A. M. Castle & Co. Reports 2012 Third Quarter Results

OAK BROOK, Ill., Nov. 1, 2012 /PRNewswire/ -- A. M. Castle & Co. (NYSE: CAS) ("the Company"), a global distributor of specialty metal and plastic products, value-added services and supply chain solutions, today reported financial results for the third quarter ended September 30, 2012.

Consolidated net sales were $304.0 million for the three months ended September 30, 2012, compared to $294.9 million in the third quarter of 2011.  Reported net income for the quarter was $3.2 million, or $0.13 per diluted share, as compared to $3.8 million, or $0.16 per diluted share, in the prior year quarter.  Adjusted non-GAAP net income, as reconciled below, was $2.4 million, or $0.10 per diluted share, for the third quarter of 2012 compared to $4.9 million, or $0.21 per diluted share, in the prior year quarter.

The Company's reported EBITDA, as defined and reconciled in the financial statement table below, rose 80.3% to $20.2 million, or 6.6% of net sales, in the third quarter of 2012, compared to $11.2 million, or 3.8% of net sales, in the third quarter of 2011 and $17.1 million, or 5.2% of net sales, in the second quarter of this year. 

"We made progress toward our goal to improve operating margins," said Scott Stephens, Vice President-Finance and CFO of A. M. Castle & Co., and interim CEO during the third quarter.  "Through strong gross material margin execution and effective cost management, we achieved the third quarter profit levels that we had anticipated, despite external headwinds, including declining scrap and commodity prices and continued uncertain customer demand." 

Operating income as a percent of net sales increased to 4.1% compared to 1.1% in the prior year quarter and 2.7% in the second quarter of 2012.  In addition, average tons sold per day rose sequentially throughout the quarter, increasing 8.5% from July to September.  Gross material margins remained strong for the quarter at 27.9%, excluding the impact of the unrealized gains on commodity hedges.  Reported third quarter 2012 cost of materials includes a pre-tax LIFO credit, or income, of $4.4 million, compared to a pre-tax LIFO charge, or expense, of $4.0 million for the third quarter of 2011 and expense of $1.5 million for the second quarter of 2012.

















Reconciliation of 2012 adjusted net income to reported net income (loss) for the period ended September 30:

(Dollars in millions, except per share data)






Unaudited







For the Three 

Months Ended 2012


For the Three 

Months Ended 2011


For the

Nine 

Months Ended 2012


For the

Nine 

Months Ended 2011













Net income (loss), as reported

$          3.2


$          3.8


$         (4.1)


$        10.2

Unrealized loss on debt conversion option

-


-


15.6


-

CEO transition costs, net 

-


-


0.6


-

Unrealized (gains) losses on commodity hedges

(1.1)


1.6


(0.2)


1.6

Tax effect of adjustments

0.3


(0.5)


(0.1)


(0.5)

Adjusted non-GAAP net income 

$          2.4


$          4.9


$        11.8


$        11.3









Adjusted non-GAAP basic income per share

$        0.11


$        0.21


$        0.51


$         0.50

Adjusted non-GAAP diluted income per share

0.10


0.21


0.49


0.49









In the Metals segment, third quarter 2012 net sales of $272.4 million were $8.0 million, or 3.0% higher than last year, primarily due to the acquisition of Tube Supply in December 2011, which contributed net sales of $39.9 million in the third quarter of 2012.  Metals segment tons sold per day, excluding Tube Supply, for the third quarter of 2012 were down 9.2% from the third quarter of 2011. Sequentially, tons sold per day, excluding Tube Supply, were 7.6% lower than the second quarter of 2012 as most key end-use markets experienced softer demand as customers adjusted inventory levels due to a more cautious outlook. 

In the Plastics segment, third quarter 2012 net sales of $31.6 million were $1.1 million, or 3.6% higher than the prior year period, primarily due to increased volume in the automotive sector.

Equity in earnings of the Company's joint venture was $1.4 million in the third quarter of 2012, which was $1.8 million less than the same period last year and $0.4 million less than the second quarter of this year.

The Company's debt-to-capital ratio was 46.6% at September 30, 2012, compared to 50.2% at December 31, 2011.  Total debt outstanding, net of unamortized discount, was $303.6 million at September 30, 2012 and $314.9 million at December 31, 2011.  Refer to the 'Total Debt' table below for details related to the Company's outstanding debt obligations.

Commenting on the Company's outlook, Stephens said, "We remain cautious heading into the fourth quarter, which has historically been seasonally slower for the Company.  Nevertheless, we expect daily sales in the fourth quarter of 2012 to be comparable to third quarter levels and expect gross material margins in the fourth quarter of approximately 27%.  We continue to be optimistic about our global growth opportunities in our targeted end markets, and we are committed to expanding our business as we focus on cost management and improved operating efficiency for the balance of 2012 and into 2013."

Subsequent to the end of the third quarter, the Board of Directors of the Company elected Scott J. Dolan, 41, to serve as President and Chief Executive Officer and as a member of the Board of the Company, effective October 15, 2012.

