Notes to Consolidated Financial Statements
(Amounts in thousands except par value and per share data)
(1) Basis of Presentation and Significant Accounting Policies
Nature of operations — A.M. Castle & Co. and its subsidiaries (the “Company”) is a specialty metals distribution company serving customers on a global basis. The Company has operations in the United States, Canada, Mexico, France, Spain, China and Singapore. The Company provides a broad range of products and value-added processing and supply chain services to a wide array of customers. The Company's customers are principally within the producer durable equipment, aerospace, heavy industrial equipment, industrial goods, construction equipment, and retail sectors of the global economy. Particular focus is placed on the aerospace and defense, power generation, mining, heavy industrial equipment, and general manufacturing industries, as well as general engineering applications.
The Company’s corporate headquarters is located in Oak Brook, Illinois. The Company has 19 operational service centers located throughout North America (15), Europe (2) and Asia (2).
The Company purchases metals from many producers. Purchases are made in large lots and held in distribution centers until sold, usually in smaller quantities and often with value-added processing services performed. Orders are primarily filled with materials shipped from the Company's stock. The materials required to fill the balance of sales are obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. Thousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization.
Basis of presentation — The consolidated financial statements included herein and the notes thereto have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), and accounting principles generally accepted in the United States of America (“U.S. GAAP”). This report contains consolidated financial statements of the Company as of and for the years ended December 31, 2019 and December 31, 2018.
The accompanying consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for a reasonable period of time. The Company's principal source of liquidity is cash flows from operations and borrowings under its asset-based revolving credit facilities.
Use of estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of estimation reflected in the consolidated financial statements are accounts receivable allowances, inventory reserves, the valuation of goodwill and intangible assets, the valuation of deferred income taxes, the fair value of the Company's Convertible Senior Secured Paid-in-Kind ("PIK") Toggle Notes due 2022 (the “Second Lien Notes”) and Revolving B Credit Facility (defined at Note 2 - Debt, in the Notes to the Consolidated Financial Statements), pension and other post-employment benefits, and share-based compensation.
Revenue recognition — Revenue from the sale of products is recognized when control of the product has transferred to the customer, which is primarily at the time of shipment to the customer. Revenue recognized other than at the time of shipment represented less than 1% of the Company’s consolidated net sales in both the year ended December 31, 2019 and the year ended December 31, 2018. Customer payment terms are established prior to the time of shipment. Provisions for allowances related to sales discounts and rebates are recorded based on terms of the sale in the period that the sale is recorded. Management utilizes historical information and the current sales trends of the business to estimate such provisions. The provisions related to discounts and rebates due to customers are recorded as a reduction within net sales.
Revenue from shipping and handling charges is recorded in net sales. Costs incurred in connection with shipping and handling the Company’s products, which are related to third-party carriers or performed by Company personnel, are included in warehouse, processing and delivery expenses. In the year ended December 31, 2019 and the year ended December 31, 2018, shipping and handling costs included in warehouse, processing and delivery expenses were $23,807 and $26,704, respectively. The Company accounts for shipping and handling activities as fulfillment costs and not a promised good or service.
The Company maintains an allowance for doubtful accounts related to the potential inability of customers to make required payments. The allowance for doubtful accounts is maintained at a level considered appropriate based on historical experience and specific identification of customer receivable balances for which collection is unlikely. The provision for doubtful accounts is recorded in sales, general and administrative expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. Estimates of doubtful accounts are based on historical write-off experience as a percentage of net sales and judgments about the probable effects of economic conditions on certain customers.
The Company also maintains an allowance for credit memos for estimated credit memos to be issued against current sales. Estimates of allowance for credit memos are based upon the application of a historical issuance lag period to the average credit memos issued each month.
Accounts receivable allowance for doubtful accounts and credit memos activity is presented in the table below:
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December 31,
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2019
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2018
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Balance, beginning of period
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$
|
1,364
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|
|
$
|
1,586
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|
|
Add Provision charged to expense(a)
|
472
|
|
|
379
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|
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Recoveries
|
19
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|
|
44
|
|
|
Less Charges against allowance
|
(89)
|
|
|
(645)
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Balance, end of period
|
$
|
1,766
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|
|
$
|
1,364
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|
(a) Includes the net amount of credit memos reserved and issued.
The Company does not incur significant incremental costs when obtaining customer contracts and any costs that are incurred are generally not recoverable from its customers. Substantially all of the Company's customer contracts are for a duration of less than one year and individual customer purchase orders for contractual customers are fulfilled within one year of the purchase order date. The Company recognizes incremental costs of obtaining a contract, if any, as an expense when incurred if the amortization period of the asset would have been one year or less. The Company does not have any costs to obtain a contract that are capitalized.
Information regarding the disaggregation of the Company's revenue by geographic region can be found at Note 10 — Segment Reporting.
Cost of materials — Cost of materials consists of the costs the Company pays for metals and related inbound and transfer freight charges. It excludes depreciation, which is discussed below.
Operating expenses — Operating costs and expenses primarily consist of:
•Warehouse, processing and delivery expenses, including occupancy costs, compensation and employee benefits for warehouse personnel, processing, shipping and handling costs;
•Sales expenses, including compensation and employee benefits for sales personnel;
•General and administrative expenses, including compensation for executive officers and general management, expenses for professional services primarily attributable to accounting and legal advisory services, bad debt expenses, data communication costs, computer hardware and maintenance expenses and occupancy costs for non-warehouse locations; and
•Depreciation includes depreciation for all property, plant and equipment.
Cash equivalents — Cash equivalents are highly liquid, short-term investments that have an original maturity of 90 days or less.
Statement of cash flows — Non-cash investing and financing activities and supplemental disclosures of consolidated cash flow information are as follows:
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December 31,
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2019
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2018
|
|
Non-cash investing and financing activities:
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Capital expenditures financed by accounts payable
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$
|
27
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|
|
$
|
115
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|
Reclassification of interest paid in kind to additional
paid in capital (Note 5)
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3,547
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3,430
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Cash paid during the period for:
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Interest
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7,075
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|
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5,110
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Income taxes
|
1,647
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|
|
866
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|
Cash received during the period for:
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Income tax refunds
|
952
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|
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37
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|
Inventories — Inventories consist primarily of finished goods. All of the Company's operations use the average cost method in determining the cost of inventory.
The Company maintains an allowance for excess and obsolete inventory. The excess and obsolete inventory allowance is determined through the specific identification of material, adjusted for expected scrap value to be received, based on previous sales experience.
Excess and obsolete inventory allowance activity is presented in the table below:
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December 31,
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2019
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2018
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|
Balance, beginning of period
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$
|
3,274
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|
|
$
|
1,680
|
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|
Adjustments to provision
|
1,967
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|
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3,612
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Charges against allowance
|
(1,085)
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|
|
(2,018)
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Balance, end of period
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$
|
4,156
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|
|
$
|
3,274
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|
Property, plant and equipment — Property, plant and equipment are stated at cost and include assets held under capital leases. Expenditures for major additions and improvements are capitalized, while maintenance and repair costs that do not substantially improve or extend the useful lives of the respective assets are expensed in the period in which they are incurred. When items are disposed, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.
The Company provides for depreciation of plant and equipment sufficient to amortize the cost over their estimated useful lives as follows:
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Buildings and building improvements
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5 – 40 years
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Plant equipment
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5 – 20 years
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|
Furniture and fixtures
|
2 – 10 years
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|
Vehicles and office equipment
|
3 – 10 years
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Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the lease. Depreciation is calculated using the straight-line method. Depreciation expense in the year ended December 31, 2019 and the year ended December 31, 2018 was $8,759 and $9,082, respectively.
Long-lived assets — The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset or asset group. If future net cash flows are less than the carrying value, the asset or asset group may be impaired. If such assets are impaired, the impairment charge is calculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired
asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. The Company derives the required undiscounted cash flow estimates from historical experience and internal business plans.
Goodwill and intangible assets — As of both December 31, 2019 and December 31, 2018, the Company had recorded goodwill with a carrying value of $2,676, none of which is tax deductible. There was no change in the carrying value of goodwill recognized in the year ended December 31, 2019. The Company's other intangible asset is comprised of an indefinite-lived trade name, which is not subject to amortization. The gross carrying value of the trade name intangible asset was $5,500 at both December 31, 2019 and December 31, 2018.
The Company tests goodwill for impairment at the reporting unit level on an annual basis at December 1 of each year or more frequently if a significant event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company assesses, at least quarterly, whether any events or circumstances have significantly changed which may imply that the carrying amount of its one reporting unit's goodwill is in excess of its fair value. Based on the results of the Company's goodwill impairment testing it has recorded no impairment charges in the year ended December 31, 2019 or since the goodwill was originally recognized.
The Company currently has one reporting unit. The determination of the fair value of the reporting unit requires significant estimates and assumptions to be made by management. The fair value of the reporting unit is estimated using a combination of an income approach, which estimates fair value based on a discounted cash flow analysis using historical data, estimates of future cash flows and discount rates based on the view of a market participant, and a market approach, which estimates fair value using market multiples of various financial measures of comparable public companies. In selecting the appropriate assumptions, the Company considers the following: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industry in which the Company competes; discount rates; terminal growth rates; long-term projections of future financial performance; and relative weighting of income and market approaches. The long-term projections used in the valuation are developed as part of the Company’s annual long-term planning process. The discount rates used to determine the fair values of the reporting unit is that of a hypothetical market participant which are developed based upon an analysis of comparable companies and include adjustments made to account for any individual reporting unit specific attributes such as, size and industry.
The Company's intangible asset is comprised of an indefinite-lived trade name, which is not subject to amortization. The indefinite-lived trade name intangible asset is tested for impairment on an annual basis on December 1 of each year or more frequently if significant events or changes in circumstances occur which may indicate that the carrying amount of the asset may not be recoverable, as measured by comparing carrying value to the estimated future cash flows generated by its use. An impaired asset is recorded at estimated fair value, determined principally using an income-based approach similar to the relief from royalty method used in the initial valuation of the indefinite-lived intangible asset, with the excess amount of carrying value over the fair value representing the amount of the impairment. Assumptions used in the income-based approach including projected revenues and assumed royalty rate, long-term growth and discount rates. The Company recorded no impairment charges related to its indefinite-lived trade name intangible assets in the year ended December 31, 2019 or since the intangible asset was originally recorded.
Income taxes — The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records valuation allowances against its deferred tax assets when it is more likely than not that the amounts will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and recent results of operations. In the event the Company determines it would not be able to realize its deferred tax assets, a valuation allowance is recorded, which increases the provision for income taxes in the period in which that determination is made.
During 2019, the Company's foreign assets remained pledged as collateral for certain borrowings. This continues to result in a taxable income inclusion in the U.S. of the annual earnings generated by its foreign subsidiaries. As a result of the enactment of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent
Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (also known as “The Tax Cuts and Jobs Act”) and this pledge of foreign assets, there are no remaining undistributed earnings which have not been subject to U.S. income taxation as of December 31, 2019 on which the Company would need to record any additional U.S. deferred tax liability.
