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A. M. Castle & Co. (NYSE:CAS)

Q1 2013 Earnings Call

April 30, 2013 11:00 am ET

Executives

Scott J. Dolan - Chief Executive Officer, President and Director

Scott F. Stephens - Chief Financial Officer, Vice President and Treasurer

Analysts

Luke Folta - Jefferies & Company, Inc., Research Division

Edward Marshall - Sidoti & Company, LLC

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Operator

Good morning. Thank you, everyone, for joining us for A.M. Castle's First Quarter 2013 Earnings Conference Call. By now, you should have received a copy of this morning's press release. If anyone still needs one, please call our office at (847) 349-2510, and we'll send you a copy immediately following the conference call. The press release and the company's filings are available on the company's Investor Relations website.

With us from management of Castle this morning is Scott Dolan, President and CEO; and Scott Stephens, Vice President of Finance and CFO. As a reminder, this call is being recorded.

Certain information relating to projections of the company's results that will be discussed during today's call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements are based on current expectations and assumptions that are subject to a number of factors that could cause actual results to differ materially.

Additional information concerning these factors is contained in the Risk Factors section of the company's most recent Form 10-K for 2012 and also in the cautionary statement contained in today's release. The company does not undertake any duty to update any forward-looking statements.

This presentation also includes certain non-GAAP financial measures as an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You will find the reconciliation in the financial information attached in today's release, which is also available on the company's website at www.amcastle.com under the Investors tab, and in the Form 8-K submitted to the SEC.

And now, I will turn the call over to Scott Dolan. Go ahead, Scott.

Scott J. Dolan

Thank you. Good morning, everyone, and thank you for joining the call today. Let me start by outlining how we have structured today's call. I will provide a brief overview of our first quarter 2013 results, as well as a restructuring and operations update. Scott Stephens, our CFO, will discuss the first quarter 2013 financial results and current business conditions. I will comment on our outlook for the remainder of 2013, and then we will open up the call for questions.

For the first quarter of 2013, our company reported EBITDA of $4.8 million or 1.6% of sales. And on an adjusted basis, excluding the impact of restructuring charges and unrealized losses on commodity hedges, EBITDA was $8.8 million or 3% of net sales. Reported net loss for the quarter was $10.6 million or a loss of $0.46 per diluted share compared to a net loss of $4.3 million or a loss of $0.19 per diluted share in the prior year quarter. Adjusted non-GAAP net loss excluding the impact of restructuring charges, unrealized losses or gains on commodity hedges and unrealized loss on debt conversion option was $8.1 million or a loss of $0.35 per diluted share for the first quarter of 2013 compared to adjusted non-GAAP net income of $6.8 million or $0.28 per diluted share in the prior year quarter.

The company experienced a weaker demand environment that had been expected during the first quarter of 2013. Sequentially, sales per day for the first quarter were higher than the fourth quarter by 6.6% and lower than the first quarter of 2012 by 19.6%. We had expected that the environment in early 2013 would likely fall somewhere between the third and fourth quarters of 2012 from a demand standpoint. Volume activities in Q1 turned out to be lower than we had anticipated, and pricing was a bit softer.

Although the first quarter was challenging from a top line perspective, the company proceeded as planned with our restructuring efforts announced in January, and made significant progress toward our goals to improve our operating efficiency, improve customer satisfaction and reduce our costs. In addition, we continue to focus on inventory reduction efforts during the first quarter of 2013. Inventory levels declined by over $33 million on a replacement cost basis, which resulted in positive cash generated from operations of $32.6 million for the quarter.

Plant consolidation activities are ahead of schedule, and the restructuring charges for the first quarter were in line with our internal budget. During the first quarter, we successfully began the transition of our distribution fulfillment realignment for all 5 of the branches that will be closed before the end of second quarter. The company estimated $10 million of pretax charges associated with the plan set forth in January, of which $3 million was incurred during the first quarter. The charges incurred during the first quarter of 2013 included one-time employee termination benefit costs, moving costs and other exit costs associated with facility shutdowns. Approximately $7 million of additional charges are expected to be incurred during the second quarter of 2013 as the restructuring activity is completed.

