ITEM 1. BUSINESS.
Central Steel and Wire Company ("the Company") was first incorporated in Illinois in 1909 and reincorporated in the state of Delaware in 1958. The Company is engaged in a single line of business, the distribution from its service centers of processed and unprocessed, ferrous and non-ferrous metals in many forms purchased in general from producing mills or specialty mills. The Company purchases a full line of products and inventories them until they are sold to its customers. One of the principal characteristics of the Company's business is the ability to promptly supply quality products from its inventory to customers upon receipt of orders. The Company may also arrange direct shipments to its customers from mills when practicable and may purchase items not currently in its inventory in order to meet customer needs. The Company has approximately 1400 employees and four service center facilities located in Chicago, Detroit, Cincinnati and Milwaukee. The Company administers centralized purchasing, inventory and sales policy from its principal service center and home office located in Chicago. The Company inventories a wide range of products including bars, structurals, plates, sheets, coils, tubing and wire. Products are generally available from a variety of sources. The Company is not dependent upon a single source of supply for the majority of the products stocked in its inventory. In 1994 the Company carried approximately 21,000 separate inventory items. The Company's customer base is principally located in a sixteen state area. This includes states in which the Company has service centers as well as other surrounding states. The Company's customers include several thousand firms in virtually all industries that purchase metal products for use in the manufacture of their own products; in repairs and maintenance of property, plant and equipment; in research and development; and for resale. The business of the Company is not especially seasonal or dependent upon any particular industry or customers in any geographical area within the area described above. No single customer accounted for over 10% of the Company's sales in 1994. The Company's sales are generated by salaried sales representatives operating throughout its market area and through inside sales personnel located at its four service center locations. The Company has developed a computer order entry system which allows customers to place orders through their computer terminals connected with any of the four service center locations providing quick, convenient and efficient scheduling of materials. In addition to providing a wide range of products, the Company can perform certain first step processing operations for customers. These processes include cutting of bars, slitting of coil products, burning of plates and shearing of sheets to customers specifications. The Company's Fabricating Department provides cus- tomers with information in cutting the Company's material to the customer's drawings and specifications. The Company's metallurgists continually evaluate products for quality and unique characteristics as they are produced by the producing mills to provide the Company's sales representatives with current product knowledge and customers
with materials of a quality for general purpose applications. The Company's Product Specialists for Aluminum, Brass, Copper, Cold and Hot Rolled and Stainless Steel products support customers and sales representatives with extensive product knowledge, and product application information. The Company's business is highly competitive. The Company competes by maintaining and emphasizing its ability to deliver a broad range of quality products quickly and accurately in response to customer orders at competitive prices. Deliveries are made through delivery services with various common and contract carriers throughout the midwest for direct shipment from the Company's service centers to customers' docks where single item or truck load shipments are made on a same day or next day basis. Prompt delivery is essential, and backlog is not a material factor in the Company's business. The Company maintains a broad and deep inventory to allow it to offer this service which requires significant working capital. Unlike many in its industry, the Company has been able to generate working capital without external financing. The Company competes with at least 40 other national or significant regional firms, some of which are independent and some of which are affiliated with producing mills. For many products and at certain order-size levels (which may vary with economic conditions and mill capacity), the producing mills themselves are also significant competitors of the Company. In addition, there are over 200 local steel service centers in the economic regions that include the Company's principal customer base (Great Lakes, Central States and South East) which can be competitors in particular locations. The Company believes that its total sales make it one of the largest independent distributors of metal products, but it is unable to state its relative position within the industry since there are no comparative figures presently available which the Company believes are complete. The Company does not own any material patents, trademarks, licenses, franchises and concessions, and does not engage, to any significant degree, in research activities or product development.
ITEM 2.
ITEM 2. PROPERTIES.
The Company owns warehouse and office facilities in the following locations:
Location Area Chicago, Illinois 1,464,000 sq. ft.(a) Detroit, Michigan 144,000 sq. ft. Cincinnati, Ohio 173,000 sq. ft. Milwaukee, Wisconsin 107,000 sq. ft.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
(a) Includes 123,000 sq. ft. utilized as the Company's principal executive office.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NOT APPLICABLE.
