UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14323 SOUTH OUTER FORTY, SUITE 600N, TOWN & COUNTRY, MISSOURI 63017
--------------------------------------------------------------------
(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 April 30, 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
March 31, 2000 (Unaudited) and December 31, 1999 (Audited)
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------------
Item 1. Financial Statements
-----------------------------------
HUNTCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 900 $ 414
Accounts receivable, net 43,547 41,835
Inventories 79,459 77,832
Other current assets 2,398 2,380
-------- --------
126,304 122,461
Property, plant and equipment, net 122,055 123,548
Other assets 10,498 10,725
-------- --------
$258,857 $256,734
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,009 $ 43,279
Accrued expenses 3,059 2,657
Current maturities of long-term debt 205 248
-------- --------
41,273 46,184
-------- --------
Long-term debt 111,930 105,470
Deferred income taxes 1,166 1,166
-------- --------
113,096 106,636
-------- --------
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 13,368 12,794
-------- --------
104,488 103,914
-------- --------
$258,857 $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>
Three Months
Ended March 31,
2000 1999
------- -------
<S> <C> <C>
Net sales $85,860 $90,377
Cost of sales 77,792 88,230
-------- -------
Gross profit 8,068 2,147
Selling, general and administrative expenses 4,547 4,789
-------- -------
Income (loss) from operations 3,521 (2,642)
Interest, net (2,507) (2,197)
-------- -------
Income (loss) before income taxes 1,014 (4,839)
Provision (benefit) for income taxes 390 (1,662)
-------- -------
Net income (loss) 624 (3,177)
Preferred dividends 50 50
-------- -------
Net income (loss) available
for common shareholders $ 574 $(3,227)
======== =======
Earnings (loss) per common share:
Basic and diluted $ .06 $(.36)
===== =====
Weighted average common shares outstanding:
Basic and diluted 8,942 8,942
===== =====
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE
<PAGE>
HUNTCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 624 $(3,177)
------- -------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 2,605 2,813
Decrease (increase) in:
accounts receivable (1,712) (3,507)
inventories (1,628) (18,443)
other current assets (18) 59
other assets (263) (176)
Increase (decrease) in:
accounts payable (5,269) 25,797
accrued expenses 402 (1,819)
Other (2) (43)
------- -------
Total adjustments (5,885) 4,681
------- -------
Net cash provided (used) by operations (5,261) 1,504
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment, net (619) (168)
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Net cash used by investing activities (619) (168)
------- -------
Cash flows from financing activities:
Net proceeds from (payments on):
Revolving credit facilities 6,143 (900)
Other debt and capital lease obligations 273 (66)
Dividends (50) (363)
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Net cash provided (used) by financing activities 6,366 (1,329)
------- -------
Net increase in cash 486 7
Cash, beginning of period 414 21
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Cash, end of period $ 900 $ 28
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
-----------------------------------------------------------
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Huntco Inc. and subsidiaries (the "Company") have prepared the condensed
consolidated balance sheet as of March 31, 2000, and the condensed
consolidated statements of operations and of cash flows for the three months
ended March 31, 2000 and 1999, without audit. In the opinion of management,
all adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position at March 31, 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 period ended March 31, 2000 are not
necessarily indicative of the operating results for the full year.
2. INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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<S> <C> <C>
Raw materials $ 60,778 $ 57,013
Finished goods 18,681 20,819
-------- --------
$ 79,459 $ 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
- ---------------------------------------------------------------------------
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 for the quarter were $85.9 million, a decrease of 5.0% in
comparison to net sales of $90.4 million for the three months ended March 31,
1999. The Company attributes the decrease in net sales to a reduction in
shipping volume. The Company processed and shipped 263,139 tons of steel in
the quarter, a decrease of 20.3% in comparison to the prior year's first
quarter. Approximately one-half of this decrease is attributable to volume
sold from the Company's former South Carolina facility, which facility was
sold in December of 1999. Reduced tolling volume was another major factor in
the 2000 first quarter volume decrease. Approximately 21.2% of the tons
processed in the first quarter of 2000 represented customer-owned material
processed on a per ton, fee basis, versus a tolling percentage of 26.1% in
the comparable period of the prior year. Partially offsetting these volume
declines were generally rising prices in 2000. Average selling prices for
the Company's products increased approximately 9.0% in the 2000 first
quarter, in comparison to the 1999 first quarter.
Gross profit expressed as a percentage of net sales was 9.4% for the quarter
ended March 31, 2000, which compares to 2.4% for the prior year's first
quarter. While the Company benefited from generally rising steel prices in
the 2000 first quarter, versus falling prices in the 1999 first quarter,
management's commitment to operating its plants with more rapid inventory
turns and with a more cost effective overhead structure has also begun to
positively impact gross profit margins. Gross profit margins also improved
due to improved capacity utilization at the Company's cold rolling operation,
which is primarily attributed to initial production and sales under new
tolling arrangements that began in March 2000.
Selling, general and administrative ("SG&A") expenses of $4.5 million reflect
a decrease of $.2 million over the prior year's first quarter. This decrease
is primarily attributable to SG&A costs incurred to operate the Company's
former South Carolina facility during the first quarter of 1999. SG&A
expenses expressed as a percentage of net sales remained constant at 5.3%
during the first quarter of 1999 and 2000.
