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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1993 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 (I.R.S. Employer Identification No.)
incorporation or organization)
1000 BROADWAY BUILDING
SUITE 2200
1000 S.W. BROADWAY
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:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value per share 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 non-affiliates of
the registrant.
BASED ON LAST SALE, JANUARY 29, 1994: $517,553,000
Indicate the number of shares outstanding of each of the registrant's classes
of stock as of January 31, 1994:
COMMON STOCK, $.01 PAR VALUE 19,347,781
- ---------------------------- ----------
(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 28, 1994 is incorporated by reference into Part III of this report.
OREGON STEEL MILLS, INC.
TABLE OF CONTENTS
PART I PAGE
----
ITEM 1. BUSINESS ..................................................... 1
General .................................................... 1
Products ................................................... 2
Raw Materials and Energy ................................... 3
Marketing and Customers .................................... 4
Competition and Other Market Factors ....................... 5
Environmental Matters ...................................... 7
Employees .................................................. 9
ITEM 2. PROPERTIES ................................................... 9
ITEM 3. LEGAL PROCEEDINGS ............................................ 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 11
Executive Officers of the Registrant ....................... 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS ................................. 12
ITEM 6. SELECTED FINANCIAL DATA ...................................... 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............... 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................. 19
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ......... 37
PART III
ITEMS 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and 11. AND EXECUTIVE COMPENSATION .................................. 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .............................................. 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K ......................................... 38
PART I
ITEM 1. BUSINESS
GENERAL
Oregon Steel Mills, Inc. (the "Company" or the "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.
The Company has five plant locations, which include two steel mills. During
1993 the Company established the Portland steel and CF&I steel mills and the
related downstream finishing facilities as separate business units to be known
as the Oregon Steel Division and the CF&I Steel Division.
The Oregon Steel Division is centered on the Company's Portland, Oregon steel
minimill (the "Portland Steel Mill"), which supplies steel for the Company's
steel plate and large diameter pipe finishing facilities. The Portland Steel
Mill operates under the name of Oregon Steel Mills, Inc. The wholly-owned and
majority-owned operating divisions, which are included in the Oregon Steel
Division, are: Oregon Steel Mills -- Fontana Division, Inc., a steel plate
rolling mill in Fontana, California (the "Fontana Plate Mill"); Napa Pipe
Corporation, a large diameter steel pipe mill and fabrication facility in Napa,
California (the "Napa Facility"); and Camrose Pipe Corporation ("CPC") which
owns a 60% interest in Camrose Pipe Company, a large diameter pipe and electric
resistance welded ("ERW") pipe facility in Camrose, Alberta, Canada (the
"Camrose Facility").
The CF&I Steel Division consists of the steelmaking and finishing facilities
of CF&I Steel, L.P. ("CF&I") located in Pueblo, Colorado (the "Pueblo Steel
Mill"). The Company, through a wholly-owned subsidiary, owns a 95.2 percent
general partnership interest in CF&I. The Pueblo Steel Mill is a steel minimill
which produces long-length and standard steel rails, seamless oil country
tubular goods ("OCTG"), wire rod and wire products, and reinforcing bar.
The Company produces eight steel products which include most standard grades
of steel plate, a wide range of higher margin specialty steel plate, large
diameter steel pipe, ERW pipe, longlength and standard rails, OCTG, wire rod,
wire and bar products. The steel industry, including the steel products
manufactured by the Company, has been highly cyclical and is currently
characterized by overcapacity, both domestically and internationally.
The Portland Steel Mill is the only hot-rolled steel plate minimill and one
of two steel plate producers located in the eleven western states. The start-up
of a ladle metallurgy furnace in November 1990 at the Portland Steel Mill
increased the Portland Steel Mill's melting and casting capacity from
approximately 640,000 tons to 800,000 tons of steel per year. The Portland Steel
Mill produces slab thicknesses of 6, 7 and 8 inches and has an annual rolling
mill capacity, depending on product mix, of up to 450,000 tons of finished steel
plate in widths of up to 103 inches.
The Company's Napa Facility produces large diameter steel pipe of a quality
suitable for use in high pressure oil and gas transmission pipelines. The Napa
Facility can produce pipe with an outside diameter ranging from 16 to 42 inches,
with wall thicknesses of up to 1-1/16 inches 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 Facility has an annual capacity in
excess of 350,000 tons of pipe. Substantially all of the Napa Facility's
requirements for specialty steel plate, which is fabricated into steel pipe, are
currently supplied by the Portland Steel Mill and the Fontana Plate Mill.
The Company expanded its plate rolling capacity by commencing operations at
the Fontana Plate Mill in December 1989. Depending on product mix, the Fontana
Plate Mill has an annual rolling mill capacity of up to 750,000 tons of finished
steel plate, bringing the Company's total plate rolling capacity to
approximately 1.2 million tons per year. The Fontana Plate Mill can roll plate
up to 136 inches wide, which is sufficient for fabricating the Napa and Camrose
Facilities' largest diameter pipe products. The Company acquired the rolling
mill machinery used at the Fontana Plate Mill in November 1989 for approximately
$7.5 million. The land and buildings at the Fontana Plate Mill are leased by the
Company. The lease of the Fontana Plate Mill expires in 2002 but is subject to
earlier termination by the Company or lessor upon certain terms and conditions.
See Properties.
1
The Company acquired a 60% interest in the Camrose Facility in June 1992 for
approximately $18 million from Stelco, Inc., a large Canadian steel producer.
The Camrose Facility has two pipe manufacturing mills. One is a large diameter
pipe mill similar to that of the Napa Facility, and the other is an ERW pipe
mill which produces steel pipe used in the oil and gas industry for drilling and
distribution. The large diameter pipe mill produces pipe with a diameter ranging
from 20 to 42 inches with maximum wall thickness limited to about 70% of the
Napa Facility in lengths of up to 80 feet. 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 inches in diameter and has an
annual nominal capacity of up to 142,000 tons depending upon product mix.
On March 3, 1993, New CF&I, Inc., a wholly-owned subsidiary of the Company,
acquired for $22.2 million a 95.2 percent interest in a newly formed limited
partnership, CF&I. The remaining 4.8 percent interest is owned by the Pension
Benefit Guaranty Corporation. CF&I purchased substantially all of the
steelmaking, fabricating, metals and railroad business assets of CF&I Steel
Corporation for $113.1 million. The Pueblo Steel Mill has melting capacity in
excess of 1 million tons and a finished ton capacity of approximately 1.5
million tons.
In February 1991 the Company sold 2,875,000 shares of common stock in a
public stock offering. Proceeds to the Company from the offering were
approximately $77.6 million.
PRODUCTS
Oregon Steel Division
The Company's steel plate products consist of hot-rolled carbon,
high-strength low alloy, heat treated and alloy plate up to 136 inches wide. In
addition to commodity grades of steel plate, the Company produces a wide range
of specialty steel plate. Commodity steel plate is used in a variety of
applications, such as the manufacture of storage tanks, machinery parts, barges
and ships. Specialty steel plate, such as high strength low alloy, heat treated,
and alloy plate, has superior strength and performance characteristics for
particular applications, such as the manufacture of construction, mining and
logging equipment, pressure vessels, and oil and gas transmission pipe, and the
fabrication of bridges and high-rise buildings. At the request of a customer,
the Company can vary the properties of steel plate products, including the
plate's malleability, hardness or abrasion resistance, impact resistance or
toughness, strength and ability to be machined or welded. These variations are
achieved by chemically altering the steel through the addition of elements such
as carbon, manganese, chromium, molybdenum, nickel, boron, aluminum, and
titanium and through the removal of elements such as phosphorous and sulfur.
Different steel properties are required for specialized applications: high
strength steel is required for construction and logging equipment; a combination
of high strength and toughness steel is required for bridges and oil and gas
transmission pipe; and steel with high abrasion resistance and hardness is
required for the manufacture of mining equipment and armor for military
ordinance.
The Company's heat treating facility produces steel plate that has been
normalized or quenched and tempered. The heat treating process of normalizing
increases the toughness and impact resistance of plate, and is especially useful
for low temperature applications. The heat treating process of quenching and
tempering improves the strength and hardness of the plate. Quenched and tempered
steel is used extensively in the mining industry, the manufacture of heavy
transportation equipment, and military armor.
The Company also offers customers the option of surface processing steel
plate, which includes descaling (the removal of oxides from the surface of the
plate) and painting. This process provides a more efficient and economical means
of cleaning and coating steel products than the traditional sandblasting or hand
cleaning methods.
The Company's Portland Steel Mill, on the basis of an audit conducted in
1992, has received registration under ISO-9002. This registration is the
emerging international designation for demonstrating that the Company systems
support the production of quality products. This was one of the first ISO-9002
registrations of a steel mill in the United States.
2
The Napa Facility pipe mill is one of the most versatile pipe mills in the
industry. The mill can produce large diameter steel pipe ranging from 16 to 42
inches in diameter with wall thicknesses of up to 1-1/16 inches and lengths of
up to 80 feet. In addition, the mill can process two different sizes of pipe
simultaneously in its two finishing sections. Moreover, the Company can vary the
pipe's hardness, impact resistance, strength and ability to be welded to meet
the customers' specifications. The Company offers customers the option of
surface processing the steel pipe, which includes descaling and internal and
external coating on-site. The external coating facility was acquired by Napa in
1993. During 1989, the Company completed the construction of a full body
ultrasonic inspection facility at the Napa Facility. If requested by the
customer, this facility inspects the ends, long seam welds and entire body for
all types of steelmaking and pipemaking imperfections and records the results
for a permanent record.
The Camrose Facility produces large diameter steel pipe ranging from 20 to 42
inches with maximum wall thickness limited to about 70% of that produced at the
Napa Pipe Mill. The pipe can be produced in lengths up to 80 feet. Unlike the
Napa Pipe Mill, this mill has one finishing section and can produce one size
pipe at a time.
The Company's large diameter pipe is used primarily in pressurized underground
or underwater oil and gas pipelines where quality is critical.
The Camrose Facility also produces ERW pipe in sizes 4.5 inches through 16
inches outside diameter. The pipe is manufactured using coiled skelp rolled on a
high frequency electric resistance weld mill. The principal customers for this
product are oil and gas companies for gathering lines to supply product to feed
larger pipeline systems.
CF&I Steel Division
The Pueblo Steel Mill produces carbon, head hardened and alloy premium rail
in accordance with the latest specifications of the American Railway Engineering
Association. Rails are manufactured in the five most popular rail weights (115
lb/yard through 136 lb/yard), in all lengths as well as quarter mile welded
strings. The Pueblo Steel Mill is the sole manufacturer of rails west of the
Mississippi River.
OCTG is produced at the Pueblo Steel Mill and consists of seamless casing,
coupling stock, standard and line pipe. Oil country casing is used as a
structural retainer for the walls of oil or gas wells. Standard and line pipe
are used to conduct liquids and gasses above ground. The Company's seamless tube
mill is equipped to produce the most widely used sizes of OCTG (2-3/8 inches
outside diameter through 10-3/4 inches outside diameter) in all lengths
according to the latest specifications of the American Petroleum Institute
("API"). The Company's production capability includes both carbon and high
strength (quench and tempered) tubular products. The Pueblo Steel Mill also
sells semi-finished OCTG ("green tubes") for processing and finishing by third
parties.
The rolled products produced at the Pueblo Steel Mill consist of concrete
reinforcing bar, hot-rolled bar, bar size shapes, special sections and
semi-finished billets. CF&I can produce rebar in sizes of 1/2" to 1-3/8"
diameter; 2,250 pound coils can be made up to 1-1/2" diameter. Rebar is produced
in grade 40 tensile strength for normal applications and grade 60 tensile
strength for more severe applications.
Rod products produced at the Pueblo Steel Mill are for industrial rod
consumption. Generally, the rods are produced in diameters ranging from 7/32" to
9/16."
The Pueblo Steel Mill is one of the few manufacturers which produce a wide
variety of wire products. The wire produced consists primarily of fencing,
barbed wire, nails, staples, bailing wire, welded wire fabric, merchant wire,
rebar tie wire, high carbon special purpose wire and low carbon manufacturer's
wire.
RAW MATERIALS
The Company's principal raw material for the Portland and Pueblo Steel 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. The purchase price for scrap is subject to
market forces largely beyond the control of the Company, including demand by
foreign steel producers for steel scrap (which is in turn influenced by currency
3
exchange rates) and domestic demand from other steel companies. The cost of
scrap to the Company can vary significantly, and product prices cannot always be
adjusted, especially in the short-term, to recover the costs of large increases
in scrap costs. During 1993 the average cost of purchased scrap at the Portland
Steel Mill was $117 per ton compared to $91 per ton in 1992. The average cost of
scrap at the Pueblo Steel Mill was $121 during 1993, compared to $96 during
1992. The Company maintains a 30 to 45 day supply of scrap to insulate itself to
some extent against possible short-term price fluctuations. The Company
purchases scrap through many outside dealers and is not dependent on any single
supplier or group of suppliers at its Portland Steel Mill. The Pueblo Steel Mill
purchases scrap through a broker. The Company believes that adequate supplies of
scrap are readily available from a number of sources, but that current demand
will keep pricing relatively high.
The Company also purchases a quantity of directly reduced iron in briquetted
form ("HBI") for use as a substitute for steel scrap. The successful integration
of this material into the steelmaking process provides the Company with an
alternate source of low residual material. Because this material is purchased on
a contract basis it provides some insulation from the price fluctuations
experienced in the scrap market. During 1993 the Company also purchased pig iron
as a scrap substitute and believes it can be used successfully in limited
quantities. With the shift in the Company's product mix from carbon grades to
higher quality grades of steel, the need for higher quality scrap must be
assured. The availability of higher grades of scrap in sufficient quantities may
not be available in the Company's traditional scrap markets, which will require
the use of an alternate source of metallics.
