<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, 1998
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, 1998: 7,024,250
1
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
SEC FORM 10-Q
Quarter Ended September 30, 1998
Index
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
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 ...............................................................................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
<PAGE> 3
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,
------------- -------------
1998 1997 1998 1997
---- ----- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 61,367 $ 73,694 $ 128,223 $ 151,926
Cost of sales 57,610 67,297 119,030 139,536
----------- ----------- ----------- -----------
Gross profit 3,757 6,397 9,193 12,390
Selling, general, and administrative expenses 4,243 4,316 8,040 8,420
Interest expense 1,138 1,163 2,268 2,300
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,624) 918 (1,115) 1,670
Income tax expense (benefit) (610) 333 (463) 606
----------- ----------- ----------- -----------
Net income (loss) $ (1,014) $ 585 $ (652) $ 1,064
=========== =========== =========== ===========
Basic and diluted
Net income (loss) per share $ (0.14) $ 0.08 $ (0.09) $ 0.15
=========== =========== =========== ===========
Weighted average common shares outstanding 7,069,005 7,157,109 7,071,613 7,159,600
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1998 1998
---- ----
<S> <C> <C>
ASSETS:
Cash $ 455 $ 1,140
Receivables 34,482 35,996
Inventories 50,752 53,703
Prepaid and other current assets 3,838 3,134
--------- ---------
Total current assets 89,527 93,973
Property, plant and equipment - at cost 82,037 80,583
Less accumulated depreciation (34,747) (33,203)
--------- ---------
Property, plant and equipment - net 47,290 47,380
Other assets 8,743 9,028
--------- ---------
Total assets $ 145,560 $ 150,381
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 7,947 $ 2,736
Accounts payable 23,681 26,467
Other current liabilities 8,072 7,997
--------- ---------
Total current liabilities 39,700 37,200
Long-term debt 58,124 60,859
Postretirement and other benefits 16,416 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 17,594 18,245
Cumulative translation adjustment (7,705) (4,034)
Less treasury stock, 478,000 and 458,000 shares, at cost (4,004) (3,927)
--------- ---------
Total shareholders' equity 31,320 35,709
--------- ---------
Total liabilities and shareholders' equity $ 145,560 $ 150,381
========= =========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (652) $ 1,064
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 2,233 2,392
Deferred directors' fees 10 20
Changes in operating assets and liabilities:
Accounts receivable 146 (708)
Inventory 1,115 (2,219)
Accounts payable (2,506) 279
Accrued expenses and other (742) (1,389)
--------- ---------
Net cash used in operating activities (396) (561)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,045) (1,896)
--------- ---------
Net cash used in investing activities (3,045) (1,896)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of term loans (341) (715)
Proceeds from revolving line of credit 88,450 113,392
Payments of revolving line of credit (85,268) (109,592)
Treasury stock acquisition (77) (70)
--------- ---------
Net cash provided by financing activities 2,764 3,015
Net increase (decrease) in cash (677) 558
Effect of exchange rates on cash (8) ---
Cash at beginning of period 1,140 898
--------- ---------
Cash at end of period $ 455 $ 1,456
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
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, 1998 and March
31, 1998, the results of operations for the three month and six month periods
ended September 30, 1998 and 1997, and changes in cash flows for the six months
ended September 30, 1998 and 1997. The results of operations for the periods
ended September 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.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, operating income (loss), and net income (loss), respectively, of the
Company's Canadian subsidiary were $29.4 million, $(308,000), and $(468,000) for
the quarter ended September 30, 1998, and $41.5 million, $2.0 million, and
$970,000 for the quarter ended September 30, 1997. Comparable net sales,
operating income (loss), and net income (loss), respectively, for the six months
ended September 30, 1998 were $63.2 million, $(244,000), and $(717,000) and for
the six months ended September 30, 1997, $86.4 million, $3.7 million, and $1.8
million.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,069,005 and 7,157,109 for the three months
ended September 30, 1998 and 1997, respectively, and 7,071,613 and 7,159,600 for
the six months ended September 30, 1998 and 1997, respectively. Basic and
dilutive earnings per share amounts are the same as the effect of dilutive
outstanding stock options is immaterial.
