Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-35938

 

 

 

LOGO

GLOBAL BRASS AND COPPER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   06-1826563
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

475 N. Martingale Road Suite 1050  
Schaumburg, IL   60173
(Address of principal executive offices)   (Zip Code)

(847) 240-4700

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On August 9, 2013, there were 21,110,000 shares of common stock outstanding.

 

 

 


Table of Contents

Global Brass and Copper Holdings, Inc.

Index

June 30, 2013

Table of Contents

 

PART I—FINANCIAL INFORMATION   

Item 1. Financial Statements

  

Unaudited Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

     1   

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2013 and 2012

     2   

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June  30, 2013 and 2012

     3   

Unaudited Consolidated Statements of Changes in (Deficit) / Equity for the Six Months Ended June  30, 2013 and 2012

     4   

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012

     5   

Notes to Unaudited Consolidated Financial Statements

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     40   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     68   

Item 4. Controls and Procedures

     69   
PART II—OTHER INFORMATION   

Item 1. Legal Proceedings

     70   

Item 1A. Risk Factors

     70   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     71   

Item 3. Defaults Upon Senior Securities

     71   

Item 4. Mine Safety Disclosures

     71   

Item 5. Other Information

     71   

Item 6. Exhibits

     72   

SIGNATURE

     73   

 

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Global Brass and Copper Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

 

     As of  
(In thousands, except share and par value data)    June 30,
2013
    December 31,
2012
 

Assets

    

Current assets:

    

Cash

   $ 34,010      $ 13,862   

Accounts receivable (net of allowance of $1,328 and $1,408 as of June 30, 2013 and December 31, 2012, respectively)

     203,340        164,317   

Inventories

     199,549        174,378   

Prepaid expenses and other current assets

     25,092        12,141   

Deferred income taxes

     31,760        33,465   

Income tax receivable, net

     2,147        1,300   
  

 

 

   

 

 

 

Total current assets

     495,898        399,463   

Property, plant and equipment, net

     75,330        71,127   

Investment in joint venture

     2,168        2,972   

Goodwill

     4,399        4,399   

Intangible assets, net

     787        839   

Deferred income taxes

     6,826        6,138   

Other noncurrent assets

     16,794        17,755   
  

 

 

   

 

 

 

Total assets

   $ 602,202      $ 502,693   
  

 

 

   

 

 

 

Liabilities and deficit

    

Current liabilities:

    

Accounts payable

   $ 106,981      $ 81,577   

Accrued liabilities

     52,685        48,424   

Accrued interest

     3,395        3,287   

Income tax payable

     334        248   
  

 

 

   

 

 

 

Total current liabilities

     163,395        133,536   

Long-term debt

     431,000        389,522   

Other noncurrent liabilities

     27,678        27,436   
  

 

 

   

 

 

 

Total liabilities

     622,073        550,494   
  

 

 

   

 

 

 

Commitments and contingencies (Note 13)

     —          —     

Global Brass and Copper Holdings, Inc. stockholders’ deficit:

    

Common stock—$.01 par value; 80,000,000 shares authorized; 21,110,000 shares issued and outstanding as of June 30, 2013 and December 31, 2012

     211        211   

Additional paid-in capital

     29,452        —     

Accumulated deficit

     (53,897     (48,153

Accumulated other comprehensive income

     587        1,466   

Receivable from stockholder

     —          (4,875
  

 

 

   

 

 

 

Total Global Brass and Copper Holdings, Inc. stockholders’ deficit

     (23,647     (51,351

Noncontrolling interest

     3,776        3,550   
  

 

 

   

 

 

 

Total deficit

     (19,871     (47,801
  

 

 

   

 

 

 

Total liabilities and deficit

   $ 602,202      $ 502,693   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Consolidated Statements of Operations (Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
(In thousands, except share and per share data)    2013     2012     2013     2012  

Net sales

   $ 461,478      $ 416,979      $ 906,440      $ 860,370   

Cost of sales

     409,778        369,858        807,824        763,295   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     51,700        47,121        98,616        97,075   

Selling, general and administrative expenses (including non-cash profits interest expense of $29,271, $19,517, $29,271 and $19,517, respectively)

     52,855        37,965        72,533        55,888   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1,155     9,156        26,083        41,187   

Interest expense

     9,959        10,209        19,834        19,958   

Loss on extinguishment of debt

     —          19,612        —          19,612   

Other expense, net

     4        398        191        709   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for (benefit from)income taxes and equity income

     (11,118     (21,063     6,058        908   

Provision for (benefit from) income taxes

     6,461        (971     12,503        7,227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity income

     (17,579     (20,092     (6,445     (6,319

Equity income, net of tax

     508        201        860        475   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (17,071     (19,891     (5,585     (5,844

Less: Net income attributable to noncontrolling interest

     61        114        159        168   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to

        

Global Brass and Copper Holdings, Inc.

   $ (17,132   $ (20,005   $ (5,744   $ (6,012
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Global Brass and Copper Holdings, Inc. per common share:

        

Basic

   $ (0.81   $ (0.95   $ (0.27   $ (0.28

Diluted

   $ (0.81   $ (0.95   $ (0.27   $ (0.28

Weighted average common shares outstanding:

        

Basic

     21,110,000        21,110,000        21,110,000        21,110,000   

Diluted

     21,110,000        21,110,000        21,110,000        21,110,000   

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Consolidated Statements of Comprehensive Loss (Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
(In thousands)    2013     2012     2013     2012  

Net loss

   $ (17,071   $ (19,891   $ (5,585   $ (5,844

Other comprehensive loss :

        

Foreign currency translation adjustment

     (753     (221     (1,395     (198

Less: Income tax benefit on other comprehensive loss

     (313     (78     (583     (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (17,511     (20,034     (6,397     (5,967

Less: Comprehensive income attributable to noncontrolling interest

     110        119        226        190   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Global Brass and Copper Holdings, Inc.

   $ (17,621   $ (20,153   $ (6,623   $ (6,157
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Global Brass and Copper Holdings, Inc.

Consolidated Statements of Changes in (Deficit) / Equity (Unaudited)

 

(In thousands)   Common
stock
    Additional
paid-in
capital
    (Accumulated
deficit) /
Retained
earnings
    Accumulated
other
comprehensive
income
    Receivable
from
stockholder
    Total
Global Brass
and Copper
Holdings, Inc.
stockholders’
(deficit) /equity
    Noncontrolling
interest
    Total
(deficit) /
equity
 

Balance at December 31, 2011

  $ 211      $ 11,091      $ 68,718      $ 1,923      $ (2,451     79,492      $ 3,168      $ 82,660   

Profits interest compensation

    —          19,517        —          —          —          19,517        —          19,517   

Distribution to stockholder

    —          (30,608     (129,392     —          —          (160,000     —          (160,000

Amounts due from stockholder

    —          —          —          —          (2,161     (2,161     —          (2,161

Net (loss) income

    —          —          (6,012     —          —          (6,012     168        (5,844

Other comprehensive (loss) income, net of tax

    —          —          —          (145     —          (145     22        (123
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $ 211      $ —        $ (66,686   $ 1,778      $ (4,612   $ (69,309   $ 3,358      $ (65,951
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(In thousands)   Common
stock
    Additional
paid-in
capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Receivable
from
stockholder
    Total
Global Brass
and Copper
Holdings, Inc.
stockholders’
deficit
    Noncontrolling
interest
    Total
deficit
 

Balance at December 31, 2012

  $ 211      $ —        $ (48,153   $ 1,466      $ (4,875   $ (51,351   $ 3,550      $ (47,801

Profits interest compensation

    —          29,271        —          —          —          29,271        —          29,271   

Share-based compensation

    —          181        —          —          —          181        —          181   

Payment from stockholder

    —          —          —          —          4,875        4,875        —          4,875   

Net (loss) income

    —          —          (5,744     —          —          (5,744     159        (5,585

Other comprehensive (loss) income, net of tax

    —          —          —          (879     —          (879     67        (812
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

  $ 211      $ 29,452      $ (53,897   $ 587      $ —        $ (23,647   $ 3,776      $ (19,871
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

