<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, 1997. 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, 1997 was $19,174,375.
The number of shares of Registrant's Common Stock, par value $.01 per share,
outstanding as of June 13, 1997 was 7,162,250
<PAGE> 2
COLD METAL PRODUCTS, INC.
FORM 10-K - FISCAL YEAR ENDED MARCH 31, 1997
--------------------------------------------
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 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 - 1997
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, 1997, 1996 and
1995 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 1997 1996 1995
------- ---- ---- ----
<S> <C> <C> <C>
Strip Steel... 62% 79% 80%
Processed Sheet... 38 21 20
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
The increase in the precent of net sales of processed sheet in
fiscal 1997 is primarily attributable to the expansion of service center
business through the acquisition of Direct Steel, Inc., which became a
wholly-owned subsidiary of the Company in June 1996 and Cold Metal Processing,
which was acquired in November 1996.
3
<PAGE> 4
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.
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.
4
<PAGE> 5
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. 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, 1997, the Company
purchased approximately 7% 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 16% of its steel requirements 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 changing steel prices,
however, reductions in the Company's raw material costs may lag behind pressure
on the Company's prices or increases in raw material costs may preceed
increases in 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:
Product Application
------- -----------
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
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
5
<PAGE> 6
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, 1997, 41%
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 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, 1997, the Company sold products to
approximately 1300 customers with the largest single customer accounting for
approximately 7% of the Company's net sales. The Company's ten largest
customers accounted for 31% percent of its net sales during that period. During
the fiscal year ended March 31, 1997, approximately 29% 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, 1997, approximately 55% of the
Company's net sales were to customers in the U.S. and 44% 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, 1997, the Company's backlog was approximately $48 million
compared with approximately $35 million at May 31, 1996. The increase is
backlog is attributable to both the expansion of the service center business
through the acquisition of Direct Steel, Inc. and Cold Metal Processing, and
increased orders in anticipation of the ramp-up of the expanded Ottawa, Ohio
facility. 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 $950,000 in fiscal 1997, and are forecast
to be approximately $500,000 in fiscal 1998 and $600,000 in fiscal 1999.
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
6
<PAGE> 7
been discovered, based upon studies and reports conducted by the Company's
consultants, the Company believes it is unlikely that any of the sites will
require the Company to incur material remediation costs.
Employees
---------
As of March 31, 1997, the Company employed a total of 863 people,
consisting of 307 salaried, 426 union, hourly and 130 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>
Square Owned
Location Footage Principal Use or Leased (1)
- -------- ------ ------------- -------------
<S> <C> <C> <C>
Youngstown, Ohio 430,000 Specialty Strip production Owned
New Britain, Connecticut 290,000 Specialty Strip production Owned
Hamilton, Ontario 314,000 Conventional Strip Owned
(Imperial Street) production
Indianapolis, Indiana 140,000 Specialty and Conventional Owned
Strip production
Ottawa, Ohio 145,000 Speciality and Conventional Owned
Strip production
Waterbury, Connecticut 16,000 Specialty Strip processing Leased(2)
Montreal, Quebec 45,000 Steel service center Owned
Hamilton, Ontario 87,000 Steel service center Owned
(Kenora Avenue)
Concord, Ontario 35,000 Steel service center Owned
<FN>
(1) Each of the facilities owned by the Company is subject to the liens of
financial institutions providing term loans and credit facilities.
(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 84% of
productive capacity in fiscal 1997, and the Company's slitting equipment at its
steel service centers operated at approximately 79% of productive capacity in
fiscal 1997.
7
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
Certain claims, suits, and complaints arising in the ordinary course
of business have been filed or are pending against the Company. In the opinion
of management, none of such claims, suits, or complaints is material, and in
the aggregate, they will not have a material adverse effect on the Company's
results of operations or financial condition.
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, 1997.
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........ 49 President and Chief Executive Officer
R. Quintus Anderson....... 66 Chairman of the Board
Gordon A. Wilber........ 55 Executive Vice President, Chief Operating Officer
Allen R. Morrow............ 47 Vice President, Chief Administrative Officer, Treasurer
John E. Sloe................. 44 Vice President, Chief Financial Officer
Robert R. Albert............ 67 Vice President - Commercial
Jack W. Watson........... 53 Vice President, General Manager, Canada
Heidi A. Nauleau......... 40 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-eight 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. Mr. Anderson and Aarque Capital
Corporation, a corporation controlled by Mr. Anderson, together own
approximately 51.3% 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 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
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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 45 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.
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 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.
9
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PART II
-------
ITEM 5. MARKET AND DIVIDEND INFORMATION
As of June 13, 1997, there were 7,162,250 shares of common stock
outstanding that were held by 120 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 credit
facilities 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,
----------------------------
1997 1996
---- ----
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $ 6.75 $ 5.38 $ 7.38 $ 6.63
Second Quarter $ 6.75 $ 5.50 $ 7.00 $ 5.75
Third Quarter $ 6.88 $ 5.50 $ 6.63 $ 4.25
Fourth Quarter $ 6.50 $ 5.13 $ 5.50 $ 4.75
</TABLE>
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995 1994 1993(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 286,024 $ 227,128 $ 235,145 $ 221,286 $ 180,467
Cost of sales 262,133 205,727 208,408 196,870 160,289
-------------------------------------------------------------------------
Gross profit 23,891 21,401 26,737 24,416 20,178
Selling, general, and administrative expenses 15,739 13,645 13,773 13,079 12,766
Income (loss) from equity investment 28 (98) 616 -- --
Management fee to principal shareholder -- -- -- 1,022 903
Interest expense 3,115 2,918 2,956 3,707 2,997
-------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting changes 5,065 4,740 10,624 6,608 3,512
Income taxes 1,700 1,685 3,698 2,530 1,305
-------------------------------------------------------------------------
Income before cumulative effect of accounting
changes 3,365 3,055 6,926 4,078 2,207
Cumulative effect of accounting changes -- -- -- (10,956) --
-------------------------------------------------------------------------
Net income (loss) $ 3,365 $ 3,055 $ 6,926 $ (6,878) $ 2,207
=========================================================================
Dividends -- -- -- -- $ 4,074
=========================================================================
EARNINGS PER SHARE:
Income before cumulative effect of
accounting changes $ 0.47 $ 0.43 $ 0.96 $ 0.75
Cumulative effect of accounting changes -- -- -- (2.02)
-------------------------------------------------------------------------
Net income (loss) $ 0.47 $ 0.43 $ 0.96 $ (1.27)
=========================================================================
Weighted average number of common
shares outstanding 7,162,250 7,172,271 7,200,201 5,422,429
=========================================================================
BALANCE SHEET DATA:
Total assets $ 153,034 $ 127,785 $ 131,971 $ 110,939 $ 92,292
Working capital 43,419 51,450 54,794 16,640 (789)
Long-term debt 48,330 39,000 34,250 4,250 4,250
Shareholders' equity 35,194 32,368 28,616 20,088 13,700
<FN>
(1) Historical earnings per share have not been included for fiscal 1993
because it was prior to the Company's public offering.