The Company is participating in a joint venture project to construct an HBI
plant in Venezuela. The plant is expected to have a capacity of one million
metric tons and a capital cost of approximately $245 million. As the project is
currently structured, the Company will own an equity interest in the facility
and will have committed off-take requirements of 200,000 tons. It is anticipated
that there will be several other joint venture partners and the Company expects
its cash investment to be approximately $15 million. The project is expected to
obtain non-recourse debt financing for 60% of the capital needs.
In addition to the Venezuelan project, the Company is pursuing other metallic
technologies, such as iron carbide and fastmet. The Company anticipates it will
participate in one or more joint ventures for these processes.
The Company purchases semi-finished steel slab from third parties for
finishing at the Fontana Plate Mill and to supplement steel production capacity
and enable the Portland Steel Mill to produce steel plate in thicknesses greater
than 3 inches. Generally, the Company has been able to adjust product prices in
response to increases in slab prices. The world demand for slab can, however,
significantly affect its purchase price. The Company expects to purchase
significant quantities of slabs in 1994.
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 sells
steel products to steel service centers, distributors, processors and
converters. In 1993 the Company derived 11.8 percent of its sales from one
customer. 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.
The Company does not have any significant ongoing contracts with customers to
purchase steel products, and orders placed with the Company generally are
cancelable by the customer. 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.
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 contracts subject to renegotiation.
4
Oregon Steel Division
Customers for commodity steel plate typically are located in the western
United States, primarily in the northwest and California. Customers for
specialty steel are located throughout the United States, but the Company is
most competitive in the west, southwest and midwest. Incremental transportation
costs for steel plate limit the Company's ability to compete in the eastern
states' market.
Large diameter steel pipe is marketed on a global basis. During 1993 the
Company began to market large diameter pipe internationally and believes this
will become a viable market for its pipe products. The Company believes that the
quality of its pipe enables it to compete effectively in this market.
Domestically the Company is most competitive in the steel pipe market west of
the Mississippi River. The Camrose Facility is most competitive in western
Canada. Sales of large diameter pipe generally consist of a small number of
large orders and generally involve the Company responding to requests to submit
bids.
The principal customers for ERW pipe produced at the Camrose Facility are in
the provinces of Alberta and British Columbia, where most of Canada's natural
gas and oil is located, as well as the northwestern United States. The primary
customers for this product are oil and natural gas companies who utilize ERW for
gathering lines to supply their product to feed the larger distribution
pipelines.
CF&I Steel Division
Rail is sold directly to major railroads, rail contractors, transit districts
and short-line railroads. The primary market for the Pueblo Steel Mill's rail is
the major western railroads. The Company estimates its share of the domestic
rail market in 1993 was 43%.
OCTG is sold primarily through distributors to a large number of oil
exploration and production companies. Sales of standard and line pipe are made
both through distributors and directly to oil and gas transmission and
production companies. The market for the Company's OCTG product is primarily
domestic and focused in the western and southwestern United States. The demand
for this product is determined by the number of oil and gas drilling rigs
working in the United States. The rig count in the United States (and,
consequently, the consumption of OCTG) has been depressed in recent years.
During 1993 the Company sold its bar products to more than 300 customers,
most of which were fabricators and distributors. The majority of its customers
are regional, located primarily within the state of Colorado. Incremental costs
for transportation limit the Company's ability to ship the product out of the
region and surrounding states.
Sales of wire products are made to a large number and wide variety of
customers in the western United States. The customers are primarily in the
agricultural and construction segments. The agricultural market remains constant
but the construction market is cyclical and has been depressed.
The Company's wire rod products are sold primarily to wire drawers and
consist of a number of customers, primarily in the western United States. The
demand for wire rod is driven by wire demand and is dependent upon agricultural,
construction and to a lesser degree, the durable goods segments.
COMPETITION AND OTHER MARKET FACTORS
The Company competes in its product markets primarily on the basis of product
quality, price, and responsiveness to customer needs. Competition within the
domestic steel industry is driven by overcapacity in most products and is
intense. Domestic steel producers face significant competition from foreign
producers. The highly competitive nature of the industry, combined with
overcapacity in most products, has exerted downward pressure on the pricing of
plate, large diameter line pipe, and OCTG; the Company expects this to continue
into 1994.
5
Oregon Steel Division
Some of the Company's steel plate competitors are larger, have greater
capital resources than the Company and have modern technology and relatively low
labor and raw material costs. Principal competitors in the commodity steel plate
market include Geneva Steel Corporation, located in Utah, IPSCO, located in
Saskatchewan, Canada, and several other foreign producers. Principal competitors
in the market for specialty steel plate include Lukens Steel Company, U.S. Steel
Corporation and several foreign producers.
Steel plate producers in the western United States have faced competition in
past years from foreign producers, including producers in Japan, certain members
of the European Economic Community, Korea, Brazil and Canada. The effects of
foreign competition were mitigated in recent years by the decline and continued
weakness of the U.S. dollar relative to several foreign currencies and strong
demand for steel plate in foreign countries, particularly the Far East. The
Company believes that its efforts in increasing productivity, reducing
production costs and shifting into higher margin product niches should enable
the Company to compete effectively with both foreign and domestic producers even
if the dollar strengthens relative to foreign currencies.
The Company believes that competition in the market for large diameter steel
pipe is based primarily on quality, price and responsiveness to customer needs.
The Company competes on a global basis and believes its ability to manufacture
pipe of sufficiently high quality will enable it to compete effectively.
Principal domestic competitors in the large diameter steel pipe market at
this time are Berg Steel Pipe Corporation, located in Florida, and Bethlehem
Steel Corporation, located in Pennsylvania. International competitors consist
primarily of Japanese and European pipe producers. The principal Canadian
competitor is IPSCO, located 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, which has
declined in recent years.
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. In recent
years, the drilling rig count has been at a low level and consequently the
demand for ERW pipe has also been low. The Company believes that, as the need
for natural gas increases, the rig count will also begin to increase. Principal
competitors in the ERW product in western Canada are IPSCO located in Regina,
Saskatchewan and Prudential located in Calgary, Alberta.
CF&I Steel Division
The majority of current rail requirements in the United States revolves around
replacement rail for existing rail lines. Consequently, domestic rail demand is
projected to be stable for the next several years. Imports have been a
significant factor in the domestic premium rail market in recent years. Premium
rail represents approximately 25 percent of the domestic market and is expected
to increase over the next few years. The Company's capital expenditure program
at CF&I will give the rail production facilities the continuous cast steel and
in-line head hardening rail capabilities necessary to compete with the level of
cost and quality available from other producers. Bethlehem Steel Corporation is
the only other domestic rail producer.
The Company's primary competitors in OCTG include a number of domestic and
foreign manufacturers, some of which have significantly greater resources than
the Company. Competition is based primarily on price and quality. The Company
enjoys a freight advantage over eastern producers in shipping to some of the
major oil drilling areas. The Company also has the flexibility to produce
relatively small volumes of specified products on short notice in response to
customer requirements. Principal domestic competitors include U.S. Steel
Corporation, Lone Star Steel and Maverick Steel.
6
The competition in bar products include a group of minimills that have a
geographical location close to the intermountain market. Most of these mills
utilize reinforcing bar as an incremental product to keep mills operating at
capacity. Market expansion into other geographical locations is not feasible
since freight is a significant factor.
The Company's market area on wire and wire rod products is considered to be
west of the Mississippi River with a primary market of the intermountain states.
The Company presently manufactures rod using an antiquated mill with a coil size
that is small compared to that of competitors. The Company will complete
construction of a new rod/bar mill during the second half of 1994 which will
produce substantially larger coils and reduce manufacturing costs. The domestic
producers range from "rod only" producers, such as Armco Steel and North Star
Steel, to dual producers of rod and wire, such as Keystone Steel and Wire and
Northwestern Steel & Wire. There are also "wire only" producers, the largest in
the western United States being Davis Wire Corporation and Tree Island Steel.
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 material disposal. The Portland and Pueblo Steel 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, has been disposed of at
substantial expense in order to comply with applicable laws and regulations.
In 1993 the Company began processing EAF dust in its
Glassification(trademark) facility at the Portland Steel Mill. It is anticipated
that in the second quarter of 1994, the Company will be recycling 100 percent of
the EAF dust produced at the Portland Steel Mill.
In 1993 the Environmental Protection Agency (EPA) concluded a site assessment
of the Portland Steel Mill. The review concluded with ranking the facility as a
medium/low corrective action priority for identified Solid Waste Management
Units. The Company intends to proceed with an internal corrective action
schedule. This schedule will include making portions of the Company's property
useable for future development. Cost of these corrective action improvements is
estimated at $1.5 million. The Portland Steel Mill received a renewed air
discharge permit in 1993 which will require additional monitoring and reporting
obligations. Some enhancements to pollution control equipment may be required.
The full scope of these expenditures, however, has yet to be determined but is
not believed to be material.
The property and building at which the Fontana Plate Mill is located are
leased to the Company (see "Properties"). The Fontana Plate Mill was formerly
part of a larger integrated steel plant (the "Mill") operated on property (the
"Mill Property") surrounding the Fontana Plate Mill. Prior to the termination of
steel production at the Mill in 1983, the Mill operator produced substances that
currently are defined as hazardous by federal and California regulations.
Hazardous substances have been detected in the soil and groundwater at a number
of specific areas within the Mill Property on the basis of inspections done by
the prior operator and by the EPA. The testing program carried out by the prior
operator and the EPA at the Mill Property has not included sampling at the
Fontana Plate Mill site. On the basis of limited testing on behalf of the
Company at the Fontana Plate Mill site, the levels of hazardous substances in
the subsurface soils and groundwater at the Fontana Plate Mill site appear to be
within permissible limits, although there can be no absolute assurance that this
is, in fact, the case. The successor to the former operator of the Mill
currently is carrying out site investigations at the Mill Property that may lead
to the identification of needed remedial action. The successor is taking these
actions pursuant to a consent order with the State of California Department of
Health Services as required by corrective action provisions of the federal
Resource Conservation and Recovery Act. The lessor of the land and building at
the Fontana Plate Mill has agreed to indemnify the Company for certain expenses
(excluding consequential damages, but including cost of clean-up and remediation
7
required by governmental agencies) resulting from the presence of hazardous
substances at the Fontana Plate Mill site other than as a result of the actions
or negligence of the Company; and the Company has agreed to indemnify such
lessor for similar expenses resulting from the presence of hazardous substances
at the Fontana Plate Mill site as a result of actions or negligence of the
Company.
The Fontana Plate Mill discharges wastewater to treatment systems. The
Company recently took over management of the water pre-treatment system from its
lessor. The system will undergo improvements to enhance its operational
efficiency and prevent discharges of water. This will result in an expected cost
of $400,000.
The Fontana Plate Mill is located within the South Coast Air Quality District
and has been identified as a significant source of air emissions. A local
emissions credit trading market has established additional rules to ensure
reduction in emissions, establishment of a trading market for excess emission
credits and continuous monitoring of these emissions. Fontana Plate Mill will be
installing equipment to meet these new requirements as well as prepare
application for a new air permit. The cost of this equipment is not expected to
exceed $200,000.
Prior to the acquisition of the Napa Facility by the Company, the prior owner
of the Napa Facility disposed of certain waste materials, including spent
sandblast materials, mill scale and welding flux, on-site. As a result of these
matters and other actions prior to the acquisition, certain metals were released
into the ground, and certain petroleum based compounds have seeped into the
ground and groundwater at the Napa Facility.
The prior owner of the Napa Facility entered into a stipulated judgment with
the County of Napa which required a site investigation of the Napa Facility and
remediation (to the satisfaction of local, regional and state environmental
authorities) of soil and groundwater contamination associated with activities
conducted at the site prior to its acquisition by the Company. As a result of
the acquisition of the Napa Facility, the Company's subsidiary, Napa Pipe
Corporation, is obligated by contract to comply with the terms and requirements
of the stipulated judgment. Proposed plans for investigating the soil and water
conditions at the Napa Facility were submitted to local, regional and state
environmental authorities in February 1988. The Company is continuing to
negotiate certain terms of these proposed plans with such environmental
authorities.
In addition to local, regional and state environmental authorities, the EPA
conducted an investigation of the Napa Facility and has taken soil and water
samples at the Napa Facility. The Company's proposed plans for investigating the
soil and water conditions at the Napa Facility were furnished to the EPA in
March 1988. While awaiting possible further response from the EPA, the Company
is proceeding with its remediation plans as described in the preceding
paragraph. In April 1992, the State of California Environmental Protection
Agency, Department of Toxic Substances Control completed a Site Screening and
recommended a low priority preliminary endangerment assessment for the Napa
Facility.
The total cost of the remedial action that may be required to correct
existing environmental problems at the Napa Facility, including remediation of
contaminants in the soil and groundwater, depends on the eventual requirements
of the relevant regulatory authorities. As of December 31, 1993, the Company has
expended $6.4 million and has reserved an additional $3.1 million to cover
future costs arising from environmental issues relating to the site.
