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 September 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, SUITE 2200, PORTLAND, OREGON 97205
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(Address of principal executive offices) (Zip Code)
(503)223-9228
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
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, SUITE 2200, PORTLAND, OREGON 97205
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(Address of principal executive offices) (Zip Code)
(503)223-9228
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant (1) is an accelerated
filer (as defined in Rule 12b-2 of the 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.
--------------
Consolidated Balance Sheets
September 30, 2003 (unaudited) and December 31, 2002... 2
Consolidated Statements of Operations (unaudited)
Three and nine months ended September 30, 2003
and 2002............................................... 3
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2003 and 2002.......... 4
Notes to Consolidated Financial Statements
(unaudited)..........................................5-11
FINANCIAL STATEMENTS - CF&I STEEL, L.P.
----------------
Balance Sheets
September 30, 2003 (unaudited) and December 31, 2002...12
Statements of Operations (unaudited)
Three and nine months ended September 30, 2003
and 2002.............................................. 13
Statements of Cash Flows (unaudited)
Nine months ended September 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 ....................................................25
Exhibit Index ....................................................26
-1-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------------------- -------------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 167 $ 289
Trade accounts receivable, net of allowance for
doubtful accounts of $1,360 and $1,811 26,382 32,458
Inventories 39,609 46,104
Deferred income taxes 3,414 4,841
Other 1,036 745
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Total current assets 70,608 84,437
--------- ---------
Property, plant and equipment:
Land and improvements 3,192 3,454
Buildings 19,852 19,886
Machinery and equipment 268,622 260,791
Construction in progress 7,143 5,151
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298,809 289,282
Accumulated depreciation (133,400) (111,469)
--------- ---------
Net property, plant and equipment 165,409 177,813
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Intangibles, net 872 1,106
Deferred income taxes 31,487 32,786
Other assets 11,917 13,455
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TOTAL ASSETS $ 280,293 $ 309,597
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 41,762 $ 39,701
Accrued expenses 29,356 30,558
--------- ---------
Total current liabilities 71,118 70,259
Long-term debt -- Oregon Steel Mills, Inc. 227,536 228,208
Environmental liability 23,338 27,488
Deferred employee benefits 9,006 8,299
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Total liabilities 330,998 334,254
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Minority interests (5,642) (4,402)
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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 (80,016) (55,208)
Accumulated other comprehensive income:
Minimum pension liability (3,491) (3,491)
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Total stockholders' deficit (66,903) (42,095)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 280,293 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
-------------- -------------- ------------ --------------
SALES:
Product Sales $ 82,927 $ 79,434 $ 253,270 $ 240,261
Freight 3,907 3,438 11,518 10,616
--------- --------- --------- ---------
86,834 82,872 264,788 250,877
COSTS AND EXPENSES:
Cost of sales 82,326 68,377 249,048 208,135
Fixed and other asset impairment charges -- -- 9,157 --
Gain on sale of assets (641) (86) (1,032) (1,108)
Selling, general and administrative expenses 4,039 5,711 13,171 17,107
--------- --------- --------- ---------
85,724 74,002 270,344 224,134
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 1,110 8,870 (5,556) 26,743
OTHER INCOME (EXPENSE):
Interest expense (6,024) (6,019) (17,929) (19,325)
Minority interests 293 (134) 1,240 (371)
Other income, net 56 77 178 799
--------- --------- --------- ---------
Income (loss) before income taxes (4,565) 2,794 (22,067) 7,846
Provision for income tax expense (5,536) (887) (2,741) (3,272)
--------- --------- --------- ---------
Income (loss) before cumulative
effect of change in accounting
principle (10,101) 1,907 (24,808) 4,574
Cumulative effect of change in
accounting principle, net of tax of $11.3
million, net of minority interest of $1.5
million -- -- -- (19,069)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (10,101) $ 1,907 $ (24,808) $ (14,495)
========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2003 2002
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Cash flows provided by operating activities:
Net loss $(24,808) $ (14,495)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - 19,069
Depreciation and amortization 13,944 14,015
Fixed and other asset impairment charges 9,157 -
Deferred income taxes, net 2,726 2,197
Long-term environmental liability (4,150) 21
Gain on sale of assets (1,032) (1,108)
Minority interests' share of income (loss) (1,240) 371
Changes in current assets and liabilities:
Trade accounts receivable 6,076 9,457
Inventories 5,561 2,572
Accounts payable 2,061 (4,031)
Accrued expenses and deferred employee benefits (613) (2,585)
Other, net 1,354 (381)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 9,036 25,102
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Cash flows used in investing activities:
Additions to property, plant and equipment (9,882) (6,436)
Proceeds from disposal of property and equipment 1,396 1,403
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NET CASH USED IN INVESTING ACTIVITIES (8,486) (5,033)
-------- ---------
Cash flows used in financing activities:
Borrowings from Oregon Steel Mills, Inc. 104,604 93,780
Payments to Oregon Steel Mills, Inc. (105,208) (104,566)
Payment of long-term debt (68) (8,415)
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NET CASH USED IN FINANCING ACTIVITIES (672) (19,201)
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Net increase (decrease) in cash and cash equivalents (122) 868
Cash and cash equivalents at the beginning of period 289 3
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Cash and cash equivalents at the end of period $ 167 $ 871
======== =========
Supplemental disclosures of cash flow information:
Cash paid for:
- -------------
Interest $ 18,294 $ 20,264
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
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.
