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 MARCH 31, 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
----------------------------------------------------
(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 April 30, 1996.
1 of 12
<PAGE>
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1996 (Unaudited) and
September 30, 1995 (Audited) 3
Condensed Consolidated Statements
of Income Three months and six months
ended March 31, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of
Cash Flows Six months ended March 31,
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 4. Submission of Matters to a Vote
of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
2 of 12
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
ASSETS (Unaudited) (Audited)
- --------------------------------------------------------------------------
<S> <C> <C>
Current assets:
- ---------------
Cash and cash equivalents $ 2,022 $ 2,698
Trade accounts receivable, net 43,141 31,460
Inventories 58,227 43,705
Deferred income taxes 1,163 1,005
Prepaid expenses and other assets 372 1,414
- --------------------------------------------------------------------------
Total current assets 104,925 80,282
- --------------------------------------------------------------------------
Property, plant and equipment, net 102,243 103,846
- --------------------------------------------------------------------------
Investments in corporate joint ventures 10,075 9,344
- --------------------------------------------------------------------------
Other assets 1,318 1,258
- --------------------------------------------------------------------------
$ 218,561 $ 194,730
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------
Current liabilities:
- --------------------
Accounts payable $ 35,082 $ 23,596
Accrued liabilities 5,794 2,916
Long-term debt due within one year 384 385
- --------------------------------------------------------------------------
Total current liabilities 41,260 26,897
- --------------------------------------------------------------------------
Long-term debt 74,411 68,645
- --------------------------------------------------------------------------
Deferred income taxes 7,173 6,191
- --------------------------------------------------------------------------
Shareholders' equity:
- ---------------------
Preferred stock - -
Common stock 16,644 18,214
Additional paid-in capital 4,909 4,909
Retained earnings 75,551 70,554
Foreign currency translation
adjustment (1,387) (680)
- --------------------------------------------------------------------------
95,717 92,997
- --------------------------------------------------------------------------
$ 218,561 $ 194,730
==========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3 of 12
<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Income
(Amounts in Thousands, Except per Share Data, Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 76,630 $ 71,496 $ 142,338 $ 135,741
Cost of goods sold 65,604 61,810 122,846 118,233
- -------------------------------------------------------------------------
Gross profit 11,026 9,686 19,492 17,508
Selling, general and
administrative expenses 4,898 4,371 9,252 8,371
Equity in net income of
unconsolidated corporate
joint venture 388 387 732 710
- -------------------------------------------------------------------------
Operating income 6,516 5,702 10,972 9,847
Foreign currency exchange
loss - 497 - 497
Interest expense 1,272 1,027 2,462 1,917
- -------------------------------------------------------------------------
Income before income
taxes 5,244 4,178 8,510 7,433
Provision for income
taxes 1,878 1,515 3,033 2,746
- -------------------------------------------------------------------------
Net income $ 3,366 $ 2,663 $ 5,477 $ 4,687
=========================================================================
Weighted average number of
common shares outstanding 11,958 12,158 11,999 12,158
=========================================================================
Earnings per common share $ 0.28 $ 0.22 $ 0.46 $ 0.39
=========================================================================
Cash dividends per common
share $ 0.00 $ 0.00 $ 0.04 $ 0.04
=========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4 of 12
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands, Unaudited)
<TABLE>
<CAPTION>
Six months ended
March 31,
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,477 $ 4,687
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,617 3,311
Foreign currency exchange loss - 497
Deferred income taxes 825 390
Equity in net income of
unconsolidated corporate
joint venture (732) (710)
Gain on sales of assets (477) -
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable (11,909) (4,468)
Inventories (14,624) 23,590
Accounts payable 11,573 (11,825)
Accrued liabilities 2,978 830
Other 983 381
- ----------------------------------------------------------------------
Net cash (used in) provided by
operating activities (1,289) 16,683
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (3,784) (22,286)
Proceeds from sale of assets 737 -
- ----------------------------------------------------------------------
Net cash used in investing activities (3,047) (22,286)
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 6,014 25,479
Principal payments on long-term
debt (249) (14,249)
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 3,715 10,750
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Effect of exchange rate changes on cash (55) (697)
- ----------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (676) 4,450
Cash and cash equivalents,
beginning of year 2,698 1,008
- ----------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 2,022 $ 5,458
======================================================================
Supplemental Cash Flow Disclosures:
- -----------------------------------
Cash payments for interest $ 2,455 $ 1,736
======================================================================
Cash payments for taxes $ 1,108 $ 1,823
======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5 of 12
<PAGE>
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1996 and the
condensed consolidated statements of income for the three and six-month
periods ended March 31, 1996 and 1995, and the condensed consolidated
statements of cash flows for the six-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 March 31, 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 six months ended March 31, 1996 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
(Unaudited) (Audited)
-------------------------------
(Amounts in Thousands)
<S> <C> <C>
Inventories consist of:
- ------------------------------------------------------------------
Raw materials $ 46,875 $ 34,703
Finished goods and
work in process 11,532 9,002
- ------------------------------------------------------------------
$ 58,227 $ 43,705
- ------------------------------------------------------------------
</TABLE>
3. RETAINED EARNINGS
<TABLE>
<CAPTION>
Six months ended
March 31, 1996
--------------
(Amounts in Thousands)
<S> <C>
Retained earnings consists of:
- ------------------------------------------------------------
Balance, beginning of year $ 70,554
Net income 5,477
Cash dividends on common stock (480)
- ------------------------------------------------------------
Balance, end of period $ 75,551
- ------------------------------------------------------------
</TABLE>
6 of 12
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 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Second quarter 1996 sales of $76,630,000 increased 7% from sales of
$71,496,000 in 1995 and represented the highest sales levels achieved for
any quarter in the Company's history. Sales for the six months ended
March 31, 1996 increased 5% to $142,338,000 from $135,741,000 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
and six months ended March 31, 1996 remained behind the prior year levels.
