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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
Commission File Number 1-5415
A. M. Castle & Co.
(Exact name of registrant as specified in its charter.)
Delaware 36-0879160
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3400 North Wolf Road, Franklin Park, Illinois 60131
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: 847/455-7111
None
(Former name, former address and former fiscal year, if changed since
last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock No Par Value - 14,019,858 shares as of June 30, 1997.
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A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
Page
Number
Part I. Financial Information
Item 1. Financial Statements . . . . . . . . . . . 3
Part I. Financial Information
Part I. Financial Information
Item 1. Financial Statements . . . . . . . . . . . . 3
Condensed Balance Sheets . . . . . . . . . . 3
Comparative Statements of Cash Flows . . . . 3
Comparative Statements of Income . . . . . . 4
Notes to Condensed Financial Statements. . . 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . .6 - 8
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . .8
Item 6. Exhibits and Reports on Form 8-K. . . . . . . 9
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A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
(Dollars in thousands except per share data)
(unaudited) June 30 Dec. 31 June 30
Assets 1997 1996 1996
Cash. . . . . . . . . . . . . . . . .$ 2,952 $ 1,805 $ 901
Accounts receivable, net. . . . . . . 87,837 68,791 77,681
Inventories (principally on last-in,
first-out basis. . . . . . . . . . . 132,284 93,315 102,294
Total current assets . . . . . .$223,073 $163,911 $180,876
Prepaid expenses and other assets . . 42,359 34,742 31,595
Fixed assets, net . . . . . . . . . . 71,419 62,717 55,837
Total assets . . . . . . . . . .$336,851 $261,370 $268,308
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable. . . . . . . . . . .$104,230 $ 63,860 $ 83,286
Accrued liabilities . . . . . . . . . 15,977 15,105 14,059
Income taxes payable. . . . . . . . . 1,060 2,455 843
Current portion of long-term debt . . 2,673 2,482 2,349
Total current liabilities. . . . 123,940 83,902 100,537
Long-term debt, less current portion. 67,680 40,934 39,709
Deferred income taxes . . . . . . . . 12,048 11,427 10,392
Post retirement benefit obligations . 3,418 3,181 3,120
Stockholders' equity. . . . . . . . . 129,765 121,926 114,550
Total liabilities and stockholders'
equity . . . . . . . . . . . . .$336,851 $261,370 $268,308
SHARES OUTSTANDING. . . . . . . . . . 14,020 14,009 14,006
BOOK VALUE PER SHARE. . . . . . . . .$ 9.26 $ 8.70 $ 8.18
WORKING CAPITAL . . . . . . . . . . .$ 99,133 $ 80,009 $ 80,339
WORKING CAPITAL PER SHARE . . . . . .$ 7.07 $ 5.71 $ 5.74
DEBT TO CAPITAL . . . . . . . . . . . 35.2% 26.3% 26.9%
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Six Months
Ended June 30,
Cash flows from operating activities: 1997 1996
Net income. . . . . . . . . . . . . . . . $ 12,318 $ 14,647
Depreciation. . . . . . . . . . . . . . . 2,833 2,554
Other . . . . . . . . . . . . . . . . . . 184 ( 881)
Cash provided from operating
activities before working
capital changes. . . . . . . . . . . . 15,335 16,320
(Increase) decrease in working capital. . (6,768) 4,918
Net cash provided from (used by) operating
activities . . . . . . . . . . . . . . . . 8,567 21,238
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Cash flows from investing activities:
Investments and acquisitions. . . . . . . (21,126) (16,897)
Capital expenditures, net of sale
proceeds. . . . . . . . . . . . . . . . . ( 6,796)(11,330)
Net cash provided from (used by) investing
activities. . . . . . . . . . . . . . . . (27,922)(28,227)
Cash flows from financing activities:
Long-term borrowings, net . . . . . . . . 24 981 10,682
Dividends paid. . . . . . . . . . . . . . ( 4,487) ( 3,775)
Other . . . . . . . . . . . . . . . . . . 8 316
Net cash provided from (used by) financing
activities. . . . . . . . . . . . . . . . 20,502 7,223
Net increase (decrease) in cash . . . . . . 1,147 234
Cash - beginning of year. . . . . . . . . 1,805 667
Cash - end of period. . . . . . . . . . . $ 2,952 $ 901
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . $ 1,486 $ 1,358
Income taxes . . . . . . . . . . . . . $ 9,063 $ 10,253
A. M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except tonnage and per share data)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
Net sales . . . . . . . . $187,981 $174,797 $365,307 $349,844
Cost of material sold . . 134,536 125,475 260,931 251,517
