes $ 5,321 $ 1,303 $ 7,237
See Note 5 for additional supplemental cash flow disclosures. The accompanying notes are an integral part of the consolidated financial statements. -28- OREGON STEEL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS Oregon Steel Mills, Inc. and subsidiaries ("Company") manufactures various specialty and commodity steel products with operations in the United States and Canada. The principal markets for the Company's products are steel service centers, steel fabricators, railroads, oil and gas producers and distributors and other industrial concerns. The Company's products are primarily marketed in the United States west of the Mississippi River and western Canada. The Company also markets products outside North America. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all wholly-owned and those majority-owned subsidiaries over which the Company exerts management control. Non-controlled majority-owned subsidiaries and affiliates that are 20 percent to 50 percent owned are accounted for using the equity method. Material wholly-owned and majority-owned subsidiaries of the Company are Camrose Pipe Corporation ("CPC") which owns a 60 percent interest in Camrose Pipe Company ("Camrose"), and 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"). The Company also owns directly an additional 4.3 percent interest in CF&I. In January 1998, CF&I assumed the trade name of Rocky Mountain Steel Mills ("RMSM"). All significant intercompany transactions and account balances have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents include short-term securities that have an original maturity date of 90 days or less. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its cash in high credit quality investments and limits the amount of credit exposure by any one financial institution. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation insurance limit. Management believes that risk of loss on the Company's trade receivables is reduced by ongoing credit evaluation of customer financial condition and requirements for collateral, such as letters of credit and bank guarantees. INVENTORIES Inventories are stated at the lower of average cost or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, including capitalized interest during construction of $941,000, $1.2 million and $27.8 million in 1999, 1998 and 1997, respectively. Depreciation is determined using principally the straight-line method and the units of production method over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred and costs of improvements are capitalized. Upon disposal, cost and accumulated depreciation are removed from the accounts and gains or losses are reflected in earnings. COSTS IN EXCESS OF NET ASSETS ACQUIRED The costs in excess of net assets acquired by CF&I and Camrose are being amortized on a straight-line basis over 40 years. Accumulated amortization was $7.0 million, $5.9 million and $4.9 million in 1999, 1998 and 1997, respectively. The carrying value of costs in excess of net assets acquired will be reviewed and charged to earnings if the facts and circumstances suggest that the assets may be impaired. INCOME TAXES Deferred income taxes reflect the differences between the financial reporting and tax bases of assets and liabilities at year end based on enacted tax laws and statutory tax rates. Tax credits are recognized as a reduction of income tax expense in the year the credit arises. -29- FINANCIAL INSTRUMENTS The Company uses foreign currency forward exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. Gains and losses on these contracts are deferred and recognized in income as part of the related transaction. FOREIGN CURRENCY TRANSLATION Assets and liabilities subject to foreign currency fluctuations are translated at the period-end rate of exchange with related unrealized gains or losses on the balance sheet date reflected in stockholders' equity. Income and expenses are translated at the average exchange rate for the period. NET INCOME PER SHARE Basic and diluted net income per share was as follows at December 31:
1999 1998 1997 -------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Weighted average number of common shares outstanding 25,777 25,770 25,694 Shares of common stock to be issued March 2003 598 598 598 ------- ------- ------- 26,375 26,368 26,292 ======= ======= ======= Net income $19,914 $11,929 $11,955 ======= ======= ======= Basic and diluted net income per share $.76 $.45 $.45 ==== ==== ====
SEGMENT REPORTING In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information". In accordance with the criteria of SFAS 131, the Company operates in a single reportable segment, which is the steel industry. Within this segment, the Company operates and manages two divisions, Oregon Steel Division and RMSM Division, which are organized by geographic region. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made in prior years to conform to the current year presentation. Such reclassifications do not affect results of operations as previously reported. NEW ACCOUNTING STANDARD The adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" issued by the Financial Accounting Standards Board (FASB) on June 15, 1998, is expected to not have a significant effect on the Company's results of operations or its financial position. See disclosures above and in Note 8. 3. GEOGRAPHIC INFORMATION Geographical information is as follows: 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Revenues from External Customers: United States $729,883 $709,239 $635,989 Canada 92,101 183,344 132,569 -------- -------- -------- $821,984 $892,583 $768,558 ======== ======== ======== Assets: United States $837,320 $935,873 $927,430 Canada 39,934 58,097 59,190 -------- -------- -------- $877,254 $993,970 $986,620 ======== ======== ======== Revenue attributed to Canada are from Camrose, which is domiciled there. Revenues attributed to other countries are insignificant. -30- 4. INVENTORIES Inventories were as follows at December 31: 1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Raw materials $ 14,383 $ 16,842 $ 25,197 Semifinished product 46,819 93,747 65,545 Finished product 35,536 60,290 31,105 Stores and operating supplies 25,945 25,400 26,701 -------- -------- -------- Total inventory $122,683 $196,279 $148,548 ======== ======== ======== 5. SUPPLEMENTAL CASH FLOW INFORMATION At December 31, 1998 and 1997, the Company acquired property, plant and equipment for $12.9 million and $16.2 million, respectively, which was included in accounts payable and accrued expenses. The Company has recorded as a change to stockholders' equity the issuance of common stock to the Employee Stock Ownership Plan in 1998 and foreign currency translation adjustments in each of the three years, which are noncash transactions. 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable include book overdrafts of $5.5 million and $12.0 million at December 31, 1999 and 1997, and retainage from construction projects of $3.2 million and $13.2 million at December 31, 1998 and 1997, respectively. 7. DEBT AND FINANCING ARRANGEMENTS Debt balances were as follows as of December 31: 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) 11% First Mortgage Notes due 2003 $235,000 $235,000 $235,000 Revolving bank loan 40,020 93,700 88,800 CF&I acquisition term loan 31,023 38,187 45,559 Camrose revolving bank loan 147 4,417 5,487 -------- -------- -------- Total debt 306,190 371,304 374,846 Less current maturities and short-term debt 7,861 100,864 7,373 -------- -------- -------- Non-current maturity of long-term debt $298,329 $270,440 $367,473 ======== ======== ======== The Company has outstanding $235 million principal amount of 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 does 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. Under these restrictions, $8.4 million was available for cash dividends at December 31, 1999. The Company maintains a $125 million revolving bank credit facility ("Credit Agreement"), which expires June 11, 2002, and may be drawn upon based on the Company's accounts receivable and inventory balances, except those of Camrose. At the Company's election, interest on the Credit Agreement is based on either the London Interbank Offering Rate ("LIBOR"), the prime rate, or the federal funds rate, plus a margin determined by the Company's leverage ratio. As of December 31, 1999, the average interest rate on borrowings under the Credit Agreement was 8.0 percent. Annual commitment fees are .5 percent of the unused portions of the Credit Agreement. The Credit Agreement is collateralized by substantially all of the Company's consolidated domestic inventory and accounts receivable. Amounts outstanding under the Credit Agreement are guaranteed by the Guarantors. The Credit Agreement contains various restrictive covenants including a minimum tangible net worth, minimum interest coverage ratio, and a maximum debt to total capitalization ratio. -31- CF&I incurred $67.5 million in term debt in 1993 as part of the purchase price of certain assets, principally a steel mill located in