CF&I has accrued a reserve of $36.7 million for environmental remediation at
the Pueblo Steel Mill site. CF&I's estimate of this environmental reserve was
based on two separate remediation investigations and feasibility studies
conducted by independent environmental engineering consultants. The estimated
costs were based on current technologies and presently enacted laws and
regulations. The reserve includes costs for RCRA (Resource Conservation and
Recovery Act) facility investigation, corrective measures study, remedial
action, and operation and maintenance of the remedial actions taken. CF&I has an
agreement with the State of Colorado for the remediation of environmental
issues. The agreement specifies a schedule for corrective action and a yearly
expenditure amount. The State of Colorado anticipated that the schedule would be
reflective of a straight line rate of expenditures over 30 years. The State of
Colorado stated the schedule for corrective action could be accelerated if new
data indicated a greater threat to the environment than is currently known to
exist.
8
In November 1990 the President signed into law the Clean Air Act Amendments
of 1990. This law has imposed new responsibilities on many industrial sources of
air emissions, including plants owned by the Company. The Company cannot
determine at this time the financial impact of the new law. The impact will
depend on a number of site-specific factors, including the quality of the air in
the geographical area in which a plant is located, rules to be adopted by each
state to implement the law, and future EPA rules specifying the content of state
implementation plans. The Company anticipates that it will be required to make
additional expenditures, and will be required to pay higher fees to governmental
agencies, as a result of the new law and future state laws regulating air
emissions. In addition, the monitoring and reporting requirements of the new law
will subject all air emissions to increased regulatory scrutiny.
The Company's future expenditures for installation of environmental control
facilities, remediation of environmental conditions existing at its properties
and other similar matters are difficult to predict. Environmental legislation
and regulations and related administrative policies, have changed rapidly in
recent years. It is likely that the Company will be subject to increasingly
stringent environmental standards in the future (including those under the Clean
Water Act Amendments of 1990 stormwater permit program, and toxic use reduction
programs), and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis.
EMPLOYEES
As of December 31, 1993, the Company had 3,060 full-time employees. At the
Pueblo Steel Mill, 1,360 employees work under a collective bargaining agreement
with the United Steelworkers of America. The contract was negotiated in March of
1993 and will expire in September of 1997. The remainder of the Company's
domestic employees, approximately 1,450, are paid on a salary basis and are not
represented by a union. Approximately 225 employees of the Camrose Facility are
members of the Canadian Autoworkers Union. The contract was renegotiated in
January of 1994 and expires on January 31, 1997. The Company believes it has a
good relationship with its employees.
The domestic employees of the Oregon Steel Division participate in an
Employee Stock Ownership Plan ("ESOP") program. The ESOP currently owns 14% of
the Company's Common Stock. 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 which permits eligible employees to share in the
pre-tax profits of their division unit.
ITEM 2. PROPERTIES
Oregon Steel Division
The Portland Steel Mill is located on approximately 147 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 one electric arc furnace and ladle metallurgy stations,
slab casting equipment and a plate rolling mill. The Company's 24,500 square
foot office building and its steel mill facilities occupy approximately 84 acres
of the site. The remaining 63 acres consist of two waterfront sites totaling 59
acres and a four acre site. The adjacent water channel accommodates ocean-going
vessels. The Company's heat treating facilities are located near its principal
facilities on a five acre site owned by the Company. In addition, the Company
owns 74 acres of industrial property nearby, of which 44 acres are leased.
The Company owns approximately 152 acres in Napa, California. The Company's
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
partially leased on a short-term basis.
9
Camrose Pipe Company owns 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.
The land and buildings at the Fontana Plate Mill are leased to the Company
under a net lease (the "Lease"). The Company entered into the Lease in November
1989, and concurrently purchased from the lessor the machinery comprising the
steel plate rolling mill for a purchase price of approximately $7.5 million. The
lessor also owns certain property and buildings adjacent to the Fontana Plate
Mill (which, together with the property leased to the Company, is referred to as
the "Lessor Property") where it conducts steel slab processing operations. The
Fontana Plate Mill and the Lessor Property are surrounded by the Mill Property,
which is owned by the successor to the former operator of the Mill.
The Lease is for a ten-year term ending on December 31, 1999, and provides
for an extension of up to three years at the Company's option if, before
November 16, 1992, the Company incurs costs in excess of $5.0 million in
connection with the construction of new slab reheating furnaces at the Fontana
Plate Mill. This requirement was met and the Company extended its lease for an
additional three year period until December 31, 2002. The Lease permits either
the Company or the lessor to terminate the Lease if at any time: (i) the lessor
terminates substantially all of its slab processing operations at the Lessor
Property; (ii) the lessor is no longer the beneficial owner of a controlling
interest in the Lessor Property or the buildings and improvements thereon; or
(iii) either of two specified foreign affiliates of the lessor shall no longer
beneficially own an equity interest in the lessor; provided that, if terminated
by the lessor, the termination date will be on the first anniversary of the date
of lessor's exercise of the termination option but in no event prior to November
16, 1999. The Lease also permits either the Company or the lessor to terminate
the Lease if (i) the lessor terminates substantially all of its slab processing
operations on the Lessor Property, (ii) neither the lessor nor any person who
manufactures any product manufactured by the Company or any of its subsidiaries
beneficially owns any interest in the Lessor Property and (iii) neither the
lessor nor any person who manufactures any product manufactured by the Company
or any of its subsidiaries beneficially owns any interest in the buildings or
improvements located on the Lessor Property; provided that, if terminated by the
lessor, the termination date will be on the first anniversary of the date of the
lessor's exercise of the termination option but in no event prior to November
16, 1994, and provided further that the Company will be entitled to payment from
the Lessor of certain unamortized capital improvement costs if such termination
occurs prior to November 16, 1999. The Lease also permits termination by either
the Company or the lessor, effective on the first anniversary of the date of
exercise of the termination option (notwithstanding any extension of the term of
the lease by the Company), if the Company discontinues substantially all its
operations at, or no longer holds a controlling interest in, either the Napa
Facility or the rolling mill machinery at the Fontana Plate Mill. The lessor
also may terminate the Lease upon 30 days' written notice, if the Company
removes the rolling mill machinery from the Fontana Plate Mill site. The lease
payment is subject to annual increases based on increases in the consumer price
index. The rental payment under the lease during 1993 was $1.3 million.
CF&I Steel Division
The Pueblo Steel Mill is located in Pueblo, Colorado on approximately 574
acres. The operating facilities principally consist of two electric arc furnaces
for production of all raw steel, a 6-strand continuous billet caster and a
6-strand continuous round caster for producing semi-finished steel, and five
finishing mills for conversion of semi-finished steel to a finished steel
product. These finishing mills consist of a rail mill, seamless tube mill, an
11" bar mill, rod mill and a wire mill. During 1993 the Company began a major
capital improvement program of CF&I. This program includes the installation of a
new bar mill reheat furnace, new rod mill, a continuous caster and the upgrading
of the steelmaking facilities with a new arc furnace, ladle furnace and vacuum
degassing system. See Management Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources.
10
The production capacities at the Company's facilities are effected by
product mix. At December 31, 1993, the Company had the following nominal
capacities:
CAPACITY PRODUCTION
(TONS) (TONS)
--------- ----------
Portland Steel Mill: Melting ......................... 800,000 800,000
Rolling ......................... 450,000 372,200
Fontana Plate Mill: Rolling ......................... 750,000 331,600
Napa Facility: Steel Pipe ...................... 350,000 133,700
Camrose Facility: Steel Pipe ...................... 326,000 154,000
Pueblo Steel Mill: Melting ......................... 1,000,000 913,500
Finishing Mill .................. 1,500,000 828,800
At December 31, 1993, all properties of the Company except for those of
Camrose Pipe Company are free of any major encumbrances, liens or mortgages.
The assets of Camrose are subject to a bank lien securing the operating credit
facility.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon during the fourth quarter of 1993.
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, his age as of February 24,
1994, 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
- ---- --- --------- --------------
Thomas B. Boklund 54 Chairman of the Board of Directors
and Chief Executive Officer July 1985
Robert J. Sikora 51 President and Chief Operating
Officer February 1992
L. Ray Adams 43 Vice President of Finance and
Secretary March 1991
Christopher D. Cassard 40 Treasurer January 1994
Joe E. Corvin 49 Vice President and General Manager
of Portland Steel Mill February 1992
Edward J. Hepp 48 Vice President of Marketing September 1991
Richard J. Kasten 49 Vice President of Quality
and Metallurgy February 1992
Jack C. Longbine 47 Vice President of Employee Resources February 1992
Robert R. Mausshardt 61 Vice President of Marketing, Tubular
Products March 1984
James R. McCaughey 64 Vice President and General Manager
of Napa Facility April 1989
Steven M. Rowan 48 Vice President of Materials
and Transportation February 1992
Each of the executive officers named above has been employed by the Company
in an executive or managerial role for at least five years, except Edward J.
Hepp and Christopher D. Cassard. Mr. Hepp joined the Company in September of
1991. From 1972 until 1991 he was with Lukens Steel Company where his last
position was Manager of Product Sales. Mr. Cassard joined the Company in August
of 1992 as Assistant Treasurer. From 1990 to 1992 he was a consultant on various
finance projects for privately-held companies and from 1989 to 1990 was Chief
Financial Officer for Columbia Vista Corporation.
11
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, 1993, the number of common stockholders of record was 951.
Information on quarterly dividends and common stock prices is shown on page
19 and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA AMOUNTS)
INCOME STATEMENT DATA:
Sales ................................................. $ 679,823 $397,722 $489,357 $331,234 $230,192
Cost of sales ......................................... 608,236 316,455 386,517 252,036 173,324
Selling, general and administrative expenses .......... 41,447 29,785 28,910 21,610 14,331
Contributions to employee stock ownership plans ....... 753 3,501 5,002 4,001 3,001
Profit participation .................................. 4,527 10,510 14,284 11,362 7,624
---------- -------- -------- -------- --------
Operating income .................................... 24,860 37,471 54,644 42,225 31,912
Other income (expense), net ........................... (3,421) 955 1,591 (100) 1,461
Settlement of litigation .............................. 2,750 (5,040) -- -- --
Minority interest ..................................... (1,996) 1,097 -- -- --
Income tax expense .................................... (7,388) (14,506) (20,770) (15,990) (11,879)
---------- -------- -------- -------- --------
Net income .......................................... $ 14,805 $ 19,977 $ 35,465 $ 26,135 $ 21,494
========== ======== ======== ======== ========
COMMON STOCK INFORMATION:
Per common share:
Primary and fully diluted net
income per common and
common equivalent share ........................... $.75 $1.04 $1.89 $1.64 $1.37
Cash dividends declared ............................. $.56 $.56 $.50 $.42 $.40
Weighted average common shares and
common equivalents outstanding ...................... 19,822 19,183 18,735 15,959 15,690
BALANCE SHEET DATA:
Working capital ....................................... $ 139,461 $ 99,444 $122,780 $ 38,946 $ 45,724
Total assets .......................................... 549,670 354,252 323,529 246,749 167,854
Current liabilities ................................... 116,322 55,522 43,298 86,008 27,823
Long-term debt ........................................ 76,487 -- 3,417 5,204 6,920
Total stockholders' equity ............................ 275,242 257,515 245,006 137,078 114,632
OTHER DATA:
Total tonnage sold:
Oregon Steel Division (1):
Plate products .................................... 436,200 379,700 344,100 336,600 300,100
Pipe products ..................................... 323,700 285,600 418,600 212,900 93,000
Semi-finished products ............................ 18,400 -- -- -- --
---------- ------- ------- ------- -------
778,300 665,300 762,700 549,500 393,100
CF&I Steel Division ................................. 624,700 -- -- -- --
---------- ------- ------- ------- -------
1,403,000 665,300 762,700 549,500 393,100
========== ======= ======= ======= =======
Operating margin ...................................... 3.7% 9.4% 11.2% 12.7% 13.9%
Operating income per ton sold ......................... $17.72 $56.32 $71.65 $76.84 $81.18
- ----------
(1) The Oregon Steel Division consists primarily of the operations of Oregon Steel Mills, Inc.,
Napa Pipe Corporation, Oregon Steel Mills -- Fontana Division, Inc., and Camrose Pipe Company.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
sales represented by selected income statement items and information regarding
selected balance sheet data:
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
---- ---- ----
INCOME STATEMENT DATA:
Sales ........................................ 100.0% 100.0% 100.0%
Cost of sales ................................ 89.4 79.6 79.0
Selling, general and administrative expenses . 6.1 7.5 5.9
Contribution to employee stock ownership plan .1 .9 1.0
Profit participation ......................... .7 2.6 2.9
---- ----- -----
Operating income ........................... 3.7 9.4 11.2
Interest and dividend income ................. .1 .2 .4
Interest expense ............................. (.6) -- --
Other income (expense), net .................. -- -- (.1)
Settlement of litigation ..................... .4 (1.3) --
Minority interest ............................ (.3) .3 --
---- ---- ----
Pretax income .............................. 3.3 8.6 11.5
Income tax expense ........................... (1.1) (3.6) (4.3)
---- ---- ----
Net income ................................. 2.2% 5.0% 7.2%
==== ==== ====
BALANCE SHEET DATA (AT DECEMBER 31):
Current ratio ................................ 2.2:1 2.8:1 3.8:1
Long-term debt as a percent of capitalization 21.7% -- 1.4%
Net book value per share ..................... $14.23 $13.41 $12.90
The following table sets forth by division for the periods indicated tonnage
sold, revenues and average selling price per ton:
TOTAL TONNAGE SOLD:
Oregon Steel Division
Plate products ............................. 436,200 379,700 344,100
Pipe products .............................. 323,700 285,600 418,600
Semi-finished products ..................... 18,400 -- --
--------- ------- -------
778,300 665,300 762,700
CF&I Steel Division .......................... 624,700 -- --
--------- ------- -------
1,403,000 665,300 762,700
========= ======= =======
REVENUES (IN THOUSANDS):
Oregon Steel Division ........................ $415,165 $397,722 $489,357
CF&I Steel Division .......................... 264,658 -- --
-------- -------- --------
Total ...................................... $679,823 $397,722 $489,357
======== ======== ========
AVERAGE SELLING PRICE PER TON:
Oregon Steel Division $533 $598 $642
CF&I Steel Division $424 -- --
Average $485 $598 $642
The Company's long-range strategic plan has been to provide stability for its
operating facilities through expanding its product mix and markets to minimize
the impact of product cycles in the domestic large diameter pipe product
produced at the Napa Facility. The domestic market for large diameter pipe
declined significantly during 1993 from that experienced in prior years. The
Napa Facility shipped 168,300 tons in 1993 compared to 255,100 tons in 1992 and
418,600 tons in 1991; domestic shipments will decline further in 1994. The
Company believes that the decline in the domestic large diameter pipe market
will continue beyond 1994, quite possibly to the end of the decade.
