<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended March 31, 1996. 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
incorporation or organization) Identification No.)
8526 South Avenue, Youngstown, Ohio 44514
- ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 758-1194
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Shares New York Stock Exchange, Inc.
Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common shares, $.01 par value, held by
non affiliates of the registrant as computed by reference to the closing price
on the New York Stock Exchange on June 13, 1996 was $23,185,844
The number of shares of Registrant's Common Stock, par value $.01 per share,
outstanding as of June 14, 1996 was 7,162,250
<PAGE> 2
COLD METAL PRODUCTS, INC.
FORM 10-K - FISCAL YEAR ENDED MARCH 31, 1996
--------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C> <C> <C>
PART I Item 1 Business 3
2 Properties 7
3 Legal Proceedings 8
4 Submission of Matters to a Vote of Security Holders 8
4A Executive Officers of the Registrant 8
PART II Item 5 Market Information 10
6 Selected Consolidated Financial Data 11
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
8 Consolidated Financial Statements and
Supplementary Data 15
9 Changes in and Disagreements with Accountants
in Accounting and Financial Disclosure 31
PART III Item 10 Directors and Executive Officers of the Registrant 31
11 Executive Compensation 31
12 Security Ownership of Certain Beneficial
Owners and Management 31
13 Certain Relationships and Related Transactions 31
PART IV Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 31
Signatures 35
</TABLE>
2
<PAGE> 3
COLD METAL PRODUCTS, INC.
FORM 10-K -1996
PART I
------
ITEM 1. BUSINESS
(a) General Development of Business.
--------------------------------
Cold Metal Products, Inc. (which, together with its wholly-owned
Canadian subsidiary, is referred to herein as the "Company") is a corporation
organized in 1980 under the laws of the State of New York. The Company is a
leading intermediate processor of flat-rolled steel engineered to meet the
critical requirements of precision parts manufacturers. As an intermediate
processor of flat-rolled steel, the Company purchases coils of rolled steel from
primary producers and processes the steel, using techniques such as
cold-rolling, annealing, normalizing, edge-conditioning and oscillate-winding,
as well as more basic services of slitting and cutting to length. The Company's
products include strip steel for speciality and conventional applications and
processed sheet steel. "Specialty" strip is highly engineered to meet customer
needs in precision parts manufacturing, and "conventional" strip is supplied to
high-volume manufacturers whose purchasing criteria emphasize quality, price and
service rather than unique specifications.
(b) Financial Information about Industry Segments
---------------------------------------------
Production of specialty strip steel, conventional strip steel
and processed sheet steel comprises a single segment of the intermediate steel
processing industry, involving inter-related equipment, technology and raw
materials. Accordingly, the business of the Company cannot be separated into
industry segments.
(c) Narrative Description of Business
---------------------------------
Products and Services
---------------------
An intermediate processor of flat-rolled steel, the Company
purchases coils of rolled steel from primary producers and processes the steel,
using techniques such as cold-rolling, annealing, normalizing, edge-conditioning
and oscillate-winding, as well as the more basic services of slitting and
cutting-to-length. The Company processes and markets over 50 grades of steel,
including ultra-low carbon, low carbon, medium and high carbon, very high
carbon, alloy, high strength-low alloy and both 300 and 400 series stainless.
The following table sets forth management's estimates of the percentages of net
sales for the three years ended March 31, 1996, 1995 and 1994 attributable to
the Company's strip steel products, which include both specialty and
conventional applications, and processed sheet products, respectively:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Product 1996 1995 1994
------- ---- ---- ----
<S> <C> <C> <C>
Strip Steel... 79% 80% 80%
Processed Sheet... 21 20 20
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
The Company believes that it is one of the few flat-rolled
steel processors with a significant position in both the specialty strip steel
and conventional strip steel markets, and is an industry leader in at least two
key areas of specialty strip technology: (i) continuous annealing and
normalizing of steel to produce special metallurgical properties and (ii)
multi-head oscillate-winding to produce long lengths of narrow strip steel.
3
<PAGE> 4
Strip Steel Products. Specialty strip products are highly engineered
and customized, processed from flat-rolled coils of steel meeting exacting
specifications in multiple rolling, annealing and finishing operations.
Specialty strip is used in the manufacture of a variety of products, including
bearings, cutting tools and chain saw blades, tape measures, computer discs,
high-tolerance springs and pen clips. Conventional strip products are generally
used in high-volume manufacturing applications. Quality requirements for
conventional strip products are typically stringent, and customer purchasing
decisions are usually based on prices offered by processors which can meet those
requirements. Conventional strip products are used in the manufacture of such
products as seat belt parts, transmission parts, industrial chains, door hinges,
drawer slides, golf club shafts and other products.
Processed Sheet. At its steel service centers, the Company produces
processed sheet consisting primarily of hot-rolled, cold-rolled and galvanized
steel. The Company's processed sheet steel is typically used in applications
that do not require precision tolerances, such as for heating ducts, wall studs
and unexposed automobile parts. The Company's steel service centers purchase
steel from primary steel producers and add value by slitting, cutting to length
and providing warehousing services.
The principal processing techniques and the related equipment of the
Company -- rolling, annealing, slitting, oscillate-winding and finishing -- are
described below:
- Cold-rolling is the process of rolling steel to a specified
thickness, temper and finish. Most strip-rolling is performed
on reversing mills of three major types: 4-High, 6-High and
cluster mills (or "Z-mills"). The Company utilizes all three
types.
- Annealing is a thermal process which changes the hardness and
certain metallurgical characteristics of steel. The most
common means of softening strip steel for further processing
or customer use is by annealing (heating and cooling) stacks
of wound coils of strip steel in batch furnaces. All of the
Company's strip mills are equipped for batch annealing.
- Slitting is the cutting of steel to specified widths and is
performed at all of the Company's facilities. Coils of
fully-processed strip or wide sheet coil are unwound, passed
through rotary slitting knives and rewound in narrow-width
coils as required by customer specifications.
- Oscillate-winding is a means of producing exceptionally long
lengths of narrow strip steel by winding consecutive coils,
much like thread is wound on a spool. This operation can be
performed after slitting or, at a lower cost, on a multiple
head-slitting and oscillate-winding line.
- Several auxiliary operations are performed by the Company,
including coating and edge-conditioning. Coating is performed
internally on an electro-galvanizing line at the Youngstown
facility and by outside vendors for other platings or paints
as needed to meet a given customer's needs. Edge-conditioning
is the conditioning of edges of processed steel into square,
full-round or partially-round shapes by rolling and skiving
and is done at several of the Company's plants.
Raw Materials.
--------------
The primary raw materials used in the Company's operations are
hot-rolled and cold-rolled steel coils. Currently, the Company obtains steel for
processing from a number of primary steel producers, and has developed
cooperative relationships with its principal suppliers which, the Company
believes, enable it to assure itself of the availability of steel. Pursuant to
an agreement between the Company and one of its principal suppliers, the Company
has agreed to purchase, and the supplier has agreed to supply, certain specified
volumes of various grades and specifications of steel on competitive terms.
4
<PAGE> 5
This arrangement, which extends through the year 2001, has been, and is expected
to be, significant to the Company during periods when demand for steel is high
and primary steel suppliers are likely to allocate grades and quantities of
steel. During the fiscal year ended March 31, 1996, excluding its service center
operations, the Company purchased approximately 13% of its requirements for
hot-rolled and cold-rolled steel under this arrangement.
The Company has developed supply relationships with several primary
steel producers outside of the U.S. and Canada. Over the Company's last three
fiscal years, approximately 15% of its steel requirements, exclusive of the
requirements of its service centers, was purchased from these suppliers. The
Company's ability to acquire steel from sources outside the U.S. and Canada
affords it access to certain grades required for its specialty strip production
and, the Company believes, can afford substantial protection in the event of
limited steel supply in North America.
The Company's largest component of cost of sales is raw material costs.
These costs can vary over time due to changes in steel pricing which the Company
typically passes on to customers. In periods of falling steel prices, however,
reductions in the Company's raw material costs may lag behind pressure on the
Company's prices, temporarily compressing the Company's profit margins.
Patents and Trademarks
----------------------
The Company has no patents material to its business. With respect to
trademarks, the Company has developed a proprietary LaserMatte(TM) finish to
enhance drawability in certain difficult forming operations, which the Company
applies utilizing laser texturing technology acquired by the Company in March of
1995. The Company also has developed and produces the UniForm(TM) series of
specialty strip products that help customers solve problems in their
manufacturing processes. These include:
<TABLE>
<CAPTION>
Product Application
------- -----------
<S> <C>
UniForm(TM)100 Magnetic shielding and relay applications
UniForm(TM)200 Extra-deep drawn parts
UniForm(TM)300 Cup-shaped parts
UniForm(TM)500 Applications involving severe bending or stretch forming
UniForm(TM)700 Pre-hardened flat parts
UniForm(TM)800 High-strength parts requiring high ductility
</TABLE>
Seasonality
-----------
The Company experiences lower levels of net sales in the months of
July, November and December due, primarily, to holiday periods and customer
plant shutdowns.
Working Capital Requirements
----------------------------
The Company generally maintains its inventory of raw materials at
levels that it believes are sufficient to satisfy the anticipated needs of its
customers based on historic buying practices and market conditions. The Company
believes that its practices are comparable to other companies in the
intermediate steel processing industry. The Company believes that cash generated
from operations and from borrowing under its committed credit facility provide
adequate cash for the Company's working capital requirements.
Customers
---------
The Company sells its products primarily in the automotive,
construction, cutting tools, consumer goods and industrial markets and to
specialty steel distributors. During the fiscal year ended March 31, 1996, 37%
of the Company's net sales were to the automotive market. Net sales are
primarily to manufacturers who produce component parts for sale to automotive
manufacturers and after-market parts suppliers. The balance of the Company's net
sales are almost equally divided among
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<PAGE> 6
the other markets served. The markets served by the Company's steel service
centers are primarily the automotive industry in Ontario and the construction
industry in Quebec. During the fiscal year ended March 31, 1996, the Company
sold products to approximately 1200 customers with the largest single customer
accounting for approximately 8% of the Company's net sales. The Company's ten
largest customers accounted for 35% percent of its net sales during that period.
During the fiscal year ended March 31, 1996, approximately 24% of the Company's
net sales were made pursuant to arrangements with customers which contemplate
deliveries over a period of 12 months or more.
For the fiscal year ended March 31, 1996, approximately 66% of the
Company's net sales were to customers in the U.S. and 34% were to customers in
Canada. Less than 1% of the Company's net sales, in each of its last three
fiscal years, were derived from sales to customers outside the U.S. and Canada.
See Note 1 to Consolidated Financial Statements included herein at Item 8.
Backlog
-------
At May 31, 1996, the Company's backlog was approximately $35 million
compared with approximately $41 million at May 31, 1995. Management estimates
that substantially all of the existing backlog will be shipped during the
current fiscal year.
Competition
-----------
The intermediate steel processing industry is highly competitive. The
Company competes on the basis of quality, technical expertise, price and its
ability to meet the delivery demands of its customers. Its principal competitors
in the specialty strip market consist primarily of small, privately-held
concerns, many of which focus on certain grades, finishes or coatings. The
Company's competitors in the conventional strip market include Steel
Technologies, Inc., Worthington Industries and Gibraltar Steel Corporation, each
of which may have greater financial and other resources than the Company.
Imported processed steel from Japan and Europe also competes with the Company's
strip steel products.
Compliance With Environmental Regulations
-----------------------------------------
The Company's steel processing facilities are subject to many federal,
state, provincial and local requirements relating to the protection of the
environment, and the Company has made, and will continue to make, expenditures
to comply with such provisions. The Company believes that its facilities are
being operated in material compliance with these laws and regulations and does
not believe that future compliance with such existing laws and regulations will
have a material adverse effect on its results of operations or financial
condition. Capital expenditures and expenses attributable to environmental
control compliance were approximately $271,000 in fiscal 1996, and are forecast
to be approximately $779,000 in fiscal 1997 and $400,000 in fiscal 1998.
The Company is in the process of closing a stainless steel waste pickle
liquor tank which is located in the floor of its Youngstown facility and has
submitted a Stainless Steel Waste Pickle Liquor Tank Closure Plan and a Human
Health Risk Assessment to the Ohio Environmental Protection Agency ("Ohio EPA").
Although some soil contamination has been discovered, based on the results of
the health assessment, the Company believes that the tank should be considered
"clean closed" and no further action should be required by the Ohio EPA.
Nevertheless, there is a possibility that the Ohio EPA will require some
remediation. The Company has established a trust fund with the Ohio EPA in order
to cover costs associated with the closure of the tank. As of March 31, 1996,
the trust fund held approximately $154,000.
The Company has retained the services of an environmental consultant
who continuously reviews the Company's operations to insure compliance with
environmental laws and regulations. While the Company's facilities are located
on old industrial sites, and although some contamination has been discovered,
based upon studies and reports conducted by the Company's consultants, the
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Company believes it is unlikely that any of the sites will require the Company
to incur material remediation costs.
Employees
---------
As of March 31, 1996, the Company employed a total of 754 people,
consisting of 281 salaried, 449 union, hourly and 24 non-union, hourly
employees. The Company is a party to six collective bargaining agreements at its
different facilities. The Company believes its employee relations are good.
ITEM 2. PROPERTIES
The following table sets forth the location, square footage and use of
each of the Company's principal production facilities.
<TABLE>
<CAPTION>
Location Square Principal Use Owned or
- -------- Footage ------------- Leased (1)
------- ----------
<S> <C> <C> <C>
Youngstown, Ohio 430,000 Specialty Strip production Owned
New Britain, Connecticut 290,000 Specialty Strip production Owned
Steel service center
Hamilton, Ontario 290,000 Conventional Strip production Owned
Indianapolis, Indiana 140,000 Specialty and Conventional Owned
Strip production
Ottawa, Ohio 55,000 Speciality and Conventional Owned
Strip production
Waterbury, Connecticut 16,000 Specialty Strip processing Leased(2)
Montreal, Quebec 40,000 Steel service center Owned
Hamilton, Ontario 25,000 Steel service center Owned
<FN>
(1) Each of the facilities owned by the Company is subject to the lien of
the financial institution providing the Company's committed credit
facility.
(2) Leased under lease expiring on November 30, 1998, subject to one
five-year renewal option.
</TABLE>
Changes in product mix result in significant variations in productive
capacity of the Company's strip facilities in any measurable period. The Company
estimates that its strip facilities operated at an estimated 80% of productive
capacity in fiscal 1996, and the Company's slitting equipment at its steel
service centers operated at approximately 70% of productive capacity in fiscal
1996.
The Company continually reviews its space needs and opportunities for
expansion and in fiscal 1996 began a major expansion at its facility in Ottawa,
Ohio to increase the Company's conventional strip capacity. The estimated $22
million project will increase the square footage of the plant by approximately
90,000 square feet, increase capacity for cold-rolled strip production by
approximately 40% and will increase maximum product width capabilities. The new
facility is scheduled to start
7
<PAGE> 8
production in mid-fiscal 1997. In connection with this project, the Company has
obtained a $21.8 million term loan, subject to certain contingencies. Upon
completion of the project, the loan proceeds will be used primarily to retire
committed facility borrowing associated with the Ottawa plant expansion.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings expected to have a
material, adverse effect on the Company.
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 period in the fourth quarter of the fiscal year ended March 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of all the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
James R. Harpster........ 48 President and Chief Executive Officer
R. Quintus Anderson....... 65 Chairman of the Board
Gordon A. Wilber........ 54 Executive Vice President, Chief Operating Officer
Allen R. Morrow............ 46 Vice President, Chief Administrative Officer, Treasurer
John E. Sloe................. 43 Vice President, Chief Financial Officer
Robert R. Albert............ 66 Vice President - Commercial
Jack W. Watson........... 52 Vice President, General Manager, Canada
Corinn S. Grossetti......... 40 Corporate Controller
Heidi A. Nauleau......... 39 Corporate Secretary
</TABLE>
Executive officers are elected by the Board of Directors and serve at
its discretion.
JAMES R. HARPSTER has served as President and Chief Executive Officer of the
Company since 1984, and has served as a Director since 1982. Prior to assuming
his current position, he was Vice President of Sales for the Company since its
incorporation. He has twenty-seven years' experience in the steel industry,
having begun his career in 1969 with Jones & Laughlin Steel Corporation. During
his career with Jones & Laughlin, Mr. Harpster held various management positions
in the areas of product quality and plant operations. He graduated from Lehigh
University in 1969 with a B.S. in Metallurgy and from the University of Akron in
1975 with an MBA. He is a member and past president of the Association of
Cold-Rolled Strip Steel Producers and a member of the Department of Commerce's
Industry Sector Advisory Committee on Ferrous Ores and Metals for Trade Policy
Matters.
