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 September 30, 2015
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
__________________________________________________________
GLOBAL BRASS AND COPPER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________________ 
Delaware
 
06-1826563
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
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  x    No  ¨
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
x
 
 
 
 
Non-accelerated filer
¨  (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 October 29, 2015, there were 21,507,154 shares of common stock outstanding.
 


Table of Contents

Global Brass and Copper Holdings, Inc.
Index
September 30, 2015
Table of Contents
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 

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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 millions, except share and par value data)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash
$
73.5

 
$
44.6

 
$
17.4

Accounts receivable (net of allowance of $1.3, $1.0 and $1.0 at September 30, 2015, December 31, 2014 and September 30, 2014, respectively)
154.5

 
152.3

 
194.1

Inventories
197.0

 
189.0

 
216.2

Prepaid expenses and other current assets
16.3

 
26.2

 
23.6

Deferred income taxes
33.9

 
30.1

 
32.0

Income tax receivable

 
8.3

 
4.4

Total current assets
475.2

 
450.5

 
487.7

Property, plant and equipment
148.2

 
138.6

 
132.2

Less: Accumulated depreciation
44.3

 
35.1

 
31.7

Property, plant and equipment, net
103.9

 
103.5

 
100.5

Investment in joint venture

 
2.0

 
2.5

Goodwill
4.4

 
4.4

 
4.4

Intangible assets, net
0.5

 
0.6

 
0.6

Deferred income taxes
2.5

 
0.8

 
1.2

Other noncurrent assets
12.1

 
14.7

 
15.6

Total assets
$
598.6

 
$
576.5

 
$
612.5

Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of capital lease obligation
$
1.1

 
$
1.0

 
$
1.0

Accounts payable
91.8

 
82.5

 
106.0

Accrued liabilities
53.1

 
57.3

 
54.6

Accrued interest
11.5

 
3.2

 
12.2

Income tax payable
0.5

 
0.5

 
0.2

Total current liabilities
158.0

 
144.5

 
174.0

Non-current portion of debt
357.9

 
379.8

 
388.5

Deferred income taxes

 
0.8

 

Other noncurrent liabilities
25.4

 
25.4

 
25.6

Total liabilities
541.3

 
550.5

 
588.1

Commitments and contingencies (Note 12)

 

 

Global Brass and Copper Holdings, Inc. stockholders’ equity:
 
 
 
 
 
Common stock - $0.01 par value; 80,000,000 shares authorized; 21,553,883, 21,369,407 and 21,369,407 shares issued at September 30, 2015, December 31, 2014 and September 30, 2014, respectively
0.2

 
0.2

 
0.2

Additional paid-in capital
35.8

 
32.5

 
32.1

Retained earnings (accumulated deficit)
19.6

 
(10.1
)
 
(12.1
)
Treasury stock - 46,729, 29,200 and 29,200 shares at September 30, 2015, December 31, 2014 and September 30, 2014, respectively
(0.7
)
 
(0.4
)
 
(0.4
)
Accumulated other comprehensive (loss) income
(1.9
)
 
(0.6
)
 
0.3

Total Global Brass and Copper Holdings, Inc. stockholders’ equity
53.0

 
21.6

 
20.1

Noncontrolling interest
4.3

 
4.4

 
4.3

Total equity
57.3

 
26.0

 
24.4

Total liabilities and equity
$
598.6

 
$
576.5

 
$
612.5

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

1

Table of Contents

Global Brass and Copper Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share data)
2015
 
2014
 
2015
 
2014
Net sales
$
367.7

 
$
436.8

 
$
1,182.8

 
$
1,321.1

Cost of sales
325.1

 
392.2

 
1,046.0

 
1,188.7

Gross profit
42.6

 
44.6

 
136.8

 
132.4

Selling, general and administrative expenses
20.2

 
18.8

 
63.5

 
57.5

Operating income
22.4

 
25.8

 
73.3

 
74.9

Interest expense
9.9

 
10.0

 
29.8

 
29.7

Loss on extinguishment of debt
2.3

 

 
2.3

 

Gain on sale of investment in joint venture

 

 
(6.3
)
 

Other (income) expense, net
(0.1
)
 
0.1

 
(0.2
)
 
0.3

Income before provision for income taxes and equity income
10.3

 
15.7

 
47.7

 
44.9

Provision for income taxes
3.3

 
5.7

 
15.7

 
16.5

Income before equity income
7.0

 
10.0

 
32.0

 
28.4

Equity income, net of tax

 
0.3

 
0.3

 
0.8

Net income
7.0

 
10.3

 
32.3

 
29.2

Less: Net income attributable to noncontrolling interest
0.1

 
0.1

 
0.2

 
0.3

Net income attributable to Global Brass and Copper Holdings, Inc.
$
6.9

 
$
10.2

 
$
32.1

 
$
28.9

Net income attributable to Global Brass and Copper Holdings, Inc. per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.48

