Bankruptcy Related Disclosures

Chapter 11 Bankruptcy Filing

On the Petition Date, the Debtors filed voluntary chapter 11 petitions for reorganization under the Bankruptcy Code with the Bankruptcy Court pursuant to the terms of a Restructuring Support Agreement (as defined below) that contemplated the reorganization of the Debtors pursuant to a prepackaged plan of reorganization. The chapter 11 cases were consolidated for procedural purposes only and were administered jointly under the caption In re Keystone Tube Company, LLC, et al. (Case No. 17-11330). No trustee was appointed in the chapter 11 cases, and during the pendency of the chapter 11 cases, the Debtors continued to operate their business as “debtors-in-possession” subject to the supervision and orders of the Bankruptcy Court in accordance with the Bankruptcy Code.

The filing of the bankruptcy petitions constituted a default or event of default that accelerated the Company’s obligations under (i) the Credit Facilities Agreement (as defined below) and the 11.00% Senior Secured Term Loan Credit Facilities due 2018 issued pursuant thereto (the "Credit Facilities"), (ii) the Indenture dated February 8, 2016 (the "Senior Notes Indenture") and the 12.75% Senior Secured Notes due 2018 issued pursuant thereto (the "12.75% Secured Notes"), and (iii) the Indenture dated May 19, 2016 (the "Convertible Notes Indenture") and the 5.25% Convertible Senior Secured Notes due 2019 issued pursuant thereto (the "5.25% Convertible Notes"). The Credit Facilities Agreement, the Senior Notes Indenture, and the Convertible Notes Indenture provide that, as a result of the filing of the bankruptcy petitions, all outstanding indebtedness due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Credit Facilities Agreement, the Senior Notes Indenture, and the Convertible Notes Indenture were automatically stayed as a result of the bankruptcy petitions, and the creditors’ rights of enforcement in respect of the Credit Facilities Agreement, the Senior Notes Indenture, and the Convertible Notes Indenture are subject to the applicable provisions of the Restructuring Support Agreement (as defined below) and the Bankruptcy Code.

Prior to the Petition Date, on June 16, 2017, the Debtors entered into a Commitment Agreement with certain of their creditors (the "Commitment Parties"). The Commitment Parties are the holders (or the investment advisors or managers for the holders) of the Credit Facility term loans made to the Company under a Credit and Guaranty Agreement, dated December 8, 2016, by and among the Company, Highbridge International Capital Management, LLC, Corre Partners Management, LLC, Whitebox Credit Partners, L.P., WFF Cayman II Limited, and SGF, LLC and Cantor Fitzgerald Securities, among others (as amended, the “Credit Facilities Agreement").

The Commitment Agreement was entered into pursuant to a Restructuring Support Agreement dated April 6, 2017, as amended, by and among the Debtors and certain of their creditors, including the Commitment Parties (the "RSA"). The RSA provides for a consensual restructuring of the debt and equity of the Company, which the Company seeks to effect by means of the Plan.

The Company continued its operations without interruption during the pendency of the chapter 11 cases and reorganization process. To maintain and continue ordinary course operations without interruption, the Company received approval from the Bankruptcy Court of a variety of “first day” motions seeking certain relief and authorizing the Company to maintain its operations and pay trade claims in the ordinary course.

Plan of Reorganization and Emergence from Chapter 11

Pursuant to the terms of the RSA, on the Petition Date, the Debtors filed the Plan with the Bankruptcy Court.

The Plan allowed general unsecured claims and claims that are unimpaired under the Plan to be paid in full in cash.

On August 2, 2017, the Bankruptcy Court entered the Confirmation Order approving and confirming the Plan. On the Effective Date, the Plan became effective pursuant to the terms described above and the Debtors emerged from their chapter 11 cases.

Key components of the Plan, which became effective on August 31, 2017, include:

•

Entry into a new senior secured exit financing facility in the form of an asset-based revolving credit facility (the "New ABL Facility") with PNC Bank, National Association, as lender and as administrative and collateral agent (the “Agent”), and the other lenders party thereto. The New ABL Agreement provides for a $125,000 senior secured, revolving credit facility for the Company. The proceeds of the advances under the New ABL Facility may only be used to (i) pay certain fees and expenses to the Agent and the lenders under the New ABL Facility, (ii) provide for Borrowers' working capital needs and reimburse drawings under letters of credit, (iii) repay the obligations under the Debtor-in-Possession Revolving Credit and Security Agreement dated as of June 10, 2017 ("DIP Facility"), by and among the Company, the lenders party thereto, and PNC Bank, National Association, and certain other existing indebtedness, and (iv) provide for the Borrowers' capital expenditure needs, in accordance with the New ABL Facility.