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's executive officers are as follows:
The executive officers of the Company are elected no less often than annually and may be removed by the Board of Directors at any time. Each of the officers' principal business experience during the past five years has been with the Company.
(b) April 17, 1995.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of Central Steel and Wire Company is traded in the over-the-counter market. The market is a limited one, with only occasional trading. The Company's profit sharing plan has purchased shares from time to time. The quarterly high-and-low market bid prices of the stock (which do not necessarily represent firm offers or actual transactions), as reported by the National Quotation Bureau, and the quarterly dividends declared during the last two years were:
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following information supplements the financial statements and notes thereto found elsewhere in this annual report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Company is an independent metals distributor with its principal facility in Chicago and other warehouses in Detroit, Cincinnati and Milwaukee. The Company's customer base is in the midwest, where the Company sells, through salaried sales personnel, to a diverse group of customers in many industries. Products are purchased in standard shapes from producing mills, which sell to other independent metals distributors, captive distributors, and directly to industrial users. The market for the Company's products is a highly competitive one. As a distributor, the Company's revenues and margins are directly affected by prices established in the marketplace by the mills. The Company's unit volumes and prices are also affected by
demand in its principal market area, which responds to overall economic conditions.
The Company competes by maintaining and emphasizing its ability to deliver a broad range of products quickly and accurately in response to customer orders, using modern and efficient facilities. The Company maintains the facilities and personnel necessary to conduct its business in this manner, even though unit volume can vary materially from period to period. Accordingly, operating, selling and administrative expenses, although subject to inflation, are relatively fixed.
RESULTS OF OPERATIONS
1994 Compared to 1993
Sales increased 18% in 1994 as a result of higher unit volume and higher unit selling prices due to greatly improved general economic conditions. Unit margins remained unchanged during 1994 as higher unit costs were recovered through higher unit selling prices. Operating expenses increased 13% in 1994 as a result of higher depreciation, insurance, and salaries. Selling and administrative expenses increased slightly from 1993. Interest income increased due to higher interest rates. The result of these factors was a 154% increase in net earnings.
1993 Compared to 1992
Sales increased 10% in 1993 as a result of higher unit volume due to improving general economic conditions. Unit margins remained unchanged during 1993. Operating expenses increased 6% in 1993 due to relocating certain machinery and equipment at the Chicago Plant and increased maintenance costs. Selling and administrative expenses increased slightly from 1992. Interest income decreased due to lower interest rates and lower funds available for investment. The result of these factors was a 143% increase in earnings before cumulative effect of change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity remains strong as operations continued to provide the funds needed for working capital and capital expenditures. Funds in excess of current business needs are invested in cash- equivalents. The Company remained debt free in 1994, for the fifteenth consecutive year, and for the foreseeable future expects funding requirements to be met without external financing. It is the Company's policy to continue to make such expenditures on property, plant and equipment as are necessary to keep its facilities among the most modern in the industry. The Company does not anticipate any material changes in expenditures for these purposes from the levels of the last several years.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CENTRAL STEEL AND WIRE COMPANY
Index to Financial Statements and Financial Statement Schedule
Page ---- Statements of Earnings and Earnings Reinvested in 9 Business for each of the years in the three-year period ended December 31, 1994.
Balance Sheets as of December 31, 1994 and 1993. 10-11
Statements of Cash Flow for each of the years in the three-year period ended December 31, 1994. 12
Notes to Financial Statements. 13-16
Report of KPMG Peat Marwick LLP, dated February 16, 1995. 17
Schedule for the years ended December 31, 1994, 1993 and 1992.
Schedule -------- Valuation and Qualifying Accounts II 18
All other Schedules have been omitted because they are not applicable or because information is shown in the financial statements and accompanying notes.
CENTRAL STEEL AND WIRE COMPANY NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Steel and Wire Company is engaged in a single line of business, the distribution from its warehouses of processed and unprocessed ferrous and non-ferrous metals in forms produced, in general, by rolling mills.
Cash-equivalents are highly liquid, low-risk investments that have original maturities within three months.
Inventories are valued at cost using the last-in, first-out method (LIFO) which is lower than market. The excess of current cost over LIFO value amounted to approximately $109.3 million at December 31, 1994 and $99.2 million at December 31, 1993.
