New management announces plan focused on
enhancing customer experience and improving financial position;
Business right-sized to enhance liquidity and
accelerate return to profitability
A. M. Castle & Co. (NYSE: CAS) (“the Company” or
“Castle”), a global distributor of specialty metal and plastic
products, value-added services and supply chain solutions, today
reported financial results for the three months ended
March 31, 2015.
Newly appointed President and CEO Steve Scheinkman commented,
“A. M. Castle was founded 125 years ago and has been a key leader
in the metal service center industry throughout that time. The
Company is built on its key pillars of market leadership, customer
focus, competitive cost, and people. Having served in the industry
for 27 years, including as President of Castle’s aerospace
business, I am well aware of the Company’s strong capability to
provide metal and plastic products, services and processing
capabilities at the highest levels of quality and customer
satisfaction on a global basis. It is for this reason that I was
very excited to accept the position as President and CEO. While
only rejoining Castle less than two weeks ago, I have a clear
vision of how to proceed to empower our employees and utilize the
expertise and creativity of our team to provide complete and
customized solutions that position Castle as the go-to integral
growth partner to all levels of the supply chain.”
Regarding the Company’s plan going forward, Scheinkman
commented, “Castle’s financial results over the past several
quarters clearly demonstrate that changes are necessary in how we
operate in order to achieve profitability and ensure that we
properly manage our assets. Our plan has two essential thrusts –
(i) improve the value proposition we provide our customers by
increasing customer intimacy, service and support, and (ii) improve
the financial position of the Company through better balance sheet
management and a reduced, more efficient cost structure.
Scheinkman continued, “Regarding the first thrust, we will be
improving the value proposition by driving more resources,
capabilities, responsibility and accountability down to our
branches so they may be closer to our customers, and more
responsive to the customer’s evolving needs. While we plan to
accomplish this with fewer branches, each will have more complete
product lines and capabilities for value added services to our
customers. We will continue to offer our full product line
throughout our current geographic coverage and maintain the highest
level of quality, service and safety that we are known for.
Regarding the second thrust, we plan to generate cash by more
efficiently managing our inventory, selling some of our real estate
and other non-core assets, and ultimately driving to profitability.
In order to return Castle to profitability, we will take immediate
action to reduce our cost structure.
Regarding Conway MacKenzie, Scheinkman noted, “Prior to my
arrival, the management team began a rigorous analysis, with the
assistance of Conway MacKenzie, to evaluate the Company’s current
facility and resource footprint to determine how to best optimize
its operational performance and reduce costs. I would like to thank
Conway MacKenzie for their excellent work. We will be implementing
a facility consolidation and down-sizing based on their
recommendations that will significantly reduce our cost structure
and pave the way to improved cash flow and financial performance.
We will be phasing out Conway MacKenzie’s consulting assignment and
Jeff Zappone will no longer need to serve as the Company’s Interim
Chief Operating Officer. During this phase out period, Conway
MacKenzie will continue to provide assistance in an as required
supporting role as we implement our plan.”
Scheinkman continued, “I believe that our balanced and
complementary strategy of continuously improving customer focus
while simultaneously improving the Company’s financial position
will enable us to both strengthen Castle today while positioning us
to return to long term, profitable growth.”
