UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1996
Commission File Number: 1-13600
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HUNTCO INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1643751
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14323 SOUTH OUTER FORTY, SUITE 600N, TOWN & COUNTRY, MISSOURI 63017
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(Address of principal executive offices)
(314) 878-0155
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(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK,
$0.01 PAR VALUE NEW YORK STOCK EXCHANGE
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(Title of class) (Name of each exchange on which registered)
Securities Registered pursuant to Section 12(g) of the Act: NONE
----
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at July 15, 1996 was $86,689,072 (computed by reference to the
closing price of the registrant's Class A common stock, as quoted by the New
York Stock Exchange, Inc. on such date). All of the Company's Class B common
stock, which is the only other voting stock of the Company, are held by
affiliates of the Company.
As of July 15, 1996, the number of shares outstanding of each class of
the Registrant's common stock was as follows: 5,292,000 shares of Class A
common stock and 3,650,000 shares of Class B common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held September 12, 1996 (the "1996 Proxy
Statement"), are incorporated by reference into Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
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BACKGROUND
- ----------
Huntco Inc. ("Huntco" or "the Company") was incorporated under Missouri law in
May 1993, to indirectly hold the common stock of Huntco Steel, Inc., a
Delaware corporation ("Huntco Steel") and Midwest Products, Inc., a Missouri
corporation ("Midwest"). The Company, through Huntco Steel, is a major
intermediate steel processor, specializing in the processing of flat rolled
carbon steel to specified close tolerances. Through Midwest, the Company is a
leading manufacturer of portable compressed air vessels for sale through mass
merchandisers and compressed air cylinders for use in tractor-trailer brake
systems.
The Company's products are delivered from facilities in Arkansas, Illinois,
Kentucky, Missouri, Oklahoma, Tennessee, and Texas to over 1,200 customers
located primarily in the midwestern and southern regions of the United States.
The strategic location of the Company's steel processing plants, with access
to its major suppliers via the inland waterway system, allows the Company to
take delivery of raw materials by barge, in addition to rail and truck,
thereby minimizing inbound transportation costs. The Company's primary
processed products include hot rolled, hot rolled pickled and oiled, tempered
and cold rolled steel, which is cut-to-length into sheets, plates, or custom
blanks; slit; edge conditioned; or in the case of pickled and oiled, cold
rolled and tempered products, sold as master coils. The Company also produces
custom metal stampings.
INDUSTRY OVERVIEW
- -----------------
Intermediate steel processors occupy a niche between the primary steel
producers and industrial customers who need processed steel for their end-
product manufacturing purposes and between the primary producers and general
steel service centers and distributors who handle broad product lines of
processed metal products and who tend to specialize more in distribution than
in processing. Intermediate steel processors specialize in value-added
processing of steel coils, such as cutting-to-length, slitting, blanking,
shape correction and surface improvement, pickling, cold reduction, annealing,
tempering, edge rolling, shearing and stamping. These processes produce steel
to specified lengths, widths, shapes and surface characteristics pursuant to
specific customer orders. The processing techniques typically require
specialized equipment and require high volume production in order to be
performed economically. Intermediate steel processors typically have lower
cost structures and provide better service in value-added processing than the
primary producers. The intermediate steel processors are able to perform many
of these processes more efficiently than steel service centers and
distributors because the intermediate steel processors specialize in a
narrower range of products and therefore are able to attract sufficient volume
to justify the investment in specialized processing equipment.
Primary steel producers historically have emphasized the sale of steel to
large volume purchasers and generally have viewed intermediate steel
processors as an integral part of their customer base. Furthermore, end
product manufacturers and service centers and distributors increasingly have
sought to purchase steel on shorter lead times and with more frequent and
reliable deliveries than normally can be provided by the primary producers.
Additionally, most manufacturers are not willing to commit to the investment
in technology, equipment and inventory required to process steel for use in
their own manufacturing operations. These industry forces have created a
market in which the success of an intermediate steel processor is based upon
its ability to purchase, process and deliver steel to the end user in a more
efficient and cost effective manner than the end user could achieve in dealing
directly with the primary producer of the steel or with another intermediate
steel processor.
<PAGE>
PRODUCTS AND PROCESSING SERVICES
- --------------------------------
The Company maintains a substantial inventory of steel coils purchased from
the primary producers. This steel is in the form of a continuous sheet,
typically 36 to 84 inches wide, between .015 and .500 inches thick, and rolled
into 10 to 30-ton coils. Because of the size and weight of these coils and
the equipment required to move and process them into smaller sizes, such coils
do not meet the requirements, without further processing, of a majority of the
Company's customers. By purchasing various kinds of steel in large quantities
and at predetermined intervals, the Company attempts to purchase its raw
materials at the lowest competitive prices for the quality purchased.
Customer orders are entered in a computerized order entry system, and
appropriate inventory is then selected and scheduled for processing in
accordance with the customer's specified delivery date. The Company attempts
to maximize yield by combining customer orders for processing to use each
purchased coil to the fullest extent practicable.
The Company uses techniques such as cold rolling, annealing, tempering,
pickling, cutting-to-length, slitting, blanking, edge rolling, shearing and
stamping to process steel to specified lengths, widths and shapes pursuant to
specific customer orders. The cold rolling, annealing and tempering process
reduces the thickness of the steel by passing the steel through pressure
reduction rolls, which also improves the surface characteristics of the steel
being processed. Pickling cleans the mill scale from the steel by subjecting
the steel to a series of hydrochloric acid baths. A portion of the steel that
the Company pickles serves as feed stock for the cold rolling mill. Cutting-
to-length involves cutting steel along the width of the coil. Slitting
involves cutting steel to specified widths along the length of the coil.
Blanking cuts the steel into close tolerance, specific shapes. Shape
correction improves the physical appearance of the steel by removing edge
wave, center buckle, crown or camber from the steel by a process known as
elongation, which includes equalizing and tension leveling, and which achieves
shape correction by stretching the fibers of the steel. Edge rolling imparts
round or smooth edges to produce strips or coils. Shearing cuts the steel
into small pieces. Stamping involves using presses to form previously
processed steel (e.g. slit coils) into parts.
The Company also manufactures compressed air cylinders for tractor-trailer air
brake systems and portable compressed air vessels to inflate objects, such as
automobile tires, which are sold to mass merchandisers and automotive
specialty stores. The air cylinders are fabricated from components processed
by a Company processing center, including the stamped heads, legs and handles
and the blanked wraps. The components are welded, painted, tested and
packaged as required.
REVIEW OF OPERATIONS
- --------------------
Blytheville Facility:
Located in Blytheville, Arkansas, with access to the Mississippi River,
the Blytheville facility has been the engine driving the Company's growth over
the previous three years. The Company processed a greater number of tons of
steel at its Blytheville facility during the year ended April 30, 1996, than
were processed at all of its facilities, combined, during the year ended April
30, 1993 (the fiscal year preceding the Company's initial public offering).
This trend is expected to continue during fiscal 1997 and into fiscal 1998
with the start-up of a new processing and stamping plant late in the first
quarter of fiscal 1997 and the expansion of the cold rolling and pickling
operations, which should contribute to even higher volume in fiscal 1998.
The Company commenced its Blytheville operations in October 1992 with a
new cut-to-length line, followed by a new heavy gauge slitting line in June
1993. Next, Huntco added a push-pull coil pickling line which commenced
operations in June 1994. The Company began limited production in its cold
rolling operation in the first quarter of fiscal 1996, which includes a cold
rolling mill, annealing furnaces, and a temper mill for coils up to 60 inches
wide ("Cold Mill"). The initial phase of the Cold Mill has a productive
capacity of up to 240,000 tons per year. The Company is in the process of
expanding the Cold Mill's capacity by adding more annealing furnaces. When
this is completed late in fiscal 1997, the capacity of the Cold Mill to
produce fully annealed master coils will have been increased to approximately
30,000 tons per month. The Company is also adding a second coil pickling line
which will increase its pickling capacity to approximately 900,000 tons per
year. Further expansion plans for the Blytheville facility include new
slitting and blanking equipment designed to process both cold rolled and
pickled and oiled steel. This equipment will be housed in a new building
which will become home for the Company's stamping operations which are being
relocated from a facility in Springfield, Missouri. This expansion and the
relocation of the stamping operations should be completed late in the first
quarter of fiscal 1997.
Chattanooga Facility:
Located in Chattanooga, Tennessee, on the Tennessee River, the
Chattanooga facility began operations in July 1994 with a heavy gauge, cut-to-
length line. The facility was expanded in April 1995 with the addition of a
new slitting line and in June 1995 with the addition of a new cut-to-length
line, both of which were designed to process cold rolled and pickled and oiled
steel. The Chattanooga facility has allowed the Company access to markets in
the southeastern United States, servicing customers such as service centers,
appliance and furniture manufacturers, tube mills, and other end users of both
hot rolled and cold rolled steel. The Chattanooga facility is becoming a
major outlet for cold rolled steel produced by the Company's Cold Mill in
Blytheville, and is expected to be second only to the Blytheville facility in
terms of tons processed during fiscal 1997.
Madison Facility:
Located in the St. Louis metropolitan area with access to the Mississippi
River, the Madison, Illinois facility commenced operations in 1983. The
facility is equipped with two slitting lines. One of the slitting lines is
used to process heavy gauge, hot rolled steel while the other primarily
processes cold rolled and pickled and oiled steel. The facility also operates
a new cut-to-length line to process cold rolled and pickled and oiled steel
which was added in the fourth quarter of fiscal 1996. The Company acquired
the building at this facility during fiscal 1996, which building had been
leased, and is expanding it to provide inside rail access to better facilitate
the handling of cold rolled products. The facility provides processed steel
products to a diverse group of customers, including metal fabricators, service
centers and tube, consumer durables and transportation equipment
manufacturers. The facility is becoming a major outlet for cold rolled steel
produced by the Company's Cold Mill in Blytheville.
Catoosa Facility:
Located at the Port of Catoosa, near Tulsa, Oklahoma, the Catoosa
facility is situated on the western edge of the inland waterway system on the
Arkansas River. This facility commenced operations in 1978 and is equipped
with a heavy gauge, cut-to-length line which was purchased new in 1985. The
facility was expanded during fiscal 1996 to include a doubling of the physical
plant and the addition of a cut-to-length line to process cold rolled and
pickled and oiled steel. The building expansion also allows for inside coil
storage. The facility processes coils into sheets and plates, primarily for
heavy equipment manufacturers, manufacturers of tanks for petroleum products
and for wet and dry bulk storage, construction and metal building companies.
