-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQEaxdRot5MbVswo6kDCaDBw//0jImKxVqzY6oAyf1zR/jXBTg1kDMWEtxkKHb+4 JS1CF8gqgxg3eV7fX7uzfQ== 0000910394-96-000006.txt : 19960808 0000910394-96-000006.hdr.sgml : 19960808 ACCESSION NUMBER: 0000910394-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY ELECTRIC STEEL INC /DE/ CENTRAL INDEX KEY: 0000910394 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 611244541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22416 FILM NUMBER: 96605195 BUSINESS ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 BUSINESS PHONE: 6069291222 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 10-Q 1 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 June 29, 1996 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 August 7, 1996, is as follows: 4,722,099 shares of voting common stock, par value $.01 per share. KENTUCKY ELECTRIC STEEL, INC. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Balance Sheets .............................. 3 Condensed Statements of Operations .................... 4 Condensed Statements of Cash Flows .................... 5 Notes to Condensed Financial Statements ............... 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 8-11 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K ...................... 12 SIGNATURES ........................................... 13 KENTUCKY ELECTRIC STEEL, INC. CONDENSED BALANCE SHEETS (Dollars in Thousands) (Unaudited) June 29, Sept. 30, 1996 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 125 $ 327 Accounts receivable, less allowance for doubtful accounts of $355 at June 29, 1996 and $625 at September 30, 1995 13,857 12,928 Inventories 15,416 18,205 Operating supplies and other current assets 5,211 5,273 Refundable income taxes 899 452 Deferred tax assets 196 193 ------- ------- Total current assets 35,704 37,378 ------- ------- PROPERTY, PLANT AND EQUIPMENT Land and buildings 4,275 3,766 Machinery and equipment 27,685 25,980 Construction in progress 9,482 4,093 Less - accumulated depreciation (7,148) (5,673) ------- ------- Net property, plant and equipment 34,294 28,166 ------- ------- DEFERRED TAX ASSETS 5,905 6,881 ------- ------- OTHER ASSETS 546 200 ------- ------- Total assets $ 76,449 $ 72,625 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Advances on line of credit $ 4,382 $ 11,131 Accounts payable 7,017 7,295 Capital expenditure payable 3,368 3,076 Accrued liabilities 2,856 3,713 Current portion of long-term debt 125 1,839 ------- ------- Total current liabilities 17,748 27,054 ------- ------- LONG-TERM DEBT 20,000 7,287 ------- ------- OTHER LIABILITIES 343 187 ------- ------- Total liabilities 38,091 34,528 ------- ------- 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, 4,974,099 shares issued, respectively 50 50 Additional paid-in capital 15,710 15,710 Less treasury stock - 187,500 and 100,000 shares at cost, respectively (1,512) (869) Deferred compensation (492) (672) Retained earnings 24,602 23,878 ------- ------- Total shareholders' equity 38,358 38,097 ------- ------- Total liabilities and shareholders' equity $ 76,449 $ 72,625 See notes to condensed financial statements
KENTUCKY ELECTRIC STEEL, INC. CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 NET SALES $ 26,483 $ 27,910 $ 74,796 $ 83,887 COST OF GOODS SOLD 23,814 23,720 67,104 71,013 ------- ------- ------- ------- Gross Profit 2,669 4,190 7,692 12,874 SELLING AND ADMINISTRATIVE EXPENSES 1,819 1,931 5,806 5,772 ------- ------- ------- ------- Operating income 850 2,259 1,886 7,102 INTEREST INCOME AND OTHER 5 12 24 39 INTEREST EXPENSE (343) (150) (1,116) (344) GAIN ON INVOLUNTARY CONVERSION OF EQUIPMENT - - 369 - ------- ------- ------- ------- Income before income taxes 512 2,121 1,163 6,797 PROVISION FOR INCOME TAXES 193 811 439 2,564 ------- ------- ------- ------- Net income $ 319 $ 1,310 $ 724 $ 4,233 NET INCOME PER COMMON SHARE $ .07 $ .27 $ .15 $ .86 WEIGHTED AVERAGE SHARES OUTSTANDING 4,790,885 4,883,414 4,831,054 4,916,110 See notes to condensed financial statements
KENTUCKY ELECTRIC STEEL, INC. CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended June 29, July 1, 1996 1995 Cash Flows From Operating Activities: Net income $ 724 $ 4,233 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 1,990 868 Gain on involuntary conversion of equipment (369) - Change in deferred taxes 976 1,796 Change in other (259) (57) Change in current assets and current liabilities: Accounts receivable (929) (1,697) Inventories 2,789 90 Operating supplies and other current assets 62 (765) Deferred tax assets (3) (96) Accounts payable (278) 1,550 Accrued liabilities (857) (344) Accrued income taxes refundable/payable (447) 237 ------- ------- Net cash flows from operating activities 3,399 5,815 ------- ------- Cash Flows From Investing Activities: Proceeds from involuntary conversion of equipment 912 - Capital expenditures (8,412) (14,209) Increase in capital expenditure payable 292 1,676 ------- ------- Net cash flows from investing activities (7,208) (12,533) ------- ------- Cash Flows From Financing Activities: Net advances (repayments) on line of credit (6,749) 7,702 Repayments on long-term debt (9,001) (1,411) Proceeds from long-term debt borrowings 20,000 - Purchases of treasury stock (643) (869) ------- ------- Net cash flows from financing activities 3,607 5,422 ------- ------- Net decrease in cash and cash equivalents (202) (1,296) Cash and Cash Equivalents at Beginning of Period 327 1,500 ------- ------- Cash and Cash Equivalents at End of Period $ 125 $ 204 Interest Paid, net of amount capitalized $ 955 $ 271 Income Taxes Paid $ 297 $ 1,277 See notes to condensed financial statements
