FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 27, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________________.
Commission File No. 0-22416
KENTUCKY ELECTRIC STEEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 61-1244541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
P. O. Box 3500, Ashland, Kentucky 41105-3500
(Address of principal executive office, Zip Code)
(606) 929-1222
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.
YES x NO
The number of shares outstanding of each of the issuer's classes of common
stock, as of May 11, 1999, is as follows:
4,062,085 shares of voting common stock, par value $.01 per share.
<PAGE
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets ............. 3
Condensed Consolidated Statements of Operations ... 4
Condensed Consolidated Statements of Cash Flows ... 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 9-12
Item 3 - Quantitative and Qualitative Disclosure About Market
Risk ............................................ 12
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Seciruty-Holders.. 14
Item 6 - Exhibits and Reports on Form 8-K ................. 14
SIGNATURES ...................................... 15
<PAGE
<TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
Mar. 27, Sept. 26,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 136 $ 150
Accounts receivable, less allowance for doubtful
accounts and claims of $405 at March 27, 1999
and $460 at September 26, 1998 13,438 12,037
Inventories 17,958 20,363
Operating supplies and other current assets 5,409 5,206
Deferred tax assets 607 648
Total current assets 37,548 38,404
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 4,607 4,532
Machinery and equipment 42,871 42,004
Construction in progress 4,033 3,031
Less - accumulated depreciation (16,499) (14,772)
Net property, plant and equipment 35,012 34,795
DEFERRED TAX ASSETS 6,383 5,990
OTHER ASSETS 1,174 1,062
Total assets $ 80,117 $ 80,251
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Advances on line of credit $ 13,966 $ 11,397
Accounts payable 6,685 7,056
Capital expenditures payable 515 857
Accrued liabilities 3,108 3,834
Environmental liabilities 957 982
Current portion of long-term debt 125 125
Total current liabilities 25,356 24,251
LONG-TERM DEBT 20,000 20,000
OTHER LIABILITIES 951 808
Total liabilities 46,307 45,059
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value, 15,000,000
shares authorized 4,994,666 and 4,985,937
share issued, respectively 50 50
Additional paid-in capital 15,701 15,671
Less treasury stock - 932,581 and 526,996
shares at cost, respectively (4,272) (3,254)
Deferred compensation (52) (73)
Retained earnings 22,383 22,798
Total shareholders' equity 33,810 35,192
Total liabilities and shareholders' equity $ 80,117 $ 80,251
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<TABLE
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
Mar. 27, Mar. 28, Mar. 27, Mar. 28,
1999 1998 1999 1998
[S] [C] [C] [C] [C]
NET SALES $ 25,952 $ 29,610 $ 51,576 $ 55,630
COST OF GOODS SOLD 23,991 26,187 47,540 49,867
Gross profit 1,961 3,423 4,036 5,763
SELLING AND ADMINISTRATIVE
EXPENSES 1,944 1,901 3,633 3,589
Operating income 17 1,522 403 2,174
INTEREST INCOME AND OTHER 25 14 50 24
INTEREST EXPENSE (567) (627) (1,120) (1,222)
Income (loss) before
income taxes (525) 909 (667) 976
PROVISION (CREDIT) FOR
INCOME TAXES (198) 346 (252) 372
Net income (loss) $ (327) $ 563 $ (415) $ 604
NET INCOME (LOSS) PER COMMON
SHARE - BASIC AND DILUTED $ (.08) $ .12 $ (.10) $ .13
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 4,060,355 4,626,033 4,103,766 4,626,208
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 4,060,355 4,630,520 4,103,766 4,631,502
[FN]
See notes to condensed consolidated financial statements
[/TABLE]
<TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
Mar. 27, Mar. 28,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (415) $ 604
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and amortization 1,778 1,832
Change in deferred taxes (393) 687
Change in other 1 (113)
Change in current assets and current
liabilities:
Accounts receivable (1,401) (3,422)
Inventories 2,405 (2,498)
Operating supplies and other
current assets (203) (690)
Refundable income taxes - 900
Deferred tax assets 41 (95)
Accounts payable (371) (215)
Accrued liabilities (726) (255)
Environmental liabilities (25) -
Net cash flows from operating activities 691 (3,265)
Cash Flows From Investing Activities:
Capital expenditures (1,944) (1,852)
Change in capital expenditures payable (342) 364
Net cash flows from investing activities (2,286) (1,488)
Cash Flows From Financing Activities:
Net advances on line of credit 2,569 4,758
Purchases of treasury stock (1,018) (25)
Issuance of common stock 30 21
Net cash flows from financing activities 1,581 4,754
Net increase (decrease) in
cash and cash equivalents (14) 1
Cash and Cash Equivalents at Beginning of Period 150 127
Cash and Cash Equivalents at End of Period $ 136 $ 128
Interest Paid, net of amount capitalized $ 1,117 $ 1,194
Income Taxes Paid $ 100 $ -
<FN>
See notes to condensed consolidated financial statement
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements represent Kentucky Electric Steel, Inc. and its wholly-
owned subsidiary, KESI Finance Company, (collectively the Company).