13
In an effort to decrease the Company's reliance on the domestic large
diameter steel pipe market and provide additional end uses for its steel plate,
the Company purchased an interest in the Camrose Facility. During the last six
months of 1992 and for all of 1993, the Camrose Facility shipped 30,000 tons and
155,400 tons respectively of steel pipe. The Company believes there will
continue to be opportunities in Canada for steel pipe as the large reserves of
natural gas in western Canada continue to be developed during the next several
years. To expand the Company's steel product lines and enter new geographic
areas, the Company purchased its 95.2 percent interest in CF&I. During 1993,
CF&I shipped 624,700 tons and generated $264.7 million in revenue.
In November of 1993 the Company's Napa Facility was awarded a contract from
the Petroleum Authority of Thailand to produce and ship 133,000 tons of large
diameter pipe during 1994. The Company has also been awarded a contract from
British Gas to provide large diameter pipe for a severe sour gas service
pipeline offshore in Tunisia. The Company believes the international market for
large diameter oil and gas transmission pipe could provide signficant
opportunities over the next few years.
The Company's capital expenditures at the Portland Steel Mill over the last
five years have been committed to increasing the Company's ability to produce
high quality, specialty steel plate. In 1993 the Company installed a vacuum
degassing unit at the Portland Steel Mill which will enable it to produce the
highest quality steel plate and line pipe steels. The installation of this
technology will also enable the Company to be a viable supplier to the
international large diameter pipe market. In addition, the Company expanded the
capacity of the heat treating facility at the Portland Steel Mill from 60,000 to
90,000 tons and completed installation of a new leveler in February of 1994. The
Company believes these capital expenditures will further enhance its ability to
produce high quality, specialty steel plate and focus on increasing its share of
this market.
The capital expenditure program at CF&I began in November of 1993 with the
ground breaking for the rod/bar mill modernization. This modernization is
expected to be completed during the third quarter of 1994. During 1994 the steel
making facilities at CF&I will be upgraded with the installation of a ladle
metallurgy station, a vacuum degassing unit, elimination of ingot casting for
the rail mill, and conversion of existing casters to provide continuous cast
steel for all products. These upgrades are expected to be completed and
operational at the end of 1994. The Company believes it will realize significant
yield improvements and cost reduction when this phase of the capital expenditure
plan is completed. Future expenditures at CF&I will include modifications to the
rail mill and installation of in-line head hardening for rails.
The Company expects raw material costs such as scrap and alloys to remain
high during 1994. The Company implemented price increases on most of its
products in the fourth quarter of 1993 and the first quarter of 1994 to
partially offset increased raw material costs. The Company does not expect that
the pricing environment for steel plate, large diameter pipe and steel rail
products will improve significantly from current levels during 1994. Pricing in
the Company's other steel products will be affected by the competitive
environment in the respective product markets.
COMPARISON OF 1993 TO 1992
Sales. Sales in 1993 of $679.8 million increased 70.9 percent from sales of
$397.7 million in 1992. Tonnage shipments increased 110.9 percent to 1.4 million
tons in 1993 from 665,300 tons in 1992. Selling prices in 1993 averaged $485 per
ton versus $598 in 1992. Of the $282.1 million sales increase, $441 million was
the result of volume increase offset by $158.9 million of lower average selling
prices.
The increase in sales and shipments was primarily due to the inclusion of the
operations of CF&I and a full year contribution from 60 percent owned Camrose
Facility which was formed on June 30, 1992. The decrease in selling price was
primarily due to a decline in large diameter steel pipe shipments from the Napa
Facility (168,300 tons in 1993 versus 255,100 tons in 1992) and a larger
percentage of CF&I's product mix to total sales and shipments. On average CF&I's
products have a lower selling price than steel plate and large diameter pipe
products.
14
Gross Profits. Gross profits as a percentage of sales for 1993 were 10.6
percent compared to 20.4 percent for 1992. The gross profit margin decline year
to year is due to higher raw material costs, principally scrap, which could not
be completely recovered through sales price increases. During 1993 the Company
experienced an average increase of $26 per ton in scrap cost over the average
1992 cost per ton. This increase reversed the downward spiral in costs
experienced for certain raw materials during the previous two years. In
addition, the reduction of pipe production and pipe shipments in 1993 at the
Company's Napa Facility negatively impacted the Company's ability to absorb
fixed costs at both the Napa Facility and the Fontana Plate Mill, since a
majority of the Fontana Plate Mill production is shipped to the Napa Facility
for conversion into steel pipe. Decreased Napa Facility shipments also required
the Company to increase its sales of lower margin commodity steel plate products
in order to sustain the operating efficiency of the Portland Steel Mill.
Production began on a number of large pipe orders during the fourth quarter of
1993; however, the revenues related to these orders will not be recognized until
shipments begin in the first quarter of 1994.
The Company implemented price increases of $20 a ton on its steel plate
shipments, effective November 1, 1993, on all new orders and January 3, 1994 for
all tons shipped. During fourth quarter 1993, price increases of $15 a ton were
announced on bar, wire rod and certain wire products, and OCTG and line pipe
products manufactured at CF&I.
Selling, General and Administrative. Selling, general and administrative
expenses for 1993 increased $11.7 million or 39.2 percent compared with 1992 but
decreased as a percentage of sales from 7.5 percent in 1992 to 6.1 percent in
1993. The dollar amount increase is primarily a result of the Company's
acquisitions of Camrose and CF&I ($11.5 million), increased expenses related to
increased support required by the Company's growth and general inflation ($2.3
million), offset by decreased shipping costs due to reduced pipe shipments from
the Company's Napa Facility ($2.1 million). The percentage decrease is due
primarily to the increased sales volume in 1993.
Contribution to ESOP and Profit Participation. The contribution to the ESOP
was $753,000 in 1993 compared with $3.5 million in 1992. Profit Participation
Plan expense was $4.5 million for 1993 compared with $10.5 million for 1992.
These reductions are a result of the decreased profitability of the Company in
1993 versus 1992.
Interest and Dividend Income. Interest and dividend income on investments was
$.9 million in 1993 compared with $.7 million in 1992. This increase was
primarily the result of an increase in average cash and cash equivalent balances
available for investment and an increase in average interest rates during 1993
compared with 1992.
Interest Expense. Total interest cost for 1993 was $5.7 million, an increase
of $5.4 million compared to 1992. This increase was primarily related to
interest cost incurred on debt issued by CF&I for its purchase of substantially
all the assets of CF&I Steel Corporation. Of the $5.7 million of interest cost,
$1.7 million was capitalized as part of construction in progress.
Settlement of Litigation. The $2.8 million recovery from settlement of
litigation was received from the Company's excess liability insurance carrier in
the second quarter of 1993 and related to former employee lawsuits which were
settled in the fourth quarter of 1992 (see Note 9 to the consolidated financial
statements).
Income Tax Expense. The Company's effective income tax rate for state and
federal taxes was 33.3 percent for 1993 compared to 42.1 percent for 1992. The
effective income tax rate for both periods varied from the combined state and
federal statutory rates due to utilization of carryforward tax credits against
state income taxes and deductible dividends paid on stock held by the ESOP and
paid to ESOP participants. The higher effective income tax rate in 1992 resulted
primarily because the litigation settlement expense of $5 million was treated as
a nondeductible item for tax purposes. In 1993 the insurance recovery of $2.8
million related to the 1992 litigation settlement was treated as a nontaxable
item (see Note 6 to the consolidated financial statements).
15
COMPARISON OF 1992 TO 1991
Sales. Sales in 1992 of $397.7 million declined 18.7 percent from sales of
$489.4 million in 1991. Tonnage shipments decreased 12.8 percent to 665,300 tons
in 1992 from 762,700 tons in 1991. Selling prices in 1992 averaged $598 per ton
versus $642 in 1991. Of the $91.7 million sales decrease, 32 percent was the
result of lower selling prices and 68 percent was the result of volume
decreases.
The decrease in tonnage sold is the result of the decline in large diameter
pipe shipments from the Company's Napa Facility (255,100 tons in 1992 versus
418,600 tons in 1991). The decline in pipe sales was also partially the result
of the Company not being able to ship at December 31, 1992, 39,400 tons of large
diameter steel pipe that had been produced under contract at the Napa Facility.
Because the steel pipe had not been shipped, revenue of $36.5 million associated
with the production was not recognized until fiscal 1993 when the steel pipe was
shipped. In 1991 this facility produced a greater tonnage volume of large
diameter pipe than at any time in its history. The decrease in average sales
price was primarily the result of a decrease in the proportion of higher priced
large diameter pipe products in the Company sales mix in 1992 compared to 1991.
Gross Profits. Gross profits as a percentage of sales for 1992 were 20.4
percent compared to 21 percent for 1991. These margins were approximately the
same year to year despite a decline in the average per ton sales price in 1992
($598) versus 1991 ($642). This is a result of a decline in per ton production
costs in 1992 at the Portland Steel Mill (principally because of lower scrap
costs) and the Napa Facility from those costs experienced in 1991. In 1991 the
Napa Facility experienced production problems associated with certain pipeline
projects, which resulted in higher than normal reworked and downgraded steel
pipe. These production problems were corrected during 1991. In addition, during
1991, the Company purchased substantial quantities of steel plate for forming
into steel pipe from outside suppliers at a cost significantly above its
internal cost of production. No significant quantities of plate were purchased
from outside suppliers during 1992. The Company estimated the reworking and
downgrading of the steel pipe and purchased plate decreased the Company's gross
profit margin in 1991 by approximately $10 million from what it otherwise would
have been. Margins for 1992 were also negatively impacted due to limited pipe
shipments from the Camrose Facility, whose results of operations were included
beginning on June 30, 1992.
Selling, General and Administrative. Selling, general and administrative
expenses for 1992 increased $.9 million or 3 percent compared with 1991 and
increased as a percentage of sales from 5.9 percent in 1991 to 7.5 percent in
1992. The dollar amount increase is primarily a result of an increase in legal
expense relating to litigation, the inclusion of expenses from the newly
acquired Camrose Facility and general inflation. The percentage increase is due
primarily to the decreased sales volume in 1992.
Contribution to ESOP and Profit Participation. The contribution to the ESOP
was $3.5 million in 1992, compared to $5 million in 1991. Profit Participation
Plan expense was $10.5 million for 1992 compared with $14.3 million for 1991.
These reductions are a result of the decreased profitability of the Company in
1992 versus 1991.
Interest and Dividend Income. Interest and dividend income on investments was
$.7 million in 1992 compared with $1.9 million in 1991. This decrease was
primarily the result of a decline in average cash and cash equivalent balances
available for investment and a decline in average interest rates during 1992
compared with 1991.
Interest Expense. Total interest cost for 1992 was $.3 million, a decrease of
$1.1 million compared to the comparable period in 1991. This decrease was due to
a reduction in the amount of short-term borrowings and lower interest rates. All
interest costs incurred in 1992 were capitalized as part of construction in
progress.
Settlement of Litigation. During the fourth quarter of 1992, the Company
recorded a net charge of $5 million related to the settlement of former employee
lawsuits (see Note 9 to the consolidated financial statements).
16
Income Tax Expense. The Company's effective income tax rate for state and
federal taxes was 42.1 percent for 1992 compared with 37 percent for 1991. The
effective income tax rate for both periods varied from the combined state and
federal statutory rates due to utilization of carryforward tax credits against
state income taxes and deductible dividends paid on stock held by the ESOP and
paid to ESOP participants. The increased effective income tax rate in 1992
resulted because the $5 million litigation settlement expense was treated as a
nondeductible item (see Note 6 to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
Positive cash flow from 1993 operations was $44.5 million compared to a
positive cash flow of $48.4 million in the corresponding 1992 period. The major
items affecting this $3.9 million decrease were positive cash flows from
increased depreciation and amortization ($5.1 million), increased minority
interest earnings ($2 million), less funds required for payment of income and
other taxes ($7.3 million), and less payments made on trade accounts payable and
accrued expenses ($34.7 million). These positive cash flows were offset by
reduced net income ($5.2 million), reduced ESOP contributions ($2.8 million),
increased trade accounts receivable ($34.2 million), and increased inventories
($12.4 million).
Net working capital at December 31, 1993 increased $40 million from December
31, 1992 due to a $100.8 million increase in current assets offset by a $60.8
million increase in current liabilities. Trade accounts receivable increased
from $23.9 million at the end of 1992 to $71.6 million at December 31, 1993. The
increase is primarily a result of the inclusion of CF&I sales for the first time
in 1993. The December 31, 1993 inventory increase and the increase in current
liabilities are primarily due to the addition of inventories, accounts payable
and current portion of long-term debt as a result of the CF&I acquisition.
