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, 1997
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 11,986,345 shares outstanding of the Registrant's common
stock as of July 31, 1997.
Page 1 of 13
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 (Unaudited) and
September 30, 1996 (Audited) 3
Condensed Consolidated Statements of Income
Three months and nine months ended
June 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash
Flows Nine months ended June 30, 1997
and 1996 (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 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Page 2 of 13
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited) (Audited)
- ----------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,562 $ 4,218
Trade accounts receivable, net 49,017 39,732
Inventories 76,319 59,374
Deferred income taxes 1,848 1,631
Prepaid expenses and other assets 1,043 369
------- -------
Total current assets 136,789 105,324
------- -------
Property, plant and equipment, net 103,360 100,017
------- -------
Investments in corporate joint ventures 17,096 11,016
------- -------
Goodwill, net of amortization 5,189 -
------- -------
Other assets 667 784
------- -------
$ 263,101 $ 217,141
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,118 $ 34,528
Accrued liabilities 6,187 4,843
Accrued income taxes 47 303
Long-term debt due within one year 22,197 385
--------- --------
Total current liabilities 69,549 40,059
--------- --------
Long-term debt 75,271 67,260
--------- --------
Deferred income taxes 11,181 8,461
--------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock - -
Common stock 16,821 16,662
Additional paid-in capital 4,909 4,909
Retained earnings 86,928 81,161
Foreign currency translation adjustment (1,558) (1,371)
------- -------
107,100 101,361
------- -------
$ 263,101 $ 217,141
</TABLE> ======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Page 3 of 13
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,
1997 1996 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $101,082 $ 76,623 $ 258,912 $ 218,960
Cost of goods sold 90,242 65,803 230,396 188,649
------- -------- ------- -------
Gross profit 10,840 10,820 28,516 30,311
------- -------- ------- -------
Selling, general and
administrative expenses 5,368 4,799 14,646 14,051
Equity in net income of
unconsolidated corporate
joint venture 377 475 1,080 1,207
------- ----- ------- -------
Operating income 5,849 6,496 14,950 17,467
------- ----- ------- -------
Interest expense 1,585 1,297 4,085 3,759
------- ----- ------- -------
Income before income taxes 4,264 5,199 10,865 13,708
Provision for income taxes 1,500 1,866 3,901 4,899
------- ----- ------- -------
Net income $ 2,764 $ 3,333 $ 6,964 $ 8,809
======= ===== ======= =======
Weighted average number of
common shares outstanding 11,986 11,960 11,970 11,980
====== ====== ====== ======
Earnings per common share $ 0.23 $ 0.28 $ 0.58 $ 0.74
==== ==== ==== ====
Cash dividends per common
share $ 0.05 $ 0.05 $ 0.10 $ 0.09
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Page 4 of 13
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30,
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,964 $ 8,809
Adjustments to reconcile net income to net cash
provided in operating activities:
Depreciation and amortization 7,628 7,018
Deferred income taxes 1,148 1,275
Equity in net income of unconsolidated
corporate joint venture (1,080) (1,207)
Loss (gain) on sale of assets 4 (475)
Increase (decrease) in cash resulting from
changes in:
Trade accounts receivable (5,340) (9,654)
Inventories (10,376) (12,027)
Accounts payable 2,706 7,455
Accrued liabilities and income taxes 480 2,678
Other (767) 1,278
------- -------
Net cash provided by operating activities 1,367 5,150
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (6,321) (5,033)
Acquisition, net of cash acquired (10,860) -
Investment in unconsolidated corporate
joint venture (5,000) -
Proceeds from sale of assets 7 737
------- ------
Net cash used in investing activities (22,174) (4,296)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 26,514 3,214
Principal payments on long-term debt (316) (316)
Repurchase of common stock - (1,570)
Cash dividends on common stock (1,197) (1,078)
Net issuance of common stock under incentive
stock option plans 159 18
------ ------
Net cash provided by financing activities 25,160 268
------ ------
Effect of exchange rate changes on cash (9) (51)
------ ------
Net increase in cash and cash equivalents 4,344 1,071
Cash and cash equivalents, beginning of year 4,218 2,698
------ ------
Cash and cash equivalents, end of period $ 8,562 $ 3,769
====== ======
Supplemental Cash Flow Disclosures:
Cash payments for interest $ 3,527 $ 2,912
====== ======
Cash payments for income taxes $ 3,063 $ 2,228
====== ======
Schedule of noncash investing and financing activities:
Fair value of assets acquired, net of
$8 cash acquired $ 19,600
Liabilities assumed 8,740
------
Net cash paid $ 10,860
======
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
PAGE 5 of 13
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1997 and the
consolidated statements of income for the three and nine-month periods
ended June 30, 1997 and 1996, 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, 1997 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, 1996.
The results of operations for the nine months ended June 30, 1997 are
not necessarily indicative of the operating results for the full year.