For uncertain tax positions, if any, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results. As of December 31, 2019, the Company has no uncertain tax positions for which a tax or interest reserve has been recognized.
The Company recognizes interest and penalties related to unrecognized tax benefits, if any, within income tax expense. Accrued interest and penalties are included within income tax payable in the Consolidated Balance Sheets. As of December 31, 2019, the Company has accrued no interest and penalties associated with unrecognized tax benefits.
Insurance plans — The Company is a member of a group captive insurance company (the “Captive”) domiciled in Grand Cayman Island. The Captive reinsures losses related to certain of the Company’s workers’ compensation, automobile and general liability risks that occur subsequent to August 2009. Premiums are based on the Company’s loss experience and are accrued as expenses for the period to which the premium relates. Premiums are credited to the Company’s “loss fund” and earn investment income until claims are actually paid. For claims that were incurred prior to August 2009, the Company is self-insured. Self-insurance amounts are capped, for individual claims and in the aggregate, for each policy year by an insurance company. Self-insurance reserves are based on unpaid, known claims (including related administrative fees assessed by the insurance company for claims processing) and a reserve for incurred but not reported claims based on the Company’s historical claims experience and development.
The Company is self-insured up to a retention amount for medical insurance for its domestic operations. Self-insurance reserves are maintained based on incurred but not paid claims based on a historical lag.
Foreign currency — For the majority of the Company’s operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates, and income and expenses are translated using the average exchange rates for the reporting period. The currency effects of translating financial statements of the Company’s non-U.S. operations which operate in local currency environments are recorded in accumulated other comprehensive loss, a separate component of stockholders’ deficit. Transaction gains or losses resulting from foreign currency transactions have historically been primarily related to unhedged intercompany financing arrangements between the United States and Canada.
Loss per share — Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock plus outstanding common stock equivalents. Common stock equivalents consist of restricted stock awards and contingently issuable shares related to the Company’s Second Lien Notes, which are included in the calculation of weighted average shares outstanding using the if-converted method. Refer to Note 2 - Debt, for further description of the Second Lien Notes.
The following table is a reconciliation of the basic and diluted loss per common share calculations:
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December 31,
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2019
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2018
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Numerator:
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Net loss
|
$
|
(38,515)
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|
|
$
|
(37,145)
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|
|
Denominator:
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|
|
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Weighted average common shares outstanding
|
2,186
|
|
|
2,000
|
|
|
Effect of dilutive securities:
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|
|
|
|
Outstanding common stock equivalents
|
—
|
|
|
—
|
|
|
Denominator for diluted loss per share
|
2,186
|
|
|
2,000
|
|
|
|
|
|
|
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Net basic loss per common share
|
$
|
(17.62)
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|
|
$
|
(18.57)
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|
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|
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Net diluted loss per common share
|
$
|
(17.62)
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|
|
$
|
(18.57)
|
|
|
Excluded outstanding share-based awards having an anti-dilutive effect
|
1,429
|
|
|
1,803
|
|
The computation of diluted loss per common share does not include common shares issuable upon conversion of the Company’s outstanding Second Lien Notes, as they were anti-dilutive under the if-converted method.
The Second Lien Notes are convertible into shares of the Company's common stock at any time at the initial conversion price of $3.77 per share. In future periods, absent a fundamental change (as defined in the Second Lien Notes Indenture, which is described in Note 2 - Debt), the outstanding Second Lien Notes could increase diluted average shares outstanding by a maximum of approximately 51,400 shares.
Concentrations — The Company’s customer base is well diversified and, therefore, the Company does not have dependence upon any single customer or a few customers. No single customer represented more than 5% of the Company’s total net sales in either the year ended December 31, 2019 or the year ended December 31, 2018. Approximately 64% of the Company’s net sales in the year ended December 31, 2019, and 65% in the year ended December 31, 2018, were from locations in the United States.
Share-based compensation — Compensation expense related to restricted share awards made to directors, officers and employees of the Company is recognized on a straight-line basis over the vesting period based on the estimated grant date fair value of the award. The Company accounts for forfeitures as they occur. Compensation expense related to performance share unit awards made to senior level managers and other select personnel is based on management’s expectation of future performance compared to the pre-established performance goals. If the performance goals are not expected to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
New Accounting Standards
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)", which requires that lessees recognize assets and liabilities for leases with lease terms greater than 12 months in the statement of financial position. ASU No. 2016-02 also requires additional disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach, and are effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Topic 842 was subsequently amended by ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”; ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”); and ASU No. 2018-20, “Narrow-Scope Improvements for Lessors” (collectively, "ASC 842"). ASU 2018-11 provides clarity on separating components of a lease contract and includes an option to not restate comparative periods in transition and elect to use the effective date of Topic 842 as the date of initial application.
The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective approach, as required. The Company elected the transition method that allows it to apply the new standard only to leases existing at the date of initial application, January 1, 2019, and recognized the cumulative effect of initially applying the standard as an adjustment to opening retained earnings for the fiscal year beginning January 1, 2019. Consequently, financial information has not been updated and the disclosures required under the new standard have not be provided for dates and periods before January 1, 2019.
The Company has also elected the package of practical expedients permitted under the transition guidance, which among other things, allows the Company to carryforward the historical lease classification. ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company has made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet and recognize those lease payments in the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term. The Company has also elected the practical expedient to not separate lease and non-lease components for all of its real estate leases.
The adoption of ASC 842 resulted in recognition of additional operating right of use assets and lease liabilities on the Company's Consolidated Balance Sheets as of January 1, 2019 of $35,508 and $35,470, respectively. Additionally, the Company’s build-to-suit financing obligation has been classified as a finance lease liability, resulting in a $246 adjustment to the Company’s beginning accumulated deficit. The adoption of Topic 842 did not have a material effect on the Company's consolidated net loss or liquidity. The Company has reclassified certain prior year presentations to conform to the current period presentation under ASC 842. Refer to Note 4 - Leases, for further information and disclosures related to the adoption of ASC 842.
Recently Issued Account Standards Not Yet Effective
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. The Company does not expect the application of the CECL impairment model to have a significant impact on the Company's allowance for uncollectible amounts for accounts receivable. The Company will adopt the disclosure requirements of ASU No. 2016-13 in fiscal year 2020.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU No. 2018-13 amends Fair Value Measurement (Topic 820) to add, remove, and modify fair value measurement disclosure requirements. The ASU’s changes to disclosures aim to improve the effectiveness of Topic 820's disclosure requirements under the aforementioned FASB disclosure framework project. ASU No. 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. Early adoption is permitted for any eliminated or modified disclosures prescribed by the ASU. The Company will adopt the disclosure requirements of ASU No. 2018-13 in its Quarterly Report on Form 10-Q for the three-months ended March 31, 2020 and the Company expects it will have no impact on its fair value disclosures therein.
Also in August 2018, the FASB issued ASU No. 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans - General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plan.” ASU No. 2018-14 amends Compensation - Retirement Benefits (Topic 715) to add or remove certain disclosure requirements related to defined benefit pension and other postretirement plans. The ASU’s changes to disclosures aim to improve the effectiveness of Topic 715's disclosure requirements under the FASB’s disclosure framework project. ASU No. 2018-14 is effective for public entities for fiscal years beginning after December 15, 2020. ASU No. 2018-14 does not impact the interim disclosure requirements of Topic 715. Early adoption is permitted. The Company will adopt the disclosure requirements of this new guidance in fiscal year 2021.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 amends ASC 740 to simplify the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in the accounting standard under the FASB’s simplification initiative. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020. Upon adoption, the amendments in ASU 2019-12 should be applied on a prospective basis to all periods presented. Early adoption is permitted. The Company is currently assessing the impact of the adoption of the new guidance. The Company expects to adopt the new guidance under ASU 2019-12 in fiscal year 2021.
(2) Debt
Long-term debt consisted of the following:
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December 31,
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|
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2019
|
|
2018
|
|
LONG-TERM DEBT
|
|
|
|
|
5.00% / 7.00% Second Lien Notes due August 31, 2022(a)
|
193,660
|
|
|
180,894
|
|
|
Floating rate Revolving A Credit Facility due February 28, 2022
|
102,000
|
|
|
108,488
|
|
|
12.00% Revolving B Credit Facility due February 28, 2022(b)
|
25,788
|
|
|
22,875
|
|
|
Less: unvested restricted Second Lien Notes(c)
|
(323)
|
|
|
(1,378)
|
|
|
Less: unamortized discount
|
(57,313)
|
|
|
(64,491)
|
|
|
Less: unamortized debt issuance costs
|
(289)
|
|
|
(422)
|
|
|
Total long-term debt
|
$
|
263,523
|
|
|
$
|
245,966
|
|
|
Less: current portion of long-term debt
|
—
|
|
|
—
|
|
|
Total long-term portion
|
$
|
263,523
|
|
|
$
|
245,966
|
|
(a) Included in balance is interest paid in kind of $28,991 as of December 31, 2019 and $15,992 as of December 31, 2018.
(b) Included in balance is interest paid in kind of $4,288 as of December 31, 2019 and $1,375 as of December 31, 2018.
(c) Represents unvested portion of restricted Second Lien Notes issued to certain members of management (see Note 6 - Share-based compensation).
Credit Facilities
On August 31, 2017, the Company entered into the Revolving Credit and Security Agreement with PNC Bank, National Association ("PNC") as lender and as administrative and collateral agent (the “Agent”), and other lenders party thereto (the "Original ABL Credit Agreement"). The Original ABL Credit Agreement provided for a $125,000 senior secured, revolving credit facility under which the Company and four of its subsidiaries each are borrowers (collectively, in such capacity, the “Borrowers”). The obligations of the Borrowers have been guaranteed by the subsidiaries of the Company named therein as guarantors
On June 1, 2018, the Company entered into an Amendment No. 1 to the Original ABL Credit Agreement (the “Credit Agreement Amendment”) by and among the Company, the Borrowers and guarantors party thereto and the Agent and the other lenders party thereto, which amended the Original ABL Credit Agreement (as amended by the Credit Agreement Amendment, the “ABL Credit Agreement”) to provide for additional borrowing capacity.
The ABL Credit Agreement provides for an additional $25,000 last out Revolving B Credit Facility (the "Revolving B Credit Facility" and together with the Revolving A Credit Facility, the "Credit Facility"). The Credit Facility was made available in part by way of a participation in the Revolving B Credit Facility by certain of the Company’s shareholders. Borrowings under the Credit Facility will mature on February 28, 2022.
Subject to certain exceptions and permitted encumbrances, the obligations under the ABL Credit Agreement are secured by a first priority security interest in substantially all of the assets of each of the Borrowers and certain subsidiaries of the Company that are named as guarantors. The proceeds of the advances under the ABL Credit Agreement may only be used to (i) pay certain fees and expenses to the Agent and the lenders under the ABL Credit Agreement, (ii) provide for the Borrowers' working capital needs and reimburse drawings under letters of credit, (iii) repay the obligations under the Debtor-in-Possession Revolving Credit and Security Agreement dated as of July 10, 2017, by and among the Company, the lenders party thereto, and PNC, and certain other existing indebtedness, and (iv) provide for the Borrowers' capital expenditure needs, in accordance with the ABL Credit Agreement.
