UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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NEW CF&I, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-20781 93-1086900
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(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification
Number)
1000 S.W. Broadway Building, Suite 2200, Portland, Oregon 97205
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(Address of principal executive offices) (Zip Code)
(503) 240-5226
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
CF&I STEEL, L.P.
(Exact name of registrant as specified in its charter)
Delaware 02-20779 93-1103440
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(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification
Number)
1000 S.W. Broadway Building, Suite 2200, Portland, Oregon 97205
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(Address of principal executive offices) (Zip Code)
(503) 240-5226
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
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NEW CF&I, INC.
CF&I STEEL, L.P.
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS - NEW CF&I, INC.
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Consolidated Balance Sheets
June 30, 2003 (unaudited) and December 31, 2002......... 2
Consolidated Statements of Operations (unaudited)
Three and six months ended June 30, 2003 and 2002....... 3
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2003 and 2002................. 4
Notes to Consolidated Financial Statements
(unaudited).......................................... 5-11
FINANCIAL STATEMENTS - CF&I STEEL, L.P.
----------------
Balance Sheets
June 30, 2003 (unaudited) and December 31, 2002........ 12
Statements of Operations (unaudited)
Three and six months ended June 30, 2003 and 2002...... 13
Statements of Cash Flows (unaudited)
Six months ended June 30, 2003 and 2002................ 14
Notes to Financial Statements (unaudited)..............15-20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................... 21-23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK................................................... 23
ITEM 4. CONTROLS AND PROCEDURES................................. 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 24
SIGNATURES................................................24
Exhibit Index.......................................................25
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NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2003 2002
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ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 119 $ 289
Trade accounts receivable, net of allowance for
doubtful accounts of $1,664 and $1,811 29,668 32,458
Inventories 35,560 46,104
Deferred income taxes 4,236 4,841
Other 1,330 745
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Total current assets 70,913 84,437
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Property, plant and equipment:
Land and improvements 3,280 3,454
Buildings 19,889 19,886
Machinery and equipment 266,559 260,791
Construction in progress 7,614 5,151
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297,342 289,282
Accumulated depreciation (128,969) (111,469)
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Net property, plant and equipment 168,373 177,813
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Intangibles, net 900 1,106
Other assets 48,128 46,241
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$ 288,314 $ 309,597
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 37,396 $ 39,701
Accrued expenses 22,832 26,156
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Total current liabilities 60,228 65,857
Long-term debt -- Oregon Steel Mills, Inc. 229,151 228,208
Environmental liability 25,118 27,488
Deferred employee benefits 8,779 8,299
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Total liabilities 323,276 329,852
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Redeemable common stock, 26 shares 21,840 21,840
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Contingencies (Note 3)
STOCKHOLDERS' DEFICIT
Common stock, par value $1 per share, 1,000
shares authorized; 200 issued and outstanding 1 1
Additional paid-in capital 16,603 16,603
Accumulated deficit (69,915) (55,208)
Accumulated other comprehensive income:
Minimum pension liability (3,491) (3,491)
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(56,802) (42,095)
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$ 288,314 $ 309,597
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
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NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------ ---------- ----------- ----------
SALES
Product Sales $ 81,755 $ 82,947 $ 170,343 $ 160,827
Freight 3,643 3,591 7,611 7,178
-------- -------- --------- ---------
85,398 86,538 177,954 168,005
COSTS AND EXPENSES:
Cost of sales 82,849 72,067 166,723 139,757
Fixed and other asset impairment charges (1) 9,157 - 9,157 -
Gain on sale of assets (363) (111) (391) (1,022)
Selling, general and administrative expenses 4,500 5,850 9,131 11,397
-------- -------- --------- ---------
96,143 77,806 184,620 150,132
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OPERATING INCOME (LOSS) (10,745) 8,732 (6,666) 17,873
OTHER INCOME (EXPENSE):
Interest expense (5,969) (6,514) (11,905) (13,339)
Minority interests 831 (129) 947 (236)
Other income, net 55 660 122 754
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Income (loss) before income taxes (15,828) 2,749 (17,502) 5,052
Provision for income tax benefit (expense) 2,248 (1,934) 2,795 (2,385)
-------- -------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle, net of tax,
net of minority interest (13,580) 815 (14,707) 2,667
Cumulative effect of change in accounting
principle, net of tax, net of minority interest - - - (19,069)
--------- -------- --------- ---------
NET INCOME (LOSS) $ (13,580) $ 815 $ (14,707) $ (16,402)
========= ======== ========= =========
(1) The $9.2 million impairment charge consists of: a) impairment of fixed
assets - $8.2 million, and b) reduction of dedicated stores and operating
supplies to net realizable value - $1.0 million.
The accompanying notes are an integral part of the consolidated financial statements.
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NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2003 2002
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Cash flows provided by operating activities:
Net loss $ (14,707) $ (16,402)
Adjustments to reconcile net loss to net cash
provided by operations
Cumulative effect of change in accounting principle - 19,070
Fixed and other asset impairment charges (1) 9,157
Depreciation and amortization 9,526 9,513
Deferred income taxes, net (2,805) 2,148
Minority interests' share of income (loss) (947) 236
Gain on sale of assets (391) (1,023)
Changes in current assets and liabilities:
Trade accounts receivable 2,937 7,610
Inventories 9,610 5,377
Accounts payable (2,305) 436
Accrued expenses and deferred employee benefits (2,015) 1,092
Other, net (1,472) (1,170)
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NET CASH PROVIDED BY OPERATIONS 6,588 26,887
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Cash flows from investing activities:
Additions to property, plant and equipment (8,289) (3,813)
Proceeds from disposal of property and equipment 549 1,023
Other, net 39 278
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NET CASH USED IN INVESTING ACTIVITIES (7,701) (2,512)
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Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 67,523 58,034
Payments to Oregon Steel Mills, Inc. (66,512) (77,786)
Payment of long-term debt (68) (4,622)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 943 (24,374)
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Net increase (decrease) in cash and cash equivalents (170) 1
Cash and cash equivalents at the beginning of period 289 3
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Cash and cash equivalents at the end of period $ 119 $ 4
========== =========
Supplemental disclosures of cash flow information:
Cash paid for:
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Interest $ - $ 13,806
(1) The $9.2 million impairment charge consists of: a) impairment of fixed
assets - $8.2 million, and b) reduction of dedicated stores and operating
supplies to net realizable value - $1.0 million.
The accompanying notes are an integral part o the consolidated financial statements.
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NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of New CF&I,
Inc. and its subsidiaries ("New CF&I"). New CF&I owns a 95.2% interest in CF&I
Steel, L.P. ("CF&I"), which is one of New CF&I's principal subsidiaries. Oregon
Steel Mills, Inc. ("Oregon Steel") holds an 87% ownership interest in New CF&I.
All significant intercompany balances and transactions have been eliminated.
The unaudited financial statements include all adjustments consisting
of normal recurring accruals and other charges as described in Note 4, "Asset
Impairments," which in the opinion of management, are necessary for a fair
presentation of the interim periods. Results for an interim period are not
necessarily indicative of results for a full year. Reference should be made to
New CF&I's 2002 Annual Report on Form 10-K for additional disclosures including
a summary of significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Accounting Standard ("SFAS") No. 143, "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. This statement requires that the
Company record a liability for the fair value of an asset retirement obligation
when the Company has a legal obligation to remove the asset. SFAS No. 143 is
effective for the Company beginning January 1, 2003. The adoption of SFAS No.
143 did not have a material impact on the Company's consolidated financial
statements.
