<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER:
DECEMBER 31, 1996 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 Identification No.)
incorporation or organization)
------------------------
3400 NORTH WOLF ROAD, 60131
FRANKLIN PARK, ILLINOIS
(Address of principal executive (Zip Code)
offices)
------------------------
Registrant's telephone number, including area code (847) 455-7111
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock--no par value American and Chicago Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K _X_.
The approximate aggregate market value of the registrant's common stock held
by non-affiliates of the registrant on March 1, 1997 was $292,747,000.
The number of shares outstanding of the registrant's common stock on March
1, 1997 was 14,023,797 shares.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS INCORPORATED BY REFERENCE APPLICABLE PART OF FORM 10-K
Annual Report to Stockholders for Parts I, II and IV
the year ended December 31, 1996
Proxy Statement dated March 10, Part III
1997 furnished to Stockholders in
connection with registrant's Annual
Meeting of Stockholders
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
A. M. Castle & Co. is one of North America's largest, independent metals
service center companies. The registrant (Company) provides a complete range of
inventories as well as preprocessing services to a wide variety of customers.
In the last three years, sales mix in the Company's core business was
approximately as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Carbon and Stainless..................................................... 74% 77% 78%
Non-Ferrous Metals....................................................... 26% 23% 22%
--- --- ---
100% 100% 100%
</TABLE>
These metals are inventoried in many forms including round, hexagon, square
and flat bars; plates; tubing; shapes; and sheet and coil.
Depending on the size of the facility and the nature of the markets it
serves, each of the Company's service centers is equipped as needed with Bar
Saws, Close Tolerance Plate Saws, Oxygen and Plasma Arc Flame Cutting Machinery,
Stress Relieving and Annealing Furnaces, Surface Grinding Equipment, Edge
Conditioning Equipment, Sheet Shears and Coil Processing Equipment. The Company
also does specialized fabrications for customers through pre-qualified
subcontractors.
Emphasis on the more highly engineered grades and alloys of metals,
supported by strong service commitments, has earned the Company a leadership
role in filling the needs of users of those metals.
The Company has its main office, and largest distribution center, in
Franklin Park, Illinois. This center serves metropolitan Chicago and,
approximately, a nine state area. In addition, there are distribution centers in
various other cities (see Item 2). The Chicago, Los Angeles and Cleveland
distribution centers together account for approximately one-half of all sales.
In the United States, the Company serves the wide range of industrial
companies within the $600 billion producer durable equipment sector of the
economy. The customer base includes many Fortune 500 companies as well as
thousands of medium and smaller sized ones spread across the entire spectrum of
metals using industries. The Company's customer base is well diversified with no
single industry accounting for more than 6% of the Company's total business and,
no one customer, more than 2%. The Company's coast-to-coast network of metals
service centers provides next day delivery to over 90% of the markets it serves,
and two day delivery to virtually all of the rest.
In Canada, the Company serves a wide range of businesses similar to the
market profile in the United States. These markets are serviced by the Company's
Canadian subsidiary A. M. Castle & Co. (Canada) Inc.
In Mexico, the Company operates through a joint venture, Castle d Mexico,
S.A. de C.V., and targets a wide range of businesses within the producer durable
goods sector.
Markets in western Europe, South America and the Pacific Rim are serviced
through the Company's International Sales Department located in the Franklin
Park location, and starting in late 1996, the Company's new United Kingdom based
subsidiary, A. M. Castle & Co. Limited, a U.K. Corporation.
The Company's Hy-Alloy Steels Co. division, located in Bedford Park,
Illinois, a Chicago suburb, is a distributor of alloy bars stocked as rounds,
squares, hexes, and flats; and of alloy tubing. In 1993 a value-added bar
processing center, H-A Industries, was added. From this facility, the Company
operates a heat treat line producing quench and tempered alloy bar product, an
annealing line, and a bar turning and straightening line producing cold finished
bars.
2
<PAGE>
The Company also operates two subsidiaries acquired in 1996 whose businesses
complement the Company's distribution and value added focus. Total Plastics,
Inc., acquired in January 1996, is a Midwest based distributor serving a wide
variety of users of industrial plastics. Cutter Precision Metals, Inc., acquired
in April 1996, is a Pacific Northwest based metals distributor which has added
highly specialized sawing and grinding capabilities to the Company's range of
processing services.
The Company also holds a one-third joint venture interest in Kreher Steel
Co., a midwest based distributor, focusing on customers whose primary need is
for immediate, reliable delivery of large quantities of alloy, SBQ and stainless
bars.
In general, the Company purchases metals from many producers. In the case of
nickel alloys, it is single sourced. Satisfactory alternative sources, however,
are available for all metals that the Company buys and its business would not be
materially adversely affected by the loss of any one supplier. Purchases are
made in large lots and held in the distribution centers until sold, usually in
smaller quantities. The Company's ability to provide quick delivery, frequently
overnight, of a wide variety of metal products allows customers to reduce
inventory investment because they do not need to order the large quantities
required by producing mills.
The major portion of 1996 net sales were from materials owned by the
Company. The materials required to fill the balance of such sales were obtained
from other sources, such as direct mill shipments to customers or purchases from
other metals distributors. Sales are primarily through the Company's own sales
organization and are made to many thousands of customers in a wide variety of
industries. No single customer is significant to the Company's sales volume.
Deliveries are made principally by leased trucks. Common carrier delivery is
used in areas not serviced directly by the Company's fleet.
The Company encounters strong competition both from other independent metals
distributors and from large distribution organizations, some of which have
substantially greater resources.
The Company has approximately 1500 full-time employees in its operations
throughout the United States, Canada and the United Kingdom. Approximately 300
of these are represented by collective bargaining units, principally the United
Steelworkers of America.
ITEM 2. PROPERTIES.
The Company's principal executive offices are at its Franklin Park plant
near Chicago, Illinois. All properties and equipment are well maintained and in
good operating condition and sufficient for the current level of activities.
Metals distribution centers and sales offices are maintained at each of the
following locations, all of which are owned in fee, except as indicated:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR AREA IN
LOCATIONS SQUARE FEET
- ------------------------------------------------------------------------------ --------------
<S> <C>
CASTLE METALS
Atlanta, Georgia.............................................................. 35,100(1)
Charlotte, North Carolina..................................................... 93,000
Chicago area -
Franklin Park, Illinois..................................................... 533,600
Cincinnati, Ohio.............................................................. 9,300(1)
Cleveland area -
Bedford Heights, Ohio....................................................... 381,400
Dallas, Texas................................................................. 78,000
Fairfield, Ohio............................................................... 72,000(1)
Houston, Texas................................................................ 109,100
Kansas City, Missouri......................................................... 170,000
Los Angeles area -
Paramount, California....................................................... 264,900
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR AREA IN
LOCATIONS SQUARE FEET
- ------------------------------------------------------------------------------ --------------
<S> <C>
Milwaukee area -
Wauwatosa, Wisconsin........................................................ 98,000(1)
Minneapolis, Minnesota........................................................ 60,000
Philadelphia, Pennsylvania.................................................... 71,600
Salt Lake City, Utah.......................................................... 45,400(1)
Stockton, California.......................................................... 60,000(1)
Wichita, Kansas............................................................... 26,500(1)
Worcester, Massachusetts...................................................... 60,000
--------------
Total Castle Metals....................................................... 2,167,900
HY-ALLOY STEELS CO.
Chicago area -
Bedford Park, Illinois...................................................... 103,700
--------------
H-A INDUSTRIES
Hammond, Indiana.............................................................. 124,000(1)
--------------
A. M. CASTLE & CO. (CANADA) INC.
Edmonton, Alberta............................................................. 36,600(1)
Montreal, Quebec.............................................................. 25,600(1)
Toronto area -
Mississauga, Ontario........................................................ 57,100(1)
Etobicoke, Ontario.......................................................... 8,000(1)
Winnipeg, Manitoba............................................................ 28,900(1)
--------------
156,200
CUTTER PRECISION METALS, INC.
Kent, Washington.............................................................. 24,000(1)
Santa Clara, California....................................................... 20,000(1)
--------------
44,000
CASTLE METALS U.K. LTD.
Manchester, U.K............................................................... 12,000(1)
--------------
TOTAL PLASTICS, INC.
Detroit, Michigan............................................................. 32,000(1)
Elk Grove Village, Illinois................................................... 15,000(1)
Fort Wayne, Indiana........................................................... 15,000(1)
Grand Rapids, Michigan........................................................ 22,000(1)
Kalamazoo, Michigan........................................................... 50,000(1)
--------------
134,000
GRAND TOTAL 2,741,800
--------------
--------------
SALES OFFICES (LEASED)
Buffalo, New York.............................................................
Detroit, Michigan.............................................................
Pittsburgh, Pennsylvania......................................................
Phoenix, Arizona..............................................................
San Diego, California.........................................................
Tulsa, Oklahoma...............................................................
</TABLE>
- ------------------------
(1) Leased: See Note 5 in the 1996 Annual Report to Stockholders, incorporated
herein by this specific reference, for information regarding lease
agreements.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings other than the ordinary routine
litigation incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required to be filed in Part II (Items 5, 6, and 7) in Form
10-K has been included in the 1996 Annual Report to Stockholders, as required by
the Securities and Exchange Commission, and is included elsewhere in the filing.
Accordingly, the following items required under Items 5, 6, and 7 are
incorporated herein by this specific reference to the 1996 Annual Report to
Stockholders: "Common Stock Information", page 15, "Eleven-Year Financial and
Operating Summary", pages 12 and 13, and "Financial Review", pages 14 and 15.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Part IV, Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
6
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Michael Simpson 58 Mr. Simpson began his employment with the registrant in 1968. In 1974
Chairman of the Board Mr. Simpson was elected President of Hy-Alloy Steels Co. Mr. Simpson
was elected Vice President--Midwest Region in 1977. In 1979 Mr.
Simpson was elected Chairman of the Board.
Richard G. Mork 61 Mr. Mork began his employment with the registrant in 1957. In 1977
President and Chief Executive Mr. Mork was elected to the position of Vice President--Eastern
Officer Region and in 1988 to the position of Senior Vice President and Chief
Operating Officer. In 1990 Mr. Mork was made President and Chief
Executive Officer.
Edward F. Culliton 55 Mr. Culliton began his employment with the registrant in 1965. Mr.
Vice President and Chief Financial Culliton was elected Corporate Secretary in 1972 and Treasurer in
Officer 1975. In 1977 he was elected Vice President of Finance. He is the
Chief Financial Officer.
Sven G. Ericsson 48 Mr. Ericsson began his employment with the registrant in 1989. Mr.
Vice President--International Ericsson was elected to the position of Vice President--Eastern
Region in 1989, Vice President--Plate and Carbon Products Group in
1992, and Vice President-- International in 1995.
M. Bruce Herron 51 Mr. Herron began his employment with the registrant in 1970. Mr.
Vice President--Western Region Herron was elected to the position of Vice President-- Western Region
in 1989.
Stephen V. Hooks 45 Mr. Hooks began his employment with the registrant in 1972. Mr. Hooks
Vice President--Midwest Region was elected to the position of Vice President-- Midwest Region in
1993.
Fritz Oppenlander 44 Mr. Oppenlander began his employment with the registrant in 1996 and
Vice President--Operations was elected Vice President--Operations in 1996.
Richard G. Phifer 52 Mr. Phifer began his employment with the registrant in 1990. Mr.
Vice President--Eastern Region Phifer was elected to the position of Vice President-- Plate and
Carbon Products Group in 1991, and Vice President--Eastern Region in
1992.
Alan D. Raney 45 Mr. Raney began his employment with the registrant in 1986. Mr. Raney
Vice President--Advanced Materials was elected Vice President--Midwest Region during 1989, and Vice
Group President--Advanced Materials Group in 1990.
Robert A. Rosenow 43 Mr. Rosenow began his employment with the registrant in 1977. In
Vice President--Plate and Carbon 1995, Mr. Rosenow was elected Vice President--Plate and Carbon
Group Products Group.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Gise Van Baren 65 Mr. Van Baren began his employment with the registrant's Hy-Alloy
Vice President--Alloy Products Group Steels Co. (acquired in 1973) in 1954. He became Vice President of
and President--Hy-Alloy Steels Hy-Alloy in 1976 and President in 1979. He was elected Vice
Division President--Alloy Products Group in 1991.
Paul J. Winsauer 45 Mr. Winsauer began his employment with the registrant in 1981. In
Vice President--Human Resources 1996, Mr. Winsauer was elected to the position of Vice
President--Human Resources.
James A. Podojil 54 Mr. Podojil began his employment with the registrant in 1968. In 1977
Chief Accounting Officer and he was elected to the position of Controller and in 1985 was elected
Treasurer/Controller to the additional post of Treasurer.
Jerry M. Aufox 54 Mr. Aufox began his employment with the registrant in 1977. In 1985
Secretary and Corporate Counsel he was elected to the position of Secretary and Corporate Counsel. He
is responsible for all legal affairs of the registrant.
</TABLE>
All additional information required to be filed in Part III, Item 10, Form
10-K, has been included in the Definitive Proxy Statement dated March 10, 1997
filed with the Securities and Exchange Commission, pursuant to Regulation 14A
entitled "Information Concerning Nominees for Directors" and is hereby
incorporated by this specific reference.
ITEM 11. EXECUTIVE COMPENSATION.