Pasadena Facility:
Located on a 20 acre tract of land on the shipping channel near Houston,
Texas, the Pasadena facility commenced operations in 1982. The facility is
equipped with two heavy gauge cut-to-length lines, the first of which was
purchased new in 1982 and the second of which was added in December 1994. The
facility operates its own unloading facility and is capable of directly
discharging barges. The facility was recently expanded with the addition of a
new warehouse for cold rolled steel master coils. The facility produces
processed hot rolled sheets and plates for manufacturers of heavy farm and
construction equipment, storage tanks, metal building companies, and various
energy related concerns and distributes unprocessed master coils of cold
rolled steel.
Gallatin Facility:
Located in Gallatin County, Kentucky, on a 20 acre tract of land
immediately adjacent to the new Gallatin Steel mill, and with access to the
Ohio River, this new facility was opened by the Company in May 1996 with a
new, heavy gauge, sheet and plate cut-to-length line. The Company plans to
add a second cut-to-length line to process cold rolled and pickled and oiled
steel during the second quarter of fiscal 1997. This line is currently being
rebuilt and was previously used at the Company's Madison facility. The
facility is expected to sell processed sheets and plates to manufacturers
servicing the transportation and heavy machinery industries.
Springfield Facility:
Located in Springfield, Missouri, the Springfield facility operates as a
custom stamper with presses up to 1,000 tons and also operates slitting, cut-
to-length and blanking equipment. The stamping operation supplies many of the
components used in the Company's cylinder operations, as well as serving as a
custom stamper for a diverse group of end users. In addition to its
processing activities, the facility also maintains in-house tool and die
services, including laser tool and die cutting equipment. This facility is
being relocated to a new plant at the Company's Blytheville facility late in
the first quarter of fiscal 1997.
Strafford Facility:
Located in Strafford, Missouri, this facility is home for the Company's
cylinder operation which produces approximately 700,000 units annually. These
products include air cylinders used in tractor trailer brake systems and
portable compressed air vessels used to fill inflatable objects such as
automobile tires. The major raw material used in the manufacture of the
cylinders is pickled steel, which has been blanked, slit or stamped by the
Company's stamping operation prior to delivery to the Strafford facility for
final assembly, welding and painting. The Company installed an electrostatic,
powder coating paint system at this facility during fiscal 1996, resulting in
higher product quality and lower costs, as well as opening new markets for the
Company.
Mt. Pleasant Facility:
In the early stages of development, this new facility planned for Mt.
Pleasant, South Carolina, will be located in close proximity to a new Nucor
steel mill. The Nucor mill is currently under construction and is scheduled
to open late in calendar 1996 or early in calendar 1997, and is expected to
produce both hot rolled and cold rolled steel. The Company's current plans
are to equip the facility with a new, heavy gauge, sheet and plate cut-to-
length line and the Company is considering adding new high-speed, light gauge
slitting and blanking lines to process cold rolled and pickled and oiled
steel. The facility is expected to open around the point in time that Nucor
commences production at its new hot strip mill. The Huntco facility will have
rail access as well as waterway access to the Atlantic Ocean. The Company
expects that it will serve markets along the Atlantic seaboard, both to the
north and south, and to the west with processed products from this location.
QUALITY CONTROL
- ---------------
The procurement of high quality steel from suppliers on a consistent basis is
critical to the Company's business. Historically, about 2% of raw materials
has failed to conform to order specifications; most of the nonconforming raw
material is diverted to less critical applications. The Company has
instituted quality control measures to assure that the quality of purchased
raw material will allow the Company to meet the specifications of its
customers and to reduce the costs and inefficiencies of production
interruptions. Physical and chemical analyses are performed on selected raw
materials to verify that their mechanical and dimensional properties,
cleanliness and surface characteristics meet the Company's requirements. The
Company believes that maintenance of high standards for accepting raw
materials ultimately results in reduced return rates from its customers.
Similar analyses are conducted on processed steel on a selected basis before
delivery to the customer. The Company also uses statistical process control
techniques to monitor its slitting process so management can document to
customers that required tolerances have been continuously maintained
throughout processing. The Company also maintains a test laboratory at its
Blytheville facility to provide timely and economical testing and quality
certifications.
SUPPLIERS
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The Company purchases steel coils for processing at regular intervals from a
number of primary steel producers including Nucor Corporation, AK Steel
Corporation, Gallatin Steel, National Steel Corporation, USX Corporation,
Geneva Steel, Inland Steel Company, Bethlehem Steel Corporation, and various
foreign suppliers. The Company orders steel to specified physical qualities
and alloy content. By purchasing in large quantities at consistent
predetermined intervals, the Company attempts to purchase its raw materials
at the lowest competitive prices for the quality purchased. The Company
believes that it is not dependent on any one of its suppliers for raw
materials and that it has good relationships with its suppliers.
MARKETING
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The Company's products and services are sold primarily by Company sales
personnel supported by an executive vice president of sales of Huntco Steel, a
vice president of marketing of Huntco Steel, and by the Company's technical
support staff. The Company generally produces its processed steel products to
specific customer orders rather than for inventory. The Company generally
does not enter into fixed-price sales contracts with its steel processing
customers with terms longer than three months. Many of the Company's
customers commit to purchase on a quarterly basis with the customer notifying
the Company of specific release dates as they require the processed products.
Customers typically notify the Company of release dates anywhere from a just-
in-time basis up to approximately three weeks before the release date. The
Company is therefore required to carry sufficient inventory of raw materials
to meet the short lead-time and just-in-time delivery requirements of its
customers. Because the Company ships most steel processing orders on short
lead-times, the amount of backlog at any point is not significant.
CUSTOMERS AND DISTRIBUTION
- --------------------------
Huntco sells its processed steel products to over 1,200 customers in market
areas reaching from the upper midwest, south to the Gulf of Mexico and from
the southeastern coastline, west to the Rocky Mountains. The Company's
customer base includes service centers and metal fabricators as well as
various storage tank, consumer durable, energy and transportation related
manufacturers. Other than one customer which accounted for 8.4% of the
Company's net sales, no other customer accounted for more than 5% of the
Company's net sales for the fiscal year ended April 30, 1996. Steel service
centers and distributors, which represent the Company's largest single
customer group, accounted for approximately one-third of the Company's net
sales for the fiscal year ended April 30, 1996. The large geographic area the
Company services helps to minimize the adverse impact of regional economic
changes.
While the Company ships products throughout the United States, its customers
are primarily located in the midwestern and southern regions of the United
States. Most of its steel processing customers are located within a 250-mile
radius of each of the Company's steel processing plants, facilitating an
efficient delivery system capable of handling a high frequency of short lead-
time orders. The Company transports a major portion of its products directly
to customers via independent trucking firms, supplemented by rail and barge.
The Company believes that its long-term relationships with many of its
customers are a significant factor in its business and that pricing and
service capabilities are the most critical factors in maintaining these
relationships.
COMPETITION
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Intermediate steel processing is a highly competitive industry in which
companies compete based on price, service and their ability to process and
deliver steel products based on short lead-time customer orders. The Company
competes primarily with other intermediate steel processors. Geographic
proximity to a customer is a significant factor. Specific, reliable data
concerning the size of the market in products which the Company processes, by
region, generally is not available. However, based on the Company's knowledge
of the market for processed steel, the amount of processed steel which it
sells to its customers, and a general knowledge of its competitors, the
Company believes that it is a significant competitor in all of the market
areas it serves and that it is one of the larger companies specializing in the
processing of flat rolled carbon steel. The Company's largest competitors
currently include Cargill, Inc., Ferralloy Corp. and Heidtman Steel Products
Inc. The primary competitors of the Company's Cold Mill are USX Corporation,
Gulf States Steel and, to a lesser extent, Nucor.
SEASONALITY
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Order rates are lowest during the November and December holiday periods and
also tend to be lower during mid-summer, as many of the Company's customers
schedule plant shutdowns for vacations. These factors tend to result in lower
net sales and net income in the third quarter and less significantly in the
first quarter. Quarterly results can also be affected, either negatively or
positively, by changing steel prices.
GOVERNMENTAL REGULATION
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The Company's processing centers and manufacturing facilities are subject to
many federal, state and local requirements relating to the protection of the
environment. The Company continually examines ways to reduce emissions and
waste and to effect cost savings relating to environmental compliance.
Management believes that it is in material compliance with all laws, does not
anticipate any material expenditures in order to meet environmental
requirements and generally believes that its processes and products do not
present any unusual environmental concerns. The Company's expenditures
incurred in connection with compliance with federal, state and local
environmental laws have not had during the past fiscal year, and are not
expected to have during the current fiscal year, a material adverse effect
upon the capital expenditures, earnings or competitive position of the Company
or any of its subsidiaries.
The Company's operations are also governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Safety and
Health Act and regulations thereunder which, among other requirements,
establish noise and dust standards. Management believes that it is in
material compliance with these laws and regulations and does not believe that
future compliance with such laws and regulations will have a material adverse
effect on its results of operations or financial condition.
EMPLOYEES
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As of April 30, 1996, the Company employed 582 people. None of the Company's
employees are covered by collective bargaining agreements. The Company has
never experienced a significant work stoppage and considers its employee
relations to be good.
<PAGE>
ITEM 2. PROPERTIES
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Reference should be made to the "REVIEW OF OPERATIONS" information found
within ITEM 1 for a further discussion of the Company's operating plant
facilities, including the Company's current expansion and relocation plans for
these operations. The following sets forth certain information with respect
to each these facilities:
<TABLE>
<S> <C> <C> <C>
Square Owned
Location Utilization Footage or Leased
- ------------ ----------------------------- ------- ----------------
Blytheville, Cutting-to-length 80,000 Long-term lease
Arkansas Slitting with a purchase
Tension leveling, shape option of $100.
correction or elongation
Gauge verification and testing
Pickling 30,000 Owned improvements.
Coil warehouse and storage 32,000
Cold rolling, annealing 194,000 Lease with $100
and tempering purchase option.
Cutting-to-length 152,000 Lease with $100
Slitting purchase option.