Highlights of the Plan Framework
- Consolidation of up to 10 facilities by
first quarter 2016 into geographically overlapping facilities
- Strategic delayering through headcount
reductions via efficiency gains and consolidation of
facilities
- Cost savings to begin in the middle of
second quarter 2015
- Measured against annualized first
quarter 2015 run rate revenue and upon full implementation of these
initial activities, the Company anticipates approximately $48
million of annualized cost improvement; additional cost savings are
in the process of being evaluated
- Cash flows from consolidation and
downsizing:
- Sales of facilities expected to
generate approximately $28 million estimated to be realized by
first quarter 2016
- Cash costs of $12.1 - $21.4 million
expected to be incurred through the first quarter of 2016 including
up to $6 million of cost which if incurred, is payable in
approximately level installments over a 20 year period
- Net non-cash charge of $12.8 million -
$14.5 million
- New facility footprint and
organizational changes based on local accountability with a focus
on inventory management intended to reduce days sales in inventory
(DSI) to be in line with industry averages
- All facility consolidation activities
substantially completed by the end of the first quarter 2016
Scheinkman added, “I have led successful turnarounds in the past
and I am confident that we are implementing the right strategy now
to strengthen Castle and position the Company for long term
success. I really appreciate the strong support from the Castle
Board, Executive Team and talented employees throughout our
organization as we implement our strategy to continuously enhance
the value we deliver to our customers while improving the Company’s
financial position and long term opportunities for growth and
sustainable profitability.”
Brian Anderson, Chairman of the Board of Castle, added, “The
Board of Directors strongly supports Steve and his team. We are
optimistic that we now have the right leadership and the right plan
in place to drive the future success of Castle.”
First Quarter 2015 Results:
Consolidated net sales were $222.2 million for first quarter
2015 compared to $253.4 million in first quarter 2014. The Company
reported a first quarter 2015 net loss of $20.7 million, or a loss
of $0.88 per diluted share, compared to a net loss of $16.0
million, or a loss of $0.69 per diluted share, in the prior year
quarter. Adjusted non-GAAP net loss for first quarter 2015 was
$21.8 million compared to adjusted non-GAAP net loss of $15.7
million in first quarter 2014. The Company reported first quarter
2015 EBITDA loss of $4.6 million, compared to EBITDA of $0.4
million in first quarter 2014. First quarter 2015 results were
negatively impacted by $6.2 million foreign currency transaction
losses and first quarter 2014 results included $0.7 million of
foreign currency transaction losses. Adjusted EBITDA net loss for
first quarter 2015 was $5.7 million compared with adjusted EBITDA
of $0.9 million in first quarter 2014.
“Our cost structure and inventory investment are clearly too
high in light of the conditions in the market,” said Pat Anderson,
Interim CFO. “Going forward, we expect to see improvement in our
quarterly operating expense performance. Successful execution of
the plan developed by the management team is expected to result in
improved liquidity and profitability thereby expanding our
available options regarding our capital structure and long-term
financing.”
Net sales from the Metals segment during first quarter 2015 were
$188.5 million, which was 13.9% lower than first quarter 2014 and
4.0% lower than the fourth quarter 2014. Average selling price per
ton sold was down 1.5% from the first quarter 2014 and down 2.2%
from the fourth quarter 2014. Tons sold were down 12.0% compared to
first quarter 2014 and down 3.3% compared to fourth quarter 2014.
In the Plastics segment, first quarter 2015 net sales were $33.7
million which was 1.9% lower compared to first quarter 2014 and
flat compared to fourth quarter 2014.
Gross margins were 24.4% in first quarter 2015 compared to 25.6%
in first quarter 2014. Gross margins included provisions for excess
inventory of $1.3 million and LIFO income of $0.5 million in first
quarter 2015 compared to LIFO income of $1.2 million in first
quarter 2014. Metals segment gross margins were 23.6% in the first
quarter 2015 compared to 24.9% in the prior year period. Aerospace
and industrial product margins remained stable, but were not enough
to overcome the weakness seen in oil & gas product margins.
Including a $5.6 million gain on sale of the Company’s Blaine,
MN facility, operating expenses were $59.8 million in first quarter
2015 compared to $72.2 million in first quarter 2014 and $69.4
million in fourth quarter 2014.
