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 8, 1999
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HUNTCO INC.
----------------
(Exact name of registrant as specified in its charter)
Missouri 1-13600 43-1643751
- ----------------- ---------------------- --------------
(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)
<PAGE>
Item 5. Other Events
Huntco Inc. (the "Company") issued a news release on February 8, 1999, with
respect to its release of earnings for its year ended December 31, 1998. 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 future plans 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 that 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 operating results recognized by the
Company in its recent fiscal periods, changing steel prices can significantly
impact the Company's financial results. 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 1999. 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 growth involving new processes and markets:
There can be no assurance that the Company will be successful in the continued
development of its pickling, cold rolling, stamping and hot roll tempering
operations at its Blytheville, Arkansas facility, or that the utilization and
development of these operations will proceed as quickly as the Company
anticipates. Successful development of these business units requires the
Company to develop new customers, in new market territories, and absolute
assurance cannot be given that this will occur on the timetable that the
Company expects, if ever.
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
and pickled products 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.
Cyclical 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.
Liquidity:
The Company's liquidity can be significantly impacted by domestic and global
competitive conditions surrounding raw material inventory supply and sourcing
issues for steel purchases. Recent global and domestic economic and
competitive conditions compelled the Company to source a greater portion of
its raw material supply needs via imports. The Company's investment in raw
material inventories is substantially lower when it is able to obtain
sufficient quantities of hot rolled steel coils at competitive prices from
domestic sources. Greater lead times are typically required to place orders
and receive shipment from foreign concerns than from the Company's domestic
suppliers. However, the resulting need to invest greater amounts of the
Company's liquidity into raw material inventories is oftentimes necessary when
such import sources offer similar product at more competitive pricing and/or
payment structures than are available domestically. During such times of
higher import requirements, the Company is faced with committing a greater
amount of its liquidity to its inventory. This greater commitment of
liquidity to inventory can act to limit the Company's ability to negotiate and
realize the benefits of quick pay discounts from its vendors, as it negotiates
terms on such purchases in view of staying in compliance with its long-term
debt and revolving credit financing commitments.
Interest rates:
Borrowings under the Company's revolving credit agreement are at interest
rates that 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.
Year 2000 Compliance:
The Company has utilized software and related computer technologies essential
to its operations and to certain products that use two digits rather than four
to specify the year, which could result in a date recognition problem with the
transition to the year 2000. The Company has established a plan, utilizing
internal resources, to assess the potential impact of the year 2000 on the
Company's systems and operations and to implement solutions to address this
issue.
The Company is also dependent upon various third parties, including certain
product suppliers, to conduct its business operations. The failure of
mission-critical third parties to achieve year 2000 compliance could have a
material effect on the Company's operations. The Company is diligently
quantifying issues and developing contingency sources to mitigate the risks
associated with interruptions in its supply chain due to year 2000 problems.
The bulk of the Company's primary steel suppliers have year 2000 compliance
projects in process, and the Company plans to continue to monitor their
progress on a quarterly basis. The Company also continues to monitor concerns
that utility companies and any inbound or outbound shipping suppliers will
continue their services on an uninterrupted basis given year 2000 compliance
concerns. The Company plans to develop a contingency plan by May 1, 1999, in
the event its systems or its mission-critical vendors do not achieve year 2000
compliance. However, there can be no assurance that the Company will not
experience unanticipated costs and/or business interruptions due to year 2000
problems in its internal systems, its supply chain, or from customer product
migration issues.
<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, President & CFO
Date: February 8, 1999
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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 8, 1999
<PAGE> 1
HUNTCO INC.
14323 SOUTH OUTER FORTY - SUITE 600N
TOWN & COUNTRY, MISSOURI 63017
NEWS RELEASE
FOR IMMEDIATE RELEASE:
HUNTCO REPORTS NET LOSS FOR FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 1998.
TOWN & COUNTRY, MISSOURI, February 8, 1999 . . . . . Huntco Inc. (NYSE:"HCO"),
an intermediate steel processor, today announced results of operations for the
fourth quarter and year ended December 31, 1998. Net sales for the fourth
quarter were $80.4 million, a decrease of 14.0% in comparison to net sales of
$93.5 million for the three months ended December 31, 1997. The Company
incurred a net loss for common shareholders for the quarter of $4.4 million,
or ($.49) per share both basic and diluted, which compares to a net loss for
common shareholders of $1.3 million, or ($.14) per share, both basic and
diluted, in the prior year's fourth quarter. Net sales for the year ended
December 31, 1998 were $391.2 million, an increase of 6.7% in comparison to
net sales of $366.6 million for the year ended December 31, 1997. The Company
incurred a net loss for common shareholders of $4.5 million, or ($.50) per
share, both basic and diluted, for the year ended December 31, 1998, which
compares to net income available for common shareholders of $2.6 million, or
$.29 per share, both basic and diluted, for the year ended December 31, 1997.