 
$
1.51

 
$
1.36

Diluted
$
0.32

 
$
0.48

 
$
1.50

 
$
1.36

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
21.3

 
21.2

 
21.3

 
21.2

Diluted
21.4

 
21.3

 
21.4

 
21.3

Dividends declared per common share
$
0.0375

 
$
0.0375

 
$
0.1125

 
$
0.1125

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

2

Table of Contents

Global Brass and Copper Holdings, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Net income
$
7.0

 
$
10.3

 
$
32.3

 
$
29.2

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(1.4
)
 
(0.3
)
 
(1.9
)
 
(0.4
)
Less: Income tax benefit on foreign currency translation adjustment
(0.3
)
 
(0.2
)
 
(0.5
)
 
(0.2
)
Comprehensive income
5.9

 
10.2

 
30.9

 
29.0

Less: Comprehensive (loss) income attributable to noncontrolling interest
(0.1
)
 
0.1

 
0.1

 
0.3

Comprehensive income attributable to Global Brass and Copper Holdings, Inc.
$
6.0

 
$
10.1

 
$
30.8

 
$
28.7

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

3

Table of Contents

Global Brass and Copper Holdings, Inc.
Consolidated Statements of Changes in Equity / (Deficit) (Unaudited)
 
(In millions, except share data)
Common
stock
 
Additional
paid-in
capital
 
Retained earnings / (accumulated
deficit)/

 
Treasury
stock
 
Accumulated
other
comprehensive
(loss) income
 
Total
Global Brass
and Copper
Holdings, Inc.
stockholders’
equity/(deficit)
 
Noncontrolling
interest
 
Total
equity/
(deficit)
Balance at December 31, 2013
$
0.2

 
$
30.5

 
$
(38.6
)
 
$

 
$
0.5

 
$
(7.4
)
 
$
4.0

 
$
(3.4
)
Share-based compensation (106,316 shares)

 
1.3

 

 

 

 
1.3

 

 
1.3

Exercise of stock options (11,605 shares)

 
0.1

 

 

 

 
0.1

 

 
0.1

Share repurchases (29,200 shares)

 

 

 
(0.4
)
 

 
(0.4
)
 

 
(0.4
)
Excess tax benefit on share-based compensation

 
0.2

 

 

 

 
0.2

 

 
0.2

Dividends declared

 

 
(2.4
)
 

 

 
(2.4
)
 

 
(2.4
)
Net income

 

 
28.9

 

 

 
28.9

 
0.3

 
29.2

Other comprehensive loss, net of tax

 

 

 

 
(0.2
)
 
(0.2
)
 

 
(0.2
)
Balance at September 30, 2014
$
0.2

 
$
32.1

 
$
(12.1
)
 
$
(0.4
)
 
$
0.3

 
$
20.1

 
$
4.3

 
$
24.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
0.2

 
$
32.5

 
$
(10.1
)
 
$
(0.4
)
 
$
(0.6
)
 
$
21.6

 
$
4.4

 
$
26.0

Share-based compensation (172,678 shares)

 
3.1

 

 

 

 
3.1

 

 
3.1

Exercise of stock options (11,798 shares)

 
0.1

 

 

 

 
0.1

 

 
0.1

Share repurchases (17,529 shares)

 

 

 
(0.3
)
 

 
(0.3
)
 

 
(0.3
)
Excess tax benefit on share-based compensation

 
0.1

 

 

 

 
0.1

 

 
0.1

Dividends declared

 

 
(2.4
)
 

 

 
(2.4
)
 

 
(2.4
)
Distribution to noncontrolling interest

 

 

 

 

 

 
(0.2
)
 
(0.2
)
Net income

 

 
32.1

 

 

 
32.1

 
0.2

 
32.3

Other comprehensive loss, net of tax

 

 

 

 
(1.3
)
 
(1.3
)
 
(0.1
)
 
(1.4
)
Balance at September 30, 2015
$
0.2

 
$
35.8

 
$
19.6

 
$
(0.7
)
 
$
(1.9
)
 
$
53.0

 
$
4.3

 
$
57.3

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

4

Table of Contents

Global Brass and Copper Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
 
 
Nine Months Ended September 30,
(In millions)
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
32.3

 
$
29.2

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Lower of cost or market adjustment to inventory
4.8

 
0.2

Unrealized loss on derivatives
0.1

 
0.3

Depreciation
10.0

 
8.8

Amortization of intangible assets
0.1

 
0.1

Amortization of debt issuance costs
2.1

 
2.0

Loss on debt extinguishment
2.3

 

Share-based compensation expense
3.1

 
1.3

Excess tax benefit from share-based compensation
(0.1
)
 
(0.2
)
Provision for bad debts, net of reductions
0.4

 
(0.1
)
Deferred income taxes
(5.8
)
 
3.1

Loss on disposal of property, plant and equipment
0.4

 

Gain on sale of investment in joint venture
(6.3
)
 

Equity earnings, net of distributions
0.1

 
(0.4
)
Change in assets and liabilities:
 
 
 
Accounts receivable
(3.5
)
 
(22.3
)
Inventories
(13.9
)
 
(25.8
)
Prepaid expenses and other current assets
9.9

 
(1.4
)
Accounts payable
11.9

 
23.6

Accrued liabilities
(4.6
)
 