All information required to be filed in Part III, Item 11, Form 10-K, has
been included in the Definitive Proxy Statement dated March 10, 1997, filed with
the Securities and Exchange Commission, pursuant to Regulation 14A entitled
"Management Remuneration" and is hereby incorporated by this specific reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required to be filed in Part I, Item 4, Form 10-K, has been
included in the Definitive Proxy Statement dated March 10, 1997, filed with the
Securities and Exchange Commission pursuant to Regulation 14A, entitled
"Information Concerning Nominees for Directors" and "Stock Ownership of Certain
Beneficial Owners and Management" is hereby incorporated by this specific
reference.
Other than the information provided above, Part III has been omitted
pursuant to General Instruction G for Form 10-K and Rule 12b-23 since the
Company will file a Definitive Proxy Statement not later than 120 days after the
end of the fiscal year covered by this Form 10q-K pursuant to Regulation 14A,
which involves the election of Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial statements (incorporated by reference to the 1996 Annual Report to
Stockholders) and exhibits are set forth in the accompanying index to Financial
Statements and Schedules. No reports on Form 8-K were filed in the fourth
quarter of 1996.
9
<PAGE>
A. M. CASTLE & CO.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Report of Independent Public Accountants on Schedules.......................... Page 14
Consent of Independent Public Accountants with respect to Form S-8............. Page 14
Consolidated Financial Statement Schedules
Valuation and Qualifying Accounts--Schedule II............................... Page 15
Data incorporated by reference from 1996 Annual Report to Stockholders of A. M.
Castle & Co., included herein--
Consolidated Statements of Income--For the years ended December 31, 1996,
1995, and 1994............................................................. Page 17
Consolidated Statements of Reinvested Earnings--For the years ended December
31, 1996, 1995, and 1994................................................... Page 17
Consolidated Balance Sheets--December 31, 1996, 1995, and 1994............... Page 18
Consolidated Statements of Cash Flows--For the years ended December 31, 1996,
1995, and 1994............................................................. Page 19
Notes to Consolidated Financial Statements................................... Pages 20-24
Report of Independent Public Accountants..................................... Page 24
Exhibits:
20--Report furnished to security holders..................................... Exhibit A
3--Articles of Incorporation and amendments.................................. Exhibit B
3--By laws of the Company.................................................... Exhibit C
10--Long term incentive compensation plan.................................... Exhibit D
10--1990 restricted stock and stock option plan.............................. Exhibit E
10--Description of management incentive plan................................. Exhibit F
10--1996 restricted stock and stock option plan.............................. Exhibit G
</TABLE>
Except for Exhibits C, F and G, exhibits listed above are incorporated by
reference in accordance with Rule 12b-32 (17 CFR 240.12b-32) as the material has
been previously filed as part of registrants form 10-K filing for the fiscal
year ended December 31, 1995.
All schedules and exhibits, other than those listed above are omitted as the
information is not required or is furnished elsewhere in the financial
statements or the notes thereto.
10
<PAGE>
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A. M. Castle & Co.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in the A. M. Castle & Co. 1996 Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 3, 1997. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
[/S/ ARTHUR ANDERSEN LLP]
Arthur Andersen LLP
Chicago, Illinois,
February 3, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FORM S-8
As independent public accountants, we hereby consent to the incorporation by
reference of the following into the Company's previously filed S-8 Registration
Statements Numbers 33-30545 and 33-37818:
1. Our supplemental report dated February 3, 1997 included in this Annual
Report on Form 10-K for the year ended December 31, 1996; and
2. Our report dated February 3, 1997 incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1996.
[/S/ ARTHUR ANDERSEN LLP]
Arthur Andersen LLP
Chicago, Illinois
March 15, 1997
11
<PAGE>
SCHEDULE II
A. M. CASTLE & CO.
ACCOUNTS RECEIVABLE--ALLOWANCE FOR DOUBTFUL ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 600 $ 600 $ 600
Add--Provision charged to income 245 530 345
--Recoveries 223 86 154
--From acquisitions 80
Less--Uncollectible accounts charged against allowance................ (468) (616) (499)
--------- --------- ---------
Balance, end of year.................................................. $ 680 $ 600 $ 600
--------- --------- ---------
--------- --------- ---------
</TABLE>
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ JAMES A. PODOJIL
-----------------------------------------
James A. Podojil, TREASURER AND CONTROLLER
(Mr. Podojil is the Chief Accounting
Officer and has been authorized to sign on
behalf of the registrant.)
Date: March 1, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------- --------------------
/s/ MICHAEL SIMPSON
- ------------------------------ Chairman of the Board March 1, 1997
Michael Simpson
/s/ RICHARD G. MORK President--Chief
- ------------------------------ Executive Officer, and March 1, 1997
Richard G. Mork Director
/s/ EDWARD F. CULLITON Vice President--Chief
- ------------------------------ Financial Officer, and March 1, 1997
Edward F. Culliton Director
/s/ WILLIAM K. HALL
- ------------------------------ Director March 1, 1997
William K. Hall
/s/ ROBERT S. HAMADA
- ------------------------------ Director; Chairman, Audit March 1, 1997
Robert S. Hamada Committee
/s/ JOHN W. MCCARTER, JR.
- ------------------------------ Director March 1, 1997
John W. McCarter, Jr.
/s/ WILLIAM J. MCDERMOTT
- ------------------------------ Director March 1, 1997
William J. McDermott
II-1
<PAGE>
1996 ANNUAL REPORT A. M. CASTLE & CO.
[LOGO]
BUILDING VALUE FOR OUR CUSTOMERS AND SHAREHOLDERS
<PAGE>
CORPORATE PROFILE
Founded in 1890, A. M. Castle & Co. provides highly engineered materials and
value-added processing services to a wide range of industrial companies within
the $600 billion producer durable equipment sector of the economy. Our customer
base includes many Fortune 500 companies as well as thousands of medium and
smaller-sized ones spread across the entire spectrum of metals-using industries.
Within our core specialty metals business, we are recognized as North America's
largest industrial distributor of carbon, alloy and stainless steels; nickel
alloys; aluminum; titanium; copper and brass; as well as the industry pioneer
and premier provider of materials management programs that are designed to
reduce our customers' total costs. Through our subsidiary, Total Plastics,
Inc., we also distribute a broad range of value-added industrial plastics.
Together, Castle and its affiliated companiesoperate 41 locations throughout
North America. Our common stock is traded on the American Stock Exchange under
the ticker symbol CAS.
OUR CORPORATE GOALS
- Market Leadership in all Core Products
- Supplier of Choice to Our Customers
- World Class Quality Process
- Consistently Competitive Returns on Capital
- Superior Long-Term Total Returns to Shareholders
ABOUT THE COVER
The twin towers have been Castle's signature for decades, symbolizing a dual
commitment to building value for customers and shareholders that dates back more
than a century. Simply stated, this commitment is the unifying strategy of
Castle. It defines our product and service offering. It drives our investments
in new processes, technologies and equipment. It inspires our people to set
stretch targets for themselves -- some well beyond what seem realistically
doable. And it fuels our ability to achieve profitable growth. In this Annual
Report, we present our long-term strategy to provide increased value to both our
customers and our shareholders.
TABLE OF CONTENTS
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . .Page 1
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . .Page 2
Investment Report. . . . . . . . . . . . . . . . . . . . . . . . . . .Page 5
Senior Management Answers
Questions from the Financial Community . . . . . . . . . . . . . . . .Page 6
Eleven-Year Financial & Operating Statements . . . . . . . . . . . . .Page 12
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . .Page 14
Consolidated Statements and Notes. . . . . . . . . . . . . . . . . . .Page 17
Management and Shareholder Information . . . . . . . . . .Inside Back Cover
<PAGE>
THE YEAR IN BRIEF
(dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
%
1996 1995 Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Results Net sales. . . . . . . . . . . . . . . . . . . . . $672,617 $ 627,826 7%
Gross profit on sales. . . . . . . . . . . . . . . 191,166 173,398 10%
Income before taxes. . . . . . . . . . . . . . . . 43,136 44,334 (3%)
Net income . . . . . . . . . . . . . . . . . . . . 26,104 26,826 (3%)
Per Share of
Common Stock Net income . . . . . . . . . . . . . . . . . . . . 1.86 1.93 (3%)
Dividends. . . . . . . . . . . . . . . . . . . . . .57 .43 32%
Stockholders' equity . . . . . . . . . . . . . . . 8.70 7.41 17%
Balance Sheet Total assets . . . . . . . . . . . . . . . . . . . 261,370 222,549 17%
Total debt . . . . . . . . . . . . . . . . . . . . 43,416 30,771 41%
Total equity . . . . . . . . . . . . . . . . . . . 121,926 103,363 18%
Working capital. . . . . . . . . . . . . . . . . . 80,009 84,382 (5%)
Cash flow* . . . . . . . . . . . . . . . . . . . . 31,112 31,285 (1%)
Average shares outstanding . . . . . . . . . . . . 13,999 13,894 1%
Selected Ratios Return on sales. . . . . . . . . . . . . . . . . . 3.9% 4.3% (9%)
Return on assets . . . . . . . . . . . . . . . . . 10.0% 12.0% (17%)
Return on opening equity . . . . . . . . . . . . . 25.3% 32.6% (22%)
Current ratio. . . . . . . . . . . . . . . . . . . 2.0 2.1 (5%)
Debt-to-capital ratio. . . . . . . . . . . . . . . 26.3% 22.9% 15%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NET INCOME PLUS DEPRECIATION
ALL PER SHARE FIGURES HAVE BEEN RESTATED TO REFLECT A 5 FOR 4 STOCK SPLIT
DECLARED IN APRIL 1996.
[3 BAR CHARTS]
On page 1, there are 3 bar charts on the bottom third of the page. The bar
chart to the far left shows on net sales in millions of dollars, the horizontal
access being the years 1992, 1993, 1994, 1995 and 1996; the vertical access
being dollars in millions running from $200 million to $800 million. The 5 bars
that appear on the chart show net sales for 1992 at $424 million; for 1993 at
$474 million; for 1994 at $537 million; for 1995 at $628 million; for 1996 at
$673 million. The middle bar chart in the center shows net income for the same
five years in millions of dollars. The 5 bars show mid-income for 1992 at $3.6
million; for 1993 at $6.9 million; for 1994 at $15.4 million; for 1995 at $26.8
million; and for 1996 at $26.1 million.
The last bar chart on the bottom of page 1 on the far right shows cash flows
from operations for the same 5 years in millions of dollars. That chart
indicates for 1992 at $8.5 million; for 1993 at $11.7 million; for 1994 at $20.0
million; for 1995 at $31.3 million; and for 1996 at $31.1 million.
PAGE 1
<PAGE>
TO OUR SHAREHOLDERS, CUSTOMERS AND EMPLOYEES:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In 1996, Castle produced a 25% return on shareholders' equity, resulting in a
three-year average annual return of 27% -- not only the highest in our industry,
but among the very top tier of publicly traded companies.
More than any other single measure, this is indicative of the quality of
our earnings as well as our ability to effectively utilize our shareholders'
capital. It is also reflective of the "new Castle" that we talked about in last
year's annual report. Our competitive market position, our service capabilities
and our targets have all been moved to a higher plane than those of the company
you invested in just a few years ago. We are raising the bar of performance in
virtually every aspect of our business. AND WE ARE WORKING WITH ONE OVERRIDING
OBJECTIVE IN MIND: TO ACHIEVE A CONSISTENT SUPERIOR RETURN ON OUR SHAREHOLDERS'
CAPITAL IN ANY ECONOMIC ENVIRONMENT.
1996 FINANCIAL HIGHLIGHTS
Our 1996 numbers confirm the value of our approach. With market growth slowing
from the double-digit pace of the past several years, we still posted record
revenues of $672.6 million. Our net income of $26.1 million, or $1.86 per share,
was the second highest earnings in a company history that stretches back more
than a century. We generated cash flow from operating activities of $34.9
million and ended the year with a debt-to-total capital ratio of 26% -- and
that's after acquiring three new platform businesses with exciting growth
potential and investing over $22 million in new plant and equipment.
While much has changed at Castle, OUR BASIC MISSION -- TO BUILD AND
DISTRIBUTE SHAREHOLDER VALUE -- IS STILL VERY MUCH INTACT. Always mindful of
our positioning as a long-term growth and current income investment vehicle, we
distributed $8 million to shareholders in dividends during 1996. This amount
reflects both a five-for-four stock split in the form of a 25% stock dividend,
and a 25% cash dividend increase on the larger number of shares outstanding
after the stock distribution.
Over the past three years, we have raised our dividend three times, more
than doubling the cash payout -- THE STRONGEST CONFIRMATION OF OUR ABILITY TO
DISTRIBUTE SHAREHOLDER VALUE. In fact, while it is not widely recognized,
Castle's dividend yield of 3% is significantly higher than the 1.8% yield
offered by the benchmark S&P 500 index.
COMPETITIVE STRENGTHS FOR THE LONG TERM
That said, the balance of this Annual Report will focus on the ways in which we
intend to continue building the long-term value of your investment in our
company. This begins with a sound business strategy, and, over the past decade,
we have laid the foundation for sustained competitive advantage. We've targeted
the North American producer durable equipment market -- which offers a winning
combination of above average long-term growth potential, excellent risk
diversification and significant export opportunity. We've focused on highly
engineered materials in which we have achieved industry-leading market
positions. We've invested aggressively in leading-edge, value-added processing
capabilities and service concepts that leverage our core strengths in materials
management and logistics. And we've made sustainable improvements in our gross
margins, operating expense ratios and inventory "turn and earn" -- the key
performance measures that drive our bottom line. In short, WE'VE CREATED WHAT
WE BELIEVE TO BE ONE OF THE STRONGEST AND BEST POSITIONED FRANCHISES IN
INDUSTRIAL DISTRIBUTION TODAY.
