<PAGE>
Page 1 of 15 Pages
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended December 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 or organization)
3400 North Wolf Road, Franklin Park, Illinois 60131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 455-7111
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- --------------------------- ------------------------------------
Common Stock - no par value American and Chicago Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
---------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X .
---
The approximate aggregate market value of the registrant's common stock held by
non-affiliates of the registrant on February 29, 2000 was $______.
The number of shares outstanding of the registrant's common stock on February
29, 2000 was 14,048,070 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference Applicable Part of Form 10-K
- ----------------------------------- ----------------------------
Annual Report to Stockholders for the Parts I, II and IV
year ended December 31, 1999
Proxy Statement dated March 10, 2000 Part III
furnished to Stockholders in connection with
registrant's Annual Meeting of Stockholders
================================================================================
<PAGE>
PAGE 2 OF 15
PART I
Item 1. Business.
A. M. Castle & Co. is one of North America's largest, independent metals
service center companies. The registrant (Company) provides a complete range of
inventories as well as preprocessing services to a wide variety of customers.
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 core
business segment as approximately 92% 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. In the last three years, sales mix in the
Company's core business was approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Carbon and Stainless 76% 75% 73%
Non-Ferrous Metals 24% 25% 27%
---- ---- ----
100% 100% 100%
</TABLE>
These metals are inventoried in many forms including round, hexagon, square
and flat bars; plates; tubing; shapes; and sheet and coil.
Depending on the size of the facility and the nature of the markets it
serves, each of the Company's service centers is equipped as needed with Bar
Saws, Close Tolerance Plate Saws, Oxygen and Plasma Arc Flame Cutting Machinery,
Laser Burning, Water-Jet Cutting, Stress Relieving and Annealing Furnaces,
Surface Grinding Equipment, Edge Conditioning Equipment, Sheet Shears and Coil
Processing Equipment. The Company also does specialized fabrications for
customers through pre-qualified subcontractors.
Emphasis on the more highly engineered grades and alloys of metals,
supported by strong service commitments, has earned the Company a leadership
role in filling the needs of users of those metals.
The Company has its main office, and largest distribution center, in
Franklin Park, Illinois. This center serves metropolitan Chicago and,
approximately, a nine-state area. In addition, there are distribution centers
in various other cities (see Item 2). The Chicago, Los Angeles and Cleveland
distribution centers together account for approximately one-half of all sales.
In the United States, the Company serves the wide range of industrial
companies within the $700 billion producer durable equipment sector of the
economy. The customer base includes many Fortune 500 companies as well as
thousands of medium and smaller sized ones spread across the entire spectrum of
metals using industries. The Company's customer base is well diversified with no
single industry accounting for more than 6% of the Company's total business and,
no one customer, more than 2%. The Company's coast-to-coast network of metals
service centers provides next day delivery to over 90% of the markets it serves,
and two-day delivery to virtually all of the rest. Listed below are the
operating subsidiaries and divisions included in the Company's core business
segment, along with a brief summary of their business activities.
<PAGE>
PAGE 3 OF 15
In Canada, the Company serves a wide range of businesses similar to the
market profile in the United States. These markets are serviced by the Company's
Canadian subsidiary A. M. Castle & Co. (Canada) Inc.
In Mexico, the Company operates through a joint venture, Castle de Mexico,
S.A. de C.V., and targets a wide range of businesses within the producer durable
goods sector.
Markets in Western Europe, South America and the Pacific Rim are serviced
through the Company's International Sales Department located in the Franklin
Park facility, and starting in late 1996, the Company's United Kingdom based
subsidiary, A. M. Castle & Co. Limited, a U.K. Corporation.
The Company's Hy-Alloy Steels Co. division, located in Bedford Park,
Illinois, a Chicago suburb, is a distributor of alloy bars stocked as rounds,
squares, hexes, and flats; and of alloy tubing. In 1993 a value-added bar
processing center, H-A Industries, was added. From this facility, the Company
operates a heat treat line producing quench and tempered alloy bar product, an
annealing line, and a bar turning and straightening line producing cold finished
bars.
Beginning in 1996, Castle acquired several businesses whose activities
complement the Company's distribution and value-added focus. Total Plastics,
Inc. acquired in 1996 is a Midwest based distributor serving a wide variety of
users of industrial plastics. Cutter Precision Metals, Inc., acquired in 1996,
and merged into the Company in 1997 served to increase the Company's presence in
the Pacific Northwest and added highly specialized sawing and grinding
capabilities to the Company's range of processing services. In 1997 the company
added Keystone Tube Company, a Midwest based specialty distributor of tubular
products and a leading processor of high value-added mechanical tube and chrome
plated bar serving the fluid power industry. The acquisition expanded an
existing product line and served to broaden Castle's core specialty metals
business. Oliver Steel Plate Company, acquired in 1998, is an Ohio based
distributor and processor of heavy steel plate. This acquisition adds to
Castle's plate-processing capacity in the East and strengthens the Company's
position in this target product.
The Company holds a one-third joint venture interest in Kreher Steel Co., a
Midwest distributor, focusing on customers whose primary need is for immediate,
reliable delivery of large quantities of alloy, SBQ and stainless bars. In 1998,
Castle also purchased a 50% joint venture interest in Energy Alloys LLC, a
Houston based metals distributor. In 1999 the Company purchased another 50%
joint venture, Laser Precision located in Libertyville, Illinois in order to
enhance its processing capabilities.
In general, the Company purchases metals from many producers. Satisfactory
alternative sources are available for all metals that the Company buys and its
business would not be materially adversely affected by the loss of any one
supplier. Purchases are made in large lots and held in the distribution centers
until sold, usually in smaller quantities. The Company's ability to provide
quick delivery, frequently overnight, of a wide variety of metal products allows
customers to reduce inventory investment because they do not need to order the
large quantities required by producing mills.
<PAGE>
PAGE 4 OF 15
The major portion of 1999 net sales were from materials owned by the
Company. The materials required to fill the balance of such sales were obtained
from other sources, such as direct mill shipments to customers or purchases from
other metals distributors. Sales are primarily through the Company's own sales
organization and are made to many thousands of customers in a wide variety of
industries. No single customer is significant to the Company's sales volume.
Deliveries are made principally by leased trucks. Common carrier delivery is
used in areas not serviced directly by the Company's fleet.
The Company encounters strong competition both from other independent
metals distributors and from large distribution organizations, some of which
have substantially greater resources.
The Company has approximately 1,900 full-time employees in its operations
throughout the United States, Canada and the United Kingdom. Approximately 400
of these are represented by collective bargaining units, principally the United
Steelworkers of America.
Item 2. Properties.
The Company's principal executive offices are at its Franklin Park plant
near Chicago, Illinois. All properties and equipment are well maintained and in
good operating condition and sufficient for the current level of activities.
Metals distribution centers and sales offices are maintained at each of the
following locations, all of which are owned in fee, except as indicated:
<PAGE>
PAGE 5 OF 15
<TABLE>
<CAPTION>
Approximate
Floor Area in
Locations Square Feet
--------- -------------
<S> <C>
Castle Metals
-----------------
Atlanta, Georgia 35,100 (1)
Charlotte, North Carolina 116,500
Chicago area -
Franklin Park, Illinois 522,600
Cincinnati, Ohio 9,300 (1)
Cleveland area -
Bedford Heights, Ohio 374,400
Dallas, Texas 78,000
Fairfield, Ohio 108,000 (1)
Houston, Texas 109,100
Kansas City, Missouri 170,000
Kent, Washington 31,000 (1)
Los Angeles area -
Paramount, California 264,900
Milwaukee area -
Wauwatosa, Wisconsin 98,000 (1)
Minneapolis, Minnesota 65,000
Philadelphia, Pennsylvania 71,600
Portland, Oregon 17,600 (1)
Salt Lake City, Utah 22,500 (1)
Santa Clara, California 36,000 (1)
Stockton, California 60,000 (1)
Wichita, Kansas 22,500 (1)
Worcester, Massachusetts 56,000
---------
Total Castle Metals 2,268,100
Hy-Alloy Steels Co.
-------------------
Chicago area -
Bedford Park, Illinois 103,700
---------
H-A Industries
--------------
Hammond, Indiana 243,000 (1)
---------
A. M. Castle & Co. (Canada) Inc.
--------------------------------
Edmonton, Alberta 38,300 (1)
Montreal, Quebec 26,100 (1)
Toronto area -
Mississauga, Ontario 60,000 (1)
Etobicoke, Ontario 17,000 (1)
Winnipeg, Manitoba 50,000
---------
191,400
Castle Metals U.K. Ltd.
-----------------------
Blackburn, U.K. 43,000 (1)
Christchurch, U.K. 12,000 (1)
---------
55,000
</TABLE>
<PAGE>
PAGE 6 of 15
<TABLE>
<CAPTION>
Approximate
Floor Area in
Locations Square Feet
--------- ------------
<S> <C> <C>
Keystone Tube, Inc.
-------------------
La Porte, Indiana 90,000
Riverdale, Illinois 115,000 (1)
Titusville, Pennsylvania 92,000
-------
297,000
Total Plastics, Inc.
--------------------
Baltimore, Maryland 24,000 (1)
Detroit, Michigan 31,000 (1)
Elk Grove Village, Illinois 14,400 (1)
Fort Wayne, Indiana 9,600 (1)
Grand Rapids, Michigan 42,500
Harrisburg, Pennsylvania 24,000 (1)
Indianapolis, Indiana 27,500 (1)
Kalamazoo, Michigan 53,500 (1)
South Bend, Indiana 7,500 (1)
-------
234,000
Oliver Steel Plate Company
--------------------------
Twinsburg, Ohio 120,000 (1)
GRAND TOTAL 3,512,200
=========
Sales Offices (Leased)
----------------------
Buffalo, New York
Detroit, Michigan
Pittsburgh, Pennsylvania
Phoenix, Arizona
San Diego, California
Tulsa, Oklahoma
</TABLE>
(1) Leased: See Note 5 in the 1999 Annual Report to Stockholders,
incorporated herein by this specific reference, for information
regarding lease agreements.
<PAGE>
PAGE 7 OF 15
Item 3. Legal Proceedings.
There are no material legal proceedings other than the ordinary routine
litigation incidental to the business of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PAGE 8 OF 15
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Item 6.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Selected Financial Data
-----------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 707.4 $ 792.8 $ 754.9 $ 672.6 $ 627.8
Cost of Sales 483.1 559.1 540.3 481.4 454.4
------- ------- ------- ------- -------
Gross Profit 224.3 233.7 214.6 191.2 173.4
Operating Expenses 189.1 185.1 164.3 139.9 121.7
Depreciation and Amortization 9.9 8.5 6.6 5.3 4.5
Interest expense, net 10.6 9.4 4.2 2.9 2.9
------- ------- ------- ------- -------
Income before taxes 14.7 30.7 39.5 43.1 44.3
Income taxes 6.0 12.2 15.7 17.0 17.5
------- ------- ------- ------- -------
Net income $ 8.7 $ 18.5 $ 23.8 $ 26.1 $ 26.8
======= ======= ======= ======= =======
Share Data
----------
Number of shares outstanding
At year-end (in thousands) 14,048 14,043 14,041 14,008 13,945
Net income per share basic $ 0.62 $ 1.32 $1.70 $1.86 $1.93
Net income per share diluted $ 0.62 $ 1.32 $1.69 $1.86 $1.93
Cash dividend per share $ 0.78 $ 0.76 $0.66 $0.57 $0.43
Book value per share $10.10 $10.25 $9.74 $8.70 $7.41
Financial Position at Year-End
------------------------------
Total assets $413.3 $460.0 $366.4 $261.4 $222.5
Long-term debt $122.6 $172.3 $ 90.7 $ 40.9 $ 28.0
Stockholders equity $141.8 $144.0 $136.7 $121.9 $103.4
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required to be filed in Part II (Items 5 and 7) in Form 10-K
has been included in the 1999 Annual Report to Stockholders, as required by the
Securities and Exchange Commission, and is included elsewhere in the filing.
Accordingly, the following items required under Items 5 and 7 are incorporated
herein by this specific reference to the 1999 Annual Report to Stockholders:
"Common Stock Information", page 15, and "Financial Review", pages 14 and 15.
<PAGE>
PAGE 9 OF 15
Item 8. Financial Statements and Supplementary Data.
See Part IV, Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
<TABLE>
<CAPTION>
Executive Officers of The Registrant
------------------------------------
Name and Title Age Business Experience
- --------------- --- -------------------
<S> <C> <C>
Michael Simpson 61 Mr. Simpson began his employment with the registrant in 1968. In 1974 Mr. Simpson was
Chairman of the Board elected President of Hy-Alloy Steels Co. Mr. Simpson was elected Vice President -
Midwest Region in 1977. In 1979 Mr. Simpson was elected Chairman of the Board
Richard G. Mork 64 Mr. Mork began his employment with the registrant in 1957.