In analyzing our business, we see opportunities to further improve the company's operating efficiency and inventory management, as well as to leverage the company's position in our end markets and with key customers. We believe that the long-term objectives of 120 days DSI and some sub-20% expense to sales ratios are appropriate and attainable.

We are advancing our strategy, which specifically focuses on key areas of opportunity, including our footprint of domestic and international facilities, our network efficiency, strategic sourcing and our general and administrative spend in targeted areas. We believe we can improve operating margins and enhance our focus on customers to better serve them.

During a difficult demand environment, our performance quarter-over-quarter is in line with our peers as the restructuring is having minimal effect on our revenue. However, I feel that our new commercial structure should enable us to grow our market share.

For the remainder of the year, we will continue to execute our plans for cash flow generation and restructuring improvements. In terms of our sales focus, we will now have a presence in regions that were previously untouched by certain verticals, and the sales forces will be cross-selling across all verticals. We anticipate that the sales organization changes combined with several system enhancements implemented in the first quarter will position us to execute more effectively on the sales front.

With the importance of growing our revenue and keeping industry-leading margins, I will be taking a more hands-on role while we look for a new Chief Commercial Officer to replace Blain Tiffany, who will be stepping down from his role immediately. He will be leaving the company to pursue other opportunities. I want to thank Blain for his 12 years of service at Castle and specifically, for his work to transition the organization to the current structure.

Now I will recap our observations of our key end markets for Q1 2013 and what we have seen so far early in the second quarter. As we have spoken about before, we monitor 3 primary macro data points for our business, the PMI, rig counts and Aerospace build rates. The average PMI for first quarter was 52.9, up from 50.6 during the fourth quarter of 2012. We are pleased to see PMI improve from the fourth quarter. However, the stronger indications seen in January and February softened in March. As we have said before, the late cycle nature of our customers' businesses is such that historically, our net sales lagged the PMI trend line on a 6- to 12-month basis.

Rig counts in North America were at 1,994 at the end of the first quarter of this year compared to 1,677 at the end of 2012 and compared to 2,235 a year ago. Our Oil & Gas business was our strongest performing sector at this time last year and thus, the decline in rig counts compared to 1 year ago indicates the lower activity when compared to Q1 2012.

However, we are confident in our market position and our global opportunities in this key market.

The Aerospace market trend continues to show modest improvement overall, and the industrial markets have some mixed elements of growth and other markets, such as Mining equipment, that have been a bit weaker. Again, our short-term market outlook on the industrial side is cautious, but we expect to maintain our share and position ourselves for success as the markets recover.

Our Plastics business achieved 10.7% sales growth in Q1 primarily due to increased volume in the automotive sector, as well as increases in Life Science and Marine business compared to the first quarter of 2012. We expect continued growth from the automotive sector for the remainder of 2013.

Now I'll turn the call over to Scott to recap of the financials.

Scott F. Stephens

Thank you. Good morning, everyone. First quarter consolidated net sales were $292.7 million, which is $70.2 million or 19.3% lower than the first quarter of last year. And on a sales per day basis, we're 19.6% lower than the prior year period.

Sequentially, sales per day were 6.6% higher than Q4 2012. Net sales in the Metals segment of $258.4 million were $73.5 million or 22.1% lower than the first quarter of 2012 and 6.8% higher than Q4 2012.

Metal segment tons sold per day were down 20% from the first quarter 2012 and sequentially, tons sold per day were 3% higher than the fourth quarter. In the Plastics segment, first quarter 2013 net sales of $34.3 million were $3.3 million or 10.7% higher than the prior year period primarily due to increased volume in the automotive sector, as well as increases in Life Science and Marine business when compared to Q1 of 2012. Sequentially, first quarter Plastics segment net sales were $2.6 million or 8.2% higher than the fourth quarter 2012.

Operating income in the Plastics segment was $1.2 million in the first quarter this year, up $0.6 million or 120% from the prior year period.

Consolidated gross material margins as reported were 25% for the first quarter this year compared to 27.3% in the prior year quarter and compared to 25.3% in Q4 2012. Gross material margins for the first quarter this year included $1.3 million of costs for realized and unrealized losses on commodity hedges, $0.8 million of restructuring charges and $0.7 million of LIFO expense.

