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 June 30, 1998, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
----------------------
(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 July 31, 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
June 30, 1998 (Unaudited) and December 31, 1997 (Audited)
Condensed Consolidated Statements of Income
Six and Three Months Ended June 30, 1998 and 1997 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 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 5. 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>
June 30, December 31,
1998 1997
---------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 19 $ 27
Accounts receivable, net 52,758 41,643
Inventories 90,591 81,612
Other current assets 2,862 5,015
-------- --------
146,230 128,297
Property, plant and equipment, net 147,138 145,777
Other assets 11,424 11,191
-------- --------
$304,792 $285,265
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,572 $ 40,027
Accrued expenses 4,188 3,879
Current maturities of long-term debt 215 209
-------- --------
52,975 44,115
-------- --------
Long-term debt 120,527 110,730
Deferred income taxes 9,565 9,415
-------- --------
130,092 120,145
-------- --------
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 30,605 29,885
-------- --------
121,725 121,005
-------- --------
$304,792 $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>
Six Months Three Months
Ended June 30 Ended June 30
1998 1997 1998 1997
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net sales $215,097 $179,158 $104,724 $93,657
Cost of sales 199,579 162,753 96,962 84,601
------- ------- ------ ------
Gross profit 15,518 16,405 7,762 9,056
Selling, general and
administrative expenses 9,718 8,316 5,000 4,701
------- ------- ------ ------
Income from operations 5,800 8,089 2,762 4,355
Interest, net (4,017) (3,581) (1,997) (1,826)
------- ------- ------ ------
Income before income taxes 1,783 4,508 765 2,529
Provision for income taxes 650 1,712 283 957
------- ------- ------ ------
Net income 1,133 2,796 482 1,572
Preferred dividends 100 83 50 50
------- ------- ------ ------
Net income available
for common shareholders $ 1,033 $ 2,713 $ 432 $ 1,522
======= ======= ====== ======
Earnings per common share
(basic and diluted) $ .12 $ .30 $ .05 $ .17
===== ===== ===== =====
Weighted average
common shares outstanding:
Basic 8,942 8,942 8,942 8,942
===== ===== ===== =====
Diluted 8,972 8,942 8,946 8,942
===== ===== ===== =====
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,133 $ 2,796
------- -------
Adjustments to reconcile net income to net
cash (used) by operating activities:
Depreciation and amortization 4,954 4,364
Other (428) (224)
Decrease (increase) in:
accounts receivable (11,115) (9,450)
inventories (8,979) (28,770)
other current assets 2,153 1,310
other assets (648) (3,194)
Increase in:
accounts payable 8,545 22,063
accrued expenses 309 3,495
non-current deferred taxes 150 1,121
------- -------
Total adjustments (5,059) (9,285)
------- -------
Net cash (used) by operations (3,926) (6,489)
------- -------
Cash flows from investing activities:
Cash used to acquire property, plant and equipment (5,473) (12,225)
------- -------
Cash flows from financing activities:
Issuance of Series A preferred stock - 4,500
Net proceeds from newly-issued debt 9,978 13,500
Payments on long-term debt (174) (95)
Common stock dividends (313) (626)
Preferred stock dividends (100) (83)
Other - (37)
------- -------
Net cash provided by financing activities 9,391 17,159
------- -------
Net decrease in cash (8) (1,555)
Cash, beginning of period 27 1,759
------- -------
Cash, end of period $ 19 $ 204
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands, except per share amounts)
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1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998, the condensed
consolidated statements of income for the six and three months ended June 30,
1998 and 1997, and the condensed consolidated statement of cash flows for the
six months ended June 30, 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 June 30, 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 periods ended
June 30, 1998 are not necessarily indicative of the operating results for the
full year.
2. INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------- ---------
<S> <C> <C>
Raw materials $ 74,559 $ 55,991
Finished goods 16,032 25,621
-------- --------
$ 90,591 $ 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 July 31, 1998, payable on August 14, 1998.
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, as filed with the Securities and
Exchange Commission on March 30, 1998.
