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<SEC-DOCUMENT>0000950137-02-001268.txt : 20020415
<SEC-HEADER>0000950137-02-001268.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950137-02-001268
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020314
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CASTLE A M & CO
CENTRAL INDEX KEY: 0000018172
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051]
IRS NUMBER: 360879160
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05415
FILM NUMBER: 02574938
BUSINESS ADDRESS:
STREET 1: 3400 N WOLF RD
CITY: FRANKLIN PARK
STATE: IL
ZIP: 60131
BUSINESS PHONE: 7084557111
MAIL ADDRESS:
STREET 1: 3400 N WOLF RD
CITY: FRANKLIN PARK
STATE: IL
ZIP: 60131
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c68076e10-k405.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<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, 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 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 - $0.01 per share 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 March 1, 2002 was $160,372,663.
The number of shares outstanding of the registrant's common stock on March 1,
2002 was 14,726,599 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, 2001
Proxy Statement dated March 15, 2002 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 91% 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:
2001 2000 1999
---- ---- ----
Carbon and Stainless 71% 73% 76%
Non-Ferrous Metals 29% 27% 24%
---- ---- ----
100% 100% 100%
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 41% of all core sales.
In North America, the Company serves the wide range of industrial companies
within the $700 billion producer durable equipment sector of the economy from
locations throughout the United States and Canada. 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 5% of the Company's total business and, no one customer, more than 3%. 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 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 are serviced by the United Kingdom based
subsidiary, A. M. Castle & Co. Limited (U.K.), a U.K. Corporation.
Total Plastics, Inc., headquartered in Michigan, serves a wide variety of
users of industrial plastics. Keystone Tube Company, LLC is a distributor of
tubular products serving the Midwest customers directly from its Chicago area
facility. Oliver Steel Plate Company processes and distributes heavy steel plate
from its Cleveland area plant. The Company's value-added bar processing center,
H-A Industries, thermally processes, turns and straightens alloy and carbon bar.
The Company holds a one-half 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 formed Metal Express, a small order distribution company in which it has
a 60% interest and acquired a 50% joint venture interest in Energy Alloys LP, a
Houston based metals distributor. In 1999 the Company purchased a 50% interest
in Laser Precision, located in Libertyville, Illinois in order to enhance its
processing capabilities.
In 2001, 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 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 to a commercial paper conduit. 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.
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 2001 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 1,700 full-time employees in its operations
throughout the United States, Canada and the United Kingdom. Approximately 300
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
Approximate
Floor Area in
Locations Square Feet
--------- -------------
Castle Metals
- -------------
Atlanta, Georgia 35,100 (1)
Charlotte, North Carolina 116,500
Chicago area -
Franklin Park, Illinois 522,600
Cleveland area -
Bedford Heights, Ohio 374,400
Dallas, Texas 78,000
Edmonton, Alberta 38,300 (1)
Fairfield, Ohio 226,000 (1)
Houston, Texas 109,100
Kansas City, Missouri 170,000
Kent, Washington 31,000 (1)
Los Angeles area -
Paramount, California 264,900
Montreal, Quebec 26,100 (1)
Minneapolis, Minnesota 65,000
Philadelphia, Pennsylvania 71,600
Stockton, California 60,000 (1)
Toronto area -
Mississauga, Ontario 60,000 (1)
Wichita, Kansas 58,800 (1)
Winnipeg, Manitoba 50,000
Worcester, Massachusetts 56,000
---------
Total Castle Metals 2,413,400
A. M. Castle & Co. Limited (U.K.)
- ---------------------------------
Blackburn, U.K 43,000 (1)
Christchurch, U.K 12,000 (1)
---------
55,000
H-A Industries
- --------------
Hammond, Indiana 243,000 (1)
---------
Keystone Tube Company LLC
- -------------------------
Riverdale, Illinois 115,000 (1)
KSI, LLC
- --------
La Porte, Indiana 90,000
Keystone Honing Company
- -----------------------
Titusville, Pennsylvania 92,000
<PAGE>
PAGE 6 of 15
Approximate
Floor Area in
Locations Square Feet
--------- -------------
Total Plastics, Inc.
- --------------------
Baltimore, Maryland 24,000 (1)
Cleveland, Ohio 8,500 (1)
Detroit, Michigan 22,000 (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 81,000 (1)
New Philadelphia, Ohio 10,700 (1)
Pittsburgh, Pennsylvania 4,400 (1)
Rockford, Michigan 53,600 (1)
South Bend, Indiana 7,500 (1)
---------
329,700
Oliver Steel Plate Company
- --------------------------
Twinsburg, Ohio 120,000 (1)
GRAND TOTAL 3,458,100
=========
Sales Offices (Leased)
- ----------------------
Cincinnati, Ohio
Detroit, Michigan
Milwaukee, Wisconsin
Pittsburgh, Pennsylvania
Phoenix, Arizona
San Diego, California
Tulsa, Oklahoma
(1) Leased: See Note 5 in the 2001 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>
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Data
-----------------------
Net Sales $ 611.2 $ 744.5 $ 707.4 $ 792.8 $ 754.9
Cost of Sales 429.8 522.9 483.1 559.1 540.3
Special charges -- 2.0 -- -- --
-------- -------- -------- -------- --------
Gross Profit 181.4 219.6 224.3 233.7 214.6
Operating Expenses 169.0 195.5 189.1 185.1 164.3
Impairment and other
Operating expenses -- 6.5 -- -- --
Depreciation and Amortization 9.4 9.7 9.9 8.5 6.6
Interest expense, net 9.6 10.3 10.6 9.4 4.2
Discount on sale of accounts
receivable 1.3 -- -- -- --
-------- -------- -------- -------- --------
(Loss) income before taxes (7.9) (2.4) 14.7 30.7 39.5
Income taxes (2.8) (0.7) 6.0 12.2 15.7
-------- -------- -------- -------- --------
Net (loss) income $ (5.1) $ (1.7) $ 8.7 $ 18.5 $ 23.8
======== ======== ======== ======== ========
Share Data
----------
Number of shares outstanding
At year-end (in thousands) 14,111 14,161 14,048 14,043 14,041
Net (loss) income per share basic $ (0.36) $ (0.12) $ 0.62 $ 1.32 $ 1.70
Net (loss) income per share diluted $ (0.36) $ (0.12) $ 0.62 $ 1.32 $ 1.69
Cash dividend per share $ 0.495 $ 0.78 $ 0.78 $ 0.76 $ 0.66
Book value per share $ 8.31 $ 9.12 $ 10.10 $ 10.25 $ 9.74
Financial Position at Year-End
------------------------------
Total assets $ 327.4 $ 418.9 $ 413.3 $ 460.0 $ 366.4
Long-term debt $ 117.2 $ 161.1 $ 122.6 $ 172.3 $ 90.7
Stockholders equity $ 117.2 $ 129.2 $ 141.8 $ 144.0 $ 136.7
</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 2001 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 2001 Annual Report to Stockholders:
"Common Stock Information", page 14, and "Financial Review", pages 12 and 13.
<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.
Executive Officers of The Registrant
Name and Title Age Business Experience
- -------------- --- -------------------
Michael Simpson 63 Mr. Simpson began his employment with
Chairman of the Board the registrant in 1968 and retired from
fulltime employment in 2001. He was
elected President of Hy-Alloy Steels Co.
in 1974 and was elected Vice President -
Midwest Region in 1977. In 1979, Mr.
Simpson was elected Chairman of the
Board.
G. Thomas McKane 57 Mr. McKane began his employment with the
President and Chief registrant in May of 2000. Formerly, he
Executive Officer had been employed by Emerson Electric
since 1968.
Albert J. Biemer, III 40 Mr. Biemer began his employment with the
Vice President-- registrant in 2001 and was elected Vice
Supply Chain President - Supply Chain. Formerly with
CSC, Ltd. as Vice President, Logistics
in 2000 and Carpenter Technology
Corporation 1997 to 2000.
Marc Biolchin 47 Mr. Biolchin began his employment with
Vice President - the registrant's Keystone Tube Company
Tubular Group (acquired in 1997) in 1977. He was named
Vice President - Tubular Group in 1998.
Edward F. Culliton 60 Mr. Culliton began his employment with
Vice President and the registrant in 1965. He was elected
Chief Financial Officer Corporate Secretary in 1972; Treasurer
in 1975; and Vice President of Finance
in 1977. He is the Chief Financial
Officer.
M. Bruce Herron 56 Mr. Herron began his employment with the
Vice President-- registrant in 1970. He was elected to
Sales West the position of Vice President - Western
Region in 1989; Vice President - Sales
in 1998; and Executive Vice President
and Chief Operating Officer in 1999. He
was named Vice President-Sales West in
2000.
Stephen V. Hooks 50 Mr. Hooks began his employment with the
Vice President-- registrant in 1972. He was elected to
Merchandising the position of Vice President - Midwest
Region in 1993, and Vice President -
Merchandising in 1998.
<PAGE>
PAGE 10 OF 15
Name and Title Age Business Experience
- -------------- --- -------------------
Gary J. Kropf 54 Mr. Kropf began his employment with the
Vice President-- registrant in 1999. He was elected to
Sales East the position of Vice President - Carbon
Group in 1999 and became Vice President
- Sales East in 2000.
Tim N. Lafontaine 48 Mr. Lafontaine began his employment with
Vice President-- the registrant in 1975, and was elected
Alloy Group Vice President - Alloy Group in 1998.
Richard S. Meyers 45 Mr. Meyers began his employment with the
Vice President-- registrant in 2000 and was elected Vice
Operations President - Operations in 2001. Formerly
with Kennametals, Inc. as general
manager manufacturing from 1997-2000 and
with Dana Corp. 1985-1987.
John R. Nordin 45 Mr. Nordin began his employment with the
Vice President and registrant in 1998. He was elected Vice
Chief Information Officer President and Chief Information Officer
in 1998.
Craig R. Wilson 50 Mr. Wilson began his employment with the
Vice President -- registrant in 979. He was elected to the
Advanced Material position of Vice President - Eastern
Group Region in 1997; Vice President -
Business Improvement and Quality in
1998; and Vice President and General
Manager-Great Lakes Region in 1999. He
was named Vice President-Advanced
Materials Group in 2000.
Paul J. Winsauer 50 Mr. Winsauer began his employment with
Vice President - the registrant in 1981. In 1996, he was
Human Resources elected to the position of Vice-
President - Human Resources.
James A. Podojil 59 Mr. Podojil began his employment with
Chief Accounting Officer the registrant in 1968. In 1977 he was
and Treasurer/Controller elected to the position of Controller
and in 1985 was elected to the
additional post of Treasurer.
Jerry M. Aufox 59 Mr. Aufox began his employment with the
Secretary and Corporate registrant in 1977. In 1985 he was
Counsel elected to the position of Secretary and
Corporate Counsel. He is responsible for
all legal affairs of the registrant.
<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 15,
2002 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 15, 2002, 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 15, 2002, 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 2001 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 2001.
<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 2001 Annual Report to Stockholders of A. M.
