UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
- ------------------------------- -------------------
(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)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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
As of September 1, 1997, 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.
<PAGE>
HUNTCO INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 31, 1997 (Unaudited) and April 30, 1997 (Audited)
Condensed Consolidated Statements of Income
Three Months Ended July 31, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended July 31, 1997 and 1996 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------------
Item 1. Financial Statements
-----------------------------------
HUNTCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
---------- ----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,339 $ 1,124
Accounts receivable, net 42,718 46,452
Inventories 99,189 105,569
Other current assets 2,350 3,983
-------- --------
145,596 157,128
Property, plant and equipment, net 142,383 141,436
Other assets 9,185 8,754
-------- --------
$297,164 $307,318
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,676 $ 72,569
Accrued expenses 4,047 4,868
Current maturities of long-term debt 200 189
-------- --------
54,923 77,626
-------- --------
Long-term debt 111,818 100,877
Deferred income taxes 7,904 7,754
-------- --------
119,722 108,631
-------- --------
Shareholders' equity:
Series A Preferred stock (issued and
outstanding, 225; stated at liquidation value) 4,500 4,500
Common stock:
Class A (issued and outstanding, 5,292) 53 53
Class B (issued and outstanding, 3,650) 37 37
Additional paid-in-capital 86,530 86,530
Retained earnings 31,399 29,941
-------- --------
122,519 121,061
-------- --------
$297,164 $307,318
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended July 31,
1997 1996
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<S> <C> <C>
Net sales $90,514 $78,430
Cost of sales 81,444 69,437
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Gross profit 9,070 8,993
Selling, general and administrative expenses 4,311 3,631
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Income from operations 4,759 5,362
Interest, net (1,855) (1,201)
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Income before income taxes 2,904 4,161
Provision for income taxes 1,083 1,591
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Net income 1,821 2,570
Preferred dividends 50 -
------- -------
Net income available for common shareholders $ 1,771 $ 2,570
======= =======
Earnings per common share $ .20 $ .29
===== =====
Weighted average common shares outstanding 8,942 8,953
===== =====
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months
Ended July 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,821 $ 2,570
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Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 2,280 1,944
Other - (28)
Decrease (increase) in:
accounts receivable 3,734 (816)
inventories 6,380 (20,280)
other current assets 1,633 (861)
other assets (604) 65
Increase (decrease) in:
accounts payable (21,893) 6,865
accrued expenses (821) (830)
non-current deferred taxes 150 413
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Total adjustments (9,141) (13,528)
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Net cash used by operations (7,320) (10,958)
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Cash flows from investing activities:
Acquisition of property, plant and equipment, net (3,054) (10,336)
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Net cash used by investing activities (3,054) (10,336)
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Cash flows from financing activities:
Net proceeds from newly-issued debt 11,000 21,000
Payments on long-term debt (48) (47)
Common stock dividends (313) (268)
Preferred stock dividends (50) -
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Net cash provided by financing activities 10,589 20,685
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Net increase (decrease) in cash 215 (609)
Cash, beginning of period 1,124 2,737
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Cash, end of period $ 1,339 $ 2,128
======= =======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
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1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of July 31, 1997 and the condensed
consolidated statements of income and of cash flows for the three months ended
July 31, 1997 and 1996 have been prepared by Huntco Inc. (the "Company")
without audit. In the opinion of management, all adjustments (which include
only normal, recurring adjustments) necessary to present fairly the financial
position at July 31, 1997, and the results of operations and cash flows for
the interim periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted where inapplicable. A summary of
the significant accounting policies followed by the Company is set forth in
Note 1 to the Company's consolidated financial statements included within Item
8 to the Company's annual report on Form 10-K for the year ended April 30,
1997 (the "Form 10-K"), which Form 10-K was filed with the Securities and
Exchange Commission on July 25, 1997. The condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended April 30, 1997
included in the aforementioned Form 10-K. The results of operations for the
period ended July 31, 1997 are not necessarily indicative of the operating
results for the full year.
2. INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
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<S> <C> <C>
Raw materials $71,064 $ 84,046
Finished goods 28,125 21,523
------- --------
$99,189 $105,569
======= ========
</TABLE>
The Company classifies its inventory of cold rolled steel coils as
finished goods. 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.