The Company maintains an unsecured revolving credit and term loan agreement
(Credit Agreement) with two banks which enables the Company to borrow up to $75
million. The use of the proceeds from borrowings under this Credit Agreement is
restricted to (1) investing in businesses and related equipment in the steel
industry and certain other industries, and (2) working capital and general
corporate purposes. On July 1, 1996, the outstanding balance will be converted,
unless prepaid, to a term loan payable in sixteen equal quarterly installments
through June 30, 2000. Annual commitment fees during the revolving loan period
are 1/8 of 1 percent of the average daily unused portion of the available credit
payable on a quarterly basis. Depending on the Company's election at the time of
borrowing, interest will be payable based on either (1) the prime rate, (2) the
certificate of deposit rate, (3) the federal funds rate or (4) the Eurodollar
rate as specified in the Credit Agreement. At December 31, 1993, $16.7 million
was outstanding under this credit facility and classified as noncurrent.
The Company has a $15 million unsecured revolving line of credit facility
with a bank which matures May 31, 1994. Depending on the Company's election at
the time of borrowing, interest will be payable based on either the prime rate
or the federal funds rate, fully floating in either case. At December 31, 1993,
there were no amounts outstanding under this credit facility. However, $15
million was restricted under outstanding letters of credit. In addition, the
Company has a $5 million unsecured revolving credit line with a bank which is
restricted to use for letter of credit obligations and cash advances for up to
90 days.Interest rates applicable to such advances, if any, will be set at the
time of borrowing. At December 31, 1993, $3.2 million was restricted under
outstanding standby letters of credit, and there were no loan amounts
outstanding.
Camrose Pipe Company (a 60 percent owned subsidiary) maintains a $10 million
revolving credit facility with a bank, the proceeds of which may be used for
working capital and general corporate purposes. The facility is collateralized
by the assets of Camrose Pipe Company and expires on October 31, 1994. Depending
on Camrose Pipe Company's election at the time of borrowing, interest will be
payable based on (1) the bank's Canadian dollar prime rate, (2) the bank's
United States dollar prime rate, or (3) the London Interbank Borrowing Rates
("LIBOR"). As of December 31, 1993, Camrose Pipe Company had $4.2 million
outstanding under the facility.
17
CF&I maintains a $15 million revolving credit facility with a bank, the
proceeds of which may be used for working capital and general corporate
purposes. The facility is collateralized by the accounts receivables of CF&I and
expires on May 24, 1994. Depending on CF&I's election at the time of borrowing,
interest will be payable based on either the bank prime rate or LIBOR. As of
December 31, 1993, CF&I had $10 million outstanding under this facility.
CF&I issued a $67.5 million term note as part of the purchase price of the
assets of CF&I Steel Corporation on March 3, 1993. This debt, which is
unsecured, is payable over ten years, plus interest at 9.5 percent. The Company
has agreed to guarantee the payment of the first 25 months' installment cash
payments. At December 31, 1993, the Company's remaining commitment under this
guarantee is $13.1 million. As of December 31, 1993, the outstanding balance on
this debt is $64.5 million, of which $59.8 million is classified as noncurrent.
The Company has started a $180 million capital spending program at its CF&I
Steel Division. In 1993 approximately $20 million was expended as progress
payments on the major components of the project including the installation of a
new bar mill reheat furnace, new rod mill, a continuous caster and the upgrading
of the steelmaking facilities with a new ladle furnace and vacuum degassing
system. The Company expects to expend $110 million on the capital program at
CF&I in 1994.
The Company has also budgeted approximately $21 million for capital
expenditures at its Oregon Steel Division manufacturing facilities. The Company
expects to spend approximately $1 million at the Portland Steel Mill to complete
its vacuum degassing and heat treating facility projects. The remaining Portland
Steel Mill and Fontana Plate Mill $12 million capital budget will be used for
several recurring upgrade projects to the present facilities and equipment. The
Company's capital budget for the Napa Facility was increased to $8 million to
prepare the pipe mill for anticipated increased production. Approximately $17
million of the total $21 million budget is planned to be expended in 1994. About
$20 million was expended on capital projects such as vacuum degassing, heat
treat leveler, and baghouse dust recycling plant at the Company's Oregon Steel
Division in 1993.
The Company's total capitalization at December 31, 1993 of $351.7 million
consisted of $76.5 million in long-term debt and $275.2 million in stockholders'
equity, for a long-term debt-to-capitalization ratio of .22 to 1. Net book value
per share of common stock at December 31, 1993 was $14.23 per share versus
$13.41 per share at December 31, 1992. The Company believes that anticipated
needs for working capital and capital expenditures through 1994 will be met from
existing cash balances, funds generated by operations, borrowings pursuant to
the Company's revolving credit facility and short-term borrowing.
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 cost
to its customers. Property, plant facilities and equipment purchased by the
Company in prior years have been subject to inflation; consequently, current
charges to depreciation are smaller than would be required if such assets were
valued at replacement cost.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA -- Unaudited
1993 1992
------------------------------- -------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Sales (1) .................. $152.5 $174.2 $204.1 $149.0 $55.4 $90.7 $125.1 $126.6
Operating income (loss) .... (1.5) 1.9 12.1 12.3 (.5) 4.4 16.6 17.0
Net income (loss) .......... (1.2) __ 9.2 6.8 (4.7) 3.4 10.5 10.8
Net income (loss) per share. $(.06) __ $.46 $.35 $(.25) $.18 $.55 $.56
Dividends declared per
common share ............. $.14 $.14 $.14 $.14 $.14 $.14 $.14 $.14
Common stock price range:
High ..................... $25-1/4 $22-3/4 $25-5/8 $27-1/2 $25-5/8 $23-1/2 $28-3/4 $26-1/2
Low ...................... $20-7/8 $17-1/2 $20-1/8 $21-3/4 $16-3/8 $18-3/4 $21-1/8 $18-5/8
Average shares outstanding . 19.8 19.7 19.7 19.4 19.2 19.2 19.2 19.1
- ----------
(1) Fourth quarter 1992 decline in sales reflects 39,400 tons of large diameter steel pipe produced
under contract at the Napa Facility but not shipped at December 31, 1992, (see Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Comparison of 1992
to 1991.)
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Oregon Steel Mills, Inc.
We have audited the accompanying consolidated balance sheets of Oregon Steel
Mills, Inc. and Subsidiaries as of December 31, 1993, 1992 and 1991 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Oregon Steel
Mills, Inc. and Subsidiaries as of December 31, 1993, 1992 and 1991, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 6 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1992 and
postretirement benefits in 1991.
COOPERS & LYBRAND
Portland, Oregon
February 11, 1994
20
OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Current assets:
Cash and cash equivalents .......................... $ 9,623 $ 5,177 $ 14,674
Trade accounts receivable, less allowance for
doubtful accounts of $1,906, $926 and $770 ....... 71,649 23,900 42,462
Inventories ........................................ 160,504 113,253 101,432
Other current assets ............................... 9,203 9,003 3,763
Deferred tax asset ................................. 4,804 3,633 3,747
-------- -------- --------
Total current assets ............................. 255,783 154,966 166,078
Property, plant and equipment:
Land and improvements .............................. 24,466 21,652 17,885
Buildings .......................................... 35,821 32,180 21,801
Machinery and equipment ............................ 240,348 197,492 150,619
Construction in progress ........................... 34,605 19,756 25,252
-------- -------- --------
335,240 271,080 215,557
Accumulated depreciation ........................... (104,300) (84,287) (70,916)
-------- -------- --------
230,940 186,793 144,641
Excess of cost over net assets acquired .............. 40,116 -- --
Other assets ......................................... 22,831 12,493 12,810
-------- -------- --------
$549,670 $354,252 $323,529
======== ======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt .................. $ 4,680 $ -- $ 1,708
Short-term debt .................................... 14,225 11,000 --
Accounts payable ................................... 75,419 34,179 28,645
Accrued expenses ................................... 19,091 9,306 9,895
Other taxes payable ................................ 2,907 1,037 3,050
-------- -------- --------
Total current liabilities ........................ 116,322 55,522 43,298
Long-term debt ....................................... 76,487 -- 3,417
Deferred employee benefits ........................... 15,327 13,495 14,999
Other deferred liabilities ........................... 36,803 2,605 5,147
Deferred income taxes ................................ 16,514 14,245 11,662
-------- -------- --------
261,453 85,867 78,523
-------- -------- --------
Minority interest .................................... 12,975 10,870 --
-------- -------- --------
Commitments and contingencies (Note 9)
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; 19,348, 19,201, and 18,986 shares issued,
and outstanding .................................. 193 192 190
Additional paid-in capital ........................... 149,340 134,101 129,136
Retained earnings .................................... 128,924 124,935 115,680
Minimum pension liability adjustment ................. (297) -- --
-------- -------- --------
278,160 259,228 245,006
Cumulative foreign currency translation adjustment ... (2,918) (1,713) --
-------- -------- --------
275,242 257,515 245,006
-------- -------- --------
$549,670 $354,252 $323,529
======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
21
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
-------- -------- --------
Sales ........................................... $679,823 $397,722 $489,357
-------- -------- --------
Costs and expenses:
Cost of sales ................................. 608,236 316,455 386,517
Selling, general and administrative expenses .. 41,447 29,785 28,910
Contribution to employee stock ownership plan . 753 3,501 5,002
Profit participation .......................... 4,527 10,510 14,284
-------- -------- --------
654,963 360,251 434,713
-------- -------- --------
Operating income ............................ 24,860 37,471 54,644
Other income (expense):
Interest and dividend income .................. 921 741 1,872
Interest expense .............................. (3,988) -- --
Other income (expense), net ................... (354) 214 (281)
Settlement of litigation ...................... 2,750 (5,040) --
Minority interest ............................. (1,996) 1,097 --
-------- -------- --------
Income before income taxes .................. 22,193 34,483 56,235
Provision for income taxes ...................... 7,388 14,506 20,770
-------- -------- --------
Net income .................................. $ 14,805 $ 19,977 $ 35,465
======== ======== ========
Primary and fully diluted net income per
common and common equivalent share: ........... $.75 $1.04 $1.89
======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
22
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS)
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL PENSION CURRENCY
------------- PAID-IN RETAINED LIABILITY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT TOTAL
------ ------ ---------- -------- ---------- ----------- --------
Balances, December 31, 1990 .......... 15,978 $160 $ 47,570 $ 89,348 -- -- $137,078
Net income ........................... 35,465 35,465
Issuance of common stock to
employee stock ownership plan ...... 133 1 4,000 4,001
Issuance of common stock in public
offering ........................... 2,875 29 77,566 77,595
Dividends paid ($.50 per share) ...... (9,133) (9,133)
------ ------ ---------- -------- ---------- ----------- --------
Balances, December 31, 1991 .......... 18,986 190 129,136 115,680 -- -- 245,006
Net income ........................... 19,977 19,977
Issuance of common stock to
employee stock ownership plan ...... 215 2 4,998 5,000
Adjust prior year common stock
issuance ........................... (33) (33)
Foreign currency translation
adjustment ......................... $(1,713) (1,713)
Dividends paid ($.56 per share) ...... (10,722) (10,722)
------ ------ ---------- -------- ---------- ----------- --------
Balances, December 31, 1992 .......... 19,201 192 134,101 124,935 -- (1,713) 257,515
Net income ........................... 14,805 14,805
Issuance of common stock to
employee stock ownership plan ...... 147 1 3,499 3,500
Common stock to be issued March
2003 (598,400 shares) .............. 11,184 11,184
Warrants to purchase 100,000
shares of common stock for five
years, expiring March 3, 1998 ...... 556 556
Minimum pension liability
adjustment ......................... $(297) (297)
Foreign currenty translation
adjustment ......................... (1,205) (1,205)
Dividends paid ($.56 per share) ...... (10,816) (10,816)
------ ------ ---------- -------- ---------- ----------- --------
Balances, December 31, 1993 .......... 19,348 $193 $149,340 $128,924 $(297) $(2,918) $275,242
====== ====== ========== ======== ========== =========== ========
The accompanying notes are an integral part of the consolidated financial statements.
23
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
Cash flows from operating activities:
Net income ................................................. $ 14,805 $ 19,977 $ 35,465
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization .......................... 21,375 16,253 12,441
Deferred income taxes .................................. 2,269 3,050 (643)
Accrual for contribution of common stock to
employee stock ownership plan ........................ 750 3,500 5,000
Loss on disposal of property, plant and equipment ...... 591 958 1,336
Minority interest share of income (loss) ............... 905 (1,068) _
Other, net ............................................. 1,198 (941) (333)
Changes in current assets and liabilities net of
effect of acquisitions:
Trade accounts receivable .......................... (7,980) 26,226 (1,509)
Refundable income taxes ............................ 2,413 (3,349) --
Inventories ........................................ (19,124) (6,762) (24,705)
Other current assets ............................... (2,136) (1,618) (2,040)
Deferred tax asset ................................. (1,171) 114 (658)
Accounts payable ................................... 21,559 (1,330) (312)
Accrued expenses ................................... 7,221 (4,612) (157)
Income taxes payable ............................... -- -- (3,113)
Other taxes payable ................................ 1,870 (2,013) 1,826
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ..................................... 44,545 48,385 22,598
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment ................. (40,905) (34,281) (38,481)
Proceeds from disposal of property, plant and equipment .... 2,236 -- --
Investment in Camrose Pipe Company ......................... -- (17,972) --
Investment in CF&I Steel, L.P. ............................. (8,039) -- --
Other, net ................................................. 565 (707) 2,070
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES ...................... (46,143) (52,960) (36,411)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under revolving loan agreements .. 20,042 11,000 (41,000)
Other reductions of debt ................................... (3,033) (5,125) (1,794)
Dividends paid ............................................. (10,816) (10,722) (9,133)
Net proceeds from sale of common stock ..................... -- -- 77,595
Other, net ................................................. (42) (45) 357
-------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES ..................................... 6,151 (4,892) 26,025
-------- -------- --------
Effects of foreign currency exchange rate changes on cash .... (107) (30) --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......... 4,446 (9,497) 12,212
Cash and cash equivalents at beginning of year ............... 5,177 14,674 2,462
-------- -------- --------
Cash and cash equivalents at end of year ..................... $ 9,623 $ 5,177 $ 14,674
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest ................................................. $ 5,443 $ 547 $ 1,228
Income taxes ............................................. 4,017 15,442 23,681
NON-CASH INVESTING ACTIVITIES:
In 1991 the Company capitalized $5,231 as property, plant and equipment by increasing the
accrual for environmental costs at its Napa Facility. Additionally, land of $869, previously
classified as an other asset, was transferred to land and improvements during 1991 as it was
no longer held for sale.
