15415 Shelbyville Road
Company Perspectives:
We process the steel that makes life go.
With its headquarters located in Louisville, Kentucky, Steel Technologies Inc. is a publicly traded intermediate steel processor. The company produces flat-rolled steel to the precise specifications of industrial customers: thickness, width, shape, temper, and finish. Steel Technologies' product line includes cold-rolled strip, one-pass cold-rolled strip, high-carbon and alloy strip and steel, cold-rolled sheet, high-strength low-alloy strip and sheet, hot-rolled pickled and oiled sheet, coated strip and sheet, and tin plate. Special capabilities include pickling (steel cleaning), slitting, oscillating, edging, precision rolling, annealing, cut-to-length, blanking, custom steel fabrication, and engineered products. Automotive supply is the company's largest market, accounting for 43 percent of all revenues, followed by agricultural/lawn and garden, and appliance/HVAC, each with an 11 percent share. The automotive direct market accounts for an additional 8 percent of the company's business. Steel Technologies operates 21 facilities, some through joint ventures, in 21 strategic locations in the United States and Mexico.
Founder's Involvement in the Steel Industry in the 1950s
Steel Technologies was founded by Merwin J. Ray, who was raised in the steelbelt of northeastern Ohio. For two years in the early 1950s he studied industrial engineering at the Ohio State University and Kent State University, but dropped out because he found the experience "not practical enough." He then spent two years in the Army during the Korean War, serving in Seoul, South Korea. Upon returning home he took a job as a car salesman in Warren, Ohio, but by his own estimation he was "a lousy car salesman--an absolute, utter failure." Reflecting on this time, he would later explain, "I couldn't bring myself to do the things and say the things needed to sell cars. I didn't believe in it." He would soon, however, discover a product in which he did believe. In 1954 he took a sales job with Shenango Steel and after two years moved on to Worthington Industries Inc., an intermediate steel processor to which he would devote the next 15 years of his life. Starting out in sales, Merwin worked his way up through the ranks at Worthington, ultimately becoming an executive vice-president. One of his stops during his tenure at Worthington was overseeing the company's operation in Louisville, a city he would grow fond of.
Merwin left Worthington in 1970 to launch his own steel processing company. He decided to locate the business in the Louisville area because he recognized its strategic location. Not only could he ship to the North, primarily to Detroit automakers, he would also be in a position to serve the emerging southern markets. Merwin settled on the outlying town of Eminence, Kentucky, because of reasonably priced land and the willingness of the town's Farmers Deposit Bank to provide credit and assist him in obtaining a major loan from First National Bank of Louisville. Merwin was considered a good risk because he possessed strong contacts in the steel industry and was willing to risk all of his personal assets in launching his company, which he named Southern Strip Steel Inc.
Southern Strip Steel began business in 1971. After losing money its first year, the company began a three-decade-long string of profitable years. A major key to the company's success was Merwin's willingness, unlike many U.S. competitors, to invest in state-of-the art machinery, which was matched by an increasing demand for higher quality steel products by automakers. The years after World War II saw the introduction of statistical process control (SPC), used to produce highly precise products in a number of mediums, including steel. While American steel processing companies disregarded the technology, their Japanese counterparts embraced it. Because the Japanese could now produce higher quality steel parts, other Japanese manufacturers were able to produce higher quality goods, giving them an edge that was instrumental in Japan's economic rise. Because of Merwin's decision to invest in high technology, Southern Strip Steel created a profitable niche in SPC in the United States.
By the end of the 1970s, sales at Southern Strip Steel had grown to $22 million. Merwin proved to be strong in sales and promotion, building an aggressive sales team, but where the company fell short during this period was in its accounting. The company had grown large enough that it needed more than a mere bookkeeper. In 1979 Merwin hired his auditor at Coopers & Lybrand, Timothy M. Graven. It was a major step for Graven to leave a well established accounting firm for a young niche company, but he accepted the position as corporate controller. He was a key addition to the management team and proved especially adept at dealing with the company's banks. In 1981 he was named a director of the corporation and would take on an increasing level of responsibility.
Going Public in 1985 As Steel Technologies
In 1985, after years of steady growth, Southern Strip Steel changed its name to Steel Technologies--more in keeping with the company's expanded capabilities--and was taken public. By this point the company was generating some $50 million in annual sales. It had moved its headquarters to Louisville, and in addition to the plant in Eminence, it also operated facilities in Peru, Indiana, and Madison Heights, Michigan. It was also in 1985 that Merwin turned over the presidency to Daryl Elser, part of a young executive team Merwin had assembled. Elser actually started out as a policeman, then went to work as a scheduler at Southern Steel's Indiana plant in 1978 and two years later transferred to the Eminence facility to become involved in purchasing. Merwin recognized Elser's abilities and promoted him through a series of management positions. Although Steel Technologies was now a public company, it remained essentially a family business. Merwin's sons--Bradford, the eldest, and Stuart--both worked for the company but were in their 20s and in the process of being groomed to one day take over. In 1990 Graven would replace Elser as president, a position he would hold for four years, at which point Bradford Merwin would succeed him.
After going public, Steel Technologies expanded plants and added facilities at a steady rate over the next several years. In 1986 the Michigan plant was expanded from 28,000 square feet to 40,000 square feet. A year later the company entered into a joint venture--Mi-Tech Steel Inc.--with the Japanese firm of Mitsui & Co. to operate processing plants in the United States to serve both Japanese and American automobile and appliance-parts makers. The first plant opened in Murfreesboro, Tennessee, in the fall of 1987. Also during that year, Steel Technologies opened a new plant in Portage, Indiana. In 1989 the company opened a plant in Elkton, Maryland. The Madison Heights plant was replaced by a new 130,000-square-foot plant in Canton Township, Michigan, in 1991, producing such automotive steel products as safety-belt buckles, door locks, and steering column components. Sales during this period grew from $85.9 million in 1987 to $140 million in 1990, at which point a recession hurt auto production and Steel Technologies' sales dipped to $129 million. But the company remained profitable, recording net income of $3.5 million in 1991, and it continued to invest in new plants and equipment, positioning itself to take advantage of a rebound in the economy. All told, from 1987 to 1991 Steel Technologies invested $50 million in this endeavor. In 1992 the company was able to resume its growth: Sales improved to $154.4 million and net income to $6 million.
