1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1997
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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 number: 0-2572
STEEL CITY PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 55-0437067
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS
75050
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(Address of principal executive offices)
(Zip Code)
(972) 660-4499
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(Registrant's telephone number, including area code)
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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. Yes [X] No [ ]
At October 1, 1997, 3,238,061 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
STEEL CITY PRODUCTS, INC.
Balance Sheets at August 31, 1997 (unaudited)
and February 28, 1997................................................................. 3
Statements of Operations for the three month periods ended
August 31, 1997 and August 31, 1996 (unaudited)........................................ 4
Statements of Operations for the six month periods ended
August 31, 1997 and August 31, 1996 (unaudited)........................................ 5
Statement of Stockholders' Equity for the six months
ended August 31, 1997 (unaudited) .................................................... 6
Statements of Cash Flows for the six month periods ended
August 31, 1997 and August 31, 1996 (unaudited)........................................ 7
Notes to financial statements (unaudited)............................................... 8
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STEEL CITY PRODUCTS, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS AUGUST 31, FEBRUARY 28,
1997 1997
---------- --------
(Unaudited)
Current assets:
Cash ..................................................................... $ 1 $ 2
Trade accounts receivable, less allowance of $355 and $389, respectively . 2,818 2,558
Notes receivable - Oakhurst Company, Inc. ................................ 1,153 275
Inventories .............................................................. 3,264 3,327
Other .................................................................... 101 145
-------- --------
Total current assets ................................... 7,337 6,307
-------- --------
Property and equipment, at cost ............................................... 2,017 2,005
Less accumulated depreciation ............................................ (1,021) (951)
-------- --------
996 1,054
-------- --------
Deferred tax asset, less valuation allowance of $51,300 ....................... 1,000 1,000
Notes receivable - Oakhurst Company, Inc., long-term portion .................. -- 1,008
Advances to Oakhurst Company, Inc. ............................................ 5,407 5,400
Other assets .................................................................. 576 528
-------- --------
6,983 7,936
-------- --------
$ 15,316 $ 15,297
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 3,866 $ 4,085
Accrued compensation ..................................................... 292 271
Current maturities of long-term obligations .............................. 1,702 755
Due to affiliate ......................................................... 382 284
Other .................................................................... 106 180
-------- --------
Total current liabilities .............................. 6,348 5,575
-------- --------
Long-term obligations:
Long-term debt ........................................................... 2,705 3,499
Other long-term obligations .............................................. 71 82
-------- --------
2,776 3,581
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Commitments and contingencies .................................................
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
5,000,000 shares, issued 1,938,526 shares;
liquidation preference $10,135 ........................................ 19 19
Common stock, par value $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares ............................. 32 32
Additional paid-in capital ............................................... 43,824 43,824
Deficit (Reorganized on August 26, 1989) ................................. (37,682) (37,733)
Treasury stock, at cost, 207 common shares ............................... (1) (1)
-------- --------
Total stockholders' equity ............................. 6,192 6,141
-------- --------
$ 15,316 $ 15,297
======== ========
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1997 1996
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Sales .............................................. $ 4,599 $ 4,941
Other income ....................................... 163 170
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4,762 5,111
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Cost of goods sold, including occupancy and
buying expenses ................................. 3,668 3,957
Operating, selling and administrative expenses ..... 997 1,019
Provision for doubtful accounts .................... 35 9
Interest expense ................................... 112 125
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4,812 5,110
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Net (loss) income before income taxes and
undistributed earnings of investment in affiliate (50) 1
Income tax expense ................................. -- (8)
Undistributed earnings of investment in affiliate .. 56 54
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Net income ......................................... 6 47
Effect of Series A Preferred Stock dividends ....... (253) (253)
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Net loss attributable to common stockholders ....... $ (247) $ (206)
=========== ===========
Net loss per share attributable to common
stockholders after preferred stock dividends .... $ (0.08) $ (0.06)
=========== ===========
Weighted average number of shares outstanding
used in computing per share amount .............. 3,238,061 3,238,061
=========== ===========
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1997 1996
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Sales .............................................. $ 9,750 $ 10,037
Other income ....................................... 264 272
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10,014 10,309
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Cost of goods sold, including occupancy and
buying expenses ................................. 7,846 8,119
Operating, selling and administrative expenses ..... 1,949 2,017
Provision for doubtful accounts .................... 48 29
Interest expense ................................... 223 237
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10,066 10,402
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Net loss before income taxes and
undistributed earnings of investment in affiliate (52) (93)