BUILDING VALUE THROUGH DIVIDENDS
[BAR CHART]
On page 2 there is a bar chart on the lower right quarter of the page showing
cash dividends in millions of dollars paid for the years 1994, 1995 and 1996.
The chart indicates that for 1994 at $3.6 million; for 1995 at $6.0 million; and
for 1996 $8.0 million.
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
Richard G. Mork, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Michael Simpson, CHAIRMAN
On page 3 in the upper right hand corner of the page, there is a picture showing
Mr. Richard G. Mork, President and Chief Executive Officer and Mr. Michael
Simpson, Chairman, standing; Mr. Mork being on the left and Mr. Simpson being on
the right and the background is the Castle logo.
With our major investments in service capabilities and infrastructure
largely in place, the "up-side" earnings leverage in our core business is very
significant. But to further strengthen our competitive advantage, we continue
to invest aggressively in the long-term growth of our business in order to
extend our market reach, enhance operations and increase service levels. During
1997, our major capital expenditures will include:
- - opening a 100,000 square foot facility in Charlotte, North Carolina, a
"geo" center capable of serving an extended geography with a wide range of
value-added processing capabilities -- many unique to this rapidly growing
market;
- - doubling the size of H-A Industries, our state-of-the-art Hammond, Indiana,
based bar processing center to 240,000 square feet to accommodate an
expanded range of high value-added heat-treating, straightening and
centerless grinding operations;
- - introducing other innovative plate processing systems including water-jet;
plasma bevel cutting; and the most advanced laser cutting equipment in the
industry; and
- - installing automated warehouse management systems in Chicago and Cleveland
to reduce cycle time and improve customer service levels, while enhancing
warehouse productivity.
IN ADDITION TO CONTINUED EXPANSION OF OUR CORE BUSINESS, RECENT ACQUISITIONS
HAVE OPENED THE DOORS TO NEW MARKETS AND DISTRIBUTION CHANNELS. Both Total
Plastics, Inc. ("TPI") and Cutter Precision Metals, Inc. are actively seeking
acquisitions and/or startup operations that will expand their top-line growth
and geographic reach. And through our joint venture operation with Kreher Steel
Co., we've gained instant entree to a major market channel for our core products
that we had not previously served. These new "platform" companies are yet
another indication of how much we've changed. The strength of our balance sheet
allows us to pursue opportunities such as these and still maintain an
investment-grade rating on our debt.
PLATFORM FOR THE LATE 90S
So what is our outlook for the balance of this decade? From a pure market
perspective, we have a convergence of three positive forces -- a less volatile
business cycle; a balanced, albeit slowing, economic expansion; and a
significant export opportunity -- all of which create the backdrop for a
positive operating environment for our customers, and therefore, a favorable
climate for Castle.
On the internal side of the equation, we are moving on many fronts to
strengthen our leadership within the industrial distribution business. We are
vigorously growing our core specialty metals business -- which we believe can
achieve significant average annual top-line growth and positive operating
leverage. We are enriching our bottom-line growth potential through new
"platform" companies such as TPI and Cutter
PAGE 3
<PAGE>
Precision Metals. We are fine-tuning our operations to further improve
efficiency and productivity. MOST COMPELLING OF ALL, WE ARE RAISING THE
THRESHOLDS FOR EXPECTED RETURN ON OUR SHAREHOLDERS' CAPITAL RANGING FROM 15% AT
THE BOTTOM OF THE CYCLE TO 25% AND MORE IN PEAK PERIODS -- A VAST IMPROVEMENT
OVER THE HISTORICAL PERFORMANCE ACHIEVED IN OUR INDUSTRY.
During 1996, we also spent considerable time communicating our enhanced
outlook to the investment community. Reflecting our commitment to provide our
shareholders with the same depth and quality of information as the analysts,
fund managers and retail brokers who follow our company, we present excerpts
from our ongoing dialog with investors beginning on page 6 of this report.
VALUING OUR FRANCHISE
Putting all this together, what is the impact on the real bottom line, our long-
term total return to shareholders? Over the last three years, our total annual
return, buoyed by 1995's 106% performance, averaged a strong 31% versus 20% for
the S&P 500 index: over the last five years it also averaged 31% versus 15% for
the S&P 500 index. IN FACT, MEASURED OVER VIRTUALLY ANY LONG-TERM TIME FRAME,
CASTLE HAS OUTPERFORMED THE S&P 500 BENCHMARK.
Going forward, while we can't make any predictions or forecasts, we believe
that, based on the favorable long-term outlook for our target market, our
dominant competitive position, and superior dividend yield, Castle represents a
compelling investment vehicle. In essence, we offer investors an opportunity to
participate in the growth of a wide range of companies across the entire
spectrum of metals-using industries through a single investment. Of the more
than 35,000 companies that make up this "customer portfolio" the majority are
growing at a rate above GDP. The result: a dynamic and highly diversified
investment in a world class industrial base; with a reliable and above average
income component; and a shareholder-oriented management team with a proven track
record of delivering superior long-term total returns.
Such encouraging facts make us confident custodians of your investment, and
we appreciate your continued support. More than ever, we are also grateful for
the opportunity to work with our customers, our suppliers and our business
partners in creating value. In 1996, we were pleased to welcome 265 people from
TPI and Cutter Precision into the Castle organization. They join a work force
of 1,230 highly motivated professionals, proud of our past, excited by our
future, viewing change as opportunity, and most importantly, convinced that our
best years are ahead of us.
/s/ Michael Simpson /s/ Richard G. Mork
Michael Simpson Richard G. Mork
Chairman President and
Chief Executive Officer
February 17, 1997
BUILDING VALUE THROUGH SUPERIOR
RETURNS ON SHAREHOLDERS' CAPITAL
[BAR CHART]
Page 4 shows a bar chart in the lower left quarter of the page. It depicts
return on opening shareholder's equity in percents for the years 1994, 1995 and
1996. The points on that chart show for 1994 at 22.2%; for 1995 at 32.6%; and
for 1996 at $25.3%.
PAGE 4
<PAGE>
INVESTMENT REPORT
- --------------------------------------------------------------------------------
After achieving a 106.6% total return on investment in 1995, we "gave back" a
small portion of this extraordinary performance in 1996, producing a negative
11.9% total return (stock appreciation plus reinvestment of dividends) for the
twelve-month period ended December 31, 1996. Needless to say, we are
dissatisfied with this result. However, as emphasized in last year's report, we
believe that the real test of any equity is how well it does over the long haul,
meaning periods of at least three years. Measured over virtually any long-term
time frame, we have outperformed the benchmark S&P 500 index; the Lipper Growth
& Income index, which reflects the performance of over 380 mutual funds with a
similar long-term growth and current income orientation; and the inflation rate,
as measured by the Consumer Price Index. The charts presented on this page
offer several different perspectives on our investment performance.
CASTLE VERSUS S&P 500 AND LIPPER GROWTH & INCOME INDICES
The table below compares Castle's stock performance with the S&P 500 and the
Lipper Growth & Income Indices. The results confirm that, measured over any
long-term time frame, we have outperformed our benchmark indices.
<TABLE>
<CAPTION>
COMPOUND TOTAL RETURNS
1 Year 3 Year 5 Year 10 Year 15 Year
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Castle (11.9%) 31.1% 30.7% 22.2% 18.4%
- ----------------------------------------------------------------------------------------------
S&P 500 23.0% 19.7% 15.2% 15.3% 16.8%
- ----------------------------------------------------------------------------------------------
Lipper Growth & Income 20.7% 16.9% 14.6% 13.6% 15.4%
- ----------------------------------------------------------------------------------------------
</TABLE>
[BAR CHART]
On page 5, there are 2 graphs. The first is in the lower left hand quarter of
the page showing the total return on an investment in Castle versus the S&P 500
versus inflation. The graph runs on the horizontal access from 1982 through
1996 and on the vertical access from $100 to $1,500. The points of the graph
are as follows:
Year Castle S&P 500 Inflation
1982 99.2 121.5 103.9
1983 152.3 148.9 107.8
1984 155.3 158.2 112.5
1985 209.5 208.5 116.4
1986 170.6 247.4 118.6
1987 216.3 260.5 123.9
1988 349.3 303.7 129.3
1989 356.2 399.9 135.5
1990 323.5 387.5 143.8
1991 331.9 505.6 148.2
1992 371.4 544.5 152.7
1993 563.7 598.9 157.1
1994 696.3 606.7 161.4
1995 1,438.6 834.6 165.5
1996 1,267.4 1,026.5 172.5
TOTAL RETURN ON AN INVESTMENT IN CASTLE
This graphs shows the relative value of a $100 initial investment in Castle
stock compared with the Standard and Poor's 500 Index and the inflation rate.
During 1996, a $100 investment produced a negative total return of 11.9%
compared with 23.0% for the S&P 500 Index and an inflation rate of 3.0%.
However, over the 15-year period ended December 31, 1996, Castle generated an
18.4% compound annual rate of return versus 16.8% for the S&P 500 and an annual
inflation rate of 4.2%.
[BAR CHART]
The second graph on page 5 in the lower right hand quarter illustrates Castle's
dividend record compared to the S&P 500 with the assumption that you are
receiving $100 of dividends in 1982 and how that would have grown through 1996.
The points on the graph are as follows:
Year Castle S&P
1982 100.00 100.00
1983 59.57 103.20
1984 79.79 113.97
1985 110.64 114.99
1986 122.34 120.52
1987 117.02 128.24
1988 138.30 141.63
1989 180.85 160.84
1990 191.49 176.13
1991 154.26 177.58
1992 117.02 180.20
1993 117.02 183.11
1994 138.30 191.85
1995 228.72 200.73
1996 303.19 216.89
CASTLE'S DIVIDEND RECORD
During 1996, Castle continued its 63-year record of consecutive quarterly cash
dividend payments with payouts approximating $8 million, or 57 cents per share.
As illustrated, during the 15-year period ended December 31, 1996, Castle's
dividends rose at a compound annual rate of 8.7%, versus a 5.5% rate for the S&P
500 Index.
PAGE 5
<PAGE>
SENIOR MANAGEMENT ANSWERS QUESTIONS FROM THE FINANCIAL COMMUNITY
How do we build value for customers and shareholders? For Castle it starts with
an unwavering adherence to five fundamentals of business success:
- - CUSTOMER FOCUS: Our success will be measured by our ability to help customers
improve the performance of their businesses by providing superior value that
sets us apart from other suppliers and promotes long-term relationships.
- - CONTINUOUS IMPROVEMENT: We will be distinguished by our agility at seizing
emerging market opportunities, anticipating customer needs and providing
innovative solutions, and enhancing performance in all aspects of our business.
- - INSPIRED PEOPLE: Our achievement-focused environment will provide demanding
performance standards, recognition and reward for accomplishments, and
significant opportunities for personal growth and advancement.
- - PERFORMANCE STANDARDS: Our hallmark will be success in every market we
pursue, every product we provide, and every service we offer in order to build
and return value to both customers and shareholders.
- - INTEGRITY: Our reputation is our single most important asset: it will be
identified with the uncompromised commitment and integrity with which we pursue
our business.
PAGE 6
<PAGE>
On page 7, in the upper border of the page, there is a picture of Richard G.
Mork, President and Chief Executive Officer sitting at a desk.
[PHOTO]
Dick Mork
PRESIDENT AND CHIEF EXECUTIVE OFFICER
- --------------------------------------------------------------------------------
In a series of questions and answers, senior management describe the vision,
strategy, and accomplishments which will lead Castle into the 21st century
Q. WE KNOW YOU'VE SUCCESSFULLY SERVED THE PRODUCER DURABLE EQUIPMENT SECTOR OF
THE ECONOMY. HOW IS THIS MARKET FARING AND HOW DO YOU SEE IT EVOLVING OVER
THE NEXT SEVERAL YEARS?
A. Dick Mork: The "rust belt renaissance" is one of the great under-reported
stories of the past several years. It wasn't all that long ago that America's
industrial companies were being written off completely. Today, they are the
acknowledged global leaders in building the capital equipment that drives the
world economy. From 1992 through 1995, we saw a tremendous growth spurt in our
sector with consecutive annual double-digit growth. In 1996, the rate of growth
in our market has understandably slowed, but -- and we can't emphasize this
enough -- with very few exceptions, it is running at healthy and historically
high levels of activity. In fact, if you look at the diverse range of
industries which comprise the producer durable equipment market, virtually all
are growing at rates which exceed the GDP as a whole.
Q. WHAT ARE SOME OF THE KEY INDUSTRIES THAT YOU SERVE?
A. Mike Simpson: First, let me point out that, within what is over a $600
billion target market, no single industry accounts for more than 6% of our total
business and, no one customer, more than 2%. Second, over the long haul -- and
that's not quarter-to-quarter or even necessarily year-by-year -- we are very
confident that all of the industries that comprise the producer durable
equipment sector will continue to outperform the U.S. economy as a whole. That
said, some of the sectors that are presently well ahead of the curve include the
oil field tool and equipment, commercial aviation and aerospace industries.
Their buoyancy counters some of the current volatility in electronics and
computer manufacturing, which, as important as they are to us, still represent,
in aggregate, only 2% of our total business. This is the beauty of our risk
diversification strategy: we've created a market portfolio with above average
secular growth potential; and a highly diversified range of industries,
customers and geographic markets that, on balance, mitigate our exposure to the
cyclicality of any one sector.
Q. WHAT OTHER FACTORS WILL AFFECT YOUR GROWTH IN SPECIALTY METALS OVER THE
LONG TERM?