President and Chief In 1977 Mr. Mork was elected to the position of Vice President
Executive Officer - Eastern Region and in 1988 to the position of Senior Vice President and
Chief Operating Officer. In 1990 Mr. Mork became President and Chief Executive Officer.
M. Bruce Herron 54 Mr. Herron began his employment with the registrant in 1970.
Executive Vice President - Mr. Herron was elected to the position of Vice President -
Chief Operating Officer Western Region in 1989, and Vice President - Sales in 1998,
and Executive Vice President and Chief Operating Officer in 1999.
Edward F. Culliton 58 Mr. Culliton began his employment with the registrant in 1965.
Vice President and Mr. Culliton was elected Corporate Secretary in 1972 and
Chief Financial Officer Treasurer in 1975. In 1977 he was elected Vice President of Finance. He is the Chief
Financial Officer.
Marc Biolchin 45 Mr. Biolchin began his employment with the registrant's Keystone Tube Company
Vice President - (acquired in 1997) in 1977.
Tubular Group
Stephen V. Hooks 48 Mr. Hooks began his employment with the registrant in 1972.
Vice President - Mr. Hooks was elected to the position of Vice President -
Merchandising Midwest Region in 1993, and Vice President - Merchandising in 1998.
</TABLE>
<PAGE>
PAGE 10 OF 15
<TABLE>
<CAPTION>
Name and Title Age Business Experience
- -------------- --- -------------------
<S> <C> <C>
Tim N. Lafontaine 46 Mr. Lafontaine began his employment with the registrant
Vice President - in 1975, and was elected Vice President - Alloy Group in
Alloy Group 1998.
John R. Nordin 43 Mr. Nordin began his employment with the registrant in 1998.
Vice President - He was elected Vice President - Chief Information Officer
Chief Information Officer in 1998.
Gise Van Baren 68 Mr. Van Baren began his employment with the registrant's
Vice President Hy-Alloy Steels Co. (acquired in 1973) in 1954. He
and President - Hy-Alloy became Vice President of Hy-Alloy in 1976 and President in
Steels Division 1979. He was elected Vice President - Alloy Products
Group in 1991.
Craig R. Wilson 48 Mr. Wilson began his employment with the registrant in
Vice President and 1979. He was elected to the position of Vice President -
General Manager Eastern Region in 1997, Vice President - Business
Great Lakes Region Improvement and Quality in 1998 and assumed the position of
Vice President and General Manager Great Lakes Region in
1999.
Henry C. Winters 58 Mr. Winters began his employment with the registrant in
Vice President- 1999 and was elected Vice President - Operations in 1999.
Operations
Paul J. Winsauer 48 Mr. Winsauer began his employment with the registrant in
Vice President - 1981. In 1996, Mr. Winsauer was elected to the position of
Human Resources Vice President - Human Resources.
James A. Podojil 57 Mr. Podojil began his employment with the registrant in
Chief Accounting Officer 1968. In 1977 he was elected to the position of Controller
and Treasurer/Controller and in 1985 was elected to the additional post of Treasurer.
Jerry M. Aufox 57 Mr. Aufox began his employment with the registrant in 1977.
Secretary and Corporate In 1985 he was elected to the position of Secretary and
Counsel Corporate Counsel. He is responsible for all legal
affairs of the registrant.
</TABLE>
<PAGE>
PAGE 11 OF 15
All additional information required to be filed in Part III, Item 10, Form
10-K, has been included in the Definitive Proxy Statement dated March 10, 2000
filed with the Securities and Exchange Commission, pursuant to Regulation 14A
entitled "Information Concerning Nominees for Directors" and is hereby
incorporated by this specific reference.
Item 11. Executive Compensation.
All information required to be filed in Part III, Item 11, Form 10-K, has
been included in the Definitive Proxy Statement dated March 10, 2000, filed with
the Securities and Exchange Commission, pursuant to Regulation 14A entitled
"Management Remuneration" and is hereby incorporated by this specific reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required to be filed in Part I, Item 4, Form 10-K, has been
included in the Definitive Proxy Statement dated March 10, 2000, filed with the
Securities and Exchange Commission pursuant to Regulation 14A, entitled
"Information Concerning Nominees for Directors" and "Stock Ownership of Certain
Beneficial Owners and Management" is hereby incorporated by this specific
reference.
Other than the information provided above, Part III has been omitted
pursuant to General Instruction G for Form 10-K and Rule 12b-23 since the
Company will file a Definitive Proxy Statement not later than 120 days after the
end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A,
which involves the election of Directors.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial statements (incorporated by reference to the 1999 Annual Report
to Stockholders) and exhibits are set forth in the accompanying index to
Financial Statements and Schedules. No reports on Form 8-K were filed in the
fourth quarter of 1999.
<PAGE>
PAGE 12 OF 15
A. M. CASTLE & CO.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants on Schedules................... Page 13
Consent of Independent Public Accountants with respect to Form S-8...... Page 13
Consolidated Financial Statement Schedules
Valuation and Qualifying Accounts - Schedule II .................... Page 14
Data incorporated by reference from 1999 Annual Report to Stockholders
of A. M. Castle & Co., included herein -
Consolidated Statements of Income - For the years ended December
31, 1999, 1998, and 1997.............................................. Page 17
Consolidated Statements of Reinvested Earnings - For the years ended
December 31, 1999, 1998, and 1997..................................... Page 17
Consolidated Balance Sheets - December 31, 1999, 1998, and 1997........ Page 18
Consolidated Statements of Cash Flows - For the years ended
December 31, 1999, 1998, and 1997...................................... Page 19
Notes to Consolidated Financial Statements......................... Pages 20-24
Report of Independent Public Accountants............................... Page 24
Exhibits:
20 - Report furnished to security holders............................ Exhibit A
3 - Articles of Incorporation and amendments........................ Exhibit B
3 - By laws of the Company.......................................... Exhibit C
10 - Long term incentive compensation plan........................... Exhibit D
10 - Description of management incentive plan........................ Exhibit E
10 - 1996 restricted stock and stock option plan..................... Exhibit F
Exhibits listed above, except for exhibits B through F, are incorporated by
reference in accordance with Rule 12b-32 (17 CFR 240.12b-32) as the material has
been previously filed as part of registrants form 10-K filing for the fiscal
year ended December 31, 1998.
All schedules and exhibits, other than those listed above are omitted as
the information is not required or is furnished elsewhere in the financial
statements or the notes thereto.
<PAGE>
PAGE 13 OF 15
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------------
To A. M. Castle & Co.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in the A. M. Castle & Co. 1999 Annual Report to
Stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 2, 2000. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
February 2, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FORM S-8
-------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of the following into the Company's previously filed S-8 Registration
Statements Numbers 33-30545 and 33-37818:
1. Our supplemental report dated February 2, 2000 included in this Annual
Report on Form 10-K for the year ended December 31, 1999; and
2. Our report dated February 2, 2000 incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1999.
Arthur Andersen LLP
Chicago, Illinois
March 15, 2000
<PAGE>
PAGE 14 OF 15
SCHEDULE II
A. M. CASTLE & CO.
ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
-----------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 638 $ 620 $ 680
Add - Provision charged to income 318 418 281
- Recoveries 102 186 238
- From acquisitions -- -- 53
Less - Uncollectible accounts charged
against allowance (478) (586) (632)
----- ----- -----
Balance, end of year $ 580 $ 638 $ 620
===== ===== =====
</TABLE>
<PAGE>
PAGE 15 OF 15
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ James A. Podojil
-----------------------------
James A. Podojil, Treasurer and Controller
(Mr. Podojil is the Chief Accounting Officer and has been authorized to
sign on behalf of the registrant.)
Date: February 29, 2000
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael Simpson /s/ William K. Hall
- ----------------------------------- --------------------------------
Michael Simpson, William K. Hall, Director
Chairman of the Board Chairman, Audit Committee
February 29, 2000 February 29, 2000
/s/ Richard G. Mork /s/ John P. Keller
- ----------------------------------- --------------------------------
Richard G. Mork, President - John P. Keller, Director
Chief Executive Officer, and Director February 29, 2000
February 29, 2000
/s/ Edward F. Culliton /s/ John W. McCarter, Jr.
- ----------------------------------- ---------------------------------
Edward F. Culliton, Vice President - John W. McCarter, Jr., Director
Chief Financial Officer, and Director February 29, 2000
February 29, 2000
/s/ John McCartney
-------------------------------------
John McCartney, Director
February 29, 2000
<PAGE>
1999
ANNUAL
REPORT
The Challenge For Excellence A. M. CASTLE & CO.
<PAGE>
The Challenge for Excellence:
The Challenge for Excellence is a shared vision with one purpose in mind...to
align and energize all of our efforts toward three complementary goals: to be
the supplier, the employer and the investment of choice within our industry.
Like its name implies, the Challenge is about raising the level of achievement
throughout our organization. It is also about communicating and demonstrating
the ways in which we can truly add value to our customers' business. In this
report, we talk about how we are executing this vision, and the implications for
our customers, our employees and our shareholders. We hope you will be as
excited about the opportunities it affords as we are.
Corporate Profile:
Founded in 1890, A. M. Castle & Co. provides highly engineered materials and
value-added services to a wide range of industrial companies within the $700
billion producer durable equipment sector of the economy. Our customer base
includes many Fortune 500 companies as well as thousands of medium and smaller-
sized ones spread across the entire spectrum of metals-using industries. Within
our core specialty metals business, we are recognized as North America's largest
industrial distributor of carbon, alloy and stainless steels; nickel alloys;
aluminum; titanium; copper and brass; as well as the industry pioneer and
premier provider of materials management programs that are designed to reduce
our customers' total costs. Through our subsidiary, Total Plastics, Inc., we
also distribute a broad range of value-added industrial plastics. Together,
Castle and its affiliated companies operate over 50 locations throughout North
America. Our common stock is traded on the American and Chicago Stock Exchanges
under the ticker symbol CAS.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Financial Highlights.................................................... 1
Letter to Shareholders.................................................. 2
The Challenge for Excellence............................................ 6
Eleven-Year Financial & Operating Statements............................ 12
Financial Review........................................................ 14
Consolidated Statements and Notes....................................... 17
Management and Shareholder Information................... Inside Back Cover
</TABLE>
<PAGE>
A. M. CASTLE & CO.
- --------------------------------------------------------------------------------
The Year In Brief
(dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
%
1999 1998 Change
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Results Net sales $707,465 $792,846 (11)%
Gross profit on sales 224,339 233,762 (4)
EBITDA* 35,207 48,653 (28)
Income before taxes 14,698 30,729 (52)
Net income 8,714 18,522 (53)
- ------------------------------------------------------------------------------------------------
Per Share of Net income (basic) 0.62 1.32 (53)
Common Stock Dividends 0.780 0.755 3
Stockholders' equity 10.10 10.25 (1)
- ------------------------------------------------------------------------------------------------
Balance Sheet Total assets 413,341 459,963 (10)
Total debt 126,540 176,078 (28)
Total equity 141,811 144,012 (2)
Working capital 126,551 181,213 (30)
Cash flow** 18,580 27,008 (31)
Average shares outstanding 14,046 14,043 --
- ------------------------------------------------------------------------------------------------
Selected Ratios Return on sales 1.2% 2.3% (48)
Return on total capital 3.3% 6.0% (45)
Return on opening equity 6.1% 13.5% (55)
Current ratio 2.0 2.5 (20)
Debt to capital ratio 47.2% 55.0% (14)
- ------------------------------------------------------------------------------------------------
1
</TABLE>
**See page 12 for definition
**Net income plus depreciation and amortization
<TABLE>
<CAPTION>
Net Sales EBITDA Net Income Net Worth
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
($ in millions) ($ in millions) ($ in millions) ($ in millions)
628 673 755 793 707 52 51 50 49 35 27 26 24 19 9 103 122 137 144 142
- ----------------------- ------------------ ------------------ -----------------------
95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99
</TABLE>
<PAGE>
1999 ANNUAL REPORT
[Photo of Michael Simpson]
To Our Shareholders:
While 1999 was a difficult year, it also marked the beginning of a very
significant step in Castle's organizational development, the launching of our
Challenge for Excellence. This shared vision aligns our approach to achieving
our three most important objectives: to be the supplier of choice, the employer
of choice and the investment of choice within our industry. In pursuit of these
objectives, we're investing in four broad areas: people and skill sets; business
process improvement; infrastructure; and new products and services. As market
conditions improve, which we believe they will in 2000, these investments will
enable us to: profitably grow our business; deliver the optimal lowest total
cost solution to our customers' material requirements; and create value for
shareholders.
Within this Annual Report, we want to emphasize two key points. First, the
Castle brand is, today, the most powerful franchise in specialty metals serving
the North American producer durable equipment sector. The investments we're
making will reinforce and strengthen our market leadership. Second, we have
significant leverage in our cost structure that will have a very rapid and
positive effect on operating results when market conditions turn upward. Toward
the end of 1999, we saw several favorable signs that we are close to the end of
inventory liquidation trend that began in the second half of 1998. These
include upward mill pricing trends and millions of dollars of additional
commitments from new and existing customers across our entire spectrum of
target products and industries.
