<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 December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
For the transition period from ______________________to_______________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction (I.R.S. Employer Identification
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 January 31,1998: 7,112,250
1
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended December 31, 1997
Index
-----
<TABLE>
<CAPTION>
Page No.
PART I. - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations ............................. 3
Consolidated Balance Sheets ....................................... 4
Consolidated Statements of Cash Flows ............................. 5
Notes to 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 ........................................................ 11
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
December 31 December 31
----------- -----------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 67,059 $ 73,162 $ 218,985 $ 207,213
Cost of sales 61,321 67,914 200,857 189,219
---------- ---------- ---------- ----------
Gross profit 5,738 5,248 18,128 17,994
Selling, general, and administrative expenses 3,756 3,758 12,176 11,647
Income from equity investment - - - 28
Interest expense 1,158 791 3,458 1,946
---------- ---------- ---------- ----------
Income before income taxes 824 699 2,494 4,429
Income taxes 310 262 916 1,576
---------- ---------- ---------- ----------
Net income $ 514 $ 437 $ 1,578 $ 2,853
========== ========== ========== ==========
Basic and diluted
net income per share $ 0.07 $ 0.06 $ 0.22 $ 0.40
========== ========== ========== ==========
Weighted average common shares outstanding 7,147,840 7,162,250 7,155,665 7,162,250
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statement
3
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1997 1997
---- ----
<S> <C> <C>
Assets:
Cash $ 910 $ 898
Receivables 32,367 41,386
Inventories 57,397 50,104
Prepaid and other current assets 2,169 2,090
--------- ---------
Total current assets 92,843 94,478
Property, plant and equipment - at cost 79,920 78,233
Less accumulated depreciation (32,634) (29,475)
--------- ---------
Property, plant and equipment - net 47,286 48,758
Other assets 11,120 9,798
--------- ---------
Total assets $ 151,249 $ 153,034
========= =========
Liabilities and shareholders' equity:
Short-term debt $ 15,457 $ 13,192
Accounts payable 27,806 29,322
Other current liabilities 7,606 8,545
--------- ---------
Total current liabilities 50,869 51,059
Long-term debt 47,128 48,330
Postretirement benefits 18,235 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 17,491 15,912
Cumulative translation adjustment (4,297) (2,649)
Less treasury stock, 392,000 and 370,000 shares, at cost (3,602) (3,474)
--------- ---------
Total shareholders' equity 35,017 35,194
--------- ---------
Total liabilities and shareholders' equity $ 151,249 $ 153,034
========= =========
</TABLE>
See notes to consolidated financial statements
4
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COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,578 $ 2,853
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Equity investment --- (28)
Depreciation and amortization 3,524 2,294
Deferred income taxes --- 250
Deferred directors' fees 20 30
Changes in operating assets and liabilities:
Accounts receivable 8,295 3,937
Inventory (8,371) 4,185
Accounts payable (1,172) (4,406)
Accrued expense and other (2,641) 220
--------- ---------
Net cash provided by (used in) operating activities 1,233 9,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,521) (12,752)
Acquisitions --- (8,626)
--------- ---------
Net cash used in investing activities (2,521) (21,378)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loans --- 23,095
Payments of term loans (1,123) ---
Proceeds from debt 165,677 142,348
Payments of debt (163,107) (152,865)
Treasury stock acquisition (127) ---
--------- ---------
Net cash provided by financing activities 1,320 12,578
Net increase in cash 32 535
Effect of translation adjustment (20) 71
Cash at beginning of period 898 2,318
--------- ---------
Cash at end of period $ 910 $ 2,924
========= =========
</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.
(the Company) as of December 31, 1997 and March 31, 1997, the results of
operations for the three month and nine month periods ended December 31, 1997
and 1996, and changes in cash flows for the nine months ended December 31, 1997
and 1996. The results of operations for the periods ended December 31, 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. 130, "Reporting Comprehensive Income", and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes new standards for reporting comprehensive income and its components.
