<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1996
-----------------
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: 0-2572
STEEL CITY PRODUCTS, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 55-0437067
--------------------------- ----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS
75050
-----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(972) 660-4499
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report)
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
----- -----
At January 1, 1997, 3,238,061 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
STEEL CITY PRODUCTS, INC.
<TABLE>
<S> <C>
Balance Sheets at November 30, 1996 (unaudited)
and February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the three month periods ended
November 30, 1996 and November 30, 1995 (unaudited) . . . . . . . . . . . 4
Statements of Operations for the nine month periods ended
November 30, 1996 and November 30, 1995 (unaudited) . . . . . . . . . . . 5
Statement of Stockholders' Equity for the nine months
ended November 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . 6
Statements of Cash Flows for the nine month periods ended
November 30, 1996 and November 30, 1995 (unaudited) . . . . . . . . . . . 7
Notes to financial statements (unaudited) . . . . . . . . . . . . . . . . . 8
</TABLE>
- 2 -
<PAGE> 3
STEEL CITY PRODUCTS, INC.
BALANCE SHEETS
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS November 30, February 29,
1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 2 $ 3
Trade accounts receivable, less allowance of $342 and $419, respectively.... 2,370 2,512
Advances to Oakhurst Company, Inc........................................... 5,158 2,051
Notes receivable - Oakhurst Company, Inc.................................... 269 249
Inventories................................................................. 2,937 4,493
Deferred tax asset.......................................................... 75 75
Other....................................................................... 153 287
----------- -----------
Total current assets.............................................. 10,964 9,670
----------- -----------
Property and equipment, at cost............................................... 2,000 1,998
Less accumulated depreciation............................................... (901) (752)
----------- -----------
1,099 1,246
----------- -----------
Deferred tax asset, less valuation allowance of $48,300....................... 2,018 2,018
Notes receivable - Oakhurst Company, Inc., long-term portion.................. 1,079 1,282
Investment in Oakhurst Holdings, Inc.......................................... 245 -
Other assets.................................................................. 230 315
----------- -----------
3,572 3,615
----------- -----------
$ 15,635 $ 14,531
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 2,998 $ 3,650
Accrued compensation........................................................ 221 272
Current maturities of long-term obligations................................. 288 260
Net obligation of discontinued business segment-current portion............. 530 465
Due to affiliate............................................................ 241 97
Other....................................................................... 82 175
----------- -----------
Total current liabilities......................................... 4,360 4,919
----------- -----------
Long-term obligations:
Net obligation of discontinued business segment............................. 349 678
Long-term debt.............................................................. 3,630 1,428
Other long-term obligations................................................. 89 110
----------- -----------
4,068 2,216
----------- -----------
Commitments and contingencies.................................................
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
5,000,000 shares, issued 1,938,526 shares;
liquidation preference $10,135........................................... 19 19
Common stock, par value $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares................................ 32 32
Additional paid-in capital.................................................. 43,824 43,824
Deficit (Reorganized on August 26, 1989).................................... (36,667) (36,478)
Treasury stock, at cost, 207 common shares.................................. (1) (1)
----------- -----------
Total stockholders' equity........................................ 7,207 7,396
----------- -----------
$ 15,635 $ 14,531
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
November 30, November 30,
1996 1995
------------ -----------
<S> <C> <C>
Sales..................................................... $ 4,264 $ 5,958
Other income.............................................. 117 62
------------ -----------
4,381 6,020
------------ -----------
Cost of goods sold, including occupancy and
buying expenses......................................... 3,559 4,880
Operating, selling and administrative expenses............ 933 1,060
Provision for doubtful accounts........................... 13 10
Interest expense.......................................... 128 67
------------ -----------
4,633 6,017
------------ -----------
Net (loss) income before income taxes and
undistributed earnings of investment in affiliate....... (252) 3
Income tax expense........................................ (1) (1,510)
Undistributed earnings of investment in affiliate......... 46 -
------------ -----------
Net loss.................................................. (207) (1,507)
Effect of Series A Preferred Stock dividends.............. (253) (253)
------------ -----------
Net loss attributable to common stockholders.............. $ (460) $ (1,760)
============ ===========
Net loss per share attributable to common
stockholders after preferred stock dividends............ $ (0.14) $ (0.54)
