Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation and Principles of Consolidation

v3.10.0.1
Basis of Presentation and Principles of Consolidation
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
Global Brass and Copper Holdings, Inc. (“Holdings,” “GBC,” the “Company,” “we,” “us,” or “our”) is operated and managed through three reportable segments: Olin Brass, Chase Brass and 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 accompanying unaudited interim consolidated financial statements include all normal recurring adjustments that are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The December 31, 2017 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 (“US GAAP”). Certain information and disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted.
The preparation of financial statements in conformity with US 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. On January 1, 2018, the Company changed its policy for recognition of unprocessed metal sales to toll customers as a result of the adoption of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The financial impacts of this change in policy to the periods covered by this report are provided below. 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, 2017.
Recently Issued and Recently Adopted Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU“) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU provides new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness will be recorded in other comprehensive income (“OCI”) and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. We early adopted this guidance on May 25, 2018 upon entering into an interest rate swap agreement. The adoption of this standard did not impact our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business, which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance became effective on January 1, 2018 for interim and annual periods. The adoption of this standard did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease effectively finances a purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method (finance lease) or on a straight line basis over the term of the lease (operating lease). A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. ASU 2016-02 supersedes the existing guidance on accounting for leases in “Leases (Topic 840).” The provisions of ASU 2016-02 are effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted and the provisions are to be applied using a modified retrospective approach. We are in the process of evaluating the impact of adoption on our consolidated financial statements. As disclosed in our Annual Report on Form 10-K as of December 31, 2017, we have approximately $9.9 million of future minimum lease payments on non-cancelable operating leases.
On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective method. The adoption of ASC Topic 606 impacted the timing of recognition of revenue from unprocessed metal sales to toll customers. The following tables summarize the effects of adopting ASC Topic 606 on our prior period unaudited Consolidated Financial Statements:
Consolidated Balance Sheet (Unaudited)
December 31, 2017
As Reported
 
Effects of the Adoption of ASC Topic 606
 
December 31, 2017
As Adjusted
(in millions, except share data)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
59.0

 
$

 
$
59.0

Accounts receivable (net of allowance of $1.0)
197.9

 
(0.1
)
 
197.8

Inventories
208.1

 

 
208.1

Prepaid expenses and other current assets
33.3

 
(21.6
)
 
11.7

Income tax receivable
3.6

 

 
3.6

Total current assets
501.9

 
(21.7
)
 
480.2

Property, plant and equipment, net
142.9

 

 
142.9

Goodwill
4.5

 

 
4.5

Intangible assets, net
2.0

 

 
2.0

Deferred income taxes
16.1

 

 
16.1

Other noncurrent assets
6.5

 

 
6.5

Total assets
$
673.9

 
$
(21.7
)
 
$
652.2

Liabilities and equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of debt
$
5.0

 
$

 
$
5.0

Accounts payable
117.1

 

 
117.1

Accrued liabilities
57.9

 
(21.9
)
 
36.0

Accrued interest
0.2

 

 
0.2

Income tax payable
0.5

 

 
0.5

Total current liabilities
180.7

 
(21.9
)
 
158.8

Noncurrent portion of debt
309.0

 

 
309.0

Other noncurrent liabilities
37.1

 

 
37.1

Total liabilities
526.8

 
(21.9
)
 
504.9

Global Brass and Copper Holdings, Inc. stockholders’ equity:
 
 
 
 
 
Common stock - 22,133,764 shares issued
0.2

 

 
0.2

Additional paid-in capital
54.5

 

 
54.5

Retained earnings
97.1

 
0.2

 
97.3

Treasury stock - 226,576 shares
(6.6
)
 

 
(6.6
)
Accumulated other comprehensive loss
(2.9
)
 

 
(2.9
)
Total Global Brass and Copper Holdings, Inc. stockholders’ equity
142.3

 
0.2

 
142.5

Noncontrolling interest
4.8

 

 
4.8

Total equity
147.1

 
0.2

 
147.3

Total liabilities and equity
$
673.9

 
$
(21.7
)
 