Blanking
Shearing and stamping
Gauge verification and testing
Design and tool engineering
Chattanooga, Cutting-to-length 126,000 Lease with $10
Tennessee Slitting purchase option.
Tension leveling
Gauge verification and testing
Madison, Cutting-to-length 128,000 Owned.
Illinois Slitting
Tension leveling
Edge rolling
Gauge verification and testing
Catoosa, Cutting-to-length 80,000 Owned improvements
Oklahoma Gauge verification and testing on leased realty.
Pasadena, Cutting-to-length 45,000 Owned.
Texas Gauge verification and testing
Coil storage warehouse 21,000 Owned.
Gallatin, Cutting-to-length 65,000 Owned.
Kentucky Gauge verification and testing
Springfield, Cutting-to-length 75,000 Owned.
Missouri Slitting
Blanking
Shearing and stamping
Gauge verification and testing
Design and tool engineering
Strafford, Gauge verification and testing 100,000 Owned.
Missouri Welding
Painting
</TABLE>
The above facilities are well maintained and in good operating condition.
With respect to capacity and utilization of such facilities, most of the
Company's steel processing plants operate an average of approximately 2 shifts
per day on a five day per week basis. The compressed air cylinder
manufacturing facility in Strafford, Missouri operates approximately 1.5
shifts per day.
ITEM 3. LEGAL PROCEEDINGS
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From time to time, the Company is named as a defendant in legal actions
arising out of the normal course of business. The Company is not currently a
party to any pending legal proceedings other than routine litigation
incidental to the business. Management believes the resolution of such
matters will not have a material adverse effect on the Company's results of
operations or financial condition. The Company maintains liability insurance
against risks arising out of the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to the security holders of the Company during the
fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Information regarding executive officers is contained in Item 10 of Part III
of this Report (General Instruction G(3)) and is incorporated herein by
reference.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Class A common stock of the Company is traded on the New York Stock Exchange,
under the symbol "HCO". As of April 30, 1996, there were 78 holders of record
of the Company's Class A common stock and two holders of the Company's Class B
common stock.
All of the Company's 3,650,000 Class B Shares, the only other class of common
equity authorized for issuance under the Company's Restated Articles of
Incorporation (the "Articles"), are held by Huntco Acquisitions Holding, Inc.
and Huntco Farms, Inc., corporations controlled by Mr. B. D. Hunter, the
Company's Chairman of the Board and Chief Executive Officer.
There is no established public trading market for the Class B Shares as the
Articles provide that the Class B Shares are not transferrable except: (i)
upon conversion into Class A Shares as provided in the Articles; (ii) to the
Company for cancellation; or (iii) to any "Hunter Affiliate" or any member of
the "Hunter Group" as those terms are defined in the Articles.
The Company has declared quarterly dividends on its Class A and Class B common
stock for each quarter since its initial public offering. The Company
increased its quarterly dividend from $.025 per share to $.03 per share, or an
annual rate of $.12 per share for both classes of its common stock, effective
with its quarterly dividend declaration made in August of 1995. This increase
followed a similar $.005 per share quarterly dividend rate increase made in
August of 1994.
The table below shows the Company's quarterly high and low Class A common
stock prices for the fiscal years ended April 30,
<TABLE>
<CAPTION>
1996 1995
------------ --------------
High Low Dividends High Low Dividends
------ ------ --------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
First quarter 19.750 14.250 .025 26.75 18.25 .020
Second quarter 18.375 12.375 .030 30.00 21.00 .025
Third quarter 17.625 12.500 .030 26.50 17.25 .025
Fourth quarter 21.750 15.375 .030 26.00 17.00 .025
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
<CAPTION>
INCOME STATEMENT DATA (in thousands, except per share amounts):
Year Ended April 30, 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $264,087 $197,195 $146,213 $116,236 $109,653
Cost of sales 245,863(1) 171,521 126,412 101,950 98,417
------- ------- ------- ------- -------
Gross profit 18,224 25,674 19,801 14,286 11,236
Selling, general and
administrative
expenses 13,147 9,638 8,183 7,076 6,759 (4)
------- ------- ------- ------- -------
Income from operations 5,077 16,036 11,618 7,210 4,477
Other, net (3,268) 5 (183) (2,523)(2) (3,669)(2)
------- ------- ------- ------- -------
Income before
income taxes and
extraordinary items 1,809 16,041 11,435 4,687 808
Provision for
income taxes 701 6,037 4,305 1,942 620
------- ------- ------- ------- -------
Income before
extraordinary items 1,108 10,004 7,130 2,745 188
Extraordinary items,
net of tax - - - (683)(3) -
------- ------- ------- ------- -------
Net income $ 1,108 $ 10,004 $ 7,130 $ 2,062 $ 188
======= ======= ======= ======= =======
Earnings per share:
Income before
extraordinary items $0.12 $1.11 $0.92 $0.61 $0.04
Net income $0.12 $1.11 $0.92 $0.46 $0.04
Weighted average common
shares outstanding 8,948 9,048 7,756 4,500 4,500
Cash dividends
per share $0.12 $0.10 $0.06 - -
(1) Includes an $8,000 lower of cost or market inventory adjustment recorded
in the second quarter of fiscal 1996. See Note 3 to the Consolidated Financial
Statements.
(2) Includes dividends on mandatorily redeemable preferred stock of subsidiary
of $109 in 1993 and $438 in 1992.
(3) Relates to expensing of prepayment premiums and unamortized loan costs
upon early retirement of certain indebtedness.
(4) Includes $484 of plant consolidation and relocation costs.
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA (in thousands):
April 30, 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital $ 62,305 $ 84,046 $ 58,220 $ 23,796 $ 20,037
Total assets 222,437 209,898 114,380 67,034 54,898
Short-term debt 189 371 357 2,782 5,818
Long-term debt
(net of current
portion) 73,066 68,505 1,631 31,438 22,233
Preferred stock - - - 5,470 5,908
Common shareholders'
equity 111,366 111,252 102,097 11,530 9,468
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
OVERVIEW:
Over the past three years, the Company invested $112.1 million in new
property, plant and equipment. As of April 30, 1996, the vast majority of the
property acquired and/or constructed by the Company has been placed into
service. As a result of these investments, and benefiting from a generally
strong economy, the Company was able to increase the volume of steel which it
processed to 771,937 tons for fiscal 1996 ("1996"), an increase of 179.7% as
compared to fiscal 1993, the year immediately preceding the Company's initial
public offering.
These past investments, as well as those planned for the year ending
April 30, 1997 ("1997"), reflect the Company's continuing efforts to expand
its productive capacity, to broaden the range of its processed products and to
access new geographic territories and new customers. By entering into higher
value-added processing techniques such as pickling, cold rolling, annealing
and tempering, and opening new facilities and expanding existing ones, the
Company believes that it has enhanced its future potential to generate
increased levels of net sales and net income.
Certain statements contained herein and in the following sections are
forward-looking statements. Actual results could differ materially from those
anticipated as a result of various factors, which are described in more detail
below.
FISCAL 1997 ("1997") FORECAST:
The Company anticipates that its net sales in 1997 could increase by as
much as 30% to 35% over 1996 levels. The anticipated increase in net sales is
expected to reflect higher levels of tons sold, which are expected to increase
to a range of 925,000 to 1,000,000 tons, with increased cold rolled sales and
shipments from the new Gallatin, Kentucky facility being the major
contributors to this increased sales volume. Because the new facilities are
expected to produce at increasingly higher levels of volume during the year,
the Company expects to ship approximately 10% more tonnage in the second half
of 1997 than in the first half, with the fourth quarter being the strongest in
terms of tons expected to be shipped. Net sales are expected to increase by a
higher percentage than tons sold due to higher average unit selling prices for
cold rolled steel, when compared to the average unit selling values for the
Company's traditional hot rolled steel sales, and due to a lower tolling
percentage which is expected to decline to a range of 17% to 20% of total tons
sold for 1997.
The Company anticipates that its gross profit, expressed as a percentage
of net sales, could range between 11% and 13%, yielding pretax margins in the
range of 5% to 7% of net sales. The Company expects that its effective tax
rate will range between 38.0% and 38.5%.
The Company plans to spend approximately $35.0 million as a part of its
ongoing internal expansion program, with the further expansion of the
Blytheville cold rolling and pickling operation, as well as construction and
equipping of the new facility in South Carolina representing the major
projects.
RISK FACTORS - 1997 FORECAST:
Achievement of the 1997 forecast discussed above is dependent upon
numerous factors, circumstances and contingencies, certain of which are beyond
the control of the Company. Set forth below are the principal factors and
risks considered most likely to cause actual results to differ materially from
management's expectations:
IMPACT OF CHANGING STEEL PRICES ON THE COMPANY'S RESULTS OF OPERATIONS:
As evidenced by the unfavorable impact on net income in 1996, the
Company's financial results can be significantly impacted by changing steel
prices. The Company's principal raw material is flat rolled carbon steel
coils. The steel industry is highly cyclical in nature and prices for the
Company's raw materials are influenced by numerous factors beyond the control
of the Company, including general economic conditions, competition, labor
costs, import duties and other trade restrictions and currency exchange rates.
Changing steel prices may cause the Company's results of operations to
fluctuate significantly.
To respond promptly to customer orders for its products, the Company
maintains a substantial inventory of steel coils in stock and on order. The
Company's commitments for steel purchases are generally at prevailing market
prices in effect at the time the Company places its orders. The Company has
no long-term, fixed-price steel purchase contracts. The Company generally
does not enter into fixed-price sales contracts with its steel processing
customers with terms longer than three months.
As steel producers change the effective selling price for the Company's
raw materials, competitive conditions will influence the amount of the change,
if any, in the Company's prices to its customers. Changing steel prices could
therefore affect the Company's net sales and net income, particularly as it
liquidates its inventory position. The Company believes that a major portion
of the effect of a steel price change on net income is likely to be
experienced within three months of the effective date of the change. When a
series of changes in steel prices occurs, the period in which net income may
be affected can extend beyond a three month period of time. Accordingly, the
Company believes that comparisons of its quarterly results of operations are
not necessarily meaningful in periods of changing steel prices.
Steel prices charged by the primary producers of steel coils have been
extremely volatile over the previous twelve months and conditions exist which
could cause this volatility to continue throughout 1997. While the Company
believes that the circumstances leading to the significant decline in net
income in the first two quarters of 1996, which decline was primarily caused
by changing steel prices, are unlikely to be repeated in 1997, no assurance
can be given that volatility in steel prices will not again negatively impact
the Company's results of operations.