Pueblo, Colorado ("Pueblo Mill"), of CF&I Steel Corporation ("CF&I Steel"). This debt is without stated collateral and is payable over ten years with interest at 9.5 percent. Camrose maintains a (CDN) $25 million revolving credit facility with a Canadian 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 is comprised of two credit lines, a (CDN) $10.0 million line that expires September 12, 2000 and a (CDN) $15.0 million line that expires September 12, 2002. At the Company's election, interest is payable based on either the bank's Canadian dollar prime rate, the bank's U.S. dollar prime rate, or LIBOR. As of December 31, 1999, the interest rate of this facility was 6.5 percent. Annual commitment fees are .15 and .25 percent of the unused portion of the (CDN) $10.0 million and (CDN) $15.0 million credit lines, respectively. As of December 31, 1999, principal payments on debt are due as follows (in thousands): 2000 $ 7,861 2001 8,772 2002 49,484 2003 240,073 -------- $306,190 ======== The Company is able to draw up to $25 million of the borrowings available under the Credit Agreement to support issuance of letters of credit and similar agreements. The Company also maintains a uncollateralized and uncommitted line of credit with another bank to support issuance of letters of credit, foreign exchange contracts and interest rate hedges. At December 31, 1999, $3.0 million was restricted under outstanding letters of credit. 8. FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows as of December 31:
1999 1998 1997 --------------------------- ------------------------- -------------------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE ------------- ------------- ------------- ----------- ----------- -------------- (IN THOUSANDS) Cash and cash equivalents $ 9,270 $ 9,270 $ 9,044 $ 9,044 $ 570 $ 570 Short-term debt - - 93,700 93,700 - - Long-term debt, including current portion 306,190 313,068 277,604 282,818 374,846 393,407
The carrying amounts of cash or cash equivalents and short-term debt approximate fair value due to their short maturity. The fair value of long-term debt, including current portion, is estimated based on quoted market prices or by discounting future cash flows based on the Company's incremental borrowing rate for similar types of borrowing arrangements. The Company uses foreign currency forward exchange contracts to reduce its exposure to fluctuations in foreign currency exchange rates. Such contracts are typically short-term in duration and relate to specific transactions. At December 31, 1999, the Company had no open forward exchange contracts. At December 31, 1998, the Company had $4.0 million notional amount outstanding under such contracts. There were no material unrealized gains or losses associated with these contracts at year end. -32- 9. INCOME TAXES The income tax expense consists of the following: 1999 1998 1997 --------- -------- -------- (IN THOUSANDS) Current: Federal $ (4,478) $ 806 $ 547 State (375) (95) (99) Foreign (2,188) (654) (11) -------- ------- ------- (7,041) 57 437 -------- ------- ------- Deferred: Federal (6,918) (5,373) (4,498) State (91) (2,459) (343) Foreign 994 (612) (2,258) -------- ------- ------- (6,015) (8,444) (7,099) -------- ------- ------- Income tax expense $(13,056) $(8,387) $(6,662) ======== ======= ======= The current and noncurrent components of the net deferred tax assets and liabilities as of December 31 were as follows:
1999 1998 1997 --------- -------- -------- (IN THOUSANDS) Net current deferred tax asset: Assets Inventories $ 3,496 $ 4,584 $ 4,531 Accrued expenses 4,976 5,807 9,053 Foreign tax credit -- 3,754 2,886 Net operating loss carryforward -- 1,789 2,380 Other 813 507 3,504 -------- -------- ------- 9,285 16,441 22,354 Liabilities Other 40 2,848 5,092 -------- ------- ------- Net current deferred tax asset $ 9,245 $ 13,593 $17,262 ======== ======== ======= Net noncurrent deferred income tax liability: Assets Postretirement benefits other than pensions $ 2,684 $ 2,238 $ 1,864 State tax credits 5,882 5,719 6,907 Alternative minimum tax credit 20,299 15,561 15,532 Environmental liability 12,473 12,791 12,829 Net operating loss carryforward 48,890 40,117 20,657 Other 5,018 6,562 1,120 -------- -------- ------- 95,246 82,988 58,909 Valuation allowance (3,282) (3,105) -- -------- -------- ------- 91,964 79,883 58,909 -------- -------- ------- Liabilities Property, plant and equipment 119,729 104,054 77,025 Cost in excess of net assets acquired 10,301 10,917 11,642 Other 120 1,327 1,883 -------- -------- ------- 130,150 116,298 90,550 -------- -------- ------- Net noncurrent deferred income tax liability $ 38,186 $ 36,415 $31,641 ======== ======== =======
-33- A reconciliation of the statutory tax rate to the effective tax rate on income before income taxes is as follows: 1999 1998 1997 -------- ------- ------- U.S. statutory income tax rate (35.0)% (35.0)% (35.0)% Deduction for dividends to ESOP participants 0.9 1.8 2.1 State taxes, net (0.9) (11.8) (2.9) Foreign sales corporation benefit 0.8 4.7 2.3 Foreign tax in excess of U.S. rate (8.4) (.5) (2.9) Other, net 3.0 (.5) .6 ----- ----- ----- (39.6)% (41.3)% (35.8)% ===== ===== ===== At December 31, 1999, the Company has state tax credits of $2.6 million expiring 2000 through 2011 which are available to reduce future income taxes payable. At December 31, 1999, the Company has $115.8 million in federal net operating loss carryforwards expiring in 2012 through 2019. In addition, the Company has $156.5 million in state net operating loss carryforwards expiring in 2009 through 2014. The Company maintained a valuation allowance of $3.3 million and $3.1 million at December 31, 1999 and 1998, respectively, for state tax credit carryforwards. Management believes that it is more likely than not that future taxable income will not be sufficient to realize the full benefit of the state tax credit carryforwards. No valuation allowance has been established for net operating loss carryforwards. 10. EMPLOYEE BENEFIT PLANS UNITED STATES PENSION PLANS The Company has noncontributory defined benefit retirement plans covering all of its eligible domestic employees. The plans provide benefits based on participants' years of service and compensation. The Company funds at least the minimum annual contribution required by ERISA. The following table sets forth the funded status of the plans and the amounts recognized in the Company's consolidated balance sheets as of December 31:
1999 1998 1997 -------- ------- ------- (IN THOUSANDS) Change in benefit obligation Projected benefit obligation at January 1 $ 64,525 $52,566 $46,184 Service cost 3,474 3,100 3,804 Interest cost 4,266 3,617 3,445 Actuarial loss (gain) (6,835) 4,407 1,248 Early retirement benefits - 2,528 - Benefits paid (2,655) (1,693) (2,115) -------- ------- ------- Projected benefit obligation at December 31 62,775 64,525 52,566 -------- ------- ------- Change in plan assets Fair value of plan assets at January 1 59,932 49,877 42,087 Actual return on plan assets 8,847 9,559 7,139 Company contribution 1,827 2,189 2,766 Benefits paid (2,655) (1,693) (2,115) -------- ------- ------- Fair value of plan assets at December 31 67,951 59,932 49,877 -------- ------- ------- Projected benefit obligation less than (in excess of) plan assets 5,176 (4,593) (2,689) Unrecognized net gain (10,788) (57) (711) Unrecognized prior service cost 386 506 626 Unrecognized net transition obligation, amortized through 2001 149 225 301 -------- ------- ------- Pension liability recognized in consolidated balance sheet $(5,077) $(3,919) $(2,473) ======== ======= =======
-34- Net pension cost was $3.0 million, $5.0 million and $3.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. During 1998 the Company offered a voluntary early retirement package to certain management employees at CF&I. As a result, the projected benefit obligation and the net pension cost were increased by $2.5 million in 1998. Plan assets are invested in common stock and bond funds (96 percent), marketable fixed income securities (2 percent) and insurance company contracts (2 percent) at December 31, 1999. The plans do not invest in the stock of the Company. CANADIAN PENSION PLANS The Company has noncontributory defined benefit retirement plans covering all of its eligible Camrose employees. The plans provide benefits based on participants' years of service and compensation. The following table sets forth the funded status and the amounts recognized as of December 31:
1999 1998 1997 -------- ------- ------- (IN THOUSANDS) Change in benefit obligation: Projected benefit obligation at January 1 $10,310 $ 9,616 $ 7,351 Service cost 573 541 355 Interest cost 727 706 568 Actuarial loss (gain) (530) 295 1,719 Benefits paid (243) (126) (256) Foreign currency exchange rate change 26 (722) (121) ------- ------- ------- Projected benefit obligation at December 31 10,863 10,310 9,616 ------- ------- ------- Change in plan assets Fair value of plan assets at January 1 11,340 11,045 9,953 Actual return on plan assets 397 734 1,028 Company contribution 705 482 462 Benefits paid (243) (126) (256) Foreign currency exchange rate change 30 (795) (142) ------- ------- ------- Fair value of plan assets at December 31 12,229 11,340 11,045 ------- ------- ------- Plan assets in excess of projected benefit obligation 1,366 1,030 1,429 Unrecognized net loss 754 718 118 ------- ------- ------- Pension asset recognized in consolidated balance sheet $ 2,120 $ 1,748 $ 1,547 ======= ======= =======
