8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of the Securities Exchange Act of 1934

Date of Report: March 14, 2016

Real Industry, Inc.

Delaware	001-08007	46-3783818
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

15301 Ventura Boulevard, Suite 400

Sherman Oaks, California 91403

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (805) 435-1255

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On March 14, 2016, Real Industry, Inc. (the “Company”) issued a press release announcing its financial results for the quarter and year ended December 31, 2015. A copy of the Company’s March 14, 2016 press release is attached hereto as Exhibit 99.1.

In accordance with General Instruction B.2 of Form 8-K, the information contained in Exhibit 99.1 furnished as an exhibit hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section, and shall not be deemed incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Exhibit 99.1 contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures is included in Exhibit 99.1. Further, Exhibit 99.1 contains statements intended as “forward-looking statements,” all of which are subject to the cautionary statements about forward-looking statements set forth therein.

Item 7.01 Regulation FD Disclosure.

On March 14, 2016, the Company issued a press release and a letter from its Chief Executive Officer and Chairman of the Board of Directors, Craig Bouchard, to its stockholders (and made available on the Company website, www.realindustryinc.com), describing developments of and observations on the Company during 2015, and prospects for 2016. A copy of this letter is attached hereto as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated into this Item 7.01 by reference. The information set forth in Item 2.02 above and in Exhibit 99.1 to this Current Report on Form 8-K is incorporated into this Item 7.01 by reference.

Item9.01FinancialStatementsandExhibits.

(d)Exhibits.

Exhibit No.	Description
99.1	Real Industry, Inc. Earnings Press Release dated March 14, 2016.
99.2	Annual Letter to Stockholders of Real Industry, Inc. dated March 14, 2016.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REAL INDUSTRY, INC.
Date:  March 14, 2016	By:	/s/ Kyle Ross
	Name:	Kyle Ross
	Title:	Executive Vice President and  Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Description
99.1	Real Industry, Inc. Earnings Press Release dated March 14, 2016.
99.2	Annual Letter to Stockholders of Real Industry, Inc. dated March 14, 2016.

EX-99.1

Exhibit 99.1

REAL INDUSTRY REPORTS FISCAL 2015 FOURTH quarter AND YEAR-END RESULTS

Company to host conference call on March 15, 2016, at 1:00 p.m. EDT

Annual CEO Letter to Stockholders available on website

SHERMAN OAKS, Calif., March 14, 2016 -- Real Industry, Inc. (NASDAQ: RELY) (“Real Industry” or the “Company”) today reported financial results for its fiscal fourth quarter and year ended December 31, 2015.

FY 2015 Highlights

- Segment Adjusted EBITDA of $70.3 million on $1.1 billion in revenues (ten months’ performance)

- Real Alloy exceeded annual productivity target of $13.4 million in cost reductions/margin enhancement (full year)

- Strong free cash flow at Real Alloy provided for $50 million in debt reduction since acquisition date

- Ended the year with more than $100 million in consolidated liquidity

FY 2015 Fourth Quarter Highlights

- Segment Adjusted EBITDA of $17.1 million on $300.6 million in revenues, down from fiscal 2015 third quarter as a result of seasonality due to automotive factory shutdowns during the holidays and tighter scrap spreads

- $30 million in debt reduction during the quarter

Management Commentary

Craig Bouchard, Real Industry’s Chairman and CEO, stated, “Fiscal 2015 was a year of transformation and achievement for our Company. I would like to recognize the phenomenal work of our employees during the year, particularly our team at Real Alloy who worked tirelessly on the Six Sigma-led transition effort. Despite a progressively challenging macroeconomic environment throughout 2015, Real Alloy surpassed its operating margin and cash flow targets, producing one of the best years in its history. Real Alloy outperformed nearly every public aluminum company with its unique risk-mitigating model.  

“In the ten months since the closing of the acquisition, our strong focus on cash flow, productivity and working capital management enabled us to reduce our total debt by over $50 million while maintaining liquidity in excess of $100 million at year end.

“The turbulence in the marketplace, combined with our Company’s strengthened position, created an ideal setting of increased opportunity as we work toward our next acquisition. We are actively pursuing targets that we believe will benefit from our tax-advantaged growth platform, and ultimately increase our stockholder value.”

Availability of Annual CEO Letter to Stockholders

The Company also announced the availability of its Annual CEO Letter to Stockholders at the Company’s website www.realindustryinc.com. The CEO Letter to Stockholders can also be accessed directly at http://www.realindustryinc.com/#ceo-insights.