</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 1997, 1996 and
1995 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,
--------------------
1997 1996 1995
---- ------ -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 91.7 90.6 88.6
-----------------------------------------
Gross profit 8.3 9.4 11.4
Selling, general, and administrative expenses 5.4 6.0 5.9
Income from equity investment 0.0 0.0 0.3
Interest expense 1.1 1.3 1.3
-----------------------------------------
Income before income taxes 1.8 2.1 4.5
Income taxes .6 0.7 1.6
-----------------------------------------
Net income 1.2% 1.4% 2.9%
=========================================
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased $58.9 million, or 25.9% to $286.0 million. The
increase is mainly attributable to the addition to the Company's consolidated
financial statements of sales of $43.5 million at Direct Steel, Inc., which
became a wholly owned subsidiary of the Company in June 1996 and sales of $1.3
million attributable to the operation of the New Hamilton Assets at the
processing center acquired on November 1, 1996. Excluding the effect of these
transactions, the Company's sales increased $14.1 million, or 6.2%. Volume of
tons shipped was up 12.9% accounting for a $29.3 million sales increase, offset
by an aggregate decrease in sales dollars per ton of $15.2 million due to a
decline in average selling price, resulting from a mix shift to lower revenue
products.
Gross profit for fiscal 1997 was $23.9 million, or 8.3% of net sales,
up $2.5 million or 11.6% over fiscal 1996. As a percent of sales, it was down
from 9.4% in the prior year reflecting several factors. Startup costs
associated with the new Ottawa facility decreased the margins by approximately
$1.6 million for fiscal 1997, approximately $700,000 of which affected the
fourth fiscal quarter. Additionally, a fourth quarter charge related to the
cessation of brokerage activities reduced gross profit by approximately
$880,000 for the year. With the consolidation of Direct Steel, a greater
proportion of sales activity was weighted by a lower margin mix of business.
The effect of higher raw material costs, particularly in the fourth fiscal
quarter, also reduced margins.
Selling, general and administrative (SG&A) expenses of $15.7 million
in fiscal 1997 were $2.1 million over the fiscal 1996 level. As a percentage of
sales, expenses decreased to 5.4% from 6.0%. Increased expenses were
attributable principally to incremental activities associated with Direct Steel
and the New Hamilton Asset acquisitions, while the lower percentage level
reflected the comparison of the expense level on the higher sales activity
level. SG&A expenses net of acquisitions increased $633,000, reflecting higher
expenses associated with normal salary increases and the Company's general
growth plan.
Income from equity investment at Direct Steel was $28,000 for fiscal
1997. Subsequent to June 18, 1996, the operations were consolidated with the
Company's and no longer reported as income from equity investment.
12
<PAGE> 13
Interest expense was $3.1 million, an increase of $197,000, but 1.1%
of net sales in fiscal 1997, down from 1.3% of net sales in fiscal 1996. Lower
interest expense through the third quarter of fiscal 1997 reflected lower
borrowing levels associated with decreased inventory levels resulting from
improved inventory management and lower rates. These favorable effects more
than offset the increased interest costs attributable to acquisition activity.
The consolidation of Direct Steel increased interest expense by $592,000 from
fiscal 1996 levels. In the fourth quarter of fiscal 1997, the capitalization of
interest costs associated with the Ottawa expansion project ended and these
financing costs began to be reflected as interest expense, impacting the year
to year comparison by $499,000.
Income taxes for fiscal 1997 were $1.7 million or .6% of net sales
compared to $1.7 million in fiscal 1996 or .7% of net sales. The effective tax
rates computed on income exclusive of income (loss) from equity investment were
down slightly in the current year at 33.8% versus 34.8% in the prior fiscal
year.
As a result of the factors discussed above, net income for fiscal 1997
was $3.4 million or 1.2% of net sales compared to $3.1 million or 1.4% of net
sales in fiscal 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 through the first half of the fiscal year, with a positive
contribution to net income by the second half of the fiscal year.
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% or an $11.4
million decrease in revenue. 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 commission and lower expenses for compensation plans related to the
Company's financial results, somewhat offset by staffing increases and normal
salary cost increases.
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 from 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.
13
<PAGE> 14
Liquidity and Capital Resources
- -------------------------------
The Company requires capital primarily to fund working capital needs,
capital projects, including the acquisition, expansion and improvement of
facilities, machinery and equipment and to acquire complementary steel-related
businesses consistent with the Company's growth strategy to increase its size
and profitability. The Company met its capital requirements in fiscal 1997
through cash flow from operations and from borrowings under credit facilities.
During fiscal 1997, the Company generated cash flow from operating
activities of $7.4 million. Contributing to cash inflows in the current year
were net income, non-cash depreciation and amortization, and a reduction in
inventory levels which resulted from improved inventory management. A decrease
in accounts payable and a modest increase in receivables offset the inventory
reduction.
Cash flows used for investing activities in fiscal 1997 consisted of
$14.3 million of capital spending of which $12.4 million was in connection with
the Ottawa expansion project. In addition, the acquisition of the New Hamilton
Assets for $5.9 million in November 1996, together with the acquisition of the
remaining outstanding stock of Direct Steel, Inc. in June 1996 for $2.6
million, accounted for total cash used for acquisitions of $8.5 million.
Cash flows from financing activities provided $13.9 million for fiscal
1997. Proceeds of $21.8 million from a new term loan in December 1996 were used
to fund the Ottawa expansion project and reduce bank borrowings under the
Company's primary line of credit. Additional term loan proceeds were derived
from a refinancing agreement entered into by Direct Steel. The Company was in
compliance with covenant requirements under all of its credit facilities as of
March 31, 1997.
The Company's various bank lending arrangements provide a maximum
borrowing availability of approximately $92.3 million of which $61.5 was
outstanding at March 31, 1997. The Company renegotiated its lines of credit to
extend their expiration dates and lower interest rates, and entered into a term
loan agreement to fund the Ottawa expansion project. Management expects that
cash generated from operating activities and its borrowing capacity will be
sufficient to meet planned capital expenditures and other cash requirements for
the next twelve months. As the Company pursues its growth strategy of expanding
through core business acquisitions, capital requirements may change and the
Company may from time to time seek additional financing.
