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

Company reports year-over-year improvement in revenue and operating results for the fourth quarter and full year 2018; remains focused on further growth in 2019

OAK BROOK, Ill., March 14, 2019 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (CTAM) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported its fourth quarter and full year 2018 financial results.

Full Year 2018 Financial Highlights:

  • Generated net sales of $582.0 million, a 12.2% year-over-year increase compared to $518.8 million in 2017 ($164.9 million and $353.9 million for the four-month Successor period ended December 31, 2017 and eight-month Predecessor period ended August 31, 2017, respectively).

  • Reported an operating loss of $16.7 million compared to an operating loss of $27.5 million in 2017 ($13.1 million and $14.4 million for the four-month Successor period ended December 31, 2017 and eight-month Predecessor period ended August 31, 2017, respectively).

  • Reported a net loss of $37.1 million, which included $33.2 million of interest expense, of which $21.7 million was non-cash related to long-term debt held primarily by majority shareholders, and $4.9 million was non-cash related to the Company's pension plan.

  • Achieved EBITDA of $0.3 million and adjusted EBITDA of $3.9 million, including foreign currency gains of $0.1 million and $0.9 million, respectively, compared to EBITDA of $67.5 million, which included a net gain on reorganization items of $72.4 million, and an adjusted EBITDA loss of $11.7 million, including foreign currency gains of $7.2 million and $1.1 million, respectively, in the full year of 2017.

Chairman and CEO Steve Scheinkman commented, “One of our goals for 2018 was to continue to grow our top-line and we have done that as demonstrated by our double-digit year-over-year revenue growth driven by strong pricing and increased volumes for the majority of the year. In addition, our continued focus on improving our working capital efficiency is generating stronger operating results, which we believe will continue into 2019.  The liquidity generated from both increased profitability performance and more effective working capital management are allowing us to make additional investments to support our valued business partners."

Fourth quarter 2018 financial results:

  • Generated net sales of $137.6 million, an 11.7% year-over-year increase compared to $123.2 million in the fourth quarter of 2017.

  • Reported an operating loss of $9.3 million, compared to an operating loss of $11.7 million in the fourth quarter of 2017.

  • Reported a net loss of $16.8 million, which included $9.2 million of interest expense, of which $6.2 million was non-cash related to long-term debt held primarily by majority shareholders, and $1.2 million was non-cash related to the Company's pension plan, compared to a net loss of $12.5 million for the fourth quarter of 2017, which included $7.4 million of interest expense, of which $4.8 million was non-cash related to long term-debt held primarily by majority shareholders, and $1.2 million was non-cash related to the Company's pension plan.

  • Reported an EBITDA loss of $6.3 million and an adjusted EBITDA loss of $4.3 million in the fourth quarter of 2018, including foreign currency loss of $1.1 million and a foreign currency gain of $0.2 million, respectively, compared to an EBITDA loss of $5.9 million and an adjusted EBITDA loss of $5.9 million, including foreign currency gains of $1.6 million and $1.2 million, respectively, in the fourth quarter of 2017.

Commenting on the fourth quarter financial results, Mr. Scheinkman continued, “The momentum we saw in our operating performance and EBITDA growth throughout the first three quarters of 2018 and into the early fourth quarter dissipated somewhat late in the quarter when volumes are traditionally lower and as we moved some aged inventory out of our network. Even with that slowdown, however, we are pleased to have delivered year-over-year improvements in our fourth quarter and full year 2018 results and believe we have laid a solid operational foundation for continued success in 2019.”

President Marec Edgar added, “We have seen operating performance bounce back with a return to positive EBITDA for both January and February of 2019, even with the negative impacts from the historic severe weather that occurred throughout the Midwestern U.S., and we believe many of the end markets we serve are trending positively for 2019. We continue to work closely with our customers and mill partners to respond to changes in their local and global supply chains and have made internal realignments to become more nimble in anticipating and responding to those changes. We believe these actions will allow us to build on our improvements from 2018 and deliver more value to our stakeholders at all levels going forward.”

