<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999. COMMISSION FILE NUMBER 1-12870 .
--------
COLD METAL PRODUCTS, INC.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 16-1144965
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8526 SOUTH AVENUE, YOUNGSTOWN, OHIO 44514
- ----------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 758-1194
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
COMMON SHARES NEW YORK STOCK EXCHANGE, INC.
PAR VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
----
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING COMMON SHARES, $.01 PAR VALUE, HELD BY
NON AFFILIATES OF THE REGISTRANT AS COMPUTED BY REFERENCE TO THE CLOSING PRICE
ON THE NEW YORK STOCK EXCHANGE ON JUNE 11, 1999 WAS $7,065,188.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE,
OUTSTANDING AS OF JUNE 11, 1999 WAS 6,367,500
<PAGE> 2
COLD METAL PRODUCTS, INC.
FORM 10-K - FISCAL YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C> <C> <C> <C>
PART I Item 1 Business 3
2 Properties 7
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 8
4A Executive Officers of the Registrant 8
PART II Item 5 Market and Dividend Information 9
6 Selected Consolidated Financial Data 10
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
8 Financial Statements and Supplementary Data 15
9 Changes in and Disagreements with Accountants
in Accounting and Financial Disclosure 31
PART III Item 10 Directors and Executive Officers of the Registrant 31
11 Executive Compensation 31
12 Security Ownership of Certain Beneficial
Owners and Management 31
13 Certain Relationships and Related Transactions 31
PART IV Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 31
Signatures 35
</TABLE>
2
<PAGE> 3
COLD METAL PRODUCTS, INC.
FORM 10-K - 1999
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
--------------------------------
Cold Metal Products, Inc. (which, together with its wholly-owned
Canadian subsidiary, is referred to herein as the "Company") is a corporation
organized in 1980 under the laws of the State of New York. The Company is a
leading intermediate processor of flat-rolled steel engineered to meet the
critical requirements of precision parts manufacturers. As an intermediate
processor of flat-rolled steel, the Company purchases coils of rolled steel from
primary producers and processes the steel, using techniques such as
cold-rolling, annealing, normalizing, edge-conditioning and oscillate-winding,
as well as more basic services of slitting and cutting to length. The Company's
products include strip steel for specialty and conventional applications and
processed sheet steel. "Specialty" strip is highly engineered to meet customer
needs in precision parts manufacturing, and "conventional" strip is supplied to
high-volume manufacturers whose purchasing criteria emphasize quality, price and
service rather than unique specifications.
(b) Financial Information about Industry Segments
---------------------------------------------
Production of specialty strip steel, conventional strip steel
and processed sheet steel comprises a single segment of the intermediate steel
processing industry, involving inter-related equipment, technology and raw
materials. Accordingly, the Company operates in one industry segment.
(c) Narrative Description of Business
---------------------------------
Products and Services
---------------------
An intermediate processor of flat-rolled steel, the Company
purchases coils of rolled steel from primary producers and processes the steel,
using techniques such as cold-rolling, annealing, normalizing, edge-conditioning
and oscillate-winding, as well as the more basic services of slitting and
cutting-to-length. The Company processes and markets over 50 grades of steel,
including ultra-low carbon, low carbon, medium and high carbon, very high
carbon, alloy, high strength-low alloy and both 300 and 400 series stainless.
The Company also processes many custom-designed grades to meet special customer
and application requirements.
The Company believes that it is one of the few flat-rolled steel
processors with a significant position in both the specialty strip steel and
conventional strip steel markets, and is an industry leader in at least two key
areas of specialty strip technology: (i) continuous annealing and normalizing of
steel to produce special metallurgical properties and (ii) multi-head
oscillate-winding to produce long lengths of narrow strip steel.
Strip Steel Products. Specialty strip products are highly engineered
and customized, processed from flat-rolled coils of steel meeting exacting
specifications in multiple rolling, annealing and finishing operations.
Specialty strip is used in the manufacture of a variety of products, including
bearings, cutting tools and chain saw blades, tape measures, high-tolerance
springs and pen clips. Conventional strip products are generally used in
high-volume manufacturing applications. Quality requirements for conventional
strip products are typically stringent, and customer purchasing decisions are
usually based on prices offered by processors which can meet those requirements.
Conventional strip products are used in the manufacture of such products as seat
belt parts, transmission parts, industrial chains, door hinges, drawer slides,
golf club shafts and other products.
Processed Sheet. At its steel service center, the Company produces
processed sheet consisting primarily of hot-rolled, cold-rolled and galvanized
steel. The Company's processed sheet steel is typically
3
<PAGE> 4
used in applications that do not require precision tolerances, such as for
heating ducts, wall studs and unexposed automobile parts. The Company's steel
service center purchases steel from primary steel producers and adds value by
slitting, cutting to length and providing warehousing services.
The principal processing techniques and the related equipment of the
Company -- rolling, annealing, slitting, oscillate-winding and finishing -- are
described below:
- Cold-rolling is the process of rolling steel to a specified
thickness, temper and finish. Most strip-rolling is performed on
reversing mills of three major types: 4-High, 6-High and cluster
mills (or "Z-mills"). The Company utilizes all three types.
- Annealing is a thermal process which changes the hardness and
certain metallurgical characteristics of steel. The most common
means of softening strip steel for further processing or
customer use is by annealing (heating and cooling) stacks of
wound coils of strip steel in batch furnaces. All of the
Company's strip mills are equipped for batch annealing. The
Company is one of only two domestic strip producers to operate
continuous annealing lines, which soften the strip steel by
uncoiling the strip and passing it through a long temperature-
controlled furnace to produce more uniform and grain-normalized
properties in the strip. The Company believes it is the only
North American producer to perform continuous annealing of high
carbon and alloy steel grades.
- Slitting is the cutting of steel to specified widths and is
performed at all of the Company's facilities. Coils of
fully-processed strip or wide sheet coil are unwound, passed
through rotary slitting knives and rewound in narrow-width coils
as required by customer specifications.
- Oscillate-winding is a means of producing exceptionally long
lengths of narrow strip steel by winding consecutive coils, much
like thread is wound on a spool. This operation can be performed
after slitting or, at a lower cost, on a multiple head-slitting
and oscillate-winding line.
- Several finishing operations are performed by the Company,
including coating and edge- conditioning. Coating is performed
internally on an electro-galvanizing line at the Youngstown
facility and by outside vendors for other platings or paints as
needed to meet a given customer's needs. Edge-conditioning is
the conditioning of edges of processed steel into square,
full-round or partially-round shapes by rolling and skiving and
is done at several of the Company's plants.
Recent Developments
- -------------------
In the fourth quarter of the fiscal year ended March 31, 1999,
management of the Company's operations was restructured by the establishment of
geographic business units. Although the Company's operations continue to
comprise a single segment of the intermediate steel processing industry,
involving interrelated equipment, technology and raw materials, the new
structure emphasizes accountability and initiative within each geographic region
of the Company's operations. A separate business unit has been established for
the Company's operation in each of Youngstown, Ohio, New Britain, Connecticut,
Hamilton, Ontario, Canada, Montreal, Quebec, Canada, and the Company's
operations at Ottawa, Ohio and Indianapolis, Indiana. Each region is headed by a
general manager who reports to the Company's corporate management. The
restructuring has resulted in the streamlining of corporate management,
including the elimination of some positions, such as the office of executive
vice president. Corporate management now concentrates on overall business
strategy, decisions regarding executive personnel, major capital projects and
financial evaluation of performance of the business units. Significant autonomy
is delegated to each business unit.
4
<PAGE> 5
Effective March 30, 1999, the company disposed of its steel service
centers in Hamilton and Concord, Ontario, Canada, which prior to their
disposition employed approximately 100 people and engaged in slitting of steel,
primarily for the automotive and industrial goods markets. The consideration
received by the Company on such disposition was based on net book value of the
assets disposed of. After the disposition of the two service centers in Hamilton
and Concord, the Company's only remaining steel service center is at Montreal,
Quebec, Canada.
Raw Materials.
--------------
The primary raw materials used in the Company's operations are
hot-rolled and cold-rolled steel coils. Currently, the Company obtains steel for
processing from a number of primary steel producers, and has developed
cooperative relationships with its principal suppliers which, the Company
believes, enable it to assure itself of the availability of steel. Pursuant to
an agreement between the Company and one of its principal suppliers, the Company
has agreed to purchase, and the supplier has agreed to supply, certain specified
volumes of various grades and specifications of steel on competitive terms. This
arrangement, which extends through the year 2001, has been, and is expected to
be, significant to the Company during periods when demand for steel is high and
primary steel suppliers are likely to allocate grades and quantities of steel.
During the fiscal year ended March 31, 1999, the Company purchased approximately
9% of its requirements for hot-rolled and cold-rolled steel under this
arrangement.
The Company has developed supply relationships with several primary
steel producers outside of the U.S. and Canada. Over the Company's last three
fiscal years, approximately 13% of its steel requirements were purchased from
these suppliers. The Company's ability to acquire steel from sources outside the
U.S. and Canada affords it access to certain grades required for its specialty
strip production and, the Company believes, can afford substantial protection in
the event of limited steel supply in North America.
The Company's largest component of cost of sales is raw material costs.
These costs can vary over time due to changes in steel pricing which the Company
typically passes on to customers. In periods of changing steel prices, however,
reductions in the Company's raw material costs may lag behind pressure on the
Company's prices or increases in raw material costs may precede increases in the
Company's prices, temporarily compressing the Company's profit margins. In
fiscal 1999, the Company's margins were affected by competition from low-priced
imports which displaced some of the Company's processed sheet sales.
Patents and Trademarks
----------------------
The Company has no patents material to its business. With respect to
trademarks, the Company has developed a proprietary LaserMatte(R) finish to
enhance drawability in certain difficult forming operations, which the Company
applies utilizing laser texturing technology acquired by the Company in March of
1995. The Company also has developed and produces the UniForm(R) series of
specialty strip products that help customers solve problems in their
manufacturing processes. These include:
Product Application
------- -----------
UniForm(R)100 Magnetic shielding and relay applications
UniForm(R)200 Extra-deep drawn parts
UniForm(R)300 Cup-shaped parts
UniForm(R)500 Applications involving severe bending or stretch forming
UniForm(R)700 Pre-hardened flat parts
UniForm(R)800 High-strength parts requiring high ductility
Lasermatte(R) Laser-generated surface finish for deep drawing, friction
and enhanced bonding applications
5
<PAGE> 6
Seasonality
-----------
The Company experiences lower levels of net sales in the months of
July, November and December, due primarily to holiday periods and customer plant
shutdowns.
Working Capital Requirements
----------------------------
The Company generally maintains its inventory of raw materials at
levels that it believes are sufficient to satisfy the anticipated needs of its
customers based on historic buying practices and market conditions. The Company
believes that its practices are comparable to other companies in the
intermediate steel processing industry. The Company believes that cash generated
from operations and from borrowing under its committed credit facility provide
adequate cash for the Company's working capital requirements.
Customers
---------
The Company sells its products primarily in the automotive,
construction, cutting tools, consumer goods and industrial markets and to
specialty steel distributors. During the fiscal year ended March 31, 1999, 38%
of the Company's net sales were to the automotive market. These sales are
primarily to manufacturers who produce component parts for sale to automotive
manufacturers and after-market parts suppliers. The balance of the Company's net
sales are almost equally divided among the other markets served. The markets
served by the Company's steel service centers during fiscal 1999 were primarily
the automotive industry in Ontario and the construction industry in Quebec.
During the fiscal year ended March 31, 1999, the Company sold products
to approximately 1200 customers with the largest single customer, Borg Warner
Automotive, Inc. together with its related subsidiaries, accounting for
approximately 11% of the Company's net sales. The Company's ten largest
customers accounted for 34% percent of its net sales during that period. During
the fiscal year ended March 31, 1999, approximately 25% of the Company's net
sales were made pursuant to arrangements with customers which contemplate
deliveries over a period of 12 months or more.
For the fiscal year ended March 31, 1999, approximately 50% of the
Company's net sales were to customers in the U.S. and 50% were to customers in
Canada, including customers of the steel service centers in Hamilton and
Concord, Ontario. Less than 1% of the Company's net sales, in each of its last
three fiscal years, were derived from sales to customers outside the U.S. and
Canada. See Note 1 to Consolidated Financial Statements included herein at Item
8.
Backlog
-------
At May 31, 1999, the Company's backlog was approximately $30 million
compared with approximately $44 million at May 31, 1998. The decrease in backlog
as of May 1999 reflects mainly the sale of the Canadian service center
locations. Management estimates that substantially all of the existing backlog
will be shipped during the current fiscal year.
Competition
-----------
The intermediate steel processing industry is highly competitive. The
Company competes on the basis of quality, technical expertise, price and its
ability to meet the delivery demands of its customers. Its principal competitors
in the specialty strip market consist primarily of small, privately-held
concerns, many of which focus on certain grades, finishes or coatings. The
Company's competitors in the conventional strip market include Steel
Technologies, Inc., Worthington Industries and Gibraltar Steel Corporation.
