Page 1 of 10
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2001 | Commission File Number 1-5415 |
A. M. Castle & Co | |
(Exact name of registrant as specified in its charter) |
Maryland | 36-0879160 | |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation of organization) | ||
3400 North Wolf Road, Franklin Park, Illinois | 60131 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Registrant's telephone, including area code | 847/455-7111 | |
None | ||
(Former name, former address and former fiscal year, if changed since last year) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | X | No | ___ |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class | Outstanding at September 30, 2001 |
Common Stock, No Par Value | 14,110,564 shares |
Page 2 of 10
A. M. CASTLE & CO.
Part I. FINANCIAL INFORMATION
Page | ||||
Number | ||||
Part I. | Financial Information | |||
Item 1. | Financial Statements: | |||
Condensed Balance Sheets | 3 | |||
Comparative Statements of Cash Flows | 3 | |||
Comparative Statements of Income | 4 | |||
Notes to Condensed Financial Statements | 5-7 | |||
Item 2. | Management's Discussion and Analysis of Financial | |||
Conditions and Results of Operations | 7-8 | |||
Part II. | Other Information | |||
Item 1. | Legal Proceedings | 9 | ||
Item 6 | Exhibits and Reports on Form 8-K | 9 |
Page 3 of 10
CONDENSED BALANCE SHEETS | |||||
(Dollars in thousands except per share data)(unaudited) | Sept. 30, | Dec. 31, | Sept. 30, | ||
ASSETS | 2001 | 2000 | 2000 | ||
Cash | $ 3,404 | $ 2,079 | $ 2,458 | ||
Accounts receivable, net | 29,631 | 91,636 | 103,153 | ||
Inventories (principally on last-in, first-out basis) | 145,417 | 163,206 | 188,751 | ||
Income tax receivable | 6,435 | 4,116 | --- | ||
Other current assets | 3,847 | 1,426 | 2,383 | ||
Total current assets | $188,734 | $262,463 | $296,745 | ||
Investment in joint ventures | 9,764 | 9,714 | 12,392 | ||
Prepaid expenses and other assets | 59,020 | 55,566 | 55,524 | ||
Fixed assets, net | 88,273 | 91,108 | 97,338 | ||
Total assets | $345,791 | $418,851 | $461,999 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Accounts payable | $ 59,636 | $ 84,734 | $105,253 | ||
Accrued liabilities | 15,947 | 17,854 | 15,980 | ||
Income taxes payable | 4,024 | 1,130 | 4,300 | ||
Current portion of long-term debt | 2,697 | 3,425 | 3,021 | ||
Total current liabilities | $ 82,304 | $107,143 | $128,554 | ||
Long-term debt, less current portion | 118,940 | 161,135 | 171,920 | ||
Deferred income taxes | 19,275 | 18,096 | 17,236 | ||
Minority interest | 1,225 | 971 | 842 | ||
Other Liabilities | 2,178 | 2,265 | 2,254 | ||
Stockholders' equity | 121,869 | 129,241 | 141,193 | ||
Total liabilities and stockholders' equity | $345,791 | $418,851 | $461,999 | ||
SHARES OUTSTANDING | 14,111 | 14,061 | 14,061 | ||
BOOK VALUE PER SHARE | $ 8.64 | $ 9.19 | $ 10.04 | ||
WORKING CAPITAL | $106,430 | $155,320 | $168,191 | ||
WORKING CAPITAL PER SHARE | $ 7.54 | $ 11.05 | $ 11.96 | ||
DEBT TO CAPITAL | 50.0% | 56.0% | 55.3% | ||
CONDENSED STATEMENTS OF CASH FLOWS | (Unaudited) | ||||
(Dollars in thousands) | For the Nine Months | ||||
Ended Sept. 30, | |||||
Cash flows from operating activities: | 2001 | 2000 | |||
Net income | $ (1,223) | $ 7,981 | |||
Depreciation | 7,079 | 7,102 | |||
Other | (2,460) | (6,844) | |||
Cash provided from operating activities before | |||||
working capital changes | 3,396 | 8,239 | |||
Sale of accounts receivable | 53,700 | -- | |||
(Increase) in other working capital | (3,209) | (39,237) | |||