Gross profit on sales . 53,455 49,322 104,376 98,327
Operating expenses. . . . 40,905 35,571 79,464 69,802
Depreciation expense. . . 1,450 1,319 2,833 2,554
Interest expense, net . . 834 915 1,472 1,688
Total . . . . . . . . . 43,189 37,805 83,769 74,044
Income before taxes . . . 10,256 11,517 20,607 24,283
Income Taxes:
Federal . . . . . . . . 3,340 3,629 6,685 7,733
State . . . . . . . . . 780 863 1,604 1,903
4,120 4,492 8,289 9,636
Net income. . . . . . . . 6,136 7,025 12,318 14,647
Net income per share. . . $ .44 $ .50 $ .88 $ 1.05
Financial Ratios:
Return on sales . . . . 3.26% 4.02% 3.37% 4.19%
Asset turnover. . . . . 2.23 2.61 2.17 2.61
Return on assets. . . . 7.29% 10.47% 7.31% 10.92%
Leverage factor . . . . 2.76 2.60 2.76 2.60
Return on opening
stockholders' equity . 20.13% 27.19% 20.21% 28.34%
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Other Data:
Cash dividends paid . . $2,384 $2,101 $ 4,487 $ 3,775
Dividends per share . . .17 .15 .32 .27
Average number of
shares outstanding . . 14,020 13,999 14,016 13,983
Tons sold 95,42482,463 187,933170,626
Inventory determination under the LIFO method can only be made at the
end of each fiscal year based on the inventory levels and costs at that
time. Accordingly, interim LIFO determinations, including those at June
30, 1997 and June 30, 1996, must necessarily be based on management's
estimates of expected year end inventory levels and costs. Since future
estimates of inventory levels and costs are subject to certain forces
beyond the control of management, interim financial results are subject
to fiscal year end LIFO inventory valuations.
Current replacement cost of inventories exceeds book value by $60.0
million, $58.8 million, and $62.0 million at June 30, 1997, December 31,
1996 and June 30, 1996 respectively. Taxes on income would become
payable on any realization of this excess from reductions in the level
of inventories.
A. M. CASTLE & CO.
Notes to Condensed Financial Statements
1. Condensed Financial Statements
The condensed financial statements included herein are unaudited,
except for the balance sheet at December 31, 1996, which is
condensed from the audited financial statements at that date. The
Company believes that the disclosures are adequate to make the
information not misleading; however, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, the unaudited statements, included herein,
contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position,
the cash flows, and the results of operations for the periods then
ended. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form
10-K. The 1997 interim results reported herein may not necessarily
be indicative of the results of operations for the full year 1997.
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2. Common Stock and Per Share Information
Net income per share computations are based on the weighted average
number of shares of common stock outstanding during the respective
periods.
3. Acquisitions
On February 3, 1997, the Company's subsidiary, Total Plastics,
Inc., a Michigan based plastics distributor, purchased the assets
of ASN Plastics, an Indianapolis area plastics distributor. The
acquisition has been accounted for by the purchase method of
accounting and accordingly, the purchase price has been allocated
to assets acquired and liabilities assumed. The results of
operations of ASN Plastics, Inc. are included in the Company's
financial statements as of the acquisition date. Pro-forma results
are not presented as the amounts do not significantly differ from
historical results.
On June 2, 1997, the Company acquired Keystone Tube, a Chicago
based metals distributor. The acquisition has been accounted for
as a purchase and accordingly, the results of operations are
included in the Company's consolidated financial statements as of
the acquisition date. Pro-forma results are not presented as the
amounts do not significantly differ from historical results.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Operating results for the second quarter of 1997 were off 12% as
compared to the second quarter of 1996. The Company earned $6.1
million ($0.44 per share) as compared to the $7.0 million ($0.50
per share) earned in the year earlier quarter. Record quarterly
sales and gross profit levels were offset by expense increases
resulting from a higher level of transactional activity along with
a slight inflationary increase in costs without any relief from
mill pricing. Earnings through the first six months of $12.3
million ($0.88 per share) were down 16% from last year's first half
earnings of $14.6 million ($1.05 per share).
