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RYI Ryerson Holding

Filed: 4 Aug 21, 4:21pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

Commission File Number 001-34735

RYERSON HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

26-1251524

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

227 W. Monroe St., 27th Floor

Chicago, Illinois 60606

(Address of principal executive offices)

(312) 292-5000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value, 100,000,000 shares authorized

RYI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

Emerging growth company

 

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 30, 2021, there were 38,474,594 shares of Common Stock, par value $0.01 per share, outstanding.

 

 


 


 

 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

INDEX

 

 

 

 

PAGE NO.

Part I. Financial Information:

 

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)—Three and Six Months Ended June 30, 2021 and 2020

3

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)—Six Months Ended June 30, 2021 and 2020

4

 

 

 

 

 

 

Condensed Consolidated Balance Sheets—June 30, 2021 (Unaudited) and December 31, 2020

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

Part II. Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

 

 

Item 1A.

Risk Factors

37

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

 

 

Item 5.

Other Information

37

 

 

 

 

 

Item 6.

Exhibits

38

 

 

 

Signature

39

 

2


 

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

1,419.0

 

 

$

771.8

 

 

$

2,566.3

 

 

$

1,782.1

 

Cost of materials sold

 

 

1,162.0

 

 

 

656.3

 

 

 

2,111.4

 

 

 

1,470.8

 

Gross profit

 

 

257.0

 

 

 

115.5

 

 

 

454.9

 

 

 

311.3

 

Warehousing, delivery, selling, general, and administrative

 

 

178.3

 

 

 

124.1

 

 

 

350.1

 

 

 

279.8

 

Gain on sale of assets

 

 

(87.4

)

 

 

 

 

 

(107.7

)

 

 

 

Restructuring and other charges

 

 

 

 

 

2.0

 

 

 

 

 

 

2.0

 

Operating profit (loss)

 

 

166.1

 

 

 

(10.6

)

 

 

212.5

 

 

 

29.5

 

Other income and (expense), net

 

 

(0.7

)

 

 

(0.1

)

 

 

(0.4

)

 

 

0.8

 

Interest and other expense on debt

 

 

(13.6

)

 

 

(19.3

)

 

 

(27.1

)

 

 

(41.0

)

Income (loss) before income taxes

 

 

151.8

 

 

 

(30.0

)

 

 

185.0

 

 

 

(10.7

)

Provision (benefit) for income taxes

 

 

38.5

 

 

 

(4.5

)

 

 

46.1

 

 

 

(1.6

)

Net income (loss)

 

 

113.3

 

 

 

(25.5

)

 

 

138.9

 

 

 

(9.1

)

Less: Net income attributable to noncontrolling interest

 

 

0.4

 

 

 

0.1

 

 

 

0.7

 

 

 

0.1

 

Net income (loss) attributable to Ryerson Holding Corporation

 

$

112.9

 

 

$

(25.6

)

 

$

138.2

 

 

$

(9.2

)

Comprehensive income (loss)

 

$

117.3

 

 

$

(21.9

)

 

$

145.3

 

 

$

(15.7

)

Less: Comprehensive income attributable to noncontrolling interest

 

 

0.5

 

 

 

 

 

 

0.7

 

 

 

 

Comprehensive income (loss) attributable to Ryerson Holding Corporation

 

$

116.8

 

 

$

(21.9

)

 

$

144.6

 

 

$

(15.7

)

Basic earnings (loss) per share

 

$

2.94

 

 

$

(0.67

)

 

$

3.61

 

 

$

(0.24

)

Diluted earnings (loss) per share

 

$

2.91

 

 

$

(0.67

)

 

$

3.57

 

 

$

(0.24

)

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

3


 

 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

138.9

 

 

$

(9.1

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26.7

 

 

 

26.9

 

Stock-based compensation

 

 

3.1

 

 

 

1.0

 

Deferred income taxes

 

 

29.1

 

 

 

11.5

 

Provision for allowances, claims, and doubtful accounts

 

 

2.3

 

 

 

(0.6

)

Restructuring and other charges

 

 

 

 

 

2.0

 

Gain on sale of assets

 

 

(107.7

)

 

 

 

Pension settlement charge

 

 

0.4

 

 

 

1.1

 

Gain on retirement of debt

 

 

 

 

 

(0.9

)

Non-cash (gain) loss from derivatives

 

 

40.4

 

 

 

(1.7

)

Other items

 

 

(0.1

)

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(275.9

)

 

 

50.5

 

Inventories

 

 

(109.1

)

 

 

141.4

 

Other assets and liabilities

 

 

(21.0

)

 

 

15.8

 

Accounts payable

 

 

200.0

 

 

 

(26.7

)

Accrued liabilities

 

 

30.1

 

 

 

(11.9

)

Accrued taxes payable/receivable

 

 

13.0

 

 

 

(14.6

)

Deferred employee benefit costs

 

 

(21.3

)

 

 

(8.6

)

Net adjustments

 

 

(190.0

)

 

 

185.2

 

Net cash provided by (used in) operating activities

 

 

(51.1

)

 

 

176.1

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(13.3

)

 

 

(11.8

)

Proceeds from sale of property, plant, and equipment

 

 

165.9

 

 

 

0.1

 

Other items

 

 

(0.5

)

 

 

 

Net cash provided by (used in) investing activities

 

 

152.1

 

 

 

(11.7

)

Financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(0.9

)

 

 

(57.5

)

Net repayments of short-term borrowings

 

 

(139.6

)

 

 

(21.5

)

Net increase (decrease) in book overdrafts

 

 

21.6

 

 

 

(24.4

)

Principal payments on finance lease obligations

 

 

(5.1

)

 

 

(6.7

)

Dividends paid to non-controlling interest

 

 

 

 

 

(0.2

)

Net cash used in financing activities

 

 

(124.0

)

 

 

(110.3

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(23.0

)

 

 

54.1

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(0.3

)

 

 

(2.0

)

Net change in cash, cash equivalents, and restricted cash

 

 

(23.3

)

 

 

52.1

 

Cash, cash equivalents, and restricted cash—beginning of period

 

 

62.5

 

 

 

59.8

 

Cash, cash equivalents, and restricted cash—end of period

 

$

39.2

 

 

$

111.9

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest paid to third parties, net

 

$

26.2

 

 

$

39.8

 

Income taxes, net

 

 

5.0

 

 

 

2.2

 

Noncash investing activities:

 

 

 

 

 

 

 

 

Asset additions under operating leases

 

 

103.9

 

 

 

0.7

 

Asset additions under finance leases

 

 

10.9

 

 

 

1.4

 


See Notes to Condensed Consolidated Financial Statements.

 

4


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Balance Sheets

(In millions, except shares and per share data)

    

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38.1

 

 

$

61.4

 

Restricted cash

 

 

1.1

 

 

 

1.1

 

Receivables less provisions of $2.5 at June 30, 2021 and $1.7 at December 31, 2020

 

 

655.0

 

 

 

378.9

 

Inventories

 

 

714.6

 

 

 

604.5

 

Prepaid expenses and other current assets

 

 

95.8

 

 

 

57.5

 

Total current assets

 

 

1,504.6

 

 

 

1,103.4

 

Property, plant, and equipment, at cost

 

 

748.2

 

 

 

822.9

 

Less: Accumulated depreciation

 

 

390.3

 

 

 

401.1

 

Property, plant, and equipment, net

 

 

357.9

 

 

 

421.8

 

Operating lease assets

 

 

202.7

 

 

 

108.3

 

Other intangible assets

 

 

40.6

 

 

 

43.2

 

Goodwill

 

 

121.2

 

 

 

120.3

 

Deferred charges and other assets

 

 

6.2

 

 

 

5.1

 

Total assets

 

$

2,233.2

 

 

$

1,802.1

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

587.1

 

 

$

365.1

 

Salaries, wages, and commissions

 

 

73.6

 

 

 

43.1

 

Other accrued liabilities

 

 

155.6

 

 

 

78.3

 

Short-term debt

 

 

26.8

 

 

 

13.8

 

Current portion of operating lease liabilities

 

 

24.6

 

 

 

20.7

 

Current portion of deferred employee benefits

 

 

6.7

 

 

 

6.6

 

Total current liabilities

 

 

874.4

 

 

 

527.6

 

Long-term debt

 

 

574.1

 

 

 

726.2

 

Deferred employee benefits

 

 

206.3

 

 

 

231.6

 

Noncurrent operating lease liabilities

 

 

172.5

 

 

 

93.0

 

Deferred income taxes

 

 

88.6

 

 

 

58.2

 

Other noncurrent liabilities

 

 

23.8

 

 

 

20.4

 

Total liabilities

 

 

1,939.7

 

 

 

1,657.0

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Ryerson Holding Corporation stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 7,000,000 shares authorized and 0 shares issued at June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.01 par value; 100,000,000 shares authorized; 38,687,094 and 38,329,897 shares issued at June 30, 2021 and December 31, 2020, respectively

 

 

0.4

 

 

 

0.4

 

Capital in excess of par value

 

 

386.2

 

 

 

383.1

 

Retained earnings

 

 

172.0

 

 

 

33.8

 

Treasury stock at cost – Common stock of 212,500 shares at June 30, 2021 and December 31, 2020

 

 

(6.6

)

 

 

(6.6

)

Accumulated other comprehensive loss

 

 

(265.5

)

 

 

(271.9

)

Total Ryerson Holding Corporation stockholders’ equity

 

 

286.5

 

 

 

138.8

 

Noncontrolling interest

 

 

7.0

 

 

 

6.3

 

Total equity

 

 

293.5

 

 

 

145.1

 

Total liabilities and equity

 

$

2,233.2

 

 

$

1,802.1

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1: FINANCIAL STATEMENTS

Ryerson Holding Corporation (“Ryerson Holding”), a Delaware corporation, is the parent company of Joseph T. Ryerson & Son, Inc. (“JT Ryerson”), a Delaware corporation. Affiliates of Platinum Equity, LLC (“Platinum”) own approximately 21,037,500 shares of our common stock, which is approximately 55% of our issued and outstanding common stock.

We are a leading value-added processor and distributor of industrial metals with operations in the United States (“U.S.”) through JT Ryerson, in Canada through our indirect wholly-owned subsidiary Ryerson Canada, Inc., a Canadian corporation (“Ryerson Canada”), and in Mexico through our indirect wholly-owned subsidiary Ryerson Metals de Mexico, S. de R.L. de C.V., a Mexican corporation (“Ryerson Mexico”). In addition to our North American operations, we conduct materials processing and distribution operations in China through an indirect wholly-owned subsidiary, Ryerson China Limited (“Ryerson China”), a Chinese limited liability company. Unless the context indicates otherwise, Ryerson Holding, JT Ryerson, Ryerson Canada, Ryerson China, and Ryerson Mexico together with their subsidiaries, are collectively referred to herein as “Ryerson,” “we,” “us,” “our,” or the “Company.”

Results of operations for any interim period are not necessarily indicative of results of any future periods or for the year. The condensed consolidated financial statements as of June 30, 2021 and for the three-month and six-month periods ended June 30, 2021 and 2020 are unaudited, but in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. The year-end condensed consolidated balance sheet data contained in this report was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

Impact of Recently Issued Accounting Standards—Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes – Simplifying the Accounting for Income Taxes.” The guidance removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group, among others. We adopted this guidance as of January 1, 2021 and there was no impact to our consolidated financial statements.

Impact of Recently Issued Accounting Standards—Not Yet Adopted

No accounting pronouncements have been issued that we have not yet adopted.  

NOTE 3: CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the beginning and ending cash balances shown in the Condensed Consolidated Statements of Cash Flows:

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

38.1

 

 

$

61.4

 

Restricted cash

 

 

1.1

 

 

 

1.1

 

Total cash, cash equivalents, and restricted cash

 

$

39.2

 

 

$

62.5

 

We had cash restricted for the purposes of covering letters of credit that can be presented for potential insurance claims.

 


 

6


 

 

NOTE 4: INVENTORIES

The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. Interim LIFO calculations are based on actual inventory levels.

Inventories, at stated LIFO value, were classified at June 30, 2021 and December 31, 2020 as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In millions)

 

In process and finished products

 

$

714.6

 

 

$

604.5

 

 

If current cost had been used to value inventories, such inventories would have been $126 million higher and $63 million lower than reported at June 30, 2021 and December 31, 2020, respectively. Approximately 89% and 91% of inventories are accounted for under the LIFO method at June 30, 2021 and December 31, 2020, respectively. Non-LIFO inventories consist primarily of inventory at our foreign facilities using the moving average cost and the specific cost methods. Substantially all of our inventories consist of finished products.

The Company has consignment inventory at certain customer locations, which totaled $7.0 million and $4.8 million at June 30, 2021 and December 31, 2020, respectively.

NOTE 5: PROPERTY, PLANT, AND EQUIPMENT

During the first six months of 2021, the Company completed several asset sales, in part, to generate cash proceeds that will be utilized to redeem a portion of the 8.50% senior secured notes due 2028 (the “2028 Notes”), and also in a continued effort to optimize our facility footprint. Each of these asset sales included leasebacks for varying periods of time, ranging from 21 months to 15 years, and therefore the Company recorded right of use assets of $95.1 million and lease liabilities of $86.4 million. See Note 6: Leases for further discussion of the individually significant leaseback transaction. As a result of these transactions, $65.4 million of land and building assets, net of accumulated depreciation, were sold for net cash proceeds of $163.2 million, resulting in a total gain of $107.7 million.  

The Company also had normal course asset sale activity during the first six months of 2021 which generated additional cash proceeds of $2.7 million.

NOTE 6: LEASES

The Company leases various assets including real estate, trucks, trailers, mobile equipment, processing equipment, and IT equipment.  The Company has noncancelable operating leases expiring at various times through 2036 and finance leases expiring at various times through 2027.  

In June 2021, we sold and leased back a group of service center properties located in Delaware, Florida, Kentucky, Minnesota, Missouri, Oklahoma, Pennsylvania, Tennessee, Texas, and Virginia for net proceeds of approximately $104 million. The total annual rent for these properties will start at approximately $6.4 million per year, with the amount increasing by 1.5% annually over the 15-year lease term. Each lease includes 2 renewal options of five years each. Under the terms of the lease agreement, the Company is responsible for all taxes, insurance, and utilities and is required to adequately maintain the properties for the lease term.

The transaction met the requirements for sale-leaseback accounting under ASC 842 and ASC 606. Accordingly, the Company recognized the sale of the properties, which resulted in a gain of approximately $62.5 million recorded in the Condensed Consolidated Statements of Comprehensive Income. The related land and buildings were removed from property, plant, and equipment and operating lease assets and liabilities of $84.4 million, respectively, were recorded in the Condensed Consolidated Balance Sheets.