============ ===========
Weighted average number of shares outstanding
used in computing per share amount...................... 3,238,061 3,238,061
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
November 30, November 30,
1996 1995
------------- -------------
<S> <C> <C>
Sales................................................... $ 14,301 $ 20,871
Other income............................................ 389 281
------------ -------------
14,690 21,152
------------ -------------
Cost of goods sold, including occupancy and
buying expenses....................................... 11,678 16,798
Operating, selling and administrative expenses.......... 2,950 3,445
Provision for doubtful accounts......................... 42 267
Interest expense........................................ 365 214
------------ -------------
15,035 20,724
------------ -------------
Net (loss) income before income taxes and
undistributed earnings of investment in affiliate..... (345) 428
Income tax expense...................................... (9) (1,638)
Undistributed earnings of investment in affiliate....... 165 -
------------ -------------
Net loss................................................ (189) (1,210)
Effect of Series A Preferred Stock dividends............ (759) (759)
------------ -------------
Net loss attributable to common stockholders............ $ (948) $ (1,969)
============ =============
Net loss per share attributable to common
stockholders after preferred stock dividends.......... $ (0.29) $ (0.61)
============ =============
Weighted average number of shares outstanding
used in computing per share amount.................... 3,238,061 3,238,061
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
STEEL CITY PRODUCTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED NOVEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Treasury Stock
-------------------- -------------------- Paid-in Earnings --------------------
shares par value shares par value Capital (Deficit) shares cost
--------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 29, 1996.... 1,938,526 $19 3,238,061 $32 $43,824 ($36,478) 207 ($1)
Net loss for the period........ (189)
--------- -------- ---------- ------- --------- --------- --------- --------
Balances,November 30, 1996..... 1,938,526 $19 3,238,061 $32 $43,824 ($36,667) 207 ($1)
========= ======== ========== ======= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
STEEL CITY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
November 30, November 30,
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (189) $ (1,210)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization........................ 208 150
Loss on retirement of asset.......................... - 26
Deferred tax expense................................. - 1,690
Undistributed earnings of investment in affiliate.... (165) -
Other changes in operating assets and liabilities:
Accounts receivable.................................. 142 1,205
Inventories.......................................... 1,556 1,920
Accounts payable..................................... (652) (2,191)
Other................................................ 206 (83)
------------ ------------
Net cash provided by (used in) operating activities of:
Continuing operations..................................... 1,106 1,507
Discontinued operations................................... (264) (295)
------------ ------------
Net cash provided by operating activities.................... 842 1,212
------------ ------------
Cash flows from investing activities:
Advances to Oakhurst Company, Inc......................... (3,107) (1,220)
Collection of note receivable, Oakhurst Company, Inc...... 183 506
Additions to property and equipment....................... (2) (86)
Other..................................................... - 67
------------ ------------
Net cash used in investing activities........................ (2,926) (733)
------------ ------------
Cash flows from financing activities:
Net borrowings under revolving credit agreement........... 2,561 -
Proceeds from long-term borrowings........................ 1,500 -
Principal payments on long-term obligations............... (1,852) (445)
Deferred loan costs....................................... (126) -
------------ ------------
Net cash provided by (used in) financing activities.......... 2,083 (445)
------------ ------------
Net (decrease) increase in cash and cash equivalents......... (1) 34
Cash and cash equivalents at beginning of period............. 3 29
------------ ------------
Cash and cash equivalents at end of period................... $ 2 $ 63
============ ============
</TABLE>
Supplemental schedule of non-cash investing and financing activities for the
nine month period ended November 30, 1995:
Capital lease obligations of $76 were incurred when the Company
entered into three leases for computer and warehouse equipment.
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
STEEL CITY PRODUCTS, INC.
NINE MONTHS ENDED NOVEMBER 30, 1996
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the interim periods
presented. All adjustments made are of a normal recurring nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited financial statements be read in conjunction with the audited
financial statements for the fiscal year ended February 29, 1996 ("fiscal
1996") as filed in the Company's Annual Report on Form 10-K.
2. LONG-TERM OBLIGATIONS AND LINE OF CREDIT
At February 29, 1996, Steel City Products, Inc. ("SCPI") had a term loan
(the "Term Loan") with an outstanding balance of approximately $1.7 million,
which was secured by a mortgage on SCPI's building, guaranteed by its parent,
Oakhurst Company, Inc. ("Oakhurst") and Oakhurst's subsidiaries, and supported
by a pledge of the capital stock of Oakhurst's subsidiaries. At that date,
Oakhurst had borrowings of $3.8 million outstanding under a revolving credit
agreement.