The Company may prepay its obligations under the ABL Credit Agreement at any time without premium or penalty, and must apply the net proceeds of material sales of collateral in prepayment of such obligations. Payments made must be applied to the Company's obligations under the Revolving A Credit Facility, if any, prior to its obligations under the Revolving B Credit Facility. In connection with an early termination or permanent reduction of the Revolving A Credit Facility prior to June 1, 2020, a 0.25% fee shall be due for the period from June 1, 2019 through May 31, 2020 on the amount of such commitment reduction, subject to reduction as set forth in the ABL Credit
Agreement. Indebtedness for borrowings under the ABL Credit Agreement is subject to acceleration upon the occurrence of specified defaults or events of default, including (i) failure to pay principal or interest, (ii) the inaccuracy of any representation or warranty of a loan party, (iii) failure by a loan party to perform certain covenants, (iv) defaults under indebtedness owed to third parties, (v) certain liability producing events relating to ERISA, (vi) the invalidity or impairment of the Agent’s lien on its collateral or of any applicable guarantee, and (vii) certain adverse bankruptcy-related and other events.
Interest on indebtedness under the Revolving A Credit Facility accrues at a variable rate based on a grid with the highest interest rate being the applicable LIBOR-based rate plus a margin of 3.0%, as set forth in the ABL Credit Agreement. Interest on indebtedness under the Revolving B Credit Facility accrues at a rate of 12.0% per annum, which will be paid in kind unless the Company elects to pay such interest in cash and the Revolving B payment conditions specified in the ABL Credit Agreement are satisfied. Additionally, the Company must pay a monthly Facility Fee equal to the product of (i) 0.25% per annum (or, if the average daily revolving facility usage is less than 50% of the maximum revolving advance amount, 0.375% per annum) multiplied by (ii) the amount by which the maximum revolving advance amount exceeds such average daily revolving facility usage for such month.
The weighted average interest rate on outstanding borrowings under the Revolving A Credit Facility for the year ended December 31, 2019 was 5.32% and the weighted average facility fee for the year was 0.25%. The Company pays certain customary recurring fees with respect to the ABL Credit Agreement. Interest expense related to the Revolving B Credit Facility of $2,913 and $1,375 was paid in kind in the years ended December 31, 2019 and December 31, 2018, respectively.
The ABL Credit Agreement includes negative covenants customary for an asset-based revolving loan. Such covenants include limitations on the ability of the Borrowers to, among other things, (i) effect mergers and consolidations, (ii) sell assets, (iii) create or suffer to exist any lien, (iv) make certain investments, (v) incur debt and (vi) transact with affiliates. In addition, the ABL Credit Agreement includes customary affirmative covenants for an asset-based revolving loan, including covenants regarding the delivery of financial statements, reports and notices to the Agent. The ABL Credit Agreement also contains customary representations and warranties and event of default provisions for a secured term loan.
The Company's ABL Credit Agreement contains a springing financial maintenance covenant requiring the Company to maintain a Fixed Charge Coverage Ratio of 1.0 to 1.0 in any Covenant Testing Period (as defined in the ABL Credit Agreement) when the Company's cash liquidity (as defined in the ABL Credit Agreement) is less than $12,500. The Company is not in a Covenant Testing Period as of December 31, 2019.
Unamortized debt issuance costs of $289 associated with the ABL Credit Agreement were recorded as a reduction in long-term debt as of December 31, 2019.
Second Lien Notes
Also on August 31, 2017, the Company entered into an indenture (the “Second Lien Notes Indenture”) with Wilmington Savings Fund Society, FSB, as trustee and collateral agent (“Indenture Agent”) and, pursuant thereto, issued approximately $164,902 in aggregate original principal amount of its Second Lien Notes, including $2,400 of restricted Second Lien Notes issued to certain members of management (see Note 6 - Share-based compensation).
The Second Lien Notes are five year senior obligations of the Company and certain of its subsidiaries, secured by a lien on all or substantially all of the assets of the Company, its domestic subsidiaries and certain of its foreign subsidiaries, which lien the Indenture Agent has agreed will be junior to the lien of the Agent under the ABL Credit Agreement. The Second Lien Notes are convertible into shares of the Company’s common stock at any time at the initial conversion price of $3.77 per share, which rate is subject to adjustment as set forth in the Second Lien Notes Indenture.
Under the Second Lien Notes Indenture, upon the conversion of the Second Lien Notes in connection with a “Fundamental Change” (as defined in the Second Lien Notes Indenture), for each $1.00 principal amount of the Second Lien Notes, that number of shares of the Company’s common stock issuable upon conversion shall equal the greater of (a) $1.00 divided by the then applicable conversion price or (b) $1.00 divided by the price paid per share of the Company's common stock in connection with such Fundamental Change calculated in accordance with the Second Lien Notes Indenture, subject to other provisions of the Second Lien Notes Indenture. Subject to certain exceptions, under the Second Lien Notes Indenture a “Fundamental Change” includes, but is not limited to, the following: (i) the acquisition of more than 50% of the voting power of the Company’s common equity by a “person” or “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended; (ii) the consummation of any recapitalization, reclassification, share exchange, consolidation or merger of the Company
pursuant to which the Company’s common stock will be converted into cash, securities or other property; (iii) the “Continuing Directors” (as defined in the Second Lien Notes Indenture) cease to constitute at least a majority of the board of directors; and (iv) the approval of any plan or proposal for the liquidation or dissolution of the Company by the Company’s stockholders.
Upon conversion, the Company will pay and/or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, together with cash in lieu of fractional shares. The value of shares of the Company’s common stock for purposes of the settlement of the conversion right, if the Company elects to settle in cash, will be calculated as provided in the Second Lien Notes Indenture, using a 20 trading day observation period.
The Second Lien Notes are guaranteed, jointly and severally, by certain subsidiaries of the Company. The Second Lien Notes and the related guarantees are secured by a lien on substantially all of the Company’s and the guarantors’ assets, subject to certain exceptions pursuant to certain collateral documents entered by the Company and the guarantors in connection with Second Lien Notes Indenture. The terms of the Second Lien Notes contain numerous covenants imposing financial and operating restrictions on the Company’s business. These covenants place restrictions on the Company’s ability and the ability of its subsidiaries to, among other things, pay dividends, redeem stock or make other distributions or restricted payments; incur indebtedness or issue certain stock; make certain investments; create liens; agree to certain payment restrictions affecting certain subsidiaries; sell or otherwise transfer or dispose assets; enter into transactions with affiliates; and enter into sale and leaseback transactions.
The Second Lien Notes may not be redeemed by the Company in whole or in part at any time, except the Company may be required to make an offer to purchase Second Lien Notes using the proceeds of certain material asset sales involving the Company or one of its restricted subsidiaries, as described more particularly in the Second Lien Notes Indenture. In addition, if a Fundamental Change occurs at any time, each holder of any Second Lien Notes has the right to require the Company to repurchase such holder’s Second Lien Notes for cash at a repurchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon, subject to certain exceptions.
The Company must use the excess proceeds of material sales of collateral to make an offer of repurchase to holders of the Second Lien Notes. Indebtedness for borrowings under the Second Lien Notes Indenture is subject to acceleration upon the occurrence of specified defaults or events of default, including failure to pay principal or interest, the inaccuracy of any representation or warranty of any obligor under the Second Lien Notes, failure by an obligor under the Second Lien Notes to perform certain covenants, the invalidity or impairment of the Indenture Agent’s lien on its collateral or of any applicable guarantee, and certain adverse bankruptcy-related and other events.
Indebtedness for borrowings under the Second Lien Notes Indenture is subject to acceleration upon the occurrence of specified defaults or events of default, including failure to pay principal or interest, the inaccuracy of any representation or warranty of any obligor under the Second Lien Notes, failure by an obligor under the Second Lien Notes to perform certain covenants, the invalidity or impairment of the Indenture Agent’s lien on its collateral or of any applicable guarantee, and certain adverse bankruptcy-related and other events.
Interest on the Second Lien Notes accrues at the rate of 5.00% if paid in cash and 7.00% if paid in kind. Pursuant to the terms of the Second Lien Notes Indenture, the Company is currently paying interest on the Second Lien Notes in kind. Interest expense of $12,999 and $12,127 was paid in kind for the years ended December 31, 2019 and December 31, 2018, respectively.
Upon satisfaction of certain conditions more particularly described in the Second Lien Notes Indenture, including the deposit in trust of cash or securities sufficient to pay the principal of and interest and any premium on the Second Lien Notes, the Company may effect a covenant defeasance of certain of the covenants imposing financial and operating restrictions on the Company’s business. In addition, and subject to certain exceptions as more particularly described in the Second Lien Notes Indenture, the Company may amend, supplement or waive provisions of the Second Lien Notes Indenture with the consent of holders representing a majority in aggregate principal amount of the Second Lien Notes, and may in effect release collateral from the liens securing the Second Lien Notes with the consent of holders representing 66-2/3% in aggregate principal amount of the Second Lien Notes.
As of December 31, 2019, all of the Company's principal and interest paid in kind related to its long-term debt matures and is payable in fiscal year 2022. The Company has no other required long-term debt payments within the next five years or thereafter.
Short-term borrowings
The Company's French subsidiary is party to a local credit facility under which it may borrow against 100% of the eligible accounts receivable factored, with recourse, up to €6,500. The French subsidiary is charged a factoring fee of 0.16% of the gross amount of accounts receivable factored. Local currency borrowings on the French subsidiary's credit facility are charged interest at the daily 3-months Euribor rate plus a 1.0% margin and U.S dollar borrowings on the credit facility are 3-months LIBOR plus a 1.0% margin. The French subsidiary utilizes the local credit facility to support its operating cash needs. As of December 31, 2019 and December 31, 2018, the French subsidiary has borrowings of $2,888 and $5,498 under the local credit facility, respectively.
(3) Fair Value Measurements
The three-tier value hierarchy the Company utilizes, which prioritizes the inputs used in the valuation methodologies, is:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
The fair value of cash, accounts receivable and accounts payable approximate their carrying values. The fair value of cash equivalents is determined using the fair value hierarchy described above.
The Company’s pension plan asset portfolio as of December 31, 2019 and December 31, 2018 is primarily invested in fixed income securities, which generally fall within Level 2 of the fair value hierarchy. Fixed income securities in the pension plan asset portfolio are valued based on evaluated prices provided to the trustee by independent pricing services. Such prices may be determined by factors which include, but are not limited to, market quotations, yields, maturities, call features, ratings, institutional size trading in similar groups of securities and developments related to specific securities. Refer to Note 7 - Employee Benefit Plans for pension fair value disclosures.
