UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 12b-25/A AMENDMENT NO. 1
NOTIFICATION OF LATE FILING
SEC FILE NUMBER: 001-12870
CUSIP NUMBER: 192861 10 2
(Check One) [ ] Form 10-K [ ] Form 20-F [ ] Form 11-K [X] Form 10-Q
[ ] Form N-SAR
For Period Ended: June 30, 2002
NOTHING IN THIS FORM SHALL BE CONSTRUED TO IMPLY THAT THE COMMISSION
HAS VERIFIED ANY INFORMATION CONTAINED HEREIN.
PART III - NARRATIVE
As Registrant has previously reported, preparation and filing by
Registrant of Annual and Periodic Reports pursuant to Sections 13 or 15(d) of
the Securities Exchange Act of 1934, has been delayed in part by uncertainties
regarding discussions among registrant and its creditors and in part by
commencement by Registrant of proceedings under Chapter 11 of the U.S.
Bankruptcy Code. Registrant has now filed its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002. However, the Chapter 11 process has not yet
permitted Registrant to retain the services of its auditors to review its
quarterly reports on Form 10-Q. Attached hereto as Exhibit A is a draft of Form
10-Q for the quarter ended June 30, 2002 (without exhibits), subject to review
by Registrant's auditors and the audit committee of Registrant. As soon as the
required reviews have been complete, registrant will file the Report in
definitive form and confirm that such reviews have been completed. Except as set
forth herein, Registrant hereby affirms each of the Statements in PART III of
Form 12b-25 filed on August 16, 2002.
COLD METAL PRODUCTS, INC.
has caused this notification to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 15, 2002 By /s/ Joseph C. Horvath
--------------------------------------
Joseph C. Horvath
EXHIBIT A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[T] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
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 of (I.R.S. Employer Identification No.)
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[ ] No [T]
Number of shares of Common Stock outstanding as of October 31, 2002: 6,402,813
1
COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended June 30, 2002
INDEX
Page
No.
---
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....................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................................15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings .....................................................................................16
Item 2. Changes in Securities..................................................................................16
Item 3. Defaults Upon Senior Securities........................................................................16
Item 4. Submission of Matters to a Vote of Security Holders....................................................16
Item 5. Other Information......................................................................................16
Item 6. Exhibits and Reports on Form 8-K.......................................................................16
Signatures.............................................................................................17
2
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
2002 2001
--------------------------
Net sales $ 43,040 $ 44,820
Cost of sales 40,197 40,882
--------------------------
Gross profit 2,843 3,938
Selling, general and administrative expenses 4,278 3,730
Interest expense 798 980
--------------------------
(Loss) income before income taxes and cumulative (2,233) (772)
effect of accounting change
Income tax (benefit) (80) (290)
--------------------------
(Loss) income before cumulative effect of accounting (2,153) (482)
change
Cumulative effect of accounting change 5,268
--------------------------
Net (loss) income $ (7,421) $ (482)
==========================
Basic and diluted net (loss) income per share $ (1.15) $ (0.08)
==========================
Weighted average shares outstanding:
Basic 6,427,078 6,398,440
==========================
Diluted 6,427,078 6,398,440
==========================
See notes to condensed consolidated financial statements.
3
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
June 30, March 31,
2002 2002
--------------------
Assets:
Cash $ 2,071 $ 1,463
Accounts receivable 24,573 22,338
Inventories 26,051 27,220
Prepaid and other current assets 578 690
--------------------
Total current assets 53,273 51,711
Property, plant and equipment - at cost 76,593 75,557
Less accumulated depreciation (39,530) (38,573)
--------------------
Property, plant and equipment - net 37,063 36,984
Other assets 5,376 10,603
--------------------
Total assets $ 95,713 $ 99,298
====================
Liabilities and shareholders' equity:
Short-term debt $ 58,732 $ 57,716
Accounts payable 18,113 17,193
Other current liabilities 8,875 7,563
--------------------
Total current liabilities 85,720 82,472
Other long-term liabilities, principally postretirement benefits 19,887 20,168
Deferred income taxes 584
Shareholders' equity:
Common stock. $.01 par value; 15,000,000 shares authorized; 7,532,250 shares 5
issued 75 7
Additional paid-in capital 25,240 25,329
Retained earnings (22,615) (15,194)
Accumulated other comprehensive loss (7,704) (8,538)
Less treasury stock, 1,129,437 and1,147,759 shares, at cost (5,474) (5,563)
--------------------
Total shareholders' equity (10,478) (3,891)
--------------------
Total liabilities and shareholders' equity $ 95,713 $ 99,298
====================
See notes to condensed consolidated financial statements.