During 1992 the Company's purchase of Camrose Pipe Company net assets was accomplished by
remitting $17,972 to the seller representing the Company's net 60 percent acquisition cost.
As a result, no funds were paid to, or received from, the seller for its 40 percent interest
in the facility (see Note 11).
During 1993 the Company's purchase of substantially all of CF&I Steel Corporation's net
assets was accomplished by remitting $8,039, along with other non-cash items (see Note 11).
The accompanying notes are an integral part of the consolidated financial statements.
24
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all wholly
owned and majority owned subsidiaries. Affiliates which are 20 percent to 50
percent owned are accounted for using the equity method. All material
intercompany transactions and account balances have been eliminated upon
consolidation. Operations of purchased businesses are included in the
consolidated financial statements from the date of acquisition (see Note 11).
CASH AND CASH EQUIVALENTS
The Company invests excess cash balances in short-term securities, including
corporate and municipal obligations, bank repurchase agreements, commercial
paper, remarketed preferred stock, and similar instruments which are readily
converted to known amounts of cash and are so near to maturity that they present
insignificant risk in changes in value because of changes in interest rates. The
carrying amounts approximate fair value because of the short maturity of these
instruments.
INVENTORIES
Inventories are stated at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical costs, including all
costs directly related to the acquisition or construction of, and the
preparation for, the assets' intended use, such as interest capitalized on funds
borrowed to finance the major capital additions. Such capitalized interest
amounted to $1.7 million, $318,000 and $1.4 million in 1993, 1992 and 1991,
respectively. Depreciation is determined utilizing principally the straightline
method over the estimated useful lives of the individual items. Maintenance and
repairs are expensed as incurred and costs of improvements are capitalized. Upon
disposal, related costs and accumulated depreciation are removed from the
accounts and resulting gains or losses are reflected in income.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired, principally from the acquisition of
CF&I Steel, L.P. ("CF&I"), is being amortized over 40 years using the
straight-line method.
REVENUE RECOGNITION
Revenue is recognized when the earning process is complete and an exchange
has taken place. The earning process is not considered complete until collection
of the sales price is reasonably assured.
TAXES ON INCOME
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at year end based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Tax credits are accounted for using the flow through
method which recognizes such credits in the year in which the credit arises by a
reduction to income tax expense.
As of January 1, 1992, the Company adopted the Statement of Financial
Accounting Standards No. 109, (FAS No. 109) "Accounting for Income Taxes." This
Statement supersedes existing accounting standards for income taxes which the
Company adopted in 1988 (see Note 6).
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries are translated at the rate of exchange
in effect as of the balance sheet date; income and expenses are translated at
the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the cumulative foreign currency
translation adjustment section of the consolidated balance sheet.
25
NET INCOME PER SHARE
The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding during each period
plus (in periods in which they have a dilutive effect) the effect of common
shares contingently issuable.
The weighted average number of common shares and equivalents outstanding was
19.8 million, 19.2 million and 18.7 million, respectively, in 1993, 1992 and
1991. There were no dilutive common share equivalents outstanding in any years
presented.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, investments and
trade receivables. The Company places its cash and cash equivalents and
investments with high-credit-quality financial institutions and limits the
amount of credit exposure by any one financial institution. At times temporary
cash investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. The Company's trade receivables are derived from sales to
customers. Management believes that any risk of loss is significantly reduced by
its ongoing credit evaluations of its customers' financial condition and its
requirement of collateral, such as letters of credit and bank guarantees,
whenever deemed necessary.
ENVIRONMENTAL EXPENDITURES
All material environmental remediation liabilities which are probable and
estimable are recorded in the financial statements based on current technologies
and current environmental standards with adjustments made later if additional
sources of contaminants are discovered that may require different remediation
methods and a longer remediation period, and ultimately increase the total cost.
The best estimate of the probable loss within a range is recorded. If there is
no best estimate, the low end of the range is recorded, and the range is
disclosed. In general, environmental remediation costs are charged to operating
expenses with certain limited exceptions which meet generally accepted
accounting principles' criteria for capitalization.
RECLASSIFICATIONS
Certain amounts in the 1992 financial statements have been reclassified. The
reclassifications do not affect previously reported net income.
2. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one business segment in two geographical locations,
the United States and Canada.
Geographical area information is as follows:
1993 1992
-------- --------
(IN THOUSANDS)
SALES TO UNAFFILIATED CUSTOMERS
United States.........................................$587,247 $379,714
Canada................................................ 92,576 18,008
-------- --------
$679,823 $397,722
======== ========
OPERATING INCOME (LOSS) BY GEOGRAPHIC LOCATION
United States.........................................$ 19,645 $ 39,917
Canada................................................ 5,215 (2,446)
-------- --------
$ 24,860 $ 37,471
======== ========
INCOME (LOSS) BEFORE INCOME TAXES
BY GEOGRAPHIC LOCATION
United States.........................................$ 19,192 $ 36,068
Canada................................................ 3,001 (1,585)
-------- --------
$ 22,193 $ 34,483
======== ========
IDENTIFIABLE ASSETS BY GEOGRAPHIC AREAS
United States.........................................$508,084 $314,273
Canada..................................................41,586 39,979
-------- --------
$549,670 $354,252
======== ========
26
The major industries to which the Company sells steel products are
fabricators, manufacturers, steel service centers and natural gas pipeline
companies. In 1993 the Company derived 11.8 percent of its sales from one
customer. In 1992 and 1991, the Company derived 44.9 percent and 45 percent,
respectively, of its sales from one customer. These sales were to the same
customer for 1993 and 1992, but to a different customer for 1991.
Operating income is total revenues less operating expenses. In determining
operating income, none of the following items have been included: Investment
income, interest expense, other nonoperating income (expense), settlement of
litigation, provision for income taxes and equity in income or loss from
minority interest.
3. INVENTORIES
Inventories at December 31 consist of:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Raw materials...................................$ 26,242 $ 8,326 $ 5,868
Semi-finished product........................... 51,759 29,280 41,986
Finished product................................ 62,104 61,557 39,448
Stores and operating supplies................... 20,399 14,090 14,130
-------- -------- --------
$160,504 $113,253 $101,432
======== ======== ========
4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt at December 31 is summarized as follows:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Revolving credit and term loan..................$ 16,700 $ -- $ --
CF&I term loan.................................. 64,467 -- --
Other term loans -- -- 5,125
-------- -------- --------
81,167 -- 5,125
Less current maturities 4,680 -- 1,708
-------- -------- --------
$76,487 $ -- $ 3,417
======== ======== ========
In June 1993 the Company entered into an unsecured revolving credit and term
loan agreement (Credit Agreement) with two banks which enables the Company to
borrow up to $75 million. The use of the proceeds from borrowings under this
Credit Agreement is restricted to (1) investing in businesses and related
equipment in the steel industry and certain other industries, and (2) working
capital and general corporate purposes. On July 1, 1996, the outstanding balance
will be converted, unless prepaid, to a term loan payable in sixteen equal
quarterly installments through June 30, 2000. Annual commitment fees during the
revolving loan period are 1/8 of 1 percent of the average daily unused portion
of the available credit payable on a quarterly basis. Depending on the Company's
election at the time of borrowing, interest will be payable based on either (1)
the prime rate, (2) the certificate of deposit rate, (3) the federal funds rate,
or (4) the Eurodollar rate as specified in the Credit Agreement. At December 31,
1993, $16.7 million was outstanding under the Credit Agreement and classified as
noncurrent.
Term debt of $67.5 million was incurred by CF&I as part of the purchase price
of the assets of CF&I Steel Corporation on March 3, 1993. This debt is without
stated collateral and is payable over ten years with interest at 9.5 percent.
The Company has agreed to guarantee the payment of the first 25 months
installment cash payments. At December 31, 1993, the Company's remaining
commitment under this agreement is $13.1 million. As of December 31, 1993, the
outstanding balance on this debt is $64.5 million, of which $59.8 million is
classified as noncurrent.
27
As of December 31 1993, principal payments on long-term debt are payable in
annual installments of:
1994................................................................. $ 4,680
1995................................................................. 5,016
1996................................................................. 6,193
1997................................................................. 10,126
1998................................................................. 10,704
Balance due in installments through 2003............................. 44,448
-------
$81,167
=======
SHORT-TERM DEBT
The Company has a $15 million unsecured revolving line of credit facility
with a bank which matures May 31, 1994. Depending on the Company's election at
the time of borrowing, interest will be payable based on either the prime rate
or the federal funds rate, fully floating in either case. At December 31, 1993,
there were no amounts outstanding under this credit facility. However, $15
million was restricted under outstanding letters of credit. In addition, the
Company has a $5 million unsecured revolving credit line with a bank which is
restricted to use for letter of credit obligations and cash advances for up to
90 days. Interest rates applicable to such advances, if any, will be set at the
time of borrowing. At December 31, 1993, $3.2 million was restricted under
outstanding standby letters of credit, and there were no loan amounts
outstanding.
Camrose Pipe Company (a 60 percent owned subsidiary) maintains a $10 million
revolving credit facility with a bank, the proceeds of which may be used for
working capital and general corporate purposes. The facility is collateralized
by the assets of Camrose Pipe Company and expires on October 31, 1994. Depending
on Camrose Pipe Company's election at the time of borrowing, interest will be
payable based on (1) the bank's Canadian dollar prime rate, (2) the bank's
United States dollar prime rate, or (3) the London Interbank Borrowing Rates
("LIBOR"). As of December 31, 1993, Camrose Pipe Company had $4.2 million
outstanding under the facility.
CF&I maintains a $15 million revolving credit facility with a bank, the
proceeds of which may be used for working capital and general corporate
purposes. The facility is collateralized by the accounts receivables of CF&I and
expires on May 24, 1994. Depending on CF&I's election at the time of borrowing,
interest will be payable based on either the bank prime rate or LIBOR. As of
December 31, 1993, CF&I had $10 million outstanding under this facility.
The Company's revolving credit and term loan agreements contain various
restrictive covenants which include, among other things, a minimum current
assets to current liabilities ratio, a minimum interest coverage ratio, a
minimum ratio of cash flow to scheduled maturities of long-term debt, a minimum
tangible net worth, a maximum ratio of long-term debt to total capitalization,
and restrictions on liens, investments and additional indebtedness.
The Company's short-term debt and revolving long-term credit facility are
considered to be carried at fair value due to interest being paid at current
market rates. Long-term debt is considered to be carried at fair value because
its rate of interest is based on the Company's incremental borrowing rates for
the same or similar types of borrowing arrangements.
5. ACCRUED EXPENSES
Accrued expenses at December 31 are as follows:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Accrued profit participation....................$ -- $ 1,749 $ 2,949
Other........................................... 19,091 7,557 6,946
-------- -------- --------
$ 19,091 $ 9,306 $ 9,895
======== ======== ========
28
6. INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No. 109
(FAS No. 109), "Accounting for Income Taxes," as of January 1, 1992. The
accounting change had no effect on 1992 or previously reported net income.
The provision for income taxes consists of the following:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Current:
Federal......................................$ 5,287 $ 9,162 $ 16,293
State........................................ 984 2,082 2,512
Foreign...................................... 19 -- --
-------- -------- --------
6,290 11,244 18,805
-------- -------- --------
Deferred:
Federal...................................... 124 3,932 1,372
State........................................ 163 (670) 593
Foreign...................................... 811 -- --
-------- -------- --------
1,098 3,262 1,965
-------- -------- --------
Provision for income taxes......................$ 7,388 $ 14,506 $ 20,770
======== ======== ========
The components of the deferred income tax provision are as follows:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Difference between tax and financial statement
accounting for:
Depreciation and amortization................$ 4,707 $ 2,673 $ 2,969
Inventories.................................. (239) 447 (934)
Unfunded pension liability................... (100) 126 90
Accrued vacation liability................... (1,091) -- --
Alternative minimum tax...................... (1,665) -- --
Other........................................ (514) 16 (160)
-------- -------- --------
$ 1,098 $ 3,262 $ 1,965
======== ======== ========
29
The components of the net deferred tax liability as of December 31 are as
follows:
1993 1992
-------- --------
(IN THOUSANDS)
Current deferred tax asset:
Assets
Inventories..........................................$ 2,268 $ 2,029
Accrued vacation liability........................... 1,920 829
Accounts receivable.................................. 597 384
State tax credits.................................... 196 196
Other................................................ 920 366
-------- --------
5,901 3,804
Liabilities
Other................................................ 1,097 171
-------- --------
Net current deferred tax asset...........................$ 4,804 $ 3,633
======== ========
Noncurrent deferred income taxes:
Assets
Postretirement benefits other than pensions......... $ 2,009 $ 1,124
State tax credits................................... 207 403
Alternative minimum tax............................. 1,665 --
Excess of cost over net assets acquired............. 13,282 --
Water rights........................................ 4,247 --
Other............................................... 1,076 488
-------- --------
22,486 2,015
Liabilities
Property, plant and equipment....................... 19,015 14,308
Unfunded pension liability.......................... 615 715
Environmental liability............................. 13,282 --
Other............................................... 6,088 1,237
-------- --------
39,000 16,260
-------- --------
Net deferred income taxes............................... $ 16,514 $ 14,245
======== ========
A reconciliation of the statutory tax rate to the effective tax rate on income
before income taxes is as follows:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
U.S. statutory income tax rate ................. 35.0% 34.0% 34.0%
Tax credits..................................... (1.4) (1.8) (.5)
Deduction for dividends to ESOP participants.... (2.6) (2.1) (1.3)
State income taxes.............................. 6.6 5.2 4.5
Settlement of litigation........................ (4.3) 6.1 --
Rate changes on beginning deferred taxes........ 1.8 -- --
Other........................................... (1.8) .7 .3
-------- -------- --------
33.3% 42.1% 37.0%
======== ======== ========
At December 31, 1993, the Company has available state tax credits of $403,000
for income tax purposes which expire in 1994 through 2002.