Oregon Steel also owns directly an additional 4.3% interest in 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 Financial Accounting Standards ("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 New CF&I has a legal obligation to remove the asset. SFAS No.
143 is effective for New CF&I beginning January 1, 2003. The adoption of SFAS
No. 143 did not have a material impact on New CF&I'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. In mid-July 2002, Oregon Steel refinanced its credit facility and
redeemed its 11% First Mortgage Notes due 2003, resulting in a $1.1 million
extraordinary loss, net of taxes, on the early extinguishment of debt. The
amount recognized consisted primarily of the write-off of unamortized fees and
expenses. The adoption of SFAS No. 145 caused a reclassification of the prior
year extraordinary loss to other income (expense) in the third quarter of 2003
in the consolidated financial statements of Oregon Steel.
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 New CF&I'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 had
accounted for employee termination actions under SFAS No. 112, which required
recording when such charges are probable and estimable, and therefore, the
adoption of SFAS No. 146 did not have an impact on New CF&I's consolidated
financial statements.
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 a material impact on New CF&I's consolidated
financial statements.
-5-
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 first interim or annual period
ending after December 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 currently
evaluating the impact of adoption of FIN No. 46 on its consolidated financial
statements.
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. The adoption of SFAS No. 149 did not have a material effect on New
CF&I's consolidated financial statements.
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
July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on New
CF&I's consolidated financial statements.
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
-----------
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:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(IN THOUSANDS)
Raw materials $ 9,024 $ 5,536
Semi-finished product 5,549 11,325
Finished product 14,375 17,420
Stores and operating supplies 10,661 11,823
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Total inventories $39,609 $46,104
======= =======
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.
-6-
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 September 30, 2003, the
accrued liability was $27.9 million, of which $21.7 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, and the draft permit was issued for public comment on October 2,
2003.
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. The Court is likely to approve the settlement, but is
awaiting a legal memorandum on a narrow issue from the EPA before taking final
action.
In response to the CDPHE settlement and the resolution of the EPA
action, CF&I had expensed $2.8 million in 2002 for possible fines and
non-capital related expenditures since the settlement. As of September 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. CF&I has
determined that the new single furnace operation will not have the capacity to
support a two caster operation, and therefore 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,
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
-7-
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 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 10th 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. The Union has amended its complaint in the case raising additional PSD
permit issues. 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 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 September 30, 2003, approximately 815 Unreinstated Employees
have either returned to work or have declined CF&I's offer of equivalent work.
At September 30, 2003, approximately 135 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 135
Unreinstated Employees as of September 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 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
-8-
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
September 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 $65 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 September 30, 2003,
$5.0 million was restricted under the Credit Agreement, $14.3 million was
restricted under the outstanding letters of credit, and $45.7 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, a borrowing availability
limitation relating to inventory, limitations on stockholder dividends and
limitations on incurring new or additional debt obligations other than as
allowed by the Credit Agreement.