Our Market Environment in 1999:
As noted in last year's letter, market conditions weakened substantially in the
second half of 1998, creating excess inventory in the overall metals supply
chain and contributing to steep declines in mill price levels. Three
interrelated factors contributed to and intensified the global imbalance between
supply and demand. First, as demand for our customers' products fell sharply in
foreign markets, there was a significant impact on their inventories of both
finished and semi-finished goods that reduced their near-term need for raw
materials. Second, large quantities of imported metals flooded into this country
at unprecedented rates, severely impacting mill price levels. Finally, as our
industry fulfilled its role as inventory "bankers", Castle and other
distributors found themselves with large stocks of inventories that needed to be
worked out of the system.
In a market downturn, we experience negative operating and price leverage. As
mill prices go down, we are paid less for each transaction, and we have less
volume to cover the fixed portion of our expenses, all of which affect earnings.
Additionally, average order size declines, meaning that we must fill a greater
number of orders to achieve a given level of volume. At the same time, since our
primary assets are liquid in nature, we become a positive cash flow generator as
we bring our inventories and receivables into line with lower sales levels.
This, essentially, is what happened in 1999.
Conversely, in an improving market as we expect for the current year, the same
operating leverage that works negatively on the way down in terms of mill
prices, transaction size and coverage of fixed expenses, now exerts extremely
positive influence on the way up. This is why our earnings have historically
rebounded so quickly in market recoveries.
1999 Financial Results
For the year, consolidated sales were $707 million, down 11% from a year ago.
Gross profit fell 4% to $224 million, while EBITDA (earnings before interest,
taxes, depreciation and amortization) declined to $35 million, down 28% from a
year ago. Net earnings were $8.7 million, or 62 cents per share, versus $18.5
million, or $1.32 per share, in 1998.
Several aspects of 1999's performance merit further discussion. Looking first
at some of the accomplishments
2
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A. M. CASTLE & CO.
[Photo of Richard G. Mork]
Richard G. Mork
that reinforce our market leadership, we improved our gross margin percentage
even in the face of soft markets. This confirms the value that our customers
place on the services that differentiate our highly engineered metals. Second,
as we track our market penetration in our core products, we continue to increase
our share of the general distribution market. And third, we continue to gain
significant new pieces of business from major OEMs who represent the most
discriminating and demanding of customers.
We also made progress in our management of operating expenses. On a
consolidated basis, operating expenses were up slightly from a year ago. While
expenses increased at our Total Plastics and Oliver Steel subsidiaries in
support of higher revenues and operating profits, the expense rate in our core
Castle Metals business was down nearly 6%. Measured on a constant dollar
basis, which provides a more meaningful measure of the improvement in overall
productivity, the decline in expenses was even more significant. Again, the
key point to remember is that these savings come from business process
improvements representing permanent structural changes, which will further
enhance our operating leverage in a positive momentum environment.
Finally, we talked earlier about the inverse relationship between earnings and
cash flow in the distribution business. We were strong cash flow generators in
1999 as we liquidated $47.5 million in inventories that built up during the
market downturn. We used our cash, first and foremost, to pay $11 million in
cash dividends to our shareholders. The cash dividend has been, and continues to
be, a key component of our longstanding investment positioning as a growth and
income vehicle. In 1999, it provided shareholders with a yield in excess of 6%,
thus helping to blunt some of the impact of our stock price decline. We also
used our cash to reduce our debt by $50 million, lowering our debt-to-total
capital ratio by nearly 8 percentage points to 47.2%.
The Challenge for Excellence
As noted at the beginning of this letter, our goal is for Castle to be the
supplier, employer and investment of choice within our industry. The Challenge
for Excellence provides a framework for evaluating our business options to
ensure that they directly contribute to the advancement of these three
objectives. Early in 1999, task forces at the senior and middle management level
reviewed every aspect of our business, focusing on four strategic areas:
customers; employees; internal processes and financial management. Our internal
strengths and weaknesses were analyzed, and the competencies we need to develop
were identified. Ultimately, we defined a range of strategic initiatives that
will further strengthen our market leadership and operating leverage. In the
next section of this report, you will read about the key areas being addressed
by these initiatives, which are listed below along with a brief description of
their primary purpose.
. People/Skill Sets. To leverage the talent and skill sets that exist
throughout all levels of our organization. We are providing our employees
with the training, tools and opportunities to not only understand our
business plan, but also to contribute to its development, critique it on an
ongoing basis and understand their role in its implementation.
. Process Improvement. To ensure that we're doing the right things right.
First, this means that we're doing only those things that add to customer
and shareholder value. Second, it means that we're doing those things as
efficiently as possible.
. Infrastructure. To provide the organizational, logistics and management
information support necessary to improve customer service levels and raise
our operating efficiency across the entire length of the metals supply
chain.
. New Products/Services. To further expand and refine our product and service
offering in order to
3
<PAGE>
better serve all of our customers' highly engineered metals requirements.
Our New Organizational Structure
A key component of the planning process prior to the launch of our Challenge for
Excellence was to ensure that we had the right senior management team and
organizational structure in place to achieve our objectives. With this in mind,
we implemented some significant changes and additions to our organization during
1999.
First, we consolidated our district locations, previously divided into four
different regions, under Bruce Herron, who was named Vice President of Sales.
This consolidation accomplishes several important objectives including:
leveraging best practices across our entire sales network; achieving higher
levels of operating efficiency by consolidating certain activities; and speeding
up our decision-making and implementation processes. The second major change to
our management organization involved the consolidation of our four Strategic
Product Groups ("SPGs") under Stephen Hooks, who has been named Vice President
of Merchandising. As with the consolidation of our district locations, the
primary purpose of this move was to increase operating efficiency and leverage
best practices nationwide. Both Bruce and Steve are seasoned Castle leaders who,
together, bring nearly sixty years of experience to their expanded roles.
Additionally, we established two new senior corporate positions to provide
support for the infrastructure investments we're making. Early in the year, we
recruited a new Chief Information Officer, John Nordin. John brings a wealth of
experience in all aspects of supply chain integration including e-commerce and
enterprise requirements planning. We also brought in a new Vice President of
Operations, Henry Winters, who brings strong operations experience in the metals
industry, specializing in process improvement and productivity. Hank's position
was expanded to include direct responsibility for operations in those locations
that have the biggest impact on our distribution network.
Until October of this past year, the above four executives reported to Castle
Metals' Chief Operating Officer Alan Raney. Following his untimely passing, we
installed Bruce Herron to succeed Alan in this position. We honor Alan's many
contributions to Castle in a special tribute that accompanies this letter.
How Will Our Industry Change in the New Century?
As we begin a new year and a new century, we look for two fundamental trends to
have a major impact on our business. The first of these relates to market forces
affecting both our suppliers and end-use customers in a way that expands the
opportunities for metals distributors. On the producer side of the metals supply
chain, there is continued consolidation. The result is fewer suppliers, each of
which is rationalizing their product offering in order to achieve the economies
of scale required to compete effectively in a global market. At the other end of
the chain, there is also a great deal of consolidation among end-users. This
creates an environment in which fewer customers control large portions of
business and demand an increasingly complex array of products and services on a
just-in-time basis. This growing gap in value-sets between the suppliers and
end-users in our industry creates greater opportunities for agile distributors
to increase their share of the total pie based on the very competitive strengths
that define our company. These strengths include: a well differentiated and
extensive product and service offering; a highly reputable brand name; strong
customer satisfaction levels; and the ability to deliver the lowest total cost
solution to our customers' material requirements.
The second major trend to shape our industry is, of course, technology. Castle
has always been a pioneer in introducing new technologies to our industry. In
the mid-80's, we were among the first to install EDI linkages with customers,
and have continuously upgraded them in order to support and enhance our value-
added orientation. Our e-business objectives are to provide timely, accurate,
and cost-effective communication of information throughout the supply chain in
support of the one-to-one customer relationships that are our hallmark in the
industry. We intend to accomplish these objectives through a portfolio of e-
commerce solutions encompassing internet-based tech-
4
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A. M. CASTLE & CO.
nologies as well as our traditional EDI linkages with our customers'
supply chain management systems.
What We Expect in 2000
On a macro level, we are seeing the strongest signs yet that our industry is
poised for a recovery in 2000. Commodity price levels, which typically lead
those for highly engineered metals, began edging up in the third quarter and
rose more strongly again in the fourth quarter of 1999. If the recently
announced mill increases stick, price levels would then approximate those in
place in the first half of 1998 before the foreign-import surge. In contrast,
pricing prior to 1999's third quarter was as low as it has been at any time
during the last twenty years.
Also promising for both pricing and the global balance between supply and
demand, the U.S. Commerce Department recently announced that imports of steel
dropped 9.3% in November, the last month for which figures were available,
following a 14.4% drop in October. Additionally, mill lead times for some of our
products are beginning to stretch out. All of these factors -- improving demand,
slowing imports, stronger mill pricing and extended lead times -- are the
precursors to business recoveries as well as the underpinnings from which
positive operating leverage ultimately follows.
From an internal perspective, we recap those facts that underscore our
confidence in our future. First, we already have commitments from major
customers that will produce a five percent increase in sales from 1999. Second,
based on process improvements in our supply chain management, we expect to
reduce inventories by an additional $30 million this year. The combination of
higher sales and lower inventories would, in turn, yield greater turns on
working capital, the key to continued cash flow growth. Third, we plan to
further reduce our debt-to-total capital ratio from the present level of 47.2%
to approximately 40% by the end of 2000, the low end of our target range.
Fourth, having completed the task of integrating our recent acquisitions, our
focus now shifts to leveraging their market and operating synergies. Coupled
with a stronger balance sheet, we will have the flexibility to capitalize on
additional internal and external expansion opportunities. Finally, the
successful rollout of our Challenge for Excellence aligns our vision for the
future with our determination to become the supplier, employer and investment of
choice.
We move into 2000 better positioned than at any point in our history to
capitalize on the opportunities that lie ahead. The challenges of the past two
years have helped us identify the range of strategic initiatives that will fuel
our growth and create value for customers and shareholders. Our company is
strong operationally, organizationally and financially. Our range of products
and services is rapidly expanding to meet the needs of a large and increasingly
diversified customer base. The skills and dedication of our people support
strong relationships with our customers. It has been extremely gratifying this
past year to see our employee teams helping to create and implement our
Challenge for Excellence, the blueprint for the future of the company and one
that will also enrich their own career opportunities. We thank our employees for
their constant effort and dedication, as well as our shareholders for their
confidence and support. We will work hard to continue earning the confidence of
both as we build and invest in our future.
/s/ Richard G. Mork /s/ Michael Simpson
Richard G. Mork Michael Simpson
President and Chairman of the Board
Chief Executive Officer
A Tribute to Our Friend and Colleague,
Alan Raney
Last October, we lost one of our most talented executives and friends, Alan
Raney. Having spent his professional life in the metals business, Alan joined
Castle in 1986 as a Marketing Manager and moved quickly up the ranks of our
company, serving as Vice President of one of Castle's strategic products groups
since 1990. In late 1998, he was appointed Executive Vice President and Chief
Operating Officer of Castle Metals.
Alan was a catalyst in developing the Challenge for Excellence and in
communicating its benefits to the organization. His untimely passing leaves a
void in our company, which benefited greatly over the past thirteen years from
his dedication, his insight and his integrity. The best way we can honor his
memory is through our commitment to ensuring that the vision he shared is
executed and moves quickly to reality, and we are determined to do so.
5
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1999 ANNUAL REPORT
The Challenge
For Excellence
In this section of our Report, we expand upon the Challenge for Excellence, the
external changes that prompted its inception, and how it aligns our strategic
investments to increase value for customers and shareholders.
As we move into 2000, the Challenge for Excellence reinforces the achievement
of our vision in two significant ways: first, by drawing direct sight lines
between our market strategy, investments and long-term objectives; and second,
by measuring our progress against a system of well-defined performance metrics.
Our vision is clear: to be the highly engineered metals distributor of choice
for every customer within the North American producer durable equipment sector.
The challenge lies in transforming this vision into reality. In many ways, this
company-wide effort represents a continuation of what we've always done:
providing high value-added products and services at the lowest total cost to
our customers; creating expanding opportunities for career advancement for our
employees; and building long-term value for our shareholders. But we recognize
that we must raise the level of achievement in each of these areas if we are
to maintain and widen our leadership position within the industry.
We view the Challenge for Excellence as a powerful framework for focusing our
strategy, energies and long-term investments. Throughout our organization, there
is a growing recognition of the following facts of life. First, our objectives
to be the supplier, employer and investment of choice are interdependent.
Second, our daily activities and behavior must reflect that understanding and
make a direct contribution to their achievement. Third, our progress must be
continuously monitored and evaluated. Our methodology is an adaptation of the
Balanced Scoreboard, a management system that provides a structured,
quantifiable approach to assessing non-financial indicators of future
performance as well as traditional financial measures.