A. Ed Culliton: We are benefiting from a very favorable environment for the
metals service center industry. Spurred by increasing customer demand for
advanced materials management concepts like just-in-time delivery systems,
sole-sourcing relationships, outsourcing, quality assurance and cycle-time
reduction -- the very things which Castle is ideally equipped to provide, our
industry's share of market for highly engineered metals has climbed to
approximately 40%. And according to industry analysts, who are quite "bullish"
on the long-term prospects, our industry's participation could reach 45% by the
year 2000 and 50% within ten years.
BUILDING VALUE THROUGH MARKET DIVERSIFICATION
- -----------------------------------------------------------------------------
INDUSTRIES PRODUCT APPLICATIONS
- -----------------------------------------------------------------------------
Aerospace Nickel Alloys, Aluminum & Titanium
- -----------------------------------------------------------------------------
Bearings Alloy Bars
- -----------------------------------------------------------------------------
Specialized Machinery Heavy Processed Plate, Carbon & Alloy Bar
- -----------------------------------------------------------------------------
Oil Patch Alloy Bar & Plate
- -----------------------------------------------------------------------------
Chemicals Corrosion Resistant Nickels & Stainless Steels
- -----------------------------------------------------------------------------
Hand Tools Alloy Bar
- -----------------------------------------------------------------------------
Defense Beveled Plate, Aerospace Nickel, Stainless
and Aluminum
- -----------------------------------------------------------------------------
Machine Tools Heavy Plate & Alloy Bar
- -----------------------------------------------------------------------------
Healthcare Titanium
- -----------------------------------------------------------------------------
Transportation Cold Finished & Alloy Bar
- -----------------------------------------------------------------------------
Recreation Alloy Bar
- -----------------------------------------------------------------------------
CASTLE SERVES LITERALLY HUNDREDS OF SIC CODES. THE PRODUCTS AND INDUSTRIES
SHOWN IN THIS MATRIX ARE THEREFORE ONLY REPRESENTATIVE OF THE DIVERSIFIED RANGE
OF INDUSTRIES SERVED.
PAGE 7
<PAGE>
On page 8, there is a picture in the upper border of the page towards the left
showing Michael Simpson, Chairman of the Board, sitting at a desk.
[PHOTO]
Mike Simpson
CHAIRMAN
- --------------------------------------------------------------------------------
Q. HOW DOES CASTLE DIFFERENTIATE ITSELF TO MEET ITS CUSTOMERS' NEEDS?
A. Mork: One of our most important strengths lies in providing our customers
with the latest equipment, technologies and processes -- well in advance of our
competition. Our early lead in attaining ISO 9002 certification is a great
example of this approach. Back in 1992, we anticipated that ISO 9000 -- the
international quality standard -- would ultimately become a prerequisite for
competing in a global market. With as much as 30% of our customers' production
destined for export markets, we initiated this process at our Hy-Alloy Steels
facility. Not because our competitors were doing so. In fact, none of our
major competitors had begun this painstaking process. But we went ahead because
we spotted a window of opportunity to provide our customers with a standard of
quality that was not available elsewhere in the industry. We're proud to add
that, in 1996, we completed this certification process throughout our North
American distribution network. With quality already equal to or better than our
competitors, ISO took us to world-leading levels and provided us with yet
another competitive advantage.
Q. WHAT ELSE GIVES YOU A COMPETITIVE EDGE IN THE SPECIALTY METALS BUSINESS?
A. Simpson: Perhaps the biggest edge comes from leveraging our singular focus
on highly engineered materials such as carbon, alloy and stainless steels;
nickel alloys; aluminum and titanium across the entire spectrum of North
American metals-using industries. Within our core markets, we provide a full
range of value-added processing and materials management services that raise the
value of our total performance to the highest level possible. Our objective is
not to simply keep pace with the market, but to get ahead of it with innovative,
leading-edge capabilities such as heat-treating, straightening and centerless
grinding -- product finishing operations previously performed at the producer
level, and value-added information and communication systems that are designed
to drive down our customers' total costs.
Q. THE SPECIALTY METALS SEGMENTS THAT CASTLE FOCUSES ON IS ONLY A $6.0 BILLION
SUBSET OF THE LARGER OVERALL METALS MARKET. DO YOU HAVE ANY PLANS TO
PENETRATE THE COMMODITY SECTOR OF THE BUSINESS?
A. Culliton: The commodity segment of our market is the right answer for some
companies in our industry, but the wrong answer for us. Back in the early 80s,
we made the decision to exit the commodity market. Our plan was simple: to
concentrate exclusively on highly engineered materials which offer higher, more
stable gross margins. In these markets, where there are more than 15,000
specific items, sophisticated inventory management processes are critical. Our
vision was to develop a unique package of capabilities including: inventory
depth and breadth; a full range of pre-processing services; a certified quality
process; advanced computer and customer communication systems; and technical
expertise in the production and application of the metals we sell that would
propel us to an industry-leading market position in all of our core products.
We've spent more than a decade at this, making major improvements every year.
And the results have more than justified that effort. Today we're number one in
more than half of our core product markets and number two or three in an
additional 25%, but we're still not satisfied.
BUILDING VALUE THROUGH COMPETITIVE ADVANTAGE
CASTLE'S COMPETITIVE ADVANTAGES
- - Industry's broadest and deepest selection of grades, conditions, sizes and
finishes
- - Wide range of value-added processes, many finishing operations unique to
Castle
- - Geographic coverage provides next-day delivery to over 90% of markets
- - Size affords economies of scale, purchasing power, low-cost supplier position
- - Technological expertise in designing customized metals solutions
- - Alliances provide combined capabilities where appropriate
- - "One-stop shopping" for highly engineered metals
PAGE 8
<PAGE>
On page 9, there are 2 photographs in the upper border of the page. The one on
the left is of Edward F. Culliton, Vice President and Chief Financial Officer
sitting at a desk writing, and one to the right of that is Richard G. Mork.
[PHOTO]
Ed Culliton
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
[PHOTO]
Dick Mork
Q. RAPID CHANGES IN TECHNOLOGY SEEM TO BE AFFECTING JUST ABOUT EVERY COMPANY
IN EVERY INDUSTRY. HOW BIG A ROLE DOES TECHNOLOGY PLAY IN THE METALS
DISTRIBUTION INDUSTRY?
A. Mork: In our business, investing in technology takes two forms, the first
being the process technology required to offer value-added processing of our
customers' products. Increasingly, we've seen a movement toward computer
numeric control, ever tighter tolerances -- some to within one-thousandths of an
inch -- and greater sophistication in order to build more value into the final
product. At Castle, we're investing aggressively in advanced processing
capabilities some of which, historically, were never contemplated by the metals
service center industry. Similarly, early investments in leading-edge
information technology enabled us to pioneer integrated supplier relationships
in our industry. Ten years ago, we generated less than 5% of our total business
from these relationships, which rely heavily on electronic data interchange. In
1996, they represented approximately 50% of sales. But, with the increasing
pace of change, we can never stand still. We are continuously working to expand
and improve upon what we call our Total Service Concept.
Q. CASTLE WAS VERY ACTIVE IN MAKING ACQUISITIONS IN 1996. CAN YOU TELL US
WHAT'S BEHIND YOUR ACQUISITION STRATEGY?
A. Simpson: Backed by the strongest balance sheet and operating cash flow in
our company history, we acquired two platform businesses that weren't actually
on the market, but that offered the best fit -- in terms of their growth
potential, value-added service orientation and culture. Both Total Plastics
("TPI"), a Midwest-based industrial plastics distributor, and Cutter Precision
Metals, a Pacific Northwest-based aluminum plate distributor and precision
processor, were $25 million companies at their date of acquisition. And both are
well on the way toward their goal of growing into $100 million regional niche
leaders within a five to seven year time frame. I should add that they have
been accretive to earnings since day one. We are not turnaround artists. We
want to find top-notch companies with strong entrepreneurial management that can
execute their vision of growth more rapidly with our financial backing and
national reputation. The bottom line of our acquisition strategy is to create
value for our customers and, in doing so, to create value for our shareholders.
Q. CAN YOU PROVIDE SOME MORE INSIGHT INTO YOUR STRATEGY IN PLASTICS?
A. Simpson: TPI enables us to test the concept of transferring our expertise
in materials management and logistics into another highly engineered product
with a strong value-added component. To give you some background on "why
plastics?", this is an industry with an historical growth record in the 7 to 10%
per year range. Just as compelling from our perspective, it is an industry that
is even more fragmented than metals, and has not yet widely embraced the
advanced inventory management techniques and systems that are such an integral
part of our business. So, once again, we have identified an attractive
opportunity to add value not available elsewhere in the marketplace.
BUILDING VALUE THROUGH NEW PLATFORMS
RECENT ACQUISITION ACTIVITY
- --------------------------------------------------------------------------------
DATE COMPANY SALES* GOAL STRATEGY
- --------------------------------------------------------------------------------
1995 Total Plastics, Inc. $25 MM $100 MM Leveraging logistical skill
set
- --------------------------------------------------------------------------------
1996 Pontiac Plastics $10 MM Building our plastics
business
- --------------------------------------------------------------------------------
1996 Cutter Precision $25 MM $100 MM Value-added processing
- --------------------------------------------------------------------------------
1996 Kreher Steel $100 MM $300 MM New market channel
- --------------------------------------------------------------------------------
*AT DATE OF ACQUISITION
PAGE 9
<PAGE>
On page 10, in the upper border, is another picture of Michael Simpson.
[PHOTO]
Mike Simpson
- --------------------------------------------------------------------------------
Q. OVER THE PAST THREE YEARS, YOU'VE REDUCED LONG-TERM DEBT BY $20 MILLION.
WILL YOUR BALANCE SHEET SUPPORT ADDITIONAL ACQUISITIONS AND/OR MAJOR
INVESTMENTS?
A. Culliton: The fact that we were able to finish the year with a debt-to-
total capital ratio of 26% following the completion of four acquisitions is
indicative of the company's solid financial base. Our goal was to improve the
efficiency with which we use our assets in our core business rather than a
concerted effort to reduce our financial leverage. Actually, we are very
comfortable with a debt-to-total capital ratio of 40 to 45%. So, with our ratio
well below 30%, we believe we have more than ample resources to fund additional
select acquisitions and other investments.
Q. SWITCHING GEARS FOR A MOMENT, HOW WOULD YOU EVALUATE YOUR PROGRESS IN YOUR
KEY FINANCIAL MEASURES?
A. Mork: Since 1992, we've continuously raised the bar on our three key
financial measures to levels we would have never dreamed possible. Looking at
our 1996 performance, we met the target in our first measure, exceeded the
target in our second, but fell short of the target in our third. Let me run
through each one briefly.
Gross margin, already among our industry's highest, grew almost a full
percentage point to 28.4%, reflecting the high value-added orientation of our
new platform businesses as well as customer utilization of our ever expanding
package of pre-processing services as a way to reduce their total costs.
Inventory turn and earn, which is a very critical measurement for us,
continued to show dramatic improvement in 1996, reaching an historic high of
$1.15 of gross profit for every dollar invested in inventory. Just five years
ago, we were earning 65 cents.
We set an aggressive 65% target for our ratio of operating expense as a
percent of gross profit, and came in a little over 1995's ratio at 72%. While
we did achieve solid productivity gains, they weren't enough to completely
offset the effects of relatively flat mill pricing in a slightly inflationary
environment along with higher levels of transaction activity. But keep in mind
that this ratio has improved by 14 percentage points over the last four years --
not a bad performance.
Q. NOW THAT YOU'RE TWO MONTHS INTO 1997, WHAT DO YOU SEE AS SOME OF THE KEY
OPPORTUNITIES GOING FORWARD?
A. Mork: The trend toward outsourcing by OEM's continues to gain momentum and
that creates some very exciting opportunities for expanding our market share in
1997. As mentioned earlier, we pioneered the concept of integrated
BUILDING VALUE THROUGH INCREASED PRODUCTIVITY
[BAR CHART]
In the lower third of the page there are 2 bar graphs. The one on the left
depicts gross margin improvement in percent over the years 1992 through 1996 and
depicts gross margins of 26.0% in 1992; 25.8% in 1993; 27.1% in 1994; 27.6% in
1996; and 27.8% in 1996.
[BAR CHART]
The bar graph to the right in the lower right hand portion of the page shows
inventory turn & earn in dollars for the same 5 year period. It shows that in
1992 it was $.65; in 1993 it was $.74; in 1994 it was $.90; in 1995 it was $.96;
and in 1996 it was $1.15.
PAGE 10
<PAGE>
The top border shows a picture of Edward F. Culliton sitting behind a desk.
[PHOTO]
Ed Culliton
- --------------------------------------------------------------------------------
supply management in our industry, and are currently working with a number of
customers to help them take that next step toward a customized and comprehensive
service program. We're also excited about the prospects of bringing additional
new technologies and value-added processes to our industry. For instance, in
response to strong demand for our high value-added bar processing services, we
plan to double the size of our operations at H-A Industries. Other innovative
new processes which we're very enthusiastic about include the introduction of
advanced laser cutting equipment, water-jet and plasma bevel cutting -- all of
which will enable us to better serve the needs of our engineered plate
customers. It's worth noting that we are the only one in our industry to offer
all three of these capabilities.