R. QUINTUS ANDERSON has served as Chairman of the Board of Directors of the
Company since its incorporation in 1980. Aarque Capital Corporation, a
corporation controlled by Mr. Anderson, owns approximately 51.1% of the shares
of Common Stock of the Company. Aarque Capital Corporation is one of a group of
privately-held corporations owned or controlled by Mr. Anderson, known as The
Aarque Companies, which are in businesses unrelated to the business of the
Company. Mr Anderson holds a Bachelor of Engineering degree from Princeton
University and was granted a post-graduate fellowship at the Sloane School of
Industrial Management at the Massachusetts Institute of Technology. Since his
discharge as a lieutenant from the U.S. Navy in 1957, Mr. Anderson has
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<PAGE> 9
managed, operated and acquired businesses related principally to the metal
fabrication industry. Mr. Anderson is a trustee of Northwestern Mutual Life
Insurance Company and a director of Oneida Ltd.
GORDON A. WILBER has served as Vice President since 1984, and Executive Vice
President of the Company since 1987. Mr. Wilber was appointed Chief Operating
Officer and was elected a Director in 1994. Prior to 1987, he held the positions
of Vice President of Operations, Manager of Operations and Technical Director of
the Company. Mr. Wilber began his career as a Research Metallurgist at the
Graham Laboratories of Jones & Laughlin in 1968. Following a series of technical
positions in the basic and specialty flat-rolled divisions of Jones & Laughlin,
he became Manager of Quality Control for Jones & Laughlin's specialty strip
plants in 1977. He has a Master's Degree in Metallurgical Engineering from the
University of Illinois and a Ph.D. from Rensselaer Polytechnic Institute. He is
a member of the Board of Directors and Vice President of the Association of Cold
Rolled Strip Steel Producers.
ALLEN R. MORROW serves as Vice President, Chief Administrative Officer and
Treasurer of the Company. Prior to his appointment as Chief Administrative
Officer in April 1996, he had served as Chief Financial Officer of the Company
since its incorporation in 1980. He was elected Vice President and Treasurer in
1994. Prior thereto, he held various management positions with LTV and Jones &
Laughlin and, immediately preceding his employment with the Company, was
Division Controller, Strip Plants of Jones & Laughlin. He began his career with
Coopers & Lybrand and is a Certified Public Accountant. Mr. Morrow graduated
from Geneva College in 1971 with a B.S. Bus. Ad. in Accounting and from the
University of Pittsburgh in 1978 with an MBA.
JOHN E. SLOE joined the Company on April 1, 1996 as Vice President, Chief
Financial Officer. From 1993 to 1996, he served as a turnaround management
consultant with Sloe & Associates, whereby he independently assisted
manufacturing companies improve productivity, efficiencies and profitability.
From 1990 to 1993, he served as President and Chief Executive Officer of Denman
Tire Corporation, a $45 million specialty tire manufacturer. He joined Denman
Tire as Vice President & Chief Financial Officer in 1987. Mr. Sloe began his
career in 1977 with Eaton Corporation as an accountant and rapidly progressed to
Division Controller. He is a Certified Public Accountant and graduate of
Cleveland State University with a BBA in Accounting in 1977 and in 1983 earned
an MBA degree.
ROBERT R. ALBERT has served as Vice President - Commercial of the Company since
1987 and has over 44 years experience in the steel industry. Immediately prior
to joining the Company, he served as Vice President-Sales for Sharon Steel
Corporation and has held various sales and marketing positions at both the
Empire Detroit Division of Cyclops Corporation and Bethlehem Steel Corporation.
He is a 1952 graduate of Bucknell University with a B.S. degree in Commerce and
Finance.
JACK W. WATSON has served as Vice President, General Manager, Canada since 1991.
Prior to 1991 he held positions of Manager Operations, Manager Sales/Marketing
and Quality Control at the Company. Mr. Watson began his career at British Steel
Corporation as a Research Metallurgist. In 1967 he joined Dofasco Inc. holding
various technical positions before joining the Company's predecessor company,
Stanley Steel, in 1980. He is a graduate Metallurgist from Tees-Side
Polytechnic, England. He is a Professional Engineer and a member of Association
of Professional Engineers of Ontario.
CORINN S. GROSSETTI has served as Corporate Controller since 1994. She has
worked with the Company since 1981 in various accounting positions. Prior to
joining the Company, she was Plant Controller at Universal Rundle Corporation.
She is a 1977 graduate of Westminster College with a B.A. in Business and
Economics.
HEIDI A. NAULEAU is Secretary of the Company and a Director, having been elected
to those positions in 1993. Mrs. Nauleau is Chairman of The Aarque Companies,
having been elected to that position
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in February 1996. Mrs. Nauleau joined The Aarque Companies in 1981 as Assistant
to the Chairman and was appointed Vice President/Europe in 1984. From 1987 until
1992, she was manager of a subsidiary of Aarque Steel Corporation. Prior to
joining The Aarque Companies in 1981, from 1979 until 1981, Mrs. Nauleau served
as a research associate for Berndtsen International Ltd. Mrs. Nauleau is the
daughter of R. Quintus Anderson. She is a graduate of the University of
Pennsylvania.
PART II
-------
ITEM 5. MARKET AND DIVIDEND INFORMATION
As of June 14, 1996, there were 7,162,250 share of common stock
outstanding that were held by 138 shareholders of record. The Company has
declared no dividends in either of the two previous fiscal years. The Company's
ability to pay dividends in the future is limited by the terms of its committed
credit facility so as not to exceed twenty-five percent of after tax income on a
cumulative basis exclusive of certain accounting adjustments, commencing as of
March 31, 1994, and by the requirement that no dividend shall result in a
default under the credit facility. Additional information regarding the
principal market for the Company's common stock and market prices for the
Company's common stock is set forth below.
<TABLE>
<CAPTION>
Market Price Ranges
Fiscal Year Ending March 31,
1996 1995
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $ 7.38 $ 6.63 $ 10.00 $ 7.63
Second Quarter $ 7.00 $ 5.75 $ 9.00 $ 6.38
Third Quarter $ 6.63 $ 4.25 $ 7.88 $ 6.75
Fourth Quarter $ 5.50 $ 4.75 $ 7.88 $ 6.50
</TABLE>
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994(1) 1993 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 227,128 $ 235,145 $ 221,286 $ 180,467 $166,856
Cost of sales 205,727 208,408 196,870 160,289 148,689
-------------------------------------------------------------------
Gross profit 21,401 26,737 24,416 20,178 18,167
Selling, general, and administrative expenses 13,645 13,773 13,079 12,766 10,612
Income (loss) from equity investment (98) 616 -- -- --
Management fee to principal shareholder -- -- 1,022 903 1,338
Interest expense 2,918 2,956 3,707 2,997 3,576
-------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting changes 4,740 10,624 6,608 3,512 2,641
Income taxes 1,685 3,698 2,530 1,305 306
-------------------------------------------------------------------
Income before cumulative effect of
accounting changes 3,055 6,926 4,078 2,207 2,335
Cumulative effect of accounting changes -- -- (10,956) -- --
-------------------------------------------------------------------
Net income (loss) $ 3,055 $ 6,926 $ (6,878) $ 2,207 $ 2,335
===================================================================
Dividends -- -- -- $ 4,074 --
===================================================================
EARNINGS PER SHARE:
Income before cumulative effect of
accounting changes $ 0.43 $ 0.96 $ 0.75
Cumulative effect of accounting changes -- -- (2.02)
-------------------------------------------------------------------
Net income (loss) $ 0.43 $ 0.96 $ (1.27)
===================================================================
Weighted average number of common
shares outstanding 7,172,271 7,200,201 5,422,429
===================================================================
BALANCE SHEET DATA:
Total assets $ 126,690 $ 131,201 $ 110,122 $ 91,542 $ 78,600
Working capital 51,450 54,794 16,640 (789) 3,771
Long-term debt 39,000 34,250 4,250 4,250 4,250
Shareholders' equity 32,368 28,616 20,088 13,700 16,229
<FN>
(1) See note 13 to consolidated financial statements.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information with respect
to the results of operations of the Company for fiscal 1996, 1995 and 1994 and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto.
Results of Operations
- ---------------------
The following table presents the Company's results of operations
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%*
Cost of sales 90.6 88.6 88.3*
------ ------ ------
Gross profit 9.4 11.4 11.7
Selling, general, and administrative expenses 6.0 5.9 6.3
Income from equity investment 0.0 0.3 --
Management fee to principal shareholder -- -- 0.5
Interest expense 1.3 1.3 1.8
------ ------ ------
Income before income taxes and cumulative effect of accounting changes 2.1 4.5 3.1
Income taxes .7 1.6 1.2
------ ------ ------
Income before cumulative effect of accounting changes 1.4 2.9 1.9
Cumulative effect of accounting changes -- -- (5.2)
------ ------ ------
Net income (loss) 1.4% 2.9% (3.3)%
====== ====== ======
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales decreased $8.0 million, or 3.4%, to $227.1 million. This was
the result of lower shipment levels as tonnage decreased 4.9%. Sales of almost
all the Company's products decreased over the course of the year as customers
adjusted their inventory levels to bring them in line with curtailed production
schedules reflecting declines in economic activity.
Gross profit decreased by $5.3 million, or 20.0%, to $21.4 million.
Gross profit as a percent of sales decreased to 9.4% compared to 11.4% in the
prior year. The decline is attributable to two factors. First, lower volume
levels required that fixed costs be absorbed over lower revenues, resulting in
decreased margins generally. Additionally, downward pressure on steel prices,
particularly in the Company's Canadian operations, created lower margins as the
market adjusted to lower steel prices in advance of these lower prices being
reflected in the Company's inventories. Somewhat countering the pressure from
this high-cost inventory was the liquidation of inventories accounted for on the
LIFO basis in the United States, which generated approximately $583,000 of
pre-tax income over the course of the fiscal year.
Selling, general and administrative (SG&A) expenses decreased $128,000
to $13.6 million, though the percent of sales measure increased to 6.0% from
5.9% due to lower revenue levels. The decrease in spending reflected lower sales
commissions and lower expenses for compensation plans related to the Company's
financial results, somewhat offset by staffing increases and normal salary cost
increases.
- ----------------------
*For the year ended March 31, 1994, sales and cost of sales to Direct
Steel, Inc., of approximately $12.3 million have been excluded for
comparative purposes. See note 13 to consolidated financial statements.
12
<PAGE> 13
Income from equity investment was a loss of $98,000 for the year, a
decrease of $714,000 from prior year's income of $616,000. This decline in
earnings principally reflected the effect of downward pressure on steel prices
as discussed above.
Interest expense was $2.9 million, or 1.3% of net sales for fiscal
1996, a decrease of $38,000 over the previous year. Although borrowing levels
were higher in the current year, $301,000 of the interest cost on this higher
level of borrowing was capitalized as part of the cost of the Ottawa expansion
project.
Income taxes decreased $2.0 million primarily as a result of the
decrease in income before taxes. The effective tax rates computed on income
exclusive of income (loss) from equity investment were down slightly in the
current year at 34.8% versus 37.0% in the prior year.
As a result of the factors discussed above, net income for fiscal 1996
was $3.1 million or 1.4% of net sales.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased by $26.2 million, or 12.5%, to a record $235.1
million. This was the result of strong shipment levels as tonnage increased
8.5%, augmented by increased selling prices. Higher sales occurred primarily in
the automotive, cutting tools, and industrial goods markets and were
attributable to a strong economy.
Gross profit increased by $2.3 million, or 9.5%, to $26.7 million.
Gross profit as a percentage of sales decreased to 11.4% compared to 11.7% in
the prior year. Factors contributing to this percentage decrease were the LIFO
effect of higher costs of raw materials recognized in cost of sales and an
expansion of volume in lower priced products.
SG&A expenses increased $694,000, to $13.8 million. These increases
reflect normal salary increases and increased expenses for compensation plans
related to the Company's financial results. SG&A expenses as a percentage of
sales decreased to 5.9% compared to 6.3% in the prior year.
Income from equity investment was $616,000 for the year. The Company
acquired its 50% interest in Direct Steel on March 25, 1994.
The management fee to the Company's principal shareholder was
eliminated on March 21, 1994 effective with the initial public offering. No
expense for management fees was incurred in fiscal 1995, reflecting a decrease
of $1.0 million.
Interest expense decreased $751,000, or 20.3% to $3.0 million. This
reflects lower borrowing levels due to the application of the proceeds from the
initial public offering and overallotment exercise, partially offset by higher
working capital requirements and higher effective interest rates over the year.
The effective interest rate increase reflected general market rate increases.
Income before income taxes and cumulative effect of accounting changes
increased $4.0 million, or 60.8%, to $10.6 million. Income before income taxes
and cumulative effect of accounting changes as a percentage of sales increased
to 4.5% from 3.1%.
Income taxes increased $1.2 million as a result of the increase in
income before taxes offset by a lower effective Canadian tax rate. The effective
tax rate computed on income exclusive of income from equity investment was 37.0%
in fiscal 1995 compared to 38.3% in fiscal 1994.
As a result of the factors described above, the net income for fiscal
1995 was a record $6.9 million or 2.9% of net sales.
13
<PAGE> 14
Liquidity and Capital Resources
- -------------------------------
The Company requires capital primarily to fund working capital needs,
capital projects, including the acquisition and improvement of facilities,
machinery and equipment, and to acquire complementary steel-related businesses
in connection with the Company's growth strategy to increase its size and
profitability. The Company has met its capital requirements in fiscal 1996
through cash flow from operations and from borrowing under its committed credit
facility.
During fiscal 1996, the Company generated cash flow from operating
activities of $9.4 million. Net income contributed $3.1 million, depreciation
$2.5 million, and working capital changes $3.2 million of the total cash
provided by operating activity. Inventory levels were down significantly from
year-ago levels, offset by a similar change in payables. Lower receivables
reflect lower business activity levels from year-ago comparisons.
Cash flows used by investing activities in fiscal 1996 consisted of
$12.2 million of capital spending in connection with the enhanced $22 million
Ottawa expansion project and $2.0 million in connection with the Company's
ongoing program for upgrading machinery and equipment in order to optimize
manufacturing quality and efficiency. The Company expects to incur an additional
$9.8 million to complete the Ottawa project in mid-fiscal year 1997.
The Company's committed credit facility provides a maximum availability
of $70.0 million of which $39.5 million was outstanding at March 31, 1996. Due
to the capital expenditures associated with the Ottawa expansion project, the
Company increased the maximum availability of its credit facility from $55
million to $70 million effective May 31, 1995. In connection with this project,
the Company has obtained a commitment, subject to certain contingencies, for a
$21.8 million term loan. Upon completion of the project, the loan proceeds will
be used primarily to retire committed facility borrowing associated with the
Ottawa plant expansion.
Effective June 18, 1996, the Company acquired the remaining outstanding
shares of its equity affiliate, Direct Steel, Inc. for approximately $2.6
million. The Company will account for the transaction as a purchase and will
consolidate Direct Steel's financial statements with the Company's fiscal 1997
financial statements from the effective date of the transaction. Funds available
under the committed facility were used to finance this acquisition.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditures,
planned acquisitions, 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.
Seasonality
- -----------
The Company has in the past experienced lower levels of sales in the
months of July, November, and December, due primarily to holiday periods and
customer plant shutdowns.
Inflation/Impact of Changing Prices
- -----------------------------------
The Company's largest component of cost of sales is raw material costs.
These costs can vary over time due to changes in steel pricing which the Company
typically passes on to customers. The Company does not believe that inflation
has had a significant impact on the results of its operations over the periods
presented.
Environmental Matters
- ---------------------
The Company's facilities are subject to numerous federal, state,
provincial and local regulations related to environmental protection and
compliance with such regulations is a factor in the Company's operations. The
Company has made, and intends to make, expenditures necessary to comply with
such regulations. Under existing laws and regulations, the Company believes that
compliance will not have a material adverse effect on its results of operations
or financial condition.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Cold Metal Products, Inc.