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, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
May 8, 1997
15
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS:
Cash $ 898 $ 2,318
Receivables 41,386 37,301
Inventories 50,104 48,320
Prepaid and other current assets 2,090 1,624
------------------------------------------
Total current assets 94,478 89,563
Property, plant, and equipment - at cost 78,233 56,148
Less accumulated depreciation (29,475) (26,811)
------------------------------------------
Property, plant and equipment - net 48,758 29,337
Other assets 9,798 8,885
------------------------------------------
Total assets $ 153,034 $ 127,785
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 13,192 $ 499
Accounts payable 29,322 29,835
Other current liabilities 8,545 7,779
------------------------------------------
Total current liabilities 51,059 38,113
Long-term debt 48,330 39,000
Postretirement and other benefits 18,451 18,304
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,330 25,300
Retained earnings 15,912 12,547
Cumulative translation adjustment (2,649) (2,080)
Less treasury stock, 370,000 shares at cost (3,474) (3,474)
------------------------------------------
Total shareholders' equity 35,194 32,368
------------------------------------------
Total liabilities and shareholders' equity $ 153,034 $ 127,785
==========================================
</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,
1997 1996 1995
(Dollars in thousands except per share amounts)
<S> <C> <C> <C>
Net sales $ 286,024 $ 227,128 $ 235,145
Cost of sales 262,133 205,727 208,408
---------------------------------------------------
Gross profit 23,891 21,401 26,737
Selling, general, and administrative expenses 15,739 13,645 13,773
Income (loss) from equity investment 28 (98) 616
Interest expense 3,115 2,918 2,956
---------------------------------------------------
Income before income taxes 5,065 4,740 10,624
Income taxes 1,700 1,685 3,698
---------------------------------------------------
Net income $ 3,365 $ 3,055 $ 6,926
===================================================
Net income per share $ 0.47 $ 0.43 $ 0.96
===================================================
Weighted average number of
shares outstanding 7,162,250 7,172,271 7,200,201
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
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, 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
Net income --- --- 3,365 --- --- 3,365
Shares deferred in lieu of
pay --- 30 --- --- --- 30
Net adjustment for foreign
currency translation --- --- --- (569) --- (569)
---------------------------------------------------------------------------------------------
Balance, March 31, 1997 $ 75 $ 25,330 $ 15,912 $(2,649) $ (3,474) $ 35,194
=============================================================================================
</TABLE>
See notes to consolidated financial statements
18
<PAGE> 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
YEAR ENDED MARCH 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,365 $ 3,055 $ 6,926
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 3,333 2,511 2,343
(Income) loss from equity investment (28) 98 (616)
Deferred income taxes 703 468 1,172
Deferred directors' fees 30 20 ---
Changes in operating assets and liabilities (43) 3,211 (251)
---------------------------------------------------
Net cash provided by operating activities 7,360 9,363 9,574
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (14,259) (14,220) (2,529)
Acquisitions (8,525) --- ---
Equity investment --- --- (145)
---------------------------------------------------
Net cash used in investing activities (22,784) (14,220) (2,674)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from term loans 23,095 --- ---
Payments of term loans (363) --- ---
Proceeds from other debt 198,475 168,818 167,359
Payments of other debt (207,278) (160,158) (174,051)
Defeasance of industrial revenue bond --- (4,250) ---
Acquisition of treasury stock --- (108) (286)
Net offering proceeds --- --- 2,440
Other equity transaction --- (157) ---
----------------------------------------------------
Net cash provided by (used in) financing activities 13,929 4,145 (4,538)
Net increase (decrease) in cash (1,495) (712) 2,362
Effect of translation adjustment 75 84 (28)
Cash, beginning of period 2,318 2,946 612
----------------------------------------------------
Cash, end of period $ 898 $ 2,318 $ 2,946
====================================================
</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. All significant intercompany
transactions and accounts have been eliminated. Certain reclassifications were
made to prior years' amounts to conform with the current year presentation.
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 the fiscal 1997, 1996, and 1995, approximately 41%, 37%, and
37% of the Company's sales, respectively, and 43%, and 26% of accounts
receivable at March 31, 1997 and 1996, respectively, were with companies in the
automotive industry. The balance of the Company's net sales are approximately
equally divided among the other markets served. During fiscal 1997, 1996, and
1995, the Company's ten largest customers accounted for 31%, 35% and 34% 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 and
Concord Ontario; and Pointe Claire, Quebec, Canada.
Results of Foreign Operations -- Net sales, operating income and net
income, respectively, of the Company's Canadian subsidiary were $155.3 million,
$5.2 million and $2.5 million in fiscal 1997; $97.6 million, $2.0 million and
$634,000 in fiscal 1996; and $95.9 million, $5.4 million and $3.1 million in
fiscal 1995. Identifiable assets of the Canadian subsidiary were $71.2 million
and $53.7 million at March 31, 1997 and 1996, respectively. The remainder of
the Company's consolidated net sales, operating income, net income and assets
are related to operations in the United States.
Both United States and Canadian operations sell to customers located
predominately in the United States and Canada. Of total net sales,
approximately 55% was to customers in the United States, 44% to customers in
Canada, and less than 1% to customers in other countries.
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 Canadian subsidiary is determined on the
first-in, first-out (FIFO) method. Domestic inventories represent approximately
49% and 57% of total consolidated inventories at March 31, 1997 and 1996,
respectively. Under the FIFO method of inventory pricing, domestic inventories
would have been approximately $2,622,000 and $2,218,000 higher at March 31,
1997 and 1996, respectively.
In fiscal 1997 and 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 in fiscal 1997 and 1996 increased income before taxes by $199,000
and $583,000, respectively, and net income by $128,770 and $376,000,
respectively.
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
20
<PAGE> 21
reporting and an accelerated method for income tax reporting purposes.
Estimated useful lives range from five to thirty years.
Interest is capitalized in connection with the construction of
qualified assets. Under this policy, interest of $722,000 and $301,000 was
capitalized in fiscal 1997 and 1996, respectively.
Goodwill -- Goodwill is amortized using the straight-line method over
a period of forty years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected undiscounted
operating profits.
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.
Start-up Costs -- Start-up costs are expensed as incurred.
Stock Based Compensation -- The Company accounts for its stock option
plans using the intrinsic value accounting method, measured as the difference
between the option exercise price and the market value of the stock at the date
of the grant. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans in the accompanying financial statements as all
option exercise prices were equal to market price on the date of grant.
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%.
The Financial Accounting Standards Board recently 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.
Financial Instruments -- The Company has various financial instruments
including cash, receivables, short-term and long-term debt, and miscellaneous
other assets. 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 these estimates.
2. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
-------------------------------------
(In thousands)
<S> <C> <C>
RECEIVABLES:
Customers $ 41,932 $ 31,065
Equity affiliate --- 6,704
Allowance for doubtful accounts (546) (468)
-------------------------------------
$ 41,386 $ 37,301
=====================================
INVENTORIES:
Raw materials $ 28,209 $ 24,576
Work in process 15,048 14,784
Finished goods 6,847 8,960
-------------------------------------
$ 50,104 $ 48,320
=====================================
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C>
PREPAID AND OTHER CURRENT ASSETS:
Prepaid $ 603 $ 539
Deferred income taxes 1,487 1,085
------------------------------------
$ 2,090 $1,624
====================================
PROPERTY, PLANT, AND EQUIPMENT:
Land $ 2,227 $ 1,548
Buildings 17,829 9,023
Machinery and equipment 56,481 32,663
Construction in process 1,696 12,914
------------------------------------
$ 78,233 $ 56,148
====================================
OTHER ASSETS:
Deferred income taxes $ 3,629 $ 4,734
Equity investment --- 1,465
Goodwill 2,566 752
Other 3,603 1,934
------------------------------------
$ 9,798 $ 8,885
====================================
OTHER CURRENT LIABILITIES:
Payroll and related employee benefits $ 5,342 $ 4,625
Other 3,203 3,154
------------------------------------
$ 8,545 $ 7,779
====================================
</TABLE>
3. ACQUISITIONS
Effective June 18, 1996, Cold Metal Products, Ltd. acquired the
remaining outstanding shares of its 50% equity affiliate, Direct Steel, Inc.,
("Direct Steel"), for approximately $2.6 million. Direct Steel operates a steel
service center located in Concord, Ontario, Canada. The acquisition has been
accounted for as a purchase and, accordingly, assets and liabilities were
recorded at estimated fair values. The allocation of purchase price resulted in
goodwill of approximately $1.9 million, which is being amortized over 40 years.
On November 1, 1996, the Cold Metal Products, Ltd. acquired real
property and steel processing equipment at Hamilton, Ontario (the "New Hamilton
Assets") for approximately $5.9 million including acquisition costs. The
purchase was completed utilizing the Company's existing banking facilities and
short-term seller financing. The transaction was accounted for as a purchase
and assets and liabilities were recorded at estimated fair values.