Imported processed steel from Japan and Europe also competes with the Company's
strip steel products.
Compliance With Environmental Regulations
-----------------------------------------
The Company's steel processing facilities are subject to many federal,
state, provincial and local requirements relating to the protection of the
environment, and the Company has made, and will continue to make, expenditures
to comply with such provisions. The Company believes that its facilities are
being operated in material compliance with these laws and regulations and does
not believe that future compliance
6
<PAGE> 7
with such existing laws and regulations will have a material adverse effect on
its results of operations or financial condition. Capital expenditures and
expenses attributable to environmental control compliance were approximately
$350,000 in fiscal 1999, and are forecast to be approximately $400,000 in fiscal
2000 and $450,000 in fiscal 2001.
The Company has retained the services of an environmental consultant
who continuously reviews the Company's operations to insure compliance with
environmental laws and regulations. While the Company's facilities are located
on old industrial sites, and although some contamination has been discovered,
based upon studies and reports conducted by the Company's consultants, the
Company believes it is unlikely that any of the sites will require the Company
to incur material remediation costs.
Employees
---------
As of May 31, 1999, the Company employed a total of 568 people,
consisting of 192 salaried, 332 union, hourly and 44 non-union, hourly
employees. The total employee count is down from 834 as of May 31, 1998 as a
result of the disposition of the two Ontario service centers and the
restructuring of the remaining operations. The Company is a party to five
collective bargaining agreements at its different facilities. The Company
believes its employee relations are good.
ITEM 2. PROPERTIES
The following table sets forth the location, square footage and use of
each of the Company's principal production facilities as of March 31, 1999.
<TABLE>
<CAPTION>
Location(1) Square Principal Use Owned (2)
- ----------- Footage ------------- ---------
------
<S> <C> <C> <C>
Youngstown, Ohio 430,000 Specialty Strip production Owned
New Britain, Connecticut 290,000 Specialty Strip production Owned
Hamilton, Ontario 314,000 Conventional Strip production Owned
(Imperial Street)
Indianapolis, Indiana 140,000 Specialty and Conventional Owned
Strip production
Ottawa, Ohio 145,000 Speciality and Conventional Owned
Strip production
Montreal, Quebec 45,000 Steel service center Owned
</TABLE>
(1) The table does not include steel service center facilities disposed of
in March 1999.
(2) Each of the facilities owned by the Company is subject to the liens of
financial institutions providing term loans and credit facilities.
Changes in product mix result in significant variations in productive
capacity of the Company's strip facilities in any measurable period. The Company
estimates that its strip facilities operated at an estimated 70% of productive
capacity in fiscal 1999, and the Company's slitting equipment at its steel
service centers, which includes the disposed service centers in Ontario,
operated at approximately 60% of productive capacity in fiscal 1999.
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1999, no material legal proceedings were pending
against the Company. During fiscal 1999, the Company negotiated settlements, in
connection with litigation commenced
7
<PAGE> 8
against it by an injured employee. The settlement agreements which were reached
among the Plaintiff, the Company's insurance carriers, and the Company had no
significant impact on the Company's statement of operations or consolidated
financial position for the year ended March 31, 1999. Certain claims, suits and
complaints arising in the ordinary course of the Company's business have been
filed or are pending against the Company. In the opinion of management, none of
such claims, suits or complaints is material and in the aggregate, they will not
have a material adverse effect on the Company's results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of the shareholders in
the fourth quarter of the fiscal year ended March 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of all the
executive officers of the Company:
Name Age Position with Company
---- --- ---------------------
R. Quintus Anderson 68 Chairman of the Executive Committee
Heidi A. Nauleau. 42 Chairman of the Company
Raymond P. Torok 52 President and Chief Executive Officer
Corinn S. Grossetti 43 Secretary and Acting Principal Accounting Officer
Executive officers are elected by the Board of Directors and serve at
its discretion.
R. QUINTUS ANDERSON has served as Chairman of the Executive Committee of the
Board of Directors since 1998. Prior to 1998, Mr Anderson was Chairman of the
Board of Directors of the Company since its incorporation in 1980. Mr. Anderson
and Aarque Capital Corporation, a corporation controlled by Mr. Anderson,
together own approximately 57.7% of the shares of Common Stock of the Company.
Aarque Capital Corporation is one of a group of privately-held corporations
owned or controlled by Mr. Anderson, known as The Aarque Companies, which are in
businesses unrelated to the business of the Company.
HEIDI A. NAULEAU is Chairman of the Company and a Director, having been elected
to those positions in 1998 and 1993, respectively. Mrs. Nauleau is Chairman of
The Aarque Companies, having been elected to that position in February 1996.
Mrs. Nauleau joined The Aarque Companies in 1981 as Assistant to the Chairman
and was appointed Vice President/Europe in 1984. From 1987 until 1992, she was
manager of a subsidiary of Aarque Steel Corporation. Mrs. Nauleau is the
daughter of R. Quintus Anderson.
RAYMOND P. TOROK is President and Chief Executive Officer of Cold Metal
Products, Inc. since October 1998. He is also a Director of the Company, having
been elected by the Board of Directors in October 1998, to fill the vacancy
created by the resignation of James R. Harpster. Prior to joining the Company,
he served as President and Chief Executive Officer of Philadelphia Gear
Corporation from 1994 to 1998. From 1968 to 1994, Mr. Torok was employed by
Aluminum Company of America (Alcoa).
CORINN S. GROSSETTI has served as Secretary and Acting Chief Accounting Officer
since April 1999. She has held various financial positions with the Company
since August 1981, including Corporate Controller from 1994 to 1995, and
Corporate Accounting Manager since 1995.
8
<PAGE> 9
PART II
-------
ITEM 5. MARKET AND DIVIDEND INFORMATION
As of June 11, 1999, there were 6,367,500 shares of common stock
outstanding that were held by 97 shareholders of record. The Company has
declared no dividends in either of the two previous fiscal years. The Company's
ability to pay dividends in the future is limited by the terms of its credit
facilities so as not to exceed twenty-five percent of after tax income on a
cumulative basis exclusive of certain accounting adjustments, commencing as of
March 31, 1994, and by the requirement that no dividend shall result in a
default under the credit facility. Additional information regarding the
principal market for the Company's common stock and market prices for the
Company's common stock is set forth below.
<TABLE>
<CAPTION>
Market Price Ranges
-------------------
Fiscal Year Ending March 31,
----------------------------
1999 1998
---- ----
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $ 5.06 $ 4.50 $ 5.88 $ 4.88
Second Quarter $ 5.56 $ 3.19 $ 6.00 $ 5.50
Third Quarter $ 3.25 $ 2.00 $ 6.25 $ 5.06
Fourth Quarter $ 3.75 $ 1.63 $ 5.31 $ 4.50
</TABLE>
9
<PAGE> 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 248,536 $ 289,213 $ 286,024 $ 227,128 $ 235,145
Cost of sales 233,811 264,799 262,133 205,727 208,408
--------------- --------------- --------------- --------------- ---------------
Gross profit 14,725 24,414 23,891 21,401 26,737
Selling, general, and administrative
expenses 16,598 16,019 15,739 13,645 13,773
Special charges 10,028 --- --- --- ---
Income (loss) from equity investment --- --- 28 (98) 616
Interest expense 4,418 4,624 3,115 2,918 2,956
--------------- --------------- --------------- --------------- ---------------
(Loss) income before income taxes (16,319) 3,771 5,065 4,740 10,624
Income tax (benefit) expense (3,714) 1,438 1,700 1,685 3,698
--------------- --------------- --------------- --------------- ---------------
Net (loss) income $ (12,605)$ 2,333 $ 3,365 $ 3,055 $ 6,926
=============== =============== =============== =============== ===============
Basic and diluted net (loss) earnings
per share $ (1.80) $ 0.33 $ 0.47 $ 0.43 $ 0.96
=============== =============== =============== =============== ===============
Weighted average shares outstanding 6,985,612 7,142,026 7,162,250 7,172,271 7,200,201
=============== =============== =============== =============== ===============
BALANCE SHEET DATA:
Total assets $ 123,228 $ 150,381 $ 153,034 $ 127,785 $ 131,971
Working capital 25,573 56,773 43,419 51,450 54,794
Long-term debt 37,356 60,859 48,330 39,000 34,250
Shareholders' equity 22,016 35,709 35,194 32,368 28,616
</TABLE>
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provide information with respect
to the results of operations of the Company for fiscal 1999, 1998 and 1997 and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto.
Results of Operations
- ---------------------
The following table presents the Company's results of operations
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 94.1 91.6 91.7
-----------------------------------------------
Gross profit 5.9 8.4 8.3
Selling, general, and administrative expenses 6.7 5.5 5.4
Special charges 4.0 -- --
Interest expense 1.8 1.6 1.1
-----------------------------------------------
(Loss) income before income taxes (6.6) 1.3 1.8
Income tax (benefit) expense (1.5) 0.5 0.6
-----------------------------------------------
Net (loss) income (5.1)% 0.8% 1.2%
===============================================
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales decreased $40.7 million, or 14.0%, to $248.5 million. This
decrease was primarily due to a volume decrease of 11.9% from fiscal 1998,
leading to a $34.4 million decrease in net sales. The decline in volume reflects
the impact of several external factors including the General Motors work
stoppage, the effect of the Asian financial crisis on customers, and low-priced
imports. The announcement of the decision to reassess the strategic fit of the
Company's Ontario service centers further impacted sales volumes in the fourth
quarter. An aggregate decrease in sales revenue per ton also reduced sales by
$6.3 million, reflecting an increased mix of lower revenue products and a weaker
Canadian dollar. Despite the above factors, volume levels increased over fiscal
1998 at the Ottawa facility.
Gross profit for fiscal 1999 was $14.7 million, down $9.7 million, or
39.7%, from fiscal 1998. Gross profit as a percent of sales was 5.9%, down from
8.4% in the prior year. The low volume levels had a severe adverse impact on
gross profit in fiscal 1999. Also affecting gross profit was a third quarter
charge of $2.7 million to write down inventories in Canada to estimated net
realizable value.
Selling, general, and administrative (SG&A) expenses of $16.6 million
were up $579,000 over fiscal 1998, reflecting costs incurred in connection with
the retirement of the Company's former chief executive officer. As a percent of
sales, SG&A expenses were 6.7% in fiscal 1999 versus 5.5% in fiscal 1998, the
increase being primarily attributable to the decrease in sales and higher SG&A
expenses discussed above.
In fiscal 1999 the Company recorded special charges of $10.0 million
related to: the impairment of certain assets at the Direct Steel service center,
the subsequent sale of two Ontario service centers, including the Direct Steel
facility, and costs associated with a reduction of the Company's workforce.
These charges were incurred in conjunction with the implementation of a
11
<PAGE> 12
restructuring plan authorized by the Company's board in January, 1999. The
restructuring plan as effected included: streamlining central management staff
and decentralizing company operations through the creation of separate business
units to enhance flexibility, responsiveness, and efficiency; combining the
Indianapolis and Ottawa operations under one management team to attain more cost
effective production; and disposing of the two unprofitable service centers in
Ontario. The implementation of the restructuring plan resulted in a 25%
reduction in overall workforce.
Interest expense for the year was $4.4 million, down slightly from $4.6
million in the prior fiscal year. Average effective interest rates were slightly
lower in fiscal 1999, reflecting market effects, somewhat offset by higher
average borrowings.
Income tax benefit for fiscal 1999 totaled $3.7 million, with an
effective tax rate of 22.7%. In fiscal 1998, income tax expense totaled $1.4
million, with an effective tax rate of 38.1%. The low effective tax rate in
fiscal 1999 reflected the effect of permanent differences for a foreign currency
translation adjustment charge and a goodwill impairment charge.
The factors discussed above resulted in a net loss of $12.6 million, or
5.1% of sales, for fiscal 1999, compared to a net earnings of $2.3 million, or
0.8% of sales, in fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased $3.2 million, or 1.1% to $289.2 million. Volume of
tons shipped was up 3.2% for a $9.0 million sales increase, offset by an
aggregate decrease in sales dollars per ton of $5.8 million. Increased volume
from the Ottawa expansion and stronger construction market sales were offset by
the discontinuation of a sheet services brokerage business, a mix shift to lower
revenue products and a weaker Canadian dollar.
Gross profit for fiscal 1998 was $24.4 million, up $523,000, or 2.2%,
over fiscal 1997. As a percent of sales, margins varied only slightly at 8.4% in
fiscal 1998 versus 8.3% in fiscal 1997. Margin improvements resulted primarily
from strong construction market demand and discontinuation of the brokerage
business which weakened fiscal 1997 performance. Margin improvements were offset
by weaker mix and the continued effect of ramp-up activity at Ottawa, where
increased expenses out-paced growth in volume for the year.
SG&A expenses of $16.0 million were up $280,000 over the fiscal 1997
level of $15.8 million, but as a percent of sales at 5.5% changed only slightly,
due to the higher sales volume. The increase reflects higher sales salaries in
support of operational expansion.
