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, 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 0-14061
STEEL TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0712014
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15415 Shelbyville Road, Louisville, KY 40245
-------------------------------------------------------
(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
------- -------
There were 11,962,238 shares outstanding of the Registrant's common
stock as of July 31, 1996.
1 of 11
<PAGE>
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and
September 30, 1995 (Audited) 3
Condensed Consolidated Statements of Income
Three months and nine months ended June 30,
1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 1996 and 1995
(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 11
2 of 11
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
ASSETS (Unaudited) (Audited)
- --------------------------------------------------------------------------
<S> <C> <C>
Current assets:
- ---------------
Cash and cash equivalents $ 3,769 $ 2,698
Trade accounts receivable, net 40,904 31,460
Inventories 55,638 43,705
Deferred income taxes 1,263 1,005
Prepaid expenses and other assets 186 1,414
- --------------------------------------------------------------------------
Total current assets 101,760 80,282
- --------------------------------------------------------------------------
Property, plant and equipment, net 101,129 103,846
- --------------------------------------------------------------------------
Investments in corporate joint ventures 10,550 9,344
- --------------------------------------------------------------------------
Other assets 1,158 1,258
- --------------------------------------------------------------------------
$ 214,597 $ 194,730
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------
Current liabilities:
- --------------------
Accounts payable $ 30,971 $ 23,596
Accrued liabilities 5,429 2,916
Long-term debt due within one year 384 385
- --------------------------------------------------------------------------
Total current liabilities 36,784 26,897
- --------------------------------------------------------------------------
Long-term debt 71,544 68,645
- --------------------------------------------------------------------------
Deferred income taxes 7,723 6,191
- --------------------------------------------------------------------------
Shareholders' equity:
- ---------------------
Preferred stock - -
Common stock 16,662 18,214
Additional paid-in capital 4,909 4,909
Retained earnings 78,285 70,554
Foreign currency translation
adjustment (1,310) (680)
- --------------------------------------------------------------------------
98,546 92,997
- --------------------------------------------------------------------------
$ 214,597 $ 194,730
==========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3 of 11
<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,
1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 76,623 $ 60,153 $ 218,960 $ 195,894
Cost of goods sold 65,803 52,689 188,649 170,922
- -------------------------------------------------------------------------
Gross profit 10,820 7,464 30,311 24,972
Selling, general and
administrative expenses 4,799 3,996 14,051 12,367
Equity in net income of
unconsolidated corporate
joint venture 475 425 1,207 1,135
- -------------------------------------------------------------------------
Operating income 6,496 3,893 17,467 13,740
Foreign currency exchange
loss - 63 - 560
Interest expense 1,297 860 3,759 2,777
- -------------------------------------------------------------------------
Income before income
taxes 5,199 2,970 13,708 10,403
Provision for income
taxes 1,866 908 4,899 3,654
- -------------------------------------------------------------------------
Net income $ 3,333 $ 2,062 $ 8,809 $ 6,749
=========================================================================
Weighted average number of
common shares outstanding 11,960 12,156 11,980 12,157
=========================================================================
Earnings per common share $ 0.28 $ 0.17 $ 0.74 $ 0.56
=========================================================================
Cash dividends per common
share $ 0.05 $ 0.04 $ 0.09 $ 0.08
=========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4 of 11
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands, Unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 30,
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,809 $ 6,749
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,018 5,041
Foreign currency exchange loss - 560
Deferred income taxes 1,275 815
Equity in net income of
unconsolidated corporate
joint venture (1,207) (1,135)
Gain on sales of assets (475) -
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable (9,654) 4,496
Inventories (12,027) 28,938
Accounts payable 7,455 (12,869)
Accrued liabilities and taxes 2,678 951
Other 1,278 (126)
- ----------------------------------------------------------------------
Net cash provided by operating activities 5,150 33,420
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (5,033) (30,858)
Proceeds from sale of assets 737 -
- ----------------------------------------------------------------------
Net cash used in investing activities (4,296) (30,858)
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,214 25,479
Principal payments on long-term
debt (316) (22,827)
Repurchase of common stock (1,570) (418)
Cash dividends on common stock (1,078) (973)
Net issuance of common stock under
incentive stock option plan 18 7
- ----------------------------------------------------------------------
Net cash provided by financing activities 268 1,268
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Effect of exchange rate changes on cash (51) (780)
- ----------------------------------------------------------------------
Net increase in cash and cash equivalents 1,071 3,050
Cash and cash equivalents, beginning
of year 2,698 1,008
- ----------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,769 $ 4,058
======================================================================
Supplemental Cash Flow Disclosures:
- -----------------------------------
Cash payments for interest $ 2,912 $ 3,101
======================================================================
Cash payments for taxes $ 2,228 $ 2,600
======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5 of 11
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of income for the three and nine-month
periods ended June 30, 1996 and 1995, 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, 1996 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, 1995. The results of
operations for the nine months ended June 30, 1996 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
(Unaudited) (Audited)
-------------------------------
(Amounts in Thousands)
<S> <C> <C>
Inventories consist of:
- ------------------------------------------------------------------
Raw materials $ 46,003 $ 34,703
Finished goods and
work in process 9,635 9,002
- ------------------------------------------------------------------
$ 55,638 $ 43,705
- ------------------------------------------------------------------
</TABLE>
3. RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine months ended
June 30, 1996
--------------
(Amounts in Thousands)
<S> <C>
Retained earnings consists of:
- ------------------------------------------------------------
Balance, beginning of year $ 70,554
Net income 8,809
Cash dividends on common stock (1,078)
- ------------------------------------------------------------
Balance, end of period $ 78,285
- ------------------------------------------------------------
</TABLE>
6 of 11
4. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Mexican subsidiary are translated into
U.S. dollars at the period-end rate of exchange and revenues and expenses
are translated at average rates of exchange in effect during the period.
