Qtr 4 04 8-k

UNITEDSTATES
SECURITIESANDEXCHANGECOMMISSION
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):  March 15, 2005


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, March 15, 2005 the Company disseminated a press release, attached as Exhibit A, announcing the Company’s operational results for the Fourth Quarter and Fiscal Year ending December 31, 2004.

As part of the press release there is a discussion of the non-GAAP financial terms EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). That term is also shown on the Comparative Statements of Operations. It is below the disclosure of the GAAP figures for Operating income, Net income and Diluted earnings per share. There is also a reconciliation of EBITDA to Net income for the Three Months Ended December 31 and for the Twelve Months Ended December 31, 2004 at the bottom of the page.

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.

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
  
Lawrence A. Boik
  
Vice President, Controller/Treasurer
  
 
Date
March 15, 2005


3400 N. Wolf Road
Franklin Park, Illinois 60131
(847) 455-7111
(847) 455-6930 (Fax)
 
A. M. CASTLE & CO. 
 


For Further Information:

AT THE COMPANY
AT FINANCIAL RELATIONS BOARD
G. Thomas McKane
Analyst Contacts:
General Information:
Chairman & CEO
John McNamara
George Zagoudis (312) 640-6663
(847) 349-2502
(212) 827-3771
Email:gzagoudis@financialrelationsboard.com 
Email: tmckane@amcastle.com
Email: jmcnamara@financialrelationsboard.com

Traded: AMEX, CSE (CAS)
Member: S&P SmallCap 600 Index


FOR IMMEDIATE RELEASE
TUESDAY, MARCH 15, 2005


A. M. CASTLE & CO. ANNOUNCES FOURTH QUARTER
AND FULL YEAR 2004 RESULTS


FRANKLIN PARK, ILLINOIS, MARCH 15, 2005 — A.M. CASTLE & CO. (AMEX: CAS) a North American distributor of highly engineered metals and plastics, today announced the results of its operations for the fourth quarter and full year ended December 31, 2004. For the final quarter of the year, sales rose 49% to $197.8 million, up $65.3 million from $132.5 million in the same period of 2003. Net income applicable to common stock totalled $2.2 million, or $0.14 per share, compared with a loss of $5.5 million, or $0.35 per share in the prior year.

Sales for the year were $761.0 million as compared to $543.0 in 2003, an increase of 40.1%. Real volume increases accounted for 15 points of the 40% increase, the acquisition of our former joint venture in Mexico added 3 points to the growth. Material price increases (principally metals) accounted for the remaining 22 points of the 40% growth.

Net income for the year was $15.9 million, or $1.01 per share, compared with a loss of $19.0 million, or $1.20 per share in the prior year. Results for 2003 include $11.5 million of pre-tax costs for impairments and special charges which, net of their tax benefits, increased the Company’s net loss by $6.9 million, or $0.44 per share. Excluding the impact of those charges, the net loss for 2003 was $12.1 million, or $0.76 per share.
 
In making the announcement, G. Thomas McKane, Chairman and CEO, noted that the turnaround in the Company’s results was a product of the positive earnings leverage created by the restructuring actions taken between 2001 and 2003 and the markedly improved economic environment for Castle’s customers, the producer durable equipment manufacturers of North America. "The recovery in our markets," he said, "began early in 2004 with solid improvements in demand and high single-digit metal price increases. As the year progressed, aerospace and oil and gas markets also began to recover and metal prices continued to escalate. For the year," he continued, "our metals business grew at 41% with about one-third attributable to real growth and the balance stemming from metal price increases. Our plastics sales grew by 33% with approximately 3% of that increase attributable to price increases."

Having substantially competed its restructure efforts in 2003 Castle’s focus for 2004 was on profitable growth. "Our specific objective,æ McKane added, "was to generate 20% earnings before interest, taxes, depreciation and amortization (EBITDA) returns on incremental sales and I’m pleased to report that we have achieved that goal. EBITDA for the year totalled $47.6 million compared with $3.0 million (exclusive of impairments and special charges) in 2003. As we’ve pointed out previously, there is very little inventory inflation profit in our operating results as a substantial majority of Castle’s inventories are accounted for on a last-in-first-out (LIFO) basis."