In May 2002, the FASB issued SFAS No. 145, "RECISSION OF FAS NOS. 4,
44, AND 64, AMENDMENT OF FAS 13, AND TECHNICAL CORRECTIONS." Among other things,
SFAS No. 145 rescinds various pronouncements regarding early extinguishment of
debt and allows extraordinary accounting treatment for early extinguishment only
when the provisions of Accounting Principles Board ("APB") Opinion No. 30,
"REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS" are met. SFAS No. 145 provisions regarding early
extinguishment of debt are generally effective for fiscal years beginning after
May 15, 2002. New CF&I does not believe that the adoption of this statement will
have a material impact on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES." SFAS No. 146 addresses the
financial accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force ("EITF") Issue No. 94-3,
"LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)." SFAS
No. 146 requires recognition of the liability for costs associated with an exit
or disposal activity when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. This statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. New CF&I adopted SFAS No. 146 effective January 1, 2003. New CF&I
primarily accounts for employee termination actions under SFAS No. 112, which
requires recording when such charges are probable and estimable. As such, the
adoption of SFAS No. 146 did not have an impact in the quarter, as there were no
significant one-time severance actions or other exit costs.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS." It clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
disclosure provisions for FIN No. 45 were effective for the year ending December
31, 2002. New CF&I adopted the recognition provisions of FIN No. 45 effective
January 1, 2003 for guarantees issued or modified after December 31, 2002. The
adoption of FIN No. 45 did not have any material impact on New CF&I's
consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "CONSOLIDATION OF VARIABLE
INTEREST ENTITIES." FIN No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN No. 46 also
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requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. FIN
No. 46 applies immediately to variable interest entities created after January
31, 2003 and to existing variable interest entities in the periods beginning
after June 15, 2003. New CF&I has not created or obtained an interest in any
variable interest entities after January 31, 2003. New CF&I is continuing to
review the provisions of FIN No. 46 to determine its impact, if any, on future
reporting periods with respect to interests in variable interest entities
created prior to February 1, 2003.
In April 2003, the FASB issued SFAS No. 149, "AMENDMENT OF STATEMENT
133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. New CF&I is currently evaluating whether or not the adoption of SFAS
No. 149 will have an effect on its financial position, results of operations and
cash flows.
In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." SFAS
No. 150 requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
The financial instruments affected include mandatorily redeemable stock, certain
financial instruments that require or may require the issuer to buy back some of
its shares in exchange for cash or other assets and certain obligations that can
be settled with shares of stock. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003 and must be applied to
New CF&I's existing financial instruments effective July 1, 2003, the
beginning of the first fiscal period after June 15, 2003. New CF&I adopted SFAS
No. 150 on June 1, 2003. The adoption of this statement did not have a material
effect on New CF&I's financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform to
the current year presentation. Such reclassifications do not affect results of
operations as previously reported.
2. INVENTORIES
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Inventories are stated at the lower of manufacturing cost or market
value with manufacturing cost determined under the average cost method. The
components of inventories are as follows:
JUNE 30, DECEMBER 31,
2003 2002
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Inventories consist of: (IN THOUSANDS)
Raw materials $ 4,776 $ 5,536
Semi-finished product 8,183 11,325
Finished product 11,757 17,420
Stores and operating supplies 10,844 11,823
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Total inventory $ 35,560 $ 46,104
======== ========
Effective January 1, 2003, New CF&I changed the method of computing the
market valuation of inventories in applying the lower of manufacturing cost or
market (LCM) accounting policy. Under the new accounting method, New CF&I
evaluates the market value of its inventory for potential LCM write-downs at the
product group level. New CF&I believes this change is preferable because it
better reflects a more precise measure of expense in the period in which an
impairment in value is identified. During the three months ended June 30, 2003,
New CF&I recognized approximately $0.5 million of LCM charges ($0.3 million
after tax). Under New CF&I's past practices, there would not have been an
impairment charge during this period. The impact on the period ended March 31,
2003, and the accumulative effect of change as of January 1, 2003 was
immaterial.
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3. CONTINGENCIES
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ENVIRONMENTAL MATTERS
All material environmental remediation liabilities for non-capital
expenditures, which are probable and estimable, are recorded in the financial
statements based on current technologies and current environmental standards at
the time of evaluation. Adjustments are made when additional information is
available that suggests different remediation methods or periods may be required
and affect the total cost. The best estimate of the probable cost within a range
is recorded; however, if there is no best estimate, the low end of the range is
recorded and the range is disclosed.
In connection with the acquisition of the steelmaking and finishing
facilities located at Pueblo, Colorado ("Pueblo Mill"), CF&I accrued a liability
of $36.7 million for environmental remediation related to the prior owner's
operations. CF&I believed this amount was the best estimate of costs from a
range of $23.1 million to $43.6 million. CF&I's estimate of this liability was
based on two remediation investigations conducted by environmental engineering
consultants, and included costs for the Resource Conservation and Recovery Act
facility investigation, a corrective measures study, remedial action, and
operation and maintenance associated with the proposed remedial actions. In
October 1995, CF&I and the Colorado Department of Public Health and Environment
("CDPHE") finalized a postclosure permit for hazardous waste units at the Pueblo
Mill. As part of the postclosure permit requirements, CF&I must conduct a
corrective action program for the 82 solid waste management units at the
facility and continue to address projects on a prioritized corrective action
schedule which substantially reflects a straight-line rate of expenditure over
30 years. The State of Colorado mandated that the schedule for corrective action
could be accelerated if new data indicated a greater threat existed to the
environment than was presently believed to exist. At June 30, 2003, the accrued
liability was $28.6 million, of which $23.4 million was classified as
non-current on the consolidated balance sheet.
The CDPHE inspected the Pueblo Mill in 1999 for possible environmental
violations, and in the fourth quarter of 1999 issued a Compliance Advisory
indicating that air quality regulations had been violated, which was followed by
the filing of a judicial enforcement action ("Action") in the second quarter of
2000. In March 2002, CF&I and CDPHE reached a settlement of the Action, which
was approved by the court (the "State Consent Decree"). The State Consent Decree
provides for CF&I to pay $300,000 in penalties, fund $1.5 million of community
projects, and to pay approximately $400,000 for consulting services. CF&I is
also required to make certain capital improvements expected to cost
approximately $25 million, including converting to the new single New Source
Performance Standards Subpart AAa ("NSPS AAa") compliant furnace discussed
below. The State Consent Decree provides that the two existing furnaces will be
permanently shut down approximately 16 months after the issuance of a Prevention
of Significant Deterioration ("PSD") air permit. CF&I applied for the PSD permit
in April 2002. Terms of that permit are still under discussion with the State
and it has not yet been issued.
In May 2000, the Environmental Protection Agency ("EPA") issued a final
determination that one of the two electric arc furnaces at the Pueblo Mill
was subject to federal NSPS AA. This determination was contrary to an earlier
"grandfather" determination first made in 1996 by CDPHE. CF&I appealed the EPA
determination in the federal Tenth Circuit Court of Appeals, and that appeal is
pending. CF&I has negotiated a settlement of this matter with the EPA. Under
that agreement and overlapping with the commitments made to the CDPHE described
above, CF&I committed to the conversion to the new NSPS AAa compliant furnace
(demonstrating full compliance 21 months after permit approval and expected to
cost, with all related emission control improvements, approximately $25
million), and to pay approximately $450,000 in penalties and fund certain
supplemental environmental projects and undertake additional environmental
projects valued at approximately $1.1 million, including the installation of
certain pollution control equipment at the Pueblo Mill. The above mentioned
expenditures for supplemental environmental projects will be both capital and
non-capital expenditures. On April 9, 2003, the EPA filed a proposed Federal
Consent Decree, now subject to public comment, which, if approved by the court,
will fully resolve all NSPS and PSD issues. At that time CF&I will dismiss its
appeal against the EPA. If the proposed settlement with the EPA is not approved,
which appears unlikely, it would not be possible to estimate the liability if
there were ultimately an adverse determination of this matter.
In response to the CDPHE settlement and the resolution of the EPA
action, CF&I had expensed $2.8 million for possible fines and non-capital
related expenditures since the settlement. As of June 30, 2003, the accrued
liability was $1.2 million.
As noted above, as part of the settlement with the CDPHE and the EPA,
CF&I is required to install one new electric arc furnace and the two existing
furnaces, with a combined melting and casting capacity of approximately 1.2
million tons through two continuous casters, will be shut down. The new single
furnace operation will not have the capacity to support a two caster operation,
and one caster and the related assets with a book value of $9.2
million was written off in the quarter ended June 30, 2003. See Note 4 "Asset
Impairments" for a description of this charge.