On October 24, 2003, the Borrowers determined they were in violation of
one of the Credit Agreement covenants, and on November 13, 2003, the Borrowers
entered into an agreement with the lenders which waived the violation and
amended the minimum consolidated EBITDA, minimum fixed charge coverage ratio,
maximum senior debt ratio and minimum consolidated tangible net worth covenants
as of October 31, 2003 and for each month through the maturity date of the
facility.
Included in the Credit Agreement amendment above, the Borrowers'
ability to draw letters of credit has been increased from $20 million to $25
million to support issuance of letters of credit and similar contracts.
LIQUIDITY
New CF&I experienced a net loss for the three and nine months ended
September 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 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.
-9-
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 in the
quarter ended June 30, 2003, 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:
AS OF SEPTEMBER 30, 2003
-------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
--------------- ------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary Technology $1,653 $(781)
====== =====
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the nine months ended 9/30/03 $ 234
..
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 expense rate was 121.3% and 12.4% for the
three and nine months ended September 30, 2003 respectively, as compared to the
tax expense rate of 31.7% and 41.7% in the corresponding periods in 2002. The
effective income tax rate for the first nine months of 2003 varied from the
combined state and federal statutory rate principally because Oregon Steel
established a valuation allowance for certain federal and state net operating
loss carry-forwards, state tax credits, and alternative minimum tax credits that
was allocated to New CF&I as noted below.
Oregon Steel files its income tax return as part of a consolidated
group, for which a formal tax allocation agreement exists. As a subsidiary of
Oregon Steel, New CF&I is included in the consolidated group and thus does not
file a separate tax return. Under the terms of the tax allocation agreement,
each subsidiary of Oregon Steel is required to compute its separate tax
liability as if it had filed a separate tax return and shall pay such amount to
Oregon Steel. Also, each subsidiary will be compensated by Oregon Steel to the
extent that tax benefits generated by the subsidiary provide a benefit on a
consolidated basis. On this basis, New CF&I computes its standalone tax assets
and liabilities, and reflects such balances in its consolidated balance sheets.
-10-
SFAS No. 109, "ACCOUNTING FOR INCOME TAXES", requires that tax benefits
for federal and state net operating loss carry-forwards, state tax credits, and
alternative minimum tax credits be recorded as an asset to the extent that
management assesses the utilization of such assets to be "more likely than not";
otherwise, a valuation allowance is required to be recorded. During 2003, Oregon
Steel has recorded an additional valuation allowance against a portion of its
deferred tax assets. New CF&I has been allocated $7.7 million and $10.6 million
of this valuation allowance for the three and nine months ended September 30,
2003, respectively, based on its estimated pro rata portion of the overall
consolidated valuation allowance.
Oregon Steel will continue to evaluate the need for valuation
allowances in the future. Changes in estimated future taxable income and other
underlying factors may lead to adjustments to the valuation allowances.
-11-
CF&I STEEL, L.P.
BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 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 24,974 31,036
Inventories 39,323 45,829
Other 732 506
--------- ---------
Total current assets 65,029 77,371
--------- ---------
Property, plant and equipment:
Land and improvements 3,187 3,449
Buildings 18,459 18,496
Machinery and equipment 265,794 258,013
Construction in progress 7,143 5,150
--------- ---------
294,583 285,108
Accumulated depreciation (131,119) (109,396)
--------- ---------
Net property, plant and equipment 163,464 175,712
--------- ---------
Intangibles, net 872 1,106
Other assets 11,677 13,334
--------- ---------
TOTAL ASSETS $ 241,042 $ 267,523
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 48,582 $ 48,016
Accrued expenses 28,915 25,895
--------- ---------
Total current liabilities 77,497 73,911
Long-term debt -- Oregon Steel Mills, Inc. 227,536 228,208
Long-term debt -- New CF&I, Inc. 21,756 21,756
Environmental liability 23,339 27,488
Deferred employee benefits 9,006 8,417
--------- ---------
Total liabilities 359,134 359,780
--------- ---------
Contingencies (Note 3)
PARTNERS' DEFICIT
General partner (112,420) (87,829)
Limited partners (5,672) (4,428)
--------- ---------
Total partners' deficit (118,092) (92,257)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 241,042 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ---------------------------------
2003 2002 2003 2002
------------ ---------- ------------ -----------
SALES:
Product Sales $ 80,914 $ 77,790 $ 247,671 $ 234,912
Freight 3,907 3,438 11,518 10,615
--------- --------- --------- ---------
84,821 81,228 259,189 245,527
COSTS AND EXPENSES:
Cost of sales 81,264 67,241 245,275 204,323
Fixed and other asset impairment charges -- -- 9,157 --
Gain on sale of assets (540) (86) (942) (1,109)
Selling, general and administrative 3,986 5,036 12,953 15,129
--------- --------- --------- ---------
84,710 72,191 266,443 218,343
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 111 9,037 (7,254) 27,184
OTHER INCOME (EXPENSE):
Interest expense (6,267) (6,334) (18,759) (20,277)
Other income, net 56 77 178 799
--------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle (6,100) 2,780 (25,835) 7,706
Cumulative effect of change in
accounting principle -- -- -- (31,863)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (6,100) $ 2,780 $ (25,835) $ (24,157)
========= ========= ========= =========
The accompanying notes are an integral part of the
financial statements.