6
<PAGE> 7
NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1998 1998
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 27,364 $ 28,241
Work-in-process 13,842 14,978
Finished goods 9,546 10,484
------------- --------------
Total inventories $ 50,752 $ 53,703
============= ==============
</TABLE>
NOTE 5. DIRECTORS' INCENTIVE PLAN
In accordance with the 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 fiscal 1999 annual retainer fee. As of September 30, 1998, a total of
14,483 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 20,000 shares of treasury stock in the six month period
ended September 30, 1998, for a total of $77,000. Current financing agreements
allow for the repurchase of stock not to exceed an aggregate amount of $2.0
million. The aggregate amount purchased by the Company under the program to date
totals $957,000.
NOTE 7. 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 on the Company's statement of operations
for the six months ended September 30, 1998, or the consolidated financial
position as of September 30. 1998.
NOTE 8. 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.
7
<PAGE> 8
Consolidated statements of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, 1998 September 30, 1998
------------------ ------------------
(In thousands)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,014) $ 585 $ (652) $ 1,064
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (2,104) (79) (3,671) (36)
------- ------- ------- -------
Comprehensive income (loss) $(3,118) $ 506 $(4,323) $ 1,028
======= ======= ======= =======
</TABLE>
8
<PAGE> 9
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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.9 91.3 92.8 91.8
-------------------------------------------------------------------------------
Gross profit 6.1 8.7 7.2 8.2
Selling, general, and administrative
expenses 6.9 5.9 6.3 5.6
Interest expense 1.8 1.6 1.8 1.5
-------------------------------------------------------------------------------
Income (loss) before income taxes -2.6 1.2 -0.9 1.1
Income taxes -1.0 0.4 -0.4 0.4
-------------------------------------------------------------------------------
Net income (loss) -1.6% 0.8% -0.5% 0.7%
-------------------------------------------------------------------------------
</TABLE>
Net sales for the three months ended September 30, 1998 were $61.4
million, representing a $12.3 million or 16.7% decrease from the three months
ended September 30, 1997. The decrease in sales is attributable mainly to a
14.4% decrease in tons shipped, accounting for $10.6 million of the sales
decrease. Lower selling price, primarily mix related, accounted for $1.7 million
of sales decrease. Lower customer requirements, particularly in the Canadian
operations, resulted from the General Motors work stoppage and financial
conditions in Asia which resulted in low priced imports capturing some of the
Company's market share. Lower Canadian exchange rates also impacted the
comparison. Somewhat offsetting these negative effects was an increase is sales
at the expanded Ottawa facility.
For the six months ended September 30, 1998, net sales of $128.2
million were down $23.7 million from the $151.9 million of the prior year
period. As was the case for the three months ended September 30, 1998, the
decrease was mainly attributable to lower volumes resulting from the effects of
the General Motors work stoppage and the Asian financial crisis, as well as the
effect of a lower Canadian exchange rate. Improved shipments from the Ottawa
facility somewhat offset these effects.
Gross profit for the three months ended September 30, 1998 was $3.8
million or 6.1% of net sales, which was a decrease of $2.6 million over the
three months ended September 30, 1997. Gross profit for the three months ended
September 30, 1997 was $6.4 million, or 8.7% of net sales. Gross profit for the
six months ended September 30, 1998 was $9.2 million or 7.2% of net sales
compared to $12.4 million or 8.2% of net sales for the six months ended
September 30, 1997. The decrease in
9
<PAGE> 10
margins is a direct result of the lower volumes described above, as the Company
was unable to absorb and sell a portion of its fixed costs.
Selling and administrative costs of $4.2 million for the three months
ended September 30, 1998 represented 6.9% of sales; selling and administrative
costs for the three months ended September 30, 1997 were $4.3 million, or 5.9%
of net sales. Expense in the current year period reflected a special charge of
$750,000 related to the chief executive officer's retirement agreement, which
was offset by lower accrued compensation costs related to incentive compensation
plans, effects of cost-reduction efforts implemented at the end of the prior
fiscal year as well as effects from lower exchange rates. For the six month
period ended September 30, 1998, selling and administrative costs were $8.0
million, or 6.3% of net sales, compared to $8.4 million, or 5.6% of net sales
for the six months ended September 30, 1997, again reflecting the aforementioned
effects.
Interest expense was $1.1 million, or 1.8% of net sales for the three
months ended September 30, 1998 and was almost unchanged as compared to $1.2
million or 1.6% of net sales for the three months ended September 30, 1997. For
the six months ended September 30, 1998, interest expense was $2.3 million, or
1.8% of net sales, unchanged in total compared to $2.3 million, or 1.5% of net
sales for the six month period ended September 30, 1997.