Castle & Co., included herein -
Consolidated Statements of Income - For the years ended
December 31, 2001, 2000 and 1999.................................. Page 15
Consolidated Statements of Reinvested Earnings - For the years
ended December 31, 2001, 2000 and 1999............................ Page 15
Consolidated Balance Sheets - December 31, 2001, 2000 and 1999.... Page 16
Consolidated Statements of Cash Flows - For the years
ended December 31, 2001, 2000, and 1999........................... Page 17
Notes to Consolidated Financial Statements........................Pages 18-23
Report of Independent Public Accountants.......................... Page 23
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 - Description of management incentive plan...................... Exhibit D
10 - 2000 restricted stock and stock option plan................... Exhibit E
Exhibits listed above 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, 2000 and as
exhibits to the registrants definitive proxy statement dated March 15, 2002
filed with the Securities Exchange Commission pursuant to Regulation 14A.
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 auditing standards generally accepted in
the United States, the financial statements included in the A. M. Castle & Co.
2001 Annual Report to Stockholders incorporated by reference in this Form 10-K,
and have issued our report thereon dated February 4, 2002. 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 18, 2002
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 18, 2002 included in this Annual
Report on Form 10-K for the year ended December 31, 2001; and
2. Our report dated February 18, 2002 incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 2001.
Arthur Andersen LLP
Chicago, Illinois
March 13, 2002
<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, 2001, 2000 AND 1999
(Dollars in thousands)
2001 2000 1999
---- ---- ----
Balance, beginning of year $ 590 $ 580 $ 638
Add - Provision charged to income 600 1,814 318
- Recoveries 327 77 102
Less - Uncollectible accounts charged
against allowance (871) (1,881) (478)
------ ------ -----
Balance, end of year $ 646 $ 590 $ 580
====== ====== =====
<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: March 2, 2002
------------------
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 as shown following their name on the dates
indicated.
<TABLE>
<S> <C> <C>
/s/ Michael Simpson /s/ John McCartney /s/ John W. McCarter, Jr.
- ------------------------------------- ------------------------------- -----------------------------------
Michael Simpson, John McCartney, Director John W. McCarter, Jr., Director
Chairman of the Board Chairman, Audit Committee Member, Audit Committee
March 2, 2002 March 2, 2002 March 2, 2002
/s/ G. Thomas McKane /s/ William K. Hall
- ------------------------------------- -------------------------------
G. Thomas McKane, President - William K. Hall, Director
Chief Executive Officer, and Director Member, Audit Committee
March 2, 2002 March 2, 2002
/s/ Edward F. Culliton /s/ John P. Keller
- ------------------------------------- -------------------------------
Edward F. Culliton, Vice President - John P. Keller, Director
Chief Financial Officer, and Director Member, Audit Committee
March 2, 2002 March 2, 2002
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>c68076ex13.txt
<DESCRIPTION>ANNUAL REPORT TO SECURITY HOLDERS
<TEXT>
<PAGE>
[A. M. CASTLE & CO. LOGO]
2001 Annual Report
Our
Roadmap to
Shareholder
Value... AN UPDATE ON OUR PROGRESS
<PAGE>
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
leading 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 our 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.
OUR ROADMAP TO SHAREHOLDER VALUE...
INCREASING OPERATING MARGINS
IMPROVING ASSET UTILIZATION
GROWING REVENUES
TABLE OF CONTENT
Financial Highlights .............................................. 1
Letter to Shareholders ............................................ 2
Progress Report on Road to Shareholder Value ...................... 6
Eleven-Year Financial and Operating Summary ....................... 10
Financial Review .................................................. 12
Consolidated Statements and Notes ................................. 15
Directors and Officers ............................................ 24
Shareholder Information ............................. Inside Back Cover
<PAGE>
THE YEAR IN BRIEF
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
%
2001 2000* Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS Net sales $611,275 $744,509 (18)%
Gross profit on sales 181,463 219,646 (17)
EBITDA** 12,440 17,652 (30)
Loss before taxes (7,898) (2,395) (230)
Net loss (5,050) (1,675) (201)
- ------------------------------------------------------------------------------------------
PER SHARE OF Net loss basic (0.36) (0.12) (200)
COMMON STOCK Dividends 0.495 0.780 (37)
Stockholders' equity 8.32 9.20 (9)
- ------------------------------------------------------------------------------------------
BALANCE SHEET Total assets 327,415 418,851 (21)
Total debt 119,852 164,560 (27)
Total equity 117,234 129,241 (9)
Working capital 100,151 155,320 (35)
Cash flow*** 4,375 8,094 (46)
Average shares outstanding 14,094 14,054 --
- ------------------------------------------------------------------------------------------
SELECTED RATIOS Current ratio 2.4 2.4 --
Debt to capital ratio 50.6% 56.0% (10)
- ------------------------------------------------------------------------------------------
</TABLE>
* 2000 figures include special charges to cost of sales of $2,016 and $6,516
of impairment and other operating expenses (Note 8)
** See page 11 for definition
*** Net income plus depreciation and amortization
2001 ANNUAL REPORT 1
<PAGE>
TO OUR SHAREHOLDERS:
OVERVIEW. Against the backdrop of one of the toughest periods in the company's
history, we began to implement our roadmap to shareholder value and made
substantial progress. As outlined last year, we are focused on three critical
areas: increasing operating margins; improving asset utilization; and growing
our revenues. This year's report updates our efforts in each of these areas and
highlights the underlying upside leverage that we've created.
While economic forecasters are divided on the timing of recovery, the
general consensus calls for gradual improvement during the second half of 2002.
We believe we will emerge from this difficult period with much stronger
capabilities to capitalize on the value of the Castle brand. These include: a
more efficient asset base; improved processes and tools for managing
inventories; increased operational efficiency and productivity; and a lowered
breakeven point, resulting in the ability to generate attractive cash returns on
investments.
MARKET CONDITIONS. Our results reflect one stark reality: the manufacturing
sector of the economy was in an outright recession throughout 2001. As our
industrial metals customers' businesses declined, the softness amplified as
users reduced production levels below sales levels in order to liquidate
inventories. This substantially affected suppliers such as Castle as many of our
key markets experienced declines of 20% or more.
The tragedy that struck our country on September 11th was another
contributing factor. Just as we were beginning to see some signs of recovery,
the tragedy plummeted some of our stronger aerospace markets into turmoil and
uncertainty. So instead of improvement, we saw an acceleration of the steep
declines in the manufacturing environment, dramatically reducing the demand for
steel, aluminum and plastics. This deterioration in market conditions culminated
in significantly extended customer shutdowns during the Thanksgiving and
Christmas holiday seasons. We believe we are now seeing early signs that the
[PHOTO]
G. Thomas McKane
President and CEO
2 A. M. CASTLE & CO.
<PAGE>
[PHOTO]
Michael Simpson
Chairman of the Board
manufacturing inventory liquidation phase is concluding and a slow gradual
recovery of producer volumes will occur in the months ahead.
FINANCIAL RESULTS. In the face of these difficult conditions, annual sales in
2001 declined to $611.3 million versus $744.5 million in 2000. We want to
emphasize that these declines do not reflect market share losses. We have
monitored our performance against industry trade data, and these sources confirm
that we have held market share and even made selected gains through new
business. These gains, however, were masked by the impact of recession-related
declines.
Given the highly competitive environment that exists today, we feel that
our ability to maintain our gross margin in the 29%-30% range reflects our
customers' recognition of the value-added processes and services we provide.
Most importantly for our long-term success, it confirms the strength of the
Castle brand name in our marketplace.
Operating expenses totalled $169.0 million, down $26.5 million, or 13.6%
from last year's level of $195.5 million. EBITDA [Earnings Before Interest,
Taxes, Depreciation and Amortization] declined 52.5% to $12.4 million compared
with $26.2 million before asset restructuring charges of $8.5 million last
year. Operations in 2001 produced an after-tax loss of $5.0 million, or 36 cents
per share, versus an after-tax profit in 2000, exclusive of asset restructuring
charges, of $3.4 million, or 25 cents per share. Further details related to our
results can be found in the financial review section of this report.
Throughout the year, we made significant improvements in operating
efficiencies and cost reductions. By the fourth quarter, our operating expense
level reflected a $54 million annualized reduction from the prior year. We
estimate that approximately $44 million of this total reduction is directly
associated with lower activity levels, while the remaining $10 million reflects
a sustainable reduction in our operating cost structure.
2001 ANNUAL REPORT 3
<PAGE>
INVENTORIES WERE SUBSTANTIALLY REDUCED THROUGHOUT 2001 AS WE ADJUSTED THEM TO
CORRESPOND WITH THE LOWER LEVELS OF BUSINESS ACTIVITY.
As further confirmation of our progress, we note the corresponding
improvement in EBITDA in the fourth quarter of 2001 versus 2000. Excluding a
$3.3 million LIFO adjustment, we achieved EBITDA of $1.8 million in 2001
compared with an operating loss of $1.0 million, excluding the asset
restructuring charges of $8.5 million and a $0.7 million LIFO adjustment, in the
year earlier period. This $2.8 million positive shift in EBITDA is especially
significant considering that it was achieved in the face of a 27% reduction in
sales volume.
FINANCIAL POSITION. Turning to the balance sheet, inventories were substantially
reduced throughout 2001 as we adjusted them to correspond with the lower levels
of business activity. Year-end inventories declined to $134.8 million, down 17%
from $163.2 million a year earlier, and down 29% or $54 million from the high
water mark of $188.8 million recorded at the end of the third quarter of
2000. Virtually all of the cash generated during the year by these inventory
reductions was used to pay down our trade payables.
Total borrowings declined to $119.9 million from $164.6 million at 2000
year-end, creating a corresponding reduction in our debt-to-capital ratio to
50.6% from 56.0% a year earlier. These reductions were largely associated with a
new $65 million accounts receivable financing agreement which we established
late in the third quarter and which carries current interest rates of between 2
3/4% and 3%.We were able to obtain this program at favorable rates because of
the high quality of our receivables portfolio, which includes most of the
leading durable equipment manufacturing companies in North America. We believe
that this facility, in conjunction with the low-rate term loan agreements
already in place, are more than adequate to cover all of our anticipated
borrowing needs into the future. Looking ahead, with future inventory reductions
and the expected sale of non-strategic business units, our near-term debt to
capital ratio target remains at 45% while our long term objective is to move
closer toward the 40% mark.
KEY DEVELOPMENTS. As previously reported, in response to declining business
conditions, we reduced our quarterly cash dividend in May to 12 cents per share
4 A. M. CASTLE & CO.
<PAGE>
THE NEW $65 MILLION ACCOUNTS RECEIVABLE FINANCING AGREEMENT WE ESTABLISHED
CARRIES INTEREST RATES OF BETWEEN 2 3/4% AND 3%.
and again in October to a quarterly rate of 6 cents per share. At its
January 25, 2002 meeting, given the state of the economy and the metals
distribution industry, our Board of Directors took the difficult step of
temporarily suspending dividend payments. We felt it prudent to use our cash to
fund the business and limit our debt rather than to pay out an unearned
dividend. As business conditions improve, this will be re-evaluated.