3. COMMON STOCK DIVIDENDS
The Company's Board of Directors declared a dividend of $.035 per share on its
shares of Class A common stock and Class B common stock for shareholders of
record on August 29, 1997, payable on September 15, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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This Quarterly Report on Form 10-Q contains certain statements that are
forward-looking and involve risks and uncertainties. Words such as "expects,"
"believes," and "anticipates," and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are based on current expectations and projections concerning the
Company's plans for fiscal 1998 and about the steel processing industry in
general, as well as assumptions made by Company management and are not
guarantees of future performance. Therefore, actual events, outcomes, and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company encourages those who make use of this
forward-looking data to make reference to a complete discussion of the factors
which may cause the forward-looking data to differ materially from actual
results, which discussion is contained under the title "Risk Factors - 1998
Forecast" included within Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of the Company's Annual Report
on Form 10-K for the year ended April 30, 1997, as filed with the Securities
and Exchange Commission on July 25, 1997.
RESULTS OF OPERATIONS
Net sales were $90.5 million for the quarter ended July 31, 1997, an increase
of 15.4% in comparison to the prior year's first quarter net sales of $78.4
million. The Company attributes the increase in net sales to higher levels of
tons processed, primarily at its new facilities in Kentucky, which opened in
July, 1996, and South Carolina, which opened in January, 1997, and at its cold
rolling operation at its Blytheville facility. The Company processed and
shipped a record 266,595 tons of steel in the quarter ended July 31, 1997, an
increase of 15.3% in comparison to the quarter ended July 31, 1996.
Approximately 24.0% of the tons processed in the first quarter of fiscal 1998
represented customer-owned material processed on a per ton, fee basis, versus
a tolling percentage of 23.3% in the prior year first quarter. The Company
sold 56,650 tons of cold rolled products during the quarter ended July 31,
1997, which compares to 40,241 tons in the prior year first quarter. Average
per ton selling values were generally the same in the quarter ended July 31,
1997, when compared to average per ton selling values for the quarter ended
July 31, 1996.
Gross profit expressed as a percentage of net sales was 10.0% for the quarter
ended July 31, 1997, which compares to 11.5% for the quarter ended July 31,
1996. The Company's gross profit percentage declined from that of the prior
year's first quarter given (a) very competitive market conditions, especially
for cold rolled products, (b) underutilization of the Company's relocated
stamping facility as it continues to ramp up its volume subsequent to its move
during the summer of 1996, and (c) the start-up of the Company's new facility
in South Carolina.
Selling, general and administrative ("SG&A") expenses of $4.3 million reflect
an increase of $.7 million from the prior year's first quarter. SG&A expenses
increased slightly as a percentage of net sales from 4.6% during the first
quarter of fiscal 1997 to 4.8% of net sales during the first quarter of fiscal
1998. The increase in SG&A expenses is attributable to the higher level of
business activity conducted throughout the Company, including overhead
expenses related to the Company's new Kentucky and South Carolina facilities.
Income from operations was $4.8 million in the quarter ended July 31, 1997, a
decrease of $.6 million in comparison to income from operations of $5.4
million as reported for the corresponding period of the prior year. This
decrease reflects the factors discussed in the preceding paragraphs.
Net interest expense of $1.9 million and $1.2 million was incurred during the
quarters ended July 31, 1997 and 1996, respectively. This increase reflects
borrowings to support higher working capital levels, slightly higher interest
rates charged on the Company's revolving credit borrowings in fiscal 1998
versus fiscal 1997, as well as lower capitalized interest for fiscal 1998
versus fiscal 1997. The Company capitalized $.3 million of interest costs to
construction in progress in the quarter ended July 31, 1997, versus $.4
million in the comparable period of the prior year.
The effective income tax rate experienced by the Company was 37.3% in the
first quarter of fiscal 1998, which declined slightly from the 38.2% effective
income tax rate recognized during the prior year's first quarter.
Net income available for common shareholders for the first quarter of fiscal
1998 was $1.8 million, or $.20 per share, which compares to net income
available for common shareholders of $2.6 million, or $.29 per share in the
prior year's first quarter. This decrease reflects the factors discussed in
the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $3.1 million and $10.3 million of cash during the quarters
ended July 31, 1997 and 1996, respectively, to acquire property, plant and
equipment, as expenditures continue to be made in conjunction with the
Company's capital expansion projects -- most significantly the Company's
second coil pickling line being constructed in Blytheville, Arkansas during
the first quarter of fiscal 1998, and the new facility in Kentucky and the new
stamping plant in Blytheville during the first quarter of fiscal 1997.
Increased borrowings on the Company's revolving credit facility provided the
funds for these expenditures during both periods.
The Company borrowed additional funds on its revolving credit facility, which
increased by a total of $11.0 million and $21.0 million during the three
months ended July 31, 1997 and 1996, respectively. Beyond the funds used to
acquire property as described above, the additional borrowings were used to
fund increased levels of working capital required by the Company.