4
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
2002 2001
--------------------
Cash flows from operating activities:
Net (loss) $ (7,421) $ (482)
Adjustments to reconcile net (loss) to cash provided by operating activities:
Depreciation and amortization 856 973
Cumulative effect of change in accounting principle 5,268
Other items (31) (40)
Changes in operating assets and liabilities:
Accounts receivable (1,856) (792)
Inventories 1,480 4,449
Prepaid and other assets 181 355
Accounts payable 676 (401)
Other liabilities 972 (1068)
--------------------
Net cash provided by operating activities 125 2,994
Cash flows from investing activities:
Additions to property, plant and equipment (1,358) (309)
Proceeds from asset dispositions 671
--------------------
Net cash used in investing activities (687) (309)
Cash flows from financing activities:
Proceeds from revolving credit and term loan facility 29,842 31,595
Payments of revolving credit and term loan facility (28,787) (33,775)
Payment of other debt (39) (469)
Net cash provided by (used in) financing activities 1,016 (2,649)
--------------------
Net increase in cash 454 36
Effect of translation adjustment 154 59
Cash at beginning of period 1,463 1,547
--------------------
Cash at end of period $ 2,071 $ 1,642
====================
See notes to condensed consolidated financial statements.
5
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUBSEQUENT EVENT--PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE,
BASIS OF PRESENTATION, AND OPINION OF MANAGEMENT
On August 16, 2002 ("Petition Date") the Cold Metal Products,Inc. and
its wholly owned subsidiary, Alkar Steel Corporation, (collectively "Debtors")
filed voluntary petitions for reorganization under Chapter 11 ("Chapter 11") of
the Federal Bankruptcy Code ("Bankruptcy Code" in the United States Bankruptcy
Court in the Northern District of Ohio, Eastern Division ("Court.") Cold Metal
Products, Ltd., a wholly owned Canadian subsidiary, was not was not included in
the filing.
The Debtors attributed the need to reorganize to extremely limited cash
availability existing under the terms of its existing credit facilities that
made it difficult to meet its financial obligations. Conditions leading up to
this situation included nearly two years of depressed market conditions for the
Company's products and the Company's inability to attain sufficient volume at
appropriate price levels to support its fixed cost structure and cost of funds.
The Debtors are currently managing their affairs and operating their
business as debtors-in -possession while the Chapter 11 cases are pending. As
debtors-in-possession, the Debtors may not engage in transactions outside of the
ordinary course of business without approval, after hearing, of the Bankruptcy
Court. As part of the Chapter 11 cases, the Debtors intend to develop and
propose for confirmation pursuant to Chapter 11 a plan of reorganization that
will restructure the operations and liabilities of the Company to the extent
necessary to result in the continuing viability of the Company. A filing date
for such a plan has not been determined.
Under Chapter 11, actions by creditors to collect claims in existence
as the filing date ("pre-petition claims") are stayed ("deferred,") absent
specific Court authorization to pay such claims, while the Company continues to
manage the business as debtor-in-possession and acts to develop a plan of
reorganization for the purpose of emerging from these proceedings. The Company
received approval from the Court to pay or otherwise honor certain of its
pre-petition obligations, including but not limited to employee wages and
certain employee benefits, as it develops its plan of reorganization.
The amount of the claims to be filed by the creditors could be
significantly different than the amount of the liabilities recorded by the
Company. The Company also has many executory contracts and other agreements that
could be rejected during the Chapter 11 proceedings. Under these proceedings,
the rights of and ultimate payments to pre-petition creditors and to equity
investors may be substantially altered. This could result in claims being
liquidated in the Chapter 11 proceedings at less (possibly substantially less)
than 100% of their face value, and the equity of the Company's equity investors
being diluted or cancelled. The Company has not yet proposed a plan of
reorganization. The Company's pre-petition creditors and its equity investors
will each have a vote in the plan of reorganization.
