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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 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 Identification No.)
incorporation of organization)
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 practicable date.
Class Outstanding at March 31, 1998
Common Stock, No Par Value 14,043,074 shares
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A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
Page
Number
Part I. Financial Information
Item 1. Financial Statements . . . . . . 3
Condensed Balance Sheets . . . . 3
Comparative Statements of Cash Flows 3
Comparative Statements of Income 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . . . . 6 - 7
Part II. Other Information
Item 1. Legal Proceedings. . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K 8
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A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
(Dollars in thousands except
per share data)
(unaudited) March 31, Dec. 31, March 31,
ASSETS 1998 1997 1997
Cash . . . . . . . $ 2,967 $ 2,775 $1,780
Accounts receivable,net 101,655 88,478 80,158
Inventories (principally
on last-in, first-out basis) 164,658 152,028 10
Total current assets . . $269,280 $243,281 190,696
Prepaid expenses and
other assets. . . . . . . . 44,900 45,684 33,580
Fixed assets, net. . . . . 85,671 77,410 64,774
Total assets . . . . . . $399,851 $366,375 $289,050
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable . . . . . $ 93,854 $ 98,813 $ 88,776
Accrued liabilities. . . . 16,063 18,076 13,124
Income taxes payable . . . 7,098 3,934 4,903
Short term debt. . . . . . 3,343 0 0
Current portion of long-term
debt . .. . . . . . . . . 2,721 2,688 2,095
Total current liabilities $123,079 $123,511 $108,898
Long-term debt, less current
portion.. . . . . . . . . 117,905 90,735 39,188
Deferred income taxes. . 13,371 12,543 11,743
Other liabilities. . . . 3,944 2,877 3,283
Stockholders' equity . . 141,552 136,709 125,938
Total liabilities and
stockholders' equity. . $399,851 $366,375 $289,050
SHARES OUTSTANDING. . . . 14,043 14,041 14,020
BOOK VALUE PER SHARE . . $ 10.08 $ 9.74 $ 8.98
WORKING CAPITAL . . . . . $146,201 $119,770 $ 81,798
WORKING CAPITAL PER SHARE $ 10.41 $ 8.53 $ 5.83
DEBT TO CAPITAL . . . . . 46.7% 40.6% 24.7%
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Three Months
Ended March 31,
Cash flows from operating
activities: 1998 1997
Net income . . . . . . . . . $ 7,133 $ 6,182
Depreciation and amortization. . 1,896 1,447
Other. . . . . . . . . . . . . . 196 1,658
Cash provided from operating
activities before
working capital changes. . . . . 9,225 9,287
(Increase) decrease in working
capital . . . . . . . . . . . . (29,770) (1,108)
Net cash provided from (used by)
operating activities . . . . . . . (20,545) 8,179
Cash flows from investing
activities:
Investments and acquisitions . . 0 (766)
Capital expenditures, net of
sales proceeds . . . . . . . . . (7,519) (3,135)
Net cash provided from (used by)
investing activities . . . . . . . (7,519) (3,901)
Cash flows from financing
activities:
Long-term borrowings, net. . . . 27,203 (2,133)
Short term debt. . . . . . . . . 3,343 0
Dividends paid . . . . . . . . . (2,387) (2,103)
Other. . . . . . . . . . . . . . 97 (67)
Net cash provided from (used by)
financing activities . . . . . . . 28,256 (4,303)
Net increase (decrease) in cash. . 192 (25)
Cash - beginning of year . . . . 2,775 1,805
Cash - end of period . . . . . . $ 2,967 $ 1,780
Cash paid (received) during
the period:
Interest . . . . . . . . . . . . $ 1,146 $ 692
Income Taxes . . . . . . . . . . $ 703 $ 1,405
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A.M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except tonnage
and per share data)
For the Three Months Ended March 31,
(Unaudited) 1998 1997
Net sales. . . . . . . . . . . . . $211,728 $177,326
Cost of material sold. . . . . . . 150,093 126,395
Gross profit on sales. . . . . . 61,635 50,931
Operating expenses . . . . . . . . 46,154 38,495
Operating profit . . . . . . . . . 15,481 12,436
Depreciation and amortization expense. 1,896 1,447
Interest expense, net. . . . . . . 1,758 638
Income before taxes . . . . . . . 11,827 10,351
Income Taxes:
Federal. . . . . . . . . . . . . 3,797 3,345
State. . . . . . . . . . . . . . 897 824
4,694 4,169
Net income . . . . . . . . . . . . $ 7,133 $ 6,182
Basic income per share . . . . . . $ .51 $ .44
Diluted income per share . . . . . $ .51 $ .44
Financial Ratios:
Return on sales. . . . . . . . . 3.37% 3.49%
Asset turnover . . . . . . . . . 2.12 2.45
Return on assets . . . . . . . . 7.14% 8.55%
Leverage factor. . . . . . . . . 2.92 2.37
Return on opening stockholders'
equity . . . . . . . . . . 20.87% 20.28%
Other Data:
Cash dividends paid. . . . . . . $2,387 $2,103
Dividends per share. . . . . . . .17 .15
Average number of shares
outstanding . . . . . . . . . . 14,042 14,012
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 March 31, 1998, and
March 31, 1997, 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 $56.1 million, $57.1 million, and $57.1 million at
March 31, 1998, December 31, 1997, and March 31, 1997,
respectively. Taxes on income would become payable on any
realization of this excess from reductions in the level
of inventories.
