Ryerson Holding Corporation — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Ryerson distributes and processes metals through more than 90 North American facilities and operations in China and Brazil. The company completed its IPO in August 2014, and Platinum Equity affiliates retained approximately 66% ownership.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Net sales | $3,622.2 million | $3,460.3 million |
| Gross profit / gross margin | $593.8 million / 16.4% | $616.6 million / 17.8% |
| Operating profit / margin | $86.4 million / 2.4% | $124.6 million / 3.6% |
| Net income (loss) attributable to Ryerson Holding | $(25.7) million | $127.3 million |
| Operating cash flow | $(73.3) million | $48.1 million |
| Capital expenditures | $21.6 million | $20.2 million |
| Cash and cash equivalents at year-end | $60.0 million | $74.4 million |
| Total debt at year-end | $1,259.1 million | $1,294.8 million |
| Total liquidity, as defined by the company | $328 million | $351 million |
Sales increased 4.7% as average selling price per ton rose 5.4%; tons sold declined 0.7%. Gross profit fell 3.7%. The company recorded $42 million of LIFO expense in 2014, compared with $33 million of LIFO income in 2013, amid rising metal prices. Operating expenses included a $25 million Platinum advisory-agreement termination charge and $7.7 million of IPO-related compensation expense. Interest and other expense on debt was $107.4 million. The 2014 net loss contrasts with 2013 net income, which included a $124.2 million noncash tax benefit from releasing a deferred-tax valuation allowance.
Fourth-quarter 2014 sales were $868.4 million, gross profit $142.2 million, pretax income $3.3 million, net income attributable to Ryerson Holding $4.8 million, and diluted EPS $0.15. In fourth-quarter 2013, sales were $802.5 million and gross profit was $147.2 million; reported net income attributable to Ryerson Holding of $118.2 million was largely driven by a deferred-tax valuation-allowance benefit.
Operating cash use in 2014 reflected $55.4 million in pension contributions, the net loss, lower accounts payable and higher receivables. Working capital was $739.2 million at year-end, down from $778.7 million. The company reported $245 million of availability under its $1.35 billion revolving credit facility, subject to borrowing-base limits. Total debt comprised $435 million of revolver borrowings, $600 million of 9% secured notes due 2017, $200.5 million of 11.25% unsecured notes due 2018, and $23.6 million of foreign debt. Debt-to-capitalization was 111%; total equity remained negative at $(126.9) million.
Material changes and unusual items
- The August 2014 IPO issued 11 million shares at $11 per share and yielded $112.4 million net. Proceeds funded redemption of $99.5 million principal amount of 2018 notes, the advisory-agreement termination payment, and transaction costs; the company also borrowed $23.3 million under its revolver for related transactions. A further $10 million termination payment was due in August 2015.
- On December 17, 2014, Ryerson Inc. merged into JT Ryerson, which became Ryerson Holding’s direct wholly owned subsidiary.
- On December 31, 2014, the company acquired Fay Industries for $20.1 million; the filing describes the acquisition as not material.
- Pension underfunding increased to $277 million from $203 million in 2013, with the filing citing lower discount rates and updated mortality assumptions. Other postretirement benefit obligations were $101 million.
- Comprehensive loss attributable to Ryerson Holding was $128.9 million, including significant pension-related and foreign-currency losses in other comprehensive income.
Outlook, commentary, and risks
Management anticipated 2015 capital expenditures of up to approximately $30 million and a minimum required pension contribution of approximately $43 million. Management said operating cash flow and available revolver borrowings were expected to fund normal operations and the minimum pension contribution. The filing cites favorable economic indicators and external forecasts for U.S. growth, but provides no specific company revenue, earnings, or margin guidance.
- Key risks include cyclical industrial demand, metals-price volatility and inability to pass cost changes through promptly, intense price competition, supplier concentration, and substantial debt and covenant constraints. The 2017 notes and revolver have material 2017 maturities; revolver maturity may accelerate to August 2017 if the 2017 notes remain outstanding.
- Pension and postretirement obligations could require substantial future cash contributions. A 50-basis-point reduction in the pension discount rate would increase the pension liability by approximately $60 million, according to the filing.
- The EPA named Ryerson as a potentially responsible party for the Portland Harbor Superfund Site. The company could not estimate the matter’s potential loss or outcome. Management did not expect ordinary-course claims to materially affect results, but litigation outcomes remain uncertain.
- Other stated risks include goodwill or investment impairment, foreign-exchange exposure, international operating and regulatory risks, labor negotiations, environmental compliance, product liability, and disruption to facilities or IT systems. An available-for-sale investment had $6.2 million of unrealized losses at year-end.
- CEO Michael Arnold had announced plans to retire in 2015; no date had been determined. The company reported effective disclosure controls, but its auditor did not provide an internal-control effectiveness opinion because of the transition period for newly public companies.
Most important facts for investors to verify
- Whether operating performance and margins improve after accounting for the change in LIFO results and IPO-related costs.
- Cash generation, revolver availability and borrowing-base capacity, covenant headroom, and refinancing plans for 2017 debt maturities.
- Required pension contributions and the sensitivity of the $277 million pension deficit to discount rates and asset returns.
- Whether the 2013 tax benefit and 2014 reported loss distort comparisons of underlying earnings and EPS.
- Developments in the Portland Harbor matter, the $10 million remaining Platinum termination payment, and the integration and performance of Fay Industries.