RESULTS OF OPERATIONS
Net sales were $104.7 million for the quarter ended June 30, 1998, an increase
of 11.8% in comparison to net sales of $93.7 million for the three months
ended June 30, 1997. Net sales for the six months ended June 30, 1998 were
$215.1 million, an increase of 20.1% in comparison to net sales of $179.2
million for the six months ended June 30, 1997. The Company attributes the
increases in net sales to higher levels of tons processed, with such volume
driven increases being partially offset by lower average selling prices. The
Company processed and shipped 330,731 and 670,833 tons of steel in the three
and six months ended June 30, 1998, an increase of 21.9% and 29.1%,
respectively, in relation to the comparable periods of the prior year.
The Company's net sales increase was driven by higher sales of cold rolled
products. The Company sold 72,204 and 158,044 tons of cold rolled products
during the three and six months ended June 30, 1998, versus 60,475 and 109,321
tons during the comparable periods of the prior year. Average per ton selling
values declined 6.5% during the three and six months ended June 30, 1998, in
comparison to prior year levels, reflecting lower prices for hot rolled steel
coils charged by the Company's suppliers.
Approximately 24.3% and 24.0% of the tons processed in the three and six
months ended June 30, 1998 represented customer-owned material processed on a
per ton, fee basis, versus tolling percentages of 21.6% and 21.9% 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 7.4% and 7.2% for
the three and six months ended June 30, 1998; compared to 9.7% and 9.2% for
the three and six months ended June 30, 1997. The decline in the Company's
gross profit percentage is attributable to 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 $5.0 million and $9.7
million for the three and six months ended June 30, 1998, reflect increases of
$.3 million and $1.4 million over the comparable periods of the prior year.
The increases in SG&A expenses are attributable to the higher level of
business activity conducted throughout the Company, including overhead
expenses related to the Company's new South Carolina facility. However, SG&A
expenses, when expressed as a percentage of net sales, declined slightly from
5.0% and 4.6% during the three and six months ended June 30, 1997, to 4.8% and
4.5% of net sales during the three and six months ended June 30, 1998.
Income from operations was $2.8 million and $5.8 million during the three and
six months ended June 30, 1998, which amounts decreased $1.6 million and $2.3
million from prior year levels. These decreases reflect the factors discussed
in the preceding paragraphs.
Net interest expense of $2.0 million and $4.0 million was incurred during the
three and six months ended June 30, 1998. During the comparable periods of
calendar 1997, net interest expense of $1.8 million and $3.6 million were
incurred. These increases reflect 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 $.6 million of interest costs to construction in progress during
the three and six months ended June 30, 1998. During the comparable periods
of the prior year, the Company capitalized $.2 million and $.5 million of
interest costs to construction in progress.
The effective income tax rates experienced by the Company were 37.0% and 36.4%
during the three and six months ended June 30, 1998, which rates declined from
the 37.8% and 38.0% effective income tax rates recognized during the
comparable periods of the prior year. These decreases are due to the
Company's recognition of certain state tax benefits.
Net income available for common shareholders for the three months ended June
30, 1998 was $.4 million, or $.05 per share both basic and diluted. This
quarterly performance compares to net income available for common shareholders
of $1.5 million, or $.17 per share both basic and diluted, for the comparable
period of the prior year. Net income available for common shareholders for
the six months ended June 30, 1998 was $1.0 million, or $.12 per share both
basic and diluted. This six month performance compares to net income
available for common shareholders of $2.7 million, or $.30 per share both
basic and diluted, for the comparable period of the prior year. These
decreases reflect the factors discussed in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $3.9 million and $6.5 million for the six
months ended June 30, 1998 and 1997, respectively. The Company's operating
activities were primarily funded by borrowings on the Company's revolving
credit facility. In terms of the timing of working capital needs, the
following is of note.
The Company's investment in accounts receivable is typically lower as of
December 31, as compared to June 30. The business activity level of the
Company is typically slower during the months of November and December, when
there are less business shipping days due to the holidays occurring during
these months. As a result, the monthly sales levels preceding the June 30
period end is typically higher for the Company, as compared to December 31,
due to the seasonal nature of its late fourth quarter sales activity. The
$11.1 million and $9.5 million increases in accounts receivable for the six
months ended June 30, 1998 and 1997, respectively, follow this seasonality.
During the six months ended June 30, 1998 and 1997, the Company saw its
investment in inventories increase $9.0 million and $28.8 million, in
comparison to inventories at December 31, 1997 and 1996, respectively.