NOTES TO CONDENSED FINANCIAL STATEMENTS KENTUCKY ELECTRIC STEEL, INC (1) Basis of Presentation The accompanying unaudited condensed financial statements of Kentucky Electric Steel, Inc. (the Company) 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 nine-month period ended June 29, 1996, are not necessarily indicative of the results that may be expected for the year ended September 28, 1996. 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 30, 1995. Net income per common share is calculated based on 4,790,885 and 4,883,414 weighted average number of common shares outstanding during the quarters ended June 29, 1996, and July 1, 1995, respectively. Net income per common share is calculated based on 4,831,054 and 4,916,110 weighted average number of shares outstanding for the nine months ended June 29, 1996 and July 1, 1995, respectively. (2) Accounting Policies Fiscal Year End The Company's fiscal year ends on the last Saturday of September. The fiscal year normally consists of fifty-two weeks, however, the fiscal year ended September 30, 1995 had fifty-three weeks. The first nine months of 1996 consists of thirty-nine weeks as compared to forty weeks for the first nine months of 1995. Reclassifications Certain reclassifications have been made to prior year income statement data in order to conform with the fiscal 1996 presentation. 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. The Company capitalizes interest costs as part of the historical cost of constructing major capital assets. Interest costs of $75,000 and $167,000 were capitalized for the quarters ended June 29, 1996 and July 1, 1995, respectively. Interest costs of $159,000 and $474,000 were capitalized for the nine months ended June 29, 1996 and July 1, 1995, respectively. (3) Inventories Inventories at June 29, 1996 and September 30, 1995 consist of the following ($000's):]
June 29, September 30, 1996 1995 Raw materials $ 2,657 $ 3,621 Semi-finished and finished goods 12,759 14,584 Total inventories $ 15,416 $ 18,205
(4) 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. However, discovery of unknown conditions could result in the recording of accruals in the periods in which they become known. KENTUCKY ELECTRIC STEEL, INC. 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 trailers, and steel service centers. Net Sales. Net sales decreased $1.4 million (5.1%) in the third quarter of fiscal 1996 to $26.5 million, as compared to $27.9 million for the third quarter of fiscal 1995. The decrease in net sales is due to a 2.8% decrease in shipments and a decrease in average selling price during the third quarter of fiscal 1996 as compared to the third quarter of fiscal 1995. The decrease in shipments reflects softening demand in selected markets and lost productivity due to trial production of the new product sizes through 12" in width. The decrease in average selling price is primarily attributable to price reductions on selected products reflecting market conditions and pricing pressures. Net sales for the nine months ended June 29, 1996 decreased $9.1 million (10.8%) to $74.8 million, as compared to $83.9 million for the nine months ended July 1, 1995. The decrease in net sales is attributed to an 11.2% decrease in shipments. The decline in shipments was due to customer inventory adjustments and loss of production as a result of the caster fire in the second quarter of fiscal 1996 combined with softening demand in several of our markets. Due to improvement in product mix, the average net selling price per ton has remained relatively flat for the nine months ended June 29, 1996 as compared to the nine months ended July 1, 1995. Cost of Goods Sold. Cost of goods sold increased $94,000 (.4%) in the third quarter of fiscal 1996 to $23.8 million, as compared to $23.7 million for the third quarter of fiscal 1995. As a percentage of net sales, cost of goods sold increased from 85.0% for the three months ended July 1, 1995 to 89.9% for the three months ended June 29, 1996. This increase reflects the decline in the average selling price and the increase in per ton costs. The reinstallation of the wider strand damaged by the caster fire, trial production of the new wide products and additional depreciation expense increased per ton costs. A large part of the increase in costs resulted from the continued purchase of billets to rebuild our billet inventory and prepare for the start-up of the