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In December 2001, the State of Colorado issued a Title V air emission
permit to CF&I under the Clean Air Act ("CAA") requiring that the furnace
subject to the EPA action operate in compliance with NSPS AA standards. This
permit was modified in April 2002 to incorporate the longer compliance schedule
that is part of the settlement with the CDPHE and the EPA. In September 2002,
New CF&I submitted a request for a further extension of certain Title V
compliance deadlines, consistent with a joint petition by the State and New CF&I
for an extension of the same deadlines in the State Consent Decree. This
modification gives CF&I adequate time to convert to a single NSPS AAa compliant
furnace. Any decrease in steelmaking production during the furnace conversion
period when both furnaces are expected to be shut down will be offset by
increasing production prior to the conversion period by building up
semi-finished steel inventory and, if necessary, purchasing semi-finished steel
("billets") for conversion into rod products at spot market prices. Pricing and
availability of billets is subject to significant volatility. However, New CF&I
believes that near term supplies of billets will continue to be available in
sufficient quantities at favorable prices.
In a related matter, in April 2000, the Union filed suit in U.S.
District Court in Denver, Colorado, asserting that New CF&I and CF&I had
violated the CAA at the Pueblo Mill for a period extending over five years. The
Union sought declaratory judgement regarding the applicability of certain
emission standards, injunctive relief, civil penalties and attorney's fees.
On July 6, 2001, the presiding judge dismissed the suit. The Federal Tenth
Circuit Court of Appeals on March 3, 2003 reversed the District Court's
dismissal of the case and remanded the case for further hearing to the District
Court. New CF&I and CF&I sought and the Court entered a stay of the District
Court action until a Consent Decree filed in another case settling the same
issues with the EPA becomes final. While New CF&I does not believe the suit will
have a material adverse effect on its results of operations, the result of
litigation, such as this, is difficult to predict and an adverse outcome with
significant penalties is possible. It is not presently possible to estimate the
liability if there is ultimately an adverse determination on remand.
LABOR MATTERS
The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on October
3, 1997, the United Steelworkers of America (the "Union") initiated a
strike at CF&I for approximately 1,000 bargaining unit employees. The parties,
however, failed to reach final agreement on a new labor contract due to
differences on economic issues. As a result of contingency planning, CF&I was
able to avoid complete suspension of operations at the Pueblo Mill by utilizing
a combination of new hires, striking employees who returned to work, contractors
and salaried employees.
On December 30, 1997, the Union called off the strike and made an
unconditional offer on behalf of its members to return to work. At the time of
this offer, because CF&I had permanently replaced the striking employees, only a
few vacancies existed at the Pueblo Mill. Since that time, vacancies have
occurred and have been filled by formerly striking employees ("Unreinstated
Employees"). As of June 30, 2003, approximately 812 Unreinstated Employees have
either returned to work or have declined CF&I's offer of equivalent work. At
June 30, 2003, approximately 138 Unreinstated Employees remain unreinstated.
On February 27, 1998, the Regional Director of the National Labor
Relations Board ("NLRB") Denver office issued a complaint against CF&I, alleging
violations of several provisions of the National Labor Relations Act ("NLRA").
On August 17, 1998, a hearing on these allegations commenced before an
Administrative Law Judge ("Judge"). Testimony and other evidence were presented
at various sessions in the latter part of 1998 and early 1999, concluding on
February 25, 1999. On May 17, 2000, the Judge rendered a decision which, among
other things, found CF&I liable for certain unfair labor practices and ordered
as remedy the reinstatement of all 1,000 Unreinstated Employees, effective as of
December 30, 1997, with back pay and benefits, plus interest, less interim
earnings. Since January 1998, New CF&I has been returning Unreinstated Employees
to jobs as positions became open. As noted above, there were approximately 138
Unreinstated Employees as of June 30, 2003. On August 2, 2000, CF&I filed an
appeal with the NLRB in Washington, D.C. A separate hearing concluded in
February 2000, with the judge for that hearing rendering a decision on August 7,
2000, that certain of the Union's actions undertaken since the beginning of the
strike did constitute misconduct and violations of certain provisions of the
NLRA. The Union has appealed this determination to the NLRB. In both cases, the
non-prevailing party in the NLRB's decision will be entitled to appeal to the
appropriate U.S. Circuit Court of Appeals. CF&I believes both the facts and the
law fully support its position that the strike was economic in nature and that
it was not obligated to displace the properly hired replacement employees. New
CF&I does not believe that final judicial action on the strike issues is likely
for at least two to three years.
In the event there is an adverse determination of these issues,
Unreinstated Employees could be entitled to back pay, including benefits, plus
interest, from the date of the Union's unconditional offer to return to work
through the date of their reinstatement or a date deemed appropriate by the NLRB
or an appellate court. The number of Unreinstated Employees
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entitled to back pay may be limited to the number of past and present
replacement workers; however, the Union might assert that all Unreinstated
Employees should be entitled to back pay. Back pay is generally determined by
the quarterly earnings of those working less interim wages earned elsewhere by
the Unreinstated Employees. In addition to other considerations, each
Unreinstated Employee has a duty to take reasonable steps to mitigate the
liability for back pay by seeking employment elsewhere that has comparable
working conditions and compensation. Any estimate of the potential liability for
back pay will depend significantly on the ability to assess the amount of
interim wages earned by these employees since the beginning of the strike, as
noted above. Due to the lack of accurate information on interim earnings for
both reinstated and Unreinstated Employees and sentiment of the Union towards
New CF&I, it is not currently possible to obtain the necessary data to calculate
possible back pay. In addition, the NLRB's findings of misconduct by the Union
may mitigate any back pay award with respect to any Unreinstated Employees
proven to have taken part or participated in acts of misconduct during and after
the strike. Thus, it is not presently possible to estimate the liability if
there is ultimately an adverse determination against CF&I. An ultimate adverse
determination against CF&I on these issues may have a material adverse effect on
New CF&I's consolidated financial condition, results of operations, or cash
flows. CF&I does not intend to agree to any settlement of this matter that will
have a material adverse effect on New CF&I. In connection with the ongoing labor
dispute, the Union has undertaken certain activities designed to exert public
pressure on CF&I. Although such activities have generated some publicity in news
media, CF&I believes that they have had little or no material impact on its
operations.
PURCHASE COMMITMENTS
Effective February 2, 1993, CF&I entered into an agreement,
subsequently amended on August 4, 1994, to purchase a base amount of oxygen
produced at the Pueblo Mill. This agreement expires January 2013 and specifies
that CF&I will pay a base monthly charge that is adjusted annually based upon a
percentage change in the Producer Price Index. The monthly base charge at June
30, 2003 for this agreement was $116,000.
GUARANTEES AND FINANCING ARRANGEMENTS
On July 15, 2002, Oregon Steel issued $305 million of 10% First
Mortgage Notes due 2009 ("10% Notes") at a discount of 98.772% and an interest
rate of 10%. Interest is payable on January 15 and July 15 of each year.
The proceeds of this issuance were used to redeem Oregon Steel's 11% First
Mortgage Notes due 2003 (including interest accrued from June 16, 2002 until the
redemption date of August 14, 2002), refinance its existing credit agreement,
and for working capital and general corporate purposes. New CF&I and CF&I
(collectively "Guarantors") guarantee the obligations of Oregon Steel under the
10% Notes, and those guarantees are secured by a lien on substantially all of
the property, plant and equipment and certain other assets of the Guarantors,
excluding accounts receivable and inventory.