 


 

7


 

 

The following table summarizes the location and amount of lease assets and lease liabilities reported in our Condensed Consolidated Balance Sheet as of June 30, 2021 and December 31, 2020:

 

 

 

 

 

June 30,

 

 

December 31,

 

Leases

 

Balance Sheet Location

 

2021

 

 

2020

 

 

 

 

 

(In millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

Operating lease assets

 

Operating lease assets

 

$

202.7

 

 

$

108.3

 

Finance lease assets

 

Property, plant, and equipment, net(a)

 

 

40.9

 

 

 

45.5

 

Total lease assets

 

 

 

$

243.6

 

 

$

153.8

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

Operating

 

Current portion of operating lease liabilities

 

$

24.6

 

 

$

20.7

 

Finance

 

Other accrued liabilities

 

 

9.5

 

 

 

9.0

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

Operating

 

Noncurrent operating lease liabilities

 

 

172.5

 

 

 

93.0

 

Finance

 

Other noncurrent liabilities

 

 

19.6

 

 

 

14.3

 

Total lease liabilities

 

 

 

$

226.2

 

 

$

137.0

 

 

 

(a)

Finance lease assets were recorded net of accumulated amortization of $15.5 million and $21.0 million as of June 30, 2021 and December 31, 2020, respectively.

The following table summarizes the location and amount of lease expense reported in our Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2021 and 2020:

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Lease Expense

 

Location of Lease Expense Recognized in Income

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

(In millions)

 

Operating lease expense

 

Warehousing, delivery, selling, general, and administrative

 

$

6.6

 

 

$

5.9

 

 

$

12.8

 

 

$

11.9

 

Finance lease expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of lease assets

 

Warehousing, delivery, selling, general, and administrative

 

 

1.3

 

 

 

1.8

 

 

 

2.8

 

 

 

3.4

 

Interest on lease liabilities

 

Interest and other expense on debt

 

 

0.3

 

 

 

0.4

 

 

 

0.5

 

 

 

0.7

 

Variable lease expense

 

Warehousing, delivery, selling, general, and administrative

 

 

0.6

 

 

 

0.8

 

 

 

1.4

 

 

 

1.6

 

Short-term lease expense

 

Warehousing, delivery, selling, general, and administrative

 

 

0.8

 

 

 

0.5

 

 

 

1.3

 

 

 

1.3

 

Total lease expense

 

 

 

$

9.6

 

 

$

9.4

 

 

$

18.8

 

 

$

18.9

 

 

 


 

8


 

 

The following table presents maturity analysis of lease liabilities at June 30, 2021:

 

Maturity of Lease Liabilities(a)

 

Operating Leases

 

 

Finance Leases

 

 

 

(In millions)

 

2021

 

$

15.7

 

 

$

5.6

 

2022

 

 

28.9

 

 

 

12.0

 

2023

 

 

24.6

 

 

 

5.4

 

2024

 

 

23.3

 

 

 

4.5

 

2025

 

 

19.8

 

 

 

2.1

 

After 2025

 

 

121.7

 

 

 

1.2

 

Total lease payments

 

 

234.0

 

 

 

30.8

 

Less: Interest(b)

 

 

(36.9

)

 

 

(1.7

)

Present value of lease liabilities(c)

 

$

197.1

 

 

$

29.1

 

 

 

(a)

There were 0 operating leases with options to extend lease terms that are reasonably certain of being exercised, and the lease payments excluded an estimated amount of $64.2 million of legally binding lease payments for leases signed but not yet commenced.

 

(b)

Calculated using the discount rate for each lease.

 

(c)

Includes the current portion of $24.6 million for operating leases and $9.5 million for finance leases.

The following table shows the weighted-average remaining lease term and discount rate for operating and finance leases, respectively, at June 30, 2021 and December 31, 2020:

 

 

 

June 30,

 

 

December 31,

 

Lease Term and Discount Rate

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (years)

 

 

 

 

 

 

 

 

Operating leases

 

 

10.6

 

 

 

7.3

 

Finance leases

 

 

2.9

 

 

 

2.8

 

Weighted-average discount rate

 

 

 

 

 

 

 

 

Operating leases

 

 

3.3

%

 

 

3.4

%

Finance leases

 

 

4.0

%

 

 

4.4

%

 

Information reported in our Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2021 and 2020 is summarized below:

 

 

 

Six Months Ended June 30,

 

Other Information

 

2021

 

 

2020

 

 

 

(In millions)

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

13.4

 

 

$

12.4

 

Operating cash flows from finance leases

 

 

0.5

 

 

 

0.7

 

Financing cash flows from finance leases

 

 

5.1

 

 

 

6.7

 

Assets obtained in exchange for lease obligations

 

 

 

 

 

 

 

 

Operating leases

 

 

103.9

 

 

 

0.7

 

Finance leases

 

 

10.9

 

 

 

1.4

 

 

NOTE 7: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $121.2 million and $120.3 million at June 30, 2021 and December 31, 2020, respectively. Pursuant to ASC 350, “Intangibles – Goodwill and Other,” we review the recoverability of goodwill annually as of October 1 or whenever significant events or changes occur which might impair the recovery of recorded amounts. The most recently completed impairment test of goodwill was performed as of October 1, 2020, and it was determined that 0 impairment existed.

Other intangible assets with finite useful lives continue to be amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

 

9


 

Our Critical Accounting Policies and Estimates for goodwill and intangibles assets are disclosed in Note 1 to the Consolidated Financial Statements and in Management's Discussion and Analysis of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We continue to monitor the significant global economic uncertainty as a result of the COVID-19 pandemic to assess the outlook for demand for our products and the impact on our business and our overall financial performance. A lack of further recovery or a deterioration in current market conditions, a trend of weaker than expected financial performance in our business, or a lack of further recovery or a decline in the Company’s market capitalization, among other factors, could result in an impairment charge in future periods which could have a material adverse effect on our financial statements.

NOTE 8: LONG-TERM DEBT

Long-term debt consisted of the following at June 30, 2021 and December 31, 2020:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In millions)

 

Ryerson Credit Facility

 

$

132.5

 

 

$

285.0

 

8.50% Senior Secured Notes due 2028

 

 

450.0

 

 

 

450.0

 

Foreign debt

 

 

25.0

 

 

 

12.1

 

Other debt

 

 

7.0

 

 

 

7.8

 

Unamortized debt issuance costs and discounts

 

 

(13.6

)

 

 

(14.9

)

Total debt

 

 

600.9

 

 

 

740.0

 

Less: Short-term foreign debt

 

 

25.0

 

 

 

12.1

 

Less: Other short-term debt

 

 

1.8

 

 

 

1.7

 

Total long-term debt

 

$

574.1

 

 

$

726.2

 

Ryerson Credit Facility

On November 16, 2016, Ryerson entered into an amendment with respect to its $1.0 billion revolving credit facility (as amended, the “Old Credit Facility”), to reduce the total facility size from $1.0 billion to $750 million, reduce the interest rate on outstanding borrowings by 25 basis points, reduce commitment fees on amounts not borrowed by 2.5 basis points, and to extend the maturity date to November 16, 2021. The Old Credit Facility was amended a second time on June 28, 2018, to increase the facility size from $750 million to $1.0 billion. On September 23, 2019, a third amendment was entered into to supplement the facility and add a U.S. “first-in, last-out” sub-facility of $67.9 million (the “Old FILO Facility”). The Old FILO Facility was equal in subordination with the other borrowings under the revolving credit facility and matured as of June 30, 2020. The Old FILO Facility supplemented our borrowing capacity by providing additional collateral on eligible accounts receivable and inventory. On November 5, 2020, Ryerson entered into a fourth amendment to extend the maturity date to November 5, 2025 (as amended, the “Ryerson Credit Facility” or “Credit Facility”). The aggregate facility size of $1.0 billion remained unchanged. The fourth amendment also added the ability to convert up to $100 million of commitments under the Ryerson Credit Facility into a “first-in, last-out” sub-facility (the “FILO Facility”). Subject to certain limitations, such conversion can be made from time to time (but no more than twice in the aggregate) prior to the date that is two years after November 5, 2020.

At June 30, 2021, Ryerson had $133 million of outstanding borrowings, $12 million of letters of credit issued, and $830 million available under the Ryerson Credit Facility compared to $285 million of outstanding borrowings, $11 million of letters of credit issued, and $277 million available at December 31, 2020. Total credit availability is limited by the amount of eligible accounts receivable, inventory, and qualified cash pledged as collateral under the agreement insofar as Ryerson is subject to a borrowing base comprised of the aggregate of these three amounts, less applicable reserves. Eligible accounts receivable, at any date of determination, is comprised of the aggregate value of all accounts directly created by a borrower in the ordinary course of business arising out of the sale of goods or the rendering of services, each of which has been invoiced, with such receivables adjusted to exclude various ineligible accounts, including, among other things, those to which a borrower (or guarantor, as applicable) does not have sole and absolute title and accounts arising out of a sale to an employee, officer, director, or affiliate of a borrower (or guarantor, as applicable). Eligible inventory, at any date of determination, is comprised of the net orderly liquidation value of all inventory owned by a borrower. Qualified cash consists of cash in an eligible deposit account that is subject to customary restrictions and liens in favor of the lenders.

 

10


 

Amounts outstanding under the Ryerson Credit Facility bear interest at (i) a rate determined by reference to (A) the base rate (the highest of the Federal Funds Rate plus 0.50%, Bank of America, N.A.’s prime rate, and the one-month LIBOR rate plus 1.00%, however, in no event shall the base rate be less than 1.25%), or (B) a LIBOR rate (with a floor of 0.25%) or, (ii) for Ryerson Holding’s Canadian subsidiary that is a borrower, (A) a rate determined by reference to the Canadian base rate (the greatest of the Federal Funds Rate plus 0.50%, Bank of America-Canada Branch’s “base rate” for commercial loans in U.S. Dollars made at its “base rate”, and the 30 day LIBOR rate plus 1.00%), (B) the prime rate (the greater of Bank of America-Canada Branch’s “prime rate” for commercial loans made by it in Canada in Canadian Dollars and the one-month Canadian bankers’ acceptance rate (with a floor of 0.25%) plus 1.00%, or (C) the bankers’ acceptance rate, however, in no event shall the Canadian base rate or the Canadian prime rate be less than 1.25%). Until November 5, 2021 the spread over the base rate and prime rate is fixed at 0.50% and the spread over the LIBOR for the bankers’ acceptances is fixed at 1.50%. After November 5, 2021, the spread over the base rate and prime rate will be between 0.25% and 0.50% and the spread over the LIBOR for the bankers’ acceptances will be between 1.25% and 1.50%, depending on the amount available to be borrowed under the Ryerson Credit Facility. The spread with respect to the FILO Facility, if any, will be determined at the time the commitments under the Ryerson Credit Facility are converted into such FILO Facility. Ryerson also pays commitment fees on amounts not borrowed at a rate of 0.225%. Overdue amounts and all amounts owed during the existence of a default bear interest at 2.00% above the rate otherwise applicable thereto. Loans advanced under the FILO Facility may only be prepaid if all then outstanding revolving loans are repaid in full.

We attempt to minimize interest rate risk exposure through the utilization of interest rate swaps, which are derivative financial instruments. In June 2019, we entered into an interest rate swap to fix interest on $60 million of our floating rate debt under the Ryerson Credit Facility at a rate of 1.729% through June 2022. In November 2019, we entered into another interest rate swap to fix interest on $100 million of our floating rate debt under the Ryerson Credit Facility at a rate of 1.539% through November 2022. The weighted average interest rate on the outstanding borrowings under the Ryerson Credit Facility including the interest rate swaps was 4.3% and 2.9% at June 30, 2021 and December 31, 2020, respectively.

Borrowings under the Ryerson Credit Facility are secured by first-priority liens on all of the inventory, accounts receivables, lockbox accounts, and related assets of the borrowers and the guarantors.

The Ryerson Credit Facility also contains covenants that, among other things, restrict Ryerson Holding and its restricted subsidiaries with respect to the incurrence of debt, the creation of liens, transactions with affiliates, mergers and consolidations, sales of assets, and acquisitions. The Ryerson Credit Facility also requires that, if availability under the Ryerson Credit Facility declines to a certain level, Ryerson maintain a minimum fixed charge coverage ratio as of the end of each fiscal quarter, and includes defaults upon (among other things) the occurrence of a change of control of Ryerson and a cross-default to other financing arrangements.

The Ryerson Credit Facility contains events of default with respect to, among other things, default in the payment of principal when due or the payment of interest, fees, and other amounts due thereunder after a specified grace period, material misrepresentations, failure to perform certain specified covenants, certain bankruptcy events, the invalidity of certain security agreements or guarantees, material judgments, and the occurrence of a change of control of Ryerson. If such an event of default occurs, the lenders under the Ryerson Credit Facility will be entitled to various remedies, including acceleration of amounts outstanding under the Ryerson Credit Facility and all other actions permitted to be taken by secured creditors.  

The lenders under the Ryerson Credit Facility could reject a borrowing request if any event, circumstance, or development has occurred that has had or could reasonably be expected to have a material adverse effect on the Company. If Ryerson Holding, JT Ryerson, any of the other borrowers, or any restricted subsidiaries of JT Ryerson becomes insolvent or commences bankruptcy proceedings, all amounts borrowed under the Ryerson Credit Facility will become immediately due and payable.

Net repayments of short-term borrowings that are reflected in the Condensed Consolidated Statements of Cash Flows represent borrowings under the Ryerson Credit Facility with original maturities less than three months.

2022 and 2028 Notes

On July 22, 2020, JT Ryerson issued $500 million in aggregate principal amount of its 2028 Notes. The 2028 Notes bear interest at a rate of 8.50% per annum. The 2028 Notes are fully and unconditionally guaranteed on a senior secured basis by all of our existing and future domestic subsidiaries that are co-borrowers or that have guarantee obligations under the Ryerson Credit Facility. The net proceeds from the issuance of the 2028 Notes, along with available cash, were used to (i) redeem all of the 11.0% Senior Secured Notes due 2022 (the “2022 Notes”) and (ii) pay related transaction fees, expenses, and premiums.  During the fourth quarter of 2020, a principal amount of $50.0 million of the 2028 Notes was redeemed for $51.5 million and retired. As a result, $450 million in aggregate principal amount remained outstanding at June 30, 2021. See Note 17: Subsequent Events, for discussion of completed redemptions during third quarter 2021.  