Income (loss) before taxes was $(1.6) million, or (2.6)% of net sales
for the three months ended September 30, 1998. For the three months ended
September 30, 1997, income before taxes was $918,000, or 1.2% of net sales. For
the six months ended September 30, 1998, income (loss) before taxes was $(1.1)
million, or (.9)% of net sales, compared with $1.7 million, or 1.1% of net sales
for the six months ended September 30, 1997.
Income tax benefit for the three months ended September 30, 1998 was
$(610,000), or (1.0)% of net sales compared to expense of $333,000, or .4% of
net sales for the same period ended September 30, 1997. Tax (benefit) expense
for the six months ended September 30, 1998 was $(463,000), or .(5)% of net
sales, compared to $606,000, or .4% of net sales for the six months ended
September 30, 1997. Actual effective tax rates remained unchanged for the three
months ended September 30, 1998 compared to the prior year quarter, though
effects of the blending of rates for various jurisdictions affected the
calculated effective rate. The income tax benefit for the six months ended
September 30, 1998 as compared to the prior year period reflected the reversal
of a small portion of valuation allowance.
Net loss for the three months ended September 30, 1998 was $(1.0)
million, or $(.14) per share as compared to net income of $585,000, or $.08 per
share for the three months ended September 30, 1997. Net loss for the six months
ended September 30, 1998 was $(652,000) or $.(.09) per share compared to net
income of $1.1 million or $.15 per share for the six months ended September 30,
1997.
Liquidity and Capital Resources
- -------------------------------
During the six months ended September 30, 1998, operating activities
consumed $396,000 in cash, compared to cash consumed of $561,000 for the six
months ended September 30, 1997. Cash inflows in the current year resulting from
depreciation and inventory reductions were more than offset by a net loss, and
decreases in accounts payable and accrued expenses.
Cash used in investing activities was $3.0 million for the six months
ended September 30, 1998, reflecting spending for capital projects during the
period.
10
<PAGE> 11
Cash flows from financing activities provided $2.8 million for the six
months ended September 30, 1998. The Company's various bank lending arrangements
provide a maximum borrowing availability of approximately $89.6 million of which
$66.1 million was outstanding at September 30, 1998.
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.
Year 2000
- ---------
The Year 2000 issue relates to computer programs which recognize a date
using "00" as the year 1900 rather than the year 2000. The Company must
determine whether its systems are capable of recognizing and handling date
information accurately and without interruption before, during and after January
1, 2000.
Most of the Company's critical information technology systems have been
modified, tested, and/or certified from vendors as being Year 2000 compliant.
Certain other non-information technology systems are in the process of being
inventoried, tested or certified in accordance with a compliance plan. Under
this plan, the Company expects that all of its non-compliant systems or
equipment will be fully tested and compliant by the end of calendar 1998.
The Company has initiated a formal inquiry process with its suppliers
and vendors with which the Company has significant relationships to evaluate the
extent to which the Company is vulnerable to third party failure to remedy Year
2000 problems. The Company evaluates replies, as it receives them and is working
with the third parties to correct those problems. Based on its experience thus
far, the Company anticipates receiving replies from most of its significant
suppliers and vendors by the end of calendar year 1998.
The Company estimates that the total cost of achieving Year 2000
compliance for its internal systems and equipment is less than $150,000. Most of
the cost to date, approximately $100,000, has been funded by allocation of
existing resources rather than incurring incremental costs. The Company expects
to continue to fund most of the remaining costs by allocation of existing
resources.
Based on assessment of its major information technology and
non-information technology systems, the Company believes that all necessary
modifications and testing will be completed in a timely manner to insure that
the Company is Year 2000 compliant. While the Company is verifying the readiness
of its major suppliers and vendors, there is no assurance that all third parties
on which the Company relies will be Year 2000 compliant in a timely manner. The
worst case scenario for the Company would involve general failure of
infrastructure systems such as electrical power. While the Company will continue
to devolop contingency plans intended to allow the Company to move production
among its various facilities, substitute alternate suppliers, or reduce or
suspend operations in the case of a major infrastructure failure, the resulting
disruption could have a material adverse effect on the Company's business or
consolidated financial statements.
