STEEL TECHNOLOGIES INC - 10-Q Quarterly Report

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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 December 31, 2003

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 0-14061

STEEL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

Kentucky 61-0712014
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

15415 Shelbyville Road, Louisville, KY 40245
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(502) 245-2110
(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 Sections 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____

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No____

Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practical date.

There were 9,804,043 shares outstanding of the Registrant's common stock as of
January 31, 2004.

STEEL TECHNOLOGIES INC.

INDEX

Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets
December 31, 2003 and September 30, 2003 .......................... 3

Condensed Consolidated Statements of Income and
Comprehensive Income Three Months Ended
December 31, 2003 and 2002 ........................................ 4

Condensed Consolidated Statements of Cash Flows Three Months
Ended December 31, 2003 and 2002 .................................. 5

Notes to Condensed Consolidated Financial Statements .............. 6-9

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................10-17

Item 3. Quantitative and Qualitative Disclosures About Market
Risk .............................................................. 18

Item 4. Controls and Procedures ........................................... 18

PART II.OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders................ 18

Item 6. Exhibits and Reports on Form 8-K................................... 19

Signature ................................................................. 19

Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Title 18,
United States Code, Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Title 18,
United States Code, Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Title 18,
United States Code, Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Title 18,
United States Code, Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Part I. - FINANCIAL INFORMATION
Item 1. Financial Statements

STEEL TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets

(In thousands) December 31 September 30
(Unaudited) 2003 2003
- --------------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents ................... $ 2,823 $ 2,758
Trade accounts receivable, net .............. 69,012 74,595
Inventories ................................. 86,217 84,301
Deferred income taxes ....................... 1,225 1,198
Prepaid expenses and other assets ........... 3,370 4,628
--------- ---------
Total current assets ..................... 162,647 167,480

Property, plant and equipment, net ............. 108,144 106,615
Investments in and advances to unconsolidated
affiliates .................................. 20,101 19,604
Goodwill ....................................... 18,148 18,148
Other assets ................................... 1,449 1,328
--------- ---------
$ 310,489 $ 313,175
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 47,489 $ 49,609
Accrued liabilities ......................... 9,217 10,353
Income taxes payable ........................ 337 -
Long-term debt due within one year .......... 5,720 5,720
--------- ---------
Total current liabilities ................ 62,763 65,682

Long-term debt ................................. 94,680 94,680
Deferred income taxes .......................... 14,176 14,872
--------- ---------
Total liabilities ........................ 171,619 175,234
--------- ---------
Commitments and contingencies

Shareholders' equity:
Preferred stock, no par value: 500,000 shares
authorized; none issued or outstanding..... - -
Common stock, no par value: 50,000,000 shares
authorized; issued and outstanding shares:
9,795,865 at December 31, 2003 and
9,765,409 at September 30, 2003............. 20,747 20,371
Treasury stock at cost: 2,589,016 shares at
December 31, 2003 and 2,573,953 at September
30, 2003.................................... (23,415) (23,169)
Additional paid-in capital .................. 5,098 5,098
Retained earnings ........................... 142,492 141,073
Accumulated other comprehensive loss ........ (6,052) (5,432)
--------- ---------
Total shareholders' equity ................ 138,870 137,941
--------- ---------
$ 310,489 $ 313,175
========= =========

The accompanying notes are an integral part of the condensed consolidated
financial statements.
3

STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Income

(In thousands, except per share results) Three Months Ended
(Unaudited) December 31
- --------------------------------------------------------------------------------
2002 2001
---------------------

Sales ................................................ $130,789 $126,009
Cost of goods sold ................................... 120,012 112,239
-------- --------
Gross profit .................................... 10,777 13,770

Selling, general and administrative expenses ......... 6,665 7,132
Equity in net income of unconsolidated affiliates .... 482 325
-------- --------
Operating income ................................... 4,594 6,963

Interest expense, net ................................ 963 1,202
Loss on disposals/writeoffs of property, plant
and equipment...................................... - 115
-------- --------
Income before income taxes ........................ 3,631 5,646