Net pension cost was $334,000, $280,000 and $6,000 for the years ended December 31, 1999, 1998, and 1997, respectively. The following table sets forth the significant actuarial assumptions for the United States and Canadian pension plans: 1999 1998 1997 ---- ----- ---- Discount rate 7.5% 6.8% 7.0% Rate of increase in future compensation levels: United States Plans 4.0% 4.0% 4.0% Canadian Plan 5.0% 4.0% 4.0% Expected long-term rate of return on plan assets 8.5% 8.5% 8.8% -35- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company provides certain health care and life insurance benefits for substantially all of its retired employees. Employees are generally eligible for benefits upon retirement after completion of a specified number of years of service. The benefit plans are unfunded. The following table sets forth the status of the plans as of December 31:
1999 1998 1997 ------- -------- -------- (IN THOUSANDS) Change in benefit obligation: Accumulated postretirement benefit obligation at January 1 $ 18,661 $ 17,372 $ 17,737 Service cost 461 411 397 Interest cost 1,231 1,181 1,263 Actuarial (gain) loss 1,042 399 (1,317) Benefits paid (824) (852) (686) Plan amendments 430 273 -- Foreign currency exchange rate change 5 (123) (22) -------- -------- -------- Accumulated postretirement benefit obligation at December 31 21,006 18,661 17,372 -------- -------- -------- Projected benefit obligation in excess of plan assets (21,006) (18,661) (17,372) Unrecognized net (gain) loss 712 (351) (617) Unrecognized transition obligation 4,518 4,926 5,334 Unrecognized prior service cost 711 315 -- -------- -------- -------- Postretirement liability recognized in consolidated balance sheet $(15,065) $(13,771) $(12,655) ======== ======== ========
Net postretirement benefit cost was $2.1 million, $1.8 million and $2.1 million for the years ended December 31, 1999, 1998 and 1997, respectively. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5, 6.8 and 7.0 percent for 1999, 1998 and 1997, respectively. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10.0 percent in 2000 and assumed to gradually decline to 4.5 percent in 2006, at which time it is assumed to remain constant at 4.5 percent. A one-percentage-point change in the assumed health care cost trend would have the following effect: 1 PERCENTAGE POINT CHANGE ------------------------- INCREASE DECREASE -------- -------- (In thousands) Accumulated postretirement benefit obligation $894 $(782) Service and interest costs 70 (60) OTHER EMPLOYEE BENEFIT PLANS The Company has an unfunded supplemental retirement plan designed to maintain benefits for all nonunion domestic employees at the plan formula level. The amount expensed for this plan in 1999, 1998 and 1997 was $285,000, $297,000 and $236,000, respectively. The Company has an Employee Stock Ownership Plan ("ESOP") noncontributory qualified stock bonus plan for eligible domestic employees. Contributions to the plan are made at the discretion of the Board of Directors and are in the form of newly issued shares of the Company's common stock. Shares are allocated to eligible employees' accounts based on annual compensation. At December 31, 1999, the ESOP held 1.5 million shares of Company common stock. Dividends on shares held by the ESOP are paid to eligible employees. The Company has discretionary profit participation plans under which it distributes quarterly to eligible employees 12 percent to 20 percent, depending on operating unit, of its pretax income after adjustments for certain nonoperating items. Each eligible employee receives a share of the distribution based upon the employee's base compensation in relation to the total base compensation of all eligible employees of the operating unit. The Company may modify, amend or terminate the plans, at any time, subject to the terms of various labor agreements. -36- The Company has qualified Thrift (401(k)) plans for eligible domestic employees under which the Company matches 25 or 50 percent, depending on location, of the first 4 or 6 percent of the participants' deferred compensation. Company contribution expense in 1999, 1998 and 1997 was $1.7 million, $1.6 million and $765,000, respectively. 11. MAJOR CUSTOMERS Sales to a single customer, related to a significant pipeline contract, were $269.3 million for 1999. There was not a similar concentration of sales to a single customer or group of customers for 1998 or 1997. 12. RELATED PARTY TRANSACTIONS STELCO, INC. Camrose purchases steel coil and plate under a steel supply agreement with Stelco, Inc. ("Stelco") a 40 percent owner of Camrose, or its subsidiaries. Transactions under the agreement are at negotiated market prices. The following table summarizes the transactions between Camrose and Stelco: 1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Sales to Stelco $ 217 $ 435 $ 330 Purchases from Stelco 25,529 24,000 83,478 Accounts receivable from Stelco at December 31 207 108 58 Accounts payable to Stelco at December 31 1,633 911 7,303 Under the acquisition agreement for the Camrose facility, either the Company or Stelco may initiate a buy-sell procedure pursuant to which the initiating party establishes a price for Camrose and the other party must either sell its interest at that price or purchase the initiating party's interest at that price. 13. 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 suggests different remediation methods or periods may be required and affect the total cost. The best estimate of the probable cost within a range is recorded; however, if there is no best estimate, the low end of the range is recorded and the range is disclosed. In connection with the 1993 acquisition of the assets, primarily the Pueblo Mill, of CF&I, the Company recorded a liability of $36.7 million for environmental remediation. The Company believed this amount was the best estimate from a range of $23.1 million to $43.6 million. The Company's estimate of this liability was based on two separate remediation investigations conducted by independent environmental engineering consultants. The liability 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 ("CDPHE") finalized a postclosure permit for 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 mandated that the schedule for corrective action could be accelerated if new data indicated a greater threat existed to the environment than was presently believed to exist. At December 31, 1999, the accrued liability was $33.4 million, of which $30.9 million was classified as non-current in the consolidated balance sheet. The CDPHE has inspected the Pueblo Mill for possible environmental violations, and in the fourth quarter of 1999, issued a Compliance Advisory indicating that air quality regulations had been violated. The CDPHE has now filed a judicial enforcement action, which could result in the -37- levying of significant fines and penalties, requirements to make remediation expenditures, accelerate or expand the capital expenditure program or a combination of any of the above. It is not presently possible to estimate the ultimate liability as a result of the action. 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 December 31, 1999, 152 former striking employees had returned to work as a result of their unconditional offer. Approximately 660 former striking workers remain unreinstated ("Unreinstated Employees"). On February 27, 1998 the Regional Director of the National Labor Relations Board's ("NLRB") Denver office issued a complaint against CF&I alleging violations of several provisions of the National Labor Relations Act ("NLRA"). 