The following unaudited pro forma information has been derived from
the Company's income statement for fiscal 1997 and 1996 and adjusts such
information to give effect to the acquisitions as if the acquisitions had
occurred on April 1, 1995. The pro forma information is presented for
informational purposes only and does not purport to be indicative of the
results of operations that actually would have been achieved if the
acquisitions had occurred on April 1, 1995, or which may be achieved in the
future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
------------------------------------------
(In thousands except per share amounts)
<S> <C> <C>
Net sales $ 301,136 $ 276,949
Net income 3,453 2,912
Earnings per share 0.48 0.41
</TABLE>
22
<PAGE> 23
4. DEBT
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
MARCH 31, MARCH 31,
1997 1996 1997 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Committed facility $ 1,115 $ 499 $ 27,000 $ 39,000
Discretionary facility 10,621 --- --- ---
Term notes 1,456 --- 21,330 ---
------------------------------------------------------------------
Total $ 13,192 $ 499 $ 48,330 $ 39,000
==================================================================
</TABLE>
The Company has a committed credit facility which provides
availability based on a percentage of accounts receivable, inventory, and an
amortizing term loan. In May 1997, the Company amended its credit facility
agreement to extend the life of the agreement and provide total borrowing
availability of $55 million. The facility provides for borrowing at Libor rates
plus one-half percent. The agreement extends through October 2, 2000, and
contains certain financial and other covenants, including restrictions on
payment of dividends, with which the Company was in compliance at March 31,
1997. Under the committed facility, the Company has determined that balances in
excess of $27 million 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 both
March 31, 1997 and 1996 was 7.4%. The facility is collateralized by accounts
receivable, inventory, common stock of the Canadian subsidiary, and property,
plant and equipment. As of March 31, 1997, the credit line supported letters of
credit in the amount of $507,000.
In November 1996, the discretionary financing agreement between Direct
Steel, Inc. and its lender was amended to provide for a revolving line of
credit of up to approximately $14.5 million, based on accounts receivable and
inventory formulas, with interest at Canadian prime plus 3/4 of 1%, and a term
loan of approximately $1.3 million amortized over three years, subject to
certain termination rights of the lender, with interest at Canadian prime plus
1%. Indebtedness under the agreement is secured by the accounts receivable,
inventory and fixed assets of Direct Steel, Inc. and contains certain financial
and other covenants with which Direct Steel, Inc. was in compliance at March
31, 1997. At March 31, 1997, revolving credit permitted under applicable
formulas was $11.6 million, of which $10.6 million was outstanding, and the
balance of the term note was $1.3 million. Aggregate maturities of the term
loan over the next three fiscal years are as follows: 1998 - $193,000; 1999 -
$193,000; and 2000 - $900,000. The weighted average interest rate at March 31,
1997 was 5.5%.
In December 1996, the Company borrowed $21.8 million under an eight
and one-half year term loan at a fixed rate of 8.8% secured by the fixed assets
of its expanded Ottawa, Ohio facility. Proceeds of the loan were used to
pay-down debt under the Company's primary lending facility. The term loan
agreement contains certain financial and other covenants with which the Company
was in compliance at March 31, 1997. At March 31, 1997, approximately $21.5
million of the term loan was outstanding. Aggregate maturities of the term loan
for the next five fiscal years are as follows: 1998 - $1.3 million; 1999 - $1.4
million; 2000 - $1.5 million; 2001 - $1.6 million; and 2002 - $1.8 million.
23
<PAGE> 24
5. INCOME TAXES
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 liabilities and assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
U.S.: 1997 1996
------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Postretirement and postemployment benefit obligations $ 5,994 $ 6,117
Inventory basis differences 44 235
Reserves not currently deductible 877 751
Tax operating loss carrryforwards (expires fiscal 2012) 622 ---
Tax credit carryforwards (no expiration dates) 256 458
---------------------------------
7,793 7,561
Valuation allowance (313) (388)
---------------------------------
7,480 7,173
Deferred tax liabilities-property basis differences (1,838) (1,007)
---------------------------------
Total U.S. 5,642 6,166
CANADA:
Deferred tax assets:
Postretirement and postemployment benefit obligations 112 109
Reserves not currently deductible 26 28
---------------------------------
138 137
Deferred tax liabilities:
Property basis differences (448) (344)
Pension asset (216) (140)
---------------------------------
(664) (484)
---------------------------------
Total Canada (526) (347)
---------------------------------
Net deferred tax asset $ 5,116 $ 5,819
=================================
</TABLE>
The provision for income taxes includes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT TAXES:
U.S. federal $ (182) $ 825 $ 1,091
Canadian federal and provincial 1,128 310 1,235
State and local 51 82 200
----------------------------------------------------
997 1,217 2,526
DEFERRED TAXES:
U.S. 620 457 963
Canadian 83 11 209
---------------------------------------------------
703 468 1,172
---------------------------------------------------
Total $ 1,700 $ 1,685 $ 3,698
===================================================
</TABLE>
24
<PAGE> 25
Reconciliations of the U.S. federal statutory tax rate to the effective tax
rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
-----------------------------------------
<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 1.0 (0.8) 0.9
State taxes 0.7 2.4 1.9
Reduction in valuation allowance (1.5) (1.3) (1.7)
Equity (income) loss (0.2) 0.8 (2.0)
Other (0.4) 0.4 1.7
-----------------------------------------
Effective tax rate 33.6% 35.5% 34.8%
=========================================
</TABLE>
6. 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,
1997 1996 1995
-----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 686 $ 597 $ 668
Interest cost 1,489 1,261 1,136
Actual return on assets (2,021) (3,289) (1,080)
Net amortization 628 2,154 65
Cost of special termination benefits 293 --- ---
---------- ---------- -----------
Domestic pension expense $ 1,075 $ 723 $ 789
========== ========== ===========
</TABLE>
Accrued domestic pension liability in the balance sheets is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
--------------------------
(In thousands)
<S> <C> <C>
Vested accumulated benefit obligation $ 14,344 $ 13,324
Nonvested accumulated benefits 2,247 1,246
--------------------------
Accumulated benefit obligation 16,591 14,570
Effect of projected salary increases 2,653 2,821
--------------------------
Projected benefit obligation 19,244 17,391
Plan assets at market value 20,035 17,717
--------------------------
Plan assets in excess of projected benefit obligation (791) (326)
Unrecognized net obligation (1,508) (717)
Unrecognized net gain 2,213 1,008
Additional liability 100 75
--------------------------
Net domestic pension liability $ 14 $ 40
==========================
</TABLE>
25
<PAGE> 26
Assumptions used in developing the domestic pension information were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Discount rate for obligation 8.25% 8.00% 8.25%
Discount rate for expense 8.00 8.25 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 employees are eligible to participate in savings plans, which
include a 401(k) feature. The Company matches employee contributions 50% to
100%, in ranges of 3% to 6% of basic earnings. Employees vest in matching
contributions after attaining three years of service. Company matching
contributions were $556,000, $430,000 and $390,000 for fiscal 1997, 1996 and
1995, 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,
1997 1996 1995
--------------------------------------------
(In thousands)
DEFINED BENEFIT PLAN:
<S> <C> <C> <C>
Service cost $ 132 $ 110 $ 107
Interest cost 225 182 158
Actual return on assets (179) (144) (116)
Net amortization 74 57 54
--------------------------------------------
252 205 203
Defined contribution plan 255 234 229
--------------------------------------------
Canadian pension expense $ 507 $ 439 $ 432
============================================
</TABLE>
Accrued Canadian pension liability in the balance sheets is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
----------------------------
(In thousands)
DEFINED BENEFIT PLAN:
<S> <C> <C>
Projected benefit obligation-fully vested $ 3,712 $ 2,559
Plan assets at market value 2,841 2,050
----------------------------
Unfunded projected benefit obligation 871 509
Unrecognized net obligation (1,499) (844)
Additional liability (included in
postretirement and other benefits) 1,499 844
----------------------------
Net Canadian pension liability $ 871 $ 509
============================
</TABLE>
The Canadian pension information was developed using a discount rate
and a long term rate of investment return of 8% in fiscal 1997 and 1996.