The Company does not expect that comprehensive income will differ materially
from net income, except for foreign currency translation adjustments included in
comprehensive income, the effect of which could be material depending on future
changes in foreign exchange rates. 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 the standard to have a material effect on financial position or
results of operations.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, pretax income, and net income, respectively, of the Company's
Canadian subsidiary were $36.6 million, $335,000, and $211,000 for the quarter
ended December 31, 1997, and $40.7 million, $464,000, and $291,000 for the
quarter ended December 31, 1996. Comparable net sales, pretax income, and net
income, respectively, for the nine months ended December 3 1, 1997 were $123.1
million, $3.1 million, and $2.0 million, and for the nine months ended December
31, 1996 were $110.0 million, $2.7 million, and $1.7 million.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,147,840 for the three month period ended
December 31, 1997 and 7,155,665 for the nine month period ended December 31,
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 nine
month periods ended December 31, 1996. 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>
December 31, March 31,
------------ ---------
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 31,828 $ 28,209
Work-in-process 16,876 15,048
Finished goods 8,693 6,847
------------------------------------------
Total inventories $ 57,397 $ 50,104
==========================================
</TABLE>
NOTE 5. DIRECTORS' INCENTIVE PLAN
In accordance with the Non-Employee Directors' Incentive Plan, three directors
have elected to defer receipt of shares of stock in lieu of pay for their annual
retainer fee. As of December 31, 1997, 12,364 shares of the 60,000 shares
reserved under the Plan for such deferral elections, were 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 22,000 shares of treasury stock in the nine month period
ended December 31, 1997 for a total of $127,000. 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 $521,000.
NOTE 7. CONTINGENCIES
In December 1997, a jury in the Mahoning County Common Pleas Court returned a
verdict against the Company awarding $950,000 in an action relating to an
employee accident at one of the Company's facilities. The Company, on the
advice of counsel, is vigously pursuing all appropriate procedures to have the
verdict overturned, including post-trial motions and appeals. Although there
can be no assurance that the Company will be successful in its efforts to have
the verdict overturned, management believes that the final outcome is not
reasonably likely to have a material adverse effect on the Company's
consolidated financial position, and based on all information available to the
Company at this time, no provision for loss has been made.
7
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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 Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.4% 92.8% 91.7% 91.3%
--------------------------------------------
Gross profit 8.6% 7.2% 8.3% 8.7%
Selling, general, and administrative
expenses 5.6% 5.1% 5.6% 5.6%
Income from equity investment -- -- -- 0.0%
Interest expense 1.7% 1.1% 1.6% 0.9%
--------------------------------------------
Income before income taxes 1.3% 1.0% 1.1% 2.2%
Income taxes 0.5% 0.4% 0.4% 0.8%
--------------------------------------------
Net income 0.8% 0.6% 0.7% 1.4%
============================================
</TABLE>
Net sales for the three months ended December 31, 1997 were $67.1
million, representing a $6.1 million or an 8.3% decrease from the three months
ended December 31, 1996. Lower tons shipped accounted for approximately $6.9
million of sales decrease, offset by slightly higher sales per ton. The decrease
in sales is primarily the result of a program to phase out service center
accounts with unacceptable profit margins. Sales were also somewhat affected by
a drop in demand for processed steel used in consumer goods and construction
products.
For the nine months ended December 31, 1997, net sales were $219.0
million, up $11.8 million, or 5.7%, from the $207.2 million in the prior year
period, on a 9.2% increase in tonnage shipped. The increase was primarily the
result of the consolidation of the results of Direct Steel Ltd., which became a
wholly owned subsidiary in June 1996. Excluding this effect, sales decreased
$100,000, tonnage decreased less than 1%.
Gross profit for the three months ended December 31, 1997 was $5.7
million, an increase of $490,000, or 9.3% over gross profit of $5.2 million for
the three months ended December 31, 1996. Gross profit as a percentage of net
sales was 8.6% for the three months ended December 31, 1997, and 7.2% for the
three months ended December 31, 1996. The increase of gross profit as a
percentage of sales over the comparable three month period in the prior year
reflected lower raw material costs and operational improvement in the ramp-up
process at the Company's expanded facility in Ottawa, Ohio.
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The effects of lower raw material prices and operational improvements were
offset somewhat by the effects of lower volume and a less favorable product mix.