All significant intercompany accounts and transactions have been
eliminated. These statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month
periods ended March 27, 1999, are not necessarily indicative of the
results that may be expected for the year ending September 25, 1999.
For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-
K for the year ended September 26, 1998.
(2) Accounting Policies
Fiscal Year End
The Company's fiscal year ends on the last Saturday of
September.
Property, Plant, Equipment and Depreciation
Property, plant and equipment is recorded at cost, less
accumulated depreciation. For financial reporting purposes,
depreciation is provided on the straight-line method over the
estimated useful lives of the assets, generally 3 to 12 years for
machinery and equipment and 15 to 30 years for buildings and
improvements. Depreciation for income tax purposes is computed using
accelerated methods. Expenditures for maintenance and repairs are
charged to expense as incurred. Expenditures for equipment renewals
which extend the useful life of any asset are capitalized.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
"Reporting Comprehensive Income", which established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The Company adopted SFAS No. 130 in
the quarter ended December 26, 1998. For the periods disclosed,
comprehensive income is equal to net income reported.
(3) Inventories
Inventories at March 27, 1999 and September 26, 1998 consist of
the following ($000's):
Mar. 27, Sept. 26,
1999 1998
Raw materials $ 2,402 $ 1,984
Semi-finished and finished goods 15,556 18,379
Total inventories $ 17,958 $ 20,363
(4) Earnings Per Share
Statement of Financial Accounting Standards No. 128 (SFAS No.
128) related to earnings per share requires dual presentation of
basic and diluted E.P.S. on the face of the income statement for all
entities with
complex capital structures. The Company adopted SFAS No. 128 during
the first quarter of fiscal 1998. The following is the reconciliation
of the numerators and denominators of the basic and diluted earnings
per share computations.
<TABLE>
For the Three For the Three
Months Ended Months Ended
March 27, 1999 March 28, 1998
Per Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Amounts for Basic
Earnings Per Share $(327) 4,060,355 $(.08) $ 563 4,626,033 $.12
Effect of Dilutive
Securities Options - - - - 4,487 -
Amounts for Diluted
Earnings Per Share $(327) 4,060,355 $(.08) $ 563 4,630,520 $.12
For the Six For the Six
Months Ended Months Ended
March 27, 1999 March 28, 1998
Per Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Amounts for Basic
Earnings Per Share $(415) 4,103,766 $(.10) $ 604 4,626,208 $ .13
Effect of Dilutive
Securities Options - - - - 5,294 -
Amounts for Diluted
Earnings Per Share $(415) 4,103,766 $(.10) $ 604 4,631,502 $ .13
</TABLE>
The following options were not included in the computation of
diluted earnings per share because to do so would have been
antidilutive for the applicable period:
March 27, 1999 March 28, 1998
Transition stock options 89,343 141,081
Employee stock options 469,860 305,476
(5) Environmental Liabilities
The Company's melt shop operations were shut down for twelve
days during the third quarter of fiscal 1997 in order to
decontaminate its baghouse facilities after detection of a
radioactive substance in the baghouse dust, a by-product of the
melting process.