Net cash provided from (used by) operating activities | 53,887 | (30,998) | |||
Cash flows from investing activities: | |||||
Investments and acquisitions | -- | (4,050) | |||
Capital expenditures, net of sales proceeds | (3,490) | (4,876) | |||
Net cash provided (used by) from investing activities | (3,490) | (8,926) | |||
Cash flows from financing activities: | |||||
Long-term borrowings, net | (42,923) | 48,401 | |||
Dividends paid | (6,160) | (8,245) | |||
Other | 11 | (352) | |||
Net cash provided (used by) from financing activities | (49,072) | 39,804 | |||
Net increase (decrease) in cash | $ 1,325 | $ (120) | |||
Cash - beginning of year | 2,079 | 2,578 | |||
Cash - end of period | $ 3,404 | $ 2,458 | |||
Supplemental cash disclosure - cash paid during the period | |||||
Interest | $ 7,575 | $ 7,406 | |||
Income taxes | $ (2,169) | $ 5,079 |
Page 4 of 10
COMPARATIVE STATEMENTS OF INCOME | ||||||
(Dollars in thousands, except per share data) | ||||||
For the Three and Nine Months Ended September 30, | For The Three | For The Nine | ||||
(Unaudited) | Months Ended | Months Ended | ||||
Sept. 30, | Sept. 30, | |||||
2001 | 2000 | 2001 | 2000 | |||
Net sales | $143,601 | $184,958 | $485,816 | $572,475 | ||
Cost of material sold | 101,574 | 130,354 | 340,373 | 400,195 | ||
Gross profit on sales | 42,027 | 54,604 | 145,443 | 172,280 | ||
Operating expenses | 39,734 | 47,452 | 131,529 | 144,405 | ||
Depreciation and amortization expense | 2,347 | 2,178 | 7,079 | 7,102 | ||
Interest expense, net | 2,435 | 2,669 | 7,563 | 7,409 | ||
Sale of accounts receivable | 910 | -- | 910 | -- | ||
(Loss) income before taxes | (3,399) | 2,305 | (1,638) | 13,364 | ||
Income Taxes: | ||||||
Federal | (1,025) | 747 | (385) | 4,351 | ||
State | (221) | 179 | (30) | 1,032 | ||
(1,246) | 926 | (415) | 5,383 | |||
Net (loss) income | $ (2,153) | $ 1,379 | $ (1,223) | $ 7,981 | ||
Net (loss) income per share (basic and diluted) | $ (0.15) | $ 0.10 | $ (0.09) | $ 0.57 | ||
Financial Ratios: | ||||||
Return on sales | (1.50)% | .75% | (0.25)% | 1.39% | ||
Asset turnover | 1.66 | 1.60 | 1.87 | 1.66 | ||
Return on assets | (2.49)% | 1.19% | (0.47)% | 2.31% | ||
Leverage factor | 2.68 | 3.26 | 2.68 | 3.25 | ||
Return on opening stockholders' equity | (6.66)% | 3.89% | (1.26)% | 7.50% | ||
Other Data: | ||||||
Cash dividends paid | $ 1,699 | $ 2,761 | $ 6,160 | $ 8,245 | ||
Dividends per share | $ 0.120 | $ 0.195 | $ 0.435 | $ 0.585 | ||
Average number of shares outstanding | 14,111 | 14,061 | 14,088 | 14,052 |
Inventory determination under the LIFO method can only be made at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO determinations, including those at September 30, 2001, December 31, 2000 and September 30, 2000, must necessarily be based on management's estimates of expected year end inventory levels and costs. Since future estimates of inventory levels and costs are subject to certain forces beyond the control of management, interim financial results are subject to fiscal year-end LIFO inventory valuations. It is estimated that if September 30, 2001 inventory levels and prices hold constant through the end of the year, an additional charge of $1.0 to $2.0 million would be made to cost of sales.
Current replacement cost of inventories exceeds book value by $42.9 million, $42.9 million and $44.6 million at September 30, 2001, December 31, 2000 and September 30, 2000, respectively. Taxes on income would become payable on any realization of this excess from reductions in the level of inventories.