Forward-Looking Information
- ---------------------------
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "expect", "believe", anticipate," "plan" and
11
<PAGE> 12
similar expressions are intended to identify forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, general business and
economic conditions competitive factors such as availability and pricing of
steel, changes in customer demand, work stoppages by customers, potential
equipment malfunctions, Year 2000 problems or other risks and uncertainties
discussed in the Company's 10K report.
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, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting of Shareholders for 1998 was held on
July 23, 1998.
(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 6,993,259 10,405
Wilbur J. Berner 6,993,259 10,405
Edwin H. Gott, Jr. 6,993,259 10,405
James R. Harpster 6,992,759 10,905
Claude F. Kronk 6,993,259 10,405
Heidi A. Nauleau 6,993,259 10,405
Robert D. Neary 6,993,259 10,405
Peter B. Sullivan 6,993,259 10,405
Gordon A. Wilber 6,993,259 10,405
</TABLE>
2. The selection of Deloitte & Touche LLP as independent
auditors for the Company was confirmed, ratified, and approved
by a vote of 6,995,359 shares for, 2,105 shares against, and
6,200 shares abstaining.
ITEM 5. OTHER INFORMATION
On October 22, 1998, Cold Metal Products, Inc. elected Raymond P. Torok
as its President, Chief Executive Officer and Director. Effective as of October
21, 1998, James R. Harpster resigned his positions as President, Chief Executive
Officer and Director. A copy of the press release announcing these matters is
attached as Exhibit 99.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number and Description
(10)(q) Amendment No. 1 to Third Amended and Restated
Credit and Security Agreement.
(10)(r) Letter Agreement between James R. Harpster and Cold
Metal Products, Inc.
(27) Financial Data Schedule.
(99) Press release dated October 22, 1998.
(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/ Raymond P. Torok
--------------------
Raymond P. Torok
President, Chief Executive Officer
/s/ John E. Sloe
----------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
November 12, 1998
13
<PAGE> 1
Exhibit 10(q)
AMENDMENT NO. 1
TO
THIRD AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment No. 1") is entered into as of October 9,
1998, 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 BNY Financial Corporation, a New York corporation having an
office at 1290 Avenue of the Americas, New York, New York 10104 ("Lender").
BACKGROUND
----------
Borrower and Lender are parties to a Third Amended and Restated Credit and
Security Agreement dated as of April 1, 1998, (as amended, supplemented or
otherwise modified from time to time, the "Loan Agreement") pursuant to which
Lender provided Borrower with certain financial accommodations.
Borrower has requested that Lender amend the Loan Agreement on the terms
set forth herein and Lender 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 Lender, 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 term is hereby added in its
appropriate alphabetical order:
"AMENDMENT NO. 1" shall mean Amendment No. 1 to Third
Amended and Restated Credit and Security Agreement dated as of October 9, 1998.
2.2. Sections 6.5, 6.8 and 6.9 are hereby amended in their entirety to
read as follows:
6.5 CURRENT RATIO. Cause the ratio of consolidated current
assets to consolidated current liabilities to be not less than (i) 1.23 to 1 at
the end of the fiscal quarter ending March 31,
<PAGE> 2
1998 and (ii) 1.40 to 1 at the end of the fiscal quarter ending June 30, 1998
and at the end of each fiscal quarter thereafter during the Term; PROVIDED,
HOWEVER, that for the fiscal quarter ending September 30, 1999 and thereafter
during the Term the ratio may be adjusted by the mutual agreement of Borrower
and Lender based upon projections delivered to Lender in accordance with Section
9.12 hereof. The above ratios shall be calculated exclusive of the effect of any
conversion to a current liability of any Indebtedness to Lender.
6.8 FIXED CHARGE COVERAGE. Cause the ration of (x) the sum of
aggregate consolidated net income during each fiscal period set forth below plus
the aggregate amount of income tax, and the interest, depreciation, amortization
and all other non-cash expense deducted in determining such net income during
such fiscal period to (y) aggregate consolidated interest expense during such
fiscal period plus aggregate amount of tax expense and capital expenditures paid
in cash during such fiscal period plus, without duplication, the aggregate
amount of scheduled reductions in availability during such fiscal period
pursuant to Section 2.1(a)(y)(iii) hereof to be not less than the ratio
corresponding to the fiscal periods set forth below:
<TABLE>
<CAPTION>
Fiscal Period Ratio
------------- -----
<S> <C>
4/1/97 to 3/31/98 1.00 to 1
7/1/97 t 6/30/98 1.00 to 1
10/1/97 to 9/30/98 0.75 to 1
1/1/98 to 12/31/98 0.75 to 1
4/1/98 to 3/31/99 0.75 to 1
7/1/98 to 6/30/99 0.75 to 1
10/1/98 to 9/30/99 0.75 to 1
1/1/99 to 12/30/99 1.00 to 1
and each four quarter fiscal period
thereafter during the Term;
</TABLE>
PROVIDED, HOWEVER, that for the fiscal period ending September 30, 1999 and
thereafter during the Term the ratio may be adjusted by the mutual agreement of
Borrower and Lender based upon projections delivered to Bank in accordance with
Section 9.12 hereof.
