SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
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
(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 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 11,959,538 shares outstanding of the Registrant's
common stock as of January 31, 1996.
Page 1 of 11
<PAGE>
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 (Unaudited) and
September 30, 1995 (Audited) 3
Condensed Consolidated Statements of
Income Three months ended December 31,
1995 and 1994 (Unaudited) 4
Condensed Consolidated Statements of
Cash Flows Three months ended December 31,
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
Page 2 of 11
<PAGE>
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
<TABLE>
<S> <C> <C>
December 31, September 30,
1995 1995
ASSETS (Unaudited) (Audited)
- -----------------------------------------------------------------
Current assets:
- --------------
Cash and cash equivalents $ 1,752 $ 2,698
Trade accounts receivable, net 35,549 31,460
Inventories 51,239 43,705
Deferred income taxes 1,063 1,005
Prepaid expenses and other assets 1,366 1,414
- -----------------------------------------------------------------
Total current assets 90,969 80,282
- -----------------------------------------------------------------
Property, plant and equipment, net 103,170 103,846
- -----------------------------------------------------------------
Investments in corporate joint ventures 9,687 9,344
- -----------------------------------------------------------------
Other assets 1,511 1,258
- -----------------------------------------------------------------
$ 205,337 $ 194,730
=================================================================
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------
Current liabilities:
- --------------------
Accounts payable $ 29,801 $ 23,596
Accrued liabilities 5,160 2,916
Long-term debt due within one year 385 385
- -----------------------------------------------------------------
Total current liabilities 35,346 26,897
- -----------------------------------------------------------------
Long-term debt 70,977 68,645
- -----------------------------------------------------------------
Deferred income taxes 6,624 6,191
- -----------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------
Shareholders' equity:
- ---------------------
Preferred stock - -
Common stock 16,644 18,214
Additional paid-in capital 4,909 4,909
Retained earnings 72,185 70,554
Foreign currency translation adjustment (1,348) (680)
- -----------------------------------------------------------------
92,390 92,997
- -----------------------------------------------------------------
$ 205,337 $ 194,730
=================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 3 of 11
<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Income
(Amounts in Thousands, Except per Share Data, Unaudited)
<TABLE>
<S> <C> <C>
Three months ended
December 31,
1995 1994
- ---------------------------------------------------------------------------
Sales $ 65,708 $ 64,245
Cost of goods sold 57,242 56,423
- ---------------------------------------------------------------------------
Gross profit 8,466 7,822
Selling, general and administrative expenses 4,353 4,000
Equity in net income of unconsolidated
corporate joint venture 343 324
- ---------------------------------------------------------------------------
Operating income 4,456 4,146
Interest expense 1,190 891
- ---------------------------------------------------------------------------
Income before income taxes 3,266 3,255
Provision for income taxes 1,155 1,231
- ---------------------------------------------------------------------------
Net income $ 2,111 $ 2,024
===========================================================================
Weighted average number of
common shares outstanding 12,039 12,157
===========================================================================
Earnings per common share $ 0.18 $ 0.17
===========================================================================
Cash dividends per common
share $ 0.04 $ 0.04
===========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 4 of 11
<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands, Unaudited)
<TABLE>
<S> <C> <C>
Three months ended
December 31,
1995 1994
- ---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,111 $ 2,024
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,251 1,603
Deferred income taxes 375 328
Equity in net income of corporate
joint venture (343) (323)
Gain on sale of assets (463) -
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable (4,305) (1,863)
Inventories (7,631) 4,733
Accounts payable 6,285 (6,563)
Accrued liabilities 2,368 512
Other (228) 508
- ---------------------------------------------------------------------------
Net cash provided by operating activities 420 959
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,298) (10,556)
Proceeds from sale of assets 703 -
- ---------------------------------------------------------------------------
Net cash used in investing activities (1,595) (10,556)
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,514 15,494
Principal payments on long-term debt (182) (182)
Repurchase of common stock (1,570) -
Cash dividends on common stock (480) (487)
Net issuance of common stock under incentive
stock option plan - 7
- ---------------------------------------------------------------------------
Net cash provided by financing activities 282 14,832
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash (53) -
- ---------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (946) 5,235
Cash and cash equivalents, beginning of year 2,698 1,008
- ---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,752 $ 6,243
===========================================================================
Supplemental Cash Flow Disclosures:
- -----------------------------------
Cash payments for interest $ 478 $ 1,084
==========================================================================
Cash payments for taxes $ 93 55
==========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Page 5 of 11
<PAGE>
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1995
and the consolidated statements of income for the three months
ended December 31, 1995 and 1994, and the condensed consolidated
statements of cash flows for the three months 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 December 31, 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, 1995. The results of operations for
the three months ended December 31, 1995 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
<TABLE>
<S> <C> <C>
December 31, September 30,
1995 1995
(Unaudited) (Audited)
---------------------------
(Amounts in Thousands)
Inventories consist of:
- ------------------------------------------------------
Raw materials $40,894 $34,703
Finished goods and
work in process 10,345 9,002
- ------------------------------------------------------
$51,239 $43,705
======================================================
</TABLE>
3. RETAINED EARNINGS
<TABLE>
<S> <C>
Three months ended
December 31, 1995
------------------
(Amounts in Thousands)
Retained earnings consists of:
- -------------------------------------------------------
Balance, beginning of year $70,554
Net income 2,111
Cash dividends on common stock (480)
- -------------------------------------------------------
Balance, end of period $72,185
=======================================================
</TABLE>
Page 6 of 11
<PAGE>
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.
