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 March 31, 2004
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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.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements - New CF&I, Inc..........................2
Notes to Consolidated Financial Statements
(Unaudited)................................................5
Item 1. Financial Statements - CF&I Steel, L.P.......................11
Notes to Financial Statements (Unaudited)....................14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................20
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
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - NEW CF&I, INC.
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2004 2003
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ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 10 $ 5
Trade accounts receivable, net of
allowance for doubtful accounts
of $533 and $361 36,171 36,933
Inventories 41,039 35,028
Deferred income taxes 3,564 3,396
Other 1,378 1,754
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Total current assets 82,162 77,116
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Property, plant and equipment:
Land and improvements 3,225 3,225
Buildings 19,926 19,852
Machinery and equipment 273,170 270,772
Construction in progress 4,692 6,030
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301,013 299,879
Accumulated depreciation (142,239) (137,622)
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Net property, plant and equipment 158,774 162,257
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Intangibles, net 11,694 11,803
Noncurrent deferred income taxes 41,477 37,766
Minority interest 7,350 6,969
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TOTAL ASSETS $ 301,457 $ 295,911
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 39,706 $ 38,923
Accrued expenses 21,969 19,199
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Total current liabilities 61,675 58,122
Long-term debt -- Oregon Steel Mills, Inc. 265,304 259,424
Environmental and other liabilities 24,474 24,885
Deferred employee benefits 27,893 27,659
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Total liabilities 379,346 370,090
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Redeemable common stock, 26 shares 21,840 21,840
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Contingencies (Note 4)
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 (112,133) (108,423)
Accumulated other comprehensive loss:
Minimum pension liability (4,200) (4,200)
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Total stockholders' deficit (99,729) (96,019)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 301,457 $ 295,911
========= =========
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 MARCH 31,
----------------------------
2004 2003
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SALES:
Product Sales $ 102,990 $ 88,588
Freight 3,780 3,968
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106,770 92,556
COSTS AND EXPENSES:
Cost of sales 95,511 83,873
Labor dispute settlement adjustment (Note 4) 7,000 --
Gain on sale of assets (261) (28)
Selling, general and administrative expenses 3,940 4,632
Incentive compensation 2,140 --
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108,330 88,477
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OPERATING INCOME (LOSS) (1,560) 4,079
OTHER INCOME (EXPENSE):
Interest expense (6,127) (5,937)
Minority interests 380 117
Other income, net 62 67
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Loss before income taxes (7,245) (1,674)
Income tax benefit 3,535 547
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NET LOSS $ (3,710) $ (1,127)
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
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NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2004 2003
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Cash flows from operating activities:
Net loss $ (3,710) $ (1,127)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 4,681 4,701
Deferred income taxes, net (3,879) (552)
Long-term environmental liability (653) (1,574)
Gain on sale of assets (261) (28)
Minority interests (380) (117)
Other, net 240 (139)
Changes in current assets and liabilities:
Trade accounts receivable 762 3,675
Inventories (6,011) 5,082
Accounts payable 783 (821)
Accrued expenses and deferred employee benefits 3,004 (621)
Other, net 377 1,707
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (5,047) 10,186
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Cash flows from investing activities:
Additions to property, plant and equipment (1,165) (3,882)
Proceeds from disposal of property and equipment 61 46
Proceeds from disposal of water rights 276 --
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NET CASH USED BY INVESTING ACTIVITIES (828) (3,836)
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Cash flows from financing activities:
Borrowings from Oregon Steel Mills, Inc. 65,904 32,430
Payments to Oregon Steel Mills, Inc. (60,024) (38,994)
Payment of long-term debt -- (68)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 5,880 (6,632)
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Net increase (decrease) in cash and cash equivalents 5 (282)
Cash and cash equivalents at the beginning of period 5 289
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Cash and cash equivalents at the end of period $ 10 $ 7
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
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Interest $ 6,282 $ 6,014
The accompanying notes are an integral part of the
consolidated financial statements.
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NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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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 percent 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 percent ownership interest
in New CF&I. Oregon Steel also owns directly an additional 4.3 percent interest
in CF&I. New CF&I also owns a 100 percent interest in the Colorado and Wyoming
Railway Company, which is a short line railroad servicing 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 to the
Consolidated Financial Statements, "Contingencies - CF&I Labor Dispute
Settlement - Accounting", 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 2003 Annual Report on Form 10-K for additional disclosures
including a summary of significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132 (revised), "EMPLOYER'S DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS." SFAS No. 132 (revised) prescribes employers'
disclosures about pension plans and other postretirement benefit plans; it does
not change the measurement or recognition of those plans. SFAS No. 132 (revised)
retains and revises the disclosure requirement contained in the original SFAS
No. 132. It also requires additional disclosures about the assets, obligations,
cash flows, and net periodic benefit cost of defined benefit pension plans and
other postretirement benefit plans. SFAS No. 132 (revised) generally is
effective for fiscal years ending after December 15, 2003. New CF&I discloses
the requirements of SFAS No. 132 (revised) in Note 7 to the 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
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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:
MARCH 31, DECEMBER 31,
2004 2003
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(IN THOUSANDS)
Raw materials $15,204 $ 5,183
Semi-finished product 4,779 5,683
Finished product 10,171 12,916
Stores and operating supplies 10,885 11,246
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Total inventories $41,039 $35,028
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3. LONG-TERM DEBT
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Borrowing requirements for capital expenditures and working capital have
been provided through two revolving loans from Oregon Steel to CF&I. The loans
include interest on the daily amount outstanding, paid monthly, at the rate of
10.65%. The principal is due on demand or, if no demand, on the due date of the
notes. The loans are classified as long-term, based upon the intent of Oregon
Steel to extend the maturity date of the loans.