◦

On the Effective Date, in connection with its entering into the New ABL Agreement, the Company borrowed an aggregate amount equal to $78,797, proceeds from which, along with proceeds of the New Money Notes of $38,002, were used to pay down all outstanding indebtedness, accrued interest, and related fees of the Company under the Credit Facilities Agreement and the borrowings outstanding under the DIP Facility.

•

Entry into an Indenture (the “Second Lien Notes Indenture”) with Wilmington Savings Fund Society, FSB (“WSFS, FSB”), as trustee and collateral agent (“Indenture Agent”) and, pursuant thereto, issued approximately$162,502 in aggregate original principal amount of its 5.00% / 7.00% Convertible Senior Secured Paid-in-Kind ("PIK") Toggle Notes due 2022 (the “Second Lien Notes”), excluding restricted notes issued under the A.M. Castle & Co. 2017 Management Incentive Plan (See Note 10 - Share Based Compensation, for full description).

The Second Lien Notes were issued as follows:


◦	$111,875 in aggregate principal Second Lien Notes issued to holders of Prepetition Second Lien Secured Claims in partial satisfaction of their claims;


◦	$3,125 in aggregate principal Second Lien Notes issued to holders of Prepetition Third Lien Secured Claims in partial satisfaction of their claims; and


◦	$47,502 in aggregate principal Second Lien Notes issued to the Commitment Parties pursuant to the Commitment Agreement (the "New Money Notes").

As a result of these Plan actions, all of the outstanding indebtedness of the 12.75% Secured Notes and 5.25% Convertible Notes was discharged and canceled.


•	Issuance of an aggregate of 2,000 shares of a new class of common stock, par value $0.01 per share (the “New Common Stock”), as follows:


◦	1,300 shares issued to holders of Prepetition Second Lien Secured Claims in partial satisfaction of their claims;


◦	300 shares issued to holders of Prepetition Third Lien Secured Claims in partial satisfaction of their claims; and


◦	400 shares issued to participating holders of the Company's outstanding common stock as of August 2, 2017.


•	Payment in full of all general unsecured claims and claims that were unimpaired under the Plan in cash in the ordinary course of business.


•	Cash payment of $6,646 to holders of Prepetition Second Lien Secured Claims.


•	Cash payment of a put option fee of $2,000 to the Commitment Parties pursuant to the Commitment Agreement.


•	All agreements, instruments, and other documents evidencing, relating to or connected with any equity interests of the Company (which include warrants to purchase the Company’s prior common stock and unvested/unexercised awards under any existing pre-Effective Date management incentive compensation plans) were canceled without recovery.


•	All prior director, officer and employee incentive plans, as well as the awards issued thereunder, were canceled. The new A.M. Castle & Co. 2017 Management Incentive Plan, under which persons eligible to receive awards include directors, officers and employees of the Company and its subsidiaries, became effective.

Reporting During Bankruptcy

During the pendency of the Company's chapter 11 cases, expenses and income directly associated with the chapter 11 proceedings were reported separately in reorganization items, net in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. Reorganization items, net also include adjustments to reflect the carrying value of liabilities subject to compromise ("LSTC") at their estimated allowed claim amounts, as such adjustments were determined. In addition, effective as of the Petition Date and during the pendency of the Company's chapter 11 cases, the Company discontinued recording interest expense on outstanding prepetition debt classified as LSTC. Upon the Company's emergence from its chapter 11 cases, the Company settled and extinguished or reinstated liabilities that were subject to compromise.

Fresh-Start Accounting

Under ASC No. 852, "Reorganizations", fresh-start accounting is required upon emergence from chapter 11 if (i) the reorganization value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all post-petition liabilities and allowed claims; and (ii) holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. The Company qualified for and adopted fresh-start accounting as of the Effective Date. Adopting fresh-start accounting results in a new reporting entity with no beginning retained earnings or deficits. The cancellation of all existing common shares outstanding on the Effective Date and issuance of new shares of the reorganized entity resulted in a change of control of the Company under ASC No. 852, "Reorganizations".