On March 28, 1996, Oakhurst obtained replacement financing from an
institutional lender that provides for a total facility for Oakhurst and its
subsidiaries of $9.5 million, comprised of a new SCPI term loan of $1.5 million
(the "Fixed Asset Loan") and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility"). The amounts
outstanding under the Term Loan and the prior Oakhurst revolving credit
agreement were repaid with part of the proceeds of the refinancing. The Credit
Facility requires that any loans be made directly to Oakhurst's subsidiaries,
including SCPI. The initial funding of the Revolver resulted in a loan to SCPI
of approximately $2.1 million. SCPI immediately advanced these funds to
Oakhurst to enable it to repay a portion of the amounts outstanding under the
previous revolving debt. The advance bears interest at the same rate as the
Credit Facility. In connection with the new financing, Oakhurst and its
subsidiaries incurred loan costs and fees of approximately $255,000, of which
$126,000 were attributable to SCPI.
Borrowings under the Credit Facility bear interest at the higher of the
Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings under
the Revolver are subject to a borrowing base that is calculated according to
defined levels of the accounts receivable and inventories of Oakhurst's
subsidiaries. The Credit Facility contains financial covenants, including
among others, the maintenance of defined subsidiary and consolidated tangible
net worth levels and consolidated current ratio, and limitations on annual cash
dividends.
The Fixed Asset Loan provides for twenty-four monthly principal and
interest payments based on a five year amortization schedule, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan permits
prepayment without penalty, and contains a provision for the release of SCPI's
building as collateral on the Credit Facility in the event of a refinancing of
the Fixed Asset Loan, subject to a right of first refusal by the current lender
to refinance the Fixed Asset Loan on the same terms as offered by a new lender.
SCPI participates in a cash concentration system together with the other
subsidiaries of Oakhurst. SCPI's available cash that is transferred to
Oakhurst is reflected as an addition to the advances to Oakhurst.
- 8 -
<PAGE> 9
3. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation". This statement is effective beginning in the current
fiscal year. The new standard defines a fair value method of accounting for
stock options and similar equity instruments. Pursuant to the new standard,
companies are encouraged, but not required, to adopt the fair value method of
accounting for employee stock-based transactions. Companies are also permitted
to continue to account for such transactions under Accounting Principles Board
Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees", but would
be required to disclose in a note to the financial statements pro forma net
income and earnings per share as if the company had applied the new method of
accounting.
In the first quarter of the current fiscal year, the Company elected not
to adopt the fair value method of accounting for employee stock-based
transactions and will continue to account for such transactions under the
provisions of APBO No. 25.
- 9 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Steel City Products, Inc. ("SCPI") is a special, limited purpose,
majority-owned subsidiary of Oakhurst Company, Inc. ("Oakhurst"). SCPI
concentrates on its historical line of business, while any future growth and
expansion opportunities are expected to be pursued by one or more subsidiaries
of Oakhurst. Through Oakhurst's ownership of SCPI, primarily in the form of
preferred stock, Oakhurst retains substantially all the value of SCPI and
receives substantially all of the benefit of SCPI's operations through
dividends on the preferred stock. Oakhurst's ownership of SCPI is designed to
facilitate the preservation and utilization of SCPI's and Oakhurst's net
operating tax loss carryforwards, which amount to approximately $149 million.
Operations include the results of SCPI's operating division, Steel City
Products, a distributor of automotive parts and accessories based in
Pittsburgh, Pennsylvania. During the three months ended August 31, 1996, Steel
City Products began to ship pet supplies to certain customers and during the
three months ended November 30, 1996, SCPI opened a new "Wing-Tech" division,
to import and distribute automotive "spoilers", also referred to as "wings".
The Company plans to distribute spoilers throughout North America using
independent sales representatives, and is also supplying spoilers to Oakhurst's
Puma Products subsidiary.
In addition to cash derived from operations, SCPI's liquidity and
financing requirements are determined principally by the working capital needed
to support its level of business, together with the need for capital
expenditures and the cash required to repay its debt. SCPI also receives cash
payments pursuant to two notes receivable from Oakhurst, and from time to time,
repayments of advances to Oakhurst.