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 ("Judge"). Testimony and other evidence were presented at various sessions held in the latter part of 1998 and early 1999, concluding on February 25, 1999. The Judge will render a decision that is automatically subject to appeal by either party to the NLRB in Washington D.C. The ultimate determination of the issues may require a ruling from the appropriate United States appellate court. Among the issues pending in the litigation is CF&I's motion asserting that the Judge should consider the Union's alleged NLRA violations and that the alleged misconduct should invalidate the Unreinstated Employees' right to reinstatement. In the event there is an adverse determination of the issues, Unreinstated Employees could be entitled to back pay, including benefits, from the date of the Union's unconditional offer to return to work through the date of the adverse determination. The number of Unreinstated Employees entitled to back pay would probably be limited to the number of past and present replacement workers; however, the Union might assert that all Unreinstated Employees should be entitled to back pay. Back pay is generally determined by the quarterly earnings of those working less interim wages earned elsewhere by the Unreinstated Employees. In addition to other considerations, each Unreinstated Employee has a duty to take reasonable steps to mitigate the liability for back pay by seeking employment elsewhere that has comparable demands and compensation. It is not presently possible to estimate the ultimate liability in the event of an adverse determination. During the strike by the Union at CF&I, 39 bargaining unit employees of the Colorado & Wyoming Railway Company ("C&W"), a wholly-owned subsidiary of New CF&I, Inc. that 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 considered these employees to have quit their employment and, accordingly, C&W declined to allow those individuals to return to work. The unions representing these individuals have filed lawsuits in the U.S. District Court of Colorado against C&W claiming their 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 unions demand reinstatement of the former employees, back pay, benefits 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 initiate further judicial proceedings. The outcome of such proceedings is inherently uncertain and it is not possible to estimate any potential settlement amount that would result from an adverse legal or arbitration decision. -38- CONTRACTS WITH KEY EMPLOYEES The Company has employment agreements with certain officers which provide for severance compensation in the event their employment with the Company is terminated subsequent to a change in control (as defined) of the Company. OTHER CONTINGENCIES The Company is party to various claims, disputes, legal actions and other proceedings involving contracts, employment and various other matters. In the opinion of management, the outcome of these matters would not have a material adverse effect on the consolidated financial condition of the Company. 14. CAPITAL STOCK COMMON STOCK In connection with the 1993 acquisition of the assets of CF&I, the Company agreed to issue 598,400 shares of its common stock in March 2003 to specified creditors of CF&I Steel. At the date of acquisition, the stock was valued at $11.2 million using the Black-Scholes method. STOCKHOLDER RIGHTS PLAN On December 23, 1999, the Company declared a dividend of one preferred stock purchase right ("Rights") for each outstanding share of common stock held by stockholders of record as of January 12, 2000. The Rights generally become exercisable after a person or group without the Board's approval (i) acquires 15 percent or more of the Company's outstanding common stock or (ii) announces a tender offer that would result in such a person or group owning 15 percent or more of the Company's common stock. When the Rights first become exercisable, a holder will be entitled to buy from the Company a unit consisting of one one-thousandth of a share of participating preferred stock of the Company at a purchase price of $42, subject to adjustment. After the Rights become exercisable under condition (i), each Right not owned by the 15 percent or more stockholder(s) would become exercisable for preferred stock of the Company having a market value equal to twice the exercise price of the Right. Alternatively, if the Company is acquired in a merger or other business combination or 50 percent or more of its assets or earning power are sold without the Board's approval, each Right not owned by the 15 percent or more stockholder(s) would be exercisable for common stock of the party which has engaged in a transaction with the Company having a market value equal to twice the exercise price of the Right. Prior to the time that a person or group acquires 15 percent or more of the Company's common stock, the Rights are redeemable by the Board of Directors at a price of $.001 per Right. The Rights Plan will expire December 22, 2009 if not exercised prior to that date. 15. SALES OF SUBSIDIARY'S COMMON STOCK In 1994, New CF&I sold a 10 percent equity interest to a subsidiary of Nippon Steel Corporation ("Nippon"). In connection with the sale, New CF&I and the Company entered into a stockholders' agreement with Nippon pursuant to which Nippon was granted a right to sell all, but not less than all, of its equity interest in New CF&I back to New CF&I at the then fair market value in certain circumstances. Those circumstances include, among other things, a change of control, as defined, in New CF&I, certain changes involving the composition of the board of directors of New CF&I, and the occurrence of certain other events that are within the control of New CF&I or the Company. The Company also agreed not to transfer voting control of New CF&I to a nonaffiliate except in those circumstances where Nippon is offered the opportunity to sell its interest in New CF&I to the transferee at the same per share price obtained by the Company. New CF&I retains a right of first refusal in the event that Nippon desires to transfer its interest in New CF&I to a nonaffiliate. During 1995, the Company sold a 3 percent equity interest in New CF&I to the Nissho Iwai Group under substantially the same terms and conditions of the Nippon transaction. The Company believes that it is not probable that the conditions that would permit a subsidiary stock redemption will occur. -39- 16. UNUSUAL AND NONRECURRING ITEMS SETTLEMENT OF LITIGATION Operating income for 1999 and 1998 includes a $7.0 million gain in each year from a settlement of outstanding litigated claims with certain graphite electrode suppliers. GAIN ON SALE OF EQUITY OWNERSHIP INTEREST Other income for 1997 includes a net gain from the sale of an equity ownership of $3.0 million. PROCEEDS FROM INSURANCE SETTLEMENT Sales for 1997 include approximately $2.5 million of insurance proceeds as reimbursement of lost profits resulting from lost production during the third and fourth quarters of 1996 related to the failure of one of the power transformers servicing CF&I. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -40- PART III ITEMS 10. AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION A definitive proxy statement of Oregon Steel Mills, Inc. will be filed not later than 120 days after the end of the fiscal year with the Securities and Exchange Commission. The information set forth therein under "Nomination and Election of Class C Director", "Executive Compensation", "Defined Benefit Retirement Plans", "Employment Contracts and Termination of Employment and Change in Control Arrangements", "Compensation Committee Interlocks and Insider Participation", "Board Compensation, Personnel and Succession Planning Committee Report on Executive Compensation" and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference. Executive Officers of Oregon Steel Mills, Inc. are listed on page 14 of this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required is set forth under the caption "Principal Stockholders" in the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required is set forth under the captions "Nomination and Election of Class C Director" and "Executive Compensation" in the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. -41- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PAGE (A) FINANCIAL STATEMENTS: (i) Report of Independent Accountants - 1999, 1998 and 1997....24 (ii) Consolidated Financial Statements: Balance Sheets at December 31, 1999, 1998 and 1997.....25 Statements of Income for each of the three years in the period ended December 31, 1999................26 Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1999................................... 27 Statements of Cash Flows for each of three years in the period ended December 31, 1999................28 Notes to Consolidated Financial Statements.............29 (iii) Financial Statement Schedule for each of the three years in the period ended December 31, 1999: Schedule II - Valuation and Qualifying Accounts........43 (iv) Exhibits: Reference is made to the list on page 44 of the exhibits filed with this report. (B) REPORTS ON FORM 8-K: The Company filed a Report under Item 5 of Form 8-K dated January 6, 2000 with respect to the December 23, 1999 declaration of a dividend distribution of preferred stock purchase rights to stockholders of record as of January 12, 2000 and included Exhibits as required by Item 7. -42- OREGON STEEL MILLS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS)
COLUMN C ------------------------- COLUMN B ADDITIONS COLUMN E --------- ---------- BALANCE AT CHARGED TO CHARGED BALANCE AT COLUMN A BEGINNING COSTS AND TO OTHER COLUMN D END OF - -------- --------- CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - -------------- --------- ---------- -------- ---------- ---------- 1999 ---- Allowance for doubtful accounts $1,148 $ 1,007 $ - $ (161) $1,994 Valuation allowance for impairment of non-current deferred income tax assets 3,105 177 - - 3,282 1998 ---- Allowance for doubtful accounts $1,374 $ 290 $ - $ (516) $1,148 Valuation allowance for impairment of non-current deferred income tax assets - 3,105 - - 3,105 1997 ---- Allowance for doubtful accounts $2,735 $ 1,338 $ - $ (2,699) $1,374 Provision for rolling mill closures: Inventories 1,500 - - (1,500) FN1 - Property, plant and equipment 7,485 - - (7,485) FN1 - Other assets 78 - - (78) FN1 -