2. INVENTORIES
June 30, September 30,
1997 1996
(Unaudited) (Audited)
(Amounts in thousands)
--------------------------------------------------------------------------
Inventories consist of:
Raw Materials $ 63,356 $ 49,617
Finished goods and
work in process 12,963 9,757
------ ------
$ 76,319 $ 59,374
====== ======
3. RETAINED EARNINGS
Nine months ended
June 30, 1997
(Amounts in thousands)
- ------------------------------------------------------------
Retained Earnings consists of:
Balance, beginning of year $ 81,161
Net income 6,964
Cash dividends on common stock (1,197)
------
Balance, end of period $ 86,928
======
Page 6 of 13
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 have previously been translated into U.S. dollars
at the current rate of exchange existing at period end and revenues and
expenses were translated at the average monthly exchange rates. The
cumulative inflation rate in Mexico over the three year period ended
December 31, 1996 was approximately 100%, resulting in the Mexican
economy being considered hyper-inflationary. The impact to the
Company's consolidated financial statements from accounting for the
Company's investment in a hyper-inflationary economy is not expected to
be material.
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.
6. ACQUISITION
On April 1, 1997, the Company completed the purchase of 100% of the
common stock of Atlantic Coil Processing, Inc. (ACP) for approximately
$19.6 million in cash, notes payable and assumption of other
liabilities. The Company financed the transaction with a combination of
bank borrowings, issuance of a note payable to the former ACP
shareholders and the assumption of ACP trade payables and other
liabilities. The transaction was accounted for by the purchase method
of accounting. The results of the operations for ACP are included in
the consolidated financial statements of the Company from the date of
the acquisition.
Page 7 of 13
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; work stoppages or
other business interruptions affecting automotive manufacturers;
competitive factors such as 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 occurrence of unanticipated events or circumstances after
the date hereof.
Results of Operations
The Company posted record third quarter 1997 sales of $101,082,000, the
highest for any quarter in the Company's history, an increase of 32%
from the $76,623,000 a year ago. Sales for the nine months ended June
30, 1997 increased 18% to $258,912,000 from $218,960,000 in 1996. The
increase in revenues in the third quarter and nine months of 1997
benefited from the inclusion of $16.3 million of revenues from ACP.
Revenues from the other steel processing operations increased
approximately 11% in the quarter and nine months ended June 30, 1997
from 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 and nine months ended June
30, 1997 was comparable to the levels of the prior year. The Company
continues to increase its market share and to be successful in
developing a substantial amount of new business with both existing and
new customers. As a result of the ACP acquisition and market share
gains, tons shipped in the third quarter and nine months of 1997
increased 29% and 22% from the comparable prior year periods. Average
selling prices for the third quarter of 1997 increased 2% from the prior
year, but year-to-date selling prices remained 3% lower than the
comparable prior year period. Demand in the automotive and other steel
consuming markets remains at historic high levels. The capital
investments completed in recent years have added new capacity and
increased the products and services offered by the Company. The
additional product offerings are allowing the Company to pursue
significant new business opportunities and to further enhance its market
share. The acquisition of ACP adds new capacity, geographic diversity
and cut-to-length capabilities, which will further enhance the Company's
position in the marketplace.
Page 8 of 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Results of Operations (Cont.)
Cost of goods sold as a percentage of sales was 89.3% and 89.0% in the
third quarter and nine months of fiscal 1997 compared to 85.9% and 86.2%
in the same periods of 1996. As a result, the gross profit margin
decreased to 10.7% and 11.0% in 1997 from 14.1% and 13.8% a year
earlier. The gross profit margin in the third quarter and nine months
ended June 30, 1997 declined as a result of increases in the purchase
price of raw materials from the primary steel mills. These purchase
price increases were not fully offset with selling price increases to
our customers. A number of steel mills experienced temporary production
problems and work stoppages which have negatively impacted the available
supply of raw materials. Additionally, the Company expects the raw
material supply, especially in hot rolled steel, to improve as new
steelmaking capacity and increased imports enter the market. This
additional raw material supply is expected to alleviate the upward
pressure on the price of flat rolled steel. However, should raw
material price increases persist, margins will be negatively impacted
until corresponding selling price increases are passed along to
customers. The gross margin is expected to be positively impacted by
production cost efficiencies associated with the anticipated higher
sales volumes. Additionally, the Company expects to increase the amount
of higher margin toll processing revenue generated by the Company's
pickling facility throughout fiscal 1997.
The Company continues to actively manage the level at which selling,
general and administrative costs are added to its cost structure. Sales
increased approximately 32% and 18% in the third quarter and nine months
ended June 30, 1997, while selling, general and administrative costs
increased approximately 12% and 4% from the comparable 1996 periods. As
a result, selling, general and administrative expenses as a percentage
of sales decreased to 5.3% and 5.7% for the quarter and nine months
ended June 30, 1997 from 6.3% and 6.4% in the same periods a year ago.