DEMAND FOR COMPANY PRODUCTS:
Many of the Company's steel processing products are sold to industries
that experience significant fluctuations in demand based on economic
conditions, energy prices or other matters beyond the control of the Company.
The Company has increased the level of tons of steel sold and processed in
each of its last five fiscal years. However, no assurance can be given that
the Company will be able to increase or maintain its level of tons shipped,
especially in periods of economic stagnation or downturn. The expected
increase in tons processed and shipped assumes that the Company is able to
maintain the base volume of tons processed and shipped in the 1996 fiscal
year. This assumption is based upon the Company's experience, the most
relevant experience being over the previous five years, and an assumption that
economic conditions in the Company's primary market areas will reflect a
stable, slow-growth environment. There can be no assurance, however, that
economic conditions will continue to reflect a stable, slow-growth environment
or that other circumstances will not occur leading to an economic stagnation
or downturn.
CONTINUED INTERNAL EXPANSION INVOLVING NEW PROCESSES AND MARKETS:
Notwithstanding the fact that the growth in the Company's net sales over
the previous five fiscal years has resulted from increasing levels of tons
processed and sold, with such increases primarily occurring at newly
constructed facilities, there can be no assurance that the Company will be
successful in the start-up of its new facility in Gallatin, Kentucky, or in
the continued development and expansion of its cold rolling operation, or that
these expansions will proceed as quickly as envisioned by the Company.
Successful development of these projects requires the Company to develop new
customers, in new market territories and absolute assurance cannot be given
that this will occur on the timetable which the Company expects, if ever.
In addition, the market areas covered by the new Gallatin, Kentucky
facility, the opening of the new stamping plant in Blytheville, Arkansas, and
the continued maturation of the Company's cold rolling operations will cause
the Company to face new competition.
GROSS PROFIT ON COLD ROLLED PRODUCTS:
The Company expects that the per ton cost of operating its cold rolling
operation will continue to decline as the 1997 fiscal year progresses. The
Company also expects relative per ton selling values to increase as the
Company develops its relationship as a supplier with its new customers for
cold rolled products, and as more of the cold rolled tonnage sold by the
Company receives further processing (e.g., via slitting or blanking) before
sale. If these trends in per ton costs and selling prices develop as the
Company anticipates, gross profit on cold rolled sales could become additive
to the Company's overall gross profit percentage during the second quarter of
1997. However, competitive conditions could delay the anticipated increases
in relative selling values for cold rolled products, as could rapidly changing
steel prices. The per ton costs incurred by the Company in producing and
processing cold rolled coils can be impacted by numerous factors including
volume levels, operator efficiency, utility costs and scrap percentages.
COMPETITION:
The principal markets served by the Company are highly competitive. The
Company has different competitors within each of its product lines.
Competition is based principally on price, service, production and delivery
scheduling.
INTEREST RATES:
Borrowings under the Company's revolving credit agreement are at interest
rates which float generally with the prime rate or with LIBOR. The level of
interest expense incurred by the Company under the revolving credit agreement
will therefore fluctuate in line with changes in these rates of interest and
based upon outstanding borrowings under the revolving credit agreement.
INCOME TAXES:
The Company has estimated its effective federal income tax rate based
upon statutory rates in effect in the United States at the beginning of the
1997 fiscal year. State income taxes are estimated based upon the statutory
rates in effect in the states in which the Company conducts its operations and
earns taxable income.
RESULTS OF OPERATIONS:
FISCAL YEAR 1996 ("1996") COMPARED TO FISCAL YEAR 1995 ("1995"):
Net sales for the year ended April 30, 1996 were $264.1 million, an
increase of 34.0% in comparison to the $197.2 million of net sales for 1995.
The improvement in net sales is attributable to increased levels of tons sold.
For the year ended April 30, 1996, the Company sold 771,937 tons of steel, an
increase of 36.2% over the prior year. Included in the 1996 tons sold figures
were 91,373 tons of cold rolled steel products produced at the Company's new
cold rolling operation in Blytheville, Arkansas. Net sales of cold rolled
products totaled approximately $40.5 million for the year ended April 30,
1996.
Approximately 23.9% and 26.2% of the tons sold in the years ended April
30, 1996 and 1995, respectively, represented customer-owned material processed
and sold on a per ton, fee basis. Processing customer-owned material
generally results in lower revenues per ton, but higher gross profit expressed
as a percentage of net sales, in comparison to when the Company processes and
sells its own steel inventory.
Average per ton selling values for the Company's traditional hot rolled
and pickled and oiled products declined 3.7% in comparison to the previous
fiscal year. These selling price declines are primarily reflective of the
lower base price of hot rolled steel available from the primary producers, as
discussed further below.
Starting late in 1995, and continuing through the second quarter of 1996,
the primary steel producers introduced multiple reductions in the price of hot
rolled steel, which is the primary raw material used in the Company's steel
processing business. These raw material price reductions accelerated during
the second quarter of 1996, as the base price charged by the Company's
suppliers of hot rolled steel declined from $350.00 per ton as of August 1,
1995, to as low as $280.00 per ton during September 1995. As a result of
these price reductions, the Company recorded a lower of cost or market
inventory adjustment in the second quarter of 1996, which reduced the carrying
value of its on hand inventories by approximately $8.0 million (before related
income tax benefits) as of October 31, 1995.
These decreases in the base price of hot rolled steel initiated or
accelerated inventory stock reductions by steel processors, including the
Company, as well as by many of the Company's customers. In response to this
changed market situation, the Company at first delayed planned increases in
its selling prices, but as the first quarter of 1996 progressed, began
lowering its selling prices in advance of receiving lower cost raw materials.
The downward pressure on raw material hot rolled steel pricing began
during a time when the average cost of steel in the Company's inventory was
increasing. The Company had previously sold most of the lower cost foreign
material purchased during 1995, and was beginning to sell steel purchased from
domestic suppliers, which steel was purchased at higher prices which had been
in effect before the series of sheet price reductions were implemented. Also,
due to (1) unpredictable lead times for receipt of the imported material
purchased by the Company during 1995, (2) delay in the start-up of the
Company's new cold rolling mill and (3) steel purchased in advance of further
announced price increases, the Company's on hand inventory position was at
higher than normal levels when this series of price reductions was initiated
by the primary steel producers. The Company believes that its raw materials
inventory balance at April 30, 1996 reflects a more normal level and that its
selling prices have been adjusted to reflect current market circumstances.
In addition to the negative effects on the Company's net sales and gross
profit caused by the declining price of steel discussed above, the start-up
and ramp-up of the Company's new cold rolling operation served to keep the
Company's gross profit under pressure during 1996.
As a result of the factors discussed in the preceding paragraphs, gross
profit as a percentage of net sales decreased from 13.0% in 1995 to 6.9% for
1996.
Selling, general and administrative ("SG&A") expenses increased $3.5
million from 1995 to 1996, due to the increased sales activity of the Company
and its continued operational expansion. However, SG&A expenses remained
relatively constant as a percentage of net sales, showing only a negligible
increase over the prior year (i.e., 5.0% for 1996 versus 4.9% for 1995).
Income from operations declined to $5.1 million for 1996 from $16.0
million for the prior year. This decrease reflects the factors discussed in
the preceding paragraphs.
Net interest expense of $3.3 million was incurred during 1996, versus a
negligible amount of net interest income for 1995. The increase in interest
expense reflects borrowings to fund the Company's capital expansion program.
In addition, the Company capitalized $2.1 million and $1.8 million of interest
costs to construction in progress during 1996 and 1995, respectively.
The effective income tax rate experienced by the Company was 38.8% for
1996 versus 37.6% for 1995. The difference between the effective tax rate and
the federal statutory rate of 35.0% is primarily the result of state income
taxes and the non-deductible amortization of goodwill and other costs, the
effect of which is greater when the Company experiences lesser amounts of
income before income taxes.
The Company reported net income for 1996 of $1.1 million, or $.12 per
share, which compares to net income of $10.0 million, or $1.11 per share in
the prior year. This decrease reflects the factors discussed in the preceding
paragraphs.
FISCAL YEAR 1995 ("1995") COMPARED TO FISCAL YEAR 1994 ("1994"):
Net sales for 1995 were $197.2 million, an increase of 34.9% in
comparison to net sales for 1994 of $146.2 million. The Company attributed
the improvement in net sales to higher levels of tons sold, primarily
resulting from the development of its steel processing facilities in
Blytheville, Arkansas and Chattanooga, Tennessee, and to higher selling values
for its processed steel products.
During 1995, the Company sold 566,941 tons of steel, an increase of 51.5%
over the prior year. Average per ton selling values increased approximately
4.7% over the prior year.
Gross profit increased $5.9 million, or 29.7%, from $19.8 million in 1994
to $25.7 million in 1995. However, expressed as a percentage of net sales,
gross profit declined somewhat from 13.5% in 1994 to 13.0% in 1995, as the
Company was not able to fully pass along all raw material price increases from
its suppliers during 1995.
Net sales and gross profit were also impacted by the increase in the
level of toll processing performed by the Company. Approximately 26.2% of the
tons processed during 1995 represented customer-owned material processed on a
per ton, fee basis, as compared with 13.5% for 1994. The increase in
processing of customer-owned material related primarily to the new slitting
line at the Blytheville facility.
The Company's selling, general and administrative ("SG&A") expenses were
4.9% of net sales for 1995, down from 5.6% of net sales for 1994. SG&A
expenses did increase on a gross dollar basis, as the operation of the new
Chattanooga facility and the coil pickling line at the Blytheville facility
resulted in increased overhead expenses in comparison to those incurred during
1994. SG&A costs, expressed as a percentage of net sales, declined from the
prior year, as a significant portion of the increase in net sales resulted
from increased levels of tons processed at existing facilities that did not
require additional overhead outlays.
Income from operations for 1995 was $16.0 million, an increase of $4.4
million, or 38.0%, in comparison to 1994 income from operations of $11.6
million. This increase primarily relates to higher net sales and gross
profits, resulting from increased levels of steel processed throughout the
Company.