Fair Value Measurements of Debt
As of December 31, 2019, the fair value of the Company's Second Lien Notes, including the conversion option, was estimated to be $136,085 compared to a carrying value of $193,660. As of December 31, 2018, the fair value of the Company's Second Lien Notes, including the conversion option, was estimated to be $174,063 compared to a carrying value of $180,894.The fair values for the Second Lien Notes, including the conversion option, falls within Level 3 of the fair value hierarchy and was determined using a binomial lattice model using assumptions based on market information and historical data, and a review of prices and terms available for similar debt instruments that do not contain a conversion feature, as well as other factors related to the callable nature of the Second Lien Notes.
The main inputs and assumptions into the fair value model for the Second Lien Notes at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
1.61
|
%
|
|
Credit spreads
|
|
22.86
|
%
|
|
PIK premium spread
|
|
2.00
|
%
|
|
Volatility
|
|
50.00
|
%
|
As of December 31, 2019, the fair value of the Company's Revolving B Credit Facility was estimated to be $25,082 compared to a carrying value of $25,788. As of December 31, 2018, the fair value of the Company's Revolving B Credit Facility was estimated to be $22,124 compared to a carrying value of $22,875. The fair value of the Revolving B Credit Facility was estimated based on a model that discounted future principal and interest payments at interest rates available to the Company at the end of the period for similar debt of the same maturity, which is a Level 2 input as defined by the fair value hierarchy.
Given the nature and the variable interest rates, the fair value of borrowings under the Revolving A Credit Facility and the French subsidiary's foreign line of credit approximated the carrying value at December 31, 2019.
(4) Lease Agreements
The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective approach. Refer to Note - 1 Basis of Presentation and Significant Accounting Policies for additional information regarding the adoption of ASC 842.
The Company has operating and finance leases covering primarily warehouse and office facilities and equipment, with the lapse of time as the basis for all rental payments. The Company determines if an arrangement is a lease at inception.
Operating right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. In determining the estimated present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, with consideration given to the Company's recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the Company's incremental borrowing rates.
The ROU assets also include any lease payments made and are reduced by any lease incentives received. The Company’s lease terms may include options to extend or not terminate the lease when it is reasonably certain that it will exercise any such options. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized in operating loss on a straight-line basis over the expected lease term.
Real estate leases of warehouse and office facilities are the most significant leases held by the Company. For these leases, the Company has elected the practical expedient permitted under ASC 842 to account for the lease and non-lease components as a single lease component. As a result, non-lease components, such as common area maintenance charges, are accounted for as a single lease element. The Company’s remaining operating leases are primarily comprised of leases of copiers, vehicles, and other warehouse equipment.
Certain of the Company’s operating lease agreements include variable payments that are passed through by the landlord, such as insurance, taxes, and common area maintenance, payments based on the usage of the asset, and rental payments adjusted periodically for inflation. Pass-through charges, payments due to changes in usage of the asset, and payments due to changes in indexation are included within variable rent expense.
As a result of the adoption of ASC 842, the Company's build-to-suit liability recognized under the previous guidance was reclassified to a finance leases liability in the Consolidated Balance Sheet and is presented as such as of December 31, 2019.
None of the Company's lease agreements contain significant residual value guarantees, restrictions, or covenants.
Lease-related assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification on the Balance Sheet
|
|
December 31, 2019
|
|
ASSETS
|
|
|
|
|
Operating lease assets
|
Operating right-of-use assets
|
|
$
|
29,423
|
|
|
Finance lease assets
|
Property, plant and equipment, net
|
|
10,293
|
|
|
Total lease assets
|
|
|
$
|
39,716
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating
|
Operating lease liabilities
|
|
$
|
6,537
|
|
|
Finance
|
Current portion of finance leases
|
|
596
|
|
|
Noncurrent
|
|
|
|
|
|
Operating
|
Noncurrent operating lease liabilities
|
|
22,760
|
|
|
Finance
|
Finance leases, less current portion
|
|
8,208
|
|
|
Total liabilities
|
|
|
$
|
38,101
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
Operating leases
|
5.5
|
|
Finance leases
|
10.9
|
|
Weighted average discount rate
|
|
|
Operating leases
|
5.2
|
%
|
|
Finance leases
|
4.7
|
%
|
Lease-related expenses were as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Finance lease expense:
|
|
|
Amortization of finance lease assets
|
$
|
1,046
|
|
|
Interest on finance lease liabilities
|
424
|
|
|
Operating lease expense
|
8,551
|
|
|
Variable lease expense
|
612
|
|
|
Short-term lease expense
|
34
|
|
|
Sublease income (1)
|
(744)
|
|
|
Total lease expense
|
$
|
9,923
|
|
(1) Relates primarily to one property subleased through September 2020.
Lease-related supplemental cash flow information was as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows for operating leases
|
(8,633)
|
|
|
Operating cash for finance leases
|
(424)
|
|
|
Financing cash flows for finance leases
|
(611)
|
|
|
Lease obligations obtained in exchange for right-of-use assets:
|
|
|
|
Operating leases
|
1,713
|
|
Maturities of lease liabilities as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31:
|
Finance Leases
|
|
|
Operating Leases
|
|
|
2020
|
$
|
991
|
|
|
$
|
7,716
|
|
|
2021
|
955
|
|
|
7,042
|
|
|
2022
|
975
|
|
|
6,010
|
|
|
2023
|
992
|
|
|
4,860
|
|
|
2024
|
1,012
|
|
|
2,176
|
|
|
Later years
|
6,365
|
|
|
5,866
|
|
|
Total lease payments
|
11,290
|
|
|
33,670
|
|
|
Less: imputed interest
|
(2,486)
|
|
|
(4,373)
|
|
|
Total lease obligations
|
$
|
8,804
|
|
|
$
|
29,297
|
|
Comparable future minimum rental payments under leases that have initial or remaining non-cancelable lease terms in excess of one year as previously disclosed under Account Standards Codification No. 840, (Leases) ("ASC 840") as of December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
Built-to-Suit Lease
|
|
2019
|
$
|
119
|
|
|
$
|
7,882
|
|
|
$
|
915
|
|
|
2020
|
56
|
|
|
7,398
|
|
|
933
|
|
|
2021
|
2
|
|
|
6,414
|
|
|
952
|
|
|
2022
|
2
|
|
|
5,702
|
|
|
971
|
|
|
2023
|
1
|
|
|
4,828
|
|
|
990
|
|
|
Later years
|
—
|
|
|
8,068
|
|
|
7,461
|
|
|
Total future minimum rental payments
|
$
|
180
|
|
|
$
|
40,292
|
|
|
$
|
12,222
|
|
Total rental payments charged to expense under ASC 840 were $8,377 in the year ended December 31, 2018.
(5) Stockholders' Equity
Reclassification of interest paid in kind to additional paid in capital
The Company has classified the fair value of the conversion option associated with its Second Lien Notes as additional paid-in capital. Similarly, the interest paid-in kind attributable to the fair value conversion option of the Second Lien Notes is classified as additional paid-in capital. Interest paid-in kind attributable to the fair value of the conversion option recognized as additional paid-in capital was $3,547 in the year ended December 31, 2019, net of the tax impact of $1,086, and $3,430, net of the tax impact of $1,208, in the year ended December 31, 2018.
Accumulated Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Unrecognized pension and postretirement costs, net of tax
|
$
|
(7,071)
|
|
|
$
|
(9,153)
|
|
|
Foreign currency translation losses, net of tax
|
(6,303)
|
|
|
(5,195)
|
|
|
Total accumulated other comprehensive loss, net of tax
|
$
|
(13,374)
|
|
|
$
|
(14,348)
|
|
Changes in accumulated other comprehensive (loss) income by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension and Postretirement Items
|
|
|
|
Foreign Currency Items
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Beginning Balance
|
$
|
(9,153)
|
|
|
$
|
34
|
|
|
$
|
(5,195)
|
|
|
$
|
(2,703)
|
|
|
$
|
(14,348)
|
|
|
$
|
(2,669)
|
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
1,990
|
|
|
(9,187)
|
|
|
(1,108)
|
|
|
(2,492)
|
|
|
882
|
|
|
(11,679)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (a)
|
92
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92
|
|
|
—
|
|
|
Net current period other comprehensive income (loss)
|
2,082
|
|
|
(9,187)
|
|
|
(1,108)
|
|
|
(2,492)
|
|
|
974
|
|
|
(11,679)
|
|
|
Ending Balance
|
$
|
(7,071)
|
|
|
$
|
(9,153)
|
|
|
$
|
(6,303)
|
|
|
$
|
(5,195)
|
|
|
$
|
(13,374)
|
|
|
$
|
(14,348)
|
|
(a) See reclassifications from accumulated other comprehensive loss table below for details of reclassification from accumulated other comprehensive loss for the years ended December 31, 2019 and December 31, 2018.
Reclassifications from accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Unrecognized pension and postretirement benefit items:
|
|
|
|
|
Prior service credit
|
$
|
(2)
|
|
|
$
|
—
|
|
|
Actuarial loss
|
94
|
|
|
—
|
|
|
Total before tax
|
92
|
|
|
—
|
|
|
Tax effect
|
—
|
|
|
—
|
|
|
Total reclassifications for the period, net of tax(a)
|
$
|
92
|
|
|
$
|
—
|
|
(a) The total reclassifications for the period are included in other income, net.
(6) Share-based Compensation
Provisions governing the Company's share-based compensation awards are included in the A.M. Castle & Co. 2017 Management Incentive Plan (the “MIP”), which became effective on August 31, 2017. The Board of Directors (the "Board") or a committee thereof (either, in such capacity, the “Administrator”) administers the MIP. The Administrator has broad authority under the MIP, among other things, to: (i) select participants; (ii) determine the terms and conditions, not inconsistent with the MIP, of any award granted under the MIP; (iii) determine the number of shares of the Company’s common stock to be covered by each award granted under the MIP; and (iv) determine the fair market value of awards granted under the MIP.
Persons eligible to receive awards under the MIP include officers, directors and employees of the Company and its subsidiaries. The types of awards that may be granted under the MIP include Second Lien Notes, stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other forms of cash or share-based awards.
The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the MIP (including shares initially convertible as a result of conversion of Second Lien Notes issued pursuant to the MIP) is 3,952, which number may be increased with the approval of the Company’s shareholders. If any outstanding award granted under the MIP expires or is terminated or canceled without having been exercised or settled in full, or if shares of the Company's common stock acquired pursuant to an award subject to forfeiture are
forfeited, the shares of the Company’s common stock allocable to the terminated portion of such award or such forfeited shares will revert to the MIP and will be available for grant under the MIP as determined by the Administrator, subject to certain restrictions.
As is customary in management incentive plans of this nature, in the event of any change in the outstanding shares of the Company’s common stock by reason of a stock split, stock dividend or other non-recurring dividends or distributions, recapitalization, merger, consolidation, spin-off, combination, repurchase or exchange of stock, reorganization, liquidation, dissolution or other similar corporate transaction, an equitable adjustment will be made in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the MIP. Such adjustment may include an adjustment to the maximum number and kind of shares of stock or other securities or other equity interests as to which awards may be granted under the MIP, the number and kind of shares of stock or other securities or other equity interests subject to outstanding awards and the exercise price thereof, if applicable.
