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, 1998
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 preceding 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 11,902,093 shares outstanding of the Registrant's common
stock as of July 31, 1998.
<PAGE>
STEEL TECHNOLOGIES INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 (Unaudited) and
September 30, 1997 (Audited) 3
Condensed Consolidated Statements of Income
Three months and nine months ended June 30,
1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 1998 and 1997
(Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements
STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
- -----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,332 $ 3,467
Trade accounts receivable, net 48,756 43,110
Inventories 76,685 81,086
Deferred income taxes 1,750 1,714
Prepaid expenses and other assets 682 896
- ----------------------------------------------------------------------
Total current assets 134,205 130,273
- ----------------------------------------------------------------------
Property, plant and equipment, net 104,677 103,796
- ----------------------------------------------------------------------
Investments in corporate joint ventures 18,393 17,626
- ----------------------------------------------------------------------
Goodwill, net of amortization 4,974 5,147
- ----------------------------------------------------------------------
Other assets 730 668
- ----------------------------------------------------------------------
$ 262,979 $ 257,510
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,079 $ 32,605
Accrued liabilities and income taxes 6,774 5,156
Long-term debt due within one year 7,903 2,195
- ----------------------------------------------------------------------
Total current liabilities 58,756 39,956
- ----------------------------------------------------------------------
Long-term debt 76,368 97,190
- ----------------------------------------------------------------------
Deferred income taxes 12,421 11,535
- ----------------------------------------------------------------------
Commitments and contingencies
- ----------------------------------------------------------------------
Shareholders' equity:
Preferred stock - -
Common stock 16,115 16,893
Additional paid-in capital 4,909 4,909
Retained earnings 95,850 88,467
Foreign currency translation adjustment (1,440) (1,440)
- ----------------------------------------------------------------------
115,434 108,829
- ----------------------------------------------------------------------
$ 262,979 $ 257,510
======================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per share data, unaudited)
<TABLE>
Three months ended Nine months ended
June 30, June 30,
- --------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $96,389 $101,082 $294,125 $258,912
Cost of goods sold 84,506 90,242 259,736 230,396
- --------------------------------------------------------------------------
Gross profit 11,883 10,840 34,389 28,516
Selling, general and
administrative expenses 5,690 5,368 16,608 14,646
Equity in net income of
unconsolidated corporate
joint venture 8 377 768 1,080
- --------------------------------------------------------------------------
Operating income 6,201 5,849 18,549 14,950
Interest expense 1,372 1,585 4,421 4,085
- --------------------------------------------------------------------------
Income before income taxes 4,829 4,264 14,128 10,865
Provision for income taxes 1,972 1,500 5,546 3,901
- --------------------------------------------------------------------------
Net income $ 2,857 $ 2,764 $ 8,582 $ 6,964
==========================================================================
Weighted average number of common
shares outstanding-diluted 12,035 12,016 12,043 12,035
==========================================================================
Weighted average number of common
shares outstanding-basic 11,965 11,986 11,987 11,970
==========================================================================
Diluted earnings per common share $ 0.24 $ 0.23 $ 0.71 $ 0.58
==========================================================================
==========================================================================
Basic earnings per common share $ 0.24 $ 0.23 $ 0.72 $ 0.58
==========================================================================
Cash dividends per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10
==========================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands, unaudited)
<TABLE>
Nine months ended
June 30,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,582 $ 6,964
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 8,689 7,555
Amortization 173 73
Deferred income taxes 850 1,148
Equity in net income of
unconsolidated corporate
joint venture (767) (1,080)
Loss on sale of assets 5 4
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable (5,989) (5,340)
Inventories 4,430 (10,376)
Accounts payable 11,645 2,706
Accrued liabilities and
income taxes 1,478 480
Other 585 (767)
- --------------------------------------------------------------------------
Net cash provided by (used in) operating activities 29,681 (1,367)
- --------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (9,569) (6,314)
Acquisition, net of cash acquired - (10,860)
Investment in unconsolidated joint venture - (5,000)
- --------------------------------------------------------------------------
Net cash used in investing activities (9,569) (22,174)
- --------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 26,514
Principal payments on long-term debt (15,114) (316)
Cash dividends on common stock (1,199) (1,197)
Repurchase of common stock (792) -
Net issuance of common stock under
incentive stock option plans 14 159
- --------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (17,091) 25,160
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Effect of exchange rate changes on cash (156) (9)
- --------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,865 4,344
Cash and cash equivalents, beginning of year 3,467 4,218
- --------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,332 $ 8,562
==========================================================================
Supplemental Cash Flow Disclosures:
- ----------------------------------
Cash payments for interest $ 4,745 $ 3,527
==========================================================================
Cash payments for income taxes $ 4,163 $ 3,063
==========================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998 and
the consolidated statements of income for the three and nine-month
periods ended June 30, 1998 and 1997, 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, 1998 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, 1997. The results of operations for the
nine months ended June 30, 1998 are not necessarily indicative of
the operating results for the full year.
