Ryerson Holding Corp. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Ryerson Holding Corp. for the period ended September 30, 2010. Ryerson is a metals service center operating in the United States, Canada, and China, distributing stainless steel, aluminum, carbon flat rolled, bars, tubing, structurals, and fabrication products. The company is 99% owned by affiliates of Platinum Equity, LLC.
Key Financial Metrics
| Metric (in millions) | Q3 2010 | Q3 2009 | YTD 9M 2010 | YTD 9M 2009 |
|---|---|---|---|---|
| Net Sales | $1,031.7 | $777.2 | $2,923.4 | $2,325.0 |
| Gross Profit | $139.1 | $151.8 | $405.5 | $363.5 |
| Gross Margin % | 13.5% | 19.5% | 13.9% | 15.6% |
| Operating Profit | $10.3 | $31.5 | $32.2 | $5.6 |
| Net Loss | $(16.1) | $(7.3) | $(52.6) | $(144.0) |
| Net Loss Attributable to Ryerson | $(16.3) | $(7.4) | $(52.7) | $(142.9) |
| Cash & Equivalents (End of Period) | $51.0 (Sep 30, 2010) vs $115.0 (Dec 31, 2009) | |||
| Total Debt (Carrying Value) | ||||
| Operating Cash Flow (YTD) | $(176.8) | $302.6 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 32.7% in Q3 2010 and 25.7% YTD compared to 2009, driven by a 17.9% increase in tons sold and a 12.5% increase in average selling prices (Q3).
- Margin Compression: Despite higher sales, gross profit margins declined. Gross profit per ton dropped to $237 in Q3 2010 from $306 in Q3 2009, as the increase in material costs outpaced selling price increases.
- Operating Expenses: Operating expenses increased due to higher employee costs, bonuses, and facility costs, though expenses per ton decreased due to volume leverage.
- Interest Expense: Interest and other debt expenses rose significantly (Q3: $27.6M vs $18.0M; YTD: $79.6M vs $54.4M) primarily due to the issuance of $483 million in 14.5% Senior Discount Notes in January 2010.
- Working Capital: Operating cash flow turned negative YTD 2010 ($(176.8)M) compared to positive YTD 2009 ($302.6M), driven by a $185.9M increase in receivables and a $100.1M increase in inventory to support higher sales volumes.
Guidance, Outlook, and Risks
- Outlook: Management notes that the metals service center industry is cyclical. While market conditions improved in 2010, domestic metal prices remain volatile due to commodity nature, interest rates, and global supply/demand imbalances.
- Liquidity: Total liquidity (cash + credit facility availability) was $383 million as of September 30, 2010. The company believes cash flows and the $1.35 billion credit facility are sufficient to meet obligations.
- Debt Structure: Total debt increased to $1,151.3 million (carrying value). The company is subject to covenants regarding fixed charge coverage ratios if credit facility availability declines.
- Pension Obligations: The company anticipates minimum required pension contributions of approximately $46 million for 2010. $38 million has been contributed YTD.
- Subsequent Events: On October 26, 2010, the company commenced an exchange offer for its 14.5% Senior Discount Notes due 2015, expiring November 30, 2010.
- Risks: Key risks include volatility in metal prices, interest rate fluctuations, foreign exchange exposure (Canada/China), and the ability to generate sufficient cash flow to service high levels of debt.
Investor Verification Checklist
- Verify the sustainability of the 17.9% volume increase given the cyclical nature of the industry.
- Monitor the impact of the new 14.5% Senior Discount Notes on future interest coverage ratios.
- Assess the company's ability to manage working capital, specifically the $185.9M increase in receivables and $100.1M increase in inventory.
- Review the status of the exchange offer for the Senior Discount Notes and its impact on the capital structure.
- Confirm the company's ability to meet the remaining $8 million pension contribution requirement for 2010.