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 JUNE 30, 1995
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 0-14061
STEEL TECHNOLOGIES INC.
-----------------------
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0712014
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15415 Shelbyville Road, Louisville, KY 40245
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(Address of principal executive offices) (Zip Code)
(502) 245-2110
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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 Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceeding 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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There were 12,117,365 shares outstanding of the Registrant's
common stock as of July 31, 1995.
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<PAGE>
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1995 (Unaudited) and
September 30, 1994 (Audited) 3
Condensed Consolidated Statements of
Income Three months and nine months
ended June 30, 1995 and 1994 (Unaudited) 4
Condensed Consolidated Statements of
Cash Flows Nine months ended June 30,
1995 and 1994 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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<PAGE>
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
<TABLE>
June 30, September 30,
1995 1994
ASSETS (Unaudited) (Audited)
-------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
---------------
Cash and cash equivalents $ 4,058 $ 1,008
Trade accounts receivable, net 30,000 34,496
Inventories (Note 2) 51,419 80,357
Deferred income taxes 1,275 1,450
Prepaid expenses and other assets 398 536
-------------------------------------------------------------------------------
Total current assets 87,150 117,847
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Property, plant and equipment, net 99,146 73,329
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Investments in corporate joint ventures 9,065 7,930
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Other assets 1,110 1,307
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$ 196,471 $ 200,413
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
Current liabilities:
--------------------
Accounts payable $ 30,563 $ 43,432
Accrued liabilities 4,045 3,094
Long-term debt due within one year 400 810
-------------------------------------------------------------------------------
Total current liabilities 35,008 47,336
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Long-term debt 63,867 60,805
-------------------------------------------------------------------------------
Deferred income taxes 5,274 4,634
-------------------------------------------------------------------------------
Shareholders' equity:
---------------------
Preferred stock - -
Common stock 18,214 18,625
Additional paid-in capital 4,909 4,909
Foreign currency translation
adjustment (Note 4) (681) -
Retained earnings (Note 3) 69,880 64,104
-------------------------------------------------------------------------------
92,322 87,638
-------------------------------------------------------------------------------
$ 196,471 $ 200,413
===============================================================================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
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<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Income
(Amounts in Thousands, Except per Share Data, Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Sales $ 60,153 $ 63,291 $ 195,894 $ 180,103
Cost of goods sold 52,689 55,051 170,922 156,366
-------------------------------------------------------------------------------
Gross profit 7,464 8,240 24,972 23,737
Selling, general and
administrative expenses 3,996 3,493 12,367 10,701
Equity in net income of
unconsolidated corporate
joint venture 425 403 1,135 1,057
-------------------------------------------------------------------------------
Operating income 3,893 5,150 13,740 14,093
Gain on sale of assets - 382 - 382
Foreign currency exchange
loss (Note 4) 63 - 560 -
Interest expense 860 458 2,777 1,114
-------------------------------------------------------------------------------
Income before income taxes 2,970 5,074 10,403 13,361
Provision for income taxes 908 1,905 3,654 4,901
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Net income $ 2,062 $ 3,169 $ 6,749 $ 8,460
===============================================================================
Weighted average number of
common shares outstanding
(Note 5) 12,156 12,157 12,157 12,147
===============================================================================
Earnings per common share
(Note 5) $ 0.17 $ 0.26 $ 0.56 $ 0.70
===============================================================================
Cash dividends per common
share (Note 5) $ 0.04 $ 0.04 $ 0.08 $ 0.07
===============================================================================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
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<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands, Unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 30,
1995 1994
-----------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,749 $ 8,460
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,041 3,618
Foreign currency exchange loss 560 -
Deferred income taxes 815 505
Equity in net income of
unconsolidated corporate
joint venture (1,135) (1,057)
Gain on sale of assets - (382)
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable 4,496 (7,370)
Inventories 28,938 (6,945)
Accounts payable (12,869) 3,097
Accrued liabilities and taxes 951 (1,011)
Other (126) (285)
-----------------------------------------------------------------
Net cash provided by (used in)
operating activities 33,420 (1,370)
-----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (30,858) (19,034)
Proceeds from sale of assets - 760
-----------------------------------------------------------------
Net cash used in investing activities (30,858) (18,274)