The 2028 Notes and the related guarantees are secured by a first-priority security interest in substantially all of JT Ryerson’s and each guarantor’s present and future assets located in the U.S. (other than receivables, inventory, cash deposit accounts and certain other assets, and proceeds thereof, which are secured pursuant to a second-priority security interest), subject to certain exceptions and customary permitted liens.  The 2028 Notes will be redeemable, in whole or in part, at any time on or after August 1, 2023 at certain

 

11


 

redemption prices. The redemption price for the 2028 Notes if redeemed during the twelve months beginning (i) August 1, 2023 is 104.250%, (ii) August 1, 2024 is 102.125%, and (iii) August 1, 2025 and thereafter is 100.000%. All redemption amounts also include accrued and unpaid interest, if any, to, but not including, the redemption date. JT Ryerson may also redeem some or all of the 2028 Notes before August 1, 2023 at a redemption price of 100.000% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium. In addition, JT Ryerson may redeem up to 40% of the outstanding 2028 Notes before August 1, 2023 with the net cash proceeds from certain equity offerings at a price equal to 108.500% of the principal amount of the Notes, plus accrued but unpaid interest, if any, to, but not including, the redemption date. Furthermore, JT Ryerson may redeem the 2028 Notes at any time and from time to time prior to August 1, 2023 in an aggregate principal amount equal to up to 10% of the original aggregate principal amount of the 2028 Notes during each twelve month period commencing on July 22, 2020 at a redemption price of 103.000%, plus accrued and unpaid interest, if any, to, but not including, the redemption date. JT Ryerson may also redeem the 2028 Notes at any time prior to August 1, 2022 in an aggregate principal amount equal to $100.0 million on a one-time basis from the net cash proceeds received from the sale of real property, at a redemption price of 104.000% plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, JT Ryerson may be required to make an offer to purchase the 2028 Notes upon the sale of certain assets or upon a change of control.

On June 9, 2021, JT Ryerson delivered to holders of the 2028 Notes a notice of partial redemption of $100 million of aggregate principal amount of the 2028 Notes to occur on July 9, 2021 at a redemption price in cash of 104.000% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.  JT Ryerson will fund the partial redemption using the proceeds of a sale leaseback transaction that closed on June 9, 2021.  See Note 6: Leases for further discussion of the sale leaseback transaction. Additionally, on June 23, 2021, JT Ryerson delivered a notice of partial redemption of $50 million aggregate principal amount to the holders of its 2028 Notes to occur on July 23, 2021 at a redemption price in cash of 103.000% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.  JT Ryerson will fund this redemption with cash available on hand.  Upon completion of the partial redemptions in July 2021, $300 million of the aggregate principal amount of the 2028 Notes will remain outstanding.  See Note 17: Subsequent Events, for discussion of completed redemptions during third quarter 2021.

The Company evaluated the redemption options within the 2028 Notes for embedded derivatives and determined that one redemption option required bifurcation as it is not clearly and closely related to the debt agreement. The Company determined the fair value of the embedded derivative as of December 31, 2020 was $2.3 million and recorded it within other current assets in the Condensed Consolidated Balance Sheet.  As of June 30, 2021, the fair value was determined to be $1.3 million with the change of $1.0 million recognized within other income and (expense), net on the Condensed Consolidated Statements of Comprehensive Income. Refer to Note 11: Derivatives and Fair Value Measurements for further discussion of the embedded derivative.

The 2028 Notes contain customary covenants that, among other things, limit, subject to certain exceptions, our ability, and the ability of our restricted subsidiaries, to incur additional indebtedness, pay dividends on our capital stock or repurchase our capital stock, make investments, sell assets, engage in acquisitions, mergers, or consolidations, or create liens or use assets as security in other transactions.

During the first six months of 2020, a principal amount of $57.6 million of the 2022 Notes were repurchased for $56.7 million and retired, resulting in the recognition of a $0.9 million gain within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income.

Foreign Debt

At June 30, 2021, Ryerson China’s foreign borrowings were $25.0 million, which were owed to banks in Asia at a weighted average interest rate of 3.8% per annum and secured by inventory and property, plant, and equipment. At December 31, 2020, Ryerson China’s foreign borrowings were $12.1 million, which were owed to banks in Asia at a weighted average interest rate of 3.6% per annum and secured by inventory and property, plant, and equipment.

Availability under the foreign credit lines was $22 million and $35 million at June 30, 2021 and December 31, 2020, respectively.  Letters of credit issued by our foreign subsidiaries were $6 million at June 30, 2021 and December 31, 2020.

 

12


 

NOTE 9: EMPLOYEE BENEFITS

The following table summarizes the components of net periodic benefit cost (credit) for the three and six month periods ended June 30, 2021 and 2020 for the Ryerson pension plans and postretirement benefit plans other than pension:

 

 

 

Three Months Ended June 30,

 

 

 

Pension Benefits

 

 

Other Benefits

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In millions)

 

Components of net periodic benefit cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.9

 

 

$

0.9

 

 

$

0.1

 

 

$

0.2

 

Interest cost

 

 

2.9

 

 

 

5.1

 

 

 

0.3

 

 

 

0.5

 

Expected return on assets

 

 

(5.9

)

 

 

(8.1

)

 

 

 

 

 

 

Settlement charge

 

 

0.2

 

 

 

0.7

 

 

 

 

 

 

 

Recognized actuarial (gain) loss

 

 

3.9

 

 

 

4.2

 

 

 

(1.5

)

 

 

(1.8

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(0.1

)

 

 

(0.6

)

Net periodic benefit cost (credit)

 

$

2.0

 

 

$

2.8

 

 

$

(1.2

)

 

$

(1.7

)

 

 

 

Six Months Ended June 30,

 

 

 

Pension Benefits

 

 

Other Benefits

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In millions)

 

Components of net periodic benefit cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1.8

 

 

$

1.7

 

 

$

0.2

 

 

$

0.3

 

Interest cost

 

 

5.9

 

 

 

10.3

 

 

 

0.6

 

 

 

0.9

 

Expected return on assets

 

 

(11.8

)

 

 

(16.2

)

 

 

 

 

 

 

Settlement expense

 

 

0.4

 

 

 

1.1

 

 

 

 

 

 

 

Recognized actuarial (gain) loss

 

 

7.8

 

 

 

8.4

 

 

 

(3.0

)

 

 

(3.5

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(0.2

)

 

 

(1.1

)

Net periodic benefit cost (credit)

 

$

4.1

 

 

$

5.3

 

 

$

(2.4

)

 

$

(3.4

)

 

Components of net periodic benefit cost (credit), excluding service cost, are included in Other income and (expense), net in our Condensed Consolidated Statement of Comprehensive Income.

The Company contributed $20 million to the pension plan funds through the six months ended June 30, 2021, and anticipates that it will have a minimum required pension contribution funding of approximately $4 million for the remaining six months of 2021. The expected future contributions reflect recent pension funding relief measures under the American Rescue Plan Act (“ARPA”) passed in March 2021. We will continue to monitor and update our expected future contributions as further guidance related to ARPA is released.

 

NOTE 10: COMMITMENTS AND CONTINGENCIES

In October 2011, the United States Environmental Protection Agency (the “EPA”) named JT Ryerson as one of more than 100 businesses that may be a potentially responsible party (“PRP”) for the Portland Harbor Superfund Site (the “PHS Site”). On January 6, 2017, the EPA issued an initial Record of Decision (“ROD”) regarding the site. The ROD includes a combination of dredging, capping, and enhanced natural recovery that would take approximately thirteen years to construct plus additional time for monitored natural recovery, at an estimated present value cost of $1.05 billion. At a December 4, 2018 meeting with the Portland Harbor Participation and Common Interest Group (“PCI Group”), of which JT Ryerson is a member, the EPA indicated that it expected PRPs to submit a plan during 2019 to start remediation of the river and harbor per the ROD within the next two to three years. The EPA also indicated that it expected allocation of amounts among the parties to be determined in the same two to three-year time frame.

The EPA met with various PRPs throughout 2019 and 2020 regarding remedial design. The EPA did not include JT Ryerson in those meetings.  It did include Schnitzer Steel, which is developing a remedial design plan for the river area which includes the area where the former JT Ryerson facilities were located. Schnitzer Steel’s 2020 disclosures acknowledged that Schnitzer Steel is the legal successor to the prior operators (including JT Ryerson) in the designated area. On February 12, 2021, the EPA announced that one hundred percent (100%) of the PHS Site is now in the active remedial design phase.

In June 2021, the EPA issued a Fact Sheet setting forth the status of the entire site. The primary area of relevance for JT Ryerson is River Mile 3.5 East, with Swan Island Basin being of secondary interest. For River Mile 3.5, remedial design work is ongoing; the Sufficiency Assessment and the Pre-Design Investigation work plans are finalized, and design investigation sampling is underway. Schnitzer Steel and MMGL Corp. are the working parties for River Mile 3.5. For Swan Island, remedial design is just beginning, with

 

13


 

Daimler Trucks, Shipyard Commerce, and various government entities as the working parties. JT Ryerson has not been asked to participate in the remedial design phase.

The PCI Group has engaged a third party to prepare cost estimates for each of the Sediment Management Areas at the site. That work is still in progress and is expected to be completed in the summer of 2021. Once the cost estimates are completed, the voting parties of the PCI Group (which does not include JT Ryerson) will likely begin the “advocacy process,” during which the voting parties submit written arguments to the Allocation Team regarding how costs should be allocated among the various PRPs. This process is anticipated to be completed sometime in 2022. Once the advocacy process is completed, the Allocation Team will prepare a proposed allocation of costs among the PRPs. All PRPs, including JT Ryerson, will then participate in the “mediation process,” during which the PRPs will attempt to agree on a final cost allocation. The mediation process is currently anticipated to occur sometime in 2022 or 2023.

The EPA has stated that it is willing to consider de minimis settlements, which JT Ryerson is trying to pursue; however, the EPA has not begun meeting with any of the smaller parties who have requested de minimis or de micromis status, stating that it does not have sufficient information to determine whether any parties meet such criteria and does not intend to begin those considerations until after the remedial design work is completed. It has met with selected parties that we believe to be larger targets. JT Ryerson has not been invited to meet with the EPA. As a result of the ongoing negotiations and filings over the ROD and the EPA’s decision not to meet with smaller parties, we cannot determine how allocations will be made and whether a de minimus settlement can be reached with the EPA.

As the EPA has not yet allocated responsibility for the contamination among the potentially responsible parties, including JT Ryerson, we do not currently have sufficient information available to us to determine whether the ROD will be executed as currently stated, whether and to what extent JT Ryerson may be held responsible for any of the identified contamination, and how much (if any) of the final plan’s costs might ultimately be allocated to JT Ryerson. Therefore, management cannot predict the ultimate outcome of this matter or estimate a range of potential loss at this time.     

There are various other claims and pending actions against the Company. The amount of liability, if any, for those claims and actions at June 30, 2021 is not determinable but, in the opinion of management, such liability, if any, will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. We maintain liability insurance coverage to assist in protecting our assets from losses arising from or related to activities associated with business operations.

NOTE 11: DERIVATIVES AND FAIR VALUE MEASUREMENTS

Derivatives

The Company may use derivatives to partially offset its business exposure to commodity price, foreign currency, and interest rate fluctuations and their related impact on expected future cash flows and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, Company policy, accounting considerations, or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in commodity pricing, foreign currency exchange, or interest rates. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s floating-rate borrowings. We use foreign currency exchange contracts to hedge variability in cash flows in our Canada, Mexico, and China operations when a payment currency is different from our functional currency. From time to time, we may enter into fixed price sales contracts with our customers for certain of our inventory components. We may enter into metal commodity futures and options contracts to reduce volatility in the price of these metals. We may also enter into fixed price natural gas contracts and diesel fuel derivative contracts to manage the price risk of forecasted purchases of natural gas and diesel fuel.

We have 2 receive variable, pay fixed, interest rate swaps to manage the exposure to variable interest rates of the Ryerson Credit Facility. In June 2019, we entered into a forward agreement for $60 million of “pay fixed” interest at 1.729% through June 2022 and in November 2019, we entered into a forward agreement for $100 million of “pay fixed” interest at 1.539% through November 2022. Upon entering into the swaps, the interest rate reset dates and critical terms matched the terms of our existing debt and anticipated critical terms of future debt under the Old Credit Facility, however, this was no longer the case once the Ryerson Credit Facility was amended on November 5, 2020. As such, effective November 1, 2020 the Company de-designated its interest rate swaps and terminated its hedge accounting treatment. Prior to de-designation, the Company marked these interest rate swaps to market with changes in fair value being recorded in accumulated other comprehensive income. Subsequent to de-designation, changes in fair value are recorded in current earnings. The unrealized loss on the hedges as of the de-designation date remains in accumulated other comprehensive income and is being amortized into earnings as the forecasted interest payments affect earnings. The fair value of the interest rate swaps as of June 30, 2021 was a net liability of $2.8 million.

The Company currently does not account for its commodity and foreign exchange derivative contracts as hedges but rather marks them to market with a corresponding offset to current earnings.  

 

14


 

The Company regularly reviews the creditworthiness of its derivative counterparties and does not expect to incur a significant loss from the failure of any counterparties to perform under any agreements.

In connection with the redemption options under the 2028 Notes, the Company recorded an embedded derivative in other current assets on its Condensed Consolidated Balance Sheet, with changes in value recorded within other income and (expense), net within the Condensed Consolidated Statement of Comprehensive Income, see Note 8: Long-term debt, for further details. Embedded derivatives are separated from the host contract and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; (b) the instrument is not measured at fair value under other applicable GAAP standards, and (c) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the embedded derivative within the 2028 Notes met these criteria and, as such, must be valued separate and apart from the 2028 Notes at fair value each reporting period.

