Turnaround and transition led by new management
progressing on pace; Actions executed in second quarter improving
cash flow through better inventory management, reducing cost
structure to accelerate return to profitability and enhancing
customer experience to support long-term growth
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 June 30,
2015.
President and CEO Steve Scheinkman commented, “At the end of
April, we announced our plan to focus on enhancing customer
experience and improving our financial position by rightsizing the
business, enhancing liquidity and returning to profitability. Our
plan consists of two essential thrusts - (i) improving our customer
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 their evolving
needs; and (ii) improving the financial position of the Company
through better balance sheet management and a reduced, more
efficient cost structure.”
Scheinkman continued, “Over the last two months, we have made
significant progress in implementing our plan and in several areas,
we are ahead of our timetable and believe that we will exceed our
initial goals. We have reduced inventories by $16.3 million
(excluding reserves and scrap sales); implemented a localized
branch management organization; reorganized our Senior Leadership
Team; and executed many of the steps required to complete the
facility consolidations by the first quarter of 2016. For example,
we completed the consolidation of our Lafayette facility into
Houston and moved our plate operations from Chicago to Cleveland.
We also entered into a lease agreement for our new 208,000 sq. ft.
facility in Wisconsin that will become a center of excellence for
our bar business, allowing for the closure and sale of our Franklin
Park facility. Our headcount is down by nine percent since the
beginning of the year and will decrease further as we complete the
remaining facility consolidations. We will be closing and
consolidating seven facilities in total, and we have decided not to
close three facilities which were previously considered for closure
based on current performance and opportunities for future
growth.”
“The organizational changes we made have reinvigorated our sales
efforts and have been well received by the market. We have
recruited new talent to help grow our business and have become more
nimble and better positioned to increase our transactional
business. This has already resulted in the award of several new
pieces of business scheduled to begin by the end of the year. We
are continuing with the process of reducing higher priced, slow
moving and excess inventories in a deflationary pricing environment
providing opportunities for margin growth going forward. We expect
to see continued improvement in inventory and DSO levels as our new
processes continue to take hold,” Scheinkman said.
Scheinkman concluded, “Castle entered this year facing numerous
business and operational challenges as well as soft market
conditions and transition issues associated with repositioning the
Company for long-term growth. We believe the significant process
changes we have been implementing will serve to increase sales and
lower our cost structure helping to bring us back to EBITDA
profitability in early 2016 and position us for revenue growth that
will drive profitability going forward. With Castle’s asset rich
balance sheet, coupled with the operational improvements we are
implementing, we are determined to improve the Company’s capital
structure, lower its cost of capital and enhance financial
flexibility going forward.”
Second Quarter 2015 Results:
Consolidated net sales were $199.7 million for second quarter
2015 compared to $249.5 million in second quarter 2014. The Company
reported a second quarter 2015 net loss of $58.9 million, or a loss
of $2.50 per diluted share, compared to a net loss of $72.3
million, or a loss of $3.10 per diluted share, in the prior year
period. Adjusted non-GAAP net loss, which excludes restructuring
charges, for second quarter 2015 was $23.4 million compared to
adjusted non-GAAP net loss of $22.9 million in second quarter 2014.
The Company reported second quarter 2015 negative EBITDA of $40.5
million, compared to negative EBITDA of $62.0 million in second
quarter 2014. Second quarter 2015 results were positively impacted
by $4.0 million foreign currency transaction gains and $0.5 million
from equity earnings of the Company’s joint venture compared to the
second quarter 2014 results that included $1.6 million of foreign
currency transaction gains and $1.8 million from the equity in the
joint venture. Exclusive of restructuring charges, the Company
reported second quarter 2015 adjusted negative EBITDA of $5.0
million compared with adjusted negative EBITDA loss of $5.6 million
in second quarter 2014.
Total restructuring charges recorded during the second quarter
of 2015 were $37.9 million of which $12.5 million represented cash
charges compared to restructuring charges of $0.9 million in the
prior year period. The cash charges include an estimated $5.5
million that may be paid over 20 years. The Company’s total
estimated cash and noncash charges to be incurred as part of its
restructuring initiatives remain consistent with its initial
estimated range of $49.5 million to $64.4 million. The Company’s
revised estimate of cash proceeds related to the closure of its
seven facilities is approximately $23 million. The short term net
cash impact is a positive $16 million.