For 1995, the Company did not report any significant amount of net
interest expense, as the vast majority of its interest costs were incurred in
the second half of 1995 and were capitalized to the Company's ongoing
construction and capital expansion projects. Net interest expense in 1994
reflected interest expense incurred prior to the receipt of the proceeds from
the Company's public offerings of its Class A common stock.
The effective income tax rate experienced by the Company was 37.6% in
both 1995 and 1994. The difference between the effective tax rate and the
federal statutory rate of 35% is primarily the result of state income taxes
and the non-deductible amortization of goodwill.
Net income of $10.0 million for 1995 reflected an increase of $2.9
million over net income for 1994 of $7.1 million, an increase of 40.3%. As
discussed above, this increase was driven by the development of the Company's
steel processing facilities in Blytheville, Arkansas and Chattanooga,
Tennessee, and the expansion of its existing facilities subsequent to the
Company's public stock offerings in 1994.
Earnings per share of $1.11 for 1995 reflects a 20.7% increase over that
reported in 1994 of $.92 per share. The increase in earnings per share was
lower than that of net income due to the increase in the number of weighted
average common shares outstanding from 7,756,240 in 1994 to 9,048,230 in 1995,
reflecting the additional shares sold by the Company in its two 1994 public
stock offerings which were outstanding for all of 1995.
LIQUIDITY AND CAPITAL RESOURCES:
The Company invested $34.2 million, $54.3 million and $23.6 million of
cash during 1996, 1995 and 1994, respectively, in new property, plant and
equipment, as expenditures were made in conjunction with the Company's capital
expansion projects -- most significantly, the cold rolling operation in
Blytheville, Arkansas and the construction and equipping of the new
Chattanooga, Tennessee facility. The two public stock offerings in fiscal
1994, which offerings increased shareholders' equity by $84.3 million,
provided the funds to allow the Company to embark upon its capital expansion
program during 1994 and into 1995. With its balance sheet strengthened from
these stock offerings, the Company was able to sustain its capital expansion
efforts into 1995 and 1996, by way of increased corporate borrowings of $66.9
million during 1995 and primarily from cash provided by operations during
1996.
During 1995 and 1994, net cash used by operations was $22.6 million and
$8.3 million, respectively. Inventories registered significant increases in
both of these years (a) in support of the substantial growth in sales volumes
experienced by the Company, (b) in order to stage material for throughput on
the Company's new processing lines, and (c) as a defensive measure by the
Company in light of rising steel prices throughout much of 1995 and 1994.
However, fiscal 1996 saw a large reduction in the Company's investment in raw
materials to more normal operating levels as the Company reduced its steel
inventories as discussed above. At the same time, the Company continued to
increase its outstanding accounts receivable balance consistent with the
Company's sales growth. As a result, net cash provided by operations in 1996
was $29.9 million.
With respect to cash flows from financing activities, the Company
refinanced $50.0 million in long-term debt during 1996. On July 14, 1995, the
Company issued $50.0 million of ten-year term notes (the "1995 Notes") to a
group of domestic commercial lenders. The 1995 Notes bear interest at the
fixed rate of 8.13% per annum and mature in equal annual installments of $7.1
million on each July 15, 1999-2005. The proceeds from the issuance of the
1995 Notes were used to reduce the Company's outstanding borrowings on its
line of credit facility with a group of domestic commercial banks. As of
April 30, 1996, the Company had unused borrowing capacity of $37.3 million
under its $60.0 million credit facility. During 1997, the Company intends to
extend the term of this credit facility, and to explore the possibility of
increasing the size of the facility itself.
The Company established a policy to limit its long-term debt, inclusive
of current maturities (i.e., "funded debt"), to no more than 50% of total
capitalization (i.e., the sum of the Company's funded debt and total
shareholders' equity). The Company formalized this policy in connection with
the issuance of the 1995 Notes, agreeing with the purchasers of the 1995 Notes
to a covenant limiting the Company's funded debt to no more than 50% of total
capitalization. At April 30, 1996, the ratio of funded debt to total
capitalization was 39.7%.
The Company's anticipated 1997 capital requirements are primarily to fund
facility expansions and development, which include the purchase of land and
equipment and the construction and expansion of buildings. The Company
expects to fund the approximate $35.0 million of expenditures with net cash to
be provided by operations and through additional borrowings.
The Company's cash position, unused borrowing capacity, and cash
anticipated to be generated from operations is expected to be sufficient to
meet its commitments in terms of working capital growth, capital expenditures
and the payment of dividends on the outstanding shares of Class A and Class B
common stock during 1997.
The Company maintains the flexibility to issue additional equity in the
form of Class A common stock or preferred stock if and when market
circumstances should ever dictate. The Company, from time-to-time, explores
financing alternatives such as increasing its borrowing capacity on its
revolving credit facility, the possibility of issuing additional long-term
debt, or pursuing operating lease financing for new business expansions.
Beyond these financing options, the Company has traditionally maintained
liquidity in its working capital accounts by availing itself of quick pay
vendor discounts on much of its domestic raw material purchases. If
necessary, the Company could forego these quick pay discounts in order to
generate funds for general corporate purposes.
QUARTERLY EFFECTS AND SEASONALITY:
Order rates are lowest during the November and December holiday periods
and also tend to be lower during mid-summer, as many of the Company's
customers schedule plant shutdowns for vacations. These factors tend to
result in lower net sales and net income in the third quarter and less
significantly in the first quarter. Quarterly results can also be affected,
either negatively or positively, by changing steel prices, as described
previously herein.
INFLATION:
The Company's operations have not been, nor are they expected to be,
materially affected by inflation. However, the Company is affected by changes
in the price of steel charged by the primary producers, which are not
considered to be inflation-sensitive, but rather sensitive to changes in steel
demand as the primary producers use pricing policy to attempt to control their
order levels and backlog.
NEW ACCOUNTING STANDARDS:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123), which addresses accounting for stock option,
purchase and award plans. FAS 123 specifies that companies utilize either the
"fair value based method" or the "intrinsic value based method" for valuing
stock options granted. The Company will adopt FAS 123 in 1997, and expects to
utilize the "intrinsic value based method" for valuing stock options granted.
The Company anticipates that, when adopted, FAS 123 will have no material
effect on its financial position or results of operations.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
HUNTCO INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
April 30,
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,737 $ 3,566
Accounts receivable, net 36,804 29,142
Inventories 53,964 77,726
Other current assets 1,926 965
------- -------
95,431 111,399
Property, plant and equipment, net 120,338 92,225
Goodwill 5,001 5,290
Other assets 1,667 984
------- -------
$222,437 $209,898
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,003 $ 25,518
Accrued expenses 3,934 1,464
Current maturities of long-term debt 189 371
------- -------
33,126 27,353
------- -------
Long-term debt 73,066 68,505
Deferred income taxes 4,879 2,788
------- -------
77,945 71,293
------- -------
Shareholders' equity:
Preferred stock (issued and outstanding, none) - -
Common stock:
Class A (issued and outstanding, 5,292 and 5,290) 53 53
Class B (issued and outstanding, 3,650) 37 37
Additional paid-in-capital 86,567 86,533
Retained earnings 24,709 24,629
------- -------
111,366 111,252
------- -------
$222,437 $209,898
======= =======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net sales $264,087 $197,195 $146,213
Cost of sales 245,863 171,521 126,412
------- ------- -------
Gross profit 18,224 25,674 19,801
Selling, general and
administrative expenses 13,147 9,638 8,183
------- ------- -------
Income from operations 5,077 16,036 11,618
Other income (expense):
Interest, net (3,274) 1 (198)
Other, net 6 4 15
------- ------- -------
Income before income taxes 1,809 16,041 11,435
Provision for income taxes 701 6,037 4,305
------- ------- -------
Net income $ 1,108 $ 10,004 $ 7,130
======= ======= =======
Earnings per share $ .12 $ 1.11 $ .92
===== ===== =====
Weighted average
common shares outstanding 8,948 9,048 7,756
===== ===== =====
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Class A common stock
Balance at beginning of year $ 53 $ 53 $ 2
Par value of shares issued in connection with:
June 1993 initial public stock offering - - 35
November 1993 public stock offering - - 16
------ ------ ------
Balance at April 30 $ 53 $ 53 $ 53
====== ====== ======
Class B common stock
Balance at beginning of year $ 37 $ 37 $ 43
Par value of shares converted to Class A
common stock sold with the
November 1993 public stock offering - - (6)
------ ------ ------
Balance at April 30 $ 37 $ 37 $ 37
====== ====== ======
Additional paid-in-capital
Balance at beginning of year $86,533 $86,533 $ 2,245
Proceeds net of par value of Class A
shares sold from:
June 1993 initial public stock offering - - 53,595
November 1993 public stock offering - - 30,693
Exercise of stock options 34 - -
------ ------ ------
Balance at April 30 $86,567 $86,533 $86,533
====== ====== ======
Retained earnings
Balance at beginning of year $24,629 $15,474 $ 9,240
Net income 1,108 10,004 7,130
Dividends on common stock and other (1,028) (849) (896)
------ ------ ------
Balance at April 30 $24,709 $24,629 $15,474
====== ====== ======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,108 $ 10,004 $ 7,130
------- ------- -------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 6,561 3,589 2,705
Other (5) (5) (21)
Decrease (increase) in:
accounts receivable (7,662) (9,977) (1,465)
inventories 23,762 (45,085) (10,942)
other current assets (961) 94 (212)
other assets (910) (653) (20)
Increase (decrease) in:
accounts payable 3,485 18,057 (4,648)
accrued expenses 2,470 300 (872)
non-current deferred taxes 2,091 1,118 1
------- ------- -------
Total adjustments 28,831 (32,562) (15,474)
------- ------- -------
Net cash provided (used) by operations 29,939 (22,558) (8,344)
------- ------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment (34,214) (54,273) (23,633)
Proceeds from sale of property,
plant and equipment 61 21 89
------- ------- -------
Net cash used by investing activities (34,153) (54,252) (23,544)
------- ------- -------
Cash flows from financing activities:
Net proceeds from newly-issued debt 50,000 67,250 -
Payments on long-term debt (45,621) (362) (32,219)
Net proceeds from:
June 1993 initial public stock offering - - 53,630
November 1993 public stock offering - - 30,703
Common stock dividends (1,028) (849) (497)
Retirement of subsidiary preferred stock - - (5,869)
Other 34 - -
------- ------- -------
Net cash provided by financing activities 3,385 66,039 45,748
------- ------- -------
Net increase (decrease) in cash (829) (10,771) 13,860
Cash, beginning of year 3,566 14,337 477
------- ------- -------
Cash, end of year $ 2,737 $ 3,566 $ 14,337
======= ======= =======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
-----------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles, and require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. The significant accounting
policies followed by the Company are described below:
Organization and operations:
Huntco Inc. ("Huntco" or "the Company") conducts its operations through
its majority-owned subsidiaries Huntco Steel, Inc. ("Huntco Steel") and
Midwest Products, Inc. ("Midwest"). Huntco Steel operates seven steel
processing centers specializing in the processing and distribution of flat
rolled carbon steel, and sells its processed steel products to a diverse group
of industrial customers, steel service centers and distributors. Midwest is
principally engaged in the manufacture of compressed air cylinders used in the
transportation industry and sold through mass merchandisers.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Revenue recognition:
Revenue from the sale of processed steel and compressed air cylinders is
recognized upon shipment to the customer. Costs and related expenses to
process steel and manufacture compressed air cylinders are recorded as cost of
sales when the related revenue is recognized. Sales returns and allowances
are treated as reductions to net sales.