Adoption of fresh-start accounting resulted in the Company becoming a new entity for financial reporting purposes and the recording of the Company’s assets and liabilities at their fair value as of the Effective Date, with the excess of reorganization value over net asset values recorded as goodwill, in conformity with ASC No. 805, "Business Combinations". The estimated fair values of the Company’s assets and liabilities as of that date differed from the recorded values of its assets and liabilities as reflected in its historical consolidated financial statements. In addition, the Company’s adoption of fresh-start accounting affected its results of operations following the fresh-start reporting date, as the Company had a new basis in its assets and liabilities. The Company also adopted one new accounting policy in connection with its adoption of fresh-start accounting (see Note 1 - Basis of Presentation and Significant Accounting Policies). Consequently, the Company’s financial statements on or after the Effective Date are not comparable with the financial statements prior to that date and the historical financial statements before the Effective Date are not reliable indicators of its financial condition and results of operations for any period after it adopted fresh-start accounting.

Reorganization Value

Reorganization value is the value attributed to an entity emerging from bankruptcy, as well as the expected net realizable value of those assets that will be disposed before emergence occurs. This value is viewed as the value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after emergence. Fresh-start accounting requires that the reporting entity allocate the reorganization value to its assets and liabilities in relation to their fair values upon emergence from chapter 11, with the excess of reorganization value over net asset values recorded as goodwill. The Company’s valuation of the reorganized Company, which was included in the Disclosure Statement related to the Plan, estimated the enterprise value of the Company to be in a range between $234 million and $264 million. The Company estimated the enterprise value of the Successor Company to be $244 million. The estimated enterprise value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding revenue growth, operating expenses, the amount and timing of capital expenditures and the discount rate utilized.

In order to determine the reorganization value, the Company estimated the enterprise value of the Successor utilizing the discounted cash flow analysis.

To estimate the fair value utilizing the discounted cash flow analysis, the Company established an estimate of future cash flows for the period from August 31, 2017 to December 31, 2021 and discounted the estimated future cash flows to the present value, adding the present value of the terminal value of cash flows beyond December 31, 2021. The expected cash flows for the period August 31, 2017 to December 31, 2021 were derived from earnings forecasts and assumptions regarding growth and margin projections and adjusted for other cash flows including capital expenditures and charges to working capital, as applicable, and expressed as a multiple of Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The discount rate of 11.1% was estimated based on an after-tax weighted average cost of capital reflecting the rate of return that would be expected by a market participant.

The following table reconciles the Company's enterprise value to the estimated fair value of the Successor's equity as of the Effective Date:



Enterprise value	$	244,000
Less: fair value of debt	(238,340		)
Equity value	$	5,660

The fair value of the convertible notes portion of the debt was determined based on market information and a review of prices and terms available for similar debt instruments that do not contain a conversion feature, as well as other factors related to the callable nature of the convertible notes. Given the nature and the variable interest rates, the fair value of borrowings under the asset-based lending facility approximated carrying value as of the Effective Date.

The following table reconciles the Company's enterprise value to the reorganization value of the Successor's assets:



Enterprise value	$	244,000
Current liabilities (excluding short-term borrowings and current portion of long-term debt)	61,169
Noncurrent liabilities (excluding long-term debt)	23,479
Reorganization value of Successor assets	$	328,648

The total of all postpetition liabilities and allowed claims immediately prior to confirmation of the Plan was approximately $404 million.

Fresh-Start Balance Sheet

The following fresh-start balance sheet as of the Effective Date, August 31, 2017, illustrates the financial effects on the Company of the implementation of the Plan and the adoption of fresh-start reporting. This fresh-start balance sheet reflects the effect of the completion of the transactions included in the Plan, including the issuance of successor equity and the settlement of prepetition indebtedness.

Reorganization adjustments, shown in column 2 of the following schedule, represent amounts recorded on the Effective Date for the implementation of the Plan, including the settlement of liabilities subject to comprise and related payments, the issuance of new debt and new shares of common stock, repayment of the debtor-in-possession revolving credit facility and cancellation of Predecessor common stock.

Fresh-start adjustments, as shown in column 3 of the following schedule, represent amounts recorded on the Effective Date as a result of the adoption of fresh-start accounting, which resulted in the Company becoming a new entity for financial reporting purposes. The Company’s assets and liabilities have been recorded at estimated fair value as of the fresh-start reporting date or Effective Date.