2. INVENTORIES
<TABLE>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
----------------------------
(Amounts in thousands)
<S> <C> <C>
Inventories consist of:
Raw Materials $ 69,196 $ 67,463
Finished goods and
work in progress 7,489 13,623
----------------------------
$ 76,685 $ 81,086
----------------------------
</TABLE>
3. SHAREHOLDER'S EQUITY
<TABLE>
Nine months ended June 30, 1998
(Amounts in thousands)
Common Stock Retained Earnings
------------ -----------------
<S> <C> <C>
Balances, beginning of year $ 16,893 $ 88,467
Net income 8,582
Repurchase of common stock (792)
Net issuance of common stock
under incentive stock option plan 14
Cash dividends on common stock
($.10 per share) (1,199)
-------------------------
Balances, end of period $ 16,115 $ 95,850
=========================
</TABLE>
6
<PAGE>
4. FOREIGN CURRENCY TRANSLATION
Prior to January 1, 1997, the monetary assets and liabilities of
the Mexican subsidiary were translated into U.S. dollars at the
year-end rate of exchange and revenues and expenses were translated
at average rates of exchange in effect during the period.
Resulting translation adjustments were accumulated in a separate
component of shareholders' equity. Foreign currency transaction
gains and losses were included in net income when incurred.
Effective January 1, 1997, the Company changed to the monetary/non-
monetary method of accounting for foreign currency translation as
the Mexican economy is now considered hyper-inflationary for
financial reporting. This method requires non-monetary assets and
liabilities to be translated at historical rates of exchange and
the functional currency to be U.S. dollars.
5. EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Statement 128 replaced the previously
reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Diluted earnings per share
is computed similarly to fully diluted earnings per share pursuant
to APB No. 15. SFAS No. 128 is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
Earnings per share for all periods presented have been calculated
and presented in accordance with SFAS No. 128.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
Three months ended
June 30, 1998 June 30, 1997
Income Common Per-Share Income Common Per-Share
Available Shares Amount Available Shares Amount
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $2,857 11,965 $0.24 $2,764 11,986 $0.23
Effect of dilutive stock options:
Employee stock option plan 66 29
Directors stock option plan 4 1
-----------------------------------------------------
Diluted earnings per share $2,857 12,035 $0.24 $2,764 12,016 $0.23
=====================================================
</TABLE>
7
<PAGE>
5. EARNINGS PER COMMON SHARE (CONT.)
<TABLE>
Nine months ended
June 30, 1998 June 30, 1997
Income Common Per-Share Income Common Per-Share
Available Shares Amount Available Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $8,582 11,987 $0.72 $6,964 11,970 $0.58
Effect of dilutive stock options:
Employee stock option plan 52 (.01) 65
Directors stock option plan 4
------------------------------------------------------------
Diluted earnings per share $8,582 12,043 $0.71 $6,964 12,035 $0.58
============================================================
</TABLE>
Options to purchase 70,000 shares of common stock at prices ranging
from $12.5125-$12.788 under the employee stock option plan were
outstanding at June 30, 1998, but were not included in the
computation of diluted earnings per share in any quarter because
the options' exercise prices were greater than the average market
price of the common shares during the period and, therefore, the
effect would be antidilutive.
