<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
8526 SOUTH AVENUE, YOUNGSTOWN, OHIO 44514
(Address of principal executive offices) (Zip Code)
(330) 758-1194
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Number of shares of Common Stock outstanding as of October 31, 1997: 7,149,250
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
SEC FORM 10-Q
Quarter Ended September 30, 1997
Index
-----
<TABLE>
<CAPTION>
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Statements of Operations .........................................................................3
Condensed Consolidated Balance Sheets....................................................................................4
Condensed Consolidated Statements of Cash Flows..........................................................................5
Notes to Condensed Consolidated Financial Statements.....................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................................11
Item 2. Changes in Securities.........................................................................................11
Item 3. Defaults Upon Senior Securities...............................................................................11
Item 4. Submission of Matters to a Vote of Securities Holders.........................................................11
Item 5. Other Information.............................................................................................11
Item 6. Exhibits and Reports on Form 8-K..............................................................................11
Signatures .............................................................................................................12
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ----- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 73,694 $ 71,646 $ 151,926 $ 134,051
Cost of sales 67,297 65,338 139,536 121,305
--------------- --------------- --------------- ---------------
Gross profit 6,397 6,308 12,390 12,746
Selling, general, and administrative expenses 4,316 4,078 8,420 7,889
Income from equity investment - - - 28
Interest expense 1,163 650 2,300 1,155
--------------- --------------- --------------- ---------------
Income before income taxes 918 1,580 1,670 3,730
Income taxes 333 569 606 1,314
--------------- --------------- --------------- ---------------
Net income $ 585 $ 1,011 $ 1,064 $ 2,416
=============== =============== =============== ===============
Per common share data:
Net income $ 0.08 $ 0.14 $ 0.15 $ 0.34
=============== =============== =============== ===============
Weighted average common shares outstanding 7,157,109 7,162,250 7,159,600 7,162,250
=============== =============== =============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1997 1997
---- ----
<S> <C> <C>
ASSETS:
Cash $ 1,456 $ 898
Receivables 42,064 41,386
Inventories 52,299 50,104
Prepaid and other current assets 2,253 2,090
------------------- ------------------
Total current assets 98,072 94,478
Property, plant and equipment - at cost 80,093 78,233
Less accumulated depreciation (31,813) (29,475)
------------------- ------------------
Property, plant and equipment - net 48,280 48,758
Other assets 11,354 9,798
------------------- ------------------
Total assets $ 157,706 $ 153,034
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Revolving line of credit - current portion $ 17,031 $ 13,192
Accounts payable 29,580 29,322
Other current liabilities 9,081 8,545
------------------- ------------------
Total current liabilities 55,692 51,059
Long-term debt 47,558 48,330
Postretirement benefits 18,284 18,451
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,350 25,330
Retained earnings 16,976 15,912
Cumulative translation adjustment (2,685) (2,649)
Less treasury stock, 382,000 and 370,000 shares, at cost (3,544) (3,474)
------------------- ------------------
Total shareholders' equity 36,172 35,194
------------------- ------------------
Total liabilities and shareholders' equity $ 157,706 $ 153,034
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS (FOR) FROM OPERATING ACTIVITIES:
Net income $ 1,064 $ 2,416
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Equity investment --- (28)
Depreciation and amortization 2,392 1,437
Deferred directors' fees 20 30
Changes in operating assets and liabilities:
Accounts receivable (708) 602
Inventory (2,219) 6,824
Accounts payable 279 (6,103)
Accrued expense and other (1,389) 456
---------------- ---------------
Net cash provided by (used in) operating activities (561) 5,634
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,896) (9,887)
Acquisition --- (2,609)
---------------- ---------------
Net cash used in investing activities (1,896) (12,496)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of term loans (715) ---
Proceeds from revolving line of credit 113,392 104,915
------- -------
Payments of revolving line of credit (109,592) (96,220)
Treasury stock acquisition (70) ---
---------------- ---------------
Net cash provided by financing activities 3,015 8,695
Net increase in cash 558 1,833
Effect of translation adjustment --- (23)
Cash at beginning of period 898 2,318
---------------- ---------------
Cash at end of period $ 1,456 $ 4,128
================ ===============
</TABLE>
See notes to condensed consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of Cold Metal
Products, Inc. and Subsidiary (the Company) as of September 30, 1997 and March
31, 1997, the results of operations for the three month and six month periods
ended September 30, 1997 and 1996, and changes in cash flows for the six months
ended September 30, 1997 and 1996. The results of operations for the periods
ended September 30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and, therefore, should be read in conjunction
with the audited consolidated financial statements contained in the Company's
annual report on Form 10-K for the year ended March 31, 1997.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," effective for periods
ending after December 15, 1997. SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" have also been issued and are effective for fiscal years beginning
after December 15, 1997. The Company does not expect SFAS No. 128, SFAS No. 130,
or SFAS No. 131 to have a material effect on the Company's financial position or
results of operations.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, operating income, and net income, respectively, of the Company's
Canadian subsidiary were $41.5 million, $2.0 million, and $970,000 for the
quarter ended September 30, 1997, and $40.2 million, $1.6 million, and $736,000
for the quarter ended September 30, 1996. Comparable net sales, operating
income, and net income, respectively, for the six months ended September 30,
1997 were $86.4 million, $3.7 million, and $1.8 million and for the six months
ended September 30, 1996, $69.3 million, $2.9 million, and $1.4 million.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,157,109 for the three months ended September
30, 1997, and 7,159,600 for the six months ended September 30, 1997. Primary
earnings per common share have been computed based upon the average weighted
outstanding shares of 7,162,250 for the three month and six month periods ended
September 30, 1996.