In the prior year quarter, cost of materials reflected $0.4 million of gains associated with commodity hedges. There were no restructuring charges, and there was $4.6 million of LIFO expense.

Fourth quarter gross material margins for 2012 included $0.4 million of charges for commodity hedges and the LIFO credit of $0.6 million. The product prices remain flat. With recent levels, we would expect minimal impact from LIFO for the remainder of this year.

First quarter consolidated operating expenses, excluding the restructuring charges of $2.2 million, decreased by $8.8 million or 10.9% from the prior year period to $72 million and 24.6% in net sales for Q1. Depreciation and amortization was $6.6 million in the first quarter, same as the prior year. The reductions in other operating expenses compared to last year were primarily driven by the continuation of process improvements and cost-reduction initiatives from 2012.

The restructuring actions executed in the first quarter also had a small fiscal benefit to Q1 results. We would expect to see lower operating costs in Q2 as the restructuring activity is completed. We will provide a more detailed update on our expectations for near-term -- for the near-term cost structure once the restructuring activities are complete after the second quarter. With all that said, compared to 1 year ago, we achieved a 7.6% or $2.9 million quarterly reduction in warehouse process and delivery expense and a 16.2% or $5.8 million reduction in quarterly SG&A expenses.

Given the decline in top line sales, there's naturally a deterioration in the operating expense to sales ratio when compared to 1 year ago. But as we move forward and continue to reduce operating expenses, we're confident in reducing our expense to sales ratio as the end markets improve.

Consolidated operating loss reported for the first quarter was $1 million or 0.3% of net sales compared to operating income of $18.2 million in the same period last year. Total interest expense was $10.2 million for the first quarter compared to $21.5 million in the first quarter last year. Excluding the unrealized loss on debt conversion option in the first quarter, 2012 interest expense was $11.3 million.

Other expense for the first quarter of 2013 of $2.3 million primarily represents non-cash foreign currency transaction losses related to intercompany loans with our operations in Canada and the U.K. Q1 2012 other income was $0.4 million for these same items.

Effective tax rate for the quarter ended March 31, 2013, was 10.2%, which compared to 149% for the first quarter of 2012. The low effective tax rate in the first quarter this year was primarily the result of the geographic mix of income, as well as the impact of the restructuring charges taken in the quarter. We expect our normalized tax rate to be 33% when including JV income and the pretax income.

Equity in earnings of the company's joint venture was $1.5 million in the first quarter, which was $1.5 million less than the same period last year due to a decline in both the volume and selling prices over the period.

The company reported first quarter 2013 net loss of $10.6 million or $0.46 per diluted share compared to a net loss of $4.3 million or $0.19 per diluted share in the prior year period. Adjusted non-GAAP net loss for the first quarter was $8.1 million or $0.35 per diluted share compared to adjusted non-GAAP net income of $6.8 million or $0.28 per diluted share in the first quarter 2012.

The company's reported EBITDA was $4.8 million or 1.6% of net sales in the quarter compared to $28.2 million or 7.8% of sales in the first quarter last year.

EBITDA, when adjusted to remove the impact of restructuring charges and commodity hedges, was $8.8 million or 3% of sales in the first quarter, compared to $27.8 million or 7.7% of sales in the first quarter last year.

And now, a couple of comments on working capital and balance sheet results. On a replacement cost basis, inventory levels declined by over $33 million during the first quarter, following the $65 million decline in the second half of last year. We are targeting an additional decline of approximately $25 million during the second quarter. Average day sales and inventory, which the company calculates on a replacement cost basis, was 173 days for the first quarter compared to 155 days for the prior year period, and compared to 204 days for the fourth quarter 2012. We've set a DSI goal of less than 150 days by the end of 2013.

Average receivable days outstanding was 50.5 for the first quarter compared to 47.8 a year ago, and comparable to the 50.4 in the fourth quarter 2012. AP days, accounts payable days, was 35.7 for the first quarter, down from 49.9 a year ago and down from 42.7 in the fourth quarter. We have been more opportunistic in capturing vendor discounts in the past several months resulting in the lower AP days when compared to the end of last year.