In addition, Oregon Steel, New CF&I, CF&I, and Colorado and Wyoming
Railway Company ("C&W") are borrowers ("Borrowers") under a $75 million
revolving credit facility ("Credit Agreement") that will expire on June 30, 2005
and is collateralized, in part, by certain equity and intercompany interests,
accounts receivable and inventory of New CF&I and CF&I. At June 30, 2003, $5.0
million was restricted under the Credit Agreement, $8.0 million was restricted
under the outstanding letters of credit, and $62.0 million was available for
use. The Credit Agreement contains various restrictive covenants including a
minimum consolidated tangible net worth amount, a minimum earnings before
interest, taxes, depreciation and amortization ("EBITDA") amount, a minimum
fixed charge coverage ratio, a maximum senior debt ratio, limitations on maximum
annual capital and environmental expenditures, limitations on stockholder
dividends and limitations on incurring new or additional debt obligations other
than as allowed by the Credit Agreement. On August 13, 2003, Oregon Steel
entered into an agreement with its lenders to amend the $75 million revolving
credit facility effective June 30, 2003. The agreement amended the minimum
consolidated EBITDA, minimum fixed charge coverage ratio, maximum senior debt
ratio and minimum consolidated tangible net worth covenants as of June 30, 2003
and for each month through the maturity date of the facility. In addition, the
amendment added a borrowing availability limitation relating to inventory
and will reduce the maximum credit amount from $75 million to $65 million.
LIQUIDITY
New CF&I experienced a net loss for the three months ended June 30,
2003. Contributing to the adverse results was the interest paid by New CF&I to
Oregon Steel for its financing. New CF&I has been able to fulfill its needs for
working capital and capital expenditures due, in part, to the financing
arrangement with Oregon Steel. New CF&I expects that operations will continue
for the remainder of 2003, with the realization of assets, and discharge of
liabilities in the ordinary course of business. New CF&I believes that its
prospective needs for working capital and capital expenditures will be met from
cash flows generated by operations and borrowings pursuant to the financing
arrangement with Oregon Steel. If operations are not consistent with
management's plans, there is no assurance that the amounts from these sources
will be
-9-
sufficient for such purposes. Oregon Steel is not required to provide
financing to New CF&I and, although the demand for repayment of the obligation
in full is not expected during 2003, Oregon Steel may demand repayment of the
loan at any time. If Oregon Steel were to demand repayment of the loan, it is
not likely that New CF&I would be able to obtain the external financing
necessary to repay the loan or to fund its capital expenditures and other cash
needs and, if available, that such financing would be on terms satisfactory to
New CF&I.
OTHER CONTINGENCIES
New CF&I is party to various claims, disputes, legal actions and other
proceedings involving contracts, employment and various other matters. In the
opinion of management, the outcome of these matters would not have a material
adverse effect on the consolidated financial condition of New CF&I.
4. ASSET IMPAIRMENTS
-----------------
As noted in Note 3 above, as part of the settlement with the CDPHE and
the EPA, CF&I is required to install one new electric arc furnace, and the
two existing furnaces with a combined melting and casting capacity of
approximately 1.2 million tons through two continuous casters will be shut down.
CF&I has determined that the new single furnace operation will not have the
capacity to support a two caster operation and therefore CF&I has determined
that one caster and other related assets have no future service potential.
Accordingly, New CF&I has recorded a pre-tax impairment charge to earnings of
$9.2 million, including $1.0 million incurred for the reduction in value of
related stores items. Because it is believed the caster has no salvage value,
the carrying value of the fixed assets was zero after the effect of the
impairment charge.
5. INTANGIBLE ASSETS
-----------------
The carrying amount of intangible assets and the associated
amortization expenses are as follows:
ACQUIRED INTANGIBLE ASSETS
--------------------------
AS OF JUNE 30, 2003
---------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- -------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary Technology $1,653 $(753)
====== =====
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the six months ended 6/30/03 $ 206
..
ESTIMATED AMORTIZATION EXPENSE
------------------------------
For the year ended 12/31/03 $ 261
For the year ended 12/31/04 $ 110
For the year ended 12/31/05 $ 110
For the year ended 12/31/06 $ 110
For the year ended 12/31/07 $ 110
6. INCOME TAXES
------------
The effective income tax benefit rate was 14.1% and 15.9% for the three
and six months ended June 30, 2003, as compared to the tax expense rate of 70.4%
and 47.2% in the corresponding periods in 2002. The effective income tax rate
for the first half of 2003 varied from the combined state and federal statutory
rate principally because New CF&I established a valuation allowance for certain
state net operating loss carry-forwards.
SFAS 109, "Accounting for Income Taxes," requires that tax benefits for
net operating loss carry-forwards be recorded as an asset to the extent
that management assesses the utilization of such assets to be "more likely than
not;"
-10-
otherwise, a valuation allowance is required to be recorded. Based on
this guidance, New CF&I has recorded a valuation allowance of $2.8 million in
the second quarter of 2003 due to uncertainties regarding the realization of
these deferred tax assets.
New CF&I will continue to reevaluate the need for a valuation allowance
in the future. Changes in estimated future taxable income and other underlying
factors may lead to adjustments to the valuation allowance in the future.
-11-
CF&I STEEL, L.P.
BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2003 2002
---------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net of allowance for
doubtful accounts of $1,664 and $1,811 28,527 31,036
Inventories 35,250 45,829
Other 950 506
--------- ---------
Total current assets 64,727 77,371
--------- ---------
Property, plant and equipment:
Land and improvements 3,274 3,449
Buildings 18,496 18,496
Machinery and equipment 263,730 258,013
Construction in progress 7,614 5,150
--------- ---------
293,114 285,108
Accumulated depreciation (126,749) (109,396)
--------- ---------
Net property, plant and equipment 166,365 175,712
--------- ---------
Intangibles, net 900 1,106
Other assets 11,692 13,334
--------- ---------
TOTAL ASSETS $ 243,676 $ 267,523
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 44,205 $ 48,016
Accrued expenses 26,667 25,895
--------- ---------
Total current liabilities 70,872 73,911
Long-term debt -- Oregon Steel Mills, Inc. 229,151 228,208
Long-term debt -- New CF&I, Inc. 21,756 21,756
Environmental liability 25,118 27,488
Deferred employee benefits 8,779 8,417
--------- ---------
Total liabilities 355,676 359,780
--------- ---------
Contingencies (Note 3)
PARTNERS' DEFICIT
General partner (106,617) (87,829)
Limited partners (5,375) (4,428)
--------- ---------
(111,984) (92,257)
--------- ---------
$ 243,676 $ 267,523
========= =========
The accompanying notes are an integral part of the financial statements.
-12-
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------ ----------- ---------- ---------
Sales:
Product Sales $ 79,936 $ 81,115 $ 166,757 $ 157,121
Freight 3,643 3,591 7,611 7,178
--------- --------- --------- ---------
83,579 84,706 174,368 164,299
COSTS AND EXPENSES:
Cost of sales 81,448 70,834 164,011 137,082
Fixed and other asset impairment charges (1) 9,157 -- 9,157 --
Gain on sale of assets (363) (111) (402) (1,023)
Selling, general and administrative 4,441 5,122 8,967 10,094
--------- --------- --------- ---------
94,683 75,845 181,733 146,153
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (11,104) 8,861 (7,365) 18,146
OTHER INCOME (EXPENSE):
Interest expense (6,257) (6,835) (12,492) (13,975)
Other income, net 55 660 122 754
--------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle (17,306) 2,686 (19,735) 4,925
Cumulative effect of change in
accounting principle -- -- -- (31,863)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (17,306) $ 2,686 $ (19,735) $ (26,938)
========= ========= ========= =========
(1) The $9.2 million impairment charge consists of: a) impairment of fixed
assets - $8.2 million, and b) reduction of dedicated stores and operating
supplies to net realizable value - $1.0 million.
The accompanying notes are an integral part of the
financial statements.
