FORM 8-K |
Date of Report: November 9, 2016 |
(Date of earliest event reported) |
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.) |
1420 Kensington Road, Suite 220 Oak Brook, IL 60523 |
(Address of principal executive offices) |
Registrant's telephone number including area code: (847) 455-7111 |
Not Applicable |
(Former name or former address if changed since last report.) |
Exhibit Number | Description | |
99.1 | Press Release, dated November 9, 2016. |
A.M. CASTLE & CO. | ||||
By: | /s/ Marec E. Edgar | |||
November 9, 2016 | Marec E. Edgar | |||
Executive Vice President, General Counsel, Secretary & Chief Administrative Officer | ||||
Exhibit No. | Description | |
99.1 | Press Release, dated November 9, 2016. |
A.M. CASTLE & CO. | 1420 Kensington Road Suite 220 Oak Brook, IL 60523 P: (847) 455-7111 F: (847) 241-8171 |
• | Improved third quarter 2016 gross material margin to 26.0%, compared to 25.3% in second quarter 2016 and 23.4% in third quarter 2015; |
• | Reduced operating expenses to $41.1 million in third quarter 2016, compared to $44.3 million in second quarter 2016 and $50.8 million in third quarter 2015; |
• | Achieved sequential quarterly improvement in loss from continuing operations and EBITDA with majority of branches now contributing positively; and |
• | Completed the sale of 50% equity ownership in Kreher Steel Company, LLC ("Kreher") to the Company's former joint venture partner. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | Three Months Ended | Nine Months Ended | |||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Unaudited | September 30, | September 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 124,893 | $ | 150,571 | $ | 419,433 | $ | 505,439 | |||||||
Costs and expenses: | |||||||||||||||
Cost of materials (exclusive of depreciation and amortization) | 92,406 | 115,300 | 323,808 | 411,834 | |||||||||||
Warehouse, processing and delivery expense | 19,561 | 25,893 | 63,772 | 76,826 | |||||||||||
Sales, general, and administrative expense | 16,820 | 18,023 | 51,486 | 60,338 | |||||||||||
Restructuring expense | 912 | 1,204 | 14,674 | 17,653 | |||||||||||
Depreciation and amortization expense | 3,845 | 5,666 | 12,498 | 17,447 | |||||||||||
Total costs and expenses | 133,544 | 166,086 | 466,238 | 584,098 | |||||||||||
Operating loss | (8,651 | ) | (15,515 | ) | (46,805 | ) | (78,659 | ) | |||||||
Interest expense, net | 8,743 | 10,156 | 28,711 | 30,345 | |||||||||||
Unrealized gain on embedded debt conversion option | (6,285 | ) | — | (7,569 | ) | — | |||||||||
Debt restructuring loss, net | — | — | 6,562 | — | |||||||||||
Other expense, net | 6,250 | 2,270 | 4,587 | 4,532 | |||||||||||
Loss from continuing operations before income taxes and equity in losses of joint venture | (17,359 | ) | (27,941 | ) | (79,096 | ) | (113,536 | ) | |||||||
Income tax expense (benefit) | 903 | (629 | ) | 1,099 | (22,141 | ) | |||||||||
Loss from continuing operations before equity in losses of joint venture | (18,262 | ) | (27,312 | ) | (80,195 | ) | (91,395 | ) | |||||||
Equity in losses of joint venture | (36 | ) | (1,460 | ) | (4,177 | ) | (134 | ) | |||||||
Loss from continuing operations | (18,298 | ) | (28,772 | ) | (84,372 | ) | (91,529 | ) | |||||||
Income (loss) from discontinued operations, net of income taxes | (1,688 | ) | 955 | 6,246 | 2,333 | ||||||||||
Net loss | $ | (19,986 | ) | $ | (27,817 | ) | $ | (78,126 | ) | $ | (89,196 | ) | |||
Basic (loss) earnings per common share: | |||||||||||||||
Continuing operations | $ | (0.57 | ) | $ | (1.22 | ) | $ | (3.02 | ) | $ | (3.89 | ) | |||
Discontinued operations | (0.05 | ) | 0.04 | 0.22 | 0.10 | ||||||||||
Net basic loss per common share | $ | (0.62 | ) | $ | (1.18 | ) | $ | (2.80 | ) | $ | (3.79 | ) | |||
