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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 4, 1998
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HUNTCO INC.
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(Exact name of registrant as specified in its charter)
Missouri 1-13600 43-1643751
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
14323 S. Outer Forty, Suite 600N, Town & Country, Missouri 63017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 878-0155
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Not applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
Huntco Inc. (the "Company") issued a news release on February 4, 1998, with
respect to its release of earnings for its eight-month transition period ended
December 31, 1997. This news release is incorporated herein by reference to
Exhibit 99 attached hereto.
This Current Report on Form 8-K contains certain statements that are forward-
looking and involve risks and uncertainties. Words such as "expects,"
"anticipates," "projects," "estimates," "plans," "believes," 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. Achievement of these forward
- -looking results is dependent upon numerous factors, circumstances and
contingencies, certain of which are beyond the control of the Company.
Certain of the more important factors which the Company believes could cause
actual results to differ materially from the forward-looking data presented
include:
Impact of changing steel prices on the Company's results of operations:
As evidenced by the unfavorable impact on net income in the years ended April
30, 1996 and 1997, as well as the eight month transition period ended December
31, 1997, 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 may influence the amount of the change, if
any, in the Company's selling 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 hot rolled steel coils, both
domestic and foreign, have been extremely volatile over the previous three
years, and conditions exist which could cause this volatility to continue
during 1998. No assurance can be given that volatility in steel prices will
not again negatively impact the Company's results of operations and net
income.
Continued internal expansion involving new processes and markets:
Notwithstanding the fact that the growth in the Company's net sales has
resulted from increasing levels of tons processed and sold, with such
increases in tonnage primarily occurring at newly constructed facilities,
there can be no assurance that the Company will be successful in the continued
development and expansion of its pickling, cold rolling, stamping and hot roll
tempering operations at its Blytheville, Arkansas facility, or that these
expansions will proceed as quickly as the Company anticipates. 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 continued ramp up of the Company's stamping plant in
Blytheville, and the continued maturation of the Company's pickling, cold
rolling and tempering operations in Blytheville and of its South Carolina
facility will cause the Company to face new competition.
Cyclicality of 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 that it has realized through the period
ended December 31, 1997. 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.
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. Further, new competition is expected in the sale of cold rolled
products over the next few years as new pickling and/or cold rolling capacity
is added by Nucor in Hickman, Arkansas and by Worthington Industries, Steel
Technologies (through its Mi-Tech joint venture)and Trico in Decatur, Alabama.
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.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUNTCO INC.
By: /s/ Robert J. Marischen
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Robert J. Marischen,
Vice Chairman & Chief Financial Officer
Date: February 4, 1998
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EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K:
Exhibit No. Description
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99 News release of February 4, 1998
<PAGE> 1
HUNTCO INC.
14323 SOUTH OUTER FORTY - SUITE 600N
TOWN & COUNTRY, MISSOURI 63017
NEWS RELEASE
FOR IMMEDIATE RELEASE:
HUNTCO REPORTS RESULTS FOR EIGHT MONTH TRANSITION PERIOD ENDED DECEMBER 31,
1997.
TOWN & COUNTRY, MISSOURI, February 4, 1998. . . . . Huntco Inc. (NYSE: HCO)
today announced results of operations for the eight month transition period
ended December 31, 1997. As previously announced, the Company has adopted a
calendar year for financial reporting purposes and, accordingly, will be
reporting an eight month transition period ended December 31, 1997 on Form
10-K. The Company will now report on a calendar quarter basis commencing with
the quarter ending March 31, 1998, which will represent the first quarter of
its new fiscal year. Accompanying this news release is an unaudited quarterly
summary of certain financial and operating statistics for calendar 1997 and
1996.
The Company reported that net sales were $246.3 million and net income
available for common shareholders was $.9 million, or $.10 per common share,
both basic and fully diluted, for the eight month transition period ended
December 31, 1997.
The Company processed 744,468 tons of steel in the eight month period ended
December 31, 1997, of which approximately 24.5% represented customer owned
material processed on a per ton, fee basis. Also included in tons sold were
142,953 tons of cold rolled products.
Gross profit, expressed as a percentage of net sales, was 7.5% during the
eight month period ended December 31, 1997. This depressed level of gross
profit margins reflects the effects of price competition as the Company
continues to expand its sales of cold rolled steel products, as well as lower
margins on hot rolled steel products due to declining steel prices charged by
producers of hot rolled steel coils. Also negatively impacting gross profit
margins was a slower than expected ramp-up of sales at the Company's expanded
cold rolling mill and at its metal stamping facility, both in Blytheville,
Arkansas, along with related operating inefficiencies.
The Company recently commenced production on a new coil pickling line at its
Blytheville facility. This new pickling line is expected to provide a better
quality feed stock for the Company's cold rolling mill, in addition to
expanding the Company's pickling capacity. The Company has been operating its
other pickling line in Blytheville at full capacity levels for well over a
year.
As of December 31, 1997, the Company was in technical non-compliance with a
covenant of its revolving credit facility. The Company is currently
negotiating amendments to its revolving credit agreement which are expected to
eliminate this non-compliance and believes that it will have this process
completed on or around March 15, 1998.
