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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 June 30,1998 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 June 30, 1998
Common Stock, No Par Value 14,043,506 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 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . 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) June 30, Dec. 31, June 30,
ASSETS 1998 1997 1997
Cash . . . . . . . . . . . . $ 3,376 $ 2,775 $ 2,952
Accounts receivable, net . . 97,489 88,478 87,837
Inventories (principally on
last-in, first-out basis). 193,351 152,028 132,284
Total current assets . . . $294,216 $243,281 $223,073
Prepaid expenses and other
assets. . . . . . . . . . 53,262 45,684 42,359
Fixed assets, net. . . . . . 89,000 77,410 71,419
Total assets . . . . . . . $436,478 $366,375 $336,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . $114,618 $ 98,813 $104,230
Accrued liabilities. . . . . 17,295 18,076 15,977
Income taxes payable . . . . 3,725 3,934 1,060
Current portion of long-term
debt . . . . . . . . . . . 3,173 2,688 2,673
Total current liabilities. $138,811 $123,511 $123,940
Long-term debt, less current
portion. . . . . . . . . . 135,299 90,735 67,680
Deferred income taxes. . . . 13,407 12,543 12,048
Other liabilities .. . . . . 3,919 2,877 3,418
Stockholders' equity . . . . 145,042 136,709 129,765
Total liabilities and
stockholders' equity . . . $436,478 $366,375 $336,851
SHARES OUTSTANDING . . . . . 14,044 14,041 14,020
BOOK VALUE PER SHARE . . . . $ 10.33 $ 9.74 $ 9.26
WORKING CAPITAL. . . . . . . $155,405 $119,770 $ 99,133
WORKING CAPITAL PER SHARE. . $ 11.07 $ 8.53 $ 7.07
DEBT TO CAPITAL. . . . . . . 48.8% 40.6% 35.2%
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Six Months
Ended June 30,
Cash flows from operating activities: 1998 1997
Net income . . . . . . . . . . . . . . . $ 13,452 $ 12,318
Depreciation and amortization. . . . . . 4,013 2,976
Other. . . . . . . . . . . . . . . . . . (7,321) 41
Cash provided from operating activities
before working capital changes. . . . . . 10,144 15,335
(Increase) decrease in working capital. . (33,539) (6,768)
Net cash provided from (used by) operating
activities. . . . . . . . . . . . . . . . (23,395) 8,567
Cash flows from investing activities:
Investments and acquisitions . . . . . . (3,822) (21,126)
Capital expenditures, net of sales
proceeds . . . . . . . . . . . . . . . . (11,660) (6,796)
Net cash provided from (used by) investing
activities . . . . . . . . . . . . . . . (15,482) (27,922)
Cash flows from financing activities:
Long-term borrowings, net. . . . . . . . 44,598 24,981
Dividends paid . . . . . . . . . . . . . (5,125) (4,487)
Other. . . . . . . . . . . . . . . . . . 5 8
Net cash provided from (used by) financing
activities . . . . . . . . . . . . . . . 39,478 20,502
Net increase (decrease) in cash. . . . . . 601 1,147
Cash - beginning of year . . . . . . . . $ 2,775 $ 1,805
Cash - end of period . . . . . . . . . . $ 3,376 $ 2,952
Supplemental Cash Disclosures
Cash paid (received) during period:
Interest . . . . . . . . . . . . . . . . $ 2,998 $ 1,486
Income taxes . . . . . . . . . . . . . . $ 8,233 $ 9,063
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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
(Unaudited) June 30, June 30,
1998 1997 1998 1997
Net sales. . . . . . . . . . $205,068 $187,98 $416,796 $365,307
Cost of material sold. . . . 144,498 134,536 294,591 260,931
Gross profit on sales. . . 60,570 53,445 122,205 104,376
Operating expense. . . . . . 45,832 40,826 91,986 79,321
Operating profit . . . . . . $ 14,738 $ 12,619 $ 30,219 $ 25,055
Depreciation and amortization
expense. . . . . . . . . . 2,117 1,529 4,013 2,976
Interest expense, net. . . . 2,108 834 3,866 1,472
Income before taxes. . . . . 10,513 10,256 22,340 20,607
Income Taxes:
Federal. . . . . . . . . . 3,398 3,340 7,195 6,685
State. . . . . . . . . . . 796 780 1,693 1,604
4,194 4,120 8,888 8,289
Net income . . . . . . . . . $ 6,319 $ 6,136 $ 13,452 $ 12,318
Basic net income per share . $ .45 $ .44 $ .96 $ .88
Diluted income per share . . $ .45 $ .44 $ .96 $ .88
Financial Ratios:
Return on sales. . . . . . 3.08% 3.26% 3.23% 3.37%
Asset turnover . . . . . . 1.88 2.23 1.91 2.17
Return on assets . . . . . 5.79% 7.29% 6.16% 7.31%
Leverage factor. . . . . . 3.19 2.76 3.19 2.76
Return on opening stockholders'
equity . . . . . . . . . 18.49% 20.13% 19.68% 20.21%
Other Data:
Cash dividends paid. . . . $2,738 $2,384 $5,125 $4,487
Dividends per share. . . . $ .195 $ .170 $ .365 $ .320
Average number of shares
outstanding . . . . . . . 14,043 14,020 14,043 14,016
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, 1998, and June 30, 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 $55.4 million,
$57.1 million, and $60.0 million at June 30, 1998, December 31, 1997, and
June 30, 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 calculations include
the dilutive effect of outstanding employee and directors' common
stock options.