Overall operating income for fiscal 1998 was reduced by $800,000 of
one-time charges. Included was a $350,000 cost-saving initiative charge
associated with a reduction in employment levels and realignment of certain
plant operations. Additionally, a $450,000 reserve was established in connection
with an unfavorable court judgment. In fiscal 1997, the cessation of a brokerage
business reduced operating income by $880,000.
Interest expense was $4.6 million, or 1.6% of net sales for fiscal
1998, an increase of $1.5 million over the fiscal 1997 level of $3.1 million, or
1.1% of net sales. The increase reflected a full year of financing cost expense
for the Ottawa expansion. Through the third quarter of fiscal 1997, financing
costs associated with the project were capitalized.
Income taxes for fiscal 1998 were $1.4 million or an effective rate of
38%. In fiscal 1997, taxes were $1.7 million, an effective rate of 34%.
Adjustments to state taxes and a valuation allowance lowered the effective rate
in fiscal 1997.
12
<PAGE> 13
As a result of the factors discussed above, net earnings for fiscal
1998 was $2.3 million or .8% of net sales compared to $3.4 million or 1.2% of
net sales in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily to fund working capital needs,
capital projects, including the acquisition, expansion and improvement of
facilities, machinery and equipment and to acquire complementary steel-related
businesses. The Company met its capital requirements in fiscal 1999 through cash
flow from operations.
During fiscal 1999, net cash provided by operating activities totaled
$14.2 million. The $12.6 million net loss sustained for the year was more than
offset by a reduction in inventories and trade receivables, along with non-cash
components of the net loss, including; depreciation and amortization, the
impairment of assets charge, and the loss on disposal of assets.
Cash flows used by investing activities for fiscal 1999 totaled $5.3
million, representing normal capital spending requirements. Cash used by
financing activities totaled $9.6 million.
The Company's two bank lending arrangements provide an aggregate
borrowing availability up to a maximum of approximately $88.9 million, of which
$55.3 million was outstanding as of March 31, 1999. In March of 1999, the
Company sold its Ontario service centers for a total of $15.6 million, of which
$14.6 was treated as a current receivable on March 31, 1999. This amount was
collected in April 1999 and used to reduce total bank debt.
One of the borrowing facilities is a term loan in the approximate
amount of $18.9 million secured by the fixed assets of the Company's facility in
Ottawa, Ohio. At March 31, 1999, the Company was in violation with respect to a
cash flow covenant which the lender has waived through the period ending
December 31, 1999. Subsequent to December 1999, the Company expects to be in
compliance.
The Company's other lending agreement is a revolving credit facility
secured by the rest of the Company's assets. The revolving credit facility was
amended during fiscal 1999 to extend the term through October 2002, to provide
for borrowings at Libor plus 150 basis points, with scheduled reductions upon
achievement of certain performance goals, and to amend certain financial ratio
covenants. The Company would be sensitive to a 10% market rate change in
interest under this lending agreement in the approximate amount of $100,000
after taxes.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditures
and other cash requirements for the next twelve months.
SEASONALITY
The Company has in the past experienced lower levels of sales in the
months of July, November, and December, due primarily to holiday periods and
customers' temporary plant shutdowns.
INFLATION/IMPACT OF CHANGING PRICES
The Company's largest component of cost of sales is raw material costs.
These costs can vary over time due to changes in steel pricing which the Company
typically passes on to customers. The Company does not believe that inflation
has had a significant impact on the results of its operations over the periods
presented.
13
<PAGE> 14
ENVIRONMENTAL MATTERS
The Company's facilities are subject to numerous federal, state,
provincial and local regulations related to environmental protection and
compliance with such regulations is a factor in the Company's operations. The
Company has made, and intends to make, expenditures necessary to comply with
such regulations. Under existing laws and regulations, the Company believes that
compliance will not have a material adverse effect on its results of operations
or financial condition.
IMPACT OF YEAR 2000
In the year 2000, certain computer programs may 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.
Other non-information technology systems have been inventoried, tested or
certified in accordance with a compliance plan.
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 continues to evaluate replies as it receives them and
is working with the third parties to correct those problems or monitoring their
efforts to achieve compliance. The Company has received replies from most of its
significant suppliers and vendors.
The Company estimates that the total cost of achieving Year 2000
compliance for its internal systems and equipment is less than $150,000, of
which only a nominal amount remains to be spent. Most of the cost to date has
been funded by allocation of existing resources rather than incurring
incremental costs. The Company expects to continue to fund any 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 develop 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.
The foregoing information is provided in accordance with guidance
furnished by the Securities and Exchange Commission in Securities Act Release
No. 75558, Exchange Act Release No. 40277, dated July 29, 1998.
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
14
<PAGE> 15
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Cold Metal Products, Inc.
Youngstown, Ohio
We have audited the accompanying consolidated balance sheets of Cold
Metal Products, Inc. and Subsidiary (the "Company") as of March 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. Our audits also included the financial statement schedules listed in the
Index at Item 14(a)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Cold Metal Products, Inc.
and Subsidiary as of March 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1999 in conformity with generally accepted accounting principles. Also
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
May 14, 1999
15
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS:
Cash $ 399 $ 1,140
Receivables 38,772 35,996
Inventories 31,481 53,703
Prepaid and other current assets 2,729 3,134
----------------------------
Total current assets 73,381 93,973
Property, plant, and equipment - at cost 74,728 80,583
Less accumulated depreciation (34,444) (33,203)
----------------------------
Property, plant and equipment - net 40,284 47,380
Other assets 9,563 9,028
----------------------------
Total assets $ 123,228 $ 150,381
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 17,976 $ 2,736
Accounts payable 17,221 26,467
Other current liabilities 12,611 7,997
----------------------------
Total current liabilities 47,808 37,200
Long-term debt 37,356 60,859
Postretirement and other benefits 16,048 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 5,640 18,245
Accumulated other comprehensive income (3,732) (4,034)
Less treasury stock, 999,750 and 458,000 shares at cost (5,327) (3,927)
----------------------------
Total shareholders' equity 22,016 35,709
----------------------------
Total liabilities and shareholders' equity $ 123,228 $ 150,381
============================
</TABLE>
See notes to consolidated financial statements
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
(Dollars in thousands except per share amounts)
<S> <C> <C> <C>
Net sales $ 248,536 $ 289,213 $ 286,024
Cost of sales 233,811 264,799 262,133
-------------------- -------------------- -------------------
Gross profit 14,725 24,414 23,891
Selling, general, and administrative expenses 16,598 16,019 15,739
Special charges 10,028 --- ---
Income from equity investment --- --- 28
Interest expense 4,418 4,624 3,115
-------------------- -------------------- -------------------
(Loss) income before income taxes (16,319) 3,771 5,065
Income tax (benefit) expense (3,714) 1,438 1,700
-------------------- -------------------- -------------------
Net (loss) income $ (12,605)$ 2,333 $ 3,365
==================== ==================== ===================
Basic and diluted net (loss) earnings per share $ (1.80) $ 0.33 $ 0.47
==================== ==================== ===================
Weighted average shares outstanding 6,985,612 7,142,026 7,162,250
==================== ==================== ===================
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
COMMON ADDITIONAL TREASURY RETAINED ACCUMULATED
SHARES PAID-IN STOCK EARNINGS OTHER
CAPITAL COMPREHENSIVE TOTAL
INCOME
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $ 75 $ 25,300 $ (3,474) $ 12,547 $ (2,080) $ 32,368
Net income --- --- --- 3,365 --- 3,365
Foreign currency translation adjustment --- --- --- --- (569) (569)
------------
Comprehensive income --- --- --- --- --- 2,796
Shares deferred in lieu of pay --- 30 --- --- --- 30
---------- ----------- ----------- ------------ --------------- ------------
Balance, March 31, 1997 75 25,330 (3,474) 15,912 (2,649) 35,194
Net income --- --- --- 2,333 --- 2,333
Foreign currency translation adjustment --- --- --- --- (1,385) (1,385)
------------
Comprehensive income --- --- --- --- --- 948
Shares deferred in lieu of pay --- 20 --- --- --- 20
Acquisition of treasury stock --- --- (453) --- --- (453)
---------- ----------- ----------- ------------ --------------- ------------
Balance, March 31, 1998 75 25,350 (3,927) 18,245 (4,034) 35,709
Net loss --- --- --- (12,605) --- (12,605)
Foreign currency translation adjustment --- --- --- --- 302 302
------------
Comprehensive loss --- --- --- --- --- (12,303)
Share deferred in lieu of pay --- 10 --- --- --- 10
Acquisition of treasury stock --- --- (1,400) --- --- (1,400)
---------- ----------- ------------ ------------- ---------------- -------------
Balance, March 31, 1999 $ 75 $ 25,360 $ (5,327) $ 5,640 $ (3,732) $ 22,016
========== =========== ============ ============= ================ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (12,605) $ 2,333 $ 3,365
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation and amortization 4,459 4,408 3,333
Impairment of long-lived assets 3,064 --- ---
Loss on sales of assets 4,383 --- ---
Income from equity investment --- --- (28)
Deferred income taxes (2,437) 301 703
Deferred directors' fees 10 20 30
Changes in operating assets and liabilities: excluding assets sold
Receivables 3,845 4,705 (1,325)
Inventories 13,504 (4,417) 5,110
Prepaid and other assets 33 (754) (261)
Accounts payable (1,927) (2,558) (3,244)
Accrued and other liabilities 1,904 (2,310) (323)
--------- --------- ---------
Net cash provided by operating activities 14,233 1,728 7,360
CASH FLOWS FOR INVESTING ACTIVITIES:
Additions to property, plant, and equipment (5,290) (3,391) (14,259)
Acquisitions --- --- (8,525)
--------- --------- ---------
Net cash used in investing activities (5,290) (3,391) (22,784)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from term loans --- --- 23,095
Payments of term loans (1,378) (1,263) (363)
Proceeds from other debt 151,430 218,124 198,475
Payments of other debt (158,721) (214,462) (207,278)
Acquisition of treasury stock (962) (453) ---
--------- --------- ---------
Net cash (used in) provided by financing activities (9,631) 1,946 13,929
Net (decrease) increase in cash (688) 283 (1,495)
Effect of exchange rates on cash (53) (41) 75
Cash at beginning of period 1,140 898 2,318
--------- --------- ---------
Cash at end of period $ 399 $ 1,140 $ 898
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 4,349 $ 4,617 $ 3,904
========= ========= =========
Income taxes paid $ 313 $ 455 $ 724
========= ========= =========
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
1. PRINCIPLES OF CONSOLIDATION, BUSINESS DESCRIPTION AND ACCOUNTING POLICIES
Consolidation and Presentation -- The consolidated financial statements
include the accounts of the Company and its subsidiary, Cold Metal Products,
Limited, a Canadian Company. All significant intercompany transactions and
accounts have been eliminated.
Business Description -- The Company is in the intermediate steel
processing business and processes strip and sheet steel, to meet the critical
requirements of precision parts manufacturers. Through cold rolling, annealing,
normalizing, edge-conditioning, oscillate-winding, slitting, and
cutting-to-length, the Company provides value-added products to manufacturers in
the automotive, construction, cutting tools, consumer goods, and industrial
goods markets. The Company also supplies specialty steel distributors. Its
customers are located predominately in the U.S. and Canada.
During fiscal 1999, 1998, and 1997, approximately 38%, 44% and 41% of
the Company's sales, respectively, and 45%, and 44% of accounts receivable at
March 31, 1999 and 1998, respectively, were with companies in the automotive
industry. The balance of the Company's net sales are approximately equally
divided among the other markets served. During fiscal 1999, 1998, and 1997, the
Company's ten largest customers accounted for 34%, 31% and 31% of the Company's
net sales. One customer accounted for 11% of sales in fiscal 1999 and 7.5% of
accounts receivable as of March 31, 1999. No single customer accounted for 10%
or more of sales in either fiscal 1998 or 1997. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
Production facilities are located in Youngstown and Ottawa, Ohio;
Indianapolis, Indiana; New Britain, Connecticut; Hamilton, Ontario, Canada; and
Pointe Claire, Quebec, Canada.
The Company operates in one business segment, intermediate steel
processing. The Company derived revenues from customers in the United States of
approximately $139.2 million, $147.5 million, and $157.3 million in fiscal 1999,
1998 and 1997, respectively. The Company has long-lived assets located in the
United States of $53.2 million and $49.4 million at March 31, 1999 and March 31,
1998, respectively. The remainder of the Company's revenues and long-lived
assets are related to customers and operations in Canada.
Inventories -- Inventories are valued at the lower of cost or market.
Cost of domestic inventories is determined under the last-in, first-out (LIFO)
method; cost of inventories of the Canadian subsidiary is determined on the
first-in, first-out (FIFO) method. Domestic inventories represent approximately
70% and 49% of total consolidated inventories at March 31, 1999 and 1998,
respectively. Under the FIFO method of inventory pricing, domestic inventories
would have been approximately $1,173,000 and $2,017,000 higher at March 31, 1999
and 1998, respectively. In the third quarter of fiscal 1999, certain inventory
in Canada was written down to estimated net realizable value which resulted in a
pretax charge of $2.7 million which was included in cost of sales.