6. ACQUISITIONS
On April 1, 1997, the Company completed the purchase of 100% of the
common stock of Atlantic Coil Processing, Inc. (ACP) for
approximately $19,600,000 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, now referred to as Steel Technologies North Carolina, are
included in the consolidated financial statements of the Company
from the date of the acquisition.
On July 1, 1998, the Company completed the purchase of Roberts
Steel Company ("Roberts"). The purchase price included $5,200,000
in cash, a $1,200,000 note payable to one seller, $1,800,000 in
amounts payable to the sellers and the assumption of $8,600,000 of
liabilities. Additional contingent payments of up to $1,400,000
may also be made during the next two years. The Company financed
the acquisition with existing credit facilities. The Roberts
acquisition will be accounted for under the purchase method of
accounting. Accordingly, the result of the operations of Roberts
will be included in the consolidated financial statements from the
date of the acquisition.
7. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires companies
to classify items defined as "other comprehensive income" by their
nature in a financial statement, and to display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of
the balance sheet. The adoption of SFAS No. 130 will not have a
material impact on the consolidated financial statements.
8
<PAGE>
7. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONT.)
During 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997. The
Company is not required to report segment information under
existing accounting standards, and is currently evaluating whether
additional disclosures will be made in accordance with the new
requirements.
During 1998, Statements of Position No. 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use"
and No. 98-5 "Reporting on the Costs of Start-up Activities" were
issued. These statements are effective for years beginning after
December 15, 1998. The Company currently capitalizes certain costs
of software acquired for internal use and has no significant
expenses capitalized related to start-up activities. As a result,
the Company expects that the adoption of these standards will not
have a significant impact on future earnings.
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, risks of year 2000 noncompliance
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 third quarter 1998 sales of $96,389,000, which
represented a 5% decrease from sales of $101,082,000 in the third
quarter a year ago. Sales for the nine months ended June 30, 1998
increased 14% compared to the same period in 1997. Steel
Technologies North Carolina represents $21,700,000 of the overall
increase with nine month results in 1998 as compared to three
months results in 1997. 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 market declined at the end of the quarter
ended June 30, 1998, as some of the Company's key automotive
customers halted or reduced operations in their facilities due to
the work stoppages at several General Motors facilities. Tons
shipped in the third quarter and nine months of fiscal 1998
increased 5% and 20%, respectively. Average selling prices
declined approximately 7% and 6% during these same periods. For
the fourth quarter,
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Results of Operations (Cont.)
the work stoppages continue to affect normal order patterns and
delivery schedules for customers in the automotive segment.
The capital investments completed in recent years have added new
capacity and increased the products and services offered by the
Company. In fiscal 1998, the Company completed the full start-up
of its blanking operations at its Eminence, Kentucky manufacturing
facility. The additional product offerings are allowing the
Company to pursue significant new business opportunities and to
further enhance its market share. For fiscal year 1998, the
acquisition of ACP added new capacity, geographic diversity and
cut-to-length capabilities, which further enhances the Company's
position in the marketplace.
The gross profit margin was 12.3% and 11.7% in the third quarter
and nine months of fiscal 1998 compared to 10.7% and 11.0% in the
same periods of 1997. The improvements are primarily a result of
customer and product mix improvements, productivity increases, a
slight reduction in raw materials prices and other operating cost
reductions. The Company expects stable and, in some cases,
weakening in pricing of raw materials, especially in hot rolled
steel, as new steelmaking capacity and steel imports enter the
market. The gross margin is expected to decline slightly as a
result of the reduction in normal order patterns and delivery
schedules of its automotive customers as a result of the General
Motors strike. The Company expects to increase the amount of
higher margin toll processing revenue generated by the Company's
pickling facility and blanking lines. Toll processing, primarily
of customer-owned steel, generates higher gross margin percentages
than the Company's traditional processing customers.