- ------------- FN1 Results from write-offs of related assets. -43- LIST OF EXHIBITS* 2.0 Asset Purchase Agreement dated as of January 2, 1992, by and between Camrose Pipe Company (a partnership) and Stelco Inc. (Filed as exhibit 2.0 to Form 8-K dated June 30, 1992 and incorporated by reference herein.) 2.1 Asset Purchase Agreement dated as of March 3, 1993, among CF&I Steel Corporation, Denver Metals Company, Albuquerque Metals Company, CF&I Fabricators of Colorado, Inc., CF&I Fabricators of Utah, Inc., Pueblo Railroad Service Company, Pueblo Metals Company, Colorado & Utah Land Company, the Colorado and Wyoming Railway Company, William J. Westmark as trustee for the estate of The Colorado and Wyoming Railway Company, CF&I Steel, L.P., New CF&I, Inc. and Oregon Steel Mills, Inc. (Filed as exhibit 2.1 to Form 8-K dated March 3, 1993, and incorporated by reference herein.) 3.1 Restated Certificate of Incorporation of the Company, as amended. 3.2 Bylaws of the Company as amended through July 29, 1999. (Filed as exhibit 3.2 to Form 10-Q dated September 30, 1999, and incorporated by reference herein.) 4.1 Specimen Common Stock Certificate. (Filed as exhibit 4.1 to Form S-1 Registration Statement 33-38379 and incorporated by reference herein.) 4.2 Indenture dated as of June 1, 1996 among Oregon Steel Mills, Inc.,as Issuer, Chemical Bank, as Trustee, and New CF&I, Inc. and CF&I Steel, LP, as Guarantors, with respect to 11% First Mortgage Notes due 2003. (Filed as exhibit 4.1 to Form 10-Q dated June 30, 1996, and incorporated by reference herein.) 4.3 Form of Deed of Trust, Assignment of Rents and Leases and Security Agreement. (Filed as exhibit 4.2 to Amendment #1 to Form S-3 Registration Statement 333-02355 and incorporated by reference herein.) 4.4 Form of Security Agreement. (Filed as exhibit 4.3 to Amendment #1 to Form S-3 Registration Statement 333-02355 and incorporated by reference herein.) 4.5 Form of Intercreditor Agreement. (Filed as exhibit 4.4 to Amendment #1 to Form S-3 Registration Statement 333-02355 and incorporated by reference herein.) 10.1** Form of Indemnification Agreement between the Company and its directors. (Filed as exhibit 10.6 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.2** Form of Indemnification Agreement between the Company and its executive officers. (Filed on exhibit 10.7 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.3 Agreement for Electric Power Service between registrant and Portland General Electric Company. (Filed as exhibit 10.20 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.4** Key employee contract for Thomas B. Boklund. (Filed as exhibit 10.11 to Form 10-K for the year ended December 31, 1988, and incorporated by reference herein.) 10.5** Key employee contract for L. Ray Adams. (Filed as exhibit 10.10 to Form 10-K for the year ended December 31, 1990, and incorporated by reference herein.) 10.6** Key employee contract for Joe E. Corvin. (Filed as exhibit 10.10 to Form 10-K for the year ended December 31, 1995, and incorporated by reference herein.) 10.7*** Form of credit agreement between Oregon Steel Mills, Inc. as borrower, and the Lender party thereto and material differences schedule. Portions of this exhibit have been omitted pursuant to a confidential treatment request. (Filed as exhibit 10.1 to Form 10-Q dated June 30, 1999, and incorporated by reference herein.) 10.8 Rights Agreement between Oregon Steel Mills, Inc. and ChaseMellon Shareholder Services, LLC, as Rights Agent. (Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A (SEC Reg. No. 1-9987) and incorporated by reference herein.) -44- 10.9 Summary of Rights to Purchase Participating Preferred Stock. (Filed as exhibit 2 to the Company's Registration Statement on Form 8-A (SEC Reg. No. 1-9987) and incorporated by reference herein.) 10.10 Form of Rights Certificate and Election to Purchase. (Filed as exhibit 3 to the Company's Registration Statement on Form 8-A (SEC Reg. No. 1-9987) and incorporated by reference herein.) 10.11** Directors' Retirement Plan. (Filed as exhibit 10.10 to Form 10-K for the year ended December 31, 1997, and incorporated by reference herein.) 21.0 Subsidiaries of registrant. 23.0 Consent of Independent Accountants - PricewaterhouseCoopers LLP. 27.0 Financial Data Schedule. 99.0 Partnership Agreement dated as of January 2, 1992, by and between Camrose Pipe Corporation and Stelcam Holding, Inc. (Filed as exhibit 28.0 to Form 8-K dated June 30, 1992, and incorporated by reference herein.) - ---------------------- * The Company will furnish to stockholders a copy of the exhibit upon payment of $.25 per page to cover the expense of furnishing such copies. Requests should be directed to Vicki A. Tagliafico, Director of Communications and Planning, Oregon Steel Mills, Inc., PO Box 5368, Portland, Oregon 97228. ** Management contract or compensatory plan. *** Certain Exhibits and Schedules to this Exhibit are omitted. A list of omitted Exhibits is provided in the Exhibit and the Registrant agrees to furnish supplementally to the Commission a copy of any omitted Exhibits or Schedules upon request. -45- SIGNATURES REQUIRED FOR FORM 10-K Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Oregon Steel Mills, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OREGON STEEL MILLS, INC. (Registrant) By /s/ Joe E. Corvin ----------------------------- Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Oregon Steel Mills, Inc. and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Joe E. Corvin President, Chief Executive March 1, 2000 - ----------------------- (Joe E. Corvin) Officer and Director (Principal Executive Officer) /s/ L. Ray Adams Vice President, Finance, March 1, 2000 - ----------------------- (L. Ray Adams) and Chief Financial Officer (Principal Financial Officer) /s/ Jeff S. Stewart Corporate Controller March 1, 2000 - ----------------------- (Jeff S. Stewart) (Principal Accounting Officer) /s/ Thomas B. Boklund Chairman of the Board March 1, 2000 - ----------------------- (Thomas B. Boklund) and Director /s/ V. Neil Fulton Director March 1, 2000 - ----------------------- (V. Neil Fulton) /s/ Robert W. Keener Director March 1, 2000 - ----------------------- (Robert W. Keener) /s/ Richard G. Landis Director March 1, 2000 - ----------------------- (Richard G. Landis) /s/ James A. Maggetti Director March 1, 2000 - ------------------------- (James A. Maggetti) /s/ Stephen P. Reynolds Director March 1, 2000 - ------------------------- (Stephen P. Reynolds) /s/ John A. Sproul Director March 1, 2000 - ------------------------- (John A. Sproul) /s/ George J. Stathakis Director March 1, 2000 - ------------------------- (George J. Stathakis) /s/ William Swindells Director March 1, 2000 - ------------------------- (William Swindells) -46- EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OREGON STEEL MILLS, INC. (originally incorporated June 21, 1972, under the name GILMORE STEEL CORPORATION OF DELAWARE) FIRST: The name of this Corporation is OREGON STEEL MILLS, INC. SECOND: This Corporation's registered office in the State of Delaware is to be located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Trust Company. THIRD: The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: (1) The total number of shares of all classes of stock which the Corporation has the authority to issue is 31,000,000, consisting of two classes of shares of stock, to be designated Common Stock and Preferred Stock. The total number of shares of Common Stock authorized to be issued is 30,000,000 shares, $0.01 par value per share, and the total number of shares of Preferred Stock authorized to be issued is 1,000,000 shares, $0.01 par value per share. (2) The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is authorized to provide for the issuance of the shares of the Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish the number of shares to be included in such a series and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, including but not limited to the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions) and the liquidation preferences, and the number of shares constituting any such series and the designation thereof, or any of them; and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series subsequent to the issue of shares of such series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 1 - RESTATED CERTIFICATE OF INCORPORATION FIFTH: (1) The number of directors constituting the entire Board of Directors shall be not less than three (3) nor more than nine (9) as fixed from time to time by vote of a majority of the entire Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director. (2) Commencing with the Annual Meeting of Stockholders held in 1988, the Board of Directors of this Corporation shall be divided into three Classes: Class A, Class B and Class C. Each Class shall consist, as nearly as reasonably possible, of one-third (1/3) of the total authorized number of directors constituting the Board of Directors. Class A directors elected at the 1988 Annual Meeting of Stockholders shall serve initially until the next annual meeting following their election (1989); Class B directors elected at the 1988 Annual Meeting of Stockholders shall serve initially until the second annual meeting following their election (1990); and Class C directors elected at the 1988 Annual Meeting of Stockholders shall serve initially until the third annual meeting following their election (1991). Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Subject to the foregoing, at each Annual Meeting of Stockholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. (3) Notwithstanding any other provisions of this Restated Certificate of Incorporation or the Bylaws of the Corporation, any director or the entire Board of Directors may be removed at any time, but only for cause, as defined in accordance with the General Corporation Law of the State of Delaware. SIXTH: The Bylaws of this Corporation may be amended or repealed, or new bylaws may be adopted, by this Corporation's Board of Directors. SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. Elections for directors need not be by ballot unless the Bylaws so require. EIGHTH: A director of the Corporation shall not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except 2 - RESTATED CERTIFICATE OF INCORPORATION for liability (1) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the Delaware General Corporation Law or (4) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended, changed or modified in any way to further eliminate or limit the liability of directors to the Corporation or its stockholders or third parties, then the directors of the Corporation, in addition to the circumstances in which directors are not personally liable as set forth in the preceding sentence, shall also not be personally liable to the Corporation or its stockholders or third parties for monetary damages to such further extent permitted by such amendment, change or modification. NINTH: The Corporation shall have the authority to enter into appropriate agreements with the directors and officers (and with such other employees and agents as the Board of Directors deems appropriate in its sole and exclusive discretion) to both indemnity them and advance to them the funds for litigation expenses to the fullest extent permitted by the laws of the State of Delaware as the same presently exist or may hereafter be amended, changed or modified. TENTH: The Corporation reserves the right to amend and repeal any provision contained in this Restated Certificate of Incorporation, and to take other corporate action to the extent and in the manner now or hereafter permitted or prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. ELEVENTH: The Corporation is to have perpetual existence. IN WITNESS WHEREOF, this Restated Certificate of Incorporation which restates and integrates and also further amends the Corporation's Certificate of Incorporation as heretofore amended, having been adopted and approved by the stockholders and directors of the Corporation in accordance with Sections 242 and 245 of the Delaware General Corporation Law has been executed by the undersigned officers of the Corporation as of the 27th day of September, 1990. /s/ Thomas B. Boklund ----------------------------------------- President ATTESTED BY: /s/ Milo Long - --------------------------- Secretary 3 - RESTATED CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF OREGON STEEL MILLS, INC. The undersigned, Thomas B. Boklund and L. Ray Adams, hereby certify that they are, and at all times herein mentioned have been respectively, the duly elected and acting Chief Executive Officer and Secretary of Oregon Steel Mills, Inc., a Delaware corporation, and further certify that: 1. Paragraph (1) of Article FIFTH of the Restated Certificate of Incorporation of Oregon Steel Mills, Inc. is hereby deleted in its entirety and the following is hereby inserted in lieu thereof: (1) FIFTH: The number of directors constituting the entire Board OF Directors shall be not less than three (3) nor more than twelve (12) as fixed from time to time by vote of a majority of the entire Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director. 2. The foregoing amendment has been duly approved by the Board of Directors. 3. Pursuant to a resolution of the Board of Directors, the Annual Meeting of the stockholders was duly called and held on April 21, 1992 in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment set forth at 1 above. 4. The amendment set forth in 1 above was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware on April 21, 1992. /s/ Thomas B. Boklund ------------------------------------------ Thomas B. Boklund, Chief Executive Officer /s/ L. Ray Adams ------------------------------------------ L. Ray Adams, Secretary 1 - CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION The undersigned certifies under penalty of perjury that he has read the foregoing Certificate of Amendment to the Restated Certificate of Incorporation and knows the content thereof, and that the statements therein are true. Executed at Portland, Oregon, this 1 day of June, 1992. /s/ L. Ray Adams ------------------------------------------ L. Ray Adams, Secretary 2 - CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION CERTIFICATE OF OWNERSHIP AND MERGER OF NAPA PIPE CORPORATION a Delaware corporation INTO OREGON STEEL MILLS, INC. a Delaware corporation (Under Section 253 of the General Corporation Law of the State of Delaware) OREGON STEEL MILLS, INC. certifies that: 1. The name and state of incorporation of each of the constituent corporations are: a. NAPA PIPE CORPORATION, a Delaware corporation (the "Subsidiary Corporation"); and b. OREGON STEEL MILLS, INC., a Delaware corporation (the "Parent Corporation"). 2. The Parent Corporation owns all of the outstanding stock of the Subsidiary Corporation and shall be the surviving corporation in the merger. 3. A resolution authorizing the merger of the Subsidiary Corporation with and into the Parent Corporation was approved and adopted on February 1, 1996 by the Board of Directors of the Parent Corporation in accordance with Section 253(a) of the General Corporation Law of the State of Delaware. A certified copy of the resolution authorizing the merger is attached hereto. 4. The outstanding shares of the Subsidiary Corporation shall not be converted into shares of the Parent Corporation, but shall be cancelled, and the authorized capital stock of the Parent Corporation shall not be changed, but shall be and remain the same as before the merger. 5. The state of incorporation of the Parent Corporation shall be and remain the State of Delaware. 6. The officers and directors of the Parent Corporation shall be the same officers and directors in office immediately prior to the effective date of the merger. 7. All provisions of the existing Certificate of Incorporation of the Parent Corporation, on file with the Delaware Secretary of State, shall constitute the Certificate of Incorporation of the Parent Corporation. 8. All provisions of the existing Bylaws of the Parent Corporation shall constitute the Bylaws of the Parent Corporation. 1 - CERTIFICATE OF OWNERSHIP AND MERGER 9. The Subsidiary Corporation and the Parent Corporation shall take, or cause to be taken, all action, or do or cause to be done, all things necessary, proper or advisable under the General Corporation Law of the State of Delaware, to consummate and make effective the merger. 10. The merger shall be effective the date and time of filing of this Certificate of Ownership and Merger. IN WITNESS WHEREOF, OREGON STEEL MILLS, INC. has caused this Certificate of Ownership and Merger to be signed and acknowledged by the undersigned officer of the Corporation on this 1st day of February, 1996. The undersigned certifies under penalty of perjury that he has read the foregoing Certificate of Ownership and Merger and knows the content thereof, and that all statements therein are true. OREGON STEEL MILLS, INC. /s/ Thomas B. Boklund ---------------------------------------- By: Thomas B. Boklund Title: Chief Executive Officer 2 - CERTIFICATE OF OWNERSHIP AND MERGER CERTIFICATE OF OWNERSHIP AND MERGER OF OREGON STEEL MILLS-FONTANA DIVISION, INC. a Delaware corporation INTO OREGON STEEL MILLS, INC. a Delaware corporation (Under Section 253 of the General Corporation Law of the State of Delaware) OREGON STEEL MILLS, INC. certifies that: 1. The name and state of incorporation of each of the constituent corporations are: a. OREGON STEEL MILLS-FONTANA DIVISION, INC., a Delaware corporation (the "Subsidiary Corporation"); and b. OREGON STEEL MILLS, INC., a Delaware corporation (the "Parent Corporation"). 2. The Parent Corporation owns all of the outstanding stock of the Subsidiary Corporation and shall be the surviving corporation in the merger. 