Cash provided by operations was $32.6 million in the first quarter compared to cash used in operations of $24.4 million in the prior year period. Cash paid for capital expenditures during the quarter was $1.9 million compared to $3.1 million last year. We're projecting annual capital expenditures to be between $12 million and $14 million for 2013.

We plan to use our additional cash generated in 2013 to pay down our remaining revolver balance and position ourselves to further evaluate our capital structure. A strong and improving balance sheet will provide support for opportunities to create shareholder value as our operations continue to improve.

Our total debt net of unamortized discounts at the end of the quarter was $266.7 million compared to $297.1 million at the end of last year. Cash and equivalent balances were $21.4 million at the end of the quarter, virtually unchanged from the end of the year.

We had a balance of $8.8 million outstanding under our revolving credit facilities at the end of the first quarter compared to $40 million at the end of 2012, and our revolver balance has since been paid down to 0 here during Q2. The net debt to capital ratio at the end of the first quarter was 41.3% compared to 43.4% at the end of 2012.

And at this point, I'll turn the call back over to Scott for a couple of comments.

Scott J. Dolan

Thanks, Scott. Now a few brief comments on the company's outlook. As we move through the second quarter, I'm extremely encouraged by the progress the company is making on the restructuring as everything is tracking to schedule. In addition, we continue to find more opportunities for improvements that will be addressed in the second half of the year, as we transition out of restructuring mode and into a continuous improvement environment at the start of Q3.

Having a competitive cost structure and DSI level will position us well for the market's recovery. The market continues to look very much like it has over the last 9 months, and we don't believe we will see much significant upside until later in 2013 or into 2014. The actions we are taking to grow revenue, reduce costs and optimize inventory positions will -- positions the company well in a flat demand environment and very well in a recovering market.

Operator, with that, we can open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Luke Folta from Jefferies.

Luke Folta - Jefferies & Company, Inc., Research Division

First question I had was just on the inventory reduction. You did a really nice job this quarter of taking out inventories as you said you would. But as that happened, as you were kind of reducing, did you see some impact on your gross margin resulting from that one? It seems like your margins are a bit lower than where they had been historically. On a FIFO basis, it looks like about 26%, so it didn't seem like it was overly dramatic, but I'm just trying to get a sense if there was a drag associated with that for the quarter?

Scott J. Dolan

Yes. I mean we -- clearly, when you look from a year ago, margins had been coming down throughout 2012, especially in the second half. When you look at margins kind of adjusted from Q4 to Q1, they actually were up a little bit, so we think there could be a half a point in there, a half percentage point, but we think, for how much we've taken out, we've minimized that impact quite a bit. And we feel like we've sort of hit bottom in Q4 and are starting back up a bit.

Luke Folta - Jefferies & Company, Inc., Research Division

Okay. And okay, so you think, just ballpark, x the inventory reductions should be about 26.5 FIFO? Is that -- I mean you said that, that should kind of creep up you'd think going forward?

Scott J. Dolan

At least not deteriorate meaningfully, and I think we're sort of along the bottom right now. And I think obviously, when the market improves, they'll start to head back up, but I think we're at least at the bottom right now.

Luke Folta - Jefferies & Company, Inc., Research Division

Okay, right. And then, Scott Stephens, you mentioned some goals on what you think inventory reduction could be in the second quarter, $25 million. Can you give us just your thoughts on how that might play out over the course of the year? Do you see second half of '13 being further inventory reductions? And can you give us, I guess, some sense on what you think the overall change in working capital could be from the end of '12 and into the end of '13?

Scott F. Stephens

Yes. We do feel like it will continue. We put 150-day DSI objective out there for the second half of the year, so you can kind of run the math on that. It certainly indicates another, we would think, at least $30 million to $40 million of reduction coming out in the second half. That's after the $25 million coming out in Q2. So if you think about that in terms of -- I mean, so there is some, if you will, deceleration in the magnitude, but that would be expected given where we've come from. So you can think about that coming through, free cash flow much like it did in the first quarter. We don't expect any other significant changes in terms of the other working capital metrics. So that inventory reduction, we should see that coming through in cash generation.