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At March 31, 2004 principal payments on longer-term debt were due as
follows (in thousands):
2005 and beyond $265,304
New CF&I experienced a net loss for the quarter ended March 31, 2004.
Contributing to the adverse results was the interest paid by New CF&I to Oregon
Steel for its financing and the labor dispute settlement charge adjustment of
$7.0 million. New CF&I has been able to fulfill its needs for working capital
and capital expenditures from operations and from the financing arrangement
available from Oregon Steel. New CF&I expects that operations will continue for
the remainder of 2004, 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 2004, 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.
4. 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 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 March 31,
2004, the remaining accrued liability was $27.5 million, of which $24.2 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
provided 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 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. The issue has been resolved by entry of a Consent
Decree on November 26, 2003, and the Tenth Circuit dismissed the appeal on
December 10, 2003. In that Consent Decree 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 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.
-6-
In response to the CDPHE settlement and the resolution of the EPA action,
CF&I expensed $2.8 million in 2001 for possible fines and non-capital related
expenditures. As of March 31, 2004, the remaining accrued liability was
approximately $539,000.
In December 2001, the State of Colorado issued a Title V air emission
permit to CF&I under the CAA requiring that the furnace subject to the EPA
action operate in compliance with NSPS AA standards. The Title V permit has been
modified several times and gives CF&I adequate time (at least 15 1/2 months
after CDPHE issues the PSD permit) 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 to a much lesser degree, 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.
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
Clean Air Act 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 parties to the
above-referenced litigation have negotiated what purports to be an agreement to
settle the labor dispute and all associated litigation, including that
referenced above. See "Labor Matters" for a description of the settlement. If,
for any reason, that settlement is not finalized, New CF&I does not believe the
suit will have a material adverse effect on its results of operations; however,
the result of litigation such as this is difficult to predict and an adverse
outcome with significant penalties is possible.
LABOR MATTERS
CF&I LABOR DISPUTE AND RESULTANT LITIGATION
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 March 31, 2004, approximately 824 Unreinstated Employees have
either returned to work or have declined CF&I's offer of equivalent work. At
March 31, 2004, approximately 126 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 strikers to
jobs, as positions became open. As noted above, there were approximately 126
Unreinstated Employees as of March 31, 2004. 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.
In the event there is an adverse determination on 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
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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.
CF&I LABOR DISPUTE SETTLEMENT
On January 15, 2004 CF&I announced a tentative agreement to settle the
labor dispute between the Union and CF&I ("Settlement"). The Settlement is
conditioned on, among other things, (1) its approval by shareholders of New
CF&I, (2) ratification of a new collective bargaining agreement being executed
between CF&I and the Union, (3) approval of the Settlement by the NLRB and the
dismissal of cases pending before the NLRB related to the labor dispute and (4)
various pending legal actions between New CF&I and CF&I and the Union being
dismissed. The Settlement if approved will provide remedies for all outstanding
unfair labor practices between CF&I and the Union and sets the stage for the
ratification of a new five-year collective bargaining agreement. The Settlement
includes the creation of a labor dispute settlement trust ("Trust") that will
hold assets to be contributed by either New CF&I or CF&I. Assets of the Trust
will include: (1) four million shares of Oregon Steel's common stock, (2) a cash
contribution of $2,500 for each beneficiary of the trust, estimated to be in
total $2.5 million, and (3) a ten year profit participation obligation
consisting of 25% of CF&I operating income, as defined, not to exceed $3 million
per year for years one through five and $4 million per year for years six
through ten. The beneficiaries of the Trust are those individuals who (1) as of
October 3, 1997 were employees of CF&I and represented by the Union, (2) as of
December 31, 1997 had not separated, as defined, from CF&I and (3) are entitled
to an allocation as defined in the Trust. The Settlement, certain elements of
which will be effected through the new five-year collective bargaining
agreement, also includes: (1) early retirement with immediate enhanced pension
benefit where CF&I will offer bargaining unit employees an early retirement
opportunity based on seniority until a maximum of 200 employees have accepted
the offer, the benefit will include immediate and unreduced pension benefits for
all years of service (including the period of the labor dispute) and for each
year of service prior to March 3, 1993 (including service with predecessor
companies) an additional monthly pension of $10, (2) pension credit for the
period of the labor dispute whereby CF&I employees who went on strike will be
given pension credit for both eligibility and pension benefit determination
purposes for the period beginning October 3, 1997 and ending on the latest of
said employees actual return to work, termination of employment, retirement or
death, (3) pension credit for service with predecessor companies whereby for
retirements after January 1, 2004, effective January 2, 2006 for each year of
service prior to March 3, 1978 (including service with predecessor companies),
CF&I will provide an additional monthly benefit to employees of $12.50, and for
retirements after January 1, 2006, effective January 2, 2008 for each year of
service between March 3, 1978 and March 3, 1993 (including service with
predecessor companies), CF&I will provide an additional monthly benefit of
$12.50, and (4) individuals who are members of the bargaining units as of
October 3, 1997 will be immediately eligible to apply for and receive qualified
long-term disability ("LTD") benefits on a go forward basis, notwithstanding the
date of the injury or illness, service requirements or any filing deadlines. The
Settlement also includes Oregon Steel's agreement to nominate a director
designated by the Union on its Board of Directors, and to a broad based
neutrality clause for certain of Oregon Steel's facilities in the future.
On March 12, 2004, the Union membership at CF&I voted to accept the
proposed Settlement and a new five-year collective bargaining agreement. The
Settlement is still conditioned on the approval of the Settlement by the NLRB
and the dismissal of cases pending before the NLRB related to the labor dispute,
and the dismissal of other pending legal actions between New CF&I and CF&I and
the Union.