26
<PAGE> 27
7. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSION
Net postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 141 $ 163 $ 194
Interest cost 793 864 851
Amortization of negative plan amendment (718) (645) (507)
------------------------------
Total $ 216 $ 382 $ 538
==============================
</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,
1997 1996
---------------------
(In thousands)
<S> <C> <C>
Retirees $ 5,161 $ 5,539
Fully eligible active plan participants 2,463 2,308
Other active plan participants 2,453 3,340
Unrecognized net gain 2,650 2,191
Unrecognized prior service cost 3,164 3,042
---------------------
Total postretirement benefits 15,891 16,420
Postemployment benefits 100 100
---------------------
Total postretirement and postemployment benefits $ 15,991 $ 16,520
=====================
</TABLE>
In fiscal 1994, 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. These
amounts have been deferred and are being recognized as a reduction of the net
postretirement benefit cost over eight years.
The assumed healthcare cost trend rate used in measuring the
accumulated postretirement benefit obligation as of March 31, 1997 was 10.5%
for pre-age 65 payments (8.5% 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 post-age 65 payments, after which it remains constant. A one
percentage-point increase in assumed healthcare cost trend rate for each year
would increase the accumulated postretirement benefit obligation and net
postretirement benefit cost by approximately 2% and 12%, respectively. The
assumed discount rate as of March 31, 1997 and 1996, used in determining the
accumulated postretirement benefit obligation was 8.25% and 8.00%,
respectively.
8. 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, $116,000, $141,000 and $256,000 in
fiscal 1997, 1996, and 1995, 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. In 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has not changed its method of accounting for stock-based compensation.
Pro forma compensation costs for options granted in fiscal
27
<PAGE> 28
1997 and 1996 determined under the requirements of SFAS No. 123 resulted in an
immaterial reduction of net income and earnings per share for each year.
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,
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 375,000 210,000 210,000
Granted 22,500 165,000 --
-----------------------------------------------
Outstanding at end of year (prices ranging from $5.75 to $10.00 per share) 397,500 375,000 210,000
===============================================
Exercisable at end of year 160,000 50,000 17,500
Available for grant at end of year 317,850 340,350 146,250
</TABLE>
The Company's Non-Employee Directors' Incentive Plan, which was
adopted on March 3, 1994 and amended by the shareholders on July 20, 1996,
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 5,581 shares in fiscal 1997 and 2,783 shares in fiscal 1996.
Details of stock options under the plan are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 65,000 30,000 30,000
Granted 10,000 35,000 --
--------------------------------------
Outstanding at end of year (prices ranging from $5.75 to $10.00 per share) 75,000 65,000 30,000
======================================
Exercisable at end of year 30,000 -- --
Available for grant at end of year 25,000 35,000 70000
</TABLE>
28
<PAGE> 29
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
CHANGES IN OPERATING ASSETS AND LIABILITIES (In thousands)
(Increase) decrease in assets:
Receivables $ (1,325) $ 5,371 $ (10,083)
Inventories 5,110 11,356 (8,966)
Prepaid expenses and other assets (261) (287) 2
Increase (decrease) in liabilities:
Accounts payable (3,244) (11,603) 19,396
Other liabilities (323) (1,626) (600)
-----------------------------------------
$ (43) $ 3,211 $ (251)
=========================================
Interest paid $ 3,904 $ 3,811 $ 3,316
=========================================
Income taxes paid $ 724 $ 2,097 $ 1,798
=========================================
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
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, 1997
are: $696,000 in 1998, $551,000 in 1999, $458,000 in 2000, $429,000 in 2001,
and $318,000 thereafter. Total rental expense for operating leases was
$914,000, $855,000, and $560,000 in fiscal 1997, 1996, and 1995, respectively.
Certain claims, suits, and complaints arising in the ordinary course
of business have been filed or are pending against the Company. In the opinion
of management, none of such claims, suits or complaints is material and in the
aggregate they will not have a material adverse effect on the Company's results
of operations or financial condition.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
--------------------------------------------------------------------------------------
(In thousands, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 62,405 $ 71,646 $ 73,162 $ 78,811 $ 286,024
Gross profit 6,438 6,308 5,248 5,897 23,891
Net income $ 1,405 $ 1,011 $ 437 $ 512 $ 3,365
======================================================================================
Net income per share $ 0.20 $ 0.14 $ 0.06 $ 0.07 $ 0.47
======================================================================================
<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
======================================================================================
Net income per share $ 0.18 $ 0.03 $ 0.03 $ 0.19 $ 0.43
======================================================================================
</TABLE>
29
<PAGE> 30
SCHEDULE II
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
Balance at Charged to Other Deductions Balance at
---------- ---------- ----- ---------- ----------
April 1, 1994 Costs and March 31, 1995
------------- --------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 474 $304 -- $ (99)(1) $ 679
Inventory aging reserves (2) $1,083 $521 -- -- $1,604
<CAPTION>
Balance at Charged to Other Deductions Balance at
---------- ---------- ----- ---------- ----------
April 1, 1995 Costs and March 31, 1996
------------- --------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 679 $537 -- $ (748)(1) $ 468
Inventory aging reserves (2) $1,604 -- -- $ (110)(3) $1,494
<CAPTION>
Balance at Charged to Other Deductions Balance at
---------- ---------- ----- ---------- ----------
April 1, 1996 Costs and March 31, 1997
------------- --------- --------------
Description Expenses
----------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 468 -- $78(4) -- $ 546
Inventory aging reserves (2) $1,494 -- -- $ (58)(3) $1,436
<FN>
(1) Deductions relate to write-off of specific accounts.
(2) To adjust specific inventory items to lower of cost or market value. Reserve is reflected in appropriate inventory categories.
(3) Adjustments against the account for purposes provided.
(4) Reserves related to acquired businesses.
</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, 1997 and 1996
Consolidated Statement of Operations for the each of the three years
in the period ended March 31, 1997. Consolidated Statement of
Shareholders' Equity for each of the three years in the period ended
March 31, 1997. Notes to Consolidated Financial Statement for each of
the three years in the period ended March 31, 1997.
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.
