<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8526 SOUTH AVENUE, YOUNGSTOWN, OHIO 44514
(Address of principal executive offices) (Zip Code)
(330) 758-1194
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Number of shares of Common Stock outstanding as of July 21, 1997: 7,160,250
1
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended June 30, 1997
Index
-----
<TABLE>
<CAPTION>
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations ....................................................................................3
Consolidated Balance Sheets...............................................................................................4
Consolidated Statements of Cash Flows.....................................................................................5
Notes to Condensed Consolidated Financial Statements......................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings .............................................................................................10
Item 2. Changes in Securities..........................................................................................10
Item 3. Defaults Upon Senior Securities................................................................................10
Item 4. Submission of Matters to a Vote of Securities Holders..........................................................10
Item 5. Other Information..............................................................................................10
Item 6. Exhibits and Reports on Form 8-K...............................................................................10
Signatures .......................................................................................................10
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 78,232 $ 62,405
---------- ----------
Cost of sales 72,239 55,967
---------- ----------
Gross profit 5,993 6,438
Selling, general, and administrative expenses 4,104 3,811
Income from equity investment -- 28
Interest expense 1,137 505
---------- ----------
Income before income taxes 752 2,150
Income taxes 273 745
---------- ----------
Net income $ 479 $ 1,405
========== ==========
Per common share data:
Net income $ 0.07 $ 0.20
========== ==========
Weighted average common shares outstanding 7,162,118 7,162,250
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
-------- ---------
1997 1997
---- ----
<S> <C> <C>
Assets:
Cash $ 1,940 $ 898
Receivables 41,955 41,386
Inventories 53,357 50,104
Prepaid and other current assets 2,102 2,090
--------- ---------
Total current assets 99,354 94,478
Property, plant and equipment - at cost 79,340 78,233
Less accumulated depreciation (30,716) (29,475)
--------- ---------
Property, plant and equipment - net 48,624 48,758
Other assets 9,839 9,798
--------- ---------
Total assets $ 157,817 $ 153,034
========= =========
Liabilities and shareholders' equity:
Revolving line of credit $ 16,971 $ 13,192
Accounts payable 31,530 29,322
Other current liabilities 7,300 8,545
--------- ---------
Total current liabilities 55,801 51,059
Long-term debt 47,949 48,330
Postretirement benefits 18,342 18,451
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,350 25,330
Retained earnings 16,391 15,912
Cumulative translation adjustment (2,606) (2,649)
Less treasury stock, 372,000 and 370,000 shares, at cost (3,485) (3,474)
--------- ---------
Total shareholders' equity 35,725 35,194
--------- ---------
Total liabilities and shareholders' equity $ 157,817 $ 153,034
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 479 $ 1,405
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity investment -- (28)
Depreciation and amortization 1,251 686
Deferred income taxes -- --
Deferred directors' fees 20 --
Changes in operating assets and liabilities:
Accounts receivable (546) (16)
Inventory (3,216) 3,814
Accounts payable 2,182 (2,848)
Accrued expense and other (1,422) (753)
-------- --------
Net cash provided by (used in) operating activities (1,252) 2,260
Cash flows from investing activities:
Additions to property, plant and equipment (1,087) (4,380)
Acquisition -- (2,609)
-------- --------
Net cash used in investing activities (1,087) (6,989)
Cash flows from financing activities:
Payments of term loans (353) --
Proceeds from other debt 60,469 47,392
Payments of other debt (56,727) (43,015)
Acquisition of treasury stock (11) --
-------- --------
Net cash provided by financing activities 3,378 4,377
Net decrease in cash 1,039 (352)
Effect of translation adjustment 3 (30)
Cash at beginning of period 898 2,318
-------- --------
Cash at end of period $ 1,940 $ 1,936
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
COLD METAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Cold Metal Products, Inc.
and subsidiary (the Company) as of June 30, 1997 and March 31, 1997, the results
of operations for the three month periods ended June 30, 1997 and 1996, and
changes in cash flows for the three months ended June 30, 1997 and 1996. The
results of operations for the periods ended June 30, 1997 and 1996 are not
necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and therefore, should be read in conjunction with
the audited consolidated financial statements contained in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," which is effective
for financial statements issued for periods ending after December 15, 1997. The
Company does not expect SFAS No. 128 to have a material effect on the
computation of earnings per share.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, operating income, and net income, respectively, of the Company's
Canadian operations were $45.0 million, $1.7 million and $800,000 for the
quarter ended June 30, 1997, and $29.2 million, $1.3 million and $690,000 for
the quarter ended June 30, 1996.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,162,118 for the three months ended June 30,1997
and 7,162,250 for the three month period ended June 30,1996.
NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, March 31,
-------- --------
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $31,034 $ 28,209
Work-in-process 16,188 15,048
Finished goods 6,135 6,847
------- --------
Total inventories $53,357 $ 50,104
======= ========
</TABLE>
NOTE 5. DIRECTORS' INCENTIVE PLAN
In accordance with Non-Employee Directors' Incentive Plan, two directors have
elected to receive shares of stock on a deferred basis in lieu of cash payments
of their 1998 annual retainer fee. As of June 30,
6
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1997, a total of 12,364 of the 60,000 shares reserved under the Plan for such
deferral elections, was committed to be issued at the end of the deferment
period, which is a specified period after the Director's resignation or certain
other events, such as a sale or merger of the Company
NOTE 6. COMMON STOCK
Under a stock repurchase program authorized by the Company's Board of Directors,
the Company purchased 2,000 shares of treasury stock in June 1997, for a total
of $11,000. Current financing agreements allow for the repurchase of stock not
to exceed an aggregate amount of $1.0 million. The aggregate amount purchased by
the Company under the program to date totals $405,000.
7
<PAGE> 8
ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
Results of Operations
- ---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended June 30,
----------------------
1997 1996
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 92.3 89.7
------ ------
Gross profit 7.7 10.3
Selling, general, and administrative expenses 5.3 6.1
Income from equity investment -- 0.0
Interest expense 1.4 0.8
------ ------
Income before income taxes 1.0 3.4
Income taxes 0.4 1.2
------ ------
Net income 0.6% 2.2%
====== ======
</TABLE>
Net sales for the three-months ended June 30, 1997 were $78.2 million,
representing a $15.8 million or 25.4% increase from the corresponding three
months ended June 30, 1996. The increase was mainly attributable to the
consolidation of sales of Direct Steel, which became a wholly owned subsidiary
of the Company in June 1996. Excluding this effect, the Company's sales
increased $3.9 million, or 6.3%. Volume of tons shipped excluding the Direct
Steel effect was up 10%, accounting for a $6.4 million sales increase, offset by
an aggregate decrease in sales dollars per ton of $2.5 million due to a decline
in average selling price which resulted from a mix shift to products yielding
lower revenue per ton.
Gross profit for the three months ended June 30, 1997 was $6.0 million
or 7.7% of net sales, compared to $6.4 million or 10.3% of net sales for the
three months ended June 30, 1996. Gross profit was affected by ramp-up costs and
lower sales volume of approximately $765,000 at the Company's expanded facility
in Ottawa, Ohio and the consolidation of Direct Steel's sales which generally
carry lower margins. Additionally, raw material price increases and less
favorable product mix also impacted the current period margins.
Selling and administrative costs of $4.1 million in the quarter ended
June 30, 1997 represented 5.3% of sales as compared to $3.8 million in the
quarter ended June 30, 1996, which represented 6.1% of sales. The increased
amount is due to the consolidation of Direct Steel's results for the full
quarter in the current year, compared with consolidation of twelve days in the
quarter ended June 30. 1996, while the percentage decrease reflected the
increased sales.
8
<PAGE> 9
Income from equity investment at Direct Steel was $28,000 in the prior
year quarter. Subsequent to June 18, 1996, its operations were consolidated with
the Company's and no longer reported as income from equity investment.
Interest expense was $1.1 million or 1.4% of net sales for the three
months ended June 30, 1997 as compared to $505,000 or .8% of net sales in the
first quarter of fiscal year 1997. Interest costs for the current year quarter
include $467,000 of costs associated with the Ottawa expansion project. In the
prior year quarter, interest costs associated with the project were capitalized.
