FORM 8-K |
Date of Report: August 9, 2017 |
(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 August 9, 2017 |
A.M. CASTLE & CO. | ||||
By: | /s/ Marec E. Edgar | |||
August 9, 2017 | Marec E. Edgar | |||
Executive Vice President, General Counsel, Secretary & Chief Administrative Officer | ||||
Exhibit No. | Description | |
99.1 | Press Release, dated August 9, 2017 |
A.M. CASTLE & CO. | 1420 Kensington Road Suite 220 Oak Brook, IL 60523 P: (847) 455-7111 F: (847) 241-8171 |
• | Increased second quarter 2017 net sales by 4.4% to $136.5 million compared to second quarter 2016, on the strength of a 10.9% improvement in tons sold per day; |
• | Reduced operating loss for second quarter 2017 to $3.4 million, an improvement of $7.9 million, or 70%, compared to second quarter 2016; |
• | Reported second quarter 2017 loss from continuing operations of $22.5 million, including $11.2 million of financial restructuring and reorganization expenses and $10.1 million of interest expense, compared to a loss of $21.3 million in second quarter 2016, which included $9.6 million of interest expense; |
• | Achieved an improvement of $3.5 million in Adjusted EBITDA from continuing operations when compared to second quarter 2016; |
• | Reduced operating expenses to $37.8 million in second quarter 2017, compared to $44.3 million in second quarter 2016 that included operational restructuring charges of $2.0 million; and |
• | Commenced voluntary prepackaged chapter 11 bankruptcy proceedings, which are expected to be completed by August 31, 2017. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | Three Months Ended | Six Months Ended | |||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Unaudited | June 30, | June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales | $ | 136,482 | $ | 130,692 | $ | 272,408 | $ | 294,540 | |||||||
Costs and expenses: | |||||||||||||||
Cost of materials (exclusive of depreciation and amortization) | 102,052 | 97,644 | 203,089 | 231,402 | |||||||||||
Warehouse, processing and delivery expense | 19,318 | 20,808 | 38,037 | 44,211 | |||||||||||
Sales, general, and administrative expense | 14,605 | 17,229 | 29,091 | 34,666 | |||||||||||
Restructuring expense | 40 | 2,044 | 168 | 13,762 | |||||||||||
Depreciation and amortization expense | 3,895 | 4,260 | 7,759 | 8,653 | |||||||||||
Total costs and expenses | 139,910 | 141,985 | 278,144 | 332,694 | |||||||||||
Operating loss | (3,428 | ) | (11,293 | ) | (5,736 | ) | (38,154 | ) | |||||||
Interest expense, net | 10,064 | 9,599 | 20,800 | 19,968 | |||||||||||
Financial restructuring expense | 5,723 | — | 6,600 | — | |||||||||||
Unrealized gain on embedded debt conversion option | — | (1,284 | ) | 146 | (1,284 | ) | |||||||||
Debt restructuring (gain) loss, net | — | (513 | ) | — | 6,562 | ||||||||||
Other (income) expense, net | (2,247 | ) | (2,808 | ) | (2,759 | ) | (1,663 | ) | |||||||
Reorganization items, net | 5,502 | — | 5,502 | — | |||||||||||
Loss from continuing operations before income taxes and equity in losses of joint venture | (22,470 | ) | (16,287 | ) | (36,025 | ) | (61,737 | ) | |||||||
Income tax expense | 71 | 531 | 8 | 196 | |||||||||||
Loss from continuing operations before equity in losses of joint venture | (22,541 | ) | (16,818 | ) | (36,033 | ) | (61,933 | ) | |||||||
Equity in losses of joint venture | — | (4,452 | ) | — | (4,141 | ) | |||||||||
Loss from continuing operations | (22,541 | ) | (21,270 | ) | (36,033 | ) | (66,074 | ) | |||||||
Income from discontinued operations, net of income taxes | — | — | — | 7,934 | |||||||||||
Net loss | $ | (22,541 | ) | $ | (21,270 | ) | $ | (36,033 | ) | $ | (58,140 | ) | |||
Basic and diluted (loss) earnings per common share: | |||||||||||||||
Continuing operations | $ | (0.70 | ) | $ | (0.77 | ) | $ | (1.12 | ) | $ | (2.57 | ) | |||
Discontinued operations | — | — | — | 0.31 | |||||||||||
Net loss | $ | (0.70 | ) | $ | (0.77 | ) | $ | (1.12 | ) | $ | (2.26 | ) | |||
Negative EBITDA from continuing operations(a) | $ | (8,511 | ) | $ | (6,880 | ) | $ | (7,466 | ) | $ | (37,257 | ) | |||
Adjusted positive (negative) EBITDA from continuing operations(b) | $ | 120 | $ | (3,359 | ) | $ | 1,789 | $ | (14,988 | ) | |||||