Restricted Shares
The Board has issued restricted shares of the Company's common stock ("Restricted Shares") and restricted Second Lien Notes (the "Restricted Notes") to certain officers of the Company, as well as Restricted Shares to certain members of the Board. The aggregate principal amount of Restricted Notes outstanding as of December 31, 2019 was $2,300. The Restricted Notes outstanding were convertible into an additional 610 shares of the Company's common stock as of December 31, 2019.
The Restricted Shares and Restricted Notes granted to certain officers of the Company on September 1, 2017 cliff vest three years from the date of grant, subject to the conditions set forth in the MIP.
The Restricted Shares granted to certain members of the Board on April 25, 2018 cliff vested one year from the date of grant, subject to the conditions set forth in the MIP. The grant date fair value of the Restricted Shares was based on the market price of the Company's common stock on the date of grant.
The following table summarizes the activity relating to the Company's Restricted Shares for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Beginning Balance
|
1,803
|
|
|
$
|
3.19
|
|
|
Granted
|
15
|
|
|
1.77
|
|
|
Forfeited
|
(168)
|
|
|
3.14
|
|
|
Vested
|
(221)
|
|
|
3.52
|
|
|
Ending Balance
|
1,429
|
|
|
3.13
|
|
|
Expected to vest after December 31, 2019
|
1,429
|
|
|
3.13
|
|
Performance Share Units
The Board has granted performance share unit awards ("PSUs") under the MIP to non-executive senior level managers and other select personnel. The PSUs contain a performance-based condition tied to the enterprise value of the Company. Each PSU that vests entitles the participant to receive, at the discretion of the Company's Board, either one share of the Company's common stock or cash equal to the fair market value of one share of the Company's common stock. Vesting occurs upon achievement of a defined enterprise value of the Company, with 50% vesting upon achievement of the defined enterprise value between the performance period September 30, 2020 and September 30, 2022, and the remaining 50% vesting upon the achievement of the defined enterprise value as a result of a specified transaction, as defined in the PSU agreement, on or before September 30, 2022.
As of December 31, 2019, there were 791 PSUs outstanding.
Share-Based Compensation Expense
As of December 31, 2019, the unrecognized share-based compensation expense related to unvested Restricted Shares was $585 and the remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 0.8 years. As discussed in Note 1 - Basis of Presentation and Significant Accounting Policies, the Company has elected to account for forfeitures as they occur.
As of December 31, 2019, the unrecognized compensation expense related to the Restricted Notes was $214 and is expected to be recognized over a weighted-average period of approximately 0.7 years. The Company is recognizing this expense on a straight-line basis over the three-year vesting period using the fair value of the Restricted Notes at the issue date.
Compensation expense recognized related to the PSUs is based on management’s expectation of future performance compared to the pre-established performance goals. If the performance goals are not expected to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed. As of December 31, 2019, no compensation expense was recognized for these awards to date as the threshold for expense recognition for the performance-based condition had not been met.
Total share-based compensation expense was $2,862 for the year ended December 31, 2019 and $2,784 for the year ended December 31, 2018.
(7) Employee Benefit Plans
Pension Plans
Certain employees of the Company are covered by a Company-sponsored qualified pension plan and a supplemental non-qualified, unfunded pension plan (collectively, the “Pension Plans”). These Pension Plans are defined benefit, noncontributory plans. Benefits paid to retirees are based upon age at retirement, years of credited service and average earnings. The Company uses a December 31 measurement date for the pension plans.
The Company-sponsored pension plans are frozen for all employees except for employees represented by the United Steelworkers of America. The assets of the Company-sponsored qualified pension plan are maintained in a single trust account.
Effective January 1, 2017, the Company opened a lump-sum payout option to participants and their surviving spouses eligible to receive postretirement defined benefit pension payments under the Company-sponsored qualified pension plan. Eligible pension plan participants were provided the opportunity to elect to receive a one-time lump-sum payment equal to the actuarial equivalent present value of the participant's accrued benefit payable at the participant's normal retirement date. Pension benefit payments paid from pension plan assets under the lump-sum payout options were $3,375 and $1,931 during the years ended December 31, 2019 and December 31, 2018, respectively.
In 2018, the collective bargaining agreement was updated to provide an increase in the benefit multiplier for eligible hourly participants in the qualified pension plan, effective May 15, 2018 through September 30, 2022. As a result of this amendment, a prior service cost base was established and the impact of this plan amendment was included in the projected benefit obligation as of December 31, 2018.
The Company’s funding policy is to satisfy the minimum funding requirements of the Employee Retirement Income Security Act ("ERISA"). Based upon factors known and considered as of December 31, 2019, including the funding requirements under ERISA, the Company does not anticipate making significant cash contributions to the pension plans in 2020.
Components of net periodic pension plans benefit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Service cost
|
$
|
357
|
|
|
$
|
434
|
|
|
Interest cost
|
5,233
|
|
|
4,858
|
|
|
Expected return on assets
|
(6,124)
|
|
|
(7,883)
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
52
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension plans benefit
|
$
|
(482)
|
|
|
$
|
(2,591)
|
|
The Company expects amortization of pension prior service cost of $52 and no amortization of actuarial gain/loss for the next fiscal year.
The status of the Pension Plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Change in projected benefit obligation:
|
|
|
|
|
Projected benefit obligation at beginning of period
|
$
|
148,479
|
|
|
$
|
157,427
|
|
|
Service cost
|
357
|
|
|
434
|
|
|
Interest cost
|
5,233
|
|
|
4,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit payments
|
(12,380)
|
|
|
(10,959)
|
|
|
Actuarial loss (gain)
|
16,054
|
|
|
(3,631)
|
|
|
Plan amendment resulting from change in collective bargaining agreement
|
—
|
|
|
350
|
|
|
Projected benefit obligation at end of period
|
$
|
157,743
|
|
|
$
|
148,479
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of period
|
$
|
145,065
|
|
|
$
|
162,758
|
|
|
Actual return on assets
|
24,933
|
|
|
(7,105)
|
|
|
Employer contributions
|
384
|
|
|
371
|
|
|
Benefit payments
|
(12,380)
|
|
|
(10,959)
|
|
|
Fair value of plan assets at end of period
|
$
|
158,002
|
|
|
$
|
145,065
|
|
|
Funded status – net asset (liability)
|
$
|
259
|
|
|
$
|
(3,414)
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
Prepaid pension cost
|
$
|
5,758
|
|
|
$
|
1,754
|
|
|
Accrued liabilities
|
(390)
|
|
|
(389)
|
|
|
Pension benefit obligations
|
(5,109)
|
|
|
(4,779)
|
|
|
Net amount recognized
|
$
|
259
|
|
|
$
|
(3,414)
|
|
|
Pre-tax components of accumulated other comprehensive loss:
|
|
|
|
|
Unrecognized actuarial gain
|
$
|
8,568
|
|
|
$
|
11,322
|
|
|
Unrecognized prior service cost
|
298
|
|
|
350
|
|
|
Total
|
$
|
8,866
|
|
|
$
|
11,672
|
|
|
Accumulated benefit obligation
|
$
|
157,698
|
|
|
$
|
148,479
|
|
For the plans with an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $5,499, $5,499 and $0, respectively, at December 31, 2019, and $148,479, $148,479 and $145,065, respectively, at December 31, 2018.
The assumptions used to measure the projected benefit obligations of the Company’s Pension Plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Discount rate
|
2.99% - 3.11%
|
|
4.00% - 4.06%
|
|
Projected annual salary increases
|
3.00%
|
|
0%
|
The assumptions used to determine net periodic pension cost of the Company’s Pension Plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Discount rate
|
4.00% - 4.06%
|
|
3.51% - 3.58%
|
|
Expected long-term rate of return on plan assets
|
5.00%
|
|
5.00%
|
|
|
|
|
|
The Company’s expected long-term rate of return on plan assets is derived from reviews of asset allocation strategies and historical and anticipated future long-term performance of individual asset classes. The Company’s analysis gives consideration to historical returns and long-term, prospective rates of return.
For salaried and hourly, non-union participants, the Pension Plans were frozen in July 2008. As a result, the projected benefit obligations or net periodic pension cost are based on the accrued benefit as of that date and the Company has not used a projected annual salary increase assumption. For hourly, union participants, the accrued benefit is based on a multiplier that is pre-defined per the agreement governing the Pension Plans, which includes the accrued benefit for the participants vacation pay that is based on the participant's final hourly rate at retirement. Therefore, the projected benefit obligations or expense for hourly, union participants in the Pension Plans assumes a 3% projected annual salary increase for the year ended December 31, 2019.
The assets of the Company-sponsored qualified pension plan are allocated primarily to fixed income securities at December 31, 2019 and December 31, 2018.
The assets of the Company-sponsored qualified pension plan are managed in accordance with investment policies recommended by its investment advisor and approved by the human resources committee of the board of directors (the "Committee"). The overall target portfolio allocation is 100% fixed income securities. These funds’ conformance with style profiles and performance is monitored regularly by management, with the assistance of the Company’s investment advisor. Adjustments are typically made in the subsequent quarters when investment allocations deviate from the target range. The investment advisor provides quarterly reports to management and the Committee.
In accordance with ASU No. 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value ("NAV") per Share (or Its Equivalent)," certain of the Company's investments have been valued using the NAV per share (or its equivalent) practical expedient and are therefore not classified in the fair value hierarchy. The fair value amounts presented in these tables for the Company's investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of changes in the plan's benefit obligations and fair value of plan assets above.
The fair values of the assets of the Company-sponsored qualified pension plan fall within the following levels of the fair value hierarchy as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Fixed income securities (a)
|
$
|
8,925
|
|
|
$
|
172,293
|
|
|
$
|
—
|
|
|
$
|
181,218
|
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
8,662
|
|
|
Accounts payable – pending trades
|
|
|
|
|
|
|
(31,878)
|
|
|
Total
|
|
|
|
|
|
|
$
|
158,002
|
|
(a) Fixed income securities are comprised of corporate bonds (72%), government bonds (17%), government agency securities (1%) and other fixed income securities (10%).
The fair values of the assets of the Company-sponsored qualified pension plan fall within the following levels of the fair value hierarchy as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Fixed income securities (b)
|
$
|
9,232
|
|
|
$
|
136,778
|
|
|
$
|
—
|
|
|
$
|
146,010
|
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
7,323
|
|
|
Accounts payable – pending trades
|
|
|
|
|
|
|
(8,268)
|
|
|
Total
|
|
|
|
|
|
|
$
|
145,065
|
|
(b) Fixed income securities are comprised of corporate bonds (75%), government bonds, (17%) government agency securities (2%) and other fixed income securities (6%).
The estimated future pension benefit payments are:
|
|
|
|
|
|
|
|
2020
|
$
|
11,900
|
|
|
2021
|
10,810
|
|
|
2022
|
10,770
|
|
|
2023
|
10,180
|
|
|
2024
|
10,180
|
|
|
2024 — 2028
|
48,930
|
|
The Company was party to a multi-employer pension plan in Ohio from which it has stated its intention to withdraw. As of December 31, 2019, the total estimated liability to withdraw from the plan is $3,134. The current liability associated with the Company's withdrawal from the multi-employer pension plan of $240 is included in accrued and other current liabilities in the Consolidated Balance Sheet and the long-term liability of $2,894 is included in other noncurrent liabilities in the Consolidated Balance Sheet.
