<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 July 21, 1998: 7,074,250
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended June 30, 1998
Index
-----
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
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 ..................................................10
Item 2. Changes in Securities...............................................10
Item 3. Defaults Upon Senior Securities.....................................10
Item 4. Submission of Matters to a Vote of Securities Holders...............10
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
Signatures ............................................................10
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<TABLE>
<CAPTION>
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)
Three Months Ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 66,856 $ 78,232
Cost of sales 61,420 72,239
---------------- ---------------
Gross profit 5,436 5,993
Selling, general, and administrative expenses 3,797 4,104
Interest expense 1,130 1,137
---------------- ---------------
Income before income taxes 509 752
Income taxes 147 273
---------------- ---------------
Net income $ 362 $ 479
================ ===============
Basic and diluted net income per share $ 0.05 $ 0.07
================ ===============
Weighted average common shares outstanding 7,074,250 7,162,118
================ ===============
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
June 30, March 31,
-------- ---------
1998 1998
---- ----
Assets:
<S> <C> <C>
Cash $ 982 $ 1,140
Receivables 31,290 35,996
Inventories 54,026 53,703
Prepaid and other current assets 2,892 3,134
---------------- ---------------
Total current assets 89,190 93,973
Property, plant and equipment - at cost 81,644 80,583
Less accumulated depreciation (34,086) (33,203)
---------------- ---------------
Property, plant and equipment - net 47,558 47,380
Other assets 8,919 9,028
---------------- ---------------
Total assets $ 145,667 $ 150,381
================ ===============
Liabilities and shareholders' equity:
Revolving line of credit $ 2,778 $ 2,736
Accounts payable 25,699 26,467
Other current liabilities 7,693 7,997
---------------- ---------------
Total current liabilities 36,170 37,200
Long-term debt 58,496 60,859
Postretirement and other benefits 16,486 16,613
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,360 25,350
Retained earnings 18,608 18,245
Cumulative translation adjustment (5,601) (4,034)
Less treasury stock, 458,000 shares, at cost (3,927) (3,927)
---------------- ---------------
Total shareholders' equity 34,515 35,709
---------------- ---------------
Total liabilities and shareholders' equity $ 145,667 $ 150,381
================ ===============
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended June 30,
---------------------------
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 362 $ 479
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,168 1,251
Deferred directors' fees 10 20
Changes in operating assets and liabilities:
Accounts receivable 4,162 (546)
Inventory (1,126) (3,216)
Accounts payable (664) 2,182
Accrued expense and other (156) (1,422)
---------------- --------------
Net cash provided by (used in) operating activities 3,756 (1,252)
Cash flows from investing activities:
Additions to property, plant and equipment (1,707) (1,087)
---------------- --------------
Net cash used in investing activities (1,707) (1,087)
Cash flows from financing activities:
Payments of term loans (333) (353)
Proceeds from other debt 47,606 60,469
Payments of other debt (49,467) (56,727)
Acquisition of treasury stock --- (11)
---------------- --------------
Net cash provided (used) by financing activities (2,194) 3,378
Net decrease in cash (145) 1,039
Effect of translation adjustment (13) 3
Cash at beginning of period 1,140 898
---------------- --------------
Cash at end of period $ 982 $ 1,940
================ ==============
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Cold Metal Products, Inc.
and subsidiary (the Company) as of June 30, 1998 and March 31, 1998, the results
of operations for the three month periods ended June 30, 1998 and 1997, and
changes in cash flows for the three months ended June 30, 1998 and 1997. The
results of operations for the periods ended June 30, 1998 and 1997 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, 1998.
The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments such as a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company does
not expect adoption of this standard to have a material effect on financial
position or results of operation, as the Company operates in one business
segment, intermediate steel processing.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, operating income, and net income (loss), respectively, of the
Company's Canadian operations were $33.8 million, $64,000 million and $(249,000)
for the quarter ended June 30, 1998, and $45.0 million, $1.7 million and
$800,000 for the quarter ended June 30, 1997.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,074,250 for the three months ended June 30,
1998 and 7,162,118 for the three month period ended June 30, 1997. Basic and
dilutive earnings per share amounts are the same as the effect of dilutive
outstanding stock options is immaterial.
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NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, March 31,
-------- ---------
1998 1998
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 29,517 $ 28,241
Work-in-process 14,824 14,978
Finished goods 9,685 10,484
-------------- ----------------
Total inventories $ 54,026 $ 53,703
============== ================
</TABLE>
NOTE 5. DIRECTORS' INCENTIVE PLAN
In accordance with Non-Employee Directors' Incentive Plan, one director has
elected to receive shares of stock on a deferred basis in lieu of cash payments
of his 1999 annual retainer fee. As of June 30, 1998, a total of 14,483 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. CONTINGENCIES
In July 1998, the Company negotiated a settlement in connection with a court
awarded verdict against the Company involving an injured employee. The
settlement had no significant impact to the Company's statement of operations
for the three months ended June 30, 1998 or the consolidated financial position
as of June 30, 1998.
NOTE 7. COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes new standards for reporting comprehensive income and its components.
Comprehensive income is a measurement of all changes in shareholders' equity
that result from transactions and other economic events other than transactions
with shareholders.
