<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the transition period from ___________________to__________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8526 SOUTH AVENUE, YOUNGSTOWN, OHIO 44514
(Address of principal executive offices) (Zip Code)
(330) 758-1194
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 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 [ ]
Number of shares of Common Stock outstanding as of August 7, 1996: 7,162,250
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended June 30, 1996
<TABLE>
<CAPTION>
Index
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Page No.
PART I. - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations ...................................................................................3
Consolidated Balance Sheets..............................................................................................4
Consolidated Statements of Cash Flows....................................................................................5
Notes to Condensed Consolidated Financial Statements.....................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................................10
Item 2. Changes in Securities.........................................................................................10
Item 3. Defaults Upon Senior Securities...............................................................................10
Item 4. Submission of Matters to a Vote of Securities Holders.........................................................10
Item 5. Other Information.............................................................................................10
Item 6. Exhibits and Reports on Form 8-K..............................................................................10
Signatures ......................................................................................................10
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 62,405 $ 61,248
Cost of sales 55,967 55,123
---------- ----------
Gross profit 6,438 6,125
Selling, general, and administrative expenses 3,811 3,354
Income from equity investment 28 9
Interest expense 505 826
---------- ----------
Income before income taxes 2,150 1,954
Income taxes 745 687
---------- ----------
Net income $ 1,405 $ 1,267
========== ==========
Per common share data:
Net income $ 0.20 $ 0.18
========== ==========
Weighted average common shares outstanding 7,162,250 7,182,250
========== ==========
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
--------- ---------
<S> <C> <C>
Assets:
Cash $ 1,936 $ 2,318
Receivables 40,343 37,301
Inventories 51,670 48,320
Prepaid and other current assets 1,515 1,469
--------- ---------
Total current assets 95,464 89,408
Property, plant and equipment - at cost 63,218 56,148
Less accumulated depreciation (27,489) (26,811)
--------- ---------
Property, plant and equipment - net 35,729 29,337
Other assets 8,964 7,945
--------- ---------
Total assets $ 140,157 $ 126,690
========= =========
Liabilities and shareholders' equity:
Revolving line of credit $ 13,109 $ 499
Accounts payable 29,779 29,835
Other current liabilities 7,090 7,624
--------- ---------
Total current liabilities 49,978 37,958
Long-term debt 39,197 39,000
Postretirement benefits 17,248 17,364
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,300 25,300
Retained earnings 13,952 12,547
Cumulative translation adjustment (2,119) (2,080)
Less treasury stock, 370,000 shares, at cost (3,474) (3,474)
--------- ---------
Total shareholders' equity 33,734 32,368
--------- ---------
Total liabilities and shareholders' equity $ 140,157 $ 126,690
========= =========
</TABLE>
See notes to consolidated financial statements
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,405 $ 1,267
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity investment (28) (9)
Depreciation and amortization 686 652
Deferred income taxes -- (102)
Deferred directors' fees -- 20
Changes in operating assets and liabilities:
Accounts receivable (16) 1,774
Inventory 3,814 (3,662)
Accounts payable (2,848) (8,204)
Accrued expense and other (753) (2,217)
------- --------
Net cash provided by (used in) operating activities 2,260 (10,481)
Cash flows from investing activities:
Additions to property, plant and equipment (4,380) (3,609)
Acquisition (2,609) --
------- --------
Net cash used in investing activities (6,989) (3,609)
Cash flows from financing activities:
Net proceeds from revolving line of credit 4,377 18,011
Defeasance of industrial revenue bond -- (4,250)
------- --------
Net cash provided by financing activities 4,377 13,761
------- --------
Net decrease in cash (352) (329)
Effect of translation adjustment (30) 45
Cash at beginning of period 2,318 2,946
------- --------
Cash at end of period $ 1,936 $ 2,662
======= ========
</TABLE>
See notes to consolidated financial statements.