     Six Months Ended June 30,  
(In thousands)    2013     2012  

Cash flows from operating activities

    

Net loss

   $ (5,585   $ (5,844

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

    

Lower of cost or market adjustment to inventory

     318        —     

Mark to market on commodity contracts

     62        (1,204

Mark to market on interest rate cap agreements

     1        146   

Depreciation

     3,929        3,145   

Amortization of intangible assets

     52        60   

Amortization of debt discount and issuance costs

     1,230        3,368   

Loss on extinguishment of debt

     —          19,612   

Profits interest compensation expense

     29,271        19,517   

Share-based compensation expense

     181        —     

Provision for bad debts, net of reductions

     (104     172   

Deferred income taxes

     1,528        (575

Loss on sale of property, plant and equipment

     9        3   

Equity income, net of tax

     (860     (475

Distributions from equity method investment

     —          500   

Change in assets and liabilities:

    

Accounts receivable

     (38,726     (31,680

Inventories

     (25,421     6,065   

Prepaid expenses and other current assets

     (13,038     5,395   

Accounts payable

     25,569        26,688   

Accrued liabilities

     4,274        (7,016

Accrued interest

     108        (721

Income taxes, net

     (768     225   

Other, net

     42        (7,044
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (17,928     30,337   

Cash flows from investing activities

    

Capital expenditures

     (8,305     (7,222

Proceeds from sale of property, plant and equipment

     169        6   
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,136     (7,216

Cash flows from financing activities

    

Deferred financing fees

     —          (12,926

Proceeds from senior secured notes

     —          375,000   

Payments on term loan

     —          (310,875

Borrowings on ABL Facility

     229,787        81,586   

Payments on ABL Facility

     (188,309     (30,913

Distribution to stockholder

     —          (160,000

Net payment (amounts due) from stockholder

     4,875        (2,161
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     46,353        (60,289

Effect of foreign currency exchange rates

     (141     (207
  

 

 

   

 

 

 

Net increase (decrease) in cash

     20,148        (37,375

Cash at beginning of period

     13,862        49,537   
  

 

 

   

 

 

 

Cash at end of period

   $ 34,010      $ 12,162   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

1. Basis of Presentation and Principles of Consolidation

Global Brass and Copper Holdings, Inc. (“Holdings” or the “Company”) was incorporated in Delaware, on October 10, 2007. Holdings, through its wholly-owned principal operating subsidiary, Global Brass and Copper, Inc. (“GBC”), commenced commercial operations on November 19, 2007 through the acquisition of the metals business from Olin Corporation. GBC is a leading, value-added converter, fabricator, distributor and processor of specialized copper and brass products in North America. On May 29, 2013, the Company completed its initial public offering of 8,050,000 shares of its common stock (the “initial public offering” or “IPO”). The shares began trading on the New York Stock Exchange on May 23, 2013 under the ticker symbol “BRSS”. Halkos Holdings, LLC (“Halkos”), the sole stockholder of the Company prior to the IPO, sold all of the shares in the initial public offering and received all of the net proceeds from the offering. After giving effect to the IPO, Halkos beneficially owns approximately 61.5% of the outstanding common stock of the Company. KPS Capital Partners, L.P. and its affiliates (“KPS”) are the majority shareholders of Halkos.

The Company is operated and managed through three distinct divisions which are also the Company’s reportable segments: Olin Brass, Chase Brass (“Chase”) and A.J. Oster (“Oster”).

These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries in which the Company has a controlling interest. All significant intercompany accounts and transactions relative to wholly- and majority-owned subsidiaries have been eliminated. The equity method is used to account for investments in affiliated companies, 20% to 50% owned where the Company does not hold a controlling voting interest and does not direct the matters that most significantly impact the investee’s operations.

The accompanying unaudited interim financial statements include all normal recurring adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The December 31, 2012 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

The preparation of 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. In addition, it requires management to make estimates and assumptions that affect the reported amount of net sales and expenses during the reporting period. Actual amounts could differ from those estimates.

Results of operations for the interim periods presented are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole. There have been no significant changes to the Company’s significant accounting policies during the six months ended June 30, 2013. These interim financial statements should be read in conjunction with the December 31, 2012 consolidated financial statements of the Company, which were included in our Amendment No. 9 to Form S-1 Registration Statement filed with the Securities and Exchange Commission on May 22, 2013.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

Revision of Prior Period Financial Statements

During 2012, the Company identified immaterial errors in previously issued consolidated financial statements related to the three and six months ended June 30, 2012, which were corrected in the period identified, including:

 

  1. An error in the accounting for raw material in-transit was identified in the third quarter of 2012. Inventory was overstated by $811 as of June 30, 2012. Cost of sales was overstated by $50 and understated by $388 for the three and six months ended June 30, 2012, respectively.

 

  2. Duplicate accruals for the receipt of raw material were identified in the third quarter of 2012. Accounts payable was overstated by $1,396 as of June 30, 2012. Cost of sales was overstated by $1,007 for the three and six months ended June 30, 2012.

 

  3. An error in the accounting for workers’ compensation insurance related to the first quarter of 2012 was identified and originally corrected in the second quarter of fiscal 2012. Cost of sales was overstated by $298 for the three months ended June 30, 2012.

 

  4. An error in the accounting for insurance receivables for workers’ compensation was identified and originally corrected in the fourth quarter of 2012. Accounts receivable and accrued liabilities were understated by $984.

The Company assessed the materiality of all errors, individually and in the aggregate, on previously issued consolidated financial statements and concluded that the errors were not material to any of the Company’s previously issued financial statements.

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

A summary of the revisions to the consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 is as follows:

 

     As
Previously
Reported
    Adjustment     As Revised  
     June 30, 2012  

Consolidated Balance Sheet

  

Accounts receivable, net of allowance

   $ 192,326      $ 984      $ 193,310   

Inventories

     180,815        (811     180,004   

Deferred income tax assets—current

     28,079        1,264        29,343   

Income tax receivable

     4,996        (476     4,520   

Total current assets

     429,443        961        430,404   

Deferred income tax assets—noncurrent

     19,917        (260     19,657   

Total assets

     538,522        701        539,223   

Accounts payable

     105,981        (1,396     104,585   

Accrued liabilities

     39,590        984        40,574   

Total current liabilities

     148,919        (412     148,507   

Total liabilities

     605,586        (412     605,174   

Accumulated deficit

     (67,799     1,113        (66,686

Total Global Brass and Copper Holdings, Inc. stockholders’ deficit

     (70,422     1,113        (69,309

Total deficit

     (67,064     1,113        (65,951

Total liabilities and deficit

     538,522        701        539,223   
     Three Months Ended June 30, 2012  

Consolidated Statement of Operations

  

Cost of sales

   $ 371,213      $ (1,355   $ 369,858   

Gross profit

     45,766        1,355        47,121   

Operating income

     7,801        1,355        9,156   

Loss before benefit from income taxes and equity income

     (22,418     1,355        (21,063

Benefit from income taxes

     (1,247     276        (971

Loss before equity income

     (21,171     1,079        (20,092

Net loss

     (20,970     1,079        (19,891

Net loss attributable to Global Brass and Copper Holdings, Inc.

     (21,084     1,079        (20,005

Net loss attributable to Global Brass and Copper Holdings, Inc. per common share:

      

Basic

   $ (1.00   $ 0.05      $ (0.95

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     As
Previously
Reported
    Adjustment     As Revised  
     Six Months Ended June 30, 2012  

Consolidated Statement of Operations

  

Cost of sales

   $ 763,914      $ (619   $ 763,295   

Gross profit

     96,456        619        97,075   

Operating income

     40,568        619        41,187   

Income before provision for income taxes and equity income

     289        619        908   

Provision for income taxes

     7,221        6        7,227   

Loss before equity income

     (6,932     613        (6,319

Net loss

     (6,457     613        (5,844

Net loss attributable to Global Brass and Copper Holdings, Inc.

