NOTE 24—DEBTOR-IN-POSSESSION FINANCIAL INFORMATION

On November 17, 2017, the Debtors filed voluntary petitions in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code. Real Alloy’s Germany, United Kingdom, Norway, Canada and Mexico operations and its Goodyear, Arizona joint venture are not included in these filings. The Debtors will continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

Liabilities subject to compromise

As a result of the filing of the Chapter 11 Cases, prepetition liabilities that are not fully secured, including claims that become known after the petition was filed and that have at least a possibility of not being repaid at the full claim amount by the RI Plan, or incident to the Section 363 Sale and Real Alloy’s treatment of claims by its creditors, as the case may be, are classified as liabilities subject to compromise in our consolidated balance sheets. Prepetition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may not be repaid at the full claim amount. If there is uncertainty about whether a secured claim is under-secured, or would be impaired, the entire amount of the claim is included in liabilities subject to compromise. The amounts currently classified as liabilities subject to compromise represent the Debtor’s current estimate of claims expected to be allowed in the Chapter 11 Cases. We will continue to evaluate these liabilities during the pendency of the Chapter 11 Cases and they may be subject to future adjustments depending on the Bankruptcy Court actions, further development with respect to disputed claims, or other events. Such adjustments may be material.

The Senior Secured Notes and Roll Up DIP Term Notes will be affected by the Section 363 Sale, which was approved by the Bankruptcy Court on March 29, 2018, as the collateral securing the instruments is being sold. As such, the outstanding balance and related accrued prepetition interest have been classified as liabilities subject to compromise as of December 31, 2017. Prepetition unamortized original issue discount and debt issuance costs were recognized in reorganization items, net.

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Generally, actions to enforce or otherwise effect payment of prepetition liabilities are stayed upon filing for Chapter 11 protection. Although payment of prepetition claims is generally not permitted, the Bankruptcy Court approved the Debtors’ “first day” motions allowing, among other things, the payment of certain prepetition obligations related to human capital, supplier relations, customer relations, business operations, tax matters, cash management, utilities, case management and retention of professionals. As a result of this approval, the Company continues to pay certain prepetition claims in designated categories and subject to certain terms and conditions in the ordinary course of business, and we have not classified these liabilities as subject to compromise in the consolidated balance sheets as of December 31, 2017. These payments are intended to preserve the value of the Debtors’ businesses and assets. With respect to prepetition claims, the Debtors notified all known claimants of the deadline to file a proof of claim with the Court. Differences between amount of claims scheduled by the Debtors and the amount of claims filed by creditors may be investigated and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and will likely continue after our emergence from bankruptcy. Accordingly, the ultimate number and amount of allowed claims is not presently known.

The Debtors have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business. The following table reflects prepetition liabilities that are subject to compromise included in our consolidated balance sheets as of December 31, 2017. See Note 10—Debt and Redeemable Preferred Stock for a further information about our debt instruments and related balances subject to compromise.


	Debtor-in-Possession
(In millions)	Real Industry		Real Alloy		Total
Senior Secured Notes	$	—	$	135.0	$	135.0
Roll Up DIP Term Notes		—		170.0		170.0
Trade accounts payable		0.1		16.6		16.7
Accrued interest on Senior Secured Notes and Roll Up DIP Term Notes		—		14.0		14.0
Accrued dividends on Redeemable Preferred Stock		1.8		—		1.8
Other accrued liabilities		1.2		2.0		3.2
Liabilities subject to compromise	$	3.1	$	337.6	$	340.7

Reorganization items, net

Transactions and events directly associated with the reorganization are distinguished from the ongoing operations of the business, which are classified as reorganization items, net in the consolidated statements of operations for the year ended December 31, 2017. The following table summarizes reorganization items, net:


	Debtor-in-Possession
(In millions)	Real Industry		Real Alloy		Total
Professional fees	$	0.2	$	1.3	$	1.5
Legal fees		1.6		2.6		4.2
Write-off of unamortized debt issuance costs on the Senior Secured Notes		—		6.0		6.0
Reorganization items, net	$	1.8	$	9.9	$	11.7

Condensed Combined Financial Information

The tables below present condensed combined financial information of the Debtors. Intercompany transactions among the Debtors have been eliminated in the financial information contained herein, while intercompany transactions among the Debtors and the Non-Debtor entities have not been eliminated. The following table presents the condensed combined balance sheet of the Debtors as of December 31, 2017:


(In millions)
ASSETS
Current assets:
Cash and cash equivalents	$	7.6
Trade accounts receivable, net		83.9
Inventories		54.0
Prepaid expenses, supplies and other current assets		24.4
Total current assets		169.9
Property, plant and equipment, net		109.7
Equity method investment		7.9
Deferred income taxes, net		8.9
Investment in subsidiaries		60.8
Intercompany receivable		92.3
Other noncurrent assets		7.8
TOTAL ASSETS	$	457.3
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade payables	$	48.4
Accrued liabilities		13.2
RA DIP Financing, net		103.9
Long-term debt due within one year, net		2.0
Total current liabilities		167.5
Environmental liabilities		4.7
Long-term debt, net		2.3
Other noncurrent liabilities		5.4
Liabilities not subject to compromise		179.9
Liabilities subject to compromise		340.7
TOTAL LIABILITIES		520.6
Redeemable Preferred Stock		28.5
Stockholders' deficit:
Paid in capital and accumulated deficit		(80.6)
Accumulated other comprehensive loss		(11.2)
TOTAL STOCKHOLDERS' DEFICIT		(91.8)
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT	$	457.3

The following table presents the condensed combined statement of operations of the Debtors for the period from the Petition Date to December 31, 2017:


(In millions)
Revenues	$	71.3
Cost of sales		66.9
Gross profit		4.4
Selling, general and administrative expenses		2.6
Amortization of intangibles		0.3
Identifiable intangible asset impairment		10.1
Property, plant and equipment impairment		40.5
Operating loss		(49.1)
Nonoperating expense (income):
Interest expense, net		5.6
Foreign exchange gains on intercompany loans		(2.4)
Reorganization items, net		11.7
Other, net		2.0
Total nonoperating expense, net		16.9
Loss before income taxes		(66.0)
Income tax benefit		(11.9)
Net loss	$	(54.1)

The following table presents the condensed combined statement of cash flows of the Debtors for the period from the Petition Date to December 31, 2017:


(In millions)
Cash flows from operating activities:
Net loss	$	(54.1)
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		3.3
Deferred income taxes		(9.1)
Share-based compensation expense		0.2
Amortization of debt issuance costs		1.3
Unrealized foreign exchange gains on intercompany loans		(2.4)
Identifiable intangible asset impairment		10.1
Property, plant and equipment impairment		40.5
Noncash reorganization items, net		6.0
Other		(0.1)
Changes in operating assets and liabilities:
Trade accounts receivable, net		(14.2)
Inventories		3.8
Prepaid expenses, supplies and other current assets		(5.8)
Other noncurrent assets		1.2
Trade payables		11.8
Accrued liabilities		(9.7)
Other noncurrent liabilities		13.8
Net cash used in operating activities		(3.4)
Cash flows from investing activities:
Change in intercompany receivables, net		(0.5)
Distributions from subsidiaries		0.2
Purchases of property and equipment		(0.3)
Other		(0.1)
Net cash used in investing activities		(0.7)
Cash flows from financing activities:
Repayments on capital leases and the Revolving Credit Facilities		(94.5)
Proceeds from the issuance of the RA DIP Financing, net of debt issuance costs		103.2
Repayments on RA DIP ABL Facility		(0.1)
Other		2.4
Net cash provided by financing activities		11.0
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents		6.9
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period		8.1
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	15.0