Page 5 of 10
A. M. CASTLE & CO.
Notes to Condensed Financial Statements
1. | Condensed Financial Statements | ||||
The condensed financial statements included herein are unaudited, except for the balance sheet at December 31, 2000, which is condensed from the audited financial statements at that date. The Company believes that the disclosures are adequate to make the information not misleading; however, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited statements, included herein, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, the cash flows, and the results of operations for the periods then ended. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The 2001 interim results reported herein may not necessarily be indicative of the results of operations for the full year 2001. | |||||
2. | Earnings Per Share | ||||
In accordance with SFAS No. 128 "Earnings per Share" below is a reconciliation of the basic and diluted earnings per share calculations for the periods reported (dollars and shares in thousands): | |||||
For The Three | For The Nine | ||||
Months Ended | Months Ended | ||||
Sept. 30, | Sept. 30, | ||||
2001 | 2000 | 2001 | 2000 | ||
Net (Loss) Income | $(2,153) | $1,379 | $(1,223) | $7,981 | |
Weighted average common shares outstanding | 14,111 | 14,061 | 14,088 | 14,052 | |
Dilutive effect of outstanding employee and | |||||
directors' common stock options | -- | -- | -- | -- | |
Diluted common shares outstanding | 14,111 | 14,061 | 14,088 | 14,052 | |
Basic earnings per share | $ (.15) | $ .10 | $ (.09) | $ .57 | |
Diluted earnings per share | $ (.15) | $ .10 | $ (.09) | $ .57 | |
Outstanding employee and directors' | |||||
common stock options having no | |||||
dilutive effect | 1,668 | 820 | 1,668 | 820 |
Page 6 of 10
3. | Accounts Receivable Securitization |
On September 27, 2001, the Company and certain of its subsidiaries completed arrangements for a $65 million 364-day trade receivables securitization facility with a financial institution. The Company is utilizing a special purpose, non-owned, bankruptcy remote company (Castle Funding Corp.) for the sole purpose of buying receivables from the Company and those selected subsidiaries and selling an undivided interest in all eligible trade accounts receivable to a commercial paper conduit. Castle Funding Corp. retains an undivided percentage interest in the pool of accounts receivable and bad debt losses are allocated first to this retained interest. Funding under the facility is limited to the lesser of a funding base comprised of eligible receivables or $65 million. Since Castle Funding Corp.' s sole purpose is to purchase accounts receivable from the Company, it is required by the Financial Accounting Standards Board (FASB) that the special purpose company be consolidated with the Company even though it is non- owned. The sales of accounts receivable are reflected as a reduction of "accounts receivable, net" in the Condensed Balance Sheet and the proceeds received are included in net cash provided from operating activities in the Condensed Statement of Cash Flows. Sales proceeds from the receivables are less than the face amount of accounts receivable sold by an amount equal to a discount on sales that approximates the conduit's financing cost of issuing their own commercial paper, which is backed by their ownership interests in the accounts receivable sold by the special purpose company, plus an agreed upon margin. These costs are charged to "sale of accounts receivable" in the Comparative Statement of Income. Generally, the facility provides that as payments are collected from the sold accounts receivable, the special purpose vehicle may elect to have the commercial paper conduit reinvest the proceeds in new accounts receivable. The commercial paper conduit, in addition to their rights to collect payments from that portion of the interests in the accounts receivable that is owned by them, also has the right to collect payments from that portion of the ownership interest in the accounts receivable that is owned by the special purpose company. In calculating the fair market value of the receivables, the book value of the receivables represent the best estimate of the fair value due to the current nature of these items. The facility, which expires on September 26, 2002, requires early amortization if the special purpose company does not maintain a minimum equity requirement or if certain ratios related to the collectibility of the receivables are not maintained. As of September 30, 2001 $64.9 million of accounts receivable had been sold to Castle Funding Corp. and of this amount $53.7 million was sold to the commercial paper conduit which was the maximum amount which could be sold based on the September 30, 2001 eligible receivable balance. During the third quarter of 2001 and the first nine months of 2001, the Company incurred one-time costs of $0.9 million relating to the sales of accounts receivable. |
Page 7 of 10
4. | New Accounting Standard |