Diluted (loss) earnings per common share: | |||||||||||||||
Continuing operations | $ | (0.57 | ) | $ | (1.22 | ) | $ | (3.02 | ) | $ | (3.89 | ) | |||
Discontinued operations | (0.05 | ) | 0.04 | 0.22 | 0.10 | ||||||||||
Net diluted loss per common share | $ | (0.62 | ) | $ | (1.18 | ) | $ | (2.80 | ) | $ | (3.79 | ) | |||
Negative EBITDA from continuing operations (a) | $ | (4,807 | ) | $ | (13,579 | ) | $ | (42,064 | ) | $ | (65,878 | ) | |||
Adjusted negative EBITDA from continuing operations(b) | $ | (7,668 | ) | $ | (8,043 | ) | $ | (22,656 | ) | $ | (25,920 | ) | |||
(a) A non-GAAP financial measure, which represents loss from continuing operations before interest, taxes, and depreciation and amortization. See reconciliation to loss from continuing operations below. | |||||||||||||||
(b) A non-GAAP financial measure, which represents negative EBITDA as defined above, adjusted for certain non-GAAP adjustments. Refer to "Reconciliation of Adjusted Non-GAAP Net Loss to Reported Net Loss" table for additional details on these non-GAAP adjustments. |
Reconciliation of EBITDA and of Adjusted EBITDA to Reported Net Loss: | Three Months Ended | ||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Unaudited | September 30, | June 30, | September 30, | ||||||||||||||||
2016 | 2015 | 2016 | 2016 | 2015 | |||||||||||||||
Net loss, as reported | $ | (19,986 | ) | $ | (27,817 | ) | $ | (21,270 | ) | $ | (78,126 | ) | $ | (89,196 | ) | ||||
Less: Income (loss) from discontinued operations, net of taxes | (1,688 | ) | 955 | — | 6,246 | 2,333 | |||||||||||||
Loss from continuing operations | (18,298 | ) | (28,772 | ) | (21,270 | ) | (84,372 | ) | (91,529 | ) | |||||||||
Depreciation and amortization expense | 3,845 | 5,666 | 4,260 | 12,498 | 17,447 | ||||||||||||||
Interest expense, net | 8,743 | 10,156 | 9,599 | 28,711 | 30,345 | ||||||||||||||
Income tax expense (benefit) | 903 | (629 | ) | 531 | 1,099 | (22,141 | ) | ||||||||||||
Negative EBITDA from continuing operations | (4,807 | ) | (13,579 | ) | (6,880 | ) | (42,064 | ) | (65,878 | ) | |||||||||
Non-GAAP adjustments (a) | (2,861 | ) | 5,536 | 3,521 | 19,408 | 39,958 | |||||||||||||
Adjusted negative EBITDA from continuing operations | $ | (7,668 | ) | $ | (8,043 | ) | $ | (3,359 | ) | $ | (22,656 | ) | $ | (25,920 | ) | ||||
(a) Refer to "Reconciliation of Adjusted Non-GAAP Net Loss to Reported Net Loss" table for additional details on these amounts. |
Reconciliation of Adjusted Non-GAAP Net Loss to Reported Net Loss: | Three Months Ended | ||||||||||||||||||
(Dollars in thousands) | Three Months Ended | Nine Months Ended | |||||||||||||||||
Unaudited | |||||||||||||||||||
September 30, | June 30, | September 30, | |||||||||||||||||
2016 | 2015 | 2016 | 2016 | 2015 | |||||||||||||||
Net loss, as reported | $ | (19,986 | ) | $ | (27,817 | ) | $ | (21,270 | ) | $ | (78,126 | ) | $ | (89,196 | ) | ||||
Non-GAAP adjustments: | |||||||||||||||||||
Restructuring activity(a) | 912 | 1,204 | 2,044 | 15,126 | 39,988 | ||||||||||||||
Gain on purchase commitments(b) | (843 | ) | — | — | (843 | ) | — | ||||||||||||
Debt restructuring (gain) loss | — | — | (513 | ) | 6,562 | — | |||||||||||||
Foreign exchange (gain) loss on intercompany loans | 3,570 | 2,709 | (1,024 | ) | 2,484 | 4,142 | |||||||||||||
Foreign exchange gain on intercompany loans of joint venture | — | — | (4 | ) | (175 | ) | — | ||||||||||||
Impairment of equity investment in joint venture(c) | — | 4,636 | 4,636 | — | |||||||||||||||
Impairment of goodwill of equity investment joint venture(d) | — | 1,763 | — | 1,763 | |||||||||||||||
Unrealized gain on commodity hedges | (215 | ) | (140 | ) | (334 | ) | (813 | ) | (313 | ) | |||||||||