new ladle metallurgy facility. The additional depreciation expense is the result of the equipment placed in service during the latter part of the third fiscal quarter of 1995. Cost of goods sold for the nine months ended June 29, 1996 decreased $3.9 million (5.5%) to $67.1 million as compared to $71.0 million for the nine months ended July 1, 1995. As a percentage of net sales, cost of goods sold increased from 84.7% for the nine months ended July 1, 1995 to 89.7% for the nine months ended June 29, 1996. The increase in cost of goods sold as a percentage of net sales was primarily due to an increase in conversion costs and additional depreciation expense. The problems associated with the start up of the new equipment and the effect of February's caster fire negatively impacted productivity and increased per ton conversion cost. The increase in conversion cost was also related to additional depreciation as a result of the equipment placed in service during the latter part of the third fiscal quarter of 1995. Gross Profit. As a result of the above, gross profit for the third quarter of fiscal 1996 decreased by $1.5 million (36.3%) to $2.7 million from $4.2 million for the third fiscal quarter of 1995. As a percentage of net sales, gross profit decreased from 15.0% for the three months ended July 1, 1995 to 10.1% for the three months ended June 29, 1996. As a result of the above, gross profit for the nine months ended June 29, 1996 decreased $5.2 million (40.3%) to $7.7 million as compared to $12.9 million for the nine months ended July 1, 1995. As a percentage of net sales, gross profit decreased from 15.3% for the nine months ended July 1, 1995 to 10.3% for the nine months ended June 29, 1996. 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 decreased by approximately $112,000 for the three months ended June 29, 1996 as compared to the comparable period in fiscal 1995. As a percentage of net sales, such expenses were 6.9% for the three months ended June 29, 1996 and for the three months ended July 1, 1995. The decrease in selling and administrative expenses is primarily the result of a decrease in health benefit costs and a decrease in incentive compensation (due to the decrease in pre-tax income) which have been partially offset due to an increase in the provision for uncollectible accounts. Selling and administrative expenses increased by $34,000 for the nine months ended June 29, 1996 as compared to the comparable period for fiscal 1995. As a percentage of net sales, such expenses increased from 6.9% for the nine months ended July 1, 1995 to 7.8% for the nine months ended June 29, 1996. The selling and administrative expenses reflect an increase in the provision for uncollectible accounts which has been offset by a decrease in incentive compensation (due to the decrease in pre-tax income) and a decrease in shipping wages (due to reorganization of the Shipping Department, in connection with the completion of the capital expansion plan). The increase in selling and administrative expenses as a percentage of net sales was primarily attributed to the decrease in shipments, resulting in lower net sales for the nine months ended June 29, 1996. Operating Income. For the reasons described above, operating income decreased by $1.4 million (62.4%) from $2.3 million in the third quarter of fiscal 1995 to $.9 million in the third quarter of fiscal 1996. As a percentage of net sales, operating income decreased from 8.1% in the third quarter of 1995 to 3.2% in the third quarter of 1996. Operating income for the nine months ended June 29, 1996 decreased by $5.2 million (73.4%) to $1.9 million from $7.1 million for the nine months ended July 1, 1995. As a percentage of net sales, operating income decreased from 8.5% for the nine months ended July 1, 1995 to 2.5% for the nine months ended June 29, 1996. Interest Expense. Interest expense increased by $193,000 for the three months ended June 29, 1996, from $150,000 for the third quarter of fiscal 1995 to $343,000 for the third quarter of fiscal 1996, net of interest capitalized of $167,000 and $75,000, respectively. Interest expense for the nine months ended June 29, 1996 increased $772,000 from $344,000 for the nine months ended July 1, 1995 to $1.1 million for the nine months ended June 29, 1996, net of interest capitalized of $474,000 and $159,000, respectively. These increases in interest expense were attributed to the additional debt incurred in financing Project '94 and other capital expenditures, and the reduction in capitalized interest due to the completion and start-up of Project '94. Gain on Involuntary Conversion of Equipment. As a result of the caster fire, the Company received insurance proceeds of $912,000 for the replacement cost of the equipment destroyed which had a net book value of $543,000. The excess of the replacement cost over the net book value of the equipment destroyed resulted in a gain of approximately $369,000. Net Income. As a result of the above, net income decreased by $1.0 million (75.6%) for the three months