-13-
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2003 2002
-------------- -----------
Cash flows provided by operating activities:
Net loss $ (25,835) $ (24,157)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of change in accounting principle -- 31,863
Depreciation and amortization 13,747 13,850
Fixed and other asset impairment charges 9,157 --
Long-term environmental liability (4,149) 21
Gain on sale of assets (942) (1,109)
Changes in current assets and liabilities:
Trade accounts receivable 6,062 7,719
Inventories 5,572 2,587
Accounts payable 566 (1,979)
Accrued expenses and deferred employee benefits 3,609 (4,257)
Other, net 1,420 (338)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,207 24,200
--------- ---------
Cash flows used in investing activities:
Additions to property, plant and equipment (9,820) (6,402)
Proceeds from disposal of property and equipment 1,285 1,403
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (8,535) (4,999)
--------- ---------
Cash flows used in financing activities:
Borrowings from related parties 104,604 93,780
Payments to related parties (105,208) (104,566)
Payment of long-term debt (68) (8,415)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (672) (19,201)
--------- ---------
Net increase (decrease) in cash and cash equivalents -- --
Cash and cash equivalents at the beginning of the quarter -- --
--------- ---------
Cash and cash equivalents at the end of the quarter $ -- $ --
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
- -------------
Interest $ 18,294 $ 20,264
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
Impariments", 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 Financial Accounting Standards ("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 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 CF&I'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 had accounted for
employee termination actions under SFAS No. 112, which required recording when
such charges are probable and estimable, and therefore, the adoption of SFAS No.
146 did not have an impact on CF&I's financial statements.
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 a material impact on CF&I's financial
statements.
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. The adoption of SFAS No. 149 did not have a material effect on CF&I's
financial statements.
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:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(IN THOUSANDS)
Raw materials $ 9,024 $ 5,536
Semi-finished product 5,549 11,325
Finished product 14,375 17,420
Stores and operating supplies 10,375 11,548
------- -------
Total inventory $39,323 $45,829
======= =======
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 September 30, 2003, the
accrued liability was $27.9 million, of which $21.7 million was classified as
non-current on the 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, and the draft permit was issued for public comment on October 2,
2003.
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
-16-
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. The Court is likely to
approve the settlement, but is awaiting a legal memorandum on a narrow issue
from the EPA before taking final action.
In response to the CDPHE settlement and the resolution of the EPA
action, CF&I had expensed $2.8 million in 2002 for possible fines and
non-capital related expenditures since the settlement. As of September 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. CF&I has
determined that the new single furnace operation will not have the capacity to
support a two caster operation, and therefore 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
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 10th 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. The Union
has amended its complaint in the case raising additional PSD permit issues.
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 employees ("Unreinstated
Employees"). As of September 30, 2003, approximately 815 Unreinstated Employees
have either returned to work or have declined CF&I's offer of equivalent work.
At September 30, 2003, approximately 135 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
-17-
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 135 Unreinstated Employees as of September 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
September 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 $65 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 September 30, 2003,
$5.0 million was restricted under the Credit Agreement, $14.3 million was
restricted under the outstanding letters of credit, and $45.7 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, a borrowing availability
limitation relating to inventory, limitations on stockholder dividends and
limitations on incurring new or additional debt obligations other than as
allowed by the Credit Agreement.