FY 2015 Results

Real Industry reported revenues of $1.1 billion in the year ended December 31, 2015, driven by the Company’s Real Alloy business, which invoiced over 1 million metric tons of aluminum since it was acquired on February 27, 2015. As a result of this acquisition and the NABCO divestiture during the fiscal 2015 first quarter, comparisons to 2014 are not meaningful for Real Industry this year. On a full-year basis for Real Alloy, which has not been audited, management estimates that the invoiced volume was

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largely flat with 2014 when the business was owned by Aleris Corporation. During the second half of the year, Real Alloy consistently delivered 55% of its sales volume to customers via tolling arrangements, with its buy/sell business representing the remainder.  

Despite falling aluminum prices throughout the year, Real Alloy generated segment Adjusted EBITDA of $70.3 million for fiscal 2015, which represents approximately ten months of performance.  Adjusted EBITDA per ton over this period was nearly $70. Gross profit was $74.9 million, and gross margin was 6.5%. Adjusting for the impact of purchase accounting, which increased cost of sales, gross margin would have been 7.3%.

During fiscal 2015, the Company incurred a number of one-time expenses that impacted its financial results, including $14.8 million in transaction and financing-related costs and expenses associated with the Real Alloy acquisition, $9.2 million in noncash costs related to the amortization of the fair value adjustment of inventories and prepaid supplies under purchase accounting; as well as, reported in discontinued operations, a $39.7 million pretax gain on sale of our former subsidiary North American Breaker Company; and $4.8 million of recovery on allowance for repurchase reserve.

Real Industry reported net loss attributable to the Company of $6.9 million in fiscal 2015.

FY 2015 Fourth Quarter Results

Real Industry reported revenues of $300.6 million in the fiscal 2015 fourth quarter driven primarily by Real Alloy, which invoiced an aggregate 291,300 metric tons of aluminum during the period. Compared to the fiscal 2015 third quarter, volumes were down 3%, which was in line with expectations due to fourth quarter seasonality caused by slowdowns in the automotive industry, as a result of plant shutdowns for maintenance and vacations timed to take place during the holiday season. This fourth quarter seasonal reduction, on a percentage basis, was in line with the prior year reduction under Aleris.  

Adjusted EBITDA at Real Alloy was $17.1 million in the fiscal 2015 fourth quarter. Gross profit was $23.4 million, and gross margin was 7.8%, which compares to 7.5% in the fiscal 2015 third quarter and 5.8% in the fiscal 2015 second quarter. Adjusting for the impact of purchase accounting, which increased cost of sales, gross margin would have been 8.0%, compared to 7.9% in the fiscal 2015 third quarter and 6.7% in the fiscal 2015 second quarter, similarly adjusted.

Operating costs in corporate and other were $3.4 million during the quarter, a slight increase compared to the fiscal 2015 third quarter.  

Real Industry reported net loss attributable to the Company of $3.9 million in the fiscal 2015 fourth quarter.

Balance Sheet and Liquidity

At December 31, 2015, Real Industry’s cash and cash equivalents were $35.7 million, total debt was $314.4 million, and stockholders’ equity was $151.8 million. The Company’s total liquidity was $103.7 million at December 31, 2015, of which, $83.1 million relates to Real Alloy.

Conference Call and Webcast Information

The Company will host a conference call at 1:00 p.m. EDT on Tuesday, March 15, 2016, during which management will discuss the results of the fourth quarter and year ended December 31, 2015.

The dial-in numbers are:

(877) 407-9163 (Toll-free U.S. & Canada)

(412) 902-0043 (International)

Participants may also access the live call via webcast at http://realindustryinc.equisolvewebcast.com/q4-2015. The webcast will be archived and accessible for approximately 30 days.

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A replay will be available shortly after the call on the investor relations section of the Company’s website, www.realindustryinc.com, and will remain available for 90 days.

About Real Industry, Inc.

Real Industry is a North America-based holding company seeking to take significant ownership stakes in large, well-managed and consistently profitable businesses concentrated primarily in the United States industrial and commercial marketplace. Real Industry has significant capital resources, and federal net operating loss tax carryforwards of more than $870 million. For more information about Real Industry, visit its corporate website at www.realindustryinc.com.