6
The Chapter 11 process presents inherent material uncertainty; it is not
possible to determine the additional amount of claims that may arise or
ultimately be filed, or predict the length of time that the Debtors will
continue to operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, whether the Company will continue to operate
in its present organizational structure, or the effects of the proceedings on
the business of the Company and its subsidiaries or on the interests of the
various creditors and security holders.
As a result of the Chapter 11 filings, Events of Default, as defined in
the related debt agreements, have occurred subsequent to March 31, 2002. On
August 16, 2002, the Company entered into a Debtor-in-Possession Revolving
Credit and Term Loan Agreement (DIP Credit Agreement) with its existing primary
lender group to provide secured debtor-in-possession financing to the Company.
The maximum borrowings under the DIP Credit Agreement are $48 million in the
aggregate, including up to $35 million revolving line of credit $12.8 million
term loan. Advances under the revolving credit portion of the DIP Credit
Agreement bear interest at the rate of prime +.55% and the term loan portion
bears interest at the rate of prime + 1.05%. A borrowing base limits the amount
of borrowing availability at any time. The DIP Credit Agreement grants a
security interest in the accounts receivable, inventory and substantially all
the remaining assets of the Company except for the Company's fixed assets
located at its Ottawa, Ohio facility and certain machinery and equipment located
at the Company's Indianpolis, Indiana facility. The DIP Credit Agreement also
contains certain restrictive covenants that, among other things, restrict the
Company's ability to incur additional indebtedness or guarantee the obligations
of others. The Company is also required to maintain minimum cumulative EBITDA,
as defined in the DIP Credit Agreement, and limit its capital expenditures.
Although the Company has entered into the DIP Credit Agreement, the
Company may require additional financing to meet its cash flow requirements.
Restrictive covenants included in the debtor-in-possession credit facility and
oversight by the Bankruptcy Court limit the Company's ability to incur
additional indebtedness, or sell assets (substantially all of which are
pledged), and may otherwise limit the operational and financial flexibility of
the Company.
Basis of Presentation and Going Concern Matters--The accompanying
consolidated financial statements have been prepared on a going concern basis of
accounting and do not reflect any adjustments that might result if the Company
is unable to continue as a going concern. 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 June 30, 2002 and March 31, 2002, and the results of its
operations and cash flows for the three month periods ended June 30, 2002 and
2001. The results of operations for the periods ended June 30, 2002 and 2001 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
accounting principles generally accepted in the United States of America and,
therefore, should be read in conjunction with the
7
audited consolidated financial statements contained in the Company's annual
report on Form 10-K for the year ended March 31, 2002.
The Company's recurring losses and negative cash flows from operations,
current liabilities in excess of current assets and the subsequent Chapter 11
cases raise substantial doubt about the Company's ability to continue as a going
concern. As discussed above, management intends to submit a plan for
reorganization to the Bankruptcy Court. The ability of the Company to continue
as a going concern and appropriateness of using the going concern basis of
accounting is dependent upon, among other things, (i) the Company's ability to
comply with the debtor-in-possession financing agreements, (ii) submission and
confirmation of a plan of reorganization under the Bankruptcy Code, (iii) the
Company's ability to achieve profitable operations after such confirmation, and
(iv) the Company's ability to generate sufficient cash from operations to meet
its obligations.
Management believes that a plan of reorganization, as contemplated,
subject to approval of the Bankruptcy Court and adequate debtor-in-possession
financing, along with cash provided by operations, will provide sufficient
liquidity to allow the Company to continue as a going concern; however, there
can be no assurance that the sources of liquidity will be available or
sufficient to meet the Company's needs. The consolidated financial statements do
not include any adjustments relating to recoverability and classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
A plan of reorganization could materially change the amounts currently
recorded in the consolidated financial statements. The accompanying consolidated
financial statements do not give effect to any adjustment to the carrying value
of assets or amounts and classifications of liabilities that might be necessary
as a result of resolving the bankruptcy. For financial statement periods after
August 16, 2002 (the Petition Date), the Company's consolidated financial
statements will be presented in accordance with the AICPA Statement of Position
90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code. On confirmation of a plan of reorganization, the Company expects to
utilize "Fresh Start Accounting" in accordance with the guidelines for
accounting for emergence from bankruptcy. Under Fresh Start Accounting, a
revaluation of Company assets to reflect current values can be expected.