(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 | Six Months Ended | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Unaudited | June 30, | June 30, | March 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | |||||||||||||||
Net loss, as reported | $ | (22,541 | ) | $ | (21,270 | ) | $ | (36,033 | ) | $ | (58,140 | ) | $ | (13,492 | ) | ||||
Less: Income from discontinued operations, net of taxes | — | — | — | 7,934 | — | ||||||||||||||
Loss from continuing operations | (22,541 | ) | (21,270 | ) | (36,033 | ) | (66,074 | ) | (13,492 | ) | |||||||||
Depreciation and amortization expense | 3,895 | 4,260 | 7,759 | 8,653 | 3,864 | ||||||||||||||
Interest expense, net | 10,064 | 9,599 | 20,800 | 19,968 | 10,736 | ||||||||||||||
Income tax expense (benefit) | 71 | 531 | 8 | 196 | (63 | ) | |||||||||||||
Positive (negative) EBITDA from continuing operations | (8,511 | ) | (6,880 | ) | (7,466 | ) | (37,257 | ) | 1,045 | ||||||||||
Non-GAAP adjustments (a) | 8,631 | 3,521 | 9,255 | 22,269 | 624 | ||||||||||||||
Adjusted positive (negative) EBITDA from continuing operations | $ | 120 | $ | (3,359 | ) | $ | 1,789 | $ | (14,988 | ) | $ | 1,669 | |||||||
(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 | Six Months Ended | |||||||||||||||||
Unaudited | |||||||||||||||||||
June 30, | June 30, | March 31, | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | |||||||||||||||
Net loss, as reported | $ | (22,541 | ) | $ | (21,270 | ) | $ | (36,033 | ) | $ | (58,140 | ) | $ | (13,492 | ) | ||||
Non-GAAP adjustments: | |||||||||||||||||||
Restructuring activity(a) | 40 | 2,044 | 168 | 14,214 | 128 | ||||||||||||||
Financial restructuring expense(b) | 5,723 | — | 6,600 | — | 877 | ||||||||||||||
Reorganization items, net(c) | 5,502 | — | 5,502 | — | — | ||||||||||||||
Debt restructuring (gain) loss, net | — | (513 | ) | — | 6,562 | — | |||||||||||||
Foreign exchange gain on intercompany loans | (2,634 | ) | (1,024 | ) | (3,161 | ) | (1,086 | ) | (527 | ) | |||||||||
Foreign exchange gain on intercompany loans of joint venture | — | (4 | ) | — | (175 | ) | — | ||||||||||||
Impairment of equity investment in joint venture(d) | — | 4,636 | — | 4,636 | — | ||||||||||||||
Unrealized gain on commodity hedges | — | (334 | ) | — | (598 | ) | — | ||||||||||||
Unrealized loss (gain) on embedded debt conversion option | — | (1,284 | ) | 146 | (1,284 | ) | 146 | ||||||||||||
Non-GAAP adjustments | 8,631 | 3,521 | 9,255 | 22,269 | 624 | ||||||||||||||
Tax effect of adjustments | (151 | ) | — | (151 | ) | — | — | ||||||||||||
Adjusted non-GAAP net loss | $ | (14,061 | ) | $ | (17,749 | ) | $ | (26,929 | ) | $ | (35,871 | ) | $ | (12,868 | ) | ||||
Less: Income (loss) from discontinued operations, net of taxes | — | — | — | 7,934 | — | ||||||||||||||
Adjusted non-GAAP loss from continuing operations | $ | (14,061 | ) | $ | (17,749 | ) | $ | (26,929 | ) | $ | (43,805 | ) | $ | (12,868 | ) | ||||
(a) Restructuring activity includes amounts recorded to restructuring expense. For the six months ended June 30, 2016, amount includes $452 in inventory write-down charges recorded to cost of materials in the Condensed Consolidated Statements of Operations. | |||||||||||||||||||
(b) Amount mostly represents legal and other professional fees incurred prior to the filing of the chapter 11 bankruptcy petitions in connection with the Company's financial restructuring. | |||||||||||||||||||
(c) Reorganization items, net includes expenses and income directly associated with the chapter 11 proceedings, as well as adjustments to reflect the carrying value of liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments are determined. For the three months and six months ended June 30, 2017, amount was comprised of legal and other professional fees and the write-off of unamortized debt issuance costs and discounts related to debt classified as liabilities subject to compromise. | |||||||||||||||||||
(d) 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. |
Reconciliation of Gross Material Margin and Adjusted Gross Material Margin: | Three Months Ended | ||||||||||||||||||
(Dollars in thousands) | Three Months Ended | Six Months Ended | |||||||||||||||||