Steel Technologies continued to expand in the mid-1990s. In June 1994 the company moved beyond the U.S borders for the first time, gaining a presence in Mexico by acquiring 80 percent of the common stock of Transformadora y Comercializadora de Metalels, S.A. de C.V., which was then renamed Steel Technologies de Mexico, and brought with it a facility located in Monterrey. Within a matter of months, the venture began to add equipment to increase the plant's capabilities. By having a plant in Mexico, Steel Technologies was looking to serve longtime customers who were taking advantage of cheap labor and opening plants south of the border. Domestically, in 1995 the company opened its first plant with pickling capabilities, the facility located in Ghent, Kentucky.
External Growth in the Late 1990s
During the latter years of the 1990s, Steel Technologies looked to fuel growth by external means. In 1997 it acquired Atlantic Coil Processing, Inc. in a deal worth an estimated $19.6 million in cash, notes, and assumption of debt. As a result, the company added three processing plants in North Carolina. In 1998, Steel Technologies bought Roberts Steel Co. in a deal worth $14.8 million. Based near Cleveland, Roberts, which generated $25 million in annual sales, processed flat-rolled steel, creating value-added products for use by metal stampers, fabricators, and a range of manufacturers. The addition of the company helped Steel Technologies to service the northern Ohio market.
Expansion, complemented by attention paid to reducing expenses and a rising demand for its products, helped Steel Technologies to post strong results in the late 1990s. Revenues in 1997 reached $345 million, then improved to $383.9 million the following year and $411.4 in 1999. Net income during this period grew from $8.5 million in 1997 to a record $15.6 million in 1999. It was also in 1999 that Merwin Ray took the next step in a planned management succession program by turning over the CEO's duties to his 41-year-old son, Bradford Ray, who also assumed the newly created role of vice-chairman. The elder Ray remained as chairman of the company, electing to focus his efforts on strategic growth, management structure, and organizational development. In addition, another younger executive, Michael J. Carroll, who had devoted 20 years to Steel Technologies, was named president and chief operating officer.
Steel Technologies continued to open new plants. In 1999 a steel processing facility became operational in Berkeley County, South Carolina, a move that complemented the Atlantic Coil acquisition. In Mexico in 2000, the Steel Technologies' majority owned subsidiary opened a $6.5 million plant in Matamoros, Mexico, across the border from Brownsville, Texas, as part of a plan to double business to $60 million by 2003. The company was also on the lookout for acquisition opportunities and considering the possibility of further greenfield sites in order to further expand the Mexican business.
As Steel Technologies entered the new century it continued to pursue acquisitions stateside. In January 2000 the company bought Custom Steel Inc. and Custom Steel Processing Corp., known collectively as Custom Steel, which generated annual sales of $33 million. Steel Technologies paid $13.35 million in cash plus conditional payments and the assumption of $5.8 million in liabilities to gain steel processing plants in Kennett, Missouri, and Wurtland, Kentucky. A year later, Steel Technologies bought a minority stake, 49 percent, in Ferrolux Metals Co., a Wayne, Michigan, auto sheet processor with additional facilities in Ohio and Mississippi. Ferrolux specialized in the production of exposed auto panels. Steel Technologies' partnership with Ferrolux expanded what the company could offer the marketplace. Ferrolux looked to benefit from Steel Technologies' willingness to invest money in expanding its capabilities and growing the business. Early in 2003 Steel Technologies paid approximately $10 million in cash to acquire a cold-rolled strip facility and other assets owned by bankrupt Cold Metal Products Company. The plant, located in Ottawa, Ohio, had been expanded in recent years and offered a wide range of rolling, annealing, and oscillating capabilities. The only setback for the company during these years was the closing of a Decatur, Alabama, pickle line operated by the Mi-Tech joint venture, due to a weak steel market.
In June 2001, 72-year-old Merwin Ray announced that he would retire at the end of the year and turn over the chairmanship to Bradford Ray. His youngest son, Stuart Ray, would continue to serve as the president of the Mi-Tech venture, a position he had held since 1996. Ray continued to serve in an advisory capacity to the company, holding the honorary title of founding chairman, but in essence the succession of power was now complete. The elder Ray had presided over 29 consecutive years of profitability, and despite the adverse effects of a slumping economy in 2001, exacerbated by the terrorist attacks of September 11 of that year, Steel Technologies posted a modest profit. In 2001 Steel Technologies experienced a significant decrease in sales over the previous year, dipping from $461.3 million to $436.8 million. Net income fell from $10.2 million to just $800,000 in 2001. But the company rebounded over the next two years, recording sales of $475.4 million in 2002 and $512.7 million in 2003, with net income during this period totaling $15.8 million and $9.2 million, respectively. There was every reason to believe that the second generation of the Ray family to head Steel Technologies was in line to enjoy continued growth for the foreseeable future.
Principal Subsidiaries: Steel Technologies de Mexico (90%); Custom Steel Corp.; Mi-Tech Steel Inc. (50%).
Principal Competitors: AK Steel Holding Corporation; Gibraltar Steel Corporation; Shiloh Industries, Inc.; Worthington Industries, Inc.
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