OS Oregon Stl Mls

Oregon Steel Mills, Inc. (NYSE:OS): Second Quarter 2006 Highlights: -- Sales were $349.6 million, the second highest in the Company's history on 393,200 tons of shipments -- Operating income per ton and operating margin were $179 per ton and 20.2 percent, respectively -- Operating income and pretax income were the highest in the Company's history at $70.6 million and $65.1 million, respectively -- Earnings before interest, taxes, depreciation and amortization was $82.7 million compared to $64.4 million in the second quarter of 2005 -- Net income was $43.9 million ($1.22 per diluted share), an increase of 54.6 percent -- The Company redeemed all of its outstanding 10% First Mortgage Notes as of July 15, 2006 Oregon Steel Mills, Inc. (NYSE:OS) today reported record quarterly operating income and pretax income of $70.6 million and $65.1 million, respectively. The Company also reported second quarter net income of $43.9 million ($1.22 per diluted share on 36 million shares) an increase of 54.6 percent over second quarter of 2005 net income of $28.4 million ($.80 per diluted share on 35.8 million shares). The Company's operating income in the second quarter of 2006 was negatively impacted by a $3.6 million charge ($.07 per diluted share) related to the cancellation and buyout costs of a contract to supply oxygen to the now closed melt shop at the Company's Portland, Oregon mill. Annual costs associated with this take or pay contract, which extended into the year 2011, were approximately $1.8 million per year. Also during the second quarter of 2006, the effective income tax rate of the Company was approximately 32 percent compared to an effective income tax rate of approximately 39 percent in the second quarter of 2005. Sales for the second quarter of 2006 increased 4.4 percent to $349.6 million compared with $335 million in the second quarter 2005. Average sales price per ton in the second quarter of 2006 was $889 compared to $882 in the second quarter of 2005. Total shipments for the second quarter of 2006 were 393,200 tons compared to 2005 second quarter shipments of 379,600 tons. The increase in shipments was primarily due to increased shipments of plate and coil, structural tubing, rail and seamless pipe products, partially offset by lower shipments of welded pipe and rod and bar products. The Company's seamless pipe mill, which was idled in November of 2003, was restarted in December of 2005 and shipped 21,200 tons of seamless pipe during the second quarter of 2006. The increase in sales was primarily due to the higher shipments noted above, the addition of seamless pipe (currently the Company's highest averaged selling priced product) and higher average selling prices for ERW pipe, rail and rod and bar products, partially offset by lower average selling prices for plate products. Operating income for the second quarter of 2006 was $70.6 million, an average of $179 per ton, both of which are quarterly records for the Company. This compares to operating income for the second quarter of 2005 of $54 million, an average of $142 per ton. Operating margin as a percentage of sales increased from 16.1 percent to 20.2 percent as the Company realized margin expansion in almost all of its product lines. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2006 was $82.7 million, also a quarterly record. This compares to EBITDA for the second quarter of 2005 of $64.4 million. A reconciliation of EBITDA is provided in the last table of this press release. Increased operating income, operating margin and EBITDA during the second quarter of 2006 compared to the second quarter of 2005 reflects the shipments and higher average selling prices, as discussed above, and lower steel slab costs at the Company's Oregon Steel Division partially offset by higher scrap costs at the Company's Rocky Mountain Steel Mills Division. The Company had an effective income tax rate of 32 percent in the second quarter of 2006. This compares to an effective income tax rate in the second quarter of 2005 of approximately 39 percent. The effective income tax rate for the second quarter of 2006 varied from the combined state and federal statutory rate principally because the Company reversed the remaining valuation allowance of $4 million ($.07 per diluted share) established in 2003 due to less uncertainty regarding the realization of deferred tax assets. The 2003 valuation allowance was established due to the uncertainties regarding the realization of certain federal and state net operating loss carry-forwards, state tax credits and alternative minimum tax credits. The Company expects its effective income tax rate for all of 2006 to be approximately 35 percent. LIQUIDITY At June 30, 2006, the Company had $277.8 million of cash, cash equivalents and short-term investments. Total debt outstanding, net of cash, cash equivalents and short-term investments was $36.6 million at June 30, 2006 compared to $216.8 million at June 30, 2005 and $132.1 million at December 31, 2005. During the second quarter of 2006, the Company incurred capital expenditures of $23.5 million and depreciation and amortization was $10.9 million. For all of 2006, the Company anticipates that capital expenditures and depreciation and amortization will be approximately $92 million and $46 million, respectively. 