NOTE 2. ACCOUNTING CHANGE
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB No. 17,
"Intangible Assets," and is effective for all fiscal years beginning after
December 15, 2001. This statement changes the accounting for goodwill from an
amortization method to an impairment only approach. The Company has adopted this
pronouncement in the first quarter of its fiscal year ending March 31, 2003,
and, as provided for in the statement, has recognized a $5,263,000 charge
related to the impairment of goodwill arising in connection with the acquisition
of its wholly owned subsidiary, Alkar Steel Corporation, as a cumulative effect
of an accounting change adjustment in its financial
8
statements for the quarter ended June 30, 2002. Amortization of goodwill
recognized in the quarter ended June 30, 2001 was $73,000.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) Statement No. 143 Accounting for Asset
Retirement Obligations ("SFAS 143") in June 2001. SFAS 143 requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred, with subsequent adjustments occurring as changes
to estimates of the settlement obligation become known. A corresponding increase
in the carrying amount of the related long-lived asset is recognized and is
subject to depreciation over the remaining useful life of the asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 is required
to be adopted for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Company has not completed its assessment of the
effect of adopting this pronouncement on its financial statements.
In August 2001, the FASB issued SFAS Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). The statement
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to
be Disposed of. SFAS 144 retains the fundamental provisions of SFAS 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed by sale. SFAS
144 is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS No. 144 is not expected to have a material effect on the
Company's financial statements.
The FASB also has issued SFAS Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS 145). SFAS 145 states that the rescission of FASB Statement
No. 4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in Opinion 30 for
classification as an extraordinary item shall be reclassified.
In June 2002, the FASB issued SFAS Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002.
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
$29.2 million and $32.3 million for the quarters ended June 30, 2002 and 2001.
The Company had long-lived assets in the United States totaling approximately
$35.6 million. The remainder of the Company's revenues and long-lived assets are
principally related to customers and operations in Canada.
9
NOTE 4. INVENTORIES
June 30, March 31,
2002 2002
------------------------------------------
Raw materials $10,790,000 $10,603,000
Work-in-process 8,870,000 10,462,000
Finished goods 6,391,000 6,155,000
------------------------------------------
Total inventories $26,051,000 $27,220,000
==========================================
NOTE 5. COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of net income (loss) and foreign
currency translation adjustment for the period. Translation adjustments were
$834,000 and $683,000 during the quarters ended June 30, 2002 and 2001,
respectively. Total comprehensive income (loss) was ($6.6 million) and
$.2million for the quarters ended June 30, 2002 and 2001, respectively.
NOTE 6. DEBT
June 30, March 31,
2002 2002
-------------------------------------------
Committed revolver/term facility:
Revolving portion $31,005,000 $29,650,000
Term portion 12,083,000 12,383,000
Term note 13,928,000 13,928,000
Lease financing 1,716,000 1,755,000
-------------------------------------------
Total $58,732,000 $57,716,000
============================================
The Company had borrowed $43.1 million under the terms of a committed
revolving and term loan credit facility that by its terms provided availability
up to a maximum of $70.0 million, based on a percentage of accounts receivable
and inventory, as well as stated loans for fixed assets. Including approximately
$1.5 million of outstanding letters of credit presently supported by this
facility, the Company had utilized substantially all its borrowing availability
under the terms of this agreement. The facility was secured by substantially all
of the assets of the Company except for all the fixed assets located at the
Company's Ottawa, Ohio facility and certain machinery and equipment leased under
a financing lease and located at the Company's Indianapolis, Indiana facility.