3. A resolution authorizing the merger of the Subsidiary Corporation with and into the Parent Corporation was approved and adopted on February 1, 1996 by the Board of Directors of the Parent Corporation in accordance with Section 253(a) of the General Corporation Law of the State of Delaware. A certified copy of the resolution authorizing the merger is attached hereto. 4. The outstanding shares of the Subsidiary Corporation shall not be converted into shares of the Parent Corporation, but shall be cancelled, and the authorized capital stock of the Parent Corporation shall not be changed, but shall be and remain the same as before the merger. 5. The state of incorporation of the Parent Corporation shall be and remain the State of Delaware. 6. The officers and directors of the Parent Corporation shall be the same officers and directors in office immediately prior to the effective date of the merger. 7. All provisions of the existing Certificate of Incorporation of the Parent Corporation, on file with the Delaware Secretary of State, shall constitute the Certificate of Incorporation of the Parent Corporation. 1 - CERTIFICATE OF OWNERSHIP AND MERGER 8. All provisions of the existing Bylaws of the Parent Corporation shall constitute the Bylaws of the Parent Corporation. 9. The Subsidiary Corporation and the Parent Corporation shall take, or cause to be taken, all action, or do or cause to be done, all things necessary, proper or advisable under the General Corporation Law of the State of Delaware, to consummate and make effective the merger. 10. The merger shall be effective the date and time of filing of this Certificate of Ownership and Merger. IN WITNESS WHEREOF, OREGON STEEL MILLS, INC. has caused this Certificate of Ownership and Merger to be signed and acknowledged by the undersigned officer of the Corporation on this 1st day of February, 1996. The undersigned certifies under penalty of perjury that he has read the foregoing Certificate of Ownership and Merger and knows the content thereof, and that all statements therein are true. OREGON STEEL MILLS, INC. /s/ Thomas B. Boklund ---------------------------------------- By: Thomas B. Boklund Title: Chief Executive Officer 2 - CERTIFICATE OF OWNERSHIP AND MERGER Certificate of Designations of Participating Preferred Stock of Oregon Steel Mills, Inc. Pursuant to Section 151 of the Delaware General Corporation Law I, L. Ray Adams, Vice President of Oregon Steel Mills, Inc., a corporation organized and existing under the Delaware General Corporation Law (the "Corporation"), in accordance with the provisions of Section 151 of such law, DO HEREBY CERTIFY: that pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, the Board of Directors on December 23, 1999 adopted the following resolution which creates a series of Six Hundred Thousand (600,000) shares of preferred stock designated as Participating Preferred Stock, as follows: RESOLVED, that pursuant to Section 151(g) of the Delaware General Corporation Law and the authority vested in the Board of Directors of the Corporation in accordance with the provisions of FOURTH ARTICLE of the Restated Certificate of Incorporation of the Corporation, a series of Preferred Stock of the Corporation be, and is, created, and the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, be, and are, as follows[ko1]: Section 1. Designation and Amount. The shares of such series shall be designated as "Participating Preferred Stock" (the "Participating Preferred Stock") and the number of shares constituting such series shall be Six Hundred Thousand (600,000). Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, $0.01 par value per share, of the Corporation (the "Common Stock") and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock, on the last day of February, May, August and November of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Participating Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Participating Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $.01 per share of Participating Preferred Stock less the per share amount of all cash dividends declared on the Participating Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Participating Preferred Stock. In the event the Corporation shall, at any time after the issuance of any share or fraction of a share of 1 Participating Preferred Stock, make any distribution on the shares of Common Stock of the Corporation, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Corporation or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of shares of Common Stock or other capital stock of the Corporation or a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then, and in each such event, the Corporation shall simultaneously pay on each then outstanding share of Participating Preferred Stock of the Corporation a distribution, in like kind, of 1,000 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Participating Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Dividends, which shall be 1,000 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In the event the Corporation shall at any time after January 12, 2000 (i) declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, (ii) effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, or (iii) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing or surviving corporation), then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Participating Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Participating Preferred Stock; provided that, in the event that no dividend or distribution is declared on the Common Stock during any period between any Quarterly Dividend Payment Date and the next Quarterly Dividend Payment Date, the Preferential Dividends shall nevertheless be payable on such next Quarterly Dividend Payment Date. (C) Preferential Dividends shall begin to accrue on outstanding shares of Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for determination of holders of shares of Participating Preferred Stock entitled to receive a Preferential Dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to 2 accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest Preferential Dividends paid on the shares of Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of the Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Participating Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of Participating Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Corporation shall at any time after January 12, 2000, (i) declare or pay any dividend on Common Stock payable in shares of Common Stock, (ii) effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, or (iii) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing or surviving corporation), then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Participating Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Corporation's Restated Certificate of Incorporation or Bylaws, or by law, the holders of shares of Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) In the event that the Preferential Dividends accrued on the Participating Preferred Stock for four or more consecutive quarterly periods shall not have been declared and paid or set apart for payment, the holders of record of the Participating Preferred Stock, voting together with the holders of record of any other series of preferred stock of the Corporation which shall then have the right, expressly granted by the Restated Certificate of Incorporation of the Corporation or in any resolution or resolutions of the Board of Directors of the Corporation providing for the issue of such shares of preferred stock, to elect directors upon such a default in the payment of dividends by the Corporation shall have the right, at the next meeting of stockholders called for the election of directors, voting together as a class, to elect two members to the Board of Directors, which directors shall be elected to fill any then existing vacancies on the Board of Directors, or if no such vacancies exist or if the number of vacancies is insufficient to allow such stockholders to elect two directors, then the directors elected by such stockholders shall be in addition to the number provided for pursuant to the Corporation's Bylaws prior to such event, to 3 serve until the next annual meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Participating Preferred Stock shall have been paid (or set aside for payment) in full. The holders of shares of Participating Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Participating Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law. Subject to the foregoing, any directors elected pursuant to this paragraph 3(C) shall be elected annually and shall not constitute members of any Class of directors as contemplated by Fifth Article of the Corporation's Restated Certificate of Incorporation. (D) Except as otherwise required by the Corporation's Restated Certificate of Incorporation or Bylaws or set forth herein, holders of Participating Preferred Stock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or Dividends are in arrears or the Corporation shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Participating Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Participating