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, 2000, 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
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(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 July 31, 2000, 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, 2000 (Unaudited) and December 31, 1999 (Audited)
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2000 and 1999 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 2000 and 1999 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE> PART I. FINANCIAL INFORMATION
-----------------------------------
Item 1. Financial Statements
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HUNTCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,445 $ 414
Accounts receivable, net 39,161 41,835
Inventories 83,757 77,832
Other current assets 2,241 2,380
-------- --------
126,604 122,461
Property, plant and equipment, net 120,290 123,548
Other assets 10,102 10,725
-------- --------
$256,996 $256,734
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,765 $ 43,279
Accrued expenses 2,326 2,657
Current maturities of long-term debt 205 248
-------- --------
42,296 46,184
-------- --------
Long-term debt 110,664 105,470
Deferred income taxes 817 1,166
-------- --------
111,481 106,636
-------- --------
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 12,099 12,794
-------- --------
103,219 103,914
-------- --------
$256,996 $256,734
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $165,282 $181,239 $ 79,421 $ 90,863
Cost of sales 152,188 175,504 74,396 87,275
------- ------- ------ ------
Gross profit 13,094 5,735 5,025 3,588
Selling, general and
administrative expenses 8,965 10,208 4,418 5,419
------- ------- ------ ------
Income (loss) from operations 4,129 (4,473) 607 (1,831)
Interest, net (5,074) (5,007) (2,567) (2,810)
------- ------- ------ ------
Loss before income taxes (945) (9,480) (1,960) (4,641)
Provision (benefit) for income taxes (351) (3,255) (741) (1,593)
------- ------- ------ ------
Net loss before
extraordinary item (594) (6,225) (1,219) (3,048)
Extraordinary item, net of tax - (2,644) - (2,644)
------- ------- ------ ------
Net loss (594) (8,869) (1,219) (5,692)
Preferred dividends 100 100 50 50
------- ------- ------ ------
Net loss available
for common shareholders $ (694) $ (8,969) $(1,269) $(5,742)
======= ======= ====== ======
Earnings per common share (basic and diluted):
Net loss
before extraordinary item $ (.08) $ (.70) $ (.14) $ (.34)
Extraordinary item, net of tax - (.30) - (.30)
Net loss (.08) (1.00) (.14) (.64)
Weighted average
common shares outstanding:
(Basic and diluted) 8,942 8,942 8,942 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,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (594) $(8,869)
------- -------
Adjustments to reconcile net loss
to net cash (used) by operating activities:
Depreciation and amortization 5,212 5,653
Loss on early extinguishment of debt - 4,067
Decrease (increase) in:
accounts receivable 2,674 (112)
inventories (5,926) 15,633
other current assets 139 145
other assets 131 219
Increase (decrease) in:
accounts payable (3,514) (28,527)
accrued expenses (331) (607)
non-current deferred taxes (349) (4,212)
Other (220) 8
------- -------
Total adjustments (2,184) (7,733)
------- -------
Net cash (used) by operations (2,778) (16,602)
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment, net (874) (336)
------- -------
Cash flows from financing activities:
Net proceeds from (payments on):
Revolving credit facilities 4,926 59,867
Payments on other debt obligations (143) (442)
Payments for debt issuance costs - (1,549)
Retirement of long-term notes - (50,000)
Debt repurchase premiums - (3,816)
Issuance of short-term debt - 13,291
Dividends (100) (413)
------- -------
Net cash provided by financing activities 4,683 16,938
------- -------
Net increase in cash 1,031 -
Cash, beginning of period 414 21
------- -------
Cash, end of period $ 1,445 $ 21
======= =======
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, 2000, the condensed
consolidated statements of operations for the six and three months ended June
30, 2000 and 1999, and the condensed consolidated statement of cash flows for
the six months ended June 30, 2000 and 1999 have been prepared by Huntco Inc.
and its subsidiaries (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, 2000, 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 December 31,
1999 (the "Form 10-K"), which Form 10-K was filed with the Securities and
Exchange Commission on March 30, 2000. The condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1999,
included in the aforementioned Form 10-K. The results of operations for the
periods ended June 30, 2000 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,
2000 1999
------- ---------
<S> <C> <C>
Raw materials $ 63,893 $ 57,013
Finished goods 19,864 20,819
-------- --------
$ 83,757 $ 77,832
======== ========
</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.