2006 OUTLOOK For 2006, the Company expects to ship approximately 1.74 million tons of products and generate approximately $1.6 billion in sales. In the Oregon Steel Division the product mix is expected to consist of approximately 520,000 tons of plate and coil, 320,000 tons of welded pipe and 80,000 tons of structural tubing. The RMSM Division expects to ship approximately 415,000 tons of rail, 325,000 tons of rod and bar products and 80,000 tons of seamless pipe. -0- *T Expected third quarter of 2006 shipments, in tons, as compared to previous quarters are as follows: Forecast Actual Actual Q3 2006 Q2 2006 Q3 2005 ----------- ----------- ---------- Oregon Steel Division: Plate and coil 210,000 211,100 152,000 Welded pipe(1) 82,000 31,600 29,500 Structural tubing 23,000 19,500 18,400 Less shipment to affiliates (71,000) (78,400) (31,300) ----------- ----------- ---------- 244,000 183,800 168,600 ---------------------------------- RMSM Division: Rail 108,000 110,600 113,300 Rod and bar 87,000 77,600 99,900 Seamless pipe 21,000 21,200 - ----------- ----------- ---------- 216,000 209,400 213,200 ----------- ----------- ---------- Total 460,000 393,200 381,800 ================================== (1) Includes large diameter line pipe, ERW line pipe and ERW casing. *T As previously reported, on July 17, 2006, the Company completed the redemption of all of its outstanding 10% First Mortgage Notes ("Notes") due on July 15, 2009, at a price equal to 105% of the principal amount of the Notes being redeemed. The principal amount of Notes outstanding to third parties as of the date of the redemption was approximately $303 million. In connection with the redemption of the Notes, the Company will record a charge of $21.1 million ($.37 per diluted share) in the third quarter of 2006. The charge consists of approximately $15.1 million for the Notes call premium and $6 million for deferred financing costs and other costs related to the original issuance of the Notes. Jim Declusin, the Company's President and CEO stated, "Oregon Steel is pleased to announce record financial performance during the second quarter. All of our market segments performed well during the second quarter and are forecasted to remain strong through the rest of the year. During the second half of the year, we see our total volume increasing to record levels and our product mix shifting to a greater percentage of higher priced, higher margin energy-related products. At the same time, we have recently implemented price increases on selected non-energy-related products such as plate and rod. As a result of the anticipated volume increase and shift in product mix, we expect the second half of the year will result in records for revenue, shipments and operating income for our Company." 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 The Company will discuss its second quarter results in a conference call on Friday, July 28, 2006, at 8:00 a.m. PT (11:00 a.m. ET). Jim Declusin, President and Chief Executive Officer and Ray Adams, Vice President of Finance and Chief Financial Officer will host the call. The conference call can be accessed in the U.S. and Canada by dialing 877-754-9773. International callers can access the call by dialing 706-679-0390. Participants are encouraged to dial in 15 minutes prior to the beginning of the call and request conference ID #2894991. A replay will be available for 48 hours after the live broadcast and can be accessed by dialing 800-642-1687 or 706-645-9291. The call will be simultaneously web cast and can be accessed on the Investor Relations page of the Company's website, www.osm.com. Listeners should go to the website at least 15 minutes early to register, download, and install any necessary audio software. Oregon Steel Mills, which is headquartered in Portland, Oregon, is organized into two divisions. The Oregon Steel Division produces as-rolled and heat-treated steel plate, coil, welded pipe (both large and small diameter line pipe and casing) 