-13-
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------------
2003 2002
---------- -----------
Cash flows provided by operating activities:
Net loss $(19,735) $(26,938)
Adjustments to reconcile net loss to net cash
provided by operations
Cumulative effect of change in accounting principle -- 31,863
Fixed and other asset impairment charges (1) 9,157 --
Depreciation and amortization 9,480 9,410
Gain on sale of assets (402) (1,023)
Changes in current assets and liabilities:
Trade accounts receivable 2,656 6,778
Inventories 9,645 5,400
Accounts payable (3,811) 1,560
Accrued expenses and deferred employee benefits 1,134 (95)
Other, net (1,330) (94)
-------- --------
NET CASH PROVIDED BY OPERATIONS 6,794 26,861
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (8,325) (3,787)
Proceeds from disposal of property and equipment 549 1,023
Other, net 39 278
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,737) (2,486)
-------- --------
Cash flows from financing activities:
Borrowings from related parties 67,523 58,034
Payments to related parties (66,512) (77,786)
Payment of long-term debt (68) (4,622)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 943 (24,374)
-------- --------
Net increase (decrease) in cash and cash equivalents -- 1
Cash and cash equivalents at the beginning of the quarter -- --
-------- --------
Cash and cash equivalents at the end of the quarter $ -- $ 1
======== ========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ -- $ 13,806
(1) The $9.2 million impairment charge consists of: a) impairment of fixed
assets - $8.2 million, and b) reduction of dedicated stores and operating
supplies to net realizable value - $1.0 million.
The accompanying notes are an integral part of the financial statements.
-14-
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The financial statements include the accounts of CF&I Steel, L.P.
("CF&I"). Oregon Steel Mills, Inc. ("Oregon Steel") owns an 87% interest in New
CF&I, Inc. ("New CF&I") which owns a 95.2% interest in CF&I. Oregon Steel also
owns directly an additional 4.3% interest in CF&I. In January 1998, CF&I assumed
the trade name of Rocky Mountain Steel Mills.
The unaudited financial statements include all adjustments consisting
of normal recurring accruals and other charges as described in Note 4, "Asset
Impairments" which, in the opinion of management, are necessary for a fair
presentation of the interim periods. Results for an interim period are not
necessarily indicative of results for a full year. Reference should be made to
CF&I's 2002 Annual Report on Form 10-K for additional disclosures including a
summary of significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Accounting Standard ("SFAS") No. 143, "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. This statement requires that New
CF&I record a liability for the fair value of an asset retirement obligation
when CF&I has a legal obligation to remove the asset. SFAS No. 143 is effective
for CF&I beginning January 1, 2003. The adoption of SFAS No. 143 did not have a
material impact on CF&I's financial statements.
In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES." SFAS No. 146 addresses the
financial accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force ("EITF") Issue No. 94-3,
"LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)." SFAS
No. 146 requires recognition of the liability for costs associated with an exit
or disposal activity when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. This statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. CF&I adopted SFAS No. 146 effective January 1, 2003. CF&I
primarily accounts for employee termination actions under SFAS No. 112, which
requires recording when such charges are probable and estimable. As such, the
adoption of SFAS No. 146 did not have an impact in the quarter, as there were no
significant one-time severance actions or other exit costs.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS." It clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
disclosure provisions for FIN No. 45 were effective for the year ending December
31, 2002. CF&I adopted the recognition provisions of FIN No. 45 effective
January 1, 2003 for guarantees issued or modified after December 31, 2002. The
adoption of FIN No. 45 did not have any material impact on the Company's
financial statements.
In January 2003, the FASB issued FIN No. 46, "CONSOLIDATION OF VARIABLE
INTEREST ENTITIES." FIN No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN No. 46 also requires
disclosures about variable interest entities that a company is not required to
consolidate but in which it has a significant variable interest. FIN No. 46
applies immediately to variable interest entities created after January 31, 2003
and to existing variable interest entities in the periods beginning after June
15, 2003. CF&I has not created or obtained an interest in any variable
interest entities after January 31, 2003. CF&I is continuing to review the
provisions of FIN No. 46 to determine its impact, if any, on future reporting
periods with respect to interests in variable interest entities created prior to
February 1, 2003.
In April 2003, the FASB issued SFAS No. 149, "AMENDMENT OF STATEMENT
133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. CF&I is currently evaluating whether or not the adoption of SFAS
No. 149 will have an effect on its financial position, results of operations and
cash flows.
In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." SFAS
No. 150 requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
The financial instruments affected include mandatorily redeemable stock, certain
financial instruments that require or may require the issuer to buy back some of
its shares in exchange for cash or other assets and certain obligations that can
be settled with shares of stock. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003 and must be applied to
CF&I's existing financial instruments effective July 1, 2003, the beginning of
the first fiscal period after June 15, 2003. CF&I adopted SFAS No. 150 on
June 1, 2003. The adoption of this statement did not have a material effect on
CF&I's financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform to
the current year presentation. Such reclassifications do not affect results of
operations as previously reported.
-15-
2. INVENTORIES
-----------
Inventories are stated at the lower of manufacturing cost or market
value with manufacturing cost determined under the average cost method. The
components of inventories are as follows:
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Inventories consist of: (IN THOUSANDS)
Raw materials $ 4,776 $ 5,536
Semi-finished product 8,183 11,325
Finished product 11,757 17,420
Stores and operating supplies 10,534 11,548
-------- --------
Total inventory $ 35,250 $ 45,829
======== ========
Effective January 1, 2003, CF&I changed the method of computing the
market valuation of inventories in applying the lower of manufacturing cost or
market (LCM) accounting policy. Under the new accounting method, CF&I evaluates
the market value of its inventory for potential LCM write-downs at the product
group level. CF&I believes this change is preferable because it better reflects
a more precise measure of expense in the period in which an impairment in value
is identified. During the three months ended June 30, 2003, CF&I recognized
approximately $0.5 million of LCM charges. Under CF&I's past practices,
there would not have been an impairment charge during this period. The impact on
the period ended March 31, 2003, and the accumulative effect of change as of
January 1, 2003 was immaterial.
3. CONTINGENCIES
-------------
ENVIRONMENTAL MATTERS
All material environmental remediation liabilities for non-capital
expenditures, which are probable and estimable, are recorded in the financial
statements based on current technologies and current environmental standards at
the time of evaluation. Adjustments are made when additional information is
available that suggests different remediation methods or periods may be required
and affect the total cost. The best estimate of the probable cost within a range
is recorded; however, if there is no best estimate, the low end of the range is
recorded and the range is disclosed.
In connection with the acquisition of the steelmaking and finishing
facilities located at Pueblo, Colorado ("Pueblo Mill"), CF&I accrued a liability
of $36.7 million for environmental remediation related to the prior owner's
operations. CF&I believed this amount was the best estimate of costs from a
range of $23.1 million to $43.6 million. CF&I's estimate of this liability was
based on two remediation investigations conducted by environmental engineering
consultants, and included costs for the Resource Conservation and Recovery Act
facility investigation, a corrective measures study, remedial action, and
operation and maintenance associated with the proposed remedial actions. In
October 1995, CF&I and the Colorado Department of Public Health and Environment
("CDPHE") finalized a postclosure permit for hazardous waste units at the Pueblo
Mill. As part of the postclosure permit requirements, CF&I must conduct a
corrective action program for the 82 solid waste management units at the
facility and continue to address projects on a prioritized corrective action
schedule which substantially reflects a straight-line rate of expenditure over
30 years. The State of Colorado mandated that the schedule for corrective action
could be accelerated if new data indicated a greater threat existed to the
environment than was presently believed to exist. At June 30, 2003, the accrued
liability was $28.6 million, of which $23.4 million was classified as
non-current on the consolidated balance sheet.
The CDPHE inspected the Pueblo Mill in 1999 for possible environmental
violations, and in the fourth quarter of 1999 issued a Compliance Advisory
indicating that air quality regulations had been violated, which was followed by
the filing of a judicial enforcement action ("Action") in the second quarter of
2000. In March 2002, CF&I and CDPHE reached a settlement of the Action, which
was approved by the court (the "State Consent Decree"). The State Consent Decree
provides for CF&I to pay $300,000 in penalties, fund $1.5 million of community
projects, and to pay approximately $400,000 for consulting services. CF&I is
also required to make certain capital improvements expected to cost
approximately $25 million, including converting to the new single New Source
Performance Standards Subpart AAa ("NSPS AAa") compliant furnace discussed
below. The State Consent Decree provides that the two existing furnaces will be
permanently shut down approximately 16 months after the issuance of a Prevention
of Significant Deterioration ("PSD") air permit. CF&I applied for the PSD permit
in April 2002. Terms of that permit are still under discussion with the State
and it has not yet been issued.
