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, 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 11,962,738 shares outstanding of the Registrant's
common stock as of January 31, 1997.
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, 1996 (Unaudited) and
September 30, 1996 (Audited) 3
Condensed Consolidated Statements of
Income Three months ended December 31,
1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of
Cash Flows Three months ended December 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 8-9
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,
1996 1996
ASSETS (Unaudited) (Audited)
- -----------------------------------------------------------------
Current assets:
- --------------
Cash and cash equivalents $ 6,292 $ 4,218
Trade accounts receivable, net 41,485 39,732
Inventories 72,512 59,374
Deferred income taxes 1,665 1,631
Prepaid expenses and other assets 298 369
- -----------------------------------------------------------------
Total current assets 122,252 105,324
- -----------------------------------------------------------------
Property, plant and equipment, net 99,273 100,017
- -----------------------------------------------------------------
Investments in corporate joint ventures 11,369 11,016
- -----------------------------------------------------------------
Other assets 823 784
- -----------------------------------------------------------------
$ 233,717 $ 217,141
=================================================================
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------
Current liabilities:
- --------------------
Accounts payable $ 38,907 $ 34,528
Accrued liabilities 5,669 5,146
Income taxes 1,151 -
Long-term debt due within one year 385 385
- -----------------------------------------------------------------
Total current liabilities 46,112 40,059
- -----------------------------------------------------------------
Long-term debt 75,593 67,260
- -----------------------------------------------------------------
Deferred income taxes 8,973 8,461
- -----------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------
Shareholders' equity:
- ---------------------
Preferred stock - -
Common stock 16,667 16,662
Additional paid-in capital 4,909 4,909
Retained earnings 83,027 81,161
Foreign currency translation adjustment (1,564) (1,371)
- -----------------------------------------------------------------
103,039 101,361
- -----------------------------------------------------------------
$ 233,717 $ 217,141
=================================================================
</TABLE>
The accompanying notes are an integral part of the condensed 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,
1996 1995
- ---------------------------------------------------------------------------
Sales $ 78,030 $ 65,708
Cost of goods sold 68,626 57,242
- ---------------------------------------------------------------------------
Gross profit 9,404 8,466
Selling, general and administrative expenses 4,633 4,353
Equity in net income of unconsolidated
corporate joint venture 353 343
- ---------------------------------------------------------------------------
Operating income 5,124 4,456
Interest expense 1,215 1,190
- ---------------------------------------------------------------------------
Income before income taxes 3,909 3,266
Provision for income taxes 1,446 1,155
- ---------------------------------------------------------------------------
Net income $ 2,463 $ 2,111
===========================================================================
Weighted average number of
common shares outstanding 11,962 12,039
===========================================================================
Earnings per common share $ 0.21 $ 0.18
===========================================================================
Cash dividends per common
share $ 0.05 $ 0.04
===========================================================================
</TABLE>
The accompanying notes are an integral part of the condensed 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,
1996 1995
- ---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,463 $ 2,111
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 2,476 2,251
Deferred income taxes 478 375
Equity in net income of unconsolidated
corporate joint venture (353) (343)
Loss (gain) on sale of assets 6 (463)
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable (1,859) (4,305)
Inventories (13,189) (7,631)
Accounts payable 4,409 6,285
Accrued liabilities 1,741 2,368
Other 25 (228)
- ---------------------------------------------------------------------------
Net cash (used in) provided by operating activities (3,803) 420
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,857) (2,298)
Proceeds from sale of assets 2 703
- ---------------------------------------------------------------------------
Net cash used in investing activities (1,855) (1,595)
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 8,515 2,514
Principal payments on long-term debt (182) (182)
Repurchase of common stock - (1,570)
Cash dividends on common stock (597) (480)
Net issuance of common stock under incentive
stock option plan 5 -
- ---------------------------------------------------------------------------
Net cash provided by financing activities 7,741 282
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash (9) (53)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 2,074 (946)
Cash and cash equivalents, beginning of year 4,218 2,698
- ---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,292 $ 1,752
===========================================================================
Supplemental Cash Flow Disclosures:
- -----------------------------------
Cash payments for interest $ 353 $ 478
==========================================================================
Cash payments for taxes $ 154 93
==========================================================================
</TABLE>
The accompanying notes are an integral part of the condensed 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, 1996
and the consolidated statements of income for the three months
ended December 31, 1996 and 1995, 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, 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, 1996. The results of operations for
the three months ended December 31, 1996 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
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December 31, September 30,
1996 1996
(Unaudited) (Audited)
---------------------------
(Amounts in Thousands)
Inventories consist of:
- ------------------------------------------------------
Raw materials $59,006 $49,617
Finished goods and
work in process 13,506 9,757
- ------------------------------------------------------
$72,512 $59,374
======================================================
</TABLE>
3. RETAINED EARNINGS
<TABLE>
<S> <C>
Three months ended
December 31, 1996
------------------
(Amounts in Thousands)
Retained earnings consists of:
- -------------------------------------------------------
Balance, beginning of year $81,161
Net income 2,463
Cash dividends on common stock (597)
- -------------------------------------------------------
Balance, end of period $83,027
=======================================================
</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
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 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
occurrence of unanticipated events or circumstances after the date hereof.
