UNITEDSTATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) | October 31, 2006 |
A. M. Castle & Co. |
(Exact name of registrant as specified in its charter) |
Maryland | 1-5415 | 36-0879160 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No. |
3400 N. Wolf Road, Franklin Park, Illinois | 60131 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number including area code | 847/455-7111 |
(Former name or former address if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13 e-4(c) under the Exchange Act (17 CFR 240.13 e-4(c))
Item 2.02 Results of Operations and Financial Condition
On Tuesday, October 31, 2006 the Company disseminated a press release, attached as Exhibit A, announcing the Company’s operational results for the period September 30, 2006.
As part of the press release there is a bridge of the non-GAAP financial measurement of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to reported net income. It is shown below the disclosure of the GAAP figures for Operating income, Net income and Diluted earnings per share. This reconciliation of EBITDA to Net income is for the Three Months ended September 30, 2006 and September 30, 2005 and the Nine Months ended September 30, 2006 and September 30, 2005.
The Company believes, however, that EBITDA is an important term and concept because of its use by the professional investment community, including the Company’s primary lenders. The Company believes the use of this Term is necessary to a proper understanding of the changes in the Company’s earnings.
Item 9.01 Financial Statements and Exhibits
99.1 Press Release October 31, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
A. M. Castle & Co. |
/s/ Lawrence A. Boik |
Vice President and Chief Financial Officer |
Date | October 31, 2006 |
3400 North Wolf Road
Franklin Park, Illinois 60131
(847) 455-7111
![](https://capedge.com/proxy/8-K/0000018172-06-000043/castle.jpg)
For Further Information:
———AT THE COMPANY——— | ——AT ASHTON PARTNERS—— |
Larry A. Boik | Analyst Contacts: |
Vice President-Finance & CFO | Katie Pyra |
(847) 349-2576 | (312) 553-6717 |
Email: lboik@amcastle.com | Email: kpyra@ashtonpartners.com |
Traded: AMEX, CSE (CAS)
Member: S&P SmallCap 600 Index
FOR IMMEDIATE RELEASE
TUESDAY, OCTOBER 31, 2006
A. M. CASTLE & CO. ANNOUNCES CONTINUED STRONG
SALES AND EARNINGS PERFORMANCE
Declares a Quarterly Cash Dividend
FRANKLIN PARK, IL, OCTOBER 31st— A. M. Castle & Co. (AMEX: CAS), a global distributor of specialty metal and plastic products and services announced today continued strong customer demand and record sales and earnings performance for the quarter ended September 30, 2006.
Consolidated net sales for the third quarter ended September 30, 2006 were $300.8 million, an increase of $66.3 million, or 28.2% from the third quarter of 2005. Year-to-date consolidated net sales were $855.6 million, an increase of $123.9 million, or 16.9% from the same period of 2005.
“We continue to experience strong demand for our products and services,” stated Michael Goldberg, President and CEO of A. M. Castle. “Of the 28% increase in our third quarter revenues, 8% was attributable to volume, 12% to price increases and 8% to our acquisition of Transtar. Sales of nickel alloy products were particularly robust, with tonnage in that product family growing 60% compared to the third quarter of last year, reflecting the strong oil and gas market. Year-to-date revenues were 17% ahead of last year, of which 7% was attributable to volume, 7% to price and 3% to Transtar,” Goldberg continued.
On September 5, 2006 the Company announced its acquisition of Transtar Metals, a leading distributor of high-performance alloys to the aerospace and defense industries world-wide. Under the terms of the agreement signed August 12, 2006, the closing purchase price was $173.3 million subject to final adjustments, including the assumption of $1.0 million of foreign debt and $0.6 million of capital leases. The purchase was funded with approximately $30.0 million of available cash and $142.0 million of debt financing.
Transtar Metals has eight operations strategically located in aerospace hubs in the U.S., the United Kingdom and France. Additionally, Transtar maintains a sales presence throughout Europe and the Far East. International sales are over one-third of Transtar’s total revenue stream. “We are very pleased with our acquisition of Transtar and our people are working together extremely well. The aerospace business continues to be strong,” commented Goldberg.
