Oregon Steel Mills, Inc. Announces Third Quarter Results

Share Name	Share Symbol	Market	Type
Oregon Stl Mls	NYSE:OS	NYSE	Ordinary Share

Oregon Steel Mills (NYSE:OS)
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Oregon Steel Mills, Inc. (NYSE:OS): Third Quarter 2005 Highlights: -- Sales were $299.7 million on 381,800 tons of shipments with, an average selling price of $785 per ton -- Operating income was $35.8 million, compared to $64 million in the third quarter of 2004 -- Operating income per ton and operating margin were $94 per ton and 11.9 percent, respectively -- Earnings before interest, taxes, depreciation and amortization was $45.9 million, compared to $70.5 million in the third quarter of 2004 -- Net income was $20.2 million ($.57 per diluted share), compared to $50.3 million ($1.87 per diluted share) in the third quarter of 2004 Oregon Steel Mills, Inc. (NYSE:OS) today reported third quarter net income of $20.2 million ($.57 per diluted share on 35.8 million shares) compared to a net income of $50.3 million ($1.87 per diluted share on 26.9 million shares) for the third quarter of 2004. Third quarter 2005 operating income was negatively impacted by approximately $5 million of pretax costs related to the new electric arc furnace installation and caster rebuild and related equipment outages ("Furnace Installation") at the Company's majority-owned subsidiary, Rocky Mountain Steel Mills ("RMSM"). During the third quarter of 2004, the Company recorded pretax charges of $4.5 million ("Settlement Charge") as part of the settlement of a labor dispute ("Settlement") at RMSM and additions to long-term environmental reserves of $1.6 million. The Company finalized the settlement of the labor dispute during the third quarter of 2004. Also during the third quarter of 2004, the effective income tax rate of the Company was less than 3 percent compared to an effective income tax rate of approximately 28 percent in the third quarter of 2005. Sales for the third quarter of 2005 were $299.7 million. This compares to 2004 third quarter sales of $348.3 million. Average sales price per ton in the third quarter of 2005 was $785 compared to $761 in the third quarter of 2004. Total shipments for the third quarter of 2005 were 381,800 tons compared to 2004 third quarter shipments of 457,700 tons. The decrease in shipments was primarily due to decreased shipments of plate and coil, welded pipe and rod and bar products, partially offset by higher shipments of rail products. The decrease in sales is primarily due to the decreased shipments noted above, partially offset by higher average selling prices. Higher average selling prices were primarily due to increased selling prices for plate, welded pipe and rail products which more than offset declines in the average selling prices of rod and bar and structural tubing products. Operating income for the third quarter of 2005 was $35.8 million (an average of $94 per ton). This compares to operating income for the third quarter of 2004 of $64 million, including the $4.5 million Settlement Charge noted above. Third quarter 2004 operating income before the Settlement Charge was $68.5 million (an average of $150 per ton). Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2005 was $45.9 million. This compares to EBITDA for the third quarter of 2004 of $70.5 million ($75 million exclusive of the $4.5 million Settlement Charge). A reconciliation of EBITDA is provided in the last table of this press release. Decreased operating income and EBITDA during the third quarter of 2005 compared to the third quarter of 2004 reflects the decreased shipments and RMSM Furnace Installation expenses noted above, higher unit conversion cost as a result of lower production of plate and rod and bar products and higher steel slab costs (up 14 percent from the third quarter of 2004) at the Company's Oregon Steel Division partially offset by lower average scrap costs at RMSM. The Company had an effective income tax rate of approximately 28 percent in the third quarter of 2005. This compares to an effective income tax rate in the third quarter of 2004 of less than 3 percent. The effective income tax rate for the third quarter of 2005 varied from the combined state and federal statutory rate principally because the Company reversed a portion of the valuation allowance ($3.4 million) previously established due to less uncertainty regarding the realization of state tax credits and net operating loss carry forwards. The effective income tax rate for the third quarter of 2004 varied from the combined state and federal statutory rate principally because the Company reversed a portion of the valuation allowance ($19.9 million) established in 2003 due to less uncertainty regarding the realization of deferred tax assets. The Company expects to have an effective income tax rate of approximately 37 percent for the fourth quarter of 2005. LIQUIDITY At September 30, 2005, the Company had $74.1 million of cash, cash equivalents and short-term investments. Total debt outstanding, net of cash, cash equivalents and short-term investments was $236.6 million at September 30, 2005 compared to $237.6 million at September 30, 2004. During the third quarter of 2005, the Company incurred capital expenditures of $36.4 million; depreciation and amortization was $10.3 million. For all of 2005, the Company anticipates that capital expenditures and depreciation and amortization