The Company's equity in net income of its unconsolidated corporate joint
venture decreased to $377,000 and $1,080,000 for the quarter and nine
months ended June 30, 1997 from $475,000 and $1,207,000 a year ago.
These decreases are principally the result of lower steel margins which
offset the higher sales levels achieved by the 50% owned corporate joint
venture, Mi-Tech Steel, Inc.
Interest expense increased to $1,585,000 and $4,085,000 for the quarter
and nine months ended June 30, 1997 from $1,297,000 and $3,759,000 in
1996. These increases are the result of higher average borrowings used
to finance the acquistion of ACP, capital additions and working capital
needs of the Company in 1997.
The Company's effective income tax rate was approximately 35% and 36% in
the third quarter and nine months ended June 30, 1997 compared to 36% in
the prior year periods.
Page 9 of 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Liquidity and Capital Resources
At June 30, 1997, the Company had $67,240,000 of working capital,
maintained a current ratio of 2.0:1 and had long-term debt at 41% of
total capitalization. The Company manages 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 remain at a consistent level for the balance of the 1997
fiscal year based on the current backlogs and order entry activity.
During the first nine months of fiscal 1997 accounts receivable,
inventories and other working capital needs have increased to support
the higher sales levels. These working capital items were financed with
borrowings from the Company's bank line of credit. The combination of
the expected sales levels and increased availability of raw material
will increase the inventory turnover, reducing the number of days
carried in inventory.
The Company's capital expenditures for the first nine months of 1997
totaled $6,321,000. The Company has expanded its production and
processing capacity and added new processing capabilities over the last
few years and expects capital additions and investments in corporate
joint ventures to approximate $15 million for 1997. These expenditures
have been financed primarily with proceeds from long-term debt.
On April 1, 1997, the Company completed the purchase of 100% of the
common stock of Atlantic Coil Processing, Inc. (ACP) for approximately
$19.6 million in cash, notes and assumption of liabilities. The Company
financed the transaction by borrowing approximately $10.9 million on the
line of credit, issuing $3.6 million of a note payable to the former ACP
shareholders and the assumption of $5.1 million in additional
liabilities.
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 in the June quarter contributed $5
million of additional equity to the joint venture. Additional equity
contributions to the joint venture are not expected for the foreseeable
future, however, additional debt guarantees may be required in the
future.
Page 10 of 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Liquidity and Capital Resources (Cont.)
The Company believes that the $7 million available under its unsecured
bank line of credit provides sufficient liquidity and available capital
resources to meet its existing needs over 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
is presently evaluating its needs for additional funds to finance
possible acquisitions, the opening of new plants or significant
improvements in 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, 1997, the Company had $97,468,000 in current and 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.
The Company maintains an equity investment of approximately $6 million
in its 80% owned Mexican subsidiary. In accordance with Statement of
Financial Accounting Standard No. 52, "Foreign Currency Translation",
the assets and liabilities of the Mexican subsidiary have previously
been translated into U.S. dollars at the current rate of exchange
existing at period end and revenues and expenses were translated at the
average monthly exchange rates. Future currency fluctuations will be
reflected as a component of stockholders' equity. The cumulative
inflation rate in Mexico over the three year period ended December 31,
1996 was approximately 100%, resulting in the Mexican economy being
considered hyper-inflationary. The impact to the Company's consolidated
financial statements from accounting for the Company's investment in a
hyper-inflationary economy is not expected to be material.
The Company maintains an investment, principally in preferred stock of
Processing Technology, Inc., a corporate joint venture. The Company
periodically evaluates 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
$9,500,000, of the joint venture's loan and lease commitments. The
conversion is not expected to occur in the near term.
Page 11 of 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Liquidity and Capital Resources (Cont.)
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,
1997.
Page 12 of 13
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: /s/KENNETH R. BATES
________________
Kenneth R. Bates
Vice President Finance;
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Dated August 11, 1997
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND RELATED FOOTNOTES
AND IS QUALIFIED IN ITS ENIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771790
<NAME> STEEL TECHNOLOGIES INC.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 8,562
<SECURITIES> 0
<RECEIVABLES> 49,784
<ALLOWANCES> (767)
<INVENTORY> 76,319
<CURRENT-ASSETS> 136,789
<PP&E> 149,521
<DEPRECIATION> (46,161)
<TOTAL-ASSETS> 263,101
<CURRENT-LIABILITIES> 69,549
<BONDS> 75,271
0
0
<COMMON> 16,821
<OTHER-SE> 90,279
<TOTAL-LIABILITY-AND-EQUITY> 263,101
<SALES> 258,912
<TOTAL-REVENUES> 258,912
<CGS> 230,396
<TOTAL-COSTS> 230,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 429
<INTEREST-EXPENSE> 4,085
<INCOME-PRETAX> 10,865
<INCOME-TAX> 3,901
<INCOME-CONTINUING> 6,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,964
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