Gain on sale of property, plant and equipment | — | — | — | — | (5,622 | ) | |||||||||||||
Unrealized gain on embedded debt conversion option | (6,285 | ) | — | (1,284 | ) | (7,569 | ) | — | |||||||||||
Non-GAAP adjustments | (2,861 | ) | 5,536 | 3,521 | 19,408 | 39,958 | |||||||||||||
Tax effect of adjustments | — | — | — | — | — | ||||||||||||||
Adjusted non-GAAP net loss | $ | (22,847 | ) | $ | (22,281 | ) | $ | (17,749 | ) | $ | (58,718 | ) | $ | (49,238 | ) | ||||
Less: Income (loss) from discontinued operations, net of taxes | (1,688 | ) | 955 | — | 6,246 | 2,333 | |||||||||||||
Adjusted non-GAAP loss from continuing operations | $ | (21,159 | ) | $ | (23,236 | ) | $ | (17,749 | ) | $ | (64,964 | ) | $ | (51,571 | ) | ||||
(a) Restructuring activity includes amounts recorded to restructuring expense. For the nine months ended September 30, 2016, amount includes $452 in inventory write-down charges recorded to cost of materials in the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2015, amount includes $22,335 in inventory write-down charges, recorded to cost of materials in the Condensed Consolidated Statements of Operations. | |||||||||||||||||||
(b) Amount recorded to cost of materials in the Condensed Consolidated Statements of Operations, which represents adjustment to the liability for purchase commitments associated with the Company's Houston and Edmonton locations that were closed in February 2016. | |||||||||||||||||||
(c) The Company determined that its 50% investment in its Kreher joint venture was impaired as of June 30, 2016. The Company recorded a charge of $4,636 in equity in losses of joint venture in the Condensed Consolidated Statements of Operations to reflect the loss associated with the write-down of the asset to its estimated fair value. | |||||||||||||||||||
(d) The Company's 50% joint venture, which was sold in August 2016, determined that its goodwill balance of $3,525 was impaired as of September 30, 2015. The Company recorded $1,763 in equity in losses of joint venture in the Condensed Consolidated Statements of Operations to reflect is share of the goodwill impairment. |
Reconciliation of Gross Material Margin and Adjusted Gross Material Margin: | Three Months Ended | ||||||||||||||||||
(Dollars in thousands) | Three Months Ended | Nine Months Ended | |||||||||||||||||
Unaudited | |||||||||||||||||||
September 30, | June 30, | September 30, | |||||||||||||||||
2016 | 2015 | 2016 | 2016 | 2015 | |||||||||||||||
Net sales, as reported | $ | 124,893 | $ | 150,571 | $ | 130,692 | $ | 419,433 | $ | 505,439 | |||||||||
Sale of Houston and Edmonton inventory | — | — | — | (27,107 | ) | — | |||||||||||||
Adjusted net sales | $ | 124,893 | $ | 150,571 | $ | 130,692 | $ | 392,326 | $ | 505,439 | |||||||||
Cost of materials, as reported (exclusive of depreciation and amortization) | $ | 92,406 | $ | 115,300 | $ | 97,644 | $ | 323,808 | $ | 411,834 | |||||||||
Sale of Houston and Edmonton inventory | — | — | — | (27,107 | ) | — | |||||||||||||
Gain on purchase commitments | 843 | — | — | 843 | — | ||||||||||||||
Restructuring activity in cost of materials | — | — | — | (452 | ) | (22,335 | ) | ||||||||||||
Adjusted cost of materials (exclusive of depreciation and amortization) | $ | 93,249 | $ | 115,300 | $ | 97,644 | $ | 297,092 | $ | 389,499 | |||||||||
Gross margin (calculated as net sales, as reported, less cost of materials, as reported) | $ | 32,487 | $ | 35,271 | $ | 33,048 | $ | 95,625 | $ | 93,605 | |||||||||
Gross material margin (calculated as gross margin divided by net sales, as reported) | 26.0 | % | 23.4 | % | 25.3 | % | 22.8 | % | 18.5 | % | |||||||||