Cash and cash equivalents:
For purposes of the consolidated statement of cash flows, the Company
considers cash on hand and demand deposits with financial institutions with an
original maturity of three months or less to be cash.
Concentration of credit risk:
Huntco Steel sells its products to a wide variety of customers, including
steel service centers and distributors, general fabricators and stampers, tank
manufacturers and energy-related users, primarily in the midwestern and
southern regions of the United States. Midwest sells its compressed air
cylinders to customers in the transportation industry, as well as through mass
merchandisers. Concentration of credit risk with respect to trade receivables
is limited due to the size of the customer base and its dispersion. The
Company performs on-going credit evaluations of its customers and generally
does not require collateral. The Company maintains reserves for potential
credit losses and such losses have been within management's expectations. As
of April 30, 1996 and 1995, the Company's allowance for doubtful accounts
balance was $430 and $385, respectively. Expenses related to doubtful
accounts were $183, $186, and $168 for the years ended April 30, 1996, 1995
and 1994, respectively.
Relationships with suppliers:
The Company procures raw materials from numerous primary steel producers.
Management believes it is not dependent on any one of its suppliers for raw
materials and that its relationships therewith are strong.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the specific identification method for steel processing
inventories and on a first-in, first-out (FIFO) basis for its compressed air
cylinder products.
Property, plant and equipment:
Property, plant and equipment is recorded at cost and is depreciated
using the straight-line method over the estimated useful lives of the
respective property, ranging from three to thirty years. Expenditures for
repairs, maintenance and renewals are charged to income as incurred.
Expenditures which improve an asset or extend its useful life are capitalized.
When properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.
Leases meeting the criteria of a capital lease are recorded at the
present value of the noncancellable lease payments over the term of the lease.
Properties held under capital leases are amortized over the shorter of the
lease term or the estimated useful lives of the assets, ranging from five to
twenty years. The interest portion of the respective capital lease payment is
charged to operations.
Environmental policy:
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. The Company has not been notified by regulatory
authorities of non-compliance with any federal, state or local environmental
laws or regulations, nor is the Company aware of any such non-compliance.
Goodwill:
Goodwill represents the excess cost of acquisitions over the estimated
fair value of the net assets acquired and is being amortized on a straight-
line basis over twenty-five years. The carrying value of goodwill is assessed
for recoverability by management based on an analysis of the expected future
cash flows from the underlying operations of the Company. Management believes
that there has been no impairment of the carrying value of goodwill as of
April 30, 1996. Goodwill amortization expense was $288 for each of the years
ended April 30, 1996, 1995 and 1994.
Income taxes:
For the period from May 1, 1993 to the date of the Company's initial
public offering on June 29, 1993, the Company's operating results were
included in the consolidated U.S. federal income tax return of Huntco
International, Inc. ("International"), the sole shareholder of Huntco
Acquisitions Holding, Inc. ("Holdings"). During this time period, the income
tax provision in the Company's financial statements was calculated as if the
Company filed a separate income tax return based upon its consolidated results
of operations.
Under the terms of a tax sharing agreement with International, for the
time period in which the Company was a member of International's U.S.
consolidated income tax group, the Company, in combination with its
consolidated subsidiaries, was to pay to International (or to Holdings at
International's direction) an amount equal to its income tax liability
calculated as if the Company and its consolidated subsidiaries constituted a
separate taxable entity. The Company and its subsidiaries filed separate
state income tax returns for operations in each appropriate state in which a
combined or consolidated filing with International or Huntco Enterprises,
Inc., the majority-owner of International, was not allowed.
Deferred income taxes are accounted for under the liability method,
whereby deferred tax assets and liabilities are recognized based upon
temporary differences between the financial statement and tax bases of assets
and liabilities using presently enacted tax rates.
Earnings per share:
Earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares and share
equivalents outstanding during the period.
2. PUBLIC OFFERINGS OF CLASS A SHARES
The Company filed a registration statement on Form S-1 on June 29, 1993
for purposes of selling 3,680,000 shares of its Class A common stock (240,000
of which shares were sold by Holdings and included 40,000 shares of Class A
common stock which had previously been obtained by Holdings by converting
40,000 shares of Class B common stock into a like number of shares of Class A
common stock). The proceeds to the Company resulting from the sale of
3,440,000 shares of Class A common stock, net of underwriter's discounts and
expenses of the offering, were $53,630.
The Company utilized all of the proceeds resulting from the sale of the
3,440,000 shares of Class A common stock from the June 29, 1993 initial public
offering to retire debt obligations consisting primarily of bank credit lines
and term loans, to redeem the preferred stock of Huntco Steel, and to fund
capital expenditures and higher levels of working capital.
The Company filed another Registration Statement on Form S-1 on November
23, 1993, for purposes of selling 1,610,000 shares of its Class A common stock
(610,000 of which shares were sold by Holdings and an affiliate of Holdings,
which had previously been obtained by these entities by converting 610,000
shares of Class B common stock into a like number of shares of Class A common
stock). The proceeds to the Company resulting from the November 23, 1993 sale
of 1,000,000 shares of Class A common stock, net of underwriter's discounts
and expenses of the offering, were $30,703.
The Company used the proceeds resulting from the sale of the 1,000,000
shares of Class A common stock to fund the development of a cold rolling steel
mill at its facility in Blytheville, Arkansas and for general corporate
purposes.
3. INVENTORIES
Inventories consisted of the following as of April 30,
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials $39,426 $75,015
Work in process 91 56
Finished goods 14,447 2,655
------- -------
$53,964 $77,726
======= =======
</TABLE>
The Company's investment in finished goods has increased as the Company's
new cold rolling facility in Blytheville, Arkansas is now producing cold
rolled steel coils. These cold rolled coils can either be sold as master
coils, without further processing, or may be slit, blanked or cut-to-length by
the Company prior to final sale.
The Company's cost of sales and gross profit were negatively impacted
during the year ended April 30, 1996, due to the recording of an $8,000 lower
of cost or market inventory adjustment. During the first half of the year
ended April 30, 1996, the primary steel producers introduced multiple
reductions in the price of hot rolled steel, which is the primary raw material
used in the Company's steel processing business. These rapid price reductions
impacted the Company when its inventory volume of hot rolled steel coils was
at higher than normal levels. Due to unpredictable lead times for the receipt
of imported hot rolled steel coils purchased by the Company during fiscal
1995, the delay in the start up of the Company's new cold rolling mill, and as
a result of steel purchased in advance of previously announced increases in
raw material steel prices from the primary producers, which price increases
did not come to pass, the Company's on hand inventory position became higher
than normal during the last half of fiscal 1995 and remained high into the
first half of fiscal 1996. Given the rapid decline in the price of hot rolled
steel coils during this time frame, the Company was not able to turn all of
its on hand inventory, which had been acquired at these higher prices, prior
to granting price accommodations to its customers due to competitive market
circumstances. The Company believes that its raw materials inventory balance
at April 30, 1996 was at more normal levels and that its selling prices have
been adjusted to reflect current market conditions.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of April 30,
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land $ 1,981 $ 1,650
Buildings 36,587 16,807
Machinery and equipment 76,749 36,107
------- -------
115,317 54,564
Less accumulated depreciation 17,960 11,960
------- -------
97,357 42,604
------- -------
Construction in progress 22,981 49,621
------- -------
$120,338 $92,225
======= =======
</TABLE>
The Company completed the construction and equipping of its Blytheville,
Arkansas cold rolling facility and placed it in service during the year ended
April 30, 1996. As a result, the Company's investment in construction in
progress decreased accordingly.
5. LONG-TERM DEBT
On July 14, 1995, the Company issued $50,000 of ten-year term notes to a
group of domestic commercial lenders. These notes bear interest at the fixed
rate per annum of 8.13%, with interest payable semiannually each January 15
and July 15, and mature in equal annual installments of $7,143 on each July
15, 1999 - 2005. The proceeds from the issuance of these notes were utilized
to reduce the Company's outstanding borrowings on its line of credit facility
with a group of domestic commercial banks.
The balance of long-term debt primarily consists of amounts outstanding
under a revolving credit agreement entered into with a group of domestic
commercial banks, which agreement provides for borrowings and issuances of
letters of credit in amounts totaling up to $60,000 ($70,000 from February 28,
1995 through August 1, 1995) until termination of the agreement on October 31,
1997. At April 30, 1996, the Company had unused borrowing capacity of $37.3
million under this agreement. The agreement provides for borrowings at
interest rates at or below the prime rate, payable monthly or at the maturity
of any LIBOR-based loans, and does not require compensating balances to be
maintained. In addition, the Company intends to seek an extension in the term
of the revolving credit agreement during the course of the fiscal year ending
April 30, 1997.
The Notes and the revolving credit agreement both require the maintenance
of various financial covenants and ratios, all of which the Company was in
compliance with as of April 30, 1996. Principal payments due on the Company's
long-term debt for each of the five fiscal years following April 30, 1996 are
as follows:
<TABLE>
<S> <C>
1997 $ 189
1998 22,199
1999 214
2000 7,349
2001 7,320
Thereafter 35,984
-------
$73,255
=======
</TABLE>
Total cash paid for interest in the years ended April 30, 1996, 1995 and
1994 was $4,450, $1,764 and $638, respectively. Of the Company's total
interest costs, it capitalized $2,091 and $1,786 to construction in progress
during the years ended April 30, 1996 and 1995, respectively.