The following table summarizes the location and fair value amount of our derivative instruments reported in our Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020:

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance Sheet Location

 

June 30, 2021

 

 

December 31, 2020

 

 

Balance Sheet Location

 

June 30, 2021

 

 

December 31, 2020

 

Derivatives not designated as hedging instruments under ASC 815

 

(In millions)

 

Metal commodity contracts

 

Prepaid expenses and

other current assets

 

$

37.6

 

 

$

16.0

 

 

Other accrued

liabilities

 

$

73.2

 

 

$

11.9

 

2028 Notes embedded derivative

 

Prepaid expenses and

other current assets

 

 

1.3

 

 

 

2.3

 

 

Other accrued

liabilities

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and

other current assets

 

 

 

 

 

 

 

Other accrued

liabilities

 

 

 

 

 

0.2

 

Interest rate swaps

 

Deferred charges and other assets

 

 

 

 

 

 

 

Other noncurrent liabilities

 

 

2.8

 

 

 

4.0

 

Total derivatives

 

 

 

$

38.9

 

 

$

18.3

 

 

 

 

$

76.0

 

 

$

16.1

 

 

The following table presents the volume of the Company’s activity in derivative instruments as of June 30, 2021 and December 31, 2020:

 

 

Notional Amount

 

 

 

Derivative Instruments

 

At June 30,

2021

 

 

At December 31, 2020

 

 

Unit of Measurement

Hot roll coil swap contracts

 

 

129,903

 

 

 

125,220

 

 

Tons

Aluminum swap contracts

 

 

18,100

 

 

 

20,264

 

 

Tons

Nickel swap contracts

 

 

644

 

 

 

345

 

 

Tons

Foreign currency exchange contracts

 

2.8 million

 

 

7.4 million

 

 

U.S. dollars

Interest rate swap contracts

 

160 million

 

 

160 million

 

 

U.S. dollars

The following table summarizes the location and amount of gains and losses on derivatives not designated as hedging instruments reported in our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020:

 

Derivatives not designated as

 

Location of Gain/(Loss)

 

Amount of Gain/(Loss) Recognized in Income on Derivatives

 

hedging instruments

 

Recognized in Income

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

under ASC 815

 

on Derivatives

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

(In millions)

 

Metal commodity contracts

 

Cost of materials sold

 

$

(29.4

)

 

$

1.3

 

 

$

(40.1

)

 

$

(0.7

)

2028 Notes embedded derivative

 

Other income and (expense), net

 

 

(1.3

)

 

 

 

 

 

(1.0

)

 

 

 

Foreign exchange contracts

 

Other income and (expense), net

 

 

0.1

 

 

 

(0.1

)

 

 

0.2

 

 

 

0.1

 

Total

 

 

 

$

(30.6

)

 

$

1.2

 

 

$

(40.9

)

 

$

(0.6

)

 

 

 

 

Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Income

 

Interest rate swaps (subsequent to de-designation)

 

Interest and other expense on debt

 

$

(0.6

)

 

$

 

 

$

(1.1

)

 

$

 

Total

 

 

 

$

(0.6

)

 

$

 

 

$

(1.1

)

 

$

 

 

15


 

 

 

The following table summarizes the location and amount of gains and losses on derivatives designated as hedging instruments reported in our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020:

 

Derivatives designated as

 

Location of Gain/(Loss)

 

Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Income

 

hedging instruments

 

Recognized in Income

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

under ASC 815

 

on Derivatives

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

(In millions)

 

Interest rate swaps (prior to de-designation)

 

Interest and other expense on debt

 

$

 

 

$

(0.5

)

 

$

 

 

$

(0.6

)

Total

 

 

 

$

 

 

$

(0.5

)

 

$

 

 

$

(0.6

)

 

As of June 30, 2021, the portion of the interest rate swap fair value that would be reclassified into earnings during the next 12 months as interest expense is approximately $2.1 million.

Fair Value Measurements

To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

1.

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.

 

2.

Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

 

3.

Level 3 – unobservable inputs, such as internally-developed pricing models for the asset or liability due to little or no market activity for the asset or liability.

The following table presents assets and liabilities measured and recorded at fair value on our Condensed Consolidated Balance Sheet on a recurring basis and their level within the fair value hierarchy as of June 30, 2021:

 

 

 

At June 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments under ASC 815:

 

 

 

 

 

 

 

 

 

 

 

 

Metal commodity contracts

 

$

 

 

$

37.6

 

 

$

 

2028 Notes embedded derivative

 

 

 

 

 

 

 

 

1.3

 

Total derivatives

 

$

 

 

$

37.6

 

 

$

1.3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments under ASC 815:

 

 

 

 

 

 

 

 

 

 

 

 

Metal commodity contracts

 

$

 

 

$

73.2

 

 

$

 

Interest rate swaps

 

 

 

 

 

2.8

 

 

 

 

Total derivatives

 

$

 

 

$

76.0

 

 

$

 

 

 

16


 

 

The following table presents assets and liabilities measured and recorded at fair value on our Condensed Consolidated Balance Sheet on a recurring basis and their level within the fair value hierarchy as of December 31, 2020:

 

 

 

At December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments under ASC 815:

 

 

 

 

 

 

 

 

 

 

 

 

Metal commodity contracts

 

$

 

 

$

16.0

 

 

$

 

2028 Notes embedded derivative

 

 

 

 

 

 

 

 

2.3

 

Total derivatives

 

$

 

 

$

16.0

 

 

$

2.3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments under ASC 815:

 

 

 

 

 

 

 

 

 

 

 

 

Metal commodity contracts

 

$

 

 

$

11.9

 

 

$

 

Foreign exchange contracts

 

 

 

 

 

0.2

 

 

 

 

Interest rate swaps

 

 

 

 

 

4.0

 

 

 

 

Total derivatives

 

$

 

 

$

16.1

 

 

$

 

 

The fair value of each commodity, diesel fuel, and swap derivative contract is determined using Level 2 inputs and the market approach valuation technique, as described in ASC 820. The Company has various commodity derivatives to lock in hot roll coil, nickel, and aluminum prices for varying time periods. The fair value of hot roll coil, nickel, and aluminum derivatives is determined based on the spot price each individual contract was purchased at and compared with the one-month daily average actual spot price on the Chicago Mercantile Exchange (hot roll coil), and the London Metals Exchange (nickel and aluminum), respectively, for the commodity on the valuation date. In addition, the Company has numerous foreign exchange contracts to hedge variability in cash flows when a payment currency is different from our functional currency. The Company defines the fair value of foreign exchange contracts as the amount of the difference between the contracted and current market value at the end of the period. The Company estimates the current market value of foreign exchange contracts by obtaining month-end market quotes of foreign exchange rates and forward rates for contracts with similar terms. The Company uses the exchange rates provided by Reuters. Each commodity and foreign exchange contract term varies in the number of months, but in general, contracts are between 1 to 12 months in length. The fair value of our interest rate swap is based on the sum of all future net present value cash flows for the fixed and floating leg of the swap. The future cash flows are derived based on the terms of our interest rate swap, as well as published discount factors, and projected forward LIBOR rates.

The fair value of the embedded derivative is determined using Level 3 inputs based on the Black-Derman-Toy lattice model and the “with-and-without” approach.  This method estimates the value of the 2028 Notes both with and without the embedded derivative. The value of the embedded derivative is the difference between the two methods. The value of the 2028 Notes with the embedded derivative is based on recent trading prices of the 2028 Notes (Level 1 inputs).  Determining the value of the 2028 Notes without the embedded derivative requires significant judgements made by management such as the probability of redemption linked transactions occurring, the cash flows expected to be generated from these transactions, as well as the timing of these transactions (Level 3 inputs). Changes to the projections made by the Company’s management after June 30, 2021 can affect the future value of this asset.

The changes in financial instruments measured at fair value for which the Company has used Level 3 inputs to determine fair value are as follows:

 

2028 Notes Embedded Derivative

 

 

(In millions)

 

Balance at January 1, 2021

$

2.3

 

Unrealized loss recorded in other income and (expense), net

 

(1.0

)

Balance at June 30, 2021

$

1.3

 

 

 

17


 

 

The carrying and estimated fair values of our financial instruments at June 30, 2021 and December 31, 2020 were as follows:

 

 

 

At June 30, 2021

 

 

At December 31, 2020

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

38.1

 

 

$

38.1

 

 

$

61.4

 

 

$

61.4

 

Restricted cash

 

 

1.1

 

 

 

1.1

 

 

 

1.1

 

 

 

1.1

 

Receivables less provisions

 

 

655.0

 

 

 

655.0

 

 

 

378.9

 

 

 

378.9

 

Accounts payable

 

 

587.1

 

 

 

587.1

 

 

 

365.1

 

 

 

365.1

 

Long-term debt, including current portion

 

 

600.9

 

 

 

650.9

 

 

 

740.0

 

 

 

800.3

 

 

The estimated fair value of the Company’s cash and cash equivalents, restricted cash, receivables less provisions, and accounts payable approximate their carrying amounts due to the short-term nature of these financial instruments. The estimated fair value of the Company’s long-term debt and the current portions thereof is determined by using quoted market prices of Company debt securities (Level 2 inputs).

 

NOTE 12: STOCKHOLDERS’ EQUITY, ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), AND NONCONTROLLING INTEREST

The following table details changes in Ryerson Holding Corporation Stockholders’ Equity accounts for the three and six month periods ended June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained Earnings

 

 

Foreign

Currency

Translation

 

 

Benefit Plan

Liabilities

 

 

Interest Rate Swap

 

 

Non-controlling

Interest

 

 

Total

Equity

 

 

 

Shares

 

 

Dollars

 

 

Shares

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

 

(In millions, except shares in thousands)

 

Balance at January 1, 2021

 

 

38,330

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

383.1

 

 

$

33.8

 

 

$

(47.0

)

 

$

(221.8

)

 

$

(3.1

)

 

$

6.3

 

 

$

145.1

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25.3

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

25.6

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

Changes in defined benefit pension and other post-retirement benefit plans, net of tax of $0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

 

2.0

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.6

 

Interest rate swap, net of tax of $0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

0.4

 

Balance at March 31, 2021

 

 

38,330

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

384.7

 

 

$

59.1

 

 

$

(46.9

)

 

$

(219.8

)

 

$

(2.7

)

 

$

6.5

 

 

$

174.7

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112.9

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

 

113.3

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.5

 

 

 

 

 

 

 

 

 

0.1

 

 

 

1.6

 

Changes in defined benefit pension and other post-retirement benefit plans, net of tax of $0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

 

2.0

 

Stock-based compensation expense

 

 

357

 

 

 

 

 

 

 

 

 

 

 

 

1.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.5

 

Interest rate swap, net of tax of $0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

0.4

 

Balance at June 30, 2021

 

 

38,687

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

386.2

 

 

$

172.0

 

 

$

(45.4

)

 

$

(217.8

)

 

$

(2.3

)

 

$

7.0

 

 

$

293.5

 

 

 

18


 

 

The following table details changes in Ryerson Holding Corporation Stockholders’ Equity accounts for the three and six month periods ended June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained Earnings

 

 

Foreign

Currency

Translation

 

 

Benefit Plan

Liabilities

 

 

Cash Flow Hedge- Interest Rate Swap

 

 

Non-controlling

Interest

 

 

Total

Equity

 

 

 

Shares

 

 

Dollars

 

 

Shares

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

 

(In millions, except shares in thousands)

 

Balance at January 1, 2020

 

 

37,996

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

381.2

 

 

$

99.6

 

 

$

(48.6

)

 

$

(253.1

)

 

$

(0.3

)

 

$

6.0

 

 

$

178.6

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.4

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8.5

)

 

 

 

 

 

 

 

 

 

 

 

(8.5

)

Changes in defined benefit pension and other post-retirement benefit plans, net of tax of $0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.8

 

 

 

 

 

 

 

 

 

1.8

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.6

 

Cash flow hedge - interest rate swap, net of tax of $1.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.5

)

 

 

 

 

 

(3.5

)

Balance at March 31, 2020

 

 

37,996

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

381.8

 

 

$

116.0

 

 

$

(57.1

)

 

$

(251.3

)

 

$

(3.8

)

 

$

6.0

 

 

$

185.4

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25.6

)

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

(25.5

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

1.6

 

Changes in defined benefit pension and other post-retirement benefit plans, net of tax of $0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

 

 

2.0

 

Stock-based compensation expense

 

 

334

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.2

)

 

 

(0.2

)

Balance at June 30, 2020

 

 

38,330

 

 

$

0.4

 

 

 

213

 

 

$

(6.6

)

 

$

382.2

 

 

$

90.4

 

 

$

(55.4

)

 

$

(249.3

)

 

$

(3.8

)

 

$

5.8

 

 

$

163.7

 

 

The following table details changes in accumulated other comprehensive income (loss), net of tax, for the six months ended June 30, 2021:

 

 

 

Changes in Accumulated Other Comprehensive

Income (Loss) by Component, net of tax

 

 

 

Foreign

Currency

Translation

 

 

Benefit

Plan

Liabilities

 

 

Interest Rate Swap

 

 

 

(In millions)

 

Balance at January 1, 2021

 

$

(47.0

)

 

$

(221.8

)

 

$

(3.1

)

Other comprehensive income before reclassifications

 

 

1.6

 

 

 

 

 

 

 

Amounts reclassified from accumulated other comprehensive income into net income

 

 

 

 

 

4.0

 

 

 

0.8

 

Net current-period other comprehensive income

 

 

1.6

 

 

 

4.0

 

 

 

0.8

 

Balance at June 30, 2021

 

$

(45.4

)

 

$

(217.8

)

 

$

(2.3

)

 

 

19


 

 

The following table details the reclassifications out of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2021:

 

 

 

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

 

 

Amount reclassified from Accumulated

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Affected line item in the Condensed

Details about Accumulated Other

 

June 30, 2021

 

 

Consolidated Statements of

Comprehensive Income (Loss) Components

 

(In millions)

 

 

Comprehensive Income

Amortization of defined benefit pension and other post-retirement benefit plan items

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

2.5

 

 

$

4.9

 

 

Other income and (expense), net

Pension settlement

 

 

0.2

 

 

 

0.4

 

 

Other income and (expense), net

Prior service credits

 

 

(0.1

)

 

 

(0.2

)

 

Other income and (expense), net

Total before tax

 

 

2.6

 

 

 

5.1

 

 

 

Tax benefit

 

 

(0.6

)

 

 

(1.1

)

 

 

Net of tax

 

$

2.0

 

 

$

4.0

 

 

 

Interest rate swap

 

 

 

 

 

 

 

 

 

 

Realized swap interest (subsequent to de-designation)

 

$

0.6

 

 

$

1.1

 

 

Interest and other expense on debt

Tax benefit

 

 

(0.2

)

 

 

(0.3

)

 

 

Net of tax

 

$

0.4

 

 

$

0.8

 

 

 

 

The following table details the reclassifications out of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2020:

 

 

 

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

 

 

Amount reclassified from Accumulated

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Affected line item in the Condensed

Details about Accumulated Other

 

June 30, 2020

 

 

Consolidated Statements of

Comprehensive Income (Loss) Components

 

(In millions)

 

 

Comprehensive Income

Amortization of defined benefit pension and other post-retirement benefit plan items

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

2.5

 

 

$

5.0

 

 

Other income and (expense), net

Pension settlement

 

 

0.7

 

 

 

1.1

 

 

Other income and (expense), net

Prior service credits

 

 

(0.5

)

 

 

(1.0

)

 

Other income and (expense), net

Total before tax

 

 

2.7

 

 

 

5.1

 

 

 

Tax benefit

 

 

(0.7

)

 

 

(1.3

)

 

 

Net of tax

 

$

2.0

 

 

$

3.8

 

 

 

Cash flow hedge - interest rate swap

 

 

 

 

 

 

 

 

 

 

Realized swap interest (prior to de-designation)

 

$

0.5

 

 

$

0.6

 

 

Interest and other expense on debt

Tax benefit

 

 

(0.2

)

 

 

(0.2

)

 

 

Net of tax

 

$

0.3

 

 

$

0.4

 

 

 

 

NOTE 13: REVENUE RECOGNITION

We are a leading value-added processor and distributor of industrial metals with operations in the United States, Canada, Mexico, and China. We purchase large quantities of metal products from primary producers and sell these materials in smaller quantities to a wide variety of metals-consuming industries. More than 75% of the metals products sold are processed by us by bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, notching, painting, perforating, polishing, punching, rolling, sawing, scribing, shearing, slitting, stamping, tapping, threading, welding, or other techniques to process materials to a specified thickness, length, width, shape, and surface quality pursuant to specific customer orders.  