Under the provisions of a separate term loan (Ottawa term loan) secured by the
Company's Ottawa, Ohio facility property, plant and equipment and a lease
financing agreement secured by a slitter located at the Company's Indianapolis
facility (slitter lease), the Company owed a total of $15.6 million. At June 30,
2002 the Company was in non-compliance with certain covenants set forth in its
financing agreements. In addition, on June 30, 2002 the Company failed to make
the regularly scheduled quarterly installment of principal and interest due
under the Ottawa term loan as a result of liquidity constraints. Accordingly,
all such
10
amounts due under the terms of these agreements are included in current
liabilities in the Company's balance sheet as of June 30 and March 31, 2002.
On August 16, 2002, Cold Metal Products, Inc. and its wholly owned
subsidiary, Alkar Steel Corporation, filed voluntary petitions for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court in the Northern District of Ohio, Eastern Division. Cold
Metal Products, Ltd., the Company's wholly owned Canadian subsidiary, was not
affected by the filings. Refer to Note 1 for additional information related to
these filings, including a description of the DIP financing agreement.
11
ITEM 2.
COLD METAL PRODUCTS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
MATERIAL DEVELOPMENT: CHAPTER 11 BANKRUPTCY
On August 16, 2002, Cold Metal Products, Inc. and its wholly owned
subsidiary, Alkar Steel Corporation, each filed a voluntary petition for Chapter
relief under Chapter 11 of Title 11, United States Code ("Bankruptcy Code") with
the United States Bankruptcy Court for the Northern District of Ohio, Eastern
Division, as Cases Number 02-43619 and 02-43620, respectively. Pursuant to
Sections 1107 and 1108 of the Bankruptcy Code, each company remains in
possession of its assets and continues to operate as a debtor in possession. The
filings cover domestic assets only and do not affect facilities in Hamilton,
Ontario, Canada and Montreal, Quebec, Canada. Unprofitable facilities,
burdensome legacy costs, pricing pressures and leverage were cited as the
primary reasons for the filings. On August 15, 2002, the registrant's facilities
in Youngstown, Ohio and Indianapolis, Indiana were closed.
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 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,
2002 2001
--------------------------
Net sales 100.0% 100.0%
Cost of sales 93.4 91.2
--------------------------
Gross profit 6.6 8.8
Selling, general, and administrative expenses 10.0 8.3
Interest expense 1.9 2.2
--------------------------
(Loss) before income taxes and cumulative effect of (5.2) (1.7)
accounting change
Income tax (benefit) (.2) (0.6)
--------------------------
(Loss) before cumulative effect of accounting change (5.0) (1.1)
Cumulative effect of accounting change (12.2)
--------------------------
Net (loss) (17.2)% (1.1)%
==========================
12
Net sales for the three months ended June 30, 2002 were $43.0 million,
a decrease of $1.8 million or 4.0% from the Company's net sales for the
corresponding period ended June 30, 2001. Volume of tons shipped decreased 3.0%,
which accounted for $1.3 million of revenue decline, while the effect of lower
priced product mix contributed to a $.5 million decline in revenues.
Gross profit for the three months ended June 30, 2002 was $2.8 million or 6.6%
of net sales, a $1.1 million decrease over the three months ended June 30, 2001.
The primary factor contributing to the gross margin decrease for the three-month
period ended June 30, 2002 was the Company's inability to obtain selling price
increases commensurate with higher raw material costs, as well as the effects of
the Company's capacity utilization and fixed cost operating structure at lower
sales volume levels.
Selling, general and administrative costs of $4.3 million for the three months
ended June 30, 2002 represented 10.0% of net sales compared to $3.7 million
selling, general and administrative costs, or 8.3% of net sales for the three
months ended June 30, 2001. The increase in these costs relates primarily to
higher legal and professional fees associated with the Company's attempts to
renegotiate its borrowing agreements.
Interest expense was $0.8 million, or 1.9% of net sales for the three months
ended June 30, 2002 compared to $1.0 million or 2.2% of net sales for the three
months ended June 30, 2001. The reduction in interest expense is largely
attributable to the decline in interest rates that continued throughout fiscal
year 2002 before stabilizing in the first quarter of fiscal 2003. Loss before
income taxes and the cumulative effect of a change in accounting principle was
$2.2 million, or 5.2% of net sales for the three months ended June 30, 2002,
compared to $0.8 million, or 1.7% of sales for the three months ended June 30,
2001. The Company's operating performance directly relates to the continuing
operations at significantly low utilization levels attributed to the effect of
the weak 2001 economy on demand for the Company's products.