(1.3
)
Accrued interest
8.3

 
8.9

Income taxes, net
8.4

 
(0.2
)
Other, net

 
(1.1
)
Net cash provided by operating activities
60.0

 
24.7

Cash flows from investing activities
 
 
 
Capital expenditures
(13.0
)
 
(19.5
)
Proceeds from sale of property, plant, and equipment
0.1

 
0.8

Proceeds from sale of investment in joint venture
8.0

 

Net cash used in investing activities
(4.9
)
 
(18.7
)
Cash flows from financing activities
 
 
 
Borrowings on ABL Facility
0.9

 
245.1

Payments on ABL Facility
(0.9
)
 
(242.1
)
Purchases of Senior Secured Notes
(21.1
)
 

Premium payment on partial debt extinguishment
(1.8
)
 

Principal payments under capital lease obligation
(0.7
)
 

Dividends paid
(2.4
)
 
(2.4
)
Distribution to noncontrolling interest owner
(0.2
)
 

Proceeds from exercise of stock options
0.1

 
0.1

Excess tax benefit from share-based compensation
0.1

 
0.2

Share repurchases
(0.3
)
 
(0.4
)
Net cash (used in) provided by financing activities
(26.3
)
 
0.5

Effect of foreign currency exchange rates
0.1

 
0.1

Net increase in cash
28.9

 
6.6

Cash at beginning of period
44.6

 
10.8

Cash at end of period
$
73.5

 
$
17.4

Noncash investing and financing activities
 
 
 
Purchases of property, plant and equipment not yet paid
$
1.8

 
$
1.4

Acquisition of equipment under capital lease obligation
$

 
$
6.0

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)


1.
Basis of Presentation and Principles of Consolidation
Global Brass and Copper Holdings, Inc. (“Holdings,” the “Company,” “we,” “us,” or “our”) through its wholly-owned principal operating subsidiary, Global Brass and Copper, Inc. (“GBC”), is operated and managed through three reportable segments: GBC Metals, LLC (“Olin Brass”), Chase Brass and Copper Company, LLC (“Chase Brass”) and A.J. Oster, LLC (“A.J. Oster”).
These unaudited consolidated financial statements include the accounts of the Company, our wholly-owned subsidiaries and our majority-owned subsidiaries in which we have a controlling interest. All intercompany accounts and transactions are eliminated in consolidation. The equity method is used to account for investments in affiliated companies that are 20% to 50% owned where we do not hold a controlling voting interest and do not direct the matters that most significantly impact the investee’s operations.
The accompanying unaudited interim consolidated 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, 2014 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 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 periods. 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 our significant accounting policies during the nine months ended September 30, 2015. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Revision of Prior Period Statements of Cash Flows
We revised our consolidated statement of cash flows for the nine months ended September 30, 2014 to correct errors related to the treatment of purchases of property, plant and equipment for which cash had not yet been paid. These non-cash purchases were previously reflected as a component of net cash used in operating activities and net cash used in investing activities. We assessed and determined that the error is not material to any previously reported annual or interim financial statements. The revision of prior reported amounts has no impact on the reported change in cash or amounts reported in the consolidated balance sheets, statements of operations, statements of comprehensive income or statements of changes in equity / (deficit).
For the nine months ended September 30, 2014, the correction to cash flows from operating activities was to adjust the cash effect of the change in accounts payable and the change in accrued liabilities by $3.0 million and $0.3 million, respectively, from $20.6 million and $1.6 million, respectively, to $23.6 million and $1.3 million, respectively. The correction to cash flows from investing activities was to adjust capital expenditures by $3.3 million, from $16.2 million to $19.5 million. The revision resulted in an increase of $3.3 million to the Company’s “net cash provided by operating activities” for the nine months ended September 30, 2014, with a corresponding increase to “net cash used in investing activities”.
Recently Issued and Recently Adopted Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”).  ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years, and interim reporting periods within those fiscal years,

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Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

beginning after December 15, 2015. We do not expect the adoption of this standard to have a material effect on our financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 simplifies the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. Under the new standard, in scope inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost, should be measured at the lower of cost and net realizable value. Prior to the issuance of the standard, inventory was measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin).  The new standard is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-3, Interest — Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-3”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-3 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. ASU 2015-3 requires retrospective adoption. In August 2015, the FASB issued ASU No. 2015-15, Interest – Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of Credit Arrangements (“ASU 2015-15”).  ASU 2015-15 provides additional guidance to ASU 2015-3, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 noted that the Securities and Exchange Commission (“SEC”) staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  We do not expect the adoption of these standards to have a material effect on our financial statements.

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, in May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (“ASU 2014-9”). The guidance provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which is an amendment to ASU 2014-9 and defers its effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We are in the process of evaluating the impact of adoption on our consolidated financial statements.