Provision for income taxes ........................... 1,233 1,856
-------- --------
Net income ........................................ $ 2,398 $ 3,790
======== ========
Weighted average number of common
shares outstanding-diluted ........................ 9,977 9,962
======== ========
Diluted earnings per common share .................... $ 0.24 $ 0.38
======== ========
Weighted average number of common
shares outstanding-basic .......................... 9,780 9,706
======== ========
Basic earnings per common share ...................... $ 0.25 $ 0.39
======== ========
Cash dividends per common share ...................... $ 0.10 $ 0.10
======== ========

Condensed Consolidated Statements of Comprehensive Income

(In thousands) Three Months Ended
(Unaudited) December 31
- --------------------------------------------------------------------------------
2003 2002
---------------------

Net income ........................................... $ 2,398 $ 3,790
Foreign currency translation adjustment............ (701) (431)
Change in unrealized loss on cash flow
hedges, net of taxes ........................... 81 66
-------- --------
Comprehensive income ................................. $ 1,778 $ 3,425
======== ========

The accompanying notes are an integral part of the condensed consolidated
financial statements.

4

STEEL TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows

(In thousands) Three months ended
(Unaudited) December 31
- --------------------------------------------------------------------------------
2003 2002
---------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 2,398 $ 3,790
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ................................... 3,579 3,404
Deferred income taxes .......................... (671) (72)
Equity in net income of unconsolidated
affiliates .................................... (482) (325)
Loss on disposals/writeoffs of property,
plant and equipment ........................... - 115
Increase (decrease) in cash resulting from
changes in:
Trade accounts receivable ................ 5,195 8,438
Inventories .............................. (2,231) (29,385)
Prepaids expenses and other assets ....... 598 (19)
Accounts payable ......................... (1,939) (12,906)
Accrued liabilities and income taxes ..... (80) 377
-------- --------
Net cash provided by (used in) operating activities ... 6,367 (26,583)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ......... (5,373) (1,802)
Proceeds from sale of property, plant and equipment - 292
-------- --------
Net cash used in investing activities ................. (5,373) (1,510)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ....................... 1,000 29,500
Principal payments on long-term debt ............... (1,000) (15)
Cash dividends on common stock ..................... (979) (972)
Repurchase of common stock ......................... (246) (781)
Net issuance of common stock under stock
option plans...................................... 376 1,077
-------- --------
Net cash (used in) provided by financing activities ... (849) 28,809
-------- --------
Effect of exchange rate changes on cash ............... (80) (35)
-------- --------
Net increase in cash and cash equivalents ............. 65 681
Cash and cash equivalents, beginning of year .......... 2,758 2,127
-------- --------
Cash and cash equivalents, end of period .............. $ 2,823 $ 2,808
======== ========
Supplemental Cash Flow Disclosures:
Cash payment for interest ............................. $ 971 $ 1,123
======== ========
Cash payment for income taxes ......................... $ 484 $ 1,400
======== ========

The accompanying notes are an integral part of the condensed consolidated
financial statements.

5

STEEL TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION:

The condensed consolidated balance sheet as of December 31, 2003 and the
condensed consolidated statements of income and comprehensive income for the
three months ended December 31, 2003 and 2002, and condensed consolidated cash
flows for the three months ended December 31, 2003 and 2002 have been prepared
by the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at December 31,
2003 and for all 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. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's annual report to shareholders for the year
ended September 30, 2003. The results of operations for the three months ended
December 31, 2003 are not necessarily indicative of the operating results for
the full year.

2. ACQUISITION

On March 7, 2003 the Company completed the purchase of certain assets from Cold
Metal Products, Inc. (Cold Metal Products) as approved by the U.S. Bankruptcy
Court in Youngstown, Ohio. The acquisition has been recorded under the purchase
method of accounting, with the operating results being included in the Company's
condensed consolidated financial statements since the date of acquisition. The
following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of the assets of Cold Metal Products had occurred
at the beginning of the corresponding period.

This unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of future operating results.

6

3. INVENTORIES:

Inventory consists of:

(In thousands) December 31 September 30
(Unaudited)) 2003 2003
- -------------------------------------------------------------------------------

Raw materials .................................... $ 55,607 $ 58,204
Finished goods and work in process ............... 30,610 26,097
---------- ----------
$ 86,217 $ 84,301
========== ==========

4. STOCK OPTIONS

At December 31, 2003, the Company had stock-based compensation plans which are
described more fully in Note 13 of Notes to Consolidated Financial Statements in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2003. As
permitted by Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-Based Compensation" and amended by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure,", the
Company follows the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its stock option plans under the intrinsic value based method.
Accordingly, no stock-based compensation expense has been recognized for stock
options issued under the plans as all stock options granted under the plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. Had compensation expense been determined based on the fair
value of the stock options at the grant date consistent with the provisions of
SFAS No. 123, the Company's net income and basic and diluted net income per
share would have been increased for the three months ended December 31, 2003 and
2002 to the pro forma amounts which follow (in thousands except per share data).

7

5. NET INCOME PER SHARE COMPUTATIONS:

The following is a reconciliation of the denominator of the basic and diluted
per share computations:

Three Months Ended
(In thousands, except per share results) December 31
- --------------------------------------------------------------------------------
2003 2002
----------------------

Net income ............................................ $ 2,398 $ 3,790
--------- ---------
Shares (denominator) used for diluted
per share computations:
Weighted average shares of common stock
outstanding ................................... 9,780 9,706
Plus: dilutive effect of stock options ............ 197 256
--------- ---------
Diluted weighted average shares ............ $ 9,977 $ 9,962
--------- ---------
Shares (denominator) used for basic per
share computations:
Weighted average shares of common stock
outstanding .................................... 9,780 9,706
--------- ---------
Net income per share data:
Diluted ........................................... $ 0.24 $ 0.38
========= =========
Basic ............................................. $ 0.25 $ 0.39
========= =========

All outstanding options are included in the diluted earnings per share
calculation above for the three months ended December 31, 2003 and 2002.

6. RELATED PARTIES

Summarized condensed income statement information of Mi-Tech Steel, Inc.
(Mi-Tech Steel), a fifty percent owned corporate joint venture accounted for by
the equity method, follows:

Three Months Ended
(Unaudited) December 31
-----------------------------------------------------------------------
2003 2002
----------- -----------

Sales $41,796,000 $32,014,000
Gross Profit 2,800,000 2,348,000
Net Income 792,000 500,000

8

The Company has various transactions with Mi-Tech Steel. Included in operating
income of the Company are management fees, Decatur operating expense
reimbursement and equity in the net income of Mi-Tech Steel totaling $615,000
and $424,000 for the quarters ended December 31, 2003 and 2002, respectively.
The Company's equity in undistributed net income of Mi-Tech Steel was $6,817,000
and $5,881,000 at December 31, 2003 and 2002, respectively.

The Company has recorded sales of $2,699,000 and $1,489,000 during the first
quarters of fiscal 2004 and 2003, respectively, and accounts receivable of
$1,592,000 and $872,000 as of December 31, 2003 and September 30, 2003,
respectively, for scrap products sold to a company owned by an officer and
director of the Company. The Company believes these transactions are in the best
interests of the Company and the terms and conditions of these transactions are
in the aggregate not materially more favorable or unfavorable to the Company
than would be obtained on an arm's length basis from unaffiliated parties. See
also information contained under "Certain Transactions" in the Company's 2004
Proxy Statement.

7. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB
51" (FIN 46). The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting right (variable interest entities, or VIEs) and how to
determine when and which business enterprise should consolidate the VIE (the
primary beneficiary). The provisions of FIN 46, as amended by FASB Staff
Position 46-6, "Effective Date of FIN 46" and FIN 46R, are effective immediately
for VIEs created after January 31, 2003 and no later than March 31, 2004 for
VIEs created before February 1, 2003. In addition, FIN 46 requires that both the
primary beneficiary and all other enterprises with a significant variable
interest make additional disclosure in filings issued after January 31, 2003.
The Company has determined that it does not have any variable interest entities
and the adoption of FIN 46 does not have an impact on our financial position,
results of operations or cash flows.