Cautionary Statement Regarding Forward-Looking Statements

This release contains forward-looking statements, which are based on our current expectations, estimates, and projections about the Company’s and its subsidiaries’ businesses and prospects, as well as management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “should,” “will” and variations of these words are intended to identify forward-looking statements. Such statements speak only as of the date hereof and are subject to change. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. These statements include, but are not limited to, statements about: our financial results, including for the fourth quarter of 2015 and the full fiscal 2015year, as well as our expectations for future financial trends and performance of our business and our strategy in future periods including during fiscal 2016; our future acquisition activities; the health of our balance sheet, our liquidity position, our preparation for future market conditions; and any statements or assumptions underlying any of the foregoing. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Accordingly, actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference include, but are not limited to, changes in domestic and international demand for recycled aluminum; the cyclical nature and general health of the aluminum industry and related industries; commodity price fluctuations and our ability to enter into effective commodity derivatives or arrangements to effectively manage our exposure to such commodity price fluctuations; inventory risks, commodity price risks, and energy risks associated with Real Alloy’s buy/sell business model; our ability to service, and the high leverage associated with, our indebtedness, and compliance with the terms of the indebtedness, including the restrictive covenants that constrain the operation of our business and the businesses of our subsidiaries; our ability to successfully identify, acquire and integrate additional companies and businesses that perform and meet expectations after completion of such acquisitions; our ability to achieve future profitability; our ability to control operating costs and other expenses; that general economic conditions may be worse than expected; that competition may increase significantly; changes in laws or government regulations or policies affecting our current business operations and/or our legacy businesses, as well as those risks and uncertainties disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Real Industry, Inc.’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2016, and similar disclosures in subsequent reports filed with the SEC, which are available on our website at www.realindustryinc.com and on the SEC website at https://www.sec.gov.

Contact  

Real Industry, Inc.  

Jeff Crusinberry, Senior Vice President and Treasurer  

(805) 435-1255  

investor.relations@realindustryinc.com

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Real Industry, Inc.

Consolidated Balance Sheets

	December 31,
(In millions)		2015		2014
ASSETS
Current assets:
Cash and cash equivalents	$	35.7	$	61.9
Trade accounts receivable, net		77.2		—
Financing receivable		32.7		—
Inventories		101.2		—
Prepaid expenses, supplies, and other current assets		24.7		1.0
Current assets of discontinued operations		0.3		18.1
Total current assets		271.8		81.0
Debt and equity offering costs		—		14.5
Property, plant and equipment		301.5		0.1
Intangible assets, net		15.1		0.1
Goodwill		104.3		—
Deferred income taxes		—		4.9
Other noncurrent assets		8.2		1.1
Noncurrent assets of discontinued operations		—		20.0
TOTAL ASSETS	$	700.9	$	121.7
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables	$	100.9	$	—
Accrued liabilities		51.8		7.1
Long-term debt due within one year		2.3		—
Current liabilities of discontinued operations		0.1		8.1
Total current liabilities		155.1		15.2
Accrued pension benefits		38.0		—
Environmental liabilities		11.7		—
Long-term debt, net		312.1		—
Common stock warrant liability		6.9		5.6
Deferred income taxes		6.7		—
Other noncurrent liabilities		5.4		0.1
Noncurrent liabilities of discontinued operations		0.7		15.2
TOTAL LIABILITIES		536.6		36.1
Redeemable preferred stock		21.9		—
TOTAL STOCKHOLDERS' EQUITY		142.4		85.6
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND    STOCKHOLDERS' EQUITY	$	700.9	$	121.7

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Real Industry, Inc.

Consolidated Statements of Operations

	Three Months Ended December 31,						Year Ended December 31,
(In millions, except per share amounts)	2015 (unaudited)				2014 (unaudited)			2015 (audited)			2014 (audited)
Revenues	$	300.5		$	2.0		$	1,145.6		$	2.1
Cost of sales		277.1			—			1,070.7			—
Gross profit		23.4			2.0			74.9			2.1
Operating costs		20.6			1.2			64.7			10.5
Operating profit (loss)		2.8			0.8			10.2			(8.4	)
Nonoperating expense, net		7.7			3.2			51.0			0.1
Loss from continuing operations    before income taxes		(4.9	)		(2.4	)		(40.8	)		(8.5	)
Income tax benefit		(2.4	)		(6.5	)		(9.1	)		(8.4	)
Loss from continuing operations		(2.5	)		4.1			(31.7	)		(0.1	)
Earnings from discontinued operations,    net of income taxes		(1.6	)		0.9			24.9			5.5
Net earnings (loss)		(4.1	)		5.0			(6.8	)		5.4
Earnings (loss) from continuing     operations attributable to   noncontrolling interest		(0.2	)		(0.1	)		0.1			(0.1	)
Net earnings (loss) attributable to    Real Industry, Inc.	$	(3.9	)	$	5.1		$	(6.9	)	$	5.5
EARNINGS (LOSS) PER SHARE
Net earnings (loss) attributable to    Real Industry, Inc.	$	(3.9	)	$	5.1		$	(6.9	)	$	5.5
Dividends and accretion on    Redeemable Preferred Stock		(0.7	)		—			(2.3	)		—
Net earnings (loss) available to    common stockholders	$	(4.6	)	$	5.1		$	(9.2	)	$	5.5
Basic and diluted earnings    (loss) per share:
Continuing operations	$	(0.15	)	$	0.32		$	(1.28	)	$	—
Discontinued operations		(0.01	)		0.07			0.93			0.41
Basic and diluted earnings (loss) per share	$	(0.16	)	$	0.39		$	(0.35	)	$	0.41

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Real Industry, Inc.