The Company has recognized an income tax benefit of $.1 million, or .2% of net
sales for the three months ended June 30, 2002 that relates to operating loss
carrybacks for its Canadian operations. This compares to an income tax benefit
of $.3 million, or .6% of net sales for the three months ended June 30, 2001. In
the fourth quarter of fiscal year 2002, the Company recognized a valuation
allowance against substantially all of its deferred tax assets and discontinued
recognizing any additional tax benefits associated with continuing operating
losses in the United States. As a result, the Company's effective tax rate has
increased substantially.
During the quarter ended June 30, 2002, the Company adopted FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets." As permitted by this new accounting
standard, the Company recognized a $5.3 million non-cash charge for the
cumulative effect of a change in accounting principle to reflect the impairment
of the unamortized portion of goodwill arising in connection with its
acquisition of Alkar Steel Corporation in March 2000. Management based its
determination of the asset impairment on its evaluation that the fair market
value of this subsidiary, based upon current its current and projected earnings,
had declined substantially below the underlying carrying value of its assets.
Net loss for the three months ended June 30, 2002 was $7.4 million, or $1.15 per
share as compared to net loss of $2.2 million, or $0.35 per share for the three
months ended June 30, 2001. The primary cause for the change in net income was
the non-cash charge associated with the cumulative effect the change in
accounting for goodwill described above.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity include cash and cash equivalents, cash from
operations, proceeds from asset dispositions and amounts available under its
revolving credit and term loan facility. The Company's primary liquidity needs
prior to the Petition Date related to its working capital needs, capital
expenditures for the acquisition of machinery and equipment and maintenance of
its plants and equipment, and debt service requirements.
Prolonged weak market conditions, higher prices for steel associated with
Section 201 tariffs and an overall tightening in steel supply and continuing
operating losses sustained by the Company, together with amendments to its
borrowing agreements that further reduced borrowing availability, have led to
the Company's liquidity being substantially impaired. At June 30, 2002, the
Company was in non-compliance with certain financial ratios pertaining to
minimum net worth and financial leverage set forth in its borrowing agreements,
as well as certain other reporting provisions. In addition, on June 30, 2002 the
Company failed to make the regularly scheduled quarterly installment of
principal and interest due under the Ottawa term loan as a result of liquidity
constraints. The Company and its lenders were unsuccessful in negotiating
amended borrowing arrangements that would have provided sufficient liquidity to
enable the Company to continue operating and meet its financial obligations as
they became due. As a result, on August 16, 2002 the Company filed for
protection under Chapter 11 of the Federal Bankruptcy Code. In connection with
this filing and with Court approval, the Company refinanced its revolving credit
and term loan facility with its existing lender group under a
debtor-in-possession financing arrangement that provides up to $48 million of
financing. Subsequent to the Petition Date, sources of liquidity also include
its debtor-in-possession credit facility, which is provided by the same group of
creditors that provided the revolving credit and term loan facility.
Net loss for the first three months of fiscal 2002, adjusted for
depreciation and the non-cash charge associated with the cumulative effect the
change in accounting for goodwill, used approximately $1.3 million of cash
compared to $.5 million of cash provided in the corresponding period of the
prior year. However, as a result of working capital changes, cash provided by
operations was $.1 million for the quarter ended June 30, 2002. This compares to
$3.0 million of cash provided from operating activities in the first quarter of
fiscal year 2002, principally due to $4.5 million inventory reduction offset
largely by a $1.5 reduction of accounts payable and accrued expenses.
During the quarter ended June 30, 2002 the Company incurred capital
expenditures principally in connection with capital improvement projects,
including the relocation of certain assets previously idled to other operating
locations, totaling $1.4million. These costs were financed in part from the $.7
million proceeds from the sale of other idled assets. This compares to
approximately $.3 million of capital spending in the corresponding period of the
prior fiscal year.