SCPI's working capital needs fluctuate primarily due to the amounts of
inventory it carries, which can change seasonally; the size and timeliness of
payment of receivables from its customers to which from time to time SCPI
grants extended payment terms for building seasonal inventories; and the amount
of credit extended to SCPI by its suppliers. SCPI participates in a cash
concentration system together with the other subsidiaries of Oakhurst.
Available cash that is transferred to Oakhurst is reflected as an addition to
the advances to Oakhurst.
From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to statements concerning anticipated sales, profit levels, customers,
cash flows and liquidity) are forward looking statements. The Company's actual
future results may differ significantly from those stated in any forward
looking statements. Factors that may cause such differences include, but are
not limited to the factors discussed above as well as the accuracy of the
Company's internal estimates of revenue and operating expense levels. Each of
these factors and others are discussed from time to time in the Company's
Securities and Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
At November 30, 1996, SCPI's debt primarily consisted of a term loan of
approximately $1.3 million secured by a mortgage on SCPI's building, and notes
payable with outstanding principal balances aggregating
- 10 -
<PAGE> 11
approximately $810,000 that were issued in 1992 in connection with the
settlement of certain contingent liabilities related to SCPI's former retail
division. SCPI also has revolving debt of approximately $2.6 million (see
below). The revolving debt, which was borrowed primarily to repay prior
revolving debt of Oakhurst, decreased in the three months ended November 30,
1996 by approximately $635,000, and is largely offset by receivables from
Oakhurst for advances made by SCPI that bear interest at the same rate as the
revolving debt.
Oakhurst's ability to repay advances from SCPI is dependent on the
operating results of Oakhurst's other subsidiaries and on financing available
to those subsidiaries. During the current fiscal year, two of Oakhurst's other
subsidiaries, Puma Products, Inc. ("Puma") and H&H Distributors, Inc., have
encountered operating losses, and although a third Oakhurst subsidiary,
Dowling's Fleet Service Co., Inc., has reflected improved results, Oakhurst has
not produced sufficient cash flow to satisfy its debt service requirements,
leading to higher working capital borrowings by SCPI and Oakhurst.
Oakhurst and its subsidiaries, including SCPI, have available financing
under a revolving credit facility (the "Revolver") from an institutional lender
of up to a maximum of $8 million, subject to defined levels of the
subsidiaries' accounts receivable and inventories. Management believes that
the Revolver will provide adequate funding for SCPI's foreseeable working
capital requirements assuming no material deterioration in current sales or
profit levels. Oakhurst's continued ability to repay loans and advances from
SCPI will depend on an improvement in the results of operations of its other
subsidiaries.
At November 30, 1996, there had been no other material changes in the
Company's financial condition since its February 29, 1996 fiscal year end,
described in Item 7 of the Company's Annual Report on Form 10-K for fiscal
1996.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
In the current year, management expects sales to be lower than in fiscal
1996. As part of a strategic evaluation of the business following the loss of
two major customers in fiscal 1996, SCPI reduced expenses so as to mitigate
negative cash flow from operations while new customers and product lines were
sought. SCPI also has reduced its inventory levels to improve turns and to
decrease borrowing levels. In the first three quarters of the current year,
cash flow from continuing operations was positive, despite the lower sales
levels.
During the second quarter, SCPI began making sales to a significant new
automotive customer, and during the third quarter sales to an existing customer
increased significantly. In December 1996, SCPI added a significant
supermarket chain to its automotive products base, but this is expected to be
offset in part by the loss of Rich's Department Stores, Inc., a customer
operating in Chapter 11 that announced in December 1996 that it will cease
operations. Also during the second quarter, SCPI began to ship non-food pet
supplies, principally to existing small customers. Efforts continue to add
larger pet supply customers. During the third quarter, SCPI began operations
of the Wing-Tech Division; sales for the quarter were about $75,000. Although
management is encouraged by the addition of new customers and product
categories, there can be no assurance that SCPI can obtain enough new customers
or sufficient levels of new business to return sales and profits to historical
levels, or that other customers may not be lost in the future.
THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED NOVEMBER
30, 1995
Compared to the third quarter of the prior year, sales decreased by
approximately $1.7 million as a result of the loss of two of SCPI's largest
customers during the prior year. One customer was lost in
- 11 -
<PAGE> 12
October 1995 due to its bankruptcy, while the other changed its source of
supply in January 1996. These two customers accounted for a decrease in sales
in the current year third quarter of approximately $1.9 million. Excluding
these two customers, there was a net sales increase of approximately $225,000
compared with the prior year third quarter, which consisted of sales to new
automotive supply customers of $525,000, sales of the new pet and Wing-Tech
product lines of approximately $150,000, partially offset by a decrease in
sales of $450,000 to existing customers.