In fiscal 1999, inventory quantities were reduced resulting in a
liquidation of certain LIFO inventory layers carried at costs which were
different than the cost of current purchases. The effect of the LIFO liquidation
in fiscal 1999 decreased the loss before taxes by $118,000 respectively, and net
loss by $73,000. In fiscal 1997 a LIFO liquidation effect increased income
before taxes by $199,000 and net income by $128,770.
Property, Plant, and Equipment -- Property, plant, and equipment are
stated at cost. The Company provides for depreciation over the estimated useful
lives of the assets on the straight-line method for financial statement
reporting and an accelerated method for income tax reporting purposes. Estimated
useful lives range
20
<PAGE> 21
from five to thirty years. Interest is capitalized in connection with the
construction of qualified assets. Under this policy interest of $722,000 was
capitalized in fiscal 1997.
Goodwill -- Goodwill is amortized using the straight-line method over a
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted cash flows. In
the third quarter of fiscal 1999, the Company's remaining goodwill of $2.2
million was written off due to continued operating losses experienced at one of
the Company's Canadian service center locations and the Company's projection
that undiscounted future cash flows of the assets of that facility were less
than the carrying amounts of those assets. The accumulated amount of goodwill
amortized at March 31, 1998 was $144,000.
Revenue Recognition -- Revenue is recognized when products are shipped
to customers. Sales returns and allowances are treated as a reduction to sales
and are provided for based on historical experience and current estimates.
Stock Based Compensation -- The Company accounts for its stock option
plans using the intrinsic value accounting method, measured as the difference
between the option exercise price and the market value of the stock at the
measurement date. Accordingly, no compensation expense has been recognized for
its stock-based compensation plans in the accompanying financial statements as
all option exercise prices were equal to market price on the date of grant.
Earnings (Loss) Per Share -- Earnings (loss) per share is computed
based upon the weighted average number of common shares outstanding during the
periods presented after consideration of the dilutive effect of stock options
granted. For fiscal 1999, 1998 and 1997, basic and diluted earnings (loss) per
share amounts are the same as the effect of dilutive outstanding stock options
is immaterial.
Financial Instruments -- The Company has various financial instruments
including cash, receivables, short-term and long-term debt, and miscellaneous
other assets. The Company has determined that the estimated fair value of its
financial instruments approximates carrying value.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions pending completion of related events. These estimates and
assumptions affect the amounts reported at the date of the financial statements
for assets, liabilities, revenues and expenses and the disclosure of
contingencies. Actual results could differ from these estimates.
New Accounting Standards -- The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. While the Company is currently evaluating
the statement, it does not believe the standard will have any impact on its
financial position or the results of operations.
Reclassifications -- Certain reclassifications have been made to prior
period balances to conform to the fiscal 1999 presentation.
2. ACQUISITIONS
In fiscal 1997, the Company acquired the remaining outstanding shares
of its 50% equity affiliate, Direct Steel, Inc., in Concord, Ontario, for
approximately $2.6 million. Also in fiscal 1997, the Company acquired real
property and steel processing equipment at Hamilton, Ontario for approximately
$5.9 million including acquisition costs. These acquisitions were accounted for
as purchases and, accordingly, assets and liabilities were recorded at estimated
fair values. In fiscal 1999, both of these service center locations were sold
under terms described in the following footnote.
21
<PAGE> 22
3. SPECIAL CHARGES
In December 1998, as a result of continued operating losses experienced
at the Concord, Ontario service center, the Company recognized a special pretax
charge of $3.1 million for impairment of goodwill, machinery and equipment to
adjust the assets to their estimated realizable market value.
In March 1999, the Company completed the sale of both its Concord and
Hamilton, Ontario steel service center operations for $14.6 million in cash
received in April 1999, and a $1.0 million subordinated note. The sale resulted
in a pre-tax loss of $4.4 million which included a $3.4 million charge related
to the accumulated foreign currency translation adjustment on the disposed
assets and liabilities of these service centers.
In the fourth quarter of fiscal 1999, the Company initiated a
restructuring plan to align its operations with current market conditions,
improve the productivity of its operations, and create a more efficient
organizational structure. In conjunction with the plan, the Company recorded a
pretax charge of $2.5 million in the fourth quarter comprised of severance and
other employment related costs resulting from a reduction of approximately 70
employees. As of March 31, 1999, payments of approximately $575,000 have been
made for these charges. The Company anticipates that substantially all of the
remaining charges will be paid in fiscal 2000.
4. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
-----------------------
(In thousands)
<S> <C> <C>
RECEIVABLES:
Customer receivables, less allowances of $480
and $550, respectively $22,220 $35,996
Taxes receivable 1,910 ---
Proceeds receivable from sale of assets 14,642 ---
-----------------------
$38,772 $35,996
=======================
INVENTORIES:
Raw materials $12,554 $28,241
Work in process 11,263 14,978
Finished goods 7,664 10,484
-----------------------
$31,481 $53,703
=======================
PREPAID AND OTHER CURRENT ASSETS:
Prepaid expenses $ 1,309 $ 1,470
Deferred income taxes 1,420 1,664
-----------------------
$ 2,729 $ 3,134
=======================
PROPERTY, PLANT, AND EQUIPMENT:
Land $ 1,581 $ 2,192
Buildings 14,093 17,810
Machinery and equipment 56,352 59,290
Construction in process 2,702 1,291
-----------------------
$74,728 $80,583
=======================
OTHER ASSETS:
Deferred income taxes $ 5,927 $ 3,177
Goodwill --- 2,417
Other 3,636 3,434
-----------------------
$ 9,563 $ 9,028
=======================
OTHER CURRENT LIABILITIES:
Payroll and related employee benefits $ 7,451 $ 5,066
Other 5,160 2,931
-----------------------
$12,611 $ 7,997
=======================
</TABLE>
22
<PAGE> 23
5. DEBT
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
MARCH 31, MARCH 31,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Committed facility $ 16,473 $ 1,358 $ 20,000 $ 42,000
Term note 1,503 1,378 17,356 18,859
----------------- ----------------- ----------------- -----------------
Total $ 17,976 $ 2,736 $ 37,356 $ 60,859
================= ================= ================= =================
</TABLE>
The Company has a committed credit facility which provides availability
up to a maximum of $70 million, based on a percentage of accounts receivable,
inventory, and an amortizing term loan. At March 31, 1999, unused availability
was $30.9 million. During fiscal 1999, the facility was amended to provide for
borrowing at Libor plus 150 basis points, with scheduled interest rate
reductions upon achievement of certain performance goals, to extend the term
through October 2002, and to amend certain financial ratio covenants, with which
the Company was in compliance at March 31, 1999. Under the committed facility,
the Company has determined that $16.5 million would be subject to repayment with
funds generated from operating activities during the coming fiscal year. As
such, these funds are reflected as short-term in nature. The weighted average
interest rate at March 31, 1999 and 1998 was 6.4% and 6.2%, respectively. The
facility is collateralized by accounts receivable, inventory, common stock of
the Canadian subsidiary, and property, plant and equipment. As of March 31,
1999, the credit line supported letters of credit in the amount of $405,000.
In December 1996, the Company borrowed $21.8 million under an eight and
one-half year term loan at a fixed rate of 8.8% secured by the fixed assets of
its expanded Ottawa, Ohio facility. Proceeds of the loan were used to pay-down
debt under the Company's primary lending facility. The term loan agreement
contains certain financial and other covenants. At March 31, 1999, the Company
was in violation with respect to a cash flow covenant. The lender has waived
noncompliance of the covenant through the period ending December 31, 1999, after
which the Company expects to be in compliance. At March 31, 1999, approximately
$18.9 million of the term loan was outstanding. The scheduled maturities of the
term loan are as follows: 2000 - $1.5 million; 2001 - $1.6 million; 2002 - $1.8
million; 2003 - $2.0 million; and 2004 - $2.1 million; and $9.9 million
thereafter.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of (i) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (ii)
operating loss and tax credit carryforwards. Components of the Company's
deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
U.S.: 1999 1998
----------------- ------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Postretirement and postemployment benefit obligations $ 5,687 $ 5,755
Inventory basis differences 62 (75)
Reserves not currently deductible 597 743
Tax operating loss carrryforwards (expire 2012-2019) 4,808 2,162
Tax credit carryforwards (expire 2002-2004 and unlimited) 538 375
----------------- ------------------
11,692 8,960
Valuation allowance (383) (313)
----------------- ------------------
11,309 8,647
Deferred tax liabilities-property basis differences (4,165) (3,196)
----------------- ------------------
Total U.S. 7,144 5,451
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
----------------- ------------------
CANADA: (In thousands)
<S> <C> <C>
Deferred tax assets:
Postretirement and postemployment benefit obligations 108 120
Reserves not currently deductible 364 25
Tax operating loss carryforward (expires 2004) 624 550
----------------- ------------------
1,096 695
Deferred tax liabilities:
Property basis differences (125) (578)
Pension asset (768) (727)
----------------- ------------------
(893) (1,305)
----------------- ------------------
Total Canada 203 (610)
----------------- ------------------
Net deferred tax asset $ 7,347 $ 4,841
================= ==================
</TABLE>
The provision for income taxes includes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
------------------ ------------------ ------------------
(In thousands)
<S> <C> <C> <C>
CURRENT TAXES:
U.S. federal $ --- $ 87 $ (182)
Canadian federal and provincial (1,286) 1,019 1,128
State and local 9 31 51
------------------ ------------------ ------------------
(1,277) 1,137 997
DEFERRED TAXES:
U.S. (1,693) 95 620
Canadian (744) 206 83
------------------ ------------------ ------------------
(2,437) 301 703
------------------ ------------------ ------------------
Total $ (3,714) $ 1,438 $ 1,700
================== ================== ==================
</TABLE>
Reconciliations of the U.S. federal statutory tax rate to the effective tax rate
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C>
U. S. federal statutory tax rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0) (1.0)
Effect of Canadian rates 1.6 2.6 1.0
State taxes 1.0 0.8 0.7
Foreign currency translation adjustment and goodwill charge (13.5) --- ---
Change in valuation allowance 0.4 --- (1.5)
Other (0.8) 0.7 (0.6)
-------------------------------------------------------------
Effective tax rate 22.7% 38.1% 33.6%
=============================================================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has various pension plans covering substantially all of its
employees. The Company's hourly employees and domestic salaried employees are
covered by noncontributory retirement benefit plans. These plans generally
provide benefits based upon a formula using fiscal average earnings or at a
stated amount for each year of service. The plans' assets are principally
invested by outside asset managers in marketable debt and equity securities. The
company's funding policy is to make annual contributions in line with amounts
actuarially determined to provide the plans with sufficient assets to meet
future benefit payments consistent with the funding requirements of applicable
regulations. The Canadian subsidiary has a defined contribution pension
24
<PAGE> 25
plan covering its salaried employees. The Company's contributions to the defined
contribution pension plan include a noncontributory portion, which is a stated
percentage of salary, and a contributory portion, where the Company matches the
employee's contribution 100% up to 5% of their salary. The Company also
contributes to a domestic multi-employer plan under a collective bargaining
agreement. The Company's contribution under this plan is expensed monthly as
paid.
Certain health care and life insurance benefits are provided for
eligible retirees through an unfunded defined benefit plan. The extent of
benefits provided is dependent upon the retiree's years of service, age and
retirement date.
Certain curtailment and special termination benefits were recognized in
fiscal 1999 under these employee benefit plans in connection with a reduction in
workforce. In fiscal 1998, special termination benefits were also recognized in
connection with early retirement options.
