<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
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 November 10, 2000: 6,367,500
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COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
SEC FORM 10-Q
Quarter Ended September 30, 2000
<TABLE>
Index
-----
<CAPTION>
Page No.
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations ..............................................................3
Condensed Consolidated Balance Sheets.........................................................................4
Condensed Consolidated Statements of Cash Flows...............................................................5
Notes to Condensed Consolidated Financial Statements..........................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings .................................................................................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..............................................11
Item 5. Other Information..................................................................................11
Item 6. Exhibits and Reports on Form 8-K...................................................................11
Signatures ...........................................................................................12
</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 Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 57,123 $ 49,761 $ 116,490 $ 100,896
Cost of sales 51,663 43,501 104,592 88,535
----------- ----------- ----------- -----------
Gross profit 5,460 6,260 11,898 12,361
Selling, general, and administrative 4,446 3,425 8,496 7,033
expenses
Interest expense 1,263 856 2,466 1,658
----------- ----------- ----------- -----------
(Loss) income before income taxes (249) 1,979 936 3,670
Income taxes (benefit) expense (76) 734 344 1,364
----------- ----------- ----------- -----------
Net (loss) income $ (173) $ 1,245 $ 592 $ 2,306
=========== =========== =========== ===========
Basic and diluted net (loss) income per
share $ (0.03) $ 0.20 $ 0.09 $ 0.36
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 6,391,471 6,387,500 6,391,240 6,429,372
=========== =========== =========== ===========
Diluted 6,393,017 6,440,602 6,423,175 6,456,152
=========== =========== =========== ===========
</TABLE>
See notes to condensed 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>
September 30, March 31,
2000 2000
----- ----
<S> <C> <C>
Assets:
Cash $ 976 $ 1,559
Receivables 33,534 33,952
Inventories 45,980 42,684
Prepaid and other current assets 2,480 3,897
--------- ---------
Total current assets 82,970 82,092
Property, plant and equipment - at cost 80,628 78,258
Less accumulated depreciation (39,232) (37,629)
--------- ---------
Property, plant and equipment - net 41,396 40,629
Other assets 14,799 14,693
--------- ---------
Total assets $ 139,165 $ 137,414
========= =========
Liabilities and shareholders' equity:
Short-term borrowings $ 16,269 $ 6,556
Accounts payable 22,423 25,597
Other current liabilities 7,596 10,459
--------- ---------
Total current liabilities 46,288 42,612
Long-term debt 51,678 52,621
Postretirement and other benefits 15,571 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 25,384 25,371
Retained earnings 9,492 9,539
Accumulated other comprehensive income (loss) (3,679) (3,024)
Less treasury stock, 1,164,750 shares, at cost (5,644) (5,644)
--------- ---------
Total shareholders' equity 25,628 26,317
--------- ---------
Total liabilities and shareholders' equity $ 139,165 $ 137,414
========= =========
</TABLE>
See notes to condensed 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>
Six Months Ended September 30,
------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $ 592 $ 2,306
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 2,059 1,756
Foreign currency transaction adjustment 32 --
Deferred directors' fees 12 10
Changes in operating assets and liabilities:
Accounts receivable 75 (4,206)
Inventory (3,701) (987)
Accounts payable (2,881) 2,745
Accrued expenses and other (1,841) (2,649)
-------- --------
Net cash (used in) operating activities (5,653) (1,025)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,874) (1,245)
Acquisition of Alkar (137) --
Sale of assets -- 14,642
-------- --------
Net cash (used in) provided by investing activities (3,011) 13,397
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Payment of term loans (1,470) (1,335)
Proceeds from line of credit 95,255 76,568
Payments of line of credit (85,047) (85,254)
Payments of dividends (639) --
Treasury stock acquisition -- (317)
-------- --------
Net cash provided by (used in) financing activities 8,099 (10,338)
Net (decrease) increase in cash (565) 2,034
Effect of exchange rates on cash (18) 18
Cash at beginning of period 1,559 399
-------- --------
Cash at end of period $ 976 $ 2,451
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of Cold
Metal Products, Inc. and Subsidiaries (the Company) as of September 30, 2000 and
March 31, 2000, the results of operations for the three month and six month
periods ended September 30, 2000 and 1999, and cash flows for the six months
ended September 30, 2000 and 1999. The results of operations for the periods
ended September 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.
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
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 and six months ended September 30, 1999 and
adjusts the income statement 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
$56.6 million, net income of $1.3 million and basic net earnings per share of
$.21 for the three months ended September 30, 1999. For the six months ended
September 30, 1999, unaudited pro forma consolidated results of operations
reflect net sales of $114.8, net income of $2.5 million and basic net earnings
per share of $0.39.