5
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COLD METAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Cold Metal Products, Inc.
and subsidiary (the Company) as of June 30, 1996 and March 31, 1996, the results
of operations for the three month periods ended June 30, 1996 and 1995, and
changes in cash flows for the three months ended June 30, 1996 and 1995. The
results of operations for the periods ended June 30, 1996 and 1995 are not
necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and therefore, should be read in conjunction with
the audited consolidated financial statements contained in the Company's annual
report on Form 10-K for the year ended March 31, 1996.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, pretax income, and net income, respectively, of the Company's
Canadian operations were $29.2 million, $1.1 million and $690,000 for the
quarter ended June 30, 1996, and $26.0 million, $291,000, and $187,000 for the
quarter ended June 30, 1995.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,162,250 for the three months ended June 30,1996
and 7,182,250 for the three month period ended June 30,1995.
NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, March 31,
-------- ---------
1996 1996
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 29,351 $ 24,576
Work-in-process 14,395 14,784
Finished goods 7,924 8,960
---------------------------------------
Total inventories $ 51,670 $ 48,320
=======================================
</TABLE>
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NOTE 5. ACQUISITION:
Effective June 18, 1996, the Company acquired the remaining outstanding
shares of its 50% equity affiliate, Direct Steel, Inc., ("Direct Steel"), for
approximately $2.6 million. Direct Steel operates a steel service center located
in Concord, Ontario, Canada. The acquisition has been accounted for as a
purchase and, accordingly, assets and liabilities are reflected at estimated
fair values. The preliminary allocation of purchase price resulted in goodwill
of approximately $1.9 million, which is being amortized over 40 years.
The following unaudited pro forma information has been derived from the
Company's income statement for the three months ended June 30, 1996 and June 30,
1995 and adjusts such information to give effect to the acquisition of the
remaining outstanding shares of Direct as if the acquisition had occurred on
April 1, 1995. The pro forma information is presented for informational purposes
only and does not purport to be indicative of the results of operations that
actually would have resulted if the acquisition had been consummated on April 1,
1995, nor which may result from future operations.
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30, June 30,
-------- --------
1996 1995
---- ----
(In thousands except per share amounts)
<S> <C> <C>
Net sales $74,476 $72,214
Net income 1,419 1,247
Earnings per share 0.20 0.17
</TABLE>
NOTE 6. SHORT-TERM AND LONG-TERM DEBT
As of June 30, 1996, short term revolving line of credit included $9.7
million of borrowings under a line of credit agreement between Direct Steel and
its major lender. The line of credit is collateralized by accounts receivable
and inventory of Direct Steel under a general security agreement which contains
customary restrictions concerning various ratios. At period end, Direct Steel
was in default with respect to covenants regarding the minimum gross margin and
the debt to tangible net worth. Accordingly, the lender has the right to demand
payment of the amount due. The lender has, in writing, waived its rights in
respect to the breach as of June 30, 1996.
Long term debt includes $197,000 of loans payable to former
shareholders of Direct Steel.
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
Results of Operations
- ---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended June 30,
----------------------
1996 1995
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 89.7 90.0
----- -----
Gross profit 10.3 10.0
Selling, general, and administrative expenses 6.1 5.5
Income from equity investment 0.0 0.0
Interest expense 0.8 1.3
----- -----
Income before income taxes 3.4 3.2
Income taxes 1.2 1.1
----- -----
Net income 2.2% 2.1%
===== =====
</TABLE>
Net sales for the three-month period ended June 30, 1996 were $62.4
million, representing a $1.2 million or 1.9% increase from the corresponding
three month period ended June 30, 1995. The increase was attributable to (i) an
increase in tonnage shipped by the Company before taking into account activity
at Direct Steel, offset somewhat by lower selling prices per ton, and (ii)
consolidation of Direct Steel's sales with those of the Company. Activity
increased as buying patterns in the marketplace better matched consumption
compared to the prior year period.
Gross profit for the three months ended June 30, 1996 was $6.4 million
or 10.3% of net sales, compared to $6.1 million or 10.0% of net sales for the
three months ended June 30, 1995. Prior year gross profits reflected sales of
higher cost inventory in a softening price market, which caused a deterioration
in margins.
Selling and administrative costs of $3.8 million in the first quarter
of fiscal year 1997 represented 6.1% of sales as compared to $3.4 million in the
first quarter of fiscal year 1996, which represented 5.5% of sales. The increase
in selling and administrative cost as a percent of sales reflected higher
personnel and professional expenses associated with the Company's growth plan.