Presentation of Predecessor and Successor Financial Results

The Company adopted fresh-start reporting as of August 31, 2017, the date the Company's Amended Prepackaged Joint Chapter 11 Plan of Reorganization became effective and the Company emerged from its Chapter 11 cases (the "Effective Date"). 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 21 metals service centers located throughout North America, Europe and Asia. Its common stock is traded on the OTCQX® Best 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, including any combination of and comparison to combined Predecessor and Successor results. 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 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 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 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, as well as the anticipated increase in our borrowing capacity under our Credit Facility. 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 impact of imposed tariffs and/or duties, 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, 2018, which we expect to 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
  Successor     Predecessor
  Year Ended
December 31, 2018
  September 1, 2017 through
December 31, 2017
*As Adjusted
    January 1, 2017
through
August 31, 2017
*As Adjusted
(Dollars in thousands, except per share data)      
Net sales $ 581,970     $ 164,942       $ 353,926  
Costs and expenses:            
Cost of materials (exclusive of depreciation and amortization) 437,052     127,828       266,495  
Warehouse, processing and delivery expense 83,635     25,353       50,314  
Sales, general and administrative expense 68,933     21,645       40,766  
Restructuring expense, net           566  
Depreciation and amortization expense 9,082     3,213       10,150  
Total costs and expenses 598,702     178,039       368,291  
Operating loss (16,732 )   (13,097 )     (14,365 )
Interest expense, net 33,172     9,220       26,629  
Financial restructuring expense           7,024  
Unrealized (gain) loss on embedded debt conversion option     (2,352 )     146  
Other income, net (7,980 )   (5,591 )     (8,436 )
Reorganization items, net     2,141       (74,531 )
(Loss) income before income taxes (41,924 )   (16,515 )     34,803  
Income tax benefit (4,779 )   (3,188 )     (1,387 )
Net (loss) income $ (37,145 )   $ (13,327 )     $ 36,190  
             
* 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) Income to EBITDA and Adjusted EBITDA: Successor     Predecessor
(Dollars in thousands) Year Ended
December 31, 2018
  September 1, 2017 through
December 31, 2017
*As Adjusted
    January 1, 2017
through 
August 31, 2017
*As Adjusted
Unaudited      
Net (loss) income, as reported $ (37,145 )   $ (13,327 )     $ 36,190  
Depreciation and amortization expense 9,082     3,213       10,150  
Interest expense, net 33,172     9,220       26,629  
Income tax benefit (4,779 )   (3,188 )     (1,387 )
EBITDA 330     (4,082 )     71,582  
Non-GAAP adjustments (a) 3,554     (1,012 )     (78,212 )
Adjusted EBITDA $ 3,884     $ (5,094 )     $ (6,630 )
             
(a) Refer to "Reconciliation of Reported (Net Loss) Income to Adjusted Non-GAAP Net Loss" table for additional details on these amounts.
* 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 
December 31, 2018
  Three Months
Ended 
December 31, 2017

*As Adjusted
Unaudited    
Net loss, as reported   $ (16,836 )   $ (12,506 )
Depreciation expense   2,117     2,711  
Interest expense, net   9,171     7,416  
Income tax benefit   (753 )   (3,474 )
EBITDA   (6,301 )   (5,853 )
Non-GAAP adjustments (a)   2,043     (48 )
Adjusted EBITDA   $ (4,258 )   $ (5,901 )
 
(a) Refer to "Reconciliation of Reported Net Loss to Adjusted Non-GAAP Net Loss" table for additional details on these amounts.
* 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) Income to Adjusted Non-GAAP Net (Loss) Income:   Successor     Predecessor
(Dollars in thousands)   Year Ended
December 31, 2018
  September 1, 2017 through
December 31, 2017
*As Adjusted
    January 1, 2017
through 
August 31, 2017
*As Adjusted
Unaudited        
Net (loss) income, as reported   $ (37,145 )   $ (13,327 )     $ 36,190  
Non-GAAP adjustments:              
Reorganization items, net(a)       2,141       (74,531 )
Noncash compensation expense   2,784     866       630  
Foreign exchange loss (gain) on intercompany loans   770     (1,667 )     (4,457 )
Unrealized gain on embedded debt conversion option       (2,352 )     146  
Non-GAAP adjustments to arrive at Adjusted EBITDA   3,554     (1,012 )     (78,212 )
Non-cash interest expense(b)   21,662     5,823       3,810  
Total non-GAAP adjustments   25,216     4,811       (74,402 )
Tax effect of adjustments              
Adjusted non-GAAP net loss   $ (11,929 )   $ (8,516 )     $ (38,212 )
               