Net cash used in operations was $2.8 million during the first
quarter, compared to net cash used in operations of $2.9 million
during first quarter 2014. The Company had $62.0 million of
borrowings outstanding under its revolving credit facility at
March 31, 2015 and $38.1 million of additional unrestricted
borrowing capacity available under the terms of the revolving
credit facility. There were $59.2 million borrowings under the
revolving credit facility at December 31, 2014. The Company’s
net debt-to-capital ratio was 68.2% at March 31, 2015 compared
to 65.5% at December 31, 2014. Total debt outstanding, net of
unamortized discount, was $314.0 million at March 31, 2015 and
$310.1 million at December 31, 2014. Refer to the ‘Total Debt’
table below for details related to the Company’s outstanding debt
obligations.
Webcast Information
Management will hold a conference call at 11:00 a.m. ET today to
review the Company's results for the first quarter and year ended
March 31, 2015 and discuss business conditions and outlook.
The call can be accessed via the internet live or as a replay.
Those who would like to listen to the call may access the webcast
through a link on the investor relations page of the Company’s
website at http://www.amcastle.com/investors/default.aspx or by
calling (800) 774-6070 or (630) 691-2753 and citing code 7608 998#.
A supplemental presentation accompanying the webcast can also be
accessed at the link provided at the investor relations page of the
Company's website.
An archived version of the conference call webcast will be
available for replay at the link above approximately three hours
following its conclusion, and will remain available until the next
earnings conference call.
About A. M. Castle & Co.
Founded in 1890, A. M. Castle & Co. is a global distributor
of specialty metal and plastic products and supply chain services,
principally serving the producer durable equipment, oil and gas,
commercial aircraft, heavy equipment, industrial goods,
construction equipment, retail, marine and automotive 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. Within its metals business,
it specializes in the distribution of alloy and stainless steels;
nickel alloys; aluminum and carbon. Through its wholly-owned
subsidiary, Total Plastics, Inc., the Company also distributes a
broad range of value-added industrial plastics. Together, Castle
and its affiliated companies operate out of 47 service centers
located throughout North America, Europe and Asia. Its common stock
is traded on the New York Stock Exchange under the ticker symbol
"CAS".
Regulation G Disclosure
This release and the financial statements 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. 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 analyses 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 income before
provision for income taxes plus depreciation and amortization, and
interest expense, less interest income, 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. Adjusted
non-GAAP net income and adjusted EBITDA, which are defined as
reported net income and EBITDA adjusted for non-cash items and
items which are not considered by management to be indicative of
the underlying results, 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 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
facility closures and organizational changes. 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, including our ability to effectively
manage our operational initiatives, the impact of volatility of
metals and plastics 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 Item 1A “Risk Factors”
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014. 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.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except per share
data)
Unaudited
For the Three Months Ended
March 31, 2015 2014 Net sales $ 222,228
$ 253,410 Costs, expenses and (gains): Cost of materials (exclusive
of depreciation and amortization) 168,111 188,531 Warehouse,
processing and delivery expense 27,031 35,381 Sales, general, and
administrative expense 25,535 29,624 Restructuring activity, net
831 739 Depreciation and amortization expense 6,355 6,457
Operating loss (5,635 ) (7,322 ) Interest expense, net
(10,546 ) (9,952 ) Other expense, net (6,225 ) (682 ) Loss before
income taxes and equity in earnings of joint venture (22,406 )
(17,956 ) Income taxes 825 51 Loss before equity in
earnings of joint venture (21,581 ) (17,905 ) Equity in earnings of
joint venture 875 1,907 Net loss $ (20,706 ) $
(15,998 ) Basic loss per share $ (0.88 ) $ (0.69 ) Diluted loss per
share $ (0.88 ) $ (0.69 ) EBITDA (a) $ (4,630 ) $ 360 (a)
Earnings (loss) before interest, taxes, and depreciation and
amortization. See reconciliation to net loss below.