6.9 TOTAL LIABILITIES TO EQUITY. Cause the ratio of total
consolidated Indebtedness to consolidated stockholders equity (exclusive of
Borrower's foreign currency translation adjustment account) to be not more than
(i) 3.89 to 1 at the end of the fiscal quarter ending March 31, 1998 and (ii)
3.75 to 1 at the end of the fiscal quarter ending June 30, 1998 and at the end
of each fiscal quarter thereafter during the Term; PROVIDED, HOWEVER, that for
the fiscal quarter ending September 30, 1999 and thereafter during the Term the
ratios provided in this Section 6.9 may be adjusted by the mutual agreement of
the Borrower and Lender based upon projections delivered to Lender in accordance
with Section 9.12 hereof. The above ratios shall be calculated exclusive of any
future accounting changes and their impact on non-current liabilities and
shareholders' equity."
<PAGE> 3
3. CONDITIONS OF EFFECTIVENESS. This Amendment No. 1 shall become
effective when Lender shall have received:
(i) four (4) copies of this Amendment No. 1 executed by
Borrower and consented to and agreed to by Cold Metal Products, Limited as
guarantor;
(ii) an amendment fee equal to $5,000;
(iii) consent of Participants.
4. Representations and Warranties. Borrowers hereby represents and
warrants as follows:
(a) This Amendment No. 1 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. 1.
(c) Borrower has no defense, counterclaim or offset with respect
to the Obligations.
5. EFFECT ON THE LOAN AGREEMENT.
(a) Upon effectiveness of SECTION 2 hereof, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Loan agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement,
and all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
No. 1 shall not operate as a waiver of any right, power or remedy of Lender, 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. 1 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.
<PAGE> 4
7. HEADINGS. Section headings in this Amendment No. 1 are included
herein for convenience of reference only and shall not constitute a part of this
Amendment No. 1 for any other purpose.
8. COUNTERPARTS. This Amendment No. 1 may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all or which taken together shall be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed as of
the day and year first written above.
COLD METAL PRODUCTS, INC.
By: /s/ A. R. Morrow
------------------------
Name: Allen R. Morrow
---------------
Title: Vice President
--------------
BNY FINANCIAL CORPORATION
By: /s/ Anthony Viola
-----------------
Name: Anthony Viola
--------------
Title: Vice President
---------------
CONSENTED AND AGREED TO AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN:
COLD METAL PRODUCTS, LIMITED
By: /s/ James R. Harpster
---------------------
Name: James R. Harpster
-----------------
Title: President
---------
<PAGE> 1
Exhibit 10(r)
COLD METAL PRODUCTS, INC.
August 12, 1998
VIA FEDERAL EXPRESS & FAX
- -------------------------
Mr. James R. Harpster
Cold Metal Products, Inc.
8526 South Avenue
Youngstown, Ohio 44514
Dear Jim:
This letter agreement sets forth the terms and conditions of your
separation from employment with Cold Metal Products, Inc. (the "Company"). We
agree as follows:
1. RESIGNATION DATE: TERMINATION. (a) Your resignation as an officer of
the Company and from the Boards of Directors of the Company and all of its
related corporations will be effective on such date as is determined by the
Board of Directors of the Company (the "Board") and communicated to you in
writing. Such date is referred to herein as the "resignation date." Your
termination of employment with the company will be effective on the last day of
the one year period beginning on the later of the resignation date or December
31, 1998, which is referred to herein as the "post-resignation period."
(b) During the post-resignation period, your only duties will be to
render such consulting, advisory and transitional services relating to the
Company's business as the Board or its designee may reasonably request, and you
will not have authority to bind or obligate the Company in any way. The Company
recognizes that you will not devote all of your working time to the performance
of such duties.