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On October 24, 2003, the Borrowers determined they were in violation of
one of the Credit Agreement covenants, and on November 13, 2003, the Borrowers
entered into an agreement with the lenders which waived the violation and
amended the minimum consolidated EBITDA, minimum fixed charge coverage ratio,
maximum senior debt ratio and minimum consolidated tangible net worth covenants
as of October 31, 2003 and for each month through the maturity date of the
facility.
Included in the Credit Agreement amendment above, the Borrowers'
ability to draw letters of credit has been increased from $20 million to $25
million to support issuance of letters of credit and similar contracts.
LIQUIDITY
CF&I experienced a net loss for the three and nine months ended
September 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 in the quarter ended
June 30, 2003, 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:
AS OF SEPTEMBER 30, 2003
-----------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary Technology $1,653 $(781)
====== =====
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the nine months ended 9/30/03 $ 234
..
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 tonnage sold, sales and average selling price per
ton:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
----------- -------- -------- ---------
Tonnage sold:
Rail 76,800 88,900 276,600 288,700
Rod and Bar 124,700 108,100 357,600 328,400
Seamless Pipe (FN1) 15,600 11,400 39,800 20,700
Semi-finished -- -- -- 2,600
-------- -------- -------- --------
Total 217,100 208,400 674,000 640,400
======== ======== ======== ========
Product sales (in thousands): (FN2) $ 82,927 $ 79,434 $253,270 $240,261
Average selling price per ton: (FN2) $ 382 $ 381 $ 376 $ 375
- -------------------------
(FN1) New CF&I suspended operation of the seamless pipe mill in November of 2001
to April 2002.
(FN2) Product sales and average selling price per ton exclude freight revenues
for the three and nine months ended September 30, 2003 and 2002.
SALES. New CF&I's consolidated sales increased $4.0 million, or 4.8%,
to $86.8 million, and increased $13.9 million, or 5.5%, to $264.8 million for
the three and nine months ended September 30, 2003, respectively, over the same
periods in 2002. For the three and nine months ended September 30, 2003, the
Company shipped 217,100 tons and 674,000 tons of rail, rod and bar and seamless
pipe products at an average selling price of $382 and $376 per ton, compared to
208,400 tons and 640,400 tons of product at an average selling price of $381 and
$375 per ton for the same periods in 2002. The increase in sales for the three
and nine months ended September 30, 2003 is a result of higher shipments of rod
and bar and seamless pipe products, offset by a decrease in rail products
shipped. Due to adverse market conditions, seamless pipe mill operations have
been suspended from November 2001 to April 2002, mid-August 2002 to mid-
September 2002, and is in the process of temporarily suspending operations at
the end of November 2003 until market conditions improve. The seamless pipe
mill has a net book value of $3.3 million.
GROSS PROFITS. New CF&I's gross profit was $4.5 million and $15.7
million for the three and nine months ended September 30, 2003, respectively, or
5.2% and 5.9% of total sales, compared to $14.5 million and $42.7 million, or
17.5% and 17.0% of total sales, for the same periods in 2002. The decrease of
$10.0 million and $27.0 million, respectively, was primarily attributed to
higher raw material and energy costs, partially offset by an increase in the
average sales price of rod and bar.
SELLING, GENERAL & ADMINISTRATIVE. New CF&I's selling, general and
administrative expenses ("SG&A") of $4.0 million and $13.2 million for the three
and nine months ended September 30, 2003, respectively, decreased by 29.3% and
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23.0%, from $5.7 million and $17.1 million for the same periods in 2002. The
decrease in 2003 is attributed primarily to a decrease in both legal fees paid
and bad debt expense.
INTEREST EXPENSE. Total interest expense of $6.0 million and $17.9
million for the three and nine months ended September 30, 2003 decreased by 0.1%
and 7.2%, from $6.0 million and $19.3 million, respectively, for the same
periods of 2002. Lower interest expense was due to a decrease in the borrowing
rate for the nine months ending September 30, 2003.