In addition to capitalizing on the market recovery, Castle made substantial progress towards returning to an investment grade credit rating. "For the year," McKane continued, "our Debt-to-EBITDA ratio was 2.1 and we reduced our Debt-to-Total Capital ratio to 43.7% from 48.8%."
 
Looking forward to 2005, McKane noted that the outlook for Castle’s customers continues to be strong. "Activity in January and February is ahead of our business plan," McKane said, "and if the pattern continues into March, we are confident that our results for the first quarter of 2005 will not only substantially exceed those of a year ago but will be one of the strongest of any quarter in the Company’s history."
 
In conducting its evaluation of the Company’s internal control in financial reporting at December 31, 2004, management found a material weakness in the area of inventory controls.

In the 3rd quarter of 2004 the Company replaced its historical system of inventory verification with an improved system of physical inventory counts. Physical counts will now be taken once or twice each year depending upon location size and risk assessment. This change in internal control over financial reporting on inventory was reported in the 3rd quarter 10Q for the period ending September 30, 2004. As a result of the institution of the improved controls in the second half of 2004, significant inventory write-offs were taken during the 3rd and 4th quarters of 2004.

In addition, the year-end audit revealed a weakness involving inventory stored at third party processors. Further controls have been put in place during the 1st quarter 2005 which will require detailed certification by outside processors of the Company’s inventory received, shipped and on hand as of the close of each quarter.

The impact of these items reduced after tax earnings by $1.0 million in the 3rd quarter and $2.4 million in the 4th quarter of 2004.

In addition, significant deficiencies in internal controls over the financial close and reporting process were found during the audit that resulted in adjustments to the Company’s financial statements, which in management’s opinion, in the aggregate, also constituted a material weakness as that term is defined in Section 404 of the Sarbanes-Oxley Act of 2002. As a result, expanded procedures relating to the analysis of workmen compensation reserves, customer credit memo reserves, and accounts payable debit memo reserves have been put in place.

In closing, Mr. McKane invited interested parties to listen to its conference call scheduled for 11:00 a.m. (EST) today, Tuesday, March 15, 2005. Connection is available at www.amcastle.com and will be available for 14 days following the call.

Founded in 1890, A. M. Castle & Co. provides highly engineered materials and value added services to a wide range of companies within 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 wide spectrum of industries. Within its core metals business, it specializes in the distribution of carbon, alloy and stainless steels; nickel alloy; aluminum; copper and brass. Through its subsidiary, Total Plastics, Inc., the Company also distributes a broad range of value-added industrial plastics. Together, Castle operates over 60 locations throughout North America. Its common stock is traded on the American and Chicago Stock Exchange under the ticker symbol "CAS".

This release contains 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 to provide the reader with additional information in analyzing the Company’s operating results. A reconciliation of EBITDA to net income is provided per SEC requirements.

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 and Exchange Commission.

 
A. M. CASTLE & CO.
 
COMPARATIVE STATEMENTS OF OPERATIONS
  
For the Three
  
For the Twelve
  
(Dollars in thousands, except per share data)
  
Months Ended
  
Months Ended
  
   
Dec. 31,
  
Dec. 31,
  
   
2004
  
2003
  
2004
  
2003
  
                   
Net sales
  
$197,803
 
$132,520
 
$760,997
 
$543,031
 
Cost of material sold
  
(145,049)
  
(96,527)
  
(543,426)
  
(384,459)
  
Special charges
  
-
  
(100)
  
-
  
(1,624)
  
Gross material margin
  
52,754
 
35,893
 
217,571
 
156,948
 
                   
Plant and delivery expense
  
(24,561)
  
(21,142)
  
(95,229)
  
(87,055)
  
Sales, general and administrative expense
  
(20,870)
  
(15,936)
  
(79,986)
  
(68,339)
  
Depreciation and amortization expense
  
(2,015)
  
(2,139)
  
(8,751)
  
(8,839)
  
Impairment and other operating expenses
  
-
  
(532)
  
-
  
(6,456)
  
Total operating expense
  
(47,446)
  
(39,749)
  
(183,966)
  
(170,689)
  
                   
Operating income (loss)
  
5,308
 
(3,856)
  