Segment Information

	Three Months Ended December 31, 2015 (unaudited)
(Dollars in millions, tonnes in thousands)	RANA		RAEU		Total
Buy/sell metric tonnes invoiced		87.2		42.5		129.7
Tolling metric tonnes invoiced		109.5		52.1		161.6
Total metric tonnes invoiced		196.7		94.7		291.3
Revenues	$	189.7	$	110.9	$	300.6
Adjusted EBITDA	$	12.7	$	4.4	$	17.1
	Year Ended December 31, 2015 (audited)
(Dollars in millions, tonnes in thousands)	RANA		RAEU		Total
Buy/sell metric tonnes invoiced		299.9		155.6		455.5
Tolling metric tonnes invoiced		375.4		176.1		551.5
Total metric tonnes invoiced		675.3		331.8		1,007.0
Revenues	$	711.4	$	434.2	$	1,145.6
Adjusted EBITDA	$	49.0	$	21.3	$	70.3

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in the balance sheets, statements of operations, or statements of cash flows; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measures so calculated and presented. We report our financial results in accordance with GAAP; however, our management believes that certain non-GAAP performance measures, which we use in managing our businesses, may provide investors with additional meaningful comparisons between current results and results in prior periods. Adjusted EBITDA (defined below) is an example of a non-GAAP financial measure that we believe provides investors and other users of our financial information with useful information.

Management uses Adjusted EBITDA as a performance metric for its segments and believes this measure provides additional information commonly used by holders of our common stock, as well as the holders of the Real Alloy Senior Secured Notes and parties to the Asset-Based Facility with respect to the ongoing performance of our underlying business activities, as well as our ability to meet our future debt service, capital expenditures and working capital needs. In addition, Adjusted EBITDA is a component of certain covenants under the Indenture governing the Senior Secured Notes.

Our Adjusted EBITDA calculations represent net earnings before interest, taxes, depreciation and amortization, unrealized gains and losses on derivative financial instruments, share-based compensation expense, charges and expenses related to acquisitions, and certain other gains and losses.

Adjusted EBITDA as we use it may not be comparable to similarly titled measures used by other companies. We calculate Adjusted EBITDA by eliminating the impact of a number of items we do not consider indicative of our ongoing operating performance and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. However, Adjusted EBITDA is not a financial measurement calculated and presented in accordance with GAAP, and when analyzing our operating performance, investors should use Adjusted EBITDA in addition to, and not as an alternative for operating profit or any other performance measure derived in accordance with GAAP. Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for, or superior to, our measures of financial performance prepared in accordance with GAAP. These limitations include:

· does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

· does not reflect changes in, or cash requirements for, working capital needs;

· does not reflect interest expense or cash requirements necessary to service interest and/or principal payments under the Real Alloy Senior Secured Notes or Asset-Based Facility;

· does not reflect certain tax payments that may represent a reduction in cash available to us;

· Although depreciation and amortization are noncash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and

· Other companies, including companies in our industry, may calculate these measures differently and the degree of their usefulness as a comparative measure correspondingly decreases as the number of differences in computations increases.

In addition, in evaluating Adjusted EBITDA it should be noted that in the future we may incur expenses similar to the adjustments in the below presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

The table below provides a reconciliation of Adjusted EBITDA of our segments to the most directly comparable financial measure presented in accordance with GAAP. Our reconciliation of Adjusted EBITDA to operating profit for the three months and year ended December 31, 2015 follows:

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(In millions)	Three Months Ended December 31, 2015 (unaudited)		Year Ended December 31, 2015 (audited)
Adjusted EBITDA	$	17.1	$	70.3
Unrealized losses on derivative financial instruments		—		0.8
Depreciation and amortization		8.3		32.5
Amortization of purchase accounting adjustments		0.7		9.2
Corporate and Other:
Operating loss—excludes share-based compensation expense		2.4		12.6
Share-based compensation expense		1.0		1.3
Other		1.5		3.7
Operating profit	$	3.2	$	10.2

EX-99.2

Exhibit 99.2

CEO Letter

Dated March 14, 2016

ANNUAL LETTER FROM THE CHAIRMAN of the BOARD

AND CHIEF EXECUTIVE OFFICER

DEAR FELLOW STOCKHOLDERs, Bondholders, and OTHER stakeholders,

On behalf of our management team, the Real Industry Board of Directors and me, thank you for placing your trust in us. 2015 was a breakthrough year for the Company.  We grew our revenues from $40 million to over $1.3 billion (annualized) through our acquisition of the business we now call Real Alloy. In the process we established one of our subsidiaries as a significant and well-managed market leader in the aluminum industry.