     (6,625     613        (6,012

Net loss attributable to Global Brass and Copper Holdings, Inc. per common share:

      

Basic

   $ (0.31   $ 0.03      $ (0.28
     Three Months Ended June 30, 2012  

Consolidated Statement of Comprehensive Loss

  

Net loss

   $ (20,970   $ 1,079      $ (19,891

Comprehensive loss

     (21,113     1,079        (20,034

Comprehensive loss attributable to Global Brass and Copper Holdings, Inc.

     (21,232     1,079        (20,153
     Six Months Ended June 30, 2012  

Consolidated Statement of Comprehensive Loss

  

Net loss

   $ (6,457   $ 613      $ (5,844

Comprehensive loss

     (6,580     613        (5,967

Comprehensive loss attributable to Global Brass and Copper Holdings, Inc.

     (6,770     613        (6,157
     Six Months Ended June 30, 2012  

Consolidated Statement of Changes in Deficit

  

Net loss

   $ (6,457   $ 613      $ (5,844

Net loss attributable to Global Brass and Copper Holdings, Inc.

     (6,625     613        (6,012

Accumulated deficit—Balance, June 30, 2012

     (67,799     1,113        (66,686

Total Global Brass and Copper Holdings, Inc. stockholders’ deficit—Balance, June 30, 2012

     (70,422     1,113        (69,309

Total deficit—Balance, June 30, 2012

     (67,064     1,113        (65,951

Recently Issued and Recently Adopted Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance requires entities to provide disclosures about items that are required by U.S. GAAP to be reclassified from accumulated other comprehensive income (“AOCI”) to net income in their entirety in the same reporting period. The disclosure includes the amount of the reclassification and identifies the line item on the statement where net income is presented that is affected by the reclassification. For other items reclassified from AOCI, the disclosure cross-references to other disclosures where additional details about their effects are disclosed. This guidance is effective for reporting periods beginning after December 15, 2012. The adoption of this guidance in the first quarter of 2013 did not have a material effect on the Company’s consolidated financial statements and disclosures.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. This guidance requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This guidance does not amend existing guidance on when it is appropriate to offset. In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which limits the scope of ASU 2011-11 to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and lending arrangements. The guidance is effective for annual periods beginning January 1, 2013 and interim periods within those annual periods. The Company adopted this guidance in the first quarter of 2013 and has included the required disclosures in note 10, “Derivative Contracts”.

2. Inventories

The Company’s inventories are as follows:

 

     As of  
     June 30,
2013
     December 31,
2012
 

Raw materials and supplies

   $ 37,111       $ 37,766   

Work-in-process

     83,811         69,286   

Finished goods

     78,627         67,326   
  

 

 

    

 

 

 

Total inventories

   $ 199,549       $ 174,378   
  

 

 

    

 

 

 

Inventories include costs attributable to direct labor and manufacturing overhead but are primarily comprised of raw material costs. The material component of inventories that is valued on a last-in, first-out (“LIFO”) basis comprises approximately 72% and 70% of total inventory at June 30, 2013 and December 31, 2012, respectively. Other manufactured inventories, including the non-material components and certain non-U.S. inventories, are valued on a first-in, first-out (“FIFO”) basis. During the second quarter of 2013, the Company reduced the recorded value of inventory by $318. This non-cash, lower of cost or market adjustment was recorded in cost of sales in the accompanying consolidated statement of operations.

If all inventories had been valued at period-end market values, inventories would have been approximately $303,937 and $319,282 at June 30, 2013 and December 31, 2012, respectively.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

3. Prepaid Expenses and Other Current Assets

The Company’s prepaid expenses and other current assets are as follows:

 

     As of  
     June 30,
2013
     December 31,
2012
 

Collateral on deposit—commodity derivative contracts

   $ 267       $ 767   

Commodity derivative contracts

     458         548   

Deferred expense

     12,003         —     

Loss fund payments—workers’ compensation

     6,883         6,968   

Prepaid insurance

     2,131         1,261   

Prepaid tooling

     1,604         764   

Other

     1,746         1,833   
  

 

 

    

 

 

 

Total prepaid expenses and other current assets

   $ 25,092       $ 12,141   
  

 

 

    

 

 

 

4. Goodwill

On January 31, 2008, the Company, through its Chase reportable segment, acquired certain assets of the brass business of Bolton Metals Product Company (“Bolton”). As of June 30, 2013 and December 31, 2012, the carrying value of goodwill was $4,399. All goodwill is assigned to Chase, which is the Company’s applicable reporting unit for purposes of testing goodwill impairment. The Bolton acquisition is treated as an asset acquisition for tax purposes. As of June 30, 2013, $2,025 of goodwill is expected to be deductible for tax purposes.

5. Investment in Joint Venture

The Company owns a 50% interest in Dowa – Olin Metal Corporation (“Dowa”), a joint venture based in Japan. The Company accounts for Dowa under the equity method of accounting. Due to the timing of the receipt of available financial information, the results of Dowa are recorded on a one-month lag basis.

In November 2007, the equity investment in Dowa, which was purchased as part of the metals business acquired from Olin Corporation, was recorded at a carrying value of zero as a result of the bargain purchase event recognized under the purchase method of accounting for the acquisition, creating a negative basis difference of $9,416. Based on management’s estimate as to the underlying commercial utility of the alloys that Dowa manufactured and sold at the date of acquisition, the negative basis difference is being accreted on a straight-line basis over a 13-year period as an increase to equity earnings. Accretion of the negative basis difference of $181 was reflected in equity income, net of tax in the accompanying consolidated statements of operations for each of the three months ended June 30, 2013 and 2012 and $362 for each of the six months ended June 30, 2013 and 2012. At June 30, 2013 and December 31, 2012, the remaining negative basis difference was $5,373 and $5,735, respectively.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

No cash dividends were received from Dowa during the six months ended June 30, 2013. During the six months ended June 30, 2012, the Company received cash dividends from Dowa of $500, which were recorded as a reduction in the Company’s investment in Dowa. During the three months ended June 30, 2013 and 2012, the Company recorded $508 and $201, respectively, of equity income, net of tax, including $181 of accretion of the negative basis difference in each period. During the six months ended June 30, 2013 and 2012, the Company recorded equity income, net of tax of $860 and $475, respectively, including $362 of accretion of the negative basis difference in each period. The undistributed earnings of Dowa in GBC’s retained earnings as of June 30, 2013 and December 31, 2012 totaled $922 and $62, respectively.

6. Other Noncurrent Assets

Other noncurrent assets consisted of the following:

 

     As of  
     June 30,
2013
     December 31,
2012
 

Deferred financing fees, net

   $ 15,852       $ 17,082   

Utility and other deposits

     942         668   

Interest rate cap agreements

     —           1   

Other

     —           4   
  

 

 

    

 

 

 

Total other noncurrent assets

   $ 16,794       $ 17,755   
  

 

 

    

 

 

 

7. Accrued Liabilities

Accrued liabilities consisted of the following:

 

     As of  
     June 30,
2013
     December 31,
2012
 

Personnel expense

   $ 15,727       $ 20,872   

Workers’ compensation

     15,281         15,754   

Deferred revenue

     11,952         —     

Professional fees

     870         2,145   

Insurance

     2,150         2,253   

Utilities

     1,607         1,844   

Taxes

     1,097         1,745   

Tooling

     712         686   

Other

     3,289         3,125   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 52,685       $ 48,424   
  

 

 

    

 

 

 

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

8. Financing

Long-term debt consisted of the following:

 

     As of  
     June 30,      December 31,  
     2013      2012  

ABL Facility

   $ 56,000       $ 14,522   

Senior Secured Notes

     375,000         375,000   
  

 

 

    

 

 

 

Total long-term debt

   $ 431,000       $ 389,522   
  

 

 

    

 

 

 

Senior Secured Notes

On June 1, 2012, GBC issued $375,000 in aggregate principal amount of 9.50% Senior Secured Notes due 2019 (the “Senior Secured Notes”). The Senior Secured Notes mature on June 1, 2019. Interest on the Senior Secured Notes accrues at the rate of 9.50% per annum and is payable semiannually in arrears on June 1 and December 1, commencing on December 1, 2012.