Q. WHAT ARE THE LONG-TERM GROWTH PROSPECTS FOR CASTLE?
A. Mork: We believe our growth prospects are excellent -- enough so that
we've set long-term average annual growth goals of 7.5 to 10% in revenues and 15
to 20% in earnings. Let me reiterate the three basic facts that underlie our
growth prospects. First, we operate in a $600+ billion target market that
comprises literally hundreds and hundreds of SIC Codes, and hundreds of
thousands of businesses ranging from the top Fortune 500 companies and their
mid-sized counterparts, both public and private, all the way to the thousands of
job shops which support their efforts. Every day, every single one of these
companies consumes metals--historically growing at a rate above GDP. Second, in
the last few years, the advanced materials management concepts in which we've
developed a competitive advantage have become increasingly invaluable to our
target customers as they strive to enhance productivity and quality. And third,
as North America's premier distributor of highly engineered metals and value-
added services, we are in the best position to meet these needs.
Q. ARE THERE ANY OTHER FACTORS UNIQUE TO YOUR SUCCESS?
A. Simpson: The values around which we've built our market franchise over the
past 100 years will continue to be important to us: our focus on customers; our
commitment to be an agent of change; our work environment; our performance
standards and our integrity. What we try to do is build value over time--that's
not always going to translate into quarter to quarter growth. Instead, by
design, we are focused on opportunities that will build lasting value for both
our customers and our shareholders. If we keep our focus -- and we intend to do
so -- we believe that we can continue to deliver average annual returns to
shareholders that consistently exceed the market. That really is our mission --
building long-term value for customers and shareholders.
BUILDING VALUE THROUGH TOP-LINE GROWTH
On page 11, there are again 2 graphs on the bottom third of the page.
[BAR CHART]
The bar graph on the lower left hand third of the page shows operating expense
as a percentage of gross margin and for the 5 years 1992 through 1996, and it
has the following points. For 1992 it is 86%; for 1993 it is 83.4%; for 1994 it
is 77%; for 1995 it is 69.5%; and for 1996 it is 72.8%.
[PIE CHART]
There is a pie chart on the lower left hand third of the page showing where the
Company's expected future growth in its core business is to be derived. The
Company expects, as shown by the chart, that one-third of its future growth
would be derived from the overall increase in metal consumption in North
America; an additional one-third of growth would come from the growth of the
service center industry market share; and the final one-third growth would come
from increases in Castle's market share.
PAGE 11
<PAGE>
A. M. CASTLE & CO. AND SUBSIDIARIES
CONSOLIDATED ELEVEN-YEAR FINANCIAL AND OPERATING SUMMARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA-NOTE 7) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL Tons sold (in thousands). . . . . . . . . . . . . . . . . . . . . . . 331 343 338
SUMMARY OF Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $672.6 $627.8 $536.6
EARNINGS Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 481.4 454.4 391.4
-----------------------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191.2 173.4 145.2
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . 140.2 121.7 112.1
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 4.5 4.6
-----------------------------
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . . 46.0 47.2 28.5
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . 2.9 2.9 3.2
-----------------------------
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . 43.1 44.3 25.3
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.0 17.5 9.9
-----------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 26.8 15.4
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 6.0 3.6
-----------------------------
Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.1 $ 20.8 $ 11.8
-----------------------------
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
SHARE DATA Number of shares outstanding at year-end (in thousands) . . . . . . . 14,008 13,945 13,850
(NOTE 7) Net income per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 1.86 $ 1.93 $ 1.12
Cash dividends per share. . . . . . . . . . . . . . . . . . . . . . . $ .57 $ .43 $ .26
Book value per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 8.70 $ 7.41 $ 5.94
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80.0 $ 84.4 $ 76.0
POSITION Property, plant and equipment, net. . . . . . . . . . . . . . . . . . $ 62.7 $ 44.5 $ 41.2
AT YEAR-END Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $261.4 $222.5 $213.1
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.9 $ 28.0 $ 38.5
Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . $121.9 $103.4 $ 82.2
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9% 4.3% 2.9%
RATIOS Asset turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 2.8 2.5
Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0% 12.0% 7.2%
Leverage factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 2.7 3.1
Return on opening stockholders' equity. . . . . . . . . . . . . . . . 25.3% 32.6% 22.2%
Percent earnings reinvested . . . . . . . . . . . . . . . . . . . . . 69.3% 77.6% 76.6%
Percent increase (decrease) in equity . . . . . . . . . . . . . . . . 17.9% 25.8% 18.3%
- ---------------------------------------------------------------------------------------------------------------------
OTHER DATA Additions to property, plant and equipment. . . . . . . . . . . . . . $ 22.5 $ 11.8 $ 7.9
Stockholders at year-end. . . . . . . . . . . . . . . . . . . . . . . 1,613 1,618 1,639
Employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . 1,505 1,231 1,185
Per employee data (in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $446.9 $510.0 $452.8
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $127.0 $140.8 $122.5
Operating expenses, including depreciation. . . . . . . . . . . . . $ 96.4 $102.5 $ 98.5
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . $ 30.6 $ 38.3 $ 24.0
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE IS PREPARED REFLECTING ACCOUNTING CHANGES AS REQUIRED OR ALLOWED
TO MORE FAIRLY PRESENT THE RESULTS OF OPERATIONS OVER THE ELEVEN-YEAR PERIOD.
STATEMENTS FOR YEARS PRECEDING THESE CHANGES HAVE NOT BEEN REVISED TO REFLECT
THEIR RETROACTIVE APPLICATION OF THESE CHANGES. REFER TO PRIOR YEAR ANNUAL
REPORTS FOR SPECIFIC ACCOUNTING CHANGES.
PAGE 12
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA-NOTE 7) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL Tons sold (in thousands). . . . . . . . . . . . . . . . . . . . . . . 308 249 234
SUMMARY OF Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $474.1 $423.9 $436.4
EARNINGS Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.8 313.7 331.1
-----------------------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.3 110.2 105.3
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . 102.1 94.9 92.8
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 4.9 5.3
-----------------------------
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . . 15.4 10.4 7.2
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . 3.8 4.3 6.8
-----------------------------
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . 11.6 6.1 .4
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 2.7 .2
-----------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 3.4 .2
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 2.9 3.9
-----------------------------
Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.0 $ 0.5 $(3.7)
-----------------------------
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
SHARE DATA Number of shares outstanding at year-end (in thousands) . . . . . . . 13,646 13,643 13,643
(NOTE 7) Net income per share. . . . . . . . . . . . . . . . . . . . . . . . . $ .50 $ .25 $ .02
Cash dividends per share. . . . . . . . . . . . . . . . . . . . . . . $ .22 $ .22 $ .29
Book value per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 5.10 $ 4.80 $ 4.74
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86.1 $ 75.3 $ 79.7
POSITION Property, plant and equipment, net. . . . . . . . . . . . . . . . . . $ 41.0 $ 43.2 $ 47.4
AT YEAR-END Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $204.2 $195.2 $190.4
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ .2
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58.0 $ 53.0 $ 63.3
Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 69.5 $ 65.5 $ 64.7
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5% 0.8% 0.1%
RATIOS Asset turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.2 2.3
Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4% 1.7% 0.1%
Leverage factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 3.0 2.8
Return on opening stockholders' equity. . . . . . . . . . . . . . . . 10.5% 5.2% 0.3%
Percent earnings reinvested . . . . . . . . . . . . . . . . . . . . . 58.0% 14.7% -%
Percent increase (decrease) in equity . . . . . . . . . . . . . . . . 6.1% 1.2% (5.3%)
- ---------------------------------------------------------------------------------------------------------------------
OTHER DATA Additions to property, plant and equipment. . . . . . . . . . . . . . $ 4.6 $ 1.8 $ 3.3
Stockholders at year-end. . . . . . . . . . . . . . . . . . . . . . . 1,625 1,670 1,750
Employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . 1,204 1,196 1,268
Per employee data (in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $393.8 $354.4 $344.2
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $101.6 $ 92.1 $ 83.0
Operating expenses, including depreciation. . . . . . . . . . . . . $ 88.8 $ 83.4 $ 77.4
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . $ 12.8 $ 8.7 $ 5.6
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA-NOTE 7) 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL Tons sold (in thousands). . . . . . . . . . . . . . . . . . . . . . . 248 255 277
SUMMARY OF Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $478.9 $501.1 $499.3
EARNINGS Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.6 380.6 375.1
-----------------------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.3 120.5 124.2
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . 97.5 96.7 92.6
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 4.4 3.9
-----------------------------
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . . 12.6 19.4 27.7
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . 6.8 5.1 5.1
-----------------------------
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . 5.8 14.3 22.6
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 5.6 8.9
-----------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 8.7 13.7
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 4.7 3.5
-----------------------------
Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . $(1.8) $ 4.0 $ 10.2
-----------------------------
-----------------------------
- ---------------------------------------------------------------------------------------------------------------------
SHARE DATA Number of shares outstanding at year-end (in thousands) . . . . . . . 13,616 13,538 13,481
(NOTE 7) Net income per share. . . . . . . . . . . . . . . . . . . . . . . . . $ .23 $ .64 $ 1.02
Cash dividends per share. . . . . . . . . . . . . . . . . . . . . . . $ .36 $ .34 $ .26
Book value per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 5.02 $ 5.15 $ 4.86
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89.9 $ 75.8 $ 89.0
POSITION Property, plant and equipment, net. . . . . . . . . . . . . . . . . . $ 54.8 $ 45.3 $ 39.4
AT YEAR-END Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $226.6 $202.3 $211.9
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.9 $ .5 $ --
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76.7 $ 51.0 $ 61.0
Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 68.3 $ 69.7 $ 65.5
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7% 1.7% 2.7%
RATIOS Asset turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 2.5 2.4
Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4% 4.3% 6.5%
Leverage factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.1 3.8
Return on opening stockholders' equity. . . . . . . . . . . . . . . . 4.5% 13.2% 24.7%
Percent earnings reinvested . . . . . . . . . . . . . . . . . . . . . -% 46.3% 74.8%
Percent increase (decrease) in equity . . . . . . . . . . . . . . . . (2.0%) 6.4% 18.5%
- ---------------------------------------------------------------------------------------------------------------------
OTHER DATA Additions to property, plant and equipment. . . . . . . . . . . . . . $ 13.4 $ 10.4 $ 7.8
Stockholders at year-end. . . . . . . . . . . . . . . . . . . . . . . 1,730 1,747 1,732
Employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . 1,379 1,371 1,373
Per employee data (in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $347.3 $365.5 $363.7
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83.6 $ 87.9 $ 90.5
Operating expenses, including depreciation. . . . . . . . . . . . . $ 74.5 $ 73.7 $ 70.3
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . $ 9.1 $ 14.2 $ 20.2
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA-NOTE 7) 1987 1986
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL Tons sold (in thousands). . . . . . . . . . . . . . . . . . . . . . . 258 231
SUMMARY OF Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $376.1 $322.9
EARNINGS Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 282.1 240.6
--------------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.0 82.3
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . 74.9 74.6
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.6
--------------------
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . . 15.4 4.1
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . 3.3 4.1
--------------------
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . 12.1 0.0
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 (0.1)
--------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 0.1
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 3.0
--------------------
Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.6 $ (2.9)
--------------------
--------------------
- ----------------------------------------------------------------------------------------------------------
SHARE DATA Number of shares outstanding at year-end (in thousands) . . . . . . . 13,381 13,325
(NOTE 7) Net income per share. . . . . . . . . . . . . . . . . . . . . . . . . $ .50 $ .01
Cash dividends per share. . . . . . . . . . . . . . . . . . . . . . . $ .22 $ .23
Book value per share. . . . . . . . . . . . . . . . . . . . . . . . . $ 4.14 $ 3.86
- ----------------------------------------------------------------------------------------------------------
FINANCIAL Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47.9 $ 47.5
POSITION Property, plant and equipment, net. . . . . . . . . . . . . . . . . . $ 35.7 $ 38.4
AT YEAR-END Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $158.7 $145.6
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.0 $ 14.0
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.8 $ 30.8
Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 55.3 $ 51.5
- ----------------------------------------------------------------------------------------------------------
FINANCIAL Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8% 0.1%
RATIOS Asset turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.2
Return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2% 0.1%
Leverage factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 2.8
Return on opening stockholders' equity. . . . . . . . . . . . . . . . 12.9% 0.2%
Percent earnings reinvested . . . . . . . . . . . . . . . . . . . . . 54.0% -%
Percent increase (decrease) in equity . . . . . . . . . . . . . . . . 7.3% (5.0%)
- ----------------------------------------------------------------------------------------------------------
OTHER DATA Additions to property, plant and equipment. . . . . . . . . . . . . . $ 2.6 $ 6.2
Stockholders at year-end. . . . . . . . . . . . . . . . . . . . . . . 1,750 1,843
Employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . 1,232 1,227
Per employee data (in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $305.3 $263.2
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76.3 $ 67.0
Operating expenses, including depreciation. . . . . . . . . . . . . $ 63.8 $ 63.7
Profit from operations. . . . . . . . . . . . . . . . . . . . . . . $ 12.5 $ 3.3
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 13
<PAGE>
A. M. CASTLE & CO. AND SUBSIDIARIES
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This discussion should be read in connection with the information contained in
the Consolidated Financial Statements and Notes.
OVERVIEW
1996 marked another successful year for A. M. Castle & Co. Sales were the
highest in the Company's history, breaking the previous record set in 1995.
Earnings also remained strong, finishing as the second highest in Castle's
history just behind 1995's record performance. The past year saw Castle
aggressively expand its operations, through internal growth and acquisitions,
into new markets and complementary lines of business. These new ventures helped
achieve record sales levels, and served to offset some of the earnings erosion
caused by relatively flat pricing in an inflationary environment in the
Company's core business. The current year also showed some slowing in the growth
rate of the producer durable goods sector of the economy, as compared to 1995,
in which earnings were assisted by rapidly growing demand and a favorable
pricing environment at the mill level. Activity levels in 1996 remained strong
throughout the year, with the first half outperforming the second half, mainly
due to normal seasonal slowdowns that occur during the third quarter summer
vacation months and the fourth quarter holiday season.
