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 September 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 September 30, 1999
Common Stock, No Par Value 14,048,070 shares
<PAGE> 2 of 10
A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
Page
Number
Part I. Financial Information
Item 1. Financial Statements. . . . . . . . . . . . . 3-4
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> 3 of 10
A. M. CASTLE & CO.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30
1999 1998 1998
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . $ 3,292 $ 2,954 $ 5,497
Accounts receivable, net . . . . . 95,020 85,688 97,617
Inventories (principally on last-in,
first-out basis) . . . . . . . . 179,520 217,152 228,167
Total current assets . . . . . . $277,832 $305,794 $331,281
Prepaid expenses and other assets. 56,591 59,547 59,688
Fixed assets, net. . . . . . . . . 94,025 94,622 96,444
Total assets . . . . . . . . . . $428,448 $459,963 $487,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . $ 84,219 $ 98,835 $114,483
Accrued liabilities. . . . . . . . 17,032 18,536 18,351
Income taxes payable . . . . . . . 3,865 3,445 4,628
Current portion of long-term debt. 3,545 3,765 3,803
Total current liabilities. . . . $108,661 $124,581 $141,265
Long-term debt, less current portion 156,708 172,313 182,653
Deferred income taxes. . . . . . . 16,225 15,105 13,500
Other obligations .. . . . . . . . 3,710 3,952 3,951
Stockholders' equity . . . . . . . 143,144 144,012 146,044
Total liabilities and
stockholders' equity . . . . . . $428,448 $459,963 $487,413
SHARES OUTSTANDING . . . . . . . . 14,045 14,043 14,044
BOOK VALUE PER SHARE . . . . . . . $ 10.19 $ 10.26 $ 10.40
WORKING CAPITAL. . . . . . . . . . $169,171 $181,213 $190,016
WORKING CAPITAL PER SHARE. . . . . $ 12.04 $ 12.90 $ 13.53
DEBT TO CAPITAL. . . . . . . . . . 52.8% 55.0% 56.1%
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
(Dollars in thousands) For the Six Months
Ended September 30
Cash flows from operating activities: 1999 1998
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . $ 7,243 $ 17,231
Depreciation and amortization . . . . . . . . 7,307 6,209
Other . . . . . . . . . . . . . . . . . . . . 5,646 (2,930)
Cash provided from operating activities before
working capital changes. . . . . . . . . . . . 20,196 20,510
(Increase) decrease in working capital . . . . 12,485 (56,133)
Net cash provided from (used by) operating
activities . . . . . . . . . . . . . . . . . . 32,681 (35,623)
Cash flows from investing activities:
Investments and acquisitions . . . . . . . . . (3,097) (25,392)
Capital expenditures, net of sales proceeds. . (5,258) (20,440)
Net cash provided from (used by) investing
activities . . . . . . . . . . . . . . . . . . (8,355) (45,832)
Cash flows from financing activities:
Long-term borrowings, net. . . . . . . . . . . (15,909) 92,073
Dividends paid . . . . . . . . . . . . . . . . . (8,216) (7,864)
Other. . . . . . . . . . . . . . . . . . . . . 137 (32)
Net cash provided from (used by) financing
activities . . . . . . . . . . . . . . . . . . (23,988) 84,177
Net increase (decrease) in cash. . . . . . . . . 338 2,722
Cash - beginning of year . . . . . . . . . . . 2,954 2,775
Cash - end of period . . . . . . . . . . . . . $ 3,292 $ 5,497
Supplemental Cash Disclosure
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . . . . . $ 8,290 $ 5,984
Income taxes . . . . . . . . . . . . . . . . . $ 3,517 $ 9,759
</TABLE>
<PAGE> 4 of 10
A.M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three and Six Months For The Three For The Six
Ended June 30,(Unaudited) Months Ended Months Ended
Sept. 30 Sept. 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . $177,0970 $195,512 $540,549 $612,308
Cost of material sold. . . . . . 123,027 137,485 372,503 432,076
Gross profit on sales. . . . . 54,070 58,027 168,046 180,232
Operating expenses . . . . . . . 46,631 46,868 140,067 138,854
Depreciation and amortization expense 2,442 2,196 7,307 6,209
Interest expense, net. . . . . . 2,637 2,662 8,371 6,528
Total . . . . . . . . . . . . 51,710 51,726 155,745 151,591
Income before taxes . . . . . . 2,360 6,301 12,301 28,641
Income Taxes:
Federal. . . . . . . . . . . . 840 2,056 4,193 9,251
State. . . . . . . . . . . . . 166 466 865 2,159
1,006 2,522 5,058 11,410
Net income . . . . . . . . . . . $ 1,354 $ 3,779 $ 7,243 $ 17,231
Net income per share . . . . . . $ .10 $ .27 $ .52 $ 1.23
Diluted income per share . . . . $ .10 $ .27 $ .52 $ 1.22
Financial Ratios:
Return on sales. . . . . . . . 0.76% 1.93% 1.34% 2.81%
Asset turnover . . . . . . . . 1.65 1.60 1.68 1.67
Return on assets . . . . . . . 1.26% 3.10% 2.25% 4.71%
Leverage factor. . . . . . . . 2.98 3.57 2.98 3.57
Return on opening stockholders'
equity . . . . . . . . . . . 3.76% 11.06% 6.71% 16.81%
Other Data:
Cash dividends paid. . . . . . $ 2,739 $ 2,738 $ 8,216 $ 7,864
Dividends per share. . . . . . $ 0.195 $ 0.195 $ 0.585 $ 0.560
Average number of shares outstanding 14,048 14,044 14,045 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 September
30, 1999, December 31, 1998 and September 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 $40.8 million,
$52.1 million and $54.2 million at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively. Taxes on income would become payable on
any realization of this excess from reductions in the level of inventories.