The Company's success in developing a substantial amount of new business
with both existing customers and new accounts offset the softness in the
production schedules. As a result, tons shipped increased by 14% and 7%
for the three and six months ended March 31, 1996. Average selling
prices declined by 9% and 6% during the second quarter and six months
ended March 31, 1996 from a year ago. Sales in the second quarter and
first half of 1996 benefited approximately 3% 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 new
pickling facility. The outlook for 1996 continues to improve as
automotive production is expected to increase from the March 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 85.6% and 86.3%
in the quarter and six months ended March 31, 1996 compared to 86.5% and
87.1% a year ago. As a result, the gross profit margin increased to 14.4%
and 13.7% for the quarter and six months ended March 31, 1996 from 13.5%
and 12.9% in 1995. The gross profit margin in 1996 benefited from lower
raw material costs associated with steel purchased in the latter half of
calendar 1995. 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.
Selling, general and administrative expenses increased to 6.4% and 6.5% of
sales in the second quarter and six months ended March 31, 1996 from 6.1%
and 6.2% 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 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 $388,000 and $732,000 for the quarter and six months
ended March 31, 1996 from $387,000 and $710,000 a year ago. The equity
income increase for the six 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 $497,000 in the second quarter of 1995
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 $1,272,000 and $2,462,000 for the quarter
and six months ended March 31, 1996 from $1,027,000 and $1,917,000 in
1995. These increases are the result of higher average borrowings during
the second quarter and first half of 1996.
The Company's effective income tax rate was 36% in the second quarter and
six months ended March 31, 1996 compared to 36% and 37% in the comparable
prior year periods. The effective income tax rate was reduced in the
first half of 1996 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.
8 of 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources
- -------------------------------
At March 31, 1996, the Company had $63,665,000 of working capital,
maintained a current ratio of 2.5:1 and had total long-term debt at 44%
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 six months totaled $3,784,000
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 six 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 currently has sufficient liquidity and
available capital resources to meet its existing needs. The Company
expects funds generated from operations and the availability of $7.5
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 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 March 31, 1996, the Company had $74,411,000 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 12
<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 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.
10 of 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The annual meeting of shareholders was held on January 25, 1996. The
matters voted upon at the meeting were the election of three directors
for three year terms and one director for a one year term as well as the
ratification of independent auditors for the current fiscal year.
The number of votes cast for, against or withheld with respect to each
nominee for director elected at the meeting were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Against Votes Withheld
- ------- --------- ------------- --------------
<S> <C> <C> <C>
Term expiring in 1999
- ---------------------
Merwin J. Ray 10,354,086 0 208,000
Bradford T. Ray 10,447,564 0 114,522
Dale L. Armstrong 10,436,604 0 125,482
Term expiring in 1997
- ---------------------
Jimmy Dan Conner 10,345,781 0 216,305
</TABLE>
The number of votes cast for, against or abstained with respect to the
selection of Coopers and Lybrand as independent auditors were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<C> <C> <C>
10,536,247 15,823 10,016
</TABLE>
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
March 31, 1996.
11 of 12
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 May 14, 1996
12 of 12
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 MARCH 31, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED MARCH 31, 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,022
<SECURITIES> 0
<RECEIVABLES> 44,041
<ALLOWANCES> (900)
<INVENTORY> 58,227
<CURRENT-ASSETS> 104,925
<PP&E> 135,149
<DEPRECIATION> (32,906)
<TOTAL-ASSETS> 218,561
<CURRENT-LIABILITIES> 41,260
<BONDS> 74,411
<COMMON> 16,644
0
0
<OTHER-SE> 79,073
<TOTAL-LIABILITY-AND-EQUITY> 218,561
<SALES> 142,338
<TOTAL-REVENUES> 142,338
<CGS> 122,846
<TOTAL-COSTS> 122,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> 2,462
<INCOME-PRETAX> 8,510
<INCOME-TAX> 3,033
<INCOME-CONTINUING> 5,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,477
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