Net income applicable to common stock for the third quarter was $15.3 million, or $0.82 per diluted share, compared to $10.1 million, or $0.56 per diluted share in the third quarter of 2005. Year-to-date net income applicable to common stock was $45.2 million, or $2.45 per diluted share, compared to $34.9 million, or $1.93 per diluted share for the same period of 2005.
In its Metals segment the Company reported 30% sales growth for the third quarter and 18% on a year-to-date basis. The Transtar acquisition contributed 8% of that growth for the third quarter and 3% year-to-date. Increased volume was 9% and 8% for the third quarter and year-to-date, respectively. Material price increases accounted for the remainder of the sales growth.
Plastic segment sales increased 11% compared to the third quarter of 2005, and 9% on a year-to-date basis. Sales growth, excluding material price increases in this segment was 9% and 3% for the third quarter and year-to-date comparable periods, respectively.
“We will continue to look to invest in certain markets which we believe have higher growth potential and where we can leverage our expertise in specialty products,” stated Goldberg. “Our acquisition of Transtar Metals is the cornerstone of our long-term strategic growth initiative in this regard. Including Transtar, we have about 30% of our total Company revenues aligned with the global aerospace and defense industry. It is our intent to invest in other industries that are in line with our strategic goals over the next few years, but we are very mindful of our balance sheet,” concluded Goldberg.
Larry Boik, Vice President and CFO of the Company commented, “Our balance sheet and cash position allowed us to move forward with the strategic acquisition of Transtar. The future cash earnings of the business will be used to reduce our debt and to provide similar flexibility to fund future strategic growth opportunities as they arise. We will remain diligent in managing the balance sheet through the business cycles as we execute our growth strategy.”
On October 26, 2006 the Company’s Board of Directors approved a quarterly cash dividend of 6 cents per share, payable on November 27, 2006 to shareholders of record at the close of business on November 10, 2006.
About A. M. Castle & Co.
Founded in 1890, A. M. Castle & Co. is a specialty metal and plastic products and services distributor, principally serving the producer durable equipment sector of the economy. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller-sized firms spread across a variety of industries. Within its core metals business, it specializes in the distribution of alloy and stainless steels; nickel alloys; aluminum and carbon. Through its subsidiary, Total Plastics, Inc., the Company also distributes a broad range of value-added industrial plastics. Together, Castle operates over 65 locations throughout North America and Europe. Its common stock is traded on the American and Chicago Stock Exchange under the ticker symbol "CAS".
Safe Harbor Statement / Regulation G Disclosure
This release may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of factors over which the Company has no control. These risk factors and additional information are included in the Company's reports on file with the Securities Exchange Commission.
The financial statements included in this release contain a non-GAAP disclosure, EBITDA, which consists of income before provision for income taxes plus depreciation and amortization, and interest expense (including discount on accounts receivable sold), less interest income. EBITDA is presented as a supplemental disclosure because this measure is widely used by the investment community for evaluation purposes and provides the reader with additional information in analyzing the Company's operating results. EBITDA should not be considered as an alternative to net income or any other item calculated in accordance with U.S. GAAP, or as an indicator of operating performance. Our definition of EBITDA used here may differ from that used by other companies. A reconciliation of EBITDA to net income is provided per U.S. Securities and Exchange Commission requirements.
