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 March 31, 1998, 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 April 16, 1998, 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
March 31, 1998 (Unaudited) and December 31, 1997 (Audited)
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 (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>
March 31, December 31,
1998 1997
---------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 21 $ 27
Accounts receivable, net 52,214 41,643
Inventories 74,714 81,612
Other current assets 3,556 5,015
-------- --------
130,505 128,297
Property, plant and equipment, net 145,762 145,777
Other assets 11,394 11,191
-------- --------
$287,661 $285,265
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,451 $ 40,027
Accrued expenses 3,153 3,879
Current maturities of long-term debt 200 209
-------- --------
41,804 44,115
-------- --------
Long-term debt 114,686 110,730
Deferred income taxes 9,565 9,415
-------- --------
124,251 120,145
-------- --------
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 30,486 29,885
-------- --------
121,606 121,005
-------- --------
$287,661 $285,265
======== ========
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 March 31,
1998 1997
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<S> <C> <C>
Net sales $110,373 $85,501
Cost of sales 102,617 78,152
-------- -------
Gross profit 7,756 7,349
Selling, general and administrative expenses 4,718 3,615
-------- -------
Income from operations 3,038 3,734
Interest, net (2,021) (1,755)
-------- -------
Income before income taxes 1,017 1,979
Provision for income taxes 366 755
-------- -------
Net income 651 1,224
Preferred dividends 50 33
-------- -------
Net income available for common shareholders $ 601 $ 1,191
======== =======
Earnings per common share:
Basic $ .07 $ .13
===== =====
Diluted $ .07 $ .13
===== =====
Weighted average common shares outstanding:
Basic 8,942 8,942
===== =====
Diluted 8,998 8,942
===== =====
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 March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 651 $ 1,224
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Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 2,508 2,156
Other (427) (224)
Decrease (increase) in:
accounts receivable (10,571) (7,577)
inventories 6,898 (19,178)
other current assets 1,459 1,249
other assets (404) (2,419)
Increase (decrease) in:
accounts payable (1,576) 25,139
accrued expenses (726) (910)
non-current deferred taxes 150 1,340
------- -------
Total adjustments (2,689) (424)
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Net cash provided (used) by operations (2,038) 800
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment, net (1,865) (11,831)
------- -------
Net cash used by investing activities (1,865) (11,831)
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Cash flows from financing activities:
Issuance of Series A preferred stock - 4,500
Net proceeds from newly-issued debt 4,000 5,500
Payments on long-term debt (53) (47)
Common stock dividends - (313)
Preferred stock dividends (50) (33)
Other - (37)
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Net cash provided by financing activities 3,897 9,570
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Net decrease in cash (6) (1,461)
Cash, beginning of period 27 1,759
------- -------
Cash, end of period $ 21 $ 298
======= =======
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 March 31, 1998 and the
condensed consolidated statements of income and of cash flows for the three
months ended March 31, 1998 and 1997 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 March 31, 1998, 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 transition report on Form 10-K for the eight months ended
December 31, 1997 (the "transition period")(the "Form 10-K"), which Form 10-K
was filed with the Securities and Exchange Commission on March 30, 1998. The
condensed consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and notes thereto for
the transition period ended December 31, 1997, included in the aforementioned
Form 10-K. The results of operations for the period ended March 31, 1998 are
not necessarily indicative of the operating results for the full year.
2. INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials $ 57,224 $ 55,991
Finished goods 17,490 25,621
-------- --------
$ 74,714 $ 81,612
======== ========
</TABLE>
The Company classifies its inventory of cold rolled steel coils as
finished goods, which 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 May 1, 1998, payable on May 15, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------------------------------------------------------------
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 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 transition report on
Form 10-K for the eight months ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 30, 1998.
RESULTS OF OPERATIONS
Net sales were $110.4 million for the quarter ended March 31, 1998, an
increase of 29.1% in comparison to net sales of $85.5 million for the three
months ended March 31, 1997 (the "prior year's first quarter"). The Company
attributes the increase in net sales to higher levels of tons processed, with
these volume driven increases in net sales being partially offset by lower
average selling prices. The Company processed and shipped a record 340,102
tons of steel in the first quarter of 1998, an increase of 37.0% in comparison
to the prior year's first quarter. The bulk of the Company's net sales
increase was attributable to its increase in sales of cold rolled products, as
the Company sold 85,840 tons of cold rolled products during the first quarter
of 1998 versus 48,846 tons during the comparable period of the prior year.
Average per ton selling values declined 6.5% in the first quarter of 1998, in
comparison to prior year levels, reflecting lower prices for hot rolled steel
coils charged by the Company's suppliers.
Approximately 23.8% of the tons processed in the first quarter of 1998
represented customer-owned material processed on a per ton, fee basis, versus
a tolling percentage of 22.3% in the comparable period of the prior year.
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.
Gross profit expressed as a percentage of net sales was 7.0% for the quarter
ended March 31, 1998, which compares to 8.6% for the quarter ended March 31,
1997. The Company's gross profit percentage declined from that of the prior
year's first quarter given declines in steel prices, higher levels of
equipment lease expense included in cost of sales, and lower percentage margin
sales resulting from start-up expenses relating to the Company's new coil
pickling line at its Blytheville facility.