Youngstown, Ohio
We have audited the accompanying consolidated balance sheets of Cold
Metal Products, Inc. and Subsidiary (the "Company") as of March 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1996. Our audits also included the financial statement schedules listed in the
Index at Item 14(A)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Cold Metal Products, Inc.
and Subsidiary as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements,
effective April 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards (SFAS) No. 106, its method of accounting for
postemployment benefits to conform with SFAS No. 112, and its method of
accounting for income taxes to conform with SFAS No. 109.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
May 9, 1996
(June 18, 1996 as to Note 11)
15
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
MARCH 31,
---------
1996 1995
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS:
Cash $ 2,318 $ 2,946
Receivables 37,301 42,050
Inventories 48,320 58,967
Prepaid and other current assets 1,469 1,835
----------------------
Total current assets 89,408 105,798
Property, plant, and equipment - at cost 56,148 41,778
Less accumulated depreciation (26,811) (24,343)
----------------------
Property, plant and equipment - net 29,337 17,435
Other assets 7,945 7,968
----------------------
Total assets $ 126,690 $ 131,201
======================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Revolving line of credit $ 499 $ 839
Accounts payable 29,835 40,789
Other current liabilities 7,624 9,376
----------------------
Total current liabilities 37,958 51,004
Long-term debt 39,000 34,250
Postretirement and pension benefits 17,364 17,331
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 25,437
Retained earnings 12,547 9,492
Cumulative translation adjustment (2,080) (3,022)
Less treasury stock, 370,000 and 350,000 shares at cost (3,474) (3,366)
----------------------
Total shareholders' equity 32,368 28,616
----------------------
Total liabilities and shareholders' equity $ 126,690 $ 131,201
======================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
(see note 13)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales $ 227,128 $ 235,145 $ 221,286
Cost of sales 205,727 208,408 196,870
---------------------------------------
Gross profit 21,401 26,737 24,416
Selling, general, and administrative expenses 13,645 13,773 13,079
Income (loss) from equity investment (98) 616 --
Management fee to principal shareholder -- -- 1,022
Interest expense 2,918 2,956 3,707
---------------------------------------
Income before income taxes and cumulative
effect of accounting changes 4,740 10,624 6,608
Income taxes 1,685 3,698 2,530
---------------------------------------
Income before cumulative effect of
accounting changes 3,055 6,926 4,078
Cumulative effect of accounting changes -- -- (10,956)
---------------------------------------
Net income (loss) $ 3,055 $ 6,926 $ (6,878)
=======================================
EARNINGS PER SHARE:
Income before cumulative effect
of accounting changes $ 0.43 $ 0.96 $ 0.75
Cumulative effect of accounting changes -- -- (2.02)
---------------------------------------
Net income (loss) $ 0.43 $ 0.96 $ (1.27)
=======================================
Weighted average number of
shares outstanding 7,172,271 7,200,201 5,422,429
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
COMMON
SHARES ADDITIONAL CUMULATIVE
($.01 PAID-IN RETAINED TRANSLATION TREASURY
PAR VALUE) CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1993 $ 52 $ 4,069 $ 9,444 $ 135 --- $ 13,700
Contributions from principal
shareholder --- 300 --- --- --- 300
Net loss --- --- (6,878) --- --- (6,878)
Treasury stock --- --- --- --- $(3,080) (3,080)
Net offering proceeds 21 18,629 --- --- --- 18,650
Net adjustment for foreign
currency translation --- --- --- (2,604) --- (2,604)
------------------------------------------------------------------------
Balance, March 31, 1994 73 22,998 2,566 (2,469) (3,080) 20,088
Net income --- --- 6,926 --- --- 6,926
Treasury stock --- --- --- --- (286) (286)
Net offering proceeds from
overallotment option 2 2,439 --- --- --- 2,441
Net adjustment for foreign
currency translation --- --- --- (553) --- (553)
------------------------------------------------------------------------
Balance, March 31, 1995 75 25,437 9,492 (3,022) (3,366) 28,616
Net income --- --- 3,055 --- --- 3,055
Shares deferred in lieu of
pay --- 20 --- --- --- 20
Reduction in contribution
of principal shareholder --- (157) --- --- --- (157)
Treasury stock --- --- --- --- (108) (108)
Net adjustment for foreign
currency translation --- --- --- 942 --- 942
------------------------------------------------------------------------
Balance, March 31, 1996 $ 75 $ 25,300 $ 12,547 $ (2,080) $(3,474) $ 32,368
========================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,055 $ 6,926 $ (6,878)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Cumulative effect of accounting changes --- --- 10,956
Depreciation and amortization 2,511 2,343 2,540
(Income) loss from equity investment 98 (616) ---
Deferred income taxes 468 1,172 1,166
Deferred directors' fees 20 --- ---
Increase in cash value of officer's life insurance --- --- (268)
Changes in operating assets and liabilities 3,211 (251) (17,111)
-------------------------------
Net cash provided by (used in) operating activities 9,363 9,574 (9,595)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (14,220) (2,529) (2,698)
Proceeds from sale of officer's life insurance --- --- 2,026
Equity investment --- (145) (476)
-------------------------------
Net cash used in investing activities (14,220) (2,674) (1,148)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayment of ) revolving line of credit 8,660 (6,692) (2,339)
Defeasance of industrial revenue bond (4,250) --- ---
Preferred stock redemption --- --- (555)
Acquisition of treasury stock (108) (286) (3,080)
Net offering proceeds --- 2,440 18,650
Payment of dividends to principal shareholder --- --- (3,823)
Other equity transaction (157) --- ---
-------------------------------
Net cash provided by (used in) financing activities 4,145 (4,538) 8,853
Net increase (decrease) in cash (712) 2,362 (1,890)
Effect of translation adjustment 84 (28) (82)
Cash, beginning of period 2,946 612 2,584
-------------------------------
Cash, end of period $ 2,318 $ 2,946 $ 612
===============================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
1. PRINCIPLES OF CONSOLIDATION, BUSINESS DESCRIPTION AND ACCOUNTING POLICIES
Consolidation and Presentation -- The consolidated financial statements
include the accounts of the Company and its subsidiary, Cold Metal Products
Company, Ltd., a Canadian Company. The Company's 50% investment in Direct Steel,
Inc. ("Direct Steel") is accounted for using the equity method. All significant
intercompany transactions and accounts have been eliminated. Certain
reclassifications were made to prior years' amounts to conform with the current
year presentation.
The Company completed an initial public offering of common stock on
March 21, 1994. As of March 31, 1996, Aarque Capital Corporation (principal
shareholder) owns 51% of the Company.
Business Description -- The Company is in the specialty strip steel
industry and processes specialty and conventional strip steel, and premium and
standard sheet steel, to meet the critical requirements of precision parts
manufacturers. Through cold rolling, annealing, normalizing, edge-conditioning,
oscillate-winding, slitting, and cutting-to-length, the Company provides
value-added products to manufacturers in the automotive, construction, cutting
tools, consumer goods, and industrial goods markets. The Company also supplies
specialty steel distributors. Its customers are located predominately in the
U.S. and Canada.
During fiscal 1996, 1995, and 1994, approximately 37%, 37% and 34% of
the Company's sales, respectively, and 26% and 28% of accounts receivable at
March 31, 1996 and 1995, respectively, were with companies in the automotive
industry. The balance of the Company's net sales is approximately equally
divided among the other markets served. During fiscal 1996, 1995, and 1994, the
Company's ten largest customers accounted for 35%, 34%, and 33% of the Company's
net sales. No single customer accounted for 10% or more of sales in any of the
years. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral.
Production facilities are located in Youngstown and Ottawa, Ohio;
Indianapolis, Indiana; New Britain and Waterbury, Connecticut; Hamilton,
Ontario; and Pointe Claire, Quebec, Canada.
Results of Foreign Operations -- Net sales, pretax income and net
income, respectively, of the Company's Canadian subsidiary were $97.6 million,
$954,000 and $634,000 in 1996; $95.9 million, $4.6 million and $3.1 million in
1995; and $97.1 million, $4.2 million and $2.7 million in 1994. Identifiable
assets of the Canadian subsidiary were $53.7 million and $59.0 million at March
31, 1996 and 1995, respectively. The remainder of the Company's consolidated net
sales, net income, and assets are related to operations in the United States.
Inventories -- Inventories are valued at the lower of cost or market.
Cost of domestic inventories is determined under the last-in, first-out (LIFO)
method; cost of inventories of the foreign subsidiary is determined on the
first-in, first-out (FIFO) method. Domestic inventories represent approximately
57% and 58% of total consolidated inventories at March 31, 1996 and 1995,
respectively. Under the FIFO method of inventory pricing, domestic inventories
would have been approximately $2,218,000 and $3,295,000 higher at March 31, 1996
and 1995, respectively.
In fiscal 1996, inventory quantities were reduced resulting in a
liquidation of certain LIFO inventory layers carried at costs which were
different than the cost of current purchases. The effect of the LIFO liquidation
increased income before taxes by $583,000 and net income by $376,000.
20
<PAGE> 21
Property, Plant, and Equipment -- Property, plant, and equipment are
stated at cost. The Company provides for depreciation over the estimated useful
lives of the assets on the straight-line method for financial statement
reporting and an accelerated method for income tax reporting purposes. Estimated
useful lives are 20 years for land improvements, 25 years for buildings and 5 to
10 years for machinery and equipment.
Interest is capitalized in connection with the construction of
qualified assets. Under this policy, interest of $301,000 was capitalized in
fiscal 1996.
Revenue Recognition -- Revenue is recognized when products are shipped
to customers. Sales returns and allowances are treated as a reduction to sales
and are provided for based on historical experience and current estimates.
Changes in Accounting Policies -- The Company adopted the following
three new Statements of Financial Accounting Standards (SFAS) effective April 1,
1993:
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- In addition to pension
benefits, the Company provides certain health care and life insurance
benefits to retired employees. Substantially all employees become eligible
for these benefits if they reach retirement age while working for the
Company. Upon adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," costs for these benefits are
accrued over the service period of the employees. Previously, the Company
recognized expense when the claims were paid. The cumulative effect of
adopting the standard was an increase in accrued postretirement benefits of
$16.1 million, an increase of $6.1 million in deferred tax assets and a net
loss of $10.0 million.
POSTEMPLOYMENT BENEFITS -- The Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires accrual of
postemployment benefits (such as disability related benefits) during the
years an employee provides services or at the time of an event giving rise
to the benefit. Previously the Company recognized expense when the benefits
were paid. The cumulative effect of adopting the standard was an increase
in accrued liabilities of $100,000, an increase in deferred tax assets of
$38,000, and a net loss of $62,000.
INCOME TAXES -- The Company adopted SFAS No. 109, "Accounting for Income
Taxes." Previously, income taxes were computed in accordance with
Accounting Principles Board Opinion (APB) No. 11. The cumulative effect of
adopting the standard was an increase in net loss of $931,000 and a net
decrease in shareholders' equity of $631,000. The effect to shareholders'
equity was reduced by the recognition of a tax benefit contributed by the
principal shareholder.
Earnings Per Share -- Primary earnings per common share have been
computed based upon the average weighted outstanding shares and have not been
adjusted for the effect of stock options as the dilution would be less than 3%.
Financial Instruments -- The Company has various financial instruments
including cash, receivables, short-term and long-term debt, and miscellaneous
other assets. Many of these instruments are short-term in nature. The Company
has determined that the estimated fair value of its financial instruments
approximates carrying value.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions pending completion of related events. These estimates and
assumptions affect the amounts reported at the date of the financial statements
for assets, liabilities, revenues and expenses and the disclosure of
contingencies. Actual results could differ from those estimates.
21
<PAGE> 22
2. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
--------------------
(In thousands)
<S> <C> <C>
RECEIVABLES:
Customers $ 31,065 $ 33,064
Equity affiliate 6,704 9,665
Allowance for doubtful accounts (468) (679)
--------------------
$ 37,301 $ 42,050
====================
INVENTORIES:
Raw materials $ 24,576 $ 31,931
Work in process 14,784 18,005
Finished goods 8,960 9,031
--------------------
$ 48,320 $ 58,967
====================
PREPAID AND OTHER CURRENT ASSETS:
Prepaid $ 384 $ 330
Deferred income taxes 1,085 1,505
--------------------
$ 1,469 $ 1,835
====================
PROPERTY, PLANT, AND EQUIPMENT:
Land $ 1,548 $ 1,530
Buildings 9,023 9,064
Machinery and equipment 32,663 30,921
Construction in process 12,914 263
--------------------
$ 56,148 $ 41,778
====================
OTHER ASSETS:
Deferred income taxes $ 4,734 $ 4,783
Equity investment 1,465 1,714
Other 1,746 1,471
--------------------
$ 7,945 $ 7,968
====================
OTHER CURRENT LIABILITIES:
Payroll and related employee benefits $ 4,585 $ 5,542
Pension 40 505
Income taxes payable --- 1,009
Other 2,999 2,320
--------------------
$ 7,624 $ 9,376
====================
</TABLE>
3. SHORT-TERM AND LONG-TERM DEBT
The Company has a committed credit facility which provides availability
based on a percentage of accounts receivable, inventory, and an amortizing term
loan. During fiscal 1996, the Company amended its credit facility agreement to
increase maximum availability under the agreement to $70 million, subject to
limitations related to the value of collateral from time to time. Total
borrowing availability was $62 million as of March 31, 1996. The facility
provides for borrowing options under the bank's prime rate, acceptance rates, or
Eurodollar rates, plus a variable margin based on the Company's operating
performance and leverage. The agreement extends through January 10, 1998, and
contains certain financial and other covenants, including restrictions on
payment of dividends, with which the Company was in compliance at March 31,
1996. Under the committed facility, the Company has determined that balances in
excess of $39 million of the facility would be subject to repayment with funds
generated from operating activities during the business cycle. As such, these
funds are reflected as short-term in nature. The weighted average interest rate
at March 31, 1996 and 1995 was 7.4% and 8.3%, respectively. The facility is
collateralized by accounts receivable, inventory, common stock of the Canadian
subsidiary, and property, plant and equipment. As of March 31, 1996, the credit
line supported letters of credit in the amount of $660,000.
22
<PAGE> 23
Under terms of a sublease agreement, the Industrial Revenue Bonds of
$4,250,000 became due June 30, 1995 and the Company defeased the bonds by
depositing in escrow an amount sufficient to pay the bond principal and interest
payment requirements on September 1, 1995. The obligation was satisfied with
long-term availability under the committed lending facility.
4. INCOME TAXES
Effective with fiscal 1995, the Company files its own tax return.
Previously, the Company filed a consolidated U.S. federal income tax return with
its principal shareholder through the date of the initial public offering. Taxes
were provided for in fiscal 1994 as if the Company filed a separate return. The
Company did not recognize the tax benefit of tax attributes, such as net
operating loss and credit carryforwards, until utilized by the consolidated
group. The Company generally funded the currently payable amount to its
principal shareholder annually.
