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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission File Number 1-5415
A. M. Castle & Co.
(Exact name of registrant as specified in its charter.)
Delaware 36-0879160
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3400 North Wolf Road, Franklin Park, Illinois 60131
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: 847/455-7111
None
(Former name, former address and former fiscal year, if changed since
last year)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock No Par Value - 14,008,772 shares as of October 31, 1996.
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A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
Page
Number
Part I. Financial Information
Item 1. Financial Statements . . . . . . . . . . . . 3
Condensed Balance Sheets . . . . . . . . . . 3
Comparative Statements of Cash Flows . . . . 3
Comparative Statements of Income . . . . . . 4
Notes to Condensed Financial Statements. . . 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . .7 - 8
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K. . . . . . . 8
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A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
(Dollars in thousands except per share data)
(unaudited) Sept. 30 Dec. 31 Sept. 30
Assets 1996 1995 1995
Cash. . . . . . . . . . . . . . . . .$ 2,300 $ 667 $ 854
Accounts receivable, net. . . . . . . 74,669 63,408 68,045
Inventories (principally on last-in,
first-out basis. . . . . . . . . . . 97,164 97,766 109,150
Total current assets . . . . . .$174,133 $161,841 $178,049
Prepaid expenses and other assets . . 35,597 16,245 16,279
Fixed assets, net . . . . . . . . . . 59,513 44,463 43,868
Total assets . . . . . . . . . .$269,243 $222,549 $238,196
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable. . . . . . . . . . .$ 77,297 $ 60,969 $ 59,959
Accrued liabilities . . . . . . . . . 15,184 12,776 15,649
Income taxes payable. . . . . . . . . 1,785 958 2,304
Current portion of long-term debt . . 2,130 2,756 2,971
Total current liabilities. . . . 96,396 77,459 80,883
Long-term debt, less current portion. 41,276 28,015 47,163
Deferred income taxes . . . . . . . . 10,662 10,893 8,746
Post retirement benefit obligations . 3,171 2,819 2,747
Stockholders' equity. . . . . . . . . 117,738 103,363 98,657
Total liabilities and stockholders'
equity . . . . . . . . . . . . .$269,243 $222,549 $238,196
SHARES OUTSTANDING. . . . . . . . . . 14,007 13,945* 13,936*
BOOK VALUE PER SHARE. . . . . . . . .$ 8.41 $ 7.41* $ 7.08*
WORKING CAPITAL . . . . . . . . . . .$ 77,737 $ 84,382 $ 97,166
WORKING CAPITAL PER SHARE . . . . . .$ 5.55 $ 6.05* $ 6.97*
*Restated to reflect a 25% stock dividend.
CONDENSED STATEMENTS OF CASH FLOWS Unaudited)
(Dollars in thousands) For the Nine Months
Ended Sept. 30,
Cash flows from operating activities: 1996 1995
Net income. . . . . . . . . . . . . . . . $ 19,905 $ 20,478
Depreciation. . . . . . . . . . . . . . . 3,833 3,316
Other . . . . . . . . . . . . . . . . . . (4,718) (561)
Cash provided from operating
activities before working
capital changes. . . . . . . . . . . . 19,020 23,233
(Increase) decrease in working capital. . 9,296 (21,150)
Net cash provided from (used by) operating
activities . . . . . . . . . . . . . . . . 28,316 2,083
Cash flows from investing activities:
Investments and acquisitions. . . . . . . (16,897) -0-
Capital expenditures, net of sale
proceeds. . . . . . . . . . . . . . . . . (16,285) (5,994)
Net cash provided from (used by) investing
activities. . . . . . . . . . . . . . . . (33,182) (5,994)
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Cash flows from financing activities:
Long-term borrowings, net . . . . . . . . 12,030 7,772
Dividends paid. . . . . . . . . . . . . . ( 5,876) ( 4,333)
Other . . . . . . . . . . . . . . . . . . 345 350
Net cash provided from (used by) financing
activities. . . . . . . . . . . . . . . . 6,499 3,789
Net increase (decrease) in cash . . . . . . 1,633 ( 122)
Cash - beginning of year. . . . . . . . . 667 976
Cash - end of period. . . . . . . . . . . $ 2,300 $ 854
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . $ 2,084 $ 2,540
Income taxes . . . . . . . . . . . . . $ 12,303 $ 12,467
A. M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except tonnage and per share data)
For the Three For the Nine
Months Ended Months Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
Net sales . . . . . . . . $162,322 $149,023 $512,166 $481,160
Cost of material sold . . 116,832 108,297 368,349 348,351
Gross profit on sales . 45,490 40,726 143,817 132,809
Operating expenses. . . . 35,056 29,877 104,858 93,416
Depreciation expense. . . 1,279 1,083 3,833 3,316
Interest expense, net . . 634 785 2,322 2,175
Total . . . . . . . . . 36,969 31,745 111,013 98,907
Income before taxes . . . 8,521 8,981 32,804 33,902
Income Taxes:
Federal . . . . . . . . 2,699 2,894 10,432 10,825
State . . . . . . . . . 564 694 2,467 2,599
3,2633 3,588 12,899 13,424
Net income. . . . . . . . 5,258 5,393 19,905 20,478
Net income per share. . . $ .38 $ .39 $ 1.42 $ 1.48
Financial Ratios:
Return on sales . . . . 3.24% 3.62% 3.89% 4.26%
Asset turnover. . . . . 2.41 2.50 2.54 2.69
Return on assets. . . . 7.81% 9.06% 9.86% 11.46%
Leverage factor . . . . 2.60 2.90 2.60 2.90
Return on opening
stockholders' equity . 20.35% 26.26% 25.68% 33.23%
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Other Data:
Cash dividends paid . . $2,101 $1,669 $ 5,876 $ 4,333
Dividends per share . . .15 .12* .42 .31*
Average number of
shares outstanding . . 14,007 13,915* 13,990 13,879*
Tons sold 80,72479,500 251,3250263,974
*Restated to reflect a 25% stock dividend.