Preferred Stock may have in such circumstances, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) as to dividends with the Participating Preferred Stock, unless dividends are paid ratably on the Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this Section 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Participating Preferred Stock, or any shares of stock ranking on a parity with the Participating Preferred Stock 4 (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any Subsidiary (as hereinafter defined) of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Corporation shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the Board of Directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Corporation or by any corporation or other entity that is otherwise controlled by the Corporation. (C) The Corporation shall not issue any shares of Participating Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of December 23, 1999 between the Corporation and ChaseMellon Shareholder Services, LLC, as Rights Agent, a copy of which is on file with the Secretary of the Corporation at its principal executive office and shall be made available to stockholders of record without charge upon written request addressed to the Secretary of the Corporation. Notwithstanding the foregoing sentence, nothing contained in the provisions of this Certificate of Designations shall prohibit or restrict the Corporation from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Participating Preferred Stock. Section 5. Reacquired Shares. Any shares of Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Participating Preferred Stock unless the holders of shares of Participating Preferred Stock shall have received, subject to adjustment as hereinafter provided, (A) $1.00 per one one-thousandth (1/1,000) of a share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided and (ii) to the holders of stock ranking on a parity with the Participating Preferred Stock upon liquidation, dissolution or winding up, unless simultaneously therewith distributions are made ratably on the Participating Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Participating Preferred Stock are entitled 5 under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Participating Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Corporation is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Corporation applicable pursuant to clause (i)(B) of the foregoing sentence, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple." Following payment in full of the Participating Liquidation Amount, the liquidation preferences of all other series of preferred stock, if any, that rank on a parity with the Participating Preferred Stock, and any amounts payable upon liquidation, dissolution or winding up to holders of Common Stock, holders of shares of Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Liquidation Multiple to 1 for the Participating Preferred Stock and Common Stock, respectively. In the event the Corporation shall at any time after January 12, 2000 (i) declare or pay any dividend on Common Stock payable in shares of Common Stock, (ii) effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, or (iii) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is continuing or surviving corporation), then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Participating Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassification and Other Events. (A) In the event that holders of shares of Common Stock of the Corporation receive after January 12, 2000 in respect of their shares of Common Stock any share of capital stock of the Corporation (other than any share of Common Stock of the Corporation), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Participating Preferred Stock shall be adjusted so that after such event the holders of Participating Preferred Stock shall be entitled, in respect of each share of Participating Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation by virtue of the 6 receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Corporation receive after January 12, 2000 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Corporation of the shares of Participating Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Corporation receive after January 12, 2000 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Corporation (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Corporation (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Corporation of the shares of Participating Preferred Stock shall each be adjusted so that after such event each holder of a share of Participating Preferred Stock shall be entitled, in respect of each share of Participating Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Corporation as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Corporation upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a 7 right or warrant distributed to holders of shares of Common Stock of the Corporation as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Certificate of Designations, the "Fair Market Value" of a share of capital stock of the Corporation (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Corporation to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case, no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Corporation. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Corporation is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Corporation. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Corporation. Section 8. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Participating Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged 8 multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustments. (A) Adjustments to the Participating Preferred Stock required by the provisions of this Certificate of Designations shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Corporation shall give prompt written notice to the Rights Agent and each holder of a share of Participating Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Corporation of such shares required by the provisions of this Certificate of Designations. Notwithstanding the foregoing sentence, the failure of the Corporation to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Participating Preferred Stock shall not be redeemable at the option of the Corporation or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Corporation may acquire shares of Participating Preferred Stock in any other manner permitted by law, the provisions of this Certificate of Designations and the Restated Certificate of Incorporation of the Corporation. Section 11. Ranking. Unless otherwise provided in the Restated Certificate of Incorporation of the Corporation or a Certificate of Designations relating to a subsequent series of preferred stock of the Corporation, the Participating Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Stock. Section 12. Amendment. At any time when any shares of Participating Preferred Stock are outstanding, the provisions of this Certificate of Designations and the Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Participating Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Participating Preferred Stock, voting together as a single class. Section 13. Fractional Shares. Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive distributions, participate in distributions and have the benefit of all other rights of holders of Participating Preferred Stock. 9 IN WITNESS WHEREOF, Oregon Steel Mills, Inc. has caused this Certificate of Designations to be signed and attested this 28 day of December 1999. OREGON STEEL MILLS, INC. By: /s/ L. Ray Adams ----------------------------------------- Name: L. Ray Adams Title: Vice President of Finance and Chief Financial Officer ATTEST: /s/ LaNelle F. Lee - ------------------------------- Name: LaNelle F. Lee Title: Secretary 10 EX-21 3 SUBSIDIAIRIES OF OREGON STEEL MILLS, INC. EXHIBIT 21 Subsidiaries of Registrant Subsidiaries of OREGON STEEL MILLS, INC. Camrose Pipe Company (a partnership) - Alberta, Canada Camrose Pipe Corporation - Delaware GlassificationTM International, Ltd. (a partnership) - Oregon New CF&I, Inc. - Delaware Oregon Steel Mills International, Inc. - U.S. Virgin Islands Oregon Steel de Guayana, Inc. - Delaware OSM GlassificationTM, Inc. - Oregon CF&I Steel, L.P. (a partnership) - Delaware - dba Rocky Mountain Steel Mills Colorado & Wyoming Railway Company - Delaware. EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-16739) of Oregon Steel Mills, Inc. of our report dated January 26, 2000 relating to the financial statements and financial statement schedules, which appear in this Form 10-K. PricewaterhouseCoopers LLP Portland, Oregon March 27, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 1000 12-MOS DEC-31-1999 DEC-31-1999 9,270 0 64,541 1,994 122,683 208,205 855,523 247,528 877,254 101,660 235,000 258 0 0 352,144 877,254 821,984 821,984 693,796 693,796 60,006 0 35,027 32,970 13,056 19,914 0 0 0 19,914 .76 .76
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