Creating the Most Effective Delivery Mechanism for Our Customers
The issues that prompted creation of the Challenge include the progressively
more sophisticated requirements of our customers, as well as the fact that our
industry has changed dramatically over the past several years. In our letter, we
talked about some of these changes, in particular, the demand for an
increasingly diverse range of products and services on a just-in-time basis. We
refer to this as "customerized services", meaning that each customer defines a
unique set of delivery, quantity and service values for their material
requirements in order to enhance their productivity. This trend toward more
distinct market
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A. M. CASTLE & CO.
At Keystone Services, our new fully-automated, high-production chrome plating
process monitors and controls virtually every parameter in the manufacturing
process. Best of all, what takes others a week can now be produced at our
Keystone facility in less than one shift.
segments has evolved to the point where we believe that no single distribution
channel can economically serve the needs of the entire spectrum of metals users.
Over the past several years, we've employed a market segmentation strategy to
better serve the diverse needs of our customer base. Our objective was to
establish an effective delivery mechanism for every customer who met the
following criteria: 1) specialty metals; 2) North American-based; and 3)
producer of durable equipment. Today, we are well positioned to match the needs
and values of our customers with the appropriate level of service, using the
appropriate communication devices and methodologies, at the appropriate level of
cost. Below we provide a brief description of our portfolio of service
capabilities. They are designed to direct every end-user within the producer
durable equipment sector -- from the major original equipment manufacturers
(OEMs) and their mid- and smaller-sized counterparts to the contract
manufacturers and job shops that support them -- to the source (or sources)
within our organization that best serves their specific requirements.
Operating under the umbrella of our core Castle Metals organization, our
National Account Group focuses on the needs of large multi-location and/or
multi-divisional OEMs. Leveraging our unmatched range of products and services,
we address these customers' needs at their corporate level to provide a uniform
solution to their material requirements across all of their operating units and
locations.
Our Total Service Commitment is the preferred methodology for addressing the
needs of our national account customers, but it is just as applicable for large
single-division or single-location companies seeking a comprehensive outsourcing
solution to achieve lowest total cost. Within our industry, we took an early
lead in these programs, and today, our Total Service Commitment or TSC brand
name is the recognized leader in providing a comprehensive package of materials
management services.
We are equally committed to serving the tens of thousands of customers who
represent the General-Line business on which our company's growth and reputation
were built. For those companies which prefer to handle their material
requirements with long-established methods, we provide the assistance of our
outside sales force and a very knowledgeable inside sales support staff. These
customers represent a large and valued market segment, which we intend to pursue
as aggressively as we do our TSC accounts.
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1999 ANNUAL REPORT
This new multi-torch cutting machine at our Oliver Steel subsidiary makes short
work of even the largest orders. It is just one of a range of leading-edge,
value-added services that ensures our customers of the highest quality finished
product at the lowest total cost.
Our Direct Marketing Group handles orders for those customers whose primary
service requirement is quick and accurate information on material availability,
delivery and price. Our objective is to handle these customers' business in a
way that makes best use of their time and provides the most cost-effective means
of serving their needs.
In addition to our core Castle Metals business, our affiliates provide
innovative solutions designed to address specific product, process and industry
requirements as well as entree into new segments of the highly engineered metals
distribution business. For example, our joint venture with Kreher Steel Co.
enables us to participate in the market for bulk distribution of specialty bars,
a major channel that we previously did not serve. Kreher's infrastructure is
dedicated to serving customers who require reliable, immediate deliveries of
larger quantities of material, referred to in our industry as a "full-bundle"
orientation.
Through our joint venture with Energy Alloys, we focus exclusively on serving
end-users in the oil and gas industries. Because these customers have unique
product specifications, they frequently prefer to work with suppliers whose
expertise ensures that their particular requirements will be met. Similarly,
our acquisition of Oliver Steel Plate brings highly sophisticated plate
processing capabilities that reinforce our customers' confidence in Castle as
the premier provider of carbon and alloy plate products and processing. This
is an important core product group for Castle, and we are now leveraging
Oliver's inventory and processing capabilities across our North American sales
and distribution network.
Finally, our Metal Express joint venture provides an innovative solution to
convenience shopping for customers ranging from job shops, contract
manufacturers and hobbyists to large end-use customers' maintenance and repair
requirements. We now have seven teen locations, and anticipate continued rapid
expansion over the next several years. We feel that the concept has the
potential to grow to 100 or more stores over the next five to seven years.
How Our Strategic Investments Will Increase Customer and Shareholder Value
The issue of alignment is particularly important as it relates to our strategic
investments. As noted in our letter, we've identified four broad areas that will
lead to increased customer and shareholder value. We've outlined our objectives
in these four areas. Now we want to provide more specifics regarding what we've
accomplished during 1999, our ongoing programs and how these investments will
directly contribute to the achievement of our goals of being the supplier,
employer and investment of choice.
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A. M. CASTLE & CO.
Our extensive selection of carbon and alloy tube, from the smallest fluid line
to the largest hot finished seamless, reflects Castle's commitment to deliver
exactly what our customers need, when they need it.
#1: People and Skill Sets is our first area of endeavor. We've listed it first
because it is the foundation of our ability to achieve our long-term objectives.
We are in a service business, and the most valuable asset we can have is a
cohesive team of employees with high levels of energy, superior operating skills
and an intense commitment to outstanding customer service. This culture is the
basis for becoming the supplier of choice. It generates positive interactions
with customers, determines their perception of the company and is the source of
their loyalty.
One of our most critical tasks is to train, motivate and reward the people who
provide practical reasons for customers to choose and remain loyal to Castle on
a daily basis. Toward this end, we are placing a higher emphasis on the issue of
training. Our goal is to ensure that every employee receives a minimum of 40
hours of training per year in their current positions. We're also committed to
ensuring that every employee understands the importance of Challenge for
Excellence and has an opportunity for input.
#2: Process Improvement, our second area, reflects a continuing focus. Simply
put, our process improvement mission is three-fold: first, to eliminate those
activities that don't add value; second, to ensure that those that do add value
are streamlined in order to reduce cycle time; and third, to identify those
processes that represent models of excellence and leverage them across the
organization. As noted in our letter, we've made some progress in each of these
areas. But our challenge now is to broaden our definition of this initiative by
addressing activities and costs along the entire length of the metals supply
chain.
Within the context of our business process improvement initiative, our highest
priority is to reduce cycle time. As we drive down the time that it takes to
perform an activity, we drive costs out of the system. For example, one of our
goals is to compress the timeline between the point at which we recognize a need
for inventory replacement and the point at which we sell and collect the
receivable on that material by 25% or more. This particular project reflects our
determination to improve our sourcing with suppliers as well as our delivery to
customers. However, it is the cumulative effect of countless individual efforts
that will ultimately have a major impact on our operating efficiency.
Adopting best practices represents another major opportunity to raise
productivity. In one such example, we found that our ability to receive in-bound
material from mills was more effective at one of our larger facilities than at
other Castle locations. Effectiveness is defined in terms of accuracy and
timeliness in offloading material and getting it into our system, thus making it
available for sale. This
9
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1999 ANNUAL REPORT
process has now been captured through a process improvement initiative,
introduced into a number of our facilities, and will eventually be spread
throughout our whole network. This has a huge impact on our employees' ability
to do their jobs better. And from the customer's point of view, it makes us more
efficient and responsive, thus enabling them to recognize that Castle is going
to be the most cost-effective supplier in the long term.
#3: Infrastructure, our third major category, encompasses both organizational
and physical investments. Our organizational modifications have been
substantial. In our letter, we covered at length the changes and additions to
our senior management team. And earlier in this section of our report, we
covered the market segmentation strategy that positions us to cost-effectively
deliver the appropriate solution to every potential customer within our target
market.
We are also making substantial investments in our physical infrastructure.
Apart from those that are required to maintain our facilities and equipment in
good working order, our investments in this area reflect a shift in emphasis to
logistics that increase productivity across the entire supply chain. Last year,
we completed the first phase of a major plate and bar consolidation program,
folding our Milwaukee operations into our Chicago location. This move reduced
costs, improved our service capabilities, and, although somewhat
counterintuitive, actually increased capacity. We are now in the process of
moving our Hy-Alloy operations to Chicago. This project should be completed
in the second quarter, and we anticipate results similar to those achieved by
the Milwaukee consolidation. Finally, we continue to introduce advanced
technologies that help reduce unit labor costs, improve safety, promote
consistent quality and strengthen service performance and communications.
#4: Products/Services, our final major area of investment, is one in which we
have been very active over the past several years. Our list of new capabilities
is impressive, but it is the mindset of how we view ourselves that is most
exciting. We have transitioned ourselves from a provider of products augmented
by ancillary services to a provider of customer-focused, high-value productivity
solutions -- as well as a provider of high quality products. The investments
we've made, especially in the area of services, have moved us further downstream
into our customers' production processes, well beyond the traditional role of
service center first-stage processing. H-A Industries is a prime example of this
commitment. In 1999, we continued this facility's expansion, completing a major
upgrade to our large bar quench and temper line that increased its capacity by
50%. We also doubled our annealing capacity with the installation of a new coil
bar annealing line.
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A. M. CASTLE & CO.
At H-A Industries, we have built the world's most advanced capabilities for the
machining of carbon, alloy and stainless bars. For customers, this translates
into superior surfaces finishes, tighter tolerances and the elimination of
costly machining.
Acquisitions and joint ventures have been another key source for new products
and services. Since 1995, we completed four platform acquisitions and
established four joint ventures, all of which are capable of growing at double-
digit rates. Because we are an integrator rather than a consolidator, we've
spent considerable time and money to install the systems support, training and
infrastructure required before we could fully tap the potential of these
investments. Now, with the integration substantially complete, we expect our
investments to boost our long-term revenue growth rate and expand our market
share with customers. Below we provide a brief update on some of our major
accomplishments this past year.
At Keystone Tube and Keystone Services, we've fully integrated our sales
operations and systems. Keystone now constitutes our newest strategic product
group, reflecting the size of the long-term market opportunity we see in tubing.
Additionally, we completed the installation and ramp-up of our new chrome
plating line at Keystone Services, which quadrupled the capacity of the previous
line.
Castle Precision, formerly Cutter Precision, has been fully integrated into
Castle Metals. Its highly advanced processing technologies reflect our
determination to give the customer a close-tolerance finished product at a lower
total cost. We now have four Castle Precision locations and we foresee adding
another three to four such locations in the near future. Similarly, our recent
joint venture with Libertyville, Illinois-based Laser Precision brings us a new
laser cutting technology with broad applications across the entire spectrum of
metals-using industries. Like Castle Precision, we see the potential to add
three to four locations in the next few years.
Finally, Total Plastics, Inc. ("TPI"), the transaction that marked our entree
into acquisitions and joint ventures, turned in another record year. A value-
added processor and distributor of industrial plastics, TPI's revenues have
grown from $25 million in 1995 (the year it was acquired) to an annual run rate
of over $65 million. This rapid growth reflects healthy internal growth as well
as contributions from subsequent acquisitions, which have expanded TPI's range
of processing technologies and delivery capabilities.
As we move into the first full year under the Challenge for Excellence, we
believe we are taking one of the most important steps in our history toward
achieving our vision of being the highly engineered metals distributor of
choice. Our market strategy, investments and long-term objectives are aligned to
make the customer the central figure in our strategy, and to make it easier for
our employees to perform effectively. In turn, we believe these actions,
combined with improving market conditions, will enable us to create a financial
performance record that is second to none in the industry. We are well on our
way.
