Citation Announces Fiscal 1998 Earnings
17 November 1998
Citation Announces Fiscal 1998 Earnings Per Share $0.71 After Asset Writedown and Non-Recurring Charges; $1.13 EPS Due to Operations
BIRMINGHAM, Ala.--Nov. 16, 1998--Citation Corporation announced today that its fiscal 1998 sales of $724 million were up 11.6 percent from fiscal 1997 sales of $649 million. Net income for the fiscal year was $12.8 million, after the Company recorded a pre-tax write down of assets of its Oberdorfer Division by $10 million and non-recurring charges of $2.3 million attributable to a $150 million offering of Senior Subordinated Debt which was terminated and certain costs related to several acquisitions which were not consummated.Net income attributable to operations, excluding the Oberdorfer write down and non-recurring costs, was $20.3 million versus fiscal 1997 net income of $23.2 million, a decrease of 12.5 percent. Earnings per share (EPS) for fiscal 1998 after the write down of assets and non-recurring charges was $0.71. EPS attributable to operations was $1.13, a decrease of 12.4 per cent from fiscal 1997 EPS of $1.29.
The $10 million write down of the assets of the Company's Oberdorfer Division in Syracuse, N.Y. was to reduce the assets to their estimated recoverable value through sale to a third party.
Nearly 70 percent of the non-recurring costs were related to Citation's proposed debt offering in August 1998, which was subsequently withdrawn due to an increase in borrowing rates. These costs included losses related to a hedge on interest rates, as well as legal, accounting and other associated costs. The remainder of the non-recurring costs related to several acquisition efforts, which were not consummated.
For the fiscal 1998 fourth quarter, Citation had sales of $164.3 million, an increase of 2.6 percent from fiscal 1997 fourth quarter sales of $160.2 million. A net loss of $10.4 million for the quarter was recorded after the previously described Oberdorfer write down of assets and non-recurring charges. Excluding the write down and non-recurring costs, Citation incurred a net loss of $2.9 million attributable to operations as compared to net income in the fiscal 1997 comparable period of $5.5 million.
The operating loss in the fourth quarter of fiscal 1998 was caused by three factors; a reduction in orders due to the General Motors strike and a slow down in several capital goods sectors, the start up costs of a number of product and process launches, and a pre-tax loss of nearly $2.5 million at the Oberdorfer Division.
The loss on a per share basis for the fiscal 1998 fourth quarter was $0.58 after the non-recurring costs and the Oberdorfer asset write down. The loss per share for the quarter attributable to operations was $0.16 versus EPS of $0.31 reported in the fourth quarter of fiscal 1997.
For the year, Citation sales increased 1.9 percent, excluding acquisitions. Sales increased $62.5 million from acquisitions in fiscal 1998 and one acquisition that was not owned for the full year of fiscal 1997.
Citation completed three acquisitions in fiscal 1998; Camden Castings Center, Camden, Tenn., a ductile iron producer of brake castings, Dycast, Inc., Lake Zurich, Ill., a producer of automotive aluminum die castings, and Citation Precision, Rancho Cucamonga, Calif., a manufacturer of aluminum and steel investment castings for aircraft engines and airframe parts. Citation also expects to complete the acquisition of Custom Products Corporation, Milwaukee, Wis., a machiner of cast and forged metal products for capital goods and automotive producers this week.
Citation sales for the fourth quarter of fiscal 1998, excluding acquisitions, were down 7.6 percent. The reduction in sales, as previously indicated, was due to the strike at General Motors in Citation's fourth quarter and order reductions in castings and forgings for oil tools, construction equipment, mining equipment, and farm implements markets. In addition, launches of certain new products expected in the fourth quarter were delayed until the first quarter of fiscal 1999.
F. F. Sommer, President and CEO, said, "The financial results for Citation's fiscal year 1998 were as indicated in our preliminary announcement of earnings. At that time, we reviewed in detail the issues that caused the loss in the fiscal fourth quarter.
"As previously announced, we wrote down the assets of Oberdorfer Industries by $10 million to properly reflect the fair market value of those assets. We have begun the process to market Oberdorfer.