-16-
In May 2000, the Environmental Protection Agency ("EPA") issued a final
determination that one of the two electric arc furnaces at the Pueblo Mill
was subject to federal NSPS AA. This determination was contrary to an earlier
"grandfather" determination first made in 1996 by CDPHE. CF&I appealed the EPA
determination in the federal Tenth Circuit Court of Appeals, and that appeal is
pending. CF&I has negotiated a settlement of this matter with the EPA. Under
that agreement and overlapping with the commitments made to the CDPHE described
below, CF&I committed to the conversion to the new NSPS AAa compliant furnace
(demonstrating full compliance 21 months after permit approval and expected to
cost, with all related emission control improvements, approximately $25
million), and to pay approximately $450,000 in penalties and fund certain
supplemental environmental projects and undertake additional environmental
projects valued at approximately $1.1 million, including the installation of
certain pollution control equipment at the Pueblo Mill. The above mentioned
expenditures for supplemental environmental projects will be both capital and
non-capital expenditures. On April 9, 2003, the EPA filed a proposed Federal
Consent Decree, now subject to public comment, which, if approved by the court,
will fully resolve all NSPS and PSD issues. At that time CF&I will dismiss its
appeal against the EPA. If the proposed settlement with the EPA is not approved,
which appears unlikely, it would not be possible to estimate the liability if
there were ultimately an adverse determination of this matter.
In response to the CDPHE settlement and the resolution of the EPA
action, CF&I had expensed $2.8 million for possible fines and non-capital
related expenditures since the settlement. As of June 30, 2003, the accrued
liability was $1.2 million.
As noted above, as part of the settlement with the CDPHE and the EPA,
CF&I is required to install one new electric arc furnace and the two existing
furnaces, with a combined melting and casting capacity of approximately 1.2
million tons through two continuous casters, will be shut down. The new single
furnace operation will not have the capacity to support a two caster operation,
and one caster and the related assets with a book value of $9.2 million was
written off in the quarter ended June 30, 2003. See Note 4 "Asset Impairments"
for a description of this charge.
In December 2001, the State of Colorado issued a Title V air emission
permit to CF&I under the Clean Air Act ("CAA") requiring that the furnace
subject to the EPA action operate in compliance with NSPS AA standards.
This permit was modified in April 2002 to incorporate the longer compliance
schedule that is part of the settlement with the CDPHE and the EPA. In September
2002, CF&I submitted a request for a further extension of certain Title V
compliance deadlines, consistent with a joint petition by the State and CF&I for
an extension of the same deadlines in the State Consent Decree. This
modification gives CF&I adequate time to convert to a single NSPS AAa compliant
furnace. Any decrease in steelmaking production during the furnace conversion
period when both furnaces are expected to be shut down will be offset by
increasing production prior to the conversion period by building up
semi-finished steel inventory and, if necessary, purchasing semi-finished steel
("billets") for conversion into rod products at spot market prices at costs
comparable to internally generated billets. Pricing and availability of billets
is subject to significant volatility. However, CF&I believes that near term
supplies of billets will continue to be available in sufficient quantities at
favorable prices.
In a related matter, in April 2000, the United Steelworkers of America
("Union") filed suit in U.S. District Court in Denver, Colorado, asserting
that New CF&I and CF&I had violated the CAA at the Pueblo Mill for a period
extending over five years. The Union sought declaratory judgement regarding the
applicability of certain emission standards, injunctive relief, civil penalties
and attorney's fees. On July 6, 2001, the presiding judge dismissed the suit.
The Federal Tenth Circuit Court of Appeals on March 3, 2003 reversed the
District Court's dismissal of the case and remanded the case for further hearing
to the District Court. New CF&I and CF&I sought and the Court entered a stay of
the District Court action until a Consent Decree filed in another case settling
the same issues with the EPA becomes final. While CF&I does not believe the suit
will have a material adverse effect on its results of operations, the result of
litigation, such as this, is difficult to predict and an adverse outcome with
significant penalties is possible. It is not presently possible to estimate the
liability if there is ultimately an adverse determination on remand.
LABOR MATTERS
The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on October
3, 1997, the Union initiated a strike at CF&I for approximately 1,000 bargaining
unit employees. The parties, however, failed to reach final agreement on a new
labor contract due to differences on economic issues. As a result of contingency
planning, CF&I was able to avoid complete suspension of operations at the Pueblo
Mill by utilizing a combination of new hires, striking employees who returned to
work, contractors and salaried employees.
On December 30, 1997, the Union called off the strike and made an
unconditional offer on behalf of its members to return to work. At the time of
this offer, because CF&I had permanently replaced the striking employees, only a
few vacancies existed at the Pueblo Mill. Since that time, vacancies have
occurred and have been filled by formerly striking
-17-
employees ("Unreinstated Employees"). As of June 30, 2003, approximately
812 Unreinstated Employees have either returned to work or have declined CF&I's
offer of equivalent work. At June 30, 2003, approximately 138 Unreinstated
Employees remain unreinstated.
On February 27, 1998, the Regional Director of the National Labor
Relations Board ("NLRB") Denver office issued a complaint against CF&I, alleging
violations of several provisions of the National Labor Relations Act ("NLRA").
On August 17, 1998, a hearing on these allegations commenced before an
Administrative Law Judge ("Judge"). Testimony and other evidence were presented
at various sessions in the latter part of 1998 and early 1999, concluding on
February 25, 1999. On May 17, 2000, the Judge rendered a decision which, among
other things, found CF&I liable for certain unfair labor practices and ordered
as remedy the reinstatement of all 1,000 Unreinstated Employees, effective as of
December 30, 1997, with back pay and benefits, plus interest, less interim
earnings. Since January 1998, CF&I has been returning Unreinstated Employees to
jobs as positions became open. As noted above, there were approximately 138
Unreinstated Employees as of June 30, 2003. On August 2, 2000, CF&I filed an
appeal with the NLRB in Washington, D.C. A separate hearing concluded in
February 2000, with the judge for that hearing rendering a decision on August 7,
2000, that certain of the Union's actions undertaken since the beginning of the
strike did constitute misconduct and violations of certain provisions of the
NLRA. The Union has appealed this determination to the NLRB. In both cases, the
non-prevailing party in the NLRB's decision will be entitled to appeal to the
appropriate U.S. Circuit Court of Appeals. CF&I believes both the facts and the
law fully support its position that the strike was economic in nature and that
it was not obligated to displace the properly hired replacement employees. CF&I
does not believe that final judicial action on the strike issues is likely for
at least two to three years.
In the event there is an adverse determination of these issues,
Unreinstated Employees could be entitled to back pay, including benefits, plus
interest, from the date of the Union's unconditional offer to return to work
through the date of their reinstatement or a date deemed appropriate by the NLRB
or an appellate court. The number of Unreinstated Employees entitled to back pay
may be limited to the number of past and present replacement workers; however,
the Union might assert that all Unreinstated Employees should be entitled to
back pay. Back pay is generally determined by the quarterly earnings of those
working less interim wages earned elsewhere by the Unreinstated Employees. In
addition to other considerations, each Unreinstated Employee has a duty to take
reasonable steps to mitigate the liability for back pay by seeking employment
elsewhere that has comparable working conditions and compensation. Any estimate
of the potential liability for back pay will depend significantly on the ability
to assess the amount of interim wages earned by these employees since the
beginning of the strike, as noted above. Due to the lack of accurate information
on interim earnings for both reinstated and Unreinstated Employees and sentiment
of the Union towards CF&I, it is not currently possible to obtain the necessary
data to calculate possible back pay. In addition, the NLRB's findings of
misconduct by the Union may mitigate any back pay award with respect to any
Unreinstated Employees proven to have taken part or participated in acts of
misconduct during and after the strike. Thus, it is not presently possible to
estimate the liability if there is ultimately an adverse determination against
CF&I. An ultimate adverse determination against CF&I on these issues may have a
material adverse effect on CF&I's financial condition, results of operations, or
cash flows. CF&I does not intend to agree to any settlement of this matter that
will have a material adverse effect on CF&I. In connection with the ongoing
labor dispute, the Union has undertaken certain activities designed to exert
public pressure on CF&I. Although such activities have generated some publicity
in news media, CF&I believes that they have had little or no material impact on
its operations.
