-----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, MSq7Ve49VrvZ0LCzDbnOJahyymKrwwLXXFNvssHIh6Mje1WskLhgqesiSYY9CqIb R6fYIyFEpe/goQgUN1Xiyg== 0001008915-01-500011.txt : 20010816 0001008915-01-500011.hdr.sgml : 20010816 ACCESSION NUMBER: 0001008915-01-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09887 FILM NUMBER: 1714307 BUSINESS ADDRESS: STREET 1: 1000 SW BROADWAY STREET 2: STE 2200 CITY: PORTLAND STATE: OR ZIP: 97205 BUSINESS PHONE: 5032405788 MAIL ADDRESS: STREET 1: PO BOX 5368 CITY: PORTLAND STATE: OR ZIP: 97228 10-Q 1 osm10qj01ascii.txt OSM 6/30/01 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------------------------------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ---------------------- Commission File Number 1-9887 ----------------- OREGON STEEL MILLS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-0506370 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1000 S.W. Broadway, Suite 2200, Portland, Oregon 97205 - ------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (503) 223-9228 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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 ----- ------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value 25,776,804 ---------------------------- ------------------------------- Class Number of Shares Outstanding (as of July 26, 2001) OREGON STEEL MILLS, INC. INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets (unaudited) June 30, 2001 and December 31, 2000.................. 2 Consolidated Statements of Income (unaudited) Three months and six months ended June 30, 2001 and 2000............................... 3 Consolidated Statements of Cash Flows (unaudited) Six months ended June 30, 2001 and 2000.............. 4 Notes to Consolidated Financial Statements (unaudited) ......................................5 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............10 - 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................13 PART II. OTHER INFORMATION Item 1. Legal Proceedings ..................................... 14 Item 6. Exhibits and Reports on Form 8-K........................14 OREGON STEEL MILLS, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
June 30, December 31, 2001 2000 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 6,048 $ 3,370 Trade accounts receivable, net 105,356 91,149 Inventories 127,338 129,801 Deferred tax asset 7,266 7,266 Other 2,507 3,915 --------- --------- Total current assets 248,515 235,501 --------- --------- Property, plant and equipment: Land and improvements 29,970 29,869 Buildings 52,670 50,549 Machinery and equipment 785,246 778,921 Construction in progress 6,392 14,607 --------- --------- 874,278 873,946 Accumulated depreciation (307,279) (290,071) --------- --------- 566,999 583,875 --------- --------- Costs in excess of net assets acquired, net 33,004 33,452 Other assets 24,982 27,526 --------- --------- $ 873,500 $ 880,354 ========= ========= LIABILITIES Current liabilities: Short-term debt and current portion of long-term debt $ 89,018 $ 8,625 Accounts payable 82,252 82,014 Accrued expenses 39,428 36,109 --------- --------- Total current liabilities 210,698 126,748 Long-term debt 238,956 314,356 Deferred employee benefits 23,637 22,630 Environmental liability 32,577 32,577 Deferred income taxes 17,853 22,627 --------- --------- 523,721 518,938 --------- --------- Minority interests 28,521 29,771 --------- --------- Contingencies (Note 6) STOCKHOLDERS' EQUITY Common stock 258 258 Additional paid-in capital 227,584 227,584 Retained earnings 101,084 111,146 Accumulated other comprehensive income: Cumulative foreign currency translation adjustment (7,668) (7,343) --------- --------- 321,258 331,645 --------- --------- $ 873,500 $ 880,354 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. -2- OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except tonnage and per share amounts) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2001 2000 2001 2000 --------- --------- --------- -------- Sales $ 190,901 $ 161,785 $ 358,381 $ 326,688 --------- --------- --------- --------- Costs and expenses: Cost of sales 166,631 147,087 326,642 308,589 Selling, general and administrative expenses 15,319 13,824 29,113 26,436 Loss (gain) on sale of assets 2 (460) 29 (320) Profit participation and other incentive compensation -- 371 44 535 --------- --------- --------- --------- 181,952 160,822 355,828 335,240 --------- --------- --------- --------- Operating income (loss) 8,949 963 2,553 (8,552) Other income (expense): Interest and dividend income 77 82 184 201 Interest expense, net (8,777) (8,788) (17,854) (17,294) Minority interests 74 (29) (27) 418 Other, net 82 2,947 378 3,009 --------- --------- --------- --------- Income (loss) before income taxes 405 (4,825) (14,766) (22,218) Benefit (provision) for income taxes (907) 1,817 4,704 8,443 --------- --------- --------- --------- Net loss $ (502) $ (3,008) $ (10,062) $ (13,775) ========= ========= ========= ========= Basic and diluted net loss per share $(0.02) $(0.11) $(0.38) $(0.52) Dividends declared per common share $- $.02 $- $.04 Weighted average common shares and common share equivalents outstanding 26,375 26,375 26,375 26,375