6. Capital stock
The Company is authorized to issue 5,000,000 shares of $.01 per share par
value preferred stock, none of which has been issued to date. The Company is
also authorized to issue two classes of common stock, both of which possess a
par value of $.01 per share and have identical rights, preferences and powers,
except the Class B common stock is entitled to ten votes per share.
The Company is authorized to issue 25,000,000 shares of Class A common
stock, of which 5,292,000 and 5,290,000 shares were issued as of April 30,
1996 and 1995, respectively. The Company is authorized to issue 10,000,000
shares of Class B common stock, of which 3,650,000 shares were issued as of
April 30, 1996 and 1995. Shares of Class B common stock are not transferrable
to persons or entities unaffiliated with Mr. B. D. Hunter, Chairman of the
Board and Chief Executive Officer of the Company, who is in control of all
issued and outstanding shares of Class B common stock through his personal and
family interests in Holdings and its affiliates. All shares of Class B common
stock are convertible into a like number of shares of Class A common stock at
the sole discretion of the holder of such Class B common stock, with such
conversion becoming mandatory at the date which follows ten years after the
death of Mr. B. D. Hunter.
7. Incentive stock plan
The Company maintains an incentive stock plan, which provides for the
grant of non-qualified stock options, incentive stock options, restricted
shares and stock appreciation rights to officers and key employees, as well as
directors, of the Company selected by a committee of the Board of Directors.
A maximum of 750,000 shares of Class A common stock may be issued under the
plan. Options issued under the plan may be exercised, subject to a ten-year
maximum, over periods determined by the committee. During the year ended
April 30, 1996, 2,000 shares of Class A common stock were issued pursuant to
the exercise of non-qualified stock options granted under the plan. Non-
qualified stock options outstanding of 745,500 and 687,000 as of April 30,
1996 and 1995, respectively, entitle the holders to purchase common stock at
prices ranging from $17.00 to $29.00 per share. As of April 30, 1996 and
1995, the non-qualified stock options outstanding possessed a weighted average
option price of $18.78 and $18.73 per share, respectively. Of the options
outstanding, 415,800 are exercisable as of May 22, 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123), which addresses accounting for stock option,
purchase and award plans. FAS 123 specifies that companies utilize either the
"fair value based method" or the "intrinsic value based method" for valuing
stock options granted. The Company will adopt FAS 123 in the fiscal year
ending April 30, 1997, and expects to utilize the "intrinsic value based
method" for valuing stock options granted. The Company anticipates that, when
adopted, FAS 123 will have no material effect on its financial position or
results of operations.
8. Income taxes
The components of the provision for income taxes for the years ended
April 30, 1996, 1995 and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ - $4,736 $3,614
State (24) 326 264
------ ------ ------
(24) 5,062 3,878
------ ------ ------
Deferred (primarily Federal):
Current (1,366) (143) 426
Non-current 2,091 1,118 1
------ ------ ------
725 975 427
------ ------ ------
Provision for income taxes $ 701 $6,037 $4,305
====== ====== ======
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Deferred income tax
liabilities (assets) are comprised of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Property basis differential
and related effects, primarily
accelerated depreciation $4,978 $2,788
Other 155 368
------ ------
Total deferred tax liabilities 5,133 3,156
Total deferred tax assets, primarily related
to non-deductible liabilities and reserves 1,514 462
------ ------
Net deferred tax liabilities $3,619 $2,694
====== ======
</TABLE>
A reconciliation of the provision for income taxes to the maximum
statutory rate of 35% is as follows for the years ended April 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate $ 633 $5,614 $4,002
State income taxes, net
of federal tax benefit (94) 277 370
Amortization of goodwill 101 101 101
Other 61 45 (168)
----- ------ ------
$ 701 $6,037 $4,305
===== ====== ======
</TABLE>
During the years ended April 30, 1996, 1995 and 1994, the Company made
cash payments for income taxes of $50, $5,587 and $4,722, respectively, of
which $1,265 was made to Holdings under a tax-sharing agreement for the year
ended April 30, 1994. During the year ended April 30, 1995, Holdings refunded
$232 in income tax overpayments to the Company pursuant to the tax-sharing
agreement.
9. Commitments and contingencies
The Company is a party to various claims and legal proceedings generally
incidental to its business. Although the ultimate disposition of these
proceedings is not presently determinable, management does not believe that
adverse determination in any or all of such proceedings will have a material
adverse effect upon the financial condition or the results of operations of
the Company.
10. Quarterly financial data (unaudited)
Summarized quarterly financial data for the years ended April 30, 1996
and 1995 appears below:
<TABLE>
<CAPTION>
First Second Third Fourth Year
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales:
1996 $55,106 $62,072 $68,486 $78,423 $264,087
1995 39,881 47,791 50,451 59,072 197,195
Gross profit (loss):
1996 4,774 (3,480)(1) 8,028 8,902 18,224
1995 5,049 6,283 6,549 7,793 25,674
Net income (loss):
1996 906 (4,653)(1) 2,153 2,702 1,108
1995 1,883 2,444 2,513 3,164 10,004
Earnings (loss)
per share:
1996 .10 (.52)(1) .24 .30 .12
1995 .21 .27 .28 .35 1.11
(1) See Note 3 for a discussion of the lower of cost or market inventory
adjustment recorded in the second quarter of fiscal 1996.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Huntco Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Huntco Inc. and its subsidiaries at April 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended April 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
St. Louis, Missouri
May 22, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding (i) directors of the Company and (ii) the only executive
officers of the Company (who are also directors of the Company), is
incorporated herein by reference to the information included under the title
"Proposal 1: Election of Directors -- Nominees for Directors -- Information
as of July 1, 1996 Regarding the Nominees for Directors to be Elected in 1996
for Terms Ending in 1999"; and "-- Information as of July 1, 1996 Regarding
the Directors Who are Not Nominees for Election and Whose Terms Continue
Beyond 1996," contained within the Company's 1996 Proxy Statement. The
individuals identified in the 1996 Proxy Statement as executive officers of
the Company have been appointed to serve as such until their respective
successors are duly elected and have qualified, or until their earlier death,
resignation or removal.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information regarding executive compensation is incorporated herein by
reference to the information included under the titles "Proposal 1: Election
of Directors -- Directors' Fees" contained within the Company's 1996 Proxy
Statement; "Executive Compensation -- Summary Compensation Table", "--
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values", "-- Certain Contracts", and "-- Compensation Committee Interlocks and
Insider Participation" contained within the Company's 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the information included
under the title "Voting, Voting Securities and Principal Holders Thereof --
Holdings of Management and Principal Shareholders" contained within the
Company's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information included under the title
"Certain Transactions" contained within the Company's 1996 Proxy Statement.
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Company's financial statements together with the report thereon
of Price Waterhouse LLP dated May 22, 1996, are set forth herein under Item 8.
(2) Financial Statement Schedules -- Omitted, not applicable.
(3) Exhibits
These Exhibits are numbered in accordance with the Exhibit Table at
Item 601 of Regulation S-K. The following Exhibits listed in the Exhibit
Index are filed with this Report:
10(iii)(A)(5) Description of performance bonus arrangement for the
executive officers for the year ending April 30, 1997.
23(ii) Consent of Price Waterhouse LLP.
24 Powers of Attorney submitted by B. D. Hunter, Robert J.
Marischen, Terry J. Heinz, James J. Gavin, Jr., Donald E.
Brandt and Michael M. McCarthy.
27 Financial Data Schedule.
For a listing of each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report, see the Exhibits listed
under Exhibit Nos. 10(iii)(A)(1) through 10(iii)(A)(7).
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
fourth quarter of its fiscal year ended April 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HUNTCO INC.
(Registrant)
Date: July 25, 1996 By: ROBERT J. MARISCHEN
----------------------
Robert J. Marischen,
Vice Chairman of the Board
and Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints B. D. Hunter and Robert J. Marischen, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this report and any and all amendments to this report, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ B. D. HUNTER Director, Chairman of the July 25, 1996
- ---------------------------------- Board and Chief Executive
B. D. Hunter Officer
(Principal Executive Officer)
/s/ ROBERT J. MARISCHEN Director, Vice Chairman of July 25, 1996
- ---------------------------------- Board and Chief Financial
Robert J. Marischen Officer (Principal Financial
and Accounting Officer)
/s/ TERRY J. HEINZ Director, President and July 25, 1996
- ---------------------------------- Chief Operating Officer
Terry J. Heinz
/s/ DONALD E. BRANDT Director July 25, 1996
- ----------------------------------
Donald E. Brandt
/s/ JAMES J. GAVIN, JR. Director July 25, 1996
- ----------------------------------
James J. Gavin, Jr.
/s/ MICHAEL M. McCARTHY Director July 25, 1996
- ----------------------------------
Michael M. McCarthy
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
2: Omitted - not applicable.
3(i): Restated Articles of Incorporation of Huntco Inc. incorporated by
reference to Exhibit 3(i) of the Company's 1995 Annual Report on Form 10-K,
filed on July 28, 1995.
3(ii): Bylaws of Huntco Inc., as amended, incorporated by reference to Exhibit
3(ii) of the Company's 1995 Annual Report on Form 10-K, filed on July 28,
1995.
4(i): Reference is made to Article III of the Restated Articles of
Incorporation of Huntco Inc., incorporated by reference to Exhibit 3(i) of the
Company's 1995 Annual Report on Form 10-K filed July 28, 1995.
4(ii)(1)(a): Revolving Credit Agreement dated October 28, 1994, by and among
Huntco Inc., Huntco Nevada, Inc., Huntco Steel, Inc., and Midwest Products,
Inc. and Mercantile Bank of St. Louis National Association, Harris Trust and
Savings Bank, NBD Bank, N.A., Mark Twain Bank, and Mercantile Bank of St.
Louis National Association as Agent, providing for revolving credit loans and
letters of credit to Huntco Inc. and its subsidiaries in an aggregate amount
of up to Sixty Million Dollars ($60.0 million), incorporated by reference to
Exhibit 4(v) of the Company's Form 10-Q for the quarter ended October 31,
1994, filed on December 12, 1994.