The Company continues to actively manage the level at which
selling, general and administrative costs are added to its cost
structure. Sales decreased 5% in the third quarter, while selling,
general and administrative costs increased approximately 6% from
the comparable 1997 period. For the nine months of fiscal 1998,
selling, general and administrative costs increased 13% while sales
increased 14% over the same period, in part due to the addition of
Steel Technologies North Carolina. Selling, general and
administrative expenses as a percentage of sales increased to 5.9%
for the quarter ended June 30, 1998 from 5.3% for the quarter ended
June 30, 1997. Selling, general and administrative expenses as a
percentage of sales was 5.6% and 5.7% for the nine months ended
June 30, 1998 and June 30, 1997, respectively.
The Company's equity in net income of Mi-Tech Steel, Inc., its
unconsolidated corporate joint venture, was $8,000 and $768,000 for
the quarter and nine months ended June 30, 1998, compared to
$377,000 and $1,080,000 a year ago. The decreases in the third
quarter and nine months ended June 30,1998 are principally the
result of expenses related to the start-up of its Decatur, Alabama
facility. The start-up of the Decatur operation and certain other
factors affecting customer orders will most likely result in Mi-
Tech Steel not meeting the level of its past profitability for the
balance
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Results of Operations (Cont.)
- -----------------------------
of calendar 1998. For the fourth quarter, the Company expects its
equity in the net income of Mi-Tech Steel to approximate the actual
results for the three months ended June 30, 1998.
Interest expense was $1,372,000 and $4,421,000 for the quarter and
nine months ended June 30, 1998 compared to $1,585,000 and
$4,085,000 for the same periods of 1997. The decrease in the third
quarter of 1998 from 1997 is due to the lower average borrowings
outstanding during these periods. The increase for the nine month
period is the result of higher average borrowings used to finance
the acquisition of ACP and the additional investment in Mi-Tech
Steel, Inc. made in the third quarter of fiscal 1997.
The Company's effective income tax rate was approximately 41% and
40% for the quarter and nine months ended June 30, 1998 compared to
approximately 36% for the same periods in 1997. This results from
a lower percentage of the Company's overall earnings in the current
year being generated by the Mi-Tech joint venture, the earnings of
which are not fully taxable to the Company.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1998, the Company had $75,449,000 of working capital
and maintained a current ratio of 2.3:1. Long-term debt as of June
30, 1998 was 40% 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. For the first nine months of fiscal 1998, the
combination of increased sales levels and more effective inventory
management resulted in increased inventory turnover and contributed
to the generation of $29,681,000 of cash flows from operations.
While the Company will continue to effectively manage working
capital items, the cash generated from operations for the fiscal
year 1998 will most likely be lower than the results for the nine
months ended June 30, 1998.
The Company's capital expenditures for the first nine months of
fiscal 1998 totaled $9,569,000. The Company has expanded its
production and processing capacity and added new processing
capabilities over the last few years and now expects capital
additions for all existing facilities, including Mexico, to
approximate $12,000,000 for fiscal 1998.
On January 22, 1998, the Company's Board of Directors approved a
plan under which Steel Technologies may repurchase up to 500,000
shares of its common stock over the next three years. Shares may
be purchased from time to time at prevailing prices in open market
transactions, subject to market conditions, share price and other
considerations. The Company's cash flows from operations and
available borrowing capabilities will continue to fund the stock
repurchase program. During the quarter and nine months ended June
30, 1998, the Company repurchased 24,000 and 66,000 shares of its
common stock at prevailing market prices.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Liquidity and Capital Resources (Cont.)