The accompanying notes are an integral part of the consolidated financial statements. -3- OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net loss $ (10,062) $ (13,775) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 23,008 23,443 Deferred income tax provision (4,774) (9,164) Loss (gain) on disposal of operating and non-operating assets 29 (2,573) Other, net 27 (486) Changes in operating assets and liabilities: Trade accounts receivables (14,207) (5,719) Inventories 2,463 5,255 Operating liabilities 4,564 33,427 Other, net 1,408 797 --------- --------- Net cash provided by operating activities 2,456 31,205 --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (5,736) (8,553) Proceeds from disposal of property and equipment 5 2,945 Other, net 2,530 670 --------- --------- Net cash used by investing activities (3,201) (4,938) --------- --------- Cash flows from financing activities: Proceeds from long-term bank debt 357,649 124,280 Payments on long-term debt (351,635) (140,139) Borrowings from (repayments on) Canadian revolving loan facility, net (990) 743 Minority share of subsidiary's distribution (1,276) (2,739) Repurchase of bonds -- (6,750) Dividends paid -- (1,031) --------- --------- Net cash provided (used) by financing activities 3,748 (25,636) --------- --------- Effects of foreign currency exchange rate changes on cash (325) (638) --------- --------- Net increase (decrease) in cash and cash equivalents 2,678 (7) Cash and cash equivalents at beginning of period 3,370 9,270 --------- --------- Cash and cash equivalents at end of period $ 6,048 $ 9,263 ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 16,292 $ 16,832 Income taxes $ 273 $ 4,023 The accompanying notes are an integral part of the consolidated financial statements. -4- OREGON STEEL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION --------------------- The consolidated financial statements include the accounts of Oregon Steel Mills, Inc. and its subsidiaries ("Company"), which include wholly-owned Camrose Pipe Corporation ("CPC"), which through ownership in another corporation, holds 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. All significant intercompany balances and transactions have been eliminated. The unaudited financial statements include all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the interim periods. Results for an interim period are not necessarily indicative of results for a full year. Reference should be made to the Company's 2000 Annual Report on Form 10-K for additional disclosures including a summary of significant accounting policies. The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" on June 15, 1998, establishing the accounting treatment for commercial entities' positions in derivative instruments. The Company adopted SFAS No. 133, effective January 1, 2001; however, the impact on the Company's consolidated financial position and consolidated results of operations was immaterial. 2. INVENTORIES ----------- Inventories were as follows: June 30, December 31, 2001 2000 -------- ------------ (In thousands) Raw materials $ 9,617 $ 10,189 Semi-finished product 43,327 49,816 Finished product 46,971 43,415 Stores and operating supplies 27,423 26,381 -------- -------- Total inventory $127,338 $129,801 ======== ======== -5- 3. NET LOSS PER SHARE ------------------ Basic and diluted net loss per share was as follows:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2001 2000 2001 2000 -------- --------- -------- -------- (In thousands, except per share amounts) Weighted average number of common shares outstanding 25,777 25,777 25,777 25,777 Shares of common stock to be issued March 2003 598 598 598 598 -------- -------- -------- -------- 26,375 26,375 26,375 26,375 ======== ======== ======== ======== Net loss $ (502) $ (3,008) $(10,062) $(13,775) ======== ======== ======== ======== Basic and diluted net loss per share $ (0.02) $ (0.11) $ (0.38) $ (0.52) ======== ======== ======== ========
4. COMPREHENSIVE INCOME (LOSS) ---------------------------
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ---------------------------- 2001 2000 2001 2000 --------- -------- -------- --------- (In thousands) (In thousands) Net loss $ (502) $ (3,008) $(10,062) $(13,775) Foreign currency translation adjustment 935 (532) (325) (638) -------- -------- -------- -------- Comprehensive income (loss) $ 433 $ (3,540) $(10,387) $(14,413) ======== ======== ======== ========
5. DEBT, FINANCING ARRANGEMENTS, AND LIQUIDITY ------------------------------------------- Debt balances were as follows:
June 30, December 31, 2001 2000 --------- ------------ (In thousands) 11% First Mortgage Notes ("Notes") $228,250 $228,250 Revolving credit facility 79,983 69,756 CF&I acquisition term loan 18,949 23,161 Camrose revolving bank loan 792 1,814 -------- -------- Total Debt 327,974 322,981 Less short-term debt and current portion of long-term debt 89,018 8,625 -------- -------- Non-current portion of long-term debt $238,956 $314,356 ======== ========
The Company has $228.3 million principal amount of Notes due 2003, payable to outside parties. 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, there was no amount available for cash dividends at June 30, 2001. The Company maintains a $125 million revolving credit facility, as amended effective June 30, 2001 ("Amended Credit Agreement"), which expires April 30, 2002. The Amended Credit Agreement contains various restrictive covenants including minimum consolidated tangible net worth, minimum earnings before interest, taxes, depreciation and amortization ("EBITDA") coverage ratio, maximum annual capital expenditures, limitations on stockholder dividends -6- and limitations on incurring new or additional debt obligations other than borrowings provided by the Amended Credit Agreement. The Company is able to draw up to $15 million of the borrowings available under the Amended Credit Agreement to support issuance of letters of credit and similar contracts. At June 30, 2001, $3.9 million was restricted under outstanding letters of credit. The Company experienced a net loss for the six months ended June 30, 2001. Contributing to the adverse results was the interest paid by the Company to Oregon Steel for its financing. The Company has been able to fulfill its needs for working capital and capital expenditures, due in part to the financing arrangement with Oregon Steel. The Company expects that operations will continue for the remainder of 2001, with the realization of assets, and discharge of liabilities in the ordinary course of business. The Company believes that its prospective needs for working capital and capital expenditures will be met from cash flows generated by operations and borrowings pursuant to the financing arrangement with Oregon Steel. If operations are not consistent with management's plans, there is no assurance that the amounts from these sources will be sufficient for such purposes. Oregon Steel is not required to provide financing to the Company and, although the demand for repayment of the obligation in full is not expected during 2001, Oregon Steel may demand repayment of the loan at any time. If Oregon Steel were to demand repayment of the loan, it is not likely that the Company would be able to obtain the external financing necessary to repay the loan or to fund its capital expenditures and other cash needs and, if available, that such financing would be on terms satisfactory to the Company. 