The following tables summarize the change in benefit obligations, plan
assets, funded status, and net periodic benefit costs of the Company's pension
and postretirement benefits plans:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
---------------- -----------------------------
MARCH 31,
1999 1998 1999 1998
-------------- -------------- -------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefits obligation at beginning of year $ 30,918 $ 22,913 $ 11,908 $ 10,186
Service cost 1,164 964 186 142
Interest cost 2,126 1,926 845 825
Amendments 272 --- --- ---
Actuarial loss 542 6,081 1,162 1,396
Benefits paid (1,442) (1,056) (941) (630)
Foreign currency exchange rates (319) (59) (22) (11)
Curtailments (701) --- 247 ---
Special termination benefits 537 149 104 ---
-------------- -------------- -------------- ---------------
Benefit obligation at end of year 33,097 30,918 13,489 11,908
-------------- -------------- -------------- ---------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 32,061 22,875 --- ---
Actual return on plan assets 2,124 6,607 --- ---
Employer contribution 1,684 3,694 941 630
Benefits paid (1,442) (1,056) (941) (630)
Foreign currency exchange rates (355) (59)
-------------- -------------- -------------- ---------------
Fair value of plan assets at end of year 34,072 32,061 --- ---
RECONCILIATION OF FUNDED STATUS AT END OF YEAR
Plan assets in excess of (less than) benefit obligation 975 1,143 (13,489) (11,908)
Unrecognized net actuarial (gain) loss (122) (1,037) 28 (1,090)
Unrecognized prior service cost 2,306 2,532 (2,035) (2,600)
Unrecognized initial net obligation 358 483 --- ---
-------------- -------------- -------------- ---------------
Prepaid (accrued) postretirement benefit cost $ 3,517 $ 3,121 $ (15,496) $ (15,598)
============== ============== ============== ===============
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
---------------- -----------------------------
YEAR ENDED MARCH 31,
--------------------
1999 1998 1997 1999 1998 1997
---------------- ---------------- ---------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 6.75% 7.00% 8.25% 6.75% 7.00% 8.25%
Expected return on plan assets 7.00 - 8.50% 7.00 - 8.50% 8.00 - 8.50% N/A N/A N/A
Rate of compensation increase -
domestic plans only 5.00% 5.00% 5.00% N/A N/A N/A
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per
capita costs of covered domestic health care benefits for pre-age 65 payments
(7.5% for post-age 65 payments) was assumed for fiscal 1999. The rate was
assumed to decrease gradually to 5.5% in 2007 for pre-age 65 payments and in
2003 for post-age 65 payments and remain at that level thereafter. In Canada, an
8.7% annual rate of increase in the per capita cost of covered health care
benefits for pre-65 age payments was assumed for fiscal 1999. The rate was
assumed to decrease gradually to 5.7% by 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
---------------- -----------------------------
YEAR ENDED MARCH 31,
--------------------
1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 1,164 $ 964 $ 873 $ 186 $ 142 $ 141
Interest cost 2,126 1,926 1,659 845 825 793
Expected return on plan assets (2,604) (2,015) (1,673) --- --- ---
Amortization of prior service cost 201 191 134 (564) (564) (564)
Amortization of initial net obligation 74 75 75 --- --- ---
Recognized net actuarial (gain) loss 25 (14) (34) --- (156) (154)
Curtailment (gain) loss (379) --- --- 286 --- ---
Cost of special termination benefits 537 148 293 104 --- ---
----------------------------------------------------------------------------------------
Net periodic benefit cost-defined
benefit plan 1,144 1,275 1,327 857 247 216
Net periodic benefit cost - multi-
employer plan 55 --- --- --- --- ---
Net periodic benefit cost - defined
contribution plan 268 281 255 --- --- ---
----------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,467 $ 1,556 $ 1,582 $ 857 $ 247 $ 216
========================================================================================
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects on
post-retirement benefits:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT INCREASE 1-PERCENTAGE-POINT DECREASE
--------------------------- ---------------------------
1999 1998 1999 1998
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Effect on total of service and interest cost $ 26 $ 24 $ (24) $ (3)
Effect on postretirement benefit obligation $ 276 $ 276 $(263) $ (24)
</TABLE>
26
<PAGE> 27
Domestic employees are eligible to participate in savings plans, which
include a 401(k) feature. The Company matches employee contributions 50% to
100%, in ranges of 3% to 6% of basic earnings. Employees vest in matching
contributions after attaining three years of service. Company matching
contributions were $621,000, 602,000 and $556,000 for fiscal 1999, 1998 and
1997, respectively.
In fiscal 1999, the Company entered into a supplemental employee
retirement plan with the majority shareholder of the Company, which resulted in
a pretax charge of $500,000, not reflected in the above tables.
The benefit is to be paid over a fifteen year period.
8. MANAGEMENT INCENTIVE PROGRAMS
The Company has a discretionary deferred compensation plan for certain
key employees. The Company's policy is to expense and fund to a trust fund,
annually, amounts for services rendered. There was no expense for fiscal 1999;
$100,000 and $116,000 were expensed in fiscal 1998 and 1997, respectively. The
amounts vest 100% five years from the grant date, contingent upon continued
employment or attainment of a normal retirement.
The Company also has programs that provide for the grant of incentive
awards including stock options or restricted stock to officers, key employees,
and non-employee directors.
Effective January 27, 1994, The Company's Board of Directors approved
the officer and key employee stock option program. Under the program, stock
options granted may be either options intended to qualify for federal income tax
purposes as "incentive stock options" or options not qualifying for favorable
tax treatment, "nonqualified stock options." In fiscal 1996, the shareholders
approved an increase in the total number shares of common stock issuable under
the program to 715,350 shares. The stock options are exercisable over a period
determined by the Board of Directors, with the majority of options granted to
date vesting at three years. In no case are options exercisable longer than ten
years after the date they are granted. Details of stock option activity under
the program are as follows:
<TABLE>
<CAPTION>
Number of Number Price per Share
Options Exercisable
<S> <C> <C> <C>
Outstanding, March 31, 1996 375,000 $5.75 - $10.00
Granted 22,500 $6.38
------------------
Outstanding, March 31, 1997 397,500 160,000 $5.75 - $10.00
Granted --- ---
------------------
Outstanding, March 31, 1998 397,500 192,500 $5.75 - $10.00
Granted 200,000 $3.00
Canceled (37,500) $5.75 - $10.00
------------------
Outstanding, March 31, 1999 560,000 337,500 $3.00 - $10.00
</TABLE>
Additionally in fiscal 1999, an option to purchase 200,000 shares at
$3.00 per share was granted, subject to shareholder ratification, in connection
with the commencement of the employment of the Company's Chief Executive
Officer, at an exercise price equal to the fair market value on the date of the
grant and, subject to certain provisions relating to exercise applicable on
changes in control of the Company and upon termination of employment, on other
terms and conditions comparable to the terms of the Company's employee stock
option program. The Company's majority stockholder has committed to vote for the
ratification of this special option at the next annual meeting of the Company.
The weighted average grant-date fair value of options granted during
fiscal 1999 and 1997 was $.91 and $1.68 per share, respectively. At March 31,
1999, 400,000 unvested options with an exercise price of $3.00 per
27
<PAGE> 28
share were outstanding with a weighted average remaining life of 9.5 years and
360,000 options with exercise prices ranging from $5.75 to $10.00 per share were
outstanding with a weighted average remining life of 5.1 years and a weighted
average exercise price of $7.97 per share.
As permitted by SFAS No. 123, the Company has continued to use the
intrinsic value method of measuring stock based compensation. If compensation
costs had been determined based on the fair value of the awards at the grant
date there would not have been a material impact on the Company's reported
amount of net income or loss or net earnings or loss per share.
The Company's Non-Employee Directors' Incentive Plan, which was adopted
on March 3, 1994 and amended by the shareholders on July 20, 1996, provides for
the issuance of shares to Directors (i) on a deferred basis, in lieu of payment
of annual retainer fees and (ii) through options granted at the beginning of a
director's term or, on a discretionary basis, thereafter. The Plan reserves for
issuance 60,000 shares for deferral elections and 100,000 shares for the
granting of options. At the beginning of his or her term, each director is
granted an option to purchase 10,000 shares at a price equal to the market price
on the date of the grant, exercisable after three years but no longer than ten
year after grant, or upon certain specified events, such as a sale or merger of
the Company. Options grantable on a discretionary basis under the plan are
exercisable no less than six months from the date of the grant.
Details of stock options under the plan are as follows:
<TABLE>
<CAPTION>
Number of Number Price per Share
Options Exercisable
<S> <C> <C> <C>
Outstanding, March 31, 1996 65,000 $6.13 - $10.00
Granted 10,000 $5.75
------------------
Outstanding, March 31, 1997 75,000 65,000 $5.75 - $10.00
Granted --- ---
------------------
Outstanding, March 31, 1998 75,000 75,000 $5.75 - $10.00
Granted ---
------------------
Outstanding, March 31, 1999 75,000 75,000 $5.75 - $10.00
</TABLE>
At March 31, 1999, the weighted average exercise price and weighted
average remaining contractual life for all options outstanding were $7.83 per
share 5.9 years, respectively.
Deferral elections under the Company's Non-Employee Directors'
Incentive Plan allow each eligible director to defer receipt of director fees in
cash or common stock until a specified period after his or her resignation or
certain other events, such as a sale or merger of the Company. Amounts deferred
under this election were 2,119 shares in fiscal 1999, 4,000 shares in fiscal
1998 and 5,581 share in fiscal 1997.
9. SHAREHOLDERS' EQUITY
Under a stock repurchase program authorized by the Company's Board of
Directors, the Company purchased 100,000 shares of treasury stock in the open
market in fiscal 1999 for a total of $322,000. In fiscal 1998, 88,000 shares
were purchased for a total of $463,000. Pursuant to special agreements with
former officers, the Company also purchased an additional 208,050 shares of
stock in fiscal 1999 for an aggregate purchase price of $924,000 and is
obligated to purchase in April 1999 an additional 233,700 shares at a price of
$554,000. The Company recorded a $400,000 charge in fiscal 1999 in connection
with these special agreements, which was related to the excess of the purchase
price over the fair market value of the stock. Current financing agreements
allow for the repurchase of stock not to exceed an aggregate purchase price of
$3.0 million. The aggregate purchase price for shares purchased or contracted to
be purchased by the Company under both the program and the special agreements
totals $2,648,000 as of March 31, 1999.
28
<PAGE> 29
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and various equipment under
noncancelable leases expiring through February 2002. The future minimum
obligations under noncancelable operating leases in effect at March 31, 1999
are: $592,000 in 2000, $573,000 in 2001, $470,000 in 2002, $41,000 in 2003 and
$23,000 thereafter. Total rental expense for operating leases was $1,057,000,
$1,047,000, and $914,000 in fiscal 1999, 1998, and 1997, respectively.
In fiscal 1999, the Company negotiated a settlement in connection with
a court awarded verdict against the Company involving an injured employee. The
settlement approximated the estimated amount reserved in fiscal 1998 and as such
had no significant impact on the Company's results of operations or financial
condition for the year ended March 31, 1999.
Certain other claims, suits, and complaints arising in the ordinary
course of business have been filed or are pending against the Company. In the
opinion of management, none of these other such claims, suits or complaints is
material and in the aggregate will not have a material adverse effect on the
Company's results of operations or financial condition.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth certain quarterly financial data.
Quarterly and year to date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year due to rounding and weighting effects.
Third and fourth quarter results in fiscal 1999 included special charges of $3.0
million and $7.0 million respectively, before taxes, which contributed $2.7
million and $5.6 million, respectively, of loss after tax.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
----------------------------------------------------------------------------
(In thousands, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 66,856 $ 61,367 $ 58,679 $ 61,634 $ 248,536
Gross profit (loss) 5,436 3,757 (817) 6,349 14,725
Net income (loss) $ 362 $ (1,014) $ (6,390) $ (5,563) $ (12,605)
=============================================================================
Basic and diluted earnings (loss) per share $ 0.05 $ (0.14) $ (0.91) $ (0.82) $ (1.80)
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
-----------------------------------------------------------------------------
(In thousands, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Net sales $ 78,232 $ 73,694 $ 67,059 $ 70,228 $ 289,213
Gross profit 5,993 6,397 5,738 6,286 24,414
Net income $ 479 $ 585 $ 514 $ 755 $ 2,333
=============================================================================
Basic and diluted earnings per share $ 0.07 $ 0.08 $ 0.07 $ 0.11 $ 0.33
=============================================================================
</TABLE>
29
<PAGE> 30
SCHEDULE II
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
================================================================================
<TABLE>
<CAPTION>
Balance at Charged to Other Deductions Balance at
---------- ---------- ----- ---------- ----------
April 1, 1996 Costs and March 31, 1997
------------- --------- --------------
Description Expenses
--------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 468 -- $ 78(1) -- $ 546
Inventory aging reserves (2) $ 1,494 -- -- $ (58) (3) 1,436
Balance at Charged to Other Deductions Balance at
April 1, 1997 Costs and March 31, 1998
Description Expenses
-----------
Allowance for doubtful accounts $ 546 $ 4 -- -- $ 550
Inventory aging reserves (2) $ 1,436 $ 188 -- -- $ 1,624
Balance at Charged to Other Deductions Balance at
April 1, 1998 Costs and March 31, 1999
Description Expenses
-----------
Allowance for doubtful accounts $ 550 $ 783 $(260)(4) $(593)(3) 480
Inventory aging reserves (2) $ 1,624 $ 443 $ 2,067
</TABLE>
(1) Reserves related to acquired businesses.
(2) To adjust specific inventory items to lower of cost or market value. Reserve
is reflected in appropriate inventory categories.
(3) Adjustments against the account for purposes provided.
(4) Reserves related to disposed businesses.
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information reported in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant," the information on
pages 2 through 3 of the Proxy Statement under the heading "Election of
Directors" and on page 10 of the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation set forth in the
Proxy Statement on pages 5 through 7 under the heading "Executive Compensation,"
on pages 7 through 9 under the heading "Human Resources Committee Report on
Executive Compensation," on page 9 under the heading "Performance Graph," as
well as the information on pages 3 through 4 under the heading "Compensation of
Directors," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management set forth in the Proxy Statement on pages 10 through 11
under the heading "Security Ownership of Certain Beneficial Owners and
Management," is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements
---------------------------------
Included under Item 8 of this report:
Opinion of Independent Public Accountants.