9

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

When used in the following discussion, the word "expects" and other similar
expressions are intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. Specific risks and uncertainties include, but are not limited
to, competitive factors such as pricing and availability of steel; cyclicality
of demand in the steel industry, specifically in the automotive market; our
ability to make and integrate acquisitions; our inability to obtain sufficient
capital resources to fund our operations and our growth; risk of business
interruptions affecting automotive manufacturers; and reliance on key customers.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation
to republish revised forward-looking statements to reflect the occurrence of
unanticipated events or circumstances after the date hereof. Unless the context
otherwise requires, references to "we," "us" or "our" refer collectively to
Steel Technologies Inc. and its subsidiaries.

Application of Critical Accounting Policies
- -------------------------------------------

Our consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
these estimates under different assumptions or conditions. On an ongoing basis,
we monitor and evaluate our estimates and assumptions.

A summary of significant accounting policies used in the preparation of the
consolidated financial statements are described in Note 1 of Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2003.

Our most critical accounting policies include the valuation of accounts
receivable, which impacts selling, general and administrative expense and the
assessment of recoverability of goodwill and long-lived assets. Management
reviews the estimates, including, but not limited to, the allowance for doubtful
accounts on a regular basis based on historical experiences, current conditions
and future expectations. The reviews are performed regularly and adjustments are
made as required by currently available information. We believe these estimates
are reasonable, but actual results could differ from these estimates.

10

Allowance for Doubtful Accounts Receivable
------------------------------------------

Our accounts receivable represent those amounts which have been billed to
our customers but not yet collected. An allowance for doubtful accounts is
maintained for estimated losses resulting from the inability of our
customers to make required payments. The allowance is maintained at a level
considered appropriate based on historical and other factors that affect
collectibility. The factors include historical trends of write-offs,
recoveries and credit losses; the monitoring of portfolio credit quality;
and current and projected economic and market conditions. If the financial
condition of our customers were to deteriorate, resulting in an impairment
of the ability to make payments, additional allowances may be required.

Impairment of Long-Lived Assets and Goodwill
--------------------------------------------

Long-lived assets with estimated useful lives are depreciated to their
residual values over those useful lives in proportion to the economic value
consumed. We review the carrying value of our long-lived assets for
impairment whenever changes in events and circumstances indicate that the
carrying amount of the assets may not be recoverable. If an evaluation is
required, the estimated future discounted cash flows associated with an
asset would be compared to the asset's carrying value to determine if a
write-down to market value or discounted cash flows value is required.
Future changes in circumstances, cash flow estimates and fair value could
affect the valuations.

Goodwill is reviewed annually, or sooner if indicators of impairment exist,
for impairment using the present value technique to determine estimated
fair value of goodwill associated with each reporting entity. If the
goodwill is indicated as being impaired (the present value of cash flows
(fair value) of the reporting unit is less than the carrying amount), the
fair value of the reporting unit would then be allocated to our assets and
liabilities in a manner similar to a purchase price allocation in order to
determine the implied fair value of the reporting unit goodwill. This
implied fair value of the reporting unit goodwill would then be compared
with the carrying amount of the reporting unit goodwill and, if it were
less, we would then recognize an impairment loss.

Considerable management judgment is necessary to assess impairment and
estimate fair value. The projection of future cash flows for the goodwill
impairment analysis requires significant judgment and estimates with
respect to future revenues related to the assets and the future cash
outlays related to those revenues. Actual revenues and related cash flows
or changes in anticipated revenues and related cash flows could result in
changes in this assessment and result in an impairment charge. The
assumptions used in our evaluations, such as forecasted growth rates, cost
of capital, tax rates and residual values, are consistent with our internal
projections and operating plans. The use of different assumptions,
including cash flows and discount rates, could increase or decrease the
related impairment charge.