1996 COMPARED WITH 1995
Net sales for 1996 totaled $672.6 million, an increase of 7.1% over 1995's
$627.8 million. Excluding sales generated from our acquisitions, sales declined
by 0.4%, with unit volume decreasing by 3.1%. Carbon and stainless steels
generated 74% of total sales, with the balance provided by non-ferrous metals.
Castle remains committed to its focus on gross margin, a vital component of
long-term profitability. In 1996, cost of sales as a percentage of total sales
decreased. Gross margin percentage increased to 28.4% compared to 27.6% for
1995. The Company's emphasis on providing value-added services has contributed
significantly to the improved margin performance over the past two years. Total
gross profit was $191.2 million in 1996, up 10.3% from 1995's level of $173.4
million. Excluding gross margins generated from our acquisitions, gross margin
increased slightly by 0.6%.
Substantially all inventories are valued using the LIFO (last-in,
first-out) method. This method had the effect of decreasing Castle's cost of
sales by $8.8 million in 1996, compared with what it would have been on a FIFO
basis.
Total operating expenses for 1996 were $140.1 million, compared with $121.7
million in the preceding year, a 15.1% increase. Excluding the expenses of our
acquired businesses, 1996 operating expenses were up 3.3% as compared to 1995.
As a percentage of sales, expenses were 20.8% in 1996 as compared to 19.4% of
sales in 1995. Depreciation expense increased by $0.5 million from 1995
primarily due to the additional depreciation expense associated with the
acquired companies. Net interest expense declined 2.5% due to lower average
borrowings.
The Company's income tax rate, at 39.5%, remained unchanged from the
previous year.
The increased sales revenues, and the effect of the company's operating
leverage on incremental sales, helped to offset some of the softness in the
economy and provide another strong earnings year for Castle. Continuing focus on
gross margins and management of operating expenses also contributed to the
strong earnings performance. Earnings for the year totalled $26.1 million, or
$1.86 per share, versus $26.8 million, or $1.93, a share in 1995.
1995 COMPARED WITH 1994
In 1995, sales totaled $627.8 million, an increase of 17% over 1994's $536.6
million. Unit volume increased by 1% to 342,700 tons. Carbon and stainless
steels generated 77% of total shipments, with the balance provided by
non-ferrous metals. Sales growth in dollars outpaced increases in unit volume
due to higher prices at the producer level and to improved margins. Average mill
prices in 1995 were about 13.8% above 1994 levels.
In 1995, material cost as a percentage of total sales decreased. Gross
margin percentage rose to 27.6% compared with 27.1% for 1994, primarily due to
the higher level of value-added services provided to customers. Gross profit
totalled $173.4 million, up 19% from 1994's level of $145.2 million. Strong unit
volume increases, higher mill prices, and improved gross margin percentage all
contributed to the increase in gross profit. In 1995, LIFO had the effect of
increasing Castle's cost of sales by $14.6 million as compared with a $6.1
million increase in 1994.
Total operating expenses for 1995 were $121.7 million, compared with $112.1
million in 1994. As a percentage of sales, operating expenses fell to 19.4% as
compared to 20.9% in 1994. Depreciation expense decreased slightly while
interest expense fell 8% due to lower average borrowings.
In 1995, the Company's income tax rate, at 39.5%, increased from the prior
year due the full utilization in 1994 of tax loss carryforwards from our
Canadian operations.
The combination of increased sales revenues and the strong operating
leverage created by the Company's focus on gross margins and operating
efficiency led to a second consecutive record earnings year in 1995. Earnings
for 1995 at $26.8 million, or $1.93 per share, were well over the previous
record earnings of $15.4 million, or $1.12 per share, earned in 1994.
All per share figures have been adjusted to reflect a five-for-four stock
split declared in April 1996.
PAGE 14
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures during 1996 totalled $22.5 million compared with $11.8
million in 1995. Capital expenditures in 1996 included approximately $10.5
million for construction of new facilities in Minneapolis, Minnesota, which
opened in mid 1996, and Charlotte, North Carolina, which was put into service in
January of 1997. An additional $3.0 million was spent to expand H-A Industries'
processing capabilities along with approximately $4.5 million expended for
processing and material handling equipment throughout the rest of the Company.
The remaining expenditures were aimed at enhancing existing facilities and
maintaining property and equipment in good working order. In 1995, approximately
$2.9 million was expended for additional production capabilities at H-A
Industries, $4.9 million was invested in material handling, sawing, and flame
cutting equipment throughout the rest of the Company, and approximately $1.0
million was expended for the purchase of land. The remaining expenditures were
aimed at enhancing existing facilities and maintaining property and equipment in
good working order.
During 1996 and 1995, the Company sold and leased back approximately $2.5
million and $4.1 million of fixed assets respectively, which added to cash flow
and reduced long-term borrowing.
LIQUIDITY AND CAPITAL RESOURCES
Castle continues to make great strides in strengthening its financial position.
Strong earnings and cash flows over the past two years have provided funds for
capital expansion and acquisitions while long-term borrowings have been
maintained at historically low levels.
At year end 1996, stockholders' equity had increased 18% over last year to
$121.9 million, or $8.70 per share. The previous record earnings achieved in
1995 and 1994 added 49% to stockholders' equity, resulting in a three-year
increase in total net worth of 75%. Total borrowings were $43.4 million at year
end 1996, as compared to $30.8 million at 1995 year end. Our debt-to-capital
ratio was 26% at year end 1996 as compared to 23% at the end of 1995 and 34% at
the end of 1994.
Accounts receivable rose in 1996 reflecting the increase in sales levels.
The number of days sales outstanding at the end of 1996 remained unchanged from
1995. Collections remained strong, exceeding our target levels. Management
believes that net receivables at December 31, 1996 are of a very good quality.
Inventory levels decreased from 1995 despite the increase in sales.
Working capital was $80.0 million at December 31, 1996, compared with $84.4
million at December 31, 1995.
Castle had unused committed and uncommitted lines of bank credit of $181.0
million at December 31, 1996, compared with $149.2 million at December 31, 1995.
Management believes that funds generated from operations, existing lines of
credit and additional borrowing capacity should provide adequate funding for
current and anticipated business operations.
COMMON STOCK INFORMATION
Symbol CAS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDENDS STOCK PRICE RANGE
1996 1995 1996 1995
- --------------------------------------------------------------------------------
First quarter........... $.12 $.096 $20 3/8 $ 25 $ 9 3/4 $11 1/2
Second quarter.......... .15 .096 23 1/2 30 7/8 9 3/4 15
Third quarter........... .15 .12 16 3/4 23 1/4 14 3/8 20
Fourth quarter.......... .15 .12 16 1/8 20 17 5/8 22 5/8
------------
$.57 $.43
------------
------------
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
A. M. CASTLE & CO. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company's LIFO inventory system charges cost of material sold at the
inventory costs of its most recent purchases. The LIFO method matches current
revenues with current costs of inventory. This method more fairly presents
results of operations, whether in periods of inflation or deflation.
The Supplementary Statements of Consolidated Financial Position are
presented for analytical and comparative purposes. They are intended to display
the Company's financial position as if the Company were on a FIFO-based
inventory system rather than the LIFO-based inventory system the Company
actually uses. The statements reflect taxes on the unrecognized inventory gain
at statutory Federal rates and the Company's historical average state tax rates
and give no effect to any supplemental expenses.
SUPPLEMENTARY STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.8 $ 0.7 $ 1.0
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 68.8 63.4 58.9
Inventories, at latest cost. . . . . . . . . . . . . . . . . . . . 152.1 164.1 149.9
---------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 222.7 228.2 209.8
Less--current liabilities. . . . . . . . . . . . . . . . . . . . . (107.4) (104.0) (102.8)
---------------------------
Net current assets . . . . . . . . . . . . . . . . . . . . . . . . . 115.3 124.2 107.0
Fixed and other assets, net. . . . . . . . . . . . . . . . . . . . . 97.4 60.7 55.0
---------------------------
Total assets, less current liabilities . . . . . . . . . . . . . 212.7 184.9 162.0
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (40.9) (28.0) (38.5)
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . (11.4) (10.9) (7.8)
Postretirement benefit obligations . . . . . . . . . . . . . . . . . (3.2) (2.8) (2.5)
Unrecognized inventory gain, net of taxes. . . . . . . . . . . . . . (35.3) (39.8) (31.0)
---------------------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . $121.9 $103.4 $82.2
---------------------------
---------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 16
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $672,617 $627,826 $536,568
Cost of material sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,451 454,428 391,386
--------------------------------------
Gross profit on sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,166 173,398 145,182
--------------------------------------
Expenses
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,144 121,652 112,070
Depreciation (Note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,008 4,459 4,603
Interest expense, net (Notes 2 and 4). . . . . . . . . . . . . . . . . . . . 2,878 2,953 3,215
--------------------------------------
148,030 129,064 119,888
--------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 43,136 44,334 25,294
--------------------------------------
Income taxes (Notes 1 and 3)
Federal - currently payable. . . . . . . . . . . . . . . . . . . . . . . . . 12,845 14,114 6,503
- deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 (72) 1,474
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,253 3,466 1,907
--------------------------------------
17,032 17,508 9,884
--------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,104 $ 26,826 $ 15,410
--------------------------------------
Net income per share (Notes 1 and 7) . . . . . . . . . . . . . . . . . . . . . $ 1.86 $ 1.93 $ 1.12
--------------------------------------
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,998 $61,178 $ 49,409
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,104 26,826 15,410
Cash dividends--$.57 in 1996, $.43 per share in 1995 and
$.26 per share in 1994 (Note 7). . . . . . . . . . . . . . . . . . . . . . . (7,978) (6,006) (3,641)
--------------------------------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,124 $81,998 $ 61,178
--------------------------------------
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
PAGE 17
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash (Note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,805 $ 667 $ 976
Accounts receivable, less allowances of $700 in 1996 and $600 in
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,791 63,408 58,892
Inventories--principally on last-in, first-out basis (latest cost
higher by approximately $58,800 in 1996, $66,300 in 1995 and
$51,700 in 1994) (Note 1). . . . . . . . . . . . . . . . . . . . . . . . . 93,315 97,766 98,215
--------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 163,911 161,841 158,083
--------------------------------------
Prepaid expenses and other assets (Note 1) . . . . . . . . . . . . . . . . . . 34,742 16,245 13,854
--------------------------------------
Property, plant and equipment, at cost (Notes 1 and 5)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,775 4,955 4,062
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,817 35,485 34,716
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 82,265 64,535 59,497
--------------------------------------
128,857 104,975 98,275
Less -- accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 66,140 60,512 57,085
--------------------------------------
62,717 44,463 41,190
--------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $261,370 $222,549 $213,12
--------------------------------------
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,860 $ 60,969 $ 61,282
Accrued payroll and employee benefits (Note 6) . . . . . . . . . . . . . . . 10,663 8,681 9,843
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,442 4,095 4,861
Current and deferred income taxes (Notes 1 and 3). . . . . . . . . . . . . . 2,455 958 2,321
Current portion of long-term debt (Note 4) . . . . . . . . . . . . . . . . . 2,482 2,756 3,831
--------------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 83,902 77,459 82,138
--------------------------------------
Long-term debt, less current portion (Note 4). . . . . . . . . . . . . . . . . 40,934 28,015 38,531
--------------------------------------
Deferred income taxes (Notes 1 and 3). . . . . . . . . . . . . . . . . . . . . 11,427 10,893 7,772
--------------------------------------
Postretirement benefit obligation (Note 6) . . . . . . . . . . . . . . . . . . 3,181 2,819 2,525
--------------------------------------
Stockholders' equity (Notes 1 and 7)
Common stock, without par value--authorized 30,000,000
shares; issued and outstanding 14,008,792 in 1996,
13,944,705 in 1995 and 13,849,556 in 1994. . . . . . . . . . . . . . . . . 26,681 25,441 24,114
Earnings reinvested in the business. . . . . . . . . . . . . . . . . . . . . 100,124 81,998 61,178
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 229 244
Treasury stock, at cost (834,439 shares in 1996,
799,268 shares in 1995 and 745,551 shares in 1994) . . . . . . . . . . . . (5,136) (4,305) (3,375)
--------------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 121,926 103,363 82,161
--------------------------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . $261,370 $222,549 $213,127
--------------------------------------
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
PAGE 18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,104 $26,826 $15,410
Adjustments to reconcile net income to net cash provided from
operating activities
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,008 4,459 4,603
Gain on sale of facilities/equipment . . . . . . . . . . . . . . . . . . . (112) (90) (106)
Increase (decrease) in deferred taxes. . . . . . . . . . . . . . . . . . . 458 3,121 (295)
(Increase) in prepaid expenses and other assets. . . . . . . . . . . . . . (3,388) (2,391) (2,766)
Vested portion of restricted stock awards. . . . . . . . . . . . . . . . . 198 161 68
Increase in postretirement benefit obligation. . . . . . . . . . . . . . . 362 294 59
--------------------------------------
Cash provided from operating activities before changes in
current accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,630 32,380 16,973
--------------------------------------
Increase (decrease) from changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,619 (4,516) (9,844)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,835 449 3,357
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,727) (313) 11,300
Accrued payroll and employee benefits. . . . . . . . . . . . . . . . . . . 160 (1,162) 3,861
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 (766) 1,349
Current and deferred income taxes. . . . . . . . . . . . . . . . . . . . . 1,182 (1,363) 1,122
--------------------------------------
Net increase (decrease) from changes in current accounts . . . . . . . . . . . 6,285 (7,671) 11,145
--------------------------------------
Net cash provided from operating activities. . . . . . . . . . . . . . . . . . 34,915 24,709 28,118
--------------------------------------
Cash flows from investing activities
Investments and acquisitions (Note 9). . . . . . . . . . . . . . . . . . . . (17,984) -- --
Proceeds from sales of facilities/equipment (Note 5) . . . . . . . . . . . . 2,521 4,140 3,213
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,544) (11,782) (7,926)
--------------------------------------
Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . (38,007) (7,642) (4,713)
--------------------------------------
Cash flows from financing activities
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . 23,060 4,685 4,409
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (11,091) (16,276) (25,506)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,978) (6,006) (3,641)
Net proceeds from issuance of stock. . . . . . . . . . . . . . . . . . . . . 211 236 705
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (15) 76
--------------------------------------
Net cash provided from (used by) financing activities. . . . . . . . . . . . . 4,230 (17,376) (23,957)
--------------------------------------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . 1,138 (309) (552)
Cash--beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 667 976 1,528
--------------------------------------
Cash--end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,805 $ 667 $ 976
--------------------------------------
--------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for--
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,997 $ 3,045 $ 3,435
--------------------------------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,268 $15,750 $ 9,057
--------------------------------------
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
PAGE 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) PRINCIPAL ACCOUNTING POLICIES AND BUSINESS DESCRIPTION
NATURE OF OPERATIONS -- The Company is an industrial distributor of specialty
metals including carbon, alloy, and stainless steels; nickel alloys; aluminum;
titanium; copper and brass; throughout the United States and Canada. The
customer base includes many Fortune 500 companies as well as thousands of medium
and smaller sized ones in various industries primarily within the producer
durable equipment sector. The Company also distributes industrial plastics
through its subsidiary Total Plastics, Inc.