Postretirement Plan
The Company also provides declining value life insurance to its retirees and a maximum of three years of medical coverage to qualified individuals who retire between the ages of 62 and 65. The Company does not fund these benefits in advance, and uses a December 31 measurement date.
Components of net periodic postretirement plan benefit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Service cost
|
$
|
67
|
|
|
$
|
35
|
|
|
Interest cost
|
56
|
|
|
41
|
|
|
Amortization of prior service credit
|
(2)
|
|
|
—
|
|
|
Amortization of actuarial loss
|
42
|
|
|
—
|
|
|
Net periodic postretirement plan cost
|
$
|
163
|
|
|
$
|
76
|
|
The Company expects amortization of prior service cost of $2 and amortization of actuarial loss of $49 the next fiscal year.
The status of the postretirement plan was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Change in accumulated postretirement benefit obligations:
|
|
|
|
|
Accumulated postretirement benefit obligation at beginning of period
|
$
|
1,627
|
|
|
$
|
1,438
|
|
|
Service cost
|
67
|
|
|
35
|
|
|
Interest cost
|
56
|
|
|
41
|
|
|
Benefit payments
|
(22)
|
|
|
(426)
|
|
|
Actuarial loss
|
32
|
|
|
556
|
|
|
Contribution change per collective bargaining agreement
|
—
|
|
|
(17)
|
|
|
Accumulated postretirement benefit obligation at end of period
|
$
|
1,760
|
|
|
$
|
1,627
|
|
|
Funded status – net liability
|
$
|
(1,760)
|
|
|
$
|
(1,627)
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
Accrued liabilities
|
$
|
(160)
|
|
|
$
|
(85)
|
|
|
Postretirement benefit obligations
|
(1,600)
|
|
|
(1,542)
|
|
|
Net amount recognized
|
$
|
(1,760)
|
|
|
$
|
(1,627)
|
|
|
Pre-tax components of accumulated other comprehensive loss:
|
|
|
|
|
Unrecognized prior service cost
|
$
|
(15)
|
|
|
$
|
(17)
|
|
|
Unrecognized actuarial loss
|
548
|
|
|
558
|
|
|
Total
|
$
|
533
|
|
|
$
|
541
|
|
The assumed health care cost trend rates for medical plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Medical cost trend rate
|
6.75%
|
|
|
7.00%
|
|
|
Ultimate medical cost trend rate
|
4.50%
|
|
|
4.50%
|
|
|
Year ultimate medical cost trend rate will be reached
|
2030
|
|
2027
|
A 1% increase in the health care cost trend rate assumptions would have increased the accumulated postretirement benefit obligation as of December 31, 2019 by $57 with no significant impact on the annual periodic postretirement benefit cost. A 1% decrease in the health care cost trend rate assumptions would have decreased the accumulated postretirement benefit obligation as of December 31, 2019 by $53 with no significant impact on the annual periodic postretirement benefit cost.
The weighted average discount rate used to determine the net periodic postretirement benefit costs and the accumulated postretirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Net periodic postretirement benefit costs
|
3.90%
|
|
|
3.45%
|
|
|
Accumulated postretirement benefit obligations
|
2.92%
|
|
|
3.90%
|
|
Retirement Savings Plans
The Company’s retirement savings plan for U.S. employees includes features under Section 401(k) of the Internal Revenue Code. The Company provides a 401(k) matching contribution of 100% of each dollar on eligible employee contributions up to the first 3% of the employee’s pre-tax compensation, and an additional 50% of each dollar on eligible employee contributions up to the next 2% of the employee's pre-tax compensation. Each year, in addition to the employer matching contribution, the Company's Chief Executive Officer may approve a discretionary Company contribution up to 4% of eligible employee's annual pre-tax compensation. The discretionary contribution is provided as an identical percentage of each employee's annual pre-tax compensation, regardless of their individual contributions to the 401(k) program. Company contributions cliff vest after two years of employment. There was no discretionary contribution made in either the year ended December 31, 2019 or the year ended December 31, 2018.
The amounts expensed by the Company relating to its 401(k) plan and other international retirement plans were $1,672 for the year ended December 31, 2019 and $2,114 for the year ended December 31, 2018.
(8) Income Taxes
The components of (loss) income before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Domestic
|
$
|
(49,024)
|
|
|
$
|
(48,194)
|
|
|
Foreign
|
5,610
|
|
|
6,270
|
|
The income taxes benefit consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Federal
|
|
|
|
|
current
|
$
|
(99)
|
|
|
$
|
(413)
|
|
|
deferred
|
(4,834)
|
|
|
(5,000)
|
|
|
State
|
|
|
|
|
current
|
(116)
|
|
|
296
|
|
|
deferred
|
(1,189)
|
|
|
(1,761)
|
|
|
Foreign
|
|
|
|
|
current
|
1,307
|
|
|
1,986
|
|
|
deferred
|
32
|
|
|
113
|
|
|
|
$
|
(4,899)
|
|
|
$
|
(4,779)
|
|
The items accounting for differences between the income tax benefit computed at the federal statutory rate and the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Federal income tax at statutory rates
|
$
|
(9,117)
|
|
|
$
|
(8,804)
|
|
|
State income taxes, net of federal income tax benefits
|
(2,249)
|
|
|
(1,536)
|
|
|
Permanent items:
|
|
|
|
|
Foreign inclusions
|
1,104
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
Other permanent differences
|
585
|
|
|
804
|
|
|
Rate differential on foreign income
|
262
|
|
|
452
|
|
|
Valuation allowance
|
3,667
|
|
|
(40,849)
|
|
|
Provision to return adjustments
|
182
|
|
|
2,910
|
|
|
Net operating loss ("NOL") carryforward asset limitation
|
—
|
|
|
41,767
|
|
|
Other
|
667
|
|
|
108
|
|
|
Income tax benefit
|
$
|
(4,899)
|
|
|
$
|
(4,779)
|
|
|
Effective income tax benefit rate
|
11.3
|
%
|
|
11.4
|
%
|
The Company's U.S. federal corporate income tax statutory rate is 21%.
Substantially all of the Company's federal and state NOL carryforwards are expected to be limited by Internal Revenue Code Section 382 ("Section 382") due to the ownership change in 2017 resulting from the Company's restructuring through its chapter 11 cases. In the year ended December 31, 2018, the Company wrote-off the federal and state net operating loss deferred tax assets that are statutorily unusable in future periods due to these Section 382 limitations and the pre-2017 NOL carryforward periods. There was a corresponding reduction to the valuation allowance in the same amount.
As a U.S. shareholder, the Company is subject to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. At December 31, 2019, the Company has elected to include $1,304 of tax expense related to GILTI as a period expense.
A deferred tax asset of $1,086 at December 31, 2019 and $1,208 at December 31, 2018 associated with the temporary difference between the financial reporting basis and tax basis of the Second Lien Notes conversion feature at each balance sheet date was reclassified from a liability to additional paid-in capital on December 31, 2019 and December 31, 2018, respectively (see Note 5 - Stockholders' Equity).
Significant components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Pension and postretirement benefits
|
$
|
1,208
|
|
|
$
|
2,111
|
|
|
|
Deferred compensation
|
973
|
|
|
1,452
|
|
|
|
Restructuring related and other reserves
|
6
|
|
|
4
|
|
|
|
Operating lease liabilities
|
10,314
|
|
|
—
|
|
|
|
Alternative minimum tax and net operating loss carryforward
|
19,529
|
|
|
11,227
|
|
|
|
Inventory
|
4,161
|
|
|
5,223
|
|
|
|
Intangible assets and goodwill
|
4,744
|
|
|
5,561
|
|
|
|
Other, net
|
1,741
|
|
|
1,841
|
|
|
|
Deferred tax assets before valuation allowance
|
42,676
|
|
|
27,419
|
|
|
|
Valuation allowance
|
(14,344)
|
|
|
(10,842)
|
|
|
|
Total deferred tax assets
|
$
|
28,332
|
|
|
$
|
16,577
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciation
|
$
|
4,394
|
|
|
$
|
5,372
|
|
|
|
Operating right-of-use asset
|
10,300
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Excess of book basis over tax basis in investments
|
318
|
|
|
225
|
|
|
|
Convertible debt discount
|
15,140
|
|
|
16,834
|
|
|
|
Other, net
|
421
|
|
|
425
|
|
|
|
Total deferred tax liabilities
|
30,573
|
|
|
22,856
|
|
|
|
Net deferred tax liabilities
|
$
|
(2,241)
|
|
|
$
|
(6,279)
|
|
|
As of December 31, 2019, the Company had $12,307 of federal and $10,257 of state net operating loss carryforwards which will begin expiring in 2034 and 2022, respectively, and $1,005 of federal AMT credits which will be fully refundable by 2021, and $546 of state credit carryforwards which will begin expiring in 2024. Substantially all of the Company's federal and state net operating loss carryforwards are expected to be limited by IRC Section 382 due to the ownership change in 2017 resulting from the Company's restructuring through its chapter 11 cases. As of December 31, 2019, the Company had $33,119 of foreign net operating loss carryforwards, of which a significant portion carry forward for an indefinite period.
The Tax Act includes new limitations on interest expense deductions. As of December 31, 2019, the portion of the non-deductible interest expense as a result of the Tax Act will be carried forward.
The Company continues to maintain valuation allowances against substantially all U.S. and foreign deferred tax assets to reduce those deferred tax assets to amounts that are realizable either through future reversals of existing taxable temporary differences or through taxable income in carryback years for the applicable jurisdictions.
Activity in the Company's valuation allowances for the U.S. and non-U.S. operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Domestic
|
|
|
|
|
Balance, beginning of period
|
$
|
2,271
|
|
|
$
|
43,037
|
|
|
Provision charged to expense
|
3,949
|
|
|
—
|
|
|
Reduction due to Section 382 limitations
|
—
|
|
|
(40,766)
|
|
|
Provision charged to discontinued operations and other comprehensive income
|
(92)
|
|
|
—
|
|
|
Balance, end of period
|
$
|
6,128
|
|
|
$
|
2,271
|
|
|
Foreign
|
|
|
|
|
Balance, beginning of period
|
$
|
8,571
|
|
|
$
|
9,116
|
|
|
Impact of foreign exchange on beginning of period balance
|
240
|
|
|
(437)
|
|
|
Provision charged to expense
|
(595)
|
|
|
(108)
|
|
|
Balance, end of period
|
$
|
8,216
|
|
|
$
|
8,571
|
|
The Company is subject to taxation in the U.S, state jurisdictions and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not criterion, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the IRS. In general, the Company is no longer subject to audit by the IRS for tax years through 2012 and state, local or foreign taxing authorities for tax years through 2011.
