<PAGE> Page 1 of 10
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, 1999 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, 1999
Common Stock, No Par Value 14,043,505 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. . . . . 5-6
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . . . . 7-8
Part II. Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 9
<PAGE> Page 3 of 10
<TABLE>
A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
June 30, Dec 31, June 30,
ASSETS 1999 1998 1998
<S> <C> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . 4,524 2,954 3,376
Accounts receivable, net . . . . . . . . . 93,196 85,688 97,489
Inventories (principally on last-in,
first-out basis) . . . . . . . . . . . . 200,220 217,152 193,351
Total current assets . . . . . . . . . . 297,940 305,794 294,216
Prepaid expenses and other assets. . . . . 60,713 59,547 53,262
Fixed assets, net. . . . . . . . . . . . . 101,068 94,622 89,000
Total assets . . . . . . . . . . . . . . 459,721 459,963 436,478
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . 107,607 98,835 114,618
Accrued liabilities. . . . . . . . . . . . 16,728 18,536 17,295
Income taxes payable . . . . . . . . . . . 4,632 3,445 3,725
Current portion of long-term debt. . . . . 3,718 3,765 3,173
Total current liabilities. . . . . . . . 132,685 124,581 138,811
Long-term debt, less current portion.. . . 162,976 172,313 135,299
Deferred income taxes. . . . . . . . . . . 15,994 15,105 13,407
Other liabilities . . . . . . . . . . . . 3,732 3,952 3,919
Stockholders' equity . . . . . . . . . . . 144,334 144,012 145,042
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . 459,721 459,963 436,478
SHARES OUTSTANDING . . . . . . . . . . . . 14,045 14,043 14,044
BOOK VALUE PER SHARE . . . . . . . . . . . 10.28 10.26 10.33
WORKING CAPITAL. . . . . . . . . . . . . . 165,255 181,213 155,405
WORKING CAPITAL PER SHARE. . . . . . . . . 11.77 12.90 11.07
DEBT TO CAPITAL. . . . . . . . . . . . . . 53.6% 55.0% 48.8%
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Six Months
Ended June 30,
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . 5,889 13,452
Depreciation and amortization. . . . . . . 4,865 4,013
Other. . . . . . . . . . . . . . . . . . . 1,459 (7,321)
Cash provided from operating activities before
working capital changes. . . . . . . . . . 12,213 10,144
(Increase) decrease in working capital . . 17,584 (33,539)
Net cash provided from (used by) operating
activities . . . . . . . . . . . . . . . . 29,797 (23,395)
Cash flows from investing activities:
Investments and acquisitions . . . . . . . (3,065) (3,822)
Capital expenditures, net of sales proceeds. (10,127) (11,660)
Net cash provided from (used by) investing
activities . . . . . . . . . . . . . . . . (13,192) (15,482)
Cash flows from financing activities:
Long-term borrowings, net. . . . . . . . . (9,468) 44,598
Dividends paid . . . . . . . . . . . . . . . (5,477) (5,125)
Other. . . . . . . . . . . . . . . . . . . (90) 5
Net cash provided from (used by) financing
activities . . . . . . . . . . . . . . . . (15,035) 39,478
Net increase (decrease) in cash. . . . . . . 1,570 601
Cash - beginning of year . . . . . . . . . 2,954 2,775
Cash - end of period . . . . . . . . . . . 4,524 3,376
Supplemental Cash Disclosure
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . . . 5,698 2,998
Income taxes . . . . . . . . . . . . . . . 1,975 8,223
</TABLE>
<PAGE>
Page 4 of 10
<TABLE>
A.M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Three and Six Months Ended June 30,
(Unaudited)
For The Three For The Six
Months Ended Months Ended
June 30, June 30,
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998 1999 1998
Net sales. . . . . . . . . . . . . 179,992 205,068 363,452 416,796
Cost of material sold. . . . . . . 122,840 144,498 249,476 294,591
Gross profit on sales. . . . . . 57,152 60,570 113,976 122,205
Operating expenses . . . . . . . . 46,572 45,832 93,436 91,986
Depreciation and amortization expense 2,456 2,117 4,865 4,013
Interest expense, net. . . . . . . 2,841 2,108 5,734 3,866
Total . . . . . . . . . . . . . 51,869 50,057 104,035 99,865
Income before taxes . . . . . . . 5,283 10,513 9,941 22,340
Income Taxes:
Federal. . . . . . . . . . . . . 1,793 3,398 3,353 7,195
State. . . . . . . . . . . . . . 356 796 699 1,693
2,149 4,194 4,052 8,888
Net income . . . . . . . . . . . . 3,134 6,319 5,889 13,452
Net income per share . . . . . . . .22 .45 .42 .96
Diluted income per share . . . . . .22 .45 .42 .96
Financial Ratios:
Return on sales. . . . . . . . . 1.74% 3.08% 1.62% 3.23%
Asset turnover . . . . . . . . . 1.57 1.88 1.58 1.91
Return on assets . . . . . . . . 2.73% 5.79% 2.56% 6.16%
Leverage factor. . . . . . . . . 3.19 3.19 3.19 3.19
Return on opening stockholders' equity 8.70% 18.49% 8.18% 19.68%
Other Data:
Cash dividends paid. . . . . . . 2,739 2,738 5,477 5,125
Dividends per share. . . . . . . . 0.195 0.195 0.390 0.365
Average number of shares outstanding 14,044 14,043 14,04 14,043
</TABLE>
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, 1999,
December 31, 1998 and June 30, 1998, 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 $43.9 million,
$52.1 million and $55.4 million at June 30, 1999, December 31, 1998 and
June 30, 1998, 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, 1998, 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 1999 interim results reported
herein may not necessarily be indicative of the results of operations for
the full year 1999.
2. Earnings Per Share
In accordance with SFAS No. 128 "Earnings per Share" below is a
reconciliation of the basic and diluted earnings per share calculations
for the periods reported (dollars and shares in thousands):
<TABLE>
For The Three For The Six
Months Ended Months Ended
June 30, June 30,
<CAPTION>
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $3,134 $6,319 $5,889 $13,452
Weighted average common shares
outstanding 14,044 14,043 14,044 14,043
Dilutive effect of outstanding
employee and directors'
common stock options 10 56 9 59
Diluted common shares outstanding 14,054 14,099 14,053 14,102
Basic earnings per share $ .22 $ .45 $ .42 $ .96
Diluted earnings per share $ .22 $ .45 $ .42 $ .96
Outstanding employee and
directors' common stock options
having no dilutive effect 536 8 536 8
</TABLE>
<PAGE> Page 6 of 10
3. Segments
The Company has reviewed the business activities of its divisions and
subsidiaries in accordance with the requirements of SFAS No. 131. The
Company has concluded that its business activities fall into one
identifiable business segment as approximately 95% of all revenues are
derived from the distribution of its specialty metals products. These
products are purchased, warehoused, processed and sold using essentially
the same systems, facilities, sales force and distribution network.
4. Acquisition
The Company's subsidiary Total Plastics, Inc. acquired a 60% interest in
Paramont Machine Co. as of April 1, 1999. The acquisition has been
accounted for as a purchase and accordingly the results of operations of
Paramont have been included in the Company's consolidated financial
statements as of April 1, 1999. Pro-forma results are not required as
the amounts do not significantly differ from historical results.
On April 1, 1999 the Company acquired a 50% interest in Laser Precision.
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 April 1, 1999.
<PAGE> Page 7 of 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Operating results before taxes, depreciation, amortization and interest
expense for the second quarter of 1999 were down 28.2% compared to 1998's
second quarter results. The Company earned $3.1 million ($.22 per share) as
compared to $6.3 million ($.45 share) in the comparable quarter last year.
Results were adversely affected by a combination of excess inventory in the
overall market and pricing pressures versus last year's second quarter during
which market conditions were relatively healthy. Earnings for the first six
months of $5.9 million ($.42 per share) were down 56.3% from last year's
first half earnings of $13.5 million ($.96 per share).
Quarterly sales totaled $180.0 million, representing a 12.2% decrease from
the second quarte of 1998 sales of $205.1 million. The decrease was due
primarily to a 14.7% decrease in tons sold along with a 5% reduction in
average selling prices along with a slight shift in sales mix. For the first
six months of 1999 total revenues were $363.5 million as compared to $416.8
million for the second half of 1998, a 12.8% decrease.
Gross profit for the quarter decreased by $3.4 million (5.6%) to $57.2
million due mainly to sales volume decreases which where offset by an
increase in the total gross margin percentage from 29.5% to 31.8% as the
Company's expansion of value added services and processing capabilities
continues to have a positive effect on gross margin performance. For
the first six months of 1999 total gross profit declined 6.8% to $114.0
million while gross margin percentage increased from 29.3% to 31.4%.