“While Castle has endured a challenging period over the past few
years, Steve’s leadership has brought a new energy and focus to the
Company,” said Pat Anderson, Executive Vice President and CFO.
“With a lower cost structure, which we expect will be further
reduced by $3 million in the third quarter from the second quarter,
and better alignment with our customers’ needs, we believe we are
well positioned for profitable growth in the coming years and this
will serve us well as we also seek to improve our balance sheet and
cost of capital going forward.”
Net sales from the Metals segment during second quarter 2015
were $166.3 million, which was 22.3% lower than second quarter 2014
and 11.8% lower than the first quarter 2015. Tons sold per day were
down 29.0% compared to second quarter 2014 and down 22.5% compared
to first quarter 2015. Average selling price per ton sold was up
7.5% from the second quarter 2014 and up 9.1% from the first
quarter 2015 which includes a favorable change in product mix. In
the Plastics segment, second quarter 2015 net sales were $33.4
million, which was 5.7% lower compared to second quarter 2014 and
down slightly compared to first quarter 2015.
“There was broad weakness in the market for the metals we supply
due to inventory de-stocking in response to deflationary pricing
resulting in lower demand,” said Scheinkman. “The decline in daily
shipping tons experienced in the second quarter of 2015 primarily
occurred in the first half of the quarter and leveled off in June.
We believe that customer demand for transactional business will
improve as the second half progresses as commodity prices stabilize
and inventory de-stocking is completed. We see opportunities for
add-on business to existing contracts as well as particular
strength for growth in aerospace end-markets,” Scheinkman
concluded.
Consolidated gross margins were 13.7% in second quarter 2015
compared to 23.2% in second quarter 2014. Gross margins in the
second quarter 2015 included a restructuring charge of $22.3
million and LIFO income of $1.5 million compared to no LIFO impact
in the second quarter 2014. Excluding the restructuring charge and
the LIFO income, Metals segment gross margins were 22.9% in the
second quarter 2015 compared to 22.3% in the prior year
quarter.
Excluding restructuring operating expenses of $15.6 million,
operating expenses were $62.9 million in second quarter 2015,
compared to $72.8 million in second quarter 2014 (excluding
restructuring charges of $0.9 million and a goodwill impairment
charge of $56.2 million) and $64.5 million in first quarter 2015
(excluding restructuring charges of $0.8 million and a gain on sale
of facility of $5.6 million).
Net cash used in operations was $15.1 million during the first
six months of 2015, compared to net cash used in operations of
$32.5 million during first six months of 2014. The Company had
$73.5 million of borrowings outstanding under its revolving credit
facility at June 30, 2015 and $27.6 million of additional
unrestricted borrowing capacity available under the terms of the
revolving credit facility. There were $59.2 million in borrowings
under the revolving credit facility at December 31, 2014. The
Company’s net debt-to-capital ratio was 79.7% at June 30, 2015
compared to 65.5% at December 31, 2014. Total debt
outstanding, net of unamortized discount, was $326.7 million at
June 30, 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 second quarter and year ended
June 30, 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
https://www.castlemetals.com/investors or by calling (800) 774-6070
or (630) 691-2753 and citing code 9231 892#.