30
7. EMPLOYEE BENEFIT PLANS
U.S. 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. Pension cost included the
following components:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Service cost -- benefits earned during the year $ 3,857 $ 1,703 $ 1,185
Interest cost on projected benefit obligations.. 1,714 1,528 1,370
Actual return on plan assets.................... (4,002) (2,256) (1,831)
Net amortization and deferral................... 2,423 1,002 668
-------- -------- --------
$ 3,992 $ 1,977 $ 1,392
======== ======== ========
The following table sets forth the funded status of the plans and amount
recognized in the Company's consolidated balance sheet at December 31:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Accumulated benefit obligations, including
vested benefits of $23,589 in 1993, $17,781
in 1992, and $15,562 in 1991..................$ 26,543 $ 19,918 $ 17,629
======== ======== ========
Projected benefit obligations for participants'
service rendered to date......................$ 28,413 $ 21,987 $ 19,627
Plan assets at fair value....................... 27,380 20,464 17,031
-------- -------- --------
Projected benefit obligation in excess
of plan assets (1,033) (1,523) (2,596)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions .................... 428 2,165 2,842
Unrecognized prior service cost................. 1,156 413 471
Unrecognized net obligation at January 1, 1987
being recognized over 15 years................ 1,271 681 757
Adjustment required to recognize minimum
liability..................................... (297) -- (2,072)
-------- -------- --------
Pension asset (liability) recognized in
consolidated balance sheet....................$ 1,525 $ 1,736 $ (598)
======== ======== ========
The following table sets forth the significant actuarial assumptions as of
December 31:
1993 1992 1991
-------- -------- --------
Discount rate................................... 7.3% 8.0% 8.0%
Rate of increase in future compensation levels.. 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
Plan assets are invested in common stock and bond funds (62 percent),
marketable fixed income securities (23 percent) and insurance company contracts
(15 percent) at December 31, 1993. 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 Pipe Company employees. The plans provide benefits based
on participants' years of service and compensation. Pension costs for 1993 and
1992 were $295,000 and $146,000, respectively, for service cost benefits earned
during the year.
31
The Canadian pension plan assets acquired with the Company's 60 percent
interest in Camrose Pipe Company are held by Stelco Inc. until such time as the
transfer is approved by Canadian regulatory authorities. The present value of
those pension assets and liabilities to be transferred as of December 31 was
approximately:
1993 1992
-------- --------
(IN THOUSANDS)
Assets...................................................$ 6,337 $ 5,253
Liabilities.............................................. 5,870 5,700
-------- --------
Overfunded (underfunded) amount....................... $ 467 $ (447)
======== ========
The following table sets forth the significant actuarial assumptions as of
December 31:
1993 1992
-------- --------
Discount rate............................................ 7.3% 8.0%
Rate of increase in future compensation levels........... 5.0% 5.0%
Expected long-term rate of return on plan assets......... 8.0% 8.0%
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has an ESOP for eligible domestic employees which enables an
employee to own stock in the Company. This plan is a noncontributory qualified
stock bonus plan. Contributions to the plan are made at the discretion of the
Board of Directors. Company contributions in 1993, 1992 and 1991 were $753,000,
$3.5 million and $5 million, respectively. Shares are allocated to eligible
employees' accounts based on annual compensation. At December 31, 1993, the ESOP
held 2.8 million shares of Company common stock.
PROFIT PARTICIPATION PLANS
The Company has profit participation plans under which it distributes
quarterly 12 percent to 20 percent, depending on operating division, of its
domestic pre-tax earnings to its eligible domestic employees. The plans define
profits as pre-tax earnings from divisional operations after adjustments for
certain non-operating items. Each eligible employee receives a share of the
distribution based upon the level of the eligible employee's base compensation
compared with the total base compensation of all eligible employees of the
division.
THRIFT PLAN
The Company has a qualified Thrift Plan (401-K) for all of its eligible
domestic employees that is designed to receive and invest their deferred
compensation as provided by current laws. The Company currently matches 25
percent of the first 4 percent of the participant's deferred compensation.
Company contributions in 1993, 1992 and 1991 were $461,000, $424,000 and
$388,000, respectively.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In December 1990 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106 (FAS No. 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions." This statement requires the
accrual of benefits during the years the employee provides services to the
Company. The Company adopted this statement during the quarter ended March 31,
1991 and elected to recognize the initial postretirement benefit obligation
(i.e., the "transition obligation") of approximately $7.8 million over a period
of twenty years.
32
The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. Employees are generally eligible for
benefits upon retirement and completion of a specified number of years of
service. The benefit plans are unfunded.
The following table sets forth the health care plans' status at December 31:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees......................................$ 8,240 $ 7,155 $ 7,279
Fully eligible plan participants.............. 1,294 786 269
Other active plan participants................ 5,050 1,728 481
-------- -------- --------
$ 14,584 $ 9,669 $ 8,029
======== ======== ========
Accumulated postretirement benefit obligation
in excess of plan assets......................$(14,584) $ (9,669) $ (8,029)
Unrecognized net (gain) loss.................... 34 (450) 25
Accrued postretirement benefit cost............. 7,557 2,716 566
-------- -------- --------
Postretirement asset recognized in consolidated
balance sheet.................................$ 6,993 $ 7,403 $ 7,438
======== ======== ========
Net periodic postretirement benefit cost
include the following components:
Service cost attributed to service
during the year...........................$ 395 $ 196 $ 86
Interest cost on accumulated postretirement
benefit obligation........................ 1,017 733 665
Amortization of transition obligation....... 410 410 392
-------- -------- --------
Net periodic postretirement benefit cost........$ 1,822 $ 1,339 $ 1,143
======== ======== ========
For measurement purposes, a long-term inflation rate of 6 percent is assumed
for health care cost trend rates. However, a higher inflation rate (12 percent
in 1994) has been assumed over the next five years, based on trends related to
health care costs. The effect of a one percentage point increase in the assumed
health care cost trend rate for 1994 would increase the accumulated
postretirement benefit obligation by $610,000; the aggregate service and
interest cost would increase $65,000. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.3 percent.
8. RELATED PARTY TRANSACTIONS
The Company's 60 percent owned Camrose Pipe Company purchases steel coil and
plate under a steel supply agreement from Stelco Inc. whose wholly owned
subsidiary, Stelcam Holdings Inc., owns 40 percent of Camrose Pipe Company.
Transactions under the agreement are at negotiated market prices. The following
table summarizes the transactions among Camrose Pipe Company, Stelco Inc., and
Stelcam Holdings Inc.:
1993 1992
-------- --------
(IN THOUSANDS)
Purchases from Stelco....................................$ 59,019 $ 17,000
Accounts payable to Stelco at December 31............... 6,755 7,100
Note payable to Stelcam at December 31
(interest at Canadian prime rate plus 2 percent)....... -- 2,200
9. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company's Napa Pipe Corporation subsidiary has a reserve of $3.1 million
at December 31, 1993 for environmental remediation relating to the Napa
facility. The Company's estimate of this environmental reserve was based on
several remedial investigations and feasibility studies performed by an
independent engineering consultant. The estimated costs were based on current
technologies and presently enacted laws and regulations. The reserve includes
costs for remedial action and monitoring, and operations and maintenance of the
remedial action taken. Corrective action is scheduled to be completed in 1997.
An environmental reserve of $36.7 million was accrued as part of the CF&I
Pueblo, Colorado steel mill acquisition (see Note 11).
33
FORMER EMPLOYEE LAWSUITS
In 1992 the Company settled for $6.2 million certain litigation in the United
States District Court of Oregon ("District Court Cases") relating to claims
filed by former employee participants in the Company's ESOP and Tax Credit
Employee Stock Ownership Plan ("TCESOP") in connection with claims and/or
rescission of certain transactions which occurred during the period August 1985
through March 1987. This litigation involved the purchase by the Company of 1.5
million shares of its common stock which had been held by the ESOP and TCESOP.
The Company also settled its claim against the primary insurance company which
provided the Company's officers and directors liability insurance for the above
claim for $1.2 million. As a result of these settlements, the Company recorded a
$5 million charge to income in the fourth quarter of 1992. The Company's pursuit
of its claim against its excess liability insurance carrier for the balance of
the settlement amount and legal costs paid in connection with the District Court
Cases was settled for $2.8 million and collected in the second quarter of 1993.
CONTRACTS WITH KEY EMPLOYEES
The Company has employment agreements with certain of its officers which
provide for severance compensation to such employees in the event their
employment with the Company is terminated subsequent to a change in control (as
defined) of the Company under the circumstances set forth in the agreements.
Each agreement has automatic annual extensions until the employee reaches the
age of 65, unless either the Company or the employee gives notice that the
agreement shall not be extended. In the event of a change in control while the
agreements are in effect, the agreements are automatically extended for 36
months from the date the change in control occurs. The agreements will generally
terminate upon termination of employment prior to a change in control of the
Company.
If, within 36 months following a change in control, the employee's employment
with the Company is terminated by the Company without cause (as defined) or by
the employee with good reason (as defined), then the Company will pay to the
employee his full base salary through the date of termination at the rate in
effect on the date the change in control occurred, plus three times his annual
base salary at the above-specified rate, the four most recent quarterly cash
distributions from the Company's profit participation plan and certain
postretirement benefits as specified in the agreement. The employee is also
entitled to be reimbursed for any reasonable legal fees and expenses he may
incur in enforcing his rights under the agreement.
10. CAPITAL STOCK
The Board of Directors has the authority to issue shares of preferred stock
from time to time in one or more series and to fix the number of shares to be
included in such a series, the designation, powers, preferences and rights of
the shares of each such series and any qualifications, limitations or
restrictions of such series, including but not limited to dividend rights,
dividend rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions) and liquidation preferences, all without any
vote or action by the stockholders.
In connection with the acquisition of substantially all of the assets of CF&I
Steel Corporation, the Company, through its ownership interest in CF&I Steel, L.
P., agreed to issue 598,400 shares of its common stock in March 2003 to
specified creditors of CF&I Steel Corporation. The stock was valued at $11.2
million using the Black-Scholes valuation method. The common stock has no
voting rights or rights to receive dividends until it is issued. In connection
with the acquisition, the Company also delivered warrants to CF&I Steel
Corporation to purchase for five years, expiring March 3, 1998, 100,000 shares
of the Company's common stock at $35 per share. The warrants were valued at
$556,000 using the Black-Scholes method (see Note 11).
11. BUSINESS ACQUISITIONS
CF&I STEEL, L. P.
On March 3, 1993, New CF&I, Inc. ("General Partner"), a wholly-owned
subsidiary of the Company, acquired for $22.2 million a 95.2 percent interest in
a newly formed limited partnership, CF&I Steel, L.P. ("CF&I"). The remaining 4.8
percent interest is owned by the Pension Benefit Guaranty Corporation ("Limited
Partner").
34
Concurrent with the formation of CF&I and the acquisition of the partnership
interest by the General Partner, CF&I purchased from CF&I Steel Corporation
substantially all of the assets of its steelmaking, fabricating, metals and
railroad business ("Business"). The purchase price for the Business was $113.1
million paid by the General Partner's capital contribution of $22.2 million
(consisting of $7.3 million cash, $3.1 million capitalized direct acquisition
costs, 598,400 shares of Company common stock valued at $11.2 million to be
issued ten years from March 3, 1993, and by the delivery of warrants to purchase
100,000 shares of Company common stock at $35 per share for five years valued at
$556,000), by the Limited Partner's capital contribution of an asset valued at
$1.2 million, by installment payments to be paid by CF&I totalling $67.5
million in principal plus interest at 9.5 percent over a period of 10 years, by
the assumption of non contingent liabilities of CF&I Steel Corporation in the
aggregate amount of $18.5 million, and by the assumption of a liability for
postretirement health care benefits of $3.7 million. The Company has guaranteed
the payment of the first 25 months of cash installment payments on the $67.5
million note (a total of approximately $13.1 million of principal and interest
at December 31, 1993), and the performance of certain capital expenditures for
improvements at the facilities being acquired in the aggregate amount of $40
million.
As part of the acquisition, CF&I accrued a reserve of $36.7 million for
environmental remediation at CF&I's Pueblo, Colorado steel mill. CF&I believes
$36.7 million is the best estimate from a range of $23.1 to $43.6 million.