Adjusted gross margin (calculated as adjusted net sales less adjusted cost of materials) | $ | 31,644 | $ | 35,271 | $ | 33,048 | $ | 95,234 | $ | 115,940 | |||||||||
Adjusted gross material margin (calculated as adjusted gross margin divided by adjusted net sales) | 25.3 | % | 23.4 | % | 25.3 | % | 24.3 | % | 22.9 | % |
CONDENSED CONSOLIDATED BALANCE SHEETS | As of | ||||||
(In thousands, except par value data) | September 30, | December 31, | |||||
Unaudited | 2016 | 2015 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 10,005 | $ | 11,100 | |||
Accounts receivable, less allowances of $2,141 and $2,380, respectively | 76,899 | 73,191 | |||||
Inventories | 179,396 | 216,090 | |||||
Prepaid expenses and other current assets | 11,609 | 10,424 | |||||
Income tax receivable | 1,583 | 346 | |||||
Current assets of discontinued operations | — | 37,140 | |||||
Total current assets | 279,492 | 348,291 | |||||
Investment in joint venture | — | 35,690 | |||||
Intangible assets, net | 5,637 | 10,250 | |||||
Prepaid pension cost | 10,372 | 8,422 | |||||
Deferred income taxes | 416 | 378 | |||||
Other noncurrent assets | 6,624 | 6,109 | |||||
Property, plant and equipment: | |||||||
Land | 2,071 | 2,519 | |||||
Buildings | 37,402 | 39,778 | |||||
Machinery and equipment | 127,690 | 153,955 | |||||
Property, plant and equipment, at cost | 167,163 | 196,252 | |||||
Accumulated depreciation | (115,279 | ) | (131,691 | ) | |||
Property, plant and equipment, net | 51,884 | 64,561 | |||||
Noncurrent assets of discontinued operations | — | 19,805 | |||||
Total assets | $ | 354,425 | $ | 493,506 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 51,856 | $ | 45,606 | |||
Accrued and other current liabilities | 37,401 | 28,078 | |||||
Income tax payable | 1,512 | 33 | |||||
Current portion of long-term debt | 142 | 7,012 | |||||
Current liabilities of discontinued operations | — | 11,158 | |||||
Total current liabilities | 90,911 | 91,887 | |||||
Long-term debt, less current portion | 235,454 | 310,614 | |||||
Deferred income taxes | — | 4,169 | |||||
Build-to-suit liability | 13,229 | 13,237 | |||||
Other noncurrent liabilities | 9,044 | 7,935 | |||||
Pension and postretirement benefit obligations | 18,513 | 18,676 | |||||
Commitments and contingencies | |||||||
Stockholders' equity (deficit): | |||||||
Preferred stock, $0.01 par value—9,988 shares authorized (including 400 Series B Junior Preferred, $0.00 par value); no shares issued and outstanding at September 30, 2016 and December 31, 2015 | — | — | |||||
Common stock, $0.01 par value—60,000 shares authorized; 32,768 shares issued and 32,639 outstanding at September 30, 2016 and 23,888 shares issued and 23,794 outstanding at December 31, 2015 | 327 | 238 | |||||
Additional paid-in capital | 244,344 | 226,844 | |||||
Accumulated deficit | (223,435 | ) | (145,309 | ) | |||
Accumulated other comprehensive loss | (32,950 | ) | (33,821 | ) | |||
Treasury stock, at cost—129 shares at September 30, 2016 and 94 shares at December 31, 2015 | (1,012 | ) | (964 | ) | |||
Total stockholders' equity (deficit) | (12,726 | ) | 46,988 | ||||
Total liabilities and stockholders' equity (deficit) | $ | 354,425 | $ | 493,506 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | Nine Months Ended | ||||||
(Dollars in thousands) | September 30, | ||||||
Unaudited | 2016 | 2015 | |||||
Operating activities: | |||||||
Net loss | $ | (78,126 | ) | $ | (89,196 | ) | |
Less: Income from discontinued operations, net of income taxes | 6,246 | 2,333 | |||||
Loss from continuing operations | (84,372 | ) | (91,529 | ) | |||
Adjustments to reconcile loss from continuing operations to net cash used in operating activities of continuing operations: | |||||||