	As of August 31, 2017
	Predecessor			Reorganization Adjustments				Fresh-Start Adjustments				Successor
ASSETS
Current assets:
Cash and cash equivalents	$	20,443		$	(10,379	)	(a)	$	—			$	10,064
Accounts receivable, net	73,056			—				—				73,056
Inventories	153,785			—				—				153,785
Prepaid expenses and other current assets	14,217			—				—				14,217
Income tax receivable	588			—				—				588
Total current assets	262,089			(10,379		)		—				251,710
Intangible assets, net	24			—				8,151			(j)	8,175
Prepaid pension cost	9,350			—				—				9,350
Deferred income taxes	1,381			—				—				1,381
Other noncurrent assets	1,364			—				—				1,364
Property, plant and equipment:												—
Land	2,073			—				3,867			(i)	5,940
Buildings	37,498			—				(15,518		)	(i)	21,980
Machinery and equipment	129,324			—				(100,576		)	(i)	28,748
Property, plant and equipment, at cost	168,895			—				(112,227		)		56,668
Accumulated depreciation	(122,087		)	—				122,087				—
Property, plant and equipment, net	46,808			—				9,860				56,668
Total assets	$	321,016		$	(10,379	)		$	18,011			$	328,648
LIABILITIES AND STOCKHOLDERS’ EARNINGS (DEFICIT)
Current liabilities:
Accounts payable	$	47,063		$	—			$	—			$	47,063
Accrued and other current liabilities	12,145			1,961			(b)	—				14,106
Short-term borrowings	3,797			—				—				3,797
Current portion of long-term debt	109,213			(109,187		)	(c)	—				26
Total current liabilities	172,218			(107,226		)		—				64,992
Long-term debt, less current portion	—			234,517			(d)	—				234,517
Deferred income taxes	—			—				3,159			(m)	3,159
Build-to-suit liability	9,898			—				—				9,898
Other noncurrent liabilities	5,711			—				(1,715		)	(k)	3,996
Pension and postretirement benefit obligations	6,426			—				—				6,426
Liabilities subject to compromise	211,363			(211,363		)	(e)	—				—
Commitments and contingencies
Stockholders’ earnings (deficit):
Predecessor common stock	327			(327		)	(f)	—				—
Successor common stock	—			20			(g)	—				20
Predecessor additional paid-in capital	245,546			(1,883		)	(f)	(243,663		)	(l)	—
Successor additional paid-in capital	—			5,640			(g)	—				5,640
Retained (deficit) earnings	(302,833		)	69,165			(h)	233,668			(l)	—
Accumulated other comprehensive loss	(26,562		)	—				26,562			(l)	—
Treasury stock, at cost	(1,078		)	1,078			(f)	—				—
Total stockholders’ earnings (deficit)	(84,600		)	73,693				16,567				5,660
Total liabilities and stockholders’ earnings (deficit)	$	321,016		$	(10,379	)		$	18,011			$	328,648

Reorganization Adjustments

The consolidated financial information gives effect to the following Reorganization Adjustments, the Plan and the implementation of the transactions contemplated by the Plan. These adjustments give effect to the terms of the Plan and certain underlying assumptions, which include, but are not limited to, the following:


a.	Represents net cash outflows occurring upon the Plan becoming effective on August 31, 2017 as follows:



Cash received from initial draw on New ABL Facility	$	78,797
Repayment of Debtor-In-Possession financing borrowings, including interest and fees	(66,932		)
Cash received from issuance of New Money Notes	38,002
Payment of put option fee	(2,000		)
Repayment of prepetition First Lien Notes, including interest and fees	(49,415		)
Payment of cash recovery to prepetition Second Lien Noteholders	(6,646		)
Payment related to key employee incentive plan	(1,229		)
Professional fees paid upon emergence	(956		)
Net cash paid upon emergence	$	(10,379	)


b.	Represents the accrual of success fees earned upon emergence of $2,416 net of payment of accrued interest on the prepetition First Lien Notes of $455.


c.	Represents repayment of the Debtor-In-Possession financing balance of $66,599 and the repayment of the prepetition First Lien Notes principal balance of $48,000, net of the write-off of unamortized original issue discount and deferred issuance costs related to the prepetition First Lien Notes of $5,412.


d.	Represents the fair value of the Second Lien Notes Indenture issued upon emergence of $155,720 and the initial draw on New ABL Facility of $78,797.


e.	Liabilities subject to compromise were satisfied as follows:



12.75% Senior Secured Notes due December 15, 2018	$	177,019
5.25% Convertible Notes due December 30, 2019	22,323
Accrued interest payable	12,021
Liabilities subject to compromise	211,363
Cash payment to prepetition Second Lien Noteholders	(6,646		)
Fair value of Second Lien Notes (including conversion option) issued to prepetition Second and Third Lien Noteholders	(110,200		)
New equity issued to prepetition Second and Third Lien Noteholders	(4,528		)
Gain on settlement of liabilities subject to compromise	$	89,989


f.	Represents the cancellation of the Predecessor common stock, warrants and treasury stock.