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 $42.1 million and $33.7 million during the three months ended
September 30, 2000 and 1999 and $85.0 million and $69.8 million during the six
months ended September 30, 2000 and 1999. The remainder of the Company's
revenues are related to customers and operations in Canada.
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NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
2000 2000
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $ 22,585 $ 21,257
Work-in-process 15,614 14,527
Finished goods 7,781 6,900
-------- --------
Total inventories $ 45,980 $ 42,684
======== ========
</TABLE>
NOTE 5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income and foreign
currency translation adjustment for the period. Translation adjustments were
$(0.3) million and $0.1 million for the three months ended September 30, 2000
and 1999, respectively and $(0.7) million and $0.5 million for the six months
ended September 30, 2000 and 1999, respectively. Total comprehensive income
(loss) for the three months ended September 30, 2000 and 1999 was $(0.4) million
and $1.3 million, respectively. Total comprehensive income (loss) for the six
months ended September 30, 2000 and 1999 was $(0.1) million and $2.8 million,
respectively.
NOTE 6. DEBT
Effective at the end of September, 2000, the Company amended its
primary lending arrangement to provide additional borrowing availability on new
capital purchases under the existing maximum borrowing capability of $70
million. The term was extended through April 1, 2004. At September 30, 2000,
$49.4 million was outstanding.
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
Results of Operations
---------------------
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.4 87.4 89.8 87.8
-----------------------------------------------------------
Gross profit 9.6 12.6 10.2 12.2
Selling, general, and administrative
expenses 7.8 6.9 7.3 7.0
Interest expense 2.2 1.7 2.1 1.6
-----------------------------------------------------------
Income (loss) before income taxes -0.4 4.0 0.8 3.6
Income tax expense (benefit) -0.1 1.5 0.3 1.3
-----------------------------------------------------------
Net income (loss) -0.3% 2.5% 0.5% 2.3%
-----------------------------------------------------------
</TABLE>
Net sales for the three months ended September 30, 2000 were $57.1
million, an increase of $7.4 million over the three months ended September 30,
1999, predominately due to the additional volume from Alkar which was acquired
March 31, 2000. Volume of tons shipped increased 13.4%, accounting for $6.8
million of revenue increase. The effect of slightly higher price per ton
increased sales by $.6 million. Adjusting sales to remove the Alkar-related
activity, net sales increased $.5 million, $.6 million from volume on 1.4%
increased tonnage, which was slightly offset by $.1 million of lower price per
ton effect.
For the six months ended September 30, 2000, net sales of $116.5
million were $15.6 million higher than the $100.9 million for the comparable
period of the prior year, again reflecting the addition of Alkar. Volume of tons
shipped increased 15.2%, accounting for $15.3 million of revenue increase.
Slightly higher price per ton increased sales by $.3 million. Adjusting sales to
remove the Alkar- related activity, net sales increased $1.8 million, or 1.8%,
on 2.5% increased tonnage.
Gross profit for the three months ended September 30, 2000 was $5.5
million or 9.6% of net sales, which was a decrease of $.8 million over the three
months ended September 30, 1999. Gross profit for the three months ended
September 30, 1999 was $6.3 million, or 12.6% of net sales. Gross profit for the
six months ended September 30, 2000 was $11.9 million or 10.2% of net sales
compared to $12.4 million or 12.2% of net sales for the six months ended
September 30, 1999. Excluding the margins generated by Alkar, margins were down
$1.7 million or 26.9% for the three months ended September 30, 2000 and $2.3
million, or 18.9% for the six months ended September 30, 2000. The decrease in
margins is attributable to margin compression resulting from higher raw material
costs and mix of lower margin product.
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Selling and administrative costs of $4.4 million for the three months
ended September 30, 2000 represented 7.8% of sales; selling and administrative
costs for the three months ended September 30, 1999 were $3.4 million, or 6.9%
of net sales. The increase primarily reflected the addition of Alkar costs. For
the six month period ended September 30, 2000, selling and administrative costs
were $8.5 million, or 7.3% of net sales, compared to $7.0 million, or 7.0% of
net sales for the six months ended September 30, 1999, also due primarily to the
addition of Alkar.
Interest expense was $1.3 million, or 2.2% of net sales for the three
months ended September 30, 2000 as compared to $.9 million or 1.7% of net sales
for the three months ended September 30, 1999. For the six months ended
September 30, 2000, interest expense was $2.5 million, or 2.1% of net sales,
compared to $1.7 million, or 1.6% of net sales for the six month period ended
September 30, 1999. Higher expense was primarily attributable to the additional
indebtedness related to the Alkar acquisition, as well as higher market interest
rates.
Loss before taxes was $.2 million, or .4% of net sales for the three
months ended September 30, 2000. For the three months ended September 30, 1999,
income before taxes was $2.0 million, or 4.0% of net sales. For the six months
ended September 30, 2000, income before taxes was $.9 million, or .8% of net
sales, compared with $3.7 million, or 3.6% of net sales for the six months ended
September 30, 1999.
