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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, 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 March 31, 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
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 1999 1998 1998
Cash . . . . . . . . . . . . . . . . . $4,399 $2,954 $2,967
Accounts receivable, net . . . . . . . 89,793 85,688 101,655
Inventories (principally on last-in,
first-out basis). . . . . . . . . . 205,793 217,152 164,658
Total current assets . . . . . . . . $299,985 $305,794 $269,280
Prepaid expenses and other assets. . . 58,370 59,547 44,900
Fixed assets, net. . . . . . . . . . . 99,210 94,622 85,671
Total assets . . . . . . . . . . . . $457,565 $459,963 $399,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . $103,048 $ 98,835 $ 93,854
Accrued liabilities. . . . . . . . . . 15,980 18,536 16,063
Income taxes payable . . . . . . . . . 5,370 3,445 7,098
Short term debt. . . . . . . . . . . . - - 3,343
Current portion of long-term debt. . . 3,702 3,765 2,721
Total current liabilities. . . . . . $128,100 $124,581 $123,079
Long-term debt, less current portion . 165,831 172,313 117,905
Deferred income taxes. . . . . . . . . 15,919 15,105 13,371
Other Liabilities. . . . . . . . . . . 3,767 3,952 3,944
Stockholders' equity . . . . . . . . . 143,948 144,012 141,552
Total liabilities and stockholders'
equity. . . . . . . . . . . . . $457,565 $459,963 $399,851
SHARES OUTSTANDING . . . . . . . . . . 14,044 14,043 14,043
BOOK VALUE PER SHARE . . . . . . . . . $ 10.25 $ 10.26 $ 10.08
WORKING CAPITAL. . . . . . . . . . . . $171,885 $181,213 $146,201
WORKING CAPITAL PER SHARE. . . . . . . $ 12.24 $ 12.90 $ 10.41
DEBT TO CAPITAL. . . . . . . . . . . . 54.1% 55.0% 46.7%
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) For the Three Months
Ended March 31,
Cash flows from operating activities: 1999 1998
Net income . . . . . . . . . . . . . . . . . . . . $ 2,755 $ 7,133
Depreciation and amortization. . . . . . . . . . . 2,408 1,896
Other. . . . . . . . . . . . . . . . . . . . . . . 1,725 196
Cash provided from operating activities before
working capital changes. . . . . . . . . . . . . . 6,888 9,225
(Increase) decrease in working capital . . . . . . 10,668 (29,770)
Net cash provided from (used by) operating
activities.. . . . . . . . . . . . . . . . . . . . 17,556 (20,545)
Cash flows from investing activities:
Capital expenditures, net of sales proceeds. . . . (6,745) (7,519)
Net cash provided from (used by) investing
activities . . . . . . . . . . . . . . . . . . . . (6,745) (7,519)
Cash flows from financing activities:
Long-term borrowings, net. . . . . . . . . . . . . (6,545) 27,203
Short term debt. . . . . . . . . . . . . . . . . . - 3,343
Dividends paid . . . . . . . . . . . . . . . . . . (2,738) (2,387)
Other. . . . . . . . . . . . . . . . . . . . . . . (83) 97
Net cash provided from (used by) financing
activities. . . . . . . . . . . . . . . . . . . . (9,366) 28,256
Net increase (decrease) in cash . . . . . . . . . . $ 1,445 $ 192
Cash - beginning of year . . . . . . . . . . . . 2,954 2,775
Cash - end of period . . . . . . . . . . . . . . $ 4,399 $ 2,967
Cash paid (received) during the period:
Interest . . . . . . . . . . . . . . . . . . . . $ 2,999 $ 1,146
Income taxes . . . . . . . . . . . . . . . . . . $ (653) $ 703
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A.M. CASTLE & CO.