Disaggregated Revenue

We have 1 operating and reportable segment, metals service centers.

 

20


 

The Company derives substantially all of its sales from the distribution of metals. The following table shows the Company’s percentage of sales by major product line:      

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Product Line

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Carbon Steel Flat

 

 

31

%

 

 

28

%

 

 

30

%

 

 

26

%

Carbon Steel Plate

 

 

10

 

 

 

9

 

 

 

10

 

 

 

10

 

Carbon Steel Long

 

 

13

 

 

 

15

 

 

 

13

 

 

 

15

 

Stainless Steel Flat

 

 

17

 

 

 

15

 

 

 

17

 

 

 

16

 

Stainless Steel Plate

 

 

5

 

 

 

5

 

 

 

5

 

 

 

5

 

Stainless Steel Long

 

 

4

 

 

 

5

 

 

 

4

 

 

 

5

 

Aluminum Flat

 

 

13

 

 

 

13

 

 

 

13

 

 

 

13

 

Aluminum Plate

 

 

2

 

 

 

3

 

 

 

2

 

 

 

3

 

Aluminum Long

 

 

4

 

 

 

5

 

 

 

4

 

 

 

5

 

Other

 

 

1

 

 

 

2

 

 

 

2

 

 

 

2

 

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

A significant majority of the Company’s sales are attributable to its U.S. operations. The only operations attributed to foreign countries relate to the Company’s subsidiaries in Canada, China, and Mexico. The following table summarizes consolidated financial information of our operations by geographic location based on where sales originated:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Sales

(In millions)

 

United States

 

1,276.8

 

 

$

686.3

 

 

$

2,302.5

 

 

$

1,599.8

 

Foreign countries

 

142.2

 

 

 

85.5

 

 

$

263.8

 

 

 

182.3

 

Total

$

1,419.0

 

 

$

771.8

 

 

$

2,566.3

 

 

$

1,782.1

 

Revenue is recognized either at a point in time or over time based on if the contract has an enforceable right to payment and the type of product that is being sold to the customer, with products that are determined to have no alternative use being recognized over time. The following table summarizes revenues by the type of item sold:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Timing of Revenue Recognition

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue on products with an alternative use

 

 

90

%

 

 

88

%

 

 

90

%

 

 

88

%

Revenue on products with no alternative use

 

 

10

 

 

 

12

 

 

 

10

 

 

 

12

 

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

Contract Balances

A receivable is recognized in the period in which an invoice is issued, which is generally when the product is delivered to the customer.  Payment terms on invoiced amounts are typically 30 days from the invoice date.  We do not have any contracts with significant financing components.  

Receivables, which are included in accounts receivables within the Condensed Consolidated Balance Sheet, from contracts with customers were $657.5 million and $380.7 million as of June 30, 2021 and December 31, 2020, respectively.  

 

21


 

Contract assets, which consist primarily of revenues recognized over time that have not yet been invoiced and estimates of the value of inventory that will be received in conjunction with product returns, are reported in prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets.  Contract liabilities, which consist primarily of accruals associated with amounts that will be paid to customers for volume rebates, cash discounts, sales returns and allowances, estimates of shipping and handling costs associated with performance obligations recorded over time, and bill and hold transactions are reported in other accrued liabilities within the Condensed Consolidated Balance Sheets. Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

 

 

 

Contract Assets

 

 

Contract Liabilities

 

 

 

(In millions)

 

Beginning Balance at January 1, 2021

 

$

10.8

 

 

$

10.8

 

Contract liability satisfied during the period

 

 

 

 

 

(6.5

)

Contract liability incurred during the period

 

 

 

 

 

7.0

 

Net change in contract assets and liabilities for products with no alternative use during the period

 

 

4.0

 

 

 

0.1

 

Changes to reserves

 

 

0.3

 

 

 

0.4

 

Ending Balance at June 30, 2021

 

$

15.1

 

 

$

11.8

 

 

The Company’s performance obligations are typically short-term in nature. As a result, the Company has elected the practical expedient that provides an exemption of the disclosure requirements regarding information about remaining performance obligations on contracts that have original expected durations of one year or less.

NOTE 14: PROVISION FOR CREDIT LOSSES

Provisions for allowances and claims on accounts receivables and contract assets are based upon historical rates, expected trends, and estimates of potential returns, allowances, customer discounts, and incentives. The Company considers all available information when assessing the adequacy of the provision for allowances, claims, and doubtful accounts.  

The Company performs ongoing credit evaluations of customers and sets credit limits based upon review of the customers’ current credit information, payment history, and the current economic and industry environments. The Company’s credit loss reserve consists of two parts: a) a provision for estimated credit losses based on historical experience and b) a reserve for specific customer collection issues that the Company has identified. Estimation of credit losses requires adjusting historical loss experience for current economic conditions and judgments about the probable effects of economic conditions on certain customers.

The following table provides a reconciliation of the provision for credit losses reported within the Condensed Consolidated Balance Sheets as of June 30, 2021:

 

 

Changes in Provision for Expected Credit Losses

 

 

(In millions)

 

Balance at January 1, 2021

$

1.7

 

Current period provision

 

1.0

 

Write-offs charged against allowance

 

(0.2

)

Recoveries

 

0.2

 

Foreign currency translation

 

(0.2

)

Balance at June 30, 2021

$

2.5

 

 

NOTE 15: INCOME TAXES

For the three months ended June 30, 2021, the Company recorded income tax expense of $38.5 million compared to an income tax benefit of $4.5 million in the prior year. The $38.5 million tax expense and the $4.5 million income tax benefit for the three months ended June 30, 2021 and 2020, respectively, primarily represent taxes at federal and local statutory rates where the Company operates, but generally exclude any tax benefit for losses in jurisdictions with historical losses. For the six months ended June 30, 2021, the Company recorded income tax expense of $46.1 million compared to an income tax benefit of $1.6 million in the prior year. The $46.1 million tax expense and the $1.6 million tax benefit for the six months ended June 30, 2021 and 2020, respectively, primarily represents taxes at federal and local statutory rates where the Company operates, but generally excludes any tax benefit for losses in jurisdictions with historical losses. The higher effective tax rate in the first six months of 2021 is primarily a result of the significant changes in actual and forecasted earnings between the two periods as business conditions have improved year over year.

 

22


 

As required by ASC 740, the Company assesses the realizability of its deferred tax assets. The Company records a valuation allowance when, based upon the evaluation of all available evidence, it is more-likely-than-not that all or a portion of the deferred tax assets will not be realized. In making this determination, we analyze, among other things, our recent history of earnings, the nature and timing of reversing book-tax temporary differences, tax planning strategies, and future income. The Company maintains a valuation allowance on certain foreign and U.S. federal and state deferred tax assets until such time as in management’s judgment, considering all available positive and negative evidence, the Company determines that these deferred tax assets are more likely than not realizable. The valuation allowance is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of some or all of the valuation allowance. The valuation allowance was $6.2 million at June 30, 2021 and $6.6 million December 31, 2020.

The U.S. Tax Cuts and Jobs Act (the “Act”) subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. After considering the two options, the Company has elected to provide for the tax expense related to GILTI in the year the tax will occur.  For the three-month and six-month periods ended June 30, 2021, we have included a tax expense of $0.2 million and $0.3 million, respectively, related to GILTI as part of our tax provision. For the three-month and six-month periods ended June 30, 2020, we included tax expense of $0.3 million and $1.5 million, respectively, related to GILTI as part of our tax provision.

The Company accounts for uncertain income tax positions in accordance with ASC 740. In the second quarter of 2021, we released $0.7 million of reserves bringing the unrecognized tax benefits balance from $1.7 million at December 31, 2020 to $1.0 million at June 30, 2021.    

NOTE 16: EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share attributable to Ryerson Holding’s common stock is determined based on earnings (loss) for the period divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share attributable to Ryerson Holding’s common stock considers the effect of potential common shares, unless inclusion of the potential common shares would have an antidilutive effect. The weighted average number of shares excluded as they would have had an antidilutive effect were 81,877 and 40,939 for the three and six-month periods ended June 30, 2021, respectively.

The following table sets forth the calculation of basic and diluted earnings (loss) per share:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Basic and diluted earnings (loss) per share

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

(In millions, except share and per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Ryerson Holding Corporation

 

$

112.9

 

 

$

(25.6

)

 

$

138.2

 

 

$

(9.2

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

38,458,707

 

 

 

38,079,905

 

 

 

38,288,995

 

 

 

37,931,833

 

Dilutive effect of stock-based awards

 

 

270,820

 

 

 

 

 

 

396,936

 

 

 

 

Weighted average shares outstanding adjusted for dilutive securities

 

 

38,729,527

 

 

 

38,079,905

 

 

 

38,685,931

 

 

 

37,931,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.94

 

 

$

(0.67

)

 

$

3.61

 

 

$

(0.24

)

Diluted

 

$

2.91

 

 

$

(0.67

)

 

$

3.57

 

 

$

(0.24

)

 

 

23


 

 

NOTE 17: SUBSEQUENT EVENTS

On July 9, 2021, the Company completed a partial redemption of $100.0 million in aggregate principal amount of the 2028 Notes for $104.0 million, which was at a redemption price of 104.0% of the principal amount, resulting in the recognition of a $4.0 million loss within other income and (expense), net in the third quarter Condensed Consolidated Statement of Comprehensive Income.  The Company funded the redemption with cash proceeds from the sale leaseback transaction that closed on June 9, 2021 (see discussion in Note 6: Leases).  On July 23, 2021, the Company completed another partial redemption of $50.0 million in aggregate principal amount of the 2028 Notes for $51.5 million, which was at a redemption price of 103.0% of the principal amount, resulting in the recognition of a $1.5 million loss within other income and (expense), net in the third quarter Condensed Consolidated Statement of Comprehensive Income. The Company funded the transaction with cash on hand.  Upon competition of these partial redemptions, $300.0 million aggregate principal amount of the 2028 Notes remains outstanding. As a result of the redemptions, the Company will write-off a portion of the 2028 Notes issuance costs and will record a charge of $2.8 million within other interest and other expense on debt in the third quarter Condensed Consolidated Statement of Comprehensive Income.

 

On August 4, 2021, the Board of Directors approved a quarterly dividend in the amount of $0.08 per share of common stock. The quarterly dividend will be paid on September 16, 2021 to stockholders of record on August 16, 2021. Future quarterly dividends, if any, will be subject to Board approval.

 

Additionally, on August 4, 2021, the Board authorized a stock repurchase program that permits the purchase of up to $50 million of the Company’s outstanding shares of common stock.  The authorization is effective through August 4, 2023.  Under the stock repurchase program, management has discretion in determining the conditions under which shares may be purchased from time to time.

 

 

24


 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “objectives,” “goals,” “preliminary,” “range,” “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those anticipated or implied in the forward-looking statements as a result of various factors. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 24, 2021 and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Industry and Operating Trends” and elsewhere in this Quarterly Report on Form    10-Q. Moreover, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and related Notes thereto for the year ended December 31, 2020 in our Annual Report on Form 10-K filed on February 24, 2021.

Industry and Operating Trends

We are a metals service center providing value-added processing and distribution of industrial metals with operations in the United States, Canada, Mexico, and China. We purchase large quantities of metal products from primary producers and sell these materials in smaller quantities to a wide variety of metals-consuming industries. We carry a full line of nearly 75,000 products in stainless steel, aluminum, carbon steel, and alloy steels and a limited line of nickel and red metals in various shapes and forms. In addition to our metals products, we offer numerous value-added processing and fabrication services, and more than 75% of the metals products we sell are processed by us by bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, notching, painting, perforating, polishing, punching, rolling, sawing, scribing, shearing, slitting, stamping, tapping, threading, welding, or other techniques to process materials to a specified thickness, length, width, shape, and surface quality pursuant to specific customer orders.

Similar to other metals service centers, we maintain substantial inventories of metals to accommodate the short lead times and just-in-time delivery requirements of our customers. Accordingly, we purchase metals to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon customer forecasts, historic buying practices, supply agreements with customers, mill lead times, and market conditions. Our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders. At the request of our customers, we have entered into swaps in order to mitigate our customers’ risk of volatility in the price of metals and we have entered into metals hedges to mitigate our own risk of volatility in the price of metals. We have no long-term, fixed-price metals purchase contracts. When metals prices decline, customer demands for lower prices and our competitors’ responses to those demands could result in lower sale prices and, consequently, lower gross profits and earnings as we sell existing metals inventory. When metals prices increase, competitive conditions will influence how much of the price increase we may pass on to our customers.

The metals service center industry is cyclical and volatile in both pricing and demand, and difficult to predict. In the first half of 2021, Ryerson experienced both stronger pricing and demand compared to the first half of 2020, with average selling prices 34.3% higher and shipments 7.2% higher, reflective of the strong commodity pricing environment and demand recovering to pre-COVID-19 levels. Changes in average selling prices are primarily driven by commodity metals prices, which impact Ryerson’s selling prices.

Key industry indicators showed continued improvement in the second quarter of 2021. This is evidenced by the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”), which reported strength in April, May and June with readings above 60%, surpassing the growth threshold of 50%, indicating general expansion in factory activity and marking 13 consecutive months of expanding activity. Additionally, following 18 months of contraction, U.S. Industrial Production increased year-over-year for the fourth consecutive month in June, signifying improved conditions.