(2) OBLIGATIONS OF THE COMPANY. In consideration of the agreements,
releases and representations made by you in this Agreement:
(a) During the post-resignation period: (i) you will continue to
receive your annual salary, at the annual rate of $350,000, less lawful
withholdings and (ii) you will continue to participate in whatever employee
benefit plans and fringe benefit arrangements you now participate in, other than
the Special Incentive Compensation Plan and the 1994 Incentive Program, subject
to the Company's right to modify, amend or terminate any such plan or
arrangement. In particular: (i) for purposes of computing the amount of your
pension from the Pension Plan for Salaried Non-Bargaining Employees of Cold
Metal Products, Inc. (the "Pension Plan"), you will be credited with service for
the post-resignation period, and (ii) you will receive your accrued and unused
vacation pay for all of 1998, in the amount of $21,250, on January 4, 1999. Your
retirement under the Pension Plan will be effective on the last day of the
post-resignation period.
111 West Second Street - P. O. Box 0310 - Jamestown, NY 14702-0310 -
(716) 664-6014 - Fax: (716) 664-5057
<PAGE> 2
(b) You will receive all amounts credited to your account under the
Company's Special Incentive Compensation Plan, including investment earnings, as
if you had "Retired," within the meaning of such plan, on the resignation date.
Payment will be made to you on January 4, 1999.
(c) Your resignation on the resignation date will be considered a
"Normal Termination" for purposes of the Company's 1994 Incentive Program, so
that your currently exercisable options to purchase 65,000 shares of Company
stock will not expire until five (5) years after the resignation date. You agree
that your employment after the resignation date will not defer or affect the
effective date of your Normal Termination for purposes of this program.
(d) At the end of the post-resignation period, the Company will
transfer title to your Company vehicle to you.
(e) The Company will reimburse you for fees incurred for outplacement,
legal and accounting services to the extent related to the subject matter of
this agreement and not in excess of an aggregate amount of $25,000.
3. PURCHASE OF STOCK. The Company agrees to purchase 208,050 shares of
the Company's restricted common stock owned by you at the stipulated price on or
within three (3) days after the later of the resignation date or January 1,
1999, subject to approval of the Company's lenders. For purposes of this
Agreement, the "stipulated price" means the higher of:
(a) the average of the closing prices of such stock on the New York
Stock Exchange over the 20 trading days preceding the resignation date; or
(b) the book value of such shares as reflected on the Company's last
quarterly balance sheet preceding the resignation date.
At the closing of such purchase, which shall be held on such date as we agree,
within the period stated above, the Company will deliver payment for the shares,
by wire transfer to an account designated by you or as you otherwise reasonably
instruct, and you will deliver certificates representing all shares, endorsed
for transfer or with duly executed stock powers attached.
4. YOUR OBLIGATIONS: GENERAL RELEASE. (a) In consideration of your
receipt of the payments and benefits described in paragraph 2 above:
(i) You release and agree not to sue the Company, Aarque
Securities Corporation or any of their affiliates, or any of the
officers, agents or employees thereof, with respect to any claim,
whether known or unknown, which you have, or may have, related to your
employment with the Company, or termination of such employment (the
"Claims"), including all Claims of unlawful discrimination on account
of sex, race, age, disability, veteran's status, national origin or
religion; all Claims based upon any federal, state or local equal
employment opportunity law, including the Civil Rights Act of 1964, as
amended, the Age Discrimination in Employment Act, as amended by the
Older Workers Benefit Protection Act, the Americans With Disabilities
Act of 1990, the Civil
<PAGE> 3
Rights Act of 1991, all Claims for violations of the employee
Retirement Income Security Act of 1974; all Claims for violation of any
agreement or representation, express or implied, made prior to or
simultaneously with this Agreement; and all Claims based upon wrongful
termination of employment and similar or related Claims.
(ii) You will not disclose any Confidential Information in
whole or in part to any person, firm or corporation for any reason or
purpose whatsoever, or use such information in any way or in any
capacity. The term "Confidential Information" shall mean secret or
confidential information relating to the Company, its affiliates and
customers or their affiliates, which conveys a competitive advantage to
the Company or any such customer, client or affiliate, and which was
disclosed to or known by you as a consequence of or through your
employment with the Company (including information conceived,
originated, discovered or developed by you), which information is not
otherwise generally known in the relevant trade or industry or public
knowledge. The covenants set forth in this clause (ii) will be
effective until December 31, 2001.