Luke Folta - Jefferies & Company, Inc., Research Division

Okay, all right. And then just for Scott Dolan, the comments in the press release regarding your loss of your commercial manager, can you give us a sense of, it was that -- it seemed like that was something that may not have been planned. And you stepping into the role, is that something that you want to continue to do for a while going forward or is this a temporary situation you're looking to bring on somebody else?

Scott J. Dolan

Yes, definitely looking into bringing on someone else. I would say we're definitely not going to rush that process. It's really a good opportunity for me to dig in to the organization a little bit more on the commercial side, understand what roadblocks and things I can sort of eliminate and free up for that group to continue to be more successful, especially working across the verticals. So I would just say, not expected since we just put them in, but a month in, or -- I'm sorry, a quarter in to the work, obviously, until someone's in the job. You really can't see from them personally, and from our -- from the businesses side and in terms of how it's going to work out. And so we just think this is the right move at this time.

Luke Folta - Jefferies & Company, Inc., Research Division

Okay. And I guess just last one, you talked a bit about your outlook for -- not a lot of improvements throughout the course of the year, maybe in the late '13 and 2014. Is there anything you can give us in terms of like the current order book and what you're seeing with order rates coming into the second quarter thus far?

Scott J. Dolan

Yes. I mean, I'll start off by saying I think ever since, I said we were going to be cautious without having anything to sort of hang our hats on in terms of future outlooks. But with that said, we clearly are seeing the order book in Oil & Gas pick up some activity around frac-ing. It's good to see natural gas up above $4 at a consistent basis now when rig counts are up. So that's very good news. Aerospace is continuing to modestly improve. I don't know for the industry but for us, year-over-year, we did have 2 one-time kind of deals, 1 contract we strategically exited and 1 we had a bankruptcy in that business. For them, coming out of bankruptcy hasn't really kicked back in. I'd say on the General Industrial business, not a whole lot there. We see sort of the U.S. kind of continuing to be fairly steady but our presence in Mexico and Europe, while albeit quite a bit smaller, is getting hit much harder. So I think that's sort of moving along about the same rate it's been.

Operator

The next question is from Edward Marshall from Sidoti & Company.

Edward Marshall - Sidoti & Company, LLC

On a pro forma basis, x restructuring charges, what cost net benefit, if any, did you see in 1Q? And I understand that you expect to see the balance in the second half of the year. But presumably, you've had some headcount reductions, et cetera, so there should've been some cost savings in the quarter.

Scott F. Stephens

Ed, it's Scott Stephens. We did see some. We didn't quantify it in our prepared remarks, which should tell you something about what the magnitude is. It's not -- it wasn't terribly significant. If you recall -- so, yes, there were some, but it's small. It was a small impact. We had -- we made the announcements at least sort of internally and publicly in the second half of January. We did execute, sort of immediately, on many of those actions. But as you can imagine, from taking the announcements to even their initial completions, like on headcount exits, they certainly took some time well into the quarter. So now, you're talking about weeks. So it wasn't terribly significant. We will expect to see more of that, more of an impact in Q2, of course, from all those Q1 actions that are behind us, we know we will see an impact in Q2, and we certainly have a lot more activity around the branches to be complete in Q2. So on a sort of net, net, very small. The bigger impact was from, as we've said, continuation of actions that have been ongoing, really, to take costs down from last year.

Edward Marshall - Sidoti & Company, LLC

Could you quantify the 2Q impact that you expect?

Scott F. Stephens

No, we did not.

Edward Marshall - Sidoti & Company, LLC

No, I'm asking. Could you?

Scott F. Stephens

Well, at this point, what we've said is we're going to get -- it's predominantly back-half loaded, and we're going to see most of the restructuring benefit accrued to fiscal -- the fiscal second half.

Edward Marshall - Sidoti & Company, LLC

What was the workforce reduction again as far as the percent change?