- ---------------------------------------
Pursuant to a joint venture agreement, Steel Technologies has
guaranteed $6,250,000 of the bank financing required for the
working capital purposes of Mi-Tech Steel, Inc. Mi-Tech Steel had
significant capital additions in 1997 to construct a pickling and
slitting facility in Decatur, Alabama. To participate equally with
its joint venture partner in the financing of this project, Steel
Technologies contributed $5 million of additional equity to the
joint venture in the third quarter of fiscal 1997. Additional
equity contributions to the joint venture are not expected for the
foreseeable future, but if required would be financed with
available funds from the Company's bank 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 $43,000,000 as of June 30, 1998 under its unsecured
$80,000,000 bank line of credit to be sufficient to finance the
capital expenditures plans as well as the working capital
requirements for fiscal 1998. On July 1, 1998, the Company
completed the purchase of Roberts Steel Company ("Roberts"). The
purchase price included $5,200,000 in cash, a $1,200,000 note
payable to one seller, $1,800,000 in amounts payable to the sellers
and the assumption of $8,600,000 of liabilities. Additional
contingent payments of up to $1,400,000 may also be made during the
next two years. The Company financed the acquisition with existing
credit facilities. The Roberts acquisition will be accounted for
under the purchase method of accounting. Accordingly, the result
of the operations of Roberts will be included in the consolidated
financial statements from the date of the acquisition.
At June 30, 1998, the Company had $76,368,000 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 or
the planned acquisition.
The Company maintains an equity investment of approximately
$8,000,000 in its 90%-owned Mexican subsidiary. In fiscal 1998,
the Company plans to invest up to $3,000,000 in additional
production equipment and expansion of the existing production
facility in Mexico. The Mexican economy is considered hyper-
inflationary for financial reporting. Accordingly, the Company
uses the monetary/non-monetary method of accounting. The impact on
the Company's profitability is limited to the effect of currency
fluctuations related to net monetary assets, which at June 30,
1998, was approximately $2,000,000. For the quarter and nine
months ended June 30, 1998, the impact was not significant. Due to
the costs of hedging currency risks, the Company has not entered
into any hedging arrangements.
The Company is currently working to resolve the potential impact of
the year 2000 on the processing of date-sensitive information by
the Company's computerized
12
<PAGE>
Liquidity and Capital Resources (Cont.)
- ---------------------------------------
information systems. The year 2000 problem is a result of computer
programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Based on current information,
costs of addressing potential problems are not expected to have a
material adverse impact on the Company's financial position,
results of operations or cash flows in future periods. However, if
the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in a material
financial risk. Accordingly, the Company believes it has allocated
the resources necessary to resolve all significant year 2000 issues
in a timely manner.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
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 - June 30, 1998
13
<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 /s/ Joseph P. Bellino
---------------------------------------
Joseph P. Bellino
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Dated August 14, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet at June 30, 1998, and condensed
consolidated statement of income for the nine months ended June 30, 1998, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,332
<SECURITIES> 0
<RECEIVABLES> 49,780
<ALLOWANCES> (1,024)
<INVENTORY> 76,685
<CURRENT-ASSETS> 134,205
<PP&E> 162,407
<DEPRECIATION> (57,730)
<TOTAL-ASSETS> 262,979
<CURRENT-LIABILITIES> 58,756
<BONDS> 76,368
0
0
<COMMON> 16,115
<OTHER-SE> 99,319
<TOTAL-LIABILITY-AND-EQUITY> 115,434
<SALES> 294,125
<TOTAL-REVENUES> 294,125
<CGS> 259,736
<TOTAL-COSTS> 259,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 128
<INTEREST-EXPENSE> 4,421
<INCOME-PRETAX> 14,128
<INCOME-TAX> 5,546
<INCOME-CONTINUING> 5,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,546
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
</TABLE>