Depreciation and amortization | 12,498 | 17,447 | |||||
Amortization of deferred gain | (92 | ) | — | ||||
Amortization of deferred financing costs and debt discount | 4,258 | 6,241 | |||||
Debt restructuring loss | 6,562 | — | |||||
Loss from lease termination | 4,452 | — | |||||
Unrealized gain on embedded debt conversion option | (7,569 | ) | — | ||||
Loss (gain) on sale of property, plant and equipment | 1,720 | (5,741 | ) | ||||
Unrealized gain on commodity hedges | (813 | ) | (313 | ) | |||
Unrealized foreign currency transaction loss | 2,484 | 4,142 | |||||
Equity in losses of joint venture | 4,141 | 134 | |||||
Dividends from joint venture | — | 315 | |||||
Pension curtailment | — | 3,080 | |||||
Deferred income taxes | 113 | (23,310 | ) | ||||
Share-based compensation expense | 916 | 424 | |||||
Other, net | 679 | (12 | ) | ||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (5,128 | ) | 18,326 | ||||
Inventories | 34,780 | 43,838 | |||||
Prepaid expenses and other current assets | (301 | ) | (8,258 | ) | |||
Other noncurrent assets | (302 | ) | (2,789 | ) | |||
Prepaid pension costs | (406 | ) | 1,272 | ||||
Accounts payable | 6,026 | 4,059 | |||||
Income tax payable and receivable | 198 | 1,188 | |||||
Accrued and other current liabilities | 8,604 | 18,802 | |||||
Pension and postretirement benefit obligations and other noncurrent liabilities | 865 | (400 | ) | ||||
Net cash used in operating activities of continuing operations | (10,687 | ) | (13,084 | ) | |||
Net cash (used in) from operating activities of discontinued operations | (6,907 | ) | 6,673 | ||||
Net cash used in operating activities | (17,594 | ) | (6,411 | ) | |||
Investing activities: | |||||||
Proceeds from sale of investment in joint venture | 31,550 | — | |||||
Capital expenditures | (2,431 | ) | (4,526 | ) | |||
Proceeds from sale of property, plant and equipment | 2,829 | 7,742 | |||||
Net cash from investing activities of continuing operations | 31,948 | 3,216 | |||||
Net cash from (used in) investing activities of discontinued operations | 53,570 | (867 | ) | ||||
Net cash from investing activities | 85,518 | 2,349 | |||||
Financing activities: | |||||||
Proceeds from long-term debt | 581,052 | 707,200 | |||||
Repayments of long-term debt | (640,415 | ) | (698,696 | ) | |||
Payment of debt restructuring costs | (8,677 | ) | — | ||||
Payments of build-to-suit liability | (687 | ) | (500 | ) | |||
Net cash (used in) from financing activities | (68,727 | ) | 8,004 | ||||
Effect of exchange rate changes on cash and cash equivalents | (292 | ) | (424 | ) | |||
Net change in cash and cash equivalents | (1,095 | ) | 3,518 | ||||
Cash and cash equivalents—beginning of year | 11,100 | 8,454 | |||||
Cash and cash equivalents—end of period | $ | 10,005 | $ | 11,972 |
Total Long-Term Debt: | As of | ||||||
(Dollars in thousands) | September 30, | December 31, | |||||
Unaudited | 2016 | 2015 | |||||
LONG-TERM DEBT | |||||||
12.75% Senior Secured Notes due December 15, 2016 | $ | — | $ | 6,681 | |||
7.0% Convertible Notes due December 15, 2017 | 41 | 57,500 | |||||
12.75% Senior Secured Notes due December 15, 2018 | 204,519 | 203,319 | |||||
Revolving Credit Facility due December 10, 2019 | 12,500 | 66,100 | |||||
5.0% Convertible Notes due December 31, 2019 | 22,323 | — | |||||
Other, primarily capital leases | 143 | 428 | |||||
Plus: derivative liability for embedded conversion feature | 3,284 | — | |||||
Less: unamortized discount | (4,502 | ) | (12,255 | ) | |||
Less: unamortized debt issuance costs | (2,712 | ) | (4,147 | ) | |||
Total long-term debt | $ | 235,596 | $ | 317,626 | |||
Less: current portion | 142 | 7,012 | |||||
Total long-term portion | $ | 235,454 | $ | 310,614 |