Deferred income taxes reflect the net tax effects of (i) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (ii)
operating loss and tax credit carryforwards. Components of the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
U.S.: 1996 1995
(In thousands)
<S> <C> <C>
Deferred tax assets:
Postretirement and postemployment benefit obligations $ 6,117 $ 6,204
Inventory basis differences 235 396
Reserves not currently deductible 751 1,361
Tax credit carryforwards (no expiration dates) 458 248
------------------
7,561 8,209
Valuation allowance (388) (448)
------------------
7,173 7,761
Deferred tax liabilities-property basis differences (1,007) (1,137)
------------------
Total U.S. 6,166 6,624
CANADA:
Deferred tax assets:
Postretirement and postemployment benefit obligations 109 ---
Reserves not currently deductible 28 48
------------------
137 48
Deferred tax liabilities:
Property basis differences (344) (277)
Pension asset (140) (107)
------------------
(484) (384)
------------------
Total Canada (347) (336)
------------------
Net deferred tax assets $ 5,819 $ 6,288
==================
</TABLE>
23
<PAGE> 24
The provision for income taxes includes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT TAXES:
U.S. federal $ 825 $1,091 $ 295
Canadian federal and provincial 310 1,235 987
State and local 82 200 82
------------------------
1,217 2,526 1,364
DEFERRED TAXES:
U.S 457 963 700
Canadian 11 209 466
------------------------
468 1,172 1,166
------------------------
Total $1,685 $3,698 $2,530
========================
</TABLE>
Reconciliations of the U.S. federal statutory tax rate to the effective tax rate
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
----------------------------
<S> <C> <C> <C>
U. S. federal statutory tax rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0) (1.0)
Effect of Canadian rates (0.8) 0.9 ---
State taxes 2.4 1.9 2.4
Reduction in valuation allowance (1.3) (1.7) (3.1)
Equity (income) loss 0.8 (2.0) ---
Disaffiliation from consolidated group --- --- 3.0
Other 0.4 1.7 2.0
----------------------------
Effective tax rate 35.5% 34.8% 38.3%
============================
</TABLE>
5. RETIREMENT BENEFIT PLANS
Substantially all of the Company's salaried and hourly employees are
covered by noncontributory retirement benefit plans. These plans generally
provide benefits based upon a formula using fiscal average earnings or at a
stated amount for each year of service. The plans' assets are principally
invested by outside asset managers in marketable debt and equity securities. The
company's funding policy is to make the annual contributions required by
applicable regulations. Domestic pension expense includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
-----------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 597 $ 668 $ 663
Interest cost 1,261 1,136 1,036
Actual return on assets (3,289) (1,080) (136)
Net amortization 2,154 65 (806)
-----------------------------
Domestic pension expense $ 723 $ 789 $ 757
=============================
</TABLE>
24
<PAGE> 25
Accrued domestic pension liability in the balance sheets is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
--------------------
(In thousands)
<S> <C> <C>
Vested accumulated benefit obligation $ 13,324 $ 11,486
Nonvested accumulated benefits 1,246 1,097
--------------------
Accumulated benefit obligation 14,570 12,583
Effect of projected salary increases 2,821 2,434
--------------------
Projected benefit obligation 17,391 15,017
Plan assets at market value 17,717 13,963
--------------------
Plan assets (in excess of) less than projected benefit obligation (326) 1,054
Unrecognized net obligation (717) (503)
Unrecognized net gain (loss) 1,008 (131)
Additional liability 75 85
--------------------
Net domestic pension liability $ 40 $ 505
====================
</TABLE>
Assumptions used in developing the domestic pension information were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Discount rate for obligation 8.00% 8.25% 7.50%
Discount rate for expense 8.25 7.50 7.50
Long-term rate of investment return 8.50 8.50 8.50
Salary increase rate 5.00 5.00 5.00
</TABLE>
Domestic salaried employees are eligible to participate in the Thrift
Savings Plan, which includes a 401(k) feature. The Company matches employee
contributions 100%, up to 5% of basic earnings. Employees vest in matching
contributions after attaining three years of service. Company matching
contributions were $352,000, $332,000 and $334,000 for fiscal 1996, 1995, and
1994, respectively.
The Canadian subsidiary has a defined contribution pension plan
covering substantially all of its salaried employees. The Company's
contributions to the defined contribution pension plan include a noncontributory
portion, which is a stated percentage of salary, and a contributory portion, in
which the Company matches the employee's contribution 100% up to 5% of their
salary. The Canadian subsidiary also has a defined benefit plan for its hourly
employees. Canadian pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
-----------------------
(In thousands)
<S> <C> <C> <C>
DEFINED BENEFIT PLAN:
Service cost $ 110 $ 107 $ 95
Interest cost 182 158 120
Actual return on assets (144) (116) (98)
Net amortization 57 54 30
-----------------------
205 203 147
DEFINED CONTRIBUTION PLAN 234 229 232
-----------------------
Canadian pension expense $ 439 $ 432 $ 379
=======================
</TABLE>
25
<PAGE> 26
Accrued Canadian pension liability in the balance sheets is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
------------------
(In thousands)
<S> <C> <C>
DEFINED BENEFIT PLAN:
Projected benefit obligation-fully vested $ 2,559 $ 2,206
Plan assets at market value 2,050 1,646
------------------
Unfunded projected benefit obligation 509 560
Unrecognized net obligation (844) (862)
Additional liability (included in
postretirement and pension benefits) 844 862
------------------
Net Canadian pension liability $ 509 $ 560
==================
</TABLE>
The Canadian pension information was developed using a discount rate
and a long term rate of 8% in fiscal 1996 and 1995.
6. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
Net postretirement benefit cost consisted of the following components :
<TABLE>
<CAPTION>
March 31,
1996 1995 1994
-------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 163 $ 194 $ 234
Interest cost 864 851 1,028
Amortization of negative plan amendment (645) (507) (279)
----- ----- -------
Total $ 382 $ 538 $ 983
===== ===== =======
</TABLE>
The Company's postretirement benefit plans are not funded. The status
of the plans' accumulated postretirement benefit obligation is as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Retirees $ 5,539 $ 5,562
Fully eligible active plan participants 2,308 2,320
Other active plan participants 3,340 3,143
Unrecognized net gain 2,191 1,795
Unrecognized prior service cost 3,042 3,549
------- -------
Total postretirement benefits 16,420 16,369
Postemployment benefits 100 100
------- -------
Total postretirement and postemployment benefits $16,520 $16,469
======= =======
</TABLE>
Subsequent to April 1, 1993, the Company revised its agreement with the
union at one of its plants to reduce the benefits to be in line with those at
its other U.S. locations. Additionally, portions of the retired group exercised
an irrevocable option to change to a comprehensive medical plan with capped
employer contribution. The effect of these plan amendments was to reduce the
total actuarial determined obligation by approximately $4.3 million. In
accordance with SFAS No. 106, these amounts have been deferred and are being
recognized as a reduction of the net postretirement benefit cost over eight
years.
26
<PAGE> 27
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of March 31, 1996 was 11.0% for
pre-age 65 payments (9.0% for post-age 65 payments) decreasing linearly each
successive year until it reaches 5.5% in 2007 for pre-age 65 payments and 2003
for postage 65 payments, after which it remains constant. A one percentage-point
increase in assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation and net postretirement benefit
cost by approximately 2% and 10%, respectively. The assumed discount rate as of
March 31, 1996 and 1995, used in determining the accumulated postretirement
benefit obligation was 8.00% and 8.25%, respectively.
7. MANAGEMENT INCENTIVE PROGRAMS
The Company has a discretionary deferred compensation plan for certain
key employees. The Company's policy is to expense and fund to a trust fund,
annually, amounts for services rendered, $141,000, $256,000, and $202,000 in
fiscal 1996, 1995, and 1994, respectively. The amounts vest 100%, five years
from the grant date contingent upon continued employment or attainment of a
normal retirement.
The Company has two programs that provide for the grant of incentive
awards including stock options or restricted stock to officers, key employees,
and non-employee directors. The Company has elected to continue accounting for
these stock options in accordance with Accounting Principles Board Opinion No.
25, and will provide the new fair-value based disclosures as required by SFAS
No. 123, "Accounting for Stock-Based Compensation" in subsequent years.
Effective January 27, 1994, The Company's Board of Directors approved
the officer and key employee stock option program. Under the program, stock
options granted may be either options intended to qualify for federal income tax
purposes as "incentive stock options" or options not qualifying for favorable
tax treatment, "nonqualified stock options." In fiscal 1996, the shareholders
approved an increase in the total number shares of common stock issuable under
the program to 715,350 shares. The stock options are exercisable over a period
determined by the Board of Directors, but no longer than ten years after the
date they are granted. Details of stock options under the program are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 210,000 210,000 ---
Granted 165,000 --- 210,000
---------------------------
Outstanding at end of year (prices ranging from $5.75 to $10.00 per share) 375,000 210,000 210,000
===========================
Exercisable at end of year 50,000 17,500 ---
Available for grant at end of year 340,350 146,250 146,250
</TABLE>
The Company's Non-Employee Directors' Incentive Plan, which was adopted
on March 3, 1994 and amended by the shareholders on July 20, 1995, provides for
the issuance of shares to Directors (i) on a deferred basis, in lieu of payment
of annual retainer fees and (ii) through options granted at the beginning of a
director's terms or, on a discretionary basis, thereafter. The Plan reserves for
issuance 60,000 shares for deferral elections and 100,000 shares for the
granting of options. At the beginning of his or her term, each director is
granted an option to purchase 10,000 shares at a price equal to the market price
on the date of the grant, exercisable after three years or upon certain
specified events, such as a sale or merger of the Company. Options grantable on
a discretionary basis under the plan are exercisable no less than six months
from the date of the grant. Deferral elections under the plan allow each
eligible director to defer receipt of director fees in cash or common stock
until a specified period after his or her resignation or certain other events,
such as a sale or merger of the Company. Amounts deferred under this election
were 2,783 shares in fiscal 1996. Details of stock options under the plan are as
follows:
27
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
OPTIONS: 1996 1995 1994
------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 30,000 30,000 ---
Granted 35,000 --- 30,000
------------------------
Outstanding at end of year (prices ranging from $6.13 to $10.00 per share) 65,000 30,000 30,000
========================
Exercisable at end of year --- --- ---
Available for grant at end of year 35,000 70000 70,000
</TABLE>
8. RELATED PARTY TRANSACTIONS
In fiscal 1993, the principal shareholder, through a merger
transaction, contributed net operating loss carryforwards of its Canadian
subsidiary to the Company's subsidiary, Cold Metal Products, Ltd. In December
1995, the Company's Board of Directors approved a settlement of a suit by a
former landlord arising from this merger which has been recorded, net of tax, as
a $157,000 reduction to paid-in capital, consistent with the recording of the
original tax benefits contributed.
The Company facilitates the acquisition of raw material for its equity
affiliate, Direct Steel, and records a receivable for the cost of this
inventory. To offset the Company's cost of carrying this receivable, interest of
$203,000 and $324,000 in fiscal 1996 and 1995, respectively, was charged to
Direct Steel for receivables that exceeded the vendor payment cycle.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
--------------------------------
(In thousands)
<S> <C> <C> <C>
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) decrease in assets:
Trade accounts receivable $ 5,371 $(10,083) $ (7,993)
Inventories 11,356 (8,966) (12,312)
Prepaid expenses and other assets (287) 2 (775)
Increase (decrease) in liabilities:
Accounts payable (11,603) 19,396 3,053
Payable to shareholder --- --- (2,800)
Other liabilities (1,626) (600) 3,716
--------------------------------
$ 3,211 $ (251) $(17,111)
================================
Interest paid $ 3,811 $ 3,316 $ 3,664
================================
Income taxes paid $ 2,097 $ 1,798 $ 30
================================
</TABLE>
10. COMMITMENTS
The Company continues the expansion project at its Ottawa, Ohio
facility which will increase the size of the plant and includes the purchases of
a 54-inch-wide rolling mill, annealing equipment, a temper mill and associated
processing equipment to expand production capabilities. The project, which
includes several upgrades, is expected to be completed by mid-fiscal 1997 at an
estimated total cost of $22 million, of which $12.2 million has been incurred to
date. In connection with this project, the Company has received a financing
commitment, subject to certain contingencies, for a $21.8 million term loan.
Upon completion of the project, the loan proceeds will be used primarily to
retire committed facility borrowing associated with the Ottawa plant expansion.
The Company leases certain facilities and various equipment under
noncancelable leases expiring through February 2002. The future minimum
obligations under noncancelable operating leases in effect at March 31, 1996
are: $643,000 in 1997, $611,000 in 1998, $463,000 in 1999, $377,000 in 2000,
$355,000 in 2001, and $295,000 thereafter. Total rental expense for operating
leases was $855,000, $560,000, and $349,000 in fiscal 1996, 1995, and 1994,
respectively.
28
<PAGE> 29
11. SUBSEQUENT EVENT
Effective June 18, 1996, the Company acquired the remaining outstanding
shares of its equity affiliate, Direct Steel, Inc., for approximately $2.6
million. The Company will account for the transaction as a purchase and will
consolidate Direct Steel's financial statements in its fiscal 1997 financial
statements from the effective date of the acquisition. Consolidated revenues,
net income and net income per share for fiscal 1996 (unaudited) would have been
approximately $273.9 million, $2.9 million and $.40, respectively, if Direct
Steel's operations for its fiscal 1996 were combined with those of the Company.
This pro forma financial information is not necessarily indicative of results of
operations had the acquisition been made at the beginning of fiscal 1996 or of
future results of operations.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------------------------------------
(In thousands, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 61,248 $ 55,039 $ 51,633 $ 59,208 $ 227,128
Gross profit 6,125 4,398 4,265 6,613 21,401
Net income $ 1,267 $ 211 $ 213 $ 1,364 $ 3,055
===================================================================
Earnings per share $ 0.18 $ 0.03 $ 0.03 $ 0.19 $ 0.43
===================================================================
<CAPTION>
YEAR ENDED MARCH 31, 1995
-------------------------------------------------------------------
(In thousands, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 55,747 $ 57,456 $ 57,018 $ 64,924 $ 235,145
Gross profit 6,844 6,408 5,989 7,496 26,737
Net income $ 1,638 $ 1,686 $ 1,544 $ 2,058 $ 6,926
===================================================================
Earnings per share $ 0.23 $ 0.23 $ 0.21 $ 0.29 $ 0.96
===================================================================
</TABLE>
13. FISCAL 1994 PRO FORMA INFORMATION (UNAUDITED)
The unaudited pro forma income statement data gives effect to the
occurrence of the Company's initial public stock offering and overallotment
exercise as if they had occurred on April 1, 1993 and reflects the following:
- - The elimination of the management fee paid to the principal
shareholder. Such fee is no longer payable after the offering.
- - The adjustment to interest expense representing the application of the
net proceeds of the offering and overallotment exercise to reduce the
amount outstanding under the revolving line of credit.
- - The elimination of sales to Direct Steel, Inc., made at cost, in the
period prior to the 50% acquisition.
- - Pro forma taxes at an effective tax rate of 38.3%.
<TABLE>
<CAPTION>
PRO
ACTUAL FORMA
1994 ADJUSTMENTS 1994
---------- ----------- --------
<S> <C> <C> <C>
Net sales $ 221,286 $ (12,309) $208,977
Cost of sales 196,870 (12,309) 184,561
------------------------------------
Gross profit 24,416 --- 24,416
Selling, general, and administrative expenses 13,079 --- 13,079
Management fee to principal shareholder 1,022 (1,022) ---
Interest expense 3,707 (1,522) 2,185
------------------------------------
Income before income taxes and cumulative effect of accounting changes 6,608 2,544 9,152
Income taxes 2,530 975 3,505
------------------------------------
Income before cumulative effect of accounting changes $ 4,078 $ 1,569 $ 5,647
====================================
Per share - adjusted pro forma $ 0.79
Shares outstanding 7,182,250
====================================
</TABLE>
29
<PAGE> 30
SCHEDULE II
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
Additions
---------
Balance at Charged to Charged to Deductions Balance at
---------- ---------- ---------- ---------- ----------
April 1, 1993 Costs and Other Accounts March 31, 1994
------------- --------- -------------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 343 $ 309 -- $ (178)(1) $ 474
Inventory aging reserves $ 719 $ 364 -- -- $ 1,083
<CAPTION>
Additions
---------
Balance at Charged to Charged to Deductions Balance at
---------- ---------- ---------- ---------- ----------
April 1, 1993 Costs and Other Accounts March 31, 1994
------------- --------- -------------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 474 $ 304 -- $ (99)(1) $ 679
Inventory aging reserves $ 1,083 $ 521 -- -- $ 1,604
<CAPTION>
Additions
---------
Balance at Charged to Charged to Deductions Balance at
---------- ---------- ---------- ---------- ----------
April 1, 1993 Costs and Other Accounts March 31, 1994
------------- --------- -------------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 679 $ 537 -- $ (748)(1) $ 468
Inventory aging reserves $ 1,604 -- -- $ (110)(2) $ 1,494
- -----------------------------------------------
<FN>
(1) Deductions relate to write-off of specific accounts.
- -----------------------------------------------
(2) Charges against the account for purposes provided
</TABLE>
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information reported in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant," the information on
pages 2 and 3 of the Proxy Statement under the heading "Election of Directors"
and on page 9 of the Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation set forth in the
Proxy Statement on pages 5 through 6 under the heading "Executive Compensation,"
on pages 6 through 8 under the heading "Human Resources Committee Report on
Executive Compensation," on page 8 under the heading "Performance Graph," as
well as the information on pages 3 through 4 under the heading "Compensation of
Directors," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management set forth in the Proxy Statement on page 9 under the
heading "Security Ownership of Certain Beneficial Owners and Management," is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements
---------------------------------
Included under Item 8 of this report:
Opinion of Independent Public Accountants.
Consolidated Balance Sheets, March 31, 1996 and 1995.