Net cash used by operations was $7.3 million for the first quarter of fiscal
1998. During this period the Company reduced its outstanding accounts payable
balance using cash generated from net income and non-cash depreciation and
amortization charges, reductions in inventory and accounts receivable
balances, and through additional corporate borrowings on the Company's
revolving credit facility. Net cash used by operations was $11.0 million for
the first quarter of fiscal 1997. During the prior year's first quarter, the
Company's inventory balance increased $20.3 million, funded by net income and
non-cash depreciation and amortization charges, an increase in accounts
payable, and additional corporate borrowings.
As of April 30, 1997, and continuing through the Company's first quarter ended
July 31, 1997, the Company maintained a significant investment in its raw
material steel coil inventory in order to take advantage of favorable import
pricing in relation to prices offered by the domestic producers of hot rolled
steel coils. As a result of the relative shift in the supplier base of the
Company's raw materials to a significant amount of imported material, which
must be ordered with longer lead times for delivery when compared to the
Company's traditional domestic supplier base, a resulting increase occurred in
the Company's investment in inventory. As a result of this increased
investment in inventory, the Company significantly increased its trade
accounts payable balance as of its 1997 year end, electing to forego quick pay
discounts on much of its inventory purchases occurring late in 1997. As
discussed above, the Company utilized funds earned from operations, reduced
investments in accounts receivable and inventory, and additional corporate
borrowings in order to reduce its trade accounts payable balance in the
quarter ended July 31, 1997. The Company expects to further reduce its
investment in steel inventories during the second quarter of fiscal 1998.
The Company maintains 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), which policy has been incorporated into the Company's
primary long-term debt agreements. As of July 31, 1997, the ratio of the
Company's funded debt to total capitalization was 47.8%.
As of July 31, 1997, the Company had unused borrowing capacity of $17.9
million under its $80.0 million revolving credit facility. This amount was
further limited to $10.5 million of unused borrowing capacity as of July 31,
1997, given the constraint of complying with the Company's funded debt to
total capitalization covenant discussed above.
The Company paid dividends on its Class A and Class B common stock, as well as
on its Series A preferred stock of $.4 million and $.3 million during the
quarters ended July 31, 1997 and 1996.
Construction of the second coil pickling line at the Company's Blytheville
facility remains on schedule with completion expected around the end of the
second quarter of fiscal 1998, and with start-up expected to occur in the
third quarter. No other significant capital projects are currently committed
to by the Company beyond completion of the second pickling line at the
Blytheville facility. The Company expects to fund the approximate $6.0
million of anticipated additional fiscal 1998 capital expenditures with net
cash to be provided by operations and/or 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 Series A preferred stock and
Class A and Class B common stock during fiscal 1998.
The Company maintains the flexibility to issue additional equity in the form
of Class A common stock or additional series of preferred stock junior to the
Series A 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 further
operating lease financing for new business expansions.
<PAGE>
PART II. OTHER INFORMATION
- -----------------------------
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) See the Exhibit Index included herein.
(b) Reports on Form 8-K:
The Company filed a Form 8-K on May 22, 1997, which filing discussed under
Item 5, Other Events, the Company's earnings for the three months and year
ended April 30, 1997, as well as providing certain forward-looking data for
the fiscal year ending April 30, 1998.
The Company filed a Form 8-K on August 18, 1997, which filing discussed under
Item 5, Other Events, the Company's earnings for the three months ended July
31, 1997, as well as providing certain forward-looking data for the fiscal
year ending April 30, 1998.
**************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUNTCO INC.
(Registrant)
Date: September 10, 1997 By: /s/ ROBERT J. MARISCHEN
-----------------------
Robert J. Marischen,
Vice Chairman of the Board
and Chief Financial Officer
<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: Omitted - not applicable.
4: Omitted - not applicable.
10: Omitted - not applicable.
11: Omitted - not applicable.
15: Omitted - not applicable.
18: Omitted - not applicable.
19: Omitted - not applicable.
22: Omitted - not applicable.
23: Omitted - not applicable.
24: Omitted - not applicable.
27: Financial Data Schedule.
99: Omitted - not applicable.
<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 THREE MONTHS ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,339
<SECURITIES> 0
<RECEIVABLES> 43,308
<ALLOWANCES> 590
<INVENTORY> 99,189
<CURRENT-ASSETS> 145,596
<PP&E> 169,871
<DEPRECIATION> 27,488
<TOTAL-ASSETS> 297,164
<CURRENT-LIABILITIES> 54,923
<BONDS> 111,818
0
4,500
<COMMON> 90
<OTHER-SE> 117,929
<TOTAL-LIABILITY-AND-EQUITY> 297,164
<SALES> 90,514
<TOTAL-REVENUES> 90,514
<CGS> 81,444
<TOTAL-COSTS> 81,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 1,855
<INCOME-PRETAX> 2,904
<INCOME-TAX> 1,083
<INCOME-CONTINUING> 1,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,821
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