PURCHASE COMMITMENTS
Effective February 2, 1993, CF&I entered into an agreement,
subsequently amended on August 4, 1994, to purchase a base amount of oxygen
produced at the Pueblo Mill. This agreement expires January 2013 and specifies
that CF&I will pay a base monthly charge that is adjusted annually based upon a
percentage change in the Producer Price Index. The monthly base charge at June
30, 2003 for this agreement was $116,000.
GUARANTEES AND FINANCING ARRANGEMENTS
On July 15, 2002, Oregon Steel issued $305 million of 10% First
Mortgage Notes due 2009 ("10% Notes") at a discount of 98.772% and an interest
rate of 10%. Interest is payable on January 15 and July 15 of each year. The
proceeds of this issuance were used to redeem Oregon Steel's 11% First Mortgage
Notes due 2003 (including interest accrued from June 16, 2002 until the
redemption date of August 14, 2002), refinance its existing credit agreement,
and for working capital and general corporate purposes. New CF&I and CF&I
(collectively "Guarantors") guarantee the obligations of Oregon Steel under the
10% Notes, and those guarantees are secured by a lien on substantially all of
the property, plant and equipment and certain other assets of the Guarantors,
excluding accounts receivable and inventory.
In addition, Oregon Steel, New CF&I, CF&I, and Colorado and Wyoming
Railway Company ("C&W") are borrowers ("Borrowers") under a $75 million
revolving credit facility ("Credit Agreement") that will expire on June 30, 2005
and is collateralized, in part, by certain equity and
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intercompany interests, accounts receivable and inventory of New CF&I and
CF&I. At June 30, 2003, $5.0 million was restricted under the Credit Agreement,
$8.0 million was restricted under the outstanding letters of credit, and $62.0
million was available for use. The Credit Agreement contains various restrictive
covenants including a minimum consolidated tangible net worth amount, a minimum
earnings before interest, taxes, depreciation and amortization ("EBITDA")
amount, a minimum fixed charge coverage ratio, a maximum senior debt ratio,
limitations on maximum annual capital and environmental expenditures,
limitations on stockholder dividends and limitations on incurring new or
additional debt obligations other than as allowed by the Credit Agreement. On
August 13, 2003, Oregon Steel entered into an agreement with its lenders to
amend the $75 million revolving credit facility effective June 30, 2003. The
agreement amended the minimum consolidated EBITDA, minimum fixed charge coverage
ratio, maximum senior debt ratio and minimum consolidated tangible net worth
covenants as of June 30, 2003 and for each month through the maturity date of
the facility. In addition, the amendment added a borrowing availability
limitation relating to inventory and will reduce the maximum credit amount from
$75 million to $65 million.
LIQUIDITY
CF&I experienced a net loss for the three months ended June 30, 2003.
Contributing to the adverse results was the interest paid by CF&I to Oregon
Steel for its financing. CF&I has been able to fulfill its needs for working
capital and capital expenditures due, in part, to the financing arrangement with
Oregon Steel. CF&I expects that operations will continue for the remainder of
2003, with the realization of assets, and discharge of liabilities in the
ordinary course of business. CF&I believes that its prospective needs for
working capital and capital expenditures will be met from cash flows generated
by operations and borrowings pursuant to the financing arrangement with Oregon
Steel. If operations are not consistent with management's plans, there is no
assurance that the amounts from these sources will be sufficient for such
purposes. Oregon Steel is not required to provide financing to CF&I and,
although the demand for repayment of the obligation in full is not expected
during 2003, Oregon Steel may demand repayment of the loan at any time. If
Oregon Steel were to demand repayment of the loan, it is not likely that CF&I
would be able to obtain the external financing necessary to repay the loan or to
fund its capital expenditures and other cash needs and, if available, that such
financing would be on terms satisfactory to CF&I.
OTHER CONTINGENCIES
CF&I is party to various other claims, disputes, legal actions and
other proceedings involving contracts, employment and various other matters. In
the opinion of management, the outcome of these matters would not have a
material adverse effect on the financial condition of CF&I.
4. ASSET IMPAIRMENTS
-----------------
As noted in Note 3 above, as part of the settlement with the CDPHE and
the EPA, CF&I is required to install one new electric arc furnace, and the
two existing furnaces, with a combined melting and casting capacity of
approximately 1.2 million tons through two continuous casters, will be shut
down. CF&I has determined that the new single furnace operation will not have
the capacity to support a two caster operation and therefore CF&I has determined
that one caster and other related assets have no future service potential.
Accordingly, CF&I has recorded an impairment charge to earnings of $9.2 million,
including $1.0 million incurred for the reduction in value of related stores
items. Because it is believed the caster has no salvage value, the carrying
value of the fixed assets was zero after the effect of the impairment charge.
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5. INTANGIBLE ASSETS
-----------------
The carrying amount of intangible assets and the associated
amortization expenses are as follows:
ACQUIRED INTANGIBLE ASSETS
--------------------------
AS OF JUNE 30, 2003
---------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
---------------------------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary Technology $1,653 $(753)
====== =====
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the six months ended 6/30/03 $ 206
..
ESTIMATED AMORTIZATION EXPENSE
------------------------------
For the year ended 12/31/03 $ 261
For the year ended 12/31/04 $ 110
For the year ended 12/31/05 $ 110
For the year ended 12/31/06 $ 110
For the year ended 12/31/07 $ 110
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
The following information contains forward-looking statements, which
are subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Statements made in this report that are not statements of
historical fact are forward-looking statements. Forward-looking statements made
in this report can be identified by forward-looking words such as, but not
limited to, "expect," "anticipate," "believe," "intend," "plan," "seek,"
"estimate," "continue," "may," "will," "would," "could," and similar
expressions. These forward-looking statements are subject to risks and
uncertainties and actual results could differ materially from those projected.
These risks and uncertainties include, but are not limited to, general business
and economic conditions; competitive products and pricing, as well as
fluctuations in demand; the supply of imported steel and subsidies provided by
foreign governments to support steel companies domiciled in their countries;
changes in U.S. or foreign trade policies affecting steel imports or exports;
potential equipment malfunction; work stoppages; plant construction and repair
delays; reduction in electricity supplies and the related increased costs and
possible interruptions of supply; changes in the availability and costs of raw
materials and supplies used by New CF&I; costs of environmental compliance and
the impact of governmental regulations; risks related to the outcome of the
pending Union lawsuit, and failure of New CF&I to predict the impact of lost
revenues associated with interruption of New CF&I's, its customers' or
suppliers' operations.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth for the tonnage sold and sales and average
selling price per ton:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2003 2002 2003 2002
---------- -------- -------- --------
Tonnage sold:
Rail 86,800 101,200 199,700 199,900
Rod and Bar 117,400 109,300 232,900 220,200
Seamless Pipe (1) 13,300 7,000 24,200 9,300
Semi-finished -- 2,500 -- 2,600
-------- -------- -------- --------
Total 217,500 220,000 456,800 432,000
======== ======== ======== ========
Product sales (in thousands): (2) $ 81,755 $ 82,947 $170,343 $160,827
Average selling price per ton: (2) $ 376 $ 377 $ 373 $ 372
- -----------------
(1) New CF&I suspended operation of the seamless pipe mill in November of 2001 to April 2002.
(2) Product sales and average selling price per ton exclude freight revenues
for the three and six months ended June 30, 2003 and 2002.
SALES. New CF&I's consolidated sales decreased $1.1 million, or 1.3%,
to $85.4 million, and increased $9.9 million, or 5.9%, to $178.0 million for the
three and six months ended June 30, 2003, respectively, over the same periods in
2002. For the three and six months ended June 30, 2003, the Company shipped
217,500 tons and 456,800 tons of rail, rod and bar and seamless pipe products at
an average selling price of $376 and $373 per ton, compared to 220,000 tons and
432,000 tons of product at an average selling price of $377 and $372 per ton for
the same periods in 2002. The increase in sales for the six months ended June
30, 2003 is a result of higher shipments of rod and bar and seamless pipe
products, partially offset by a decrease in the average sales price for rail
products.