will be approximately $87 million and $40 million, respectively. At September 30, 2005, inventories were $346.7 million. This compares to $235 million at December 31, 2004. The increase in inventory is primarily due to (1) increased volume of higher cost steel slab, (2) inventory buildup for expected welded pipe demand at the Camrose pipe mill and (3) the buildup of semi-finished inventory at RMSM in anticipation of the Furnace Installation which occurred during September and October. The new furnace has been installed and is in a startup phase and is expected to be fully operational by the middle of November. The Company anticipates end of the year inventories will be approximately $250 million. OUTLOOK As noted above, the Furnace Installation at RMSM negatively impacted third quarter operating income by approximately $5 million. The Company anticipates the Furnace Installation will negatively impact the fourth quarter by another $3 million. The Company's large diameter line pipe mill at Camrose, Alberta, which has been out of service for the past three months for equipment upgrades, restarted on October 24. Total shipments from Camrose in the fourth quarter are expected to be approximately 75,000 tons. Total large diameter line pipe backlog for Oregon Steel is currently 156,000 tons. The previously announced startup of the seamless pipe mill at RMSM is proceeding with shipments anticipated to begin in February of 2006. Expected fourth quarter 2005 shipments, in tons, as compared to previous quarters are as follows: -0- *T Forecast Actual Actual Q4 2005 Q3 2005 Q4 2004 ------------ ----------- ------------ Plate and coil 200,000 152,000 155,200 Welded pipe 75,000 29,500 29,300 Structural tubing 18,000 18,400 10,000 Less shipment to affiliates (65,000) (31,300) (10,800) Rail 100,000 113,300 97,600 Rod and bar 77,000 99,900 78,100 ------------ ----------- ------------ Total 405,000 381,800 359,400 ============ =========== ============ *T For 2005, the Company expects to ship approximately 1.5 million tons of products and generate approximately $1.3 billion in sales. In the Oregon Steel Division the product mix is expected to consist of approximately 480,000 tons of plate and coil, 200,000 tons of welded pipe and 65,000 tons of structural tubing. The Company's RMSM Division expects to ship approximately 420,000 tons and 345,000 tons of rail and rod and bar products, respectively. Jim Declusin, the Company's President and CEO, stated, "With the completion of the new single furnace installation at RMSM and the restarting of the large diameter pipe mill at Camrose, we expect operations throughout the Company to return to normal. We believe that inventory levels at the service centers bottomed during the third quarter and we have begun to see some pick up in our plate market both in terms of price and volume. At the same time, market conditions for our energy related products continue to gain momentum. As we anticipated, the price of slab is declining and is now 30 percent off its high of earlier this year. Accordingly, we expect that fourth quarter 2005 operating income will be significantly higher than that realized in the third quarter with operating income from continuing operations to be within a range of $48 million to $52 million." FORWARD-LOOKING STATEMENTS Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties and actual results could differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive products and pricing, as well as fluctuations in demand; cost and availability of raw materials; potential equipment malfunction; and plant construction and repair delays. For more detailed information, please review the discussion of risks, which may cause results to differ materially, in the Company's most recently filed Form 10-K, Form 10-Q and other SEC reports. These forward-looking statements should not be relied upon as representing the Company's views as of any subsequent date and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, after the date they are made. CONFERENCE CALL WEBCAST On Tuesday, November 1, 2005, at 8:00 a.m. PT (11:00 a.m. ET), the Company will hold a conference call to discuss the results of the third quarter. You are invited to listen to a live broadcast of the Company's conference call over the Internet, accessible at www.osm.com on the Investor Relations' page. Oregon Steel Mills, Inc. is organized into two divisions. The Oregon Steel Division produces steel plate, coil, welded pipe and structural tubing from plants located in Portland, Oregon and Camrose, Alberta, Canada. The Rocky Mountain Steel Mills Division, located in Pueblo, Colorado, produces steel rail, rod and bar, and seamless tubular products. -0- *T Oregon Steel Mills, Inc. and Subsidiary Companies Condensed Consolidated Income Statements (1) (In thousands, except tonnage and per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 -------- -------- ---------- ---------- Sales $299,680 $348,332 $ 930,603 $ 882,498 Cost of sales 247,487 261,141 737,750 691,271 Labor dispute settlement charges (665) 4,532 (665) 43,400 Selling, general and administrative expenses 14,969 17,672 47,351 47,686 Loss on disposal of assets 2,090 1,036 1,791 743 -------- -------- ---------- ---------- Operating income 35,799 63,951 144,376 99,398 Interest expense, net (7,459) (8,454) (24,427) (25,482) Other income, net 1,168 893 4,527 2,364 Minority interests (1,330) (4,564) (5,582) (2,950) -------- -------- ---------- ---------- Income before income taxes 28,178 51,826 118,894 73,330 Income tax expense (7,938) (1,483) (41,879) (1,442) -------- -------- ---------- ---------- Net income $ 20,240 $ 50,343 $ 77,015 $ 71,888 ======== ======== ========== ========== Basic earnings per share $ .57 $ 1.89 $ 2.17 $ 2.70 Diluted earnings per share $ .57 $ 1.87 $ 2.15 $ 2.69 Basic weighted average shares outstanding 35,544 26,683 35,461 26,585 Diluted weighted average shares outstanding 35,818 26,924 35,760 26,753 Operating income per ton $ 93.76 $ 139.72 $ 130.41 $ 72.79 Operating margin 11.9% 18.4% 15.5% 11.3% Depreciation and amortization $ 10,260 $ 10,205 $ 29,705 $ 29,922 EBITDA (see attached table) $ 45,897 $ 70,485 $ 173,026 $ 128,734 EBITDA as adjusted (see attached table) $ 45,232 $ 75,017 $ 172,361 $ 172,134 Total tonnage sold: Oregon Steel Division Plate and coil 120,700 167,100 345,300 476,800 Structural tubing 18,400 16,600 46,900 45,900 Welded pipe 29,500 56,400 126,700 164,700 -------- -------- ---------- ---------- 168,600 240,100 518,900 687,400 Rocky Mountain Steel Mills Division Rail 113,300 100,700 318,300 294,600 Rod and bar 99,900 116,900 269,900 380,200 Seamless pipe -- -- -- 3,300 -------- -------- ---------- ---------- 213,200 217,600 588,200 678,100 -------- -------- ---------- ---------- Total Company 381,800 457,700 1,107,100 1,365,500 ======== ======== ========== ========== Sales: Oregon Steel Division $170,457 $208,455 $ 556,908 $ 510,515 Rocky Mountain Steel Mills Division 129,223 139,877 373,695 371,983 -------- -------- ---------- ---------- Total Company $299,680 $348,332 $ 930,603 $ 882,498 ======== ======== ========== ========== Operating income: Oregon Steel Division $ 20,463 $ 41,897 $ 89,294 $ 91,430 Rocky Mountain Steel Mills Division 15,336 22,054 55,082 7,968 -------- -------- ---------- ---------- Total Company $ 35,799 $ 63,951 $ 144,376 $ 99,398 ======== ======== ========== ========== Average selling price per ton: Oregon Steel Division $ 1,011 $ 868 $ 1,073 $ 743 Rocky Mountain Steel Mills Division $ 606 $ 643 $ 635 $ 549 Total Company $ 785 $ 761 $ 841 $ 646 (1) Certain reclassifications have been made in prior years' periods to conform to the current period presentations. Such reclassifications do not affect operating income as previously reported. Oregon Steel Mills, Inc. and Subsidiary Companies Condensed Consolidated Balance Sheets(1) (In thousands) September 30, 2005 December 31, (Unaudited) 2004 --------------------------- Current assets: Cash and cash equivalents, including restricted cash of $22,450 and $0 $ 65,497 $ 77,026 Short-term investments 8,621 60,110 Trade accounts receivable, net 118,046 118,952 Inventories 346,698 235,010 Deferred taxes and other current assets 20,161 14,561 Assets held for sale 27,898 28,448 ------------ ------------- 586,921 534,107 Property, plant and equipment, net 486,334 451,674 Goodwill 4,458 520 Intangibles, net 32,955 33,396 Other assets 6,908 10,004 ------------ ------------- Total assets $ 1,117,576 $ 1,029,701 ============ ============= Current liabilities $ 133,473 $ 145,046 Long-term debt 308,720 313,699 Deferred taxes 31,101 5,164 Other liabilities 108,249 104,578 ------------ ------------- 581,543 568,487 Minority interest (2) 14,710 22,706 Stockholders' equity 521,323 438,508 ------------ ------------- Total liabilities and stockholders' equity $ 1,117,576 $ 1,029,701 ============ ============= (1) Certain reclassifications have been made in prior years' periods to conform to the current period presentations. (2) Included in minority interest at December 31, 2004 was $11.4 million related to the 40 percent of Camrose Pipe Company that was not owned by the Company. On March 30, 2005 the Company purchased, for cash, the 40 percent interest. Oregon Steel Mills, Inc. and Subsidiary Companies Calculation of EBITDA and EBITDA as adjusted (In thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 -------- -------- -------- --------- Net income $ 20,240 $ 50,343 $ 77,015 $ 71,888 Income tax expense 7,938 1,483 41,879 1,442 -------- -------- -------- --------- Pre-tax income 28,178 51,826 118,894 73,330 Add back (subtract): Interest expense 8,338 8,692 26,006 26,178 Interest capitalized (879) (238) (1,579) (696) Depreciation 10,218 10,058 29,581 29,492 Amortization 42 147 124 430 -------- -------- -------- --------- EBITDA 45,897 70,485 173,026 128,734 Add back (subtract): Labor dispute settlement charges (665) 4,532 (665) 43,400 -------- -------- -------- --------- EBITDA as adjusted $ 45,232 $ 75,017 $172,361 $ 172,134 ======== ======== ======== ========= EBITDA is a non-generally accepted accounting principles ("GAAP") measure. The Company believes that EBITDA is useful to investors because it is a basis upon which we assess our financial performance, it provides useful information regarding our ability to service our debt and because it is a commonly used financial analysis tool for measuring and comparing companies in several areas of liquidity, operating performance and leverage. The Company believes EBITDA, excluding the effects of the labor dispute settlement charge is useful to investors because the Company believes the excluded items are nonrecurring. Therefore, the Company believes this financial measure is more useful to investors when comparing the reported results to previous periods. *T

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