CF&I LABOR DISPUTE SETTLEMENT - ACCOUNTING
CF&I recorded charges of $31.1 million in the fourth quarter of 2003 and $7
million in the first quarter of 2004 related to the Settlement, the final amount
of which is dependant upon the price of Oregon Steel's common stock on the
effective date of the Settlement. The charge in the first quarter of 2004 is a
result of adjusting the previously recorded value at December 31, 2003 of the
four million shares of Oregon Steel common stock ($23.3 million at $5.81 per
share) to market at March 31, 2004. The closing price of Oregon Steel's common
stock on the New York Stock Exchange at March 31, 2004 was $7.56 per share,
resulting in an additional labor dispute settlement charge of $7 million for the
first quarter of 2004. CF&I will continue to adjust the common stock charge
portion of the Settlement at the end of each quarter either up or down for the
change in the price of Oregon Steel's common stock through the effective date of
the Settlement. The accrual for the LTD benefits ($5.3 million at March 31,
2004) may also change, as better claims information becomes available. As
employees accept the early retirement benefits, CF&I expects to record an
additional charge during 2004 estimated at approximately $7.0 million related to
these benefits. The enhancements to pension and post-retirement medical benefits
for non-early retirees will be accounted for prospectively on the date at which
plan amendments occur pursuant to the new five-year collective bargaining
agreement in accordance with SFAS no. 87 and SFAS no. 106.
PURCHASE COMMITMENTS
Effective February 2, 1993, CF&I entered into an agreement, which was
subsequently amended on August 4, 1994, to purchase a base amount of oxygen
produced at a facility located at the Pueblo Mill. The agreement specifies that
CF&I will pay
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a base monthly charge that is adjusted annually based upon a percentage change
in the Producer Price Index. The monthly base charge at March 31, 2004 was
$119,000.
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 10% Notes
are secured by a lien on substantially all of the property, plant and equipment,
and certain other assets of Oregon Steel, excluding accounts receivable,
inventory, and certain other assets. As of March 31, 2004, Oregon Steel had
outstanding $305 million of principal amount under the 10% Notes. The Indenture
under which the Notes were issued contains restrictions on new indebtedness and
various types of disbursements, including dividends, based on the cumulative
amount of Oregon Steel's net income, as defined. Under these restrictions, there
was no amount available for cash dividends at March 31, 2004. New CF&I and CF&I
(collectively "Guarantors") guarantee the obligations of the 10% Notes, and
those guarantees are secured by a lien on substantially all of the property,
plant and equipment and certain assets of the Guarantors, excluding accounts
receivable, inventory, and certain other assets.
In addition, Oregon Steel, New CF&I, CF&I, and Colorado and Wyoming Railway
Company are borrowers ("Borrowers") under a $65 million credit facility ("Credit
Agreement"), which will expire on June 30, 2005, that is collateralized, in
part, by certain equity and intercompany interests, accounts receivable and
inventory of New CF&I and CF&I. At March 31, 2004, $5.0 million was restricted
under the Credit Agreement, $15.4 million was restricted under outstanding
letters of credit, and $44.6 million was available for use. Amounts under the
Credit Agreement bear interest based on either (1) the prime rate plus a margin
ranging from 0.25% to 1.00%, or (2) the adjusted LIBO rate plus a margin ranging
from 2.50% to 3.25%. Unused commitment fees range from 0.25% to 0.75%. During
the quarter, short-term borrowings ranged from zero to $17 million, at an
interest rate of approximately 5%. As of March 31, 2004, there was no
outstanding balance due under the Credit Agreement. Had there been an
outstanding balance, the average interest rate for the Credit Agreement would
have been 5.0%. The unused line fees were 0.75%. The margins and unused
commitment fees will be subject to adjustment within the ranges discussed above
based on a quarterly leverage ratio. The Credit Agreement contains various
restrictive covenants including 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, 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. Oregon Steel cannot pay cash dividends without
prior approval from the lenders. At March 31, 2004, the Borrowers were in
compliance with the Credit Agreement covenants.
OTHER CONTINGENCIES
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 would not have a
material adverse effect on the consolidated financial condition of New CF&I, its
results of operations, and liquidity.
5. INTANGIBLE ASSETS
-----------------
The carrying amount of intangible assets and the associated amortization
expenses are as follows:
AS OF MARCH 31, 2004
--------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary technology $ 1,653 $ (836)
======= ======
Water rights $11,443 $ (566)
======= =======
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the three months ended 3/31/04 $28
..
ESTIMATED AMORTIZATION EXPENSE
------------------------------
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
For the year ended 12/31/08 $110
-9-
6. INCOME TAXES
------------
The effective income tax benefit rate was 48.8% for the three months ended
March 31, 2004, as compared to a tax benefit rate of 32.7% in the corresponding
period in 2003. The effective income tax rate for the first three months of 2004
varied from the combined state and federal statutory rate principally because
Oregon Steel reversed a portion of the valuation allowance, established in 2003,
for certain federal and state net operating loss carry-forwards, state tax
credits, and alternative minimum tax credits that were 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 stand alone tax assets and liabilities, and
reflects such balances in its consolidated balance sheets.
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 each 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. Based on this
guidance, Oregon Steel reduced its valuation allowance in the three months
ended March 31, 2004 due to less uncertainty regarding the realization of
deferred tax assets. New CF&I has been allocated $0.9 million of this valuation
allowance reduction for the three months ended March 31, 2004.
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.
7. EMPLOYEE BENEFIT PLANS
----------------------
New CF&I has noncontributory defined benefit retirement plans, certain
health care and life insurance benefits, and qualified Thrift (401(k)) plans
covering all of its eligible domestic employees.
