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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2200 GEORGETOWN DRIVE, SUITE 301, SEWICKLEY, PENNSYLVANIA 15143
(Address of principal executive offices) (Zip Code)
(724) 933-3445
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Number of shares of Common Stock outstanding as of July 24, 2000 was 6,367,500
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended June 30, 2000
Index
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Page No.
<TABLE>
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations...........................................................................3
Condensed Consolidated Balance Sheets.....................................................................................4
Condensed Consolidated Statements of Cash Flows...........................................................................5
Notes to Condensed Consolidated Financial Statements......................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ..............................................................................................10
Item 2. Changes in Securities...........................................................................................10
Item 3. Defaults Upon Senior Securities.................................................................................10
Item 4. Submission of Matters to a Vote of Securities Holders...........................................................10
Item 5. Other Information...............................................................................................10
Item 6. Exhibits and Reports on Form 8-K................................................................................10
Signatures ...............................................................................................................10
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 59,367 $ 51,135
Cost of sales 52,929 45,034
---------- ----------
Gross profit 6,438 6,101
Selling, general, and administrative expenses 4,050 3,608
Interest expense 1,203 802
---------- ----------
Income before income taxes 1,185 1,691
Income taxes 420 630
---------- ----------
Net income $ 765 $ 1,061
========== ==========
Basic and diluted net income per share $ 0.12 $ 0.16
========== ==========
Weighted average shares outstanding:
Basic 6,391,006 6,451,703
========== ==========
Diluted 6,453,665 6,471,703
========== ==========
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
--------- ---------
2000 2000
--------- ---------
<S> <C> <C>
Assets:
Cash $ 1,885 $ 1,559
Receivables 31,694 33,952
Inventories 48,924 42,684
Prepaid and other current assets 2,238 3,897
--------- ---------
Total current assets 84,741 82,092
Property, plant and equipment - at cost 79,471 78,258
Less accumulated depreciation (38,431) (37,629)
--------- ---------
Property, plant and equipment - net 41,040 40,629
Other assets 14,865 14,693
--------- ---------
Total assets $ 140,646 $ 137,414
========= =========
Liabilities and shareholders' equity:
Short-term borrowings $ 11,267 $ 6,556
Accounts payable 27,437 25,597
Other current liabilities 7,754 10,459
--------- ---------
Total current liabilities 46,458 42,612
Long-term debt 52,154 52,621
Postretirement and other benefits 15,658 15,864
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,381 25,371
Retained earnings 9,986 9,539
Accumulated other comprehensive income (3,422) (3,024)
Less treasury stock, 1,164,750 shares, at cost (5,644) (5,644)
--------- ---------
Total shareholders' equity 26,376 26,317
--------- ---------
Total liabilities and shareholders' equity $ 140,646 $ 137,414
========= =========
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 765 $ 1,061
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,053 894
Deferred directors' fees 10 10
Changes in operating assets and liabilities:
Accounts receivable 3,038 (1,949)
Inventory (6,463) (283)
Accounts payable 2,011 2,539
Accrued expense and other (2,361) (3,946)
-------- --------
Net cash used in operating activities (1,947) (1,674)
Cash flows from investing activities:
Additions to property, plant and equipment (1,510) (418)
Acquisition of Alkar (137) ---
Sale of assets --- 14,642
-------- --------
Net cash (used in) provided by investing activities (1,647) 14,224
Cash flows from financing activities:
Payments of term loans (730) (664)
Proceeds from line of credit 47,224 39,182
Payments of line of credit (42,234) (50,523)
Payments of dividends (318) ---
Acquisition of treasury stock --- (317)
-------- --------
Net cash provided by (used in) financing activities 3,942 (12,322)
Net increase in cash 348 228
Effect of translation adjustment (22) 6
Cash at beginning of period 1,559 399
-------- --------
Cash at end of period $ 1,885 $ 633
======== ========
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the consolidated financial
position of Cold Metal Products, Inc. and subsidiaries (the Company) as of June
30, 2000 and March 31, 2000, the consolidated results of operations and cash
flows for the three month periods ended June 30, 2000 and 1999. The results of
operations for the periods ended June 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the full year.
The condensed consolidated financial statements do not include
footnotes and certain financial information normally presented annually under
generally accepted accounting principles and therefore, should be read in
conjunction with the audited consolidated financial statements contained in the
Company's annual report on Form 10-K for the year ended March 31, 2000.
NOTE 2. ACQUISITION:
Effective March 31, 2000, the Company acquired all the outstanding
stock of Alkar Steel Corporation ("Alkar"), a privately held steel service
center located in Detroit, Michigan, for a purchase price of approximately $14.2
million, including debt of $5.5 million that was paid at closing. The purchase
price was funded under the Company's existing credit facilities. The acquisition
was accounted for as a purchase and, accordingly, assets and liabilities were
recorded at estimated fair values. The preliminary allocation of purchase price
resulted in goodwill of approximately $6.2 million, which is being amortized
over 20 years.
Unaudited pro forma information has been derived from the Company's
income statement for the three months June 30, 1999 and adjusts such information
to give effect as if the acquisition had occurred on April 1, 1999. The pro
forma information is presented for informational purposes only and does not
purport to be indicative of the results of operations that actually would have
resulted if the acquisition had been consummated on April 1, 1999, nor which may
result from future operations. Unaudited pro forma consolidated results of
operations reflect net sales of $58.2 million, net income of $1.2 million and
basic net earnings per share of $.18 for the three months ended June 30, 1999.