Other income increased by $55,000 over the third quarter of the prior
year, due to higher interest income of about $70,000 on advances to Oakhurst.
However, this gain is offset by higher interest expense. Revenues relating to
an annual summer auto show were lower by $15,000 compared with the prior year
third quarter, primarily due to a smaller show in the current year.
Gross profits decreased by $373,000 in the third quarter compared with
the same quarter of the prior year, attributable to the loss of sales to two
major customers discussed above. Profits attributable to such customers in the
third quarter of the prior year were $420,000. Profits derived from sales of
new product lines and sales to new customers were partially offset by a lower
gross margin earned on existing customer business. The lower gross margin was
primarily due to changes in customer product mix.
Operating, selling and administrative expenses decreased by $127,000
when compared to the third quarter of the prior year. After excluding royalty
expense, which is more than offset by the undistributed earnings of an
investment in an affiliate, the expense decrease was approximately $170,000,
and resulted principally from management's efforts to reduce SCPI's expenses
and work force in reaction to the lower levels of sales.
Income tax expense decreased by approximately $1.5 million in the
current year third quarter compared to the third quarter of the prior year, due
to a charge to deferred tax expense in the prior year that resulted from an
increase in the valuation allowance of the deferred tax asset.
NINE MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED NOVEMBER
30, 1995
When compared to the prior year, sales decreased by approximately $6.6
million as a result of the loss of the two large customers during the prior
year, as discussed above. These two customers accounted for a decrease in
sales in the current year of approximately $8.1 million. Sales to existing
customers decreased by approximately $600,000. These reductions were only
partially offset by the addition of new customers and new product lines, which
together accounted for sales of approximately $2.1 million.
Other income increased by $108,000 over the prior year, due to primarily
to higher interest income on advances to Oakhurst. However, this gain is
offset by higher interest expense.
Gross profits decreased by approximately $1.5 million in the nine months
ended November 30, 1996 compared with the same period of the prior year,
attributable to the loss of sales to two major customers previously discussed.
Current year to date profits derived from sales of new product lines and to new
customers were entirely offset by reduced profits earned on existing customer
business, due to lower gross margins. The lower gross margins resulted
primarily from changes in existing customer product mixes. Buying and
occupancy costs decreased by approximately $60,000, but increased by almost 1%
as a percentage of sales.
Operating, selling and administrative expenses decreased by $495,000
when compared to the prior year. After excluding royalty expense, which is
more than offset by the undistributed earnings of investment
- 12 -
<PAGE> 13
in affiliate, the expense decrease was approximately $640,000, and resulted
principally from management's efforts to reduce SCPI's expenses and work force
in reaction to the lower levels of sales.
There was a decrease of $225,000 in the provision for doubtful accounts
compared with the prior year, when the Company recorded provisions for the
bankruptcies of several customers, including one of its largest customers in
the second quarter.
Income tax expense decreased by approximately $1.6 million in the
current year period compared to the prior year period, due primarily to a
charge to deferred tax expense in the prior year that resulted from an increase
in the valuation allowance of the deferred tax asset.
- 13 -
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (EDGAR transmission only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEEL CITY PRODUCTS, INC.
Date: January 10, 1997 By: /s/ Bernard H. Frank
----------------------------
Bernard H. Frank
Chief Executive Officer
Date: January 10, 1997 By: /s/ Mark Auerbach
----------------------------
Mark Auerbach
Chief Financial Officer
- 15 -
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 2,712
<ALLOWANCES> 342
<INVENTORY> 2,937
<CURRENT-ASSETS> 10,964
<PP&E> 2,000
<DEPRECIATION> 901
<TOTAL-ASSETS> 15,635
<CURRENT-LIABILITIES> 4,360
<BONDS> 4,068
0
19
<COMMON> 32
<OTHER-SE> 7,156
<TOTAL-LIABILITY-AND-EQUITY> 15,635
<SALES> 14,301
<TOTAL-REVENUES> 14,690
<CGS> 11,678
<TOTAL-COSTS> 11,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> (345)
<INCOME-TAX> 9
<INCOME-CONTINUING> (189)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (948)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