Scott J. Dolan

About 10%. So just to give you an idea, we're -- about 50 employees have been reduced to this point. And so you're expecting about another 100, 150 that will mostly occur in Q2. And of that 50 that occurred in Q1, those were all throughout the quarter and a lot hitting really late in March as well, so really no impact for the quarter.

Edward Marshall - Sidoti & Company, LLC

Scott, and I guess I can see that universally, the 40 -- did you say $40 million or $50 million for the balance of the year in inventory, or is that additional $40 million to $50 million in the back half of the year? So I guess, another $65 million to $75 million for the balance of 2013?

Scott F. Stephens

Right, it's the latter. It's kind of $60 million to $65 million post-Q1. And we said $25 million of that's going to come in Q2, kind of leaves you that $40 million -- $35 million, $40 million for the second half.

Edward Marshall - Sidoti & Company, LLC

I think the original plan was something along the lines of $50 million, of which you've somewhat have already achieved. Have you -- as you've dug deeper into it, have you realized that you have an awful lot more inventory than you should be carrying? Or why the step-up?

Scott F. Stephens

Well, I would say that we -- I mean, one, we're being cautious with what we committed to given everything that we're expecting to get into. So that's really just -- our internal -- we've been consistent with our internal plan. So I would say that our outlook sort of publicly was a bit guarded and cautious going into the restructuring, given the magnitude of change. But what we've seen so far, it has been as expected, and we're pretty confident in what we see for the balance of this year. Don't forget, we said that 120 days of DSI is really what we feel like is "normal". The markets are volatile, and they cycle up and down. But all things being equal, we think 120 days is the right level of inventory to run the business. So we're still getting to that. It's really a question of the pacing of the time and yes, we're a little bit cautious in pacing that early on. We've done pretty well against our plans. So we're continuing to work that and work towards the 120, and of which this year, we expect to be in that 150 range in the second half. So I guess that's the way we see it.

Edward Marshall - Sidoti & Company, LLC

You've given CapEx outlook. You've given, essentially, I guess you've implied the working capital changes that you expect for 2013. Would you care to give what you anticipate the guidance on free cash flow for 2013 to be, I mean, giving us most of the pieces already?

Scott F. Stephens

Well, exactly. I think we've provided the pieces in terms of the balance sheet. I think the other component of that being the earnings. We'll talk about that in the second quarter just given where things are. The short term, we're not expecting any significant changes. There is -- from customers to peers and other sort of experts some discussion about -- still about the optimism for a recovery. Until we're seeing it, we're not really going to talk too much about it, but we will. And again, we're sort of being as focused as we are and making sure that we execute the restructuring plan by the end of June and have that behind us. I think what we'll do add is -- and then we'll take those, if you'll call it, new cost structure characteristics and the working capital characteristics and kind of play that out as far as our expectations on the second quarter update.

Edward Marshall - Sidoti & Company, LLC

Fair enough. I thought I'd catch you on earnings guidance there. Finally, you -- my final question is, what options do you have to change the capital structure? I think you mentioned in your prepared remarks as the cash comes in, you might look to change the capital structure. Are you implying that you'd repurchase shares or I don't know that there's much you can do from the debt structure. Would you care to comment?

Scott F. Stephens

Well, yes, of course. Our comment would be that we're well aware of the fact that we're anticipating the positive cash generation and the accumulation of cash as we get toward the end of '13 and get into '14. And what we're simply saying is acknowledging that there are several things that we're looking at in terms of analyzing opportunity for value creation. And as you said, structurally in terms of our, some of the bond instruments, there is restrictions and whatnot that we have to deal with. So we're kind of looking at those. And yet there are, even within that opportunity, whether it's refinancing or otherwise. And it's on the radar. We're evaluating it. We'll have more to say about it as, a, as the cash generation happens, and b, as we evaluate those opportunities and we actually start to do more detailed planning around it, but nothing really further at this point. The first call date on the bind, let me just point that out again, is December 14. So we kind of look at that as a, I mean out there, as certainly a key milestone. And there are things that we could -- and we'll certainly evaluate what we can do between now and then as we restructure the business.

Edward Marshall - Sidoti & Company, LLC

You mentioned refinance, but I'm assuming that you can't refinance the big portion of the debt until December 14. I mean, that's what you just said, right?

