FORM 8-K |
Date of Report: August 7, 2018 |
(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 |
A.M. CASTLE & CO. | ||||
By: | /s/ Marec E. Edgar | |||
August 7, 2018 | Marec E. Edgar | |||
Executive Vice President, General Counsel, Secretary & Chief Administrative Officer | ||||
A.M. CASTLE & CO. | 1420 Kensington Road Suite 220 Oak Brook, IL 60523 P: (847) 455-7111 F: (847) 241-8171 |
• | Increased net sales by 3.1% sequentially and 10.2% year-over-year to $150.4 million |
• | Reported net loss of $8.5 million, which included $8.1 million of interest expense, of which $5.2 million was non cash related to long term debt held primarily by majority shareholders and $1.2 million was non cash related to over-funded pension plan |
• | Achieved EBITDA of $0.5 million and adjusted EBITDA of $2.2 million, including foreign currency losses of $2.6 million and $1.7 million, respectively. Excluding foreign currency losses of $2.6 million in the second quarter of 2018 and foreign currency gains of $2.8 million in the first quarter of 2018, EBITDA growth of $2.1 million from the first quarter of 2018 |
• | Adjusted EBITDA exceeded cash interest for the second consecutive quarter |
• | Improved gross material margin to 26.2% compared to 24.7% in the first quarter of 2018 and 25.2% in the second quarter of 2017 |
Condensed Consolidated Statements of Operations | Successor | Predecessor | Successor | Predecessor | |||||||||||||
(Dollars in thousands, except per share data) | Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 As Adjusted* | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 As Adjusted* | |||||||||||||
Unaudited | |||||||||||||||||
Net sales | $ | 150,414 | $ | 136,482 | $ | 296,287 | $ | 272,408 | |||||||||
Costs and expenses: | |||||||||||||||||
Cost of materials (exclusive of depreciation and amortization) | 111,061 | 102,052 | 220,965 | 203,089 | |||||||||||||
Warehouse, processing and delivery expense | 21,165 | 19,318 | 41,520 | 38,037 | |||||||||||||
Sales, general and administrative expense | 16,974 | 15,215 | 33,522 | 30,311 | |||||||||||||
Restructuring expense | — | 40 | — | 168 | |||||||||||||
Depreciation and amortization expense | 2,362 | 3,895 | 4,738 | 7,759 | |||||||||||||
Total costs and expenses | 151,562 | 140,520 | 300,745 | 279,364 | |||||||||||||
Operating loss | (1,148 | ) | (4,038 | ) | (4,458 | ) | (6,956 | ) | |||||||||
Interest expense, net | 8,129 | 11,274 | 15,255 | 23,220 | |||||||||||||
Financial restructuring expense | — | 5,723 | — | 6,600 | |||||||||||||
Unrealized loss on embedded debt conversion option | — | — | — | 146 | |||||||||||||
Other expense (income), net | 673 | (4,067 | ) | (4,101 | ) | (6,399 | ) | ||||||||||
Reorganization items, net | — | 5,502 | — | 5,502 | |||||||||||||
Loss before income taxes | (9,950 | ) | (22,470 | ) | (15,612 | ) | (36,025 | ) | |||||||||
Income tax (benefit) expense | (1,437 | ) | 71 | (1,958 | ) | 8 | |||||||||||
Net loss | $ | (8,513 | ) | $ | (22,541 | ) | $ | (13,654 | ) | $ | (36,033 | ) | |||||
* Adjusted due to the adoption of ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." |
Reconciliation of Reported Net Loss to EBITDA and Adjusted EBITDA: | Successor | |||||||||||
(Dollars in thousands) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | Three Months Ended March 31, 2018 | |||||||||
Unaudited | ||||||||||||
Net loss, as reported | $ | (8,513 | ) | $ | (13,654 | ) | $ | (5,141 | ) | |||
Depreciation expense | 2,362 | 4,738 | 2,376 | |||||||||
Interest expense, net | 8,129 | 15,255 | 7,126 | |||||||||