33,605
 
(13,741)
  
                   
Interest expense, net
  
(2,261)
  
(2,362)
  
(8,968)
  
(9,709)
  
Discount on sale of accounts receivable
  
(285)
  
(283)
  
(969)
  
(1,157)
  
                   
Income (loss) from continuing operations before income tax
  
2,762
 
(6,501)
  
23,668
 
(24,607)
  
and equity in unconsolidated subsidiaries
                  
                   
Income taxes (provision) benefit
                  
Federal
 
(1,157)
  
2,610
 
(7,833)
  
8,467
 
State
  
(331)
  
(963)
  
(2,111)
  
274
 
   
(1,488)
  
1,647
 
(9,944)
  
8,741
 
Net income (loss) from continuing operations before
  
1,274
 
(4,854)
  
13,724
 
(15,866)
  
equity in unconsolidated subsidiaries and before discontinued operations
                  
                   
Equity earnings of joint ventures
  
2,002
 
216
 
5,199
 
137
 
Impairment to joint venture investment and advances
  
-
  
(623)
  
-
  
(3,453)
  
Income taxes (provision) benefit - unconsolidated subsidiaries
  
(788)
  
160
 
(2,046)
  
1,305
 
Net income(loss) before discontinued operations
  
2,488
 
(5,101)
  
16,877
 
(17,877)
  
                   
Discontinued operations:
                  
Loss on disposal of subsidiary, net of tax
  
-
  
(172)
  
-
  
(172)
  
Net income (loss)
  
2,488
 
(5,273)
  
16,877
 
(18,049)
  
                   
Preferred dividends
  
(239)
  
(243)
  
(957)
  
(961)
  
Net income (loss) applicable to common stock
  
$2,249
 
$(5,516)
  
$15,920
 
$(19,010)
  
                   
Basic earnings (loss) per share
                         
Net income (loss) before discontinued operations
  
$
0.14
  
$
(0.34
)
$
1.01
  
$
(1.19
)
Discontinued operations
    
-
    
(0.01
)
  
-
   
(0.01
)
   
$
0.14
  
$
(0.35
)
$
1.01
  
$
1.20
)
Diluted earnings (loss) per share
                          
Net income (loss) before discontinued operations
  
$
0.15
    
(0.34
)
$
1.01
    
(1.19
)
Discontinued operations
    
-
    
(0.01
)
  
-
    
(0.01
)
   
$
0.15
  
$
(0.35
)
$
1.01
  
$
(1.20
)
                           
EBITDA *
  
$
9,325
  
$
(2,124
)
$
47,555
  
$
(8,218
)
                           
*Earnings before interest, discount on sale of accounts receivable, taxes, depreciation and amortization
            

                   
Reconciliation of EBITDA to net income:
  
For the Three
  
For the Twelve
  
   
Months Ended
  
Months Ended
  
 
  
 Dec 31,
Dec 31,
     
2004
 
 
2003
 
 
2004
 
 
2003
  
                           
Net income (loss) from operations
  
$
2,488
  
$
(5,101
)
$
16,877
  
$
(17,877
)
Depreciation and amortization
    
2,015
   
2,139
   
8,751
   
8,839
  
Interest, net
    
2,261
   
2,362
   
8,968
   
9,709
  
Discount on accounts receivable sold
    
285
   
283
   
969
   
1,157
  
Provision (benefit) from income taxes
    
1,488
   
(1,647
)
  
9,944
   
(8,741
)
Provision (benefit) from income taxes - unconsolidated subsidiaries
    
788
   
(160
)
  
2,046
   
(1,305
)
EBITDA
  
$
9,325
  
$
(2,124
)
$
47,555
  
$
(8,218
)
 
 
A. M. CASTLE & CO.
 
COMPARATIVE BALANCE SHEETS
          
(Dollars in thousands)
          
   
Dec. 31,
  
Dec. 31,
  
   
2004
  
2003
  
ASSETS
              
Current assets
              
Cash and equivalents
  
$
3,106
  
$
2,455
  
Accounts receivable, net
    
80,323
   
54,232
 
Inventories (principally on last-in first-out basis)
    