NOTE 3. RESULTS OF FOREIGN OPERATIONS
The Company operates in one business segment, intermediate steel
processing. The Company derived revenues from customers in the United States of
approximately $42.8 million during the fiscal quarter ended June 30, 2000 and
$36.1 million during the fiscal quarter ended June 30, 1999. The Company had
long-lived assets in the United States of $49.3 and $48.8 million at June 30,
2000 and March 31, 2000. The remainder of the Company's revenues and long-lived
assets are related to customers and operations in Canada.
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NOTE 4. INVENTORIES
Inventories are classified as follows:
June 30, March 31,
--------- ---------
2000 2000
---- ----
(In thousands)
Raw Materials $24,721 $21,257
Work-in-process 16,709 14,527
Finished goods 7,494 6,900
------- -------
Total inventories $48,924 $42,684
======= =======
NOTE 5. COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and foreign currency
translation adjustment for the period. Translation adjustments were $(.4)
million and $.6 million for the three months ended June 30, 2000 and 1999,
respectively. Total comprehensive income for the three months ended June 30,
2000 and 1999 was $.4 million and $1.7 million, respectively.
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying condensed consolidated financial statements and should be read in
conjunction with the Company's annual financial statements.
Results of Operations
---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
Three Months Ended
------------------
June 30,
--------
2000 1999
----- -----
Net sales 100.0% 100.0%
Cost of sales 89.2 88.1
----- -----
Gross profit 10.8 11.9
Selling, general, and administrative expenses 6.8 7.0
Interest expense 2.0 1.6
----- -----
Income before income taxes 2.0 3.3
Income taxes 0.7 1.2
----- -----
Net income 1.3% 2.1%
===== =====
Net sales for the three-months ended June 30, 2000 were $59.4 million,
an increase of $8.2 million over the three months ended June 30, 1999, due
predominately to the addition of Alkar which was acquired March 31, 1999. Volume
of tons shipped increased 17.0% , accounting for $8.7 million of revenue
increase. The effect of slightly lower priced product decreased revenue by $.5
million. Adjusting sales to remove the Alkar-related activity, net sales
increased $1.2 million, with $1.8 million volume-related effect offset by $.6
million effect from lower prices.
Gross profit for the three months ended June 30, 2000 was $6.4 million
or 10.8% of net sales, compared to $6.1 million or 11.9% of net sales for the
three months ended June 30, 1999. Excluding the margins generated by Alkar in
the current year quarter, margins were down $.8 million in the quarter ended
June 30, 2000. The decrease in gross profit is attributable to the impact of
somewhat lower product pricing, mix of product and higher raw material costs.
Selling and administrative costs of $4.1 million in the quarter ended
June 30, 2000 represented 6.8% of sales as compared to $3.6 million in the
quarter ended June 30, 1999, which represented 7.0% of sales. The increase
primarily reflected the addition of Alkar costs.
Interest expense was $1.2 million or 2.0% of net sales for the three
months ended June 30, 2000 compared to $.8 million or 1.6% in the first quarter
of fiscal year 1999. Higher expense was primarily
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attributable to the additional indebtedness related to the Alkar acquisition, as
well as higher market interest rates.
Income before taxes was $1.2 million or 2.0% of net sales for the three
months ended June 30, 2000. The income before taxes for the three months ended
June 30, 1999 was $1.7 million, or 3.3% of net sales.
Income taxes for the three month period ended June 30, 2000 were $.4
million or .7% of net sales compared to $.6 million, or 1.2% of net sales for
the same period ended June 30, 1999. The effective tax rate was 35.4% in the
first quarter of fiscal year 2000 compared to 37.3% for the prior year period.
The lower effective tax rate reflected a slightly lower Canadian effective rate
and a lower state rate associated with the Alkar acquisition.
Net income for the three months ended June 30, 2000 was $.8 million, or
$.12 per share, as compared to $1.1 million, or $.16 per share for the three
months ended June 30, 1999.
Liquidity and Capital Resources
-------------------------------
Net cash used by operating activities was $1.9 million for the three
months ended June 30, 2000. While net income and the effect of depreciation
provided funds, cash used by operating activities resulted from increased
inventory levels, payments related to normal year-end accruals, offset somewhat
by decreased receivables and increased payables.
Cash consumed by investing activities was $1.6 million for the three
months ended June 30, 2000, reflecting the acquisition of capital assets and a
purchase price adjustment related to the Alkar acquisition.
Cash flows from financing activities provided $3.9 million for the
three months ended June 30, 2000. The Company's primary lending arrangement
provides up to a maximum of $70 million of borrowing availability, of which
$44.4 was used as of June 30, 2000. In addition, approximately $16.9 million was
outstanding under the Company's other major long-term borrowing arrangement as
of June 30, 2000. As a result of the goodwill associated with the Alkar
acquisition, the Company was in violation of a tangible net worth covenant of
this loan agreement. The lender has waived non-compliance of the covenant
through April 1, 2001, at which time the company expects to be in compliance
with the terms of the agreement.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditure
needs and other cash requirements for the next twelve months.
Forward-Looking Information
---------------------------
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "expect", "believe", anticipate," "plan" and similar
expressions are intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Because such statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward looking statements. Factors that could cause actual results to differ
materially from those
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expressed or implied by such forward-looking statements include, but are not
limited to, general business and economic conditions, competitive factors such
as availability and pricing of steel, changes in customer demand, work stoppages
by customers, potential equipment malfunctions, or other risks and uncertainties
discussed in the Company's 10K report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities, except those waived by the
lender (See Part I, Item 2 at Liquidity and Capital Resources.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to a vote of the shareholders in the
quarter ended June 30, 1999
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cold Metal Products, Inc.
(Registrant)
/s/ Raymond P. Torok
--------------------
Raymond P. Torok
President, Chief Executive Officer
/s/ Joseph C. Horvath
---------------------
Joseph C. Horvath
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
July 25, 2000
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