We also completed a new five-year agreement effective October 1, 2001
with the United Steel Workers, covering three of our largest facilities. This is
the first contract in our history that extends past three years and contains
many significant developments. Among its key features, the agreement freezes
wages for the first twelve months (consistent with the wage and salary freeze
experienced by all Castle salaried and non-union hourly employees in 2001),
increases employee contributions for medical insurance premiums, and, in return,
provides employees the opportunity to earn a bonus when the company achieves
certain pre-tax profit rates. We believe that this is an excellent contract,
which further aligns the interests of the company and our valued employees.
2002 OUTLOOK. In closing, we would like to thank our customers, employees and
shareholders for their support and interest in Castle. We appreciate your
continued patience as we work through this difficult period, focusing on the
three key areas that will build long-term shareholder value. On the following
pages, we provide further details on our progress in these areas, highlighting
the leverage that has been created.
We remain convinced that Castle has a very strong, if not the best,
franchise name in the industry. While we cannot pinpoint the timing of the
recovery in our markets, we believe that when it occurs, we have positioned
ourselves with a much stronger balance sheet and a much leaner and more capable
organization to serve our customers. We also believe that the leverage that we
will generate from increased volume, when it does occur, will produce handsome
returns for shareholders.
/s/ G. THOMAS MCKANE /s/ MICHAEL SIMPSON
G. Thomas McKane Michael Simpson
President & CEO Chairman of the Board
2001 ANNUAL REPORT 5
<PAGE>
PROGRESS REPORT ON ROADMAP TO SHAREHOLDER VALUE
BY THE FOURTH QUARTER, WE HAD ACHIEVED AN ANNUALIZED $54.0 MILLION OPERATING
EXPENSE REDUCTION COMPARED WITH THE SAME PERIOD IN 2000.
In this section of our Annual Report, we discuss our progress in implementing
our Roadmap to Shareholder Value. Launched late in 2000, our strategy focuses on
three critical areas: increasing operating margins; improving asset utilization;
and growing our revenues. We believe that the actions we have taken and continue
to take will create significant upside leverage when activity levels begin to
turn up.
INCREASING OPERATING MARGINS. During 2001, our primary focus was to reduce
operating expenses in virtually every area of the business. As noted earlier, we
made very significant progress in this respect. By the fourth quarter, we had
achieved an annualized $54.0 million reduction compared with the same period in
2000. Of this total operating expense reduction, we estimate that $44.0 million
is directly related to volume. Therefore, when activity levels rebound, these
costs will return. However, the remaining $10.0 million reflects a sustainable
decrease in expenses due to improved productivity and structural changes to both
our fixed and variable cost bases.
As part of our plan to increase operating margins, we continued to focus
attention on enhancing our operating efficiency. A prime example is our WMS
(Warehouse Management System), which is now 95% operational at our Chicago
location. In addition to significantly improving customer service levels, this
electronic bar coded system greatly reduces our costs to store, locate, cut and
ship a wide variety of metal sizes and shapes, and maximizes efficiency in our
orderpicking process. This Warehouse Management System will be fully
operational by the second quarter of 2002, after which we will begin installing
it in one of our other large operations.
During the year, we also made progress in turning around several
underperforming areas of our business. In addition to our distribution centers,
Castle operates a group of metals processing and finishing operations. While
some of these businesses were profitable, others were losing money. Based on the
6 A. M. CASTLE & CO.
<PAGE>
WE LAUNCHED CASTLE DIRECT(TM) TO STRONG MARKET RECEPTION, AND EXPERIENCED
STEADILY INCREASING PARTICIPATION THROUGH THE YEAR.
improvements made in 2001 we believe these operations, taken as a group, will
enter 2002 operating at breakeven levels. We further believe that, with a modest
rise in business activity, we will begin generating operating profits at all of
these units.
In the area of e-commerce, we leveraged the intellectual capital and
technological expertise we gained through our experience with MetalSpectrum into
our own e-commerce vehicle. We launched Castle Direct(TM) early in the second
half of 2001 to strong market reception, and experienced steadily increasing
participation through the balance of the year. Our rapid growth reflects the
inherent benefits of on-line ordering as well as the fact that our site was
designed directly from customer surveys, therefore correlating precisely with
their priorities. Currently, CD(TM) processes approximately 5% of customer
inquiries. Going forward, we expect that as many as 30% to 40% of our customer
inquiries could and should be handled by this system. Not only will this improve
service and efficiency, it will contribute to increased margins by reducing the
amount of employee intervention required to process routine business
transactions.
IMPROVING ASSET UTILIZATION. The second major element in our roadmap to
shareholder value is improving asset utilization. As a distribution company,
inventory management is key to achieving this goal. In 2001, we reduced
inventories in all four quarters by a total of $28.4 million, exceeding our goal
of $25.0 million.
All of the cash generated from our inventory reduction efforts in 2001
was consumed by our trade payables, which in the same 12 month period declined
by $33.5 million as our purchases fell well below our inventory withdrawal
rates. When we move into recovery, payables will play a more significant role in
financing working capital as the buy rate begins to match the rate of sales.
2001 ANNUAL REPORT 7
<PAGE>
OUR GOAL IS TO IMPROVE INVENTORY MANAGEMENT BY 20% TO 25% OVER THE NEXT FIVE
YEARS.
Going forward, we are targeting a further inventory reduction of $15.0 million
to $18.0 million for 2002.
Ultimately, our goal is to improve inventory management by 20% to 25%
over the next five years. To accomplish this, we have reorganized our inventory
and purchasing functions under the able direction of a new Vice President of
Supply Chain Management, Al Biemer, who joined Castle in April of 2001. With
powerful new tools such as a recently installed forecasting and inventory
deployment package, we believe the focused attack that Al will spearhead will
make a significant improvement in our inventory management over the next several
years.
We also continue to market several of our subsidiaries and joint ventures
that we have determined are not strategic to our core business. We have
identified prospective strategic buyers for these operations and are in various
stages of discussion and negotiation with each of them. The current environment
does not make this an easy task, but we have no need to sell these businesses at
distressed prices. Thus, we will continue to operate and improve these assets,
and are confident that, over time, we will achieve fair market value for each of
them. Based on our projections, we expect to generate approximately $21.0
million in cash to be used for further debt reduction from the sale of these
businesses.
GROWING OUR REVENUES. The third and final facet of our roadmap is growing our
revenues. We have made significant progress in two key areas. First, we have had
notable success in bringing in sizeable pieces of new business. Since the
inception of this effort, we have received commitments for approximately $25
million of annual volume from new customers or from additional programs
8 A.M. CASTLE & CO.
<PAGE>
IN CHICAGO WE POSTED A 14% GAIN IN ON-TIME SHIPMENTS AND A 15% INCREASE IN
PRODUCTIVITY WITHOUT ANY MAJOR CAPITAL INVESTMENT.
with current customers. It is important to note that this sales initiative is
not being driven by price but by a concerted drive by our entire organization
working in conjunction with the sales force to identify and land new business on
the basis of providing superior value to customers.
We have also worked hard to solidify our existing customers' business
through continuous improvement in customer service. The bulk of these
enhancements have been achieved by incrementally enhancing our performance
across a broad range of activities that affect on-time shipments. These include
everything from quicker receiving of inbound material, inventory accuracy and
first-time pick to reduced load time for outbound trucks. As a result, we were
able to make structural improvements in service levels while simultaneously
reducing operating costs. This is particularly evident at our flagship facility
in Chicago where, under the strong leadership of Vice President of Operations
Dick Meyers, we posted a 14% gain in on-time shipments and a 15% increase in
productivity without any major capital investment.
Assessing our progress one year into our roadmap to shareholder value, we
are very encouraged by the improvements made in each aspect of our strategy.
While we still have much work to do, we are now in a position where even a
modest upturn in demand from our customers in the producer durable equipment
market will generate a substantial contribution to our profitability. For the
many reasons detailed in this Annual Report, we remain strongly convinced that
Castle has one of the best franchises, if not the best, in our industry. We are
highly determined to continue the efforts that we have begun to build
shareholder value, and look forward to reporting on our further progress next
year.
2001 ANNUAL REPORT 9
<PAGE>
CONSOLIDATED ELEVEN-YEAR FINANCIAL AND OPERATING SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(dollars in millions, except employee and per share data-Note 7) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL Tons sold (in thousands) ...................... 296 389 373
SUMMARY OF Net sales ..................................... $ 611.2 $ 744.5 $ 707.5
EARNINGS Cost of sales ............................... 429.8 522.9 483.2
Special charges ............................. -- 2.0 --
--------------------------------------
Gross profit .................................. 181.4 219.6 224.3
Operating expenses .......................... 169.0 195.5 189.1
Impairment and other operating expenses ..... -- 6.5 --
--------------------------------------
EBITDA* ....................................... 12.4 17.6 35.2
Depreciation and amortization ............... 9.4 9.7 9.9
Interest expense, net ....................... 9.6 10.3 10.6
Discount on sale of accounts receivable ..... 1.3 -- --
--------------------------------------
(Loss) income before income taxes ............. (7.9) (2.4) 14.7
Income taxes ................................ (2.8) (0.7) 6.0
--------------------------------------
Net (loss) income ............................. (5.1) (1.7) 8.7
Cash dividends ................................ 7.0 11.0 11.0
--------------------------------------
Reinvested earnings ........................... $ (12.1) $ (12.7) $ (2.3)
======================================
- -------------------------------------------------------------------------------------------------------------
SHARE DATA Average shares outstanding (in thousands) ..... 14,094 14,054 14,046
(NOTE 7) Net (loss) income per share basic ............. $ (0.36) $ (0.12) $ 0.62
Net (loss) income per share diluted ........... $ (0.36) $ (0.12) $ 0.62
Cash dividends per share ...................... $ 0.495 $ 0.78 $ 0.78
Book value per share .......................... $ 8.32 $ 9.20 $ 10.10
- -------------------------------------------------------------------------------------------------------------
FINANCIAL Working Capital ............................... $ 100.2 $ 155.3 $ 128.1
POSITION Property, plant and equipment, net ............ $ 87.5 $ 91.1 $ 97.1
AT YEAR-END Total assets .................................. $ 327.4 $ 418.9 $ 413.3
Total debt .................................... $ 119.9 $ 164.6 $ 126.5
Stockholders' equity .......................... $ 117.2 $ 129.2 $ 141.8
- -------------------------------------------------------------------------------------------------------------
FINANCIAL Return on sales ............................... (0.8%) (0.2%) 1.2%
RATIOS Total capital turnover ........................ 2.5 2.4 2.6
Return on total capital ....................... (2.1) (0.6%) 3.3%
Financial leverage ............................ 1.9 2.1 1.9
Return on opening stockholders' equity ........ (3.9%) (1.2%) 6.1%
Percent earnings reinvested ................... (237.3%) (747.1%) (26.4%)
Percent decrease in equity .................... (9.3%) (8.9%) (1.5%)
Per employee data (in thousands)
Net sales ..................................... $ 368.2 $ 370.8 $ 364.8
Gross profit .................................. $ 109.3 $ 109.4 $ 115.7
Operating expenses ............................ $ 101.8 $ 100.6 $ 97.5
EBITDA* ....................................... $ 7.5 $ 8.8 $ 18.2
- -------------------------------------------------------------------------------------------------------------
OTHER DATA Additions to property, plant and equipment .... $ 7.4 $ 13.2 $ 17.8
Stockholders at year-end ...................... 1,448 1,586 1,601
Employees at year-end ......................... 1,660 2,008 1,939
- -------------------------------------------------------------------------------------------------------------
</TABLE>
This schedule is prepared reflecting accounting changes as required or allowed
to more fairly present the results of operations over the eleven-year
periods. 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.
