Ryerson Holding Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also provides fourth-quarter results. Unless noted, amounts are in U.S. dollars and millions. Ryerson distributes and processes industrial metals, primarily in North America. The year included Fanello Industries from April and Central Steel & Wire (CS&W) from July. Platinum affiliates owned approximately 56% of outstanding shares.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $4,408.4 | $3,364.7 |
| Gross profit / margin | $758.1 / 17.2% | $582.5 / 17.3% |
| Operating profit / margin | $139.2 / 3.2% | $101.1 / 3.0% |
| Net income attributable to Ryerson / diluted EPS | $106.0 / $2.81 | $17.1 / $0.46 |
| Cash from operations | $57.4 | $(2.5) |
| Capital expenditures | $38.4 | $25.1 |
| Year-end cash and total debt | $23.2 / $1,153.3 | $77.4 / $1,045.7 |
| Credit-facility availability / total liquidity | $392 / $441 | $264 / $338 |
| Working capital | $844.1 | $701.2 |
Sales rose 31.0%; same-store sales increased 20.7%. Tons shipped rose 13.4% overall and 4.1% same-store, while average selling price per ton increased 15.6% overall and 16.0% same-store. Higher demand and prices lifted gross-profit dollars, but gross margin was nearly unchanged as materials costs rose at a similar pace. Operating expenses were 13.9% of sales versus 14.3%.
Reported net income included a $70.0 million noncash bargain-purchase gain on CS&W. Interest and other debt expense was $99.2 million, up from $91.0 million. LIFO expense was $90 million in 2018 versus $44 million in 2017; 2017 also included a $24 million credit reversing an inventory reserve.
Fourth-quarter results
Fourth-quarter 2018 sales were $1,160.0 million, gross profit was $199.7 million, and net income attributable to Ryerson was $0.6 million (diluted EPS $0.01). The quarter recorded a pretax loss of $1.3 million. Results included a $3.2 million reduction to the CS&W bargain-purchase gain and a $1.7 million loss on the repurchase of notes.
Cash, debt, and liquidity
Operating cash flow improved from a $2.5 million use in 2017 to $57.4 million provided in 2018. Cash generation reflected earnings, higher accounts payable, and noncash expenses, partly offset by higher receivables, pension contributions of $27.0 million, and the noncash acquisition gain. Investing used $200.2 million, including $169.7 million net cash paid for acquisitions and $38.4 million of capital expenditures. Financing provided $92.9 million, principally through $149.9 million of additional credit-facility borrowing, partly offset by $52.2 million used to repurchase notes.
Total debt increased $107.6 million year over year. It included $535.9 million drawn on the $1.0 billion asset-based revolving facility and $599.5 million of 11% secured notes due 2022, before other debt and issuance-cost adjustments. The facility matures in November 2021; availability depends on eligible receivables, inventory, and other borrowing-base terms. A 100-basis-point rise in floating rates was estimated to increase annual interest expense by approximately $4 million.
Outlook, risks, and unusual items
- Management anticipated 2019 capital expenditures of up to approximately $35 million, funded from operating cash and available borrowings. It expected a minimum required pension contribution of approximately $26 million in 2019.
- The filing gives no company-specific revenue or earnings guidance. Management described improved 2018 demand and pricing, but emphasized cyclicality and uncertainty in metal prices, tariffs, supply, and customer demand. The company said U.S. Section 232 trade measures favorably affected 2018 selling prices and gross margins; changes to tariffs or retaliatory trade actions could alter prices, demand, and supply.
- Defined-benefit pension liabilities exceeded plan assets by $181 million at year-end; postretirement benefit obligations were $70 million. Required future funding may vary with investment returns, discount rates, and regulation.
- Ryerson is among more than 100 potentially responsible parties at the Portland Harbor Superfund Site. The EPA had not allocated responsibility, and management could not estimate the company’s potential loss. The overall cleanup’s estimated present value was $1.05 billion; that is not an estimate of Ryerson’s share.
- Other key risks include high leverage and debt covenants, metal-price and inventory exposure, acquisition integration, foreign-exchange movements, cybersecurity, environmental compliance, and Platinum’s controlling ownership. No regular cash dividend was anticipated.
- Management and the independent auditor reported effective internal control over financial reporting, but the assessment excluded CS&W, which was included in the consolidated financial statements. The auditor gave an unqualified opinion on the financial statements and controls.
Investor verification priorities
- Separate recurring earnings and cash generation from the $70.0 million CS&W bargain-purchase gain; check acquisition pro forma results, which exclude that gain.
- Review CS&W integration, its acquired assets and liabilities, and the sustainability of same-store volume and pricing growth.
- Monitor borrowing-base availability, debt maturities and covenants, interest costs, and the ability to fund working capital, capital spending, and pension contributions.
- Assess sensitivity to falling metal prices, LIFO inventory charges, and changes in tariffs or trade restrictions.
- Track pension funding assumptions and developments in the Portland Harbor matter, for which Ryerson’s potential share remains unquantified.