"Scott Dolan possesses the qualities we sought in a CEO to execute A. M. Castle's strategy, engage our employees and deliver improved results for shareholders," reiterated Brian P. Anderson, chairman of the board.

Subsequent to the filing of a Schedule 13-D filed on August 20, 2012 by Platinum Equity and various affiliates, representatives of the Board of Directors of the Company communicated with Platinum Equity with respect to its intentions.  Consistent with its responsibilities to shareholders, the Board of Directors diligently and deliberately evaluated Platinum's stated intentions and strategic alternatives available to the Company. In addition, with its financial advisors, the Board of Directors reviewed the opportunities and challenges presented by A. M. Castle's strategic and business plans.

Based on its evaluation, the Board of Directors has determined that it is in the best interests of the Company and its shareholders to pursue the Company's business plans as a standalone entity. 

"We view our Company's prospects, leadership and long-term strategic direction positively as the Company executes on its standalone business plan to build long-term shareholder value," concluded Anderson.

Webcast Information

Management will hold a conference call at 11:00 a.m. ET today to review the Company's results for the third quarter and discuss business conditions and outlook.  The call can be accessed via the Internet live or as a replay.  Those who would like to listen to the call may access the webcast through a link on the investor relations page of the Company's website at http://www.amcastle.com/investors/default.aspx.  A supplemental presentation accompanying the webcast can also be accessed at the link provided.

An archived version of the conference call webcast will be available for replay at the link above approximately three hours following its conclusion, and will remain available until the next earnings conference call.  A replay of the conference call will also be available for seven days by calling 303-590-3030 (international) or 800-406-7325 and citing code 4571381.

About A. M. Castle & Co.

Founded in 1890, A. M. Castle & Co. is a global distributor of specialty metal and plastic products and supply chain services, principally serving the producer durable equipment, oil and gas, commercial aircraft, heavy equipment, industrial goods, construction equipment, retail, marine and automotive sectors of the global 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 metals business, it specializes in the distribution of alloy and stainless steels; nickel alloys; aluminum and carbon.  Through its wholly-owned subsidiary, Total Plastics, Inc., the Company also distributes a broad range of value-added industrial plastics.  Together, Castle and its affiliated companies operate out of more than 60 locations throughout North America, Europe and Asia.  Its common stock is traded on the New York Stock Exchange under the ticker symbol "CAS".

Regulation G Disclosure

This release and the financial statements included in this release include non-GAAP financial measures. The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the reconciliation contained in this release and in the attached financial statements, provides meaningful information and therefore we use it to supplement our GAAP reporting and guidance. Management often uses this information to assess and measure the performance of our business. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations and to assist with period-over-period comparisons of such operations. The exclusion of the charges indicated herein from the non-GAAP financial measures presented does not indicate an expectation by the Company that similar charges will not be incurred in subsequent periods.

In addition, the Company believes that the use and presentation of EBITDA, which is defined by the Company as income before provision for income taxes plus depreciation and amortization, and interest expense, less interest income, is widely used by the investment community for evaluation purposes and provides the investors, analysts and other interested parties with additional information in analyzing the Company's operating results.  Adjusted non-GAAP net income and adjusted EBITDA, which are defined as reported net income and EBITDA adjusted for non-cash items and items which are not considered by management to be indicative of the underlying results,  are presented as the Company believes the information is important to provide investors, analysts and other interested parties additional information about the Company's financial performance.  Management uses EBITDA, adjusted non-GAAP net income and adjusted EBITDA to evaluate the performance of the business.

Cautionary Statement on Risks Associated with Forward Looking Statements

Information provided and statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Private Securities Litigation Reform Act of 1995. 

Such forward-looking statements only speak as of the date of this release and the Company assumes no obligation to update the information included in this release.  Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy.  These statements often include words such as "believe," "expect," "anticipate," "intend," "predict," "plan," or similar expressions.  These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions.  Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including those risk factors identified in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above.  Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.










CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

Unaudited



For the Three

Months Ended

September 30,


For the Nine

Months Ended

September 30,



2012


2011


2012


2011










Net sales


$ 304,039


$ 294,860


$ 996,347


$ 850,216










Costs and expenses:









  Cost of materials (exclusive of depreciation and amortization)


218,015


221,690


722,663


631,588

  Warehouse, processing and delivery expense


36,894


35,076


113,894


102,092

  Sales, general, and administrative expense


30,319


30,060


100,425


92,045

  Depreciation and amortization expense


6,263


4,861


19,350


14,919

Operating income 


12,548


3,173


40,015


9,572

Interest expense, net


(10,280)


(1,221)


(30,437)


(3,327)

Interest expense - unrealized loss on debt conversion option


-


-


(15,597)


-










Income (loss) before income taxes and equity in earnings of joint venture


2,268


1,952


(6,019)


6,245










Income taxes


(453)


(1,266)