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 2000 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 - 2000 Outlook" 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 December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000.
RESULTS OF OPERATIONS
Net sales were $79.4 million for the quarter ended June 30, 2000, a decrease
of 12.6% in comparison to net sales of $90.9 million for the three months
ended June 30, 1999. Net sales for the six months ended June 30, 2000 were
$165.3 million, a decrease of 8.8% in comparison to net sales of $181.2
million for the six months ended June 30, 1999. The decrease in net sales for
the three and six months ended June 30, 2000 was primarily attributable to the
sale of the Company's former South Carolina facility, which sale took place
during the 1999 fourth quarter, combined with somewhat lower year-over-year
shipping volumes at the Company's continuing operations, especially late in
the 2000 second quarter, partially offset by higher average selling prices.
The former South Carolina facility contributed $7.4 million and $14.9 million
in net sales in the three and six months ended June 30, 1999.
The Company processed and shipped 249,059 and 512,198 tons of steel in the
three and six months ended June 30, 2000, a decrease of 8.5% and 10.3%,
respectively, in relation to continuing operations for the comparable periods
of the prior year (i.e., exclusive of 1999 sales from the South Carolina
facility).
Average per ton selling values increased 14.6% and 11.9% during the three and
six months ended June 30, 2000, in comparison to prior year levels, reflecting
higher prices for hot rolled steel coils charged by the Company's suppliers
and the resulting impact upon eventual sales transaction prices.
Approximately 26.7% and 23.9% of the tons processed in the three and six
months ended June 30, 2000 represented customer-owned material processed on a
per ton, fee basis, versus tolling percentages of 21.1% and 23.7% in the
comparable periods 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.
The Company's relative increase in toll processing is attributable to efforts
to process greater amounts of customer-owned material into cold roll steel
products at the Company's Blytheville, Arkansas facility. With respect to
continuing efforts in this area, the Company recently revised its toll
conversion contract with GalvPro L. P. to a direct steel sale contract. This
is for the sale of full hard cold roll products to GalvPro's galvanizing
facility located in Jeffersonville, Indiana. The Company had previously
contracted with GalvPro to provide 4,000 to 6,000 tons per month of full hard
cold roll production to GalvPro on a tolling basis through November 2000,
which business began sporadically in the first half of 2000. This supply
arrangement has been extended for an additional twelve-month period beginning
in December 2000 on a direct sales basis, with volumes expected to range from
6,000 to 9,000 tons per month as this contractual relationship matures, with
pricing for such business established quarterly.
Gross profit expressed as a percentage of net sales was 6.3% and 7.9% for the
three and six months ended June 30, 2000, which compares to 3.9% and 3.2% for
the comparable periods of 1999, respectively. The higher year-over-year gross
profit margins reflect the negative impact of steel selling price declines in
the first half of 1999, especially in cold rolled steel products. The lower
gross profit margin realized in the quarter ended June 30, 2000, versus that
realized year-to-date, is due to falling prices for hot rolled products and
weaker demand across all product lines, especially during the month of June
2000, as customers appear to be liquidating inventory positions. Demand for
cold rolled steel was also negatively impacted during the second quarter with
the decision of the International Trade Commission not to follow the Commerce
Department's preliminary finding to impose duties on the import of cold rolled
steel coils from twelve different countries. Without the continuing concern
that cold rolled steel products would be difficult to obtain, the ruling
appears to have prompted customers to reduce safety stock positions of such
cold rolled steel inventory. The Company anticipates such inventory
corrections will continue into the third quarter, which is expected to reduce
the demand for the Company's products during this time period. These
pressures on operating margins have continued into the third quarter of 2000,
with the seasonal effect of summer slow downs further dampening demand.
Selling, general and administrative ("SG&A") expenses of $4.4 million and $9.0
million for the three and six months ended June 30, 2000, reflect decreases of
$1.0 million and $1.2 million over the comparable periods of the prior year.
These decreases are primarily attributable to the elimination of SG&A costs
incurred to operate the Company's former South Carolina facility during the
six months ended June 30, 1999. SG&A expenses, when expressed as a percentage
of net sales, decreased from 6.0% and 5.6% during the three and six months
ended June 30, 1999, to 5.6% and 5.4% of net sales during the three and six
months ended June 30, 2000, as the Company is concentrating efforts at
reducing its overhead.