BASIS OF PRESENTATION -- The financial statements include A. M. Castle & Co.
(the Company) and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES -- The financial statements have been prepared in accordance
with generally accepted accounting principles which necessarily include amounts
based on estimates and assumptions by management. Actual results could differ
from those amounts.
CASH -- For the purposes of these statements, short-term investments which have
a maturity of 90 days or less are considered cash equivalents.
INVENTORIES -- Substantially all inventories are stated at the lower of last-in,
first-out (LIFO) cost or market. The Company values its LIFO increments using
the costs of its latest purchases during the years reported.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost and include assets held under capitalized leases. Major renewals and
betterments are capitalized, while maintenance and repairs which do not
substantially improve or extend the useful lives of the respective assets are
expensed currently. When properties are disposed of, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in income.
The Company provides for depreciation of plant and equipment by charging against
income amounts sufficient to amortize the cost of properties over their
estimated useful lives (buildings--12 to 40 years; machinery and equipment--5 to
20 years). Depreciation is provided using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes. Included in
depreciation expense is the amortization of assets under capital leases.
INCOME TAXES -- Income tax provisions are based on income reported for financial
statement purposes.
RETIREMENT PLAN COSTS -- The Company accrues and funds its retirement plans
based on amounts, as determined by an independent actuary, necessary to maintain
the plans on an actuarially sound basis. The Company also provides certain
health care and life insurance benefits for retired employees. The cost of these
benefits are recognized in the financial statements during the employee's active
working career.
NET INCOME PER SHARE -- Net income per share has been computed based on weighted
average common shares outstanding during the year -- 13,998,783 in 1996,
13,893,798 in 1995 and 13,791,695 in 1994. The number of shares in 1994 and 1995
have been restated to reflect a 25% stock dividend in 1996.
GOODWILL -- Cost in excess of net assets of acquired companies is amortized on a
straight-line basis over a 40 year period. As required, the Company continually
evaluates whether later events or circumstances warrant a revision in the
remaining useful life and recoverability of the unamortized balance. The
unamortized balance is reflected on the consolidated balance sheet under prepaid
expense and other assets.
(2) SHORT-TERM DEBT
Short-term borrowing activity was as follows (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Maximum borrowed . . . . . . . . . . . . . . . . $5,000 $7,450 $6,975
Average borrowed . . . . . . . . . . . . . . . . 884 1,947 2,638
Average interest rate
During the year. . . . . . . . . . . . . . . . . 5.5% 6.1% 4.3%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's Federal and state deferred tax liabilities and assets as of
December 31, 1996, 1995 and 1994 are as follows (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . $6,547 $5,666 $5,119
Inventory, net . . . . . . . . . . . . . . . . 2,858 2,799 3,991
Pension. . . . . . . . . . . . . . . . . . . . 5,743 5,030 2,617
Other, net . . . . . . . . . . . . . . . . . . (1,612) (59) (101)
---------------------------
Net deferred liabilities . . . . . . . . . . 13,536 13,436 11,626
Deferred tax assets:
Postretirement benefits. . . . . . . . . . . . 1,426 1,271 1,155
---------------------------
Net deferred tax liabilities . . . . . . . . $12,110 $12,165 $10,471
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The components of the provision (benefit) for deferred Federal income tax for
the years ended December 31, 1996, 1995 and 1994, are as follows (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Depreciation . . . . . . . . . . . . . . . . . . $537 $415 $(4)
Inventory, net . . . . . . . . . . . . . . . . . 125 (1,124) 2,013
Pension. . . . . . . . . . . . . . . . . . . . . 621 963 16
Other, net . . . . . . . . . . . . . . . . . . . (349) (326) (551)
---------------------------
$934 $(72) $1,474
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A reconciliation between the statutory Federal income tax amount and the
effective amounts at which taxes were actually provided is as follows (in
thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax at statutory rates. . . . . . $15,098 $15,517 $8,853
State income taxes, net of Federal income
tax benefits. . . . . . . . . . . . . . . . . . 2,103 2,248 1,223
Net operating loss carry-forward . . . . . . . . -- (296) (296)
Other. . . . . . . . . . . . . . . . . . . . . . (169) 39 104
---------------------------
$17,032 $17,508 $9,884
---------------------------
---------------------------
- --------------------------------------------------------------------------------
(4) LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996, 1995 and 1994
(in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Revolving credit agreement (a) (c) . . . . . . . $ -- $ 7,640 $20,076
6.49% insurance company term loan,
due in equal installments from
2004 through 2008. . . . . . . . . . . . . . . 20,000 -- --
9.3% insurance company term loan,
due in equal installments through 2000 . . . . 6,650 8,320 9,990
7.53% insurance company term loan
due in equal installments from
1999 through 2005. . . . . . . . . . . . . . . 4,600 4,600 --
Industrial development revenue bonds
at variable rates, due in varying
amounts through 2010 (b) (c) . . . . . . . . . 11,058 8,700 8,800
11.5% insurance company term loan,
due in equal installments through 1995 . . . . -- -- 1,500
Canadian bank term loan at variable rates,
final payment in 1996. . . . . . . . . . . . . -- 825 1,158
Other. . . . . . . . . . . . . . . . . . . . . . 1,108 686 838
---------------------------
Total. . . . . . . . . . . . . . . . . . . . . . 43,416 30,771 42,362
Less--current portion. . . . . . . . . . . . . . (2,482) (2,756) (3,831)
---------------------------
Total long-term portion. . . . . . . . . . . . . $40,934 $28,015 $38,531
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The carrying value of long term debt does not differ materially from their
estimated fair value as of December 31, 1996.
(a) The Company has revolving credit agreements of $80.0 million domestically
and $7.7 million with a Canadian bank. The credit facilities are five-year
revolvers, extended annually by mutual agreement, and the Canadian facility has
a four-year equal amortization term option. Under these credit arrangements all
borrowings are considered to be long-term debt for balance sheet presentation
purposes.
Interest rate options on the domestic facility are based on Eurodollar
Interbank Rates, Reference Rates or competitive Bid Rates from five
participating banks. A commitment fee of .175% of the unused portion of the
commitment is required on the domestic facility.
(b) The industrial revenue bonds are based on a variable rate demand bond
structure and are backed by a letter of credit.
(c) The most restrictive provisions of the loan agreements require the Company
to maintain minimum funded debt to total capitalization ratios. At December 31,
1996, the Company was in compliance with all restrictive covenants.
(d) Aggregate annual principal payments required on the noncurrent portion of
long-term debt (including obligations under capital leases) are due as follows
(in thousands):
1998 $2,198 1999 $2,834 2000 $2,778 2001 $1,149
------ ------ ------ ------
------ ------ ------ ------
Total net book value of assets collateralized under financing arrangements
approximated $2.0 million at December 31, 1996.
Net interest expense reported on the accompanying Consolidated Statements
of Income was reduced by interest income of $0.3 million in 1996 and $ 0.1
million in 1995 and 1994.
(5) LEASE AGREEMENTS
(a) Description of leasing arrangements -- The Company has capital and operating
leases covering certain warehouse facilities, equipment, automobiles and trucks,
with lapse of time as the basis for all rental payments plus a mileage factor
included in the truck rentals.
(b) Capital leases -- Obligations under capitalization of leases are not
significant.
(c) Operating leases -- Future minimum rental payments under operating leases
that have initial or remaining noncancelable lease terms in excess of one year
as of December 31, 1996, are as follows (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year ending December 31,
- --------------------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,842
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,489
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,007
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,905
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,991
Later years. . . . . . . . . . . . . . . . . . . . . . . . . . 2,770
--------
Total minimum payments required. . . . . . . . . . . . . . . . . $22,004
--------
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) Rental expense -- Total rental payments charged to expense were $8.9 million
in 1996, $7.8 million in 1995 and $7.4 million in 1994.
(e) Sale and leaseback of assets -- During 1996, 1995 and 1994 the Company sold
and leased back equipment under operating leases with terms ranging from five to
eight years. The assets sold at approximately net book value for proceeds of
$2,473,000, $4,059,000 and $2,618,000 respectively. The 1996 lease allows for a
purchase option at the end of
PAGE 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the lease term of $779,000. The 1995 and 1994 leases allow for a purchase option
at the end of the lease term of $1,349,000 for the 1995 leases and $1,101,000
for the 1994 lease. Annual rentals are $336,000 for the 1996 leases, $615,000
for the 1995 leases and $482,000 for the 1994 lease transaction.
(6) RETIREMENT, PROFIT-SHARING AND INCENTIVE PLANS
Substantially all employees who meet certain requirements of age, length of
service and hours worked per year are covered by Company-sponsored retirement
plans. These retirement plans are defined benefit, noncontributory plans.
Benefits paid to retirees are based upon age at retirement, years of credited
service and average earnings.
The assets of the Company-sponsored plans are maintained in a single trust
account. The majority of the trust assets are invested in common stock mutual
funds, insurance contracts, real estate funds and corporate bonds. The Company's
funding policy is to satisfy the minimum funding requirements of ERISA.
The net pension expense/(credits) in 1996, 1995 and 1994 were composed of
the following (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Normal service cost. . . . . . . . . . . . . . . $1,798 $1,302 $1,318
Interest cost on projected benefit obligation. . 4,261 3,929 3,612
Actual return on plan assets . . . . . . . . . . (7,373) (10,314) (820)
Net amortization and deferral. . . . . . . . . . 1,572 4,866 (4,145)
---------------------------
Net pension expense (credit) . . . . . . . . . . $ 258 $ (217) $ (35)
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The status of the plans at December 31, 1996, 1995 and 1994, was as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of
vested benefit obligation. . . . . . . . . . . $44,011 $45,519 $36,617
Plus--Nonvested benefit obligation . . . . . . 2,670 3,180 2,945
---------------------------
Vested and nonvested accumulated benefit
obligation . . . . . . . . . . . . . . . . . 46,681 48,699 39,562
Plus--Projected salary increases benefit
obligation . . . . . . . . . . . . . . . . . 9,894 9,407 4,816
---------------------------
Projected benefit obligation . . . . . . . . . 56,575 58,106 44,378
Plan assets at fair market value . . . . . . . . 65,511 57,222 46,508
---------------------------
Plan assets in excess of (less than)
projected benefit obligation . . . . . . . . . 8,936 (884) 2,130
Items not yet recognized in earnings
Unrecognized net transitional assets . . . . . -- (976) (1,952)
Unrecognized net loss. . . . . . . . . . . . . 4,477 10,649 4,791
Unrecognized prior-service cost. . . . . . . . 942 1,148 1,353
---------------------------
Pension prepaid recognized on the consolidated
balance sheets at December 31. . . . . . . . . $14,355 $ 9,937 $ 6,322
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The assumptions used to measure the projected benefit obligations, future
salary increases, and to compute the expected long-term return on assets for the
Company's defined benefit pension plans are as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate. . . . . . . . . . . . . . . . . . 8.00% 7.25% 8.75%
Projected annual salary increases. . . . . . . . 4.75 4.75 4.75
Expected long-term rate of return on
plan assets. . . . . . . . . . . . . . . . . . 9.50 9.50 9.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company has profit sharing plans for the benefit of salaried and other
eligible employees (including officers). The Company's profit sharing plan
includes features under Section 401(k) of the Internal Revenue Code. The plan
includes a provision whereby the Company partially matches employee
contributions up to a maximum of 6% of the employees' salary. The plan also
includes a supplemental contribution feature whereby a Company contribution
would be made to all eligible employees upon achievement of specific return on
investment goals as defined by the plan.