6. CONTINGENCIES ------------- Environmental All material environmental remediation liabilities, which are probable and estimable, are recorded in the financial statements based on current technologies and current environmental standards at the time of evaluation. Adjustments are made when additional information is available that 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 May 2000, the Company entered into a Voluntary Clean-up Agreement with the Oregon Department of Environmental Quality ("DEQ") committing it to conduct an investigation of whether, and to what extent, past or present operations at the Company's steel mill site located in Portland, Oregon ("Portland Mill") might have affected sediment quality in the Willamette River. The Company has begun preliminary studies related to this investigation; however, no conclusive data have been obtained. The Company has expended an insignificant amount to date; however, it appears that further investigation, with associated costs, will be necessary to complete the request. It is not presently possible to estimate the costs associated with completion of this investigation. In a related manner, in December 2000, the Company received a notice from the U.S. Environmental Protection Agency ("EPA"), identifying it, along with many other entities, as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act with respect to contamination in a portion of the Willamette River that has been designated as a Superfund site. As the Portland Mill is located downstream from the portion of the river so designated, the Company has requested from the EPA evidence with respect to the basis for the potential liability. It is not presently possible to determine the costs associated with this designation, in the event the Company is unable to demonstrate that it is not a PRP. In connection with the acquisition of the steel mill located in Pueblo, Colorado ("Pueblo Mill"), the Company accrued a liability of $36.7 million for environmental remediation related to the prior owner's operations. 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, and included 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 -7- 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 June 30, 2001, the accrued liability was $32.5 million, of which $30.9 million was classified as non-current in the consolidated balance sheet. The CDPHE inspected the Pueblo Mill in 1999 for possible environmental violations, and in the fourth quarter of 1999 issued a Compliance Advisory indicating that air quality regulations had been violated, which was followed by the filing of a judicial enforcement action ("Action") in the first quarter of 2000. Although the Action has not been quantified, resolution will likely include payment of penalties and an agreement to implement additional pollution controls. The Company has allocated up to $2 million in capital expenditures to reach resolution with the CDPHE. It is not presently possible to determine if further expenditures will be necessary to satisfy the liability, if any, associated with the Action. In a related matter, on April 27, 2000, the United Steel Workers of America ("Union") filed suit in U.S. District Court in Denver, Colorado, asserting that the Company had violated the Clean Air Act Amendments of 1990 ("CAA") at the Pueblo Mill for a period extending over five years. On July 16, 2001, the suit was dismissed by the presiding judge. Although the Company does not believe that it has an obligation to meet these standards, the Union has appealed the decision. If the Union does indeed pursue such legal action, and if an adverse determination were to be reached against the Company on appeal, it is not presently possible to estimate the liability if there is ultimately an adverse determination. On April 18, 2001, the Union, along with several environmental activist groups, filed suit against the Company under the CAA in U.S District Court in Portland, Oregon. The suit alleges that the Company has violated various air emission limits and conditions of its operating permits at the Portland Mill. The suit seeks injunctive relief and an unspecified amount of civil penalties. The Company filed a response to the suit on July 24, 2001, disputing many of the suit's allegations. Although the Company believes it will prevail, it is not presently possible to estimate the liability if there is ultimately an adverse determination. 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 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, CF&I 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, contractors 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. Since that time, vacancies have occurred and have been filled by formerly striking employees ("Unreinstated Employees"). As of June 30, 2001, approximately 580 Unreinstated Employees have either returned to work or have declined CF&I's offer of equivalent work. At June 30, 2001, approximately 350 Unreinstated Employees remain unreinstated. On February 27, 1998 the Regional Director of the National Labor Relations Board ("NLRB") Denver office issued a complaint against CF&I, alleging violations of several provisions of the National Labor Relations Act ("NLRA"). CF&I 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. On May 17, 2000, the Judge rendered a decision upholding certain allegations against CF&I. On August 2, 2000, CF&I filed an appeal with the NLRB in Washington D.C. The ultimate determination