Unaudited | |||||||||||||||||||
June 30, | March 31, | June 30, | |||||||||||||||||
2017 | 2016 | 2017 | 2017 | 2016 | |||||||||||||||
Net sales, as reported | $ | 136,482 | $ | 130,692 | $ | 135,926 | $ | 272,408 | $ | 294,540 | |||||||||
Sale of Houston and Edmonton inventory | — | — | — | — | (27,107 | ) | |||||||||||||
Adjusted net sales | $ | 136,482 | $ | 130,692 | $ | 135,926 | $ | 272,408 | $ | 267,433 | |||||||||
Cost of materials, as reported (exclusive of depreciation and amortization) | $ | 102,052 | $ | 97,644 | $ | 101,037 | $ | 203,089 | $ | 231,402 | |||||||||
Sale of Houston and Edmonton inventory | — | — | — | — | (27,107 | ) | |||||||||||||
Restructuring activity in cost of materials | — | — | — | — | (452 | ) | |||||||||||||
Adjusted cost of materials (exclusive of depreciation and amortization) | $ | 102,052 | $ | 97,644 | $ | 101,037 | $ | 203,089 | $ | 203,843 | |||||||||
Gross margin (calculated as net sales, as reported, less cost of materials, as reported) | $ | 34,430 | $ | 33,048 | $ | 34,889 | $ | 69,319 | $ | 63,138 | |||||||||
Gross material margin (calculated as gross margin divided by net sales, as reported) | 25.2 | % | 25.3 | % | 25.7 | % | 25.4 | % | 21.4 | % | |||||||||
Adjusted gross margin (calculated as adjusted net sales less adjusted cost of materials) | $ | 34,430 | $ | 33,048 | $ | 34,889 | $ | 69,319 | $ | 63,590 | |||||||||
Adjusted gross material margin (calculated as adjusted gross margin divided by adjusted net sales) | 25.2 | % | 25.3 | % | 25.7 | % | 25.4 | % | 23.8 | % |
CONDENSED CONSOLIDATED BALANCE SHEETS | As of | ||||||
(In thousands, except par value data) | June 30, | December 31, | |||||
Unaudited | 2017 | 2016 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 11,220 | $ | 35,624 | |||
Accounts receivable, less allowances of $1,766 and $1,945, respectively | 83,592 | 64,385 | |||||
Inventories | 149,457 | 146,603 | |||||
Prepaid expenses and other current assets | 16,735 | 10,141 | |||||
Income tax receivable | 154 | 433 | |||||
Total current assets | 261,158 | 257,186 | |||||
Intangible assets, net | 1,041 | 4,101 | |||||
Prepaid pension cost | 10,293 | 8,501 | |||||
Deferred income taxes | 491 | 381 | |||||
Other noncurrent assets | 8,643 | 9,449 | |||||
Property, plant and equipment: | |||||||
Land | 2,072 | 2,070 | |||||
Buildings | 37,430 | 37,341 | |||||
Machinery and equipment | 129,734 | 125,836 | |||||
Property, plant and equipment, at cost | 169,236 | 165,247 | |||||
Accumulated depreciation | (121,257 | ) | (115,537 | ) | |||
Property, plant and equipment, net | 47,979 | 49,710 | |||||
Total assets | $ | 329,605 | $ | 329,328 | |||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 43,992 | $ | 33,083 | |||
Accrued and other current liabilities | 15,593 | 19,854 | |||||
Income tax payable | 365 | 209 | |||||
Current portion of long-term debt | 105,861 | 137 | |||||
Total current liabilities | 165,811 | 53,283 | |||||
Long-term debt, less current portion | — | 286,459 | |||||
Deferred income taxes | — | — | |||||
Build-to-suit liability | 12,749 | 12,305 | |||||
Other noncurrent liabilities | 5,353 | 5,978 | |||||
Pension and postretirement benefit obligations | 6,243 | 6,430 | |||||
Liabilities subject to compromise | 211,363 | — | |||||
Commitments and contingencies | |||||||
Stockholders' 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 June 30, 2017 and December 31, 2016 | — | — | |||||
Common stock, $0.01 par value—60,000 shares authorized; 32,768 shares issued and 32,486 outstanding at June 30, 2017 and 32,768 shares issued and 32,566 outstanding at December 31, 2016 | 327 | 327 | |||||
Additional paid-in capital | 245,357 | 244,825 | |||||
Accumulated deficit | (289,324 | ) | (253,291 | ) | |||
Accumulated other comprehensive loss | (27,196 | ) | (25,939 | ) | |||
Treasury stock, at cost—282 shares at June 30, 2017 and 202 shares at December 31, 2016 | (1,078 | ) | (1,049 | ) | |||
Total stockholders' deficit | (71,914 | ) | (35,127 | ) | |||
Total liabilities and stockholders' deficit | $ | 329,605 | $ | 329,328 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | Six Months Ended | ||||||
(Dollars in thousands) | June 30, | ||||||