$
652.2


Consolidated Statement of Operations (Unaudited)
Three Months Ended
June 30, 2017
As Reported
 
Effects of the Adoption of ASC Topic 606
 
Three Months Ended
June 30, 2017
As Adjusted
 
Six Months Ended
June 30, 2017
As Reported
 
Effects of the Adoption of ASC Topic 606
 
Six Months Ended
June 30, 2017
As Adjusted
(in millions, except per share data)
Net sales
$
377.4

 
$
(2.6
)
 
$
374.8

 
$
770.7

 
$
23.6

 
$
794.3

Cost of sales
(332.7
)
 
2.1

 
(330.6
)
 
(676.1
)
 
(23.4
)
 
(699.5
)
Gross profit
44.7

 
(0.5
)
 
44.2

 
94.6

 
0.2

 
94.8

Selling, general and administrative expenses
(19.3
)
 

 
(19.3
)
 
(42.2
)
 

 
(42.2
)
Operating income
25.4

 
(0.5
)
 
24.9

 
52.4

 
0.2

 
52.6

Interest expense
(4.8
)
 

 
(4.8
)
 
(9.5
)
 

 
(9.5
)
Other income (expense), net
4.5

 

 
4.5

 
4.2

 

 
4.2

Income before provision for income taxes
25.1

 
(0.5
)
 
24.6

 
47.1

 
0.2

 
47.3

Provision for income taxes
(8.9
)
 
0.1

 
(8.8
)
 
(13.7
)
 
(0.1
)
 
(13.8
)
Net income
16.2

 
(0.4
)
 
15.8

 
33.4

 
0.1

 
33.5

Net income attributable to noncontrolling interest
(0.1
)
 

 
(0.1
)
 
(0.3
)
 

 
(0.3
)
Net income attributable to Global Brass and Copper Holdings, Inc.
$
16.1

 
$
(0.4
)
 
$
15.7

 
$
33.1

 
$
0.1

 
$
33.2

Net income attributable to Global Brass and Copper Holdings, Inc. per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.74

 
$
(0.02
)
 
$
0.72

 
$
1.53

 
$
0.01

 
$
1.54

Diluted
$
0.73

 
$
(0.02
)
 
$
0.71

 
$
1.50

 
$

 
$
1.50

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
21.8

 

 
21.8

 
21.6

 

 
21.6

Diluted
22.1

 

 
22.1

 
22.1

 

 
22.1

Consolidated Statement of Comprehensive Income (Unaudited)
Three Months Ended
June 30, 2017
As Reported
 
Effects of the Adoption of ASC Topic 606
 
Three Months Ended
June 30, 2017
As Adjusted
 
Six Months Ended
June 30, 2017
As Reported
 
Effects of the Adoption of ASC Topic 606
 
Six Months Ended
June 30, 2017
As Adjusted
(in millions)
Net income
$
16.2

 
$
(0.4
)
 
$
15.8

 
$
33.4

 
$
0.1

 
$
33.5

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
0.5

 

 
0.5

 
1.3

 

 
1.3

Income tax (expense) benefit on foreign currency translation adjustment
(0.1
)
 

 
(0.1
)
 
(0.2
)
 

 
(0.2
)
Comprehensive income
16.6

 
(0.4
)
 
16.2

 
34.5

 
0.1

 
34.6

Comprehensive (income) loss attributable to noncontrolling interest
(0.2
)
 

 
(0.2
)
 
(0.4
)
 

 
(0.4
)
Comprehensive income attributable to Global Brass and Copper Holdings, Inc.
$
16.4

 
$
(0.4
)
 
$
16.0

 
$
34.1

 
$
0.1

 
$
34.2

Consolidated Statement of Changes in Equity (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except share data)
Shares outstanding
 
Common
stock
 
Additional
paid-in
capital
 
Retained earnings
 
Treasury
stock
 
Accumulated
other
comprehensive
loss
 
Total
Global Brass
and Copper
Holdings, Inc.
stockholders’
equity
 
Noncontrolling
interest
 
Total
equity
December 31, 2016 - as reported
21,633,067

 
$
0.2

 
$
45.0

 
$
51.2

 
$
(1.5
)
 