The credit agreement governing the ABL Facility (hereinafter defined) and the indenture governing the Senior Secured Notes (the “Indenture”) limit the ability of GBC and its subsidiaries to dividend or distribute cash to Holdings and to its equityholders, although ordinary course dividends and distributions to meet the limited holding company expenses and related obligations at Holdings of up to $5 million per year are permitted under those agreements. Under the terms of the Indenture, GBC is also permitted to dividend or distribute to Holdings and its equityholders up to 50% of its “Consolidated Net Income” (as such term is used in the Indenture) from April 1, 2012 to the end of GBC’s most recently ended fiscal quarter. All of the net assets of the subsidiaries are restricted except for $28,629, which are permitted dividend distributions under the Indenture.

Pursuant to a registration rights agreement, dated as of June 1, 2012, the Company is required to effect a registered offer to issue registered new notes (with substantially the same terms as the Senior Secured Notes) in exchange for the Senior Secured Notes that the Company issued in a private offering on June 1, 2012. Pursuant to the terms of the registration rights agreement, if the Company had not caused the registration statement for the exchange offer to become effective within 365 days after June 1, 2012, or otherwise failed to comply with the other deadlines in the registration rights agreement, the Company is required to pay additional interest on the Senior Secured Notes equal to 0.25% per annum for each 90 days it is in default, up to a maximum of 0.50% per annum (the “Additional Interest”).

As of June 1, 2013, the registration statement for the exchange offer had not yet become effective, and accordingly, the Company is now required to pay a default rate of 0.25% per annum in addition to the stated rate of 9.50%. The Company filed a Form S-4 Registration Statement under the Securities Act of 1933 on June 10, 2013 and a subsequent amended Form S-4 Registration Statement on July 24, 2013 with respect to the proposed exchange of the Senior Secured Notes. Upon completion of the exchange offer, the Company’s obligation to pay any future Additional Interest will terminate.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

ABL Facility

Concurrent with the issuance of the Senior Secured Notes, the Company amended the agreement governing its asset-based revolving loan facility (the “ABL Facility”).

The unused portion of the ABL Facility was $143,500 and $184,978 as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013 and December 31, 2012, amounts outstanding under the ABL Facility accrued interest at a rate of 4.25% and 4.50%, respectively.

The ABL Facility has an expiration date of June 1, 2017 and contains various debt covenants to which the Company is subject on an ongoing basis. As of June 30, 2013, the Company was in compliance with all of its covenants under the ABL Facility.

9. Income Taxes

The effective income tax rate, which is provision for (benefit from) income taxes as a percentage of income (loss) before provision for (benefit from) income taxes and equity income, differs from the amount determined by applying the applicable U.S. statutory federal income tax rate to pretax results primarily as a result of the following:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Statutory provision rate

     35.0     35.0     35.0     35.0

Permanent differences and other items

        

State tax provision

     (5.4 %)      4.0     19.2     1.2

Section 199 manufacturing credit

     5.0     (1.7 %)      (16.4 %)      (0.5 %) 

Return to provision adjustments / Uncertain tax positions

     0.6     3.1     (2.5 %)      (69.0 %) 

Non-deductible non-cash compensation

     (92.0 %)      (36.2 %)      169.1     838.2

Other

     (1.3 %)      0.4     2.0     (9.0 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective income tax rate

     (58.1 %)      4.6     206.4     795.9
  

 

 

   

 

 

   

 

 

   

 

 

 

The “Non-deductible non-cash compensation” expense as described further in note 14, “Profits Interest Awards,” is not deductible in the Company’s tax returns and has been reflected as a permanent difference in the effective tax rate reconciliations above.

As of June 30, 2013 and December 31, 2012, the Company had $27,314 and $27,401 respectively, of unrecognized tax benefits, none of which would impact the effective tax rate, if recognized. Estimated interest and penalties related to the underpayment of income taxes were $16 and $15 for the three and six months ended June 30, 2013, respectively, and were reduced by $179 and $160 for the three and six months ended June 30, 2012, respectively, and are classified as a component of income tax expense in the accompanying consolidated statements of operations. Accrued interest and penalties as of June 30, 2013 and December 31, 2012 were $51 and $35, respectively, inclusive of the estimated interest and penalties mentioned above. The Company’s liability for uncertain tax positions of $27,365 and $27,436 at June 30, 2013 and December 31, 2012, respectively, are presented in other noncurrent liabilities.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

The Company is subject to income taxation in several jurisdictions around the world. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Although timing of the resolution and/or closure of audits is not certain, the Company believes it has adequately reserved for any potential tax exposures at June 30, 2013. The Internal Revenue Service completed its examination of the Corporation’s income tax returns through the period ended December 31, 2010. The Company’s U.S. federal returns for the period ended December 31, 2011 and all subsequent periods remain open for audit. The majority of state returns for the period ended September 30, 2010 and all subsequent periods remain open for audit.

10. Derivative Contracts

The Company maintains a metal, natural gas and electricity pricing risk-management strategy that uses commodity derivative contracts to minimize significant, unanticipated gains or losses and cash fluctuations that may arise from volatility of the commodity indices.

The Company’s commodity derivative contracts consist of delivery contracts matched in quantity, price and maturity to firm price sales orders, in circumstances where physical firm price metal is unavailable, in order to protect sales margins from metal price fluctuations between the firm price sale order date and shipment date.

The prices of natural gas and electricity can be particularly volatile. As a result, our natural gas and electricity costs may fluctuate dramatically. The Company attempts to mitigate short-term volatility in natural gas and electricity costs through the use of derivatives contracts in an effort to offset the effect of increasing costs.

The Company also utilized interest rate cap agreements in compliance with the requirement under its prior senior secured term loan credit facility (the “Term Loan Facility”) to provide that at least 50% of the term loan be subject to a fixed rate or interest rate protection for a period of not less than three years. In June 2012, the Term Loan Facility was repaid and retired. During 2010, the Company entered into three-year interest rate cap agreements that capped the interest rate on $300,000 of the aggregate principal outstanding. The interest rate cap agreements are not designated as an accounting hedge and changes in the fair value of the interest rate cap agreements are recorded as non-cash interest expense.

By using derivative contracts to limit exposures to fluctuations in metal, natural gas and electricity prices and interest rate movements, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. Market risk is the risk that the value of a derivative instrument might be adversely affected by a change in commodity price or interest rates. The Company manages the market risk associated with derivative contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company only executes derivative instruments with counterparties with investment-grade credit ratings. These counterparties expose the Company to credit risk in the event of non-performance. The amount of such exposure is limited to the fair value of the derivative contract plus the unpaid portion of amounts due to the Company pursuant to terms of the derivative contracts, if any. If a downgrade in the credit rating of these counterparties occurs, management believes that this exposure is mitigated by provisions in the derivative arrangements which allow for the legal right of offset of any amounts due to the Company from the counterparties with any amounts payable to the counterparties by the Company.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

The fair values of derivative contracts in the consolidated balance sheet include the impact of netting derivative assets and liabilities when a legally enforceable master netting arrangement exists. The following tables summarize the gross amounts of recognized derivative assets and liabilities, the net amounts presented in the consolidated balance sheet, and the net amounts after deducting collateral that has been deposited with counterparties:

 

     As of June 30, 2013  
                         Amounts Not Offset in
the Consolidated
Balance

Sheet
        
     Gross
Amounts of
Recognized
Assets
     Gross Amounts
Offset in
Consolidated
Balance Sheet
    Net Amounts
of Assets
Presented in
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Received
     Net
Amount
 

Open metal contracts

   $ 1,953       $ (1,574   $ 379       $       $       $ 379   

(334 contracts)

                

Open electricity contracts

     79         —          79         —           —           79   

(6 contracts)

                

Interest rate cap agreements

     —           —          —           —           —           —     

(2 contracts)

                
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,032       $ (1,574   $ 458       $ —         $ —         $ 458   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated balance sheet location:

                

Prepaid expenses and other current assets

      $ 458              
     

 

 

            

Total

      $ 458              
     

 

 

            
                         Amounts Not Offset in
the Consolidated
Balance Sheet
        
     Gross
Amounts of
Recognized
Liabilities
     Gross Amounts
Offset in
Consolidated
Balance Sheet
    Net Amounts
of Liabilities
Presented in
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Deposited
     Net
Amount
 

