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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: August 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-2572
STEEL CITY PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 55-0437067
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(State of Incorporation) (I.R.S. Employer
Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE 19808
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(Address of principal executive offices)
(Zip Code)
(817) 416-0717
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(Registrant's telephone number, including area code)
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(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
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At October 1, 2000, 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED FINANCIAL STATEMENTS
STEEL CITY PRODUCTS, INC.
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Condensed Balance Sheets at August 31, 2000
and February 29, 2000.................................................... 3
Condensed Statements of Operations for the three month periods ended
August 31, 2000 and August 31, 1999...................................... 4
Condensed Statements of Operations for the six month periods ended
August 31, 2000 and August 31, 1999...................................... 5
Condensed Statements of Cash Flows for the six month periods ended
May 31, 2000 and May 31, 1999............................................ 6
Notes to Condensed Financial Statements................................... 7
</TABLE>
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STEEL CITY PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
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<CAPTION>
ASSETS AUGUST 31, FEBRUARY 29,
2000 2000
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Current assets:
Cash ........................................................................ $ 163 $ 7
Trade accounts receivable, less allowance of $185 and $213, respectively .... 2,865 2,478
Inventories ................................................................. 4,075 4,795
Other ....................................................................... 125 81
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Total current assets ............................................ 7,228 7,361
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Property and equipment, at cost ................................................... 1,206 1,160
Less accumulated depreciation ............................................... (835) (782)
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371 378
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Other assets ...................................................................... 165 171
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165 171
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$ 7,764 $ 7,910
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable ............................................................ $ 3,487 $ 4,869
Accrued compensation ........................................................ 315 374
Current maturities of long-term obligations ................................. 67 209
Other ....................................................................... 72 132
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Total current liabilities ....................................... 3,941 5,584
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Long-term obligations:
Long-term debt .............................................................. 4,204 3,172
Other long-term obligations ................................................. 168 180
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4,372 3,352
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Commitments and contingencies ..................................................... -- --
Stockholders' deficiency:
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 $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares ................................ 32 32
Additional paid-in capital .................................................. 43,824 43,824
Deficit (Reorganized on August 26, 1989) .................................... (36,018) (36,570)
Advances to Oakhurst Company, Inc. .......................................... (8,405) (8,330)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
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Total stockholders' deficiency .................................. (549) (1,026)
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$ 7,764 $ 7,910
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</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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STEEL CITY PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
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<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
2000 1999
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Sales .............................................................. $ 5,285 $ 5,328
Other income ....................................................... 344 182
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5,629 5,510
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Cost of goods sold, including occupancy and
buying expenses ................................................ 4,238 4,373
Operating, selling and administrative expenses ..................... 958 940
Provision for doubtful accounts .................................... 17 3
Interest expense ................................................... 117 90
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5,330 5,406
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Net income before undistributed earnings of
investment in affiliate and income tax expense ................. 299 104
Undistributed earnings of investment in affiliate .................. -- 56
Income tax expense ................................................. -- (1)
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Net income ......................................................... 299 159
Effect of Series A Preferred Stock dividends ....................... (255) (255)
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Net income (loss) attributable to common stockholders .............. $ 44 $ (96)
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Basic and diluted net income (loss) per share attributable to common
stockholders after preferred stock dividends ................... $ 0.01 $ (0.03)
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Weighted average number of shares outstanding used in
computing basic and diluted per share amounts .................. 3,238,061 3,238,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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STEEL CITY PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
2000 1999
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Sales .............................................................. $ 11,030 $ 10,953
Other income ....................................................... 452 276
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11,482 11,229
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Cost of goods sold, including occupancy and
buying expenses ................................................ 8,740 8,829
Operating, selling and administrative expenses ..................... 1,940 1,943
Provision for doubtful accounts .................................... 30 24
Interest expense ................................................... 218 168
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10,928 10,964
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Net income before undistributed earnings of
investment in affiliate and income tax expense ................. 554 265
Undistributed earnings of investment in affiliate .................. -- 111
Income tax expense ................................................. (2) (3)
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Net income ......................................................... 552 373
Effect of Series A Preferred Stock dividends ....................... (508) (510)
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Net income (loss) attributable to common stockholders .............. $ 44 $ (137)
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Basic and diluted net income (loss) per share attributable to common
stockholders after preferred stock dividends ................... $ 0.01 $ (0.04)
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Weighted average number of shares outstanding used in
computing basic and diluted per share amounts .................. 3,238,061 3,238,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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STEEL CITY PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
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<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
2000 1999
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Cash flows from operating activities:
Net income ................................................ $ 552 $ 373
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization .......................... 69 83
Undistributed earnings of investment in affiliate ...... 0 (112)
Other changes in operating assets and liabilities:
Accounts receivable .................................... (387) (477)
Inventories ............................................ 720 244
Accounts payable ....................................... (1,382) (526)
Other .................................................. (288) 119
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Net cash used in operating activities ......................... (716) (296)
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Cash flows from investing activities:
Advances to Oakhurst Company, Inc. ........................ (75) (322)
Additions to property and equipment ....................... (46) (7)
Other ..................................................... -- --
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Net cash used in investing activities ......................... (121) (329)
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Cash flows from financing activities:
Net borrowings under revolving credit agreement ........... 1,032 705
Principal payments on long-term obligations ............... (8) (32)
Deferred loan costs ....................................... (31) (49)
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Net cash provided by financing activities ..................... 993 624
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Net increase (decrease) in cash ............................... 156 (1)
Cash at beginning of period ................................... 7 2
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Cash at end of period ......................................... $ 163 $ 1
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</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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STEEL CITY PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2000
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
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 condensed financial statements be read in conjunction with the audited
financial statements for the fiscal year ended February 29, 2000 ("fiscal 2000")
as filed in the Company's Annual Report on Form 10-K.