2.
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 nonvested share awards and stock options for which the exercise price was less than the average market price of our outstanding common stock. 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)

The following table sets forth the computation of basic and diluted earnings per share:
(in millions, except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
Net income attributable to Global Brass and Copper Holdings, Inc.
$
6.9

 
$
10.2

 
$
32.1

 
$
28.9

Denominator
 
 
 
 
 
 
 
Weighted-average common shares outstanding
21.3

 
21.2

 
21.3

 
21.2

Effect of potentially dilutive securities:
 
 
 
 
 
 
 
Stock options and nonvested share awards
0.1

 
0.1

 
0.1

 
0.1

Weighted-average common shares outstanding, assuming dilution
21.4

 
21.3

 
21.4

 
21.3

Net income attributable to Global Brass and Copper Holdings, Inc. per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.48

 
$
1.51

 
$
1.36

Diluted
$
0.32

 
$
0.48

 
$
1.50

 
$
1.36

The computation of weighted-average common shares outstanding, assuming dilution, for the periods presented, includes the average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards and vesting of the portion of performance-based shares for which the established performance criterion has been met. Weighted-average common shares outstanding, assuming dilution, for the three and nine months ended September 30, 2014 excluded 150,740 shares and 147,136 shares awarded under our equity incentive plan, respectively, because they were anti-dilutive.

3.
Inventories
Inventories were as follows:
 
As of
(in millions)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Raw materials and supplies
$
33.7

 
$
29.7

 
$
35.2

Work-in-process
80.6

 
78.7

 
82.8

Finished goods
82.7

 
80.6

 
98.2

Total inventories
$
197.0

 
$
189.0

 
$
216.2

Inventories include costs attributable to direct labor and manufacturing overhead, but are primarily comprised of raw material costs. The metals component of inventories that is valued on a LIFO basis comprised approximately 70% of total inventory at September 30, 2015December 31, 2014 and September 30, 2014. Other manufactured inventories, including the direct labor and manufacturing overhead components and certain non-U.S. inventories, are valued on a FIFO basis.
During the three months ended September 30, 2015, we reduced the recorded value of certain domestic, non-copper metal inventory by $2.3 million, resulting from the decline in market value of these metals. We did not record a similar adjustment in the three months ended September 30, 2014. During the nine months ended September 30, 2015 and 2014, these adjustments were $4.8 million and $0.2 million, respectively. These non-cash, lower of cost or market adjustments were recorded in cost of sales in the accompanying consolidated statements of operations.
If all inventories had been valued at period-end market values, inventories would have been approximately $248.9 million, $280.1 million and $316.7 million at September 30, 2015December 31, 2014 and September 30, 2014, respectively.


8

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

4.    Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were as follows:
 
As of
(in millions)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Workers’ compensation plan deposits
$
6.3

 
$
6.2

 
$
5.7

Deferred cost of sales - toll customers
2.9

 
12.7

 
9.1

Prepaid insurance
2.4

 
2.8

 
3.4

Derivative contract assets
1.1

 
1.3

 
1.6

Prepaid tooling
0.5

 
1.2

 
1.2

Other
3.1

 
2.0

 
2.6

Total prepaid expenses and other current assets
$
16.3

 
$
26.2

 
$
23.6


5.
Investment in Joint Venture
During each of the nine months ended September 30, 2015 and 2014, we received cash dividends from Dowa Olin Metal Corporation (the “Dowa Joint Venture”) of $0.4 million, which were recorded as a reduction in our investment in the Dowa Joint Venture.
On April 3, 2015, we sold our 50% share of the Dowa Joint Venture to our joint venture partner, DOWA Metaltech Co. Ltd. for $8.0 million. Thus, we no longer own any portion of the Dowa Joint Venture. During the nine months ended September 30, 2015, we recognized a gain of $6.3 million and related tax expense of $1.5 million on the sale.


6.    Accrued Liabilities
Accrued liabilities consisted of the following:
 
As of
(in millions)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Compensation and benefits
$
23.6

 
$
18.1

 
$
18.7

Workers’ compensation
13.8

 
14.2

 
14.6

Deferred sales revenue - toll customers
2.9

 
12.7

 
9.1

Insurance
2.9

 
2.5

 
2.2

Professional fees
2.5

 
2.1

 
2.7

Utilities
1.8

 
1.5

 
1.7

Taxes
1.3

 
1.7

 
1.3

Tooling
0.4

 
0.8

 
0.6

Other
3.9

 
3.7

 
3.7

Total accrued liabilities
$
53.1

 
$
57.3

 
$
54.6



9

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

7.
Financing
Long-term debt consisted of the following:
 
As of
(in millions)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Senior Secured Notes
$
353.9

 
$
375.0

 
$
375.0

ABL Facility

 

 
8.5

Obligations under capital lease
5.1

 
5.8

 
6.0

Total debt
359.0

 
380.8

 
389.5

Less: Current portion of capital lease obligations
1.1

 
1.0

 
1.0

Non-current portion of debt
$
357.9

 
$
379.8

 
$
388.5

Senior Secured Notes
We have $353.9 million of senior secured notes outstanding that mature on June 1, 2019 (the “Senior Secured Notes”) and are guaranteed by Holdings. 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.