We estimate that full-year 2015 Adjusted EBITDA of the Real Alloy business came in at over $81 million.  As a reminder, we acquired the Real Alloy business at the end of February 2015, so our 10-K only includes ten months of Real Alloy operations.  

Below, I will provide a window into our Company over the past year and comment on our prospects moving forward.  I’ll discusswhat we did and didn’t accomplish, and share thoughts on the macroeconomic environment.  As before, I will conclude with answers to questions most frequently asked by our investors.

Without further ado, let’s begin.

2015 contained an unpleasant surprise: the LME price of aluminum fell 17%, and the Midwest premium fell 63%. The Rotterdam premium crashed as well. It’s difficult to envision a more challenging commodity environment than the one we encountered coming out of the gate post-acquisition.

There has been an uncomfortable historical correlation between Real Alloy’s profitability and directional aluminum prices. In 2015, we broke that correlation, recording one of the best years in company history. How did we do it?

Real Alloy executeda series of strategic and tactical decisions, beginning in 2009 and continuing through 2015. Those decisions included the following:

Post-2009, the management team invested heavily in scrap processing equipment that allowed Real Alloy the flexibility to broaden its scrap purchasesand more effectivelyblend various types of scrap to meet customer specifications. Not only was this beneficial for Real Alloy, but it also provided our scrap partners with a greater range of opportunities to collaborate with us. The increased flexibilityled toincreased margins and operating efficiencies for Real Alloy. The payoff in 2015 was notable.  

Our Six Sigma-dominated transition process made material improvements to our cost structure.

Of course auto builds and energy prices were in our favor during the year, and continue to be so.

Finally, the risk-thesis we invested into held up beautifully. As we have mentioned before, half of our volume is toll processing, which carries little to no commodity price risk.  In addition, our ability to hedge roughly 1/3 of the remaining buy/sell (financial) risks proved important in 2015.

WHAT WE DO EVERY DAY

Our Company is not well understood in the financial markets. We want to fix that. Let’s start here in this letter.

As many of our investors know, the parent company Real Industry, Inc. is in the early stages of building a portfolio of well-managed and profitable companies capable of burning off our approximate $870 million federal NOL as efficiently as we can. The NOL is a powerful tool, and we want to maximize its value. However, our primary objectives are to allocate capital very efficiently and grow both organically as well as through accretive acquisitions. As we execute on these objectives, we will realize the value of our NOL.  

Our current valuation does not seem to properly value this crown jewel asset. Eventually, we expect it will.

Our first major acquisition, Real Alloy, was purchased for $525 million from Aleris in February 2015. Real Alloy is the largest independent recycler of aluminum in North America and Europe, with 24 manufacturing plants in the United States, Mexico, Canada, Germany, Norway and England.  At this stage, Real Alloy is responsible for nearly all of our revenues.  

Many of you are focused on learning this business as quickly as you can.  It isn’t easy because there are few large competitors and few public recycling companies to compare. We truly want our investors and the marketplace to understand what we do and how we do it. So, I’ll commit a few paragraphs to this topic and then discuss Real Alloy further in sections below.

Real Alloy sits uniquely in the middle of the aluminum supply chain with a clear view of all players from the scrap dealers tothe large aluminum manufacturing firms to their largest downstream customers, namely the auto, aerospace, food and beverage can companies, foundries and others. We consider all of them our partners driving an increase in the use of recycled aluminum. Our position is “unique” because these various aluminum consumers are our customers, andmost ofthem are also our suppliers. Owning this special niche, we enjoy an inside view of

the entire global aluminum supply chain. I don’t know of another company with such a privileged leadership position.

We have two distinctly different customer bases. The first is the large aluminum mills such as Alcoa, Constellium, Novelis, Aleris, Kaiser, Norsk Hydro, etc. These companies ship their aluminum scrap to us. We melt it, sometimes add alloying metals tomeet their customer specifications, and then ship molten and solid aluminum directly back to their furnaces (typically from a location close by).  We have become a dedicated melt shop for many of these mills. This arrangement is referred to as “toll processing.” In a tolling arrangement, our customer owns the metal. The customer often provides transportation logistics. We own no inventory and typically pass through most of our energy costs. Real Alloy earns a contracted amount of money per ton (or pound) delivered.