g.	Represents the issuance of 2,000 common shares of the Successor company in accordance with the Plan.


h.	The cumulative effect on retained earnings of the reorganization adjustments discussed above is as follows:



Gain on settlement of liabilities subject to compromise	$	89,989
Write off of original issue discount and deferred financing costs	(5,412		)
Backstop and other fees related to the repayment of old debt and issuance of new debt	(10,811		)
Success fees and key employee incentive plan payments	(4,601		)
Net impact to retained earnings (accumulated deficit)	$	69,165

Fresh-Start Adjustments

Represents the adjustments made to increase the carrying value of property, plant and equipment to their estimated fair value. The Company’s overall range of useful lives from an accounting policy perspective did not change. However, when the fair value of each asset was adjusted, a new remaining useful life was assigned to each asset, and the new value will be depreciated over that time period, which may be different from the remaining depreciable life of that asset at the end of the Predecessor period. Estimated fair value was determined as follows:


•	The cost approach was utilized to estimate the fair value of personal property as well as buildings and land improvements. This approach considers the amount required to construct or purchase a new asset of equal utility at current market prices, with adjustments in value for physical deterioration.


•	The sales comparison approach was utilized to estimate fair value of owned real property. The sales comparison approach relies upon recent sales, offerings of similar assets or a specific inflationary adjustment to original purchase price to arrive at a probable selling price.


j.	An adjustment of $8,151 was made to record the estimated fair value of the Successor trade name of $5,500 and write off $24 of Predecessor intangible assets, and to record goodwill of $2,675, representing the excess of the reorganization value of the assets over the fair value of identifiable assets, as follows:



Reorganization value of assets	$	328,648
Less: fair value of:
Total current assets	(251,710		)
Property, plant and equipment	(56,668		)
Successor trade name	(5,500		)
Other noncurrent assets	(12,095		)
Goodwill	$	2,675

The fair value of the Successor's customer relationships was determined to be nil.


k.	Represents the elimination of deferred rent and deferred gains of $2,105, adjusting these balances to zero fair value, net of a liability for unfavorable contracts of $390.


l.	Represents the cumulative impact of fresh-start adjustments as discussed above and the elimination of Predecessor retained deficit and other comprehensive loss.


m.	Represents the recording of a tax liability related to indefinite lived trade name and land.

Contractual Interest

Effective June 18, 2017, the Company discontinued recording interest expense on outstanding prepetition debt classified as LSTC. The table below shows contractual interest amounts for debt classified as LSTC calculated in accordance with the respective agreements without giving effect to any penalties as a result of the default on such agreements, which are amounts due under the contractual terms of the outstanding debt. Interest expense reported in the Consolidated Statement of Operations and Comprehensive (Loss) Income for the periods after the Effective Date does not include $4,880, per the table below, in contractual interest on prepetition debt classified as LSTC, which was stayed by the Bankruptcy Court effective on the Petition Date.



	Predecessor
	June 18, 2017 Through August 31, 2017
12.75% Senior Secured Notes due December 15, 2018	$	4,639
5.25% Convertible Notes due December 30, 2019	241
Total Contractual Interest	$	4,880

Reorganization Items, Net

During the pendency of the Company's chapter 11 cases, expenses and income directly associated with the chapter 11 proceedings were reported separately in reorganization items, net in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. Reorganization items, net also include adjustments to reflect the carrying value of LSTC at their estimated allowed claim amounts, as such adjustments were determined. The following table presents reorganization items incurred in the the periods after the Effective Date, as reported in the accompanying Consolidated Statement of Operations and Comprehensive (Loss) Income:



	Successor		Predecessor
	September 1, 2017 Through December 31, 2017		January 1, 2017 Through August 31, 2017
Gain on extinguishment of debt	—		(89,989		)
Gain on fresh-start revaluation	—		(16,566		)
Write-off of unamortized debt issuance costs and discounts	—		10,262
Prepayment penalties and debt-related fees	—		13,191
Professional fees	2,141		7,342
Key employee incentive plan	—		1,229
Reorganization items, net	$	2,141	$	(74,531	)

For the period from January 31, 2017 through August 31, 2017 (Predecessor), the cash reorganization items included approximately $8,571 of professional fees and employee incentives and $3,673 of debt issuance and repayment costs. Cash reorganization items included approximately $2,141 for professional fees for the period from September 1, 2017 through December 31, 2017 (Successor). The cash outflow is included in net cash provided by operating activities in our Consolidated Statements of Cash Flows for the periods presented.