Consolidated Balance Sheets, March 31, 1999 and 1998
Consolidated Statement of Operations for the each of the three years in
the period ended March 31, 1999. Consolidated Statement of
Shareholders' Equity for each of the three years in the period ended
March 31, 1999. Notes to Consolidated Financial Statement for each of
the three years in the period ended March 31, 1999.
2. Supplemental Schedules
----------------------
Included under Item 8 of this report:
Financial Statement Schedule II - Valuation and Qualifying Accounts and
Reserves
31
<PAGE> 32
All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. and Description Location
- --------------------------- --------
<S> <C> <C>
(2)(b) Asset Purchase Agreement between Cold Metal Previously filed as an exhibit to the Company's
Products, Limited and Maksteel Inc. dated March Form 8-K filed April 14, 1999.
30, 1999.
(3)(i)(a) Restated Certificate of Incorporation of Registrant Previously filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(3)(i)(b) Amendment to the Restated Certificate of Previously filed as Exhibit 3.3 to the
Incorporation of Registrant Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(3)(ii) Amended By-Laws of Registrant Previously filed as Exhibit E-1 to the
Company's 1994 Annual Report on Form 10-K
filed on June 29, 1994
(4) Specimen stock certificate for the Common Previously filed as Exhibit E-1 to the
Stock Company's 1995 Annual Report on Form 10-K
filed on June 29, 1995
(10)(a) Third Amended and Restated Credit Facility and Previously filed as an exhibit to the
Security Agreement between The Bank of New Company's 1998 Annual Report on Form 10-K
York and the Company, dated as of April 1, 1998, filed on June 25, 1998.
which amended and restated the Second Amended
and Restated Discretionary Credit facility
previously filed and listed as Exhibit 10(a) to the
Company's Annual Report on Form 10K for the
fiscal year ended March 31, 1997.
(10)(b) Cold Metal Canadian Subsidiary Guaranty Agreement, Previously filed as Exhibit 3.1 to the
dated as of July 31, 1987, between Irving Trust Company Company's Registration Statement on Form S-1,
(predecessor to The Bank of New York) and Registrant's which became effective on March 21, 1994 at
Canadian Subsidiary, Cold Metal Products Company, Ltd. 4:00 p.m. (Commission File No. 33-74986)
(10)(c) Supply Agreement, dated February 1987, as amended Previously filed as Exhibit 10.3 to the
June 20, 1989, December 31, 1992 and December 31, 1993, Company's Registration Statement on Form S-1,
subject to request for confidential treatment which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(d) Tax Sharing and Indemnification Agreement, dated Previously filed as Exhibit 10.5 to the
January 31, 1994, among Registrant and its Company's Registration Statement on Form S-1,
affiliates which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
(10)(e) Special Incentive Compensation Plan of Previously filed as Exhibit 10.10 to the
Registrant, effective December 1, 1993 Company's Registration Statement on Form
S-1,which became effective on March 21, 1994
at 4:00 p.m. (Commission File No. 33-74986)
(10)(f) Special Incentive Compensation Plan Trust Previously filed as Exhibit 10.11 to the
Agreement, dated January 28, 1994 Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(g) Amended and Restated 1994 Incentive Program Previously filed as Exhibit A to the
Company's 1995 Proxy Statement filed on June
22, 1995.
(10)(h) Share Purchase and Loan Agreement, dated Previously filed as Exhibit 10.13 to the
December 30, 1993, among Cold Metal Products Company's Registration Statement on Form S-1,
Company, Ltd., Lance and Mara Dunlap, 955404 which became effective on March 21, 1994 at
Ontario, Inc. and Direct Steel, Inc. 4:00 p.m. (Commission File No. 33-74986)
(10)(i) Share Purchase and Loan Amendment. Agreement Previously filed as Exhibit E-5 to the
dated March 23, 1994 among Cold Metal Products Company's 1994 Annual Report on Form 10-K
Company, Ltd., Lance and Mara Dunlap, 955404 filed on June 29, 1994
Ontario Inc. and Direct Steel, Inc.
(10)(j) Shareholders Agreement, dated March Previously filed as Exhibit E-6 to the
23, 1994, Cold Metal Products Company, Ltd. Company's 1994 Annual Report on Form 10-K
Lance and Mara Dunlap, 955404 Ontario Inc. and filed on June 29, 1994
Direct Steel, Inc.
(10)(k) Supply Agreement, dated March 23, 1994, Previously filed as Exhibit E-7 to the
between Cold Metal Products Company, Ltd. and Company's 1994 Annual Report on Form 10-K
Direct Steel, Inc. filed on June 29, 1994
(10)(l) Agreement between Registrant and The Stanley Previously filed as Exhibit 10.20 to the
Works, dated February 17, 1994 Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986)
(10)(m) Amended and Restated Non-Employee Directors' Previously filed as Exhibit B to the
Incentive Plan Company's 1995 Proxy Statement filed on June
22, 1995.
(10)(n) Master Equipment Lease Agreement, Equipment Previously filed as Exhibit E-2 to the
Schedule No. 01 and related addenda between Company's 1995 Annual Report on Form 10-K
Cold Metal Products, Inc. and KeyCorp Leasing filed on June 29, 1995.
Ltd.
(10)(o) Russell Metal, Inc. and Cold Metal Products Previously filed as an exhibit to the
Company, Ltd. Asset Purchase Agreement dated Company's Report on Form 10-Q for the fiscal
10/21/96. quarter ended December 31, 1996.
(10)(p) Loan Agreement between Cold Metal Products, Previously filed as an exhibit to the
Inc. and The CIT Group/Equipment Financing, Company's Report on Form 10-Q for the fiscal
Inc. quarter ended December 31, 1996.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
(10)(q) Amendment No. 1 to Third Amended and Restated Previously filed as an exhibit to the
Credit and Security Agreement Company's Report on Form 10-Q for the fiscal
quarter ended September 30, 1998.
(10(r) Letter Agreement between James R. Harpster and Previously filed as an exhibit to the
Cold Metal Products, Inc. Company's Report on Form 10-Q for the fiscal
quarter ended September 30, 1998.
(10)(s) Amendment No. 2 and Waiver Agreement to Third Exhibit (10)(s) hereto
Amended and Restated Credit and Security
Agreement
(10)(t) Letter Agreement between John A. Watson and Exhibit (10)(t) hereto
Cold Metal Products, Inc.
(10)(u) Letter Agreement between Gordon A. Wilber and Exhibit (10)(u) hereto
Cold Metal Products, Inc.
(10)(v) Letter Agreement between Allen R. Morrow and Exhibit (10)(v) hereto
Cold Metal Products, Inc.
(10)(w) Supplemental Executive Retirement Agreement Exhibit (10)(w) hereto
(10)(x) Letter Agreement between Cold Metal Products, Exhibit (10)(x) hereto
Inc. and The CIT Group
(21) Subsidiary of Registrant. Previously filed as Exhibit 21.1 to the
Company's Registration Statement on Form S-1,
which became effective on March 21, 1994 at
4:00 p.m. (Commission File No. 33-74986.)
(23) Independent Auditors' Consent. Exhibit 23 hereto.
(27) Financial Data Schedule. Exhibit 27 hereto.
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report of Form 8-K on April 14, 1999 to report
its disposition of assets and certain liabilities of its steel service centers
located in Hamilton and Concord, Ontario, Canada.
(c) Exhibits Required by Item 601 of Regulation S-K
Exhibits 3 (i)(a)-(b), (10)(b)-(f), (10)(h), (10)(l), and (21) are
incorporated herein by reference to the Company's Registration Statement on Form
S-1, which was previously filed and became effective on March 21, 1994 at 4:00
p.m. (Commission file No. 33-74986.) Exhibits (3)(ii), and (10)(i)-(k), are
incorporated herein by reference to the Company's Annual Report on Form 10-K
(Commission file No. 1-12870) for the fiscal year ended March 31, 1994. Exhibits
4, and (10)(n), are incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995. Exhibits (10)(g)
and (10)(m) are incorporated herein by reference to the Company's 1995 Proxy
Statement filed on June 22, 1995. Exhibits (10)(o)-(p) are incorporated herein
by reference to the Company's Report on Form 10-Q (Commissions file No. 1-12870)
for the fiscal quarter ended December 31, 1996. Exhibits (10)(q) - (10)(r) are
incorporated herein by reference to the Company's Report on Form 10-Q for the
fiscal quarter ended September 30, 1997. Exhibit 2(b) is incorporated herein by
reference to the Company's Report on Form 8-K filed April 14, 1999. The
remaining exhibits are contained herein.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COLD METAL PRODUCTS, INC.
June 25, 1999 By /s/ Raymond P. Torok
-------------------------------------
Raymond P. Torok
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, as of June 25, 1999, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ Heidi A. Nauleau Chairman of the Board of Directors
- ---------------------------
Heidi A. Nauleau
/s/ Raymond P. Torok President, Chief Executive Officer and Director
- --------------------------- (Principal Executive Officer)
Raymond P. Torok
/s/ R. Quintus Anderson Chairman of Executive Committee
- ---------------------------
R. Quintus Anderson
/s/ Wilbur J. Berner Director
- ---------------------------
Wilbur J. Berner
/s/ Claude F. Kronk Director
- ---------------------------
Claude F. Kronk
/s/ Robert D. Neary Director
- ---------------------------
Robert D. Neary
/s/ Edwin H. Gott, Jr. Director
- ---------------------------
Edwin H. Gott, Jr.
/s/ Peter B. Sullivan Director
- ---------------------------
Peter B. Sullivan
/s/ Corinn S. Grossetti Secretary
- --------------------------- (Acting Principal Accounting Officer)
Corinn S. Grossetti
35
<PAGE> 1
Exhibit (10)(s)
AMENDMENT NO. 2 AND WAIVER AGREEMENT
THIS AMENDMENT NO. 2 AND WAIVER AGREEMENT ("Amendment No. 2") is
entered into as of February 24, 1999, 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 by Amendment No. 1
dated as of October 9, 1998 (as amended and as may be further 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 and waive
certain financial covenants 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 5 below, the Loan Agreement is hereby
amended as follows:
2.1. Section 1.2 of the Loan Agreement is hereby amended as follows:
(a) the following defined terms are hereby added in their
appropriate alphabetical order:
"AMENDMENT NO. 2" shall mean Amendment No. 2 and Waiver
Agreement dated as of February 24, 1999.
"AMENDMENT NO. 2 EFFECTIVE DATE" shall mean the later of
February 24, 1999 or the date upon which all of the conditions
precedent contained in Section 5 of Amendment No. 2 shall have
been satisfied.
"APPLICABLE MARGIN" shall mean a percentage equal to (i) one
percent (1%) with respect to Domestic Rate Loans and (ii) one
<PAGE> 2
and one-half percent (1.50%) with respect to LIBOR Rate Loan, in each case
effective as of February 15, 1999. The Applicable Margin shall be adjusted to
the percentage set forth in the following grid as corresponds to the applicable
Pre-Tax Profit amount set forth in such grid as of the first day of the first
calendar month that occurs more than five (5) days after delivery of Borrower's
financial statements to Lender for the fiscal year ending March 31, 2000 so long
as: (i) Borrower shall be in compliance with the financial covenants set forth
in sections 6.5, 6.8 and 6.9 of this Agreement, (ii) no Default or Event of
Default shall have occurred and be continuing, and (iii) Borrower shall have
achieved a Pre-Tax Profit on a consolidated basis for the fiscal year ended
March 31, 2000 equal to the amounts set forth below:
<TABLE>
<CAPTION>
Domestic LIBOR
Pre-Tax Profit Rate Margin Rate Margin
- -------------- ----------- -----------
<S> <C> <C>
Equal to or greater than $4,115,000 .75% 1.25%
but less than $5,143,750
Equal to or greater than $5,143,750 .50% 1.00%
</TABLE>
"PRE-TAX PROFIT" shall mean, with respect to any period, the
sum of aggregate net income of Borrower on a consolidated basis during such
period plus the aggregate amount of income tax deducted in determining such net
income during such period.
(b) the following defined terms are hereby amended in their
entirety to read as follows:
"REVOLVING INTEREST RATE" shall mean an interest rate per
annum equal to, as appropriate, (a) the Alternate Base Rate plus the Applicable
Margin with respect to Domestic Rate Loans, or (b) the sum of the Average
Monthly LIBOR Rate plus the Applicable Margin with respect to LIBOR Rate Loans."
"TERM" shall mean the Closing Date through October 2, 2002, as
same may be extended in accordance with Section 13.1."