Resulting translation adjustments are accumulated in a separate component
of shareholders' equity. Foreign currency transaction gains and losses
are included in net income when incurred.
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.
7 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in the following discussion, the word "expects" and other
similar expressions are intended to identify forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Specific risks and uncertainties include, but
are not limited to, general business and economic conditions; cyclicality of
demand in the steel industry, specifically in the automotive market;
competitive factors such as the pricing and availability of steel;
reliance on key customers; and potential equipment malfunctions. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to republish revised forward-looking statements to reflect the occurence of
unanticipated events or circumstances after the date hereof.
Results of Operations
- ---------------------
The Company posted record third quarter 1996 sales of $76,623,000 an
increase of 27% from sales of $60,153,000 in 1995. Sales for the nine
months ended June 30, 1996 increased 12% to $218,960,000 from $195,894,000
in 1995. 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 during the quarter
increased 5% from a year ago while the nine months schedules remained behind
the prior year levels. The Company continues to increase its market share and
have success in developing a substantial amount of new business with both
existing customers and new accounts. As a result, tons shipped increased by
42% and 18% for the three and nine months ended June 30, 1996. Average
selling prices declined by 13% and 8% during the third quarter and nine
months ended June 30, 1996 from a year ago. Sales in the third quarter and
nine months of 1996 also benefited from the sale of certain assets, additional
revenues from the Engineering Division's sale of two rolling mills as well as
tolling revenues generated by the new pickling facility. The sales outlook
for 1996 continues to improve as automotive production is expected to increase
from the June levels; however, lower average selling prices are expected for
the balance of the fiscal year. The Company is well positioned to take
advantage of improvements in demand as the capital investments completed in
fiscal 1995 have added new capacity and increased the products and services
offered by the Company.
Cost of goods sold decreased as a percentage of sales to 85.9% and 86.2% in
the quarter and nine months ended June 30, 1996 compared to 87.6% and 87.3% a
year ago. As a result, the gross profit margin increased to 14.1% and 13.8%
for the quarter and nine months ended June 30, 1996 from 12.4% and 12.7% in
1995. The gross profit margin in 1996 benefited from lower raw material costs
associated with steel purchased in the first half of the 1996 fiscal year. The
Company has generated additional raw material cost reductions from the savings
associated with pickling steel for internal use. In addition, the gross margin
was positively impacted by toll processing revenues as well as the sale of the
rolling mills and other assets. These factors were partially offset by
production costs increases associated with the pickling and production capacity
added in 1995. Raw material costs are expected to increase in the near term
as our steel suppliers raise prices in July 1996. Over the longer term we
expect this trend to reverse itself as new steelmaking capacity and
increased steel imports enter the market. Additionally, a number of steel
mills have experienced temporary production problems which has negatively
affected raw material supply. Should these raw material price increases
persist, margins could be negatively impacted until corresponding selling
price increases are passed along to our customers.
Selling, general and administrative expenses were 6.3% and 6.4% of sales in the
third quarter and nine months ended June 30, 1996 compared to 6.6% and 6.3% in
1995. The Company continues to actively manage the level at which selling,
general and administrative costs are added to its cost structure. Selling,
general and administrative costs in recent years have increased at a rate
comparable to the growth in sales. A significant portion of the cost
increase in 1996 is related to expenses associated with the new pickling and
production capacity added in 1995.