The Company realized income from operations of $3.5 million in the quarter
ended March 31, 2000, which compares to a loss from operations of $2.6
million as reported for the corresponding period of the prior year. This
change reflects the factors discussed in the preceding paragraphs,
principally the discussion concerning the change in the Company's gross
profit.
Net interest expense of $2.5 million and $2.2 million was incurred during the
quarters ended March 31, 2000 and 1999, respectively. This increase is
primarily attributable to higher interest rates being in effect during the
first quarter of 2000 versus the first quarter of 1999, as well as higher
average borrowings in the 2000 versus 1999 first quarter.
The effective income tax rate experienced by the Company was 38.5% in the
first quarter of 2000. For the first quarter of 1999, the Company reported a
34.3% effective income tax benefit. The higher effective income tax rate is
due to the effects of non-deductible expenses incurred by the Company applied
to pre-tax income for 2000, versus a pre-tax loss for 1999.
The Company reported net income available for common shareholders for the
2000 first quarter of $.6 million (or $.06 per share both basic and diluted),
compared to a net loss for common shareholders of $3.2 million (or $.36 per
share both basic and diluted), in the prior year's first quarter. This
change reflects the factors discussed in the preceding paragraphs,
principally the discussion concerning the change in the Company's gross
profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $5.3 million of cash from operating activities during the
first quarter of 2000, primarily to reduce the Company's accounts payable
balance. During the first quarter of 1999, the Company generated $1.5
million cash from operations primarily by increasing its trade accounts
payable balance, in conjunction with a substantial increase in its investment
in inventories.
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. In order to limit the Company's exposure to rapid
inventory price inflationary and deflationary pressures, the Company reduced
its steel coil inventory holdings and intends to maintain these lower levels
consistent with sound business practice. The Company succeeded in its
efforts to reduce its inventory position during 1999, and continues to strive
to limit its on-hand inventory position. The Company believes it can
successfully operate its business on inventory levels lower than those
maintained in early 1999, and believes it can do so through the many supply
channels developed over the past few years and adherence to sound inventory
management practices.
The Company's investment in accounts receivable is typically lowest at
December 31, versus that of its interim quarter ends of March, June and
September. 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 Company's interim quarter ends
is typically higher than compared to December 31, due to the seasonal nature
of its late fourth quarter sales activity. The $1.7 million and $3.5 million
increases in accounts receivable for the quarters ended March 31, 2000 and
1999, respectively, follow this seasonality.
The Company used relatively limited amounts of funds for capital expenditures
during the first quarters of 2000 and 1999, investing $.6 million and $.2
million, respectively.
The Company funded its first quarter 2000 operating and investing activities
by way of additional corporate borrowings, primarily on its asset-based
revolving credit facility. During the first quarter of 1999, the Company was
able to fund a $1.0 million reduction in its long-term debt, as well as its
common and preferred dividends, by way of cash generated from operating
activities, as discussed above.
Total borrowings under the Company's asset-based revolving credit facility
were approximately $111.3 million at March 31, 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
March 31, 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, 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.
YEAR 2000 COMPLIANCE
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000, nor
with any leap year issues on or after February 29, 2000. Based on operations
of the Company in early 2000, the Company does not expect any significant
impact to its on-going business as a result of the "Year 2000 issue." The
Company currently is not aware of any significant Year 2000 or similar
problems that have arisen for its customers or suppliers.
As of December 31, 1998, the Company spent approximately $.7 million in
implementing a new integrated core business system. The Company did not
incur any further significant amounts during 1999 or the first quarter of
2000 related to the implementation of its new business system. The Company
cannot quantify how much of its costs were directly related to Year 2000
compliance matters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET 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 March 31, 2000, $111.3 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 March 31,
2000, and does not enter into derivative financial instruments for trading
purposes.
<PAGE>
PART II. OTHER INFORMATION
- -----------------------------
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) See the Exhibit Index included herein.
(b) Reports on Form 8-K:
The Company filed a Form 8-K on January 28, 2000, which filing discussed
under Item 5, Other Events, the Company's earnings for the three and twelve
months ended December 31, 1999, as well as providing certain forward-looking
data for the fiscal 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: May 12, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF HUNTCO INC. AT
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 900
<SECURITIES> 0
<RECEIVABLES> 43,547
<ALLOWANCES> 324
<INVENTORY> 79,459
<CURRENT-ASSETS> 126,304
<PP&E> 168,418
<DEPRECIATION> 46,365
<TOTAL-ASSETS> 258,857
<CURRENT-LIABILITIES> 41,273
<BONDS> 111,930
0
4,500
<COMMON> 90
<OTHER-SE> 99,898
<TOTAL-LIABILITY-AND-EQUITY> 258,857
<SALES> 85,860
<TOTAL-REVENUES> 85,860
<CGS> 77,792
<TOTAL-COSTS> 77,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 2,507
<INCOME-PRETAX> 1,014
<INCOME-TAX> 390
<INCOME-CONTINUING> 624
<DISCONTINUED> 0
<EXTRAORDINARY> 624
<CHANGES> 0
<NET-INCOME> 624
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