(b) It is agreed that the general release set forth in this paragraph
4: (i) does not release the Company of its obligations under this Agreement; and
(ii) shall not adversely affect such benefits, if any, to which you may be
entitled under the Pension Plan, the Cold Metal Products, Inc. Thrift Plan, the
Cold Metal Products, Inc. Special Incentive Compensation Plan, the Cold Metal
Products, Inc. 1994 Special Incentive Program and the group benefit plan for
salaried employees, as such plans may be amended from time to time.
(c) You represent and acknowledge that you do not possess any
literature, manuals, documents, data, information, order forms, price lists,
memoranda, correspondence, computer disks or tapes, customer or prospective
customer lists, customers' orders or records, whether compiled by you, a
customer or the Company, or coming to your knowledge or custody in connection
with your activities as an employee of the Company, or any machines, parts,
equipment, or other materials received by you from the Company or from any of
its customers in connection with such activities, excluding publicly available
documents and information.
5. NON-COMPETE AGREEMENT.(a) For a period of three years beginning on
the resignation date you will not, directly or indirectly without the prior
written consent of the Company:
(i) own, manage , operate, join, control, be employed by, or
participate in the ownership, management, operation or control of
(excepting less than 5% stock holdings for investment purposes), any of
the following companies: CalStrip Corporation, Gibraltar Steel, Greer
Steel, Rome Strip Steel, Samuel-Whittar, The Steel Company, Steel
Technologies, Thais Precision Steel, Thompson Steel, Thomas Steel
Strip, Worthington Steel, or any other company engaged in North America
(United States, Canada and Mexico) in any business whose principal
activity is the cold rolling and sale of carbon or alloy strip steel;
or
<PAGE> 4
(ii) endeavor to employ or entice away from the Company, any
employee or customer of the company, or disparage in any way the
Company or its products to any employee or customer of the Company.
(b) In consideration of the covenants set forth in this paragraph 5,
during the two-year period beginning January 1, 2000, the Company will pay you
an amount equal to $175,000 per year in equal monthly installments.
(c) The provisions of this paragraph 5 are not intended to prevent you
from obtaining other employment, but are intended to protect the Company from
the use of its trade secrets, confidential information and relationships with
customers and vendors. You agree that the covenants set forth in this paragraph
5 are reasonable. You further agree that any breach of the terms of this
paragraph 5 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law, and that in the event of
any such breach the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or in
equity. Should the arbitrator or a court determine, however, that any provision
of any of such covenants is unreasonable, either in period of time, geographical
area or otherwise, the parties hereto agree that the covenant shall be
interpreted and enforced to the maximum extent that such arbitrator or court
deems reasonable.
(d) In the event of any breach of the provisions of this paragraph 5,
the Company may terminate all payments and other consideration owing to you
pursuant to this agreement (including all payments and other consideration
described in paragraphs 2 and this paragraph 5), and will have no further
obligation to you arising out of your separation from employment with the
Company or this agreement, excepting only such benefits, if any, to which you
may be entitled under the Pension Plan or the Cold Metal Products, Inc. Thrift
Plan.
6. ACKNOWLEDGMENTS. By signing this Agreement, you expressly
acknowledge and agree that:
(a) You have read and full understand the terms of this Agreement;
(b) You understand that this Agreement constitutes a full, final and
binding settlement of all matters covered by this Agreement and that this
Agreement constitutes a release of all claims, known and unknown, which relate
to your employment or separation from employment including, without limitation,
claims under the Age Discrimination in Employment Act;
(c) You understand that this Agreement does not waive any rights or
claims arising after this Agreement goes into effect;
(d) The payments and benefits described above are significantly more
valuable than any payments or benefits you would be entitled to receive under
the Company's normal termination policies;
<PAGE> 5
(e) You have been advised to consult an attorney prior to signing this
Agreement.
(f) You have had adequate opportunity to request and have received all
information you need to understand this Agreement and have been offered
sufficient time, that is, at least twenty-one (21) days to consider whether to
sign this Agreement; and
(g) You have knowingly and voluntarily entered this Agreement without
any duress, coercion or undue influence by anyone.
