Page 1 of 9
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, 1997
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 - 14,038,293 shares as of September 30, 1997.
<PAGE>
Page 2 of 9
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
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . .6 - 7
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K. . . . . . . 9
<PAGE>
Page 3 of 9
A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
(Dollars in thousands except per share data)
(unaudited) Sept. 30 Dec. 31 Sept. 30
Assets 1997 1996 1996
Cash. . . . . . . . . . . . . . . . .$ 2,244 $ 1,805 $ 2,300
Accounts receivable, net. . . . . . . 87,965 68,791 74,669
Inventories (principally on last-in,
first-out basis. . . . . . . . . . . 144,266 93,315 97,164
Total current assets . . . . . .$234,475 $163,911 $174,133
Prepaid expenses and other assets . . 46,450 34,742 35,597
Fixed assets, net . . . . . . . . . . 72,856 62,717 59,513
Total assets . . . . . . . . . .$353,781 $261,370 $269,243
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable. . . . . . . . . . .$100,068 $ 63,860 $ 77,297
Accrued liabilities . . . . . . . . . 17,411 15,105 15,184
Income taxes payable. . . . . . . . . 1,740 2,455 1,785
Current portion of long-term debt . . 2,673 2,482 2,130
Total current liabilities. . . . 121,892 83,902 96,396
Long-term debt, less current portion. 82,769 40,934 41,276
Deferred income taxes . . . . . . . . 12,326 11,427 10,662
Post retirement benefit obligations . 3,434 3,181 3,171
Stockholders' equity. . . . . . . . . 133,360 121,926 117,738
Total liabilities and stockholders'
equity . . . . . . . . . . . . .$353,781 $261,370 $269,243
SHARES OUTSTANDING. . . . . . . . . . 14,038 14,009 14,007
BOOK VALUE PER SHARE. . . . . . . . .$ 9.50 $ 8.70 $ 8.41
WORKING CAPITAL . . . . . . . . . . .$112,583 $ 80,009 $ 77,737
WORKING CAPITAL PER SHARE . . . . . .$ 8.02 $ 5.71 $ 5.55
DEBT TO CAPITAL . . . . . . . . . . . 39.0% 26.3% 26.9%
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Nine Months
Ended Sept. 30,
Cash flows from operating activities: 1997 1996
Net income. . . . . . . . . . . . . . . . $ 18,052 $ 19,905
Depreciation. . . . . . . . . . . . . . . 4,480 3,833
Other . . . . . . . . . . . . . . . . . . 760 (4,718)
Cash provided from operating
activities before working
capital changes. . . . . . . . . . . . 23,292 19,020
(Increase) decrease in working capital. . (21,000) 9,296
Net cash provided from (used by) operating
activities . . . . . . . . . . . . . . . . 2,292 28,316
Cash flows from investing activities:
Investments and acquisitions. . . . . . . (25,425) (16,897)
Capital expenditures, net of sale
proceeds. . . . . . . . . . . . . . . . . ( 9,880)(16,285)
Net cash provided from (used by) investing
activities. . . . . . . . . . . . . . . . (35,305)(33,182)
Page 4 of 9
Cash flows from financing activities:
Long-term borrowings, net . . . . . . . . 40,070 12,030
Dividends paid. . . . . . . . . . . . . . ( 6,873) ( 5,876)
Other . . . . . . . . . . . . . . . . . . 255 345
Net cash provided from (used by) financing
activities. . . . . . . . . . . . . . . . 33,452 6,499
Net increase (decrease) in cash . . . . . . 439 1,633
Cash - beginning of year. . . . . . . . . 1,805 667
Cash - end of period. . . . . . . . . . . $ 2,244 $ 2,300
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . $ 2,156 $ 2,084
Income taxes . . . . . . . . . . . . . $ 11,890 $ 12,303
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,
1997 1996 1997 1996
Net sales . . . . . . . . $192,735 $162,322 $558,042 $512,166
Cost of material sold . . 137,899 116,832 398,830 368,349
Gross profit on sales . 54,836 45,490 159,212 143,817
Operating expenses. . . . 42,442 35,056 121,906 104,858
Depreciation expense. . . 1,647 1,279 4,480 3,833
Interest expense, net . . 1,228 634 2,700 2,322
Total . . . . . . . . . 45,317 36,969 129,086 111,013
Income before taxes . . . 9,519 8,521 30,126 32,804