Components of net periodic benefit cost for the quarter related to the defined
benefit and certain health care and life insurance benefit plans were:
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------- -------
(IN THOUSANDS)
Service cost $ 586 $ 577
Interest cost 759 698
Expected return on plan assets (442) (393)
Recognized net loss 231 196
Recognized prior service cost 18 18
------- -------
Total net periodic benefit cost for the quarter $ 1,152 $ 1,096
======= =======
-10-
ITEM 1. FINANCIAL STATEMENTS - CF&I STEEL, L.P.
CF&I STEEL, L.P.
BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2004 2003
-------------- ---------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net of allowance for
doubtful accounts of $533 and $361 34,653 35,544
Inventories 40,704 34,729
Other 1,013 1,511
--------- ---------
Total current assets 76,370 71,784
--------- ---------
Property, plant and equipment:
Land and improvements 3,220 3,219
Buildings 18,533 18,459
Machinery and equipment 270,505 268,112
Construction in progress 4,692 6,030
--------- ---------
296,950 295,820
Accumulated depreciation (139,949) (135,394)
--------- ---------
Net property, plant and equipment 157,001 160,426
--------- ---------
Intangibles, net 11,694 11,803
--------- ---------
TOTAL ASSETS $ 245,065 $ 244,013
========= =========
LIABILITIES
Current liabilities:
Accounts payable $ 47,584 $ 46,049
Accrued expenses 21,573 18,713
--------- ---------
Total current liabilities 69,157 64,762
Long-term debt -- Oregon Steel Mills, Inc. 265,304 259,424
Long-term debt -- New CF&I, Inc. 21,756 21,756
Environmental liability 24,232 24,885
Deferred employee benefits 27,892 27,659
--------- ---------
Total liabilities 408,341 398,486
--------- ---------
Contingencies (Note 4)
PARTNERS' DEFICIT
General partner (155,439) (147,059)
Limited partners (7,837) (7,414)
--------- ---------
Total partners' deficit (163,276) (154,473)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 245,065 $ 244,013
========= =========
The accompanying notes are an integral part of the
financial statements.
-11-
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------------ -----------
Sales:
Product Sales $ 100,926 $ 86,821
Freight 3,780 3,968
--------- ---------
104,706 90,789
COSTS AND EXPENSES:
Cost of sales 94,388 82,563
Labor dispute settlement adjustment (Note 4) 7,000 --
Gain on sale of assets (231) (39)
Selling, general and administrative 3,893 4,525
Incentive compensation 2,139 --
--------- ---------
107,189 87,049
--------- ---------
OPERATING INCOME (LOSS) (2,483) 3,740
OTHER INCOME (EXPENSE):
Interest expense (6,382) (6,236)
Other income, net 62 67
--------- ---------
NET LOSS $ (8,803) $ (2,429)
========= =========
The accompanying notes are an integral part of the
financial statements.
-12-
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2004 2003
--------- ----------
Cash flows from operating activities:
Net loss $ (8,803) $ (2,429)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 4,619 4,654
Long-term environmental liability (653) (1,574)
Gain on sale of assets (231) (39)
Other, net -- 121
Changes in current assets and liabilities:
Trade accounts receivable 891 3,367
Inventories (5,975) 5,098
Accounts payable 1,535 (609)
Accrued expenses and deferred employee benefits 3,093 --
Other, net 498 1,865
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (5,026) 10,454
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,161) (3,868)
Proceeds from disposal of property and equipment 31 46
Proceeds from disposal of water rights 276 --
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (854) (3,822)
-------- --------
Cash flows from financing activities:
Borrowings from related parties 65,904 32,430
Payments to related parties (60,024) (38,994)
Payment of long-term debt -- (68)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 5,880 (6,632)
-------- --------
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:
- -------------
Interestst $ 6,282 $ 6,014
The accompanying notes are an integral part of the
financial statements.
-13-
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 percent interest in New
CF&I, Inc. ("New CF&I") which owns a 95.2 percent interest in CF&I. Oregon Steel
also owns directly an additional 4.3 percent interest in CF&I. In January 1998,
CF&I assumed the trade name of Rocky Mountain Steel Mills.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals and other charges as described in Note 4 to the
Financial Statements, "Contingencies - CF&I Labor Dispute Settlement -
Accounting", 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 2003 Annual Report on Form 10-K for additional disclosures including a
summary of significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132 (revised), "EMPLOYER'S DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS." SFAS No. 132 (revised) prescribes employers'
disclosures about pension plans and other postretirement benefit plans; it does
not change the measurement or recognition of those plans. SFAS No. 132 (revised)
retains and revises the disclosure requirement contained in the original SFAS
No. 132. It also requires additional disclosures about the assets, obligations,
cash flows, and net periodic benefit cost of defined benefit pension plans and
other postretirement benefit plans. SFAS No. 132 (revised) generally is
effective for fiscal years ending after December 15, 2003. CF&I discloses the
requirements of SFAS No. 132 (revised) in Note 6 to the 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:
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
(IN THOUSANDS)
Raw materials $15,204 $5,183
Semi-finished product 4,779 5,683
Finished product 10,171 12,916
Stores and operating supplies 10,550 10,947
------- -------
Total inventories $40,704 $34,729
======= =======
3. LONG-TERM DEBT
--------------
Borrowing requirements for capital expenditures and working capital have
been provided through two revolving loans from Oregon Steel to CF&I. The loans
include interest on the daily amount outstanding, paid monthly, at the rate of
10.65%. The principal is due on demand or, if no demand, on the due date of the
notes. The loans are classified as long-term, based upon the intent of Oregon
Steel to extend the maturity date of the loans.
At March 31, 2004 principal payments on longer-term debt were due as
follows (in thousands):
2005 and beyond $265,304
-14-
CF&I experienced a net loss for the quarter ended March 31, 2004.