During the three months ended September 30, 2015, we purchased in the open market an aggregate of $21.1 million principal amount of our Senior Secured Notes for an aggregate purchase price of $22.9 million, plus accrued interest. As a result of these purchases, we recognized a loss on the extinguishment of debt of $2.3 million, which includes a premium of $1.8 million and the write-off of $0.5 million of unamortized debt issuance costs.
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 pay dividends 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 $5.0 million per year are permitted under those agreements. Under the terms of the Indenture, GBC is also permitted to pay dividends 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. As of September 30, 2015, all of the net assets of the subsidiaries are restricted except for $78.0 million, which are permitted for dividend distributions under the Indenture. As of September 30, 2015, we were in compliance with all of the covenants relating to the Indenture.
ABL Facility
Available borrowings under our asset-based revolving loan facility (the “ABL Facility”) were $200.0 million, $199.5 million and $191.0 million as of September 30, 2015December 31, 2014 and September 30, 2014, respectively. As of September 30, 2015December 31, 2014 and September 30, 2014, amounts outstanding, if any, under the ABL Facility accrued interest at a rate of 4.25%. Unused amounts under the ABL Facility incur an unused line fee of 0.50% per annum, payable in full on a quarterly basis.
The ABL Facility has an expiration date of June 1, 2017 and contains various debt covenants to which we are subject on an ongoing basis. As of September 30, 2015, we were in compliance with all of the covenants under the ABL Facility.

8.
Income Taxes
The effective income tax rate, which is the provision for income taxes as a percentage of income before provision for income taxes and equity income, was 32.0% and 36.3% for the three months ended September 30, 2015 and 2014, respectively. The effective income tax rate was 32.9% and 36.7% for the nine months ended September 30, 2015 and 2014, respectively. The effective income tax rates for the three and nine months ended September 30, 2015 and 2014 differed from the U.S. Federal statutory rate of 35% primarily due to state income taxes, utilization of foreign tax credits in 2015 due to the sale of our share of the Dowa Joint Venture, the domestic manufacturing deduction, and discrete tax items that impacted the provision for income taxes in these periods.

10

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

As of September 30, 2015December 31, 2014 and September 30, 2014, we had $25.2 million, $25.2 million and $25.4 million, 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 are classified as a component of provision for income taxes. There were no such estimated amounts for the three and nine months ended September 30, 2015 or 2014. Accrued interest and penalties as of September 30, 2015December 31, 2014 and September 30, 2014 were $0.1 million. Our liability for uncertain tax positions of $25.3 million, $25.3 million and $25.5 million at September 30, 2015December 31, 2014 and September 30, 2014, respectively, is presented in other noncurrent liabilities in the accompanying unaudited consolidated balance sheets.
Our U.S. federal returns for the period ended December 31, 2012 and all subsequent periods remain open for audit. The majority of state returns for the period ended December 31, 2011 and all subsequent periods also remain open for audit.

9.
Segment Information
Our Chief Operating Decision Maker allocates resources and evaluates performance at the divisional level. As such, we have determined that we have three reportable segments: Olin Brass, Chase Brass and A.J. Oster.
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 steel, carbon steel and aluminum. Olin Brass’s products are used in five primary markets: building and housing, munitions, automotive, coinage, and electronics/electrical components.
Chase Brass is a leading manufacturer of brass rod in North America. Chase Brass 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, making it especially suitable for forging and machining products such as valves and fittings. Brass rod is generally manufactured from copper or copper-alloy scrap. Chase Brass produces brass rod used in production applications which can be grouped into four primary markets: building and housing, transportation, electronics/electrical components and industrial machinery and equipment.
A.J. Oster is a processor and distributor primarily of copper and copper-alloy sheet, strip and foil. A.J. Oster operates six strategically-located service centers in the United States, Puerto Rico and Mexico. Each A.J. Oster service center reliably provides a broad range of high quality products at quick lead-times in small quantities. These capabilities, combined with A.J. Oster’s operations of precision slitting, hot tinning, traverse winding, cutting, edging and special packaging, provide value to a broad customer base. A.J. Oster’s products are used in three primary markets: building and housing, automotive and electronics/electrical components.
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, share-based compensation expense, costs related to other long-term incentive programs, gains and losses associated with certain acquisitions and dispositions and the elimination of intercompany balances and transactions.
The Chief Operating Decision Maker evaluates performance and determines resource allocations based on a number of factors, the primary performance measure being Adjusted EBITDA.
Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization (“EBITDA”) adjusted to exclude unrealized gains and losses on derivative contracts in support of our balanced book approach, unrealized gains and losses associated with derivative contracts related to electricity and natural gas costs, non-cash losses due to lower of cost or market adjustments to inventory, non-cash gains and losses due to the depletion of a LIFO layer of metal inventory, share-based compensation expense, loss on extinguishment of debt, non-cash income accretion related to the Dowa Joint Venture, restructuring and other business transformation charges, specified legal and professional expenses and certain other items, each of which are excluded because our management believes they are not indicative of the ongoing performance of our core operations.

