Quarterly report pursuant to Section 13 or 15(d)

Segment Information

v3.10.0.1
Segment Information
9 Months Ended
Sep. 30, 2018
Segment Reporting [Abstract]  
Segment Information
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, fabricator, and converter of non-ferrous products, including sheet, strip, foil, tube, and fabricated products. Olin Brass also rerolls and forms other alloys such as stainless steel, carbon steel, and aluminum. Sheet and strip is generally manufactured from copper and copper-alloy scrap. 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 solid brass rod in North America. Chase Brass primarily manufactures solid rod in 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 for 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 of copper and copper-alloy sheet, strip, and foil, aluminum sheet, and coated aluminum products. A.J. Oster operates eleven strategically located service centers in the U.S., Puerto Rico, and Mexico. Each A.J. Oster service center reliably provides 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, 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 includes compensation for corporate executives, corporate office and administrative salaries, and professional fees for accounting, tax and legal services. Corporate also includes interest expense and income, state and federal income taxes, certain overhead costs, share-based compensation expense, gains and losses associated with certain acquisitions and dispositions, unrealized gains and losses on hedging activities, and the elimination of intercompany sales and balances.
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 defined as net income attributable to Global Brass and Copper Holdings, Inc., plus interest, taxes, depreciation, and amortization (“EBITDA”) adjusted to exclude the following:
unrealized gains and losses on derivative contracts in support of our balanced book approach;
unrealized gains and losses associated with derivative contracts related to energy and utility costs;
impact associated with lower of cost or market adjustments to inventory;
gains and losses due to the depletion of a last-in, first out (“LIFO”) layer of metal inventory;
share-based compensation expense;
refinancing costs;
restructuring and other business transformation charges;
inventory step-up costs related to acquisition accounting;
specified legal and professional expenses; and
certain other items.
Each of these items are excluded because our management believes they are not indicative of the ongoing performance of our core operations.
Below is a reconciliation of adjusted EBITDA of segments to income before provision for income taxes:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Net Sales, External Customers
 
 
 
 
 
 
 
Olin Brass
$
163.5

 
$
137.7

 
$
518.0

 
$
487.3

Chase Brass
149.0

 
144.8

 
480.1

 
439.9

A.J. Oster
117.4

 
76.9

 
363.0

 
226.5

Total net sales, external customers
$
429.9

 
$
359.4

 
$
1,361.1

 
$
1,153.7

Intersegment Net Sales
 
 
 
 
 
 
 
Olin Brass
$
22.4

 
$
17.6

 
$
66.2

 
$
61.6

Chase Brass

 

 

 
0.1

A.J. Oster

 

 
0.1

 
0.1

Total intersegment net sales
$
22.4

 
$
17.6

 
$
66.3

 
$
61.8

Adjusted EBITDA
 
 
 
 
 
 
 
Olin Brass
$
11.4

 
$
11.8

 
$
45.5

 
$
38.7

Chase Brass
16.0

 
18.3

 
53.0

 
56.6

A.J. Oster
6.3

 
3.6

 
18.1

 
10.4

Total adjusted EBITDA of operating segments
33.7

 
33.7

 
116.6

 
105.7

Corporate (a)
(4.1
)
 
(3.6
)
 
(13.4
)
 
(4.6
)
Depreciation expense
(5.3
)
 
(4.5
)
 
(15.6
)
 
(13.5
)
Amortization expense
(0.1
)
 
(0.1
)
 
(0.3
)
 
(0.1
)
Interest expense, net
(4.1
)
 
(4.2
)
 
(12.7
)
 
(13.6
)
Net income attributable to noncontrolling interest
0.1

 
0.1

 
0.3

 
0.4

Unrealized (loss) gain on derivative contracts (b)
(0.7
)
 
0.3

 
(1.3
)
 
(1.1
)
Refinancing costs (c)

 
(0.9
)
 
(1.6
)
 
(0.9
)
Specified legal / professional expenses (d)

 
(0.5
)
 

 
(0.5
)
Lower of cost or market adjustment to inventory (e)
(1.2
)
 
0.7

 
(0.1
)
 
0.8

Share-based compensation expense (f)
(1.5
)
 
(2.0
)
 
(4.6
)
 
(6.3
)
Step-up costs from acquisition accounting

 

 
(0.2
)
 

Income before provision for income taxes
$
16.8

 
$
19.0

 
$
67.1

 
$
66.3

(a)
The nine months ended September 30, 2017 includes $7.4 million of insurance proceeds recoveries relating to a production outage in 2016.
(b)
Represents unrealized gains / losses on derivative contracts.
(c)
Represents the loss on extinguishment of debt and other expenses associated with our refinancing activities.
(d)
Represents selected professional fees for accounting, tax, legal and consulting services for merger and acquisition activity.
(e)
Represents the impact of lower of cost or market adjustments to domestic metal inventory.
(f)
Represents compensation expense resulting from stock compensation awards to certain employees and our Board of Directors.