According to the Metal Service Center Institute, North American service center volumes grew by 13.5% in the first half of 2021 compared to the first half of 2020. On a North American basis, Ryerson’s demand also grew, but at a smaller rate than the industry, with tons sold up by 6.7% over the same period. However, on a quarterly sequential basis, Ryerson gained market share as the Company grew North American tons by 2.9% compared to mild industry contraction of 0.4%. Ryerson’s year-over-year North American demand growth was experienced most strongly in ground transportation and consumer durable sectors while the sectors with the strongest North American year-over-year contraction were oil and gas and food and agriculture.

 

25


 

COVID-19

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March of 2020. As of the date of this filing, COVID-19 continues to be a substantial risk factor for business operations and the Company continues to monitor and address these risks and uncertainties as conditions develop. While we are encouraged by U.S. vaccination rates, variants pose a continuing risk, therefore we remain committed to our implemented policies and procedures to continue protecting the health and welfare of our employees first and foremost while operating as an essential business.

Led by our dedicated COVID-19 response team, we continue to follow the United States Centers for Disease Control and Prevention and other relevant local guidance in the U.S., as well as corresponding authorities in Canada, Mexico, and China, carefully monitoring COVID-19 data in the areas in which we operate, and continue to be both safe and nimble in executing our internal response. We remain committed to operating our business under COVID-19 safety policies until we are certain that related risks have subsided. To support the sustainability of current circumstances, we are supporting our workforce beyond contraction prevention by reinforcing the importance of mental health and promoting the use of existing benefits such as prescription delivery and telemedicine. Further, we have encouraged our workforce to receive the flu and COVID-19 vaccines, and in some locations we have provided the opportunity to receive the COVID-19 vaccine on-site.      

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government and state and local government officials to prevent disease spread, all of which are uncertain and cannot be predicted. At this time, our business and the business of our customers continue to be impacted by economic pressures as well as supply chain disruptions and tightness stemming from COVID-19. This is perpetuated by increasing demand momentum. The ultimate impact of COVID-19 remains uncertain.

The Company continues to monitor its liquidity position as market conditions improve. Specifically, we continue to actively manage relationships with our customers and vendors to ensure that we optimize our receivables and payables cycles, conduct receivables risk assessments, maintain strong expense management practices, and have contingency plans in place to reduce costs while supporting business operations should conditions decline. Due to our effective cash management actions, the strong commodity pricing environment, and property sales completed during the second quarter, as of June 30, 2021, Ryerson had liquidity of $890 million, composed of $852 million of availability under the Company’s $1.0 billion revolving credit facility (the “Ryerson Credit Facility”) and foreign debt facilities, and $38 million of cash and cash equivalents. Total liquidity is not a GAAP financial measure. We believe that total liquidity provides additional information for measuring our ability to fund our operations. Total liquidity does not represent, and should not be used as a substitute for, net income or cash flows from operations as determined in accordance with GAAP and total liquidity is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements.  See the reconciliation of cash and cash equivalents to total liquidity within “Liquidity and Cash Flows.”

First six months ended June 30, 2021 vs. first six months ended June 30, 2020 Performance Highlights

$2.57B

 

 

 

17.7%

 

 

 

$138M

 

Total Revenues

 

 

Gross Margin

 

Net Income Attributable to Ryerson

 

 

44% increase

 

 

20 bps decrease

 

 

$147M increase

$3.57

 

 

 

$1.50

 

 

 

($51M)

 

Diluted EPS

 

 

Adj. Diluted EPS*

 

Cash from Operating Activities

 

$3.81 increase

 

 

$1.72 increase

 

 

$227M decrease

*A reconciliation of the non-GAAP financial measure to the comparable GAAP measure is included in the subsequent table.

Ryerson generated revenues of $2.57 billion in the first six months of 2021, an increase of 44.0% compared to $1.78 billion for the first six months of 2020, with average selling prices 34.3% higher and tons shipped 7.2% higher. In the first six months of 2021, gross margin expanded to 17.7% compared to 17.5% for the first six months of 2020. Included in the first six months of 2021 cost of materials sold was LIFO expense of $188.6 million, compared to LIFO income of $6.1 million in the first six months of 2020. Net income attributable to Ryerson Holding Corporation was $138.2 million, or earnings of $3.57 per diluted share, in the first six months of 2021 compared to $9.2 million of net loss attributable to Ryerson Holding Corporation, or a loss of $0.24 per diluted share, for the first six months of 2020.

To provide greater insight into the Company’s first six months of 2021 operating trends apart from the period’s one-time transactions, Ryerson provides adjusted net income (loss) and adjusted diluted earnings (loss) per share figures, which are not U.S. generally accepted accounting principles (“GAAP”) financial measures, to compliment the reported GAAP net income (loss) and

 

26


 

diluted earnings (loss) per share figures. Management uses these metrics to assess year-over-year performance excluding non-recurring transactions. Adjusted net income (loss) and adjusted diluted (loss) earnings per share do not represent, and should not be used as a substitute for, net income (loss) or earnings (loss) per share determined in accordance with GAAP.  Illustrated in the below table, the first six months of 2021 net income attributable to Ryerson of $138.2 million includes a gain of $107.7 million generated from property sales. See discussion of the significant sale-leaseback transaction in Note 6: Leases in Part 1, Item 1 of this report. After adjusting for these non-core business transactions and the related income tax provision, the adjusted net income attributable to Ryerson for the first half of 2021 is $58.1 million, an increase of $66.5 million compared to the year-ago adjusted net loss attributable to Ryerson of $8.4 million which included restructuring charges, an adjustment for a gain on retirement of debt related to repurchases of the 11.00% Senior Secured Notes due 2022 (the “2022 Notes”), and related income taxes.

 

(Dollars and shares in millions, except per share data)

 

First Half 2021

 

 

First Half 2020

 

Net income (loss) attributable to Ryerson Holding Corporation

 

$

138.2

 

 

$

(9.2

)

Gain on sale of assets

 

 

(107.7

)

 

 

 

Restructuring and other charges

 

 

 

 

 

2.0

 

Gain on retirement of debt

 

 

 

 

 

(0.9

)

Provision (benefit) for income taxes on above items

 

 

27.6

 

 

 

(0.3

)

Adjusted net income (loss) attributable to Ryerson Holding Corporation

 

$

58.1

 

 

$

(8.4

)

Diluted earnings (loss) per share

 

$

3.57

 

 

$

(0.24

)

Adjusted diluted earnings (loss) per share

 

 

1.50

 

 

 

(0.22

)

Shares outstanding – diluted

 

 

38.7

 

 

 

37.9

 

Recent Developments

On April 22, 2021, the U.S. International Trade Commission (“USITC”) confirmed the Department of Commerce’s affirmative antidumping duty determinations and injury determinations regarding US imports of common alloy aluminum sheet. As a result, the USITC will issue final antidumping duty orders on U.S. imports of common alloy aluminum sheet from the following sixteen countries: Bahrain, Brazil, Croatia, Egypt, Germany, India, Indonesia, Italy, Oman, Romania, Serbia, Slovenia, South Africa, Spain, Taiwan, and Turkey. Antidumping rates differ greatly depending on country of origin and producing mill and range from the low single digits to as high as 243%. Ryerson anticipates that the actions of the USITC will support the prices of domestically produced aluminum sheet and therefore benefit the Company’s average selling prices.

On March 31, 2021, President Biden introduced the American Jobs Plan, a broad $2 trillion, 8-year infrastructure plan. This plan is largely viewed as an opening bid as Congress starts the formal process of developing infrastructure spending legislation. To offset some of the plan’s costs, the Biden Administration proposed a series of tax changes including raising the corporate tax rate to 28%. While changes to corporate taxation, including a higher corporate income tax rate, would adversely affect the Company, we believe the additional government spending on infrastructure projects contemplated under the American Jobs Plan, as proposed, may generate additional demand for our products especially within the industrial equipment, construction, green energy, and transportation industries. Accordingly, we would anticipate that the American Jobs Plan would be beneficial to the Company, but ultimately the impact on the Company’s operations is unclear. The prospects for this proposal also remain unclear. As of the date of this report, the administration continues to work towards a bipartisan infrastructure plan, the size, scope, and funding of which are still being discussed.

On March 1, 2018, the White House announced a 25% tariff on all imported steel products and 10% tariff on all imported aluminum products for an indefinite amount of time under Section 232 of the Trade Expansion Act (“Section 232”). Application of the tariffs commenced March 23, 2018, with temporary or long-term exemptions for a number of countries and subject to a product exemption process. These tariffs, while in effect, have discouraged metal imports from non-exempt countries and have had a favorable impact on the prices of the products we sell and our results of operations. The removal of the Section 232 tariffs could lead to increased levels of imported metals into the U.S. and result in domestic steel producers decreasing the prices of the metals they sell. A rapid decline in metal prices from current levels could result in a significant adverse effect on our revenues, gross profit, and net income. With the current supply constraints and the new administration in the White House, the removal of the Section 232 tariffs is still uncertain.

Components of Results of Operations

We generate substantially all of our revenue from sales of our metals products. The majority of revenue is recognized upon delivery of product to customers. The timing of shipment is substantially the same as the timing of delivery to customers given the proximity of our distribution sites to our customers. Revenues associated with products which we believe have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over-time basis. Over-time revenues are recorded in proportion with the progress made toward completing the performance obligation.

 

27


 

Sales, cost of materials sold, gross profit, and operating expense control are the principal factors that impact our profitability.

Net sales.  Our sales volume and pricing are driven by market demand, which is largely determined by overall industrial production and conditions in the specific industries in which our customers operate. Sales prices are also primarily driven by market factors such as overall demand and availability of product. Our net sales include revenue from product sales, net of returns, allowances, customer discounts, and incentives.

Cost of materials sold. Cost of materials sold includes metal purchase and in-bound freight costs, third-party processing costs, and direct and indirect internal processing costs. The cost of materials sold fluctuates with our sales volume and our ability to purchase metals at competitive prices. Increases in sales volume generally enable us to improve purchasing leverage with suppliers, as we buy larger quantities of metals inventories.

Gross profit.  Gross profit is the difference between net sales and the cost of materials sold. Our sales prices to our customers are subject to market competition. Achieving acceptable levels of gross profit is dependent on our acquiring metals at competitive prices, our ability to manage the impact of changing prices, and efficiently managing our internal and external processing costs.

Operating expenses.  Optimizing business processes and asset utilization to lower fixed expenses such as employee, facility, and truck fleet costs, which cannot be rapidly reduced in times of declining volume, and maintaining a low fixed cost structure in times of increasing sales volume, have a significant impact on our profitability. Operating expenses include costs related to warehousing and distributing our products as well as selling, general, and administrative expenses.

Results of Operations — Comparison of Three and Six Months Ended June 30, 2021 to Three and Six Months Ended June 30, 2020

The following table sets forth our condensed consolidated statements of income data for the three-month and six-month periods ended June 30, 2021 and 2020:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

 

($ in millions)

 

 

($ in millions)

 

Net sales

 

$

1,419.0

 

 

 

100.0

%

 

$

771.8

 

 

 

100.0

%

 

$

2,566.3

 

 

 

100.0

%

 

$

1,782.1

 

 

 

100.0

%

Cost of materials sold

 

 

1,162.0

 

 

 

81.9

 

 

 

656.3

 

 

 

85.0

 

 

 

2,111.4

 

 

 

82.3

 

 

$

1,470.8

 

 

 

82.5

 

Gross profit

 

 

257.0

 

 

 

18.1

 

 

 

115.5

 

 

 

15.0

 

 

 

454.9

 

 

 

17.7

 

 

 

311.3

 

 

 

17.5

 

Warehousing, delivery, selling, general, and administrative expenses

 

 

178.3

 

 

 

12.6

 

 

 

124.1

 

 

 

16.1

 

 

 

350.1

 

 

 

13.6

 

 

 

279.8

 

 

 

15.7

 

Gain on sale of assets

 

 

(87.4

)

 

 

(6.2

)

 

 

 

 

 

 

 

 

(107.7

)

 

 

(4.2

)

 

 

 

 

 

 

Restructuring and other charges

 

 

 

 

 

 

 

 

2.0

 

 

 

0.3

 

 

 

 

 

 

 

 

 

2.0

 

 

 

0.1

 

Operating profit (loss)

 

 

166.1

 

 

 

11.7

 

 

 

(10.6

)

 

 

(1.4

)

 

 

212.5

 

 

 

8.3

 

 

 

29.5

 

 

 

1.7

 

Other (expenses) and income

 

 

(14.3

)

 

 

(1.0

)

 

 

(19.4

)

 

 

(2.5

)

 

 

(27.5

)

 

 

(1.1

)

 

 

(40.2

)

 

 

(2.3

)

Income (loss) before income taxes

 

 

151.8

 

 

 

10.7

 

 

 

(30.0

)

 

 

(3.9

)

 

 

185.0

 

 

 

7.2

 

 

 

(10.7

)

 

 

(0.6

)

Provision (benefit) for income taxes

 

 

38.5

 

 

 

2.7

 

 

 

(4.5

)

 

 

(0.6

)

 

 

46.1

 

 

 

1.8

 

 

 

(1.6

)

 

 

(0.1

)

Net income (loss)

 

 

113.3

 

 

 

8.0

 

 

 

(25.5

)

 

 

(3.3

)

 

 

138.9

 

 

 

5.4

 

 

 

(9.1

)

 

 

(0.5

)

Less: Net income attributable to noncontrolling interest

 

 

0.4

 

 

 

 

 

 

0.1

 

 

 

 

 

 

0.7

 

 

 

 

 

 

0.1

 

 

 

 

Net income (loss) attributable to Ryerson Holding Corporation

 

$

112.9

 

 

 

8.0

%

 

$

(25.6

)

 

 

(3.3

)%

 

$

138.2

 

 

 

5.4

%

 

$

(9.2

)

 

 

(0.5

)%

Basic (loss) earnings per share

 

$

2.94

 

 

 

 

 

 

$

(0.67

)

 

 

 

 

 

$

3.61

 

 

 

 

 

 

$

(0.24

)

 

 

 

 

Diluted earnings (loss) per share

 

$

2.91

 

 

 

 

 

 

$

(0.67

)

 

 

 

 

 

$

3.57

 

 

 

 

 

 

$

(0.24

)

 

 

 

 

 

28


 

 

Net sales

The following charts show the Company’s percentage of sales by major product lines for the six month periods ended June 30, 2021 and 2020:

 

 

 

 

June 30,

 

 

Dollar

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

change

 

 

change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Net sales (three-months ended)

 

$

1,419.0

 

 

$

771.8

 

 

$

647.2

 

 

 

83.9

%

Net sales (six-months ended)

 

$

2,566.3

 

 

$

1,782.1

 

 

$

784.2

 

 

 

44.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Tons

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

change

 

 

change

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Tons sold (three months ended)

 

 

559

 

 

 

462

 

 

 

97

 

 

 

21.0

%

Tons sold (six-months ended)

 

 

1,102

 

 

 

1,028

 

 

 

74

 

 

 

7.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Price

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

change

 

 

change

 

Average selling price per ton sold (three-months ended)

 

$

2,538

 

 

$

1,671

 

 

$

867

 

 

 

51.9

%

Average selling price per ton sold (six-months ended)

 

$

2,329

 

 

$

1,734

 

 

$

595

 

 

 

34.3

%

Revenue for the three-month and six-month periods ended June 30, 2021 increased from the same period a year ago reflecting metals market business conditions that began to improve in the second half of 2020 after declining sharply at the beginning of the global outbreak of COVID-19, as well as supply constraints that have resulted in higher average selling prices in 2021. Compared to the year ago periods, average selling price increased for all of our product lines in both the three-month and six-month periods ended June 30, 2021 with the largest increases in our carbon plate, carbon flat, stainless plate, and stainless flat products. Tons sold increased in the three-month and six-month periods ended June 30, 2021 overall, with increases in our aluminum flat, stainless flat, carbon flat, and aluminum long product lines partially offset by a decrease in our stainless plate product line.