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 Six Months Ended June 30, June 30, 2006 2005 2006 2005 -------- -------- -------- -------- Sales $349,589 $334,959 $704,877 $630,924 Cost of sales 259,587 266,834 535,019 490,263 Selling, general and administrative expenses 19,641 14,330 40,928 32,384 Gain on sales of assets (205) (212) (372) (299) -------- -------- -------- -------- Operating income 70,566 54,007 129,302 108,576 Interest expense, net (6,771) (8,326) (13,757) (16,968) Other income, net 3,339 1,854 5,063 3,360 Minority interests (2,078) (1,176) (3,075) (4,252) -------- -------- -------- -------- Income before income taxes 65,056 46,359 117,533 90,716 Income tax expense (21,120) (17,934) (40,246) (33,941) -------- -------- -------- -------- Net income $ 43,936 $ 28,425 $ 77,287 $ 56,775 ======== ======== ======== ======== Basic earnings per share $ 1.23 $ .80 $ 2.16 $ 1.60 Diluted earnings per share $ 1.22 $ .80 $ 2.15 $ 1.59 Basic weighted average shares outstanding 35,781 35,439 35,749 35,419 Diluted weighted average shares outstanding 36,031 35,750 35,980 35,762 Operating income per ton $ 179.47 $ 142.27 $ 163.12 $ 149.70 Operating margin 20.2% 16.1% 18.3% 17.2% Depreciation and amortization $ 10,888 $ 9,714 $ 21,738 $ 19,445 EBITDA (see attached table) $ 82,715 $ 64,399 $153,028 $127,129 Total tonnage sold: Oregon Steel Division: Plate and coil 132,700 112,200 269,200 224,600 Welded pipe 31,600 66,900 93,900 97,200 Structural tubing 19,500 13,700 37,900 28,500 -------- -------- -------- -------- 183,800 192,800 401,000 350,300 -------- -------- -------- -------- Rocky Mountain Steel Mills Division: Rail 110,600 103,200 203,900 205,000 Rod and bar 77,600 83,600 152,600 170,000 Seamless pipe 21,200 -- 35,200 -- -------- -------- -------- -------- 209,400 186,800 391,700 375,000 -------- -------- -------- -------- Total Company 393,200 379,600 792,700 725,300 ======== ======== ======== ======== Sales: Oregon Steel Division $191,840 $214,314 $411,211 $386,452 Rocky Mountain Steel Mills Division 157,749 120,645 293,666 244,472 -------- -------- -------- -------- Total Company $349,589 $334,959 $704,877 $630,924 ======== ======== ======== ======== Operating income: Oregon Steel Division $ 35,491 $ 32,675 $ 74,090 $ 68,830 Rocky Mountain Steel Mills Division 35,075 21,332 55,212 39,746 -------- -------- -------- -------- Total Company $ 70,566 $ 54,007 $129,302 $108,576 ======== ======== ======== ======== Average selling price per ton: Oregon Steel Division $ 1,044 $ 1,112 $ 1,025 $ 1,103 Rocky Mountain Steel Mills Division $ 753 $ 646 $ 750 $ 652 Total Company $ 889 $ 882 $ 889 $ 870 (1) Certain reclassifications have been made in prior years' periods to conform to the current period presentations. Such reclassifications do not affect results of operations as previously reported. Oregon Steel Mills, Inc. and Subsidiary Companies Condensed Consolidated Balance Sheets(1) (In thousands) June 30, December 31, 2006 2005 ----------- ------------- (Unaudited) ----------- Current assets: Cash and cash equivalents $ 87,460 $ 74,965 Short-term investments 190,373 103,300 Trade accounts receivable, net 141,721 138,456 Inventories 307,233 301,546 Deferred taxes and other current assets 31,714 17,753 ------------- -------------- 758,501 636,020 Property, plant and equipment, net 525,371 499,122 Goodwill 4,458 4,458 Intangibles, net 30,396 30,456 Other assets 1,180 5,824 ------------- -------------- Total assets $ 1,319,906 $ 1,175,880 ============= ============== Current liabilities $ 507,651 $ 167,634 Long-term debt 6,525 308,337 Deferred taxes 56,109 43,133 Other liabilities 99,997 92,507 ------------- -------------- 670,282 611,611 Minority interest 14,944 11,869 Stockholders' equity 634,680 552,400 ------------- -------------- Total liabilities and stockholders' equity $ 1,319,906 $ 1,175,880 ============= ============== (1) Certain reclassifications have been made in prior years' periods to conform to the current period presentations. Oregon Steel Mills, Inc. and Subsidiary Companies Calculation of EBITDA (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 --------- -------- -------- -------- Net income $ 43,936 $ 28,425 $ 77,287 $ 56,775 Income tax expense 21,120 17,934 40,246 33,941 --------- -------- -------- -------- Pre-tax income 65,056 46,359 117,533 90,716 Add back: Interest expense 8,276 8,744 16,538 17,668 Interest capitalized (1,505) (418) (2,781) (700) Depreciation 10,848 9,672 21,659 19,363 Amortization 40 42 79 82 --------- -------- -------- -------- EBITDA $ 82,715 $ 64,399 $153,028 $127,129 ========= ======== ======== ======== 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. *T