Second quarter operating expenses were up $.7 million (1.6%) over the
comparable quarter last year. Increases were primarily due expenses of
acquisitions which were not included in the second quarter of last year.
Several cost saving initiatives continue to be pursued which are aiming at
reducing expenses in the future. Year to date operating expenses were up by
$1.5 million (1.6%).
Second quarter depreciation and amortization expense increased by $0.3
million (16.0%) over the prior year's comparable period while the increase
year to date was $0.9 million (21.2%) from 1998. This increase was primarily
the result of depreciation associated with new facilities and equipment along
with acquisitions.
Net interest expense for the second quarter increased approximately $.7
million (34.8%) as compared to the second quarter of 1998. Higher average
borrowing levels were primarily responsible for the expense increase. The
additional borrowing was used to finance the Company's growth and acquisition
strategy. Year to date this expense increased $1.9 million (48.3%).
Liquidity and Capital Resources
Accounts receivable decreased by $4.3 million from the second quarter of
last year mainly due to the decreased sales volume. Net inventory increased
by $6.9 million compared with last years values due to a combination of
<PAGE> Page 8 of 10
acquisitions, increases to support market initiatives and the adverse effect
of weaker than anticipated demand over the past two quarters. Total
debt increased by $28.2 million as compared to the June 30, 1998. The
increase was the result of additional capital needed to finance the Company's
acquisition strategy along with internal expansion through fixed asset
purchases. The Company's debt to capital ratio was 53.6% as of June 30, 1999
which is over the target range of 45%. Net worth decreased $.7 million over
the prior year's quarter. Although the Company has remained profitable for
the past four quarters despite the recent downturn in the recent economic
downturn, dividends have exceeded earnings for this period.
The Company has unused committed and uncommitted lines of bank credit of
$120.4 million as of June 30, 1999 compared to $140.6 million at June 30,
1998.
Year-2000 Issues
The Company is currently modifying their 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 the third quarter of
1999 with no significant impact on its operations.
The Company has identified its communications systems, financial systems,
and transactional systems as the major Year-2000 risk areas. The Company
began addressing these issues in 1997. Year-2000 compliant software is
operational in Franklin Park, Illinois and will be installed in all other
locations over the next three months. The financial software upgrades are
progressing well and are nearing completion. As of this date 75% of the
90,000 lines of transactions have been modified, tested, and put into
production. The remaining 25% is scheduled for completion by the third
quarter. The "most reasonably likely worst case Year-2000 scenarios" would
involve a partial failure in one or more of the above systems requiring
that the particular transaction or process be handled manually until the
problem is corrected. The impact of this type of problem would not be likely
to have a material effect on results of operations, liquidity or financial
condition.
The Company is in the process of reassessing its non-information technology
systems and identifying risks from third party relationships. Castle is well
diversified from a customer, product, and supplier standpoint and,
consequently, isolated disruptions in any one area, with the exception of
prolonged power interruptions at any of it four largest facilities, are not
likely to have a significant impact on total company results.
The Company's Year-2000 activities are expected to cost between $1.8 and
$2.0 million with approximately 67% being incurred in 1999.
<PAGE>
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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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Page 10 of 10
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: July 20, 1999 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.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 4,190 0
<SECURITIES> 334 0
<RECEIVABLES> 93,970 0
<ALLOWANCES> (774) 0
<INVENTORY> 200,220 0
<CURRENT-ASSETS> 297,940 0
<PP&E> 188,063 0
<DEPRECIATION> (86,995) 0
<TOTAL-ASSETS> 459,721 0
<CURRENT-LIABILITIES> 132,685 0
<BONDS> 162,976 0
0 0
0 0
<COMMON> 27,465 0
<OTHER-SE> 116,869 0
<TOTAL-LIABILITY-AND-EQUITY> 459,721 0
<SALES> 179,992 363,452
<TOTAL-REVENUES> 179,992 363,452
<CGS> (122,840) (249,476)
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (49,012) (98,142)
<LOSS-PROVISION> (16) (159)
<INTEREST-EXPENSE> (2,841) (5,734)
<INCOME-PRETAX> 5,283 9,941
<INCOME-TAX> (2,149) (4,052)
<INCOME-CONTINUING> 3,134 5,889
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,134 5,889
<EPS-BASIC> 0.22 0.42
<EPS-DILUTED> 0.22 0.42
</TABLE>