Gross profit for the nine months ended December 31, 1997 was
$18.1 million or 8.3% of net sales compared to $18.0 million or 8.7% of net
sales for the nine months ended December 31, 1996. Gross profits were affected
by the ramp-up activity over the nine-month period at the Company's expanded
facility in Ottawa, Ohio and the consolidation, after June 18, 1996, of sales by
Direct Steel, which are generally made at lower margins.
Selling and administrative costs for the three months ended
December 31, 1997 were unchanged from the quarter ended December 31, 1996, at
$3.8 million. Lower sales levels during the three months ended December 31, 1997
resulted in an increase of selling and administrative costs as a percentage of
sales from 5.1% to 5.6%. For the nine-month period ended December 31, 1997
selling and administrative costs were $12.2 million, or 5.6% of net sales,
compared with $11.6 million, or 5.6% of net sales, for the nine months ended
December 31, 1996. Increases in selling and administrative costs are related to
increased sales activity and continued operational expansion.
Income from equity investment at Direct Steel was $28,000 for
the nine months ended December 31, 1996. Operations of Direct Steel were
consolidated with the Company's operations as of June 18, 1996, and are not
separately reported for the nine months ended December 31, 1997.
Interest expense was $1.2 million or 1.7% of net sales for the
three months ended December 31, 1997 as compared to $791,000 or 1.1% of net
sales for the three months ended December 31, 1996. For the nine months ended
December 31, 1997, interest expense was $3.5 million, or 1.6% of net sales,
compared to $1.9 million, or .9% of net sales for the nine month period ended
December 31, 1996. The current quarter and year to date interest costs reflect
financing costs associated with the Ottawa expansion project. In the prior year,
interest costs related to the project were capitalized. Additional increase in
interest costs in the current year also resulted from the financing of
acquisitions completed during fiscal 1997.
Income taxes for the three months ended December 31, 1997 were
$310,000, or a 37.6% effective rate compared to $262,000, or a 37.5% effective
rate for the same period ended December 31, 1996. Taxes for the nine months
ended December 31, 1997 were $916,000, or a 36.7 % effective rate, compared to
$1.6 million, or a 35.8% effective rate for the nine months ended December 31,
1996.
Net income for the three months ended December 31, 1997 was
$514,000, or $.07 per share as compared to a net income of $437,000, or $.06 per
share for the three months ended December 31, 1996. Net income for the nine
months ended December 31, 1997 was $1.6 million or $.22 per share compared to
net income of $2.9 million or $.40 per share for the nine months ended December
31, 1996.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended December 31, 1997, operating
activities generated cash of $1.2 million, compared to cash generated of $9.3
million for the nine months ended December 31, 1996. Contributing to cash
inflows in the current year were net income and non-cash depreciation totaling
$5.1 million, offset by $3.9 million of cash used for working capital purposes,
which was primarily an inventory increase of $3.0 at the expanded Ottawa
facility.
9
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Cash used in investing activities was $2.5 million for the nine months
ended December 31, 1997, reflecting spending for capital projects during the
period.
Cash flows from financing activities provided $1.3 million for the nine
months ended December 31, 1997. The Company's various bank lending arrangements
provide a maximum borrowing availability of approximately $89.5 million, of
which $63.6 million was outstanding at December 31, 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.
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 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,
or other risks and uncertainties discussed in the Company's 10K report.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which are
material to its financial position.
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 have been no submission of matters to a vote of security
holders.
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
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
undesigned 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)
February 10,1998
11
<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> DEC-31-1997
<CASH> 910
<SECURITIES> 0
<RECEIVABLES> 32,367
<ALLOWANCES> 633
<INVENTORY> 57,397
<CURRENT-ASSETS> 92,843
<PP&E> 79,920
<DEPRECIATION> 32,634
<TOTAL-ASSETS> 151,249
<CURRENT-LIABILITIES> 50,869
<BONDS> 47,128
0
0
<COMMON> 75
<OTHER-SE> 34,942
<TOTAL-LIABILITY-AND-EQUITY> 151,249
<SALES> 67,059
<TOTAL-REVENUES> 67,059
<CGS> 61,321
<TOTAL-COSTS> 61,321
<OTHER-EXPENSES> 3,756
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 1,158
<INCOME-PRETAX> 824
<INCOME-TAX> 310
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<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