Page 7 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
The Company posted record first quarter 1996 sales of $65,708,000 which
represented a 2% increase from sales of $64,245,000 in the first quarter
a year ago. 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. Demand in the automotive and other
steel consuming markets during the quarter was comparable to the
levels of the prior year. Tons shipped were unchanged from the 1995
levels while average selling prices declined 2%. Sales in the 1996
quarter benefited approximately 4% from the prior year as a result
of 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 Company's new pickling facility. The Company started
to see improved market demand for its steel products in the first
quarter from the softened demand levels experienced in the second half
of fiscal 1995. The outlook for 1996 continues to improve as customers
complete inventory adjustments in the near term; however lower average
selling prices are expected for the balance of fiscal 1996. The Company
is well positioned to take advantage of improvements in demand as
the recently completed capital investments 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 87.1 % in the
first quarter ended December 31, 1995 from 87.8% in the prior year.
The gross profit margin in the first quarter of 1996 benefited from
lower raw material costs associated with steel purchased in the
latter half of calendar 1995. In addition, the gross profit margin
in the quarter 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 new pickling and production capacity added in 1995. As a result,
the gross profit margin increased to 12.9% in 1995 from 12.2% in the
year earlier period.
Selling, general and administrative costs increased to 6.6% of sales
in the first quarter ended December 31, 1995 from 6.2% a year ago.
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. The
increase in the current quarter is directly related to increased
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 $343,000 in 1995 from $324,000 in the
prior year. These increases are principally the result of the higher
sales levels achieved by the 50% owned corporate joint venture
Mi-Tech Steel, Inc.
Dollar denominated borrowings provided to the Company's 80% owned
Mexican subsidiary are considered a part of the Company's long-term
investment in the Mexican Company. As a result, currency fluctuations
will generally be reflected as a component of shareholders' equity.
Interest expense increased to $1,190,000 for the quarter ended December
31, 1995 from $891,000 in the comparable prior year period. This
increase is the result of higher average borrowings during the first
quarter ended December 31, 1995.
The Company's effective income tax rate was 35.4% in the first
quarter ended December 31, 1995 compared to 37.8% in the same period
a year ago. The effective income tax rate was reduced in the current
quarter as a result of lower taxes on the earnings of the Company's
Mexican subsidiary and increased earnings of the Mi-Tech Steel joint
venture, which are not fully taxable to the Company.
Page 8 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources
- -------------------------------
At December 31, 1995, the Company had $55,623,000 of working
capital, maintained a current ratio of 2.6:1 and had total
long-term debt at 43% of total capitalization. The Company
continues to manage the levels 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 improve during the fiscal year based on
the current backlogs 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 three months totaled
$2,298,000 which were significantly reduced from the levels of
the prior year. The Company has expanded its production
capacity and added new processing capabilities over the last
two years and expects modest levels of capital additions for
1996. Other significant cash outflows during the three 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 under the line of credit.
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 $14 million under its unsecured bank line of
credit 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 fiscal 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 December 31, 1995, the Company had $70,977,000 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.
Page 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.
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. This 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 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
December 31, 1995.
Page 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 February 13, 1996
Page 11 of 11
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the condensed consolidated balance sheet at December 31, 1995 and
condensed conolidated statement of income for the three months ended
December 31, 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> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,752
<SECURITIES> 0
<RECEIVABLES> 36,373
<ALLOWANCES> (824)
<INVENTORY> 51,239
<CURRENT-ASSETS> 90,969
<PP&E> 133,838
<DEPRECIATION> (30,668)
<TOTAL-ASSETS> 205,337
<CURRENT-LIABILITIES> 35,346
<BONDS> 70,977
0
0
<COMMON> 16,644
<OTHER-SE> 75,746
<TOTAL-LIABILITY-AND-EQUITY> 205,337
<SALES> 65,708
<TOTAL-REVENUES> 65,708
<CGS> 57,242
<TOTAL-COSTS> 57,242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 1,190
<INCOME-PRETAX> 3,266
<INCOME-TAX> 1,155
<INCOME-CONTINUING> 2,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,111
<EPS-PRIMARY> $.18
<EPS-DILUTED> $.18
</TABLE>