CF&I's estimate of this environmental reserve was based on two separate
remediation investigations and feasibility studies conducted by independent
environmental engineering consultants. The estimated costs were based on current
technologies and presently enacted laws and regulations. The reserve includes
costs for RCRA (Resource Conservation and Recovery Act) facility investigation,
a corrective measures study, remedial action, and operation and maintenance of
the proposed remedial actions. The State of Colorado is reviewing a permit
application and will issue a permit to CF&I with a schedule for corrective
action specifying activities to be completed by certain dates. The State of
Colorado anticipated that the schedule would be reflective of a straight line
rate of expenditure over 30 years. The State of Colorado stated the schedule for
corrective action could be accelerated if new data indicated a greater threat to
the environment than is currently known to exist. Any adjustment to the
environmental liability as a result of new technologies, new laws, or new facts
after the purchase price allocation period will be generally recognized as an
element of income with certain limited exceptions which meet generally accepted
accounting principles' criteria for capitalization.
For financial statement reporting purposes only, the acquisition has been
treated as a business combination using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition.
The operating results of this acquisition are included in the Company's
consolidated results of operations from the date of acquisition. The estimated
fair values of assets acquired and liabilities assumed are summarized as
follows:
(IN
THOUSANDS)
----------
Accounts receivable................................................ $ 40,167
Inventories........................................................ 28,527
Other current assets............................................... 490
Property, plant and equipment...................................... 28,518
Investments and other assets....................................... 52,136
Current portion of long-term debt.................................. (4,251)
Accounts payable................................................... (18,500)
Other accured expenses............................................. (2,000)
Long-term debt..................................................... (63,249)
Deferred employee benefits......................................... (3,680)
Other deferred liabilities......................................... (34,716)
Minority interest.................................................. (1,200)
--------
$ 22,242
========
Investments and other assets include excess of cost over net assets acquired
($40.4 million) and water rights ($11.7 million). Other deferred liabilities
represent an accrued liability for environmental remediation less the current
year portion of $2 million which is included in other accrued expenses.
35
The following unaudited pro forma summary presents the Company's consolidated
results of operations as if the acquisition had occurred as of January 1, 1992,
after giving effect to adjustments for salaries and wages, fringe benefits,
depreciation and amortization, interest expense, reversal of reorganization
costs, and extraordinary loss from termination of pension plans by CF&I Steel
Corporation. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisition been made as of January 1, 1992, or of results which may occur in
the future.
YEAR ENDED DECEMBER 31
----------------------
(IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
1993 1992
-------- --------
Net sales................................................$729,604 $638,343
Net Income...............................................$ 16,922 $ 24,871
Primary and fully diluted net income
per common and common equivalent share.................$ .85 $ 1.26
CAMROSE PIPE COMPANY
On June 30, 1992, Camrose Pipe Corporation, a wholly-owned subsidiary of the
Company, acquired for $18 million a 60 percent interest in a newly formed
Canadian general partnership, Camrose Pipe Company ("Camrose"). The remaining 40
percent interest is owned by Stelcam Holdings Inc., a wholly-owned subsidiary of
Stelco Inc ("Stelco").
Concurrent with the formation of Camrose and the purchase of the partnership
interest by Camrose Pipe Corporation, Camrose purchased from Stelco, Stelco's
steel pipemaking facility in Camrose, Alberta, Canada and related receivables,
inventories and other current assets. The purchase price for the Camrose assets
may increase or decrease based upon an annual performance adjustment over a
five-year period as described in the Asset Purchase Agreement. Since additional
consideration is contingent on achieving specified earnings levels in future
periods, the Company will record the current fair value of the consideration as
additional cost of the acquired company. The additional cost would be assigned
to the tangible assets acquired or excess of cost over net assets acquired
depending on an independent appraisal of the fair value of the assets acquired.
For financial statement reporting purposes only, the acquisition has been
treated as a business combination using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition (June 30, 1992). The operating results of this acquisition are
included in the Company's consolidated results of operations from the date of
acquisition. The estimated fair values of assets acquired and liabilities
assumed are summarized as follows:
(IN
THOUSANDS)
----------
Accounts receivable................................................ $ 8,107
Inventories........................................................ 5,491
Other current assets............................................... 302
Property, plant and equipment...................................... 26,545
Investment and other assets........................................ 615
Accounts payable and accrued liabilities........................... (3,208)
Due to partners.................................................... (5,650)
Other liabilities.................................................. (2,234)
Minority interest.................................................. (11,996)
--------
$ 17,972
========
36
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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 "Election of
Directors" and "Executive Compensation" is incorporated herein by reference.
Executive Officers of Oregon Steel Mills, Inc. and principal subsidiaries are
listed on page 11 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 1994 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required is set forth under the caption "Executive Compensation"
in the Proxy Statement for the 1994 Annual Meeting of Stockholders and is
incorporated herein by reference.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
PAGE
(A) (i) FINANCIAL STATEMENTS:
Report of Independent Accountants............................. 20
Consolidated Financial Statements:
Balance Sheets at December 31, 1993, 1992 and 1991.......... 21
Statements of Income for each of the three years
in the period ended December 31, 1993..................... 22
Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1993............... 23
Statements of Cash Flows for each of three years
in the period ended December 31, 1993..................... 24
Notes to Consolidated Financial Statements.................. 25
(ii) Financial Statement Schedules: All required schedules will be
filed by amendment to this Form 10-K.
(iii) Exhibits: References made to the list on page 3 of the exhibits filed
with this report.
(B) No reports on Form 8-K were required to be filed by the Registrant
during the fourth quarter of the fiscal year ended December 31,
1993.
38
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. (Filed as exhibit
3.1 to Form 10-K for the year ended December 31, 1992, and incorporated
by reference herein.)
3.2 Bylaws of the Company. (Filed as exhibit 3.2 to Form 10-Q dated March
31, 1993, 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 Form of Oregon Steel Mills, Inc. -- Five-Year Common Stock Purchase
Warrant. (Filed as exhibit 4.2 to Form 8-K dated March 3, 1993, and
incorporated by reference herein.)
10.1 Employee Stock Ownership Plan, as amended. (Filed as exhibit 10.1 to
Form S-1 Registration Statement 33-38379 and incorporated by reference
herein.)
10.2 Employee Stock Ownership Plan Trust Agreements. (Filed as exhibit 10.2
to Form 10-K for the year ended December 31, 1990 and incorporated by
reference herein.)
10.3 Profit Participation Plan. (Filed as exhibit 10.5 to Form S-1
Registration Statement 33-20407 and incorporated by reference herein.)
10.4 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.)
10.5 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.)
10.6 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.)
10.9 Key employee contracts for Thomas B. Boklund, Robert R. Mausshardt and
Robert J. Sikora. (Filed as exhibit 10.11 to Form 10-K for the year
ended December 31, 1988, and incorporated by reference herein.)
10.10 Key employee contracts for L. Ray Adams and James R. McCaughey. (Filed
as exhibit 10.10 to Form 10-K for the year ended December 31, 1990 and
incorporated by reference herein.)
10.11 Key employee contract for Edward J. Hepp. (Filed as exhibit 10.11 to
Form 10-K for the year ended December 31, 1991, and incorporated by
reference herein.)
10.12 Net lease between Oregon Steel Mills-Fontana Division Inc. and
California Steel Industries. (Filed as exhibit 10.16 to Form S-1
Registration Statement 33-38379 and incorporated by reference herein.)
11.0 Statement re computation of per share earnings.
21.0 Subsidiaries of registrant. (Filed as exhibit 22.1 to Form 10-K for the
year ended December 31, 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, Investor Relations Contact, Oregon Steel Mills,
Inc., PO Box 5368, Portland, Oregon 97228.
39
28.0 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.)
28.1 Amended and Restated Agreement of Limited Partnership of CF&I Steel,
L.P. dated as of March 3, 1993 by and between New CF&I, Inc. and the
Pension Benefit Guaranty Corporation. (Filed as exhibit 28.1 to Form
8-K dated March 3, 1993, and incorporated by reference herein.)
99.0 Oregon Steel Mills, Inc. Pension Plan, as amended.
40
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/ Thomas B. Boklund
------------------------
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 date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ THOMAS B. BOKLUND Chairman of the Board
- ----------------------- Chief Executive Officer
(Thomas B. Boklund) (Principal Executive Officer) March 1, 1994
/s/ L. RAY ADAMS Vice President of Finance,
- ----------------------- and Secretary
(L. Ray Adams) (Principal Financial Officer) March 1, 1994
/s/ JACKIE L. WILLIAMS Controller
- ----------------------- (Principal Accounting Officer) March 1, 1994
(Jackie L. Williams)
/s/ C. LEE EMERSON Director March 1, 1994
- -----------------------
(C. Lee Emerson)
/s/ V. NEIL FULTON Director March 1, 1994
- -----------------------
(V. Neil Fulton)
/s/ EDWARD C. GENDRON Director March 1, 1994
- -----------------------
(Edward C. Gendron)
/s/ RICHARD G. LANDIS Director March 1, 1994
- ----------------------
(Richard G. Landis)
/s/ JAMES A. MAGGETTI Director March 1, 1994
- ----------------------
(James A. Maggetti)
/s/ JOHN A. SPROUL
- ----------------------
(John A. Sproul) Director March 1, 1994
41
EX-11.0
2
COMPUTATION OF PER SHARE EARNINGS
OREGON STEEL MILLS, INC.
EXHIBIT 11.O
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS)
YEARS ENDED DECEMBER 31,
-------------------------
1993 1992 1991
------- ------- -------
Weighted average number of common
shares outstanding ............................... 19,224 19,183 18,735
Common stock equivalents arising
from 598 shares of stock to be
issued March 2003 ................................ 598 -- --
------- ------- -------
19,822 19,183 18,735
======= ======= =======
Net income ......................................... $14,805 $19 977 $35,465
======= ======= =======
Primary and fully diluted
net income per common and
common equivalent shares ......................... $.75 $1.04 $1.89
======= ======= =======
EX-99.0
3
AMENDMENT 1 TO OSM PENSION PLAN, 1989 RESTATEMENT
AMENDMENT NO. 1 CONFORMED COPY
TO --------------
OREGON STEEL MILLS, INC. PENSION PLAN
1989 RESTATEMENT
DECEMBER 31, 1993
OREGON STEEL MILLS, INC.
A DELAWARE CORPORATION
1000 S.W. BROADWAY
SUITE 2100
PORTLAND, OREGON 97204 COMPANY
In order to update Compensation and to assure compliance with applicable
law and regulations, the 1989 Restatement is amended as follows:
1. PAST SERVICE COMPENSATION
For persons accruing Vesting Service after December 30, 1993,
sections 1.21 and 3.03 shall read as follows:
1.21 "Past Service Compensation" shall mean a Participant's
average annual Compensation during the calendar years 1991, 1992
and 1993; provided, however, that, if a Participant was not an
Employee throughout all of such years, his Past Service
Compensation shall consist of the annualized average of the
Compensation he received during the portion of such years that he
was an Employee.
3.03 Normal Retirement Allowance. Subject to the provisions of
Section 4, a Participant's annual normal retirement allowance shall be
an amount equal to:
(a) For each full or partial Plan Year of Benefit Service
prior to January 1, 1994, 1.0% of the first $22,800 of his Past
Service Compensation, plus 1.6% of his Past Service Compensation
in excess of $22,800, reduced by the amount that is the Equivalent
Actuarial Value of the integrated portion of the Participant's account
balances (if any) under the Company's Profit Sharing Plan and
Employee Stock Ownership Plan as of January 1, 1981;
plus
(b) For each full or partial Plan Year of Benefit Service
beginning on or after January 1, 1994, 1.2% of his Compensation
during such Plan Year up to the amount of Covered Compensation for
that Plan Year, plus 1.7% of his Compensation during such Plan Year
that is in excess of his Covered Compensation for that Plan Year;
provided that, if the Participant was not an Eligible Employee for all
of any such Plan Year, he shall receive for that Plan Year a pro rata
portion of the amount determined under the foregoing formula
based on his annualized Compensation for that Plan Year;
less
(c) The annual single life annuity commencing on the Participant's
Normal (or, if applicable, Deferred) Retirement Date that is the
Equivalent Actuarial Value of any retirement benefits paid or payable
to the Participant under any other tax-qualified pension plan
maintained by the Company or any Related Company or to which the
Company or any Related Company contributes or contributed pursuant to
the terms of any collective bargaining agreement, to the extent such
benefits are attributable to a period that constitutes Benefit Service
hereunder.
Notwithstanding the foregoing provisions of this Section, the portion
of a participant's normal retirement allowance attributable to years of
Benefit Service in excess of 35 shall be limited to 1.0% of his total
Compensation for purposes of (a) and to 1.2% of his total Compensation
for purposes of (b). The relevant factor shall be prorated (on the
basis of annualized Compensation) for any Plan Year during which the
Participant is not an Eligible Employee for the entire Plan Year.
2. COMPENSATION LIMIT
For benefits accruing after 1993, an Employee's "Taxable
Compensation" taken into account for any Plan Year under section 1.27
shall not exceed $150,000 (or such other amount as may be prescribed
for the relevant Plan Year by the Secretary of the Treasury pursuant to
Section 401(a)(17) of the Code). No benefit accrued before this date
shall be reduced because of this amendment.
3. EFFECTIVE DATE
The effective date of this amendment shall be December 31, 1993.
Adopted: November 11, 1993
COMPANY OREGON STEEL MILLS, INC.
By JACK C. LONGBINE
Executed: December 30, 1993
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