Scott F. Stephens

I mean, mechanically, yes. And then practically, there are maybe some other things to consider, but certainly, our focus is looking at December 14.

Operator

The next question is from Brett Levy from Jefferies.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

I guess the question that I had was more around whether or not this business has sort of fundamentally changed. I mean, I feel like others are in a good place, rig count is in a reasonably good space, Aerospace is in a reasonably good space, and yet margins are tough to achieve. Has it gotten more competitive? And then this is based on what they said on the Reliance call as well, is it just been more competitive business and how is it changed?

Scott J. Dolan

Yes. I mean, so clearly, from Auto, we don't participate very much. Aero, I think we've been pretty consistent in what we've said. We've been lagging in terms of getting our fair share of the market. Some of the systems enhancements we have made in the quarter should help us, especially with the transactional business. But once again, we're starting to see improvement in Aero other than the 2 contracts that we did get, 1 with the bankruptcy and 1 that we strategically got out of. Rig counts, you have got to be a little bit careful when you look at what kind of rig counts are truly -- what's in there or how many are directional, horizontal-type rig counts, especially when you get -- and some of those Canadian rigs are more surface-type wells. We clearly -- our largest contributor of the Oil & Gas business is around frac-ing, and that has really what has been dead in Q4 and Q1. We are starting to see some uptick in that, in the booking levels here into Q2, which is really encouraging. And that's a large piece of our margin, sort of a higher-margin business that helps levy it. So I don't think, from my perspective and talking to customers and what we see out there, I don't think there's anything long-term here that has necessarily deteriorated around the business. I just think we're still in a fairly difficult time right now for the mix that we have versus what's strong out there.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

And the next is, it leads into the follow-up question, which is a lot of the folks in this earnings season have said that back half of the year is better. And there's not a lot of meat around the bones there. Obviously, in your case, there's a whole restructuring effort and the benefits of that. But is there something on the demand side that will change or the inventory balance that will change in the back half of 2013?

Scott J. Dolan

Yes. I think, once again, we hear that, too, from our customers we're taking the stance of, until we see it, until there's meat, we're not going to go out and sort of not do all the things that we need to do at the business to get healthy that we control and do those on our own. With that said, on the Oil & Gas, clearly, the booking levels are improving, so we're encouraged by that. And if you look at the PMI and the uptick in Q1 versus Q4, once again, with our 6- to 12-month lag, you should start to see things pick up in the second half of the late year. But I've also -- historically, this business, the beginning of the year has always been stronger than the end of the year. And we don't see the pickup sort of in July, August timeframe, I'm skeptical that you're going to see that uptick start to occur in Q4 because historically, that just -- it doesn't seem like it's been the case.

Operator

The next question is from David Olkovetsky from Jefferies.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

First question, just related to liquidity -- Scott Stephens, I think you mentioned it, but I didn't catch it. What did you say the total revolver availability was, and what was total liquidity at the end of the quarter?

Scott F. Stephens

I don't think we gave it on the prepared remarks, but it's approximately $80 million, and that will be disclosed in the Q. But the $100 million revolver with $8.8 million outstanding at the end of the first quarter, I think I updated that to say that it's currently 0 as we sit here today. We've got -- and it changes at any point in time, but approximately $10 million to $15 million at any in point in time of other encumbrances besides the outstanding on the revolver. So $80 million to $85 million of approximate liquidity around the revolver. And then $21 million was our cash on hand.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

Great, okay. And then in terms of the restructuring numbers, so there were a couple of numbers thrown out there, there was 0.8, 2.2 and 3.0. Obviously 0.8 and 2.2 add up to 3. What was the 0.8 and what was the 2.2 just in terms of income statement items?

Scott F. Stephens

Well, 0.8 was the cost of sales. It was the restructuring related to cost of materials, so that didn't grow in the margin, if you will. And the 2.2 was in the operating expense. So that was just kind of disaggregating those restructuring elements into its -- into where they impacted the income statement.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

So when you say the 2.2 is operating expense, is that like showing down warehouses and headcount reduction or what...