The Company has a management incentive bonus plan for the benefit of its
officers and key employees. Incentives are paid to line managers based on
performance, against objective, of their respective operating units. Incentives
are paid to corporate officers on the basis of total Company performance against
objective. Amounts accrued and charged to income under each plan are included as
part of accrued payroll and employee benefits at each respective year end. The
amounts charged to income are summarized below (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Profit sharing and 401-K . . . . . . . . . . . . $2,469 $2,258 $2,224
--------------------------
--------------------------
Management incentive . . . . . . . . . . . . . . $2,664 $2,966 $2,678
--------------------------
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company also provides declining value life insurance to its retirees
and a maximum of three years of medical coverage to qualified individuals who
retire between the ages of 62 and 65. The Company does not fund these plans.
Net postretirement benefit cost for 1996, 1995 and 1994 includes the following
components (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . . . . . . $214 $154 $128
Interest cost on accumulated postretirement
benefit obligation . . . . . . . . . . . . . . 311 313 238
Amortization of unrecognized prior
service cost . . . . . . . . . . . . . . . . . 22 (26) 17
Amortization of unrecognized net (gain)
or loss. . . . . . . . . . . . . . . . . . . . 25 49 (25)
---------------------------
Net periodic postretirement benefit cost . . . . $572 $490 $358
---------------------------
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE 22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following is a reconciliation between the plan's funded status and the
accrued postretirement benefit obligation as reflected on the balance sheet as
of December 31, 1996, 1995 and 1994 (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . $1,528 $2,003 $1,354
Fully eligible active plan participants. . . . 133 147 149
Other active plan participants . . . . . . . . 2,825 3,088 1,524
--------------------------
4,486 5,238 3,027
Unrecognized prior service cost. . . . . . . . (459) (480) 238
Unrecognized net loss. . . . . . . . . . . . . (431) (1,523) (324)
--------------------------
Accrued postretirement benefit obligation. . . $3,596 $3,235 $2,941
--------------------------
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Future benefit costs were estimated assuming medical costs would increase
at a 11.75% annual rate for the current year, with annual increases decreasing
by 0.5% per year for two years, and 1% per year thereafter until an ultimate
trend rate of 5 3/4% is reached. A 1% increase in the health care cost trend
rate assumptions would have increased the accumulated postretirement benefit
obligation at December 31, 1996 by $343,000 with no significant effect on the
1996 postretirement benefit expense. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.00% in 1996,
7.25% in 1995 and 8.75% in 1994.
(7) COMMON STOCK
On April 23, 1996, the Company declared a 25% stock dividend which was accounted
for as a 5-for-4 stock split and had no effect on common stock or reinvested
earnings. All per share amounts presented reflect the effect of the 25% stock
dividend on a retroactive basis.
Changes in the common and treasury stock accounts during 1996, 1995 and
1994 were as follows (dollars in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stock Treasury Stock
- --------------------------------------------------------------------------------
Shares
Issued Amount Shares Amount
- --------------------------------------------------------------------------------
December 31, 1993. . . . . . . . . 14,264,618 $21,938 617,775 $1,972
Stock options exercised. . . . . 316,202 2,108 127,930 1,404
Other. . . . . . . . . . . . . . 14,287 68 (154) (1)
----------------------------------------
December 31, 1994. . . . . . . . . 14,595,107 24,114 745,551 3,375
Stock options exercised. . . . . 132,055 1,166 53,691 930
Other. . . . . . . . . . . . . . 16,810 161 25 --
----------------------------------------
December 31, 1995. . . . . . . . . 14,743,972 25,441 799,267 4,305
Stock options exercised. . . . . 90,944 1,064 35,141 831
Other. . . . . . . . . . . . . . 8,225 176 (59) --
----------------------------------------
December 31, 1996. . . . . . . . . 14,843,141 $26,681 834,349 $5,136
----------------------------------------
----------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company has long-term stock incentive and stock option plans for the
benefit of officers, directors, and key management employees. The plans and
related activity are summarized below.
The 1989 Long-Term Incentive Plan authorized up to 421,875 shares of common
stock for use under the plan. Compensation expense is recognized ratably over
the vesting period as determined by the plan. Activity under the plan for 1996,
1995 and 1994 is as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Compensation expense . . . . . . . . . . . . . . $330,000 $275,000 $117,000
----------------------------
----------------------------
Shares awarded . . . . . . . . . . . . . . . . . 8,945 16,810 14,823
----------------------------
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company currently has three stock option plans in effect. The 1990
Restricted Stock and Stock Option Plan authorizes up to 656,250 shares of common
stock for use under the plan; the 1995 Directors Stock Option Plan authorizes up
to 187,500 shares; and the 1996 Restricted Stock and Stock Option Plan
authorizes 937,500 shares for use under the plan. A summary of the activity
under the plans is shown below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Option Wtd. Avg.
Shares Exercise Price Range
- --------------------------------------------------------------------------------
December 31, 1993. . . . . . . . . 413,063 $ 6.64 $6.27 - 7.07
Granted. . . . . . . . . . . . . 210,938 12.07 12.07
Exercised. . . . . . . . . . . . (316,203) 6.67 6.27 - 7.07
-----------------------------------------
December 31, 1994. . . . . . . . . 307,798 10.33 6.27 - 12.07
Granted. . . . . . . . . . . . . 8,000 12.10 12.10
Forfeitures. . . . . . . . . . . (2,625) 7.07 7.07
Exercised. . . . . . . . . . . . (132,055) 8.83 6.27 - 12.07
-----------------------------------------
December 31, 1995. . . . . . . . . 181,118 11.53 6.27 - 12.07
Granted. . . . . . . . . . . . . 184,255 18.95 18.75 - 23.38
Exercised. . . . . . . . . . . . (90,944) 11.70 6.27 - 12.07
-----------------------------------------
December 31, 1996. . . . . . . . . 274,429 $16.44 $6.27 - 23.38
-----------------------------------------
-----------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 31, 1996, 90,174 of the 274,429 options outstanding, were
currently exercisable and had a weighted average contractual life of 2.4 years
with a weighted average exercise price of $11.32. The remaining 184,255 shares
were not exercisable and had a weighted average contractual life of 4.5 years,
with a weighted average exercise price of $18.95. The weighted average fair
value of the current year's option grant is estimated to be $5.32 per share. The
fair value has been estimated on the day of the grant using the Black Scholes
option pricing model with the following assumptions, risk free interest rate of
6.3%, expected dividend yield of 3.0%, option life of 5 years, and expected
volatility of 30 percent.
PAGE 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company has chosen to account for the stock option plans in accordance
with APB Opinion No. 25 under which no compensation expense has been recognized.
Had compensation cost for these plans been determined under SFAS No. 123, the
Company's 1996 net income would have been reduced by approximately $490,000 or
$.03 per share. The effect on 1995 net income was immaterial.
(8) CONTINGENT LIABILITIES
At December 31, 1996 total exposure under guarantees issued for banking
facilities of unconsolidated affiliates was $21 million. The Company was
contingently liable as endorser on discounted trade acceptances aggregating $5.3
million at December 31, 1996. Also, the Company has $1.4 million of irrevocable
letters of credit outstanding to comply with the insurance reserve requirements
of its workers' compensation insurance carrier.
The Company is the defendant in several lawsuits arising out of the conduct
of its business. These lawsuits are incidental and occur in the normal course
of the Company's business affairs. It is the opinion of counsel that no
significant uninsured liability will result from the outcome of the litigation,
and thus there is no material financial exposure to the Company.
(9) ACQUISITIONS
During 1996 the Company purchased four distribution businesses and through its
joint venture, Depot Metals L.L.C., acquired a one-third interest in another
metals distributor. The aggregate cash consideration paid was $17,984,000
including certain transaction costs. The acquisitions have been accounted for as
purchases and are included in the financial statements from the date of
acquisition. 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 financial statements since the
date of acquisition. Pro-forma results are not presented as the amounts do not
significantly differ from historical results.
(10) SELECTED QUARTERLY DATA (UNAUDITED)
The unaudited quarterly results of operations for 1996 and 1995 are as follows
(dollars in thousands, except per share data--Note 7):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1996 QUARTERS
NET SALES. . . . . . . . . . . . $175,047 $174,797 $162,322 $160,451
GROSS PROFIT . . . . . . . . . . 49,005 49,322 45,490 47,349
NET INCOME . . . . . . . . . . . 7,622 7,025 5,258 6,199
NET INCOME
PER SHARE. . . . . . . . . . . $.54 $.50 $.38 $ .44
1995 quarters
Net sales. . . . . . . . . . . . $169,056 $163,080 $149,023 $146,667
Gross profit . . . . . . . . . . 47,299 44,784 40,726 40,589
Net income . . . . . . . . . . . 8,246 6,839 5,393 6,348
Net income per share . . . . . . $.59 $.50 $.38 $.46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF A. M. CASTLE & CO.:
We have audited the accompanying consolidated balance sheets of A. M. Castle &
Co. (a Delaware corporation) and Subsidiaries as of December 31, 1996, 1995 and
1994, and the related consolidated statements of income, reinvested earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A. M. Castle & Co. and
Subsidiaries as of December 31, 1996, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 3, 1997
PAGE 24
<PAGE>
DIRECTORS
DANIEL T. CARROLL
Chairman
The Carroll Group, Inc.
a management consulting firm
EDWARD F. CULLITON
Vice President and
Chief Financial Officer
WILLIAM K. HALL
President and
Chief Executive Officer
Falcon Building Products, Inc.
a diversified manufacturer
of building products
ROBERT S. HAMADA
Dean
Graduate School of Business
University of Chicago
PATRICK J. HERBERT, III
President
Simpson Estates, Inc.
a private management firm
JOHN P. KELLER
President
Keller Group
an industrial manufacturing &
coal mining company
JOHN W. MCCARTER, JR.
President
The Field Museum
WILLIAM J. MCDERMOTT
Retired President
Simpson Estates, Inc.
a private management firm
RICHARD G. MORK
President and
Chief Executive Officer
JOHN PUTH
Principle
J.W. Puth Associates
a consulting firm
MICHAEL SIMPSON
Chairman of the Board
RICHARD A. VIRZI
Retired President and
Chief Executive Officer
A. M. Castle & Co.
OFFICERS
MICHAEL SIMPSON
Chairman of the Board
RICHARD G. MORK
President and
Chief Executive Officer
EDWARD F. CULLITON
Vice President and
Chief Financial Officer
SVEN G. ERICSSON
Vice President-
International
M. Bruce herron
Vice President-
Western Region
STEPHEN V. HOOKS
Vice President-
Midwest Region
FRITZ OPPENLANDER
Vice President-
Operations
RICHARD G. PHIFER
Vice President-
Eastern Region
ALAN D. RANEY
Vice President-
Advanced Materials Group
ROBERT A. ROSENOW
Vice President-
Plate & Carbon Products Group
GISE VAN BAREN
Vice President-
Alloy Products Group
PAUL J. WINSAUER
Vice President-
Human Resources
JAMES A. PODOJIL
Treasurer-Controller
JERRY M. AUFOX
Secretary-
Legal Counsel
HY-ALLOY STEELS CO.
GISE VAN BAREN
President and General Manager
TOTAL PLASTICS, INC.
JOHN A. KOZACKI
President
THOMAS GARRETT
Vice President
STEVEN E. HULBERT
Vice President
CUTTER PRECISION METALS, INC.
KIRKLAN VOLL
President
GENERAL OFFICES
3400 North Wolf Road
Franklin Park, IL 60131
847/455-7111
GENERAL COUNSEL
Mayer, Brown & Platt
TRANSFER AGENT & REGISTRAR
American Stock Transfer
and Trust Company
COMMON STOCK TRADED
American Stock Exchange
Chicago Stock Exchange
INDEPENDENT AUDITORS
Arthur Andersen LLP
DIVIDEND REINVESTMENT PLAN
All registered holders of A. M. Castle & Co. Common stock are eligible to
participate in a convenient and economical Dividend Reinvestment Plan.
Participants may also make voluntary cash payments. The company pays all
commissions and fees associated with stock purchased under the Plan. If you own
Castle common stock in "street name" (no certificates), please contact your
brokerage firm for further information.
DIVIDEND PAYMENT DATES
Dividends are paid approximately four weeks following the regular Board meetings
which are held on the fourth Thursday of January, April, July and October.
ANNUAL MEETING
The Annual Meeting of the Company's shareholders will be held at our corporate
headquarters on Thursday, April 24, 1997 at 10 a.m. Central Daylight Savings
Time. Our corporate headquarters address is 3400 North Wolf Road, Franklin Park,
Illinois 60131.
FORM 10-K
A. M. Castle & Co. will be pleased to make its annual report on Form 10-K, filed
with the Securities and Exchange Commission, available at no cost to interested
stockholders on written request to the corporate secretary.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,770
<SECURITIES> 35
<RECEIVABLES> 69,471
<ALLOWANCES> (680)
<INVENTORY> 93,315
<CURRENT-ASSETS> 163,911
<PP&E> 128,857
<DEPRECIATION> (66,140)
<TOTAL-ASSETS> 261,370
<CURRENT-LIABILITIES> 83,902
<BONDS> 40,934
0
0
<COMMON> 26,681
<OTHER-SE> 95,245
<TOTAL-LIABILITY-AND-EQUITY> 261,370
<SALES> 672,617
<TOTAL-REVENUES> 672,617
<CGS> (481,451)
<TOTAL-COSTS> (144,684)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (468)
<INTEREST-EXPENSE> (2,878)
<INCOME-PRETAX> 43,136
<INCOME-TAX> (17,032)
<INCOME-CONTINUING> 26,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,104
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