Pursuant to changes made by the Tax Act, remittances from subsidiaries held by the Company made in 2019 and future years are generally not subject to U.S. federal income tax. These remittances are either excluded from taxable income in the United States as earnings that are already subject to taxation or are subject to a 100% dividends received deduction. There are no other differences which would cause the Company to be required to record a material deferred tax liability.
(9) Commitments and Contingent Liabilities
From time to time, the Company is party to a variety of legal proceedings, claims, and inquiries, including proceedings or inquiries by governmental authorities, which arise from the operation of its business. These proceedings, claims, and inquiries are incidental to and occur in the normal course of the Company's business affairs. The majority of these proceedings, claims, and inquiries relate to commercial disputes with customers, suppliers, and others; employment and employee benefits-related disputes; product quality disputes with vendors and/or customers; and environmental, health and safety claims. Although the outcome of these proceedings is inherently difficult to predict, management believes that the amount of any judgment, settlement or other outcome of these proceedings, claims and inquiries, after taking into account recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows.
(10) Segment Reporting
The Company has only one reportable segment, Metals. The Company’s marketing strategy focuses on distributing highly engineered specialty grades and alloys of metals as well as providing specialized processing services designed to meet very precise specifications. Core products include alloy, aluminum, stainless steel, nickel, carbon and titanium. Inventories of these products assume many forms such as plate, sheet, extrusions, round bar, hexagon bar, square and flat bar, tubing and coil. Depending on the size of the facility and the nature of the markets it serves, service centers are equipped as needed with bar saws, plate saws, oxygen and plasma arc flame cutting machinery, trepanning machinery, boring machinery, honing equipment, water-jet cutting equipment, stress relieving and annealing furnaces, surface grinding equipment, CNC machinery and sheet shearing equipment. The Company also performs various specialized fabrications for its customers through pre-qualified subcontractors that thermally process, turn, polish, cut-to-length and straighten alloy and carbon bar.
The Company operates primarily in North America. Net sales are attributed to countries based on the location of the Company’s subsidiary that is selling direct to the customer and exclude assessed taxes such as sales and excise tax. Company-wide geographic data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Net sales
|
|
|
|
|
United States
|
$
|
360,748
|
|
|
$
|
379,155
|
|
|
Canada
|
42,468
|
|
|
47,454
|
|
|
Mexico
|
49,915
|
|
|
62,431
|
|
|
France
|
53,644
|
|
|
50,900
|
|
|
China
|
34,897
|
|
|
25,288
|
|
|
All other countries
|
17,919
|
|
|
16,742
|
|
|
Total
|
$
|
559,591
|
|
|
$
|
581,970
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Long-lived assets
|
|
|
|
|
United States
|
$
|
38,482
|
|
|
$
|
43,698
|
|
|
Canada
|
2,508
|
|
|
2,579
|
|
|
Mexico
|
3,233
|
|
|
3,549
|
|
|
France
|
1,961
|
|
|
2,162
|
|
|
China
|
374
|
|
|
384
|
|
|
All other countries
|
881
|
|
|
828
|
|
|
Total
|
$
|
47,439
|
|
|
$
|
53,200
|
|
(11) Guarantor Financial Information
As described in Note 12 - Subsequent Event, the Company plans to commence an exchange offer to holders of the Second Lien Notes to exchange shares of its common stock and its new 3.00% Cash / 5.00% PIK Convertible Senior Secured Notes due 2024 (the "New Notes") in exchange for any and all outstanding Second Lien Notes. The New Notes, to be issued by A.M. Castle & Co. (the “Parent”), will be unconditionally guaranteed on a joint and several basis by all current and future domestic subsidiaries of the Parent (other than those designated as unrestricted subsidiaries) and the parent’s subsidiaries in Canada and Mexico (collectively, the “Guarantors”). Each guarantor is 100% owned by the Parent.
Under the proposed exchange offer, the guarantees of the Guarantors will be subject to release in limited circumstances, only upon the occurrence of certain customary conditions. There will be no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The accompanying financial statements have been prepared and presented pursuant to Rule 3-10 of SEC Regulation S-X “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The financial statements present condensed consolidating financial information for the Parent, the
Guarantors, the non-guarantor subsidiaries (all other subsidiaries) and an elimination column for adjustments to arrive at the information for the Parent, Guarantors, and non-guarantors on a consolidated basis. The condensed consolidating financial information has been prepared on the same basis as the consolidated statements of the Parent. The equity method of accounting is followed within this financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
and Comprehensive Loss
For the year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net sales
|
$
|
361,232
|
|
|
$
|
92,576
|
|
|
$
|
106,528
|
|
|
$
|
(745)
|
|
|
$
|
559,591
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of materials (exclusive of depreciation)
|
257,387
|
|
|
73,347
|
|
|
88,817
|
|
|
(745)
|
|
|
418,806
|
|
|
Warehouse, processing and delivery expense
|
59,569
|
|
|
11,152
|
|
|
6,846
|
|
|
—
|
|
|
77,567
|
|
|
Sales, general and administrative expense
|
53,467
|
|
|
4,782
|
|
|
6,308
|
|
|
—
|
|
|
64,557
|
|
|
Depreciation expense
|
7,128
|
|
|
982
|
|
|
649
|
|
|
—
|
|
|
8,759
|
|
|
Total costs and expenses
|
377,551
|
|
|
90,263
|
|
|
102,620
|
|
|
(745)
|
|
|
569,689
|
|
|
Operating (loss) income
|
(16,319)
|
|
|
2,313
|
|
|
3,908
|
|
|
—
|
|
|
(10,098)
|
|
|
Interest expense, net
|
38,792
|
|
|
1,076
|
|
|
34
|
|
|
—
|
|
|
39,902
|
|
|
Other income, net
|
(6,085)
|
|
|
(1,173)
|
|
|
672
|
|
|
—
|
|
|
(6,586)
|
|
|
(Loss) income before income taxes
|
(49,026)
|
|
|
2,410
|
|
|
3,202
|
|
|
—
|
|
|
(43,414)
|
|
|
Income tax (benefit) expense
|
(5,894)
|
|
|
236
|
|
|
759
|
|
|
—
|
|
|
(4,899)
|
|
|
Equity in earnings of subsidiaries
|
(4,617)
|
|
|
—
|
|
|
—
|
|
|
4,617
|
|
|
—
|
|
|
Net (loss) income
|
$
|
(38,515)
|
|
|
$
|
2,174
|
|
|
$
|
2,443
|
|
|
$
|
(4,617)
|
|
|
$
|
(38,515)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(37,541)
|
|
|
$
|
1,075
|
|
|
$
|
2,434
|
|
|
$
|
(3,509)
|
|
|
$
|
(37,541)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
and Comprehensive Loss
For the year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
|
Non-Guarantors
|
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net sales
|
$
|
379,213
|
|
|
$
|
109,922
|
|
|
|
$
|
92,934
|
|
|
|
$
|
(99)
|
|
|
$
|
581,970
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of materials (exclusive of depreciation)
|
274,037
|
|
|
84,970
|
|
|
|
78,144
|
|
|
|
(99)
|
|
|
437,052
|
|
|
Warehouse, processing and delivery expense
|
63,660
|
|
|
12,807
|
|
|
|
7,168
|
|
|
|
—
|
|
|
83,635
|
|
|
Sales, general and administrative expense
|
58,352
|
|
|
4,762
|
|
|
|
5,819
|
|
|
|
—
|
|
|
68,933
|
|
|
Depreciation expense
|
7,462
|
|
|
922
|
|
|
|
698
|
|
|
|
—
|
|
|
9,082
|
|
|
Total costs and expenses
|
403,511
|
|
|
103,461
|
|
|
|
91,829
|
|
|
|
(99)
|
|
|
598,702
|
|
|
Operating (loss) income
|
(24,298)
|
|
|
6,461
|
|
|
|
1,105
|
|
|
|
—
|
|
|
(16,732)
|
|
|
Interest expense, net
|
31,787
|
|
|
1,061
|
|
|
|
324
|
|
|
|
—
|
|
|
33,172
|
|
|
Other income, net
|
(7,894)
|
|
|
1,970
|
|
|
|
(2,056)
|
|
|
|
—
|
|
|
(7,980)
|
|
|
(Loss) income before income taxes
|
(48,191)
|
|
|
3,430
|
|
|
|
2,837
|
|
|
|
—
|
|
|
(41,924)
|
|
|
Income tax (benefit) expense
|
(6,714)
|
|
|
1,593
|
|
|
|
342
|
|
|
|
—
|
|
|
(4,779)
|
|
|
Equity in earnings of subsidiaries
|
(4,332)
|
|
|
—
|
|
|
—
|
|
|
4,332
|
|
|
—
|
|
|
Net (loss) income
|
$
|
(37,145)
|
|
|
$
|
1,837
|
|
|
|
$
|
2,495
|
|
|
|
$
|
(4,332)
|
|
|
$
|
(37,145)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(48,824)
|
|
|
$
|
2,082
|
|
|
|
$
|
(242)
|
|
|
|
$
|
(1,840)
|
|
|
$
|
(48,824)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,000
|
|
|
$
|
2,295
|
|
|
$
|
3,138
|
|
|
$
|
—
|
|
|
$
|
6,433
|
|
|
Accounts receivable, less allowance for doubtful accounts
|
43,321
|
|
|
16,147
|
|
|
15,229
|
|
|
—
|
|
|
74,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
95,252
|
|
|
26,154
|
|
|
23,005
|
|
|
—
|
|
|
144,411
|
|
|
Prepaid expenses and other current assets
|
4,074
|
|
|
4,190
|
|
|
3,399
|
|
|
—
|
|
|
11,663
|
|
|
Total current assets
|
143,647
|
|
|
48,786
|
|
|
44,771
|
|
|
—
|
|
|
237,204
|
|
|
Goodwill and intangible assets
|
8,176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,176
|
|
|
Operating right-of-use assets
|
18,825
|
|
|
6,259
|
|
|
4,339
|
|
|
—
|
|
|
29,423
|
|
|
Other non-current assets
|
8,362
|
|
|
234
|
|
|
(512)
|
|
|
—
|
|
|
8,084
|
|
|
Investment in subsidiaries
|
95,599
|
|
|
—
|
|
|
—
|
|
|
(95,599)
|
|
|
—
|
|
|
Receivables from affiliates
|
60,388
|
|
|
60,547
|
|
|
8,551
|
|
|
(129,486)
|
|
|
—
|
|
|
Property, plant and equipment, net
|
38,483
|
|
|
5,741
|
|
|
3,215
|
|
|
—
|
|
|
47,439
|
|
|
Total assets
|
$
|
373,480
|
|
|
$
|
121,567
|
|
|
$
|
60,364
|
|
|
$
|
(225,085)
|
|
|
$
|
330,326
|
|
|