30
<PAGE> 32
3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. and Description Location
- --------------------------- --------
<S> <C> <C>
(3)(i)(a) Restated Certificate of Incorporation Previously filed as Exhibit 3.1 to
of Registrant 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)
(3)(i)(b) Amendment to the Restated Certificate Previously filed as Exhibit 3.3 to
of Incorporation of Registrant 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)
(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 Previously filed as Exhibit E-1 to
Common Stock the Company's 1995 Annual Report on
Form 10-K filed on June 29, 1995
(10)(a) Seconded Amended and Restated Credit Previously filed as Exhibit E-1 to
Facility and Security Agreement the Company's Report on Form 10-Q
between The Bank of New York and the for the fiscal quarter ended
Company, dated as of August 1, 1994, September 30, 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 Previously filed as Exhibit E-1 to
Restated Credit and Security Agreement the Company's Report on Form 10Q
between The Bank of New York and the for the fiscal quarter ended June
Company, dated as of June 30, 1995, 30, 1995.
which amended the Second Amended and
Restated Credit and Security
Agreement.
(10)(c) Cold Metal Canadian Subsidiary Previously filed as Exhibit 3.1 to
Guaranty Agreement, dated as of July the Company's Registration
31, 1987, between Irving Trust Company Statement on Form S-1, which became
(predecessor to The Bank of New York) effective on March 21, 1994 at 4:00
and Registrant's Canadian Subsidiary, p.m. (Commission File No. 33-74986)
Cold Metal Products Company, Ltd.
(10)(d) Supply Agreement, dated February 1987, Previously filed as Exhibit 10.3 to
as amended June 20, 1989, December 31, the Company's Registration
1992 and December 31, 1993, subject to Statement on Form S-1, which became
request for confidential treatment effective on March 21, 1994 at 4:00
p.m. (Commission File No. 33-74986)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
(10)(e) Tax Sharing and Indemnification Previously filed as Exhibit 10.5 to
Agreement, dated January 31, 1994, the Company's Registration
among Registrant and its affiliates Statement on Form S-1, which became
effective on March 21, 1994 at 4:00
p.m. (Commission File No. 33-74986)
(10)(f) Special Incentive Compensation Plan of Previously filed as Exhibit 10.10
Registrant, effective December 1, 1993 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)
(10)(g) Special Incentive Compensation Plan Previously filed as Exhibit 10.11
Trust Agreement, dated January 28, to the Company's Registration
1994 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 Previously filed as Exhibit A to
Program the Company's 1995 Proxy Statement
filed on June 22, 1995.
(10)(i) Share Purchase and Loan Agreement, Previously filed as Exhibit 10.13
dated December 30, 1993, among Cold to the Company's Registration
Metal Products Company, Ltd., Lance Statement on Form S-1, which became
and Mara Dunlap, 955404 Ontario, Inc. effective on March 21, 1994 at 4:00
and Direct Steel, Inc. p.m. (Commission File No. 33-74986)
(10)(j) Share Purchase and Loan Amendment. Previously filed as Exhibit E-5 to
Agreement dated March 23, 1994 among the Company's 1994 Annual Report on
Cold Metal Products Company, Ltd., Form 10-K filed on June 29, 1994
Lance and Mara Dunlap, 955404 Ontario
Inc. and Direct Steel, Inc.
(10)(k) Shareholders Agreement, dated March Previously filed as Exhibit E-6 to
23, 1994, Cold Metal Products Company, the Company's 1994 Annual Report on
Ltd. Lance and Mara Dunlap, 955404 Form 10-K filed on June 29, 1994
Ontario Inc. and Direct Steel, Inc.
(10)(l) Supply Agreement, dated March 23, Previously filed as Exhibit E-7 to
1994, between Cold Metal Products the Company's 1994 Annual Report on
Company, Ltd. and Direct Steel, Inc. Form 10-K filed on June 29, 1994
(10)(m) Agreement between Registrant and The Previously filed as Exhibit 10.20
Stanley Works, dated February 17, 1994 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)
(10)(n) Amended and Restated Non-Employee Previously filed as Exhibit B to
Directors' Incentive Plan the Company's 1995 Proxy Statement
filed on June 22, 1995.
(10)(o) Master Equipment Lease Agreement, Previously filed as Exhibit E-2 to
Equipment Schedule No. 01 and related the Company's 1995 Annual Report on
addenda between Cold Metal Products, Form 10-K filed on June 29, 1995.
Inc. and KeyCorp Leasing Ltd.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
(10)(p) Russell Metal, Inc. and Cold Metal Previously filed as an exhibit to
Products Company, Ltd. Asset Purchase the Company's Report on Form 10-Q
Agreement dated 10/21/96. for the fiscal quarter ended
December 31, 1996.
(10)(q) Credit Agreement between Direct Steel, Previously filed as an exhibit to
Inc. and BNY Financial the Company's Report on Form 10-Q
Corporation-Canada. for the fiscal quarter ended
December 31, 1996.
(10)(r) Loan Agreement between Cold Metal Previously filed as an exhibit to
Products, Inc. and The CIT the Company's Report on Form 10-Q
Group/Equipment Financing, Inc. for the fiscal quarter ended
December 31, 1996.
(10)(s) Amendment No.2 to Second Amended and Previously filed as an exhibit to
Restated Credit and Security Agreement the Company's Report on Form 10-Q
between Cold Metal Products, Inc. and for the fiscal quarter ended
The Bank of New York. December 31, 1996.
(10)(t) Amendment No. 3 to Second Amended and Exhibit (10)(t) hereto.
Restated Credit and Security Agreement
between Cold Metal Products, Inc. and
The Bank of New York.
(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.
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report of From 8-K on July 3, 1996, and Form
8K-A amendment 1 dated August 27, 1996, and amendment 2 dated September 27,
1996 to report its purchase of the remaining outstanding shares of stock of
Direct Steel, Inc.
(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)(n) are incorporated herein by reference to the Company's 1995 Proxy
Statement filed on June 22, 1995. Exhibits (10)(p)-(s) are incorporated herein
by reference to the
34
<PAGE> 35
Company's Report on Form 10-Q (Commissions file No. 1-12870) for the fiscal
quarter ended December 31, 1996. The remaining exhibits are contained herein.
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 23, 1997 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 23, 1997, by the following persons on
behalf of the Registrant and in the capacities indicated.
/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
James R. Harpster Officer)
/s/ Heidi A. Nauleau Director
- -------------------------------
Heidi A. Nauleau
/s/ Gordon A. Wilber Director
- -------------------------------
Gordon A. Wilber
/s/ Wilbur J. Berner Director
- -------------------------------
Wilbur J. Berner
/s/ Claude F. Kronk 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
John E. Sloe Officer)
36
<PAGE> 1
AMENDMENT NO. 3
TO
SECOND AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 ("Amendment No. 3") is entered into as of
May 13, 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 by
Amendment No. 1 dated as of June 30, 1995 and Amendment No. 2 dated as of
December 31, 1996 (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.
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:
(a) the following defined terms are hereby added in their
appropriate alphabetical order:
"AMENDMENT NO. 3" shall mean Amendment No. 3 to Second Amended
and Restated Credit and Security Agreement dated as of May 13, 1997.
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<PAGE> 2
"AVERAGE MONTHLY LIBOR RATE" shall mean the rate per annum for
the one month LIBOR rate as published in THE WALL STREET JOURNAL, averaged
monthly on a calendar month basis.
"BORROWING BASE CERTIFICATE" means a certificate duly executed
by an officer of Borrower appropriately completed and in substantially the form
of Exhibit 1.2(c).