We like this business for risk management-related reasons. We don’t accept commodity price risk. We are one of the lowest cost inputs into our customers’ aluminum manufacturing process. The scale, complexity and the close location of our facilities to our customers make these customer relationships sticky. We have maintained roughly 95% of our customers over the years.

Our second important customer base is the auto companies, meaning well-known firms such as Chrysler, GM, Honda, Daimler, BMW, Volkswagen, and some of the automaker’s tier-one and tier-two suppliers.  A large percentage of our business with these companies is direct, although smaller amounts flow through their key suppliers. We are located close to the auto plants. This is critically important when delivering molten aluminum just-in-time to their furnaces. To illustrate how critical: we deliver molten aluminum to some of our large customers every 30-40 minutes, 24/7, almost every day of the year.

Please note: we toll process for the auto companies just as described above for the aluminum mills.  

Roughly half of our global volume of ~1.2 million metrictons of aluminum is delivered via toll processing. This risk-mitigating model is one of the reasons we outperformed nearly every public aluminum company in 2015.

What composes the other half of our delivered volume? Well, our customers consistently desire more of our product than their internal scrap supply can fund. So, we purchase aluminum scrap on the open market and supply more of the same molten and solid aluminum. We call this our buy/sell business.

We generally earn a higher return on the buy/sell, but we assume more risk.  We take inventory risk, commodity price risk, and energy risk on this component of our volume.  To mitigate these risks we don’t hold inventory very long, turning it roughly once a month. And, we actively hedge energy and aluminum price risk. In Real Alloy, we have one of the finest risk management teams I have worked with.  I play an active role on this team.  De-risking each of our businesses is one of my primary philosophical objectives.  

HOW TO MONITOR KEY REAL ALLOY RISKS

Here is a layman’s primer on the macroeconomic events that affect our performance.

Unlike most commodities,aluminum consumption is growing at a healthy pace, both in the U.S. and globally. Consumption is expected to grow at a 6% rate this year on a global basis and 4% in the United States. In both cases consumption is growing considerably faster than GDP.

Because of smelter retirement in recent years and additional shutdowns planned (potentially 3 million tons of old smelting capacity in China); the demand/supply of aluminum is gradually coming into balance. Some predict a deficit in the second half of 2016.

The topic of China tends to dominate any conversation about commodity driven markets. The Chinese produce and consume about half the global supply of aluminum. If they indeed reduce capacity this year, the price declines of the past two years will likely come to an end. This would be good for our customers and for our business. In a rising price environment, scrap spreads tend to widen.

Analyzing our risks requires keeping an eye on the auto industry. The mega-trend of aluminum replacing steel in autos is certainly real.  It is a key reason we made our investment. Since roughly 2/3 of Real Alloy volumes flow directly or indirectly into the auto industry, we monitor auto builds in the U.S. and Europe closely.

Auto is a huge consumer of aluminum. The other three largest segments are food and beverage cans, growing globally at 1-3%; aerospace, growing at 8-9%; and construction, growing at 4-6%.  We also follow these growth rates closely. Please note: we sell indirectly into these non-auto segments by feeding the major aluminum mills, which do sell directly into them.

Bottom line, we invested into a growing market and play a leadership role in our segment.

The other metric important to understanding our business (though admittedly not easy) is “scrap spreads.” These spreads dictate the profit margin on our buy/sell volume.  Scrap spreads remained reasonably stable in 2015 as scrap fell in proportion to the declining price of aluminum and regional premiums. Our ability to use a wide variety of scrap inputs enabled us to use the most cost-effective scrap blends, helping us overcome any narrowing of the spreads throughout the year.

We follow our spreads daily. Our scrap-purchasing database is proprietary.

THE AUTOMOTIVE MEGA-TREND

Here are a few miscellaneous stats and interesting facts about the auto mega-trend.

Aluminum makers are adding capacity for auto sheet in anticipation of growing demand. Public reports indicate that Alcoa has spent $575 million in Davenport, Iowa, and Knoxville, Tennessee. Novelis has invested $500 million since 2011 into tripling their global capacity by the end of this year. Aleris, Constellium, Norsk Hydro, and others have

made similarly large investments. This bodes well for Real Alloy because these companies are our customers.