2.2 Section 3.3 is hereby amended in its entirety to read as follows:
"3.3. EARLY TERMINATION FEE. In the event Borrower shall
prepay the Obligations in full prior to the last day of the Term (the date of
such prepayment hereinafter referred to as the "Prepayment Date"), Borrower
shall pay to Lender an early termination fee in an amount equal to (x) $300,000
if the Prepayment Date occurs from the Amendment No. 2 Effective Date to and
including October 2, 2000, (y) $200,000 if the Prepayment Date occurs on or
after October 3, 2000 to and including October 2, 2001, and (z) $100,000 if the
Prepayment Date occurs on or after October 3, 2001 to and including October 2,
2002."
2.3 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
<PAGE> 3
than (i) 1.40 to 1 at the end of the fiscal quarter ending March 31, 1999, (ii)
1.34 to 1 at the end of the fiscal quarter ending June 30, 1999, (iii) 1.46 to 1
at the end of the fiscal quarter ending September 30, 1999, (iv) 1.73 to 1 at
the end of the fiscal quarter ending December 31, 1999 and (v) 1.65 to 1 at the
end of the fiscal quarter ending March 31, 2000 and at the end of each fiscal
quarter thereafter during the Term. 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 ratio of (x) the sum of
aggregate net income of Borrower on a consolidated basis during each fiscal
period set forth below plus the aggregate amount of income tax, interest,
depreciation and all other non-cash expense deducted in determining such net
income during such 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>
4/1/99 to 6/30/99 0.87 to 1
4/1/99 to 9/30/99 1.08 to 1
4/1/99 to 12/31/99 1.05 to 1
4/1/99 to 3/31/00 1.15 to 1
and each four quarter fiscal period
thereafter during the Term.
</TABLE>
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) 5.65 to 1 at the end of the fiscal quarter ending March 31, 1999, (ii) 4.87
to 1 at the end of the fiscal quarter ending June 30, 1999, (iii) 4.44 to 1 at
the end of the fiscal quarter ending September 30, 1999, (iv) 4.13 to 1 at the
end of the fiscal quarter ending December 31, 1999, (v) 4.11 to 1 at the end of
the fiscal quarter ending March 31, 2000 and at the end of each fiscal quarter
thereafter during the Term."
3. WAIVERS.
3.1 Subject to the satisfaction of the conditions set forth in Section
5 below, Lender hereby waives the Event of Default that has occurred as a result
of Borrower's non-compliance with Section 6.8 of the Loan Agreement solely as a
result of Borrower's failure to maintain the necessary level of Fixed Charge
Coverage as of the end of the fiscal quarter ending December 31, 1998.
3.2 Subject to the satisfaction of the conditions set forth in Section
5 below, Lender hereby waives compliance by Borrower with Section 6.8 solely for
the fiscal quarter ending March 31, 1999.
4. APPRAISALS. Borrower shall deliver an updated "desk-top" appraisal
of the real estate assets of Borrower, a "walk-through"
<PAGE> 4
appraisal of the Equipment and an appraisal of the Inventory of Borrower, each
in form and substance satisfactory to Lender, and each at Borrower's expense,
within sixty (60) days after the Amendment No. 2 Effective Date.
5. CONDITIONS OF EFFECTIVENESS. This Amendment No. 2 shall become
effective when Lender shall have received:
(i) four (4) copies of this Amendment No. 2 executed by
Borrower and consented to and agreed to by Cold Metal Products, Limited as
guarantor;
(ii) an amendment fee equal to $100,000;
(iii) consent of Participants.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants as follows:
(a) This Amendment No. 2 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.
2.
(c) Borrower has no defense, counterclaim or offset with
respect to the Obligations.
7. EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of SECTION 2 hereof, each reference
in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import shall 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. 2 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.
8. GOVERNING LAW. This Amendment No. 2 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.
9. HEADINGS. Section headings in this Amendment No. 2 are included
herein for convenience of reference only and shall not constitute a part of this
Amendment No. 2 for any other purpose.
<PAGE> 5
10. COUNTERPARTS. This Amendment No. 2 may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all of which taken together shall be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed as of
the day and year first written above.
COLD METAL PRODUCTS, INC.
By: /s/ J. E. Sloe
--------------
Name: J. E. SLOE
----------
Title:VP-CFO
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/Raymond P. Torok
-------------------
Name: Raymond P. Torok
-----------------
Title:PRESIDENT AND CEO
THE CIT GROUP/BUSINESS CREDIT INC.
By:/s/ Mitchell J. Tarvid
----------------------
Name: Mitchell J. Tarvid
------------------
Title:V.P.
NATIONAL CITY BANK
By: /s/ B.J. Lumpkin
----------------
Name: B. J. Lumpkin
-------------
Title:
<PAGE> 1
Exhibit (10)(t)
December 30, 1998
Mr. John W. (Jack) Watson
30 Charterhouse Cr.
Ancaster, Ontario, Canada L9G 4E5
Dear Jack:
This is to confirm our conversation today in which we advised you that your
employment with Cold Metal Products Company, Ltd. ("CMP" or the "Company") would
cease effective January 4, 1999.
The Company will provide you with the following compensation and benefits in
satisfaction of all of its obligations to you (including all statutory
obligations in respect of termination pay, severance pay and vacation pay
pursuant to applicable employment standards legislation) and in lieu of actual
notice of termination.
1. Compensation
------------
The Company will continue to pay your salary at the rate of $167,000
per annum for a maximum of twenty-one (21) months concluding not later
than September 30, 2000, (the "notice period"). CMP will continue to
pay your salary in the ordinary course.
CMP undertakes to pay your salary throughout the notice period of
twenty-one months, subject to your notifying us of your having
commenced alternate employment prior to the expiration of that
twenty-one month period.
In the event that you do commence alternate employment during the
notice period, CMP will cease paying salary continuation and will
calculate the amount of salary which would have been paid to you during
the balance of the twenty-one month period and arrange for the issuance
to you of a check for 60% of that amount, subject to necessary
deductions, and Mr. Watson's direction concerning treatment for income
tax purposes.
Your entitlement to salary continuation and to any lump sum payment as
provided for above is expressly contingent upon your prompt and
faithful reporting to us of any alternate employment which you might
commence after today's date.
As a participant in the Company's Deferred Compensation Plan, your
account will be paid to you in accordance with the terms of the Plan.
For details, please contact John Sloe.
Company Car: As you know, you are in possession of a Company leased
car. We will make arrangements for your purchase of the vehicle under
the terms of the lease. Mr. Watson shall have the use of the companay
car plus the PHH service card until August 31, 1999.
<PAGE> 2
Mr. John W. (Jack) Watson
December 30, 1998
Page 2
Club Membership: Details of the availability of your account
will be made available from John Sloe.
Board Membership: Enclosed is a resignation form from the
Board of Cold Metal Products Company, Ltd. for your signature.
2. Benefits
--------
a) During the period commencing with your receipt of this letter, CMP
will continue all of your currently enjoyed insured benefits (other
than weekly indemnity and long-term disability coverage) and your
participation in the pension plan until September 30, 2000, and the
date upon which you commence alternate employment. Weekly indemnity and
long-term disability coverage will cease effective January 4, 1999. If
you have any questions concerning your benefit coverage, please contact
Ron Gratton, (telephone: 905-544-2803 extension 2258), who will be glad
to assist you.
b) Following the conclusion of the "notice period" or the date at which
alternate employment is commenced, the Company will provide insured
benefits in accordance with normal retirement policies for CMP, Ltd.
for retirees.
3. Pension
-------
You will, of course, be entitled to your pension benefits in accordance
with the terms of the pension plan and will receive all the relevant
information in due course.
4. Alternate Employment
--------------------
For the purposes of this letter and CMP obligations to you, "alternate
employment" shall mean any gainful employment obtained by you or your
entering into any business or undertaking with a view to earning an
income, either individually or in any partnership or jointly in
conjunction with any person or persons, firms or associations,
syndicate, company or corporation, as a principal, agent, participant,
shareholder, director, officer, employee, consultant or in any other
manner, whether part time, full time or on a consulting or advisory
basis.
5. Vacation Pay
------------
Vacation pay accrued to 1/4/99 will be paid on or before 1/31/99. No
further vacation pay will accrue or be payable.
6. Business Expenses
-----------------
We will reimburse you for any allowable business expenses incurred up
to and including today's date. Please submit an expense report in this
regard.
<PAGE> 3
Mr. John W. (Jack) Watson
December 30, 1998
Page 3
In consideration of the foregoing, you agree that:
1. You shall not use or disclose, without the consent of the Company, any
trade secrets, confidential or proprietary information of or concerning
the Company, its owners, affiliates, clients or suppliers;
2. You shall refrain from any statements inimical to the best interests of
the Company and, particularly, shall make no adverse or unfavorable
public statements concerning the Company or your relationship with it;
3. You shall return all records and copies of records dealing with the
operations and activities of the Company, its owners, affiliates,
clients or suppliers.
4. You shall not make any claim or commence or maintain any action or
proceeding against any other person or corporation who or which might
claim contribution, indemnity or relief over from the Company; and
5. You will maintain the terms of this arrangement in strict confidence
and will not disclose them, except to the extent that such disclosure
may be required by law or to permit you to obtain tax planning, legal
or similar advice.
Please signify your acceptance of all of these terms of termination by signing
and returning the enclosed duplicate of this letter, together with a fully
executed copy of the enclosed release no later than March 24, 1999.
We thank you for your efforts during your employment with CMP and wish you
success in your future endeavors.
Yours very truly,
COLD METAL PRODUCTS, INC.
Raymond P. Torok
President and C.E.O.
I HAVE READ, UNDERSTAND AND HEREBY VOLUNTARILY ACCEPT THE TERMS AS SET OUT ABOVE
IN FULL AND FINAL SATISFACTION OF ALL CLAIMS WHICH I MIGHT HAVE AS A RESULT OF
THE TERMINATION OF MY EMPLOYMENT BY CMP, INCLUDING ANY CLAIM TO TERMINATION PAY
OR SEVERANCE PAY UNDER THE EMPLOYMENT STANDARDS ACT (ONTARIO).
Dated: 3-24-99
------------------------
By: /s/ John W. Watson
------------------------
John W. (Jack) Watson
<PAGE> 1
Exhibit (10)(u)
March 31, 1999
Mr. Gordon A. Wilber
3335 Hummingbird Drive
Poland, OH 44514
Dear Gordon:
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. Your resignation as an officer and director of the
Company and all of its related corporations, and your termination of employment
with the Company will be effective March 31, 1999, sometimes referred to herein
as the "termination date". The period of 24 months beginning on the termination
date, ending on March 31, 2001, is referred to herein as the "severance period".
2. OBLIGATIONS OF THE COMPANY. In consideration of the agreements,
releases and representations made by you in this Agreement:
(a) You will receive a lump sum severance payment in the amount of
$525,408, less lawful withholdings, within thirty (30) days after the date of
this letter.
(b) During the severance period you will continue to participate in
those employee benefit plans and fringe benefit arrangements identified in
Schedule A on a post-employment basis, subject to the Company's right to modify,
amend or terminate any such plan or arrangement.
(c) 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 termination date.
Payment will be made to you within 30 days after the date of this Agreement.
(d) The Company will transfer title to your Company vehicle to you,
within 30 days after the date of this Agreement.
(e) Within thirty (30) days after this Agreement becomes effective, the
Company will pay an allowance of $20,000 for financial services and legal fees
relating to this Agreement.
(f) Your resignation on the termination date will be considered a
"Normal Termination" for purposes of the Company's 1994 Incentive Program, so
that your currently exercisable options to purchase 56,250 shares of Company
stock will not expire until five (5) years after the termination date. You agree
that your performance of duties as an independent contractor after the
termination date will not defer or affect the effective date of your Normal
Termination for purposes of this program.
(g) You may retain your laptop computer.
<PAGE> 2
Mr. Gordon A. Wilber
March 31, 1999
Page 2
(h) The Company will pay for fourteen (14) days of vacation earned but
unused as of the date on which this Agreement becomes effective.
(i) The Company will pay the cost of the balance of your term as
president of the Cold Rolled Strip Association (approximately $5,000).
(j) The Company will transfer your Wall Street Journal subscription to
your home and will send the American Metal Market to your home shortly after it
arrives at the Company's headquarters.
3. PURCHASE OF STOCK.
(a) You shall have the right to require the Company to purchase 155,800
shares of the Company's common stock owned by you at any time during the period
beginning on the date of this letter and ending on May 13, 1999, but only to the
extent permitted by applicable law, at a price equal to the lower of:
(i) the average of the closing prices of such stock on the New
York Stock Exchange over the 20 trading days preceding the date of your written
notice (described below), or
(ii) $3 13/16 per share.
(b) You may exercise this right by delivering written notice to the
Company on or before May 13, 1999. At the closing of such purchase, which shall
be held on such date as we agree, but not later than 30 days after receipt by
the Company of such written notice, the Company will deliver payment for the
shares, by wire transfer to an account designated by you or as you otherwise
reasonably instruct, subject to your delivery to the Company of 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 paragraphs 2 and 3 above:
<PAGE> 3
Mr. Gordon A. Wilber
March 31, 1999
Page 3
(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 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 at any time 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 clients and their affiliates, and their respective
businesses (including, but not limited to, selling strategies, prices,
know-how, research and development, and strategic planning information)
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.