Selling, general and administrative ("SG&A") expenses of $4.7 million reflect
an increase of $1.1 million over the prior year's first quarter. SG&A
expenses increased slightly as a percentage of net sales from 4.2% during the
first quarter of 1997 to 4.3% of net sales during the first quarter of 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 South Carolina facility.
Income from operations was $3.0 million in the quarter ended March 31, 1998, a
decrease of $.7 million in comparison to income from operations of $3.7
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 $2.0 million and $1.8 million was incurred during the
quarters ended March 31, 1998 and 1997, respectively. This increase reflects
borrowings to support higher working capital levels and slightly higher
interest rates charged on the Company's revolving credit borrowings in 1998
versus 1997. The Company capitalized $.3 million and $.2 million of interest
costs to construction in progress during the three months ended March 31, 1998
and 1997, respectively.
The effective income tax rate experienced by the Company was 36.0% in the
first quarter of 1998, which declined from the 38.2% effective income tax rate
recognized during the prior year's first quarter. This decrease is the result
of the recognition of certain state tax benefits by the Company.
Net income available for common shareholders for the first quarter of 1998 was
$.6 million, or $.07 per share both basic and diluted, which compares to net
income available for common shareholders of $1.2 million, or $.13 per share
both basic and diluted, for the prior year's first quarter. This decrease
reflects the factors discussed in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $1.9 million and $11.8 million of cash during the quarters
ended March 31, 1998 and 1997, respectively, to acquire property, plant and
equipment. During the first quarter of 1998 such expenditures primarily
related to the Company's second coil pickling line being constructed in
Blytheville, Arkansas. Construction of the Company's new facility in South
Carolina and the acquisition of certain steel processing equipment from Coil-
Tec, Inc. on January 30, 1997, were the principal property additions
attributable to the comparable period of the prior year.
In order to fund these asset additions, the Company borrowed additional funds
on its revolving credit facility, which increased by a total of $4.0 million
and $5.5 million during the three months ended March 31, 1998 and 1997,
respectively, and issued its $4.5 million of Series A Preferred Stock on
January 30, 1997.
Net cash used by operations was $2.0 million for the three months ended March
31, 1998. This use of cash by operating activities was funded by additional
borrowings on the Company's revolving credit facility. In terms of working
capital management during the three months ended March 31, 1998, cash
generated from net income, non-cash depreciation and amortization charges, and
reductions in inventory and other current asset balances, served to offset the
growth in the Company's accounts receivable balance stemming from increased
net sales during the three months ended March 31, 1998.
For the three months ended March 31, 1997, the Company generated $.8 million
of cash from operations. During this same time period, the Company saw its
investment in inventories and accounts receivable increase $19.2 million and
$7.6 million, respectively, with such increases being funded primarily by a
corresponding $25.1 million increase in the Company's accounts payable
balance.
On March 24, 1998, the Company amended its primary long-term debt agreements
to provide these lenders with security interests in the accounts receivable,
inventory and selected fixed assets of the Company. Effective with these
amendments, the maximum amount of borrowings available to the Company under
its revolving credit facility is based upon percentages of eligible accounts
receivable, inventory and selected fixed assets, as defined in the amended
revolving credit agreement.
The Company's long-term notes and the revolving credit agreement, as amended,
both require the maintenance of various financial covenants and ratios. The
Company was in compliance with the financial covenants and ratios required by
these agreements, as amended, as of March 31, 1998.
As of March 31, 1998, the Company had unused borrowing capacity of $15.1
million under its $80.0 million revolving credit facility. This amount was
further limited to $6.7 million of unused borrowing capacity as of March 31,
1998, given the constraint of complying with the Company's funded debt to
total capitalization covenant. 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 March 31, 1998, the
ratio of the Company's funded debt to total capitalization was 48.6%.
During the quarter ended March 31, 1998, the Company paid dividends on its
Series A preferred stock of $.1 million, with no dividends paid on its common
stock with the Company's transition to its new calendar year reporting cycle.
During the quarter ended March 31, 1997, the Company paid dividends on its
common and preferred stock of $.3 million.
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 $2.0 million to $3.0
million of anticipated additional 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 the balance of 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 February 4, 1998, which filing discussed under
Item 5, Other Events, the Company's earnings for the eight month transition
period ended December 31, 1997, as well as providing certain forward-looking
data for the fiscal year ending December 31, 1998.
The Company filed a Form 8-K on April 16, 1998, which filing discussed under
Item 5, Other Events, the Company's earnings for the three months ended March
31, 1998, as well as providing certain forward-looking data for the fiscal
year ending December 31, 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: May 5, 1998 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 MARCH 31, 1998 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> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 52,620
<ALLOWANCES> 406
<INVENTORY> 74,714
<CURRENT-ASSETS> 130,505
<PP&E> 176,897
<DEPRECIATION> 31,135
<TOTAL-ASSETS> 287,661
<CURRENT-LIABILITIES> 41,804
<BONDS> 114,686
0
4,500
<COMMON> 90
<OTHER-SE> 117,016
<TOTAL-LIABILITY-AND-EQUITY> 287,661
<SALES> 110,373
<TOTAL-REVENUES> 110,373
<CGS> 102,617
<TOTAL-COSTS> 102,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 2,021
<INCOME-PRETAX> 1,017
<INCOME-TAX> 366
<INCOME-CONTINUING> 651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 651
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