10 A. M. CASTLE & CO.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
394 378 331 343 338 308 249 234
$ 792.8 $ 754.9 $ 672.6 $ 627.8 $ 536.6 $ 474.1 $ 423.9 $ 436.4
559.1 540.3 481.4 454.4 391.4 351.8 313.7 331.1
-- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------
233.7 214.6 191.2 173.4 145.2 122.3 110.2 105.3
185.1 164.3 139.9 121.7 112.1 102.1 94.9 92.8
-- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------
48.6 50.3 51.3 51.7 33.1 20.2 15.3 12.5
8.5 6.6 5.3 4.5 4.6 4.8 4.9 5.3
9.4 4.2 2.9 2.9 3.2 3.8 4.3 6.8
-- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------
30.7 39.5 43.1 44.3 25.3 11.6 6.1 0.4
12.2 15.7 17.0 17.5 9.9 4.7 2.7 0.2
- --------------------------------------------------------------------------------------
18.5 23.8 26.1 26.8 15.4 6.9 3.4 0.2
10.6 9.2 8.0 6.0 3.6 2.9 2.9 3.9
- --------------------------------------------------------------------------------------
$ 7.9 $ 14.6 $ 18.1 $ 20.8 $ 11.8 $ 4.0 $ 0.5 $ (3.7)
======================================================================================
- ---------------------------------------------------------------------------------------
14,043 14,026 13,999 13,894 13,850 13,646 13,643 13,643
$ 1.32 $ 1.70 $ 1.86 $ 1.93 $ 1.12 $ 0.50 $ 0.25 $ 0.02
$ 1.32 $ 1.69 $ 1.86 $ 1.93 $ 1.11 $ 0.50 $ 0.25 $ 0.02
$ 0.755 $ 0.66 $ 0.57 $ 0.43 $ 0.26 $ 0.22 $ 0.22 $ 0.29
$ 10.26 $ 9.75 $ 8.71 $ 7.44 $ 5.93 $ 5.10 $ 4.80 $ 4.74
- ---------------------------------------------------------------------------------------
$ 182.8 $ 120.8 $ 80.4 $ 84.8 $ 76.6 $ 86.7 $ 75.8 $ 80.9
$ 94.6 $ 77.4 $ 62.7 $ 44.5 $ 41.2 $ 41.0 $ 43.2 $ 47.4
$ 460.0 $ 366.4 $ 261.4 $ 222.5 $ 213.1 $ 204.2 $ 195.2 $ 190.4
$ 176.1 $ 93.4 $ 43.4 $ 30.8 $ 42.3 $ 63.4 $ 58.6 $ 69.4
$ 144.0 $ 136.7 $ 121.9 $ 103.4 $ 82.2 $ 69.5 $ 65.5 $ 64.7
- ---------------------------------------------------------------------------------------
2.3% 3.2% 3.9% 4.3% 2.9% 1.5% 0.8% 0.1%
2.6 3.6 4.6 5.6 4.8 3.7 3.5 3.2
6.0% 11.2% 18.0% 23.9% 13.9% 5.4% 2.8% 0.1%
2.3 1.7 1.4 1.4 1.6 1.9 1.9 2.0
13.5% 19.6% 25.3% 32.6% 22.2% 10.5% 5.2% 0.3%
42.7% 61.3% 69.3% 77.6% 76.6% 58.0% 14.7% --%
5.3% 12.1% 17.9% 25.8% 18.3% 6.1% 1.2% (5.3%)
$ 415.7 $ 402.2 $ 446.9 $ 510.0 $ 452.8 $ 393.8 $ 354.4 $ 344.2
$ 122.6 $ 114.3 $ 127.0 $ 140.8 $ 122.5 $ 101.6 $ 92.1 $ 83.0
$ 97.1 $ 87.5 $ 93.0 $ 98.9 $ 94.6 $ 84.8 $ 79.3 $ 73.2
$ 25.5 $ 26.8 $ 34.0 $ 41.9 $ 27.9 $ 16.8 $ 12.8 $ 9.8
- ---------------------------------------------------------------------------------------
$ 30.2 $ 16.2 $ 22.5 $ 11.8 $ 7.9 $ 4.6 $ 1.8 $ 3.3
1,657 1,699 1,613 1,618 1,639 1,625 1,670 1,750
1,907 1,877 1,505 1,231 1,185 1,204 1,196 1,268
- ---------------------------------------------------------------------------------------
</TABLE>
* Earnings before interest, discount on sale of accounts receivable, taxes,
depreciation and amortization ("EBITDA") is a non-GAAP measure that is
computed as net income, excluding interest, discount on sale of accounts
receivable, 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.
2001 ANNUAL REPORT 11
<PAGE>
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 in 2001 reflect one of the most difficult market
environments in the Company's history. Business conditions deteriorated during
the year with the markets for most of its product lines declining 20% or more.
This decline reflected not only a drop in final product sales at its
manufacturing customers, but also significant inventory reductions by customers
in both their manufacturing and finished goods inventories. The manufacturing
recession and aggressive inventory liquidation programs reached their depth
during the final six weeks of the year, which had a major effect on the
Company's fourth quarter performance.
As reported in 2000, Castle conducted a strategic review of its operations
to address and manage the issues that adversely affected results over the past
several years. This review has resulted in the Roadmap to Shareholder Value
presented in our 2000 Annual Report. The plan focuses on three critical areas:
increasing operating margins; improving asset utilization; and growing revenues.
During 2001, Castle made significant progress in implementing this plan, the
details of which are described in the Shareholders' Letter and Operations
sections of this Report.
2001 COMPARED WITH 2000
Revenues for 2001 of $611.3 million were 17.9% under the $744.5 million
generated in 2000. Approximately 91% of all revenues were derived from the
Company's core metals distribution business and 9% from the distribution of
plastics. Within the metals segment, carbon and stainless steel accounted for
71% of total activity with the balance being provided from the sales of
non-ferrous metal products.
Gross profit decreased by 17.3% to $181.5 million from $219.6 million in
2000. Despite the sales decline, gross margin percentage increased slightly from
29.5% in 2000 to 29.7% in 2001. During 2001 total gross profit was negatively
affected by a net LIFO (last-in, first-out) loss adjustment of $3.3 million as
compared to a $0.7 million net LIFO loss adjustment and a special charge of $2.0
million in 2000. Substantially all inventories are valued using the LIFO method
of inventory valuation.
Total operating expenses in 2001 were $169.0 million as compared to
operating expenses in 2000 of $195.5 million (before asset restructuring charges
of $6.5 million), a decrease of $26.5 million or 13.6%. Although much of the
reduction is associated with lower sales activity, the company has taken several
major initiatives during the year to achieve sustainable reductions in virtually
all categories of operating expenses.
Depreciation and amortization expense was $0.3 million less than 2000
reflecting reduced capital spending and the effect of the special charges taken
in 2000 to reduce non-productive assets to fair value.
During the third quarter of 2001, the outstanding domestic revolving debt
was fully paid down with funds generated by a new accounts receivable
securitization program, which has become the Company's primary source for
working capital funds. This is the main reason for the reduction in net interest
expense during 2001. The discount amount on the securitization agreement is
recorded as "Discount on sale of accounts receivable". This $1.3 million expense
includes a one-time charge of $0.9 million relating to the initial set up of the
facility.
Castle's 2001 effective income tax rate of 36.1% was higher than the 30.1%
rate of the previous year due to the impact of non-deductible expenses and a
higher pre-tax loss.
The net loss for 2001 totalled $5.0 million, or $0.36 per share, as
compared to last year's net loss of $1.7 million, or $0.12 per share, reflecting
the continuing recessionary conditions in most of the industries Castle serves.
2000 COMPARED WITH 1999
Revenues for 2000 of $744.5 million were 5.2% over the $707.5 million generated
in 1999. Approximately 91% of total revenues were derived from its core business
with carbon and stainless steel accounting for 73% of the sales of these
products.
Gross profit decreased by 2.1% in 2000 to $219.6 million from $224.3
million in 1999. Of this reduction,$2.0 million was due to special charges made
to cost of sales. These charges were the result of writing down slow moving
inventories in preparation for re-manufacturing them into more saleable items.
Gross margin percentage decreased to 29.5% in 2000 from 31.7% in 1999. The
reduction was primarily caused by the inability to pass mill cost increases to
customers on a timely basis, along with a year-to-year swing in the net LIFO
adjustment, which decreased gross profit in 2000 by $0.7 million as compared to
an increase of $3.1 million in 1999.
Total operating expenses before impairment losses and other operating
expenses for 2000 were $195.5 million,3.4% higher than 1999's $189.1 million.
Much of the increase was due to start-up costs associated with a major warehouse
consolidation project and the implementation of a warehouse management system.
Both programs proved to be more difficult and costly than anticipated. Increased
fuel costs also had a negative effect along with a $0.5 million loss on the
investment in a start-up metal industry e-commerce joint venture that ceased
operations in 2001. As part of the strategic review of the Company's operations,
impairment losses and other operating expenses of $6.5 million were charged to
operating expense in the fourth quarter of 2000. These charges were taken to
reduce the book values of one of its processing facilities, a joint venture and
other non-productive assets to fair value in anticipation of their sale or other
disposition. See Note 8 to the Consolidated Financial Statements for more
detailed information.
Depreciation and amortization expense and net interest expense were
comparable to 1999.
Castle's 2000 effective income tax rate of 30.1% was under the 40.7% rate
in 1999 due to the impact of non-deductible expenses and a lower pre-tax loss.
Net loss totalled $1.7 million for 2000 compared to net income of $8.7
million in 1999. Basic earnings per share declined from $0.62 in 1999 to a loss
of $0.12 in 2000. Net income before special charges and impairment and other
operating expenses (net of statutory income tax rates) was $0.25 per share.
MAJOR ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting standards, which necessarily include amounts that are based
on estimates and assumptions. The following is a description of some of the more
significant valuation policies:
Accounts Receivable - Accounts Receivable are evaluated on a quarterly
basis and any significant customers with delinquent balances are reviewed to
determine future collectibility. Determinations are based on legal issues
(bankruptcy status), past history, current
12 A. M. CASTLE & CO.
<PAGE>
financial and credit agency reports, and the experience of the credit
representatives. Accounts deemed to be uncollectible are reserved in the quarter
in which the determination is made. Additional reserves are maintained based on
the Company's historical bad debt experience. Management believes that the net
accounts receivable at the end of the year are of a good quality.