(4,185)


(5,000)










Income (loss) before equity in earnings of joint venture


1,815


686


(10,204)


1,245










Equity in earnings of joint venture


1,358


3,117


6,099


8,958

Net income (loss) 


$     3,173


$     3,803


$   (4,105)


$   10,203










Basic income (loss) per share 


$       0.14


$       0.17


$     (0.18)


$       0.45

Diluted income (loss) per share


$       0.13


$       0.16


$     (0.18)


$       0.44










EBITDA *


$   20,169


$   11,151


$   65,464


$   33,449










*Earnings before interest, taxes, and depreciation and amortization










Reconciliation of adjusted EBITDA to net income:








For the Three

Months Ended

September 30,


For the Nine

Months Ended

September 30,



2012


2011


2012


2011










Net income (loss) 


$     3,173


$     3,803


$   (4,105)


$   10,203

Depreciation and amortization expense


6,263


4,861


19,350


14,919

Interest expense, net


10,280


1,221


30,437


3,327

Interest expense - unrealized loss on debt conversion option


-


-


15,597


-

Income taxes


453


1,266


4,185


5,000

EBITDA


20,169


11,151


65,464


33,449

Non-GAAP net income adjustments (a)


(1,068)


1,571


355


1,571

Adjusted EBITDA


$   19,101


$   12,722


$   65,819


$   35,020










(a) Non-GAAP net income adjustments relate to CEO transition costs and unrealized (gains) losses for commodity hedges.  Refer to 'Reconciliation of 2012 adjusted net income to reported net income (loss)' table on page 2.










 







CONDENSED CONSOLIDATED BALANCE SHEETS





(Dollars in thousands, except par value data)


As of

Unaudited


September 30,


December 31,




2012


2011

ASSETS





Current assets   






Cash and cash equivalents


$          19,988


$         30,524


Accounts receivable, less allowances of $4,768 and $3,584


171,253


181,036


Inventories, principally on last-in, first-out basis (replacement cost 


357,382


272,039


  higher by $140,544 and $138,882)




Prepaid expenses and other current assets


16,629


10,382


Income tax receivable


6,041


8,287


     Total current assets


571,293


502,268

Investment in joint venture


40,731


36,460

Goodwill 


70,516


69,901

Intangible assets


85,709


93,813

Prepaid pension cost


16,773


15,956

Other assets


20,321


21,784

Property, plant and equipment






Land


5,196


5,194


Building 


52,838


52,434


Machinery and equipment 


177,627


172,833


Property, plant and equipment, at cost


235,661


230,461


Less - accumulated depreciation


(155,839)


(148,320)


    Property, plant and equipment, net


79,822


82,141

Total assets


$        885,165


$       822,323







LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities






Accounts payable


$        133,723


$       116,874


Accrued liabilities


48,542


33,828


Income taxes payable


1,357


1,884


Current portion of long-term debt  


309


192


Short-term debt


1,000


500


     Total current liabilities


184,931


153,278

Long-term debt, less current portion 


302,283


314,240

Deferred income taxes 


33,995


25,650

Other non-current liabilities


6,191


7,252

Pension and post retirement benefit obligations


9,913


9,624

Commitments and contingencies





Stockholders' equity 






  Preferred stock, $0.01 par value - 9,988 shares authorized (including 400 Series B Junior Preferred  $0.00 par value shares); no shares issued and outstanding at September 30, 2012 and December 31, 2011

-


-


  Common stock, $0.01 par value - 60,000 shares authorized and 23,211 shares issued and   23,092 outstanding at September 30, 2012; 30,000 shares authorized and 23,159 shares 






    issued and 23,010 outstanding at December 31, 2011 


232


232


  Additional paid-in capital


221,297


184,596


  Retained earnings


144,882


148,987


  Accumulated other comprehensive loss


(17,134)


(19,824)


  Treasury stock, at cost - 119 shares at September 30, 2012 and 149 shares at






  December 31, 2011


(1,425)


(1,712)


     Total stockholders' equity 


347,852


312,279

Total liabilities and stockholders' equity


$        885,165


$       822,323

 






TOTAL DEBT





(Dollars in thousands)





unaudited







September 30, 2012


December 31, 2011

SHORT-TERM DEBT





Foreign


$                  1,000


$                    500

Total short-term debt


1,000


500






LONG-TERM DEBT





12.75% Senior Secured Notes due December 15, 2016


225,000


225,000

7.0% Convertible Notes due December 15, 2017


57,500


57,500

New Revolving Credit Facility due December 15, 2015


46,800


35,500

Other, primarily capital leases 


996


244

Total long-term debt 


330,296


318,244

Plus:  derivative liability for conversion feature associated with convertible debt


-


26,440

Less:  unamortized discount


(27,704)


(30,252)

Less:  current portion


(309)


(192)

Total long-term portion


302,283


314,240






TOTAL DEBT


$               303,592


$              314,932






SOURCE A. M. Castle & Co.



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