INCOME TAX EXPENSE. The effective income tax expense rate was 121.3%
and 12.4% for the three and nine months ended September 30, 2003, respectively,
as compared to the tax expense rate of 31.7% and 41.7% in the corresponding
periods in 2002. The effective income tax rate for the first nine months of 2003
varied from the combined state and federal statutory rate principally because
New CF&I established a valuation allowance for certain federal and state net
operating loss carry-forwards, state tax credits, and alternative minimum tax
credits. See Note 6, "Income Taxes" for a discussion of the valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow provided by operations for the nine months ended September
30, 2003 was $9.0 million compared to $24.2 million in the corresponding period
of 2002. The items primarily affecting the $15.2 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 $6.5 million
in net accounts receivable in the first nine months of 2003 versus a decrease of
$9.0 million in the same period of 2002; 2) a decrease in inventories in the
first nine months of 2003 of $5.6 million versus a decrease of $2.6 million in
2002; and 3) a $1.4 million increase in operating liabilities in the first nine
months of 2003 versus a $6.6 million decrease in the first nine months of 2002.
For the nine months ended September 30, 2003, New CF&I expended
approximately $9.9 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 September 30, 2003, $227.5 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 10.65%. 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 Colorado and Wyoming
Railway Company ("C&W") are borrowers ("Borrowers") under a $65 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 September 30, 2003,
$5.0 million was restricted under the Credit Agreement, $14.3 million was
restricted under the outstanding letters of credit, and $45.7 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,
-22-
depreciation and amortization ("EBITDA") amount, a minimum fixed charge coverage
ratio, a maximum senior debt ratio, limitations on maximum annual capital and
environmental expenditures, a borrowing availability limitation relating to
inventory, limitations on stockholder dividends and limitations on incurring new
or additional debt obligations other than as allowed by the Credit Agreement.
On October 24, 2003, the Borrowers determined they were in violation of
one of the Credit Agreement covenants, and on November 13, 2003, the Borrowers
entered into an agreement with the lenders which waived the violation and
amended the minimum consolidated EBITDA, minimum fixed charge coverage ratio,
maximum senior debt ratio and minimum consolidated tangible net worth covenants
as of October 31, 2003 and for each month through the maturity date of the
facility.
Included in the Credit Agreement amendment above, the Borrowers'
ability to draw letters of credit has been increased from $20 million to $25
million to support issuance of letters of credit and similar contracts.
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 Employment Agreement dated August 1, 2003, between Oregon Steel
Mills, Inc. and James E. Declusin
10.2 Separation Agreement and General Release dated September 16,
2003, between Oregon Steel Mills, Inc. and its subsidiaries and
Joe E. Corvin
10.3 Amendment No. 3 to Credit Agreement dated as of September 26,
2003
10.4 Amendment No. 4 to Credit Agreement dated as of November 13,
2003
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
On July 10, 2003, New CF&I and CF&I filed a report on Form 8-K
announcing a change in registrant's independent accountant. New
CF&I and CF&I dismissed PricewaterhouseCoopers LLP and engaged
KPMG LLP as their independent accountant.
On July 29, 2003, New CF&I and CF&I filed a report on Form 8-K in
relation to a press release announcing the resignation of Joe
Corvin as President and Chief Executive Officer of Oregon Steel
Mills, Inc.
On August 1, 2003, New CF&I and CF&I filed a report on Form 8-K in
relation to a press release announcing the appointment of Jim
Declusin as President and Chief Executive Officer of Oregon Steel
Mills, Inc.
-24-
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: November 14, 2003 /s/ Jeff S. Stewart
--------------------------------
Jeff S. Stewart
Corporate Controller
CF&I STEEL, L.P.
BY: NEW CF&I, INC.
GENERAL PARTNER
Date: November 14, 2003 /s/ Jeff S. Stewart
--------------------------------
Jeff S. Stewart
Corporate Controller
New CF&I, Inc.
-25-
NEW CF&I, INC.
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED SEPTEMBER 30, 2003
10.1 Employment Agreement dated August 1, 2003, between Oregon Steel Mills,
Inc. and James E. Declusin
10.2 Separation Agreement and General Release dated September 16, 2003,
between Oregon Steel Mills, Inc. and its subsidiaries and Joe E.
Corvin
10.3 Amendment No. 3 to Credit Agreement dated as of September 26, 2003
10.4 Amendment No. 4 to Credit Agreement dated as of November 13, 2003
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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