Additional increase in interest costs in the current quarter resulted from
acquisition activity during fiscal 1997.
Income before taxes was $752,000 or 1.0% of net sales for the three
months ended June 30, 1997. This was a decrease of $1.4 million over the income
before taxes in the three month period ending June 30, 1996. The income before
taxes for the three months ended June 30, 1996 was $2.1 million, or 3.4% of net
sales.
Income taxes for the three month period ended June 30, 1997 were
$273,000, or .4% of net sales compared to $745,000, or 1.2% of net sales for the
same period ended June 30, 1996. The effective tax rate was 36.3% in the first
quarter of fiscal year 1997 compared with a 34.7% rate for the prior year
period.
Net income for the three months ended June 30, 1997 was $479,000, or
$.07 per share based on 7,162,118 shares as compared to $1.4 million, or $.20
per share based on 7,162,250 shares for the three months ended June 30, 1996.
The Company expects that net income for fiscal 1998 will continue to reflect
operation of the expanded Ottawa facility at below break-even levels until the
third or fourth quarter of the fiscal year.
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities was $1.3 million for the three
months ended June 30, 1997, reflecting cash provided from net income and
non-cash depreciation charges, and cash used by changes in working capital.
Changes in working capital reflected an increase in inventory levels during the
quarter somewhat offset by a corresponding increase in accounts payable and a
decrease in accrued expenses as a result of normal timing for pay-outs of
year-end accrual items such as payroll bonuses.
Cash used in investing activities was $1.0 million for the three months
ended June 30, 1997, reflecting spending for capital projects during the
quarter.
Cash flows from financing activities provided $3.4 million for the
three months ended June 30, 1997. The Company's various bank lending
arrangements provide a maximum borrowing availability of approximately $90.9
million of which $64.9 million was outstanding at June 30, 1997.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditure
needs 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.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to a vote of the shareholders in the
quarter ended June 30, 1997.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(10)(u) Amendment No. 4 to Second Amended and Restated Credit and
Security Agreement
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cold Metal Products, Inc.
(Registrant)
/s/ James R. Harpster
---------------------
James R. Harpster
President, Chief Executive Officer
/s/ John E. Sloe
---------------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
July 31, 1997
10
<PAGE> 1
AMENDMENT NO. 4
TO
SECOND AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 ("Amendment No. 4") is entered into as of
July 10, 1997, by and between Cold Metal Products, Inc. a New York corporation
having its principal place of business at 8526 South Avenue, Youngstown, Ohio
44514 ("Borrower") and The Bank of New York having an office at 1290 Avenue of
the Americas, New York, New York 10104 ("Bank").
BACKGROUND
----------
Borrower and Bank are parties to a Second Amended and Restated
Credit and Security Agreement dated as of August 1, 1994, as amended bye
Amendment No. 1 dated as of June 30, 1995, Amendment No. 2 dated as of December
31, 1996 and Amendment No. 3 dated as of May 13, 1997 ("Amendment No. 3") (as
amended and as may be further amended, supplemented or otherwise modified from
time to time, the "Loan Agreement") pursuant to which Bank provided Borrower
with certain financial accommodations.
Pursuant to Amendment No. 3, the parties agree to amend,
subsequent to the execution o Amendment No. 3, Section 2.1(a)(y)(iii) of the
Loan Agreement to increase the amortizing availability from $7,700,000 to
$18,000,000, subject to satisfaction of each of the conditions set forth in
Section 9 of Amendment No. 3, including the resolution of certain environmental
issues.
Each of the condition set forth in section 9 of Amendment No.
3 has been ratified and therefore Borrower has requested that Bank amend the
Loan Agreement on the terms set forth herein and Bank is willing to do so on the
terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the account of Borrower
by Bank, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. AMENDMENT TO LOAN AGREEMENT. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan Agreement is hereby
amended as follows:
2.1. Section 1.2 of the Loan Agreement is hereby amended as
follows:
<PAGE> 2
(a) the following defined terms are hereby added in their
appropriate alphabetical order:
"AMENDMENT NO. 4" shall mean Amendment No. 4 to Second Amended
and Restated Credit and Security Agreement dated as of July 10, 1997.