Income Taxes:
Federal . . . . . . . . 3,056 2,699 9,741 10,432
State . . . . . . . . . 729 564 2,333 2,467
3,785 3,2631 2,074 12,899
Net income. . . . . . . . 5,734 5,258 18,052 19,905
Net income per share. . . $ .41 $ .38 $ 1.29 $ 1.42
Financial Ratios:
Return on sales . . . . 2.98% 3.24% 3.23% 3.89%
Asset turnover. . . . . 2.18 2.41 2.10 2.54
Return on assets. . . . 6.48% 7.81% 6.80% 9.86%
Leverage factor . . . . 2.90 2.60 2.90 2.60
Return on opening
stockholders' equity . 18.81% 20.35% 19.74% 25.68%
<PAGE>
Page 5 of 9
Other Data:
Cash dividends paid . . $2,386 $2,101 $ 6,873 $ 5,876
Dividends per share . . .17 .15 .49 .42
Average number of
shares outstanding . . 14,032 14,007 14,016 13,990
Tons sold 93,05780,724 280,991251,350
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, 1997 and Sept. 30, 1996, 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 $58.2
million, $58.8 million, and $60.9 million at September 30, 1997,
December 31, 1996 and September 30, 1996 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, 1996, 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 1997 interim results reported herein may not necessarily
be indicative of the results of operations for the full year 1997.
<PAGE>
Page 6 of 9
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.
3. Acquisitions
On February 3, 1997, the Company's subsidiary, Total Plastics,
Inc., a Michigan based plastics distributor, purchased the net
assets of ASN Plastics, an Indianapolis area plastics distributor.
The acquisition has 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 ASN 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 June 2, 1997, the Company acquired Keystone Tube, a Chicago
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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Operating results for the third quarter of 1997 were up 8% as
compared to the third quarter of 1996. The Company earned $5.7
million ($0.41 per share) as compared to the $5.3 million ($0.38
per share) earned in the year earlier quarter. Record quarterly
sales and earnings levels reflected increasing contributions from
recently acquired platform businesses as well as an improving sales
trend in the company's core specialty metals business. Earnings
through the first nine months of $18.1 million ($1.29 per share)
were down 9% from last year's nine month earnings of $19.9 million
($1.42 per share).
Third quarter sales totalled $192.7 million, an 18.7% increase over
the third quarter of 1996 sales of $162.3 million. The sales
increase was provided by both contributions from the Company's
recent acquisitions as well as increased sales in the Company's
core business products. Excluding the effect of these
acquisitions, sales for the quarter were up by $14.1 million or
9.4%. The increase in sales was due primarily to a 15.3% increase
in tons sold, offset by a 2.5% decrease in average sales prices
along with a shift in sales mix from the relatively higher valued
Advanced Materials products, to the relatively lower valued Carbon
Page 7 of 9
and Alloy products. For the first nine months of 1997, total
revenues were $558.0 million as compared to $512.2 million for the
first nine months of 1996, a 9.0% increase. Year-to-date sales in
the Company's core business were up by 2.9% over last year's nine
month period.
Gross profit for the quarter rose $9.3 million (20.4%) to a record
$54.8 million. The increase was attributable to both gross profit
contributions from the Company's recent acquisitions and core
business. Looking at the Company's core business, gross profit
increased by $4.0 million (9.9%) primarily due to increased sales
volume. Total gross margin percentage for the quarter was 28.5% as
compared to 28.0% for the third quarter of 1996. The Company's
expansion of value added services and processing capabilities
continue to have a positive effect on gross margin performance.