Contributing to the adverse results was the interest paid by CF&I to Oregon
Steel for its financing and a labor dispute settlement charge adjustment of $7.0
million. CF&I has been able to fulfill its needs for working capital and capital
expenditures from operations and from the financing arrangement available from
Oregon Steel. CF&I expects that operations will continue for the remainder of
2004, 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 2004, 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.
4. 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 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 March 31,
2004, the remaining accrued liability was $27.5 million, of which $24.2 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
provided 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 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. The issue has been resolved by entry of a Consent
Decree on November 26, 2003, and the Tenth Circuit dismissed the appeal on
December 10, 2003. In that Consent Decree 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 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.
In response to the CDPHE settlement and the resolution of the EPA action,
CF&I expensed $2.8 million in 2001 for possible fines and non-capital related
expenditures. As of March 31, 2004, the remaining accrued liability was
approximately $539,000.
-15-
In December 2001, the State of Colorado issued a Title V air emission
permit to CF&I under the CAA requiring that the furnace subject to the EPA
action operate in compliance with NSPS AA standards. The Title V permit has been
modified several times and gives CF&I adequate time (at least 15 1/2 months
after CDPHE issues the PSD permit) 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 to a much lesser degree, 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.
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 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 parties to the
above-referenced litigation have negotiated what purports to be an agreement to
settle the labor dispute and all associated litigation, including that
referenced above. See "Labor Matters" for a description of the settlement. If,
for any reason, that settlement is not finalized, CF&I does not believe the suit
will have a material adverse effect on its results of operations; however, the
result of litigation such as this is difficult to predict and an adverse outcome
with significant penalties is possible.
LABOR MATTERS
CF&I LABOR DISPUTE AND RESULTANT LITIGATION
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 March 31, 2004, approximately 824 Unreinstated Employees have
either returned to work or have declined CF&I's offer of equivalent work. At
March 31, 2004, approximately 126 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 strikers to
jobs, as positions became open. As noted above, there were approximately 126
Unreinstated Employees as of March 31, 2004. 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.
In the event there is an adverse determination on 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.
-16-
CF&I LABOR DISPUTE SETTLEMENT
On January 15, 2004 CF&I announced a tentative agreement to settle the
labor dispute between the Union and CF&I ("Settlement"). The Settlement is
conditioned on, among other things, (1) its approval by shareholders of New
CF&I, (2) ratification of a new collective bargaining agreement being executed
between CF&I and the Union, (3) approval of the Settlement by the NLRB and the
dismissal of cases pending before the NLRB related to the labor dispute and (4)
various pending legal actions between New CF&I and CF&I and the Union being
dismissed. The Settlement if approved will provide remedies for all outstanding
unfair labor practices between CF&I and the Union and sets the stage for the
ratification of a new five-year collective bargaining agreement. The Settlement
includes the creation of a labor dispute settlement trust ("Trust") that will
hold assets to be contributed by either New CF&I or CF&I. Assets of the Trust
will include: (1) four million shares of Oregon Steel's common stock, (2) a cash
contribution of $2,500 for each beneficiary of the trust, estimated to be in
total $2.5 million, and (3) a ten year profit participation obligation
consisting of 25% of CF&I operating income, as defined, not to exceed $3 million
per year for years one through five and $4 million per year for years six
through ten. The beneficiaries of the Trust are those individuals who (1) as of
October 3, 1997 were employees of CF&I and represented by the Union, (2) as of
December 31, 1997 had not separated, as defined, from CF&I and (3) are entitled
to an allocation as defined in the Trust. The Settlement, certain elements of
which will be effected through the new five-year collective bargaining
agreement, also includes: (1) early retirement with immediate enhanced pension
benefit where CF&I will offer bargaining unit employees an early retirement
opportunity based on seniority until a maximum of 200 employees have accepted
the offer, the benefit will include immediate and unreduced pension benefits for
all years of service (including the period of the labor dispute) and for each
year of service prior to March 3, 1993 (including service with predecessor
companies) an additional monthly pension of $10, (2) pension credit for the
period of the labor dispute whereby CF&I employees who went on strike will be
given pension credit for both eligibility and pension benefit determination
purposes for the period beginning October 3, 1997 and ending on the latest of
said employees actual return to work, termination of employment, retirement or
death, (3) pension credit for service with predecessor companies whereby for
retirements after January 1, 2004, effective January 2, 2006 for each year of
service prior to March 3, 1978 (including service with predecessor companies),
CF&I will provide an additional monthly benefit to employees of $12.50, and for
retirements after January 1, 2006, effective January 2, 2008 for each year of
service between March 3, 1978 and March 3, 1993 (including service with
predecessor companies), CF&I will provide an additional monthly benefit of
$12.50, and (4) individuals who are members of the bargaining units as of
October 3, 1997 will be immediately eligible to apply for and receive qualified
long-term disability ("LTD") benefits on a go forward basis, notwithstanding the
date of the injury or illness, service requirements or any filing deadlines. The
Settlement also includes Oregon Steel's agreement to nominate a director
designated by the Union on its Board of Directors, and to a broad based
neutrality clause for certain of Oregon Steel's facilities in the future.
On March 12, 2004, the Union membership at CF&I voted to accept the
proposed Settlement and a new five-year collective bargaining agreement. The
Settlement is still conditioned on the approval of the Settlement by the NLRB
and the dismissal of cases pending before the NLRB related to the labor dispute,
and the dismissal of other pending legal actions between New CF&I and CF&I and
the Union.