11

Overview
- --------

Steel Technologies Inc. is one of the largest independent flat-rolled steel
processors in North America. Our North American platform of 21 facilities,
including our unconsolidated affiliates, is strategically positioned in the
steel producing and consuming markets throughout the United States and Mexico.
We utilize the most advanced equipment to produce high-quality steel products
and specialize in meeting exact specifications for customers in a variety of
industries and end use markets.

Through our geographic diversity, broad capabilities and strong marketing
efforts, we have been successful in achieving meaningful market growth. In the
first quarter of fiscal 2004, our tons sold on a direct basis of 250,000 was an
increase of 7.5% over the same quarter in fiscal 2003. We anticipate
approximately 15% to 20% volume growth year over year in the upcoming second
fiscal quarter through continued market growth with large national accounts and
an improving economy. Our largest unconsolidated affiliate, Mi-Tech Steel, Inc.
(Mi-Tech Steel), experienced 30% growth in revenue in the first fiscal quarter
of 2004 and we expect to see similar growth in the upcoming second quarter as
Mi-Tech Steel is well positioned with their network of facilities to grow with
transplant automotive and other domestic customers.

The gross profit margin was 8.2% in the first quarter of fiscal 2004 compared to
10.9% in the first quarter of fiscal 2003. Our gross profit margin has been
negatively impacted by higher priced inventory. In December 2003, the steel
tariffs were eliminated which may have had the effect of reducing supply from
importers. However, a weaker U.S. dollar and domestic steel industry
consolidation have reduced availability of steel inventory in the U.S. We must
maintain substantial inventories in order to provide our customers with short
lead times and just-in-time delivery.

Recently, our steel suppliers have been significantly impacted by the shortage
of raw materials resulting in unprecedented increases affecting the cost to
steel producers on scrap, coke, iron ore and energy. As a result, the North
American steel producers have implemented temporary raw material surcharges to
offset these costs until conditions subside. We are currently incurring raw
material price increases and surcharges from our suppliers. We intend to pass on
these price increases and surcharges to our customers. To the extent we are
unable to pass on these price increases and surcharges, the profitability of our
business could be adversely affected.

We remain diligent and focused on our supplier relations and in securing
material to support our customer requirements. Although we expect supply
conditions to remain tight throughout the upcoming quarter, we have aligned our
business with the most viable North American producer base and expect to
maintain adequate supply to support our valued customers and projected growth.

12

Financial Highlights (in thousands except per share data and percentages)
-------------------------------------------------------------------------

Results of Operations
- ---------------------

First Quarter Fiscal 2004 Compared to Fiscal 2003
- -------------------------------------------------

Sales
-----

We posted net sales of $130,789,000 for the fiscal quarter ended December
31, 2003, an increase of 4% from sales of $126,009,000 for the first
quarter ended December 31, 2002. Tons shipped of Company-owned steel
products in the first quarter of fiscal 2004 increased approximately 7.5%
to 250,000 tons compared to the first quarter of fiscal 2003 while the
average selling price of Company-owned steel products decreased
approximately 4% for the first quarter of fiscal 2003 as compared to the
previous year.

Gross profit
------------

Gross profit declined 22% to $10,777,000 in the first quarter of fiscal
2004 from $13,770,000 in the first quarter of fiscal 2003. The gross profit
margin was 8.2% in the first quarter of fiscal 2004 compared to 10.9% in
the first quarter of fiscal 2003. During the first quarter of fiscal 2004,
we recorded an approximately $279,000 reduction in health insurance and
workers' compensation accruals attributable to more favorable trends than
previously estimated.
13

We expect average raw material costs in fiscal 2004 to exceed average raw
material costs in fiscal 2003 as a result of shortages and in light of the
raw material surcharges implemented by our suppliers. We anticipate passing
through the corresponding raw material surcharges to our customers to
mitigate the impact of the surcharges on our gross profit margin. To the
extent we are unable to pass on future price increases, our gross margins
could be negatively impacted.