7. ARBITRATION. We hereby agree that all disputes arising under or
relating to this agreement will be submitted to arbitration in Cleveland, Ohio
in accordance with the rules of the American Arbitration Association, before a
panel of three (3) arbitrators, one selected by each of the parties and the
third selected by the arbitrators selected by the parties. The arbitrators' fees
will be paid by the Company, but each party will pay his or its own attorney's
fees and other costs.
8. MISCELLANEOUS. (a) You and the Company agree that this Agreement
contains the complete agreement between you and the Company and that there are
no other agreements or representations relating in any way to the subject matter
of this Agreement.
(b) This Agreement will become effective on the 7th day after you sign
it. During the seven (7) days after you sign this Agreement, you may revoke it
by giving written notice to the Company, in which event this Agreement will not
go into effect.
So that there is no misunderstanding, if a signed copy of this letter
is not received by us by August 14, 1998, the special severance arrangement
described in this letter will be deemed to be withdrawn.
COLD METAL PRODUCTS, INC.
By: /s/ R. Quintus Anderson
-----------------------
ACCEPTED AND AGREED:
/s/ James R. Harpster
- ---------------------
James R. Harpster
Date: August 13, 1998
---------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 34,482
<ALLOWANCES> 557
<INVENTORY> 50,752
<CURRENT-ASSETS> 89,527
<PP&E> 82,037
<DEPRECIATION> 34,747
<TOTAL-ASSETS> 145,560
<CURRENT-LIABILITIES> 39,700
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 31,244
<TOTAL-LIABILITY-AND-EQUITY> 145,560
<SALES> 61,367
<TOTAL-REVENUES> 61,367
<CGS> 57,610
<TOTAL-COSTS> 57,610
<OTHER-EXPENSES> 4,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,138
<INCOME-PRETAX> (1,624)
<INCOME-TAX> (610)
<INCOME-CONTINUING> (1,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,014)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
<PAGE> 1
Exhibit 99
COLD METAL PRODUCTS, INC.
Investor inquiries, contact:
John E. Sloe, Vice President
Chief Financial Officer
(330) 758-1194
Media inquiries, contact:
Tom Matthews
Ira Thomas Associates
(330) 793-3000
FOR IMMEDIATE RELEASE
COLD METAL PRODUCTS ELECTS PRESIDENT AND CHIEF EXECUTIVE OFFICER;
RAYMOND P. TOROK ASSUMES POST EFFECTIVE IMMEDIATELY
Youngstown, Ohio (October 22, 1998) - Cold Metal Products, Inc. (NYSE:
CLQ) today announced the election of Raymond P. Torok as president and chief
executive officer. He also was appointed to Cold Metal's Board of Directors.
Torok, 52, joins the company from Philadelphia Gear Corporation of King
of Prussia, Pa., where he had served as president and chief executive officer.
He replaces James R. Harpster, who had elected to take early retirement, as
previously announced by the company.
Prior to joining Philadelphia Gear in 1994, Torok held executive
positions of increasing operational and strategic responsibility at Aluminum
Company of America (ALCOA), culminating with his appointment in 1988 as vice
president and general manager of the Aerospace Division, Extrusion/Tube. He
joined ALCOA in 1968.
A native of the Cleveland/Wickliffe, Ohio area, Torok holds a bachelor
of arts degree from John Carroll University and a master's in business
administration from Butler University.
"Ray possesses a background ideally suited to lead Cold Metal well into
the next century," said Heidi A. Nauleau, chairman of Cold Metal. "He has a
proven track record in effecting turnarounds and considerable experience in
implementing successful customer-oriented marketing and sales programs. Cold
Metal will benefit greatly from his results-oriented management style and
strategic planning capabilities."
Torok added, "Cold Metal has many strengths as a company, one of which
is its position as a technological leader in the industry. I look forward to
working with the company and building upon its strengths by devising a strategic
plan to return the company to acceptable levels of profitability, thereby
enhancing shareholder value."
-more-
CORPORATE OFFICE:
8526 South Avenue - P.O. Box 6078 - Youngstown, Ohio 44501 -
(330) 758-1194 - Fax: (330) 758-2705
<PAGE> 2
A leading intermediate steel processor, Cold Metal Products provides
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. Cold Metal operates plants in Youngstown, and Ottawa,
Ohio; New Britain, Connecticut; Indianapolis, Indiana; Hamilton (two plants) and
Concord, Ontario; and Montreal, Quebec. Cold Metal employs approximately 830
people.
###