of the issues may require a ruling from the appropriate United States appellate court. In the event there is an adverse determination of these 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 -8- 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 working conditions and compensation. A separate hearing concluded in February 2000, with the judge for that hearing rendering a decision on August 7, 2000, that certain of the Union's actions undertaken since the beginning of the strike did constitute misconduct and violations of certain provisions of the NLRA. Given the inability to either determine the extent the adverse and offsetting mitigating factors discussed above will impact the liability or to quantify the financial impact of any of these factors, it is not presently possible to estimate the liability if there is ultimately an adverse determination. During the strike by the Union at CF&I, certain bargaining unit employees of the Colorado & Wyoming Railway Company ("C&W"), a wholly-owned subsidiary of New CF&I, refused to report to work for an extended period of time, claiming that concerns for their safety prevented them from crossing the picket line. The bargaining unit employees of C&W were not on strike, and because the other C&W employees reported to work without incident, C&W considered those employees to have quit their employment and, accordingly, C&W declined to allow those individuals to return to work. The various unions representing those individuals filed claims with C&W asserting that C&W had violated certain provisions of the applicable collective bargaining agreement, the Federal Railroad Safety Act ("FRSA"), or the Railway Labor Act. In all of the claims, the unions demand reinstatement of the former employees with their seniority intact, back pay and benefits. The United Transportation Union, representing thirty of those former employees, asserted that their members were protected under the FRSA and pursued their claim before the Public Law Board ("PLB"). A hearing was held in November 1999, and the PLB, with one member dissenting, rendered an award on January 8, 2001 against C&W, ordering the reinstatement of those claimants who intend to return to work for C&W, at their prior seniority, with back pay and benefits, net of interim wages earned elsewhere. On February 6, 2001, C&W filed a petition for review of that award in the District Court for the District of Colorado, and intends to pursue this matter through the appropriate United States appellate court, if necessary. Given the inability to determine the number of former employees who intend to return to work at C&W and the extent to which the adverse and mitigating factors discussed above will impact the liability for back pay and benefits, it is not presently possible to estimate the liability if there is ultimately an adverse determination. The Transportation-Communications International Union, Brotherhood Railway Carmen Division, representing six of those former employees, asserted that their members were protected under the terms of the collective bargaining agreement and pursued their claim before a separate PLB. A hearing was held in January 2001, and that PLB, with one member dissenting, rendered an award on March 14, 2001 against C&W, ordering the reinstatement of those claimants who intend to return to work for C&W, at their prior seniority, with back pay and benefits, net of interim wages earned elsewhere. While retaining its rights to appeal the decision, C&W is seeking to negotiate a settlement with the claimants to settle the back pay and benefit liability. C&W anticipates that any such settlement, if reached, will not have a material impact on the Company's consolidated financial statements. 7. ELECTRICITY SALES ----------------- Included in sales for the three and six months ended June 30, 2001 is $7.0 million in electricity sales. During May and June of 2001, the Company sold approximately 50 percent of the power load in its melting facility in Portland, Oregon back to the local utility under an electricity exchange contract that extends from May 1, 2001 through September 30, 2001. -9- OREGON STEEL MILLS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- The following information contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties and actual results could differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive products and pricing, as well as fluctuations in demand; 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 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 Steel, L.P. ("CF&I") located in Pueblo, Colorado, as well as certain related operations. Results of Operations - --------------------- The following table sets forth by division tonnage sold, sales and average selling price per ton:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ----------------------------- 2001 2000 2001 2000 ------------ -------- -------- --------- Total tonnage sold: Oregon Steel Division: Plate and Coil 121,400 206,400 271,700 413,000 Welded Pipe 95,900 33,000 153,100 71,800 -------- -------- -------- -------- Total Oregon Steel Division 217,300 239,400 424,800 484,800 -------- -------- -------- -------- RMSM Division: Rail 55,500 80,200 110,600 155,200 Rod and Bar 100,000 94,600 206,100 189,200 Seamless Pipe 37,900 - 67,100 - Semi-finished 1,500 2,300 4,200 18,800 -------- -------- -------- -------- Total RMSM Division 194,900 177,100 388,000 363,200 -------- -------- -------- -------- Total Company 412,200 416,500 812,800 848,000 ======== ======== ======== ======== Sales (in thousands): Oregon Steel Division $112,616 $ 98,453 $207,639 $197,660 RMSM Division 78,285 63,332 150,742 129,028 -------- -------- -------- -------- Total Company $190,901 $161,785 $358,381 $326,688 ======== ======== ======== ======== Average selling price per ton: Oregon Steel Division (FN1) $486 $411 $472 $408 RMSM Division $402 $358 $389 $355 Company Average (FN1) $446 $388 $432 $385 Foot Note 1 - Excludes revenues earned from sales of electricity in the amount of $7 million.