Today the Real Alloy auto business is mostly aluminum engines, power trains, and other cast aluminum parts.  The exterior sheet phenomenon here in the U.S. is in its infancy. The all-aluminum Ford F-150 is already a success in design effectiveness, safety and commercial acceptance. The competitors are lining up to follow.  I predict almost all of the remaining car companies will follow (including GM’s Chevrolet Suburban and GMC’s truck models).

According to Bloomberg Intelligence, more than 500,000 metric tons of capacity for body-in-white aluminum sheet is scheduled to come on line by the end of 2018. Aluminum content in cars will rise 39% by 2025 to 547 pounds per vehicle. Why? Aluminum alloys are stronger and about 1/3 the weight of steel, which allows automakers to produce lighter vehicles. This, in turn, allows them to meet increasingly stringent CAFE and CO₂ emission standards. High-strength steel and carbon fiber are distant (and currently unrealistic) alternatives.

All of this means that demand for aluminum-alloy sheet by automakers in the U.S. should almost triple to 1.78 million tons by the end of 2025. As this trend unfolds, our customers will ship us more scrap and order more molten and solid aluminum to feed their manufacturing supply chains.

That is the future… How did we do in 2015?

ACCOMPLISHMENTS IN 2015

- We successfully closed the $525 million acquisition of Real Alloy, the sale of our only operating company (NABCO), and the four financings, which made the Real Alloy closing possible.

- We established an innovative Six Sigma-driven transition plan to carve Real Alloy from Aleris and transition it smoothly. We can report that we met our planned 2015 budget for this massive exercise.

- Real Alloy achieved fiscal 2015 Adjusted EBITDA in excess of $81 million (management estimate), one of the best performances in company history. This was accomplished in a market that was considerably tougher than anyone anticipated.

- At closing, we initiated a “CEO Challenge” to reduce Real Alloy’s costs by 1% of COGS in 2015 ($13.4 million target). The actual 2015 result was $15 million.  This was a critical ingredient to the company’s fine results this year.  Please note: the 2016 “CEO Challenge” bar has been raised to $17 million.

- Real Alloy achieved free cash flow of $41.1 million (adjusted for normalized working capital) in 2015, surpassing our goal of $33 million.

- Real Alloy exceeded all liquidity goals, reducing the combined ABL and factoring draws on the acquisition closing date by more than $50 million and ended the year with more than $80 million in liquidity.

- Real Alloy began with Debt/EBITDA at 4.5x.  We set a goal to reduce this ratio below 4.0 within 18 months.  We met the goal within 10 months.

- Real Alloy’s secured High Yield Bond began the year with a price of $90 and finished the year at $102, making it perhaps the best-performing secured industrial bond in the North American marketplace for the full year 2015.

- Our subsidiary Cosmedicine was re-invented, re-branded, re-packaged, and settled a trademark dispute (receiving $897,500). It is expected to launch on the leading television distribution network in the next few months.

- Real Industry up-listed to the NASDAQ and joined the Russell 2000.

DISAPPOINTMENTS IN 2015

- A public company’s focus should be on return to shareholders and bondholders. Our bondholder return was industry leading. We can be proud about that.

However, our performance in the stock market was less impressive. On the first day of 2015, our share price was $7.15 per share. The closing price at December 31 was $8.03, a 12% gain.  This was sincerely disappointing to our board and management team. As I have said many times, we don’t manage to quarterly performance. However, we do understand that our institutional investors mark their portfolios to market. And retail investors care a great deal.  We get it, and this adds to our disappointment.

- After recording three excellent quarters of financial performance post-close, our stock price fell in the fourth quarter from $10.50 to $8.03, as the commodities markets declined broadly. Our price remains at around $7.15 today. It doesn’t matter that the market for commodities and metals was difficult.  We accept no excuses. This was disappointing.  

- Comparative 2015 full-year stock market returns:

RELY  +12%

Index Returns:

Dow  –2.23%

S&P 500  –0.7%

Nasdaq +6.4%

Russell 2000  –4.69%

Aluminum Companies:

Alcoa –38%

Constellium –53%

Century –81%

Kaiser +17%

AMAG  +16.4%

- At the parent company, we failed on three acquisition bids subsequent to the Real Alloy transaction (we looked at many more than three). On two of these, we were outbid. Real Industry backed away from the third transaction (under LOI) in Q4 when we were disappointed during the diligence process.

FREQUENTLY ASKED QUESTIONS:

At Real Alloy

- Question:If the aluminum-to-auto mega-trend is so powerful, why haven’t the company’s volumes grown in recent years?