For the first nine months of 1997, total gross margin increased by
$15.4 million (10.7%) over the comparable nine month period of
1996. Additional gross profit from the company's acquisitions,
along with increased sales volume and an increase in margin
percentage contributed to the Company's margin gains over the prior
year. For the nine month period, the Company's core business
showed a total gross margin increase of $4.8 million (3.7%) over
1996. On a percentage basis total gross margin for the first nine
months of 1997 was 28.5% as compared to 28.1% for the comparable
period in 1996.
Third quarter operating expenses were up by $7.4 million (21.1%)
over the comparable period last year. Excluding the expenses of
the acquired companies, Castle's operating expenses increased by
approximately $3.8 million (12.1%) over the third quarter of 1996.
Cost increases continue to be experienced primarily in the areas of
payroll, transportation, operating supplies and communications.
The significant increase in transactional activity and shipments
continues to drive these expenses. Several cost savings
initiatives are underway which are aimed at reducing the expense
pressures arising from this increased level of business activity.
Year-to-date, operating expenses were up by $17.0 million (16.3%)
as compared to the first nine months of 1996. Increased sales
volume, along with expenses associated with new and expanded
facilities contributed to the expense increase.
Third quarter depreciation expense increased by $0.37 million
(28.8%) over the prior year's comparable period. Excluding
depreciation expense associated with the acquired companies, this
expense increased by $0.15 million (13.1%) over the third quarter
of 1996. Year-to-date depreciation expense is up by $0.65 million
(16.9%) in total over the prior period. Excluding expense
associated with the acquired companies this expense increased by
$0.22 million (6.3%) over last year's nine month period.
Net interest expense for the third quarter increased by
approximately $0.59 million (94.7%) as compared to the third
Page 8 of 9
quarter of 1996. Higher average borrowings levels were primarily
responsible for the expense increase. Year-to-date net interest
expense increased by $0.38 million (16.3%).
Liquidity and Capital Resources
Accounts receivables increased by $13.3 million, and net inventory
has increased by $47.1 million as compared to September 30, 1996.
The acquisitions of Keystone Tube, ASN Plastics and High
Performance Alloys contributed to over $8.2 million of the
receivable increase with the balance due to higher sales volume.
Approximately $14.1 million of the inventory increase is
attributable to the acquisitions while the balance has been added
to support certain market initiatives and the higher level of
business activity experienced during the year. Total bank and long
term borrowing as of September 30, 1997 increased by $42.0 million
as compared to the balance at September 30, 1996 due to long term
borrowing used to finance the company's acquisition strategy along
with higher working capital needs. The Company's debt-to-capital
ratio was 39.0% as of September 30, 1997 which is well within the
Company's target range. Net worth has increased by $15.6 million
(13.3%) over the prior year's quarter reflecting the continued
strong earnings performance.
The Company has unused committed and uncommitted lines of bank
credit of $132.2 million as of September 30, 1997 vs. $167.2
million at September 30, 1996.
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>
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: October 31, 1997 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 2,184 0
<SECURITIES> 60 0
<RECEIVABLES> 89,025 0
<ALLOWANCES> (1,061) 0
<INVENTORY> 144,266 0
<CURRENT-ASSETS> 234,474 0
<PP&E> 147,757 0
<DEPRECIATION> (74,901) 0
<TOTAL-ASSETS> 353,781 0
<CURRENT-LIABILITIES> 121,892 0
<BONDS> 82,769 0
<COMMON> 27,125 0
0 0
0 0
<OTHER-SE> 106,235 0
<TOTAL-LIABILITY-AND-EQUITY> 353,781 0
<SALES> 192,735 558,042
<TOTAL-REVENUES> 192,735 558,042
<CGS> (137,899) (398,830)
<TOTAL-COSTS> (44,030) (126,232)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (59) (154)
<INTEREST-EXPENSE> (1,228) (2,700)
<INCOME-PRETAX> 9,519 30,126
<INCOME-TAX> (3,785) (12,074)
<INCOME-CONTINUING> 5,734 18,052
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,734 18,052
<EPS-PRIMARY> 0.41 1.29
<EPS-DILUTED> 0.41 1.29
</TABLE>