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Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

Below is a reconciliation of Adjusted EBITDA of segments to income before provision for income taxes and equity income:
(in millions)
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Net Sales, External Customers
 
 
 
 
 
 
 
Olin Brass
$
163.3

 
$
200.4

 
$
525.5

 
$
613.0

Chase Brass
129.6

 
154.7

 
427.5

 
470.0

A.J. Oster
74.8

 
81.7

 
229.8

 
238.1

Total net sales, external customers
$
367.7

 
$
436.8

 
$
1,182.8

 
$
1,321.1

Intersegment Net Sales
 
 
 
 
 
 
 
Olin Brass
$
11.5

 
$
16.7

 
$
41.8

 
$
44.6

Chase Brass
0.3

 

 
1.5

 

A.J. Oster
0.1

 
0.2

 
0.1

 
0.2

Total intersegment net sales
$
11.9

 
$
16.9

 
$
43.4

 
$
44.8

Adjusted EBITDA
 
 
 
 
 
 
 
Olin Brass
$
15.0

 
$
11.0

 
$
42.0

 
$
31.1

Chase Brass
15.5

 
18.1

 
54.0

 
54.2

A.J. Oster
4.6

 
4.5

 
12.8

 
12.6

Total Adjusted EBITDA of segments
35.1

 
33.6

 
108.8

 
97.9

Corporate and Other
(4.5
)
 
(3.2
)
 
(7.9
)
 
(9.2
)
Depreciation expense
(3.4
)
 
(3.5
)
 
(10.0
)
 
(8.8
)
Amortization expense
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Interest expense
(9.9
)
 
(10.0
)
 
(29.8
)
 
(29.7
)
Net income attributable to noncontrolling interest
0.1

 
0.1

 
0.2

 
0.3

Unrealized (loss) gain on derivative contracts (a)
(0.8
)
 
0.1

 
(0.1
)
 
(0.3
)
Loss on extinguishment of debt (b)
(2.3
)
 

 
(2.3
)
 

Equity method investment income (c)

 
(0.2
)
 
(0.1
)
 
(0.3
)
Specified legal/professional expenses (d)
(0.4
)
 
(1.1
)
 
(2.2
)
 
(3.1
)
Lower of cost or market adjustment to inventory (e)
(2.3
)
 

 
(4.8
)
 
(0.2
)
Share-based compensation expense (f)
(1.2
)
 
0.3

 
(3.1
)
 
(1.3
)
Restructuring and other business transformation charges (g)

 
(0.3
)
 
(0.9
)
 
(0.3
)
Income before provision for income taxes and equity income
$
10.3

 
$
15.7

 
$
47.7

 
$
44.9

(a)
Represents unrealized gains and losses on derivative contracts.
(b)
Represents the loss on extinguishment of debt recognized in connection with the open market purchases of Senior Secured Notes.
(c)
Excludes accretion income of $0.1 million for the three months ended September 30, 2014. Excludes accretion income of $0.2 million and $0.5 million for the nine months ended September 30, 2015 and 2014, respectively. Equity method investment income is exclusive to Olin Brass.
(d)
Represents selected professional fees for accounting, tax, legal and consulting services incurred as a public company that exceed our expected long-term requirements.
(e)
Represents non-cash lower of cost or market charges for the write down of domestic, non-copper metal inventory.
(f)
Represents share-based compensation expense resulting from the grant of non-qualified stock options, restricted stock and performance-based shares to certain employees, members of our management and our Board of Directors.
(g)
Restructuring and other business transformation charges for the nine months ended September 30, 2015 and the three and nine months ended September 30, 2014 represent severance charges at Olin Brass.


12

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

10.
Derivative Contracts
We maintain a metal, natural gas and electricity pricing risk-management strategy that uses commodity derivative contracts to minimize significant, unanticipated gains or losses that may arise from volatility of the commodity indices.
We are also exposed 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. We manage 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.
We manage credit risk associated with derivative contracts by executing derivative instruments with counterparties that we believe are credit-worthy. The amount of such credit risk 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 the credit worthiness of these counterparties deteriorates, 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, if any, with any amounts payable to the counterparties by the Company.
The following tables provide a summary of our outstanding commodity derivative contracts:
(in millions, except for number of contracts)
 
 
 
 
 
 
 
 
 
 
 
 
As of
 
September 30, 2015
 
December 31, 2014
 
September 30, 2014
 
Net
Notional
Amount
 
# of
Contracts
 
Net
Notional
Amount
 
# of
Contracts
 
Net
Notional
Amount
 
# of
Contracts
Metal
$
2.5

 
814

 
$
13.4

 
400

 
$
(7.4
)
 
526

Natural gas
1.6

 
53

 
2.6

 
78

 
2.2

 
60

Electricity
1.6

 
19

 
5.9

 
77

 
3.4

 
41

Total
$
5.7

 
886

 
$
21.9

 
555

 
$
(1.8
)
 
627

 
As of
(in millions)
September 30,
2015
 
December 31,
2014
 
September 30,
2014
Notional amount - long
$
29.4

 
$
29.9

 
$
22.5

Notional amount - (short)
(23.7
)
 
(8.0
)
 
(24.3
)
Net long / (short)
$
5.7

 
$
21.9

 
$
(1.8
)