Income tax expense (benefit) for the three months ended September 30,
2000 was $(.1) million, or (.1)% of net sales compared to $.7 million, or 1.5%
of net sales for the same period ended September 30, 1999. Income tax expense
for the six months ended September 30, 2000 was $.3 million, or .3% of net
sales, compared to $1.4 million, or 1.3% of net sales for the six months ended
September 30, 1999. The effective tax rate was an 30.5% for the three months
ended September 30, 2000, compared to 37.1% for the three months ended September
30, 1999, reflecting slightly lower Canadian effective tax rate and a lower
state rate associated with the Alkar acquisition. For the six months ended
September 30, 2000, the effective tax rate was 36.8%, compared to 37.2% for the
six months ended September 30, 1999.
Net loss for the three months ended September 30, 2000 was $(.2)
million, or $(.03) per share as compared to net income of $1.2 million, or $.20
per share for the three months ended September 30, 1999. Net income for the six
months ended September 30, 2000 was $.6 million or $.09 per share compared to
$2.3 million or $.36 per share for the six months ended September 30, 1999.
Liquidity and Capital Resources
-------------------------------
During the six months ended September 30, 2000, operating activities
used $5.7 million in cash, compared to cash used of $1.0 million for the six
months ended September 30, 1999. While net income and the effect of depreciation
provided funds, cash used by operating activities resulted from increased
inventory, which have flowed through payables, and payments of amounts related
to normal year-end accruals. The increased inventory resulted from sales
growth forecasts, together with higher levels of inventory on hand to support
increased customer requirements for "just in time" inventory.
Cash consumed by investing activities was $3.0 million for the six
months ended September 30, 2000, reflecting the acquisition of capital assets
and a purchase price adjustment related to the Alkar acquisition.
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Cash flows provided by financing activities was $8.1 million for the
six months ended September 30, 2000. The Company's primary lending arrangement
provides up to a maximum of $70 million of borrowing availability, of which
$49.4 million was outstanding at September 30, 2000. The agreement was amended
in September 2000 to provide additional borrowing availability on capital
purchases and to extend the term through April 1, 2004. In addition,
approximately $16.6 million was outstanding under the Company's other major
long-term borrowing arrangement as of September 30, 2000. The Company was in
compliance with covenants under all its agreements as of September 30, 2000.
In October 2000, the Board of Directors declared a regular quarterly
dividend of $.05 per share on the outstanding common stock of the Company,
payable on November 17, 2000 to all shareholders of record at the close of
business November 3, 2000.
Management expects that cash generated from operating activities and
its borrowing capacity will be sufficient to meet planned capital expenditure
needs, dividends, 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. Because such statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward looking statements. Factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited to, general
business and economic conditions, competitive factors such as availability and
pricing of steel, changes in customer demand, work stoppages by customers,
potential equipment malfunctions, or other risks and uncertainties discussed in
the Company's 10K report.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting of Shareholders for 2000 was
held on July 28, 2000.
(b) See Item (c) below
(c) At the Annual Meeting of Shareholders the following matters
were voted:
1. Eight directors were elected to serve for a term of one
year by the following vote:
Share Voted Shares Voted
----------- ------------
"For" "Withheld"
----- ----------
R. Quintus Anderson 6,109,516 1,600
Wilbur J. Berner 6,110,316 800
Edwin H. Gott, Jr. 6,110,316 800
Claude F. Kronk 6,110,316 800
Heidi A. Nauleau 6,109,516 1,600
Robert D. Neary 6,110,316 800
Peter B. Sullivan 6,110,316 800
Raymond P. Torok 6,110,316 800
2. The ratification of Option Grant to John M. Fayad was
confirmed, ratified and approved by a vote of 5,965,671 shares
for, 10,670 shares against, and 136,774 shares abstaining.
3. The selection of Deloitte & Touche LLP as independent
auditors for the Company was confirmed, ratified, and approved
by a vote of 6,110,221 shares for, and 895 shares abstaining.
ITEM 5. OTHER INFORMATION
Edwin H. Gott, Jr. has resigned his position as Director in order to
pursue transactions involving other business entities controlled by Mr. Gott
which created the possibility of conflicts of interest which Mr. Gott and the
Company were determined to avoid.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number and Description
(10)(a) Fourth Amended and Restated Credit and Security
Agreement between GMAC Commercial Credit LLC and the Company dated September 29,
2000 which amended and restated the Third Amended and Restated Credit Facility
and Security Agreement previously filed as Exhibit (10)(a) to the Company's 1998
Annual Report on Form 10-K filed on June 25, 1998.
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
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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)
November 10, 2000
12
