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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 December 31, 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 of incorporation or (I.R.S. Employer
organization) Identification 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 January 31, 2001: 6,384,491
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended December 31, 2000
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............................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................................12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................................12
Item 2. Changes in Securities.........................................................................................12
Item 3. Defaults Upon Senior Securities...............................................................................12
Item 4. Submission of Matters to a Vote of Security Holders...........................................................12
Item 5. Other Information.............................................................................................12
Item 6. Exhibits and Reports on Form 8-K..............................................................................12
Signatures..............................................................................................................12
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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)
Three Months Ended Nine Months Ended
------------------ -----------------
December 31 December 31
----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 48,488 $ 49,305 $ 164,978 $ 150,201
Cost of sales 46,908 43,303 151,500 131,838
----------- ----------- ----------- -----------
Gross profit 1,580 6,002 13,478 18,363
Selling, general, and administrative expenses 4,436 3,836 12,932 10,869
Special charges 915 -- 915 --
Interest expense 1,305 896 3,771 2,554
----------- ----------- ----------- -----------
(Loss) income before income taxes (5,076) 1,270 (4,140) 4,940
Income tax (benefit) expense (1,888) 468 (1,544) 1,832
----------- ----------- ----------- -----------
Net (loss) income $ (3,188) $ 802 $ (2,596) $ 3,108
=========== =========== =========== ===========
Basic and diluted net (loss) income per share
$ (0.50) $ 0.13 $ (0.41) $ 0.49
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 6,391,962 6,367,500 6,391,481 6,395,364
=========== =========== =========== ===========
Diluted 6,391,962 6,413,158 6,391,481 6,428,403
=========== =========== =========== ===========
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)
December 31, March 31,
------------ ---------
2000 2000
---- ----
Assets:
Cash $ 1,534 $ 1,559
Receivables 27,160 33,952
Inventories 42,259 42,684
Prepaid and other current assets 1,040 4,232
---------- ----------
Total current assets 71,993 82,427
Property, plant and equipment - at cost 79,982 78,258
Less accumulated depreciation (39,083) (37,629)
---------- ----------
Property, plant and equipment - net 40,899 40,629
Other assets 17,523 14,693
---------- ----------
Total assets $ 130,415 $ 137,749
========== ==========
Liabilities and shareholders' equity:
Short-term debt $ 66,254 $ 6,556
Accounts payable 16,837 25,597
Other current liabilities 7,568 10,459
---------- ----------
Total current liabilities 90,659 42,612
Long-term debt 1,801 52,621
Postretirement benefits 15,444 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 25,383 25,371
Retained earnings 7,320 10,873
Accumulated other comprehensive income (4,623) (4,023)
Less treasury stock, 1,164,750 shares, at cost (5,644) (5,644)
---------- ----------
Total shareholders' equity 22,511 26,652
---------- ----------
Total liabilities and shareholders' equity $130,415 $137,749
========== ==========
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)
Nine Months Ended
-----------------
December 31,
------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,596) $3,108
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 3,056 2,606
Special charges 747 ---
Foreign currency transaction adjustment 35 ---
Deferred directors' fees 12 10
Deferred income taxes (1,739) 265
Changes in operating assets and liabilities:
Accounts receivable 6,484 (3,100)
Inventory (90) (4,822)
Accounts payable (8,502) 2,626
Accrued expense and other (1,142) (1,772)
---------------- ----------------
Net cash used in operating activities (3,735) (1,079)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,040) (1,977)
Acquisition of Alkar (137) ---
Sale of assets --- 15,153
---------------- ----------------
Net cash provided by (used in) investing activities (4,177) 13,176
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of term loans (2,219) (2,315)
Proceeds from lease financing transaction --- 2,076
Proceeds from debt 138,753 111,383
Payments of debt (127,656) (122,573)
Payment of dividends (957) (318)
Treasury stock acquisition --- (317)
---------------- ----------------
Net cash provided by (used in) financing activities 7,921 (12,064)
Net increase in cash 9 33
Effect of translation adjustment (34) 38
Cash at beginning of period 1,559 399
---------------- ----------------
Cash at end of period $1,534 $470
================ ================
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 financial position of Cold
Metal Products, Inc. and Subsidiaries (the Company) as of December 31, 2000 and
March 31, 2000, the results of operations for the three month and nine month
periods ended December 31, 2000 and 1999, and changes in cash flows for the nine
months ended December 31, 2000 and 1999. The results of operations for the
periods ended December 31, 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
accounting principles generally accepted in the United States of America 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.