CONSOLIDATED STATEMENTS OF INCOME | For the Three | For the Nine | |||||||||||
(Dollars in thousands, except per share data) | Months Ended | Months Ended | |||||||||||
Unaudited | Sept 30, | Sept 30, | |||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
Net sales | $ | 300,809 | $ | 234,551 | $ | 855,610 | $ | 731,721 | |||||
Cost of material sold | 214,792 | 163,956 | 606,136 | 512,705 | |||||||||
Gross material margin | 86,017 | 70,595 | 249,474 | 219,016 | |||||||||
Plant and delivery expense | 30,117 | 27,920 | 88,720 | 81,635 | |||||||||
Sales, general, and administrative expense | 26,847 | 23,405 | 76,805 | 69,509 | |||||||||
Depreciation and amortization expense | 3,225 | 2,205 | 8,323 | 6,752 | |||||||||
Total operating expense | 60,189 | 53,530 | 173,848 | 157,896 | |||||||||
Operating income | 25,828 | 17,065 | 75,626 | 61,120 | |||||||||
Interest expense, net | (1,903 | ) | (1,765 | ) | (3,949 | ) | (5,875 | ) | |||||
Discount on sale of accounts receivable | - | (127 | ) | - | (1,127 | ) | |||||||
Income before income taxes and equity earnings of joint venture | 23,925 | 15,173 | 71,677 | 54,118 | |||||||||
Income taxes | (9,470 | ) | (5,673 | ) | (29,110 | ) | (21,888 | ) | |||||
Income before equity in earnings of joint venture | 14,455 | 9,500 | 42,567 | 32,230 | |||||||||
Equity in earnings of joint venture | 1,037 | 817 | 3,332 | 3,342 | |||||||||
Net income | 15,492 | 10,317 | 45,899 | 35,572 | |||||||||
Preferred dividends | (235 | ) | (240 | ) | (720 | ) | (720 | ) | |||||
Net income applicable to common stock | $ | 15,257 | $ | 10,077 | $ | 45,179 | $ | 34,852 | |||||
Diluted earnings per share | $ | 0.82 | $ | 0.56 | $ | 2.45 | $ | 1.93 | |||||
EBITDA * | $ | 30,090 | $ | 20,087 | $ | 87,281 | $ | 71,214 | |||||
*Earnings before interest, discount on sale of accounts receivable, taxes, depreciation and amortization | |||||||||||||
Reconciliation of EBITDA to net income: | For the Three | For the Nine | |||||||||||
Months Ended | Months Ended | ||||||||||||
Sept 30, | Sept 30, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
Net income | $ | 15,492 | $ | 10,317 | $ | 45,899 | $ | 35,572 | |||||
Depreciation and amortization | 3,225 | 2,205 | 8,323 | 6,752 | |||||||||
Interest, net | 1,903 | 1,765 | 3,949 | 5,875 | |||||||||
Discount on accounts receivable sold | - | 127 | - | 1,127 | |||||||||
Provision from income taxes | 9,470 | 5,673 | 29,110 | 21,888 | |||||||||
EBITDA | $ | 30,090 | $ | 20,087 | $ | 87,281 | $ | 71,214 |
CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in thousands) | As of | ||||||
Unaudited | Sept 30, | Dec 31 | |||||
2006 | 2005 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 9,756 | $ | 37,392 | |||
Accounts receivable, less allowances of $3,263 at September 30, 2006 | |||||||
and $1,763 at December 31, 2005 | 182,023 | 107,064 | |||||
Inventories (principally on last-in, first-out basis) | 216,216 | 119,306 | |||||
(latest cost higher by $121,865 at September 30, 2006 and $104,036 at December 31, 2005) | |||||||
Other current assets | 13,996 | 6,351 | |||||
Total current assets | 421,991 | 270,113 | |||||
Investment in joint venture | 13,000 | 10,850 | |||||
Goodwill | 99,208 | 32,222 | |||||
Intangible assets | 68,520 | 70 | |||||
Prepaid pension cost | 39,082 | 41,946 | |||||
Other assets | 6,462 | 4,112 | |||||
Property, plant and equipment, at cost | |||||||
Land | 5,224 | 4,772 | |||||
Buildings | 48,641 | 45,890 | |||||
Machinery and equipment | 138,458 | 127,048 | |||||
192,323 | 177,710 | ||||||
Less - accumulated depreciation | (121,080 | ) | (113,288 | ) | |||
71,243 | 64,422 | ||||||
Total assets | $ | 719,506 | $ | 423,735 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | 144,298 | $ | 103,246 | |||