Reconciliation of
EBITDA and of adjusted EBITDA to net loss:
For the Three Months Ended (Dollars in thousands)
March
31, Unaudited
2015 2014 Net loss $ (20,706 ) $
(15,998 ) Depreciation and amortization expense 6,355 6,457
Interest expense, net 10,546 9,952 Income taxes (825 ) (51 ) EBITDA
(4,630 ) 360 Non-GAAP net loss adjustments (b) (1,070) 531
Adjusted EBITDA $ (5,700 ) $ 891
(b) Non-GAAP net loss adjustments relate to restructuring
activity, foreign exchange losses on intercompany loans, and
unrealized (gains) losses for commodity hedges and gain on sale of
property, plant and equipment for both periods presented. Refer to
'Reconciliation of Adjusted Non-GAAP Net Loss to Reported Net Loss'
table for additional details on these amounts. Unrealized foreign
exchange losses on intercompany loans were not included in Adjusted
EBITDA in prior year period presented as the amount was not
significant; had losses been included, Adjusted EBITDA would have
been $1,453 for the three-month period ended March 31, 2014.
CONDENSED CONSOLIDATED BALANCE
SHEETS
As of (In thousands, except par value data)
March
31, December 31, Unaudited
2015
2014 ASSETS Current assets Cash and cash equivalents
$ 13,366 $ 8,454 Accounts receivable, less allowances of $3,161 and
$3,375 129,204 131,003 Inventories, principally on last-in
first-out basis (replacement cost higher by $129,279 and $129,779)
243,331 236,932 Prepaid expenses and other current assets 13,156
9,458 Deferred income taxes 752 685 Income tax receivable 2,264
2,886 Total current assets 402,073 389,418 Investment
in joint venture 38,003 37,443 Goodwill 12,973 12,973 Intangible
assets, net 52,695 56,555 Prepaid pension cost 7,494 7,092 Other
assets 10,502 11,660 Property, plant and equipment Land 3,594 4,466
Buildings 50,528 52,821 Machinery and equipment 182,817
183,923 Property, plant and equipment, at cost 236,939
241,210 Less - accumulated depreciation (168,403 ) (168,375 )
Property, plant and equipment, net 68,536 72,835
Total assets $ 592,276 $ 587,976
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities Accounts payable $
85,998 $ 68,782 Accrued and other liabilities 36,034 27,670 Income
taxes payable 505 328 Current portion of long-term debt 734
737
Total current liabilities
123,271 97,517 Long-term debt, less current portion 313,239 309,377
Deferred income taxes 6,585 8,360 Other non-current liabilities
3,393 3,655 Pension and postretirement benefit obligations 18,775
18,747 Commitments and contingencies Stockholders' equity Preferred
stock, $0.01 par value—9,988 shares authorized (including 400
Series B Junior Preferred $0.00 par value shares); no shares issued
and outstanding at March 31, 2015 and December 31, 2014 — — Common
stock, $0.01 par value—60,000 shares authorized and 23,700 shares
issued and 23,572 outstanding at March 31, 2015 and 23,630 shares
issued and 23,559 outstanding at December 31, 2014 236 236
Additional paid-in capital 226,853 225,953 (Accumulated deficit)
retained earnings (50,130 ) (29,424 ) Accumulated other
comprehensive loss (48,857 ) (45,565 ) Treasury stock, at cost—128
shares at March 31, 2015 and 71 shares at December 31, 2014 (1,089
) (880 ) Total stockholders' equity 127,013 150,320
Total liabilities and stockholders' equity $ 592,276 $
587,976
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended (Dollars in thousands)
March
31, Unaudited
2015 2014 Operating
activities: Net loss $ (20,706 ) $ (15,998 ) Adjustments to
reconcile net loss to net cash (used in) from operating activities:
Depreciation and amortization 6,355 6,457 Amortization of deferred
financing costs and debt discount 2,167 1,927 Gain on sale of