"The outlook has not changed substantially since we made our preliminary earnings release. While we anticipate that the automotive build in 1999 will be down a bit, we are in the process of bringing on substantial new business which should increase our automotive component sales from our fiscal 1998 results.
"We also expect heavy truck production to be down from 1998 but still be at a reasonable level. Automotive and heavy truck shipments represent approximately 50 percent of Citation's revenues. We also expect a good year in our aircraft and aerospace section, although that is only about five percent of our business.
"We expect heavy capital goods - oil tools, construction and mining equipment, and farm implements - to remain weak in 1999. This impacts our Industrial Group, Interstate Forging, and our Special Foundry Group. Despite this, we expect Citation's financial results attributable to operations to be better than fiscal 1998, unless the economy weakens substantially.
"Our first fiscal quarter - October through December - will be our biggest challenge. We have additional product launches in the quarter that we must complete satisfactorily. In addition, we face continuing losses from Oberdorfer, and, as indicated, the activity of our divisions that supply the heavy capital goods sector will be slow. Despite this, October's preliminary results were encouraging in that earnings showed positive trends.
"It has been announced separately that Drummond Company, a privately-held Birmingham, Ala. corporation, has been granted a 120-day option to purchase four million shares of common stock at $20 per share from Citation Chairman, T. Morris Hackney.
"In addition, Drummond later announced that they purchased approximately 1.3 million shares at $15 per share owned by Hugh G. Weeks, a Citation Board member. Should Drummond exercise the right to buy Hackney's shares, Drummond's combined holdings in Citation would equal approximately 29.8 percent of the outstanding shares. The acquisition of 30 percent or more of the outstanding shares, would constitute a default under the Company's credit facility.
"Drummond has requested that the Citation Board approve a due diligence investigation of Citation's business and operations.
"The Citation Board of Directors held a special meeting on Nov. 13, 1998 to consider this transaction. In order to insure Citation's responsibilities both to its shareholders and its employees are properly carried out; the Board took several actions.
"The Board appointed a special committee to recommend any appropriate actions in this matter to the Board. To assist in a full review of the issues, the Board engaged Balch & Bingham LLP, legal counselors, and is in the process of engaging financial advisors." Sommer said.
Citation Corporation is a metal components producer to capital and durable goods industries with 19 manufacturing divisions located in 10 states, excluding the acquisition of Custom Products. The Company has approximately 6,300 employees.
Note: The statements in this news release that are not historical fact are forward-looking statements that 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 fiscal quarter ended June 28, 1998, and other filings with the Securities and Exchange Commission.
CITATION CORPORATION
Preliminary Earnings Highlights
(In thousands, except per share data)
Fiscal Year Ended
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28 Sept. 27 Sept.
1997 1998
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Sales $648,961 $724,017
Gross Profit 110,459 111,982
S,G& A Expenses 58,066 63,603
Asset Write Down 10,000
Operating Income 52,393 38,379
Interest Expense 14,433 15,254
Other (Income) Expense (14) 2,155
Income before tax 37,974 20,970
Taxes 14,810 8,178
Net Income $23,164 $12,792
Earnings per Share - Basic $1.31 $0.72
Weighted average shares
outstanding - Basic 17,733,157 17,838,354
Earnings per Share - Diluted
Weighted average shares $1.29 $0.71
outstanding - Diluted 17,917,609 18,042,346
Three Months Ended
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28 Sept. 27 Sept.
1997 1998
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Sales $160,182 $164,257
Gross Profit 26,530 14,929
S,G& A Expenses 14,323 15,435
Asset Write Down 10,000
Operating Income (Loss) 12,207 (10,506)
Interest Expense 3,302 4,214
Other (Income) Expense (105) 2,385
Income (Loss) before taxes 9,010 (17,105)
Income Taxes 3,514 (6,671)
Net Income $5,496 ($10,434)
Earnings (Loss) per Share - Basic $0.31 ($0.58)
Weighted average shares
outstanding - Basic 17,754,842 17,888,168
Earnings (Loss) per Share
- Diluted $0.31 ($0.58)
Weighted average shares
outstanding - Diluted 18,001,390 17,992,766