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NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 28,626 $ 28,209
Work-in-process 16,366 15,048
Finished goods 7,307 6,847
------------------------------------
Total inventories $ 52,299 $ 50,104
====================================
</TABLE>
NOTE 5. DIRECTORS' INCENTIVE PLAN
In accordance with the Non-Employee Directors' Incentive Plan, three directors
have elected to receive shares of stock on a deferred basis in lieu of cash
payments of their fiscal 1998 annual retainer fee. As of September 30, 1997, a
total of 12,364 shares of the 60,000 shares reserved under the Plan for such
deferral elections, was committed to be issued at the end of the deferment
period, which is a specified period after the Director's resignation or certain
other events, such as a sale or merger of the Company.
NOTE 6. COMMON STOCK
Under a stock repurchase program authorized by the Company's Board of Directors,
the Company purchased 12,000 shares of treasury stock in the six month period
ending September 30, 1997, for a total of $70,000. Current financing agreements
allow for the repurchase of stock not to exceed an aggregate amount of $1.0
million. The aggregate amount purchased by the Company under the program to date
totals $464,000.
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
Results of Operations
- ---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.3 91.2 91.8 90.5
---------------------------------------------------------
Gross profit 8.7 8.8 8.2 9.5
Selling, general, and administrative
expenses 5.9 5.7 5.6 5.9
Income from equity investment 0.0 0.0 0.0 0.0
Interest expense 1.6 0.9 1.5 0.8
---------------------------------------------------------
Income before income taxes 1.2 2.2 1.1 2.8
Income taxes 0.4 0.8 0.4 1.0
---------------------------------------------------------
Net income 0.8% 1.4% 0.7% 1.8%
---------------------------------------------------------
</TABLE>
Net sales for the three months ended September 30, 1997 were $73.7
million, representing a $2.0 million or 2.8% increase from the three months
ended September 30, 1996. The increase in sales is attributable mainly to
stronger sales at the Company's Canadian service centers and increased revenues
from the Ottawa ramp-up. While increased tons shipped accounted for
approximately $1.3 million of the sales increase, slightly higher sales per ton
accounted for the remaining $700,000 of sales increase.
For the six months ended September 30, 1997, net sales of $151.9
million were up $17.9 million from the $134.0 million of the prior year period
on a 20.0% increase in tonnage shipped. The increase was mainly attributable to
the consolidation of Direct Steel, which became a wholly owned subsidiary of the
Company in June 1996. Excluding this effect, the Company's sales increased $6.0
million. Increased tonnage accounted for approximately $8.1 million sales
increase, offset by an aggregate decrease in sales dollars per ton of $2.1
million. While increased tonnage reflected the effect of higher service center
sales and the effect of increased sales from the ramp-up of the expanded
facility in Ottawa, Ohio, the selling price decline resulted from a mix shift to
products yielding lower revenue per ton.
Gross profit for the three months ended September 30, 1997 was $6.4
million or 8.7% of net sales, which was an increase of $89,000 over the three
months ended September 30, 1996. Gross profit for the three months ended
September 30, 1996 was $6.3 million, or 8.8% of net sales. Margins as a
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percent of sales decreased as higher service center margins were offset by
losses from the ramp-up of the Company's expanded facility in Ottawa, Ohio,
which were higher than expected because of non-recurring vendor-related problems
in procuring rolling oil. Also, slight raw material price increases and less
favorable product mix impacted the comparison of the current year quarter over
last year's quarter.
Gross profit for the six months ended September 30, 1997 was $12.4
million or 8.2% of net sales compared to $12.7 million or 9.5% of net sales for
the six months ended September 30, 1996. Gross profits were affected by ramp-up
costs at the Company's expanded facility in Ottawa, Ohio and the consolidation
of Direct Steel's sales which generally carry lower margins. Additionally, less
favorable product mix and higher raw material costs also impacted current period
margins.
Selling and administrative costs of $4.3 million in the second quarter
of fiscal 1998 represented 5.9% of sales; selling and administrative costs in
the second quarter of fiscal 1997 were $4.1 million, or 5.7% of net sales. The
increase in selling and administrative costs during the second quarter of fiscal
1998 reflected effects of increased sales activity and continued operational
expansion. For the six month period ended September 30, 1997, selling and
administrative costs were $8.4 million, or 5.6% of net sales, compared to $7.9
million, or 5.9% of net sales for the six months ended September 30, 1996, again
reflecting the aforementioned effects.