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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, 1997, 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 1998
interim results reported herein may not necessarily
be indicative of the results of operations for
the full year 1998.
2. Common Stock and Per Share Information.
Basic net income per share computations are
based on the weighted average number of shares
of common stock outstanding during the
respective periods. Diluted earnings per
share calculation include the dilutive effect
of outstanding employee and directors'
common stock options.
<PAGE>
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
Operating results for the first quarter of 1998
were up 15% as compared to 1997's first quarter.
The Company earned $7.1 million ($0.51 per share)
as compared to the $6.2 million ($0.44 per share)
earned in the year earlier quarter. The Company
posted record quarterly sales and improved earnings
as a result of increased contributions from recently
acquired platform businesses, as well as a continued
improving sales trend in the Company's core specialty
metals business.
Quarterly sales totaled $211.7 million, representing
a 19.4% increase over the first quarter of 1997 sales
of $177.3 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 acquisitions, sales
for the quarter were up by $16.7 million or 10.3%.
The increase in sales was due primarily to a 13.6%
increase in tons sold, offset by a 0.3% decrease in
average sales prices along with a slight shift in sales
mix.
Gross profit for the quarter rose $10.7 million (21.0%)
to a record $61.6 million. The increase was attributable
to gross profit contributions from the Company's
recent acquisitions, and to its core business.
Looking at the Company's core business, gross profit
increased by $4.3 million (9.3 %) primarily due to
increased sales volume. Total gross margin percentage
for the quarter was 29.1% as compared to 28.7% for the
first quarter of 1997. The Company's expansion of
value added services and processing capabilities
continues to have a positive effect on gross
margin performance.
First quarter operating expenses were up by $7.7 million
(19.9%) over the comparable period last year. Excluding
the expenses of the acquired companies, Castle's operating
expenses increased by approximately $3.0 million (8.8%)
over the first quarter of 1997. Cost increases continue
to be experienced primarily in the areas of payroll,
transportation, operating supplies, and outside services.
The significant increase in transactional activity and
shipments continues to drive the increase. Increases
in productivity helped offset some of these costs.
Several cost saving initiatives aimed at reducing these
expense pressures are being pursued.
First quarter depreciation and amortization expense
increased by $0.45 million (31.0%) over the prior
year's comparable period. Excluding expense associated
with the acquired companies, depreciation and amortization
increased by $0.15 million (12.4%) over the first quarter
of 1997. This increase was primarily the result of
depreciation associated with new facilities and equipment.
Page 7 of 9
Net interest expense for the first quarter increased by
approximately $1.1 million (175.5%) as compared to the
first quarter of 1997. Higher average borrowing
levels were primarily responsible for the expense increase.
The additional borrowing was used to finance the Company's
growth and acquisitions strategy.
Liquidity and Capital Resources
Accounts receivable increased by $21.5 million, and
net inventory increased by $55.9 million as compared
to the balances as of March 31, 1997. Acquisitions
contributed over $6.7 million of the receivable
increase with the balance due to higher sales volume.
Approximately $14.9 million of the inventory increase is
attributable to acquisitions while the balance has been
added to support certain market initiatives and the
higher level of business activity experienced during the
year. Total bank and long term borrowing as of
March 31, 1998 increased by $82.7 million as compared
to the balance at March 31, 1997. This was the result
of additional long term borrowing used to finance the
company's growth and acquisition strategy along with
higher working capital needs. The Company's debt
to capital ratio was 46.7% as of March 31, 1998 which
is within the Company's target range. Net worth has
increased by $15.6 million, (12.4%), over the prior
year's quarter reflecting the continued strong earnings
performance.
The Company has unused committed and uncommitted lines
of bank credit of $152.0 million as of March 31, 1998
vs. $165.3 million at March 31, 1997.
Year 2000 Issues
The Company is currently modifying its computer systems
in order to properly process transactions in the year 2000.
Expenditures for these modifications are being expensed as
incurred. The company expects to have substantially all
necessary modifications completed by late 1998 with no
significant impact on the Company's ongoing results of
operations.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings other than
ordinary routine litigation incidental to the business
of the Registrant.
Item 6. Exhibits and Reports on 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: May 8, 1998 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.)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,919,000
<SECURITIES> 48,000
<RECEIVABLES> 102,425,000
<ALLOWANCES> (770,000)
<INVENTORY> 164,658,000
<CURRENT-ASSETS> 269,280,000
<PP&E> 163,393,000
<DEPRECIATION> (77,722,000)
<TOTAL-ASSETS> 399,851,000
<CURRENT-LIABILITIES> 123,079,000
<BONDS> 117,905,000
<COMMON> 27,360,000
0
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<OTHER-SE> 114,192,000
<TOTAL-LIABILITY-AND-EQUITY> 399,851,000
<SALES> 211,728,000 211,728,000
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<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (124,000) (124,000)
<INTEREST-EXPENSE> (1,758,000) (1,758,000)
<INCOME-PRETAX> 11,827,000 11,827,000
<INCOME-TAX> (4,694,000) (4,694,000)
<INCOME-CONTINUING> 7,133,000 7,133,000
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