Net cash flows provided by financing activities of $1.0 million for the nine
months ended June 30, 2002 was provided under the terms of the Company's
revolving line of credit, while in the first quarter of the prior fiscal year
the Company was able to reduce borrowings under this facility with the proceeds
from working capital reductions.
14
Management expects that its debtor-in-possession financing arrangements
will be sufficient to meet planned working capital, capital expenditures and
other cash requirements until such time as it obtains approval for a plan or
reorganization. However, due to material uncertainties associated with the
outcome of the Chapter 11 proceedings in general, and the effects of such
proceedings on the business of the Company and its subsidiaries, there can be no
assurances that such plan will be approved or whether the Company will obtain
sufficient liquidity enabling it to continue to operate in its present
organizational structure.
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, changes in borrowing terms, the Company's ability to
develop and obtain a plan of reorganization during its Chapter 11 proceedings,
or other risks and uncertainties discussed in the Company's 10-K report. The
reader should not place undue reliance on the forward-looking statements
contained in this report or in the Company's annual report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposures are fluctuations in interest rates as
they relate to its variable rate debt and Canadian dollar currency rate
fluctuations as they relate to U.S. dollar debt carried on the books of the
Canadian subsidiary. The Company generally does not enter into derivative
financial investments for trading or speculation purposes. A 10% market rate
change in interest rate would affect the Company in the approximate quarterly
pre-tax amount of $100,000. A 10% change in Canadian currency exchange rate
would affect the Company in the approximate after-tax amount of $100,000. As a
result, the Company believes that its market risk exposure is not material to
its consolidated financial position, liquidity or results of operations.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 16, 2002, Cold Metal Products, Inc. and its wholly-owned subsidiary,
Alkar Steel Corporation, each filed a voluntary petition for relief under the
Bankruptcy Code, with the United States Bankruptcy Court for the Northern
District of Ohio, Eastern Division, as Cases Number 02-43619 and 02-43620,
respectively. Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, each
petitioning corporation remains in possession of its assets and continues to
operate as a debtor in possession. The filings cover domestic assets only and do
not affect Cold Metal Products, Ltd., a wholly owned Canadian subsidiary, which
operates facilities in Hamilton, Ontario Canada and Montreal, Quebec Canada.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Note 6 to the Financial Statements included as Item 1 of Part I of
this Report is incorporated by reference as Item 3 of this Part II.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no submission of matters to a vote of security holders.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number and Description -
10(y) Strategic Alliance and Processing Agreement Among Cold Metal
Products, Ltd., Samuel, Son & Co., Ltd., and Copld Metal
Products, Inc. dated the 11th day of June 2002.
(a) Reports on Form 8-K -
Form 8-K dated August 16, 2002 filed with respect to the
Company's press release announcing that the Company and its
wholly owned subsidiary, Alkar Steel Corporation, each had
filed on that date a voluntary petition for relief under
Chapter 11 of Title 11, United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the
Northern District of Ohio, Eastern Division, as Cases Number
02-43619 and 02-43620, respectively. The release also
disclosed that the Company had closed its facilities in
Youngstown, Ohio and Indianapolis, Indiana.
16
Form 8-K dated July 23, 2002 filed with respect to the
Company's press release of that date regarding progress in
discussions with its secured lenders and an additional
source of funding, as referenced in its Form 12b-25 filed on
July 2, 2002.
17
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)
--------------------------------------------
Raymond P. Torok
President, Chief Executive Officer
--------------------------------------------
Joseph C. Horvath
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
November __, 2002
CERTIFICATION
I, Raymond P. Torok, certify that:
1. I have reviewed this annual report on Form 10-Q of Cold Metal Products,
Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
18
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
-------------------------------------
Raymond P. Torok
November ___, 2002 President and Chief Executive Officer
CERTIFICATION
I, Joseph C. Horvath, certify that:
1. I have reviewed this annual report on Form 10-Q of Cold Metal Products,
Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial
condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
c. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
------------------------------
Joseph C. Horvath
November ___, 2002 Vice-President and Chief Financial Officer