CF&I LABOR DISPUTE SETTLEMENT - ACCOUNTING
CF&I recorded charges of $31.1 million in the fourth quarter of 2003 and $7
million in the first quarter of 2004 related to the Settlement, the final amount
of which is dependant upon the price of Oregon Steel's common stock on the
effective date of the Settlement. The charge in the first quarter of 2004 is a
result of adjusting the previously recorded value at December 31, 2003 of the
four million shares of Oregon Steel common stock ($23.3 million at $5.81 per
share) to market at March 31, 2004. The closing price of Oregon Steel's common
stock on the New York Stock Exchange at March 31, 2004 was $7.56 per share,
resulting in an additional labor dispute settlement charge of $7 million for the
first quarter of 2004. CF&I will continue to adjust the common stock charge
portion of the Settlement at the end of each quarter either up or down for the
change in the price of Oregon Steel's common stock through the effective date of
the Settlement. The accrual for the LTD benefits ($5.3 million at March 31,
2004) may also change, as better claims information becomes available. As
employees accept the early retirement benefits, CF&I expects to record an
additional charge during 2004 estimated at approximately $7.0 million related to
these benefits. The enhancements to pension and post-retirement medical benefits
for non-early retirees will be accounted for prospectively on the date at which
plan amendments occur pursuant to the new five-year collective bargaining
agreement in accordance with SFAS 87 and SFAS 106.
PURCHASE COMMITMENTS
Effective February 2, 1993, CF&I entered into an agreement, which was
subsequently amended on August 4, 1994, to purchase a base amount of oxygen
produced at a facility located at the Pueblo Mill. The agreement 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 March
31, 2004 was $119,000.
-17-
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 10% Notes
are secured by a lien on substantially all of the property, plant and equipment,
and certain other assets of Oregon Steel, excluding accounts receivable,
inventory, and certain other assets. As of March 31, 2004, Oregon Steel had
outstanding $305 million of principal amount under the 10% Notes. The Indenture
under which the Notes were issued contains restrictions on new indebtedness and
various types of disbursements, including dividends, based on the cumulative
amount of Oregon Steel's net income, as defined. Under these restrictions, there
was no amount available for cash dividends at March 31, 2004. New CF&I and CF&I
(collectively "Guarantors") guarantee the obligations of the 10% Notes, and
those guarantees are secured by a lien on substantially all of the property,
plant and equipment and certain assets of the Guarantors, excluding accounts
receivable, inventory, and certain other assets.
In addition, Oregon Steel, New CF&I, CF&I, and Colorado & Wyoming Railroad
are borrowers ("Borrowers") under a $65 million credit facility ("Credit
Agreement"), which will expire on June 30, 2005, that is collateralized, in
part, by certain equity and intercompany interests, accounts receivable and
inventory of New CF&I and CF&I. At December 31, 2003, $5.0 million was
restricted under the Credit Agreement, $15.4 million was restricted under
outstanding letters of credit, and $44.6 million was available for use. Amounts
under the Credit Agreement bear interest based on either (1) the prime rate plus
a margin ranging from 0.25% to 1.00%, or (2) the adjusted LIBO rate plus a
margin ranging from 2.50% to 3.25%. Unused commitment fees range from 0.25% to
0.75%. During the year, short-term borrowings ranged from zero to $17 million,
at an interest rate of approximately 5%. As of March 31, 2004, there was no
outstanding balance due under the Credit Agreement. Had there been an
outstanding balance, the average interest rate for the Credit Agreement would
have been 5.0%. The unused line fees were 0.75%. The margins and unused
commitment fees will be subject to adjustment within the ranges discussed above
based on a quarterly leverage ratio. The Credit Agreement contains various
restrictive covenants including minimum consolidated tangible net worth amount,
a minimum earnings before interest, taxes, depreciation and amortization amount,
a minimum fixed charge coverage 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.
Oregon Steel cannot pay cash dividends without prior approval from the lenders.
At March 31, 2004, the Borrowers were in compliance with the Credit Agreement
covenants.
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.
5. INTANGIBLE ASSETS
-----------------
The carrying amount of intangible assets and the associated amortization
expenses are as follows:
AS OF MARCH 31, 2004
------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
(IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS
---------------------------
Proprietary technology $ 1,653 $ (836)
======= ======
Water rights $11,443 $ (566)
======= =======
AGGREGATE AMORTIZATION EXPENSE
------------------------------
For the three months ended 3/31/04 $28
..
ESTIMATED AMORTIZATION EXPENSE
------------------------------
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
For the year ended 12/31/08 $110
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6. EMPLOYEE BENEFIT PLANS
----------------------
CF&I has noncontributory defined benefit retirement plans, certain health
care and life insurance benefits, and qualified Thrift (401(k)) plans covering
all of its eligible domestic employees.
Components of net periodic benefit cost for the quarter related to the defined
benefit and certain health care and life insurance benefit plans were:
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
-------- --------
(IN THOUSANDS)
Service cost $ 586 $ 577
Interest cost 759 698
Expected return on plan assets (442) (393)
Recognized net loss 231 196
Recognized prior service cost 18 18
------- -------
Total net periodic benefit cost for the quarter $ 1,152 $ 1,096
======= =======
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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 the Company, costs of environmental compliance
and the impact of governmental regulations; risks related to the outcome of the
pending Union lawsuit, and failure of the Company to predict the impact of lost
revenues associated with interruption of the Company's, its customers' or
suppliers' operations.
The New CF&I, Inc. ("New CF&I" or "the Company") consolidated financial
statements include the accounts of CF&I Steel, L.P. ("CF&I"), a 95.2% owned
subsidiary, and the Colorado and Wyoming Railway Company, a wholly-owned
short-line railroad, serving principally the steel mill in Pueblo, Colorado
("Pueblo Mill"). For the three months ended March 31, 2004 and 2003, sales of
CF&I were 98.1%, of the consolidated sales of the Company. For the three months
ended March 31, 2004, cost of sales of CF&I (including the labor dispute
settlement adjustment) were 98.9% compared to 98.4% for the same period in 2003,
of the consolidated cost of sales of the Company.