13

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)


The fair values of derivative contracts in the consolidated balance sheets 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 open derivative contracts, the net amounts presented in the consolidated balance sheets, and the collateral deposited with counterparties:
(in millions)
As of September 30, 2015
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Assets
Presented in Consolidated
Balance Sheet
Metal
$
1.6

 
$
(1.6
)
 
$

Natural gas

 

 

Electricity

 

 

Collateral on deposit
3.2

 
(2.1
)
 
1.1

Total
$
4.8

 
$
(3.7
)
 
$
1.1

 
 
 
 
 
 
Consolidated balance sheet location:
 
 
 
 
 
Prepaid expenses and other current assets
 
 
 
 
$
1.1

 
(in millions)
As of September 30, 2015
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Liabilities
Presented in Consolidated
Balance Sheet
Metal
$
3.1

 
$
(3.1
)
 
$

Natural gas
0.4

 
(0.4
)
 

Electricity
0.2

 
(0.2
)
 

Total
$
3.7

 
$
(3.7
)
 
$

 

14

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

(in millions)
As of December 31, 2014
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Assets
Presented in Consolidated
Balance Sheet
Metal
$
0.5

 
$
(0.5
)
 
$

Natural gas

 

 

Electricity
0.2

 
(0.2
)
 

Collateral on deposit
3.3

 
(2.0
)
 
1.3

Total
$
4.0

 
$
(2.7
)
 
$
1.3

 
 
 
 
 
 
Consolidated balance sheet location:
 
 
 
 
 
Prepaid expenses and other current assets
 
 
 
 
$
1.3

 
(in millions)
As of December 31, 2014
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Liabilities
Presented in Consolidated
Balance Sheet
Metal
$
1.4

 
$
(1.4
)
 
$

Natural gas
0.7

 
(0.7
)
 

Electricity
0.6

 
(0.6
)
 

Total
$
2.7

 
$
(2.7
)
 
$


15

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

 
(in millions)
As of September 30, 2014
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Assets
Presented in Consolidated
Balance Sheet
Metal
$
1.1

 
$
(0.5
)
 
$
0.6

Natural gas

 

 

Electricity
0.3

 
(0.2
)
 
0.1

Collateral on deposit
0.9

 

 
0.9

Total
$
2.3

 
$
(0.7
)
 
$
1.6

 
 
 
 
 
 
Consolidated balance sheet location:
 
 
 
 
 
Prepaid expenses and other current assets
 
 
 
 
$
1.6

 
(in millions)
As of September 30, 2014
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in
Consolidated Balance
Sheet
 
Net Amounts of Liabilities
Presented in Consolidated
Balance Sheet
Metal
$
0.5

 
$
(0.5
)
 
$

Natural gas
0.1

 

 
0.1

Electricity
0.2

 
(0.2
)
 

Total
$
0.8

 
$
(0.7
)
 
$
0.1

 
 
 
 
 
 
Consolidated balance sheet location:
 
 
 
 
 
Accrued liabilities
 
 
 
 
$
0.1


The following table summarizes the effects of derivative contracts in the consolidated statements of operations:
(in millions)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Losses (gains) in cost of sales for:
 
 
 
 
 
 
 
Metal
$
1.5

 
$
(0.5
)
 
$
1.4

 
$
(1.0
)
Natural gas
0.2

 
0.2

 
0.3

 

Electricity

 
0.2

 
0.3

 
(1.4
)
Total
$
1.7

 
$
(0.1
)
 
$
2.0

 
$
(2.4
)

11.
Fair Value Measurements
ASC 820 specifies a fair value framework and 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.

16

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

As of September 30, 2015December 31, 2014 and September 30, 2014, the fair value of our commodity derivative contracts was $1.1 million, $1.3 million and $1.5 million, respectively. In accordance with ASC 820, our 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 of our derivative commodity contracts have a set term of 24 months or less.
We do not hold assets or liabilities requiring a Level 3 measurement and there have not been any transfers between the hierarchy levels during 2015 or 2014.
For purposes of financial reporting, we have determined that the carrying value of cash, accounts receivable, accounts payable, and accrued expenses approximates fair value due to their short term nature. Additionally, given the revolving nature and the variable interest rates, we have determined that the carrying value of the ABL Facility also approximates fair value. As of September 30, 2015, the fair value of our Senior Secured Notes approximated $383.8 million compared to a carrying value of $353.9 million. As of December 31, 2014 and September 30, 2014, the fair value of our Senior Secured Notes approximated $405.0 million and $417.2 million, respectively, compared to a carrying value of $375.0 million. 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.
Commitments and Contingencies
Environmental Considerations
We are 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 we believe we are in material compliance with all of the various regulations applicable to our business, there can be no assurance that requirements will not change in the future or that we will not incur significant costs to comply with such requirements. We employ 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. We expense 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. We determine our liability on a location by location basis and record a liability at the time it is deemed probable and can be reasonably estimated. We are currently not aware of any environmental matters which may have a material impact on our financial position, results of operations, or liquidity.
On November 19, 2007 (the date of inception of GBC), we 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 related to environmental conditions at such facilities, and has been participating in remedial actions at certain other properties as well. If Olin Corporation were to stop its environmental remedial activities at our properties, we could be required to assume responsibility for these activities, the cost of which could be material.
Legal Considerations
We are party to various legal proceedings arising in the ordinary course of business. We believe that none of our lawsuits are individually material or that the aggregate exposure of all of our lawsuits, including those that are probable and those that are only reasonably possible, is material to our financial condition, results of operations or cash flows.