-10- Sales increased to $190.9 million, or 18.0 percent and to $358.4 million, or 9.7 percent, for the three and six months ended June 30, 2001, respectively, over the same periods in 2000. The consolidated average selling prices per ton for the second quarter of 2001 and the first six months of 2001 were $445 and $432, respectively, (exclusive of revenues earned from sales of electricity) compared to consolidated average selling prices per ton of $388 and $385 per ton, respectively, for the comparable periods of 2000. The increase in both sales and consolidated average selling price is primarily due to a shift in product mix from plate and coil products to welded and seamless pipe products, partially offset by a decrease in shipment of rail products. The Company's shipments decreased 1.0 percent to 412,200 tons and 4.2 percent to 812,800 tons in the second quarter of 2001 and in the first six months of 2001, respectively, from the same periods in 2000. The decrease in shipments was primarily a result of reduction in shipments of plate products by the Oregon Steel Division, and rail and semi-finished product shipments by the RMSM Division, partially offset by increased shipments of welded pipe, seamless pipe and rod and bar products. The Oregon Steel Division shipped 217,300 tons and 424,800 tons of plate, coil and welded pipe products at an average selling price per ton of $486 and $472 (exclusive of revenues earned from sales of electricity), for the three and six months ended June 30, 2001, respectively, compared to 239,400 and 484,800 tons at average selling price per ton of $411 and $408, during the corresponding 2000 periods. The decrease in overall division shipments is primarily due to the decrease in plate and coil products offset partially by an increase in welded pipe products. Plate and coil shipments decreased to 121,400 tons and 271,700 tons for the three and six months period ended June 30, 2001, respectively, from the 206,400 tons and 413,000 tons shipped during the respective periods in 2000. Lower plate and coil shipments in 2001 is primarily the result of a higher percentage of plate production being shipped to the division's Napa and Camrose pipe mills. Another factor contributing to the decrease was the declining demand for plate product during 2001. Welded pipe shipments increased significantly to 95,900 tons and 153,100 tons for the three and six month period ended June 30, 2001, respectively, compared to 33,000 tons and 71,800 tons shipped during the respective periods in 2000. The lower level of welded pipe shipments during 2000 resulted from a lack of general market demand for pipe products. Despite the decrease in total shipments, average selling price per ton increased, primarily due to a favorable shift in product mix to welded pipe from plate products. On average, welded pipe products have higher selling prices than plate and coil products. Included in sales for the three and six months ended June 30, 2001 is $7.0 million in electricity sales. During May and June of 2001, the Company sold approximately 50 percent of the power load in its melting facility in Portland, Oregon back to the local utility under an electricity exchange contract that extends from May 1, 2001 through September 30, 2001. The RMSM Division shipped 194,900 tons and 388,000 tons of rail, rod, bar, seamless pipe and semi-finished products at average selling prices per ton of $402 and $389 for the three and six months ended June 30, 2001, respectively, compared to 177,100 tons and 363,200 tons at average selling prices per ton of $358 and $355, respectively, during the corresponding periods in 2000. The increase in shipments is primarily due to increases in seamless pipe, rod and bar products, partially offset by decreased shipments of rail and semi-finished products. Due to adverse market conditions, the division did not ship any seamless product during most of 2000 until the seamless mill was reopened in October 2000. Average selling price per ton of the division also increased as a result of the shift in product mix to seamless pipe, as seamless pipe has the highest average selling prices per ton of all of the division's products. This increase is partially offset by decreased average selling prices for the division's rod, bar and rail products. The division shipped 55,500 tons and 110,600 tons of rail for the three and six months ended June 30, 2001, respectively, compared to 80,200 and 155,200 tons during the same periods of 2000, primarily due to reduced 2001 customer rail requirements. Gross profits for the three and six months ended June 30, 2001 were $24.3 million or 12.7 percent and $31.7 million or 8.9 percent, respectively, compared to $14.7 million or 9.1 percent and $18.1 million or 5.5 percent, respectively, for the corresponding 2000 periods. The increase of gross profits for both periods is primarily due to the increased shipments of and improved profitability for welded and seamless pipe products. In addition, the sale of electricity during the second quarter of 2001 contributed to the increase compared to the same period a year ago. Offsetting these factors were decreased profitability related in rail products and lower shipment levels for rail and semi-finished products. Selling, general and administrative expenses ("SG&A") increased $1.5 million and $2.7 million for the three and six months ended June 30, 2001, respectively, from the corresponding 2000 period. These expenses decreased as a percentage of sales to 8.0 percent in the second quarter of 2001, from 8.5 percent for the corresponding 2000 periods. Percentages of sales remained consistent at 8.1 percent for the six months period ended June 30, 2001 compared to the same period in 2000. The -11- increase in SG&A expenses is