"HAMILTON MORTGAGE" shall mean the Charge/Mortgage of Land
executed by Guarantor in favor of Bank with respect to the Hamilton Property
securing the original principal amount of $55,000,000 together with all
extensions, renewals, amendments, supplements, modifications, substitutions and
replacements thereto and thereof.
"HAMILTON PROPERTY" shall mean all of Guarantor's right, title
and interest in and to its flat rolled processing facility at 475 Kenora Avenue,
Hamilton, Ontario.
"LIBOR RATE LOAN" shall mean an Advance at any time that it
bears interest based on the Average Monthly LIBOR Rate.
(b) the following defined terms are hereby amended in their
entirety to provide as follows:
"MAXIMUM LOAN AMOUNT" shall mean $55,000,000.
"MAXIMUM REVOLVING ADVANCE AMOUNT" shall mean $55,000,000.
"REVOLVING INTEREST RATE" shall mean an interest rate per
annum equal to (a) the Alternate Base Rate with respect to Domestic Rate Loans,
(b) the sum of the Average Monthly LIBOR Rate plus one half of one percent
(1/2%) with respect to LIBOR Rate Loans.
"TERM" shall mean the Closing Date through October 2, 2000, as
same may be extended in accordance with the provisions of Section 13.1.
(c) the defined terms "Eurodollar Rate" and "Eurodollar Rate
Loan" are hereby deleted and each reference in the Loan Agreement to "Eurodollar
Rate" and "Eurodollar Rate Loan" is hereby replaced with "Average Monthly LIBOR
Rate" and "LIBOR Rate Loan," respectively.
2.2. Section 2.1(a) is hereby amended in its entirety to read
as follows:
"2.1. (a) REVOLVING ADVANCES. Subject to the terms
and conditions set forth in this Agreement, Bank
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<PAGE> 3
will make Revolving Advances to Borrower in aggregate amounts
outstanding at any time equal to the lesser of (x) the Maximum
Revolving Advance Amount less the aggregate amount of
outstanding Letters of Credit and Acceptances or (y) an amount
equal to the sum of:
(i) up to 85%, subject to the
provisions of Section 2.1(b) hereof ("Receivables Advance
Rate"), of Eligible Receivables (calculated after converting
the Receivables of Guarantor from Canadian Dollars to U.S.
Dollars), PLUS
(ii) up to 60%, subject to the
provisions of Section 2.1(b) hereof ("Inventory Advance
Rate"), of the value of the Eligible Inventory (the
Receivables Advance Rate and the Inventory Advance Rate shall
be referred to collectively, as the "Advance Rates");
PROVIDED, however, the maximum amount of outstanding Advances
against Eligible Inventory shall not exceed $33,000,000 at any
one time, PLUS
(iii) but only until the release of
Bank's Liens in accordance with Section 4.21 of this
Agreement, $7,900,000, which amount shall be reduced by
$100,000 on the first day of each month commencing June 1,
1997 until October 2, 2000 when the entire unpaid balance of
such amount shall be due and payable, MINUS
(iv) the aggregate amount of
outstanding Letters of Credit and Acceptances, MINUS
(v) such reserves as Bank may
reasonably deem proper and necessary from time to time.
The amount derived from (x) the sum of Sections
2.1(a)(y)(i) (ii) and (iii) minus (y) Section 2.1(a)(y)(v) at
any time and from time to time shall be referred to as the
"Formula Amount"."
2.3. Section 2.2 is hereby amended by (x) deleting the "(a)"
before the first paragraph of that Section, (y) deleting clauses (b) through (g)
of that Section, and (z) inserting the following after the first sentence
thereof:
"Notwithstanding the foregoing, Bank will not make any Advance
pursuant to any notice unless Bank has also received the most
recent Borrowing Base Certificate required under Section 9.2
hereof." Each request for a Revolving Advance shall be deemed
to be a request for a LIBOR Rate Loan unless a Domestic Rate
Loan is specifically requested. Whenever, subsequent to the
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<PAGE> 4
date of this Agreement, the Alternate Base Rate or Average
Monthly LIBOR Rate is increased or decreased, the applicable
Revolving Interest Rate shall be similarly changed without
notice or demand by an amount equal to the amount of such
change in the Alternate Base Rate or Average Monthly LIBOR
Rate, as applicable.
2.4. Section 3.1 is hereby amended in its entirety to read as
follows:
"Interest on Advances shall be payable in arrears on the last
day of each month. Interest charges shall be computed on the
actual principal amount of Revolving Advances outstanding at
the end of each day at a rate per annum equal to the Revolving
Interest Rate for Domestic Rate Loans and the Average Monthly
LIBOR Rate with respect to LIBOR Rate Loans. Commencing thirty
(30) days after the due date for any financial statement
required hereunder which financial statement indicates the
occurrence of an Event of Default, and during the continuation
of such Event of Default, the Obligations shall bear interest
at the applicable Revolving Interest Rate plus two (2%)
percent per annum (the "Default Rate")."
2.5. The first sentence of the first paragraph of Section 3.2
is hereby amended in its entirety to read as follows:
"Borrower shall pay Bank (i) (A) for issuing or
causing the issuance of a standby Letter of Credit, a fee
computed at a rate per annum of one and one half percent
(1.5%) on the outstanding amount thereof from time to time,
(B) for issuing or causing the issuance of a Letter of Credit
that is not a standby Letter of Credit, a fee equal to one
percent (1%) per annum of the original and each increase in
the face amount thereof computed on the undisbursed amount
thereof from time to time, on the actual number of days
elapsed (the fees set forth in (A) and (B) referred to as
"Letter of Credit Fees"), and (C) for the acceptance of a
draft (whether or not discounted by Bank), a fee ("Acceptance
Fee") consisting of: (1) the then prevailing discount rate
applicable to Acceptances of a like tenor and amount and (2)
one percent (1%) per annum of the face amount of the accepted
draft, and (ii) Bank's other customary charges payable in
connection with Letters of Credit or Acceptances, as the case
may be, as in effect from time to time (which charges shall be
furnished to Borrower by Bank upon request)."
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<PAGE> 5
2.6. Section 3.3 is hereby amended by adding "(a)" before
"Amendment Fee" and adding a clause (b) as follows:
(b) EXTENSION FEE. Upon the execution of
Amendment No. 3, Borrower shall pay Agent an extension fee of $10,000.00.
2.7. Section 7.6 is hereby amended by deleting
"$5,000,000" and inserting "$12,000,000" in its place instead.
2.8. Section 9.2 is hereby amended by inserting the
following sentences after the first sentence thereof:
"Further, Borrower shall deliver to Bank on or before the
twentieth (20th) day of each month a Borrowing Base
Certificate as of the last day of the prior month. The
Borrowing Base Certificate shall replace the daily reporting
requirements in existence prior to the effective date of
Amendment No. 3, subject to the right of Bank to require such
daily reporting requirements following the occurrence and
during the continuance of an Event of Default."
2.9. Section 13.1 is hereby amended in its entirety to
read as follows:
"13.1 TERM. This Agreement, which shall inure to the benefit
of and shall be binding upon the respective successors and
permitted assigns of each of Borrower and Bank, shall become
effective on the date hereof and shall continue in full force
and effect until the last day of the Term unless sooner
terminated as herein provided. The Term shall be automatically
extended for successive periods of one (1) year each unless
terminated by either party at the end of such initial Term or
any successive Term by giving the other party sixty (60) days
prior written notice. Borrower may terminate this Agreement at
any time upon ten (10) days' prior written notice
("Termination Date") upon payment in full of the Obligations."