Consolidated Statement of Operations for the each of the three years in
the period ended March 31, 1996. Consolidated Statement of
Shareholders' Equity for each of the three years in the period ended
March 31, 1996.
Notes to Consolidated Financial Statement for each of
the three years in the period ended March 31, 1996.
2. Supplemental Schedules
----------------------
Included under Item 8 of this report:
Financial Statement Schedule II - Valuation and Qualifying Accounts and
Reserves
All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
31
<PAGE> 32
3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. and Description Location
--------------------------- --------
<S> <C>
(3)(i)(a) Restated Certificate of Incorporation of Previously filed as Exhibit 3.1 to the
Registrant Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(3)(i)(b) Amendment to the Restated Certificate of Previously filed as Exhibit 3.3 to the
Incorporation of Registrant Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(3)(ii) Amended By-Laws of Registrant Previously filed as Exhibit E-1 to the
Company's 1994 Annual Report on Form 10-K
filed on June 29, 1994
(4) Specimen stock certificate for the Common Previously filed as Exhibit E-1 to the
Stock Company's 1995 Annual Report on Form 10-K
filed on June 29, 1995
(10)(a) Seconded Amended and Restated Credit Facility Previously filed as Exhibit E-1 to the
and Security Agreement between The Bank of New Company's Report on Form 10-Q for the fiscal
York and the Company, dated as of August 1, quarter ended September 30, 1994
1994, which amended and restated the Amended
and Restated Discretionary Credit facility
previously filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1
and listed as Exhibit 10(a) to the Company's
Annual Report on Form 10K for the fiscal year
ended March 31, 1994.
(10)(b) Amendment No. 1 to Second Amended and Restated Previously filed as Exhibit E-1 to the
Credit and Security Agreement between The Bank Company's Report on Form 10Q for the fiscal
of New York and the Company, dated as of June quarter ended June 30, 1995.
30, 1995, which amended the Second Amended and
Restated Credit and Security Agreement.
(10)(c) Cold Metal Canadian Subsidiary Guaranty Previously filed as Exhibit 10.2 to the
Agreement, dated as of July 31, 1987, between Company's Registration Statement on Form S-1,
Irving Trust Company (predecessor to The Bank which became effective on March 21, 1994 at
of New York) and Registrant's Canadian 4:00 p.m. (Commission File No. 33-74986)
Subsidiary, Cold Metal Products Company, Ltd.
(10)(d) Supply Agreement, dated February 1987, as Previously filed as Exhibit 10.3 to the
amended June 20, 1989, December 31, 1992 and Company's Registration Statement on Form S-1,
December 31, 1993, subject to request for which became effective on March 21, 1994 at
confidential treatment 4:00 p.m. (Commission File No. 33-74986)
(10)(e) Tax Sharing and Indemnification Agreement, Previously filed as Exhibit 10.5 to the
dated January 31, 1994, among Registrant and Company's Registration Statement on Form S-1,
its affiliates which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
(10)(f) Special Incentive Compensation Plan of Previously filed as Exhibit 10.10 to the
Registrant, effective December 1, 1993 Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(g) Special Incentive Compensation Plan Trust Previously filed as Exhibit 10.11 to the
Agreement, dated January 28, 1994 Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(h) Amended and Restated 1994 Incentive Program Previously filed as Exhibit A to the
Company's 1995 Proxy Statement filed on June
22, 1995.
(10)(i) Share Purchase and Loan Agreement, dated Previously filed as Exhibit 10.13 to the
December 30, 1993, among Cold Metal Products Company's Registration Statement on Form S-1,
Company, Ltd., Lance and Mara Dunlap, 955404 which became effective on March 21, 1994 at
Ontario, Inc. and Direct Steel, Inc. 4:00 p.m. (Commission File No. 33-74986)
(10)(j) Share Purchase and Loan Amendment. Agreement Previously filed as Exhibit E-5 to the
dated March 23, 1994 among Cold Metal Products Company's 1994 Annual Report on Form 10-K
Company, Ltd., Lance and Mara Dunlap, 955404 filed on June 29, 1994
Ontario Inc. and Direct Steel, Inc.
(10)(k) Shareholders Agreement, dated March 23, 1994, Previously filed as Exhibit E-6 to the
Cold Metal Products Company, Ltd. Lance and Company's 1994 Annual Report on Form 10-K
Mara Dunlap, 955404 Ontario Inc. and Direct filed on June 29, 1994
Steel, Inc.
(10)(l) Supply Agreement, dated March 23, 1994, Previously filed as Exhibit E-7 to the
between Cold Metal Products Company, Ltd. and Company's 1994 Annual Report on Form 10-K
Direct Steel, Inc. filed on June 29, 1994
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
(10)(m) Agreement between Registrant and The Stanley Previously filed as Exhibit 10.20 to the
Works, dated February 17, 1994 Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(n) Amended and Restated Non-Employee Directors' Previously filed as Exhibit B to the
Incentive Plan Company's 1995 Proxy Statement filed on June
22, 1995.
(10)(o) Master Equipment Lease Agreement, Equipment Previously filed as Exhibit E-2 to the
Schedule No. 01 and related addenda between Company's 1995 Annual Report on Form 10-K
Cold Metal Products, Inc. and KeyCorp Leasing Ltd. filed on June 29, 1995.
(21) Subsidiary of Registrant Previously filed as Exhibit 21.1 to the
Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(23) Independent Auditors' Consent Exhibit 23 hereto
(27) Financial Data Schedule Exhibit 27 hereto
(99) Director and Officer Insurance Policies Exhibit 99 hereto
(a) Continental Casualty Company, Policy No.
128290679
(b) Gulf Insurance Company, Policy No. GA574881
</TABLE>
(b) Reports on Form 8-K
None filed during the quarter ended March 31, 1996.
(c) Exhibits Required by Item 601 of Regulation S-K
Exhibits 3 (i)(a)-(b), (10)(c)-(g), (10)(i), (10)(m), and (21) are
incorporated herein by reference to the Company's Registration Statement on
Form S-1, which was previously filed and became effective on March 21, 1994 at
4:00 p.m. (Commission file No. 33-74986.) Exhibits (3)(ii), and (10)(j)-(l),
are incorporated herein by reference to the Company's Annual Report on Form
10-K (Commission file No. 1-12870) for the fiscal year ended March 31, 1994.
Exhibit (10)(a) is incorporated herein by reference to the Company's Report on
Form 10-Q (Commission file No. 1-12870) for the fiscal quarter ended September
30, 1994. Exhibits 4, and (10)(O), are incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.
Exhibit (10)(b) is incorporated herein by reference to the Company's Report on
Form 10-Q for the fiscal quarter ended September 30, 1995. Exhibits (10)(h) and
(10)(t) are incorporated herein by reference to the Company's 1995 Proxy
Statement filed on June 22, 1995. The remaining exhibits are contained
herein beginning at E-1.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
June 20, 1996 By /s/ James R. Harpster
----------------------
James R. Harpster
President and Chief Executive Officer
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, as of June 20, 1996, by the following persons on
behalf of the Registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ R. Quintus Anderson Chairman of the Board of Directors
- -------------------------------
R. Quintus Anderson
/s/ James R. Harpster President, Chief Executive Officer and Director
- ------------------------------- (Principal Executive Officer)
James R. Harpster
/s/ Heidi A. Nauleau Director
- -------------------------------
Heidi A. Nauleau
Director
- -------------------------------
Gordon A. Wilber
/s/ Wilbur J. Berner Director
- -------------------------------
Wilbur J. Berner
Director
- -------------------------------
Claude F. Kronk
/s/ Robert D. Neary Director
- -------------------------------
Robert D. Neary
/s/ Edwin H. Gott, Jr. Director
- -------------------------------
Edwin H. Gott, Jr.
/s/ Peter B. Sullivan Director
- -------------------------------
Peter B. Sullivan
/s/ John E. Sloe Vice President, Chief Financial Officer
- ------------------------------- (Principal Financial and Accounting Officer)
John E. Sloe
</TABLE>
36
<PAGE> 1
Exhibit 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-82818 and No. 33-82992 of Cold Metal Products, Inc. on Form S-8 of our report
dated May 9, 1996 (June 18, 1996 as to Note 11), appearing in this Annual Report
on Form 10-K of Cold Metal Products, Inc. for the year ended March 31, 1996.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
June 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,318
<SECURITIES> 0
<RECEIVABLES> 37,301
<ALLOWANCES> 468
<INVENTORY> 48,320
<CURRENT-ASSETS> 89,408
<PP&E> 56,148
<DEPRECIATION> 26,811
<TOTAL-ASSETS> 126,690
<CURRENT-LIABILITIES> 37,958
<BONDS> 0
<COMMON> 75
0
0
<OTHER-SE> 19,746
<TOTAL-LIABILITY-AND-EQUITY> 126,690
<SALES> 227,128
<TOTAL-REVENUES> 227,128
<CGS> 205,727
<TOTAL-COSTS> 205,727
<OTHER-EXPENSES> 13,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,918
<INCOME-PRETAX> 4,740
<INCOME-TAX> 1,685
<INCOME-CONTINUING> 3,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,055
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
<PAGE> 1
Exhibit (99)
[LOGO] GULF
INSURANCE
COMPANY
St. Louis, Missouri
EXCESS DIRECTORS AND OFFICERS LIABILITY
AND COMPANY REIMBURSEMENT
FOLLOWING FORM POLICY
NOTICE: PLEASE READ CAREFULLY
POLICY NUMBER: GA5745881
RENEWAL OF: GA5613581
THIS POLICY DOES NOT PROVIDE ANY DUTY TO DEFEND. THIS IS A CLAIMS MADE INDEMNITY
POLICY WITH DEFENSE EXPENSES INCLUDED IN THE LIMITS OF LIABILITY. THE LIMITS OF
LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED BY EXPENSES
INCURRED FOR COVERED LEGAL DEFENSE.
DECLARATIONS
This policy shall follow all the terms and conditions of the policy described in
Item 4 of these Declarations (the "Underlying Policy") except as herein stated.
Terms defined in the Underlying Policy are used herein with the meaning assigned
to them in the Underlying Policy, unless otherwise indicated.
ITEM 1. COMPANY: Cold Metal Products Company, Inc.
MAILING ADDRESS: 8526 South Avenue
Youngstown, OH 44514
STATE OF INCORPORATION: Ohio
ITEM 2. POLICY PERIOD From MARCH 4, 1995 to MARCH 4, 1 996 (12:00 Noon Standard
Time at the address stated in Item 1)
ITEM 3. COVERAGE: EXCESS DIRECTORS AND OFFICERS LIABILITY AND COMPANY
REIMBURSEMENT
ITEM 4. UNDERLYING POLICY NUMBER: 128290679
---------
ISSUED BY: CNA Insurance Company
---------------------
LIMITS OF LIABILITY: $5,000,000
----------
COVERAGE: Directors & Officers Liability
------------------------------
POLICY PERIOD: From 03-04-1995 to 03-04-1996
---------- ----------
ITEM 5. LIMITS OF LIABILITY: $5,000,000
------------------------------
(Aggregate each policy period)
ITEM 6. PREMIUM: $55,000.00
-----------
ENDORSEMENTS: CIRI 38124 CIRI 38108
/s/ Edward T. Lameir
-------------------------
Authorized Representative
2/5/96 Cincinnati, Ohio
- --------------------- -------------------------
Countersignature Date Countersigned at
ORIGINAL
CIRI 36021 ISSUE DATE 02-02-1996
===============================================================================
<PAGE> 2
[LOGO]
EXCESS DIRECTORS AND OFFICERS LIABILITY
AND COMPANY REIMBURSEMENT
FOLLOWING FORM POLICY
In consideration of the payment of premium and in reliance upon statements made
to the Insurer in the application including all attachments (including the
financial statements referred to therein) and any other materials submitted
therewith (the "Application"), a copy of which is made a part hereof and subject
to the Declarations and Endorsements made a part hereof and the terms,
conditions and limitations set forth herein and therein, the Gulf Insurance
Company (the "Insurer") agrees as follows:
I. INSURING CLAUSE:
To indemnify the Company (as set forth in Item 1 of the Declarations) and
its Directors and Officers (referred to herein as the "Insured") for Loss
by reason of exhaustion by all payments, of all applicable underlying
limits as specified in Item 4 of the Declarations, subject to:
A. the terms and conditions of the Underlying Policy as in effect the
first day of the Policy Period;
B. the Limits of Liability as stated in Item 5 of the Declarations; and
C. the terms and conditions of this policy.
II. TERMS AND CONDITIONS:
A. LOSS PROVISIONS
It is a condition to the Insurer's obligations under this policy that:
1. The Insured shall give notice to the Insurer in writing of any
claim made against any Insured during the Policy Period or during
any applicable Discovery Period, within (90) days after such
claim is made against the Insured and prior to the end of the
Policy Period or any applicable Discovery Period. Notice given
under the Underlying Policy shall not constitute notice under
this policy.
Notice hereunder shall be given to the Insurer at 200 Park
Avenue, New YorK, New York 10166.
2. The Insured shall give the Insurer such information, assistance
and cooperation as the Insurer may reasonably request and as
shall be in the Insured's power and shall do nothing which may
prejudice the Insurer's position or potential rights of recovery.
3. The Insurer shall have the right, at its option, to participate
in the defense and control of all claims reported under this
policy and the Insurer shall not be bound by any positions taken
by the underlying insurer with respect to coverage, policy
interpretation or settlement which may affect this policy.
2
<PAGE> 3
B. STATEMENTS IN THE APPLICATION
It is a condition to the Insurer's obligations under this policy and the Insured
agrees that:
1. The statements made in the Application, together with its
attachments (including the financial statements referred to
therein) and any other materials submitted, shall be the
representations and warranties of the Insured and shall be deemed
attached to and made a part of this policy and material to the
acceptance of the risk or the hazard assumed by the Insurer under
this policy. The insured agrees that this policy is issued in
reliance upon the truth of such representations and warranties
which are incorporated into and made a part of this policy; and
2. This policy in its entirety shall be void and of no effect
whatsoever if the Application and/or any other materials
submitted contain misrepresentations which materially affect
either the acceptance of the risk or the hazard assumed by the
Insurer under this policy.
C. FOLLOWING FORM
1. The Insured agrees that this policy, except as herein stated, is
subject to all terms, conditions, agreements and limitations of
the Underlying Policy in all respects as in effect on the date
hereof. A true and accurate copy of the Underlying Policy has
been provided to the Insurer. The Insured shall furnish to the
Insurer copies of all proposed renewals, rewrites or changes by
endorsement or otherwise to the Underlying Policy prior to such
renewals, rewrites or changes. The Insured agrees that should any
change to the Underlying Policy be made by rewrite, endorsement
or otherwise, this policy shall not be changed without the prior
written consent of the Insurer, which consent shall be at the
sole discretion of the Insurer and endorsed hereon. It is further
agreed. should any change of this policy be approved, then the
premium hereon may be adjusted accordingly.
2. In the event of the depletion of the Limits of Liability of the
Underlying Policy solely as a result of payment of losses
thereunder, this policy shall, subject to the Limits of Liability
set forth in Item 5 of the Declarations and to the other terms of
this policy, continue to apply for subsequent losses as excess
insurance over the amount of insurance remaining under such
Underlying Policy. In the event of the exhaustion of all of the
Limits of Liability of such Underlying Policy solely as a result
of payment of losses thereunder, the remaining limits available
under this policy shall, subject to the Limits of Liability as
set forth in Item 5 of the Declarations and to the other terms of
this policy, continue for subsequent losses as primary insurance
and any retention specified in the Underlying Policy shall be
imposed under this policy.
3. The Insurer's obligations under this policy shall not be
increased, expanded or otherwise changed as a result of the
receivership, insolvency, inability or refusal to pay of any
underlying insurer or the cancellation of the Underlying Policy.
D. CANCELLATION CLAUSE
1. This policy may be cancelled by the Company at any time by
mailing prior written notice to the Insurer or by surrender of
this policy to the Insurer or its authorized agent. This Policy
shall terminate at the earlier of the date and hour specified in
the notice of cancellation or the date and time of surrender,
whichever shall be applicable.
2. This policy may also be cancelled by or on behalf of the Insurer
by delivering to the Company or by mailing to the Company, by
registered, certified, or other first class mail, at the
Company's address as shown in Item 1 of the Declarations, written
notice stating when, not less than thirty (30) days thereafter,
the cancellation shall be effective. The mailing of such notice
as aforesaid shall be sufficient proof of notice. Payment or
tender of any unearned premium by the Insurer shall not be a
condition precedent to the effectiveness of cancellation but such
payment shall be made as soon as practicable.