ended June 29, 1996 from $1.3 million for the third quarter of fiscal 1995 to $319,000 for the third quarter of fiscal 1996. As a result of the above, net income for the nine months ended June 29, 1996 decreased $3.5 million (82.9%) from $4.2 million for the nine months ended July 1, 1995 to $.7 million, for the nine months ended June 29, 1996. Liquidity and Capital Resources. The cash flows provided from operating activities were $3.4 million for the first nine months of fiscal 1996 as compared to $5.8 million for the first nine months of fiscal 1995. The first nine months of fiscal 1996 operating cash flows reflect the lower earnings which have partially been offset by additional depreciation and a decrease in inventories. The cash flows used by investing activities consist of capital expenditures of $8.4 million and $14.2 million for the first nine months of fiscal 1996 and 1995, respectively. These amounts were offset by increases in construction expenditures payable of $.3 million and $1.7 million, respectively. Cash flows from investing activities for the nine months ended June 29, 1996 also include the proceeds from the involuntary conversion of equipment of $.9 million. The cash flows from financing activities were $3.6 million for the first nine months of fiscal 1996 as compared to $5.4 million for the first nine months of fiscal 1995. The cash flows from financing activities of $3.6 million for fiscal 1996 reflect net repayments of $6.8 million on the Company's line of credit, $9.0 million repayment on long-term debt, and $.6 million for purchase of treasury stock; however, these amounts have been offset with the proceeds of $20.0 million of new long-term debt. The cash flows from financing activities of $5.4 million for the first nine months of fiscal 1995 reflect the $7.7 million of net advances under the Company's line of credit, offset by $1.4 million repayment on long-term debt and $.9 million for purchase of treasury stock. Working capital at June 29, 1996 $18.0 million as compared to $10.3 million at September 30, 1995, and the current ratio was 2.0 to 1.0 as compared to 1.4 to 1.0. The increase in working capital and current ratio is primarily attributed to the Company refinancing its debt through the private placement of $20.0 million in unsecured notes, which require no principal payments for five years. The remaining proceeds from the issuance were utilized to pay down the Company's bank credit facility. The change in working capital and current ratio can also be attributed to the reduction in inventories. The Company's primary ongoing cash requirements are for the final installments on Project '94, which expanded the Company's casting, rolling, and finishing capacity and the $8.0 million Ladle Metallurgy Project to expand the melting capacity. The two sources for the Company's liquidity are internally generated funds and its $24.5 million bank credit facility. The Company had $4.4 million in borrowings outstanding as of June 29, 1996 under that facility. The Company believes that the bank credit facility and internally generated funds will be sufficient to finance the capital expansion projects and for its ongoing cash needs. Outlook The ladle metallurgy facility installation continues to progress well and start up operations will begin on schedule in August. This facility will remove the refining cycle from the electric arc furnace thus increasing total melting capacity. The ladle metallurgy facility is expected to be brought to full operation over several months to assure that our high quality standards are maintained. The Company's new product sizes are being well received by the marketplace with shipments of new sizes to 27 customers and additional trial orders for other applications. However, the fourth quarter will be another difficult quarter due to current market conditions for our existing product lines and the continued trial production of new products. Certain Risk Factors 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. PART II. - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K A) Exhibits 27 - Financial Data Schedule B) Reports on Form 8-K - None 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: August 7, 1996 KENTUCKY ELECTRIC STEEL, INC. (Registrant) William J. Jessie William J. Jessie, Vice President, Secretary, Treasurer, and Principal Financial Officer EX-27 2 ART.5 FDS FOR 3RD QUARTER 10-Q
5 This schedule contains summary financial information extracted from Kentucky Electric Steel, Inc.'s condensed financial statements as of and for the nine month period ended June 29, 1996 included in this Company's quarterly report on Form 10-Q and is qualified in its entirety by reference to such condensed financial statements. 0000910394 KENTUCKY ELECTRIC STEEL, INC. 1,000 U.S. DOLLARS 9-MOS SEP-28-1996 OCT-1-1995 JUN-29-1996 1 125 0 14,212 355 15,416 35,704 41,442 7,148 76,449 17,748 20,000 50 0 0 38,308 76,449 74,796 74,796 67,104 67,104 0 0 1,116 1,163 439 724 0 0 0 724 .15 .15
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