The $1.0 million in environmental liabilities recorded as a
current liability on the balance sheet represents final payment due
an environmental services company for treatment and disposal of the
contaminated baghouse dust. Payment for the disposal will occur
within the next twelve months. Although it is possible that the
ultimate disposal costs may change from current estimates, the effect
of the change, if any, is not expected to be material to the
financial statements due to the Company having applicable insurance
coverage.
(6) Commitments and Contingencies
The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary course of
business.
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business
with respect to commercial, product liability and other matters,
which seek remedies or damages. The Company believes that any
liability that may ultimately be determined will not have a material
effect on its financial position or results of operations.
The Company generates both hazardous wastes and non-hazardous
wastes which are subject to various governmental regulations.
Estimated costs to be incurred in connection with environmental
matters are accrued when the prospect of incurring costs for testing
or remedial action is deemed probable. The Company is not aware of
any material asserted or unasserted environmental claims against the
Company and no accruals for such matters have been recorded in the
accompanying balance sheets except as disclosed in Note 5. However,
discovery of unknown conditions could result in the recording of
accruals in the periods in which they become known.
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. The Company manufactures special bar quality alloy and
carbon steel bar flats to precise customer specifications for sale in
a variety of niche markets. Its primary markets are manufacturers of
leaf-spring suspensions, cold drawn bar converters, flat bed truck
trailer manufacturers and steel service centers.
Net Sales. Net sales decreased $3.6 million (12.4%) in the
second quarter of fiscal 1999 to $26.0 million, as compared to $29.6
million for the second quarter of fiscal 1998. Net sales for the six
months ended March 27, 1999 decreased $4.0 million (7.3%) to $51.6
million, as compared to $55.6 million for the six months ended March
28, 1998. The decrease in sales is attributed to a decrease in
shipments and a decrease in average selling price. Tons shipped
decreased 7.9% and 4.8% in the second quarter and first six months of
fiscal 1999, respectively, as compared to the second quarter and
first six months of fiscal 1998. The average selling price per ton
was down 4.8% and 2.6% for the second quarter and first six months of
fiscal 1999, respectively. The decrease in shipments resulted from
lower production due to the scheduled 10-day maintenance outage taken
in late December and early January. The decrease in average selling
price for the second quarter and first six months is primarily
attributed to market price reductions.
Cost of Goods Sold. Cost of goods sold decreased $2.2 million
(8.4%) in the second quarter of fiscal 1999 to $24.0 million, as
compared to $26.2 million for the second quarter of fiscal 1998. As
a percentage of net sales, cost of goods sold increased from 88.4%
for the second quarter of fiscal 1998 to 92.4% for the second quarter
of fiscal 1999. Cost of goods sold for the six months ended March 27,
1999 decreased $2.3 million (4.7%) to $47.6 million as compared to
$49.9 million for the six months ended March 28, 1998. As a
percentage of net sales, cost of goods sold increased from 89.6% for
the six months ended March 28, 1998 to 92.2% for the six months ended
March 27, 1999. The decrease in cost of goods sold for the second
quarter and first six months of fiscal 1999 from the comparable
periods in fiscal 1998 is primarily due to the decrease in shipments
(as discussed above). The per ton cost of tons shipped was
approximately the same in 1998 and 1999 with lower scrap costs being
offset by higher conversion costs. The increase in conversion costs
is primarily attributed to lower production due to the 10-day
maintenance outage in late December and early January and higher
repair and maintenance expenses. The increase in cost of goods sold
as a percentage of net sales is primarily attributed to lower selling
prices and lower shipments.
Gross Profit (Loss). As a result of the above, the second
quarter of fiscal 1999 reflected a gross profit of $2.0 million as
compared to a gross profit of $3.4 million for the second quarter of
fiscal 1998. As a percentage of net sales, gross profit decreased
from 11.6% for the second quarter of fiscal 1998 to 7.6% for the
second quarter of fiscal 1999.
Similarly, the six months ended March 27, 1999 reflected a gross
profit of $4.0 million as compared to a gross profit of $5.8 million
for the six months ended March 28, 1998. As a percentage of net
sales, gross profit decreased from 10.4% for the first six months of
fiscal 1998 to 7.8% for the first six months of fiscal 1999.
