Ryerson Holding Corporation — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 9, 2012. The filing also provides unaudited quarterly results, including fourth-quarter 2011. Ryerson distributes and processes metals through operations primarily in the United States, with operations in Canada, China and Mexico. The company reported one operating segment. Its common stock had no public trading market, and Platinum Equity affiliates owned 99%.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $4,729.8 million | $3,895.5 million |
| Gross profit / margin | $658.8 million / 13.9% | $539.8 million / 13.9% |
| Operating profit / margin | $98.7 million / 2.1% | $20.1 million / 0.5% |
| Net loss attributable to Ryerson Holding | $8.1 million | $104.0 million |
| Operating cash flow | $54.5 million | $(198.7) million |
| Capital expenditures | $47.0 million | $27.0 million |
- Revenue increased 21.4% year over year as shipments rose 8.0% and average selling price per ton increased to $1,944 from $1,730. Gross profit rose 22.0%; gross margin was unchanged.
- Operating expenses as a share of sales fell to 11.8% from 13.4%, supporting higher operating profit. Interest and other debt expense increased to $123.1 million from $107.5 million.
- The company recorded a $11.0 million income tax benefit, including $18.0 million of tax benefits related to acquisition accounting, partially offset by foreign tax expense. The annual net loss narrowed substantially from 2010.
- Fourth-quarter sales were $1,035.0 million, gross profit was $164.5 million, loss before tax was $9.4 million, and net income attributable to Ryerson Holding was $12.5 million. The quarter included a $21.1 million tax benefit, primarily related to the Turret acquisition, as well as restructuring and impairment charges.
Liquidity, debt and balance sheet
- At December 31, 2011, cash and cash equivalents were $61.7 million; working capital was $806.6 million, versus $858.8 million a year earlier. Reported total liquidity was $358 million, including cash and borrowing availability.
- Debt carrying value, including current maturities, was $1,316.2 million, up from $1,211.3 million. The company reported $274 million available under its $1.35 billion revolving credit facility. Total equity was a deficit of $267.6 million.
- Debt includes the revolving facility, $102.9 million of floating-rate notes due 2014, $368.7 million of 12% notes due 2015, senior discount notes with a $292.6 million accreted carrying value and $483 million principal amount at maturity, and $32.0 million of foreign debt. The filing’s contractual-obligations schedule shows substantial 2015 maturities.
- Operating cash flow recovered from use of $198.7 million in 2010, principally reflecting a $92.9 million inventory reduction, partly offset by a $71.7 million decline in accounts payable. Cash used in investing was $115.0 million, including $95.2 million for acquisitions.
- Pension obligations were underfunded by $359 million; unfunded postretirement benefits were $143 million. Pension contributions were $43.9 million in 2011, and management anticipated minimum required contributions of approximately $51 million in 2012.
Material changes, outlook and risks
- Results improved with higher manufacturing activity, shipment volume and metal prices. LIFO expense was $49 million in 2011, compared with $52 million in 2010; pricing and inventory valuation remain sensitive to metal-market movements.
- 2011 acquisitions included Singer Steel and Turret, intended to strengthen processing capabilities and long-product offerings. On February 17, 2012, Ryerson acquired a 50% interest in Brazil-based AçoFran; this occurred after year-end.
- In October 2011, a reorganization reduced headcount by 292 and generated a $9.8 million charge. Total 2011 restructuring and other charges were $11.1 million. Management anticipated 2012 capital expenditures of up to approximately $55 million, excluding acquisitions.
- Management cited a recovering North American economy and improving industrial demand. Its outlook referenced third-party forecasts; the filing does not provide specific company revenue or earnings guidance.
- Key risks include cyclical demand and metal-price volatility, inability to pass cost changes through to customers, substantial debt and restrictive covenants, refinancing and 2015 maturity concentration, floating-rate exposure, pension funding needs, supplier concentration, labor disruptions, international operations and environmental liabilities.
- The EPA named Ryerson among potentially responsible parties for the Portland Harbor Superfund Site in October 2011. Management could not estimate the outcome, remediation cost or range of potential loss.
- Ernst & Young issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Debt terms, covenant headroom, borrowing-base availability and the company’s plan for 2014–2015 maturities, especially the 2015 obligations.
- Whether operating cash generation can support working capital, planned capital spending, debt service and expected pension contributions.
- Underlying earnings excluding acquisition-related tax benefits, Singer’s bargain-purchase gain, restructuring charges and impairments.
- Metal-price and LIFO effects on gross margin, inventory values and liquidity if prices or demand weaken.
- Potential costs from the Portland Harbor matter and other environmental, pension, labor or litigation contingencies; the filing does not quantify the Portland Harbor exposure.