The Company declared a dividend of $.035 per common share for common
shareholders of record on February 15, 1999, and payable on March 1, 1999.
The Company processed and shipped 249,378 and 1,208,255 tons of steel in the
quarter and year ended December 31, 1998, compared to 276,055 and 1,091,312
tons for the quarter and year ended December 31, 1997. Direct (i.e., non-
tolling) sales volume measured in tons shipped increased 12.1% for the year
ended December 31, 1998, but direct tons shipped in the fourth quarter
declined 5.1% in comparison to the 1997 fourth quarter and 12.6% in relation
to the 1998 third quarter. Tolling volume increased 6.1% in 1998, but declined
sharply in the fourth quarter which saw a 24.0% decrease from the 1997 fourth
quarter and a decrease of 16.6% from the 1998 third quarter. Approximately
20.3% and 22.5% of the tons processed in the quarter and year ended December
31, 1998, represented customer-owned material processed on a per ton, fee
basis, versus a tolling percentage of 24.1% and 23.5% in the comparable
periods of the prior year. The Company sold 45,156 and 261,914 tons of cold
rolled products during the quarter and year ended December 31, 1998, which
compares to 54,779 and 216,028 tons in the corresponding 1997 periods.
The reduction in tons shipped in the fourth quarter of 1998 reflected lower
shipping rates, primarily at the Company's Blytheville, Arkansas facility,
where the Company experienced a slow-down in its tolling volume, and lower
sales levels for processed hot rolled steel products and cold rolled master
coil sales. Tons shipped from the Blytheville facility can represent up to
50% of the Company's total shipments. The reduced level of tolling volume at
Blytheville reflects a move to off-shore purchasing by certain of the
Company's tolling customers who traditionally buy from the Nucor mill at
Hickman, Arkansas and use the Company's Blytheville facility for toll slitting
and pickling and increased competition for toll pickle business.
Also negatively impacting volume levels was the continuing rapid deterioration
in steel prices which is encouraging inventory liquidations and delays in
purchases by the Company's customers. This was especially acute in the
markets served by the Company's cold rolling mill located at its Blytheville
facility.
Weighted average per ton selling values declined 8.7% and 6.3% for the quarter
and year ended December 31, 1998, in relation to the corresponding periods of
the prior year.
Gross profit, expressed as a percentage of net sales, was 0.8% and 5.5% for
the quarter and year ended December 31, 1998, respectively, representing
declines from 4.7% and 7.9% in the comparable prior year periods. The lower
gross profit margins in 1998 primarily reflect declining steel prices
throughout the year and lower sales and production volumes during the second
half of 1998, especially at the Company's Blytheville facility.
With respect to the Company's Blytheville facility, lower production volume at
the cold rolling operation, combined with an extremely weak pricing
environment for cold rolled products, resulted in a pretax loss of
approximately $2.8 million in the 1998 fourth quarter. The poor market
fundamentals for cold rolled products reflect the high levels of foreign cold
rolled available in the Company's market territories at extremely depressed
prices. Further, the Company's metal stamping and custom slitting and blanking
operations caused pretax losses of approximately $2.5 million in the balance
of the Company's Blytheville operations in the 1998 fourth quarter due to low
pricing and low utilization of equipment.
In addition to the negative results incurred during the fourth quarter at its
Blytheville facility, the Company's Madison facility recognized a pretax loss
of approximately $.7 million during the 1998 fourth quarter relating to the
sale of one of the slitters operated at this plant and liquidation of related
inventory.
The Company also announced that it had effected certain organizational
changes, including adopting a formalized, divisional structure for its
operations. Mr. Fred Dupy, who had previously served as Executive Vice
President of Huntco Steel, Inc., returned to the Company in a full time
capacity as President of the Flat Rolled Products Division. This division
includes the entirety of the Company's operations in Catoosa, Pasadena,
Madison, Chattanooga, South Carolina and Kentucky, as well as the hot rolled
steel cut-to-length and slitting operation at the Company's Blytheville
facility. Mr. David Hartman, President of the Company's Midwest Products, Inc.
subsidiary, was named as President of the Custom Products Division. This
division includes the Company's cylinder operations, its metal stamping
operation at the Blytheville facility and the custom blanking and slitting
operations at the Blytheville facility. Mr. Jackie Ivy retains responsibility
for the Company's cold rolling, tempering and pickling operations as President
of the Rolling Mill Division.