-----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITiES:
Proceeds from long-term debt 25,479 23,242
Principal payments on long-term debt (22,827) (918)
Cash dividends on common stock (973) (850)
Repurchase of common stock (418) -
Issuance of common stock under
incentive stock option plan 7 12
-----------------------------------------------------------------
Net cash provided by financing
activities 1,268 21,486
-----------------------------------------------------------------
-----------------------------------------------------------------
Effect of exchange rate changes
on cash (780) -
-----------------------------------------------------------------
Net increase in cash and cash equivalents 3,050 1,842
Cash and cash equivalents,
beginning of year" 1,008 140
-----------------------------------------------------------------
Cash and cash equivalents,
end of period $ 4,058 $ 1,982
=================================================================
Supplemental Cash Flow Disclosures:
-----------------------------------
Cash payments for interest $ 3,101 $ 1,173
=================================================================
Cash payments for taxes $ 2,600 $ 4,795
=================================================================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
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<PAGE>
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1995 and
the consolidated statements of income for the three and nine-
month periods ended June 30, 1995 and 1994, and the condensed
consolidated statements of cash flows for the nine-month periods
then ended have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June
30, 1995 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these condensed financial statements be read
in conjunction with the financial statements and notes thereto
included in the Company's annual report to shareholders for the
year ended September 30, 1994. The results of operations for the
nine months ended June 30, 1995 are not necessarily indicative of
the operating results for the full year.
2. INVENTORIES
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited) (Audited)
-------------------------------
(Amounts in Thousands)
<S> <C> <C>
Inventories consist of:
------------------------------------------------------------
Raw materials $ 41,841 $ 71,630
Finished goods and
work in process 9,578 8,727
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$ 51,419 $ 80,357
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</TABLE>
3. RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine months ended
June 30, 1995
-------------
(Amounts in Thousands)
<S> <C>
Retained earnings consists of:
-----------------------------------------------------------
Balance, beginning of year $ 64,104
Net income 6,749
Cash dividends on common stock (973)
-----------------------------------------------------------
Balance, end of period $ 69,880
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</TABLE>
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<PAGE>
4. FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standard No.
52, "Foreign Currency Translation", the assets and liabilities
denominated in foreign currency are translated into U.S. dollars
at the current rate of exchange existing at period end and
revenues and expenses are translated at the average monthly
exchange rates.
5. EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average
number of common shares outstanding during each period. Common
stock options are not included in earnings per share computations
since their effect is not significant.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
During the third quarter of fiscal 1995, the Company was affected
by a general softening in demand for steel-related products,
particularly in the automotive sector. As a result, sales for
the quarter were $60,153,000, 5% below sales of $63,291,000 for
the third quarter of fiscal 1994. The Company continues to focus
significant resources on the automotive industry and to generate
a major portion of business from selling to industrial customers
manufacturing component parts for use in the automotive industry.
Automotive production schedules for the third quarter ended June
30, 1995 decreased slightly from a year ago contributing to a 12%
decrease in the number of tons shipped by the Company, offset
somewhat by an 8% increase in the average selling price for flat
rolled steel products. The third quarter softening in demand
contrasts sharply with the improved demand for steel-related
products experienced in the first half of the 1995 fiscal year.
Sales for the nine months ended June 30, 1995 increased 9% to
$195,894,000 from $180,103,000 in 1994. Principally as a result
of the third quarter tonnage decrease, the number of tons shipped
increased only 1% for the nine months while the average selling
price increased approximately 8%.
Cost of goods sold increased as a percentage of sales to 88% in
the third quarter of 1995 compared to 87% in the year earlier
period. As a result of the increases in cost of goods sold, the
gross profit margin decreased to 12% in the third quarter of 1995
from 13% in the same period a year ago. The decrease in the
gross profit margin during the quarter is the direct result of
reductions in the unit sales volume causing higher production
costs as a percentage of sales and a loss of volume related
efficiencies. The effects of the lower unit sales volumes were
partially offset by improvements in the spread earned on the
Company's raw material. Costs of goods sold remained at 87% and
the gross profit margin remained at 13% of sales for the nine
months ended June 30, 1995 and 1994. The maintenance of the
gross profit margin for the nine months is principally the result
of improvements in the spread earned on the Company's raw
materials offset by higher production costs from the new and
expanded operating facilities added in 1994 and 1995 as well as
the lower unit sales volumes experienced in the third quarter of
1995.
