Ryerson Holding Corporation — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; unaudited. Ryerson distributes and processes metals across North America and China.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net sales | $1,218.8m | $1,031.7m | $3,694.8m | $2,923.4m |
| Gross profit | $173.7m | $139.1m | $494.3m | $405.5m |
| Gross margin | 14.3% | 13.5% | 13.4% | 13.9% |
| Operating profit | $32.9m | $10.3m | $75.1m | $32.2m |
| Net loss attributable to Ryerson Holding | $(0.9)m | $(25.0)m | $(20.6)m | $(61.4)m |
- Q3 sales rose 18.1%, reflecting 3.9% higher tons sold and a 13.6% increase in average selling prices. Nine-month sales rose 26.4%, with tons up 12.2% and average selling prices up 12.7%.
- Q3 gross margin improved year over year, but nine-month margin declined as materials costs grew faster than sales. Operating expenses increased in both periods.
- Interest and other debt expense was $31.4m in Q3 and $91.7m for nine months, up from $27.6m and $79.6m, respectively, mainly due to higher borrowings, higher interest on Holding notes and, for the nine-month period, credit-facility refinancing costs.
- Q3 income before tax was $2.6m, but a $3.5m tax expense resulted in a net loss. The nine-month pretax loss was $10.4m, with $10.1m tax expense.
Cash flow, debt and liquidity
- Nine-month operating cash use was $101.4m, versus $176.8m in 2010. Receivables absorbed $131.1m, primarily reflecting higher sales. Investing cash use was $26.3m; financing provided $102.4m. Cash ended at $38.5m, down from $62.6m at year-end 2010.
- At September 30, total debt carrying value, including current maturities and net of unamortized discount, was $1,340.4m, versus $1,211.3m at December 31, 2010. The filing reports a 119% debt-to-capitalization ratio. Stockholders’ equity was negative $220.5m.
- Total liquidity, a company-defined non-GAAP measure, was $420m: $38.5m cash plus $381m of availability under revolving and foreign credit facilities. The $1.35bn revolving facility had $553.5m drawn, $25m of letters of credit and $366m available.
- The company reported $4.1m of 8.25% notes due December 15, 2011; $102.9m of floating-rate notes due 2014; and $368.7m of 12% notes due 2015. Holding’s senior discount notes have an accreted value of $281.3m and mature in 2015. Facility maturity may occur earlier than March 2016 if specified note maturities remain outstanding.
Developments, outlook and risks
- Ryerson acquired Singer Steel in March 2011 for $23.6m. The acquisition generated a $5.8m bargain-purchase gain; reported nine-month results include Singer revenue of $26.7m since acquisition.
- In October 2011, the company reorganized and reduced headcount by approximately 400. It estimated restructuring charges of $10m–$12m for Q4, citing decentralization and a strategic focus on long and fabricated products.
- Management said operating cash flow and credit-facility proceeds should be sufficient for normal operating requirements. It anticipated approximately $9.7m in minimum pension contributions for the remainder of 2011; the filing also describes an approximately $44m minimum contribution for the full year.
- Key risks include cyclical industrial demand, volatile metal prices and margins, working-capital needs, high leverage and interest costs, collateral-based revolver availability, debt covenants and maturities, and pension funding requirements. Management said ordinary-course legal claims were not expected to materially affect results; no material risk-factor changes were reported. No specific revenue or earnings guidance was provided.
Investor verification priorities
- Confirm current revolver availability, borrowing-base capacity, covenant headroom and the timing of debt maturities.
- Track receivables, operating cash flow and inventory levels, given substantial working-capital cash use.
- Assess whether sales volume and gross-margin trends can offset higher operating costs and debt service.
- Verify actual Q4 restructuring charges and savings, and required pension contributions.
- Review Singer’s post-acquisition contribution separately from the nonrecurring bargain-purchase gain.