Operating results for the three months ended August 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
February 28, 2001.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". In June
2000, SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" which amended several requirements of SFAS No. 133 was
issued. These standards are required to be adopted in years beginning after June
15, 2000. Oakhurst does not anticipate that the adoption of SFAS No. 133 will
have a significant effect on its financial position or results of operations.
In November 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition". This Bulletin sets forth the SEC Staff's position
regarding the point at which it is appropriate for a Registrant to recognize
revenue. The Staff believes that revenue is realizable and earned when all of
the following criteria are met:
- Persuasive evidence of an arrangement exists
- Delivery has occurred or service has been rendered
- The seller's price to the buyer is fixed or determinable, and
- Collectibility is reasonably assured.
The Company uses the above criteria to determine whether revenue can be
recognized and therefore believes that the issuance of SAB 101 does not have a
material impact on the Company's financial statements.
3. BORROWING ARRANGEMENT
In August 2000, the Company's revolving credit facility was increased
from $4.0 million to $4.5 million through an amendment to the existing
agreement.
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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 is
expected to concentrate on its historical distribution 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 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 carry-forwards which amount to approximately $158 million.
LIQUIDITY AND CAPITAL RESOURCES
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'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
their seasonal inventory builds, and the amount of credit extended to SCPI by
its suppliers. SCPI participates in a cash concentration system with Oakhurst.
Available cash that is transferred to Oakhurst is reflected as an addition to
advances made to Oakhurst.
At August 31, 2000, SCPI's debt consisted primarily of revolving debt
of approximately $4.2 million. The revolving debt agreement has a term of three
years, expiring in May 2003 and was amended in August 2000 to provide for a
maximum facility of $4.5 million, subject to a borrowing base.
Management believes that the revolving debt will provide adequate
funding for SCPI's working capital requirements for at least the next twelve
months, assuming no material deterioration in current sales levels or gross
profit margin.
FORWARD LOOKING STATEMENTS
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 and
cash flows) 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
As of August 31, 2000, there had been no material changes in the
Company's financial condition from February 29, 2000, discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 2000.
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MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the results of SCPI's operating division, Steel City
Products, a distributor of automotive parts and accessories and of non-food pet
supplies, headquartered in McKeesport, Pennsylvania.
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED WITH THREE MONTHS ENDED
AUGUST 31, 1999
Sales in the second quarter of the current year decreased by $43,000
compared with the second quarter of the prior year. Sales to existing automotive
customers decreased by $861,000 due to the loss of a customer in the fourth
quarter of fiscal 2000, customers which changed suppliers or are purchasing
items directly from the manufacturer and to competitive pressures faced by
smaller customers. Sales to new automotive customers totaled approximately
$783,000 in the second quarter.
Other income increased by approximately $160,000 due primarily to the
expiration of certain Creditor Notes associated with SCPI's former Retail
Division and the expectation that the balance of the Creditor Notes would not
ultimately be payable.
Sales of non-food pet products totaled $585,000, an increase of $35,000
compared with the second quarter of the prior year, due primarily to increased
sales to existing customers.
Gross profits increased by $92,000 in the second quarter of the current
year compared with the second quarter of the prior year, due to higher margins
earned on certain product offerings.
Operating, selling and administrative expenses reflected an increase of
$18,000 in the second quarter compared with the prior year due to higher payroll
and promotional expenses which were offset by reduced commissions and general
office expenses.
Interest expense increased by $27,000 due to higher borrowing levels in
the current year.
SIX MONTHS ENDED AUGUST 31, 2000 COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1999
For the first six months of the current fiscal year, sales increased by
$77,000 compared with the first six months of the prior year. Sales to existing
automotive customers decreased by $1.1 million due primarily to the loss of a
customer in the fourth quarter of fiscal 2000 and to customers which have
changed suppliers or are purchasing directly from the manufacturer. Some of the
loss in sales to existing customers was offset by sales to new customers which
totaled $1.0 million in the first six months of the current year.
Sales of non-food pet products totaled $1.2 million, an increase of
$101,000 compared with the first six months of the prior year, due primarily to
increased sales to existing customers.
Other income increased by approximately $176,000 due primarily to the
expiration of certain Creditor Notes associated with SCPI's former Retail
Division and the expectation that the balance of the Creditor Notes would not
ultimately be payable.
Gross profits increased by $166,000 in the first half of the current
year compared with the first six months of the prior year, due to the higher
sales volume combined with higher margins earned on certain product offerings.
Interest expense increased by $50,000 due to higher borrowing levels in
the current year.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
SCPI is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading of, or speculation in, derivative financial instruments.
The Company's primary market risk exposure relates to interest rate risk. SCPI
manages its interest rate risk by attempting to balance its exposure between
fixed and variable rates while attempting to minimize its interest costs.
A change in the interest rate of 1% would have changed interest expense
by approximately $9,500 and $17,500 for the three and six month periods ended
August 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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: October 10, 2000 By: /s/ Bernard H. Frank
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Bernard H. Frank
Chief Executive Officer
Date: October 10, 2000 By: /s/ Maarten D. Hemsley
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Maarten D. Hemsley
Chief Financial Officer
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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