The Financial Accounting Standards Board (FASB) issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after June 15, 2000. The Company was required to and has adopted SFAS No. 137 on January 1, 2001. The adoption did not have a significant effect on the Company's consolidated results of operations or financial position during 2001. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141, requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001, clarifies the criteria for recognition of intangible assets separately from goodwill and requires that unallocated negative goodwill be written-off immediately as an extraordinary gain. SFAS No. 142, effective for fiscal years beginning after December 15, 2001, requires that ratable amortization of goodwill be replaced with periodic tests of goodwill impairment and that intangible assets, other than goodwill, which have determinable useful lives, be amortized over their useful lives. The Company is required to and will adopt SFAS Nos. 141 and 142 beginning January 1, 2002. The Company is currently assessing the Statements and has not yet determined the impact of its adop tion on its financial statements. | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Results of Operations | |
The Company generated a net loss of $2.2 million ($.15 net loss per share) in the third quarter of 2001 as compared to 2000's third quarter earnings of $1.4 million ($.10 net income per share). The net loss for the first nine months of $1.2 million ($.09 net loss per share) reflects a decrease from the net income reported for the same period last year of $8.0 million ($.57 net income per share). The results for both the quarter and nine month period reflect the impact of a severe slowdown in activity in most of the industries the Company serves, along with a $.04 per share loss incurred in conjunction with an accounts receivable securitization financing agreement which closed in September. Quarterly sales totalled $143.6 million, representing a 22.4% decrease from the third quarter of 2000 sales of $185.0 million. The lower volume was due to a 29% decrease in tons sold offset by a shift in mix towards higher priced products. For the first nine months of 2001 total revenues were $485.8 million as compared to $572.5 million in 2000, a decrease of 15.1%. Gross profit for the quarter went down by $12.6 million (23.0%) to $42.0 million due mainly to sales volume reductions. Total gross margin percentage decreased slightly from 29.5% to 29.3%. For the first nine months of 2001 total gross profit was down $26.8 million (15.6%) while the gross margin percentage remained relatively constant on a year-to-date basis at 29.9% and 30.0%, respectively. |
Page 8 of 10 | |
Third quarter operating expenses were down $7.7 million (16.3%) when compared to the third quarter of last year. Year-to-date operating expenses were down $12.9 million (8.9%). Much of the reduction is due to lower sales activity levels, but it is estimated that on an annualized basis, $10 million to $11 million reflects a sustainable reduction in the Company's operating expense structure. Net interest expense for the third quarter and year-to-date remained relatively flat when compared to last year's expense for the comparable periods. Late in the third quarter of 2001 the Company incurred costs of $0.9 million in order to implement an accounts receivable securitization financing facility. The expense includes the discounted loss on the sale of the receivables along with one-time charges for legal and facility fees along with expenses related to the termination and payoff of previously existing debt. Liquidity and Capital Resources Accounts receivable decreased by $73.5 million from the third quarter of last year. $53.7 million of the decrease was due to the sale of the receivables under the new accounts receivable securitization agreement. The remainder of the decrease is attributable to the reduction in sales volume. Net inventory was reduced by $43.3 million compared to last year's values due to the lower sales activity, along with programmed reductions put in place in order to increase cash flow. The reduction of $45.6 million in accounts payable is reflective of the decreased inventory and a lower level of purchasing activity. Total long-term debt decreased by $53.3 million as compared to September 30, 2000 due primarily to the use of the funds from the accounts receivable purchase agreement to payoff the outstanding balance on the previously existing debt. The Company's debt-to-capital ratio was 50.0% as of September 30, 2001 compared to 56.0% and 55.3% at December 31, 2000 and September 30, 2000 respectively. For the nine months ended September 30, 2001 cash provided from operating activities totalled $53.9. The positive cash flow was due almost entirely to the use of the accounts receivable securitization facility which is the primary source of short-term funds. The Company has immediately available committed and uncommitted lines of bank credit of $2.9 million as of September 30, 2001. The Company projects positive cash flow from operations for the quarter and year ended December 31, 2001 due primarily to reduced working capital requirements and depreciation cash flow. Additionally, the Company is seeking lines of bank credit and actively pursuing the sales of certain processing facilities and joint ventures. Therefore, management believes that there are adequate sources of liquidity to meet the Company's short and long-term needs. |
Page 9 of 10 | ||
Part II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
There are no material legal proceedings other than ordinary routine litigation incidental to the business of the Registrant. | ||
Item 6. | Exhibits and Reports on Form 8-K | |
(a) | None | |
(b) | No reports on Form 8-K have been filed during the quarter for which this report is filed |
Page 10 of 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
A. M. Castle & Co. | |
(Registrant) | |
Date: November 8, 2001 | By: / ss/J.A. Podojil |
J. A. Podojil - Treasurer/Controller | |
(Mr. Podojil is the Chief Accounting Officer and has been authorized to sign on behalf of the Registrant.) |