4(ii)(1)(b): First Amendment, dated February 28, 1995, to Revolving Credit
Agreement dated October 28, 1994, by and among Huntco Inc., Huntco Nevada,
Inc., Huntco Steel, Inc., and Midwest Products, Inc. and Mercantile Bank of
St. Louis National Association, Harris Trust and Savings Bank, NBD Bank, N.A.,
Mark Twain Bank, and Mercantile Bank of St. Louis National Association as
Agent, providing for revolving credit loans and letters of credit to Huntco
Inc. and its subsidiaries in an aggregate amount of up to Seventy Million
Dollars ($70.0 million), incorporated by reference Exhibit 4(v) of the
Company's Form 10-Q for the quarter ended January 31, 1995, filed on March 2,
1995.
4(ii)(1)(c): Second Amendment, dated April 27, 1995, to Revolving Credit
Agreement dated October 28, 1994, by and among Huntco Inc., Huntco Nevada,
Inc., Huntco Steel, Inc., and Midwest Products, Inc. and Mercantile Bank of
St. Louis National Association, Harris Trust and Savings Bank, NBD Bank, N.A.,
Mark Twain Bank, and Mercantile Bank of St. Louis National Association as
Agent, incorporated by reference to Exhibit 4(ii)(3) of the Company's 1995
Annual Report on Form 10-K, filed on July 28, 1995.
4(ii)(1)(d): Third Amendment, dated November 8, 1995, to Revolving Credit
Agreement dated October 28, 1994, by and among Huntco Inc., Huntco Nevada,
Inc., Huntco Steel, Inc., and Midwest Products, Inc. and Mercantile Bank of
St. Louis National Association, Harris Trust and Savings Bank, NBD Bank, N.A.,
Mark Twain Bank, and Mercantile Bank of St. Louis National Association as
Agent, providing for revolving credit loans and letters of credit to Huntco
Inc. and its subsidiaries in an aggregate amount of up to Sixty Million
Dollars ($60.0 million), incorporated by reference to Exhibit 4(v)(d) of the
Company's Form 10-Q for the quarter ended October 31, 1995, filed on November
23, 1995.
4(ii)(1)(e): Fourth Amendment, dated January 31, 1996, to Revolving Credit
Agreement dated October 28, 1994, by and among Huntco Inc., Huntco Nevada,
Inc., Huntco Steel, Inc., and Midwest Products, Inc. and Mercantile Bank of
St. Louis National Association, Harris Trust and Savings Bank, NBD Bank, N.A.,
Mark Twain Bank, and Mercantile Bank of St. Louis National Association as
Agent, providing for revolving credit loans and letters of credit to Huntco
Inc. and its subsidiaries in an aggregate amount of up to Sixty Million
Dollars ($60.0 million), incorporated by reference to Exhibit 4(v)(d) of the
Company's Form 10-Q for the quarter ended January 31, 1996, filed on February
28, 1996.
4(ii)(2)(a): Note Purchase Agreement dated July 14, 1995, providing for the
issuance of $50.0 million of 8.13% ten-year term notes, maturing in equal
annual installments from July 15, 1999-2005, by and among Huntco Inc. and each
of the purchasers listed on Schedule A thereto, incorporated herein by
reference to Exhibit 4(v)(a) of the Company's Form 8-K filed on July 18, 1995.
4(ii)(2)(b): Individual Notes due July 2005, sold pursuant to the Note
Purchase Agreement dated July 14, 1995, incorporated herein by reference to
Exhibits 4(b)-(j) of the Company's Form 8-K filed on July 18, 1995.
4(ii)(2)(c): Subsidiary Guaranty dated July 14, 1995 from Huntco Nevada,
Inc., Huntco Steel, Inc., and Midwest Products, Inc. entered into in
connection with the Note Purchase Agreement dated July 14, 1995, incorporated
herein by reference to Exhibit 4(k) of the Company's Form 8-K filed on July
18, 1995.
9: Omitted - not applicable.
10(ii)(D)(1)(i): Lease Agreement dated as of June 1, 1992 by and between the
City of Blytheville, Arkansas and Huntco Steel, Inc., incorporated herein by
reference to Exhibit 10(ii)(D)(1) of the Company's Registration Statement on
Form S-1 (33-62936) and filed on May 19, 1993.
10(ii)(D)(1)(ii): First Amendment to Lease Agreement dated as of August 17,
1993 by and between the City of Blytheville, Arkansas and Huntco Steel, Inc.,
incorporated herein by reference to Exhibit 10(ii)(D)(1)(ii) to Amendment No.
1 to the Company's Registration Statement on Form S-1 (33-71426) and filed on
November 23, 1993.
10(ii)(D)(3): Lease Agreement between City of Tulsa-Rogers County Port
Authority and Tulsa's Port of Catoosa Facilities Authority and Central States
Stamping Company, Inc., dated as of June 12, 1978 and First Amendment thereto
dated as of May 1, 1988; Assignment of Lease dated September 1986 by and
between Amedco Steel, Inc. (formerly Central States Stamping Company, Inc.)
and Huntco Steel, Inc., incorporated by reference to Exhibit 10(ii)(D)(4) of
the Company's Registration Statement on Form S-1 (33-62936) and filed May 19,
1993.
10(iii)(A)(1): Form of Executive Employment Agreement, incorporated by
reference to Exhibit 10(iii)(A)(1) of the Company's Form 10-Q for the quarter
ended July 31, 1993, filed on September 13, 1993.
10(iii)(A)(2): Form of Performance Bonus Agreement for fiscal year ending
April 30, 1995, incorporated by reference to Exhibit 10(iii)(A)(3) of the
Company's 1994 Annual Report on Form 10-K, filed on July 29, 1994.
10(iii)(A)(3): Form of Performance Bonus Agreement for fiscal year ending
April 30, 1996, incorporated by reference to Exhibit 10(iii)(A)(3) of the
Company's 1995 Annual Report on Form 10-K, filed on July 28, 1995.
10(iii)(A)(4): Form of Amended Performance Bonus Agreement for fiscal year
ending April 30, 1996, incorporated by reference to Exhibit 10(iii)(A) of the
Company's Form 10-Q for the quarter ended January 31, 1996, filed on February
28, 1996.
10(iii)(A)(5): Description of Performance Bonus Arrangement for executive
officers for fiscal year ending April 30, 1997.
10(iii)(A)(6): Huntco Inc. 1993 Incentive Stock Plan incorporated herein by
reference to Exhibit 10(iii)(A)(4) of the Company's Registration Statement on
Form S-1 (33-62936) and filed on May 19, 1993.
10(iii)(A)(7): Form of Option Agreement for Awards of Options under 1993
Incentive Stock Plan, incorporated by reference to Exhibit 10(iii)(A)(5) of
the Company's Registration Statement on Form S-1 (33-62936) and filed on May
19, 1993.
10(iii)(A)(8): Description of tax reimbursement arrangement between the
Company and its executive employees upon exercise of non-qualified stock
options, incorporated herein by reference to Exhibit 10(iii)(A)(6) of the
Company's 1994 Annual Report on Form 10-K, filed on July 29, 1994.
11: Omitted - not applicable; see information contained within the
Consolidated Statement of Income found within Item 8 of this Report.
12: Omitted - not applicable.
13: Omitted - not applicable.
16: Omitted - not applicable.
18: Omitted - not applicable.
21: Subsidiaries of the Company, incorporated by reference to Exhibit 22 of
the Company's Registration Statement on Form S-1 (33-62936) and filed on May
19, 1993.
22: Omitted - not applicable.
23(ii): Consent of Price Waterhouse.
24: Powers of attorney contained on the signature page found herein.
27: Financial Data Schedule.
28: Omitted - not applicable.
99: Omitted - not applicable.
Description of performance bonus arrangement for executive officers for the
year ending April 30, 1997:
The executive officers of the Company will be entitled to receive
incentive bonus payments based on the Company's quarterly, year-to-date and
full year earnings per share for the fiscal year ending April 30, 1997
("fiscal 1997").
If earnings per share for the first quarter of fiscal 1997 is at least
$0.23, the executive officers would each earn 10% of their respective annual
base salaries for fiscal 1997 ("fiscal 1997 base salaries"). If first quarter
earnings per share is at least $0.28, they each would earn 20% of their
respective fiscal 1997 base salaries.
If after the first two quarters of fiscal 1997, earnings per share is at
least $0.48, $0.59 or $0.70, each would receive 20%, 40% or 60% of their
respective fiscal 1997 base salaries, less the incentive bonus earned for the
first quarter of fiscal 1997.
If earnings per share for the third quarter of fiscal 1997 is at least
$0.27, the executive officers would each earn 10% of their respective fiscal
1997 base salaries. If third quarter earnings per share is at least $0.33,
they each would earn 20% of their respective fiscal 1997 base salaries.
If earnings per share for the full year of fiscal 1997 are at least
$1.15, $1.40 or $1.65, each of the executive officers would earn 40%, 80% or
120% of their respective fiscal 1997 base salaries, less all incentive bonus
amounts previously earned under this fiscal 1997 performance bonus
arrangement. If full year earnings per share fall between the aforementioned
benchmarks, the percentage of their respective fiscal 1997 base salaries used
to calculate the full year annual incentive bonus shall be the prorated
percentage between the applicable full year earnings per share targets.
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (Nos. 33-68488, 33-71610 and 333-662) of Huntco Inc. of
our report dated May 22, 1996, appearing under Item 8 of this Annual Report on
Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
July 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF HUNTCO INC. AT AND
FOR THE YEAR ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 2,737
<SECURITIES> 0
<RECEIVABLES> 37,234
<ALLOWANCES> 430
<INVENTORY> 53,964
<CURRENT-ASSETS> 95,431
<PP&E> 138,298
<DEPRECIATION> 17,960
<TOTAL-ASSETS> 222,437
<CURRENT-LIABILITIES> 33,126
<BONDS> 73,066
0
0
<COMMON> 90
<OTHER-SE> 111,276
<TOTAL-LIABILITY-AND-EQUITY> 222,437
<SALES> 264,087
<TOTAL-REVENUES> 264,087
<CGS> 245,863
<TOTAL-COSTS> 245,863
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 3,274
<INCOME-PRETAX> 1,809
<INCOME-TAX> 701
<INCOME-CONTINUING> 1,108
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