Selling, general and administrative expenses increased for the
quarter and nine months to $3,996,000 and $12,367,000 in 1995
from $3,493,000 and $10,701,000 in 1994, respectively. The
Company actively manages the level at which selling, general and
administrative expenses are added to the cost structure. As a
result, selling, general and administrative costs have
historically increased at a rate comparable to the growth in
sales. However, selling, general and administrative expenses
for the third quarter increased at a higher rate as sales
decreased due to the softening demand for steel related products.
For the first nine months of 1995 and 1994 selling, general and
administrative costs remained at 6% of sales.
The Company's equity in unconsolidated corporate joint venture
increased to $425,000 and $1,135,000 for the quarter and nine
months ended June 30, 1995 from $403,000 and $1,057,000 a year
ago. These increases are principally the result of the higher
sales levels achieved by the 50% owned corporate joint venture,
Mi-Tech Steel, Inc.
The Company recorded a charge of $63,000 and $560,000 in the
third quarter and nine months of fiscal 1995 to account for the
impact of the Mexican peso devaluation on dollar denominated
borrowings by the Company's 80% owned steel processing company
located in Monterrey, Mexico.
Interest expense increased to $860,000 and $2,777,000 for the
quarter and nine months ended June 30, 1995 from $458,000 and
$1,114,000 in 1994. These increases are the result of
significantly higher average borrowings used to finance the
capital addition and working capital needs of the Company.
Higher interest rates have also contributed to the increase in
interest expense for the quarter and nine months ended June 30,
1995.
The Company's effective income tax rate was 31% and 35% in the
third quarter and nine months of 1995 compared to 37% in the same
periods a year ago. The lower effective rate resulted from
increased earnings of the Mi-Tech Steel joint venture which are
not fully taxable to the Company. Additionally, income taxes on
the third quarter earnings of the Mexican subsidiary were offset
by losses earlier in 1995.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources
-------------------------------
Over the last several years the Company has improved its
financial position as sales have increased significantly and the
majority of operating profits have been retained to fund future
sales growth. Accounts receivable, inventories and other working
capital items have been increased to support the higher sales
levels. Additionally, the Company has maintained higher levels
of inventory over the past year in anticipation of tightening
supply and rising raw material costs. As the availability of raw
material has improved in recent months escalating raw material
costs have subsided, allowing the Company to generate cash of
$28,938,000 from maintaining lower inventory levels.
The Company has continued to invest in new equipment and
facilities in 1995. Capital expenditures for the nine months
ended June 30, 1995 totaled $30,858,000. Cash generated from
inventory reductions along with additional proceeds provided by
operating activities have funded a significant portion of the
capital additions in 1995. The Company has invested over
$18,600,000 on the new steel processing facility in Gallatin
County, Kentucky. This new facility, located adjacent to the new
Gallatin Steel mini-mill, has the capability to pickle, level and
slit flat rolled steel. Construction on the facility began in
October 1994 with operations beginning in August 1995. This new
$20 million operation comprises the majority of the planned $33
to $35 million 1995 capital budget.
The Company has also completed the expansion of the Portage,
Indiana, facility. This $7 million expansion significantly
increases the production capacity of the Portage, Indiana,
facility which enables the Company to extend its coverage in the
Chicago and Midwest markets. The expansion includes the
installation of new slitting lines and an additional 75,000
square feet of production and storage space.
While the effect of the Mexican peso devaluation has impacted the
short term operating performance of the 80% owned subsidiary, the
Company believes the Mexican market offers excellent long term
growth opportunities. The Monterrey facility is currently
undergoing an expansion which includes the installation of a new
slitting line and rolling mill which will increase the products
and services offered to the Mexican marketplace.