2
<PAGE> 4
3. The Insured shall give notice of cancellation of the Underlying
Policy to the Insurer within 15 days of the giving or receipt
thereof, as the case may be and:
a) In the event the Underlying Policy shall be cancelled by the
insurer thereon (other than for non-payment of premiums), this
policy shall continue in full force and effect for the remainder
of the Policy Period and shall be subject to the terms and
conditions of the Underlying Policy as if it remained in effect.
b) In the event the Underlying Policy shall be cancelled by the
Company, this policy shall be automatically cancelled as of the
effective date of the cancellation of the Underlying Policy,
whether or not such notice shall be given.
4. If this policy shall be cancelled by the Company, the Insurer
shall retain the customary short-rate proportion of the premium
hereon.
If this policy shall be cancelled by the Insurer, the Insurer
shall retain the pro rata proportion of the premium hereon.
5. If the notice period for cancellation is prohibited or made void
by any law controlling the provisions thereof, such period shall
be deemed to be amended to be equal to the minimum period
permitted by such law.
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed by its
President and a Secretary and countersigned on the Declarations Page by a duly
authorized agent of the Insurer.
/S/ D.T. DeCarlo /s/ J. F. Calvano
--------------- -----------------
Secretary President
3
<PAGE> 5
Endorsement No.1
This endorsement, effective 12:01 a.m. 03-04-1995 forms a part of policy number
GA5745881 issued to Cold Metal Products Company, Inc. by Gulf Insurance Company
In consideration of the premium charged, it is hereby understood and agreed that
the time of inception, as set forth in Item 2 of the Declarations, is amended
from (12:00 Noon Standard Time at the address stated in Item 1) to the
following:
(12:01 A.M. Standard Time at the address stated in Item 1)
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, exclusions or limitations of the above mentioned policy,
except as expressly stated herein. This endorsement is part of such policy and
incorporated therein.
/s/ Edward T. Lameir
-------------------------
Authorized Representative
CIRI 38124 (07-1988)
<PAGE> 6
Endorsement No. 2
This endorsement, effective 12:01 a.m. 03-04-1995 forms a part of policy number
GA5745881 issued to Cold Metal Products Company, Inc. by Gulf Insurance Company
In consideration of the payment of premium, it is hereby understood and agreed
that the Insurer shall not be liable to make any payment for Loss in connection
with any claim made against any of the Insureds based upon, arising out of,
directly or indirectly resulting from, in consequence of, or in any way
involving any Claim, demand, cause of action, legal or quasi-legal proceeding or
administrative proceeding pending, or orders, decrees or judgments entered,
against the Directors or Officers or the Insured Company on or prior to 03-04-1
994 or any fact, circumstance or situation underlying or alleged therein.
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, exclusions or limitations of the above-mentioned policy,
except as expressly stated herein. This endorsement is part of such policy and
incorporated therein.
/s/ Edward T. Lameir
-------------------------
Authorized Representative
CIRI 38108 (07-1988)
<PAGE> 7
<TABLE>
<S> <C> <C>
CNA CNA INSURANCE COMPANIES DECLARATIONS
For All the Commitments You Make CNA PLAZA DIRECTORS AND OFFICERS
Chicago, Illinois 60685 LIABILITY POLICY
(800)221-8201
NOTICE
THIS IS A CLAIMS-MADE POLICY AND, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY
"CLAIM" FIRST MADE AGAINST THE DIRECTORS AND OFFICERS DURING THE POLICY PERIOD.
NO COVERAGE EXISTS FOR CLAIMS FIRST MADE AFTER THE END OF THE POLICY PERIOD
UNLESS, AND TO THE EXTENT. THE EXTENDED REPORTING PERIOD APPLIES. DEFENSE COSTS
REDUCE THE LIMIT OF LIABILITY AND ARE SUBJECT TO THE RETENTION AMOUNTS. PLEASE
REVIEW THE POLICY CAREFULLY AND DISCUSS THE COVERAGE WITH YOUR INSURANCE AGENT
OR BROKER.
ACCOUNT NUMBER COVERAGE PROVIDED BY
81885
POLICY NUMBER Continental Casualty Company
128290679
NAMED ENTITY AND PRINCIPAL ADDRESS PRODUCER
Cold Metal Products Company, Inc. Johnson & Higgins Of Pennsylvania, Inc.
Item 8526 South Ave. Diane C. Coyne
1 Youngstown, OH 44514 6 PPG Place, Suite 300
Pittsburgh, PA 15222-5499
Attn: Mr. Allen R. Morrow
Item Policy Period: 03/04/95 To 03/04/96
------------ ----------
2. 12:01 a.m. Standard Time at the Principal Address stated in Item 1.
Item Limit of Liability (Inclusive of Defense Costs):
3.
$ 5,000,000 Maximum aggregate Limit of Liability under the Policy.
----------------
Item Retention Amounts applicable to Insuring Agreements (Defense Costs are Subject to Retention Amounts):
4.
$ 0 each of the Directors and Officers each Claim, but in no event exceeding
-----------------
$ 0 in the aggregate each Claim for all Directors and Officers under Insuring Agreement I.A.,
-----------------
$ 150,000 each Claim under Insuring Agreement I.B.
-----------------
Item Policy Premium
5.
$ 110,000
------------------
$ NJ Guaranty Association Surcharge, if Applicable
------------------
$ KY Municipal Tax $ KY Surcharge, if applicable
------------------ -------------
$ CA Surcharge, if applicable
------------------
Insurers writing property and casualty insurance business in California are
required to participate in the California Insurance Guarantee Association. If an
insurer becomes insolvent the California Insurance Guarantee Association settles
unpaid claims and assesses each insurance company for its fair share.
California law requires all insurers to surcharge policies to recover these
assessments. If your policy is surcharged, "CA Surcharge" with an amount will be
displayed on your premium notice.
</TABLE>
Page 1 of 2
<PAGE> 8
Policy No. 128290679
---------
Item Notice to Insurer under Section VII:
6.
Financial Insurance Group
CNA Insurance Company
CNA Plaza
Chicago, IL 60685
Item Other Notices to Insurer:
7.
Financial Insurance Group
CNA Insurance Company
CNA Plaza
Chicago, IL 60685
Item Prior and Pending Proceeding Date (Exclusion IV.B.5.):
8.
03/04/94
Item Endorsements forming a part of this Policy at issuance:
9.
G-19948-A. G-19950-A, G-19955-A
These Declarations, along with the completed and signed Application and the
Policy, shall constitute the contract between the Insureds and the Insurer.
Authorized Representative: /s/ Kenneth R. Fritz
---------------------
Date: 3/13/95
/s/ D. M. Lowry /s/ D. H. Chookaszian
---------------- ---------------------------
Secretary Chairman of the Board
Page 2 of 2
<PAGE> 9
CNA
For All the Commitments You Make(R) DIRECTORS AND OFFICERS LIABILITY POLICY
THIS IS A CLAIMS-MADE POLICY AND, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY
"CLAIM" FIRST MADE AGAINST THE DIRECTORS AND OFFICERS DURING THE POLICY PERIOD.
NO COVERAGE EXISTS FOR CLAIMS FIRST MADE AFTER THE END OF THE POLICY PERIOD
UNLESS, AND TO THE EXTENT, THE EXTENDED REPORTING PERIOD APPLIES. DEFENSE COSTS
REDUCE THE LIMIT OF LIABILITY AND ARE SUBJECT TO RETENTION AMOUNTS. PLEASE
REVIEW THE POLICY CAREFULLY AND DISCUSS THE COVERAGE WITH YOUR INSURANCE AGENT
OR BROKER.
In consideration of the payment of the premium and in reliance upon all
statements made and information furnished to the Insurer designated in the
Declarations, a stock insurance corporation, hereafter called the "Insurer",
including the statements made in the APPLICATION, and subject to the provisions
of this Policy, the Insurer agrees that:
I. INSURING AGREEMENTS
A. It during the POLICY PERIOD or the Extended Reporting Period any
CLAIM is first made against any of the DIRECTORS AND OFFICERS,
the Insurer shall pay on their behalf LOSS resulting from such
CLAIM, except and to the extent that the ENTITY has indemnified
them for such LOSS.
B. If during the POLICY PERIOD or the Extended Reporting Period any
CLAIM is first made against any of the DIRECTORS AND OFFICERS,
the Insurer shall pay on behalf of the ENTITY Loss resulting from
such CLAIM to the extent the ENTITY is required, or has
determined as permitted by law, to indemnify the DIRECTORS AND
OFFICERS for such LOSS.
II. DEFINITIONS
A. "APPLICATION" means all signed applications for this Policy and
for any policy in an uninterrupted series of policies issued by
the Insurer of which this Policy is a renewal or replacement.
B. "CLAIM" means:
1. a civil, criminal, or administrative adjudicatory proceeding,
or
2. a written demand for monetary damages,
against the DIRECTORS AND OFFICERS for a WRONGFUL ACT, including
any appeal therefrom.
C. "DEFENSE COSTS" means reasonable and necessary legal fees and
expenses incurred by the DIRECTORS AND OFFICERS in defense of any
CLAIM, and costs of appeal, attachment or similar bonds. The
Insurer shall have no obligation to provide such bonds. DEFENSE
COSTS shall not include salaries, wages, fees, overhead or
benefit expenses associated with directors officers or employees
of the ENTITY.
-1-
<PAGE> 10
D. "DIRECTORS AND OFFICERS" means all persons who were, now are, or
shall be duly elected or appointed directors and/or officers of
the ENTITY, including their estates, heirs, legal representatives
or assigns.
E. "ENTITY" means the NAMED ENTITY or any SUBSIDIARY.
F. "FINANCIAL INSOLVENCY" means:
1. the appointment of a receiver, conservator, liquidator,
trustee, rehabilitator or similar official to take control
of, supervise, manage or liquidate the ENTITY or the ENTITY
becoming a debtor in possession; and
2. the inability of the ENTITY financially or under applicable
law to advance DEFENSE COSTS or indemnify the DIRECTORS AND
OFFICERS for LOSS.
G. "INDEPENDENT SECURITY HOLDER" means any security holder of the
ENTITY, other than any of the INSUREDS, who is acting totally
independently of, and totally without the solicitation,
assistance, participation, or intervention of, any of the
INSUREDS.
H. "INSUREDS" means the ENTITY and the DIRECTORS AND OFFICERS.
I. "INTERRELATED WRONGFUL ACTS" means any WRONGFUL ACTS which are
logically or causally connected by reason of any common fact,
circumstance, situation, transaction or event.
J. "LOSS" means damages, settlements, judgments and DEFENSE COSTS.
LOSS shall not include:
1. punitive or exemplary damages or the amount of any
multiplied damage award which is in excess of the damage
award so multiplied;
2. criminal or civil fines or penalties imposed by law;
3. taxes;
4. any amounts for which there is no legal recourse against the
Directors and Officers; or
5. matters which may be deemed uninsurable under the law
pursuant to which this Policy shall be construed.
K. "NAMED ENTITY" means the company named in Item 1. of the
Declarations.
L. "POLICY PERIOD" means the period from the effective date of this
Policy to the Policy expiration date, as set forth in Item 2. of
the Declarations, or its earlier cancellation date.
M. "POLLUTANTS" means any substance exhibiting hazardous
characteristics as or may be defined or identified on any list of
hazardous substances issued by the United States Environmental
Protection Agency or any state or local or foreign counterpart.
POLLUTANTS also means, without limitation, any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste
(including materials to be recycled, reconditioned or reclaimed),
as well as any air emission, odor, waste water, oil or oil
products, infectious or medical waste, asbestos, or asbestos
products or any noise.
N. "SUBSIDIARY" means any entity in which and so long as more than
50% of the voting stock is owned by the NAMED ENTITY, either
directly or indirectly:
-2-
<PAGE> 11
1. on or before the effective date of this Policy, or
2. after the effective date of this Policy by reason of being
created or acquired by the Entity after such date, if the
assets of the created entity, or if the fair value of all
cash, securities assumed indebtedness and other
consideration paid by the ENTITY for the acquired entity, do
not exceed 10% of the total consolidated assets of the NAMED
ENTITY as reflected in the NAMED ENTITY'S most recent
audited consolidated financial statement prior to such
creation or acquisition; or
3. after the effective date of this Policy by reason of being
created or acquired by the ENTITY after such date, other
than as described in 2. above, if the Insurer, at its sole
option upon submission of such information as it may
require, agrees to extend coverage for such entity.
O. "TAKEOVER" means:
1. the acquisition of the ownership or control of more than 50% of
the voting stock of the NAMED ENTITY by another entity or person
or group of entities and/or persons acting in concert;
2. the merger of the NAMED ENTITY into another entity such that the
NAMED ENTITY is not the surviving entity:
3. the consolidation of the NAMED ENTITY with another entity;
4. the acquisition by another entity or person or group of entities
and;or persons acting in concert of more than 50% of the total
consolidated assets of the NAMED ENTITY as reflected in the NAMED
ENTITY'S most recent audited consolidated financial statement
prior to such acquisition; or
5. the appointment of a receiver, conservator, liquidator, trustee,
rehabilitator, or similar official to take control of, supervise,
manage, or liquidate the NAMED ENTITY, or any other taking over
of, or taking control of, the NAMED ENTITY by any governmental
agency, body or representative, or the NAMED ENTITY becoming a
debtor in possession.
P. "WRONGFUL ACT" means any actual or alleged error, misstatement,
misleading statement, act or omission or neglect or breach of duty by
the DIRECTORS AND OFFICERS in the discharge of their duties in their
capacity as DIRECTORS AND OFFICERS. WRONGFUL ACT does not include any
actual or alleged conduct by the DIRECTORS AND OFFICERS in the
discharge of their duties as directors, officers or employees of any
entity other than the ENTITY, even if directed or requested by the
Entity to serve as directors, officers or employees of such other
entity.
III. EXTENDED REPORTING PERIOD
A. If the NAMED ENTITY cancels or non-renews this Policy or if the
Insurer decides not to renew this Policy, the Insureds shall have
the right to purchase, Upon payment of an additional premium of
75% of the total premium for this Policy, an extension of this
Policy for a period of 12 calendar months immediately following
the end of the POLICY PERIOD, but only with
-3-
<PAGE> 12
respect to any WRONGFUL ACT committed before the earlier of the
end of the POLICY PERIOD or the effective date of any TAKEOVER.
This period shall be referred to as the Extended Reporting
Period.
B. As a condition precedent to the right to purchase the Extended
Reporting Period, the total premium for this Policy must have
been paid. The right to purchase the Extended Reporting Period
shall end unless written notice and full payment of the premium
for such period is received by the Insurer within 30 days after
the end of the POLICY PERIOD.
C. If the Extended Reporting Period is purchased, the entire premium
shall be deemed earned at its commencement without any obligation
by the Insurer to return any portion thereof.
D. There is no separate or additional Limit of Liability for the
Extended Reporting Period.
IV. EXCLUSIONS
A. The Insurer shall not be liable to pay any LOSS under Insuring
Agreement I.A. in connection with any CLAIM made against the
DIRECTORS AND OFFICERS where it is established in fact in such
CLAIM that the DIRECTORS AND OFFICERS gained any personal profit,
remuneration or pecuniary advantage to which they were not
legally entitled or committed any fraudulent or criminal WRONGFUL
ACT with actual knowledge of its wrongful nature or with intent
to cause damage. The WRONGFUL ACT of any of the DIRECTORS AND
OFFICERS shall not be imputed to any of the other DIRECTORS AND
OFFICERS for the purpose of determining the applicability of this
Exclusion.