Income tax benefit | (1,437 | ) | (1,958 | ) | (521 | ) | ||||||
EBITDA | 541 | 4,381 | 3,840 | |||||||||
Non-GAAP adjustments (a) | 1,641 | 1,309 | (332 | ) | ||||||||
Adjusted EBITDA | $ | 2,182 | $ | 5,690 | $ | 3,508 | ||||||
(a) Refer to "Reconciliation of Reported Net Loss to Adjusted Non-GAAP Net Loss" table for additional details on these amounts. |
Reconciliation of Reported Net Loss to Adjusted Non-GAAP Net Loss: | Successor | |||||||||||
(Dollars in thousands) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | Three Months Ended March 31, 2018 | |||||||||
Unaudited | ||||||||||||
Net loss, as reported | $ | (8,513 | ) | $ | (13,654 | ) | $ | (5,141 | ) | |||
Non-GAAP adjustments: | ||||||||||||
Noncash compensation expense | 696 | 1,342 | 646 | |||||||||
Foreign exchange loss (gain) on intercompany loans | 945 | (33 | ) | (978 | ) | |||||||
Non-GAAP adjustments to arrive at Adjusted EBITDA | 1,641 | 1,309 | (332 | ) | ||||||||
Non-cash interest expense(a) | 5,232 | 9,766 | 4,534 | |||||||||
Total non-GAAP adjustments | 6,873 | 11,075 | 4,202 | |||||||||
Tax effect of adjustments | — | — | — | |||||||||
Adjusted non-GAAP net loss | $ | (1,640 | ) | $ | (2,579 | ) | $ | (939 | ) | |||
(a) Non-cash interest expense for the three and six months ended June 30, 2018 includes interest paid in kind of $3,184 and $6,138, respectively, and amortization of debt discount of $2,048 and $3,628, respectively. Non-cash interest expense for the three months ended March 31, 2018 includes interest paid in kind of $2,954 and amortization of debt discount of $1,580. |
CONDENSED CONSOLIDATED BALANCE SHEETS | Successor | ||||||
(Dollars in thousands, except par value data) | June 30, 2018 | December 31, 2017 | |||||
Unaudited | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 6,636 | $ | 11,104 | |||
Accounts receivable, less allowances of $1,678 and $1,586, respectively | 91,060 | 74,370 | |||||
Inventories | 164,120 | 154,491 | |||||
Prepaid expenses and other current assets | 15,307 | 12,274 | |||||
Income tax receivable | 3,593 | 1,576 | |||||
Total current assets | 280,716 | 253,815 | |||||
Goodwill and intangible assets, net | 8,176 | 8,176 | |||||
Prepaid pension cost | 12,121 | 10,745 | |||||
Deferred income taxes | 1,277 | 1,278 | |||||
Other noncurrent assets | 1,270 | 1,344 | |||||
Property, plant and equipment: | |||||||
Land | 5,578 | 5,581 | |||||
Buildings | 21,264 | 21,296 | |||||
Machinery and equipment | 35,843 | 33,011 | |||||
Property, plant and equipment, at cost | 62,685 | 59,888 | |||||
Accumulated depreciation | (7,227 | ) | (2,961 | ) | |||
Property, plant and equipment, net | 55,458 | 56,927 | |||||
Total assets | $ | 359,018 | $ | 332,285 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 52,031 | $ | 41,757 | |||
Accrued and other current liabilities | 15,581 | 13,931 | |||||
Income tax payable | — | 262 | |||||
Short-term borrowings | 4,838 | 5,854 | |||||
Current portion of long-term debt | 119 | 118 | |||||
Total current liabilities | 72,569 | 61,922 | |||||
Long-term debt, less current portion | 229,183 | 199,903 | |||||
Deferred income taxes | 16,166 | 16,166 | |||||
Build-to-suit liability | 9,609 | 10,148 | |||||
Other noncurrent liabilities | 3,577 | 3,784 | |||||
Pension and postretirement benefit obligations | 6,313 | 6,377 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value—200,000 Class A shares authorized with 3,803 shares issued and outstanding at June 30, 2018 and 3,734 shares issued and outstanding at December 31, 2017 | 38 | 37 | |||||
Additional paid-in capital | 53,212 | 49,944 | |||||