Depreciation is computed under accelerated methods for substantially all plant and equipment.
Earnings per share are calculated based on average shares outstanding, which were 286,000 in 1994, 286,260 in 1993 and 287,000 in 1992.
(2) BENEFIT PLANS
The Company's defined benefit pension plan, covering substantially all personnel, provides benefits based on final five-year-average compensation and years of service. Contributions are made when allowable under ERISA.
The following table sets forth the plan's funded status and amounts recognized in the balance sheet:
The assumed weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was six and three-quarter percent in 1994 and 1993. The expected long-term rates of return on assets and increases in future compensation levels were eight percent and three percent in 1994 and 1993. Plan assets include various debt and equity securities.
Profit sharing expense amounted to approximately $1.2 million in 1994, $1.0 million in 1993, and $.2 million in 1992.
The Company also provides postretirement health benefits for retired employees. Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The statement requires employers to recognize the cost of providing postretirement benefits to employees over the employees' service periods. The Company has elected to recognize the transition obligation at January 1, 1992, of $14.3 million, as a cumulative effect of change in accounting principle. The Company's policy had been to expense retiree health care costs as they were paid.
Postretirement health costs for the year ended December 31, included the following:
There are no health plan assets and the Company funds benefits as paid.
The following table sets forth postretirement amounts recognized in the Company's balance sheet:
The health care cost trend rate used to measure the cost in 1994 and 1993 for health care benefits was 12% and 11%, which is graded down to an ultimate trend rate of 4.5% to be achieved in the year 2004. The discount rate used was 7.5% in 1994 and 1993.
The effect of a one-percentage point increase in the assumed health care cost trend rates for future years would increase the accumulated postretirement benefit obligation as of December 31, 1994, by $2.0 million. The effect of this change on the aggregate of the service and interest cost components of the net periodic postretirement benefit costs would be an increase of $.2 million for 1994.
KPMG Peat Marwick LLP Independent Auditors
THE BOARD OF DIRECTORS AND STOCKHOLDERS CENTRAL STEEL AND WIRE COMPANY:
We have audited the accompanying financial statements of Central Steel and Wire Company as listed in the accompanying index. In connection with our audits of the financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 Central Steel and Wire Company at December 31, 1994 and 1993 and the results of its operations and its cash flow for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1992.
KPMG PEAT MARWICK LLP Chicago, Illinois February 16, 1995
SCHEDULE II
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by this Part is incorporated by reference to the matter appearing under the captions "Proxy Statement for Annual Meeting of Stockholders," "Election of Directors," "Compensation of Executive Officers," "Summary Compensation Table" and "Pension Plan Table," and the matter appearing in the first sentence under the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 17, 1995, which has been filed with the Securities and Exchange Commission. No other portion of the definitive Proxy Statement is incorporated by reference and no other material from the definitive Proxy Statement should be deemed to be filed with the Securities and Exchange Commission.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements and Schedule
See accompanying Index to Financial Statements and Financial Statement Schedule on page 8. Such Financial Statements and Schedule are incorporated herein by reference.
Exhibits
(a) Documents filed as part of this report:
3.1 Articles of Incorporation of the registrant. This Exhibit is incorporated by reference to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
3.2 By-Laws of the registrant. This Exhibit is incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.
27. Financial Data Schedule
(b) Reports on Form 8-K
None filed for quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 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.
CENTRAL STEEL AND WIRE COMPANY (Registrant)
By: /s/ F. A. Troike ________________________ Executive Vice President and Treasurer DATE: March 20, 1995.
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 and on the dates indicated.
By: /s/ James R. Lowenstine _____________________________ James R. Lowenstine, Chairman of the Board, President, Chief Executive Officer and Director
DATE: March 20, 1995.
By: /s/ F. A. Troike _____________________________ F. A. Troike, Executive Vice President, Treasurer and Director (Principal Financial officer)
DATE: March 20, 1995
By: /s/ A. G. Jensen _____________________________ A. G. Jensen, Senior Vice President and Director
DATE: March 20, 1995
By: /s/ R.P. Ugolini _____________________________ R. P. Ugolini, Comptroller, Assistant Secretary and Assistant Treasurer
DATE: March 20, 1995