Open metal contracts

   $ 1,574       $ (1,574   $ —         $ —         $ —         $ —     

(218 contracts)

                
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,574       $ (1,574   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Not included in the above table is $267 of collateral included in prepaid expenses and other current assets, which is because collateral is limited to the net amounts of assets or liabilities presented in the consolidated balance sheet.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     As of December 31, 2012  
                         Amounts Not Offset in
the Consolidated
Balance

Sheet
        
     Gross
Amounts of
Recognized
Assets
     Gross Amounts
Offset in
Consolidated
Balance Sheet
    Net Amounts
of Assets
Presented in
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Received
     Net
Amount
 

Open metals contracts

   $ 603       $ (224   $ 379       $       $       $ 379   

(208 contracts)

                

Open natural gas contracts

     2         —          2         —           —           2   

(6 contracts)

                

Open electricity contracts

     169         (2     167         —           —           167   

(17 contracts)

                

Interest rate cap agreements

     1         —          1         —           —           1   

(2 contracts)

                
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 775       $ (226   $ 549       $ —         $ —         $ 549   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated balance sheet location:

                

Prepaid expenses and other current assets

  

   $ 548              

Other noncurrent assets

        1              
     

 

 

            

Total

      $ 549              
     

 

 

            
                         Amounts Not Offset in
the Consolidated
Balance

Sheet
        
     Gross
Amounts of
Recognized
Liabilities
     Gross Amounts
Offset in
Consolidated
Balance Sheet
    Net Amounts
of Liabilities
Presented in
Consolidated

Balance Sheet
     Financial
Instruments
     Cash
Collateral
Deposited
     Net
Amount
 

Open metals contracts

   $ 224       $ (224   $ —         $ —         $ —         $ —     

(85 contracts)

                

Open electricity contracts

     2         (2     —           —           —           —     

(1 contract)

                
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 226       $ (226   $ —         $ —         $ —         $ —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Not included in the above table is $767 of collateral included in prepaid expenses and other current assets, which is because collateral is limited to the net amounts of assets or liabilities presented in the consolidated balance sheet.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

The following table summarizes the effects of derivative contracts in the consolidated statements of operations:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Cost of sales

        

Realized and unrealized gain (loss)—metal contracts

   $ 634      $ (606   $ 651      $ 504   

Realized and unrealized gain (loss)—natural gas contracts

     —          34        (2     69   

Realized and unrealized (loss) gain—electricity contracts

     (165     147        (85     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 469      $ (425   $ 564      $ 538   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

        

Unrealized loss—interest rate cap agreements

   $ —        $ (12   $ (1   $ (146
  

 

 

   

 

 

   

 

 

   

 

 

 

11. Fair Value Measurements

ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements but does not change existing guidance as to whether or not an instrument is carried at fair value. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

 

   

Level 1—Quoted prices for identical instruments in active markets.

 

   

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

 

   

Level 3—Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

The following tables provide the hierarchy of inputs used to derive the fair value of the Company’s assets at fair value on a recurring basis as of June 30, 2013 and December 31, 2012:

 

     As of June 30, 2013  
     Level 1      Level 2      Level 3      Total  

Open metal contracts

   $ —         $ 379       $ —         $ 379   

Open electricity contracts

     —           79         —           79   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ —         $ 458       $ —         $ 458   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     As of December 31, 2012  
     Level 1      Level 2      Level 3      Total  

Open metal contracts

   $ —         $ 379       $ —         $ 379   

Open natural gas contracts

     —           2         —           2   

Open electricity contracts

     —           167         —           167   

Interest rate cap agreements

     —           1         —           1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ —         $ 549       $ —         $ 549   
  

 

 

    

 

 

    

 

 

    

 

 

 

In accordance with ASC 820, the Company determines the fair value of its interest rate agreement and commodity derivative contracts using Level 2 inputs.

The Company’s metal, natural gas and electricity commodity derivative contracts are considered Level 2 as fair value measurements consist of both quoted price inputs and inputs provided by a third party that are derived principally from or corroborated by observable market data by correlation. These assumptions include, but are not limited to, those concerning interest rates, credit rates, discount rates, default rates and other factors. All derivative commodity contracts have a set term of 24 months or less.

The Company’s interest rate cap agreements are considered Level 2 fair value measurements as the pricing is derived from discounting the future expected cash flows that would occur if variable interest rates rise above the strike rates of the caps. The variable interest rates used in the calculation of projected cash flows on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities that are observable at commonly quoted intervals.

The Company does not hold assets or liabilities requiring a Level 3 measurement and there have not been any transfers between the hierarchy levels during 2013 or 2012.

For purposes of financial reporting, the Company has determined that the carrying value of cash, accounts receivable, accounts payable, and accrued expenses approximates fair value due to the short maturities of these instruments. Additionally, given the revolving nature and the variable interest rates, the Company has determined that the carrying value of the ABL Facility also approximates fair value. As of June 30, 2013, the fair value of the Company’s Senior Secured Notes approximated $401,250. The fair value of the Senior Secured Notes was based upon quotes from financial institutions (Level 2 in the fair value hierarchy as defined by ASC 820).

12. Related Parties

KPS Special Situations Fund II, L.P., KPS Special Situations Fund II (A), L.P., KPS Special Situations Fund III, L.P. and KPS Special Situations Fund III (A), L.P. (together, “KPS Funds”) are majority shareholders of Halkos. As of June 30, 2013, Halkos owned 61.5% of the outstanding shares of Holdings.

The Company and affiliates of KPS Funds entered into an agreement whereby affiliates of KPS Funds charge the Company for services of their personnel engaged in line or staff functions relating specifically to the operations of the Company (the “Management Services Agreement”). In May 2013, in connection with the IPO, the Company terminated the Management Services Agreement prior to the expiration of the initial term and was required to pay the affiliates of KPS Funds an early termination fee equal to the value of the advisory fee that would have otherwise been payable to the affiliates of KPS Funds through the end of the Management Services

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

Agreement. The Company paid $4,500 to the affiliates of KPS Funds related to the Company’s early termination and all unpaid management advisory fees. The total charges, which are included in selling, general and administrative expenses, were $4,500 and $4,750 for the three and six months ended June 30, 2013, respectively, and $250 and $500 for the three and six months ended June 30, 2012, respectively. As of December 31, 2012, $250 of these charges were accrued for in accrued liabilities. Additionally, pursuant to the Management Services Agreement, the Company is required to reimburse the affiliates of KPS Funds for all reasonable costs and expenses incurred in connection with the services provided. These costs were $7 and $18 for the three and six months ended June 30, 2013, respectively, and $21 and $62 for the three and six months ended June 30, 2012, respectively.

The Company and KPS Funds entered into an agreement dated October 18, 2011 whereby the KPS Funds agreed to reimburse the Company for specific incremental costs directly attributable to an offering of equity securities (the “KPS Reimbursement Obligation”). As of December 31, 2012, the Company had recorded $4,875 as a receivable from stockholder pertaining to the KPS Reimbursement Obligation. Pursuant to the completion of the Company’s initial public offering, KPS Funds reimbursed the Company all amounts owed in connection with the KPS Reimbursement Obligation.

13. Commitments and Contingencies

Environmental Considerations

The Company is subject to a variety of environmental laws and regulations governing discharges to air and water, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. Although the Company believes it is in material compliance with all of the various regulations applicable to its business, there can be no assurance that requirements will not change in the future or that the Company will not incur significant cost to comply with such requirements. The Company employs responsible personnel at each facility, along with various environmental engineering consultants from time to time to assist with ongoing management of environmental, health and safety requirements. Management expenses environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures that extend the life of the related property are capitalized. The Company determines its liability on a location by location basis and records a liability at the time it is deemed probable and can be reasonably estimated. The Company is currently not aware of any environmental matters which may have a material impact on the Company’s financial position, results of operations, or liquidity.