Inventory determination under the LIFO method can only be made at the
end of each fiscal year based on the inventory levels and costs at that
time. Accordingly, interim LIFO determinations, including those at
Sept. 30, 1996 and Sept. 30, 1995, must necessarily be based on
management's estimates of expected year end inventory levels and costs.
Since future estimates of inventory levels and costs are subject to
certain forces beyond the control of management, interim financial
results are subject to fiscal year end LIFO inventory valuations.
Current replacement cost of inventories exceeds book value by $60.9
million, $66.3 million, and $67.1 million at September 30, 1996,
December 31, 1995 and September 30, 1995 respectively. Taxes on income
would become payable on any realization of this excess from reductions
in the level of inventories.
A. M. CASTLE & CO.
Notes to Condensed Financial Statements
1. Condensed Financial Statements
The condensed financial statements included herein are unaudited,
except for the balance sheet at December 31, 1995, which is
condensed from the audited financial statements at that date. The
Company believes that the disclosures are adequate to make the
information not misleading; however, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, the unaudited statements, included herein,
contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position,
the cash flows, and the results of operations for the periods then
ended. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form
10-K. The 1996 interim results reported herein may not necessarily
be indicative of the results of operations for the full year 1995.
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2. Common Stock and Per Share Information
Net income per share computations are based on the weighted average
number of shares of common stock outstanding during the respective
periods. On April 25th, 1996, the Company declared a 25% dividend,
which was effected as a 5 for 4 split. The additional shares were
distributed May 24, 1996 to shareholders of record May 10, 1996.
All per share amounts presented have been restated to reflect the
effect of the 25% stock dividend.
3. Acquisitions
On January 2, 1996, the Company acquired Total Plastics, Inc., a
Michigan based plastics distributor; and on March 11, 1996, Total
Plastics, Inc. purchased the net assets of Pontiac Plastics, a
Detroit area plastics distributor. Both acquisitions have been
accounted for by the purchase method of accounting and accordingly,
the purchase price has been allocated to assets acquired and
liabilities assumed. The results of operations of Total Plastics,
Inc. are included in the Company's financial statements as of the
acquisition date. Pro-forma results are not presented as the
amounts do not significantly differ from historical results.
On April 1, 1996, the Company acquired Cutter Precision Metals,
Inc., a Washington based metals distributor. The acquisition has
been accounted for as a purchase and accordingly, the results of
operations are included in the Company's consolidated financial
statements as of the acquisition date. Pro-forma results are not
presented as the amounts do not significantly differ from
historical results.
On May 1, 1996, this Company along with Duferco Steel, Inc.,
through their joint venture Depot Metals, L.L.C., purchased a two-
thirds interest in Kreher Steel Co., Inc., a Chicago based metals
distributor. The Company's interest in the joint venture has been
accounted for using the equity method and the Company's share of
the operating results of the joint venture has been included in the
Company's consolidated financial statements commencing May 1, 1996.
4. Subsequent Event (Acquisition)
On November 1, 1996, the Company's subsidiary, A. M. Castle & Co.
Limited, a U.K. Corporation, acquired the assets of High
Performance Alloys Ltd., a United Kingdom based metals distributor.
The acquisition will be accounted for as a purchase and,
accordingly, the results of operations will be included in the
Company's consolidated financial statements commencing November 1,
1996.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Operating results for the third quarter of 1996 showed record third
quarter sales, but slightly lower earnings at $5.3 million, or 38
cents per share, as compared to last year's third quarter record of
$5.4 million, or 39 cents per share. Year-to-date earnings remain
strong at $19.9 million, or $1.42 per share, but continue to be
slightly below last year's record earnings of $20.5 million, or
$1.48 per share for the comparable nine month period. Sales growth
and continued improvements in operating margins were key factors in
the Company's continued strong earnings performance.