2.2. Section 2.1(a)(y)(iii) is hereby amended by in its
entirety to read as follows:
"(iii) but only until the release of Bank's
Liens in accordance with Section 4.21 of this Agreement,
$18,000,000, which amount shall be reduced by $100,000 on the
first day or each month commencing August 1, 1997 until October
2, 2000 when the entire unpaid balance of such amount shall be
due and payable, MINUS"
3. CONDITIONS OF EFFECTIVENESS. This Amendment No. 4 shall
become effective when Bank shall have received:
(i) four (4) copies of this Amendment No. 4 executed by
Borrower and consented to and agreed to be Cold Metal Products
Company, Ltd. as guarantor; and
(ii) consent of Participants who have purchased participating
interest equal to 54.54% of the credit facility;
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants as follows:
(a) This Amendment No. 4 and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective terms.
(b) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Amendment No. 4.
(c) Borrower has no defense, counterclaim or offset with
respect to the Obligations.
5. EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of SECTION 2 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
<PAGE> 3
(c) The execution, delivery and effectiveness of this
Amendment No. 4 shall not operate as a waiver of any right, power or remedy of
Bank, nor constitute a waiver of any provision of the Loan Agreement, or any
other documents, instruments or agreements executed and/or delivered under or in
connection therewith.
6. GOVERNING LAW. This Amendment No. 4 shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns and shall be governed by and construed in accordance with the laws
of the State of New York.
7. HEADINGS. Section headings in this Amendment No. 4 are
included herein for convenience o reference only and shall not constitute a part
of this Amendment No. 4 for any other purpose.
8. COUNTERPARTS. This Amendment No. 4 may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed an
original and all of which taken together shall be deemed to constitute one and
the same agreement.
<PAGE> 4
IN WITNESS WHEREOF, this Amendment No. 4 has been duly
executed as of the day and year first written above.
COLD METAL PRODUCTS, INC.
By: /S/ ALLEN R. MORROW
-------------------------------
Name: ALLEN R. MORROW
-----------------------------
Title: VICE PRESIDENT & TREASURER
----------------------------
THE BANK OF NEW YORK
By: /S/ JOSEPH A. GRIMALDI
-------------------------------
Name JOSEPH A. GRIMALDI
------------------------------
Title: Senior Executive Vice President
GUARANTOR CONSENT AND REAFFIRMATION
By its signature below, Cold Metal Products Company, Ltd. hereby consents to
Amendment No. 4 and confirms that (i) its Guaranty Agreement dated as of August
4, 1987 in favor of Bank, as confirmed by Guaranty Confirmation dated as of
August 1, 1994 (the "Guaranty"), (ii) the defined term "Collateral Documents"
under the Guaranty shall be deemed to include the Hamilton Mortgage and (iii)
the Collateral Documents (as defined in the Guaranty and as amended by clause
(ii) above), each remain in full force and effect and are in no way modified or
impaired by Amendment No. 4 or any documents executed in connection therewith.
CONSENTED AND AGREED TO AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN:
COLD METAL PRODUCTS COMPANY, LTD.
By: /S/ ALLEN R. MORROW
-----------------------------
Name: ALLEN R. MORROW
---------------------------
Title: SECRETARY & TREASURER
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,940
<SECURITIES> 0
<RECEIVABLES> 41,955
<ALLOWANCES> 629
<INVENTORY> 53,357
<CURRENT-ASSETS> 99,354
<PP&E> 79,340
<DEPRECIATION> 30,716
<TOTAL-ASSETS> 157,817
<CURRENT-LIABILITIES> 55,801
<BONDS> 0
75
0
<COMMON> 0
<OTHER-SE> 35,650
<TOTAL-LIABILITY-AND-EQUITY> 35,725
<SALES> 78,232
<TOTAL-REVENUES> 78,232
<CGS> 72,239
<TOTAL-COSTS> 72,239
<OTHER-EXPENSES> 4,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,137
<INCOME-PRETAX> 752
<INCOME-TAX> 273
<INCOME-CONTINUING> 479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