On November 19, 2007 (the date of inception of GBC), the Company acquired the assets and operations relating to the worldwide metals business of Olin Corporation. Olin Corporation agreed to retain liability arising out of the existing conditions on certain of our properties for any remedial actions required by environmental laws, and agreed to indemnify the Company for all or part of a number of other environmental liabilities. Since 2007, Olin Corporation has been performing remedial actions at the facilities in East Alton, Illinois and Waterbury, Connecticut, and has been participating in remedial actions at certain other properties as well. If Olin Corporation were to stop its environmental remedial activities at the Company’s properties, the Company could be required to assume responsibility for these activities, the cost of which could be material.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

Insurance Coverage

The Company maintains Comprehensive Medical Plans for employees of GBC and its subsidiaries (the “Plans”) to provide health insurance for eligible employees on a self-insured basis. The Plans are covered by a stop loss policy for those benefits provided on a self-insured basis with a deductible of $275 per occurrence for all GBC employees, except for employees of our Chase Brass division, which has a deductible of $100 per occurrence. The policy for our Chase Brass division also has a specific stop loss maximum resulting in the Company being responsible for paying the amount in excess of $2,000 per occurrence.

The Company is self-insured for workers’ compensation claims assumed from its predecessor company for activity prior to November 19, 2007. Workers’ compensation claims relating to activity after November 19, 2007 are covered by a loss funding insurance arrangement whereby the Company makes a fixed payment to the insurer which is used to pay submitted claims. The Company is self-insured for annual workers’ compensation costs relating to activity after November 19, 2007 of up to $500 per occurrence.

Legal Considerations

The Company is party to various legal proceedings arising in the ordinary course of business. The Company believes that none of its lawsuits are individually material or that the aggregate exposure of all of its lawsuits, including those that are probable and those that are only reasonably possible, is material to its financial condition, results of operations or cash flows.

14. Profits Interest Awards

Halkos has granted, pursuant to the Halkos Equity Plan, non-voting membership interests to select members of the Company’s management titled “Class B Shares.” The Class B Shares are profits interests in Halkos.

Certain members of the Company’s management may receive distributions from Halkos to the extent their Class B Shares were vested. During the six months ended June 30, 2013 and 2012, GBC executives received $8,902 and $19,517, respectively. These distributions were accounted for by GBC as non-cash compensation expense with a corresponding increase in additional paid-in capital in the period in which the distributions were determined to be probable.

In June 2013, Halkos modified the Halkos Equity Plan to (i) eliminate its right to acquire all or a portion of the Class B Shares for less than fair market value for certain specifically identified employees and (ii) eliminate its right to acquire all or a portion of the Class B Shares for less than fair market value upon either (a) voluntary termination of employment without good reason or (b) breach of confidentiality or non-compete provisions subsequent to terminating employment for all other Class B Share award recipients. This modification to the Halkos Equity Plan triggered the recognition of additional non-cash compensation expense reflecting the fair value of vested Class B Shares as of the date of modification of the Halkos Equity Plan. The observable market price of the Company’s publicly traded shares was used to determine the fair value of the Class B Shares. In June 2013, the Company recognized $20,369 of incremental non-cash compensation as a result of the modification.

15. Segment Information

The Company’s Chief Operating Decision Maker allocates resources and evaluates performance at the divisional level. As such, the Company has determined that it has three reportable segments: Olin Brass, Chase and Oster.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

Olin Brass is a leading manufacturer and converter of copper and brass sheet, strip and fabricated products. Olin Brass also rerolls and forms other alloys such as stainless, carbon steel and aluminum. Olin Brass’s products are used in five primary end markets: building and housing, munitions, automotive, coinage, and electronics/electrical components.

Chase is a leading manufacturer of brass rod in North America. Chase primarily manufactures brass rod, including round and other shapes, ranging from 1/4 inch to 4.5 inches in diameter. The key attributes of brass rod include its machinability, corrosion resistance and moderate strength, such as valves and fittings. Brass rod is generally manufactured from copper or copper-alloy scrap. Chase produces brass rod used in production applications which can be grouped into four primary end markets: building and housing, transportation, electronics/electrical components and industrial machinery and equipment.

Oster is a processing distributor of copper and copper-alloy sheet, strip and foil. Oster operates six strategically-located service centers in the United States, Puerto Rico and Mexico. Each Oster service center reliably provides a broad range of high quality products at quick lead-times in small quantities. These capabilities, combined with Oster’s operations of precision slitting, hot tinning, traverse winding, cutting, edging and special packaging, provide value to a broad customer base. Oster’s products are used in three primary end markets: building and housing, automotive and electronics/electrical components.

The Chief Operating Decision Maker evaluates performance and determines resource allocations based on a number of factors, the primary performance measure being Segment Adjusted EBITDA.

Segment Adjusted EBITDA is an EBITDA based measure of operating performance, with EBITDA being defined by the Company as net income before depreciation and amortization, interest expense, and income taxes. The Company defines Segment Adjusted EBITDA as EBITDA further adjusted to remove the impacts of inventory values for LIFO and lower of cost or market charges, the cost of terminating certain collateral hedges, unrealized mark to market gains and losses on derivative instruments, non-cash compensation expense, share-based compensation expense, loss on extinguishment of debt and non-cash income accretion related to the Company’s joint venture investment, each of which are excluded because management believes they are not indicative of the ongoing performance of the Company’s core operations. Corporate and Other includes compensation for corporate executives and officers, corporate office and administrative salaries, and professional fees for accounting, tax and legal services. Corporate and Other also includes interest expense, state and Federal income taxes, overhead costs that management has not allocated to our operating segments and the elimination of intercompany balances.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

Below is a reconciliation of the Company’s Segment Adjusted EBITDA to income before provision for income taxes and equity income:

 

           Three Months Ended
June 30,
    Six Months Ended
June 30,
 
           2013     2012     2013     2012  

Net Sales, External Customers

          

Olin Brass

     $ 216,500      $ 165,803      $ 403,065      $ 332,090   

Chase

       164,697        165,922        339,179        354,609   

Oster

       80,281        85,254        164,196        173,671   
    

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales, external customers

     $ 461,478      $ 416,979      $ 906,440      $ 860,370   
    

 

 

   

 

 

   

 

 

   

 

 

 

Intersegment Net Sales

          

Olin Brass

     $ 14,210      $ 12,754      $ 28,548      $ 25,107   

Chase

       7        156        7        302   

Oster

       42        19        108        22   
    

 

 

   

 

 

   

 

 

   

 

 

 

Total intersegment net sales

     $ 14,259      $ 12,929      $ 28,663      $ 25,431   
    

 

 

   

 

 

   

 

 

   

 

 

 

Segment Adjusted EBITDA

          

Olin Brass

     $ 16,233      $ 13,062      $ 27,683      $ 23,751   

Chase

       18,954        17,251        37,835        37,191   

Oster

       4,303        5,208        8,853        10,428   
    

 

 

   

 

 

   

 

 

   

 

 

 

Total segment adjusted EBITDA

       39,490        35,521        74,371        71,370   

Corporate and Other

       (8,500     (5,550     (14,327     (9,429

Loss on extinguishment of debt

       —          (19,612     —          (19,612

Depreciation and amortization

       (2,072     (1,681     (3,981     (3,205

Interest expense

       (9,959     (10,209     (19,834     (19,958

Equity method investment income

     (A     (327     (20     (498     (113

Net income attributable to noncontrolling interest

       61        114        159        168   

Lower of cost or market adjustment to inventory

       (318     —          (318     —     

(Loss) gain on derivative contracts

       (41     (109     (62     1,204   

Share-based compensation expense

       (181     —          (181     —     

Compensation expense—profits interest awards

       (29,271     (19,517     (29,271     (19,517
    

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before provision for (benefit from) income taxes and equity income

   

  $ (11,118   $ (21,063   $ 6,058      $ 908   
    

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Excludes accretion income of $181 and $362 in each of the three and six months ended June 30, 2013 and 2012. Equity method investment income is exclusive to Olin Brass.

16. Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of common shares outstanding and diluted earnings per share is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued. Potentially dilutive securities include stock options and nonvested share awards. Nonvested performance-based share awards are included in the average diluted shares outstanding for each period if established performance criteria have been met at the end of the respective periods.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

The following table sets forth the computation of basic and diluted earnings per share attributable to the Company:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  

Numerator

        

Net loss attributable to Global Brass and Copper Holdings, Inc.