Scott F. Stephens

Yes. Those would be like related -- yes, those will be the activities, and then the cost for that would be severances, benefit costs and kind of, if you will, people costs.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

Okay. And then what's the outlook for that on a quarter-by-quarter for this year? Because I think you guys said you're going to be done in terms of the headcount stuff at the end of this quarter. Is that -- am I understanding that correctly?

Scott F. Stephens

Correct. So it should be -- we had another 7 -- we budgeted or talked about an expectation of $10 million, with $3 million being in Q1. We still think that those are the right numbers in terms of the $10 million, so that leaves a $7 million expectation, substantially, would be complete in Q2. I mean, there may be some sort of small bleed-over, but for the most part, we expect that $7 million to be completed in Q2 with the restructuring action.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

So the total restructuring costs should be done by the end of 2Q. Am I understanding it correctly?

Scott F. Stephens

Correct, correct.

David J. Olkovetsky - Jefferies & Company, Inc. Fixed Income Research

Okay, Got it. And then does Platinum and/or Ryerson still own a stake in the business?

Scott J. Dolan

Well, as far as we know, I mean, I don't know, as we sit here today, but certainly our understanding and expectation is that if their position had changed, they would have amended their filing to say so, and we're not aware of any amendments to their filings. So as far as we know, there aren't any changes.

Operator

And the next question is from Mark Parr from KeyBanc.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Scott, I was wondering if you could maybe give us some more color on market share initiatives that you have in mind for the, I guess, starting in the second half. What -- are there any specific products, any specific end markets or geography that you would feel are most available from a market share perspective? Or what color can you give us on your plans there?

Scott J. Dolan

Yes. So there is -- it really stems around utilizing our facility footprint that will be in place to make sure that we're selling all 3 verticals, where applicable. So some of the quick hits we got late last year that are growing very well was to globalize the Oil & Gas business, especially from the TSI acquisition that was predominantly in Edmonton and Houston. We've grown that very nicely in Singapore, growing that very nicely in Monterrey and also starting that up and got some good orders under our belt in the U.K. So that's all really incremental business, where we had the facility there. And we're able to utilize, put some resources in from a sales perspective and start using those facilities. We also have the opportunity with the Oil & Gas business to do a lot more with our office up in Winnipeg to leverage the Bakken region and really throughout Canada and some -- and sort of the Midwest and East Coast as well. So that's one. Second is where we had predominantly 1 vertical in a certain area, we're now letting those salespeople cross-sell across all 3 verticals. Great example, the East Coast, and this has sort of been our pilot. We had 3 outside salespeople for Aerospace. I believe we had about 16 for Industrial. So we now have 19 selling Industrial and Aerospace because they're able to sell both. And that's really where we started it, and we're starting to see some inroads in that as well. Then with that, the other thing that we're doing, I was really surprised at how many of our accounts go across all 3 of our verticals, our large global accounts. And so we're beefing up that team and really going in and selling the full suite of Castle products, including Plastics, in some cases, and really trying to put that all together in a more comprehensive, larger program about all the things we have to sell instead of previously, we would've gone in and talked to that customer 4 different times with the 4 different businesses that we had.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay. And do you have any goals for what you would expect in terms of incremental top line contribution in the second half of this year?

Scott J. Dolan

Yes. I guess we really are -- once again, on the things we can truly control, which is inventory, which is cost and all that, I think we're very specific on the things that -- obviously, the market is very market-dependent. I think we really wanted to see how some of these pilots we've put in place in Q2 have gone and as we roll those out. So we don't have any specific goals but that's something, maybe on our Q2 call, we can give more color on that.

Operator

At this time, I will turn the call over to Scott Dolan for closing remarks.

Scott J. Dolan

Okay. Well, once again, thank you, everyone. Once again, we do believe that we're very much on track with our restructuring. We are very cognizant that to ensure the restructuring does not impact our top line revenue or our margins other than the inventory coming out -- very, very focused on that. And once again, continues to be a tough market, but I think we're taking all the right steps to position us to be in good shape even if the market continues like this, but to be in very good shape within an improving market. So thanks for your time today, and have a great day.

Operator

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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