property, plant and equipment (5,622 ) 0 Unrealized (gains) losses
on commodity hedges (102 ) (208 ) Unrealized foreign currency
transaction losses 3,823 0 Equity in earnings of joint venture (875
) (1,907 ) Dividends from joint venture 315 607 Deferred tax
expense (benefit) (1,538 ) 571 Other Net 711 243 Increase
(decrease) from changes in: Accounts receivable (874 ) (17,930 )
Inventories (10,819 ) 904 Prepaid expenses and other current assets
(3,921 ) (1,365 ) Other assets (242 ) 1,972 Prepaid pension costs
620 173 Accounts payable 18,668 18,423 Income taxes payable and
receivable 643 (1,454 ) Accrued liabilities 8,775 4,818
Postretirement benefit obligations and other liabilities (158 )
(102 ) Net cash (used in) from operating activities (2,780 ) (2,869
) Investing activities: Capital expenditures (2,061 ) (2,012 )
Proceeds from sale of property, plant and equipment 7,541 46
Net cash used in investing activities 5,480 (1,966 )
Financing activities: Proceeds from long-term debt 206,900 11,506
Repayments of long-term debt (204,357 ) (11,605 ) Net cash from
(used in) financing activities 2,543 (54 ) Effect of exchange rate
changes on cash and cash equivalents (331 ) (232 ) Net change in
cash and cash equivalents 4,912 (5,121 ) Cash and cash
equivalents—beginning of year 8,454 30,829 Cash and
cash equivalents—end of year $ 13,366 $ 25,708
Reconciliation of
Adjusted Non-GAAP Net Loss to Reported Net Loss:
(Dollars in thousands, except per share
data)
Unaudited
For the Three Months Ended
March 31, 2015 2014 Net loss, as
reported $ (20,706 ) $ (15,998 ) Restructuring activity (a) 831 739
Foreign exchange losses on intercompany loans(b) 3,823 — Unrealized
gains on commodity hedges (102 ) (208 ) Gain on sale of property,
plant and equipment (5,622) — Tax effect of adjustments —
(203 ) Adjusted non-GAAP net loss $ (21,776 ) $ (15,670 ) Adjusted
non-GAAP basic loss per share $ (0.93 ) $ (0.67 ) Adjusted non-GAAP
diluted loss per share $ (0.93 ) $ (0.67 )
(a) Restructuring activity includes costs associated with the
costs recorded to the restructuring activity line item within the
condensed consolidated statements of operations and comprehensive
loss for all periods presented.
(b) Unrealized foreign exchange losses on intercompany loans
were not included in the prior year period presented as an
adjustment to GAAP results as the amount was not significant; had
the losses been included, Adjusted non-GAAP net loss, adjusted
non-GAAP loss per share and adjusted non-GAAP diluted loss per
share would have been $(15,108), $(0.65), and $(0.65),
respectively, for the three-month period ended March 31, 2014.
Total
Debt:
As of (Dollars in thousands)
March 31,
December 31, Unaudited
2015 2014 LONG-TERM
DEBT 12.75% Senior Secured Notes due December 15, 2016 $ 210,000 $
210,000 7.0% Convertible Notes due December 15, 2017 57,500 57,500
Revolving Credit Facility due December 10, 2019 62,000 59,200
Other, primarily capital leases 993 1,257 Total
long-term debt 330,493 327,957 Less: unamortized discount (16,520 )
(17,843 ) Less: current portion (734 ) (737 ) Total long-term
portion 313,239 309,377 TOTAL DEBT $ 313,973 $ 310,114
Reconciliation of
Total Debt to Net Debt and Net Debt-to-Capital:
As of (Dollars in thousands)
March 31, December
31, Unaudited
2015 2014 Total Debt $ 313,973 $
310,114 Less: Cash and Cash Equivalents (13,366 ) (8,454 ) NET DEBT
$ 300,607 $ 301,660 Stockholders' Equity $
127,013 $ 150,320 Total Debt 313,973 310,114 CAPITAL
$ 440,986 $ 460,434 NET DEBT-TO-CAPITAL 68.2 %
65.5 %
At ALPHA IRAnalyst Contact:Chris Hodges or Monica
Gupta(312) 445-2870Email: CAS@alpha-ir.com