In April 1995, the Company completed the refinancing of $40
million of its bank line of credit through a private placement of
debt. The new 10 year note agreement is unsecured, bears a fixed
rate of interest and does not require any principal amortization
for 4 years. This refinancing reduced the availability of the
unsecured bank line of credit from a maximum of $80 million to
$40 million.
The Company believes that it currently has sufficient liquidity
and available capital resources to meet its existing needs. The
Company expects funds generated from operations and the
availability of $22.5 million under its unsecured bank line of
credit will be sufficient to satisfy the capital expenditure
plans for 1995. The working capital needs for the balance of
1995 are expected to be modest. An ample supply of raw material
is expected to be available in the marketplace allowing the
Company to operate with lower inventory levels than in prior
years. Additionally, the Board of Directors in March 1995
authorized the Company to repurchase up to 400,000 shares of its
common stock from time to time in the open market. As of June
30, 1995, 41,000 shares had been repurchased under this
authorization. Additional share repurchases will be funded with
a combination of cash from operations and available borrowing
capabilities.
At this time the Company has no known commitments or demands
which must be met beyond the next twelve months other than the
10 year notes and the line of credit, which is expected to be
renewed at the end of the term. However, the Company may seek,
from time to time, additional funds to finance the opening of
new plants, significant improvements in its production and processing
equipment and purchases of equipment to expand its production and
processing capabilities. The form of such financing may vary
depending upon the prevailing market and related conditions, and
may include short or long-term borrowings or the issuance of debt
or equity securities.
9 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources (Cont.)
---------------------------------------
At June 30, 1995, the Company had $63,867,000 in long-term debt
outstanding. Under its various debt agreements, the Company has
agreed to maintain specified levels of working capital and net
worth, maintain certain ratios and limit the addition of
substantial debt. The Company is in compliance with all of its
loan covenants, and none of these covenants would restrict the
Company from completing currently planned capital expenditures.
Pursuant to a joint venture agreement, Steel Technologies has
guaranteed $6,250,000 of the bank financing required for the
working capital purposes of Mi-Tech Steel, Inc.
The Company maintains an investment, principally in preferred
stock of Processing Technology, Inc., a corporate joint venture.
The Company continues to periodically evaluate the possible
conversion of its preferred stock investment into common stock of
Processing Technology, Inc. The Company's decision to convert
its investment to common stock will be based upon the joint
venture attaining certain financial criteria established by Steel
Technologies. Upon conversion, the Company would be obligated to
guarantee a proportionate share, currently approximating
$10,500,000, of the joint venture's loan and lease commitments.
Currently, the Company is a guarantor on a $2,000,000 Processing
Technology, Inc. bank line of credit. This guarantee will expire
December 31, 1995.
The Company does not sponsor medical and life programs which
extend to pensioners and dependents. Therefore, the Company is
not subject to the provisions of Statement of Financial
Accounting Standards, No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) The following exhibits are filed as part of this report:
27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
10 of 11
<PAGE>
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.
STEEL TECHNOLOGIES INC.
-----------------------
(Registrant)
By Kenneth R. Bates
--------------------
Kenneth R. Bates
Vice President Finance;
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Dated August 14, 1995
11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1995 AND CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND RELATED
FOOTNOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000771790
<NAME> STEEL TECHNOLOGIES INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 4,058
<SECURITIES> 0
<RECEIVABLES> 30,824
<ALLOWANCES> (824)
<INVENTORY> 51,419
<CURRENT-ASSETS> 87,150
<PP&E> 127,187
<DEPRECIATION> (28,041)
<TOTAL-ASSETS> 196,471
<CURRENT-LIABILITIES> 35,008
<BONDS> 63,867
<COMMON> 18,214
0
0
<OTHER-SE> 74,108
<TOTAL-LIABILITY-AND-EQUITY> 196,471
<SALES> 195,894
<TOTAL-REVENUES> 195,894
<CGS> 170,922
<TOTAL-COSTS> 170,922
<OTHER-EXPENSES> 560
<LOSS-PROVISION> (10)
<INTEREST-EXPENSE> 2,777
<INCOME-PRETAX> 10,403
<INCOME-TAX> 3,654
<INCOME-CONTINUING> 6,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,749
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
