Ryerson Holding Corporation — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed March 13, 2017. Ryerson distributes and processes industrial metals, primarily in North America, with operations in China. More than 75% of products sold are processed to customer specifications.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Net sales | $2,859.7 million | $3,167.2 million |
| Gross profit / margin | $570.6 million / 20.0% | $567.7 million / 17.9% |
| Operating profit / margin | $133.2 million / 4.7% | $108.6 million / 3.4% |
| Net income (loss) attributable to Ryerson Holding | $18.7 million | $(0.5) million |
| Diluted earnings (loss) per share | $0.54 | $(0.02) |
| Cash flow from operations | $25.4 million | $259.1 million |
| Capital expenditures | $23.0 million | $22.3 million |
| Total debt at year-end | $963.5 million | $1,023.5 million |
| Cash and cash equivalents at year-end | $80.7 million | $63.2 million |
- Shipments increased 0.3% to 1.903 million tons, while average selling price per ton fell 10.0% to $1,503. Revenue declined 9.7%, largely reflecting lower metals prices.
- Operating expenses were $437.4 million including $1.0 million of restructuring charges. Expenses as a share of sales rose to 15.3% from 14.5%, despite lower absolute costs.
- Working capital was $665.4 million. Reported total liquidity was $301 million, a non-GAAP measure comprising cash, marketable securities and borrowing availability; availability under the revolving credit facility itself was $225 million.
- Cash from operations fell sharply from 2015, when inventory and receivables reductions generated substantial cash. In 2016, cash use included pension contributions of $22.1 million and increased receivables; accounts payable and net income partly offset these uses.
- Shareholders’ equity remained negative at $(49.3) million. Pension liabilities exceeded plan assets by $216 million; the unfunded postretirement benefit obligation was $74 million.
Material changes and unusual items
- Ryerson issued $650 million of 11.00% senior secured notes due 2022, using proceeds and revolving-credit borrowings to redeem its 9.00% notes due 2017 and repurchase notes due 2018. The company recorded an $8.7 million net loss on debt retirement and related transactions.
- The revolving facility was amended in November 2016: capacity was reduced from $1.0 billion to $750 million, pricing and commitment fees were lowered, and maturity extended to November 16, 2021. Year-end borrowings were $312 million.
- A 5-million-share public offering in July 2016 generated $71.5 million of net proceeds and increased weighted-average shares.
- FY 2016 included a $4.7 million other-than-temporary impairment of an available-for-sale investment. Metal-derivative gains of $10.0 million were recorded in cost of materials sold. LIFO expense was $7 million in 2016, versus $97 million of LIFO income in 2015.
- Fourth-quarter 2016 sales were $682.2 million; the company reported a pretax loss of $15.2 million, net loss of $8.4 million and diluted loss per share of $0.23. The quarter included a $1.5 million debt-repurchase loss and a $1.9 million investment impairment charge.
Outlook, risks and contingencies
- Management described 2016 industry demand as weak, with volatile but improving metals pricing. U.S. service-center shipments fell 6.2% industrywide. The filing provides no company revenue or earnings guidance.
- Management anticipated up to approximately $25 million of 2017 capital expenditures and a minimum required 2017 pension contribution of approximately $22 million; it expected cash flow and facility availability to fund the minimum contribution.
- Key risks include cyclical customer demand, metals-price volatility and the ability to pass through cost changes, substantial indebtedness and debt covenants, pension funding, supplier concentration, competition, foreign-exchange exposure, cybersecurity, and environmental liabilities.
- Ryerson was among more than 100 potentially responsible parties at the Portland Harbor Superfund Site. The EPA’s January 2017 remedy decision estimated total site costs at $1.05 billion and a construction period of about 13 years. Responsibility had not been allocated; management could not estimate the company’s potential loss.
- Platinum affiliates owned approximately 57% of outstanding common shares and had board-nomination rights. The company did not anticipate regular cash dividends.
- Ernst & Young issued unqualified audit opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of year-end.
Important facts for investors to verify
- How the decline in metals prices, shipment trends and inventory accounting affect future gross profit and cash generation.
- The debt maturity, refinancing and covenant implications of the $650 million 11.00% notes and the borrowing-base revolver; also monitor interest-rate sensitivity.
- Required pension contributions and the sensitivity of the $216 million pension deficit to discount rates and investment returns.
- Any allocation of Portland Harbor remediation costs to Ryerson and developments in other environmental or legal matters.
- Whether management’s expected 2017 capital spending and pension funding can be met without reducing liquidity or operating investment.