(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 for Salaried Non-Bargaining Employees of Cold
Metal Products, Inc. (the "Pension Plan"), the Cold Metal Products, Inc. Thrift
Plan (the "Thrift Plan"), the Cold Metal Products, Inc. Special Incentive
Compensation Plan, the Cold Metal Products, Inc. Group Benefit Plan for Salaried
Employees and the Cold Metal Products, Inc. 1994 Incentive Plans (to the extent
rights thereunder are preserved hereunder), as such plans may be amended from
time to time.
<PAGE> 4
Mr. Gordon A. Wilber
March 31, 1999
Page 4
(c) Upon termination of the Consulting Agreement referred to at Section
6(d) hereof, you will return to the Company 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. ACKNOWLEDGMENTS. By signing this Agreement, you expressly
acknowledge and agree that:
(a) You have read and fully 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;
(e) You have had the opportunity to consult with an attorney and have
in fact consulted an attorney, namely, Terry Lardakis of the firm of Brouse &
McDowell, 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 FORTY-FIVE (45) DAYS TO CONSIDER WHETHER TO
SIGN THIS AGREEMENT;
(g) YOU HAVE KNOWINGLY AND VOLUNTARILY ENTERED THIS AGREEMENT WITHOUT
ANY DURESS, COERCION OR UNDUE INFLUENCE BY ANYONE.
<PAGE> 5
Mr. Gordon A. Wilber
March 31, 1999
Page 5
6. 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.
(c) The offers set forth in paragraphs 2 and 3 are integrated,
dependent offers, and none may be accepted separately.
(d) Contemporaneously with the execution and effectiveness of this
Agreement, you and the Company shall enter into a consulting agreement in the
form of Exhibit I attached hereto.
If you agree with the foregoing, please indicate by signing below.
COLD METAL PRODUCTS, INC.
/s/ Raymond P. Torok
-----------------------------
Raymond P. Torok
President
ACCEPTED AND AGREED TO IN FULL:
/S/ Gordon A. Wilber
- ---------------------
Gordon A. Wilber
Date: April 9, 1999
---------------
<PAGE> 1
Exhibit (10)(v)
April 14, 1999
Mr. Allen R. Morrow
6878 Blue Ridge Drive
Poland, Ohio 44514
Dear Al:
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. Your resignation as an officer of the Company will
be effective on December 23, 1998, sometimes 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 resignation
date, which is referred to herein as the "post-resignation period".
(b) During the post-resignation period, your only duties will be such
as may be reasonably assigned to you by the President of the Company or its
designee, and you will not have authority to bind or obligate the Company in any
way. The Company recognizes that you will not devote significant portions 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 receive monthly
salary at the annual rate of $115,008, less lawful withholdings, (ii) you will
continue to participate in those employee benefit plans and fringe benefit
arrangements identified in Schedule A, subject to the Company's right to modify,
amend or terminate any such plan or arrangement, (iii) 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, (iv) you may continue to
participate in the Cold Metal Products, Inc. Thrift Plan during the post-
resignation period, (v) you will receive additional severance, in any amount
equal to $8,847 plus pay for 3 more vacation days, within 30 days after the date
of this Agreement; and (vi) you will receive additional severance, in the amount
of $20,000, within 30 days after the date of this Agreement.
(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 within 30 days after the date of this Agreement.
(c) The Company will transfer title to your Company vehicle to you,
within 30 days after the date of this Agreement.
<PAGE> 2
Mr. Allen R. Morrow
April 14, 1999
Page 2
(d) Within thirty (30) days after this Agreement becomes effective,
the Company will pay an allowance of $10,000 for financial services and legal
fees relating to this Agreement.
(e) 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 22,500 shares of Company
stock will not expire until five (5) years after the termination 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.
3. PURCHASE OF STOCK.
(a) You shall have the right to require the Company to purchase all or
any part of the 77,900 shares of the Company's common stock owned by you, but
only to the extent permitted by applicable law, at a price equal to the lower
of:
(i) the average of the closing prices of such stock on the New
York Stock Exchange over the 20 trading days preceding the date of your written
notice (described below), or
(ii) $3 13/16 per share.
(b) You may exercise this right by delivering written notice to the
Company on or before April 2, 1999. At the closing of such purchase, which shall
be held on such date as we agree, but not later than 30 days after receipt by
the Company of such written notice, the Company will deliver payment for the
shares, by wire transfer to an account designated by you or as you otherwise
reasonably instruct, subject to your delivery to the Company of 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 paragraphs 2 and 3 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
<PAGE> 3
-2-
Mr. Allen R. Morrow
April 14, 1999
Page 3
With Disabilities Act of 1990, the Civil 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 at any time 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 public knowledge or otherwise generally known in the relevant
trade or industry.
(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 for Salaried Non-Bargaining Employees of Cold
Metal Products, Inc., the Cold Metal Products, Inc. Thrift Plan, the Cold Metal
Products, Inc. Special Incentive Compensation Plan, and the fringe benefit plans
set forth in Schedule A, 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. ACKNOWLEDGMENTS. By signing this Agreement, you expressly
acknowledge and agree that:
(a) You have read and fully 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> 4
-3-
Mr. Allen R. Morrow
April 14, 1999
Page 4
(e) You have had the opportunity to consult with an attorney and have
in fact consulted an attorney, namely, Terry Lardakis of the firm of Brouse &
McDowell, 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 FORTY-FIVE (45) DAYS TO CONSIDER WHETHER TO
SIGN THIS AGREEMENT;
(g) YOU HAVE KNOWINGLY AND VOLUNTARILY ENTERED THIS AGREEMENT WITHOUT
ANY DURESS, COERCION OR UNDUE INFLUENCE BY ANYONE.
6. 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.
(c) The offers set forth in paragraphs 2 and 3 are integrated,
dependent offers, and none may be accepted separately.
If you agree with the foregoing, please indicate by signing below.
COLD METAL PRODUCTS, INC.
By: /s/ Raymond P. Torok
------------------------
Raymond P. Torok, President
ACCEPTED AND AGREED TO IN FULL:
/s/ Allen R. Morrow
- -------------------
Allen R. Morrow
Date: April 14, 1999
--------------
<PAGE> 1
Exhibit (10)(w)
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
-------------------------------------------
THIS AGREEMENT entered into as of the 31st day of March, 1999, by and
between Cold Metal Products, Inc. (the "Company") and R. Quintus Anderson (the
"Executive"), recites as a preamble the following:
I. The Executive has served as Chairman and director of the Company
from its inception; and
II. Each party desires that the Company make suitable provisions for
the retirement income of the Executive.
NOW, THEREFORE, in view of the premises and in consideration of the
agreements and mutual covenants herein contained, the parties hereto agree as
follows:
1. Supplemental Retirement Benefit.
--------------------------------
The Company shall pay to the Executive, beginning after his retirement
date, a supplemental retirement benefit as provided herein. For purposes of this
Agreement, the Executive's "retirement date" means March 31, 1999.
2. Form of Supplemental Retirement Benefit.
----------------------------------------
The supplemental retirement benefit payable hereunder shall be a
monthly benefit payable to the Executive over a period of fifteen (15) years.
The first monthly payment shall be made as of May 15, 1999, and the last monthly
payment shall be made as of the 180th month thereafter or, if earlier, the month
in which the Executive dies.
3. Amount of Supplemental Retirement Benefit.
------------------------------------------
The monthly amount of the supplemental retirement benefit shall be the
amount payable under a hypothetical variable annuity having the following
characteristics:
(a) Front-end design with initial, one-time premium of $500,000;
(b) payments over a fixed 15-year term, commencing immediately; and
(c) investment in a balanced fund.
It is anticipated that the first monthly payment will be approximately $3,900,
and that subsequent monthly payments will vary with market conditions.
4. Death Benefit.
--------------
If the Executive shall die at any time during the 15 year period
referred to in paragraph 2, the Company shall pay a death benefit to his
surviving spouse, if any, equal to the amount that would be payable to a
surviving spouse as a death benefit under the hypothetical annuity described in
paragraph 3. If there is no surviving spouse, the Company shall pay the amount
referred to in the preceding sentence to the estate of the Executive.
5. Payment of Supplemental Retirement Benefit.
-------------------------------------------
The supplemental retirement benefit and the death benefit payable under
this Agreement shall not be prefunded; but the same shall be payable by the
Company out of its general assets as and when they become due as provided
herein. If the Company chooses to set aside funds to help meet its obligations
hereunder, the Executive's interest in his benefits under this Agreement, and
the interest of his surviving spouse and estate, shall nevertheless not be
greater than that of an
<PAGE> 2
unsecured creditor of the Company. Nothing contained in this Agreement or
relating thereto shall constitute a guarantee by the Company or any other person
that the assets of the Company will be sufficient to pay any benefit hereunder.
6. Miscellaneous.
--------------
(a) This Agreement shall continue in full force and effect until all
monthly payments payable under paragraph 2 and/or paragraph 4, as the case may
be, have been paid.
(b) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York.
(c) The titles to paragraphs of this Agreement are for convenience of
reference and in case of any conflict the text of the Agreement, rather than
such titles, shall control.
(d) Any notice of other communication required or permitted hereunder
shall be in writing and shall be effectively given if sent by registered mail,
postage prepaid, addressed:
(i) if to the Executive, to: R. Quintus Anderson
65 East Terrace Avenue
Lakewood, NY 14750
(ii) if to the Company, to: Cold Metal Products, Inc.
8526 South Avenue
Youngstown, OH 44514
ATTENTION: President
or to such other address or addresses as may be notified by either party to the
other pursuant to the foregoing provisions, and any such notice or communication
sent by mail as aforesaid shall be deemed to have been given two (2) business
days after the date of mailing, except any notice of change of address which
shall be effective only upon receipt.
(e) This Agreement constitutes the entire Agreement between the Company
and the Executive with respect to the matters covered herein and no other
agreements nor representations have been made in respect thereto. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
Executive, his surviving spouse and their respective heirs and personal
representatives, and on the Company, its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COLD METAL PRODUCTS, INC.
By: /s/ Heidi A. Nauleau
-----------------------------
Heidi A. Nauleau, Chairman
/s/ R. Quintus Anderson
------------------------------
R. Quintus Anderson
<PAGE> 1
Exhibit (10)(x)
The CIT Group/
Equipment Financing
650 CIT Drive
PO Box 490
Livingston, NJ 07039-0490
January 20, 1999
Mr. John Sole
Cold Metal Products Inc.
8526 South Avenue
PO Box 6078
Youngstown, Ohio 44501
Dear Mr. Sole:
In regards to the amended and Restated Loan and Security Agreement,
dated as of November 22, 1996, (Loan Agreement), by and between cold Metal
Products Inc. (Debtor) and the CIT Group/Equipment Financing, Inc. (Lender).
Debtor has advised CIT that Cold Metal Products was not in compliance with its
Cash Flow covenant contained in Section 8.10 of the Agreement for the period
ended December 31, 1998.
Cash Flow Covenant: Cash Flow coverage shall be greater than or equal
to 1.50x. Cash Flow is defined as net income after taxes plus
depreciation and amortization divided by CPLTD and capital leases
(calculated on a rolling four-quarter basis).
Debtor has requested that notwithstanding anything to the contrary in the
Agreement, that CIT waive the above instance of noncompliance from the period
above through the period ending December 31, 1999. CIT hereby waives, as of this
date and through the period ending December 31, 1999, the above instances of
noncompliance under Section 8.10 of the Agreement subject to the following
condition:
receipt by CIT of a $3,500 processing fee.
Sincerely
The CIT Group Equipment Financing, Inc.
By: /s/ Anthony Joseph
----------------------
Title: Vice President
----------------------
Agreed and Accepted By:
Cold Metal Products, Inc.
By: /s/ J. E. Sloe
Title: VP-CFO
<PAGE> 1
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-82818, No. 33- 82992 and No. 333-71519 of Cold Metal Products, Inc. on Form
S-8 of our report dated May 14, 1999, appearing in this Annual Report on Form
10-K of Cold Metal Products, Inc. for the year ended March 31, 1999.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 38,772
<ALLOWANCES> 480
<INVENTORY> 31,481
<CURRENT-ASSETS> 73,381
<PP&E> 74,728
<DEPRECIATION> 34,444
<TOTAL-ASSETS> 123,228
<CURRENT-LIABILITIES> 47,808
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 21,941
<TOTAL-LIABILITY-AND-EQUITY> 123,228
<SALES> 248,536
<TOTAL-REVENUES> 248,536
<CGS> 233,811
<TOTAL-COSTS> 233,811
<OTHER-EXPENSES> 26,626
<LOSS-PROVISION> 783
<INTEREST-EXPENSE> 4,418
<INCOME-PRETAX> (16,319)
<INCOME-TAX> (3,714)
<INCOME-CONTINUING> (12,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,605)
<EPS-BASIC> (1.80)
<EPS-DILUTED> (1.80)
</TABLE>