Citation Corporation Reports Preliminary Fiscal 1998 Q4 Loss
16 October 1998
Citation Corporation Reports Preliminary Fiscal 1998 Fourth Quarter Loss; Restructuring Charge; Acquisition of Custom Products
BIRMINGHAM, Ala.--Oct. 15, 1998--Citation Corporation today said it expects to report a loss for its fiscal fourth quarter of 1998 of $0.50 to $0.60 per share, which includes a charge to write down assets of its Oberdorfer Industries division in Syracuse, New York of between $0.30 and $0.40.Also included in the loss are non-recurring charges of approximately $0.08 to $0.10 per share related to a terminated subordinated debt offering and several terminated acquisition efforts.
The loss for the 1998 fourth quarter attributable to operations is expected to be between $0.10 and $0.15 per share. The difference between the $0.10 to $0.15 per share expected loss attributable to operations and the actual $0.31 per share earned in the fiscal 1997 fourth quarter had several components.
Approximately $0.20 to $0.25 per share of the difference was represented by economic factors. These included the strike at General Motors and the resultant loss in expected revenues at Citation. It also includes the reductions in casting and forging orders from the oil tool, construction equipment, mining equipment, and farm equipment industries.
Approximately $0.12 to $0.16 per share of the difference was caused by costs from new product and process launches during the fourth quarter at Camden Castings, Bohn Aluminum, and other facilities.
Approximately $0.05 to $0.07 per share of the difference was due to operating losses at Oberdorfer Industries.
The non-recurring charges incurred during the quarter included financing and acquisition costs. In part, these were costs involved in Citation's proposed rule 144A offering of $150 million of Senior Subordinated Notes including hedge costs on the base interest rate. Citation withdrew the offering because of market conditions.
These costs also include consulting, legal and other costs incurred during consideration of several acquisition opportunities that were abandoned in the fourth quarter. The majority of these costs related to a large European opportunity.
Citation also announced that it had signed an agreement to acquire Custom Products of Milwaukee, Wisconsin subject to certain conditions, including review by the Federal Trade Commission and Justice Department under the Hart-Scott-Rodino Antitrust Improvements Act in connection with a pre-merger notification.
Custom Products is a machiner of cast and forged metal products, primarily for diesel engine, construction equipment, farm implement and automotive markets. The company has four locations in the Milwaukee area and approximately 650 employees. Revenues for fiscal year 1999 are expected to be approximately $80 to $90 million. It will be part of Citation's Industrial Products Group.
F. F. "Rick" Sommer, President and COO, was named CEO in August by the Board of Directors at the recommendation of T. Morris Hackney, Chairman and founder of the Company. Mr. Sommer, who has extensive public company experience at Ford, Nissan, and Automotive Industries, where he was President and CEO, has been with Citation since August 1996.
Mr. Sommer said, "Obviously, it is disappointing to show a loss in any quarter, but we believe several important changes have been accomplished during this quarter that will create value for shareholders as we move forward.
"We have restructured the Company in ways we believe will more closely give us the ability to respond to our customer base and end markets. This includes the reorganizing of our operating groups around markets. Groups now include group marketing and sales activities that work directly with customers and controller resources at the group level to strengthen financial planning activities.
"Beyond this, we have implemented a new planning process, in part to improve forecasting and refine our acquisition strategy. We have begun initiatives through outside consultants to insure we better communicate corporate strategy, organizational goals, and culture throughout the organization.
"Oberdorfer Industries, a medium volume aluminum casting producer, suffered significant losses during fiscal 1998 since completion of a major contract at the end of December 1997. The company has approximately 200 employees.
"Oberdorfer has been a severe drag on earnings and management time in this past year. We are hopeful that writing down the asset value will allow us to find another corporation where it will better fit.
"We have also largely completed several important launches in the quarter which will benefit the Company in fiscal 1999. Our assessment of future business requirements indicates that we need more capacity in both high volume aluminum and iron castings in the near term. Accordingly, we have rebuilt two production lines at our Camden Casting facility, both to give it more output and to greatly improve efficiency. We also have moved lower volume cells out of Bohn Aluminum to create more capacity for high volume automotive production facilities.
"We believe these efforts will strengthen our ability to create value for the constituencies we depend upon -- shareholders, customers, employees, and others.
"Our outlook is good. Fifty percent of our markets are either passenger cars and light trucks, or medium and heavy trucks. In both cases, we expect build rates to hold up reasonably well in fiscal 1999. Combined with new products that started up late last year and early this fiscal year, the outlook for this portion of the business is good.
" While we have experienced a slowdown in orders for oil tools, construction equipment, mining equipment, and farm equipment, other areas such as aerospace and electrical equipment are very good. At this stage, most economists are not predicting a recession, and thus our sales and earnings for next year should show improvement over this year," he said.
Citation Corporation is a metal components supplier to capital and durable goods industries. The company currently operates 19 manufacturing divisions in 10 states and employs about 6,400 employees.
Note: The statements in this news release that are not historical fact are forward-looking statements that necessarily involve risks and uncertainties including, but not limited to, changes in the economy, demand for durable goods, pricing by competitors, entry of new competitors, and other risks detailed in the Company's 10-Q for the quarter ended June 28, 1998, and other filings with the Securities and Exchange Commission.