(a) During the pendency of the Company's chapter 11 cases, expenses and income directly associated with the chapter 11 proceedings were reported separately in reorganization items, net in the Company’s Consolidated Statements of Operations.
(b) Non-cash interest expense for the year ended December 31, 2018 includes interest paid in kind of $13,502 and amortization of debt discount of $8,160. Non-cash interest expense for the period September 1, 2017 through December 31, 2017 includes interest paid in kind of $3,865 and amortization of debt discount of $1,958. Non-cash interest expense for the period January 1, 2017 through August 31, 2017 includes and amortization of debt discount of $3,810.
* 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 Adjusted Non-GAAP Net Loss:   Successor
(Dollars in thousands)   Three Months
Ended 
December 31, 2018
  Three Months
Ended 
December 31, 2017

*As Adjusted
Unaudited    
Net loss, as reported   $ (16,836 )   $ (12,506 )
Non-GAAP adjustments:        
Reorganization items, net(a)       2,013  
Noncash compensation expense   721     651  
Foreign exchange loss (gain) on intercompany loans   1,322     (360 )
Unrealized gain on embedded debt conversion option       (2,352 )
Non-GAAP adjustments to arrive at Adjusted EBITDA   2,043     (48 )
Non-cash interest expense(b)   6,145     4,799  
Total non-GAAP adjustments   8,188     4,751  
Tax effect of adjustments        
Adjusted non-GAAP net loss   $ (8,648 )   $ (7,755 )
         
(a) During the pendency of the Company's chapter 11 cases, expenses and income directly associated with the chapter 11 proceedings were reported separately in reorganization items, net in the Company’s Consolidated Statements of Operations.
(b) Non-cash interest expense for the three months ended December 31, 2018 includes interest paid in kind of $3,747 and amortization of debt discount of $2,398. Non-cash interest expense for the three months ended December 31, 2017 includes interest paid in kind of $2,914 and amortization of debt discount of $1,885.
* 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."


   
CONSOLIDATED BALANCE SHEETS Successor
(Dollars in thousands, except par value data) December 31,
 2018
  December 31,
 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 8,668     $ 11,104  
Accounts receivable, less allowances of $1,364 and $1,586, respectively 79,757     74,370  
Inventories 160,686     154,491  
Prepaid expenses and other current assets 14,344     12,274  
Income tax receivable 1,268     1,576  
Total current assets 264,723     253,815  
Goodwill and intangible assets, net 8,176     8,176  
Prepaid pension cost 1,754     10,745  
Deferred income taxes 1,261     1,278  
Other noncurrent assets 1,278     1,344  
Property, plant and equipment:      
Land 5,577     5,581  
Buildings 21,218     21,296  
Machinery and equipment 38,394     33,011  
Property, plant and equipment, at cost 65,189     59,888  
Accumulated depreciation (11,989 )   (2,961 )
Property, plant and equipment, net 53,200     56,927  
Total assets $ 330,392     $ 332,285  
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY      
Current liabilities:      
Accounts payable $ 42,719     $ 41,757  
Accrued payroll and employee benefits 11,307     7,963  
Accrued and other current liabilities 5,324     5,968  
Income tax payable 1,589     262  
Short-term borrowings 5,498     5,854  
Current portion of long-term debt 119     118  
Total current liabilities 66,556     61,922  
Long-term debt, less current portion 246,027     199,903  
Deferred income taxes 7,540     16,166  
Build-to-suit liability 9,975     10,148  
Other noncurrent liabilities 3,334     3,784  
Pension and postretirement benefit obligations 6,321     6,377  
Commitments and contingencies      
Stockholders’ (deficit) equity:      
Common stock, $0.01 par value—200,000 Class A shares authorized with 3,803 shares issued and outstanding at December 31, 2018 and 3,734 shares issued and outstanding at December 31, 2017 38     37  
Additional paid-in capital 55,421     49,944  
Accumulated deficit (50,472 )   (13,327 )
Accumulated other comprehensive loss (14,348 )   (2,669 )
Total stockholders’ (deficit) equity (9,361 )   33,985  
Total liabilities and stockholders’ (deficit) equity $ 330,392     $ 332,285  