 

29


 

 

Cost of materials sold

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

Dollar change

 

 

Percentage change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Cost of materials sold (three-months ended)

 

$

1,162.0

 

 

 

81.9

%

 

$

656.3

 

 

 

85.0

%

 

$

505.7

 

 

 

77.1

%

Cost of materials sold (six-months ended)

 

$

2,111.4

 

 

 

82.3

%

 

$

1,470.8

 

 

 

82.5

%

 

$

640.6

 

 

 

43.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

Cost

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

change

 

 

change

 

Average cost of materials sold per ton sold (three-months ended)

 

$

2,078

 

 

$

1,421

 

 

$

657

 

 

 

46.2

%

Average cost of materials sold per ton sold (six-months ended)

 

$

1,916

 

 

$

1,431

 

 

$

485

 

 

 

33.9

%

The increase in cost of materials sold in the three-month and six-month periods ended June 30, 2021 compared to the year ago periods is primarily due to the increase in average cost of materials sold per ton and to the increase in tons sold. The average cost of materials sold increased across all product lines with the largest increases in our carbon plate, carbon flat, stainless plate, and carbon long product lines during the three-month and six-month periods ended June 30, 2021. During the second quarter of 2021, LIFO expense was $104.8 million compared to LIFO expense of $14.1 million in the second quarter of 2020. During the first six months of 2021, LIFO expense was $188.6 million compared to LIFO income of $6.1 million in the first six months of 2020.

Gross profit

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

Dollar change

 

 

Percentage change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Gross profit (three-months ended)

 

$

257.0

 

 

 

18.1

%

 

$

115.5

 

 

 

15.0

%

 

$

141.5

 

 

 

122.5

%

Gross profit (six-months ended)

 

$

454.9

 

 

 

17.7

%

 

$

311.3

 

 

 

17.5

%

 

$

143.6

 

 

 

46.1

%

Gross profit increased in the three-month and six-month periods ended June 30, 2021 compared to the year ago periods as volume increased and as average selling price increased faster than the increase in the average cost of materials sold resulting in an increase in gross margin.   

Operating expenses

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

Dollar change

 

 

Percentage change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Warehousing, delivery, selling, general, and administrative expenses (three months ended)

 

$

178.3

 

 

 

12.6

%

 

$

124.1

 

 

 

16.1

%

 

$

54.2

 

 

 

43.7

%

Warehousing, delivery, selling, general, and administrative expenses (six-months ended)

 

$

350.1

 

 

 

13.6

%

 

$

279.8

 

 

 

15.7

%

 

$

70.3

 

 

 

25.1

%

Gain on sale of assets (three-months ended)

 

$

(87.4

)

 

 

(6.2

)%

 

$

 

 

 

 

 

$

(87.4

)

 

 

 

Gain on sale of assets (six-months ended)

 

$

(107.7

)

 

 

(4.2

)%

 

$

 

 

 

 

 

$

(107.7

)

 

 

 

Restructuring and other charges (three-months ended)

 

$

 

 

 

 

 

$

2.0

 

 

 

0.3

%

 

$

(2.0

)

 

 

(100.0

)%

Restructuring and other charges (six-months ended)

 

$

 

 

 

 

 

$

2.0

 

 

 

0.1

%

 

$

(2.0

)

 

 

(100.0

)%

Total operating expenses, inclusive of gain on sale of assets and restructuring and other charges, decreased in the three-month and six-month periods ended June 30, 2021 compared to the year ago periods primarily due to gains on the sale and leaseback of facilities in 2021. In the second quarter of 2021, we recognized a gain of $87.4 million on the sale of twelve facilities across the United States. In the first quarter of 2021, we recognized a gain on sale of assets of $20.3 million from the sale and leaseback of our Renton, Washington facility. Partially offsetting the gains on facility sales were an increase in incentive compensation of $26.8 million in the second quarter of 2021 and $47.4 million in the first six months of 2021, higher benefit costs of $6.1 million in the

 

30


 

second quarter of 2021 and $9.1 million in the first six months of 2021 mainly from higher medical costs and payroll taxes on higher incentive compensation, increased salaries and wages expense of $6.6 million in the second quarter of 2021, and a $0.7 million increase in the first six months of 2021 in salaries, overtime, and temporary help, increased delivery expenses of $5.6 million in the second quarter of 2021 and $5.5 million in the first six months of 2021 primarily due to higher tons sold and higher fuel prices, and to higher selling, general, and administrative expenses of $5.7 million in the second quarter of 2021 and $2.9 million in the first six months of 2021 primarily due to higher consulting fees.

Operating profit

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

Dollar change

 

 

Percentage change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Operating profit (loss) (three-months ended)

 

$

166.1

 

 

 

11.7

%

 

$

(10.6

)

 

 

(1.4

)%

 

$

176.7

 

 

 

(1667.0

)%

Operating profit (six-months ended)

 

$

212.5

 

 

 

8.3

%

 

$

29.5

 

 

 

1.7

%

 

$

183.0

 

 

 

620.3

%

Our operating profit increased in the three-month and six-month periods ended June 30, 2021 compared to the three-month and six-month periods ended June 30, 2020, primarily due to the increases in average selling prices and tons sold, and lower operating expenses as discussed above.

Other expenses

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

 

% of Net

Sales

 

 

$

 

 

% of Net

Sales

 

 

Dollar change

 

 

Percentage change

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Interest and other expense on debt (three-months ended)

 

$

(13.6

)

 

 

(1.0

)%

 

$

(19.3

)

 

 

(2.5

)%

 

$

(5.7

)

 

 

(29.5

)%

Interest and other expense on debt (six-months ended)

 

$

(27.1

)

 

 

(1.1

)%

 

$

(41.0

)

 

 

(2.3

)%

 

$

(13.9

)

 

 

(33.9

)%

Other income and (expense), net (three-months ended)

 

$

(0.7

)

 

 

 

 

$

(0.1

)

 

 

 

 

$

(0.6

)

 

 

(600.0

)%

Other income and (expense), net (six-months ended)

 

$

(0.4

)

 

 

 

 

$

0.8

 

 

 

 

 

$

(1.2

)

 

 

(150.0

)%

Interest and other expense on debt decreased in the three-month and six-month periods ended June 30, 2021 compared to the year ago periods primarily due to the redemption of our 2022 Notes which had an outstanding balance of $530.3 million at June 30, 2020. The 2022 Notes were replaced by a lower level of debt at a lower interest rate with the issuance of $500.0 million of the 2028 Notes. In October 2020, $50.0 million of the 2028 Notes were redeemed. In addition, interest and other expense on debt was lower in the three-month and six-month periods ended June 30, 2021 due to a lower level of Ryerson Credit Facility borrowings outstanding compared to the year ago periods as excess funds were borrowed in 2020 to maintain access to cash during the COVID-19 pandemic. The other income in the second quarter and first six months of 2021 includes a $1.3 million loss and a $1.0 loss, respectively, resulting from the change in the fair value of the embedded derivative connected with the redemption options under the 2028 Notes. The other income and (expense), net in the second quarter and first six months of 2020 includes a $0.1 million gain and a $0.9 million gain on the repurchase of the 2022 Notes, respectively.

Provision for income taxes. In the second quarter of 2021, the Company recorded income tax expense of $38.5 million compared to a tax benefit of $4.5 million in the second quarter of 2020. In the first six months of 2021, the Company recorded income tax expense of $46.1 million compared to an income tax benefit of $1.6 million in the first six months of 2020. The income tax recorded in all periods primarily represents taxes at federal and local statutory rates where the Company operates, but generally excludes any tax benefit for losses in jurisdictions with historical losses.

Earnings per share. Basic earnings per share was $2.94 in the second quarter of 2021 and $3.61 in the first six months of 2021 compared to basic loss per share of $0.67 in the second quarter of 2020 and $0.24 in the first six months of 2020. Diluted earnings per share was $2.91 in the second quarter of 2021 and $3.57 in the first six months of 2021 compared to a diluted loss per share of $0.67 in the second quarter of 2020 and $0.24 in the first six months of 2020. The changes in earnings per share are due to the results of operations discussed above.

 

31


 

Liquidity and Cash Flows

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowing availability under the Ryerson Credit Facility. Our principal source of operating cash is from the sale of metals and other materials. Our principal uses of cash are for payments associated with the procurement and processing of metals and other materials inventories, costs incurred for the warehousing and delivery of inventories, the selling and administrative costs of the business, capital expenditures, and for interest payments on debt.

The global COVID-19 pandemic has led to disruption and volatility in the global capital markets, which, depending on future developments, could adversely impact our capital resources and liquidity in the future. As a proactive, precautionary measure, we borrowed approximately $166 million under the Ryerson Credit Facility in the first quarter of 2020 to maintain access to cash during the COVID-19 pandemic. We reduced this balance to approximately $40 million as of December 31, 2020. As of June 30, 2021, we are no longer holding excess cash due to COVID-19 cash access concerns. We had cash and cash equivalents of $38.1 million at June 30, 2021, compared to $61.4 million at December 31, 2020. Our total debt outstanding at June 30, 2021 decreased to $601 million compared to $740 million total debt outstanding at December 31, 2020 after receiving proceeds of $163.2 million from facility sale and leaseback transactions in the first six months of 2021 (See Note 5: Property, Plant and Equipment within Part 1, Item 1 of this report on Form 10-Q for further discussion). We had a debt-to-capitalization ratio of 67% and 84% at June 30, 2021 and at December 31, 2020 respectively. We had total liquidity (defined as cash and cash equivalents and availability under the Ryerson Credit Facility and foreign debt facilities) of $890 million at June 30, 2021 versus $373 million at December 31, 2020. Our net debt (defined as total debt less cash and cash equivalents) was $563 million and $679 million at June 30, 2021 and December 31, 2020, respectively. Total liquidity and net debt are not GAAP financial measures. We believe that total liquidity provides additional information for measuring our ability to fund our operations. Total liquidity does not represent, and should not be used as a substitute for, net income or cash flows from operations as determined in accordance with GAAP and total liquidity is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. We believe that net debt provides a clearer perspective of the Company’s overall debt situation given the excess borrowings discussed above. Net debt should not be used as a substitute for total debt outstanding as determined in accordance with GAAP.

Below is a reconciliation of cash and cash equivalents to total liquidity:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

38

 

 

$

61

 

Availability under Ryerson Credit Facility and foreign debt facilities

 

 

852

 

 

 

312

 

Total liquidity

 

$

890

 

 

$

373

 

Below is a reconciliation of total debt to net debt:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

 

(In millions)

 

Total debt

 

$

601

 

 

$

740

 

Less: cash and cash equivalents

 

 

(38

)

 

 

(61

)

Net debt

 

$

563

 

 

$

679

 

Of the total cash and cash equivalents, as of June 30, 2021, $10.3 million was held in subsidiaries outside the United States which is deemed to be permanently reinvested. Ryerson does not currently foresee a need to repatriate earnings from its non-U.S. subsidiaries. Although Ryerson has historically satisfied needs for more capital in the U.S. through debt or equity issuances, Ryerson could elect to repatriate earnings held in foreign jurisdictions, which could result in higher effective tax rates. We have not recorded a deferred tax liability for the effect of a possible repatriation of these earnings as management intends to permanently reinvest these earnings outside of the U.S. Specific plans for reinvestment include funding for future international acquisitions and funding of existing international operations.

 

32


 

The following table summarizes the Company’s cash flows:

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(In millions)

 

Net income (loss)

 

$

138.9

 

 

$

(9.1

)

Depreciation and amortization

 

 

26.7

 

 

 

26.9

 

Deferred income taxes

 

 

29.1

 

 

 

11.5

 

Gain on sale of assets

 

 

(107.7

)

 

 

 

Non-cash (gain) loss from derivatives

 

 

40.4

 

 

 

(1.7

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(275.9

)

 

 

50.5

 

Inventories

 

 

(109.1

)

 

 

141.4

 

Accounts payable

 

 

200.0

 

 

 

(26.7

)

All other operating cash flows

 

 

6.5

 

 

 

(16.7

)

Net cash provided by (used in) operating activities

 

 

(51.1

)

 

 

176.1

 

Capital expenditures

 

 

(13.3

)

 

 

(11.8

)

Proceeds from sale of property, plant, and equipment

 

 

165.9

 

 

 

0.1

 

Other items

 

 

(0.5

)

 

 

 

Net cash provided by (used in) investing activities

 

 

152.1

 

 

 

(11.7

)

Repayment of debt

 

 

(0.9

)

 

 

(57.5

)

Net repayments of short-term borrowings

 

 

(139.6

)

 

 

(21.5

)

Net increase (decrease) in book overdrafts

 

 

21.6

 

 

 

(24.4

)

All other financing cash flows

 

 

(5.1

)

 

 

(6.9

)

Net cash used in financing activities

 

 

(124.0

)

 

 

(110.3

)

Effect of exchange rates on cash and cash equivalents

 

 

(0.3

)

 

 

(2.0

)

Net increase (decrease) in cash and cash equivalents

 

$

(23.3

)

 

$

52.1

 

Operating activities. Working capital fluctuates throughout the year based on business needs. Working capital needs tend to be counter-cyclical, meaning that in periods of expansion the Company will use cash to fund working capital requirements, but in periods of contraction the Company will generate cash from reduced working capital requirements. The increase in accounts receivable in the first six months of 2021 is the result of higher sales levels during the second half of the second quarter of 2021 compared to the second half of the fourth quarter of the prior year. Inventory levels also increased in the first six months of 2021 as inventory was purchased to meet higher sales levels resulting from stronger metals market conditions. The increase in accounts payable at the end of the second quarter of 2021 is related to increased purchases and operating activities in the first six months of 2021 associated with increased sales compared to the fourth quarter of the prior year. In comparison, the decrease in accounts receivable in the first six months of 2020 is the result of lower sales levels due to the weak market conditions resulting from the COVID-19 outbreak in 2020. Inventory levels also decreased significantly in the first six months of 2020 as the Company brought inventory levels in line with the weak market conditions.