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Income from Direct Steel on the equity basis, prior to June 18, 1996
when its operations were consolidated with the Company's, was $28,000, a slight
increase over the $9,000 of income to the Company on the equity basis for the
first quarter of the prior year.
Interest expense was $505,000 or .8% of net sales for the three months
ended June 30, 1996 as compared to $826,000 or 1.3% of net sales in the first
quarter of fiscal year 1996. Lower interest rates, as well as lower borrowing
levels associated with improved inventory management were responsible for the
decrease.
Income before taxes was $2.2 million or 3.4% of net sales for the three
months ended June 30, 1996. This was an increase of $196,000 over the income
before taxes in the three month period ending June 30, 1995. The income before
taxes for the three months ended June 30, 1995 was $2.0 million, or 3.2% of net
sales.
Income taxes for the three month period ended June 30, 1996 were
$745,000, or 1.2% of net sales compared to $687,000, or 1.1% of net sales for
the same period ended June 30, 1995. The income tax rate was 35.1% in the first
quarter of fiscal year 1996 compared with a 35.3% tax rate for the prior year
period, not taking into account the Company's equity interest in the income of
Direct Steel.
Net income for the three months ended June 30, 1996 was $1.4 million,
or $.20 per share based on 7,162,250 shares as compared to $1.3 million, or $.18
per share based on 7,181,250 shares for the three months ended June 30, 1995.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $2.3 million for the
three months ended June 30, 1996, reflecting cash provided from net income,
non-cash depreciation charges, and cash provided by changes in working capital.
Changes in working capital reflected the decrease in inventory levels during the
quarter somewhat offset by a corresponding decrease in accounts payable and a
decrease in accrued expenses as a result of normal timing for pay-outs of
year-end accrual items such as payroll bonuses.
Cash used in investing activities was $7.0 million for the three months
ended June 30, 1996. Approximately $2.6 million was spent to acquire all shares
of Direct Steel not previously owned by the Company. Capital expenditures were
$4.4 million, the majority of which were associated with the Company's Ottawa
expansion project.
Cash flows from financing activities provided $4.4 million for the
three months ended June 30, 1996. The Company's revolving credit facilities
provide a maximum availability of approximately $84 million of which $52.1
million was outstanding at June 30, 1996. Direct Steel was in violation of
certain covenants relating to its maintenance of certain ratios in loan
agreements to which Direct Steel is a party. The balance of the Company's
indebtedness is not affected. The lender has waived its rights with respect to
Direct Steel's breach as of June 30, 1996. The Company is currently
negotiating a restructure of Direct Steel's financing agreement with the
current lender.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditures
and other cash requirements for the next twelve months. As the Company pursues
its growth strategy of expanding through core business acquisitions, capital
requirements may change and the Company may from time to time seek additional
financing.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported.
ITEM 2. CHANGE IN SECURITIES There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to a vote of the shareholders in the first
quarter of the fiscal year ended March 31, 1997.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - None
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.
Cold Metal Products, Inc.
(Registrant)
/s/ James R. Harpster
---------------------
James R. Harpster
President, Chief Executive Officer
/s/ John E. Sloe
----------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
August 12, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,936
<SECURITIES> 0
<RECEIVABLES> 40,343
<ALLOWANCES> 779
<INVENTORY> 51,670
<CURRENT-ASSETS> 95,464
<PP&E> 63,218
<DEPRECIATION> 27,489
<TOTAL-ASSETS> 140,157
<CURRENT-LIABILITIES> 49,978
<BONDS> 0
<COMMON> 75
0
0
<OTHER-SE> 19,707
<TOTAL-LIABILITY-AND-EQUITY> 140,157
<SALES> 62,405
<TOTAL-REVENUES> 62,405
<CGS> 55,967
<TOTAL-COSTS> 55,967
<OTHER-EXPENSES> 3,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505
<INCOME-PRETAX> 2,150
<INCOME-TAX> 745
<INCOME-CONTINUING> 1,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,405
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