In September 2000, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued EITF 00-10, "Accounting for Shipping
and Handling Fees and Costs", which is to become effective for the Company no
later than the fourth quarter of fiscal 2001. EITF 00-10 provides that all
amounts billed to a customer in a sale transaction related to shipping and
handling represent revenues earned for the goods sold and should be classified
as revenue. The Company currently nets freight revenues against freight expenses
within cost of sales. The Company is currently evaluating the requirements and
effects of EITF 00-10, and estimates that implementation will result in an
increase of revenues of approximately 1% to 2% with a corresponding increase in
cost of sales for the same amount. There will be no effect on the dollar amount
of the Company's gross profit or net income.
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 $5.9 million, which is being amortized
over 20 years.
Unaudited pro forma information has been derived from the Company's
income statements for the three and nine months ended December 31, 1999 and
adjusts the income statements 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
$55.9 million, net income of $.6 million and basic net earnings per share of
$.09 for the three months
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ended December 31, 1999. For the nine months ended December 31, 1999, unaudited
pro forma consolidated results of operations reflect net sales of $170.7, net
income of $3.1 million and basic net earnings per share of $0.48.
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 $34.3 million and $32.9 million during the three months ended
December 31, 2000 and 1999 and $119.3 million and $102.9 million during the nine
months ended December 31, 2000 and 1999. The remainder of the Company's revenues
are related to customers and operations in Canada.
NOTE 4. INVENTORIES
December 31, 2000 March 31, 2000
----------------- --------------
(In thousands)
Raw Materials $20,623 $21,257
Work-in-process 12,346 14,527
Finished goods 9,290 6,900
--------------------------------------
Total inventories $42,259 $42,684
======================================
NOTE 5. COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of net income and foreign
currency translation adjustment for the period. Translation adjustments were
$55,000 and $340,000 for the three months ended December 31, 2000 and 1999,
respectively and $(600,000) and $877,000 million for the nine months ended
December 31, 2000 and 1999, respectively. Total comprehensive income (loss) for
the three months ended December 31, 2000 and 1999 was $(3.1) million and $1.1
million, respectively. Total comprehensive income (loss) for the nine months
ended December 31, 2000 and 1999 was $(3.2) million and $4.0 million,
respectively.
NOTE 6. DEBT
As of December 31, 2000, short-term debt included $50.0 million of
borrowings under a committed revolving credit facility, and $16.1 million of
borrowings under a term loan. The Company was in non-compliance with certain
financial ratios contained in the revolving credit and term loan agreements that
pertain to minimum net worth and financial leverage measurements. The Company is
in discussions with its senior lenders and expects to reach an agreement that
amends these financial covenants to take into consideration prevailing market
conditions. Unless and until such time that the borrowing agreements are
satisfactorily amended, management is reporting such obligations as current in
recognition of the senior lenders' ability to demand repayment of the
outstanding obligations during a period that any such covenants have been
violated.
Subject to the lenders' rights resulting from covenant breaches
referred to above, the Company's revolving credit agreement, as amended,
provides maximum borrowing capability of $70 million. The agreement by its terms
extends through April 1, 2004.
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NOTE 7. SPECIAL CHARGES
During November, 2000 the Company ceased rolling and annealing activity
at its New Britain, Connecticut facility as part of its efforts to rationalize
capacity consistent with current market conditions. As a result, the Company
recognized a $.9 million charge in the quarter ended December 31, 2000 primarily
related to the impairment of idled equipment.
