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A. M. Castle & Co. Reports Post-Emergence Fourth Quarter and Full Year Results

Fourth quarter sales volumes increase double-digits; strong market conditions already seen in 2018

OAK BROOK, Ill., March 13, 2018 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (OTCQB:CTAM) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported financial results for the fourth quarter following its emergence from bankruptcy and its full year financial results, which include the pre-bankruptcy period, January 1, 2017 through August 31, 2017, and the post-bankruptcy period, September 1, 2017 through December 31, 2017. The Company emerged from bankruptcy proceedings on August 31, 2017 (the "Effective Date"), having successfully restructured its balance sheet and substantially reduced its debt burden and cash interest costs under its Amended Prepackaged Joint Chapter 11 Plan of Reorganization (the "Plan").

Fourth Quarter 2017 Highlights:

  • Year over year volume increase of 12%

  • Net sales of $123.2 million 

  • Net loss of $12.5 million, including $6.2 million of interest expense, $4.8 million of which was non-cash

President and CEO Steve Scheinkman commented, "We are pleased with the strength of our sales volume in the first full quarter after our emergence from bankruptcy last August. In the quarter, we started to see positive indications that our business is growing from a volume standpoint, and we are carrying that volume momentum into 2018. We believe this bodes well as we look to leverage the operating performance improvements we have implemented over the last year. Although our gross material margin in the quarter was negatively impacted by both residual financial impacts of our recent reorganization and a strategy to reduce excess and slower moving inventory, we are achieving market share gains in key target markets. Much of the restructuring impacts and inventory rebalancing are now behind us. Going forward, we believe sustained volume increases and margin expansion will incrementally improve financial performance."

Executive Vice President and CFO Pat Anderson added, "With the completion of our reorganization, our capital structure has improved and our cash interest burden has been significantly reduced. Future cash flows will now be used to grow the business rather than to support an onerous capital structure, as was the case in the recent past."

Scheinkman concluded, "Based on the recent positive market indications we are seeing, combined with the overall favorable demand sentiment and a strong pricing environment, we remain confident as the organization enters 2018. Based on our shipments since the beginning of this year, we are expecting year over year first quarter 2018 volume growth of 7.4% and double-digit sequential quarterly volume growth. We have reduced a significant amount of our excess, slow moving inventory burden, are increasing inventory turns, and, as a result, are seeing improvements in gross material margin. Castle is well-positioned to capitalize on opportunities as the market prepares for substantial tariffs to be placed on imported steel and aluminum. We believe Castle’s long-standing and favorable sourcing relationships with domestic steel mills provide a competitive advantage relative to other U.S. based steel service centers that are more reliant on imports, and we are well-situated to address market disruption caused by the recently imposed tariffs."

Presentation of Predecessor and Successor Financial Results

The Company adopted fresh-start reporting as of the Effective Date, the date the Company's Plan became effective and the Company emerged from its Chapter 11 cases. As a result of the application of fresh-start reporting, the Company’s financial statements for periods prior to the Effective Date are not comparable to those for periods subsequent to the Effective Date. References to “Successor” refer to the Company on or after the Effective Date. References to “Predecessor” refer to the Company prior to the Effective Date. Operating results for the Successor and Predecessor periods are not necessarily indicative of the results to be expected for a full fiscal year. References such as the “Company,” “we,” “our” and “us” refer to A.M. Castle & Co. and its subsidiaries, whether Predecessor and/or Successor, as appropriate.

About A. M. Castle & Co.

Founded in 1890, A. M. Castle & Co. is a global distributor of specialty metal and supply chain services, principally serving the producer durable equipment, commercial aircraft, heavy equipment, industrial goods, construction equipment, and retail sectors of the global economy. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller-sized firms spread across a variety of industries. It specializes in the distribution of alloy and stainless steels; nickel alloys; aluminum and carbon. Together, Castle and its affiliated companies operate out of 22 metals service centers located throughout North America, Europe and Asia. Its common stock is traded on the OTCQB® Venture Market under the ticker symbol "CTAM."