$
(4.1
)
 
$
90.8

 
$
4.4

 
$
95.2

Cumulative effect adjustment of ASC Topic 606 on January 1, 2017

 

 

 

 

 

 

 

 

December 31, 2016 - as adjusted
21,633,067

 
0.2

 
45.0

 
51.2

 
(1.5
)
 
(4.1
)
 
90.8

 
4.4

 
95.2

Six months ended June 30, 2017 - as reported
271,819

 

 
5.5

 
30.9

 
(5.0
)
 
1.0

 
32.4

 
0.4

 
32.8

Effect of the adoption of ASC Topic 606

 

 

 
0.1

 

 

 
0.1

 

 
0.1

June 30, 2017 - as adjusted
21,904,886

 
$
0.2

 
$
50.5

 
$
82.2

 
$
(6.5
)
 
$
(3.1
)
 
$
123.3

 
$
4.8

 
$
128.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017 - as reported
21,907,188

 
$
0.2

 
$
54.5

 
$
97.1

 
$
(6.6
)
 
$
(2.9
)
 
$
142.3

 
$
4.8

 
$
147.1

Cumulative effect adjustment of ASC Topic 606 on January 1, 2018

 

 

 
0.2

 

 

 
0.2

 

 
0.2

December 31, 2017 - as adjusted
21,907,188

 
$
0.2

 
$
54.5

 
$
97.3

 
$
(6.6
)
 
$
(2.9
)
 
$
142.5

 
$
4.8

 
$
147.3

Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30, 2017
As Reported
 
Effects of the Adoption of
ASC Topic 606
 
Six Months Ended June 30, 2017
As Adjusted
(in millions)
Cash flows from operating activities
 
 
 
 
 
Net income
$
33.4

 
$
0.1

 
$
33.5

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
Lower of cost or market adjustment to inventory
(0.1
)
 

 
(0.1
)
Unrealized (gain) loss on derivatives
1.4

 

 
1.4

Depreciation
9.0

 

 
9.0

Amortization of debt discount and issuance costs
0.6

 

 
0.6

Share-based compensation expense
4.3

 

 
4.3

Provision for bad debts, net of reductions
0.4

 

 
0.4

Change in assets and liabilities:
 
 
 
 
 
Accounts receivable
(38.6
)
 

 
(38.6
)
Inventories
(5.2
)
 

 
(5.2
)
Prepaid expenses and other current assets
(21.7
)
 
23.4

 
1.7

Accounts payable
17.6

 

 
17.6

Accrued liabilities
14.2

 
(23.6
)
 
(9.4
)
Income taxes, net
1.9

 
0.1

 
2.0

Other, net
(0.2
)
 

 
(0.2
)
Net cash provided by (used in) operating activities
17.0

 

 
17.0

Cash flows from investing activities
 
 
 
 
 
Capital expenditures
(12.5
)
 

 
(12.5
)
Net cash used in investing activities
(12.5
)
 

 
(12.5
)
Cash flows from financing activities
 
 
 
 
 
Borrowings on ABL Facility
0.4

 

 
0.4

Payments on ABL Facility
(0.4
)
 

 
(0.4
)
Payments on term loan
(1.6
)
 

 
(1.6
)
Principal payments under capital lease obligation
(0.7
)
 

 
(0.7
)
Dividends paid
(1.7
)
 

 
(1.7
)
Proceeds from exercise of stock options
0.7

 

 
0.7

Share repurchases
(5.0
)
 

 
(5.0
)
Net cash used in financing activities
(8.3
)
 

 
(8.3
)
Effect of foreign currency exchange rates
(0.5
)
 

 
(0.5
)
Net increase (decrease) in cash
(4.3
)
 

 
(4.3
)
Cash and cash equivalents at beginning of period
88.2

 

 
88.2

Cash and cash equivalents at end of period
$
83.9

 
$

 
$
83.9