B. The Insurer shall not be liable to pay any LOSS under Insuring
Agreements I.A. or I.B. in connection with any CLAIM made against
the DIRECTORS AND OFFICERS:
1. for any actual or alleged bodily injury, sickness, disease,
emotional distress, mental anguish or death of any person,
or damage to or destruction of any tangible property
including loss of use;
2. in their capacities as fiduciaries as defined in the
Employee Retirement Income Security Act of 1974 and
amendments or similar provisions of any federal, state or
local statute or common law, for any Pension, Profit Sharing
or Welfare Plan(s) of the ENTITY;
3. based upon, directly or indirectly arising out of, or in any
way involving:
a. any WRONGFUL ACT or any matter, fact, circumstance,
situation, transaction, or event which has been the
subject of any claim made prior to the effective date
of this Policy or of any notice given during any prior
policy of which this Policy is a successor; or
b. any other WRONGFUL ACT whenever occurring, which,
together with a WRONGFUL ACT which has been the subject
of such claim or such notice, would constitute
INTERRELATED WRONGFUL ACTS;
-4-
<PAGE> 13
4. of any SUBSIDIARY for:
a. any WRONGFUL ACT occurring before the date it became a
SUBSIDIARY or for any WRONGFUL ACT occurring on or
after the date it became a SUBSIDIARY which, together
with a WRONGFUL ACT occurring before the date it became
a SUBSIDIARY, would constitute INTERRELATED WRONGFUL
ACTS; or
b. any WRONGFUL ACT occurring after the date it ceased to
be a SUBSIDIARY;
5. based upon, directly or indirectly arising out of, or in any
way involving any civil, criminal or administrative
proceeding prior to or pending on the date set forth in Item
8 of the Declarations, or any fact, circumstance,
situation, transaction or event underlying or alleged in
such proceeding;
6. based upon, directly or indirectly arising out of, or in any
way involving: any nuclear reaction, radiation or
contamination, or any actual, alleged or threatened
discharge, release, escape, or disposal of, or exposure to,
POLLUTANTS; any request, direction or order that any of the
INSUREDS test for, monitor, clean up, remove, contain,
treat, detoxify, neutralize or in any way respond to or
assess the effect of POLLUTANTS or nuclear reaction,
radiation or contamination, or any voluntary decision to do
so; or any actual or alleged property damage, or bodily
injury, sickness, disease or death of any person, or
financial loss to the ENTITY, its security holders, or its
creditors resulting from any of the aforementioned matters;
7. by or on behalf of any of the other DIRECTORS AND OFFICERS,
except and to the extent that:
a. such CLAIM is by an officer who is not a director of
the ENTITY for any WRONGFUL ACT in connection with such
officer's employment relationship with the ENTITY; or
b. such CLAIM is in the form of a crossclaim, third-party
claim or otherwise for contribution or indemnity which
is part of and results directly from a CLAIM which is
not otherwise excluded under this Policy;
8. by, on behalf of, or for the benefit of the ENTITY, or by
any security holder of the ENTITY, whether directly or
derivatively, except where such CLAIM is made by an
INDEPENDENT SECURITY HOLDER; or
9. for any WRONGFUL ACT occurring on or after the effective
date of a TAKEOVER.
V. LIMIT OF LIABILITY
A. The amount set forth in Item 3. of the Declarations shall be the
maximum aggregate Limit of Liability of the Insurer for all LOSS under
this Policy, regardless of the number of CLAIMS made against the
DIRECTORS AND OFFICERS.
B. If the Limit of Liability is exhausted by payment of LOSS, the
Insurer's obligations shall be completely fulfilled and extinguished.
-5-
<PAGE> 14
VI. SETTLEMENT/RETENTIONS/ADVANCEMENT OF
DEFENSE COSTS/ALLOCATION
A. INSURER'S CONSENT
The DIRECTORS AND OFFICERS shall not admit liability, consent to
any judgment, agree to any settlement or incur any Defense Costs
without the Insurer's prior written consent, such consent not to
be unreasonably withheld. There shall be no coverage for any LOSS
resulting from any admission of liability, consent to any
judgment, agreement to settle or incurrence of DEFENSE COSTS
without the Insurer's prior written consent. The INSUREDS agree
that they shall not knowingly take any action which increases the
Insurer's exposure for LOSS under this Policy resulting from any
CLAIM.
B. DEFENSE OF CLAIMS
The DIRECTORS AND OFFICERS and not the Insurer have the duty to
defend CLAIMS. The DIRECTORS AND OFFICERS shall only retain
counsel with the Insurer's agreement. The Insurer shall have the
right, but not the duty, to associate itself in the defense and
settlement of any CLAIM.
C. PAYMENT OF LOSS IN EXCESS OF RETENTIONS
The Insurer shall be liable to pay LOSS resulting from each CLAIM
made against the DIRECTORS AND OFFICERS in excess of the amount
of the applicable Retention Amount which shall be uninsured.
D. ADVANCEMENT OF DEFENSE COSTS AND PAYMENT OF LOSS ON BEHALF OF
ENTITY
The ENTITY agrees that it shall advance DEFENSE COSTS and
indemnify the DIRECTORS AND OFFICERS for LOSS in connection with
any CLAIM made against them to the fullest extent required or
permitted under applicable law. If the ENTITY advances DEFENSE
COSTS or is required or has determined to indemnify the DIRECTORS
AND OFFICERS for LOSS in connection with any CLAIM, then, the
INSURER on behalf of the ENTITY shall advance prior to the final
disposition of such CLAIM all such DEFENSE COSTS and pay LOSS in
excess of the Retention Amount applicable to Insuring Agreement
I.B.
E. ADVANCEMENT OF DEFENSE COSTS AND PAYMENT OF LOSS ON BEHALF OF THE
DIRECTORS AND OFFICERS
1. If the ENTITY does not advance DEFENSE COSTS or indemnify
the DIRECTORS AND OFFICERS for LOSS in connection with any
CLAIM made against them by reason of (i) FINANCIAL
INSOLVENCY or (ii) a good faith determination by the ENTITY
that such advancement or indemnification is not required or
permitted even under the broadest construction of applicable
law, then, the INSURER on behalf of the DIRECTORS AND
OFFICERS shall advance prior to the final disposition of
such CLAIM all such DEFENSE COSTS and pay LOSS in excess of
the Retention Amount applicable to Insuring Agreement I.A.
2. If the ENTITY fails to advance DEFENSE COSTS or to indemnify
the DIRECTORS AND OFFICERS for LOSS in connection with any
CLAIM for any reason other than (i) or (ii) hereinabove, or
where it is required or has determined to indemnify the
DIRECTORS AND OFFICERS, then,
-6-
<PAGE> 15
the Insurer on behalf of the DIRECTORS AND OFFICERS shall advance prior to
the final disposition of such CLAIM all such DEFENSE COSTS and pay LOSS in
excess of the Retention Amount applicable to Insuring Agreement I.A., but
the ENTITY shall be responsible for, and shall hold the Insurer harmless
from, the Retention Amount applicable to Insuring Agreement I.B.
F. ALLOCATION OF LOSS
If a CLAIM made against the DIRECTORS AND OFFICERS includes both covered
and uncovered matters or is made against both DIRECTORS AND OFFICERS and
others, including the ENTITY. the INSUREDS recognize that there must be an
allocation between insured and uninsured LOSS. The Insureds and the INSURER
shall exert their best efforts to agree upon a fair and proper allocation
between insured and uninsured LOSS.
G. CONDITIONS FOR ADVANCEMENT OF DEFENSE COSTS
Any advancement by the Insurer of DEFENSE COSTS in connection with any
CLAIM pursuant to Clauses D. or E. above shall be on the following
conditions:
1. if the INSUREDS and the Insurer agree on an allocation of insured and
uninsured DEFENSE COSTS, the Insurer shall advance the amount of
insured DEFENSE COSTS;
2. if the INSUREDS and the Insurer cannot after exerting their best
efforts agree on an allocation of insured and uninsured DEFENSE COSTS:
a. the Insurer then shall advance the percentage of DEFENSE COSTS
proposed by the Insurer to be insured until a different
allocation is negotiated, arbitrated or judicially determined;
b. the Insurer, if requested by the INSUREDS shall submit the
dispute to binding arbitration. The rules of the American
Arbitration Association shall apply except with respect to the
selection of the arbitration panel, which shall consist of one
arbitrator selected by the INSUREDS, one arbitrator selected by
the Insurer, and a third independent arbitrator selected by the
first two arbitrators;
c. no presumption as to allocation shall exist in any arbitration,
suit or other proceeding;
d. any negotiated, arbitrated or judicially determined allocation of
DEFENSE COSTS on account of a CLAIM shall be applied
retroactively to all DEFENSE COSTS previously advanced;
3. any advancement of DEFENSE COSTS shall be subject to the DIRECTORS AND
OFFICERS and/or the Entity providing a satisfactory written
undertaking to repay the Insurer any DEFENSE COSTS finally established
not to be insured; and
4. any allocation or advancement of DEFENSE COSTS on account of a CLAIM
shall not apply to or create any presumption with respect to the
allocation of other Loss on account of such CLAIM.
- 7 -
<PAGE> 16
VII. NOTICE AND INTERRELATED CLAIM CLAUSE
A. If during the POLICY PERIOD or the Extended Reporting Period any CLAIM
is first made against the DIRECTORS AND OFFICERS, the INSUREDS shall,
as a condition precedent to the obligations of the Insurer under this
Policy, give written notice to the Insurer as soon as practicable hut
in no event later than 90 days after such CLAIM is first made.
B. If during the POLICY PERIOD or the Extended Reporting Period the
INSUREDS first become aware of a specific WRONGFUL ACT and during such
period give written notice to the Insurer as soon as practicable of:
1. the names of the potential claimants and a description of the
specific WRONGFUL ACT which forms the basis of their potential
claim,
2. the consequences which have resulted or may result from such
specific WRONGFUL ACT.
3. the name of the alleged or potential damages arising from such
specific WRONGFUL ACT, and
4. the circumstances by which the INSUREDS first became aware of the
specific WRONGFUL ACT, then any CLAIM otherwise covered under
this Policy subsequently made arising out of such WRONGFUL ACT
shall be deemed to have been made at the time such written notice
was given.
C. More than one CLAIM involving the same WRONGFUL ACT or INTERRELATED
WRONGFUL ACTS shall he considered as one CLAIM which shall be deemed
to have been made on the earlier of:
1. the date on which the earliest CLAIM was first made, or
2. the first date notice was given under this Policy or any prior
policy of which this Policy is a successor of any WRONGFUL ACT or
any fact, circumstance, situation, event or transaction which
underlies any such CLAIM.
D. The INSUREDS shall give notice to the Insurer under this Section as
specified in Item 6. of the Declarations.
E. The DIRECTORS AND OFFICERS shall furnish the Insurer with copies of
reports, investigations, pleadings, and all related papers, and such
other information, assistance and cooperation as the Insurer may
reasonably request.
VIII CANCELLATION
A. The Insurer may not cancel this Policy except for non-payment of any
premium when due. In such event, the Insurer may cancel this Policy by
providing to the NAMED ENTITY written notice stating when, not less
than 20 days thereafter, such cancellation shall be effective.
B. The INSUREDS grant the exclusive authority to cancel this Policy to
the NAMED ENTITY. The NAMED ENTITY may cancel this Policy by providing
the Insurer written notice stating when thereafter such cancellation
shall be effective. The mailing or delivery of such notice shall
- 8 -
<PAGE> 17
be sufficient. The unearned premium shall be computed pro rata and
premium adjustment may be made at the time cancellation is effected or
as soon as practicable.
IX. NON-RENEWAL/RENEWAL ON DIFFERENT TERMS
A. NON-RENEWAL
If the Insurer decides not to renew this Policy, the Insurer shall provide
written notice to the NAMED ENTITY at least 60 days prior to the Policy
expiration date. The notice shall include the reason for such non-renewal.
B. RENEWAL ON DIFFERENT TERMS
If the Insurer offers to renew this Policy on terms which involve any
change in Retention Amounts. premium, Limit of Liability or other terms and
conditions. the Insurer shall provide written notice to the Named Entity at
least 60 days prior to the Policy expiration date.
X. NOTICES TO THE NAMED ENTITY
Any notices required under Section VIII. CANCELLATION A. and Section IX.
NON-RENEWAL/RENEWAL ON DIFFERENT TERMS shall be provided to the NAMED
ENTITY at the last known principal address and to its insurance agent or
broker. The mailing by certified mail of such notice shall be sufficient.
XI. OTHER INSURANCE
If any LOSS resulting from any CLAIM is insured under any other
policy(ies), this Policy shall apply only to the extent the LOSS exceeds
the amount paid under such other insurance whether such other insurance is
stated to be primary, contributory, excess, contingent or otherwise, unless
such other insurance is written only as specific excess insurance over this
Policy.
XII. APPLICATION
It is represented by the INSUREDS and it is agreed by and among the
INSUREDS and the Insurer as follows:
1. the particulars and statements contained in the APPLICATION, a
copy of which is attached hereto, and any materials submitted or
required (which shall be maintained on file by the Insurer and be
deemed attached as if physically attached), are true and are the
basis of this Policy and are to be considered as incorporated
into and constituting a part of this Policy;
2. the statements in the APPLICATION and in any materials submitted
or required are the INSUREDS' representations and shall be deemed
material to the acceptance of this risk or the hazard assumed by
the Insurer under this Policy and this Policy is issued in
reliance upon the truth of such representations; and
3. in the event the APPLICATION, including materials submitted or
required, contains any misrepresentation:
- 9 -
<PAGE> 18
a. made with the intent to deceive, or
b. which material affects either the acceptance of the risk or
the hazard assumed by the Insurer under the Policy;
this Policy shall be void and of no effect whatsoever only as to
any of the DIRECTORS AND OFFICERS who are responsible for or who
had knowledge of such misrepresentation. Such responsibility or
knowledge shall not be imputed to any other DIRECTORS AND
OFFICERS for the purposes of determining the availability of
coverage.
XIII. MERGERS
A. AUTOMATIC COVERAGE
If after the effective date of this Policy the ENTITY merges with
another entity such that the ENTITY is the surviving entity and the
fair value of all cash, securities, assumed indebtedness and other
consideration paid by the ENTITY for such merger does not exceed 10%
of the total consolidated assets of the NAMED ENTITY as reflected in
the NAMED ENTITY'S most recent audited consolidated financial
statement prior to such merger, then any directors or officers of the
entity merged with who become directors or officers of the Entity
after such merger shall be considered DIRECTORS AND OFFICERS.
B. OPTIONAL COVERAGE
If after the effective date of this Policy, the ENTITY merges with
another entity such that the ENTITY is the surviving entity, and the
fair value of all cash, securities, assumed indebtedness and other
consideration paid by the ENTITY for such merger exceeds 10% of the
total consolidated assets of the NAMED ENTITY as reflected in the
NAMED ENTITY'S most recent audited consolidated financial statement
prior to such merger, then any directors or officers of the entity
merged with who become directors or officers of the ENTITY after such
merger shall be considered DIRECTORS AND OFFICERS if the Insurer, at
its sole option upon submission of such information as the Insurer may
require, agrees to provide coverage for such directors and officers.
C. LIMITATION
There shall be no coverage for any persons considered to be DIRECTORS
AND OFFICERS pursuant to Clauses A. or B. above for any WRONGFUL ACT
occurring before the effective date of such merger or for any WRONGFUL
ACT occurring on or after such date which. together with any WRONGFUL
ACT occurring before such date would be considered INTERRELATED
WRONGFUL ACTS.
XIV. SUBROGATION AND RECOVERY
The Insurer shall be subrogated to the extent it pays any LOSS to all the
INSUREDS' rights of recovery, and the INSUREDS shall:
1. execute all papers necessary to secure such rights, including
executing any documents necessary to enable the Insurer
effectively to bring suit in their name; and
- 10 -
<PAGE> 19
2. take no action which impairs the Insurer's rights of subrogation
or recovery.
XV. CHANGES
Notice to any agent or knowledge possessed by any agent or other person
acting on behalf of the Insurer shall not effect a waiver or a change in
any part of this Policy or estop the Insurer from asserting any right under
the provisions of this Policy, nor shall the provisions be waived or
changed except by written endorsement issued to form a part of this Policy.
XVI. ENTITY AUTHORIZATION
The INSUREDS agree that the NAMED ENTITY will act on behalf of the INSUREDS
with respect to giving of all notice to the Insurer (except notices
provided in Section VII.A. or B). the receipt of notices from the Insurer,
the payment of the premiums, and the receipt of any return premiums that
may become due under this Policy.
XVII. NO ACTION AGAINST INSURER
No action shall be taken against the Insurer unless, as a condition
precedent, there shall have been full compliance with all the provisions of
this Policy nor until the amount of the DIRECTORS' AND OFFICERS' obligation
to pay shall have been finally determined either by final and nonappealable
judgment against the DIRECTORS AND OFFICERS after trial, or by written
agreement of the DIRECTORS AND OFFICERS, the claimant and the Insurer.