   $ (17,132   $ (20,005   $ (5,744   $ (6,012

Denominator

        

Weighted-average common shares outstanding

     21,110,000        21,110,000        21,110,000        21,110,000   

Effect of potentially dilutive securities: Stock options and nonvested share awards

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, assuming dilution

     21,110,000        21,110,000        21,110,000        21,110,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Global Brass and Copper Holdings, Inc. per common share:

        

Basic

   $ (0.81   $ (0.95   $ (0.27   $ (0.28

Diluted

   $ (0.81   $ (0.95   $ (0.27   $ (0.28

In the second quarter of 2013, the Company granted 104,444 options to purchase shares of common stock, 136,080 nonvested shares of restricted stock, and 98,441 nonvested performance-based shares to certain members of the Company’s management and its Board of Directors. For the three months and six months ended June 30, 2013, the dilutive effect of 8,555 shares and 4,278 shares, respectively, of nonvested restricted stock was excluded from the earnings per share calculation as they would be anti-dilutive given the loss in the periods.

17. Stock Split

On April 10, 2013 the Company’s Board of Directors authorized a 211,100-to-1 stock split to be effected after the effective date of the Company’s Form S-1 Registration Statement and prior to the completion of the Company’s initial public offering. On May 29, 2013 the Company completed its initial public offering of 8,050,000 shares of its common stock at a price of $11.00 per share. The share numbers and per share amounts disclosed in the consolidated financial statements and notes to consolidated financial statements have been retroactively adjusted to give effect to the stock split.

The balance sheets have been retroactively adjusted for the impact of the stock split by an increase to common stock of $211 with an offsetting charge to accumulated deficit.

18. Condensed Consolidating Financial Information

In June 2012, Holdings (presented as “Parent” in the following tables), through its wholly-owned principal operating subsidiary, GBC (presented as “Issuer” in the following tables), issued Senior Secured Notes as further described in note 8, “Financing”. The Senior Secured Notes are jointly and severally guaranteed on a senior secured basis by Holdings and substantially all existing 100%-owned U.S. subsidiaries of GBC and any future restricted subsidiaries (which are set forth in

 

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Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

more detail in the Indenture) who guarantee or incur certain types of Permitted Debt under the Indenture (collectively, the “Guarantors”). The guarantees are full and unconditional, except that a Guarantor can be automatically released and relieved of its obligations under certain customary provisions contained in the Indenture. Under these customary provisions, a Guarantor is automatically released from its obligations as a guarantor upon the sale of the Guarantor or substantially all of its assets to a third party, the designation of the Guarantor as an unrestricted subsidiary in accordance with the terms of the Indenture, the release or discharge of all guarantees by such Guarantor and the repayment of all indebtedness, or upon the Issuer’s exercise of its legal defeasance option or covenant defeasance option or if the obligations under the Indenture are discharged in accordance with the terms of the Indenture. All other subsidiaries of GBC, whether direct or indirect, do not guarantee the Senior Secured Notes (collectively, the “Non-Guarantors”).

Holdings is also a guarantor of the ABL Facility and substantially all of its 100%-owned U.S. subsidiaries are borrowers under, or guarantors of, the ABL Facility on a senior secured basis.

The following condensed consolidating financial information presents the financial position, results of operations, comprehensive income and cash flows of (1) the Parent, (2) the Issuer, (3) the Guarantors, (4) the Non-Guarantors and (5) eliminations to arrive at the information for the Company on a consolidated basis. The condensed consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, comprehensive income or cash flows of the Parent, the Issuer, the Guarantors or the Non-Guarantors on a stand-alone basis.

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Balance Sheet  
     As of June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

              

Current assets:

              

Cash

   $ —        $ 34,457      $ —         $ 4,207       $ (4,654   $ 34,010   

Accounts receivable, net of allowance

     —          4,815        182,082         16,443         —          203,340   

Inventories

     —          —          181,937         17,902         (290     199,549   

Prepaid expenses and other current assets

     —          10,030        14,925         195         (58     25,092   

Deferred income taxes

     —          31,760        —           —           —          31,760   

Income tax receivable

     —          2,147        —           —           —          2,147   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —          83,209        378,944         38,747         (5,002     495,898   

Property, plant and equipment, net

     —          985        73,999         346         —          75,330   

Investment in joint venture

     —          —          2,168         —           —          2,168   

Investment in subsidiaries

     —          591,583        19,336         —           (610,919     —     

Intercompany accounts

     —          —          253,943         —           (253,943     —     

Goodwill

     —          —          4,399         —           —          4,399   

Intangible assets, net

     —          —          787         —           —          787   

Deferred income taxes

     —          6,826        —           —           —          6,826   

Other noncurrent assets

     —          15,878        916         —           —          16,794   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ —        $ 698,481      $ 734,492       $ 39,093       $ (869,864   $ 602,202   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and (deficit) / equity

              

Current liabilities:

              

Accounts payable

   $ —        $ 290      $ 108,410       $ 3,283       $ (5,002   $ 106,981   

Accrued liabilities

     —          17,494        34,455         736         —          52,685   

Accrued interest

     —          3,395        —           —           —          3,395   

Income taxes payable

     —          39        44         251         —          334   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     —          21,218        142,909         4,270         (5,002     163,395   

Long-term debt

     —          431,000        —           —           —          431,000   

Other noncurrent liabilities

     —          27,678        —           —           —          27,678   

Obligations and advances in excess of investment in subsidiary

     16,502        —          —           —           (16,502     —     

Intercompany accounts

     7,145        235,087        —           11,711         (253,943     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     23,647        714,983        142,909         15,981         (275,447     622,073   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

     —          —          —           —           —          —     

Global Brass and Copper Holdings, Inc. stockholder’s (deficit) / equity

     (23,647     (16,502     591,583         19,336         (594,417     (23,647

Noncontrolling interest

     —          —          —           3,776         —          3,776   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total (deficit) / equity

     (23,647     (16,502     591,583         23,112         (594,417     (19,871
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and (deficit) / equity

   $ —        $ 698,481      $ 734,492       $ 39,093       $ (869,864   $ 602,202   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Balance Sheet  
     As of December 31, 2012  
     Parent     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

              

Current assets:

              

Cash

   $ —        $ 8,537      $ —         $ 5,446       $ (121   $ 13,862   

Accounts receivable, net of allowance

     —          4,630        144,533         15,154         —          164,317   

Inventories

     —          343        158,713         15,885         (563     174,378   

Prepaid expenses and other current assets

     —          9,229        2,600         312         —          12,141   

Deferred income taxes

     —          33,465        —           —           —          33,465   

Income tax receivable, net

     —          1,656        —           —           (356     1,300   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —          57,860        305,846         36,797         (1,040     399,463   

Property, plant and equipment, net

     —          1,154        69,646         327         —          71,127   

Investment in joint venture

     —          —          2,972         —           —          2,972   

Investment in subsidiaries

     —          522,912        19,850         —           (542,762     —     

Intercompany accounts

     —          —          223,081         —           (223,081     —     

Goodwill

     —          —          4,399         —           —          4,399   

Intangible assets, net

     —          —          839         —           —          839   

Deferred income taxes

     —          6,138        —           —           —          6,138   

Other noncurrent assets

     —          17,115        640         —           —          17,755   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ —        $ 605,179      $ 627,273       $ 37,124       $ (766,883   $ 502,693   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and (deficit) / equity

              

Current liabilities:

              

Accounts payable

   $ —        $ 1,398      $ 77,390       $ 2,910       $ (121   $ 81,577   

Accrued liabilities

     —          20,592        26,971         861         —          48,424   

Accrued interest

     —          3,287        —           —           —          3,287   

Income taxes payable

     —          248        —           356         (356     248   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     —          25,525        104,361         4,127         (477     133,536   