Despite a modest increase in physical volume, sales for the quarter
ended September 30th rose to a record $162.3 million, an 8.9%
increase over the third quarter of 1995's sales of $149.0 million.
For the first nine months of 1996, sales increased by 6.4% to a
record $512.2 million compared with $481.2 million during the same
period in 1995. Sales unit volume, expressed in tons sold,
increased by 1.5% over last year's third quarter, but was down by
4.8% over the first nine months of last year. The higher sales
dollars were primarily due to the acquisitions of Total Plastics,
Inc. and Cutter Precision Metals, Inc.
Gross margin percentage increased to 28.0% as compared to 27.3% for
the third quarter of last year. For the first nine months of 1996,
gross margin percentage was 28.1% as compared to 27.6% for the
first nine months of 1995. The increase in gross profit percentage
was largely due to higher margins generated at Total Plastics and
Cutter, along with changes in sales mix. In terms of dollars,
total gross profit increased by $4.8 million over the third quarter
of last year and by $11.0 million over the first nine months of
1995. Gross profit contributions from Total Plastics, Inc. and
Cutter Precision Metals, Inc. provided the increase in gross profit
dollars over 1995.
Third quarter operating expenses were up by approximately $5.2
million (17.3%) over the comparable period last year. As a
percentage of sales, third quarter 1996 operating expenses were
21.6% of sales as compared to 20.0% for the third quarter of 1995.
The acquisitions of Total Plastics, Inc. and Cutter Precision
Metals, Inc. accounted for $4.0 million of the increase. Excluding
Total Plastics and Cutter, operating expenses were up by
approximately $1.2 million (4.0%). Year-to-date, operating
expenses increased by $11.4 million (12.2%) over the first nine
months of 1995. As a percentage of sales, operating expenses were
20.5% for the first nine months of 1996 as compared to 19.4% for
the first nine months of 1995. The operating expenses of the
acquired companies accounted for $9.9 million of this increase.
Page 8 of 9
Excluding expenses from the acquired companies, expense increases
occurred in payroll, equipment rentals, property taxes and
utilities. Increases in these areas occurred primarily in Company
locations with expanded processing operations.
Depreciation expense increased by $0.20 million over the third
quarter of 1995 level primarily due to the additional depreciation
expense associated with the two acquired companies Through
September 30, 1996, depreciation expense rose by $0.52 million, of
which $0.36 million was attributable to the acquired companies.
Net interest expense decreased by $0.15 million, as compared to the
third quarter of 1995 primarily due to lower third quarter debt
levels and a lower average interest rate. Through nine months, net
interest expense was up by $0.15 million due to higher borrowing
levels earlier in the year.
Liquidity and Capital Resources
Accounts receivables increased by $6.6 million while net inventory
decreased by $12.0 million compared to September 30, 1995. The
receivable increase was due to the incremental sales contributed by
the Company's two acquisitions, Total Plastics, Inc. and Cutter
Precision Metals, Inc. The inventory decrease reflects the
Company's continuing focus on inventory management. Working
capital at September 30, 1996 was $77.7 million as compared to
$97.2 million at September 30, 1995, a decrease of $19.4 million.
Total bank and long term borrowing as of September 30, 1996
decreased by $6.7 million as compared to the balance at September
30, 1995. As a result of the continuing strong earnings
performance, net worth has increased by $19.1 million (19.3%) from
September 30, 1995.
The Company has unused committed and uncommitted lines of bank
credit of $167.2 million as of September 30, 1996, as compared to
$132.2 million at September 30, 1995.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings other than ordinary
routine litigation incidental to the business of the
Registrant.
Item 6. Exhibits and Reports of Form 8-K
(a)None
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
Page 9 of 9
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.
A. M. Castle & Co.
(Registrant)
Date: November 1, 1996 By: /ss/ J. A. Podojil
J. A. Podojil
Treasurer/Controller
(Mr. Podojil is the Chief Accounting
Officer and has been authorized to
sign on behalf of the Registrant).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 1,814 0
<SECURITIES> 486 0
<RECEIVABLES> 75,442 0
<ALLOWANCES> (773) 0
<INVENTORY> 97,164 0
<CURRENT-ASSETS> 174,133 0
<PP&E> 125,795 0
<DEPRECIATION> (66,282) 0
<TOTAL-ASSETS> 269,243 0
<CURRENT-LIABILITIES> 96,396 0
<BONDS> 41,276 0
<COMMON> 26,614 0
0 0
0 0
<OTHER-SE> 91,124 0
<TOTAL-LIABILITY-AND-EQUITY> 269,243 0
<SALES> 162,322 512,166
<TOTAL-REVENUES> 162,322 512,166
<CGS> (116,832) (368,349)
<TOTAL-COSTS> (36,351) (108,561)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 16 (130)
<INTEREST-EXPENSE> (634) (2,322)
<INCOME-PRETAX> 8,521 32,804
<INCOME-TAX> (3,263) (12,899)
<INCOME-CONTINUING> 5,258 19,905
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