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 46 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 (loss) 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 (loss) and adjusted EBITDA, which are defined
as reported net income (loss) 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 (loss) 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 including restructuring
activities, 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
For the Three Months
Ended
For the Six Months Ended
(Dollars in thousands, except per share data) Unaudited
June
30, June 30, 2015 2014 2015
2014 Net sales $ 199,703 $ 249,492 $ 421,931 $
502,902 Costs and expenses: Cost of materials (exclusive of
depreciation and amortization) 172,402 191,565 340,513 380,096
Warehouse, processing and delivery expense 30,917 36,747 57,948
72,128 Sales, general, and administrative expense 25,683 29,471
51,218 59,095 Restructuring activity, net 15,618 907 16,449 1,646
Depreciation and amortization expense 6,312 6,533 12,667 12,990
Impairment of goodwill — 56,160 — 56,160
Operating loss (51,229 ) (71,891 ) (56,864 ) (79,213 )
Interest expense, net (10,374 ) (9,888 ) (20,920 ) (19,840 ) Other
income/(expense), net 3,963 1,590 (2,262 ) 908
Loss before income taxes and equity in earnings of joint venture
(57,640 ) (80,189 ) (80,046 ) (98,145 ) Income taxes (1,731 ) 6,097
(906 ) 6,148 Loss before equity in earnings of joint
venture (59,371 ) (74,092 ) (80,952 ) (91,997 ) Equity in earnings
of joint venture 451 1,794 1,326 3,701
Net loss $ (58,920 ) $ (72,298 ) $ (79,626 ) $ (88,296 ) Basic loss
per share $ (2.50 ) $ (3.10 ) $ (3.39 ) $ (3.78 ) Diluted loss per
share $ (2.50 ) $ (3.10 ) $ (3.39 ) $ (3.78 ) EBITDA (a) $ (40,503
) $ (61,974 ) $ (45,133 ) $ (61,614 ) (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
For the Six Months Ended
(Dollars in thousands)
June 30, June 30, Unaudited
2015 2014 2015 2014 Net loss $ (58,920
) $ (72,298 ) $ (79,626 ) $ (88,296 ) Depreciation and amortization
expense 6,312 6,533 12,667 12,990 Interest expense, net 10,374
9,888 20,920 19,840 Income taxes 1,731 (6,097 ) 906
(6,148 ) EBITDA (40,503 ) (61,974 ) (45,133 ) (61,614 ) Non-GAAP
net loss adjustments (b) 35,493 56,410 34,423
56,941 Adjusted EBITDA $ (5,010 ) $ (5,564 ) $ (10,710 ) $
(4,673 ) (b) Non-GAAP net loss adjustments relate to restructuring
activity, foreign exchange losses on intercompany loans, unrealized
gains on commodity hedges, impairment of goodwill, 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 $(6,905) and $(5,452), respectively, for the three and
six-month period ended June 30, 2014.
CONDENSED
CONSOLIDATED BALANCE SHEETS As of (In thousands, except
par value data)
June 30, December 31,
Unaudited
2015 2014 ASSETS Current assets Cash
and cash equivalents $ 11,496 $ 8,454 Accounts receivable, less
allowances of $3,577 and $3,375 115,260 131,003 Inventories,
principally on last-in first-out basis (replacement cost higher by
$127,569 and $129,779) 203,143 236,932 Prepaid expenses and other
current assets 11,081 9,458 Deferred income taxes 1,005 685 Income
tax receivable 2,927 2,886 Total current assets
344,912 389,418 Investment in joint venture 38,455 37,443 Goodwill
12,973 12,973 Intangible assets, net 50,324 56,555 Prepaid pension
cost 6,656 7,092 Other assets 10,254 11,660 Property, plant and
equipment: Land 3,596 4,466 Buildings 50,608 52,821 Machinery and
equipment 184,504 183,923 Property, plant and
equipment, at cost 238,708 241,210 Less - accumulated depreciation
(172,362 ) (168,375 ) Property, plant and equipment, net 66,346
72,835 Total assets $ 529,920 $ 587,976
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities
Accounts payable $ 61,339 $ 68,782 Accrued and other liabilities
40,832 27,670 Income taxes payable 648 328 Current portion of
long-term debt 617 737 Total current liabilities
103,436 97,517 Long-term debt, less current portion 326,066 309,377
Deferred income taxes 8,613 8,360 Other non-current liabilities
3,136 3,655 Pension and postretirement benefit obligations 19,830
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 June 30, 2015 and December 31, 2014 — — Common
stock, $0.01 par value—60,000 shares authorized and 23,888 shares
issued and 23,777 outstanding at June 30, 2015 and 23,630 shares
issued and 23,559 outstanding at December 31, 2014 238 236
Additional paid-in capital 226,074 225,953 (Accumulated deficit)