Income tax expense ................................. -- (8)
Undistributed earnings of investment in affiliate .. 103 119
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Net income ......................................... 51 18
Effect of Series A Preferred Stock dividends ....... (506) (506)
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Net loss attributable to common stockholders ....... $ (455) $ (488)
=========== ===========
Net loss per share attributable to common
stockholders after preferred stock dividends .... $ (0.14) $ (0.15)
=========== ===========
Weighted average number of shares outstanding
used in computing per share amount .............. 3,238,061 3,238,061
=========== ===========
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS)
(Unaudited)
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
--------------------- ---------------------- PAID-IN EARNINGS ------------------
SHARES PAR VALUE SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
---------- --------- ----------- --------- ----------- -------- --------- -------
Balances, February 28, 1997 1,938,526 $19 3,238,061 $32 $43,824 ($37,733) 207 ($1)
Net income for the period 51
---------- --------- ----------- --------- ----------- -------- --------- -------
Balances, August 31, 1997 1,938,526 $19 3,238,061 $32 $43,824 ($37,682) 207 ($1)
========== ========= =========== ========= =========== ======== ========= =======
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1997 1996
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Cash flows from operating activities:
Net income ................................................ $ 51 $ 18
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization .................... 104 140
Undistributed earnings of investment in affiliate (103) (119)
Other changes in operating assets and liabilities:
Accounts receivable .............................. (260) (452)
Inventories ...................................... 63 516
Accounts payable ................................. (219) (219)
Other ............................................ 127 189
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Net cash (used in) provided by operating activities of:
Continuing operations ..................................... (237) 73
Discontinued operations ................................... (286) (268)
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Net cash used in operating activities .......................... (523) (195)
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Cash flows from investing activities:
Advances to Oakhurst Company, Inc. ........................ (7) (2,704)
Collection of note receivable, Oakhurst Company, Inc. ..... 130 121
Additions to property and equipment ....................... (12) --
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Net cash provided by (used in) investing activities ............ 111 (2,583)
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Cash flows from financing activities:
Net borrowings under revolving credit agreement ........... 555 3,193
Proceeds from long-term borrowings ........................ -- 1,500
Principal payments on long-term obligations ............... (144) (1,785)
Deferred loan costs ....................................... -- (126)
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Net cash provided by financing activities ...................... 411 2,782
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Net (decrease) increase in cash and cash equivalents ........... (1) 4
Cash and cash equivalents at beginning of period ............... 2 3
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Cash and cash equivalents at end of period ..................... $ 1 $ 7
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The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
SIX MONTHS ENDED AUGUST 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the interim periods
presented. All adjustments made are of a normal recurring nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited financial statements be read in conjunction with the audited
financial statements for the fiscal year ended February 28, 1997 ("fiscal
1997") as filed in the Company's Annual Report on Form 10-K.
2. SALE OF REAL ESTATE
In August 1997, the Company entered into an agreement to sell its
88,000 square foot warehouse in Pittsburgh, Pennsylvania for a gross purchase
price of approximately $2.8 million in cash. The transaction is scheduled to
close in December 1997, at which time the Company will record a pre-tax gain
currently estimated at approximately $1.8 million in connection with the sale.
After repayment of the term loan secured on the property, the net proceeds of
approximately $1.6 million will be used to reduce revolving debt and to cover
the expenses of moving to newer, leased premises comprising approximately
67,000 square feet.
3. ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which will be effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about
a company's operating segments. The Company anticipates that the adoption of
SFAS No. 131 will not have a material effect on current disclosures.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Steel City Products, Inc. ("SCPI") is a special, limited purpose,
majority-owned subsidiary of Oakhurst Company, Inc. ("Oakhurst"). SCPI is
expected to concentrate on its historical line of business, while any future
growth and expansion opportunities are expected to be pursued by one or more
subsidiaries of Oakhurst. Through Oakhurst's ownership of SCPI, primarily in
the form of preferred stock, Oakhurst retains substantially all the value of
SCPI, and receives substantially all of the benefit of operations through
dividends on the preferred stock. Oakhurst's ownership of SCPI is designed to
facilitate the preservation and utilization of SCPI's and Oakhurst's net
operating tax loss carryforwards and capital losses which amount to
approximately $150 million and $4 million, respectively.
In addition to cash derived from operations, SCPI's liquidity and
financing requirements are determined principally by the working capital needed
to support its level of business, together with the need for capital
expenditures and the cash required to repay its debt. SCPI also receives cash
payments pursuant to two notes receivable from Oakhurst, and from time to time,
repayments of advances to Oakhurst. SCPI's working capital needs fluctuate
primarily due to the amounts of inventory it carries which can change
seasonally, the size and timeliness of payment of receivables from its
customers to which from time to time SCPI grants extended payment terms for
their seasonal inventory builds, and the amount of credit extended to SCPI by
its suppliers. SCPI participates in a cash concentration system together with
all the subsidiaries of Oakhurst. Available cash that is transferred to
Oakhurst is reflected as an addition to the advances to Oakhurst.