Investing activities. The Company's main investing activities are capital expenditures and proceeds from the sale of property, plant, and equipment. Capital expenditures have increased slightly year-over-year to $13.3 million for the first six months of 2021 compared to $11.8 million in the first six months of 2020. The Company sold property, plant, and equipment and assets held for sale generating cash proceeds of $165.9 million during the first six months of 2021.

Financing activities. The Company's main source of liquidity to fund working capital requirements is borrowings on the Ryerson Credit Facility. Net cash used in financing activities in the first six months of 2021 was primarily related to the repayment of $139.6 million of Ryerson Credit Facility borrowings using proceeds from the sale and leaseback of certain facilities. Net cash used in financing activities in the first six months of 2020 was primarily related to Ryerson Credit Facility repayments from the operating cash flow that was generated, partially offset by approximately $80 million of additional funds borrowed at June 30, 2020 to maintain access to cash during the COVID-19 pandemic, and to the repurchase of $57.6 million of our 2022 Notes in the first six months of 2020. Book overdrafts fluctuate based on the timing of payments.

As market conditions warrant and subject to our contractual restrictions, liquidity position, and other factors, we may from time to time seek to repurchase or retire our outstanding debt through cash purchases and/or exchanges for other debt or equity securities in open market transactions, privately negotiated transactions, by tender offer, or otherwise. Any such cash repurchases by us may be funded by cash on hand or by incurring new debt. The amounts involved in any such transactions, individually or in the aggregate, may be material. Furthermore, any such repurchases or exchanges may result in our acquiring and retiring a substantial amount of such indebtedness, which would impact the trading liquidity of such indebtedness.

 

33


 

In the normal course of business with customers, vendors, and others, we have entered into off-balance sheet arrangements, such as letters of credit, which totaled $18 million as of June 30, 2021. We do not have any other material off-balance sheet financing arrangements. Our off-balance sheet arrangements are not likely to have a material effect on our current or future financial condition, results of operations, liquidity, or capital resources.  

Capital Resources

We believe that cash flow from operations and proceeds from the Ryerson Credit Facility will provide sufficient funds to meet our contractual obligations and operating requirements in the normal course of business.

Total debt in the Condensed Consolidated Balance Sheet decreased to $600.9 million at June 30, 2021 from $740.0 million at December 31, 2020, mainly due to cash generated from asset sale proceeds in the first six months of 2021, partially offset by the net cash used in operating activities.  

Total debt outstanding as of June 30, 2021 consisted of the following amounts: $132.5 million borrowings under the Ryerson Credit Facility, $450.0 million under the 2028 Notes, $25.0 million of foreign debt, and $7.0 million of other debt, less $13.6 million of unamortized debt issuance costs. For further information, see Note 8: Long Term Debt in Part I, Item I - Notes to Condensed Consolidated Financial Statements.

On July 9, 2021 a principal amount of $100.0 million of our 8.50% Senior Secured Notes due 2028 (the “2028 Notes”) were repurchased for $104.0 million and retired, resulting in the recognition of a $4.0 million loss within other income and (expense), net in the third quarter Condensed Consolidated Statement of Comprehensive Income.  The Company funded the transaction with cash from the sale leaseback transaction that occurred on June 9, 2021 (See discussion in Note 6: Leases within Part I, Item I of this report).  On July 23, 2021 a principal amount of $50.0 million of the 2028 Notes were repurchased for $51.5 million resulting in the recognition of a $1.5 million loss within other income and (expense), net in the third quarter Condensed Consolidated Statement of Comprehensive Income. The Company funded the transaction with cash on hand.  Upon competition of these partial redemptions, $300.0 million aggregate principal amount of the 2028 Notes remains outstanding. As a result of the repurchases, the Company will write-off a portion of the 2028 Notes issuance costs and will record a charge of $2.8 million within other interest and other expense on debt in the third quarter Condensed Consolidated Statement of Comprehensive Income.

Pension Funding

At December 31, 2020, pension liabilities exceeded plan assets by $154 million. Through the six months ended June 30, 2021, we have made $20 million in pension contributions and we anticipate an additional minimum required pension contribution of approximately $4 million in the remaining six months of 2021 under the Employee Retirement Income Security Act of 1974 (“ERISA”) and Pension Protection Act in the U.S. and Ontario Pension Benefits Act in Canada. The expected future contributions reflect recent pension funding relief measures under the American Rescue Plan Act (“ARPA”) passed in March 2021. We will continue to monitor and update our expected contributions as further guidance related to ARPA is released. Future contribution requirements depend on the investment returns on plan assets, the impact of discount rates on pension liabilities, and changes in regulatory requirements. We are unable to determine the amount or timing of any such contributions required by ERISA or whether any such contributions would have a material adverse effect on our financial position or cash flows.

As financial markets continue to stabilize from the negative effects of COVID-19, the return on our pension assets continue to be impacted. Changes in returns on plan assets may affect our plan funding, cash flows, and financial condition. Differences between actual plan asset returns and the expected long-term rate of return on plan assets impact the measurement of the following year’s pension expense and pension funding requirements. However, we believe that cash flow from operations and the Ryerson Credit Facility described above will provide sufficient funds to make the minimum required contributions in 2021.

Material Cash Requirements

The Company expects to make approximately $615 million in principal payments to satisfy its debt obligations, consisting of $25 million in foreign debt coming due within a year, $7 million of other debt coming due now through 2024, $133 million for the Ryerson Credit Facility coming due in 2025, and $450 million for the 2028 Notes due in 2028. Please refer to Part I, Item I - Notes to the Condensed Consolidated Financial Statements, Note 8: Long Term Debt for further information.  \

The Company expects to pay approximately $44 million of interest on the 2028 Notes, Ryerson Credit Facility, foreign debt, and other debt over the next 12 months and $245 million thereafter. Interest payments related to the variable rate debt were estimated using the weighted average interest rate for the Ryerson Credit Facility, including the effect of the interest rate swaps.

The Company leases various assets including real estate, trucks, trailers, mobile equipment, processing equipment, and IT equipment. We have noncancelable operating leases expiring at various times through 2036, and finance leases expiring at various times through 2027. The total amount of future lease payments is estimated to be $265 million, with $41 million for the next 12

 

34


 

months. Please refer to Part I, Item I - Notes to the Condensed Consolidated Financial Statements, Note 6: Leases for further information.  

Purchase obligations with suppliers are entered into when we receive firm sales commitments with certain of our customers. As of June 30, 2021, we had outstanding purchase obligations of approximately $38 million expiring within a year.

Income Taxes

We maintain a valuation allowance on certain foreign and U.S. federal and state deferred tax assets until such time as in management’s judgment, considering all available positive and negative evidence, and consistent with its past determinations, we determine that these deferred tax assets are more likely than not realizable.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our primary areas of market risk include changes in interest rates, foreign currency exchange rates, and commodity prices. We continually monitor these risks and develop strategies to manage them.

Interest rate risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We are exposed to market risk related to our fixed-rate and variable-rate long-term debt. Changes in interest rates may affect the market value of our fixed-rate debt. The estimated fair value of our long-term debt and the current portions thereof using quoted market prices of Company debt securities recently traded and market-based prices of similar securities for those securities not recently traded was $650.9 million at June 30, 2021 and $800.3 million at December 31, 2020 as compared with the carrying value of $600.9 million and $740.0 million at June 30, 2021 and December 31, 2020, respectively. We manage interest rate risk in our capital structure by holding a combination of variable and fixed-rate debt.

We use interest rate swaps to manage our exposure to interest rate changes. As of June 30, 2021, we have 2 receive variable, pay fixed, interest rate swaps to manage the exposure to variable interest rates of the Ryerson Credit Facility. In June 2019, we entered into a forward agreement for $60 million of “pay fixed” interest at 1.729% through June 2022 and in November 2019, we entered into a forward agreement for $100 million of “pay fixed” interest at 1.539% through November 2022.

Effective November 1, 2020, the Company de-designated its interest rate swaps as cash flow hedges and terminated its hedge accounting treatment. Prior to de-designation, the Company would mark these interest rate swaps to market with all changes in fair value recorded in accumulated other comprehensive income. Subsequent to de-designation, changes in fair value are recorded in current earnings. The fair value of the interest rate swaps as of June 30, 2021 was a net liability of $2.8 million. The Company recognized a gain of $1.2 million related to mark-to-market changes and interest expense of $2.3 million in current earnings for the six months ended June 30, 2021. After de-designation, the amounts reclassified from other comprehensive income relate to prior gains and losses that are being amortized into income as the forecasted interest payments affect earnings. The amount reclassified from other comprehensive income for the six-month period ended June 30, 2021 into earnings was a loss of $1.1 million.

After considering the effects of our interest rate swaps, 100% of our debt was at fixed interest rates as of June 30, 2021. Considering the impact of interest rate swaps, a hypothetical 1% increase in interest rates on variable debt would have increased interest expense for the first six months of 2021 by approximately $0.9 million.

Foreign exchange rate risk

We are subject to foreign currency risks primarily through our operations in Canada, Mexico, and China and we use foreign currency exchange contracts to reduce our exposure to currency price fluctuations. Foreign currency contracts are principally used to purchase U.S. dollars. We had foreign currency contracts with a U.S. dollar notional amount of $2.8 million outstanding at June 30, 2021 and a net liability value of zero. We do not currently account for these contracts as hedges but rather mark these contracts to market with a corresponding offset to current earnings. For the six months ended June 30, 2021, the Company recognized a $0.2 million gain associated with its foreign currency contracts. A hypothetical strengthening or weakening of 10% in the foreign exchange rates underlying the foreign currency contracts from the market rate as of June 30, 2021 would increase or decrease the fair value of the foreign currency contracts by $0.3 million.

The currency effects of translating the financial statements of our foreign subsidiaries are included in accumulated other comprehensive loss and will not be recognized in the Condensed Consolidated Statements of Comprehensive Income until there is a liquidation or sale of those foreign subsidiaries.

 

35


 

Commodity price risk

In general, we purchase metals in an effort to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon historic buying practices, customer contracts, and market conditions. Our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders.

Metal prices can fluctuate significantly due to several factors including changes in foreign and domestic production capacity, raw material availability, metals consumption, and foreign currency rates. Derivative financial instruments are used to manage a limited portion of our exposure to fluctuations in the cost of certain commodities. No derivatives are held for trading purposes.

As of June 30, 2021, we had 129,903 tons of hot roll coil swaps contracts with a net liability value of $40.4 million, 18,100 tons of aluminum swap contracts with a net asset value of $5.0 million, and 644 tons of nickel swap contracts with a net liability value of $0.2 million. We do not currently account for these swaps as hedges, but rather mark these contracts to market with a corresponding offset to current earnings. For the six months ended June 30, 2021, the Company recognized a loss of $40.1 million associated with its commodity derivatives.

A hypothetical strengthening or weakening of 10% in the commodity prices underlying the commodity derivative contracts from the market rate as of June 30, 2021 would increase or decrease the fair value of commodity derivative contracts by $9.0 million.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s controls over financial reporting during the quarter ended June 30, 2021.

 


 

36


 

 

PART II. OTHER INFORMATION

Item 1.

For information concerning legal proceedings as of June 30, 2021, please refer to Note 10: Commitments and Contingencies in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q, which is incorporated into this item by reference. 

Item 1A.

Risk Factors

Except for the risk factor below, there have been no material changes relating to this Item from those set forth in Item 1A on the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The right to receive payment on the 2028 Notes and the guarantees will be subordinated to the liabilities of non-guarantor subsidiaries.

The notes and related guarantees are structurally subordinated to all indebtedness of our subsidiaries that are not guarantors of the 2028 Senior Secured Notes (the “2028 Notes”). While the indenture governing the 2028 Notes limits the indebtedness and activities of these non-guarantor subsidiaries, holders of indebtedness of, and trade creditors of, non-guarantor subsidiaries, including lenders under bank financing agreements, are entitled to payments of their claims from the assets of such subsidiaries before those assets are made available for distribution to any guarantor, as direct or indirect shareholder. While the non-guarantor subsidiaries have agreed under the indenture not to pledge or encumber their assets (other than with respect to permitted liens) without equally and ratably securing the notes, they will not guarantee the 2028 Notes notwithstanding any such pledge or encumbrance in favor of the 2028 Notes.

The non-guarantor subsidiaries represented, respectively, 10.3% and 13.4% of our net sales and EBITDA for the six months ended June 30, 2021. In addition, these non-guarantor subsidiaries represented respectively, 12.3% and 8.0% of our assets and liabilities, as of June 30, 2021.

Accordingly, in the event that any of the non-guarantor subsidiaries or joint venture entities become insolvent, liquidates, or otherwise reorganizes:

 

the creditors of the guarantors (including the holders of the 2028 Notes) will have no right to proceed against such subsidiary’s assets; and

 

the creditors of such non-guarantor subsidiary, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of assets of such subsidiary, as direct or indirect shareholder, and will be entitled to receive any distributions from such subsidiary.

Items 2, 3, 4, and 5 are not applicable and have been omitted.

 

37


 

 

Item 6.

Exhibits

 

Exhibit

 

 

 

Incorporated by Reference

 

Filed

Number

 

Exhibit Description

 

Form

 

File No.

 

Filing Date

 

Herewith

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certificate of the Principal Executive Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certificate of the Principal Financial Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.1*

 

Written Statement of Edward J. Lehner, President and Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.2*

 

Written Statement of James J. Claussen, Executive Vice President and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

 

 

 

 

*In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished herewith and not filed.

 

 

 

38


 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

RYERSON HOLDING CORPORATION

 

 

By:

/s/ James J. Claussen

 

James J. Claussen

Executive Vice President and Chief Financial Officer (duly authorized signatory and principal financial officer of the registrant)

Date: August 4, 2021

 

 

39