Accumulated deficit | (26,981 | ) | (13,327 | ) | |||
Accumulated other comprehensive loss | (4,668 | ) | (2,669 | ) | |||
Total stockholders’ equity | 21,601 | 33,985 | |||||
Total liabilities and stockholders’ equity | $ | 359,018 | $ | 332,285 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | Successor | Predecessor | ||||||
(Dollars in Thousands) | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 | ||||||
Unaudited | ||||||||
Operating activities: | ||||||||
Net loss | $ | (13,654 | ) | $ | (36,033 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 4,738 | 7,759 | ||||||
Amortization of deferred financing costs and debt discount | 3,628 | 3,056 | ||||||
Unrealized loss on embedded debt conversion option | — | 146 | ||||||
Noncash reorganization items, net | — | 4,850 | ||||||
(Gain) loss on sale of property, plant and equipment | (5 | ) | 7 | |||||
Unrealized foreign currency gain | (11 | ) | (3,153 | ) | ||||
Noncash interest paid in kind | 6,138 | — | ||||||
Noncash compensation expense | 1,342 | 442 | ||||||
Deferred income taxes | — | (1,325 | ) | |||||
Other, net | 298 | 408 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (17,283 | ) | (16,729 | ) | ||||
Inventories | (10,776 | ) | 487 | |||||
Prepaid expenses and other current assets | (3,586 | ) | (6,262 | ) | ||||
Other noncurrent assets | 806 | 1,533 | ||||||
Prepaid pension costs | (1,376 | ) | (1,792 | ) | ||||
Accounts payable | 10,663 | 5,976 | ||||||
Income tax payable and receivable | (2,288 | ) | 433 | |||||
Accrued and other current liabilities | 964 | 7,200 | ||||||
Pension and postretirement benefit obligations and other noncurrent liabilities | (195 | ) | (353 | ) | ||||
Net cash used in operating activities | (20,597 | ) | (33,350 | ) | ||||
Investing activities: | ||||||||
Capital expenditures | (3,379 | ) | (2,264 | ) | ||||
Proceeds from sale of property, plant and equipment | 5 | 47 | ||||||
Proceeds from release of cash collateralization of letters of credit | — | 246 | ||||||
Net cash used in investing activities | (3,374 | ) | (1,971 | ) | ||||
Financing activities: | ||||||||
Proceeds from long-term debt including credit facilities | 39,461 | 12,500 | ||||||
Repayments of long-term debt including credit facilities | (17,570 | ) | (126 | ) | ||||
Short-term borrowings, net | (852 | ) | — | |||||
Payments of debt issue costs | (482 | ) | (1,831 | ) | ||||
Payments of build-to-suit liability | (897 | ) | — | |||||
Net cash from financing activities | 19,660 | 10,543 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (157 | ) | 374 | |||||
Net change in cash and cash equivalents | (4,468 | ) | (24,404 | ) | ||||
Cash and cash equivalents - beginning of year | 11,104 | 35,624 | ||||||
Cash and cash equivalents - end of period | $ | 6,636 | $ | 11,220 |
LONG-TERM DEBT | Successor | ||||||
(Dollars In Thousands) | June 30, 2018 | December 31, 2017 | |||||
5.00% / 7.00% Second Lien Notes due August 31, 2022 | $ | 174,725 | $ | 168,767 | |||
Floating rate New ABL Credit Facility due February 28, 2022 | 104,988 | 101,047 | |||||
12.00% Revolving B Credit Facility due February 28, 2022 | 18,180 | — | |||||
Other, primarily capital leases | 238 | 288 | |||||
Less: unvested restricted Second Lien Notes due August 31, 2022 | (1,761 | ) | (2,144 | ) | |||
Less: unamortized discount | (66,597 | ) | (67,937 | ) | |||
Less: unamortized debt issuance costs | (471 | ) | — | ||||
Total long-term debt | 229,302 | 200,021 | |||||
Less: current portion of long-term debt | 119 | 118 | |||||
Total long-term portion | $ | 229,183 | $ | 199,903 |