2.10. Schedule 1 is hereby deleted in its entirety.
2.11. Schedule 1.2(a) is hereby amended in its entirety
as set forth on Schedule 1.2(a) attached to Amendment No. 3.
3. CONDITIONS OF EFFECTIVENESS. This Amendment No. 3 shall
become effective when Bank shall have received:
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<PAGE> 6
(i) four (4) copies of this Amendment No. 3 executed by
Borrower and consented to and agreed to by Cold Metal Products Company, Ltd. as
guarantor;
(ii) $10,000 in satisfaction of the extension fee;
(iii) consent of Participants who have purchased participating
interests equal to 54.54% of the credit facility;
(iv) certified resolutions from the Board of Directors of
Borrower authorizing the execution, delivery and performance of this Amendment
No. 3;
(v) an opinion of counsel in form and substance satisfactory
to Bank and its counsel regarding the authorization, enforceability and validity
of this Amendment No. 3;
(vi) a duly executed Hamilton Mortgage in form and substance
satisfactory to Bank;
(vii) certified resolutions from the Board of Directors of
Guarantor authorizing the execution, delivery and performance of the Hamilton
Mortgage; and
(viii) receipt of the documentation set forth on the May 9,
1997 Closing Agenda prepared by Fasken Campbell Godfrey (except that the title
insurance may be obtained subsequent to the receipt of the other items on such
Closing Agenda pursuant to an undertaking in form and substance satisfactory to
Fasken Campbell Godfrey).
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants as follows:
(a) This Amendment No. 3 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. 3.
(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
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<PAGE> 7
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.
(c) The execution, delivery and effectiveness of this
Amendment No. 3 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. 3 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. 3 are
included herein for convenience of reference only and shall not constitute a
part of this Amendment No. 3 for any other purpose.
8. COUNTERPARTS. This Amendment No. 3 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.
9. SUBSEQUENT AMENDMENT. At such time as (i) Bank shall have
received fully paid mortgagee title insurance policies (or binding commitments
to issue title insurance policies, marked to Bank's satisfaction to evidence the
form of such policies to be delivered with respect to the Hamilton Mortgage), in
standard ALTA form, issued by a title insurance company satisfactory to Bank,
each in an amount equal to not less than the fair market value of the Hamilton
Property subject to the Hamilton Mortgage, insuring the Hamilton Mortgage to
create a valid Lien on the Hamilton Property with no exceptions which Bank shall
not have approved in writing and no survey exceptions, (ii) the Hamilton
Mortgage shall have been duly registered, and (iii) Bank and Borrower have
reached a mutually satisfactory resolution of the environmental issues raised by
the environmental studies and reports provided to Bank in connection with the
execution of this Amendment No. 3, Section 2.1(a)(y)(iii) shall be amended to
reflect a mutually agreeable dollar amount in lieu of the "$7,900,000" amount
presently set forth, which amended amount
-7-
<PAGE> 8
shall be "$18,000,000" subject to the resolution of the environmental issues
referred to in clause (ii) above.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Amendment No. 3 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 and 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. 3 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. 3 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/ James R. Harpster
--------------------------
Name: James R. Harpster
Title: Chairman
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<PAGE> 10
EXHIBIT 1.2(c)
BORROWING BASE CERTIFICATE FOR COLD METAL PRODUCTS, INC.
--------------------------------------------------------
This Certificate is delivered pursuant to Section 9.2 of the
Second Amended and Restated Revolving Credit and Security Agreement dated as of
August 1, 1994 (as amended, supplemented, amended and restated or otherwise
modified from time to time, the "Loan Agreement"), by and between Cold Metal
Products, Inc. (the "Borrower") and The Bank of New York (the "Bank"). Unless
otherwise defined herein, capitalized terms used herein have the meanings
provided in the Loan Agreement.
The undersigned hereby certifies that he is the Chief
Financial Officer of Borrower and that, as such, he is authorized to execute
this Certificate on behalf of Borrower and further certifies that:
For purposes of this Certificate, the term "Borrowing Base
Calculation Date" shall mean _______________ __, 199_.
(a) The net face amount of all Eligible Receivables as
reflected on the books of Borrower as at the Borrowing Base Calculation Date,
net of all credits, discounts, reserves and allowances applicable to such
Eligible Receivables is $_____________.
(b) The product of (a) the Receivables Advance Rate applicable
to Borrower times (b) the amount designated in Item 1 above is: $_____________.
(c) The value (calculated at the lower of cost or market
value, determined on a first-in-first-out basis), of all Eligible Inventory as
reflected on the books of Borrower as at the Borrowing Base Calculation Date
applicable to such Eligible Inventory is: $________________.
(d) The product of (i) the Inventory Advance Rate applicable
to Borrower times (ii) the amount designated in Item 3 above is: $____________.
(e) The outstanding amount under Section 2.1(a)(y)(iii) as of
the Borrowing Base Calculation Date is: $_____________.
(f) The aggregate face amount of outstanding Letters of Credit
as of the Borrowing Base Calculation Date is: $_____________.
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<PAGE> 11
(g) As of the Borrowing Base Calculation Date, the Formula
Amount (without giving effect to any reserves established by you under Section
2.1(a)(v)) which is the sum of the amount designated in Item b above PLUS the
amount designated in Item d PLUS the amount designated in Item e above is
$_______.
(h) As of the Borrowing Base Calculation Date, the aggregate
outstanding principal amount of all Advances to Borrower on such date does not
exceed the lesser of (x) $55,000,000 less the aggregate amount of outstanding
Letters of Credit and Acceptances, or (y) the amount designated in Item g above.
(i) As of the Borrowing Base Calculation Date the aggregate
outstanding principal amount of all Advances based upon Eligible Inventory of
Borrowers does not exceed $33,000,000.
(j) The information contained in this Certificate (including
the information upon which the foregoing calculations are based) is true and
complete in all material respects.
(k) Except as disclosed in this Certificate or in a prior
certificate issued pursuant to Section 9.2 of the Loan Agreement, there has been
no material adverse change in the Eligible Receivables or Eligible Inventory of
Borrower since the most recent certificate issued pursuant to Section 9.2 of the
Loan Agreement.
(l) The calculations contained herein are determined in
accordance with GAAP consistently applied. All of the foregoing information
regarding Eligible Receivables and Eligible Inventory is true and correct on the
date hereof and relates solely to Eligible Receivables and Eligible Inventory
within the meaning given such terms in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this ___ day of _____, 199_.
COLD METAL PRODUCTS, INC.
By:
----------------------------
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<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-82818 and No. 33-82992 of Cold Metal Products, Inc. on Form S-8 of our report
dated may 8, 1997, appearing in this Annual Report on Form 10-K of Cold Metal
Products, Inc. for the year ended March 31, 1997.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
June 24, 1997
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<PERIOD-START> APR-01-1996
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<RECEIVABLES> 41,932
<ALLOWANCES> (546)
<INVENTORY> 50,104
<CURRENT-ASSETS> 94,478
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0
0
<OTHER-SE> 35,119
<TOTAL-LIABILITY-AND-EQUITY> 153,034
<SALES> 286,024
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<CGS> 262,133
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<OTHER-EXPENSES> 15,711
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