Inventory - Inventory is valued using the last in, first out (LIFO) method.
Under this method, the current value of materials sold is recorded as cost of
sales rather than the actual cost in the order in which it was purchased. This
means that older costs are included in inventory, which may be higher or lower
than current costs. This method of valuation is subject to year-to-year
fluctuations in cost of sales, which are influenced by the inflation or
deflation existing within the metals industry. The use of LIFO for inventory
valuation was chosen to better match replacement cost of inventory with the
current pricing used to bill customers.
Retirement Plans -The Company values retirement plan assets and liabilities
based on assumptions and valuations determined by an independent actuary.
Although management reviews and concurs with the actuary's assumptions, they are
subject to the occurrence of future events which are out of the control of the
Company or the actuary and could differ materially from the amounts currently
reported.
CAPITAL EXPENDITURES
Capital expenditures for 2001 totalled $7.4 million as compared to $13.2 million
in 2000. Major expenditures included replacement of machinery and equipment,
increased processing capabilities, the continuing implementation of the
warehouse management system and plant expansion. It is anticipated that the 2002
capital expenditures will not exceed the $7.4 million spent in 2001.
The 2000 capital expenditures totalled $13.2 million as compared to $17.8
million in 1999. These expenditures included the cost of significant expansions
of our processing capabilities, the consolidation of warehouse facilities and
the implementation of a warehouse management system.
During 2001 and 2000, the company sold and leased back approximately $2.5
million and $8.3 million of fixed assets respectively, which added to cash flow
and minimized other financing requirements. The leaseback transactions are
recorded as operating leases and are therefore not reflected as debt on the
accompanying Consolidated Balance Sheets.
LIQUIDITY AND CAPITAL RESOURCES
During 2001, the Company entered into an Accounts Receivable Securitization
Program (Securitization Program), and paid down its domestic revolving credit
debt. This program is currently the primary source of funds for working capital.
Due primarily to the $40.0 million of accounts receivable sold, total long-term
debt was reduced to $119.9 million by 2001 year-end from $164.6 million a year
ago. This has resulted in a reduction in the debt-to-capital ratio from 56.0% to
50.6% as the proceeds of the Securitization are recorded as payment of Accounts
Receivable and not as debt on the Balance Sheet. The Company continues to focus
on debt reduction through the continuation of cost control and inventory
reduction programs initiated in 2001 and by pursuing the sale of facilities as
outlined in the 2001 Annual Report.
Working capital totalled $100.2 million at December 31, 2001 as compared to
$155.3 million at December 31, 2000. The majority of the decrease was due to the
$40.0 million sale of accounts receivable under the Securitization Program.
Accounts receivable declined an additional $27.3 million due to reduced sales
activity. The number of days outstanding at the end of 2001 was 48.9,up 2.4 days
from the 46.5 at December 31, 2000, which is reflective of the very competitive
current market environment. Inventories decreased by $28.5 million from 2000
year-end levels. The decrease was both volume related and due to programs
instituted by the Company to decrease the inventory investment in order to
improve cash flow. The decrease in accounts payable from $84.7 million at
December 31, 2000 to $51.2 million at December 31, 2001 is reflective of the
decrease in inventory.
For the twelve months ended December 31, 2001 cash provided from operating
activities totalled $59.6 million. The use of the accounts receivable
securitization facility, which is the primary source of short-term funds,
accounted for $40.0 million of the positive cash flow. The Company had
immediately available committed lines of credit of $2.1 million along with $8.0
million of additional accounts receivable available for sale under the
Securitization Program. Management believes that funds generated from future
operations and the existing $10.1 million of cash availability should provide
adequate funding for current business operations.
The Company's financial agreements require it to maintain certain funded
debt to total capital ratios, working capital to debt ratios, and minimum equity
values (refer to Note 4 in the Notes to Consolidated Financial Statements for
more information). To help ensure future compliance in the face of uncertain
economic conditions over which it has no control, the Company has taken the
following steps:
- - In order to reduce borrowing levels an Accounts Receivable Securitization
Program was initiated in the third quarter of 2001. This method of financing
has become the primary source of funds for the Company, reducing the need for
other types of short term debt financing. The favorable discount rates, which
at year-end were under 3%, will have the additional effect of reducing the
Company's combined interest/discount expense in the future.
- - In order to strengthen the working capital position a major inventory
reduction program was put in place to reduce current and future debt
requirements.
- - In order to build a stronger equity base, the Company has made significant and
sustainable reductions in its operating expense base. These structural changes
will increase profitability once the economy begins to recover. Also, in
January 2002, the employees' pension plans were funded with a contribution of
company stock. This increased shareholder equity by $5.0 million. The plans
were in an over-funded position prior to the contribution, which was made in
compliance with IRS maximum funding allowances, and will have the effect of
reducing future cash requirements along with reducing future pension expense.
Finally, dividends have been suspended in order to maintain working capital
compliance and minimize any further reduction in stockholder's equity.
- - In order to reduce debt to capital ratios, the Company continues to seek
purchasers for non-performing and non-synergistic investments to generate cash
flow for debt reduction.
2001 ANNUAL REPORT 13
<PAGE>
COMMON STOCK INFORMATION
(Per share data)
- --------------------------------------------------------------------------------
DIVIDENDS STOCK PRICE RANGE
2001 2000 2001 2000
- --------------------------------------------------------------------------------
First quarter ...... $ 0.195 $ 0.195 $ 8.69 $ 10.05 $ 10.50 $ 12.69
Second quarter ..... $ 0.120 $ 0.195 $ 8.02 $ 14.50 $ 8.31 $ 12.56
Third quarter ...... $ 0.120 $ 0.195 $ 7.95 $ 13.08 $ 8.81 $ 10.75
Fourth quarter ..... $ 0.060 $ 0.195 $ 7.50 $ 10.54 $ 8.69 $ 12.25
----------------
$ 0.495 $ 0.780
================
- --------------------------------------------------------------------------------
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.
SUPPLEMENTARY STATEMENTS
Years Ended December 31,
- --------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Current assets
Cash ......................................... $ 1.8 $ 2.1 $ 2.6
Accounts receivable, net ..................... 23.1 90.3 82.7
Inventories, at latest cost .................. 174.2 206.1 206.5
Income tax receivable ........................ 5.1 4.1 --
Other current assets ......................... 6.1 2.7 2.2
--------------------------
Total current assets ......................... 210.3 305.3 294.0
Less--current liabilities .................... (86.5) (124.3) (143.8)
--------------------------
Net current assets ........................... 123.8 181.0 150.2
Prepaid expenses and other assets ............ 59.9 55.6 51.1
Investment in joint ventures ................. 9.2 9.7 8.1
Fixed assets, net ............................ 87.5 91.1 97.1
--------------------------
Total assets, less current liabilities ....... 280.4 337.4 306.5
Long-term debt ............................... (117.2) (161.1) (122.6)
Deferred income taxes ........................ (18.9) (18.1) (16.4)
Minority Interest ............................ (1.3) (1.0) (1.9)
Post-retirement benefit ...................... (2.1) (2.3) (1.7)
Unrecognized inventory gain, net of taxes .... (23.7) (25.7) (22.1)
--------------------------
Stockholders' equity ......................... $117.2 $129.2 $141.8
==========================
- --------------------------------------------------------------------------------
14 A. M. CASTLE & CO.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .................................................. $ 611,275 $ 744,509 $ 707,465
Cost of material sold ...................................... 429,812 522,847 483,126
Special charges ............................................ -- 2,016 --
-----------------------------------
Gross profit on sales ...................................... 181,463 219,646 224,339
Operating expenses ......................................... 169,023 195,478 189,132
Impairment and other operating expenses .................... -- 6,516 --
Depreciation and amortization expense ...................... 9,425 9,769 9,866
Interest expense, net (Notes 2 and 4) ...................... 9,639 10,278 10,643
Discount on sale of accounts receivable (Note 9) ........... 1,274 -- --
-----------------------------------
(Loss) income before income taxes .......................... (7,898) (2,395) 14,698
-----------------------------------
Income taxes (Note 3)
Federal-currently payable .................................. (6,274) 2,873 2,089
-deferred ........................................... 3,900 (3,568) 2,867
State ...................................................... (474) (25) 1,028
-----------------------------------
(2,848) (720) 5,984
-----------------------------------
Net (loss) income .......................................... $ (5,050) $ (1,675) $ 8,714
===================================
Basic (loss) income per share (Note 7) ..................... $ (0.36) $ (0.12) $ 0.62
===================================
Diluted (loss) income per share (Note 7) ................... $ (0.36) $ (0.12) $ 0.62
===================================
- ---------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year ............................... $ 107,703 $ 120,385 $ 122,629
Net (loss) income .......................................... (5,050) (1,675) 8,714
Cash dividends--$0.495 in 2001, $0.780 in 2000 and 1999 .... (7,009) (11,007) (10,958)
-----------------------------------
Balance at end of year ..................................... $ 95,644 $ 107,703 $ 120,385
===================================
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2001 ANNUAL REPORT 15
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash (Note 1) ........................................................................... $ 1,801 $ 2,079 $ 2,578
Accounts receivable, less allowances of $600 in 2001, 2000, and 1999 (Note 9) ........... 23,064 90,366 82,742
Inventories--principally on last-in, first-out basis (latest cost higher by approximately
$39,500 in 2001, $42,900 in 2000, and $36,900 in 1999 (Note 1) ....................... 134,751 163,206 169,618
Income tax receivable (Notes 1 and 3) ................................................... 5,120 4,116 --
Other current assets .................................................................... 6,121 2,696 2,169
-----------------------------------
Total current assets ............................................................... 170,857 262,463 257,107
-----------------------------------
Investment in joint ventures (Note 10) .................................................... 9,206 9,714 8,057
-----------------------------------
Prepaid expenses and other assets (Note 1) ................................................ 59,852 55,566 51,100
-----------------------------------
Property, plant and equipment, at cost (Notes 1 and 5)
Land .................................................................................... 5,824 5,827 5,957
Buildings ............................................................................... 51,245 51,187 52,841
Machinery and equipment ................................................................. 127,867 123,740 129,011
-----------------------------------
184,936 180,754 187,809
Less--accumulated depreciation .......................................................... 97,436 89,646 90,732
-----------------------------------
87,500 91,108 97,077
-----------------------------------
Total assets .............................................................................. $ 327,415 $ 418,851 $ 413,341
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................................ $ 51,242 $ 84,734 $ 102,976
Accrued payroll and employee benefits (Note 6) .......................................... 10,061 10,929 10,407
Accrued liabilities ..................................................................... 5,758 6,925 6,823
Current and deferred income taxes (Notes 1 and 3) ....................................... 981 1,130 4,876
Current portion of long-term debt (Note 4) .............................................. 2,664 3,425 3,915
-----------------------------------
Total current liabilities .......................................................... 70,706 107,143 128,997
-----------------------------------
Long-term debt, less current portion (Note 4) ............................................. 117,188 161,135 122,625
-----------------------------------
Deferred income taxes (Notes 1 and 3) ..................................................... 18,914 18,096 16,356
-----------------------------------
Minority interest ......................................................................... 1,236 971 1,861
-----------------------------------
Post-retirement benefit obligations (Notes 1 and 6) ....................................... 2,137 2,265 1,691
-----------------------------------
Stockholders' equity (Notes 1 and 7)
Common stock, $0.01 par value--authorized 30,000,000 shares; issued and
outstanding 14,160,564 in 2001. Without par value--authorized 30,000,000
shares; issued and outstanding 14,160,564 in 2000, 14,048,070 in 1999 ................ 142 27,625 27,625