retained earnings (109,050 ) (29,424 ) Accumulated other
comprehensive loss (47,398 ) (45,565 ) Treasury stock, at cost—111
shares at June 30, 2015 and 71 shares at December 31, 2014 (1,025 )
(880 ) Total stockholders’ equity 68,839 150,320
Total liabilities and stockholders’ equity $ 529,920 $
587,976
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended (Dollars in thousands)
June
30, Unaudited
2015 2014 Operating
activities: Net loss $ (79,626 ) $ (88,296 ) Adjustments to
reconcile net loss to net cash used in operating activities:
Depreciation and amortization 12,667 12,990 Amortization of
deferred financing costs and debt discount 4,242 3,718 Impairment
of goodwill — 56,160 Gain on sale of property, plant and equipment
(5,681 ) (29 ) Unrealized gains on commodity hedges (172 ) (865 )
Unrealized foreign currency transaction losses 1,433 — Equity in
earnings of joint venture (1,326 ) (3,701 ) Dividends from joint
venture 315 1,085 Pension Curtailment 3,080 — Deferred tax expense
(benefit) 142 (5,471 ) Other, net (13 ) 639 Increase (decrease)
from changes in: Accounts receivable 14,094 (17,371 ) Inventories
31,285 (6,709 ) Prepaid expenses and other current assets (1,577 )
(3,375 ) Other assets (1,988 ) (146 ) Prepaid pension costs 1,240
346 Accounts payable (6,788 ) 18,950 Income taxes payable and
receivable 113 (1,899 ) Accrued liabilities 13,801 1,722
Postretirement benefit obligations and other liabilities (315 )
(267 ) Net cash used in operating activities (15,074 ) (32,519 )
Investing activities: Capital expenditures (3,295 ) (4,299 )
Proceeds from sale of property, plant and equipment 7,644
103 Net cash from (used in) investing activities 4,349
(4,196 ) Financing activities: Proceeds from long-term debt 464,700
79,450 Repayments of long-term debt (450,795 ) (56,798 ) Other, net
— 193 Net cash from (used in) financing activities
13,905 22,845 Effect of exchange rate changes on cash and cash
equivalents (138 ) 117 Net change in cash and cash equivalents
3,042 (13,753 ) Cash and cash equivalents—beginning of year
8,454 30,829 Cash and cash equivalents—end of year $
11,496 $ 17,076
Reconciliation of
Adjusted Non-GAAP Net Loss to Reported Net Loss:
For the Three Months
Ended
For the Six Months Ended
(Dollars in thousands, except per share data) Unaudited
June
30, June 30, 2015 2014 2015
2014 Net loss, as reported $ (58,920 ) $ (72,298 ) $
(79,626 ) $ (88,296 ) Restructuring activity (a) 37,953 907 38,784
1,646 Foreign exchange losses on intercompany loans(b) (2,389 ) —
1,434 — Impairment of goodwill — 56,160 — 56,160 Unrealized gains
on commodity hedges (71 ) (657 ) (173 ) (865 ) Gain on sale of
property, plant and equipment — — (5,622 ) — Tax effect of
adjustments — (7,057 ) — (7,260 ) Adjusted non-GAAP
net loss $ (23,427 ) $ (22,945 ) $ (45,203 ) $ (38,615 ) Adjusted
non-GAAP basic loss per share $ (0.99 ) $ (0.98 ) $ (1.92 ) $ (1.65
) Adjusted non-GAAP diluted loss per share $ (0.99 ) $ (0.98 ) $
(1.92 ) $ (1.65 ) (a) Restructuring activity includes costs
associated with the costs recorded to the restructuring activity
line item and $22.3 million from cost of materials line item within
the condensed consolidated statements of operations for both
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 $(17,229), $(0.73), and
$(0.73), respectively, for the three-month period ended June 30,
2014. Adjusted non-GAAP net loss, adjusted non-GAAP loss per share
and adjusted non-GAAP diluted loss per share would have been
$(32,134), $(1.38), and $(1.38), respectively, for the six-month
period ended June 30, 2014.
Total
Debt:
As of (Dollars in thousands)
June 30,
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 73,500 59,200
Other, primarily capital leases 859 1,257 Total
long-term debt 341,859 327,957 Less: unamortized discount (15,176 )
(17,843 ) Less: current portion (617 ) (737 ) Total long-term
portion 326,066 309,377 TOTAL DEBT $ 326,683 $ 310,114
Reconciliation of
Total Debt to Net Debt and Net Debt-to-Capital:
As of (Dollars in thousands)
June 30,
December 31, Unaudited
2015 2014 Total Debt $
326,683 $ 310,114 Less: Cash and Cash Equivalents (11,496 ) (8,454
) NET DEBT $ 315,187 $ 301,660 Stockholders’
Equity $ 68,839 $ 150,320 Total Debt 326,683 310,114
CAPITAL $ 395,522 $ 460,434 NET
DEBT-TO-CAPITAL 79.7 % 65.5 %
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At ALPHA IRAnalyst ContactChris Hodges or Monica
Gupta(312) 445-2870Email: CAS@alpha-ir.comTraded: NYSE (CAS)