Non-GAAP Financial Measures

This release and the financial information included in this release include non-GAAP financial measures. The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Investors should recognize that these non-GAAP financial measures might not be comparative to similarly titled measures of other companies. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the reconciliation contained in this release and in the attached financial statements, provides meaningful information, and therefore we use it to supplement our GAAP reporting and guidance. Management often uses this information to assess and measure the performance of our business. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analysis of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations and to assist with period-over-period comparisons of such operations. The exclusion of the charges indicated herein from the non-GAAP financial measures presented does not indicate an expectation by the Company that similar charges will not be incurred in subsequent periods.

In addition, the Company believes that the use and presentation of EBITDA, which is defined by the Company as (loss) income before provision for income taxes plus depreciation and amortization, and interest expense, is widely used by the investment community for evaluation purposes and provides investors, analysts and other interested parties with additional information in analyzing the Company’s operating results. EBITDA, adjusted non-GAAP net (loss) income and adjusted EBITDA are presented as the Company believes the information is important to provide investors, analysts and other interested parties additional information about the Company’s financial performance. Management uses EBITDA, adjusted non-GAAP net (loss) income and adjusted EBITDA to evaluate the performance of the business.

Cautionary Statement on Risks Associated with Forward Looking Statements

Information provided and statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements only speak as of the date of this release and the Company assumes no obligation to update the information included in this release.  Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy, and the cost savings and other benefits that we expect to achieve from our restructuring.  These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,” “should,” or similar expressions.  These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions.  Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include our ability to effectively manage our operational initiatives and implemented restructuring activities, the impact of volatility of metals prices, the cyclical and seasonal aspects of our business, our ability to effectively manage inventory levels, and the impact of our substantial level of indebtedness, as well as including those risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which we will file shortly. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future, to reflect the occurrence of unanticipated events or for any other reason.

 
Consolidated Statements of Operations
(Dollars in thousands, except per share data) Successor     Predecessor
  September 1, 2017
through
December 31, 2017
    January 1, 2017
through
August 31, 2017
  Year Ended
December 31, 2016
       
Net sales $ 164,942       $ 353,926     $ 533,150  
Costs and expenses:            
Cost of materials (exclusive of depreciation and amortization) 127,828       266,495     421,290  
Warehouse, processing and delivery expense 25,353       50,314     84,555  
Sales, general and administrative expense 20,464       39,139     68,273  
Restructuring expense, net       566     12,942  
Depreciation and amortization expense 3,213       10,150     16,378  
Total costs and expenses 176,858       366,664     603,438  
Operating loss (11,916 )     (12,738 )   (70,288 )
Interest expense, net 7,634       23,402     36,422  
Financial restructuring expense       7,024      
Unrealized (gain) loss on embedded debt conversion option (2,352 )     146     (10,450 )
Debt restructuring loss, net           8,617  
Other (income) expense, net (2,824 )     (3,582 )   7,582  
Reorganization items, net 2,141       (74,531 )    
(Loss) income from continuing operations before income taxes and equity in losses of joint venture (16,515 )     34,803     (112,459 )
Income tax benefit (3,188 )     (1,387 )   (2,546 )
(Loss) income from continuing operations before equity in losses of joint venture (13,327 )     36,190     (109,913 )
Equity in losses of joint venture           (4,177 )
(Loss) income from continuing operations (13,327 )     36,190     (114,090 )
Income from discontinued operations, net of income taxes           6,108  
Net (loss) income $ (13,327 )     $ 36,190     $ (107,982 )
             

/EIN News/ --

     
Consolidated Statement of Operations    
(Dollars in thousands, except per share data)   Successor
Unaudited   Three Months
Ended
December 31, 2017
   
Net sales   $ 123,217  
Costs and expenses:    
Cost of materials (exclusive of depreciation and amortization)   96,346  
Warehouse, processing and delivery expense   19,381  
Sales, general and administrative expense   15,618  
Depreciation and amortization expense   2,711  
Total costs and expenses   134,056  
Operating loss   (10,839 )
Interest expense, net   6,226  
Unrealized gain on embedded debt conversion option   (2,352 )
Other income, net   (746 )
Reorganization items, net   2,013  
Loss before income taxes   (15,980 )
Income tax benefit   (3,474 )
Net loss   $ (12,506 )
     
Basic and diluted loss per common share   $ (6.25 )
         