3. Acquisition
The Company's United Kingdom subsidiary A. M. Castle & Co., Ltd.,
acquired the net assets of Aerospace Metals, Ltd. As of May 1, 1998.
The acquisition has been accounted for as a purchase and accordingly
the results of operations of Aerospace Metals have been included in
the Company's consolidated financial statements as of May 1, 1998.
Pro-forma results are not required as the amounts do not significantly
differ from historical results.
On May 1, 1998 the Company acquired a 50% interest in Energy Alloys L.P.,
a Houston based metals distributor. The Company's interest in this
joint venture has been accounted for using the equity method and the
Company's share of the operating results of the joint venture have been
included in the Company's consolidated financial statements commencing
May 1, 1998.
4 Subsequent Events- Acquisition
On August 1, 1998 the Company acquired Oliver Steel Plate Corporation; an
Ohio based distributor and processor of plate products. The acquisition
will be accounted for as a purchase and accordingly, the results of
operations will be included in the Company's consolidated financial
statements commencing August 1, 1998. Pro-forma results are not
warranted as the amounts do not significantly differ from historical
results.
Page 6 of 9
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations.
Results of Operations
Operating results for the second quarter of 1998 were up 3% as compared
to 1997's second quarter. The Company earned $6.3 million ($0.45 per
share) as compared to the $6.1 million ($0.44 per share) earned in the
year earlier quarter. The Company posted record quarterly sales and
improved earnings, as a result of increasing contributions from recently
acquired platform businesses, as well as strong customer demand for value
added processing services. Earnings through the first six months of
$13.5 million ($0.96 per share) were up 9% from last year's first half
earnings of $12.3 million ($0.88 per share).
Second quarter sales totaled $205.1 million, posting a 9.1% increase over
the second quarter of 1997 sales of $188.0 million. The sales increase
was provided by contributions from the Company's recent acquisitions, as
well as a modest sales increase in the Company's core business products.
Excluding the effect of these acquisitions, sales for the quarter were up
by $5.3 million or 3.2%. The increase in sales was due primarily to a
6.6% increase in tons sold, offset by a 2.7% decrease in average sales
prices along with a slight shift in sales mix. For the first six months
of 1998, total revenues were $416.8 million as compared to $365.3 for the
first half of 1997, a 14.1% increase. Excluding the effect of acquisitions,
six month sales were up 7.4% over the prior year's six month period.
Gross profit for the quarter rose $7.1 million (13.3%) to $60.6 million.
The increase was attributable to both gross profit contributions from the
Company's recent acquisitions, and core business. Looking at the
Company's core business, gross profit increased by $2.6 million (5.6 %)
primarily due to increased sales volume. Total gross margin percentage
for the quarter was 29.5% as compared to 28.4% for the second quarter of
1997. 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 1998, total gross profit rose 17.1% to
$122.2 million. Increased sales volume, as well as an improved margin
percentage contributed to these gross profit gains. Year to date gross
margin percentage was 29.3% as of June 30, 1998 vs. 28.6% through the
first six months of 1997.
Second quarter operating expenses were up by $5.0 million (12.3%) over the
comparable period last year. Excluding the expenses of the acquired
companies, Castle's operating expenses increased by approximately
$1.1 million (3.1%) over the second quarter of 1997. Cost increases were
experienced primarily in the areas of payroll, transportation, operating
supplies, and outside services. Higher transactional activity and increased
shipments were factors behind these expense increases, while productivity
improvements served to offset some of these costs. Several cost saving
initiatives continue to be pursued which are aimed at reducing
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the expense pressures arising from increased activity levels. Year to
date, operating expenses were up by 16.0% as compared to the first half
of 1997. Excluding expenses of the acquired companies, year to date
operating expenses were up by $4.1 million (5.9%).
Second quarter depreciation and amortization expense increased by
$0.59 million (38.5%) over the prior year's comparable period. Excluding
expense associated with the acquired companies, depreciation and
amortization increased by $0.17 million (14.0%) over the second quarter of
1997. Year to date, this expense increased by $1.0 million (34.9%) over
the prior year. Excluding expenses associated with acquired companies,
this expense category increased by $0.32 million (13.2%). This increase
was primarily the result of depreciation associated with new facilities
and equipment.
Net interest expense for the second quarter increased by approximately
$1.3 million (152.8%) as compared to the second quarter of 1997. Higher
average borrowing levels were primarily responsible for the expense
increase. The additional borrowing is being used to finance the Company's
growth and acquisitions strategy. Year to date, this expense increased by
$2.4 million (162.3%) over the comparable period last year.
Liquidity and Capital Resources
Accounts receivable increased by $9.7 million, and net inventory has
increased by $61.1 million as compared to the balances as of June 30,
1997. Acquisitions and higher sales volume contributed to the receivable
increase. The inventory increase has been the result of a combination of
acquisitions, higher sales volume, and increases designed to support
market initiatives and growth strategy. Total bank and long term
borrowing as of June 30, 1998 increased by $68.1 million as compared to
the balance at June 30, 1997 due to 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 48.8% as of
June 30, 1998 which is within the Company's target range. Net worth has
increased by $15.3 million, (11.8%), over the prior year's quarter
reflecting the continued strong earnings performance.
The Company has unused committed and uncommitted lines of bank credit of
$140.6 million as of June 30, 1998 vs. $152.2 million at June 30, 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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting Stockholders of the Registrant was held on
Thursday, April 23, 1998 at 10:00 a.m. 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.
(c) Shareholders also approved the appointment of Arthur
Andersen and Co. as independent public accountants for the
year 1998.
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: August 7, 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.)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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