13.
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 the Senior Secured Notes as further described in Note 7, “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

17

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

who guarantee or incur certain types of Permitted Debt, as such term is defined under the Indenture (individually, a “Guarantor” and 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.
As discussed in Note 1, “Basis of Presentation and Principles of Consolidation,” the Company’s consolidated statement of cash flows for the nine months ended September 30, 2014 reflects revisions to correct errors related to the treatment of purchases of property, plant and equipment for which cash had not yet been paid. The revision resulted in an increase of $3.3 million to the Company’s and Guarantor Subsidiaries “net cash provided by operating activities” for the nine months ended September 30, 2014, with a corresponding increase to “net cash used in investing activities”.


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Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

(in millions)
Condensed Consolidating Balance Sheet
As of September 30, 2015
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash
$

 
$
63.0

 
$
3.4

 
$
8.5

 
$
(1.4
)
 
$
73.5

Accounts receivable, net of allowance

 
3.2

 
137.9

 
13.4

 

 
154.5

Inventories

 

 
188.5

 
14.7

 
(6.2
)
 
197.0

Prepaid expenses and other current assets

 
10.1

 
5.7

 
0.5

 

 
16.3

Deferred income taxes

 
33.9

 

 

 

 
33.9

Total current assets

 
110.2

 
335.5

 
37.1

 
(7.6
)
 
475.2

Property, plant and equipment, net

 
0.5

 
102.9

 
0.5

 

 
103.9

Investment in subsidiaries
61.8

 
853.0

 
23.2

 

 
(938.0
)
 

Intercompany accounts

 

 
512.4

 

 
(512.4
)
 

Goodwill

 

 
4.4

 

 

 
4.4

Intangible assets, net

 

 
0.5

 

 

 
0.5

Deferred income taxes

 
2.5

 

 

 

 
2.5

Other noncurrent assets

 
9.9

 
2.2

 

 

 
12.1

Total assets
$
61.8

 
$
976.1

 
$
981.1

 
$
37.6

 
$
(1,458.0
)
 
$
598.6

Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$

 
$
1.1

 
$

 
$

 
$
1.1

Accounts payable

 
6.6

 
90.0

 
2.8

 
(7.6
)
 
91.8

Accrued liabilities

 
19.7

 
32.7

 
0.7

 

 
53.1

Accrued interest

 
11.5

 

 

 

 
11.5

Income tax payable

 

 
0.2

 
0.3

 

 
0.5

Total current liabilities

 
37.8

 
124.0

 
3.8

 
(7.6
)
 
158.0

Long-term debt

 
353.9

 
4.0

 

 

 
357.9

Other noncurrent liabilities

 
25.3

 
0.1

 

 

 
25.4

Intercompany accounts
8.8

 
497.3

 

 
6.3

 
(512.4
)
 

Total liabilities
8.8

 
914.3

 
128.1

 
10.1

 
(520.0
)
 
541.3

Global Brass and Copper Holdings, Inc. stockholders’ equity
53.0

 
61.8

 
853.0

 
23.2

 
(938.0
)
 
53.0

Noncontrolling interest

 

 

 
4.3

 

 
4.3

Total equity
53.0

 
61.8

 
853.0

 
27.5

 
(938.0
)
 
57.3

Total liabilities and equity
$
61.8

 
$
976.1

 
$
981.1

 
$
37.6

 
$
(1,458.0
)
 
$
598.6

 
 

19

Table of Contents

Global Brass and Copper Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)

(in millions)
Condensed Consolidating Balance Sheet
As of December 31, 2014
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash
$

 
$
37.6

 
$
3.8

 
$
4.6

 
$
(1.4
)
 
$
44.6

Accounts receivable, net of allowance

 
2.6

 
131.6

 
18.1

 

 
152.3

Inventories

 

 
173.5

 
15.8

 
(0.3
)
 
189.0

Prepaid expenses and other current assets

 
10.1

 
16.0

 
0.1

 

 
26.2

Deferred income taxes

 
30.1

 

 

 

 
30.1

Income tax receivable

 
8.4

 

 

 
(0.1
)
 
8.3

Total current assets

 
88.8

 
324.9

 
38.6

 
(1.8
)
 
450.5

Property, plant and equipment, net

 
0.7

 
102.4

 
0.4

 

 
103.5

Investment in joint venture

 

 
2.0

 

 

 
2.0

Investment in subsidiaries
29.8

 
752.5

 
23.1

 

 
(805.4
)
 

Intercompany accounts

 

 
419.3

 

 
(419.3
)
 

Goodwill

 

 
4.4

 

 

 
4.4