Accrued liabilities | 32,972 | 21,535 | |||||
Current and deferred income taxes | 10,863 | 7,052 | |||||
Short-term debt | 129,223 | - | |||||
Current portion of long-term debt | 12,527 | 6,233 | |||||
Total current liabilities | 329,883 | 138,066 | |||||
Long-term debt, less current portion | 97,718 | 73,827 | |||||
Deferred income taxes | 48,618 | 21,903 | |||||
Deferred gain on sale of assets | 5,907 | 5,967 | |||||
Pension and postretirement benefit obligations | 9,181 | 8,467 | |||||
Commitments and contingencies | |||||||
Stockholders' equity | |||||||
Preferred stock, $0.01 par value - 10,000,000 shares | |||||||
authorized; 12,000 shares issued and outstanding | 11,239 | 11,239 | |||||
Common stock, $0.01 par value - authorized 30,000,000 | |||||||
shares; issued and outstanding 17,013,371 at September 30, 2006 | |||||||
and 16,605,714 at December 31, 2005 | 170 | 166 | |||||
Additional paid-in capital | 67,772 | 60,916 | |||||
Retained earnings | 152,670 | 110,530 | |||||
Accumulated other comprehensive income | 3,281 | 2,370 | |||||
Treasury stock, at cost - 411,235 shares at September 30, 2006 | |||||||
and 546,065 shares at December 31, 2005 | (6,933 | ) | (9,716 | ) | |||
Total stockholders' equity | 228,199 | 175,505 | |||||
Total liabilities and stockholders' equity | $ | 719,506 | $ | 423,735 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Dollars in thousands) | For the Nine Months | ||||||
Unaudited | Ended Sept 30, | ||||||
2006 | 2005 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 45,899 | $ | 35,572 | |||
Adjustments to reconcile net income to net cash | |||||||
from operating activities: | |||||||
Depreciation and amortization | 8,323 | 6,752 | |||||
Amortization of deferred gain | (559 | ) | (639 | ) | |||
Equity in earnings from joint venture | (3,332 | ) | (3,342 | ) | |||
Stock compensation expense | 2,911 | 2,607 | |||||
Deferred tax provision | 4,730 | 241 | |||||
Excess tax benefits from stock-based payment arrangements | (1,210 | ) | - | ||||
Increase (decrease) from changes, net of acquisitions, in: | |||||||
Accounts receivable | (40,380 | ) | (35,776 | ) | |||
Inventories | (36,020 | ) | 18,205 | ||||
Prepaid pension costs | 2,865 | 987 | |||||
Other current assets | (2,115 | ) | 316 | ||||
Accounts payable | 20,423 | (8,182 | ) | ||||
Accrued liabilities | 3,849 | 4,401 | |||||
Income tax payable | (9,946 | ) | 5,265 | ||||
Postretirement benefit obligations and other liabilities | (1,585 | ) | 308 | ||||
Net cash (used in) from operating activities | (6,147 | ) | 26,715 | ||||
Cash flows from investing activities: | |||||||
Investments and acquisitions, net of cash acquired | (175,795 | ) | (236 | ) | |||
Dividends from joint venture | 1,231 | 1,705 | |||||
Capital expenditures | (10,170 | ) | (4,784 | ) | |||
Collection of note receivable | - | 2,639 | |||||
Net cash used in investing activities | (184,734 | ) | (676 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of short-term debt | 128,943 | - | |||||
Proceeds from issuance of long-term debt | 30,574 | 4,000 | |||||
Repayments of long-term debt | (680 | ) | (21,542 | ) | |||
Preferred stock dividend | (720 | ) | (720 | ) | |||
Dividends paid | (3,039 | ) | - | ||||
Exercise of stock options and other | 6,525 | 597 | |||||
Excess tax benefits from stock-based payment arrangements | 1,210 | - | |||||
Net cash from (used in) financing activities | 162,813 | (17,665 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 432 | 476 | |||||
Net (decrease) increase in cash and cash equivalents | (27,636 | ) | 8,850 | ||||
Cash and cash equivalents - beginning of year | $ | 37,392 | $ | 3,106 | |||
Cash and cash equivalents - end of period | $ | 9,756 | $ | 11,956 |
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