Results of Operations
- ---------------------
The Company posted record first quarter 1997 sales of $78,030,000 which
represented a 19% increase from sales of $65,708,000 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 up slightly from 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, tons
shipped in the first quarter of 1997 increased by 31% while average
selling prices decreased by 8% from a year ago. The sales outlook for
1997 continues to improve as demand in the automotive and other steel
consuming markets is expected to increase from the prior year levels. The
capital investments completed in recent years have added new capacity
and increased the products and sevices offered by the Company. The
additional product offerings are allowing the Company to pursue significant
new business opportunitues and to further enhance its market share.
Cost of goods sold increased as a percentage of sales to 87.9% in the
first quarter ended December 31, 1996 from 87.1% in the prior year.
As a result, the gross profit margin decreased to 12.1% in 1996 from 12.9%
in the prior year. The gross profit margin in the first quarter of 1997
declined as a result of increases in the purchase price of raw materials
from the steel mills in the latter part of fiscal 1996. These purchase
price increases were not fully offset with selling price increases to
our customers. The Company expects the raw material supply, especially
in hot rolled steel, to improve as new steelmaking capacity and increased
steel imports enter the market. Additionally, a number of steel mills
experienced temporary production problems and work stoppages which have
negatively impacted the available supply of raw materials. This additional
raw material supply is expected to alleviate the upward pressure on the
price of flat rolled steel. However, should these raw material price
increases persist, margins may be negatively impacted until corresponding
selling price increases are passed along to customers. The gross profit
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
revenues 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 19% during the first quarter
of fiscal 1997 while selling, general and administrative expenses
increased only 6%. As a result, selling, general and administrative
expenses decreased to 5.9% of sales in the first quarter ended December
31, 1996 from 6.6% a year ago.
The Company's equity in net income of its unconsolidated corporate
joint venture increased to $353,000 in 1996 from $343,000 in the
prior year. The equity income increase is principally the result of
higher sales levels achieved by the 50% owned corporate joint venture,
Mi-Tech Steel, Inc.
Page 8 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Interest expense increased to $1,215,000 for the quarter ended December
31, 1996 from $1,190,000 in the comparable prior year period. This increase
is the result of higher average borrowings used to finance the capital
addition and working capital needs of the Company during the first
quarter of fiscal 1997.
The Company's effective income tax rate was 37.0% in the first
quarter ended December 31, 1996 compared to 35.4% in the same period
a year ago. The effective income tax rate was increased in the current
quarter as a result of higher taxes on the earnings of the Company's Mexican
subsidiary.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had $76,140,000 of working
capital, maintained a current ratio of 2.7:1 and had total
long-term debt at 42% 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 strong
during the 1997 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 first quarter of 1997 totaled
$1,857,000. 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 $15,000,000 for 1997.
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 expects to provide an additional equity contribution of
$5,000,000 to the joint venture. Additional debt guarantees may be
required in the future.
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 $25 million under its unsecured bank line of
credit to be sufficient to finance the capital expenditure plans, joint
venture contributions 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 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 December 31, 1996, the Company had $75,593,000 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.
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 9 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (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 part of this report:
27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
Page 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 February 5, 1997
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the condensed consolidated balance sheet at December 31, 1996 and
condensed conolidated statement of income for the three months ended
December 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> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,292
<SECURITIES> 0
<RECEIVABLES> 42,425
<ALLOWANCES> (940)
<INVENTORY> 72,512
<CURRENT-ASSETS> 122,252
<PP&E> 139,254
<DEPRECIATION> (39,981)
<TOTAL-ASSETS> 233,717
<CURRENT-LIABILITIES> 46,112
<BONDS> 75,593
0
0
<COMMON> 16,667
<OTHER-SE> 86,372
<TOTAL-LIABILITY-AND-EQUITY> 233,717
<SALES> 78,030
<TOTAL-REVENUES> 78,030
<CGS> 68,626
<TOTAL-COSTS> 68,626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 1,215
<INCOME-PRETAX> 3,909
<INCOME-TAX> 1,446
<INCOME-CONTINUING> 2,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,463
<EPS-PRIMARY> $.21
<EPS-DILUTED> $.21
</TABLE>