Second quarter sales totaled $188.0 million, a 7.5% increase over
the second quarter of 1996 sales of $174.8 million. The sales
increase was provided by contributions from the Company's recent
acquisitions as well as increased sales in the Company's core
business products. Excluding the effect of these acquisitions,
sales for the quarter were up by $6.9 million, or 4.3%. The
increase in sales was due primarily to a 15.5% increase in tons
sold, offset by a 4.6% decrease in average sales prices along with
a shift in sales mix from the relatively higher valued Advanced
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Materials products, to the relatively lower valued Carbon and Alloy
products. For the first half of 1997, revenues were $365.3 million
as compared to $349.8 million for the first six months of 1996.
Gross profit for the quarter rose $4.1 million (8.4%) to a record
$53.4 million. The increase was attributable to gross profit
contributions from the Company's recent acquisitions, and its core
business. Looking at the Company's core business, gross profit
increased by $2.0 million (4.3%) primarily due to increased sales
volume. Total gross margin percentage for the quarter was 28.4% as
compared to 28.2% for the second quarter of 1996. The Company's
expansion of value added services and processing capabilities
continue to have a positive effect on gross margin performance.
For the first half of 1997 total gross margin increased by $6.0
million (6.2%) over the first half of 1996. Increased sales volume
as well as an increase in margin percentage contributed to this
increase. Gross margin percentage for the first six months of 1997
was 28.6% as compared to 28.1% for the comparable period in 1996.
Second quarter operating expenses were up by $5.3 million (15.0%)
over the comparable period last year. Excluding the expenses of
the acquired companies, Castle's operating expenses increased by
approximately $4.1 million (12.3%) over the second quarter of 1996.
Cost increases were experienced primarily in the areas of payroll,
transportation, operating supplies and communications. The
increase in transactional activity and shipments drove these
expenses upwards. The Company is working on several cost savings
initiatives designed to reduce the expense pressures arising from
the increased level of business activity. Year to date, operating
expenses were up by $9.6 million (13.8%) as compared to the first
half of 1996. Increased sales volume, along with expenses
associated with new and expanded facilities contributed to the
expense increase.
Second quarter depreciation expense increased by $0.13 million
(9.9%) over the prior year's comparable period. Excluding
depreciation expense associated with the acquired companies, this
expense increased by $0.03 million (3.2%) over the second quarter
of 1996. Year to date depreciation expense is up by $0.28 million
(10.9%) over the prior year. Excluding amounts associated with the
acquired companies, depreciation expense increased by $0.07 million
(3.0%) over last year's six month period.
Net interest expense for the second quarter decreased by
approximately $0.08 million (8.8%) as compared to the second
quarter of 1996. Lower average borrowing levels were primarily
responsible for the expense decrease. Year to date net interest
expense was down by $0.22 million (12.8%).
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Liquidity and Capital Resources
Accounts receivable increased by $10.2 million, and net inventory
increased by $30.0 million as compared to June 30, 1996. The
acquisitions of Keystone Tube, ASN Plastics and High Performance
Alloys contributed to over $7.0 million of the receivable increase
with the balance due to higher sales volume. Approximately $13.8
million of the inventory increase is attributable to the
acquisitions while the balance has been added to support certain
market initiatives and the higher level of business activity
experienced during the past quarter. Total bank and long term
borrowing as of June 30, 1997 increased by $28.3 million as
compared to the balance at June 30, 1996 due to long term borrowing
used to finance the Company's acquisition strategy. Net worth has
increased by $15.2 million (13.3%) over the prior year's quarter
reflecting the continued strong earnings performance.
The Company has unused committed and uncommitted lines of bank
credit of $152.2 million as of June 30, 1997 vs. $170.5 million at
June 30, 1996.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings other than ordinary
routine litigation incidental to the business of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Registrant was
held on Thursday, April 24, 1997 at 10:00 AM local time
at 3400 North Wolf Road, Franklin Park, Illinois.
(b) Eleven (11) management nominees were elected to the Board
of Directors, and reference is hereby made to the Proxy
Statement and Notice of Annual Meeting filed pursuant to
Rule 14(a)-6 of the Securities and Exchange Commission.
Shareholders also approved the appointment of Arthur
Andersen and Co. as independent public accountants for
the year 1997.
Item 6. Exhibits and Reports of Form 8-K
(a)None
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. M. Castle & Co.
(Registrant)
Date: August 8, 1997 By: /ss/ J. A. Podojil
J. A. Podojil
Treasurer/Controller
(Mr. Podojil is the Chief Accounting
Officer and has been authorized to
sign on behalf of the Registrant).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
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<CASH> 2,841 0
<SECURITIES> 111 0
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<SALES> 187,981 365,307
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<CGS> (134,536) (260,931)
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