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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:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 96.7% 87.8% 91.8% 87.8%
--------------------------------------------------------------
Gross profit 3.3% 12.2% 8.2% 12.2%
Selling, general, and administrative
expenses 9.2% 7.8% 7.8% 7.2%
Special charges 1.9% --- 0.6% ---
Interest expense 2.7% 1.8% 2.3% 1.7%
--------------------------------------------------------------
Income (loss) before income taxes (10.5)% 2.6% (2.5)% 3.3%
Income taxes (benefit) expense (3.9)% 1.0% (0.9)% 1.2%
--------------------------------------------------------------
Net income (loss) (6.6)% 1.6% (1.6)% 2.1%
==============================================================
Net sales for the three months ended December 31, 2000 were $48.5
million, a decrease of $.8 million or 1.7% less than the Company's net sales for
the corresponding period ended December 31, 1999, including the additional
volume from Alkar which was acquired March 31, 2000. Volume of tons shipped
increased slightly at .2%, which accounted for $.1 million of revenue increase.
This was more than offset by $.9 million effect of lower priced product mix.
Adjusting sales to remove the Alkar-related activity, net sales decreased $6.1
million, $4.7 million from volume and $1.4 million from lower priced product
mix. Declining demand, particularly in the automotive sector, greatly impacted
sales for the current quarter period.
For the nine months ended December 31, 2000, net sales of $165.0
million were $14.8 million higher than the $150.2 million for the comparable
period of the prior year, which reflected the effect of additional volume from
Alkar. On a comparable location basis, year to date net sales were down $4.3
million, or 2.9%. Lower volume levels accounted for $2.2 million of sales
decrease and lower revenue mix accounted for $2.1 million of sales decrease. The
decline in demand in the third quarter also impacted the year to date results.
Gross profit for the three months ended December 31, 2000 was $1.6
million or 3.3% of net sales, a $4.4 million decrease over the three months
ended December 31, 1999. Gross profit for the nine months ended December 31,
2000 was $13.5 million, or 8.2% of net sales, compared to $18.4 million,
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or 12.2% of net sales, for the nine months ended December 31, 1999. The primary
factors affecting gross margins were weaker market conditions, particularly in
the month of December 2000, the impact of resulting low activity levels,
especially in relation to the high fixed cost operating structure that
management is focusing efforts to reduce, and continued liquidation of higher
cost inventories acquired in the first quarter of the fiscal year. In addition,
provisions for inventory valuation reserve of $.5 million and an environmental
remediation reserve of $.3 million contributed to the gross margin decreases in
the same periods.
The Company adopted and has begun to implement plans to rationalize
capacity and concentrate manufacturing at the facilities most efficient for
customer needs. In conjunction with this strategy, the Company has ceased
rolling and annealing activity at its New Britain, Connecticut facility, and the
plant will perform only certain slitting and finishing operation. As a result of
this change, the three month and nine month periods ended December 31, 2000
reflected a $.9 million special restructuring charge that relates principally to
the provision for excess carrying values of impaired assets. The Company
continues to evaluate its operating structure as part of its strategic
redirection and future periods may include additional restructuring charges.
Selling, general and administrative costs of $4.4 million for the three
months ended December 31, 2000 represented 9.2% of net sales; selling and
administrative costs for the three months ended December 31, 1999 were $3.8
million, or 7.8% of net sales. For the nine month period ended December 31,
2000, selling and administrative costs were $12.9 million, or 7.8% of net sales,
compared to $10.9 million, or 7.2% of net sales for the nine months ended
December 31, 1999. The increase primarily reflected the addition of Alkar costs.
Interest expense was $1.3 million, or 2.7% of net sales for the three
months ended December 31, 2000 as compared to $.9 million or 1.8% of net sales
for the three months ended December 31, 1999. For the nine months ended December
31, 2000, interest expense was $3.8 million, or 2.3% of net sales, compared to
$2.6 million, or 1.7% of net sales for the nine month period ended December 31,
1999. Higher expense was primarily attributable to the additional indebtedness
related to the Alkar acquisition, as well as higher market interest rates.