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1999 ANNUAL REPORT
Consolidated Eleven-Year Financial
And Operating Summary
<TABLE>
<CAPTION>
=========================================================================================================
(Dollars in millions, except employee and per share data-Note 7) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Supplemental Tons sold (in thousands)................................ 373 394 378
Summary of Net sales............................................... $707.4 $792.8 $754.9
Earnings Cost of sales........................................ 483.1 559.1 540.3
--------------------------
Gross profit............................................ 224.3 233.7 214.6
Operating expenses................................... 189.1 185.1 164.3
--------------------------
EBITDA*................................................. 35.2 48.6 50.3
Depreciation and amortization........................ 9.9 8.5 6.6
Interest expense, net................................ 10.6 9.4 4.2
--------------------------
Income before income taxes.............................. 14.7 30.7 39.5
Income taxes......................................... 6.0 12.2 15.7
--------------------------
Net income.............................................. 8.7 18.5 23.8
Cash dividends.......................................... 11.0 10.6 9.2
--------------------------
Reinvested earnings..................................... $ (2.3) $ 7.9 $ 14.6
==========================
- ---------------------------------------------------------------------------------------------------------
Share Data Number of shares outstanding at year-end (in thousands). 14,048 14,043 14,041
(Note 7) Net income per share basic.............................. $ 0.62 $ 1.32 $ 1.70
Net income per share diluted............................ $ 0.62 $ 1.32 $ 1.69
Cash dividends per share................................ $ 0.78 $0.755 $ 0.66
Book value per share.................................... $10.10 $10.25 $ 9.74
- ---------------------------------------------------------------------------------------------------------
Financial Working capital......................................... $126.6 $181.2 $119.8
Position Property, plant and equipment, net...................... $ 97.1 $ 94.6 $ 77.4
at Year-End Total assets............................................ $413.3 $460.0 $366.4
Total debt.............................................. $126.5 $176.1 $ 93.4
Stockholders' equity.................................... $141.8 $144.0 $136.7
- ---------------------------------------------------------------------------------------------------------
Balanced Return on sales......................................... 1.2% 2.3% 3.2%
Scorecard Total capital turnover.................................. 2.6 2.6 3.6
Ratios Return on total capital................................. 3.3% 6.0% 11.2%
Financial Leverage...................................... 1.9 2.3 1.7
Return on opening stockholders' equity.................. 6.1% 13.5% 19.6%
Percent earnings reinvested............................. (26.4)% 42.7% 61.3%
Percent increase (decrease) in equity................... (1.5)% 5.3% 12.1%
Per employee data (in thousands)
Net sales............................................ $364.8 $415.7 $402.2
Gross profit......................................... $115.7 $122.6 $114.3
Operating expenses................................... $ 97.5 $ 97.1 $ 87.5
EBITDA*.............................................. $ 18.2 $ 25.5 $ 26.8
- ---------------------------------------------------------------------------------------------------------
Other Data Additions to property, plant and equipment.............. $ 17.8 $ 30.2 $ 16.2
Stockholders at year-end................................ 1,601 1,657 1,699
Employees at year-end................................... 1,939 1,907 1,877
=========================================================================================================
</TABLE>
This schedule is prepared reflecting accounting changes as required or allowed
to more fairly present the results of operations over the eleven-year period.
Statements for years preceding these changes have not been revised to reflect
their retroactive application of these changes. Refer to prior year annual
reports for specific accounting changes.
*Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a
non-GAAP measure that is computed as net income, excluding interest, taxes,
depreciation and amortization. This measure may not be comparable to similarly
titled measures reported by other companies. The Company feels that EBITDA is a
measure that should be reported because of its importance to the professional
investment community.
12
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
1996 1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
331 343 338 308 249 234 248 255
$672.6 $627.8 $536.6 $474.1 $423.9 $436.4 $478.9 $501.1
481.4 454.4 391.4 351.8 313.7 331.1 363.6 380.6
- -------------------------------------------------------------------------------
191.2 173.4 145.2 122.3 110.2 105.3 115.3 120.5
139.9 121.7 112.1 102.1 94.9 92.8 97.5 96.7
- -------------------------------------------------------------------------------
51.3 51.7 33.1 20.2 15.3 12.5 17.8 23.8
5.3 4.5 4.6 4.8 4.9 5.3 5.2 4.4
2.9 2.9 3.2 3.8 4.3 6.8 6.8 5.1
- -------------------------------------------------------------------------------
43.1 44.3 25.3 11.6 6.1 .4 5.8 14.3
17.0 17.5 9.9 4.7 2.7 .2 2.7 5.6
- -------------------------------------------------------------------------------
26.1 26.8 15.4 6.9 3.4 .2 3.1 8.7
8.0 6.0 3.6 2.9 2.9 3.9 4.9 4.7
- -------------------------------------------------------------------------------
$ 18.1 $ 20.8 $ 11.8 $ 4.0 $ 0.5 $ (3.7) $ (1.8) $ 4.0
===============================================================================
- -------------------------------------------------------------------------------
14,008 13,945 13,850 13,646 13,643 13,643 13,616 13,538
$ 1.86 $ 1.93 $ 1.12 $ 0.50 $ 0.25 $ 0.02 $ 0.23 $ 0.64
$ 1.86 $ 1.93 $ 1.11 $ 0.50 $ 0.25 $ 0.02 $ 0.23 $ 0.64
$ 0.57 $ 0.43 $ 0.26 $ 0.22 $ 0.22 $ 0.29 $ 0.36 $ 0.34
$ 8.70 $ 7.41 $ 5.94 $ 5.10 $ 4.80 $ 4.74 $ 5.02 $ 5.15
- -------------------------------------------------------------------------------
$ 80.0 $ 84.4 $ 76.0 $ 86.1 $ 75.3 $ 79.7 $ 89.9 $ 75.8
$ 62.7 $ 44.5 $ 41.2 $ 41.0 $ 43.2 $ 47.4 $ 54.8 $ 45.3
$261.4 $222.5 $213.1 $204.2 $195.2 $190.4 $226.6 $202.3
$ 43.4 $ 30.8 $ 42.3 $ 63.4 $ 58.6 $ 69.4 $ 92.7 $ 55.3
$121.9 $103.4 $ 82.2 $ 69.5 $ 65.5 $ 64.7 $ 68.3 $ 69.7
- -------------------------------------------------------------------------------
3.9% 4.3% 2.9% 1.5% 0.8% 0.1% 0.7% 1.7%
4.6 5.6 4.8 3.7 3.5 3.2 3.0 4.2
18.0% 23.9% 13.9% 5.4% 2.8% 0.1% 1.9% 7.3%
1.4 1.4 1.6 1.9 1.9 2.0 2.3 1.8
25.3% 32.6% 22.2% 10.5% 5.2% 0.3% 4.5% 13.2%
69.3% 77.6% 76.6% 58.0% 14.7% --% (58.0%) 46.3%
17.9% 25.8% 18.3% 6.1% 1.2% (5.3%) (2.0%) 6.4%
$446.9 $510.0 $452.8 $393.8 $354.4 $344.2 $347.3 $365.5
$127.0 $140.8 $122.5 $101.6 $ 92.1 $ 83.0 $ 83.6 $ 87.9
$ 93.0 $ 98.9 $ 94.6 $ 84.8 $ 79.3 $ 73.2 $ 70.7 $ 70.5
$ 34.0 $ 41.9 $ 27.9 $ 16.8 $ 12.8 $ 9.8 $ 12.9 $ 17.4
- -------------------------------------------------------------------------------
$ 22.5 $ 11.8 $ 7.9 $ 4.6 $ 1.8 $ 3.3 $ 13.4 $ 10.4
1,613 1,618 1,639 1,625 1,670 1,750 1,730 1,747
1,505 1,231 1,185 1,204 1,196 1,268 1,379 1,371
===============================================================================
</TABLE>
13
<PAGE>
1999 ANNUAL REPORT
Financial Review
This discussion should be read in conjunction with the information contained in
the Consolidated Financial Statements and Notes.
Overview
Castle's operating results reflected the difficult market environment that
emerged in the second half of 1998 and continued throughout 1999. The
combination of weak demand and depressed mill pricing produced lower sales and
gross profit, which, in turn, exerted negative operating leverage on earnings. A
more detailed description of the impact of market conditions on the company's
financial performance can be found in the Letter to Shareholders that begins on
page two of this Report.
Having successfully navigated through a number of business downturns in its
more than 100-year history, Castle achieved some of the things it set out to
accomplish in 1999. These included: reducing inventories by $40 million or
better; paring its debt-to-total capital ratio by nearly eight percentage points
to 47.2%, the mid-point of its 40-to-55% target range; and continuing to invest
in people, process improvement, infrastructure, products and services in order
to strengthen its leadership in highly engineered metals distribution. We were
not, however, successful in our major objective of producing a 15% or better
return on investment at the bottom of the market cycle.
In the fourth quarter, the company saw several signs that suggest improving
market conditions for 2000 including higher mill pricing for most core products,
a lengthening in mill lead times and a significant reduction in the level of
imports coming into the domestic market. Furthermore, new Commerce Department
data indicates a larger-than-expected 4.1% increase in producer durable goods
orders for the month of December, while unfilled orders, considered to be a good
predictor of future demand, rose 1.5% after rising just 0.1% in November. These
numbers suggest a scenario in which the durable equipment sector would provide a
much better operating environment in 2000.
1999 Compared with 1998
Revenues for 1999 of $707.4 million were 10.8% under the record sales of $792.8
million generated in 1998. Carbon and stainless steels generated approximately
76% of total sales, with the balance provided by non-ferrous metals.
Gross profit decreased by 4.0% to $224.3 million from $233.7 million in 1998.
Gross margin percentage increased to 31.7% from the 29.5% generated last year.
The gross margin gain reflects the higher value added contribution from recent
acquisitions and internal investments in leading edge processing technologies.
Substantially all inventories are valued using the LIFO (last-in, first-out)
method. In 1999, LIFO had the effect of increasing Castle's gross profit by
$15.2 million, compared with what it would have been on a FIFO basis.
Total operating expenses for 1999 were $189.1 million, as compared to $185.1
million last year, an increase of 2.2%. The increase is due to higher expenses
at the Company's recently acquired subsidiaries in support of growing revenues
and operating profits. These increases were offset by major reductions in
payroll and other expense in its core business units, which were the result of
the Company's business process improvement initiatives. Depreciation and
amortization expense increased by $1.4 million or 16.3% over the prior year,
reflecting both internal and external expansion. Net interest expense increased
$1.2 million over 1998 due primarily to higher average inventory levels.
Castle's 1999 effective income tax rate, at 40.7%, was over the 39.7% rate
last year due to the effect of permanent differences and earnings mix on a lower
pre-tax base.
Net earnings totalled $8.7 million for 1999 compared to last year's net income
of $18.5 million. Basic earnings per share declined 53% to $0.62 for 1999 as
compared to $1.32 in 1998.
1998 Compared with 1997
Revenues for 1998 reached a record $792.8 million, a gain of 5.0% from 1997's
$754.9 million primarily due to acquisitions completed during the previous two
years. Excluding sales generated from our recent acquisitions, sales in the core
business were relatively flat, showing a slight decline of 0.6% from 1997.
Carbon and stainless steels generated 75% of total sales, with the balance
provided by non-ferrous metals.
Gross profit rose 9% to a record $233.8 million as compared to the $214.6
million recorded in the prior year, reflecting higher value-added contributions
from recent acquisitions and investments in leading-edge processing
technologies. Gross margin percentage was 29.5% versus 28.4% a year ago.
Excluding gross margins generated from recent acquisitions, total gross margin
in the core business increased by 0.9% in spite of the slight total sales
decline noted above. Substantially all inventories are valued using the LIFO
(last-in, first-out) method. In 1998, LIFO had the effect of decreasing Castle's
cost of sales by $5.0 million, compared with what it would have been on a FIFO
basis.
14
<PAGE>
Total operating expenses for 1998 were $185.1 million, as compared to $164.3
million last year, a 12.7% increase. Excluding the expenses of businesses
acquired during the year, 1998 operating expenses were up 4.3% over last year's
levels, with the increase occurring primarily in the plant area due to higher
year-to-year transactional activity. As a percentage of sales, consolidated
operating expenses rose to 23.3% in 1998 as compared to 21.8% in 1997.
Depreciation and amortization expense increased by $1.9 million or 28.9% over
the prior year, reflecting both internal and external expansion initiatives. Net
interest expense increased by $5.3 million over the 1997 level due to increased
borrowing used to fund investments and working capital requirements.
Castle's 1998 effective income tax rate, at 39.7%, remained relatively
unchanged from the prior year.
Net earnings totalled $18.5 million for 1998 as compared to last year's net
income of $23.8 million. Basic earnings per share declined 22% to $1.32 per
share for 1998 as compared to $1.70 in 1997.
Capital Expenditures
Capital expenditures for 1999 totalled $17.8 million as compared to $30.2
million in 1998. These expenditures were primarily directed at expanding
processing capabilities, with the largest investments occurring at the company's
H-A Industries' facility in Hammond, Indiana and its Keystone Services' facility
in LaPorte, Indiana.
The 1998 capital expenditures totalled $30.2 million as compared to $16.2
million in 1997. The 1998 expenditures included approximately $11.5 million for
new or expanded facilities at subsidiary locations in Canada, Michigan and
Indiana. The Company also expanded production capabilities at its H-A
Industries' processing facility and added further processing capabilities in
several other Company facilities including its Franklin Park headquarters
location.
During 1999 and 1998, Castle sold and leased back approximately $7.4 million
and $9.6 million of fixed assets respectively, which added to cash flow and
reduced long-term borrowing.
Liquidity and Capital Resources
Castle strives to maintain a strong balance sheet and financial position. During
the past three years, Castle has invested over $100 million in new facilities,
equipment, and acquired businesses. Positive earnings and cash flow from
operations, along with planned debt financing, have provided funds for this
strategic expansion. During 1999, the Company reduced its debt-to-total capital
ratio by nearly 8 percentage points to 47.2%, the midpoint of its target range
of from 40-to-55%. Management plans to be at the low end of this range by the
end of this calendar year based on expectations of continued positive cash flow
during 2000. Total borrowings were $126.5 million at year-end 1999 as compared
to $176.1 million at 1998 year-end.