primarily due to increased shipping costs associated with the increased shipping volume for welded pipe and seamless pipes, and rod and bar products. The Company's effective income tax rate for the six months ended June 30, 2001 was a benefit of 31.9 percent, as compared to 38.0 percent for the corresponding period in 2000. The effective rate was lower in 2001 primarily due to an adjustment in the tax treatment of the Company's foreign subsidiary. The Company revised its estimate of the expected effective tax rate for fiscal year 2001 during the second quarter, resulting in an increase in its provision for the three months ended June 30, 2001. Liquidity and Capital Resources - ------------------------------- At June 30, 2001, the Company's liquidity, comprised of cash, cash equivalents, and funds available under the revolving credit agreement, amended effective June 30, 2001 ("Amended Credit Agreement"), totaled approximately $42.4 million compared to $36.9 million at December 31, 2000. Cash flow from operations for the six months ended June 30, 2001 was $2.5 million compared to $31.2 million in the respective period of 2000. The major items causing the decrease were a smaller increase in operating liabilities for 2001 than for 2000 ($28.9 million), a greater increase in net receivables for 2001 than for 2000 ($8.5 million) and a smaller decrease in inventory for 2001 than for 2000 ($2.8 million), partially offset by a smaller effect of deferred taxes and net loss for 2001 than for 2000 ($4.4 million and $3.7 million, respectively). The Company primarily increased its borrowings to compensate for the decrease in operating cash flows. Net working capital at June 30, 2001 decreased $71 million from $108.8 million at December 31, 2000 to $37.8 million at June 30, 2001, reflecting a $13 million increase in current assets and an $84 million increase in current liabilities. The increase in current assets was primarily due to increased trade accounts receivable ($14.2 million), partially offset by decreased inventories ($2.5 million). The increase in current liabilities was primarily due to the increase in short-term debt and current portion of long-term debt ($80.4 million) as the Company's Amended Credit Agreement will expire in slightly less than one year. As a consequence, the amount outstanding under the Company's Amended Credit Agreement, approximately $80 million, was reclassified from noncurrent to current. The Company has outstanding $228.3 million principal amount of Notes due 2003, which bear interest at 11 percent. New CF&I, Inc. and CF&I (collectively, "Guarantors") guarantee the Notes. 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 does not include, among other things, accounts receivable and inventory. 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, there was no amount available for cash dividends at June 30, 2001. The Company maintains an Amended Credit Agreement, which expires on April 30, 2002. The Guarantors guarantee the Amended Credit Agreement. The amount available is the lesser of $125 million or the sum of the product of the Company's eligible domestic accounts receivable and inventory balances and specified advance rates. The Amended Credit Agreement and guarantees are secured by these assets in addition to a shared security interest in certain equity and intercompany interests of the Company. Interest on the Amended Credit Agreement is based on the prime rate plus a margin of 1.25 percent. As of June 30, 2001, the average interest rate for the Amended Credit Agreement was 7.98 percent. The unused line fees are .38 percent difference from $125 million and the amount outstanding, including letters of credit. The Amended Credit Agreement contains various restrictive covenants including minimum consolidated tangible net worth, minimum earnings before interest, taxes, depreciation and amortization coverage ratio, maximum annual capital expenditures, limitations on stockholder dividends and limitations on incurring new or additional debt obligations other than provided by the Amended Credit Agreement. The Company cannot issue cash dividends without prior approval from the lenders. At June 30, 2001, the outstanding balance on the Amended Credit Agreement was approximately $80 million. The Company is able to draw up to $15 million of the borrowings available under the Amended Credit Agreement to support issuance of letters of credit and similar contracts. At June 30, 2001, $3.9 million was restricted under outstanding letters of credit. CF&I incurred $67.5 million in term debt in 1993 as part of the purchase price of certain assets, principally the Pueblo, Colorado steelmaking and finishing facilities, from CF&I Steel Corporation. This debt is without stated collateral and is -12- payable over ten years, bearing interest at 9.5 percent. As of June 30, 2001, the outstanding balance on the debt was $18.9 million, of which $9.9 million was classified as long-term. Camrose maintains a (CDN) $15 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 the sum of the product of specified advance rates and Camrose's eligible trade accounts receivable and inventories. The facility 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 June 30, 2001, the interest rate of this facility was 6.25 percent. Annual commitment fees are .25 percent of the unused portion of the credit line. At June 30, 2001, the outstanding balance under the credit facility was $792,000. During the first six months of 2001, the Company expended (exclusive of capital interest) approximately $1.6 million and $3.7 million on capital projects at the Oregon Steel Division and the RMSM Division, respectively. Despite the unfavorable operating results for the six months ended June 30, 2001, the Company has been able to fulfill