Selling and Administrative Expenses. Selling and administrative
expenses include salaries and benefits, corporate overhead,
insurance, sales commissions and other expenses incurred in the
executive, sales and
marketing, shipping, personnel, and other administrative departments.
Selling and administrative expenses increased slightly by
approximately $43,000 and $44,000 for the three months and six months
ended March 27, 1999, as compared to the same periods in fiscal 1998.
As a percentage of net sales, such expenses increased from 6.4% for
the second quarter of fiscal 1998 to 7.5% for the second quarter of
fiscal 1999. As a percentage of net sales, such expenses increased
from 6.5% for the six months ended March 28, 1998 to 7.0% for the six
months ended March 27, 1999. The increase, as a percentage of sales,
is primarily the result of the decrease in net sales (as discussed
above) for the quarter and six months ended March 27, 1999.
Operating Income (Loss). For the reasons described above, the
second quarter of fiscal 1999 reflected operating income of $17,000
as compared to an operating income of $1.5 million for the second
quarter of fiscal 1998. As a percentage of net sales, operating
income decreased from 5.1% in the second quarter of 1998 to .1% in
the second quarter of 1999.
Similarly, the six months ended March 27, 1999 reflected an
operating income of $.4 million as compared to operating income of
$2.2 million for the six months ended March 28, 1998. As a percentage
of net sales, operating income decreased from 3.9% for the six months
ended March 28, 1998 to .8% for the six months ended March 27, 1999.
Interest Expense. Interest expense decreased by $60,000 for the
three months ended March 27, 1999 from $627,000 for the second
quarter of fiscal 1998 to $ 567,000 for the second quarter of fiscal
1999. Interest expense decreased by $102,000 for the six months ended
March 27, 1999 from $1.2 million for the six months ended March 28,
1998 to $1.1 million for the six months ended March 27, 1999. The
decrease in interest expense for the second quarter and first six
months of fiscal 1999 is due to a decrease in the average amount
outstanding and a slight decline in the interest rate on the
Company's line of credit.
Net Income. As a result of the above, the second quarter of
fiscal 1999 reflected a net loss of $.3 million as compared to net
income of $.6 million for the second quarter of fiscal 1998.
Similarly, the six months ended March 27, 1999 reflected a net
loss of $.4 million as compared to net income of $.6 million for the
six months ended March 28, 1998.
Liquidity and Capital Resources
The cash flows provided by operating activities were $.7 million
for the first six months of fiscal 1999 as compared to cash flows
used of $3.3 million for the first six months of fiscal 1998. The
first six months of fiscal 1999 reflect the decrease in inventories
offset somewhat by an increase in accounts receivable. The cash
flows used by operating activities for the first six months of fiscal
1998 reflect the increases in accounts receivable and inventories
(due primarily to the increased level of sales and production).
The cash flows used by investing activities were $2.3 million
for the first six months of fiscal 1999 as compared to $1.5 million
for the first six months of fiscal 1998. The cash flows used by
investing activities for the first six months of fiscal 1999 consist
of $2.0 million in capital expenditures and a reduction in capital
expenditures payable of $.3 million. The cash flows used by
investing activities for the first six months of fiscal 1998 consist
of capital expenditures of $1.9 million offset somewhat by an
increase in capital expenditures payable of $.4 million.
The cash flows provided from financing activities were $1.6
million for the first six months of fiscal 1999 as compared to $4.8
million for the first six months of fiscal 1998. The cash flows
provided from financing activities for the first six months of fiscal
1999 reflect net advances of $2.6 million on the Company's line of
credit which were used primarily for capital expenditures as
discussed above and $1.0 million used for the purchase of treasury
stock. The cash flows provided from financing activities for the
first six months of fiscal 1998 reflect net advances of $4.8 million
on the Company's line of credit which were used primarily for working
capital needs and capital expenditures.
Working capital at March 27, 1999 was $12.2 million as compared
to $14.2 million at September 26, 1998, and the current ratio was 1.5
to 1.0 as compared to 1.6 to 1.0.