The Company generated income from operations of $.6 million and $4.1 million
during the three and six months ended June 30, 2000, which compares to a loss
from operations of $1.8 million and $4.5 million as reported for the
corresponding periods of the prior year. These improvements reflect the
factors discussed in the preceding paragraphs. In addition, during the 1999
third quarter, the Company disposed of its metal stamping business conducted
at its Blytheville facility. The Company incurred operating losses of $.7
million and $1.0 million in its stamping operations during the three and six
months ended June 30, 1999.
Net interest expense of $2.6 million and $5.1 million was incurred during the
three and six months ended June 30, 2000, versus $2.8 million and $5.0 million
for the comparable periods of the prior year. The decrease in the three
months ended June 30, 2000 versus the comparable period in 1999 is
attributable to lower levels of corporate borrowings during 2000, partially
offset by higher interest rates during 2000. The Company's borrowings were
higher in the quarter ended June 30, 1999 versus 2000, in support of higher
inventory levels and financing associated with operating the Company's former
South Carolina facility during 1999. The increase for the six months ended
June 30, 2000 versus the comparable period in 1999 is due to higher average
interest rates charged during 2000 on the Company's average outstanding debt
obligations during 2000 versus 1999. The Company did not capitalize any
interest for the first six months of 1999 or 2000.
The effective income tax benefit rates experienced by the Company were 37.8%
and 37.1% during the three and six months ended June 30, 2000, which rates
increased from the 34.3% effective income tax rates recognized during the
comparable periods of the prior year. The lower effective income tax benefit
rates recognized during the prior year reflects the lower benefit associated
with higher losses incurred by the Company during 1999.
The Company incurred a $2.6 million extraordinary charge, net of income tax
benefits of approximately $1.4 million related to the early retirement of its
primary long-term debt obligations on April 15, 1999.
The Company reported a net loss available for common shareholders for the 2000
second quarter of $1.3 million ($.14 per share both basic and diluted), which
compares to a net loss for common shareholders for the 1999 second quarter of
$5.7 million ($.64 per share both basic and diluted), which included the
extraordinary charge of $2.6 million ($.30 per share both basic and diluted)
referred to above. These changes reflect the factors discussed in the
preceding paragraphs.
The Company reported a net loss available for common shareholders for the six
months ended June 30, 2000 of $.7 million ($.08 per share both basic and
diluted), which compares to a net loss of $9.0 million for the six months
ended June 30, 1999 ($1.00 per share both basic and diluted), which includes
the extraordinary charge referred to above. These changes reflect the factors
discussed in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $3.0 million and $16.6 million of cash from operating
activities during the six months ended June 30, 2000 and 1999, respectively.
During 2000, cash was used in operations to reduce accounts payable and in
support of slightly higher inventory levels, given the slower business
activity experienced by the Company near the end of the second quarter of
2000. The Company is reacting to such slower business activity by way of
adjusting its purchasing pattern for the balance of 2000 towards increasing
inventory turns and reducing overall inventory levels by approximately 20% by
the end of the year. During 1999, the Company's use of cash from operations
was driven by a $28.5 million reduction in trade accounts payable, partially
offset by a $15.6 million reduction in inventory. The Company's inventories
peaked near the end of the first quarter of 1999, and management focused on
increasing inventory turns and better managing inventory levels. The
Company's investment in accounts receivable decreased by $2.7 million for the
first half of 2000, versus an increase of $.1 million for the six months ended
June 30, 1999. The current year decrease is primarily due to a reduction in
shipping volumes late in the second quarter.
The Company used relatively limited amounts of funds for capital expenditures
during the six months ended June 30, 2000 and 1999, investing $.9 million and
$.3 million, respectively.
The Company funded its operating and investing activities for the six months
ended June 30, 2000 and 1999 by way of corporate borrowings, primarily on its
asset-based revolving credit facility which was entered into on April 15,
1999. During 1999, the Company incurred a prepayment penalty of approximately
$3.8 million to retire its former long-term debt obligations. The Company
also incurred approximately $1.5 million in costs to enter into the asset-
based revolving credit facility during 1999.