its needs for working capital and capital expenditures, due in part on its ability to secure adequate financing arrangements. The Company expects that operations will continue for the remainder of 2001, with the realization of assets, and discharge of liabilities in the ordinary course of business. The Company believes that its anticipated needs for working capital and capital expenditures through 2001 will be met from funds generated from operations and borrowings pursuant to the Company's Amended 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 alternative financing arrangements. There is no assurance that such sources of financing 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. In that event, the holders of such indebtedness may be able to declare all indebtedness owing to them to be due and payable immediately, and to proceed against their collateral, if applicable. These actions would likely have a material adverse effect on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes. -13- OREGON STEEL MILLS, INC. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Part 1, "Consolidated Financial Statements - Note 6, Contingencies" for discussion of status of the environmental lawsuits filed by the United Steelworkers of America against the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Amendment No. 1 to Credit Agreement dated effective June 30, 2001, among Oregon Steel Mills, Inc. as borrower, New CF&I, Inc. and CF&I Steel, L.P., as Guarantors, various financial institutions as Lenders, and the Agent for the lenders. Portions of this exhibit have been omitted pursuant to a confidential treatment request. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OREGON STEEL MILLS, INC. Date: August 14, 2001 /s/ Jeff S. Stewart ------------------------------- Jeff S. Stewart Corporate Controller (Principal Accounting Officer) -14- EX-10 4 credagreer01red.txt AMENDED CREDIT AGREEMENT 8/13/01 REDACTED EXHIBIT 10.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT This AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment") --------- dated as of August 13, 2001 is by and among OREGON STEEL MILLS, INC., a Delaware corporation ("Borrower"), NEW CF&I, INC., a Delaware corporation ("New CF&I"), -------- and CF&I STEEL, L.P. (dba Rocky Mountain Steel Mills), a Delaware limited partnership ("RMSM" and, together with NEW CF&I, each a "Guarantor" and together, "Guarantors"), the financial institutions parties hereto, as Lenders, and PPM FINANCE, INC., a Delaware corporation, as Agent for the Lenders ("Agent"). Unless otherwise specified herein, capitalized terms used in this ----- Amendment shall have the meanings ascribed to them by the Credit Agreement (as hereinafter defined). RECITALS -------- WHEREAS, Agent, the Lenders named therein, Borrower and the Guarantors are parties to that certain Credit Agreement, dated as of December 1, 2000 (the "Existing Credit Agreement", and as amended hereby and hereafter further amended, supplemented, restated or otherwise modified from time to time, the "Credit Agreement"); and WHEREAS, Borrower has requested that Agent and Lenders, and Agent and Lenders have agreed to, amend the Existing Credit Agreement as described herein, upon the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual execution hereof and other good and valuable consideration, the parties hereto agree as follows: SECTION 1. Amendments to the Existing Credit Agreement. ------------------------------------------- Subject to the satisfaction of the conditions precedent set forth in Section 8 hereof, the parties hereto hereby agree to amend the Existing Credit Agreement as follows, which amendments shall be deemed to be effective as of June 30, 2001: (a) Section 2.2.1 of the Existing Credit Agreement is hereby amended by adding a new sentence to the end of such Section 2.2.1 as follows: "Notwithstanding any provision in this Agreement to the contrary, from and after August 13, 2001, Borrower shall not be permitted to select Eurodollar Loans." (b) Section 2.2.2 of the Existing Credit Agreement is hereby amended by adding a new clause (f) to the end Section 2.2.2 which shall read as follows: "(f) Notwithstanding any provision in this Agreement to the contrary, from and after August 13, 2001, the Borrower may not convert Base Rate Loans to Eurodollars Loans or continue any Eurodollar Loans as Eurodollar Loans. All outstanding Eurodollar Loans on August 13, 2001 shall be immediately converted to Base Rate Loans upon the expiration of their respective Interest Periods." (c) Section 4.1.1(a) of the Existing Credit Agreement is hereby amended by amending and restating such section in its entirety as follows: "(a) at all times while any Loan is a Base Rate Loan, at a rate per annum equal to the sum of the Base Rate from time to time in effect plus (i) from and including June 30, 2001 through and including September 29, 2001, 1.25%, (ii) from and including September 30, 2001 through and including December 30, 2001, 1.50% and (iii) after December 30, 2001, 1.75%; and". (d) Section 5.3 of the Existing Credit Agreement is hereby amended and restated in its entirety to read as follows: "5.3 [ASTERISK]Remainder of section omitted pursuant to a confidential treatment request. (e) Section 5 of the Existing Credit Agreement is hereby amended by adding the following new Section 5.7 as follows: [ASTERISK] Remainder of section omitted pursuant to a confidential treatment request. (f) Section 10.6(b) of the Existing Credit Agreement is hereby amended and restated in its entirety to read as follows: "Minimum EBITDA Coverage. Not permit the EBITDA Coverage Ratio ----------------------- for the 12-month period ending on the last day of each Fiscal Quarter set forth below to be less than the ratio set forth next