OVERVIEW
- --------
On January 15, 2004 CF&I announced a tentative agreement to settle the
labor dispute between the Union and CF&I. CF&I recorded a charge of $31.1
million in the fourth quarter of 2003 and an additional charge of $7 million in
the first quarter of 2004 related to the tentative settlement. See Note 4 to the
Consolidated Financial Statements - "Contingencies - CF&I Labor Dispute
Settlement - Accounting" for a discussion of the accounting for the tentative
agreement.
On December 4, 2003, President Bush lifted the tariffs on imports of steel
that were imposed March 5, 2002. The tariffs were designed to give the U.S.
Steel Industry time to restructure and become competitive in the global steel
market. Since the lifting of the tariffs, the steel industry has seen a dramatic
increase in both the cost of raw materials and the selling price of most steel
products. The Company believes that current market conditions are the result of
the combination of a strong steel demand in Asia, a weak United States dollar,
and an increase in ocean freight costs. The Company anticipates that market
conditions will remain unsettled into the foreseeable future. During this period
of time, the Company believes that it will continue to incur increased costs for
raw materials and achieve increased selling prices to offset these higher costs.
2004 OUTLOOK
- ------------
For 2004, the Company expects to ship approximately 380,000 tons and
482,000 tons of rail and rod and bar products, respectively. At these shipment
levels the rail and rod and bar mills would be at 90 percent and 100 percent,
respectively, of their rated capacities. Seamless pipe shipments will be
dependent on market conditions in the drilling industry. At the present time the
seamless mill is not operating. The Company anticipates that average selling
prices in 2004 for rail and rod and bar products will be higher than those of
2003. Although higher raw material and high energy costs are expected to
somewhat reduce the positive impact of higher selling prices on operating
income, the Company expects consolidated operating income to be higher in 2004
versus 2003.
-20-
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth tonnage sold, sales and average selling price per
ton:
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
--------- --------
Tonnage sold:
Rail 100,700 113,000
Rod and Bar 130,000 115,500
Seamless Pipe (1) 2,800 10,900
-------- --------
Total 233,500 239,400
======== ========
Sales (in thousands): $106,770 $ 92,556
Average selling price per ton: $ 457 $ 386
- ------------------------
(1) CF&I suspended operation of the seamless pipe mill from mid-November 2003
to date.
SALES. The increase in product sales and average product sales price
was primarily due to higher average selling prices for rod and bar products and
to a lesser extent, rail. The decrease in tonnage shipments was primarily due to
lower rail and seamless pipe shipments, partially offset by increased rod and
bar shipments. Increased selling prices are the result of a combination of
factors including strong demand for steel products in Asia, a weak United States
dollar and increased ocean freight costs, all of which make the United States
market less attractive to foreign producers.
GROSS PROFITS
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2004 2003 CHANGE % CHANGE
---- ---- ------ --------
Gross Profit $11,259 $8,683 $2,576 29.67%
The increase in gross profit was primarily a result of increased volume
in rod and bar products and higher average sales prices discussed above,
partially offset by higher scrap cost and the inability of CF&I to fully recover
its cost of raw material for rail products.
SELLING, GENERAL & ADMINISTRATIVE
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2004 2003 CHANGE % CHANGE
---- ---- ------ --------
Selling, General and Administrative $3,940 $4,632 $(692) (15)%
The decrease in selling, general and administrative expenses for the first
quarter of 2004 was primarily the result of decreased costs and depreciation for
information technology support and equipment and a decrease in legal expense.
INTEREST EXPENSE
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2004 2003 CHANGE % CHANGE
---- ---- ------ --------
Interest Expense $6,127 $5,937 $191 3.2%
The increase in interest expense was due to an increase in intercompany
borrowings from Oregon Steel.
-21-
INCOME TAX BENEFIT
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2004 2003 CHANGE % CHANGE
------ ---- ------ --------
Income Tax Benefit $3,535 $547 $2,988 546.25%
The effective income tax benefit rate was 48.8% for the first quarter of
2004, compared to the income tax benefit rate of 32.7% in the first quarter of
2003. The effective income tax rate for 2004 varied from the combined state and
federal statutory rate principally because the Company reversed a portion of the
valuation allowance, established in 2003, for certain federal and state net
operating loss carry-forwards, state tax credits, and alternative minimum tax
credits and the resulting interplay of the complex tax allocation agreement
between New CF&I and Oregon Steel.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow used by operations for the first quarter of 2004 was $5 million
compared to $10.2 million of cash provided by operations in the first quarter of
2003. The items primarily affecting the $15.2 million decrease in operating cash
flows were (1) an increase in net loss of $2.6 million, (2) an increase in
inventory of $6 million versus a decrease of $5.1 million in 2003 and (3) a $3.3
million increase in the change in deferred taxes due to a larger loss before
income taxes of $7.2 million in 2004 versus $1.7 million in 2003.
Net working capital at March 31, 2004 increased by $1.5 million compared
to March 31, 2003, primarily due to an increase in inventory. During the first
quarter of 2004, the Company expended (exclusive of capital interest)
approximately $1.2 million on capital projects.
Borrowing requirements for capital expenditures and other cash needs, both
short-term and long-term, are provided through two loans from Oregon Steel to
CF&I. As of March 31, 2004, $265.3 million of aggregate principal amount of the
loans was outstanding, all of which was classified as long-term, based upon the
intent of Oregon Steel to extend the maturity date of the loans. The loans
include interest on the daily amount outstanding at the rate of 10.65%. The
principal on the two loans is due on demand or, if no demand is made, $220
million is due on December 31, 2004, and $45.3 million is due on December 31,
2005. Oregon Steel does not expect to demand repayment of the obligation during
2004. Interest on the principal amount of the loans is payable monthly. Because
the loans from Oregon Steel are 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.