Additional paid in capital .............................................................. 27,483 -- --
Earnings reinvested in the business ..................................................... 95,644 107,703 120,385
Accumulated other comprehensive (loss) income (Note 1) .................................. (1,475) (1,123) (665)
Other--deferred compensation ............................................................ (401) (805) --
Treasury stock, at cost (742,191 shares in 2001 and 2000,
and 854,685 in 1999) ................................................................. (4,159) (4,159) (5,534)
-----------------------------------
Total stockholders equity .......................................................... 117,234 129,241 141,811
-----------------------------------
Total liabilities and stockholders' equity ................................................ $ 327,415 $ 418,851 $ 413,341
===================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
16 A. M. CASTLE & CO.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income ................................................................. $ (5,050) $ (1,675) $ 8,714
Adjustments to reconcile net (loss) income to cash provided from operating activities
Depreciation and amortization ..................................................... 9,425 9,769 9,866
Loss (gain) on sale of facilities/equipment ....................................... 44 21 (202)
Equity in loss of joint ventures .................................................. 586 316 504
Increase in deferred taxes ........................................................ 818 1,740 1,251
(Increase) decrease in prepaid expenses and other assets .......................... (5,292) (4,592) 972
Decrease (increase) in investment in joint ventures ............................... (78) (1,973) (1,471)
(Decrease) increase in post-retirement benefit obligations ........................ (128) 574 (504)
Increase (decrease) in minority interest .......................................... 265 (890) 104
Asset impairment .................................................................. -- 5,700 --
Other ............................................................................. 7 10 (36)
--------------------------------
Cash provided from operating activities before changes in current accounts .......... 597 9,000 19,198
--------------------------------
Increase (decrease) from changes in:
Accounts receivable ............................................................ 27,295 (7,614) 2,423
Sale of accounts receivable .................................................... 40,000 -- --
Inventories .................................................................... 28,455 5,006 47,584
Other current assets ........................................................... (26) (527) 196
Accounts payable ............................................................... (33,492) (20,006) 4,118
Accrued payroll and employee benefits .......................................... (868) 482 (812)
Current and deferred income taxes .............................................. (1,153) (7,862) 1,431
Accrued liabilities ............................................................ (1,167) 83 (541)
Special charges and other working capital adjustments .......................... -- 2,832 --
--------------------------------
Net increase (decrease) from changes in current accounts ............................ 59,044 (27,606) 54,399
--------------------------------
Net cash provided from (used by) operating activity ................................. 59,641 (18,606) 73,597
--------------------------------
Cash flows from investing activities
Investments and acquisitions ...................................................... -- (4,050) (3,129)
Advances to joint ventures ........................................................ (3,399) -- --
Proceeds from sale of facilities/equipment ........................................ 2,539 8,264 7,399
Capital expenditures .............................................................. (7,394) (13,231) (17,770)
--------------------------------
Net cash (used by) investing activities ............................................. (8,254) (9,017) (13,500)
--------------------------------
Cash flows from financing activities
Proceeds for issuance of long-term debt ........................................... -- 46,484 3,346
Repayment of long-term debt ....................................................... (44,708) (8,464) (52,968)
Dividends paid .................................................................... (7,009) (11,007) (10,958)
Net proceeds from issuance of stock ............................................... -- -- 27
Other ............................................................................. 52 111 80
--------------------------------
Net cash (used by) provided from financing activities ............................... (51,665) 27,124 (60,473)
--------------------------------
Net decrease in cash ................................................................ (278) (499) (376)
Cash--beginning of year ............................................................. 2,079 2,578 2,954
--------------------------------
Cash--end of year ................................................................... $ 1,801 $ 2,079 $ 2,578
================================
Supplemental disclosures of cash flow information
Cash paid (received) during the year for--
Interest ....................................................................... $ 9,751 $ 10,992 $ 11,353
--------------------------------
Income taxes ................................................................... $ (2,513) $ 5,402 $ 3,302
================================
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2001 ANNUAL REPORT 17
<PAGE>
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, Canada, Europe and
Mexico. 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 consolidated financial statements include A.M. Castle
& Co. (the Company) and its subsidiaries over which the Company exercises a
controlling interest. Entities that are not controlled are accounted for under
the equity method. All inter-company accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform to the
2001 presentation.
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 an
original 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.
Income taxes--Income tax provisions are based on income reported for financial
statement purposes. Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
reporting purposes and the amounts used for income tax 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.
Accumulated other comprehensive income (loss)--The components of other
comprehensive income (loss) are as follows: (dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Comprehensive Accumulated Other
Income Comprehensive
(Loss) Income (Loss)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1998 ................................. $ (681)
Net income ................................................... $ 8,714
Foreign currency translation loss
(net of income tax of $23) ................................. (34) (34)
Pension liability adjustment
(net of income tax $33) .................................... 50 50
-------------------------------
Comprehensive income ......................................... $ 8,730
=======
Balance at December 31, 1999 ................................. (665)
Net loss ..................................................... $(1,675)
Foreign currency translation loss
(net of income tax of $292) ................................ (438) (438)
Pension liability adjustment
(net of income tax of $13) ................................. (20) (20)
-------------------------------
Comprehensive loss ........................................... $(2,133)
Balance at December 31, 2000 ................................. $(1,123)
Net loss ..................................................... $(5,050)
Foreign current translation loss
(net of income tax of $252) ................................ (378) (378)
Pension liability adjustment
(net of income tax of $17) ................................. 26 26
-------------------------------
Comprehensive loss ........................................... $(5,402)
=======
Balance at December 31, 2001 ................................. $(1,475)(*)
=======
</TABLE>
(*) At December 31, 2001 the ending balance includes $969 of foreign currency
translation and $506 of pension liability adjustments.
- --------------------------------------------------------------------------------
Earnings per share--Listed below in accordance with SFAS No. 128 "Earnings per
Share" 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>
- ------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net (loss) income ..................................... $(5,050) $(1,675) $ 8,714
===============================
Weighted average common shares outstanding ............ 14,111 14,054 14,046
Dilutive effect of outstanding employee and
directors' common stock options ..................... -- -- 4
-------------------------------
Diluted common shares outstanding ..................... 14,111 14,054 14,050
===============================
Basic and diluted (loss) earnings per share ........... $ (0.36) $ (0.12) $ 0.62
===============================
Outstanding employee and directors' common stock
options and restricted shares having no dilutive
effect .............................................. 1,681 1,353 780
===============================
- ------------------------------------------------------------------------------------------
</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 prepaid expenses and other assets as of
December 31, 2001, 2000 and 1999 was $31.2 million, $31.6 million and $30.4
million respectively. Accumulated amortization at December 31, 2001, 2000 and
1999 was $4.8 million, $3.6 million and $2.7 million respectively.
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 since approximately 91% 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
18 A. M. CASTLE & Co.
<PAGE>
distribution network. Approximately 71% 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 metal products.
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. Shipping and handling expenses are recorded as operating expense.
These amounts were $23.1 million, $26.9 million and $24.9 million for 2001, 2000
and 1999 respectively.
New Accounting Standards--The Financial Accounting Standards Board issued SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities," which
was effective for fiscal years beginning after June 15, 2000. The Company was
required 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 ($1.0 million in 2001, 2000
and 1999) 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 adoption
on its financial statements.
In 2000 and 2001 Emerging Issues Task Force issued certain bulletins that
were applicable to the Company for the year ended December 31, 2001. These
bulletins included EITF 00-14 "Accounting for Sales Incentives," EITF 00-22
"Accounting for Points and Certain Other Time Based and Volume Based Sales
Incentive Offers and Offers for Free Products or Services to be Delivered in the
Future" and EITF 00-25 "Vendor Income Statement Characterization of
Consideration paid to a Reseller of the Vendors Products." The Company will be
required to comply with these bulletins in the first quarter 2002 and is
currently assessing their impact.
(2) SHORT-TERM DEBT
Short-term borrowing activity was as follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Maximum borrowed .................... $12,225 $12,500 $22,350
Average borrowed .................... 2,713 2,978 3,442
Average interest rate during the
year............................... 5.9% 7.1% 5.3%
- --------------------------------------------------------------------------------
(3) INCOME TAXES
Significant components of the Company's Federal and state deferred tax
liabilities and assets (foreign income is insignificant) as of December
31, 2001, 2000 and 1999 are as follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation ...................... $11,898 $11,540 $10,473
Inventory, net .................... 6,562 3,930 8,505
Pension ........................... 8,092 7,104 6,105
-----------------------------
Total deferred liabilities ...... 26,552 22,574 25,083
-----------------------------
Deferred tax assets:
Post-retirement benefits .......... 1,014 1,065 1,021
NOL carryforward .................. 3,159 -- --
Other, net ........................ 2,181 2,518 807
-----------------------------
Total deferred tax assets ....... 6,354 3,583 1,828
-----------------------------
Net deferred tax liabilities ........ $20,198 $18,991 $23,255
=============================
- --------------------------------------------------------------------------------
The components of the provision (benefit) for deferred Federal income tax for
the years ended December 31, 2001, 2000 and 1999 are as follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Depreciation ........................ $ 436 $ 908 $ 614
Inventory, net ...................... 2,328 (3,982) 1,714
Pension/Post-retirement benefits .... 919 954 218
Other, net .......................... 217 (1,448) 321
-----------------------------
$ 3,900 $(3,568) $ 2,867
=============================
- --------------------------------------------------------------------------------
A reconciliation between the statutory Federal income tax amount and the
effective amounts at which taxes were actually (benefited) provided is as
follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Federal (benefit) income tax at
statutory rates .................. $(2,764) $ (838) $ 5,144
State income taxes, net of Federal
income tax benefits .............. (359) (109) 669
Other (principally the effect of
goodwill) ........................ 275 227 171
-----------------------------
Income tax (benefit) provision ...... $(2,848) $ (720) $ 5,984
=============================
- --------------------------------------------------------------------------------
The Company has net operating loss (NOL) carry-forwards of approximately $3.2
million which are available for Federal and state taxable income in future
periods. The NOL carry-forwards have expiration dates through the year 2021.