Inventory levels can be heavily influenced by the source of the Company's raw
material supply. Use of imported steel typically requires the Company to
maintain higher levels of inventory. Receipt of imported steel is normally by
large ocean-going vessel, with longer lead times required and less predictable
delivery schedules for such bulk import orders; when compared to the
procurement process faced by the Company when it purchases its steel coils
from domestic producing mills.
The timing of receipt of imported steel coils can significantly impact the
balance of the Company's inventories on any given day. During the six months
ended June 30, 1998 and 1997, the Company shifted a major portion of its steel
purchases to imported coils, given the accessibility of such material at
prices lower than the price charged by the Company's domestic suppliers. In
order to fund this increased investment in inventories, the Company has been
able to procure more favorable payment terms from its import vendors, versus
those terms typically offered by its domestic suppliers. As a result, the
Company's balance of accounts payable increased $8.5 million and $22.1 million
during the six months ended June 30, 1998 and 1997.
The Company used $5.5 million and $12.2 million of cash during the six months
ended June 30, 1998 and 1997, respectively, to acquire property, plant and
equipment. During the first half of 1998 such expenditures primarily related
to the Company's second coil pickling line and improvements to the cold
rolling mill, both located in Blytheville, Arkansas, as well as the
acquisition and installation of a heavy gauge cut-to-length line for the
Pasadena, Texas facility. 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.
The primary source of financing for these property additions came from the
Company's revolving credit facility, which increased by a total of $10.0
million and $13.5 million during the six months ended June 30, 1998 and 1997,
respectively. The Company also issued its $4.5 million of Series A Preferred
Stock on January 30, 1997 to the shareholder of Coil-Tec in exchange for
certain of its assets. No other significant capital projects are currently
committed to by the Company. The Company expects to fund the approximate $1.0
million to $1.5 million of anticipated additional 1998 capital expenditures
with net cash to be provided by operations and/or through additional
borrowings.
On March 24, 1998, the Company amended its primary long-term debt agreements
to provide its 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 June 30, 1998.
As of June 30, 1998, the Company had unused borrowing capacity of $10.1
million under its $80.0 million revolving credit facility. This amount was
further limited to $1.0 million of unused borrowing capacity as of June 30,
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 June 30, 1998, the
ratio of the Company's funded debt to total capitalization was 49.8%.
During the six months ended June 30, 1998, the Company paid dividends of $.1
million on its Series A preferred stock and $.3 million on its common stock,
versus payments of $.1 million and $.6 million, respectively, for the
comparable period of the prior year.
The Company's cash position, unused borrowing capacity, and cash anticipated
to be generated from operations is expected to be sufficient to meet its
working capital needs, capital expenditure commitments, 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 5. Other Information
- -----------------------------
Any shareholder proposal submitted with respect to Huntco Inc.'s 1999 Annual
Meeting of Shareholders, which proposal is submitted outside the requirements
of Rule 14a-8 under the Securities Exchange Act of 1934, will be considered
untimely for purposes of Rules 14a-4 and 14a-5 if notice thereof is received
by Huntco Inc. after February 23, 1999.
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 April 16, 1998, which filing discussed under
Item 5, Other Events, the Company's earnings for the three months ended June
30, 1998, as well as providing certain forward-looking data for the fiscal
year ending December 31, 1998.
The Company filed a Form 8-K on July 21, 1998, which filing discussed under
Item 5, Other Events, the Company's earnings for the three and six months
ended June 30, 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: August 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 SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19
<SECURITIES> 0
<RECEIVABLES> 53,207
<ALLOWANCES> 449
<INVENTORY> 90,591
<CURRENT-ASSETS> 146,230
<PP&E> 180,502
<DEPRECIATION> 33,364
<TOTAL-ASSETS> 304,792
<CURRENT-LIABILITIES> 52,975
<BONDS> 120,527
0
4,500
<COMMON> 90
<OTHER-SE> 117,135
<TOTAL-LIABILITY-AND-EQUITY> 304,792
<SALES> 215,097
<TOTAL-REVENUES> 215,097
<CGS> 199,579
<TOTAL-COSTS> 199,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 4,017
<INCOME-PRETAX> 1,783
<INCOME-TAX> 650
<INCOME-CONTINUING> 1,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,133
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