The Company's primary ongoing cash requirements are for current
capital expenditures. The two sources for the Company's liquidity
are internally generated funds and its bank credit facility. The
Company has $14.0 million in borrowings outstanding on its line of
credit as of March 27, 1999. The Company believes that the unused
portion of its $24.5 million bank credit facility and internally
generated funds will be sufficient to fund its ongoing cash needs.
Year 2000 Compliance
The following Year 2000 discussion is provided in response to the
Securities and Exchange Commission's recent interpretative statement
expressing its view that public companies should include detailed
discussion of Year 2000 issues in their MD&A.
The Company is currently assessing the issues confronting it related
to the "Year 2000 problem", which is the result of the inability of many
computer systems and electronic equipment to distinguish the Year 2000
from the Year 1900. The Company is following an organized program to
assure the Company's information technology systems and related
infrastructure will be Year 2000 compliant. The Company has divided its
Year 2000 issues into three areas including: computer hardware and
software business systems, manufacturing process control devices and
related systems, and facility support systems. The Company's Year 2000
program include three phases: (1) an audit and assessment phase designed
to identify Year 2000 issues; (2) a modification phase designed to
correct Year 2000 issues (this phase includes testing of individual
modifications as they are installed); and (3) a testing phase to test
entire systems for Year 2000 compliance after individual modifications
have been installed and tested.
The Company has completed the audit and assessment phase for the
computer hardware and software business systems and the facility support
systems. The audit and assessment phase for the manufacturing process
control devices and related systems is substantially completed.
The Company has completed the modification and testing phases for
its computer hardware and software business systems. Modifications and
final testing of the facility support systems are expected to be
completed by June 30, 1999.
The Company currently expects to complete the modification phase for
its manufacturing process control devices and related systems during the
second calendar quarter of 1999. After all modifications have been made,
appropriate testing of the system is expected to be performed prior to
July 31, 1999.
Management has estimated that the cost for correction of Year 2000
issues, including any software and hardware changes and the cost of
personnel involved in working on the project, will be approximately
$300,000. The Company estimates that 40% of the total cost has been
spent to date. The Year 2000 updates are being funded out of funds
generated from operations and account for less than 30% of the Company's
information technology budget.
The Company's Year 2000 program includes investigation of the Year
2000 readiness status of our major vendors and customers. The Company
is using letters, questionnaires and protocols to determine its vendors'
and customers' 2000 readiness. The Company has contacted all major
vendors including energy and scrap suppliers and external service
providers including banks, insurance companies and phone service
providers to determine their Year 2000 compliance status. If any such
vendor indicates that they will not be Year 2000 compliant, the Company
will develop contingency plans to address the issue, which may include
identifying and developing other vendors. The Company has also
contacted significant customers to determine their progress towards Year
2000 compliance and to identify issues, if any, which might develop if
a customer is unable to become year 2000 compliant on a timely basis.
If any issues are identified, the Company expects to develop procedures
to permit the Company to continue to supply the customer despite Year
2000 issues.
The Company does not have a contingency plan to operate in the event
that its business systems are not Year 2000 compliant. As our work
progresses, if the results of our testing suggest that there is a
significant risk that the business systems might not be Year 2000
compliant, a contingency plan will be developed.
Outlook
Management continues to see positive results from the major
maintenance outage with significant increases in productivity in March
and April. During the second quarter, both electric arc furnaces were
overhauled, the new wall burner operation was improved, and several
other capital and major maintenance projects were completed. Pricing in
the Company's markets is stable and the Company's current booking and
shipping levels increased in late March and April. Management is
optimistic that the improvements in productivity combined with
increasing shipment levels and stable prices will improve profitability
in the third fiscal quarter.
Quantitative and Qualitative Disclosure About Market Risk
Management does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments that
would require disclosure under this item.
Forward-Looking Statements
The matters discussed or incorporated by reference in this Report
on Form 10-Q that are forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) involve risks and
uncertainities. These risks and uncertainities include, but are not
limited to, the reliance on truck and utility vehicle industry; excess
industry capacity; product demand and industry pricing; volatility of
raw material costs, especially steel scrap; intense foreign and domestic
competition; management's estimate of niche market data; the cyclical
and capital intensive nature of the industry; and cost of compliance
with environmental regulations. These risks
and uncertainities could cause actual results of the Company to differ
materially from those projected or implied by such forward-looking
statements.