to such Fiscal Quarter: Fiscal Quarter ending: EBITDA Coverage Ratio: --------------------- --------------------- June 30, 2001 1.10 to 1.00 September 30, 2001 1.15 to 1.00 December 31, 2001 1.25 to 1.00 March 31, 2002 1.45 to 1.00 (g) Section 10.7(b)(i) of the Existing Credit Agreement is hereby amended and restated in its entirety as follows: "(i) the Borrower shall have provided the Agent with prior written notice of any such repurchase which notice shall set forth (A) the date such repurchase is to be made which in no event shall be later than December 31, 2001, (B) the face amount of the Bonds to be repurchased, and (C) the price to be paid to repurchase such Bonds; provided that, such price shall not exceed the ------------- aggregate amount of $5,000,000 for all Bond repurchased between June 30, 2001 through and including December 31, 2001." (h) Section 14.20 of the Existing Credit Agreement is hereby amended by deleting the date "April 30, 2003" set forth therein and replacing it with "April 30, 2002". SECTION 2. Representations And Warranties of Credit Parties. ------------------------------------------------------------ The Borrower and each Guarantor represents and warrants that: (a) the execution, delivery and performance by each such Person of this Amendment have been duly authorized by all necessary corporate action and is the legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except as the enforcement thereof may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); (b) each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof; and (c) neither the execution, delivery and performance of the Amendment nor the consummation of the transactions contemplated hereby does or shall contravene, result in a breach of, or violate (i) any provision of such Person's certificate or articles of organization or by-laws, (ii) any law or regulation, or any order or decree of any court or government instrumentality, or (iii) any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound, except in any such case to the extent such conflict or breach has been waived by a written waiver document, a copy of which has been delivered to Agent on or before the date hereof. SECTION 3. Acknowledgments Regarding Credit Agreement. ------------------------------------------------------- (a) Except as specifically amended above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. -2- (b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Credit Agreement or any other Loan Documents, nor constitute a waiver of any provision of the Credit Agreement or any other Loan Documents. Upon the effectiveness of this Amendment, each reference in the Existing Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of similar import shall mean and be a reference to the Credit Agreement. (c) Each of Borrower and each Guarantor hereby acknowledges and agrees that there is no defense, setoff or counterclaim of any kind, nature or description to the Obligations or the payment thereof when due. (d) Each Guarantor acknowledges the amendments provided by this Amendment and hereby reaffirms its guarantee pursuant to Section 15 of the Credit Agreement. SECTION 4. Costs And Expenses. As provided in Section 14.6 of ------------------------------- the Credit Agreement, Borrower agrees to reimburse Agent for all fees, reasonable out-of-pocket costs and expenses of the Agent (including attorney costs) in connection with the preparation, execution, delivery and administration of this Amendment (and the other documents to be delivered in connection herewith). SECTION 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY -------------------------- AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS. SECTION 6. Headings. Section headings in this Amendment are --------------------- included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purposes. SECTION 7. Counterparts. This Amendment may be executed in any ------------------------- number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. SECTION 8. Effectiveness. This Amendment shall become --------------------------- effective when each of the following conditions precedent have been met to the satisfaction of Agent and Lenders or waived in writing by Agent and Lenders: (i) Amendment. Agent, Borrower, the Guarantors and Lenders ---------- shall have delivered to the other duly executed counterparts to this Amendment; and (ii) *Remainder of section omitted pursuant to a confidential ---- treatment request. [Signature Page Follows] -3- Delivered at Chicago, Illinois, as of the day and year first above written. OREGON STEEL MILLS, INC. By: /s/ Jeff S. Stewart -------------------------------------------------- Name: Jeff S. Stewart ------------------------------------------------ Title Corporate Controller ------------------------------------------------ CF&I STEEL, L.P. (dba Rocky Mountain Steel Mills) By: /s/ Jeff S. Stewart -------------------------------------------------- Name: Jeff S. Stewart ------------------------------------------------ Title Corporate Controller ------------------------------------------------ NEW CF&I, INC. By: /s/ Jeff S. Stewart -------------------------------------------------- Name: Jeff Stewart ------------------------------------------------ Title Corporate Controller ------------------------------------------------ PPM FINANCE, INC., as Agent and as attorney in fact for the only Lender under the Credit Agreement referred to in the above Amendment By: /s/ Keith Contole -------------------------------------------------- Name: Keith Contole ------------------------------------------------ Title AVP, Underwriting ------------------------------------------------ [Signature Page to Amendment No. 1 to Credit Agreement] S-1 -----END PRIVACY-ENHANCED MESSAGE-----