COMPARATIVE STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Three Months Ended March 31,
(Unaudited) 1999 1998
Net sales. . . . . . . . . . . . . . . . . . . . . $183,460 $211,728
Cost of material sold. . . . . . . . . . . . . . . 126,635 150,093
Gross profit on sales. . . . . . . . . . . . . . 56,825 61,635
Operating expenses . . . . . . . . . . . . . . . . 46,866 46,154
Depreciation and amortization expense. . . . . . . 2,408 1,896
Interest expense, net. . . . . . . . . . . . . . . 2,893 1,758
Total. . . . . . . . . . . . . . . . . . . . . . 52,167 49,808
Income before taxes . . . . . . . . . . . . . . . 4,658 11,827
Income Taxes:
Federal. . . . . . . . . . . . . . . . . . . . . 1,560 3,797
State. . . . . . . . . . . . . . . . . . . . . . 343 897
1,903 4,694
Net income . . . . . . . . . . . . . . . . . . . . $ 2,755 $ 7,133
Net income per share . . . . . . . . . . . . . . . $ .20 $ .51
Diluted income per share . . . . . . . . . . . . . $ .20 $ .51
Financial Ratios:
Return on sales. . . . . . . . . . . . . . . . . 1.50% 3.37%
Asset turnover . . . . . . . . . . . . . . . . . 1.60 2.12
Return on assets . . . . . . . . . . . . . . . . 2.41% 7.14%
Leverage factor. . . . . . . . . . . . . . . . . 3.18 2.92
Return on opening stockholders' equity . . . . . 7.65% 20.87%
Other Data:
Cash dividends paid. . . . . . . . . . . . . . . $2,738 $ 2,387
Dividends per share. . . . . . . . . . . . . . . .195 .17
Average number of shares outstanding . . . . . . 14,044 14,043
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, 1999,
and March 31, 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 $46.4 million
and $56.1 million at March 31, 1999 and March 31, 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):
First Quarter
1999 1998
Net Income $ 2,755 $ 7,133
Weighted average common shares outstanding 14,044 14,042
Dilutive effect of outstanding employee and
directors' common stock options 7 66
Diluted common shares outstanding 14,051 14,108
Basic earnings per share $ .20 $ .51
Diluted earnings per share $ .20 $ .51
Outstanding employee and directors'
common stock options having no
dilutive effect 536 -
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.
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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 first quarter of 1999 were down 36% compared to 1998's
record first quarter. The Company earned $2.8 million ($.20 per share)
as compared to $7.1 million ($.51 per 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
first quarter during which market conditions were relatively healthy.
Quarterly sales totalled $183.5 million, representing a 13% decrease from
the first quarter of 1998 sales of $211.7 million. The decrease was due
primarily to a 14.9% decrease in tons sold along with a 4% reduction in
average selling prices.
Gross profit for the quarter decreased by $4.8 million (7.8%) to $56.8
million due mainly to sales volume decreases which were offset by an
increase in the total gross margin percentage from 29.1% to 31.0% as 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 $.7 million (1.5%) over the
comparable quarter last year. Increases were due largely to expenses on
acquisitions which were not included in the first quarter of last year.
First quarter depreciation and amortization expense increased by $0.5
million (27.0%) over the prior year's comparable period. This increase was
primarily the result of depreciation associated with new facilities and
equipment.
Net interest expense for the first quarter increased approximately $1.1
million (64.6%) as compared to the first 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 and working capital requirements.
Liquidity and Capital Resources
Accounts receivable decreased by $11.9 million from the first quarter of
last year mainly due to the decreased sales volume. Net inventory increased
by $41.1 million compared with last year's values due to a combination of
acquisitions, increases to support market initiatives and the adverse effect
of weaker than anticipated demand over the past two quarters. Total short
term and long term debt increased by $45.6 million as compared to
March 31, 1998. The increase was the result of additional capital needed to
finance the Company's acquisition strategy along with the higher level of
working capital. The Company's debt-to-capital ratio was 54.1% as of
March 31, 1999 which is over the target range of 45%. Net worth has
increased $2.4 million over the prior year's quarter reflecting
continuing profitability despite the recent downturn in the economic
environment.
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The Company has unused committed and uncommitted lines of bank credit of
$121.5 million as of March 31, 1999 compared to $152.0 million at March 31,
1998.
The Company has not entered into any market risk agreements of a material
nature. Fixed interest rate debt outstanding as of March 31, 1999 totalled
$106.2 million with an average interest rate of 6.9%. Variable interest
rate debt outstanding as of March 31, 1999 totalled $63.3 million with an
average interest rate of 5.0%.
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 the third quarter of 1999 with no
significant impact on the Company's ongoing results of operations.
The Company has identified its communications systems, financial systems,
and transactional systems as the major year 2000 risk areas. The Company
began to address these issues starting in late 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 50% of the 90,000 lines of transactions have been modified, tested and
put into production. The remaining 50% is scheduled for completion by the
third quarter. The "most reasonably likely worst case Year-2000 scenarios"
would involve a partial failure in one of 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 its 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.
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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.<PAGE>
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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 7, 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.)
SIGNATURES
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 3,634 0
<SECURITIES> 765 0
<RECEIVABLES> 90,578 0
<ALLOWANCES> (785) 0
<INVENTORY> 205,793 0
<CURRENT-ASSETS> 299,985 0
<PP&E> 184,485 0
<DEPRECIATION> (85,275) 0
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0 0
0 0
<COMMON> 27,465 0
<OTHER-SE> 116,483 0
<TOTAL-LIABILITY-AND-EQUITY> 457,565 0
<SALES> 183,460 183,460
<TOTAL-REVENUES> 183,460 183,460
<CGS> (126,635) (126,635)
<TOTAL-COSTS> (49,131) (49,131)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (143) (143)
<INTEREST-EXPENSE> (2,893) (2,893)
<INCOME-PRETAX> 4,658 4,658
<INCOME-TAX> (1,903) (1,903)
<INCOME-CONTINUING> 2,755 2,755
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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