We may offset rising material costs and positively impact gross profit by
achieving production cost efficiencies and product mix improvements.

Selling, general and administrative expenses
--------------------------------------------

Selling, general and administrative costs were $6,665,000 or 5.1% of sales
for the first quarter ended December 31, 2003, compared to $7,132,000 or
5.7% of sales for the first quarter ended December 31, 2002. Selling,
general and administrative costs for the first fiscal quarter of 2003
included a reduction of property tax expenses of approximately $385,000 as
a result of receiving an assessment at amounts significantly lower than
estimated. We continue to actively manage the level at which selling,
general and administrative expenses are added to our cost structure.

Equity in net income of unconsolidated affiliates
-------------------------------------------------

Our share of the income of our unconsolidated affiliates increased by 48%
to $482,000 for the first quarter of fiscal 2004 compared to $325,000 in
2003.

Our largest unconsolidated affiliate, Mi-Tech Steel, experienced 30% sales
growth during the quarter. The continued ramping up of the Nissan Motor
Co., Ltd.'s new Canton, Mississippi operation contributed positively to
Mi-Tech Steel's earnings. Mi-Tech Steel's newest facility located near the
Nissan Mississippi operation has begun a $4,000,000 follow-on expansion to
handle automotive exposed processing to service Nissan and other businesses
in the southern region of the U.S.

Interest expense
----------------

Net interest expense for the first quarter of fiscal 2004 decreased to
$963,000 from $1,202,000 for the first quarter of fiscal 2003. The decrease
is primarily attributable to lower interest rates on variable rate debt
during the current quarter as compared to last year.

14

Income tax expense
------------------

Our effective income tax rate was approximately 34.0% and 32.9%,
respectively, for the first quarters of fiscal 2004 and 2003. The increase
is attributable primarily to a non-recurring state income tax benefit
recorded during the quarter ended December 31, 2002. We estimate our
effective income tax rate will be approximately 35% for fiscal 2004.

Liquidity and Capital Resources
- -------------------------------

As of December 31, 2003, we had $99,884,000 of working capital, maintained a
current ratio of 2.59:1 and had total debt at 42% of capitalization. Generally,
in periods of economic expansion and increased demand for our products, our
working capital requirements increase. Conversely, in periods of economic
contraction and reduced demand for our products, our working capital
requirements decrease. We endeavor to manage the levels of accounts receivable,
inventories and other working capital items in relation to the increase and
decrease in demand for our products.

During the first quarter of fiscal 2004, cash provided by operations were
$6,365,000 primarily from net income and depreciation. Improvements in
collections helped us increase operating cash flows, but this was offset by our
additional cash requirements of increasing inventory and improving payment terms
to our suppliers. As a result, it was not necessary for us to increase our net
borrowings during the quarter.

Capital expenditures for the first three months of fiscal 2004 totaled
approximately $5,373,000. The major expenditures were for various capacity
improvement projects. We continue to expand production capacity and processing
facilities to serve the growing needs of customers. For fiscal 2004, the capital
additions to all facilities are expected to approximate $14,000,000.

We maintain an equity investment of approximately $18,244,000 in our 90%-owned
Mexican subsidiary. Additional investments in our Mexican operations, if
required, would be financed with available funds from our bank line of credit.

The translation of the financial statements of our Mexican subsidiary from local
currencies to the U.S. dollar subjects us to exposure relating to fluctuating
exchange rates. However, this exposure is mitigated somewhat by a large
percentage of transactions denominated in the U.S. dollar. We do not consider
our exposure to exchange rate risks to be material and consider the Mexican peso
a relatively stable currency. We do not typically manage our related foreign
currency exchange rate risk through the use of financial instruments. Foreign
currency transaction gains included in sales were $120,000 and $113,000 during
the first three months of fiscal 2004 and 2003, respectively.