The Company has been able to fulfill its needs for working capital and
capital expenditures from operations and its financing arrangement with Oregon
Steel. The Company expects that operations will continue for 2004, with the
realization of assets, and discharge of liabilities in the ordinary course of
business. The Company believes that its prospective needs for working capital
and capital expenditures will be met from cash flows generated by operations and
borrowings pursuant to the financing arrangement with Oregon Steel. If
operations are not consistent with management's plans, there is no assurance
that the amounts from these sources will be sufficient for such purposes. Oregon
Steel is not required to provide financing to the Company and, although the
demand for repayment of the obligations in full is not expected during 2004,
Oregon Steel may demand repayment of the loans at any time. If Oregon Steel were
to demand repayment of the loans, it is not likely that the Company would be
able to obtain the external financing necessary to repay the loans or to fund
its capital expenditures and other cash needs, and if available, that such
financing would be on terms as favorable to the Company as that provided by
Oregon Steel. The failure of either the Company or Oregon Steel to maintain
their current financing arrangements would likely have a material adverse impact
on the Company and CF&I.
In addition, Oregon Steel, the Company, CF&I, and C&W are borrowers under
the Oregon Steel Credit Agreement, which will expire on June 30, 2005. At March
31, 2004, $5.0 million was restricted under the Credit Agreement, $15.4 million
was restricted under outstanding letters of credit, and $44.6 million was
available for use. The Credit Agreement is secured primarily by the borrowers'
accounts receivable and inventory in addition to certain equity and intercompany
interests of the borrowers. Amounts under the Credit Agreement bear interest
based on either (1) the prime rate plus a margin ranging from 0.25% to 1.00%, or
(2) the adjusted LIBO rate plus a margin ranging from 2.50% to 3.25%. Unused
commitment fees range from 0.25% to 0.75%. During the quarter, short-term
borrowings ranged from zero to $17 million, at an interest rate of approximately
5%. As of March 31, 2004, there was no outstanding balance due under the Credit
Agreement. Had there been an outstanding balance, the average interest rate for
the Credit Agreement would have been 5.0%. The unused line fees were 0.75%. The
margins and unused commitment fees will be subject to adjustment within the
ranges discussed above based on a quarterly leverage ratio. The Credit Agreement
contains various restrictive covenants including minimum consolidated tangible
net worth amount, a minimum
-22-
earnings before interest, taxes, depreciation and amortization amount, a minimum
fixed charge coverage 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.
Although the Company, CF&I and C&W are borrowers under the Oregon Steel Credit
Agreement, the Company, CF&I and C&W borrow directly from Oregon Steel as
discussed above.
The Company's level of indebtedness presents other risks to investors,
including the possibility that the Company and its subsidiaries may be unable to
generate cash sufficient to pay the principal of and interest on their
indebtedness when due. In that event, the holders of the indebtedness may be
able to declare all indebtedness owing to them to be due and payable
immediately, and to proceed against their collateral, if applicable. These
actions would likely have a material adverse effect on the Company. In addition,
CF&I faces potential costs and liabilities associated with environmental
compliance and remediation issues and the labor dispute at the Pueblo Mill. See
Part 1, Note 4 to the Consolidated Financial Statements, "Contingencies" of this
quarterly report for a description of those matters. Any costs or liabilities in
excess of those expected by CF&I could have a material adverse effect on the
Company.
OFF-BALANCE SHEET ARRANGEMENTS
- ------------------------------
Information on the Company's off balance sheet arrangements is disclosed
in the contractual obligations table of the Company's 2003 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No material changes.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
As of March 31, 2004, New CF&I and CF&I carried out an evaluation, under
the supervision and with the participation of New CF&I's and CF&I's management,
including New CF&I's and CF&I's Chief Executive Officer and New CF&I's and
CF&I's Chief Financial Officer, of the effectiveness of the design and operation
of New CF&I's and CF&I's disclosure controls and procedures. Based on the
evaluation, New CF&I's and CF&I's Chief Executive Officer and Chief Financial
Officer have concluded that New CF&I's and CF&I's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
New CF&I and CF&I in the reports they file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
There were no significant changes in New CF&I's and CF&I's internal controls or
in other factors that could significantly affect these controls including any
corrective actions with regard to significant deficiencies and material
weaknesses subsequent to the date New CF&I and CF&I completed their evaluation.
-23-
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part 1, "Consolidated Financial Statements - Note 4, Contingencies"
for a discussion of the status of (a) the environmental issues, and (b) the
status of the labor dispute.
The Company 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 the Company.
The Company maintains insurance against various risks, including certain
types of tort liability arising from the sale of its products. The Company does
not maintain insurance against liability arising out of waste disposal or
on-site remediation of environmental contamination because of the high cost of
that coverage. There is no assurance that the insurance coverage carried by the
Company will be available in the future at reasonable rates, if at all.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer required by Rules
13a-14(a) and 15d-14(a) as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer required by Rules
13a-14(a) and 15d-14(a) as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No reports on 8K were filed by the Registrants during the quarter
ended March 31, 2004.
-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: May 14, 2004 /s/ Jeff S. Stewart
-----------------------------------------
Jeff S. Stewart
Corporate Controller
CF&I STEEL, L.P.
BY: NEW CF&I, INC.
GENERAL PARTNER
Date: May 14, 2004 /s/ Jeff S. Stewart
-----------------------------------------
Jeff S. Stewart
Corporate Controller
New CF&I, Inc.
-25-
NEW CF&I, INC.
CF&I STEEL, L.P.
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED MARCH 31, 2004
31.1 Certification of Chief Executive Officer required by Rules
13a-14(a) and 15d-14(a) as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer required by Rules
13a-14(a) and 15d-14(a) as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
-26-