Working capital was $126.6 million as of December 31, 1999 as compared to
$181.2 million at 1998 year-end. Inventories decreased by $47.5 million as
higher inventory levels built up towards year-end 1998 were brought into line
with current activity levels. Accounts receivable declined by $2.3 million from
the prior year-end. The number of days outstanding at the end of 1999 increased
from 1998, but collections remain strong and management believes that the net
accounts receivable at December 31, 1999 are of a good quality.
Castle had unused committed and uncommitted lines of credit of $171.7 million
at December 31, 1999, compared with $137.9 million at December 31, 1998.
Management believes that funds generated from operations, existing lines of
credit and additional borrowing capacity should provide adequate funding for
current and anticipated business operations.
Castle has not entered into any market risk agreements of a material nature.
Fixed interest rate debt outstanding as of December 31, 1999 totalled $105.6
million with an average interest rate of 6.8%. Variable interest rate debt
outstanding as of December 31, 1999 totalled $21.0 million with an average
interest rate of 5.4%.
Year 2000
The Company's Year 2000 expenditures are estimated to have been $2.6 million
with approximately 75% being incurred in 1999. There have been no significant
systems or other Year 2000 problems suffered during the early part of 2000 and
there are no significant problems anticipated in the future either internally or
from third parties. The Company did not experience any disruptions, which would
have affected either 1999 or early 2000 results of operations. Although many
1999 technology projects were deferred, it is not anticipated that the
resumption of project work will have a material adverse affect on the Company's
liquidity requirements.
The Company continues to maintain in effect its Y2K contingency plans and is
monitoring significant future events such as monthly and quarterly closes and
leap year.
15
<PAGE>
1999 ANNUAL REPORT
Common Stock Information
Symbol CAS
===============================================================================
<TABLE>
<CAPTION>
DIVIDENDS STOCK PRICE RANGE
1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First quarter.............. $.195 $.170 12 1/16 16 21 1/2 24 7/8
Second quarter............. .195 .195 12 5/16 17 21 1/2 24 1/2
Third quarter.............. .195 .195 12 5/8 18 1/4 14 3/4 22
Fourth quarter............. .195 .195 10 3/4 13 1/8 14 19 3/8
------------
$.780 $.755
============
</TABLE>
Compound Rate of Return vs. Inflation
[CHART]
Castle's Dividend Record
[CHART]
Supplementary Schedules
===============================================================================
The Company's LIFO inventory system charges cost of material sold at the
inventory costs of its most recent purchases. The LIFO method matches current
revenues with current costs of inventory. This method more fairly presents
results of operations, whether in periods of inflation or deflation.
The Supplementary Statements of Consolidated Financial Position are presented
for analytical and comparative purposes. They are intended to display the
Company's financial position as if the Company was on a FIFO-based inventory
system rather than the LIFO-based inventory system the Company actually uses.
The statements reflect taxes on the unrecognized inventory gain at statutory
Federal rates and the Company's historical average state tax rates and gives no
effect to any supplemental expenses.
<TABLE>
<CAPTION>
Supplementary Statements of Consolidated Financial Position
December 31,
===============================================================================
(Dollars in millions) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash............................................. $ 2.6 $ 3.0 $ 2.8
Accounts receivable, net......................... 83.4 85.7 88.5
Inventories, at latest cost...................... 206.5 269.2 209.1
-----------------------------
Total current assets............................. 292.5 357.9 300.4
Less--current liabilities........................ (143.8) (145.4) (146.4)
-----------------------------
Net current assets............................... 148.7 212.5 154.0
Fixed and other assets, net...................... 157.8 154.2 123.1
-----------------------------
Total assets, less current liabilities........... 306.5 366.7 277.1
Long-term debt................................... (122.6) (172.3) (90.7)
Deferred income taxes............................ (16.4) (15.1) (12.5)
Other liabilities................................ (3.6) (4.0) (2.9)
Unrecognized inventory gain, net of taxes........ (22.1) (31.3) (34.3)
-----------------------------
Stockholders' equity............................. $ 141.8 $ 144.0 $ 136.7
=============================
</TABLE>
16
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
===============================================================================
(Dollars in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales....................................... $707,465 $792,846 $754,865
Cost of material sold........................... 483,126 559,084 540,286
------------------------------
Gross profit on sales.......................... 224,339 233,762 214,579
Operating expenses.............................. 189,132 185,109 164,284
Depreciation and amortization expense (Note 1).. 9,866 8,486 6,581
Interest expense, net (Notes 2 and 4)........... 10,643 9,438 4,183
------------------------------
Income before income taxes...................... 14,698 30,729 39,531
------------------------------
Income taxes (Notes 1 and 3)
Federal--currently payable.................... 2,089 7,517 10,152
--deferred............................. 2,867 2,420 2,469
State......................................... 1,028 2,270 3,065
------------------------------
5,984 12,207 15,686
------------------------------
Net income...................................... $ 8,714 $ 18,522 $ 23,845
==============================
Basic income per share (Notes 1 and 7).......... $ 0.62 $ 1.32 $ 1.70
==============================
Diluted income per share (Notes 1 and 7)........ $ 0.62 $ 1.32 $ 1.69
==============================
================================================================================
</TABLE>
Consolidated Statements of Reinvested Earnings
<TABLE>
<CAPTION>
Years Ended December 31,
===============================================================================
(Dollars in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year.................... $122,629 $114,709 $100,124
Net income...................................... 8,714 18,522 23,845
Cash dividends--$.78 in 1999, $.755 in 1998,
and $.66 per share in 1997 (Note 7)........... (10,958) (10,602) (9,260)
------------------------------
Balance at end of year.......................... $120,385 $122,629 $114,709
==============================
===============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
17
<PAGE>
1999 ANNUAL REPORT
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
=============================================================================================================================
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets
Cash (Note 1).............................................................................. $ 2,578 $ 2,954 $ 2,775
Accounts receivable, less allowances of $600 in 1999, $600 in 1998, and $600 in 1997....... 83,352 85,688 88,478
Inventories--principally on last-in, first-out basis (latest cost higher by approximately
$36,900 in 1999, $52,100 in 1998 and $57,100 in 1997) (Note 1)........................... 169,618 217,152 152,028
------------------------------
Total current assets................................................................... 255,548 305,794 243,281
------------------------------
Prepaid expenses and other assets (Note 1)................................................... 60,716 59,547 45,684
------------------------------
Property, plant and equipment, at cost (Notes 1 and 5)
Land....................................................................................... 5,957 5,955 5,915
Buildings.................................................................................. 52,841 51,323 48,366
Machinery and equipment.................................................................... 129,011 120,502 99,359
------------------------------
187,809 177,780 153,640
Less--accumulated depreciation............................................................. 90,732 83,158 76,230
------------------------------
97,077 94,622 77,410
------------------------------
Total assets................................................................................. $413,341 $459,963 $366,375
==============================
Liabilities and stockholders' equity
Current liabilities
Accounts payable........................................................................... $102,976 $ 98,835 $ 98,813
Accrued payroll and employee benefits (Note 6)............................................. 10,407 11,199 12,554
Accrued liabilities........................................................................ 6,823 7,337 5,522
Current and deferred income taxes (Notes 1 and 3).......................................... 4,876 3,445 3,934
Current portion of long-term debt (Note 4)................................................. 3,915 3,765 2,688
------------------------------
Total current liabilities.............................................................. 128,997 124,581 123,511
------------------------------
Long-term debt, less current portion (Note 4)................................................ 122,625 172,313 90,735
------------------------------
Deferred income taxes (Notes 1 and 3)........................................................ 16,356 15,105 12,543
------------------------------
Other liabilities (Notes 1 and 6)............................................................ 3,552 3,952 2,877
------------------------------
Stockholders' equity (Notes 1 and 7)
Common stock, without par value--authorized 30,000,000 shares;
issued and outstanding 14,048,070 in 1999, 14,043,505 in 1998 and 14,040,924 in 1997..... 27,625 27,465 27,293
Earnings reinvested in the business........................................................ 120,385 122,629 114,709
Other...................................................................................... (665) (681) 85
Treasury stock, at cost (854,685 shares in 1999, 845,938 shares in 1998 and
845,019 shares in 1997).................................................................. (5,534) (5,401) (5,378)
------------------------------
Total stockholders' equity............................................................. 141,811 144,012 136,709
------------------------------
Total liabilities and stockholders' equity................................................... $413,341 $459,963 $366,375
==============================
=============================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
18
<PAGE>
A. M. CASTLE & CO.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended December 31,
=====================================================================================================================
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................................................ $ 8,714 $ 18,522 $ 23,845
Adjustments to reconcile net income to net cash provided from operating activities
Depreciation and amortization.................................................... 9,866 8,486 6,581
(Gain) loss on sale of facilities/equipment...................................... (202) (47) 22
Increase in deferred taxes....................................................... 1,251 2,562 670
Decrease (increase) in prepaid expenses and other assets......................... 64 (3,593) (438)
(Decrease) increase in other liabilities......................................... (400) 78 (1,187)
Other............................................................................ (35) (25) 207
------------------------------
Cash provided from operating activities before changes in current accounts......... 19,258 25,983 29,700
------------------------------
Increase (decrease) from changes in:
Accounts receivable.............................................................. 2,559 9,437 (12,590)
Inventories...................................................................... 47,584 (54,467) (43,507)
Accounts payable................................................................. 4,118 (3,850) 28,787
Accrued payroll and employee benefits............................................ (812) (1,669) 1,300
Accrued liabilities.............................................................. (541) 1,527 188
Current and deferred income taxes................................................ 1,431 (489) 1,287
------------------------------
Net increase (decrease) from changes in current accounts........................... 54,339 (49,511) (24,535)
------------------------------
Net cash provided from (used by) operating activities.............................. 73,597 (23,528) 5,165
------------------------------
Cash flows from investing activities
Investments and acquisitions (Note 9)............................................. (3,129) (26,171) (29,265)
Proceeds from sales of facilities/equipment (Note 5).............................. 7,399 9,640 2,470
Capital expenditures.............................................................. (17,770) (30,236) (16,182)
------------------------------
Net cash used by investing activities.............................................. (13,500) (46,767) (42,977)
------------------------------
Cash flows from financing activities
Proceeds from issuance of long-term debt.......................................... 3,346 84,639 50,838
Repayments of long-term debt...................................................... (52,968) (2,944) (2,787)
Dividends paid.................................................................... (10,958) (10,602) (9,260)
Net proceeds from issuance of stock............................................... 27 43 161
Other............................................................................. 80 (662) (170)
------------------------------
Net cash provided from (used by) financing activities.............................. (60,473) 70,474 38,782
------------------------------
Net (decrease) increase in cash.................................................... (376) 179 970
Cash--beginning of year............................................................ 2,954 2,775 1,805
------------------------------
Cash--end of year.................................................................. $ 2,578 $ 2,954 $ 2,775
==============================
Supplemental disclosures of cash flow information
Cash paid during the year for--
Interest......................................................................... $ 11,353 $ 7,987 $ 4,209
------------------------------
Income taxes..................................................................... $ 3,302 $ 10,134 $ 13,729
==============================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE>
1999 ANNUAL REPORT
Notes To Consolidated Financial Statements
(1) Principal accounting policies and business description
Nature of operations--The Company is an industrial distributor of specialty
metals including carbon, alloy, and stainless steels; nickel alloys; aluminum;
titanium; copper and brass throughout the United States and Canada. The customer
base includes many Fortune 500 companies as well as thousands of medium and
smaller sized ones in various industries primarily within the producer durable
equipment sector. The Company also distributes industrial plastics through its
subsidiary Total Plastics, Inc.
Basis of presentation--The financial statements include A. M. Castle & Co. (the
Company) and its subsidiaries. All intercompany accounts and transactions have
been eliminated.
Use of estimates--The financial statements have been prepared in accordance with
generally accepted accounting principles which necessarily include amounts based
on estimates and assumptions by management. Actual results could differ from
those amounts.
Cash--For the purposes of these statements, short-term investments that have a
maturity of 90 days or less are considered cash equivalents.
Inventories--Substantially all inventories are stated at the lower of last-in,
first-out (LIFO) cost or market. The Company values its LIFO increments using
the costs of its latest purchases during the years reported.
Property, plant and equipment--Property, plant and equipment are stated at cost
and include assets held under capitalized leases. Major renewals and betterments
are capitalized, while maintenance and repairs that do not substantially improve
or extend the useful lives of the respective assets are expensed currently. When
properties are disposed of, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income.
The Company provides for depreciation of plant and equipment by charging against
income amounts sufficient to amortize the cost of properties over their
estimated useful lives (buildings--12 to 40 years; machinery and equipment--5 to
20 years). Depreciation is provided using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes. Included in
depreciation expense is the amortization of assets under capital leases.
Other liabilities--Includes postretirement benefit obligations along with the
minority interest in consolidated subsidiaries.
Income taxes--Income tax provisions are based on income reported for financial
statement purposes.
Retirement plan costs--The Company accrues and funds its retirement plans based
on amounts, as determined by an independent actuary, necessary to maintain the
plans on an actuarially sound basis. The Company also provides certain health
care and life insurance benefits for retired employees. The cost of these
benefits are recognized in the financial statements during the employee's active
working career.