(4) LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 2001, 2000 and 1999
(in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit agreement (a) ................................ $ 6,799 $ 45,383 $ --
6.49% insurance company term loan,
due in equal installments from
2004 through 2008 ........................................... 20,000 20,000 20,000
7.53% insurance company term loan due
in equal installments through 2005,
paid off in 2001 ............................................ -- 3,286 3,943
Industrial development revenue bonds at a
4.3% weighted average rate, due in
varying amounts through 2010 (b) ............................ 13,825 14,591 15,358
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 ........................................... 53,125 55,000 55,000
9.3% insurance company term loan, due in
equal installments through 2000 ............................. -- -- 1,640
Other ......................................................... 1,103 1,300 5,599
------------------------------------
Total ......................................................... 119,852 164,560 126,540
Less-current portion .......................................... (2,664) (3,425) (3,915)
------------------------------------
Total long-term portion ....................................... $ 117,188 $ 161,135 $ 122,625
====================================
- ------------------------------------------------------------------------------------------------------
</TABLE>
2001 ANNUAL REPORT 19
<PAGE>
The carrying value of long term debt does not differ materially from their
estimated fair value as of December 31,2001.
(a) The Company has revolving credit agreements of $21.0 million with foreign
banks of which $2.1 million is currently available. A $100.0 million domestic
facility was replaced by a $65.0 million accounts receivable securitization
agreement (see Footnote 9) during the third quarter of 2001. The existing
foreign credit facilities are five-year revolvers and can be 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 for the foreign revolving facilities are based on the
Bank's London Interbank Offer Rate (LIBOR) or Prime rates. The weighted average
rate in 2001 was 5.4%. A commitment fee of 0.5% of the unused portion of the
commitment is also required.
In 2000 and 1999 the Company had revolving credit agreements of $100.0
million domestically and $26.0 million with foreign banks. The credit facilities
were five-year revolvers and could be extended annually by mutual agreement.
Under these credit arrangements all borrowings were considered to be long-term
debt for balance sheet presentation purposes.
Interest rate options on the domestic facility were based on Eurodollar
Interbank Rates, Reference Rates of competitive Bid Rates from five
participating banks.
(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 certain funded debt to total capitalization ratios, working capital
to total debt ratios and equity balances. At December 31,2001, the Company was
in compliance with all restrictive covenants. The equity balance was $1.3
million in excess of the covenant requirement. In January 2002, the Company
contributed common stock to the Pension Plans which had the affect of increasing
the excess over the compliance requirement by an additional $5.0 million (see
Note 6 for details).
(d) Aggregate annual principal payments required on current and long-term debt
(including obligations under capital leases) are due as follows (in thousands):
- --------------------------------------------------------------------------------
Year ending December 31,
- --------------------------------------------------------------------------------
2002 .................................................... $ 2,664
2003 .................................................... 2,642
2004 .................................................... 7,767
2005 .................................................... 11,475
2006 .................................................... 17,065
Later years ............................................. 78,239
--------
Total debt .............................................. $119,852
========
- --------------------------------------------------------------------------------
Total net book value of assets collateralized under financing arrangements
approximated $1.6 million at December 31, 2001.
Net interest expense reported on the accompanying Consolidated Statements of
Income was reduced by interest income of $0.1 million in 2001, 2000 and 1999.
(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, 2001, are as follows (in thousands):
- --------------------------------------------------------------------------------
Year ending December 31,
- --------------------------------------------------------------------------------
2002 ..................................................... $ 8,335
2003 ..................................................... 8,058
2004 ..................................................... 7,618
2005 ..................................................... 6,747
2006 ..................................................... 6,166
Later years .............................................. 14,790
-------
Total minimum payments required .......................... $51,714
=======
- --------------------------------------------------------------------------------
(d) Rental expense-Total rental payments charged to expense were $14.0 million
in 2001, $13.0 million in 2000 and $10.9 million in 1999.
(e) Sale and leaseback of assets-During 2001, 2000 and 1999 the Company sold and
leased back equipment under operating leases with terms ranging from six to nine
years. The assets sold at approximately net book value for proceeds of $2.5
million, $8.3 million and $7.4 million respectively. The leases allow for a
purchase option at the end of the lease term of $0.9 million in 2001, $2.2
million in 2000 and $2.0 million in 1999. Annual rentals were $0.6 million in
2001, $1.2 million for 2000 and $1.0 million for the 1999 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.
Components of the net pension benefit cost for 2001, 2000 and 1999 are as
follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Service cost ........................ $ 1,726 $ 1,621 $ 2,196
Interest cost ....................... 5,549 5,362 5,135
Expected return on assets ........... (9,691) (9,089) (8,273)
Amortization of prior service
cost ............................. 57 93 93
Amortization of actuarial (gain)
loss ............................. (81) (169) 118
-----------------------------
Net periodic (benefit) .............. $(2,440) $(2,182) $ (731)
=============================
- --------------------------------------------------------------------------------
Status of the plans at December 31, 2001, 2000 and 1999 was as follows (in
thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Change in projected benefit obligation:
Benefit obligation at beginning of
year ............................. $72,298 $68,713 $69,135
Service cost ........................ 1,726 1,621 2,196
Interest cost ....................... 5,549 5,362 5,136
Benefit payments .................... (4,457) (3,882) (3,504)
Actuarial loss (gain) ............... 2,852 484 (4,539)
Plan amendments ..................... 843 -- 289
-----------------------------
Benefit obligation at end of year ... $78,811 $72,298 $68,713
=============================
20 A. M. CASTLE & CO.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Change in plan assets:
Fair value of assets at beginning of year ... $95,268 $103,357 $ 90,004
Actual (loss) return on assets .............. (6,594) (4,220) 16,844
Employer contributions ...................... 253 13 13
Benefit payments ............................ (4,457) (3,882) (3,504)
-------------------------------------
Fair value of plan assets at year end ....... $84,470 $ 95,268 $103,357
=====================================
Reconciliation of funded status:
Funded status ............................... $ 5,661 $ 22,972 $ 34,647
Unrecognized prior service cost ............. 799 13 106
Unrecognized actuarial loss (gain) .......... 13,968 (5,249) (19,212)
-------------------------------------
Net amount recognized ....................... $20,428 $ 17,736 $ 15,541
=====================================
Amounts recognized in balance sheet consist of:
Prepaid benefit cost ........................ $23,791 $ 20,896 $ 18,314
Accrued benefit liability ................... (3,903) (3,815) (3,475)
Intangible assets ........................... 34 102 169
Accumulated comprehensive income ............ 506 553 533
-------------------------------------
Net amount recognized ....................... $20,428 $ 17,736 $ 15,541
=====================================
- --------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate ...................................... 7.50% 8.00% 8.25%
Projected annual salary increases .................. 4.75 4.75 4.75
Expected long-term rate of return on plan assets ... 10.00 10.00 10.00
- -------------------------------------------------------------------------------------
</TABLE>
The Company has profit sharing plans for the benefit of salaried and other
eligible employees (including officers). The Company's profit sharing plans
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.
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 objectives, of their respective operating units. Incentives
are paid to corporate officers on the basis of total Company performance against
objectives. 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):
- ------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------
Profit sharing and 401-K .................... $384 $427 $415
======================
Management incentive ........................ $258 $286 $120
======================
- ------------------------------------------------------------------------
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.
Components of net post retirement benefit cost for 2001, 2000 and 1999 are
as follows (in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Service cost ................................ $ 63 $ 56 $ 68
Interest cost ............................... 144 125 126
Amortization of prior service cost .......... 22 22 22
Amortization of actuarial loss (gain) ....... (56) (79) (54)
--------------------------
Net periodic benefit cost ................... $173 $124 $162
==========================
- --------------------------------------------------------------------------------
The status of the plans at December 31, 2001, 2000 and 1999 was as follows
(in thousands):
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Change in projected benefit obligations:
Benefit obligation at beginning of year ...... $ 1,709 $ 1,927 $ 2,293
Service cost ................................. 62 56 68
Interest cost ................................ 144 125 126
Benefit payments ............................. (127) (123) (84)
Actuarial loss (gains) ....................... 148 (276) (476)
-----------------------------
Benefit obligation at end of year .............. $ 1,936 $ 1,709 $ 1,927
=============================
Reconciliation of funded status:
Funded status ................................ $(1,936) $(1,709) $(1,926)
Unrecognized prior service cost .............. 376 398 420
Unrecognized actuarial gain .................. (978) (1,181) (986)
-----------------------------
Accrued benefit liabilities .................. $(2,538) $(2,492) $(2,492)
=============================
- --------------------------------------------------------------------------------
Future benefit costs were estimated assuming medical costs would increase
at a 7.75% annual rate for 2002 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
post retirement benefit obligation at December 31, 2001 by $94,000 with no
significant effect on the 2001 post retirement benefit expense. The weighted
average discount rate used in determining the accumulated post retirement
benefit obligation was 7.5% in 2001, 8.00% in 2000 and 8.25% in 1999.
In January 2002 the Company contributed 550 thousand shares of company
stock with a value of $5.0 million to the Pension Plans. The Plans were in an
over-funded position prior to the contribution which was made in compliance with
IRS maximum funding allowances and will have the effect of reducing future cash
requirements along with reducing future pension expense.
(7) COMMON STOCK/ADDITIONAL PAID IN CAPITAL
Changes in the common stock/additional paid in capital and treasury stock
accounts during 2001, 2000 and 1999 were as follows (dollars in thousands):
- --------------------------------------------------------------------------------
Common Stock/
Additional Paid in Capital Treasury Stock
- --------------------------------------------------------------------------------
Shares
Issued Amount Shares Amount
- --------------------------------------------------------------------------------
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
Stock options exercised ......... -- -- -- --
Other ........................... -- -- (112,494) (1,375)
------------------------------------------
December 31, 2000 ............... 14,902,755 $27,625 742,191 $ 4,159
Stock options exercised ......... -- -- --
Other ........................... -- -- -- --
------------------------------------------
December 31, 2001 ............... 14,902,755 $27,625 742,191 $ 4,159
==========================================
During 2001, the Company changed its State of Incorporation from Delaware
to Maryland and changed its no par stock to $0.01 par value.
During 2000, a lettered stock award of 100,000 shares with a value of $1.2
million was granted. The award vests in various amounts over a three-year
period. An expense of $0.4 million was recorded in 2001 and 2000 in order to
recognize the compensation ratably over the vesting period.
2001 ANNUAL REPORT 21
<PAGE>
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 Company currently has several stock option plans in effect. The 1995
Directors Stock Option Plan authorizes up to 187,500 shares; the 1996 Restricted
Stock and Stock Option Plan authorizes 937,500 shares; and the 2000 Restricted
Stock and Stock Option Plan authorizes 1,200,000 shares for use under these
plans. 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, 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
Granted ............................................. 622,400 10.73 10.00 - 12.50
Forfeitures ....................................... (100,785) 15.90 10.00 - 22.44
Exercised ......................................... -- -- --
--------------------------------------------------
December 31, 2000 ................................... 1,330,641 $ 15.03 $10.00 - $23.38
Granted ............................................. 433,376 11.23 9.87 - 13.00
Forfeitures ....................................... (138,932) 14.12 10.00 - 21.88
Exercised ......................................... -- -- --
--------------------------------------------------
December 31, 2001 ................................... 1,625,085 14.09 $10.00 - $23.88
==================================================
- ---------------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2001, 898,462 of the 1,625,085 options outstanding were
exercisable and had a weighted average contractual life of 6.9 years with a
weighted average exercise price of $16.40. The remaining 726,623 shares were not
exercisable and had a weighted average contractual life of 9.1 years, with a
weighted average exercise price of $11.30. The weighted average fair value of
the current year's option grant is estimated to be $3.33 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 4.5% in
2001, 5.25% in 2000 and 6.5% in 1999, expected dividend yield of zero in 2001,
7.4% in 2000, and 3.0% in 1999, 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 net income would have been reduced by approximately $0.7 million or
$0.05 per share in 2001, $0.4 million or $0.03 per share in 2000 and $0.8
million or $0.06 per share in 1999.