GROSS PROFITS. New CF&I's gross profit was $2.5 million and $11.2
million for the three and six months ended June 30, 2003, or 3.0% and 6.3% of
total sales, compared to $14.5 million and $28.2 million, or 16.7% and 16.8% of
total sales, for the same periods in 2002. The decrease of $12.0 million and
$17.0 million, respectively, was primarily attributed to a decrease in the
average sales price of rail products, an increase in the average production
costs of rail, and rod and bar products due to higher raw material and energy
costs, partially offset by an increase in the average sales price of rod and
bar, and by increased shipments of rod and bar and seamless pipe products.
SELLING, GENERAL & ADMINISTRATIVE. New CF&I's selling, general and
administrative expenses ("SG&A") of $4.5 million and $9.1 million for the three
and six months ended June 30, 2003, respectively, decreased by 23.1% and 19.9%,
from $5.9 million and $11.4 million for the same period in 2002. The decrease in
2003 is attributed primarily to a decrease in rail commissions paid in 2003, and
a decrease in bad debt expense.
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INTEREST EXPENSE. Total interest expense of $6.0 million and $11.9
million for the three and six months ended June 30, 2003 decreased by 7.7% and
10.5%, from $6.5 million and $13.3 million, respectively, for the same periods
of 2002. Lower interest expense was due to a decrease in the borrowing rate and
in the average borrowing outstanding for the 2003 periods.
INCOME TAX EXPENSE. The effective income tax benefit rate was 14.1% and
15.9% for the three and six months ended June 30, 2003, as compared to the tax
expense rate of 70.4% and 47.2% in the corresponding periods in 2002. The
effective income tax rate for the first half of 2003 varied from the combined
state and federal statutory rate principally because New CF&I established a
valuation allowance for certain state net operating loss carry-forwards. See
Note 6 "Income Taxes" for a discussion of the valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for the six months ended June 30, 2003
was $6.6 million compared to $26.9 million in the corresponding period of 2002.
The items primarily affecting the $20.3 million decrease in cash flows were
operating losses, before consideration of non-cash transactions, and changes in
working capital requirements including: 1) a decrease of $2.9 million in
net accounts receivable in the first six months of 2003 versus a decrease of
$7.6 million in the same period of 2002; 2) a decrease in inventories in the
first six months of 2003 of $9.6 million versus a decrease of $5.4 million in
2002; and 3) a $4.3 million decrease of operating liabilities in the first six
months of 2003 versus a $1.5 million increase in the first six months of 2002.
For the six months ended June 30, 2003, New CF&I expended approximately
$8.1 million, excluding capitalized interest, on capital projects.
Borrowing requirements for capital expenditures and other cash needs,
both short-term and long-term are provided through a loan from Oregon Steel. As
of June 30, 2003, $229.2 million of aggregate principal amount of the loan was
outstanding, all of which was classified as long-term. The loan includes
interest on the daily amount outstanding at the rate of 10.5%. The principal is
due on demand or, if no demand is made, due December 31, 2004. Interest on the
principal amount of the loan is payable monthly. Because the loan from Oregon
Steel is due on demand, the applicable interest rate is effectively subject to
renegotiation at any time, and there is no assurance the interest rate will not
be materially increased in the future.
New CF&I has been able to fulfill its needs for working capital and
capital expenditures, due in part to the financing arrangement with Oregon
Steel. New CF&I expects that operations will continue for the remainder of 2003,
with the realization of assets, and discharge of liabilities in the ordinary
course of business. New CF&I believes that its prospective needs for working
capital and capital expenditures will be met from cash flows generated by
operations and borrowings pursuant to the financing arrangement with Oregon
Steel. If operations are not consistent with management's plans, there is no
assurance that the amounts from these sources will be sufficient for such
purposes. Oregon Steel is not required to provide financing to New CF&I and,
although the demand for repayment of the obligation in full is not expected
during 2003, Oregon Steel may demand repayment of the loan at any time. If
Oregon Steel were to demand repayment of the loan, it is not likely that New
CF&I would be able to obtain the external financing necessary to repay the loan
or to fund its capital expenditures and other cash needs, and if available, that
such financing would be on terms as favorable to New CF&I as that provided by
Oregon Steel. The failure of either New CF&I or Oregon Steel to maintain their
current financing arrangements would likely have a material adverse impact on
New CF&I and CF&I.
Oregon Steel has $305 million principal amount of 10% First Mortgage
Notes due 2009 ("10% Notes") payable to outside parties. New CF&I and CF&I (the
"Guarantors") have guaranteed the obligations of Oregon Steel under the 10%
Notes, and those guarantees are secured by a lien on substantially all of the
Guarantors' property, plant and equipment and certain other assets, excluding
accounts receivable and inventory.
In addition, Oregon Steel, New CF&I, CF&I, and C&W are borrowers
("Borrowers") under a $75 million revolving credit facility ("Credit Agreement")
that will expire on June 30, 2005 and is collateralized, in part, by certain
equity and intercompany interests, accounts receivable and inventory of New CF&I
and CF&I. The Credit Agreement contains various restrictive covenants including
a minimum consolidated tangible net worth amount, a minimum earnings before
interest, taxes, depreciation and amortization ("EBITDA") amount, a minimum
fixed charge coverage ratio, limitations on maximum annual capital and
environmental expenditures, limitations on stockholder dividends and limitations
on incurring new or additional debt obligations other than as allowed by the
Credit Agreement. As of June 30, 2003, there was no outstanding balance due
under the credit facility. On August 13, 2003, Oregon Steel entered into an
agreement with its lenders to amend the $75 million revolving credit facility
effective June 30, 2003. The agreement amended the
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minimum consolidated EBITDA, minimum fixed charge coverage ratio, maximum
senior debt ratio and minimum consolidated tangible net worth covenants as of
June 30, 2003 and for each month through the maturity date of the facility.
In addition, the amendment added a borrowing availability limitation relating to
inventory and will reduce the maximum credit amount from $75 million to $65
million. As of June 30, 2003, there was no outstanding balance due under the
credit facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and
15d-15, New CF&I's and CF&I's management, under the supervision of the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of New CF&I's and CF&I's disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of New CF&I's and CF&I's
disclosure controls and procedures were effective. There has been no change in
New CF&I's and CF&I's internal controls over financial reporting that occurred
during New CF&I's and CF&I's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, New CF&I's and CF&I's
internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, "Notes to Consolidated Financial Statements - Note 3,
Contingencies," for discussion of (a) the lawsuit initiated by the Union
alleging violations of the CAA, (b) the environmental issues at CF&I, and (c)
the status of the labor matters at CF&I.
New CF&I is party to various other 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 New CF&I.
New CF&I maintains insurance against various risks, including certain
types of tort liability arising from the sale of its products. New CF&I does not
maintain insurance against liability arising out of waste disposal, or on-site
remediation of environmental contamination because of the high cost of such
insurance coverage. There is no assurance that the insurance coverage currently
carried by New CF&I will be available in the future at reasonable rates, if at
all.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 2 to Credit Agreement dated as of June 30, 2003
18.1 Certifying Accountant's Preferability Letter
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW CF&I, INC.
Date: August 14, 2003 /s/ Jeff S. Stewart
----------------------------------------
Jeff S. Stewart
Corporate Controller
CF&I STEEL, L.P.
BY: NEW CF&I, INC.
GENERAL PARTNER
Date: August 14, 2003 /s/ Jeff S. Stewart
----------------------------------------
Jeff S. Stewart
Corporate Controller
New CF&I, Inc.
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NEW CF&I, INC.
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED JUNE 30, 2003
10.1 Amendment No. 2 to Credit Agreement dated as of June 30, 2003
18.1 Certifying Accountant's Preferability Letter
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
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