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 three-year reporting period. (dollars and shares in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income................................... $ 8,714 $18,522 $23,845
Weighted average common shares outstanding... 14,046 14,043 14,026
Dilutive effect of outstanding employee and
directors' common stock options............ 4 40 49
-----------------------------
Diluted common shares outstanding............ 14,050 14,083 14,075
Basic earnings per share..................... $ 0.62 $ 1.32 $ 1.70
=============================
Diluted earnings per share................... $ 0.62 $ 1.32 $ 1.69
=============================
Outstanding employee and directors' common
stock options having no dilutive effect.... 780 140 8
=============================
- ----------------------------------------------------------------------------
</TABLE>
Goodwill--Cost in excess of net assets of acquired companies is amortized on a
straight-line basis over a 40-year period. As required, the Company continually
evaluates whether later events or circumstances warrant a revision in the
remaining useful life and recoverability of the unamortized balance. Net book
value of goodwill included in the other assets as of December 31, 1999, 1998,
and 1997 was $30.4 million, $29.7 million and $20.1 million respectively.
Accumulated amortization at December 31, 1999, 1998, and 1997 was $2.7 million,
$1.7 million and $0.9 million.
Segment Reporting--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 92% of all revenues are derived from the
distribution of its specialty metal products. These products are purchased,
warehoused, processed and sold using essentially the same systems, facilities,
sales force and distribution network. Approximately 76% of current year revenues
from these products came from the sale of carbon and stainless steel, with the
balance provided from the sale of non-ferrous metals.
Revenue Recognition--Revenue from product sales is recognized upon shipment to
customers. Provisions for discounts and rebates to customers, and returns and
other adjustments are provided for in the same period the related sales are
recorded.
New Accounting Standard--The Financial Accounting Standards Board issued SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities", which is
effective for fiscal years beginning after June 15, 2000. The Company is
required to and will adopt SFAS No. 137 on January 1, 2001. The Company does not
expect adoption to have a significant effect on its consolidated results of
operations or financial position.
20
<PAGE>
(2) Short-term debt
Short-term borrowing activity was as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Maximum borrowed.............. $22,350 $22,000 $8,500
Average borrowed.............. 3,442 4,979 1,003
Average interest rate
During the year............. 5.3% 5.8% 5.8%
- ---------------------------------------------------------
</TABLE>
(3) Income taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's Federal and state deferred tax liabilities and assets as of
December 31, 1999, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation....................$10,473 $ 9,790 $ 7,688
Inventory, net.................. 8,505 6,566 4,912
Pension......................... 6,105 5,793 5,608
-----------------------
Total deferred liabilities.... 25,083 22,149 18,208
-----------------------
Deferred tax assets:
Postretirement benefits......... 1,021 952 937
Other, net...................... 807 950 1,173
-----------------------
Total deferred tax assets..... 1,828 1,902 2,110
-----------------------
Net deferred tax liabilities......$23,255 $20,247 $16,098
=======================
- ---------------------------------------------------------
</TABLE>
The components of the provision (benefit) for deferred Federal income tax for
the years ended December 31, 1999, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Depreciation......................$ 614 $1,526 $ 257
Inventory, net.................... 1,714 1,424 1,753
Pension/Postretirement benefits... 218 157 428
Other, net........................ 321 (687) 31
-----------------------
$2,867 $2,420 $2,469
=======================
- ---------------------------------------------------------
</TABLE>
A reconciliation between the statutory Federal income tax amount and the
effective amounts at which taxes were actually provided before cumulative effect
of changes in accounting methods is as follows
<TABLE>
<CAPTION>
(in thousands):
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at
statutory rates............... $5,144 $10,755 $13,836
State income taxes, net of
Federal income tax benefits... 669 1,448 1,864
Other........................... 171 4 (14)
------------------------
$5,984 $12,207 $15,686
========================
- ---------------------------------------------------------
</TABLE>
(4) Long-term debt
Long-term debt consisted of the following at December 31, 1999, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit agreement (a)(c)............ $ -- $ 49,179 $25,838
6.49% insurance company term loan,
due in equal installments from
2004 through 2008........................... 20,000 20,000 20,000
9.3% insurance company term loan,
due in equal installments through 2000...... 1,640 3,310 4,980
7.53% insurance company term loan
due in equal installments from
1999 through 2005........................... 3,943 4,600 4,600
Industrial development revenue bonds at a
4.3% weighted average rate, due in varying
amounts through 2010 (b)(c)................. 15,358 16,225 10,791
7.54% insurance company loan due in equal
installments from 2005 through 2009......... 25,000 25,000 25,000
6.54% average rate insurance company loan
due in varying installments from
2001 through 2012........................... 55,000 55,000 --
Other......................................... 5,599 2,764 2,214
-----------------------------
Total......................................... 126,540 176,078 93,423
Less--current portion (d)..................... (3,915) (3,765) (2,688)
-----------------------------
Total long-term portion.......................$122,625 $172,313 $90,735
=============================
- ---------------------------------------------------------------------------
</TABLE>
The carrying value of long term debt does not differ materially from their
estimated fair value as of December 31, 1999.
(a) The Company has revolving credit agreements of $100.0 million domestically
and $28.8 million with foreign banks. The credit facilities are five-year
revolvers, extended annually by mutual agreement. Under these credit
arrangements all borrowings are considered to be long-term debt for balance
sheet presentation purposes.
Interest rate options on the domestic facility are based on Eurodollar
Interbank Rates, Reference Rates or competitive Bid Rates from five
participating banks. A commitment fee of .22% of the unused portion of the
commitment is required on the domestic facility.
(b) The industrial revenue bonds are based on a variable rate demand bond
structure and are backed by a letter of credit.
(c) The most restrictive provisions of the loan agreements require the Company
to maintain minimum funded debt to total capitalization ratios. At December 31,
1999, the Company was in compliance with all restrictive covenants.
(d) Aggregate annual principal payments required on the noncurrent portion of
long-term debt (including obligations under capital leases) are due as follows
(in thousands):
2001 $3,612 2002 $3,321 2003 $3,299 2004 $10,823
====== ====== ====== =======
21
<PAGE>
1999 ANNUAL REPORT
Total net book value of assets collateralized under financing arrangements
approximated $1.8 million at December 31, 1999.
Net interest expense reported on the accompanying Consolidated Statements of
Income was reduced by interest income of $0.01 million in 1999, $0.1 million in
1998 and $0.2 million in 1997.
(5) Lease agreements
(a) Description of leasing arrangements--The Company has capital and operating
leases covering certain warehouse facilities, equipment, automobiles and trucks,
with lapse of time as the basis for all rental payments plus a mileage factor
included in the truck rentals.
(b) Capital leases--Obligations under capitalization of leases are not
significant.
(c) Operating leases--Future minimum rental payments under operating leases that
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------
Year ending December 31,
- ----------------------------------------------
<S> <C>
2000.............................. $ 6,908
2001.............................. 6,647
2002.............................. 5,628
2003.............................. 5,164
2004.............................. 4,719
Later years....................... 16,748
-------
Total minimum payments required... $45,814
=======
----------------------------------------------
</TABLE>
(d) Rental expense--Total rental payments charged to expense were $10.9 million
in 1999, $9.8 million in 1998 and $9.5 million in 1997.
(e) Sale and leaseback of assets--During 1999, 1998 and 1997 the Company sold
and leased back equipment under operating leases with terms ranging from five to
eight years. The assets sold at approximately net book value for proceeds of
$7.4, $9.6 and $2.4 million respectively. The 1999 leases allow for a purchase
option at the end of the lease term of $2.0 million. The 1998 and 1997 leases
allow for a purchase option at the end of the lease term of $2.6 and $0.7
million respectively. Annual rentals are $1.0 million for the 1999 leases, $1.3
million for the 1998 leases and $0.3 million for the 1997 leases.
(6) Retirement, profit-sharing and incentive plans
Substantially all employees who meet certain requirements of age, length of
service and hours worked per year are covered by Company-sponsored retirement
plans. These retirement plans are defined benefit, noncontributory plans.
Benefits paid to retirees are based upon age at retirement, years of credited
service and average earnings.
The assets of the Company-sponsored plans are maintained in a single trust
account. The majority of the trust assets are invested in common stock mutual
funds, insurance contracts, real estate funds and corporate bonds. The Company's
funding policy is to satisfy the minimum funding requirements of ERISA.
<TABLE>
<CAPTION>
Components of net pension benefit cost for 1999, 1998, and 1997
(in thousands):
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
- -----------------------------------------------------------------------
Service cost............................... $ 2,196 $ 1,769 $ 1,475
Interest cost.............................. 5,135 4,497 4,327
Expected return on assets.................. (8,273) (6,832) (5,964)
Amortization of transition assets.......... -- -- --
Amortization of prior service cost......... 93 69 60
Amortization of actuarial loss............. 118 80 112
------- ------- -------
Net periodic benefit cost.................. $ (731) $ (417) $ 10
======= ======= =======
- -----------------------------------------------------------------------
</TABLE>
Status of the plans at December 31, 1999, 1998, and 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
- -----------------------------------------------------------------------
Change in projected benefit obligation:
Benefit obligation at beginning of year... $ 69,135 $63,969 $56,575
Service cost.............................. 2,196 1,769 1,475
Interest cost............................. 5,136 4,497 4,327
Benefit payments.......................... (3,504) (3,338) (3,229)
Actuarial losses/(gains).................. (4,539) 2,142 5,748
Plan amendments........................... 289 96 (927)
-------- ------- -------
Benefit obligation at end of year......... $ 68,713 $69,135 $63,969
======== ======= =======
Change in plan assets:
Fair value of assets
at beginning of year.................... $ 90,004 $77,957 $65,511
Actual return on assets................... 16,844 15,372 15,662
Employer contributions.................... 13 13 13
Benefit payments.......................... (3,504) (3,338) (3,229)
-------- ------- -------
Fair value of plan assets
at year end............................. $103,357 $90,004 $77,957
======== ======= =======
Reconciliation of funded status:
Funded status............................. $ 34,647 $20,869 $13,988
Unrecognized prior service cost........... 106 (91) (119)
Unrecognized actuarial loss/(gain)........ (19,212) (5,989) 489
-------- ------- -------
Net amount recognized..................... $ 15,541 $14,789 $14,358
======== ======= =======
Amounts recognized in balance sheet consist of:
Prepaid benefit cost...................... $ 18,314 $16,964 $16,013
Accrued benefit liability................. (3,475) (2,994) (2,133)
Intangible assets......................... 169 236 304
Accumulated comprehensive income.......... 533 583 174
-------- ------- -------
Net amount recognized..................... $ 15,541 $14,789 $14,358
======== ======= =======
</TABLE>
- -----------------------------------------------------------------------
The assumptions used to measure the projected benefit obligations, future
salary increases, and to compute the expected long-term return on assets for the
Company's defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
- -----------------------------------------------------------------------
Discount rate............................ 8.25% 7.00% 7.25%
Projected annual salary increases........ 4.75 4.75 4.75
Expected long-term rate of
return on plan assets.................. 10.00 9.50 9.50
</TABLE>
- -----------------------------------------------------------------------
The Company has profit sharing plans for the benefit of salaried and other
eligible employees (including officers). The Company's profit sharing plan
includes features under Section 401(k) of the Internal Revenue Code. The plan
includes a provision whereby the Company partially matches employee
contributions up to a maximum of 6% of the employees' salary. The plan also
includes a supplemental contribution feature whereby a Company contribution
would be made to all eligible employees upon achievement of specific return on
investment goals as defined by the plan.
22
<PAGE>
The Company has a management incentive bonus plan for the benefit of its
officers and key employees. Incentives are paid to line managers based on
performance, against objective, of their respective operating units. Incentives
are paid to corporate officers on the basis of total Company performance against
objective. Amounts accrued and charged to income under each plan are included as
part of accrued payroll and employee benefits at each respective year-end. The
amounts charged to income are summarized below (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------
1999 1998 1997
- ----------------------------------------------------
<S> <C> <C> <C>
Profit sharing and 401-K...... $ 415 $1,211 $2,304
=====================
Management incentive.......... $ 120 $1,360 $2,670
=====================
- ----------------------------------------------------
</TABLE>
The Company also provides declining value life insurance to its retirees
and a maximum of three years of medical coverage to qualified individuals who
retire between the ages of 62 and 65. The Company does not fund these plans.
During 1997, the Company elected to terminate the plan providing medical
coverage to non-union employees who retire between the ages of 62 and 65 after
March 31, 1998. During 1997 the Company recognized a pre-tax gain of $1,449,000
as a result of this curtailment in coverage.