Unaudited | 2017 | 2016 | |||||
Operating activities: | |||||||
Net loss | $ | (36,033 | ) | $ | (58,140 | ) | |
Less: Income from discontinued operations, net of income taxes | — | 7,934 | |||||
Loss from continuing operations | (36,033 | ) | (66,074 | ) | |||
Adjustments to reconcile loss from continuing operations to net cash (used in) from operating activities of continuing operations: | |||||||
Depreciation and amortization | 7,759 | 8,653 | |||||
Amortization of deferred gain | (38 | ) | (79 | ) | |||
Amortization of deferred financing costs and debt discount | 3,056 | 3,633 | |||||
Debt restructuring loss, net | — | 6,562 | |||||
Non-cash reorganization items, net | 4,850 | — | |||||
Loss from lease termination | — | 4,452 | |||||
Unrealized loss (gain) on embedded debt conversion option | 146 | (1,284 | ) | ||||
Loss on sale of property, plant and equipment | 7 | 1,650 | |||||
Unrealized gain on commodity hedges | — | (598 | ) | ||||
Unrealized foreign currency transaction gain | (3,153 | ) | (88 | ) | |||
Equity in losses of joint venture | — | 4,141 | |||||
Deferred income taxes | (1,325 | ) | — | ||||
Share-based compensation expense | 442 | 566 | |||||
Other, net | 446 | — | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (16,729 | ) | (6,118 | ) | |||
Inventories | 487 | 26,729 | |||||
Prepaid expenses and other current assets | (6,262 | ) | (1,769 | ) | |||
Other noncurrent assets | 1,533 | (3,026 | ) | ||||
Prepaid pension costs | (1,792 | ) | (264 | ) | |||
Accounts payable | 5,976 | 1,937 | |||||
Income tax payable and receivable | 433 | 51 | |||||
Accrued and other current liabilities | 7,200 | 498 | |||||
Pension and postretirement benefit obligations and other noncurrent liabilities | (353 | ) | 1,201 | ||||
Net cash used in operating activities of continuing operations | (33,350 | ) | (19,227 | ) | |||
Net cash used in operating activities of discontinued operations | — | (5,219 | ) | ||||
Net cash used in operating activities | (33,350 | ) | (24,446 | ) | |||
Investing activities: | |||||||
Capital expenditures | (2,264 | ) | (1,912 | ) | |||
Proceeds from sale of property, plant and equipment | 47 | 2,836 | |||||
Change in cash collateralization of letters of credit | 246 | — | |||||
Net cash (used in) from investing activities of continuing operations | (1,971 | ) | 924 | ||||
Net cash from investing activities of discontinued operations | — | 53,570 | |||||
Net cash (used in) from investing activities | (1,971 | ) | 54,494 | ||||
Financing activities: | |||||||
Proceeds from long-term debt | 12,500 | 426,861 | |||||
Repayments of long-term debt | (126 | ) | (447,185 | ) | |||
Payments of debt restructuring costs | — | (8,677 | ) | ||||
Payments of build-to-suit liability | — | (237 | ) | ||||
Net cash from (used in) financing activities | 10,543 | (29,238 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 374 | (55 | ) | ||||
Net change in cash and cash equivalents | (24,404 | ) | 755 | ||||
Cash and cash equivalents—beginning of period | 35,624 | 11,100 | |||||
Cash and cash equivalents—end of period | $ | 11,220 | $ | 11,855 |
Total Long-Term Debt: | As of | ||||||
(Dollars in thousands) | June 30, | December 31, | |||||
Unaudited | 2017 | 2016 | |||||
LONG-TERM DEBT | |||||||
7.0% Convertible Notes due December 15, 2017 | $ | 25 | $ | 41 | |||
11.0% Senior Secured Term Loan Credit Facilities due September 14, 2018 | 112,000 | 99,500 | |||||
12.75% Senior Secured Notes due December 15, 2018 | 177,019 | 177,019 | |||||
5.0% Convertible Notes due December 31, 2019 | 22,323 | 22,323 | |||||
Other, primarily capital leases | 2 | 96 | |||||
Plus: derivative liability for embedded conversion feature | — | 403 | |||||
Less: unamortized discount | (2,665 | ) | (7,587 | ) | |||
Less: unamortized debt issuance costs | (3,501 | ) | (5,199 | ) | |||
Total long-term debt | $ | 305,203 | $ | 286,596 | |||
Less: current portion | 105,861 | 137 | |||||
Less: liabilities subject to compromise(a) | 199,342 | — | |||||
Total long-term portion | $ | — | $ | 286,459 | |||
(a) The Senior Secured Notes due December 15, 2018 and Convertible Notes due December 30, 2019 were classified as liabilities subject to compromise at June 30, 2017. |