15

We maintain a 50% equity investment in Mi-Tech Steel and a 49% equity investment
in Ferrolux Metals Co., LLC. Additional equity contributions to these affiliated
companies are not required.

We have a $151,000,000 unsecured line of credit agreement expiring on August 31,
2005, with various variable options on the interest rate, none of which are
greater than the bank's prime rate. At December 31, 2003, there was $89,000,000
outstanding on the credit facility. During the first quarter fiscal 2004, we
borrowed $1,000,000 and repaid $1,000,000 on our line of credit facility.

We have $11,400,000 outstanding at December 31, 2003 on the ten-year note which
requires annual principal payments of approximately $5,700,000 through March
2005. We intend to make the required principal payment in March 2004 by
borrowing on our

We intend to make the required principal payment in March 2004 by borrowing on
our line of credit and, at current interest rates, will reduce annual interest
expense by approximately $300,000.

Provisions contained in our debt agreements require us to maintain specified
levels of net worth, maintain certain financial ratios and limit the addition of
substantial debt. Our line of credit agreement and private placement note
contain cross-default provisions with respect to the line of credit agreement
and private placement note. We are in compliance with all of our loan covenants,
and none of these covenants would restrict the completion of currently planned
capital expenditures or acquisitions.

Cash Requirements, Contractual Obligations and Contingencies
- ------------------------------------------------------------

Our liquidity needs are met primarily by our cash flows from operating
activities and our line of credit facility. We anticipate borrowing on our
existing line of credit facility to support our continued growth and to meet our
working capital needs. Cash flows from operations and available borrowing
capabilities are expected to meet our needs throughout fiscal 2004. Any
additional funds will be used for growth, including strategic acquisitions,
investment in joint ventures, construction of new plant capacity, and investment
in production and processing capabilities. The form of such financing may vary
depending upon the prevailing market and related conditions, and may include
short or long-term borrowings or the issuance of debt or equity securities.
Operating cash flows are somewhat influenced by cyclicality of demand in the
steel industry, especially in the automotive market.

On January 20, 2004, we filed a registration statement with the Securities and
Exchange Commission relating to a proposed public offering of 2,700,000 shares
of our common stock. We will issue and sell 2,500,000 shares and the selling
shareholders named in the registration statement will sell 200,000 shares. We
will not receive any portion of the proceeds from the sales by the selling
shareholders. We have agreed to grant the underwriters an option to purchase up
to 15% of the total number of shares to be sold by us and the selling
shareholders in this offering to cover over-allotments. We intend to use the net
proceeds of the offering to support our current growth, provide capital for
possible future strategic acquisitions and for general corporate purposes.

16

Until the funds are needed for such purposes, we will use the proceeds to reduce
the amount of indebtedness under our private placement notes and bank line of
credit.

We have entered into operating leases and agreements to purchase electricity to
meet the needs of our facilities. These obligations have not changed
significantly from those disclosed in our Annual Report on Form 10-K for the
year ended September 30, 2003.

At this time, we have no other known material off-balance sheet arrangements,
contractual obligations, contingent liabilities or commitments that must be met
beyond the next twelve months.

We believe all manufacturing facilities are in compliance with applicable
federal and state environmental regulations. We are not presently aware of any
fact or circumstance, which would require the expenditure of material amounts
for environmental compliance.

Related Party Transactions
- --------------------------

We have various transactions with Mi-Tech Steel as well as sales to a company
owned by an officer and director of Steel Technologies (see Note 6 of our Notes
to Condensed Consolidated Financial Statements).

Recently Issued Accounting Pronouncements
- -----------------------------------------

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB 51" (FIN 46). The primary
objectives of FIN 46 are to provide guidance on the identification of entities
for which control is achieved through means other than through voting right
(variable interest entities, or VIEs) and how to determine when and which
business enterprise should consolidate the VIE (the primary beneficiary). The
provisions of FIN 46, as amended by FASB Staff Position 46-6, "Effective Date of
FIN 46" and FIN 46R, are effective immediately for VIEs created after January
31, 2003 and no later than March 31, 2004 for VIEs created before February 1,
2003. In addition, FIN 46 requires that both the primary beneficiary and all
other enterprises with a significant variable interest make additional
disclosure in filings issued after January 31, 2003. We have determined that we
do not have any variable interest entities and the adoption of FIN 46 does not
have an impact on our financial position, results of operations or cash flows.

