Ryerson Holding Corp. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Ryerson distributes and processes industrial metals, primarily in the United States, with operations in Canada, Mexico, and China. It serves about 42,000 customers through 99 facilities. More than 75% of products sold receive processing. Platinum Equity affiliates owned approximately 56% of outstanding shares.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $4,501.6 | $4,408.4 |
| Gross profit / gross margin | $827.9 / 18.4% | $758.1 / 17.2% |
| Operating profit / operating margin | $210.8 / 4.7% | $139.2 / 3.2% |
| Net income attributable to Ryerson Holding | $82.4 | $106.0 |
| Diluted earnings per share | $2.17 | $2.81 |
| Cash from operating activities | $193.1 | $57.4 |
| Capital expenditures | $45.8 | $38.4 |
| Total debt | $981.8 | $1,153.3 |
Sales increased 2.1%, while total tons sold rose 5.0%; both increases reflect the inclusion of a full year of Central Steel and Wire (CS&W), acquired in July 2018. On a same-store basis, sales fell 3.3% and tons sold fell 1.9%. Average selling price per ton declined 2.7% overall and 1.5% same-store. Reported gross margin improved partly because 2019 had $69 million of LIFO income, compared with $90 million of LIFO expense in 2018.
Operating profit improved despite weaker same-store demand. Operating expenses included a $20.6 million sale-leaseback gain, a $1.5 million insurance settlement gain, and an $11.0 million reduction in accrued vacation expense associated with a policy change. Net income declined year over year, in part because 2018 included a $70.0 million CS&W bargain-purchase gain and 2019 had a higher income-tax provision ($32.5 million versus $10.3 million).
Fourth-quarter 2019 sales were $961.5 million, gross profit was $180.4 million, and net income attributable to Ryerson Holding was $26.4 million, or $0.70 per basic share. Fourth-quarter results included the $20.6 million property-sale gain and the $11.0 million vacation-accrual reduction.
Cash, liquidity and debt
- Cash and cash equivalents were $11.0 million at year-end; restricted cash was $48.8 million, principally proceeds from property sales. Working capital was $788.1 million.
- Reported total liquidity was $439 million, including $348 million of availability under the asset-based revolving credit facility and restricted cash. Liquidity is a non-GAAP measure defined by the company.
- Debt fell by $171.5 million during 2019. Year-end debt included $377.7 million drawn on the revolving facility and $587.9 million of 11% senior secured notes due 2022. The revolver matures in November 2021; a $34.3 million FILO borrowing subfacility matures in June 2020.
- Operating cash flow benefited from reductions in receivables ($92.5 million) and inventory ($65.9 million), partly offset by lower accounts payable ($78.2 million) and $25.7 million in pension contributions. Investing cash flow was $26.4 million, including proceeds from asset sales; financing cash outflow was $183.8 million, primarily reflecting lower revolver borrowings.
- The pension plan was underfunded by $140 million, and other postretirement benefit obligations were $69 million. Management anticipated a minimum pension contribution of approximately $19.9 million in 2020.
Changes, outlook and risks
- Management reported weaker metals-market demand and falling carbon-steel and aluminum prices in 2019. CS&W contributed $576.3 million of 2019 revenue and a $13.1 million net loss. Integration efforts had achieved about $35 million in annualized expense reductions, but management said steel-price deflation and inventory holding losses weighed on CS&W.
- Management anticipated 2020 capital expenditures of up to approximately $45 million, funded from operating cash flow and available borrowings. This is a capital-spending plan, not earnings guidance.
- Key sensitivities include cyclical customer demand, metal-price volatility and inventory margins, supplier concentration, tariffs and trade conditions, and the company’s substantial debt and borrowing-base-dependent liquidity. A 100-basis-point increase in floating rates was estimated to raise annual interest expense by about $2.6 million before considering hedging effects.
- The EPA named JT Ryerson a potentially responsible party at the Portland Harbor Superfund Site. The site’s existing remediation plan was estimated at $1.05 billion in present-value terms, but responsibility has not been allocated and the company said it could not estimate its potential loss.
- The filing discusses the then-recent coronavirus outbreak as a possible source of supply-chain and operating disruption. It also identifies pension funding, environmental compliance, cybersecurity, and foreign-exchange exposure as risks.
- Ryerson had no goodwill impairment in its 2019 annual test. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- How much of reported earnings and margin improvement is sustainable after excluding LIFO effects, the sale-leaseback gain, and the vacation-accrual adjustment.
- Whether same-store volumes, prices, and CS&W operating performance improve, and whether expected integration savings are realized.
- Current borrowing-base availability, compliance with credit-facility covenants, and refinancing plans for the 2021 revolver and 2022 notes.
- Actual 2020 pension contributions and developments in the Portland Harbor matter, including any EPA allocation or settlement discussions.
- The effect of subsequent events: the filing reports that $5.7 million principal amount of 2022 Notes was repurchased in March 2020 for $5.9 million.