<PAGE> 5 OF 10
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>
<CAPTION>
For The Three For The Nine
Months Ended Months Ended
Sept. 30, Sept. 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $ 1,354 $ 3,779 $ 7,24 $17,231
Weighted average common shares
outstanding 14,048 14,044 14,045 14,043
Dilutive effect of outstanding
employee and directors' common
stock options 11 19 9 44
Diluted common shares outstanding 14,059 14,063 14,054 14,087
Basic earnings per share $ .10 $ .27 $ .52 $ 1.23
Diluted earnings per share $ .10 $ .27 $ .52 $ 1.23
Outstanding employee and directors'
common stock options having no
dilutive effect 820 112 820 383
</TABLE>
<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> 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 third quarter of 1999 were down 33.3% compared to 1998's
third quarter results. The Company earned $1.4 million ($.10 per share) as
compared to $3.8 million ($.27 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 third quarter during
which market conditions were relatively healthy although trending downward.
Earnings for the first nine months of $7.2 million ($.52 per share) were down
58.1% from last year's earnings of $17.2 million ( $1.23 per share).
Quarterly sales totaled $177.1 million, representing a 9.4% decrease from the
third quarter of 1998 sales of $195.6 million. The decrease was due
primarily to a 9.5% decrease in tons sold along with a 7.5% reduction in
average selling prices alon with a slight shift in sales mix. For the first
nine months of 1999 total revenues were $540.5 million as compared to $612.3
million in 1998, a 11.7% decrease.
Gross profit for the quarter decreased by $4.0 million (6.8%) to $54.1
million due mainly to sales volume decreases which where offset by an
increase in the total gross margin percentage from 29.7% to 30.5% 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 nine months of 1999 total gross profit declined 6.8% to $168.0 million
while gross margin percentage increased from 29.4% to 31.1%.
Third quarter operating expenses were down $.2 million (.1%) from the
comparable quarter last year. The decrease would have been larger without
approximately $1.3 million for expenses of acquisitions which were not
included in the third quarter of last year. Several cost saving initiatives
continue to be pursued which should continue reducing non variable expenses
in the future. Year to date operating expenses were up by $1.2 million
(.9%) for the same reasons stated above.
Third quarter depreciation and amortization expense increased by $0.2 million
(11.2%) over the prior year's comparable period while the increase year to
date was $1.1 million (17.7%) from 1998. This increase was primarily the
result of depreciation associated with new facilities and equipment along
with acquisitions.
Net interest expense for the third quarter remained about even with the
third quarter of 1998. Year to date interest expense increased $1.8 million
(28.2%). The additional borrowing was used to finance the Company's growth
and acquisition strategy.
<PAGE> 8 of 10
Liquidity and Capital Resources
Accounts receivable decreased by $2.6 million from the third quarter of last
year mainly due to the decreased sales volume. Net inventory decreased by
$48.6 million compared with last years values due to reduced sales activity
and programmed reductions. Total debt decreased by $26.2 million as compared
to the September 30, 1998. The decrease was the result of the reduction in
inventory mentioned above offset by other working capital needs. The
Company's debt to capital ratio was 52.8% as of September 30, 1999 compared
to 56.1% last year. Net worth decreased $2.9 million over the prior year's
quarter. Although the Company has remained profitable for the past four
quarters despite the recent economic downturn, dividends have exceeded
earnings for this period.
The Company has unused committed and uncommitted lines of bank credit of
$139.1 million as of September 30, 1999 compared to $97.2 million at
September 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 identified its communications systems, financial systems, and
transactional systems as the major Year-2000 risk areas. The Company began
addressing these issues in 1997. Programming and Unit Testing of all of the
Company's business systems has been completed and the systems are now in
final Systems Testing. The majority of all testing has been completed as of
September 30,1999 with the remaining testing to be completed in late October/
early November. All critical business systems for the processing of customer
orders, purchase orders, receiving material, inventory management, shipping
and billing have been verified as compliant. Remaining testing will be
focused on financial reporting applications. Contingency planning for
internal and external Year-2000 events has started and will continue through
October. The Company intends to have written contingency plans in place by
the end of October.
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> 9 of 10
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.
<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: November 1, 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 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 2,981 0
<SECURITIES> 311 0
<RECEIVABLES> 95,917 0
<ALLOWANCES> (897) 0
<INVENTORY> 179,520 0
<CURRENT-ASSETS> 277,832 0
<PP&E> 182,938 0
<DEPRECIATION> (88,913) 0
<TOTAL-ASSETS> 428,448 0
<CURRENT-LIABILITIES> 108,661 0
<BONDS> 156,708 0
0 0
0 0
<COMMON> 27,626 0
<OTHER-SE> 115,518 0
<TOTAL-LIABILITY-AND-EQUITY> 428,448 0
<SALES> 177,097 540,549
<TOTAL-REVENUES> 177,097 540,549
<CGS> (123,027) (372,503)
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (48,950) (147,092)
<LOSS-PROVISION> (123) (282)
<INTEREST-EXPENSE> (2,637) (8,371)
<INCOME-PRETAX> 2,360 12,301
<INCOME-TAX> (1,006) (5,058)
<INCOME-CONTINUING> 1,354 7,243
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,354 7,243
<EPS-BASIC> .10 .52
<EPS-DILUTED> .10 .52
</TABLE>