135,588
   
117,270
 
Income tax receivable
    
169
   
660
 
Assets held for sale
    
995
   
1,067
 
Other current assets
   
7,325
   
7,184
 
Total
    
227,506
   
182,868
 
Investment in joint ventures
    
8,463
   
5,492
 
Goodwill
    
32,201
   
31,643
 
Pension assets
    
42,262
   
42,075
 
Advances to joint ventures and other assets
    
7,586
   
8,688
 
Property, plant and equipment, at cost
             
Land
    
4,771
   
4,767
 
Building
   
45,514
   
45,346
 
Machinery and equipment
    
124,641
   
118,447
 
     
174,926
   
168,560
 
Less - accumulated depreciation
    
(109,928
)
  
(100,386
)
     
64,998
   
68,174
 
Total assets
  
$
383,016
  
$
338,940
  
               
LIABILITIES AND STOCKHOLDER'S EQUITY
              
Current liabilities
              
Accounts payable
  
$
93,342
  
$
67,601
  
Accrued liabilities and deferred gains
    
23,016
   
19,145
 
Current and deferred income taxes
   
4,349
   
4,852
 
Current portion of long-term debt
   
11,607
   
8,248
 
Total current liabilities
    
132,314
   
99,846
 
Long-term debt, less current portion
   
89,771
   
100,034
 
Deferred income taxes
   
19,668
   
13,963
 
Deferred gain on sale of assets
   
6,465
   
7,304
 
Minority interest
    
1,644
   
1,456
 
Post retirement benefits obligations
    
2,905
   
2,683
 
Stockholders' equity
             
Preferred stock
   
11,239
   
11,239
 
Common stock
    
159
   
159
 
Additional paid in capital
    
35,082
   
35,009
 
Earnings reinvested in the business
    
82,400
   
66,480
 
Accumulated other comprehensive income
    
1,616
   
1,042
 
Other - deferred compensation
   
(2
)
  
(30
)
Treasury stock, at cost
   
(245
)
  
(245
)
Total stockholders' equity
   
130,249
   
113,654
 
Total liabilities and stockholders' equity
  
$
383,016
  
$
338,940
  
 
 
A. M. CASTLE & CO.
CONDENSED STATEMENT OF CASH FLOWS
          
(Dollars in thousands)
  
For the Twelve Months
  
 
  
Dec 31,
     
2004
    
2003
  
               
Cash flows from operating activities:
              
Net income (loss)
  
$
16,877
  
$
(18,049
)
Net loss from discontinued operations
    
-
    
172
 
Depreciation
   
8,751
   
8,839
 
Amortization of deferred gain
    
(839
)
  
(593
)
Loss on sale of facilities/equipment
    
701
   
375
 
Equity (earnings) from joint ventures
    
(5,199
)
  
(137
)
Deferred taxes and income tax receivable
    
6,150
   
1,992
 
Non-cash pension income (loss) and post-retirement benefits
    
421
   
(1,953
)
Other
    
1,924
   
(2,523
)
Cash from operating activities before working capital changes
    
28,786
   
(11,877
)
Asset impairment and special charges
    
-
    
11,333
 
Net change in accounts receivable sold
    
3,500
   
(12,866
)
Other (increase) decrease in working capital
    
(16,437
)
  
12,351
 
Net cash from operating activities
    
15,849
   
(1,059
)
               
Cash flows from investing activities:
              
Investments and acquisitions
    
(1,744
)
  
-
  
Advances to joint ventures
    
-
    
(289
)
Capital expenditures
    
(5,318
)
  
(5,145
)
Proceeds from sale of assets
    
-
    
14,002
 
Net cash from investing activities
   
(7,062
)
  
8,568
  
               
Cash flows from financing activities
              
Long-term payments on debt
    
(7,452
)
  
(5,182
)
Preferred dividends paid
    
(957
)
  
(961
)
Other
    
-
    
-
  
Net cash from financing activities
   
(8,409
)
  
(6,143
)
               
Effect of exchange rate changes on cash
    
273
   
171
 
               
Net increase in cash
    
651
   
1,537
 
               
Cash - beginning of year
  
$
2,455
  
$
918
  
Cash - end of period
  
$
3,106
  
$
2,455
  
               
The accompanying notes are an integral part of these statements.