Answer: Body-in-white in the U.S. has just begun. Our base business in auto today feeds structural parts inside the car or truck; examples include aluminum engine and power train components.  The body-in-white trend is exposed sheet. As the mills expand to meet this need, this creates new large customers for us, and large amounts of aluminum scrap will come our way for recycling. This trend will be a medium- to long-term feeder of our volumes. We are competitively positioned to benefit.

- Question: In 2015 the Company exceeded free cash flow expectations. This was in part due to the massive Six Sigma exercise that took place in the Company. Was this a one-time benefit?

Answer: No, continuous improvement is, and will be, a way of life for Real Industry and its businesses.The CEO Challenge for Real Alloy was a $13+ million objective in 2015.  In 2016, we have raised the challenge to $17 million.

There is direct HR alignment to the CEO Challenge: we compensate our managers with salary and incentive compensation.  The incentive pool is 80% determined by Adjusted EBITDA.  The remaining 20% is primarily determined by meeting the CEO Challenge objective. Throughout Real Alloy, and the

parent, nearly every manager touches the Six Sigma tsunami inside our company.

- Question: How does 2016 look?

Answer: 2016 will depend on a variety of factors, including U.S. and European GDP, the strength of the dollar, auto-builds, and scrap spreads.  Looking at the global economy, I see a significant chance of recession in the next twelve months (greater than 70%). China, Brazil, and Russia lead a larger pack of regions staring at poor economic dynamics. In the United States, it is brighter.  My guess: a 25-35% chance of recession in the next twelve months depending in part on how tough things get elsewhere. We stand alone with a skilled and available labor force, low interest rates, self-sufficiency in energy and most natural resources, and a solid (though aging) transportation infrastructure. We are experiencing productivity improvements in nearly every sector.

The U.S. can’t avoid the ravages of negative global growth rates, but we will be in a position to take advantage of the opportunities created.

With the historic strength in the dollar (not likely to subside in a global recessionary environment), the aluminum industry in the U.S. and Germany continues to face imports of cheap primary unfinished aluminum.  The Chinese get most of the blame, though these types of imports hurt smelters and mills much more than us. The Italian ingot manufacturers have been a greater problem lately (due to the weak Euro).

On the plus side, auto builds remain remarkably resilient as the consumer continues to replace older vehicles with fuel-efficient, and Wi-Fi-enabled vehicles. An electric car storm may well be next on the horizon, another potential game changer. All of this bodes well for Real Alloy.

As we sit here today, the market outlook is neutral to somewhat positive. Aluminum consumption should grow 4-6% per annum the next few years. Scrap prices have firmed. Smelting capacity

coming off stream in 2016 could potentially jolt prices upward in the later stages of the year. In sum, short of a significant economic setback that includes materially lower auto builds, I expect Real Alloy to perform well.  We are positioned for additional solid growth if the world outperforms.

- Question:  Having owned the Real Alloy for one year, what is the biggest surprise?  

Answer: The management team and employee force.  I knew they were good.  They exceeded my expectations in professionalism, flexibility, acceptance of a Six Sigma blanket, operational excellence and knowledge of their customers.

THE PARENT REAL INDUSTRY

- Question: With the RELY stock price below $8.00 and the high-yield debt market in turmoil, does the Company have access to capital for its next acquisition?

Answer: A resounding yes. During the months of December, January and February, our CFO Kyle Rossaccompanied me on a tour of institutional debt and equity providers. My definition of debt in this regard includes ABL, bank term loans, and mezzanine. Equity includes common and preferred stock instruments. The purpose of our tour was to build existing and new relationships and determine our access to a flexible set of financing tools.

The results were positive. In fact, the results were very positive. We concluded the market will support our next purchase. The reason? We have kept our promises. As previously highlighted, our secured bond outperformed virtually every industrial bond in 2015. Our cash flow and liquidity exceeded expectations, and we reduced debt.  The people we visited recognize the significance of these accomplishments during a challenging year in which we took on a complex carve-out acquisition.

- Question: Given the roiled debt markets, is the acquisition marketplace more or less friendly than six months ago?

Answer: Worse for sellers, and better for buyers with access to capital. The price of debt is higher, but multiples are lower.  The net is favorable.  Please note:  markets change fast. Even in the past couple of weeks the high yield market has once again shown some life.

SUMMARY

We like our position. We aren’t rushing to grow. Our priority is to make accretive acquisitions vs. fast acquisitions.There are fascinating acquisition opportunities available at the parent, and potential bolt-on opportunities at the subsidiary. We are exploring both.

Thank you for your support. We are determined to reward those that have invested their capital in our stock and bonds.

Craig T. Bouchard

Chairman and Chief Executive Officer