Long-term debt

     —          389,522        —           —           —          389,522   

Other noncurrent liabilities

     —          27,436        —           —           —          27,436   

Obligations and advances in excess of investment in subsidiary

     42,522        —          —           —           (42,522     —     

Intercompany accounts

     8,829        205,218        —           9,597         (223,644     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     51,351        647,701        104,361         13,724         (266,643     550,494   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Commitments and contingencies

     —          —          —           —           —          —     

Global Brass and Copper Holdings, Inc. stockholder’s (deficit) / equity

     (51,351     (42,522     522,912         19,850         (500,240     (51,351

Noncontrolling interest

     —          —          —           3,550         —          3,550   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total (deficit) / equity

     (51,351     (42,522     522,912         23,400         (500,240     (47,801
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and (deficit) / equity

   $ —        $ 605,179      $ 627,273       $ 37,124       $ (766,883   $ 502,693   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Operations  
     Three Months Ended June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Net sales

   $ —        $ —        $ 444,057      $ 25,522       $ (8,101   $ 461,478   

Cost of sales

     —          (415     394,201        24,093         (8,101     409,778   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     —          415        49,856        1,429         —          51,700   

Selling, general and administrative expenses

     4,802        24,512        22,840        701         —          52,855   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

     (4,802     (24,097     27,016        728         —          (1,155

Interest expense

     —          9,959        —          —           —          9,959   

Other (income) expense, net

     —          97        (213     120         —          4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes and equity income (loss)

     (4,802     (34,153     27,229        608         —          (11,118

Provision for (benefit from) income taxes

     (1,848     (4,553     12,446        416         —          6,461   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before equity income (loss)

     (2,954     (29,600     14,783        192         —          (17,579

Equity income (loss), net of tax

     (14,178     15,422        639        —           (1,375     508   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

     (17,132     (14,178     15,422        192         (1,375     (17,071

Less: Net income attributable to noncontrolling interest

     —          —          —          61         —          61   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (17,132   $ (14,178   $ 15,422      $ 131       $ (1,375   $ (17,132
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

28


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Operations  
     Three Months Ended June 30, 2012  
     Parent     Issuer     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ —        $ 397,588       $ 24,807      $ (5,416   $ 416,979   

Cost of sales

     —          654        352,200         22,420        (5,416     369,858   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     —          (654     45,388         2,387        —          47,121   

Selling, general and administrative expenses

     440        17,459        19,389         677        —          37,965   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (440     (18,113     25,999         1,710        —          9,156   

Interest expense

     —          10,209        —           —          —          10,209   

Loss on extinguishment of debt

     —          19,612        —           —          —          19,612   

Other (income) expense, net

     —          530        67         (199     —          398   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes and equity income (loss)

     (440     (48,464     25,932         1,909        —          (21,063

Provision for (benefit from) income taxes

     (169     (14,784     14,300         (318     —          (971
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before equity income (loss)

     (271     (33,680     11,632         2,227        —          (20,092

Equity income (loss), net of tax

     (19,734     13,946        2,314         —          3,675        201   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

     (20,005     (19,734     13,946         2,227        3,675        (19,891

Less: Net income attributable to noncontrolling interest

     —          —          —           114        —          114   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (20,005   $ (19,734   $ 13,946       $ 2,113      $ 3,675      $ (20,005
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Operations  
     Six Months Ended June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Net sales

   $ —        $ —        $ 872,130      $ 48,498       $ (14,188   $ 906,440   

Cost of sales

     —          116        777,054        44,842         (14,188     807,824   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     —          (116     95,076        3,656         —          98,616   

Selling, general and administrative expenses

     5,188        28,856        37,056        1,433         —          72,533   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

     (5,188     (28,972     58,020        2,223         —          26,083   

Interest expense

     —          19,834        —          —           —          19,834   

Other (income) expense, net

     —          187        (83     87         —          191   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes and equity income (loss)

     (5,188     (48,993     58,103        2,136         —          6,058   

Provision for (benefit from) income taxes

     (1,997     (9,953     23,690        763         —          12,503   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before equity income (loss)

     (3,191     (39,040     34,413        1,373         —          (6,445

Equity income (loss), net of tax

     (2,553     36,487        2,074        —           (35,148     860   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

     (5,744     (2,553     36,487        1,373         (35,148     (5,585

Less: Net income attributable to noncontrolling interest

     —          —          —          159         —          159   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (5,744   $ (2,553   $ 36,487      $ 1,214       $ (35,148   $ (5,744
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

30


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Operations  
     Six Months Ended June 30, 2012  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ —        $ 829,135      $ 44,619      $ (13,384   $ 860,370   

Cost of sales

     —          (1,905     738,120        40,464        (13,384     763,295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          1,905        91,015        4,155        —          97,075   

Selling, general and administrative expenses

     735        21,812        32,044        1,297        —          55,888   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (735     (19,907     58,971        2,858        —          41,187   

Interest expense (income)

     —          19,961        (3     —          —          19,958   

Loss on extinguishment of debt

     —          19,612        —          —          —          19,612   

Other (income) expense, net

     —          597        251        (139     —          709   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for (benefit from) income taxes and equity income (loss)

     (735     (60,077     58,723        2,997        —          908   

Provision for (benefit from) income taxes

     (283     (19,161     26,662        9        —          7,227   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity income (loss)

     (452     (40,916     32,061        2,988        —          (6,319

Equity income (loss), net of tax

     (5,560     35,356        3,295        —          (32,616     475   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (6,012     (5,560     35,356        2,988        (32,616     (5,844

Less: Net income attributable to noncontrolling interest

     —          —          —          168        —          168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (6,012   $ (5,560   $ 35,356      $ 2,820      $ (32,616   $ (6,012
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Comprehensive Income (Loss)  
     Three Months Ended June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net income (loss)

   $ (17,132   $ (14,178   $ 15,422      $ 192      $ (1,375   $ (17,071

Foreign currency translation adjustment, net of tax

     (489     (489     (803     (177     1,518        (440
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (17,621     (14,667     14,619        15        143        (17,511

Less: Comprehensive income attributable to noncontrolling interest

     —          —          —          110        —          110   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (17,621   $ (14,667   $ 14,619      $ (95   $ 143      $ (17,621
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Comprehensive Income (Loss)  
     Three Months Ended June 30, 2012  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Net income (loss)

   $ (20,005   $ (19,734   $ 13,946      $ 2,227      $ 3,675       $ (19,891

Foreign currency translation adjustment, net of tax

     (148     (148     (227     (520     900         (143
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

     (20,153     (19,882     13,719        1,707        4,575         (20,034

Less: Comprehensive income attributable to noncontrolling interest

     —          —          —          119        —           119   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (20,153   $ (19,882   $ 13,719      $ 1,588      $ 4,575       $ (20,153
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

33


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Comprehensive Income (Loss)  
     Six Months Ended June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Net income (loss)

   $ (5,744   $ (2,553   $ 36,487      $ 1,373       $ (35,148   $ (5,585

Foreign currency translation adjustment, net of tax

     (879     (879     (1,462     209         2,199        (812
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

     (6,623     (3,432     35,025        1,582         (32,949     (6,397

Less: Comprehensive income attributable to noncontrolling interest

     —          —          —          226         —          226   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (6,623   $ (3,432   $ 35,025      $ 1,356       $ (32,949   $ (6,623
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

34


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Comprehensive Income (Loss)  
     Six Months Ended June 30, 2012  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Net income (loss)

   $ (6,012   $ (5,560   $ 35,356      $ 2,988       $ (32,616   $ (5,844

Foreign currency translation adjustment, net of tax

     (145     (145     (222     799         (410     (123
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

     (6,157     (5,705     35,134        3,787         (33,026     (5,967

Less: Comprehensive income attributable to noncontrolling interest

     —          —          —          190         —          190   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to Global Brass and Copper Holdings, Inc.

   $ (6,157   $ (5,705   $ 35,134      $ 3,597       $ (33,026   $ (6,157
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

35


Table of Contents

Global Brass and Copper Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(All amounts in thousands, except share and per share data)

 

     Condensed Consolidating Statement of Cash Flows  
     Six Months Ended June 30, 2013  
     Parent     Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities

            

Net cash provided by (used in) operating activities

   $ —        $ (15,558