LOOKING FORWARD TO 1998, in addition to its expanded pickling capacity, the
Company plans to 1) replace a cut-to-length line at its Pasadena facility; 2)
install a new filtration system on its cold rolling mill and an electrostatic
oiler on its temper mill, both at its Blytheville facility; and 3) add certain
yield enhancing ancillary equipment to its slitting lines at its Chattanooga,
Madison and Blytheville facilities. These and other projects currently
planned for 1998 are anticipated to result in capital expenditures of
approximately $3.0 to $4.0 million.
The Company enters calendar 1998 with strong forward sales momentum and
expects that its net sales could increase by approximately 15% over calendar
1997 net sales of $366.6 million. The anticipated increase in net sales is
expected to reflect higher levels of tons sold which are expected to increase
to approximately 1.3 million tons (up from 1.1 million tons in calendar 1997).
While the Company expects that 1998 will likely begin with gross profit
margins at levels similar to those experienced during the transition period
ended December 31, 1997, as the year progresses, it expects that its
operating results should benefit from 1) a broader supplier base and increased
inventory turnover; 2) greater operating efficiencies at its stamping and cold
rolling complex in Blytheville, at its South Carolina facility and at its
other facilities that have been expanded in recent years, with such
efficiencies resulting from equipment enhancements, higher volume levels,
improved product quality and more consistent on-time deliveries; and 3) a more
focused sales and marketing effort as the Company will not be challenged with
the start-up of any further significant new operations during 1998, beyond the
start-up of its expanded pickling capacity in Blytheville.
This press release 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
operations, the steel processing industry in general, and on 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. Certain
of the more important factors which the Company believes could cause actual
results to differ materially from the forward-looking data presented in this
news release include: 1) the impact of changing steel prices; 2) the risk of
continuing delays in the ramp-up of the Company's pickling, cold rolling,
tempering and stamping complex in Blytheville and resultant operating
inefficiencies; 3) cyclicality of demand for the Company's products; and 4)
changes in market fundamentals caused by increased competition from current
competitors, as well as the entrance of new competitors. The Company
encourages those who make use of this forward-looking data to make reference
to a more complete discussion of the factors which may cause the forward-
looking data to differ materially from actual results which is contained in
Form 8-K, which is being filed simultaneously with this news release.
Huntco Inc. is an intermediate steel processor, specializing in the processing
of flat rolled carbon steel.
* * * * *
for further information contact:
Robert J. Marischen - Vice Chairman
(314) 878-0155
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HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Eight months ended December 31,
1997 1996
(audited) (unaudited)
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<S> <C> <C>
Net sales $246,324 $206,334
Cost of sales 227,871 184,751
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Gross profit 18,453 21,583
Selling, general and administrative expenses 11,757 10,082
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Income from operations 6,696 11,501
Interest, net (5,194) (3,883)
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Income before income taxes 1,502 7,618
Provision for income taxes 486 2,904
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Net income $ 1,016 $ 4,714
Preferred dividends 133 -
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Net income available for common shareholders $ 883 $ 4,714
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Earnings per common share
(basic and fully diluted) $ .10 $ .53
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Weighted average common shares outstanding 8,942 8,942
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</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, April 30,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 27 $ 1,124
Accounts receivable, net 41,643 46,452
Inventories 81,612 105,569
Other current assets 5,015 3,983
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128,297 157,128
Property, plant and equipment, net 145,777 141,436
Other assets 11,191 8,754
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$285,265 $307,318
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LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,027 $ 72,569
Accrued expenses 3,879 4,868
Current maturities of long-term debt 209 189
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44,115 77,626
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Long-term debt 110,730 100,877
Deferred income taxes 9,415 7,754
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120,145 108,631
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Shareholders' equity:
Series A preferred stock
(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 29,885 29,941
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121,005 121,061
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$285,265 $307,318
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</TABLE>
<PAGE>
COMPARATIVE CALENDAR 1997 VERSUS 1996 QUARTERLY DATA:
Summarized unaudited quarterly financial data for the calendar years ended
December 31, 1997 and 1996 appears below (dollars in thousands, except per
share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter Year
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net sales:
December 1997 $85,501 $93,657 $93,903 $93,492 $366,553
December 1996 78,345 79,960 82,102 72,081 312,488
Gross profit:
December 1997 7,349 9,056 8,167 4,407 28,979
December 1996 8,380 9,259 8,338 7,283 33,260
Net income (loss):
December 1997 1,224 1,572 1,197 (1,203) 2,790
December 1996 2,370 2,815 2,043 1,067 8,295
Earnings (loss) per
common share (basic
and fully diluted):
December 1997 .13 .17 .13 (.14) .29
December 1996 .27 .31 .23 .12 .93
</TABLE>
Summarized unaudited quarterly sales volume data for the Company for the
calendar years ended December 31, 1997 and 1996 appears below:
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter Year
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Tons sold:
December 1997 193,010 212,776 219,447 209,547 834,780
December 1996 182,398 183,015 187,250 163,247 715,910
Tons toll processed:
December 1997 55,297 58,639 76,088 66,508 256,532
December 1996 50,728 48,653 55,810 43,062 198,253
Total tons sold and processed:
December 1997 248,307 271,415 295,535 276,055 1,091,312
December 1996 233,126 231,668 243,060 206,309 914,163
</TABLE>