Components of net postretirement benefit cost for 1999, 1998, and 1997 (in
thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Service.............................. $ 68 $ 79 $ 169
Interest cost........................ 126 150 283
Amortization of prior service cost... 22 22 21
Amortization of actuarial gain....... (54) (35) (3)
---------------------
Net periodic benefit cost............ $ 162 $ 216 $ 470
=====================
- -----------------------------------------------------------
</TABLE>
The status of the plans at December 31, 1999, 1998, and 1997 was as follows
(in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
Change in projected benefit obligations:
<S> <C> <C> <C>
Benefit obligation at beginning of year.... $ 2,293 $ 2,750 $ 4,486
Service cost............................... 68 79 169
Interest cost.............................. 126 150 283
Benefit payments........................... (84) (180) (224)
Actuarial gains............................ (476) (506) (516)
Curtailments............................... -- -- (1,449)
-----------------------------
Benefit obligation at end of year.......... $ 1,927 $ 2,293 $ 2,749
=============================
Change in plan assets:
Fair value of assets at beginning of year.. $ -- $ -- $ --
Employer contributions..................... 84 180 224
Benefit payments........................... (84) (180) (224)
-----------------------------
Fair value of plan assets at year-end...... $ -- $ -- $ --
=============================
Reconciliation of funded status:
Funded status.............................. $(1,926) $(2,293) $(2,750)
Unrecognized prior service cost............ 420 441 437
Unrecognized actuarial gain................ (986) (578) (81)
-----------------------------
Net amount recognized...................... $(2,492) $(2,430) $(2,394)
=============================
Amounts recognized in balance sheet consist of:
Accrued benefit liabilities................ $(2,492) $(2,430) $(2,393)
-----------------------------
Net amount recognized...................... $(2,492) $(2,430) $(2,393)
=============================
- ----------------------------------------------------------------------------
</TABLE>
Future benefit costs were estimated assuming medical costs would increase
at a 8.75% annual rate for the current year, with annual increases decreasing by
1% per year thereafter until an ultimate trend rate of 5.75% is reached. A 1%
increase in the health care cost trend rate assumptions would have increased the
accumulated postretirement benefit obligation at December 31, 1999 by $93,000
with no significant effect on the 1998 postretirement benefit expense. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% in 1999, 7.00% in 1998 and 7.25% in
1997.
(7) Common stock
Changes in the common and treasury stock accounts during 1999, 1998 and 1997
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Common Stock Treasury Stock
- --------------------------------------------------------------
Shares
Issued Amount Shares Amount
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996......... 14,843,141 $26,681 834,349 $5,136
Stock options exercised... 31,732 405 10,639 242
Other................... 11,070 207 31 --
------------------------------------
December 31, 1997......... 14,885,943 $27,293 845,019 $5,378
Stock options exercised... 3,500 65 918 23
Other................... -- 107 1 --
------------------------------------
December 31, 1998......... 14,889,443 $27,465 845,938 $5,401
Stock options exercised... 13,312 160 8,747 133
Other................... -- -- -- --
------------------------------------
December 31, 1999......... 14,902,755 $27,625 854,685 $5,534
- ---------------------------------------------------------------
</TABLE>
The Company has long-term stock incentive and stock option plans for the
benefit of officers, directors, and key management employees. The plans and
related activity are summarized below.
The 1989 Long-Term Incentive Plan authorized up to 421,875 shares of common
stock for use under the plan. Compensation expense is recognized ratably over
the vesting period as determined by the plan. Activity under the plan for 1999,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Compensation expense...... $ -- $190,000 $362,000
=============================
Shares awarded............ -- -- 11,070
=============================
- --------------------------------------------------------
</TABLE>
The Company currently has three stock option plans in effect. The 1990
Restricted Stock and Stock Option Plan authorizes up to 656,250 shares of common
stock for use under the plan; the 1995 Directors Stock Option Plan authorizes up
to 187,500 shares; and the 1996 Restricted Stock and Stock Option Plan
authorizes 937,500 shares for use under the plan. A summary of the activity
under the plans is shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Option Wtd. Avg.
Shares Exercise Price Range
- -------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1996... 274,429 $16.44 $ 6.27 - $23.38
Granted........... 111,400 21.88 21.88
Forfeitures....... (23,625) 15.79 6.27 - 21.88
Exercised......... (37,520) 13.95 6.60 - 18.75
----------------------------------------
December 31, 1997... 324,684 18.64 6.60 - 21.88
Granted........... 270,610 20.51 20.25 - 23.13
Forfeitures....... (3,869) 6.60 6.60
Exercised......... (3,500) 18.52 12.07 - 18.75
----------------------------------------
December 31, 1998... 587,925 19.58 12.07 - 23.38
Granted........... 296,000 15.96 15.06 - 16.00
Forfeitures....... (61,587) 18.73 12.07 - 21.88
Exercised......... (13,312) 12.07 12.07
----------------------------------------
December 31, 1999... 809,026 $18.45 $12.07 - $23.38
- -------------------------------------------------------------
</TABLE>
23
<PAGE>
1999 ANNUAL REPORT
As of December 31, 1999, 513,026 of the 809,026 options outstanding, were
currently exercisable and had a weighted average contractual life of 7.6 years
with a weighted average exercise price of $19.88. The remaining 296,000 shares
were not exercisable and had a weighted average contractual life of 9.5 years,
with a weighted average exercise price of $15.96. The weighted average fair
value of the current year's option grant is estimated to be $3.22 per share. The
fair value has been estimated on the day of the grant using the Black Scholes
option pricing model with the following assumptions, risk free interest rate of
6.5%, expected dividend yield of 3.0%, option life of 10 years, and expected
volatility of 30 percent.
The Company has chosen to account for the stock option plans in accordance
with APB Opinion No. 25 under which no compensation expense has been recognized.
Had compensation cost for these plans been determined under SFAS No. 123, the
Company's 1999 net income would have been reduced by approximately $0.8 million
or $0.06 per share, 1998 net income would have been reduced by approximately
$1.0 million or $0.07 per share and 1997 net income would have been reduced by
approximately $0.8 million or $0.06 per share.
(8) Contingent liabilities
At December 31, 1999 total exposure under guarantees issued for banking
facilities of unconsolidated affiliates was $12.5 million. The Company was
contingently liable as endorser on discounted trade acceptances aggregating $6.7
million at December 31, 1999. Also, the Company has $1.5 million of irrevocable
letters of credit outstanding to comply with the insurance reserve requirements
of its workers' compensation insurance carrier.
The Company is the defendant in several lawsuits arising out of the conduct
of its business. These lawsuits are incidental and occur in the normal course of
the Company's business affairs. It is the opinion of counsel that no significant
uninsured liability will result from the outcome of the litigation, and thus
there is no material financial exposure to the Company.
(9) Acquisitions
During 1999 the Company and its subsidiaries purchased a business and acquired a
50% interest in another metals distributor. The aggregate cash consideration
paid was $3.3 million. The acquisition has been accounted for as a purchase and
is included in the financial statements from the date of acquisition. The
company's interest in the joint venture has been accounted for using the equity
method and the company's share of the operating results of the joint venture has
been included in the company's financials since the date of acquisition. Pro-
forma results are not presented as the amounts do not significantly differ from
historical results.
(10) Selected quarterly data (unaudited)
The unaudited quarterly results of operations for 1999 and 1998 are as follows
(dollars in thousands, except per share data--Note 7):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 quarters
Net sales............. $183,460 $179,992 $177,097 $166,916
Gross profit.......... 56,825 57,152 54,070 56,292
Net income............ 2,755 3,134 1,354 1,471
Net income per
share basic....... $ .20 $ .22 $ .10 $ .10
Net income per
share diluted..... $ .20 $ .22 $ .10 $ .10
1998 quarters
Net sales............. $211,728 $205,068 $195,512 $180,538
Gross profit.......... 61,635 60,570 58,027 53,530
Net income............ 7,133 6,319 3,779 1,291
Net income per
share basic....... $ .51 $ .45 $ .27 $ .09
Net income per
share diluted..... $ .51 $ .45 $ .27 $ .09
- ------------------------------------------------------------------
</TABLE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of A. M. Castle & Co.:
We have audited the accompanying consolidated balance sheets of A.M. Castle &
Co. (a Delaware corporation) and Subsidiaries as of December 31, 1999, 1998 and
1997, and the related consolidated statements of income, reinvested earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A. M. Castle & Co. and
Subsidiaries as of December 31, 1999, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 2, 2000.
24
<PAGE>
Directors
Daniel T. Carroll
Chairman
The Carroll Group, Inc.
a management consulting firm
Edward F. Culliton
Vice President and
Chief Financial Officer
William K. Hall
Executive Consultant and
Retired President & Chief Executive
Officer
Falcon Building Products, Inc.
a diversified manufacturing
company
Robert S. Hamada
Dean
Graduate School of Business
University of Chicago
Patrick J. Herbert, III
President
Simpson Estates, Inc.
a private management firm
John P. Keller
President
Keller Group
an industrial manufacturing & coal
mining company
John W. McCarter, Jr.
President
The Field Museum
a natural history museum
John McCartney
Vice Chairman
Datatec, Ltd.
Richard G. Mork
President and
Chief Executive Officer
John Puth
Principle
J.W. Puth Associates
a consulting firm
Michael Simpson
Chairman of the Board
Officers
Michael Simpson
Chairman of the Board
Richard G. Mork
President and
Chief Executive Officer
M. Bruce Herron
Executive Vice President and
Chief Operating Officer
Edward F. Culliton
Vice President and
Chief Financial Officer
Marc Biolchin
Vice President-
Tubular Group
Stephen V. Hooks
Vice President-
Merchandising
Gary Kropf
Vice President-
Carbon Group
Tim N. Lafontaine
Vice President-
Alloy Group
John R. Nordin
Vice President and
Chief Information Officer
Gise Van Baren
Vice President-
H-A Industries
Craig R. Wilson
Vice President
and Genral Manager
Great Lakes Region
Paul J. Winsauer
Vice President-
Human Resources
Henry C. Winters
Vice President-
Operations
James A. Podojil
Treasurer-Controller
Jerry M. Aufox
Secretary-
Legal Counsel
Hy-Alloy
Steels Co.
Gise Van Baren
President and General Manager
Total
Plastics, Inc.
Stephen V. Hulbert
President
Keystone Tube
Company
Marc Biolchin
President
Oliver Steel Plate
Company
James M. Fleming
President
- --------------------------------------------------------------------------------
General Offices
3400 North Wolf Road
Franklin Park, IL 60131
847/455-7111
General Counsel
Mayer, Brown & Platt
Transfer Agent &
Registrar
American Stock Transfer
and Trust Company
Common Stock
Traded
American Stock Exchange
Chicago Stock Exchange
Independent Auditors
Arthur Andersen LLP
Dividend Reinvestment Plan
All registered holders of A. M. Castle & Co. Common stock are eligible to
participate in a convenient and economical Dividend Reinvestment Plan.
Participants may also make voluntary cash payments. The company pays all
commissions and fees associated with stock purchased under the Plan. If you own
Castle common stock in "street name" (no certificates), please contact your
brokerage firm for further information.
Dividend Payment Dates
Dividends are paid approximately four weeks following the regular Board meeting
which are held on the fourth Thursday of January, April, July and October.
Annual Meeting
The Annual Meeting of the Company's shareholders will be held at our corporate
headquarters on Thursday, April 27, 2000 at 10 a.m. Central Daylight Savings
Time. Our corporate headquarters address is 3400 North Wolf Road, Franklin Park,
Illinois 60131.
Form 10-K
A. M. Castle & Co. will be pleased to make its annual report on Form 10-K, filed
with the Securities and Exchange Commission, available at no cost to interested
stockholders on written request to the corporate secretary.
- --------------------------------------------------------------------------------
A Caution Concerning Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections, including those made in this document, are subject to risks and
uncertainties that may cause actual results to differ materially from those
expected.
- --------------------------------------------------------------------------------
<PAGE>
A. M. Castle & Co.
Castle Metals Locations
Atlanta, Buffalo, Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Detroit,
Edmonton, Houston, Kansas City, Los Angeles, Milwaukee, Minneapolis, Montreal,
Philadelphia, Phoenix, Pittsburgh, Salt Lake City, San Diego, Seattle, Stockton,
Toronto, Tulsa, Wichita, Winnipeg, Worcester
Divisions
Hy-Alloy Steels Co. - Chicago
H-A Industries - Hammond
Subsidiaries
A. M. Castle & Co. Limited - Blackburn, Christchurch
Keystone Tube Company - LaPorte, Riverdale, Titusville
Oliver Steel Plate Company - Cleveland
Total Plastics, Inc. - Baltimore, Chicago, Cleveland, Detroit, Fort Wayne,
Grand Rapids, Harrisburg, Indianapolis, Kalamazoo,
Pittsburgh, South Bend
Joint Ventures
Castle de Mexico, S.A. de C.V. - Monterrey
Energy Alloys, L.P. - Houston
Kreher Steel Company, L.L.C. - Chicago, Dallas, Detroit, Houston
Laser Precision, L.L.C. -- Chicago
Paramont Machine Company, L.L.C. -- New Philadelphia
Metal Express, L.L.C.
[LOGO]
A. M. Castle & Co.
3400 North Wolf Road
Franklin Park, IL 60131
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