Total borrowings under the Company's asset-based revolving credit facility
were approximately $110.1 million at June 30, 2000. The maximum amount of
borrowings available to the Company under the revolver is based upon
percentages of eligible accounts receivable and inventory, as well as amounts
attributable to selected fixed assets of the Company. Close attention is
given to managing the liquidity afforded under the Company's asset-based
revolving credit agreement, which availability was relatively limited as of
June 30, 2000.
The Company has also accessed capital by way of off balance sheet financing
arrangements. The Company has entered into various operating leases for steel
processing and other equipment at certain of its facilities.
Subsequent to the first quarter 1999 common dividend of $.3 million, the
Company suspended the payment of common dividends. Future common dividends
may or may not be declared, at the discretion of the Board of Directors,
depending on restrictions imposed by the Company's revolving credit agreement,
industry conditions, evaluation of the Company's performance and current
liquidity situation.
The Company's operations, including its effort to reduce the amount of working
capital necessary to support its ongoing sales activities, unused borrowing
capacity, and access to additional operating lease financings are expected to
generate sufficient funds to meet the Company's working capital commitments,
debt service requirements, necessary capital expenditures, and payment of the
Series A preferred stock dividends over the next twelve months.
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 dictate. The
Company, from time-to-time, also explores financing alternatives such as the
possibility of issuing additional debt, entering into further operating lease
financings, and pursuing strategic alternatives. The Company also continues
to evaluate its business with the intent to streamline operations, improve
productivity and reduce costs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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INTEREST RATE RISK
In the ordinary course of business, the Company is exposed to interest rate
risks by way of changes in short-term interest rates. The Company has
currently elected not to hedge the market risk associated with its floating
rate debt. As of June 30, 2000, $110.1 million of the Company's debt
obligations bear interest at variable rates. Accordingly, the Company's
earnings and cash flow are affected by changes in interest rates. Assuming
the current level of borrowings at variable rates and assuming a one-half
point increase in average interest rates under these borrowings, it is
estimated that the Company's annual interest expense would increase by
approximately $.6 million. In the event of an adverse change in interest
rates, management would likely take actions to mitigate the Company's exposure
to interest rate risk. However, due to the variety of actions that could be
taken depending on the circumstances and the different effects that could
result based on the action taken, management cannot predict the results of an
adverse change in interest rates. Further, this analysis does not consider
the effects of the change in the level of overall economic activity that could
exist in such an environment.
The Company does not have any significant amount of export sales denominated
in foreign currencies, and acquires its raw material supply needs in U.S.
dollar denominated transactions. Therefore, the Company is not viewed as
being exposed to foreign currency fluctuation market risks. In addition,
although the Company both acquires and sells carbon steel coils and products,
no commodity exchange exists that the Company might access to hedge its risk
to carbon steel price fluctuations.
The Company has no material derivative financial instruments as of June 30,
2000, and does not enter into derivative financial instruments for trading
purposes.
PART II. OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds
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Under the terms of the Company's revolving credit agreement, the Company's
ability to declare common dividends is subject to the current liquidity
situation of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
(a) The Company held its annual meeting of shareholders on May 4,
2000.
(b) The following directors were elected to serve terms of three
years, with such terms to expire in 2003: Donald E. Brandt and Michael M.
McCarthy. The remaining directors include James J. Gavin, Jr., whose term
expires in 2001; and B. D. Hunter and Robert J. Marischen, whose terms expire
in 2002.
(c) With respect to the vote for directors, Messrs. Brandt and
McCarthy received 41,591,517 and 41,591,717 votes, respectively, in favor of
election, with 27,701 and 27,501 votes withheld. Brokers were permitted to
vote on the election of directors in the absence of instructions from street
name holders; broker non-votes did not occur in this matter.
(d) Not applicable.
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 12, 2000, which filing discussed under
Item 5, "Other Events", the Company's earnings for the three months ended
March 31, 2000, and provided certain forward-looking data for the year ending
December 31, 2000.
******************
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 14, 2000 By: /s/ ANTHONY J. VERKRUYSE
-----------------------
Anthony J. Verkruyse,
Vice President and Chief
Financial Officer
(on behalf of the
Registrant and as principal
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.