A.M. Castle & Co.
Consolidated Statements of Cash Flows
  Successor     Predecessor
  Year Ended
December 31, 2018
  September 1, 2017
through
December 31, 2017
    January 1, 2017
through 
August 31, 2017
(Dollars in thousands)      
Operating activities:            
Net (loss) income $ (37,145 )   $ (13,327 )     $ 36,190  
Adjustments to reconcile net (loss) income to net cash used in operating activities:            
Depreciation and amortization 9,082     3,213       10,150  
Amortization of deferred financing costs and debt discount 8,160     1,958       3,810  
Unrealized (gain) loss on embedded debt conversion option     (2,352 )     146  
Noncash interest paid in kind 13,502     3,865        
Noncash reorganization items, net           (87,107 )
Loss on sale of property, plant & equipment 64     26       7  
Unrealized foreign currency transaction loss (gain) 580     (1,709 )     (4,439 )
Deferred income taxes (7,071 )   (3,437 )     (953 )
Non-cash compensation expense 2,784     866       630  
Other, net 631     634       537  
Changes in assets and liabilities:            
Accounts receivable (6,100 )   (2,205 )     (6,061 )
Inventories (7,730 )   (1,978 )     (2,703 )
Prepaid expenses and other current assets (2,955 )   752       (3,100 )
Other noncurrent assets 740     324       1,664  
Prepaid pension costs (2,717 )   (1,395 )     (849 )
Accounts payable 1,370     (4,548 )     8,602  
Accrued payroll and employee benefits 3,453     945       (2,670 )
Income tax payable and receivable 1,624     (828 )     (340 )
Accrued and other current liabilities (1,120 )   (773 )     (3,332 )
Postretirement benefit obligations and other noncurrent liabilities (933 )   (585 )     (471 )
Net cash used in operating activities (23,781 )   (20,554 )     (50,289 )
Investing activities:            
Capital expenditures (5,687 )   (3,742 )     (2,850 )
Proceeds from sale of property, plant and equipment 77     31       619  
Cash collateralization of letters of credit           7,492  
Net cash (used in) from investing activities (5,610 )   (3,711 )     5,261  
Financing activities:            
Short-term borrowings, net (115 )   1,720       3,797  
Proceeds from long-term debt including credit facilities 49,954     22,973       195,026  
Repayments of long-term debt including credit facilities (21,130 )   (25 )     (175,414 )
Payments of debt issue costs (499 )         (1,831 )
Payments of build-to-suit liability (897 )         (3,000 )
Net cash from financing activities 27,313     24,668       18,578  
Effect of exchange rate changes on cash and cash equivalents (358 )   637       890  
Net change in cash and cash equivalents (2,436 )   1,040       (25,560 )
Cash and cash equivalents—beginning of period 11,104     10,064       35,624  
Cash and cash equivalents—end of period $ 8,668     $ 11,104       $ 10,064  


   
LONG-TERM DEBT Successor
(Dollars in thousands) December 31,
 2018
  December 31,
 2017
       
5.00% / 7.00% Second Lien Notes due August 31, 2022 $ 180,894     $ 168,767  
Floating rate Revolving A Credit Facility due February 28, 2022 108,488     101,047  
12.00% Revolving B Credit Facility due February 28, 2022 22,875      
Other, primarily capital leases 180     288  
Less: unvested restricted Second Lien Notes due August 31, 2022 (1,378 )   (2,144 )
Less: unamortized discount (64,491 )   (67,937 )
Less: unamortized debt issuance costs (422 )    
Total long-term debt 246,146     200,021  
Less: current portion of long-term debt 119     118  
Total long-term portion $ 246,027     $ 199,903  

For Further Information:

Ed Quinn
+1 (847) 455-7111
Email: Inquiries@amcastle.com