     
Reconciliation of EBITDA and of Adjusted EBITDA to Reported Net Loss:   Successor
(Dollars in thousands)   Three Months
Ended
December 31, 2017
Unaudited  
Net loss, as reported   $ (12,506 )
Depreciation and amortization expense   2,711  
Interest expense, net   6,226  
Income tax benefit   (3,474 )
EBITDA   (7,043 )
Non-GAAP adjustments (a)   (48 )
Adjusted EBITDA   $ (7,091 )
(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:   Successor
(Dollars in thousands)   Three Months
Ended
December 31, 2017
Unaudited  
Net loss, as reported   $ (12,506 )
Non-GAAP adjustments:    
Reorganization items, net(a)   2,013  
Noncash compensation expense   651  
Foreign exchange gain on intercompany loans   (360 )
Unrealized gain on embedded debt conversion option   (2,352 )
Non-GAAP adjustments to arrive at Adjusted EBITDA   (48 )
Non-cash interest expense   4,799  
Total non-GAAP adjustments   4,751  
Tax effect of adjustments    
Adjusted non-GAAP loss   $ (7,755 )
     
(a) Reorganization items, net includes expenses incurred after the pendency of the Company's chapter 11 cases. For the period September 1, 2017 through December 31, 2017, the amount was comprised of legal and other professional fees.
 


         
CONSOLIDATED BALANCE SHEETS Successor     Predecessor
(In thousands, except par value data) December 31,
 2017
    December 31,
 2016
         
ASSETS        
Current assets:        
Cash and cash equivalents $ 11,104       $ 35,624  
Accounts receivable, less allowances of $1,586 and $1,945, respectively 74,370       64,385  
Inventories 154,491       146,603  
Prepaid expenses and other current assets 12,274       10,141  
Income tax receivable 1,576       433  
Total current assets 253,815       257,186  
Goodwill and intangible assets, net 8,176       4,101  
Prepaid pension cost 10,745       8,501  
Deferred income taxes 1,278       381  
Other noncurrent assets 1,344       9,449  
Property, plant and equipment:        
Land 5,581       2,070  
Buildings 21,296       37,341  
Machinery and equipment 33,011       125,836  
Property, plant and equipment, at cost 59,888       165,247  
Accumulated depreciation (2,961 )     (115,537 )
Property, plant and equipment, net 56,927       49,710  
Total assets $ 332,285       $ 329,328  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
Current liabilities:        
Accounts payable $ 41,757       $ 33,083  
Accrued and other current liabilities 13,931       19,854  
Income tax payable 262       209  
Short-term borrowings 5,854        
Current portion of long-term debt 118       137  
Total current liabilities 61,922       53,283  
Long-term debt, less current portion 199,903       286,459  
Deferred income taxes 16,166        
Build-to-suit liability 10,148       12,305  
Other noncurrent liabilities 3,784       5,978  
Pension and postretirement benefit obligations 6,377       6,430  
Commitments and contingencies        
Stockholders’ equity (deficit):        
Predecessor 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 December 31, 2016        
Predecessor common stock, $0.01 par value—60,000 shares authorized; 32,768 shares issued and 32,566 outstanding at December 31, 2016       327  
Successor common stock, $0.01 par value—200,000 Class A shares authorized with 3,734 shares issued and outstanding at December 31, 2017 37        
Predecessor additional paid-in capital       244,825  
Successor additional paid-in capital 49,944        
Accumulated deficit (13,327 )     (253,291 )
Accumulated other comprehensive loss (2,669 )     (25,939 )
Predecessor treasury stock, at cost — 202 shares at December 31, 2016       (1,049 )
Total stockholders’ equity (deficit) 33,985       (35,127 )
Total liabilities and stockholders’ equity (deficit) $ 332,285       $ 329,328  
                 


         
CONSOLIDATED STATEMENTS OF CASH FLOWS Successor     Predecessor
(Dollars in thousands) September 1, 2017
Through
December 31, 2017
    January 1, 2017
Through
August 31, 2017
  Nine Months
Ended
September 30, 2016
       