The Company's equity in net income of its unconsolidated corporate joint
venture increased to $475,000 and $1,207,000 for the quarter and nine months
ended June 30, 1996 from $425,000 and $1,135,000 a year ago. The equity income
increase for the third quarter and nine months is the result of higher sales
levels achieved by the 50% owned corporate joint venture, Mi-Tech Steel, Inc.
The Company recorded a charge of $560,000 in the prior year to account for
the impact of the Mexican peso devaluation on dollar denominated borrowings
provided to the 80% owned Mexican subsidiary. These borrowings were
capitalized as an additional equity contribution to the Mexican subsidiary
in fiscal 1996 and are considered a part of the Company's long-term investment
in the subsidiary. As a result, currency fluctuations will generally be
reflected as a component of shareholders' equity.
Interest expense increased to $1,297,000 and $3,759,000 for the quarter
and nine months ended June 30, 1996 from $860,000 and $2,777,000 in
1995. These increases are the result of higher average borrowings during
the third quarter and nine months of 1996.
The Company's effective income tax rate was 36% in the third quarter and
nine months ended June 30, 1996 compared to 31% and 35% in the comparable
prior year periods.
8 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, the Company had $64,976,000 of working capital,
maintained a current ratio of 2.8:1 and had total long-term debt at 42%
of total capitalization. The Company continues to manage the level of
accounts receivable, inventories and other working capital items in
relation to the trends in sales and the overall market. The Company
expects the sales trends to remain strong during the fiscal year based on
the current backlog and order entry activity. The working capital needs
associated with higher sales levels are anticipated to be funded with a
combination of cash flows from operations and available borrowing
capabilities.
The Company's capital expenditures for the nine months totaled $5,033,000
which were significantly reduced from the levels of the prior year. The
Company has expanded its production capacity and added new processing
capabilites over the last two years and expects modest levels of capital
additions for 1996. Other significant cash outflows during the nine months
included the repurchase of over 150,000 shares of common stock in the
open market. The capital expenditures and the share repurchases were
funded with cash flows from operations and a modest increase in borrowings
on the line of credit.
The Company believes that it has sufficient liquidity and
available capital resources to meet its existing needs. The Company
expects to increase the limit on its unsecured bank line of credit. The
additional availability along with funds generated from operations are
expected to be sufficient to finance the capital expenditure plans as well as
the working capital requirements of the next twelve months. At this time
the Company has no known material obligations, commitments or demands which
must be met beyond the next twelve months other than the ten year notes and
the line of credit. The ten year notes do not require any principal payments
until 1999 and the line of credit 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.
At June 30, 1996, the Company had $71,544,000 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.
9 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources (Cont.)
- ---------------------------------------
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. Mi-Tech Steel is anticipating significant capital
additions in 1997 to construct a pickling, slitting and cut-to-length facility
in Decatur, Alabama. In order to finance this project, Steel Technologies may
be required to provide additional equity contributions or debt guarantees to
the joint venture.
The Company maintains an investment, principally in the 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 conversion is not expected to occur in the near term. 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
$9,900,000, of the joint venture's loan and lease commitments. The
Company's guarantee of a $2,000,000 Processing Technology, Inc. bank
line of credit expired December 31, 1995.
The Company believes its manufacturing facilities are in compliance with
applicable federal and state environmental regulations. The Company is
not presently aware of any fact or circumstance which would require the
expenditure of material amounts for environmental compliance in the future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) The following exhibit is filed as a part of this report:
27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
10 of 11
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 13, 1996
11 of 11
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------- ----------------------
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1996
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-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,769
<SECURITIES> 0
<RECEIVABLES> 41,880
<ALLOWANCES> (976)
<INVENTORY> 55,638
<CURRENT-ASSETS> 101,760
<PP&E> 136,374
<DEPRECIATION> (35,245)
<TOTAL-ASSETS> 214,597
<CURRENT-LIABILITIES> 36,784
<BONDS> 71,544
<COMMON> 16,662
0
0
<OTHER-SE> 81,884
<TOTAL-LIABILITY-AND-EQUITY> 214,597
<SALES> 218,960
<TOTAL-REVENUES> 218,960
<CGS> 188,649
<TOTAL-COSTS> 188,649
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 3,759
<INCOME-PRETAX> 13,708
<INCOME-TAX> 4,899
<INCOME-CONTINUING> 8,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,809
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