(8) ASSET IMPAIRMENT AND SPECIAL CHARGES
In 2000, as part of a strategic review of the Company's operations, special
charges of $8.5 million were recorded for inventory and other assets
impairments.
Impairment and other operating expenses of $6.5 million were taken on
non-productive assets ($2.8 million), a processing facility ($1.9 million) and a
joint venture ($1.8 million) in anticipation of their sale. The Company
continues to seek buyers for these facilities and anticipates that with a
rebounding economy the sales can be consummated over the next year. The carrying
value of these assets was written down to the Company's estimate of realizable
value. Fair value was either based on appraisal value or other estimates of
their worth. Accordingly, results could vary significantly from such estimates.
The Company intends to operate the processing facility and participate in the
joint venture while pursuing alternatives for their sale. At December 31, 2001
these assets have a remaining carrying value of $8.9 million. Together, the two
entities recorded pre-tax losses of $1.3 million, $1.6 million and $2.1 million
in 2001, 2000 and 1999, respectively. Actions are being taken to reduce the
losses on these entities and management feels no further impairment charge is
necessary.
The Company also had a $2.0 million write-down of slow moving inventories in
2000 which were re-manufactured into more saleable items in 2001.
(9) ACCOUNTS RECEIVABLE SECURITIZATION
On September 27, 2001, the Company and certain of its subsidiaries completed
arrangements for a $65.0 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 financing company ("finance company") specializing in selling
commercial paper. 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 $65.0 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 Consolidated Balance Sheets and
the proceeds received are included in net cash provided from operating
activities in the Consolidated Statements of Cash Flows. Sales proceeds from the
receivables are less than the face amount of the accounts receivable sold by an
amount equal to a discount on sales that approximates the "finance company'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 "discount on
sale of accounts receivable" in the Consolidated Statements 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
"financing company" reinvest the proceeds in new accounts receivable. The
"financing company," in addition to its 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 December 31, 2001, $54.9 million of accounts receivable had been sold
to Castle Funding Corp. and of this amount $40.0 million was sold to the
"financing company". An additional
22 A. M. CASTLE & CO.
<PAGE>
$8.0 million could have been sold under the agreement. This additional capacity
will be used for future working capital needs. During the third quarter of 2001
the Company incurred one-time costs of $0.9 million relating to the sales of
accounts receivable.
(10) JOINT VENTURES
The Company has investments in several non-controlled joint ventures which are
accounted for on an equity basis. The Company recognized a $0.2 million net loss
from these joint ventures in fiscal 2001, which represents the Company's portion
of the joint ventures fiscal 2001 net loss and excludes the $0.3 million
write-off of a separate joint venture investment that the Company determined was
unrealizable. The net investment in the joint ventures is $12.6 million as of
December 31, 2001, which includes $3.4 million in advances to two of the joint
venture companies. Sales and purchases between the Company and the joint
ventures were insignificant.
Summarized 2001 financial data for these ventures combined and a venture
which meets certain thresholds for separate disclosure, a 50/50 partnership is
as follows (in millions):
- --------------------------------------------------------------------------------
Individual Venture Combined
2001 2000 2001 2000
- --------------------------------------------------------------------------------
Revenues .......................... $35.5 $27.0 $161.3 $178.5
Gross Profit ...................... 8.5 5.8 30.3 29.7
Pre-tax income .................... 2.0 1.8 (0.7) 3.7
Current assets .................... 19.6 14.9 72.2 79.2
Non-current assets ................ 2.2 1.6 20.0 19.0
Current liabilities ............... 17.6 19.0 65.3 66.8
Non-current liabilities ........... 0.1 0.5 10.4 14.5
Partners equity ................... 4.1 2.1 16.5 16.9
- --------------------------------------------------------------------------------
During 2000 a subsidiary of the Company purchased a 90% interest in a
plastics distributor. The aggregate cash consideration paid was $4.0 million.
The acquisition has been accounted for as a purchase and is included in the
financial statements from the date of acquisition. Pro-forma results are not
presented, as the amounts do not significantly differ from historical results.
Also in 2000 the Company invested in an e-commerce company, MetalSpectrum, LLC,
which was being accounted for on an equity basis from the date of acquisition.
This start-up company ceased operations in 2001 and the remaining investment was
written off in the second quarter of 2001.
(11) CONTINGENT LIABILITIES
At December 31, 2001 total exposure under guarantees issued for banking
facilities of unconsolidated affiliates was $5.0 million. The Company also has
$1.8 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.
(12) SELECTED QUARTERLY DATA (UNAUDITED)
The unaudited quarterly results of operations for 2001 and 2000 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>
2001 QUARTERS
NET SALES ............................. $183,646 $158,569 $143,601 $125,459
GROSS PROFIT .......................... 55,540 47,876 42,027 36,020
NET INCOME (LOSS) ..................... 803 127 (2,153) (3,827)
NET INCOME (LOSS)
PER SHARE BASIC ..................... $ 0.06 $ 0.01 $ (0.15) $ (0.27)
NET INCOME (LOSS)
PER SHARE DILUTED ................... $ 0.06 $ 0.01 $ (0.15) $ (0.27)
2000 quarters
Net sales ............................. $195,239 $192,278 $184,958 $172,034
Gross profit .......................... 59,294 58,382 54,604 47,366
Net income (loss) ..................... 3,766 2,836 1,379 (9,656)
Net income (loss)
per share basic ..................... $ 0.27 $ 0.20 $ 0.10 $ (0.69)
Net income (loss)
per share diluted ................... $ 0.27 $ 0.20 $ 0.10 $ (0.69)
- ------------------------------------------------------------------------------------------
</TABLE>
+ Fourth quarter 2001 includes charges to cost of sales of a net LIFO charge of
$3.3 million offset by other inventory income adjustments of $1.6 million for
a net expense adjustment of $1.7 million. The comparable charges in 2000
included a net LIFO charge of $0.7 million and other inventory charges of $0.9
million for a net expense of $1.6 million. Fourth quarter 2000 includes
special charges to cost of sales of $2.0 million and $6.5 million of
impairment and other operating expenses.
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 Maryland corporation) and Subsidiaries as of December 31, 2001, 2000 and
1999, 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 auditing standards generally accepted
in the United States. 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, 2001, 2000 and 1999 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
February 18, 2002
2001 ANNUAL REPORT 23
<PAGE>
DIRECTORS
DANIEL T. CARROLL
Chairman
The Carroll Group, Inc.
a management consulting firm
EDWARD F. CULLITON
Vice President and
Chief Financial Officer
ROBERT W. GRUBBS
President and
Chief Executive Officer of
Anixter International and
President and Chief Executive
Officer of Anixter, Inc.
a distributor of communication
products and wire and cable
WILLIAM K. HALL
President and
Chief Executive Officer
Procyon Technologies, Inc.
an aerospace-defense component manufacturer
ROBERT S. HAMANDA
Edward Eagle Brown Distinguished Service
Professor of Finance and Former Dean
Graduate School of Business
The University of Chicago and
Chief Executive Officer
Merchants' Exchange, LLC
a designated CFTC electronics future exchange
PATRICK J. HERBERT, III
President
Simpson Estates, Inc.
a private management firm
JOHN P. KELLER
President
Keller Group, Inc.
an industrial manufacturing &
coal mining company
JOHN W. MCCARTER, JR.
President
The Field Museum (Chicago)
a natural history museum
JOHN MCCARTNEY
Vice Chairman
Datatec, Ltd.
a technology holding company
G. THOMAS MCKANE
President and
Chief Executive Officer
JOHN PUTH
Managing Member
J. W. Puth Associates, LLC
a consulting firm
MICHAEL SIMPSON
Chairman of the Board
OFFICERS
MICHAEL SIMPSON
Chairman of the Board
G. THOMAS MCKANE
President and Chief Executive Office
EDWARD F. CULLITON
Vice President and Chief Financial Officer
ALBERT J. BIEMER, III
Vice President-Supply Chain
MARC BIOLCHIN
Vice President-Tubular Group
M. BRUCE HERRON
Vice President-Sales West
STEPHEN V. HOOKS
Vice President-Merchandising
GARY J. KROPF
Vice President-Sales East
TIM N. LAFONTAINE
Vice President-Alloy Group
RICHARD S. MEYERS
Vice President-Operations
JOHN R. NORDIN
Vice President and Chief Information Officer
CRAIG R. WILSON
Vice President-Advanced Materials Group
PAUL J. WINSAUER
Vice President-Human Resources
JAMES A. PODOJIL
Treasurer-Controller
JERRY M. AUFOX
Secretary-Legal Counsel
TOTAL PLASTICS, INC.
THOMAS L. GARRETT
President
OLIVER STEEL
PLATE COMPANY
JAMES E. STEVENSON
President
24 A. M. CASTLE & CO.
<PAGE>
STOCKHOLDER INFORMATION
GENERAL OFFICES
3400 North Wolf Road
Franklin Park, IL 60131
847/455-7111
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 method to reinvest in Castle stock by
making 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.
ANNUAL MEETING
The Annual Meeting of the Company's shareholders will be held at our corporate
headquarters on Thursday, April 25, 2002 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.
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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, San Diego,
Seattle, Stockton, Toronto, Tulsa, Wichita, Winnipeg, Worcester
DIVISIONS
H-A Industries -- Hammond
SUBSIDIARIES
A. M. Castle &Co. Limited (U.K.) -- Blackburn, Christchurch
Keystone Tube Company, LLC -- Riverdale
KSI, LLC -- LaPorte
Keystone Honing Company -- Titusville
Oliver Steel Plate Co.-- Cleveland
Total Plastics, Inc.-- Baltimore, Chicago, Cleveland, Detroit, Fort Wayne,
Grand Rapids, Harrisburg, Indianapolis, Kalamazoo,
Pittsburgh
JOINT VENTURES
Castle de Mexico, S.A. de C.V.-- Monterrey
Energy Alloys L.P.-- Houston
Kreher Steel Company, LLC -- Chicago, Dallas, Detroit, Houston
Laser Precision, LLC -- Chicago
Paramont Machine Company, LLC -- New Philadelphia
Metal Express, LLC -- Waukesha
[A. M. CASTLE & CO. LOGO]
A. M. Castle & Co.
3400 North Wolf Road
Franklin Park, IL 60131
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