Operating activities:            
Net (loss) income $ (13,327 )     $ 36,190     $ (107,982 )
Less: Income from discontinued operations, net of income taxes           6,108  
(Loss) income from continuing operations (13,327 )     36,190     (114,090 )
Adjustments to reconcile (loss) income from continuing operations to net cash (used in) from operating activities of continuing operations:            
Depreciation and amortization 3,213       10,150     16,378  
Amortization of deferred financing costs and debt discount 1,958       3,810     4,798  
Debt restructuring loss, net           8,617  
Loss from lease termination           2,200  
Unrealized loss (gain) on embedded debt conversion option (2,352 )     146     (10,450 )
Noncash reorganization items, net       (87,107 )    
Loss on sale of property, plant and equipment 26       7     1,874  
Unrealized gain on commodity hedges           (1,015 )
Unrealized foreign currency transaction (gain) loss (1,709 )     (4,439 )   4,506  
Equity in losses of joint venture           4,141  
Noncash interest paid in kind 3,865            
Deferred income taxes (3,437 )     (953 )   (4,354 )
Noncash compensation expense 866       630     1,154  
Other, net 634       537     (80 )
Changes in assets and liabilities:            
Accounts receivable (2,205 )     (6,061 )   6,100  
Inventories (1,978 )     (2,703 )   65,712  
Prepaid expenses and other current assets 752       (3,100 )   1,358  
Other noncurrent assets 324       1,664     1,993  
Prepaid pension costs (1,395 )     (849 )   (59 )
Accounts payable (4,548 )     8,602     (8,449 )
Accrued payroll and employee benefits 945       (2,670 )   300  
Income tax payable and receivable (828 )     (340 )   (105 )
Accrued and other current liabilities (773 )     (3,332 )   (6,214 )
Pension and postretirement benefit obligations and other noncurrent liabilities (585 )     (471 )   (3,063 )
Net cash used in operating activities of continuing operations (20,554 )     (50,289 )   (29,048 )
Net cash used in operating activities of discontinued operations           (5,914 )
Net cash used in operating activities (20,554 )     (50,289 )   (34,962 )
Investing activities:            
Proceeds from sale of investment in joint venture           31,550  
Capital expenditures (3,742 )     (2,850 )   (3,499 )
Proceeds from sale of property, plant and equipment 31       619     3,265  
Change in cash collateralization of letters of credit       7,492     (7,968 )
Net cash (used in) from investing activities of continuing operations (3,711 )     5,261     23,348  
Net cash from investing activities of discontinued operations           53,570  
Net cash (used in) from investing activities (3,711 )     5,261     76,918  
             
Financing activities:            
Short-term borrowings, net 1,720       3,797      
Proceeds from long-term debt including credit facilities 22,973       195,026     722,547  
Repayments of long-term debt including credit facilities (25 )     (175,414 )   (725,821 )
Payments of debt restructuring costs           (9,802 )
Payments of debt issue costs       (1,831 )   (2,472 )
Payments of build-to-suit liability       (3,000 )   (932 )
Net cash from (used in) financing activities 24,668       18,578     (16,480 )
Effect of exchange rate changes on cash and cash equivalents 637       890     (952 )
Net change in cash and cash equivalents 1,040       (25,560 )   24,524  
Cash and cash equivalents—beginning of period 10,064       35,624     11,100  
Cash and cash equivalents—end of period $ 11,104       $ 10,064     $ 35,624  
                         


         
LONG-TERM DEBT        
(Dollars In Thousands) Successor     Predecessor
  December 31,
 2017
    December 31,
 2016
         
7.0% Convertible Notes due December 15, 2017 $       $ 41  
11.0% Senior Secured Term Loan Credit Facilities due September 14, 2018       99,500  
12.75% Senior Secured Notes due December 15, 2018       177,019  
5.25% Convertible Notes due December 30, 2019       22,323  
5.00% / 7.00% Convertible Notes due August 31, 2022 168,767        
Floating rate ABL Credit Facility due February 28, 2022 101,047        
Other, primarily capital leases 288       96  
Plus: derivative liability for embedded conversion feature       403  
Less: unvested restricted 5.00% / 7.00% Convertible Notes due August 31, 2022 (2,144 )      
Less: unamortized discount (67,937 )     (7,587 )
Less: unamortized debt issuance costs       (5,199 )
Total long-term debt 200,021       286,596  
Less: current portion of long-term debt 118       137  
Total long-term portion $ 199,903       $ 286,459  
                 

For Further Information:

-At ALPHA IR-
Analyst Contact
Chris Hodges or Chris Donovan
(312) 445-2870
Email: CTAM@alpha-ir.com
Traded: OTCQB (CTAM)

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