The Company expects that its operating conditions will improve somewhat in the
first quarter of 1999, primarily due to increased capacity utilization, but
the difficult pricing environment caused by falling prices continues and the
Company's inventory levels remain high. Notwithstanding this, the Company
believes that it can achieve break-even results for the first quarter if no
further deterioration in market conditions occurs. The Company is presently
negotiating a new, multi-year credit agreement to replace its existing bank
revolver, as well as modifications to the terms of its long-term notes, to
provide increased near-term borrowing capacity. It expects to have these
negotiations completed and new or amended agreements in place around the end
of the first quarter.
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 plans
for 1999 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 is
contained in Form 8-K, filed simultaneously with this News Release.
Huntco Inc. is a major, intermediate steel processor, specializing in the
processing of flat rolled carbon steel.
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended December 31,
1998 1997 1998 1997
------- ------- ------- -------
(audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $391,181 $366,553 $80,438 $93,492
Cost of sales 369,864 337,575 79,795 89,086
------- ------- ------ ------
Gross profit 21,317 28,978 643 4,406
Selling, general and
administrative expenses 19,939 17,059 5,325 4,456
------- ------- ------ ------
Income (loss) from operations 1,378 11,919 (4,682) (50)
Interest, net (8,113) (7,550) (2,101) (1,993)
------- ------- ------ ------
Income (loss) before income taxes (6,735) 4,369 (6,783) (2,043)
Provision (benefit) for income taxes (2,444) 1,579 (2,462) (840)
------- ------- ------ ------
Net income (loss) (4,291) 2,790 (4,321) (1,203)
Preferred dividends 200 183 50 50
------- ------- ------ ------
Net income (loss) available
for common shareholders $ (4,491) $ 2,607 $(4,371) $(1,253)
======= ======= ====== ======
Earnings (loss) per common share
(basic and diluted) $ (.50) $ .29 $ (.49) $ (.14)
===== ===== ===== =====
Weighted average
common shares outstanding:
(basic and diluted) 8,942 8,942 8,942 8,942
===== ===== ===== =====
</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(audited, in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 21 $ 27
Accounts receivable, net 43,579 41,643
Inventories 92,240 81,612
Other current assets 2,914 5,015
-------- --------
138,754 128,297
Property, plant and equipment, net 143,401 145,777
Other assets 11,076 11,191
-------- --------
$293,231 $285,265
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56,923 $ 40,027
Accrued expenses 3,451 3,879
Current maturities of long-term debt 7,352 209
-------- --------
67,726 44,115
-------- --------
Long-term debt 102,555 110,730
Deferred income taxes 7,376 9,415
-------- --------
109,931 120,145
-------- --------
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 24,454 29,885
-------- --------
115,574 121,005
-------- --------
$293,231 $285,265
======== ========
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
------- -------
(audited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,291) $ 2,790
------- -------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,265 8,883
Other (65) (175)
Decrease (increase) in:
accounts receivable (1,936) (8,943)
inventories (10,628) (9,122)
other current assets 2,101 (1,293)
other assets (1,049) (5,440)
Increase (decrease) in:
accounts payable 16,896 21,889
accrued expenses (428) 1,701
non-current deferred taxes (2,039) 2,782
------- -------
Total adjustments 13,117 10,282
------- -------
Net cash provided by operations 8,826 13,072
------- -------
Cash flows from investing activities:
Cash used to acquire property, plant and equipment (6,661) (22,141)
------- -------
Cash flows from financing activities:
Issuance of Series A preferred stock - 4,500
Net proceeds from newly-issued debt 978 4,500
Payments on long-term debt (2,010) (191)
Common stock dividends (939) (1,252)
Preferred stock dividends (200) (183)
Other - (37)
------- -------
Net cash provided (used) by financing activities (2,171) 7,337
------- -------
Net decrease in cash (6) (1,732)
Cash, beginning of period 27 1,759
------- -------
Cash, end of period $ 21 $ 27
======= =======
</TABLE>
