Ryerson Holding Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Ryerson distributes and processes metals, primarily in North America, with operations in China and Brazil. It served about 40,000 customers and operated more than 90 North American facilities. Platinum Equity affiliates held approximately 66% of outstanding common shares.
Financial results and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $3,167.2 million | $3,622.2 million |
| Gross profit / margin | $567.7 million / 17.9% | $593.8 million / 16.4% |
| Operating profit / margin | $108.6 million / 3.4% | $86.4 million / 2.4% |
| Net income (loss) | $(1.8) million | $(26.2) million |
| Net loss attributable to Ryerson Holding | $(0.5) million; $(0.02) per share | $(25.7) million; $(1.01) per share |
| Cash from operations | $259.1 million | $(73.3) million |
| Capital expenditures | $22.3 million | $21.6 million |
Sales fell 12.6% year over year as average selling price per ton declined 6.7% and tons shipped fell 6.3%. Gross profit dollars decreased 4.4%, while gross margin improved, reflecting lower material costs and $97 million of LIFO income, partly offset by a $37.9 million lower-of-cost-or-market inventory charge. Operating expenses declined, including versus $32.7 million of IPO-related costs in 2014.
Cash from operations rebounded primarily through working-capital release: inventory declined $178.1 million and receivables declined $88.0 million. Pension contributions used $42.5 million. Cash and cash equivalents ended at $63.2 million; reported total liquidity was $273 million, down from $328 million in 2014. Working capital was $643 million, versus $846 million.
Total debt was $1,034.5 million, down from $1,259.1 million. Debt included $272.2 million drawn on the revolving facility, $569.9 million of 9% notes due 2017, $170.4 million of 11.25% notes due 2018, and $22.0 million of foreign debt. Revolver availability was $185 million. Stockholders’ equity remained in deficit at $(140.9) million. Pension liabilities exceeded plan assets by $238 million; the postretirement benefit obligation was $82 million.
Fourth quarter: Sales were $668.8 million, gross profit $101.6 million, pretax loss $33.7 million, net loss $21.3 million, and loss attributable to Ryerson Holding $20.5 million, or $0.64 per share.
Material changes and unusual items
- Despite lower sales and shipments, operating profit rose to $108.6 million from $86.4 million, reflecting lower operating costs and a higher gross margin.
- Interest and other debt expense declined to $96.3 million from $107.4 million. The company repurchased $30.1 million principal of each note issue during 2015.
- The company recorded a $12.3 million other-than-temporary impairment of an available-for-sale investment; its year-end fair value was $2.2 million, with $2.9 million of unrealized losses remaining.
- 2015 included $7.7 million of asset impairment charges and $2.5 million of restructuring charges, including expense-reduction actions affecting 140 employees.
- Ryerson refinanced its $1.35 billion revolver with a $1.0 billion facility in July 2015. The new facility’s stated maturity is July 2020 or, if earlier, 60 days before maturity of qualifying debt of at least $50 million.
- The filing identifies a prior depreciation error: a cumulative $2.4 million adjustment was recorded in opening equity and the 2014 balance sheet was revised; 2013 and 2014 income statements were not restated.
Outlook, risks and contingencies
Management anticipated 2016 capital expenditures of approximately $20 million and minimum required pension contributions of approximately $22 million. It stated that operating cash flow and available revolver borrowings should fund normal operating requirements and the minimum pension contribution. No specific revenue or earnings guidance was provided.
Management noted that the U.S. manufacturing PMI was below 50% in each of the final three months of 2015, indicating contraction. It cited projected U.S. GDP growth and industrial production as potential supports for demand, while warning that metals prices and demand remained difficult to predict.
- Debt and refinancing: High leverage, restrictive covenants, floating-rate exposure, and the large 2017 and 2018 maturities could constrain liquidity or require refinancing on uncertain terms. A 100-basis-point increase in floating rates would raise annual interest expense by approximately $3.8 million at the disclosed debt level.
- Commodity and operating cycle: Further price declines or weaker volume could pressure margins, inventory values, liquidity, and covenant compliance. Supplier concentration and competitive pricing also present risks.
- Benefits and environmental matters: Pension and postretirement obligations create future cash demands. Ryerson is among more than 100 potentially responsible parties identified for the Portland Harbor Superfund Site; the company said it could not estimate its potential loss.
- Other risks: International operations and currency movements, cybersecurity and IT disruption, labor actions, litigation, and environmental regulation could affect results. The company reported no material expected impact from ordinary-course litigation.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of year-end.
Most important facts for investors to verify
- Whether Ryerson can refinance or repay the $569.9 million 2017 Notes and address the 2018 Notes, including any effect of the revolver’s maturity provision.
- How much of 2015 operating cash flow came from temporary inventory and receivables reductions, and whether working capital can support operations if demand weakens further.
- Whether lower metals prices, inventory write-downs, and LIFO effects continue to affect gross margin and cash generation.
- The progress and eventual financial exposure, if any, from the Portland Harbor matter, and the funding trajectory of pension and postretirement obligations.
- The implications of the disclosed depreciation error and the revised 2014 balance sheet, along with subsequent reporting and control disclosures.