No person or organization shall have any right under this Policy to join
the Insurer as a party to any CLAIM against the DIRECTORS AND OFFICERS to
determine the DIRECTORS' AND OFFICERS' liability, nor shall the Insurer be
impleaded by the ENTITY or the DIRECTORS AND OFFICERS or their legal
representatives in any such CLAIM.
XVIII. ASSIGNMENT OF INTEREST
Assignment of interest under this Policy shall not bind the Insurer unless
its consent is endorsed.
XIX. TERRITORY
Coverage shall apply worldwide.
- 11 -
<PAGE> 20
XX. ENTIRE AGREEMENT
The Insureds agree that this Policy, including the APPLICATION and any
materials submitted or required. and any written endorsement attached,
constitute the entire agreement existing between them and the Insurer or
any of its agents relating to this insurance.
/s/ D. M. Lowry /s/ D. H. Chookaszian
Secretary Chairman of the Board
- 12 -
<PAGE> 21
SPOUSAL LIABILITY COVERAGE
In consideration of the premium paid for this Policy, it is agreed that Section
II. DEFINITIONS D. is deleted and replaced by the following:
"D. "DIRECTORS AND OFFICERS" means:
1. all persons who were, now are, or shall be duly elected or appointed
directors and/or officers of the Entity; and
2. the estates, heirs, legal representatives or assigns of any person
described in 1. hereinabove; and
3. a lawful spouse of any person described in 1. hereinabove (whether
such status is derived by statutory or common law as recognized by the
jurisdiction of the parties' domicile), but only with respect to any
CLAIM arising solely out of his or her status as such a spouse, where
such CLAIM seeks damages from marital community property, jointly held
property, or property transferred from such director or officer to the
spouse."
It is understood that no coverage is provided for any WRONGFUL ACT of a spouse
as described in 3. hereinabove.
All other provisions of the Policy remain unchanged.
This endorsement, which forms a part of and is for attachment to the following
described Policy issued by the designated Insurers takes effect on the effective
date of said Policy, unless another effective date is shown below, at the hour
stated in said Policy and expires concurrently with said Policy.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------- -------------------------------------------------------------------
Must be Completed Complete Only When This Endorsement Is Not Prepared with the Policy
or is Not to be Effective with the Policy
- -------------------------- -------------------------------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF
THIS ENDORSEMENT
01 128290679
- -------------------------- -------------------------------------------------------------------
</TABLE>
CNA
Countersigned by
----------------------------
For All the Commitments You Make(R) Authorized Representative
Page 1 of 1
<PAGE> 22
OUTSIDE DIRECTORSHIP ENDORSEMENT -
CHARITABLE ORGANIZATIONS
(DOUBLE EXCESS)
In consideration of the premium paid for this Policy, it is agreed:
1. Section II. DEFINITIONS P. is deleted and replaced by the following;
"P. "WRONGFUL ACT" means any actual or alleged error, misstatement,
misleading statement, act or omission or neglect or breach of duty by
the DIRECTORS AND OFFICERS in the discharge of their duties in their
capacity as:
1. DIRECTORS AND OFFICERS; or
2. directors, officers, trustees, regents, or governors of any
CHARITABLE ORGANIZATION, where such service is part of their
regularly assigned duties with the ENTITY and at the specific
written request or direction of the Board of Directors of the
ENTITY.
"WRONGFUL ACT does not include any actual or alleged conduct by the
DIRECTORS AND OFFICERS in the discharge of their duties as directors,
officers, trustees, regents, governors or employees of any other
entity, even if directed or requested by the ENTITY to serve as
directors, officers, trustees, regents, governors or employees of such
other entity."
2. Section II. DEFINITIONS is amended by the addition of the following;
""CHARITABLE ORGANIZATION" means any organization exempt from taxation
pursuant to Section 501(c)(3) of the Internal Revenue Code and any
amendments thereto; provided, however, that CHARITABLE ORGANIZATION shall
not include any medical-related facility or educational facility. "
3. The Insurer shall not be liable to pay any LOSS in connection with any
CLAIM made against the DIRECTORS AND OFFICERS in their capacity as
directors, officers, trustees, regents, or governors of any CHARITABLE
ORGANIZATION, except and to the extent that the DIRECTORS AND OFFICERS are
not indemnified by the CHARITABLE ORGANIZATION or its insurers; provided.
however, that in the event the Insurer or any of its affiliates has issued
a policy of insurance to or for the benefit of the CHARITABLE ORGANIZATION
or its directors, officers, trustees, regents or governors, the maximum
aggregate liability of the Insurer and its affiliates for any LOSS under
this Policy and under such other policy shall not exceed the amount of the
largest applicable limit of liability of either this Policy or such other
policy.
All other provisions of the Policy remain unchanged.
This endorsement, which forms a part of and is for attachment to the following
described Policy issued by the designated Insurers takes effect on the effective
date of said Policy, unless another effective date is shown below, at the hour
stated in aid Policy and expires concurrently with said Policy.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------- -------------------------------------------------------------------
Must be Completed Complete Only When This Endorsement Is Not Prepared with the Policy
or is Not to be Effective with the Policy
- -------------------------- -------------------------------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF
THIS ENDORSEMENT
02 128290679
- -------------------------- -------------------------------------------------------------------
</TABLE>
CNA
Countersigned by
----------------------------
For All the Commitments You Make(R) Authorized Representative
Page 1 of 1
<PAGE> 23
EXCLUSION OF CLAIMS BY
SPECIFIED PERSONS OR ENTITIES
In consideration of the premium paid for this Policy, it is agreed that the
Insurer shall not be liable to pay any Loss under Insuring Agreements I.A. or
I.B. in connection with any CLAIM made against the DIRECTORS AND OFFICERS by or
on behalf of:
AARQUE Management Corporation
- -----------------------------
All other provisions of the Policy remain unchanged.
This endorsement, which forms a part of and is for attachment to the following
described Policy issued by the designated Insurers takes effect on the effective
date of said Policy, unless another effective date is shown below. at the hour
stated in said Policy and expires concurrently with said Policy.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------- -------------------------------------------------------------------
Must be Completed Complete Only When This Endorsement Is Not Prepared with the Policy
or is Not to be Effective with the Policy
- -------------------------- -------------------------------------------------------------------
ENDT. NO. POLICY NO. ISSUED TO EFFECTIVE DATE OF
THIS ENDORSEMENT
03 128290679
- -------------------------- -------------------------------------------------------------------
</TABLE>
CNA
Countersigned by
----------------------------
For All the Commitments You Make(R) Authorized Representative
Page 1 of 1
<PAGE> 24
[CNA LOGO]
RENEWAL APPLICATION FOR
DIRECTORS AND OFFICERS LIABILITY INSURANCE
- --------------------------------------------------------------------------------
NOTICE
- --------------------------------------------------------------------------------
THIS IS AN APPLICATION FOR A CLAIMS-MADE POLICY WHICH, SUBJECT TO ITS
PROVISIONS, APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE DIRECTORS AND
OFFICERS DURING THE POLICY PERIOD. NO COVERAGE EXISTS FOR CLAIMS FIRST MADE
AFTER THE END OF THE POLICY PERIOD UNLESS, AND TO THE EXTENT, THE EXTENDED
REPORTING PERIOD APPLIES. THE LIMIT OF LIABILITY SHALL BE REDUCED BY AMOUNTS
INCURRED AS DEFENSE COSTS. DEFENSE COSTS SHALL BE SUBJECT TO THE RETENTION
AMOUNTS. PLEASE REVIEW THE POLICY CAREFULLY AND DISCUSS THE COVERAGE WITH YOUR
INSURANCE AGENT OR BROKER.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR COMPLETING THIS APPLICATION
Please read the instructions carefully, and complete and submit all requested
information and required attachments. Please note that terms appearing in bold
face in the above Notice and in any Application Question below are defined in
the Policy and shall have the same meaning in this Application as in the Policy.
This Application and all materials submitted or required shall be held in
confidence. Questions 3 and 4 need not be answered if the information requested
is contained in any required attachments.
Required Attachments:
1. All proxy statements and Notices of Annual Meeting to Stockholders
within the last twelve months
2. Audited financial statements for the most recent three fiscal years
3. The latest interim financial statements
4. The indemnification provisions of the charter and bylaws
5. Any filings made to the SEC within the last 12 months
Please submit this Application to:
CNA Insurance Companies
Financial Insurance Division - 20 South
CNA Plaza
Chicago, ILLINOIS 60685
(312) - ___ - ____
ANY PERSON WHO, WITH INTENT TO DEFRAUD OR KNOWING THAT (S)HE IS FACILITATING A
FRAUD AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A
FALSE OR DECEPTIVE STATEMENT MAY BE GUILTY OF INSURANCE FRAUD.
- --------------------------------------------------------------------------------
1. Named Entity: Cold Metal Products, Inc.
---------------------------------------------------------
Street Address: 8526 South Avenue
-------------------------------------------------------
City: Youngstown State: OH Zip Code: 44514
-------------------- -------- ------------------
(Do not use P.O. Box)
Telephone: (216) 758 - 1194
--------------- ---------
2. The Officer designated by the Entity to receive notices from the
Insurer concerning this insurance is:
Allen R. Morrow Vice President and Chief Financial Officer
----------------- ------------------------------------------
(Name of Officer) (Title)
06/11/93
- 1 -
<PAGE> 25
Questions 3 and 4 Need Not Be Answered if the Information Requested is Contained
in the Required Attachments
3. Has there been any material change in the
nature of the operations within the last 12 months.....Yes / / No /X/
If "Yes", provide details: ___________________________________________
4. Stock Ownership of Named Entity
a. Total number of common shares outstanding: 7,182,250
-----------
b. Total number of common shareholders: Unknown due to street
name holdings
-------------------------
c. Total number of common shares owned directly
or beneficially by Directors: 4,058,050
----------------
d. Total number of common shares owned directlY
or beneficially by Officers who are not Directors 77,950
--------
e. Does any shareholder own directly or beneficially
five percent or more of the common shares? Yes /X/ No / /
If "Yes", designate name and percentage of holdings: Mr. R.Q. Anderson,
---------------------------
Chairman, Owns 3,664,000 shares; or 51.15%, either directly or through his
- -------------------------------------------------------------------------------
wholely owned AARQUE Investments Include by attachment the information
- --------------------------------
above (items a-e) for any additional classes of voting stock. None
f. Are there any other securities convertible to voting stock?
Yes / / No /X/
If "Yes", provide details: ___________________________________________
5 Have there been any changes in senior management (Board Chairman,
President, Executive Vice President, etc.) in the last 12 months?
Yes / / No /X/
If "Yes", provide details: ___________________________________________
______________________________________________________________________
6. By attachment to this Application, provide None: See 7. Below
the following information for any Subsidiary for Equity Investment
acquired or created after the effective date
of the current Policy:
a. Name d. Nature of business
b. Date of acquisition e. Domestic or foreign
c. Percent of ownership f. Name of parent entity
7. During the last 12 months, has the Entity been involved in, or is it
presently considering, any merger, consolidation, acquisition, tender
offer, or divestment or sale of its stock in excess of 10% of the total
stock outstanding?.................. Yes /X/ No / /
If "Yes" provide details: See Addendum #1 attached
--------------------------------------------
----------------------------------------------------------------------
06/11/93
- 2 -
<PAGE> 26
8. Has the Entity filed, or contemplated filing, a registration statement with
the Securities and Exchange Commission:
a. within the past 12 months?.........Yes /X/ No / /
b. within the next 12 months?.........Yes / / No /X/
If "Yes", to either of the above, provide details and furnish a copy of
such registration statement if available. On March 29, 1994 the company
completed an initial public offering of common stock. The SEC Form S-1
Registration Statement and the offering prospectus are enclosed with this
application.
9. a. Within the last 12 months has the Named Entity or any Subsidiary made or
joined in a Schedule 13-D filing with the Securities and Exchange
Commission with respect to ownership of the securities of another
corporation?.................................Yes / / No /X/
If "Yes", provide details. _______________________________________________
__________________________________________________________________________
b. Within the last 12 months, has the Named Entity or any Subsidiary
become aware that any person, corporation or other entity has made a
Schedule 1 3-D filing with respect to the ownership of the securities
of the Named Entity or any Subsidiary?.......Yes / / No /X/
If "Yes", provide details. _______________________________________________
10. Please provide the following insurance information: (1) See Addendum #2
attached (2) See
Addendum #3 attached
a. Pension/Fiduciary Liability Limit (1) Carrier (1) Expir Date (1)
b. Commercial Crime/Fidelity Limit (2) Carrier (2) Expir Date (2)
c. General Liability Limit (2) Carrier (2) Expir Date (2)
11. During the last 12 months has the Entity or any of the Directors and
Officers been involved in any of the following:
a. any anti-trust, copyright or patent litigation?........Yes / / No /X/
b. any civil or criminal action or administrative
proceeding charging a violation of any federal
or state security law or regulation?...................Yes / / No /X/
c. any representative actions, class actions or
derivative suits?......................................Yes / / No /X/
d. other material litigation?.............................Yes / / No /X/
If "Yes", to any of the above, please attach full details.
12. The undersigned declares that to the best of his/her knowledge the
statements set forth herein are true and correct and that reasonable
efforts have been made to obtain sufficient information from all of the
Directors and Officers to facilitate the proper and accurate completion of
this Application for the proposed Policy. Signing of this Application does
not bind the undersigned to complete the insurance, but it is agreed that
this Application shall be the basis of the contract should a Policy be
issued, and this Application will be attached to and become part of such
Policy. The undersigned agrees that if after the date of this Application
and prior to the effective date of the Policy, any occurrence, event or
other circumstance should render any of the information contained in this
Application inaccurate or incomplete, then the undersigned shall notify the
Insurer of such occurrence, event or circumstance and shall provide the
Insurer with information that would complete, update or correct the
information contained in this Application. Any outstanding quotations may
be modified or withdrawn at the sole discretion of the Insurer.
- 3 -
<PAGE> 27
13. It is agreed that this Renewal Application and all Application(s) for all
policies issued by the Insurer of which the proposed Policy would be a
direct or indirect renewal or replacement, copies of which will be attached
to the proposed Policy, and any materials submitted or required (which
shall be maintained on file by the Insurer and be deemed attached as if
physically attached to the proposed Policy), are true and are the basis of
the proposed Policy and are to be considered as incorporated into and
constituting a part of the proposed Policy.
14. The information requested in this Application is for underwriting purposes
only and does not constitute notice to the Insurer under any Policy of a
Claim or potential claim. All such notices must be submitted to the Insurer
pursuant to Section VII of the Policy.
- --------------------------------------------------------------------------------
The undersigned acknowledges that he or she is aware that Defense Costs reduce
and may exhaust the Limit of Liability. The Insurer is not liable for any Loss
(which includes Defense Costs) in excess of the Limit of Liability.
- --------------------------------------------------------------------------------
This Application must be signed by the Chairman of the Board or President.
Signed /s/ James R. Harpster
---------------------------
Title PRESIDENT
---------------------------
Corporation COLD METAL PRODUCTS, INC.
-------------------------
Date JANUARY 31, 1995
-------------------------
- --------------------------------------------------------------------------------
A POLICY CANNOT BE ISSUED UNLESS ThE APPLICATION IS PROPERLY SIGNED AND DATED
- --------------------------------------------------------------------------------
06/11/93
- 4 -
<PAGE> 28
FOR NEW YORK RESIDENTS ONLY:
This Application must be signed by the Chairman of the Board or President.
WARNING
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR
OTHER PERSON FILES AN APPLICATION FOR INSURANCE CONTAINING ANY FALSE
INFORMATION, OR CONCEALS, FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING
ANY FACT THERETO, COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME.
Signed _____________________________________
Title _____________________________________
Corporation _____________________________________
Date _____________________________________
- --------------------------------------------------------------------------------
A POLICY CANNOT BE ISSUED UNLESS THE APPLICATION IS PROPERLY SIGNED AND DATED
- --------------------------------------------------------------------------------
06/11/93
- 5 -
<PAGE> 29
Addendum #1
Directors and Officers Liability Insurance
Application dated 1/31/95
Question #7.
On March 25, 1994 the applicant's wholly owned Canadian subsidiary CMP,
Ltd. purchased a 50% equity interest in Direct Steel, Inc. of Concord,
Ontario and its related company 955404 Ontario, Inc. which owns the
operating company's real property. Direct Steel, Inc. is a Toronto area
Steel Service Center. The company's equity interest was purchased for
$1,050,000 CDN ($650,000 cash and $400,000 in notes). The investment is
accounted for under the Equity method.