Income from equity investment at Direct Steel was $28,000 in the prior
year to date period. Subsequent to June 18, 1996, its operations were
consolidated with the Company's and no longer reported as income from equity
investment.
Interest expense was $1.2 million, or 1.6% of net sales for the three
months ended September 30, 1997 as compared to $650,000 or .9% of net sales for
the three months ended September 30, 1996. For the six months ended September
30, 1997, interest expense was $2.3 million, or 1.5% of net sales, compared to
$1.2 million, or .8% of net sales for the six month period ended September 30,
1996. The current year quarter and year to date figures reflect incremental
financing costs associated with the Ottawa expansion project. In the prior year,
interest costs related to the Ottawa expansion project of $308,000 for the
quarter and $775,000 for the year to date were capitalized. Additional increase
in interest costs in the current year resulted from the financing of
acquisitions completed during fiscal 1997.
Income before taxes was $918,000, or 1.2% of net sales for the three
months ended September 30, 1997. For the three months ended September 30, 1996,
income before taxes was $1.6 million, or 2.2% of net sales. For the six months
ended September 30, 1997, income before taxes was $1.7 million, or 1.1% of net
sales, compared with $3.7 million, or 2.8% of net sales for the six months ended
September 30, 1996.
Income taxes for the three months ended September 30, 1997 were
$333,000, or .4% of net sales compared to $569,000, or .8% of net sales for the
same period ended September 30, 1996. Taxes for the six months ended September
30, 1997 were $606,000, or .4% of net sales, compared to $1.3 million, or 1.0%
of net sales for the six months ended September 30, 1996. The current year
reflects lower income levels as effective tax rates remained relatively
unchanged.
Net income for the three months ended September 30, 1997 was $585,000,
or $.08 per share as compared to a net income of $1.0 million, or $.14 per share
for the three months ended September 30, 1996. Net income for the six months
ended September 30, 1997 was $1.1 million or $.15 per share compared to net
income of $2.4 million or $.34 per share for the six months ended September 30,
1996.
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Liquidity and Capital Resources
- -------------------------------
During the six months ended September 30, 1997, operating activities
consumed $561,000 in cash, compared to cash provided of $5.6 million for the six
months ended September 30, 1996. Cash inflows in the current year resulting from
net income and depreciation were more than offset by a decrease in accrued
pension and increases in inventories and accounts receivable related primarily
to the ramp-up activity in Ottawa.
Cash used in investing activities was $1.9 million for the six months
ended September 30, 1997, reflecting spending for capital projects during the
period.
Cash flows from financing activities provided $3.0 million for the six
months ended September 30, 1997. The Company's various bank lending arrangements
provide a maximum borrowing availability of approximately $90.4 million of which
$64.6 million was outstanding at September 30, 1997.
Management expects that cash generated from operating activities and
the Company's borrowing capacity will be sufficient to meet planned capital
expenditure needs and other cash requirements for the next twelve months.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported. For certain proceedings
previously reported, see Form 10K for the fiscal year ended March 31, 1997.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting of Shareholders for 1997 was held on
July 24, 1997.
(b) See Item (c) below
(c) At the Annual Meeting of Shareholders the following matters were
voted:
1. Nine directors were elected to serve for a term of one year
by the following vote:
<TABLE>
<CAPTION>
Share Voted Shares Voted
----------- ------------
"For" "Withheld"
----- ----------
<S> <C> <C>
R. Quintus Anderson 6,973,790 4,840
Wilbur J. Berner 6,973,890 4,740
Edwin H. Gott, Jr. 6,973,090 5,540
James R. Harpster 6,972,900 5,730
Claude F. Kronk 6,973,890 4,740
Heidi A. Nauleau 6,973,090 5,540
Robert D. Neary 6,973,890 4,740
Peter B. Sullivan 6,973,890 4,740
Gordon A. Wilber 6,973,890 4,740
</TABLE>
2. The selection of Deloitte & Touche LLP as independent
auditors for the Company was confirmed, ratified, and approved
by a vote of 6,971,940 shares for, 2,240 shares against, and
4,450 shares abstaining.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number and Description
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cold Metal Products, Inc.
(Registrant)
/s/ James R. Harpster
---------------------
James R. Harpster
President, Chief Executive Officer
/s/ John E. Sloe
----------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
November 6, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,456
<SECURITIES> 0
<RECEIVABLES> 42,064
<ALLOWANCES> 690
<INVENTORY> 52,299
<CURRENT-ASSETS> 98,072
<PP&E> 80,093
<DEPRECIATION> 31,813
<TOTAL-ASSETS> 157,706
<CURRENT-LIABILITIES> 55,692
<BONDS> 47,558
0
0
<COMMON> 75
<OTHER-SE> 36,097
<TOTAL-LIABILITY-AND-EQUITY> 157,706
<SALES> 73,694
<TOTAL-REVENUES> 73,694
<CGS> 67,297
<TOTAL-COSTS> 67,297
<OTHER-EXPENSES> 4,316
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 1,163
<INCOME-PRETAX> 918
<INCOME-TAX> 333
<INCOME-CONTINUING> 585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 585
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