Without limiting the foregoing, various statements in the previous
discussion of Year 2000 are likewise forward-looking statements. These
statements include statements of the Company's expectations, statements
with regard to schedules and expected completion dates and statements
regarding expected Year 2000 compliance. These forward-looking
statements are subject to various risk factors which may materially
affect the Company's efforts to achieve Year 2000 compliance. These
risk factors include the inability of the Company to complete the plans
and modifications that it has identified, the failure of software
vendors to deliver the upgrades and repairs to which they have
committed, the wide variety of information technology systems and
components, both hardware and software, that must be evaluated and the
large number of vendors and customers with which the Company interacts.
The Company's assessments of the effects of Year 2000 on the Company
are based, in part, upon information received from third parties and the
Company's reasonable reliance on that information. Therefore, the risk
that inaccurate information is supplied by third parties upon which the
Company reasonably relied must be considered as a risk factor that might
affect the Company's Year 2000 efforts. The Company is attempting to
reduce the risks by utilizing an organized approach, extensive testing,
and allowance of ample contingency time to address issues identified by
tests.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders
The annual meeting of shareholders was held on February
2, 1999. In connection with the meeting, proxies were
solicited pursuant to the Securities Exchange Act. The
following are the voting results on proposals considered
and voted upon at the meeting, all of which were
described in the proxy statement.
1. The nominees for director were elected. The vote
was as
follows:
Term
For Withheld Expires
Clifford R. Borland 3,825,847 147,303 2002
David C. Struve 3,825,954 147,196 2002
2. The proposal to adopt the Kentucky Electric Steel,
Inc. 1998 Employee Stock Option/Restricted Stock
Plan was approved. (For 1,544,825; Against
1,385,781; Abstain 37,163; Non-Vote 1,005,381)
3. The proposal to ratify the Board of Directors'
appointment of Arthur Andersen LLP as the
Company's independent public accountants for the
fiscal year ending September 27, 1999. (For 3,938,700;
Against 7,735; Abstain 26,715)
ITEM 6. Exhibits and Reports on Form 8-K
A) Exhibits
3.1 - Certificate of Incorporation of Kentucky
Electric Steel, Inc., filed as Exhibit 3.1
to Registrant's Registration Statement on
Form S-1 (No. 33-67140), and incorporated by
reference herein.
3.2 - By-Laws of Kentucky Electric Steel, Inc.,
filed as Exhibit 3.2 to Registrant's
Registration Statement on Form S-1 (No. 33-
67140), and incorporated by reference herein.
27 - Financial Data Schedule
B) Reports on Form 8-K - None.
<PAGE>
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.
DATED: May 11, 1999 KENTUCKY ELECTRIC STEEL, INC.
(Registrant)
William J. Jessie
William J. Jessie, Vice President,
Secretary, Treasurer, and
Principal Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Kentucky Electric Steel, Inc.'s condensed consolidated financial
statements as of and for the six month period ended March 27, 1999
included in this Company's quarterly report on Form 10-Q and is
qualified in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<CIK> 0000910394
<NAME> KENTUCKY ELECTRIC STEEL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> MAR-27-1999
<EXCHANGE-RATE> 1
<CASH> 136
<SECURITIES> 0
<RECEIVABLES> 13,843
<ALLOWANCES> 405
<INVENTORY> 17,958
<CURRENT-ASSETS> 37,548
<PP&E> 51,511
<DEPRECIATION> 16,499
<TOTAL-ASSETS> 80,117
<CURRENT-LIABILITIES> 25,356
<BONDS> 20,000
<COMMON> 50
0
0
<OTHER-SE> 33,760
<TOTAL-LIABILITY-AND-EQUITY> 80,117
<SALES> 51,576
<TOTAL-REVENUES> 51,576
<CGS> 47,540
<TOTAL-COSTS> 47,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,120
<INCOME-PRETAX> (667)
<INCOME-TAX> (252)
<INCOME-CONTINUING> (415)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (415)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