Income (loss) before taxes was $(5.1) million, or (10.5)% of net sales
for the three months ended December 31, 2000, compared to $1.3 million, or 2.6%
of net sales for the three months ended December 31, 1999. For the nine months
ended December 31, 2000, income (loss) before taxes was $(4.1) million, or
(2.5)% of net sales, compared to $4.9 million, or 3.3% of net sales for the nine
months ended December 31, 1999.
Income tax expense (benefit) for the three months ended December 31,
2000 was $(1.9) million, or (3.9)% of net sales compared to $.5 million, or 1.0%
of net sales for the three months ended December 31, 1999. Tax expense (benefit)
for the nine months ended December 31, 2000 was $(1.5) million, or (.9)% of net
sales, compared to $1.8 million, or 1.2% of net sales for the nine months ended
December 31, 1999. The effective tax rate was an 37.2% for the three months
ended December 31, 2000, compared to 36.9% for the three months ended December
31, 1999. For the nine months ended December 31, 2000, the effective tax rate
was 37.3%, compared to 37.1% for the nine months ended December 31, 1999.
Net income (loss) for the three months ended December 31, 2000 was
$(3.2) million, or $(.50) per share as compared to $.8 million, or $.13 per
share for the three months ended December 31, 1999. Net income (loss) for the
nine months ended December 31, 2000 was $(2.6) million, or $(.41) per share
compared to $3.1 million or $.49 per share for the nine months ended December
31, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 31, 2000, operating activities
used $3.7 million in cash, compared to cash used of $1.1 million for the nine
months ended December 31, 1999. Net loss for the first nine months of fiscal
2001, adjusted for depreciation and special charges, used approximately $.5
million, with the remaining $3.2 million use of cash associated with operations
being applied to fund working capital changes. This compares with $6.0 million
of cash provided from net income, adjusted for non-cash items, and $7.1 million
of cash applied to working capital changes during the comparable period in
fiscal 2000.
Cash consumed by investing activities, principally reflecting the
acquisition of capital assets, was $4.2 million and $2.0 million for the nine
months ended December 31, 2000 and 1999, respectively. In fiscal 2000, the
Company received $15.2 million in proceeds from the divestiture of certain
Canadian service center operations.
Net cash flows provided by financing activities of $7.9 million for the
nine months ended December 31, 2000, were used to finance operating activities
and fixed asset investments, while for the nine months ended December 31, 1999
the Company applied net cash of $12.1 million to financing activities primarily
by reducing its borrowings with the proceeds from the sale of certain Canadian
service centers.
Following a period of significant growth, the Company has recently
experienced significant weakening in market conditions, particularly during the
quarter ended December 31, 2000. Operating results have been affected by the
Company's inability to pass on to its customers material price increases
absorbed by the Company during the first quarter as well as the more recent and
fairly sudden decline in market demand. At the present time, management believes
that current market conditions will prevail into the second half of calendar
2001 and steps have been taken to reduce the Company's investment in working
capital. Management is also examining ways to match production capacity with
current levels in market demand. Accordingly, during this time the Company will
continue to be dependent upon its credit facilities to support operating and
capital asset financing needs. The Company's primary lending arrangement
provides up to a maximum of $70 million of borrowing availability, of which
$50.0 million was outstanding at December 31, 2000. As of December 31, 2000, the
Company was in violation with certain financial ratios contained in the
revolving credit and term loan agreements that pertain to minimum net worth and
financial leverage measurements. The Company is in discussions with its senior
lenders and expects to reach an agreement that amends these financial covenants
to take into consideration prevailing market conditions.
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, or other risks and
uncertainties discussed in the Company's 10K report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is in the areas of possible
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 does not enter into
derivative financial investments for trading or speculation purposes. The
Company would be sensitive to a 10% market rate change in interest rate in the
approximate after-tax amount of $.2 million. The Company would be sensitive to a
10% change in Canadian currency exchange rate in the approximate after-tax
amount of $.4 million. As a result, the Company believes that its market risk
exposure is not material to the company's financial position, liquidity or
results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which are material
to its financial position.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
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 have been no submission of matters to a vote of security holders.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None
(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)
February 14, 2001
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