Liabilities and Stockholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
32,280
|
|
|
$
|
5,800
|
|
|
$
|
3,665
|
|
|
$
|
—
|
|
|
$
|
41,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
12,615
|
|
|
4,231
|
|
|
2,048
|
|
|
—
|
|
|
18,894
|
|
|
Short-term borrowings
|
—
|
|
|
—
|
|
|
2,888
|
|
|
—
|
|
|
2,888
|
|
|
Total current liabilities
|
44,895
|
|
|
10,031
|
|
|
8,601
|
|
|
—
|
|
|
63,527
|
|
|
Long-term debt, less current portion
|
263,523
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
263,523
|
|
|
Payables due to affiliates
|
69,098
|
|
|
48,174
|
|
|
12,214
|
|
|
(129,486)
|
|
|
—
|
|
|
Deferred income taxes
|
3,637
|
|
|
—
|
|
|
138
|
|
|
—
|
|
|
3,775
|
|
|
Non-current operating lease liabilities
|
15,590
|
|
|
3,894
|
|
|
3,276
|
|
|
—
|
|
|
22,760
|
|
|
Other non-current liabilities
|
17,807
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
17,811
|
|
|
Stockholders’ (deficit) equity
|
(41,070)
|
|
|
59,468
|
|
|
36,131
|
|
|
(95,599)
|
|
|
(41,070)
|
|
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
373,480
|
|
|
$
|
121,567
|
|
|
$
|
60,364
|
|
|
$
|
(225,085)
|
|
|
$
|
330,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,079
|
|
|
$
|
4,030
|
|
|
$
|
1,559
|
|
|
$
|
—
|
|
|
$
|
8,668
|
|
|
Accounts receivable, less allowance for doubtful accounts
|
44,327
|
|
|
18,754
|
|
|
16,676
|
|
|
—
|
|
|
79,757
|
|
|
Receivables from affiliates
|
7
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
Inventories
|
104,882
|
|
|
28,191
|
|
|
27,613
|
|
|
—
|
|
|
160,686
|
|
|
Prepaid expenses and other current assets
|
6,263
|
|
|
6,205
|
|
|
3,144
|
|
|
—
|
|
|
15,612
|
|
|
Total current assets
|
158,558
|
|
|
57,180
|
|
|
48,992
|
|
|
(7)
|
|
|
264,723
|
|
|
Goodwill and intangible assets
|
8,176
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,176
|
|
|
Other non-current assets
|
3,789
|
|
|
188
|
|
|
316
|
|
|
—
|
|
|
4,293
|
|
|
Investment in subsidiaries
|
92,065
|
|
|
—
|
|
|
—
|
|
|
(92,065)
|
|
|
—
|
|
|
Receivables from affiliates
|
68,169
|
|
|
60,547
|
|
|
4,954
|
|
|
(133,670)
|
|
|
—
|
|
|
Property, plant and equipment, net
|
43,698
|
|
|
6,128
|
|
|
3,374
|
|
|
—
|
|
|
53,200
|
|
|
Total assets
|
$
|
374,455
|
|
|
$
|
124,043
|
|
|
$
|
57,636
|
|
|
$
|
(225,742)
|
|
|
$
|
330,392
|
|
|
Liabilities and Stockholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
31,802
|
|
|
$
|
6,014
|
|
|
$
|
4,903
|
|
|
$
|
—
|
|
|
$
|
42,719
|
|
|
Payables due to affiliates
|
—
|
|
|
7
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
Other current liabilities
|
13,484
|
|
|
4,171
|
|
|
684
|
|
|
—
|
|
|
18,339
|
|
|
Short-term borrowings
|
—
|
|
|
—
|
|
|
5,498
|
|
|
—
|
|
|
5,498
|
|
|
Total current liabilities
|
45,286
|
|
|
10,192
|
|
|
11,085
|
|
|
(7)
|
|
|
66,556
|
|
|
Long-term debt, less current portion
|
245,966
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
245,966
|
|
|
Payables due to affiliates
|
65,502
|
|
|
55,412
|
|
|
12,756
|
|
|
(133,670)
|
|
|
—
|
|
|
Deferred income taxes
|
7,421
|
|
|
—
|
|
|
119
|
|
|
—
|
|
|
7,540
|
|
|
Other non-current liabilities
|
19,641
|
|
|
44
|
|
|
6
|
|
|
—
|
|
|
19,691
|
|
|
Stockholders’ (deficit) equity
|
(9,361)
|
|
|
58,395
|
|
|
33,670
|
|
|
(92,065)
|
|
|
(9,361)
|
|
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
374,455
|
|
|
$
|
124,043
|
|
|
$
|
57,636
|
|
|
$
|
(225,742)
|
|
|
$
|
330,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(38,515)
|
|
|
$
|
2,174
|
|
|
$
|
2,443
|
|
|
$
|
(4,617)
|
|
|
$
|
(38,515)
|
|
|
Equity in earnings of subsidiaries
|
(4,617)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,617
|
|
|
|
—
|
|
|
Adjustments to reconcile net (loss) income to net cash from (used in) operating activities
|
38,892
|
|
|
|
4,113
|
|
|
|
6,334
|
|
|
|
—
|
|
|
|
49,339
|
|
|
Net cash from (used in) operating activities
|
(4,240)
|
|
|
6,287
|
|
|
8,777
|
|
|
—
|
|
|
10,824
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(2,154)
|
|
|
(1,337)
|
|
|
(530)
|
|
|
—
|
|
|
(4,021)
|
|
|
Proceeds from sale of property, plant and equipment
|
8
|
|
|
434
|
|
|
—
|
|
|
—
|
|
|
442
|
|
|
Net advances to subsidiaries
|
11,377
|
|
|
—
|
|
|
—
|
|
|
(11,377)
|
|
|
—
|
|
|
Net cash used in investing activities
|
9,231
|
|
|
(903)
|
|
|
(530)
|
|
|
(11,377)
|
|
|
(3,579)
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt including credit facilities
|
3,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,500
|
|
|
Repayments of long-term debt including credit facilities
|
(9,988)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,988)
|
|
|
Net intercompany (repayments) borrowings
|
—
|
|
|
(7,238)
|
|
|
(4,139)
|
|
|
11,377
|
|
|
—
|
|
|
Other financing
|
(582)
|
|
|
—
|
|
|
(2,490)
|
|
|
—
|
|
|
(3,072)
|
|
|
Net cash (used in) from financing activities
|
(7,070)
|
|
|
(7,238)
|
|
|
(6,629)
|
|
|
11,377
|
|
|
(9,560)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
119
|
|
|
(39)
|
|
|
—
|
|
|
80
|
|
|
Net change in cash and cash equivalents
|
(2,079)
|
|
|
(1,735)
|
|
|
1,579
|
|
|
—
|
|
|
(2,235)
|
|
|
Cash and cash equivalents—beginning of year
|
3,079
|
|
|
4,030
|
|
|
1,559
|
|
|
—
|
|
|
8,668
|
|
|
Cash and cash equivalents—end of year
|
$
|
1,000
|
|
|
$
|
2,295
|
|
|
$
|
3,138
|
|
|
$
|
—
|
|
|
$
|
6,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(37,145)
|
|
|
$
|
1,837
|
|
|
$
|
2,495
|
|
|
$
|
(4,332)
|
|
|
$
|
(37,145)
|
|
|
Equity in earnings of subsidiaries
|
(4,332)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,332
|
|
|
—
|
|
|
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities
|
17,961
|
|
|
|
(416)
|
|
|
|
(4,181)
|
|
|
|
—
|
|
|
13,364
|
|
|
Net cash (used in) from operating activities
|
(23,516)
|
|
|
1,421
|
|
|
(1,686)
|
|
|
—
|
|
|
(23,781)
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(4,130)
|
|
|
(848)
|
|
|
(709)
|
|
|
—
|
|
|
(5,687)
|
|
|
Proceeds from sale of property, plant and equipment
|
8
|
|
|
—
|
|
|
69
|
|
|
—
|
|
|
77
|
|
|
Net advances to subsidiaries
|
392
|
|
|
—
|
|
|
—
|
|
|
(392)
|
|
|
—
|
|
|
Net cash from (used in) investing activities
|
(3,730)
|
|
|
(848)
|
|
|
(640)
|
|
|
(392)
|
|
|
(5,610)
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt including credit facilities
|
49,954
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,954
|
|
|
Repayments of long-term debt including credit facilities
|
(21,130)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,130)
|
|
|
Net intercompany (repayments) borrowings
|
—
|
|
|
58
|
|
|
(450)
|
|
|
392
|
|
|
—
|
|
|
Other financing
|
(1,396)
|
|
|
—
|
|
|
(115)
|
|
|
—
|
|
|
(1,511)
|
|
|
Net cash from (used in) financing activities
|
27,428
|
|
|
58
|
|
|
(565)
|
|
|
392
|
|
|
27,313
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
(261)
|
|
|
(97)
|
|
|
—
|
|
|
(358)
|
|
|
Net change in cash and cash equivalents
|
182
|
|
|
370
|
|
|
(2,988)
|
|
|
—
|
|
|
(2,436)
|
|
|
Cash and cash equivalents—beginning of year
|
2,897
|
|
|
3,660
|
|
|
4,547
|
|
|
—
|
|
|
11,104
|
|
|
Cash and cash equivalents—end of year
|
$
|
3,079
|
|
|
$
|
4,030
|
|
|
$
|
1,559
|
|
|
$
|
—
|
|
|
$
|
8,668
|
|
(12) Subsequent Events
On February 24, 2020, the Company's Board approved the commencement of an exchange offer (the “Exchange Offer”) pursuant to which the Company will issue shares of its common stock and its New Notes in exchange for any and all outstanding Second Lien Notes. The New Notes will be guaranteed on a senior basis by all current and future domestic subsidiaries (other than those designated as “Unrestricted Subsidiaries”) of the Issuer (the “Guarantors”) upon completion of the Exchange Offer. The restrictive covenants in the indenture governing the New Notes will be substantially similar to the covenants in the indenture governing the Second Lien Notes. All Second Lien Notes that are tendered and accepted as part of the Exchange Offer, as well as all accrued and unpaid interest on the tendered Second Lien Notes, will be exchanged into New Notes and the Company's common stock at the rate of $0.4918619 principal amount of New Notes and 0.3632585 shares of the Company's common stock per $1 principal amount of Second Lien Notes tendered on the date on which the Exchange Offer is completed. The Exchange Offer will be effected through the filing of a Registration Statement on Form S-4 (the “S-4 Registration Statement”).
The New Notes will bear interest at a rate of 3.00% per annum if paid in cash or 5.00% if paid in kind per annum, payable quarterly. The New Notes will mature August 31, 2024 and will be convertible, at the option of the holders, into shares of the Company's common stock.
Concurrently with the Exchange Offer, the Company is soliciting consents from holders of the Second Lien Notes for certain amendments to the indenture governing the Second Lien Notes to eliminate or amend substantially all of the restrictive covenants, release all collateral securing the Company’s obligations under the indenture governing the Second Lien Notes, and modify certain of the events of default and various other provisions, contained in such indenture.
The filing of the S-4 Registration Statement triggers certain additional reporting obligations concerning the Issuer, the Parent and the Guarantors that are being satisfied through this filing, which will be incorporated by reference into the S-4 Registration Statement. This additional information concerns the Issuer, the Parent and Guarantors, which is hereby reported through additional footnote disclosure at Note 11 - Guarantor Financial Information contained herein.