Consolidated statements of comprehensive income are as follow:
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30,
--------
(In thousands)
--------------
1998 1997
---- ----
<S> <C> <C>
Net income $ 362 $ 479
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,567) 43
------------- ------------
Comprehensive income $ (1,205) $ 522
============= ============
</TABLE>
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
Results of Operations
- ---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended June 30,
----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 91.9 92.3
---- ----
Gross profit 8.1 7.7
Selling, general, and administrative expenses 5.7 5.3
Interest expense 1.7 1.4
--- ---
Income before income taxes 0.7 1.0
Income taxes 0.2 0.4
--- ---
Net income 0.5% 0.6%
=== ===
</TABLE>
Net sales for the three-months ended June 30, 1998 were $66.9 million,
representing a $11.4 million or 14.5% decrease from the corresponding three
months ended June 30, 1997. Volume of tons shipped was down 15%, accounting for
a $12.1 million sales decrease, offset by a slight increase in sales dollars per
ton of $700,000, due to a shift in sales mix to specialty strip, a higher
revenue product. Though sales volume was up at the expanded Ottawa facility,
several factors combined to account for the overall loss of volume and revenue.
Lower activity levels in the Canadian service center markets resulted from the
Company's decision to reduce lower-margin business, the General Motors work
stoppage impacted shipments, financial conditions in Asia resulted in low priced
imports capturing some of the Company's market share, and a lower Canadian
exchange rate affected the sales dollars comparison.
Gross profit for the three months ended June 30, 1998 was $5.4 million or
8.1% of net sales, compared to $6.0 million or 7.7% of net sales for the three
months ended June 30, 1997. The drop in sales volume was somewhat offset by the
effect of cost-reduction efforts implemented last year, as well as improvement
in margins at the Ottawa facility.
Selling and administrative costs of $3.8 million in the quarter ended June
30, 1998 represented 5.7% of sales as compared to $4.1 million in the quarter
ended June 30, 1997, which represented 5.3% of sales. Lower selling and
administrative costs also reflect the effect of cost-reduction efforts
implemented at the end of the prior fiscal year, as well as effects from lower
exchange rates.
Interest expense was $1.1 million or 1.7% of net sales for the three months
ended June 30, 1998 was unchanged from $1.1 million or 1.4% in the first quarter
of fiscal year 1997.
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Income before taxes was $509,000 or .7% of net sales for the three months
ended June 30, 1998. The income before taxes for the three months ended June 30,
1997 was $752,000, or 1.0% of net sales.
Income taxes for the three month period ended June 30, 1998 were $147,000
or .2% of net sales compared to $273,000, or .4% of net sales for the same
period ended June 30, 1997. The effective tax rate was 28.9% in the first
quarter of fiscal year 1998 compared with a 36.3% rate for the prior year
period. The lower effective tax rate in the current year period reflected the
reversal of a small portion of valuation allowance.
Net income for the three months ended June 30, 1998 was $362,000, or $.05
per share based on 7,074,250 shares as compared to $479,000, or $.07 per share
based on 7,162,118 shares for the three months ended June 30, 1997.
As the Company enters its second fiscal quarter, the General Motors strike
and the adverse financial conditions in Asia present certain challenges for the
Company. Continued weakness in the Asian markets and the effects of the General
Motors strike and rate of recovery could continue to negatively impact volume
and profit levels.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $3.8 million for the three
months ended June 30, 1998, reflecting cash provided from net income, non-cash
depreciation charges, and changes in working capital. Changes in working capital
reflected a decrease in accounts receivable which resulted from lower sales
volume levels during the quarter, somewhat offset by an increase in inventories
and a slight decrease in accounts payable due to timing of purchases.
Cash used in investing activities was $1.7 million for the three months
ended June 30, 1998, reflecting spending for capital projects during the
quarter.
Cash flows from financing activities consumed $2.2 million for the three
months ended June 30, 1998. The Company's various bank lending arrangements
provide a maximum borrowing availability of approximately $89.9 million of which
$61.3 million was outstanding at June 30, 1998.
Management expects that cash generated from operating activities and its
borrowing capacity will be sufficient to meet planned capital expenditure needs
and other cash requirements for the next twelve months.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no legal proceedings to be reported.
ITEM 2. CHANGE IN SECURITIES.
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to a vote of the shareholders in the
quarter ended June 30, 1998.
ITEM 5. OTHER INFORMATION.
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cold Metal Products, Inc.
(Registrant)
/s/ James R. Harpster
---------------------
James R. Harpster
President, Chief Executive Officer
/s/ John E. Sloe
----------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
July 29, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 982
<SECURITIES> 0
<RECEIVABLES> 31,290
<ALLOWANCES> 542
<INVENTORY> 54,026
<CURRENT-ASSETS> 89,190
<PP&E> 81,644
<DEPRECIATION> 34,086
<TOTAL-ASSETS> 145,667
<CURRENT-LIABILITIES> 36,170
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 34,440
<TOTAL-LIABILITY-AND-EQUITY> 145,667
<SALES> 66,856
<TOTAL-REVENUES> 66,856
<CGS> 61,420
<TOTAL-COSTS> 61,420
<OTHER-EXPENSES> 3,797
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<INTEREST-EXPENSE> 1,130
<INCOME-PRETAX> 509
<INCOME-TAX> 147
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<NET-INCOME> 362
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