At August 31, 1997, SCPI's debt primarily consisted of a term loan of
approximately $1.1 million secured by a mortgage on SCPI's real estate, and
notes payable with outstanding principal balances aggregating approximately
$602,000 that were issued in connection with the settlement of certain
contingent liabilities related to SCPI's former retail division. SCPI also has
revolving debt of approximately $2.7 million (see below) which was borrowed
primarily to repay prior revolving debt of Oakhurst, and which is offset
entirely by advances receivable from Oakhurst that bear interest at the same
rate as the revolving debt.
Oakhurst and its subsidiaries, including SCPI, have available
financing under a revolving credit facility (the "Revolver") from an
institutional lender up to a maximum of $7 million, subject to defined levels
of the subsidiaries' accounts receivable and inventories. Management believes
that the Revolver will provide adequate funding for SCPI's foreseeable working
capital requirements.
In August 1997, the Company entered into an agreement to sell its
88,000 square foot warehouse in Pittsburgh, Pennsylvania for a gross purchase
price of approximately $2.8 million in cash. The transaction is scheduled to
close in December 1997, at which time the Company will record a pre-tax gain
currently estimated at approximately $1.8 million in connection with the sale.
After repayment of the term loan secured on the property, the net proceeds of
approximately $1.6 million will be used to reduce revolving debt and to cover
the expenses of moving to newer, leased premises comprising approximately
67,000 square feet.
In September 1997, Oakhurst and its subsidiaries reached an agreement
to extend the Revolver beyond its initial two year term to March 1999, and
agreed to pay a fee of $35,000 in connection with the renewal. The Credit
Agreement provides for subsequent automatic renewal terms of one year each upon
payment of a renewal fee of 0.5% of the entire line, unless earlier terminated
as provided for in the Agreement.
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From time to time the information provided by the Company or
statements made by its employees may contain so-called "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in this Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are not historical facts
(including, but not limited to statements concerning anticipated sales, profit
levels, customers and cash flows) are forward looking statements. The Company's
actual future results may differ significantly from those stated in any forward
looking statements. Factors that may cause such differences include, but are
not limited to the factors discussed above as well as the accuracy of the
Company's internal estimates of revenue and operating expense levels. Each of
these factors and others are discussed from time to time in the Company's
Securities and Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of August 31, 1997, there had been no material changes in the
Company's financial condition from February 28, 1997, discussed in Item 7 of
the Company's Annual Report on Form 10-K for fiscal 1997.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the results of SCPI's operating division, Steel
City Products, a distributor of automotive parts and accessories and non-food
pet supplies based in Pittsburgh, Pennsylvania.
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED WITH THREE MONTHS ENDED AUGUST 31,
1996
Compared to the second quarter of the prior year, sales decreased by
approximately $342,000. Sales to existing automotive customers decreased by
$1.1 million, primarily as a result of bankruptcies, downsizing and competitive
pressures by certain of SCPI's customers. Partially offsetting this were sales
to new automotive customers of approximately $420,000.
Sales of non-food pet supplies were $363,000 in the current year
second quarter, compared with $18,000 in the prior year second quarter when
SCPI first added this category to its product lines.
Gross profits decreased by $53,000 in the second quarter compared with
the same quarter of the prior year, due principally to the decrease in sales.
Operating, selling and administrative expenses decreased by $22,000
when compared to the prior year second quarter, due primarily to personnel
reductions.
There was an increase in the provision for doubtful accounts of
$26,000 in the current year related to the expected liquidation of one of the
Company's customers.
SIX MONTHS ENDED AUGUST 31, 1997 COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1996
Compared with the prior year, sales decreased by $287,000. Sales to
existing automotive customers decreased by $1.2 million, primarily as a result
of bankruptcies, downsizing and competitive pressures by certain of SCPI's
customers. Partially offsetting this were sales to new automotive customers and
of the automotive "wing" product line aggregating approximately $900,000;
however the wing sales of $117,000 will not continue, because that division was
sold in the first quarter of the current year.
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Sales of non-food pet supplies were $581,000 in the current year
period, compared with $18,000 in the prior year. Sales of pet supplies first
began in the second quarter of the prior year.
Gross profits decreased by $14,000 in the first six months of the
current year, as a result of the lower sales level.
Operating, selling and administrative expenses decreased by $68,000
when compared to the prior year, due primarily to reductions in personnel.
There was an increase in the provision for doubtful accounts of
$19,000 in the current year related to the expected liquidation of one of the
Company's customers.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania dated
as of August 18, 1997.
27. Financial Data Schedule (EDGAR transmission only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STEEL CITY PRODUCTS, INC.
Date: October 10, 1997 By: /s/ Bernard H. Frank
-------------------------------
Bernard H. Frank
Chief Executive Officer
Date: October 10, 1997 By: /s/ Mark Auerbach
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Mark Auerbach
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10. Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania dated
as of August 18, 1997.
27. Financial Data Schedule (EDGAR transmission only)