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change during the first three months ended December
31, 2003 from the disclosures about market risk provided in our Annual Report on
Form 10-K for the year ended September 30, 2003.

Item 4. Controls and Procedures

Management, including the our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the our
disclosure controls and procedures as of the end of the first quarter covered by
this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective to ensure that material information
required to be disclosed in the reports we file or submit under the Securities
Exchange Act of 1934 is made known to us by others within our company, including
our consolidated subsidiaries, particularly during the period for which reports
of our company, including this Quarterly Report on Form 10-Q, are being
prepared. There were no significant changes in the our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation or any corrective actions with regard to significant
deficiencies or material weaknesses.

Part II - Other Information

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders was held on January 22, 2004. The matter
voted upon at the meeting was the election of three directors for three-year
terms.

The number of votes cast for, against or withheld with respect to each nominee
for director elected at the meeting were as follows:

Nominee Votes For Votes Against Votes Withheld
- ------- --------- ------------- --------------

Michael J. Carroll 7,834,816 0 1,541,748
William E. Hellmann 7,809,816 0 1,566,748
Stuart N. Ray 7,829,710 0 1,546,854

18

Item 6. Exhibits and Reports on Form 8-K

Exhibits filed with this report are attached hereto.

On October 27, 2003, we furnished a current report on Form 8-K under Item 9,
pursuant to Item 12, concerning the issuance of the press release reporting its
financial results for the fourth quarter and fiscal year ended September 30,
2003.

On January 13, 2004, we furnished a current report on Form 8-K under Item 9,
pursuant to Item 12, concerning the issuance of the press release reporting its
financial results for the first quarter ended December 31, 2003.

On January 20, 2004, we furnished a current report on Form 8-K under Item 9,
pursuant to Item 12, concerning the issuance of the press release reporting its
financial results for the first quarter ended December 31, 2003 and the filing
of a registration of a public offering of common stock.

On January 26, 2004, we filed a current report on Form 8-K under Items 5 and 7,
to file the earnings announcement for the quarter ended December 31, 2003 and
the announcement of the public offering of common stock in two separate parts.

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.

STEEL TECHNOLOGIES INC.
(Registrant)

By /s/ Joseph P. Bellino
-----------------------------
Joseph P. Bellino
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)

Dated February 5, 2004

19

EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bradford T. Ray, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Steel Technologies
Inc. for the fiscal quarter ending December 31, 2003;

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
first fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

Date: February 5, 2004

/s/ Bradford. T. Ray
- --------------------
Bradford T. Ray
Chief Executive Officer

EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph P. Bellino, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Steel Technologies
Inc. for the fiscal quarter ending December 31, 2003;

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
first fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

Date: February 5, 2004

/s/ Joseph P. Bellino
- ---------------------
Joseph P. Bellino
Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Bradford T. Ray, Chief
Executive Officer of Steel Technologies Inc., (the Company) certify, to the best
of my knowledge, based upon a review of the Quarterly Report on Form 10-Q of the
Company for the quarter ended December 31, 2003:

(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.

/s/ Bradford T. Ray
-------------------
Bradford T. Ray
Chief Executive Officer
Date: February 5, 2004

EXHIBIT 32.1

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I, Bradford T. Ray, Chief
Executive Officer of Steel Technologies Inc., (the Company) certify, to the best
of my knowledge, based upon a review of the Quarterly Report on Form 10-Q of the
Company for the quarter ended December 31, 2003:

(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.

/s/ Joseph P. Bellino
---------------------
Joseph P. Bellino
Chief Financial Officer
Date: February 5, 2004